The Web 2.0 Valuation Project

December 30, 2006   

One of the toughest things in starting a User Generated Content/Wisdom of Crowds/Social Networking, Web 2.0, website is figuring out how to value it (for yourself or investors). What is your site really worth? In some industries this is fairly easy. If it were an oil exploration company, one could look at the values of the dozens of publicly traded competitors and find a valuation based on the relative profit, revenue, assets, and a whole host of other factors. If the company is publically traded -- bam! -- there you have it: look at the stock price shares outstanding and you know the company's value.

But in a world of Facebooks, YouTubes, Quizillas, Tribes and a ka-gillion other Weby 2.0 sites, how can we measure their value? How can we know if we're even building value as our sites mature?

These questions are tough to ask most netrepreneurs (at least this one). We think about our sites as places that will be highly desirable web properties relatively quickly after launch, and secretly (or not so secretly) we consider "selling to Google or Yahoo" as our most likely exit (even though we know that's stupid).

For me, the hard-ball questions about value came in a conversation with my father, an old school venture capitalist (you know, the kind that still wants to see a business plan and hear about how you'll monetize things. Weird, I know). So, after these questions, I set off to find out how to valuate a Web 2.0 company, and to do so, I began searching and collecting data about companies that have already been valued in a (i.e. acquired, invested in, or given an offer for one of the two).

With that as a starting point, I've come this far (click to check out the spreadsheet). As you can see, after scouring over press releases, a number of random articles, and the regular rumor mills, I was able to fill in blanks here and there. I chose measurements that were reported, as well as publicly available benchmarks such as a site's Alexa Ranking. As I looked, I also looked to see if anyone else was doing what I was trying to do. I was surprised not to file a spreadsheet like it.

Of course there are a lot of holes still in my spreadsheet, but there are already some trends which are pretty interesting. For instance, of the 9 companies I could get both registered users data and a valuation price for, 5 were worth between $20 and $25 per registered user! Of the 6 companies I found Page View and valuation price information, 3 were valued at $0.16 - $0.18 per Page View.

From here (and this is my main reason for posting about this), I think my spreadsheet needs some group intelligence/collaboration. This spreadsheet is a starting point, but if several more people got involved, I think we could have a really useful tool. I've already invites some people in the nextNY community to help out (after the valuation issue was brought up via the Worth1000 blog), so if you're interested to joining in on the project, feel free to email me with your Gmail address and I'll share the spreadsheet with you. My email address is my first name -AT- this domain _dot_ com. Soon, I'll incorporate the data found in this article, as posted on the nextNY Group discussion.

In the Web 2.0 world there's a lot more we don't know about valuations than we do know. As with any business, the best cure for this is data, data, data. Let's work together and get smarter together.

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