Recently, venture capital in the NFT space has become a hot topic, including Doodles, Yuga labs, Limit Break, Opensea, Proof, and Chiru all raised funds this year. In addition, a16z also intervened in RTFKT early in May 2021. This article discusses Valuation of projects in this area.
Disclaimer: Income amounts are approximate because I’m lazy. The graphs are also ugly because I don’t get paid.
A lot of money has entered the NFT space, and interestingly, the revenue is 100% public through the blockchain, which is rarely disclosed in traditional private markets. With revenue and valuation (EV), you can know the multiple paid (EV/Revenue).
Why is this important? In late-stage investing, multiples are everything. Knowing the multiples paid for the closest competitor is very valuable alpha. Bankers can be paid millions of dollars for this.
For public stocks, it is similar to the concept of the price-earnings ratio.
In early VC, that meant less. Sometimes there is no revenue, and most of the time, there is no profit. They are more invested in the future than ever in past performance.
However, it’s still helpful.
You need some benchmarks. The overall concept of a P/E ratio is that a company that makes certain profits each year is worth several times those profits. Such as 5 times, 20 times, 50 times.
I’ve even heard of VCs benchmarking EV/Discord members…
So let’s take a look at the valuations of these NFT projects. Everything but the proof is revealed, here are two observations:
- Yuga raised more money, but at half the valuation of Opensea, they bought CryptoPunks right away, and some of the cash was probably used for this purpose.
- Apart from Limit Break and RTFKT, other NFT projects have generated considerable revenue.
Selling equity is giving up stock in exchange for cash. Cash is good, but too much cash means unnecessary dilution.
- Early stage = lower valuation = more dilution. A16z took a 1/4 stake in RTFKT for just $8 million, which is a steal.
- Opensea has the least cash requirements and the least dilution.
Below are the revenue multiples. Limit Break is actually off the chart, so what we get is:
- Yuga feels like a 43x premium, but it’s also in the lead;
- Opensea’s 13.9x feels “cheap” and based on EV/revenue multiples, it’s lower than Doodles;
3. The investment in Limit Break is a bet on Gabe, the veteran Machine Zone CEO/founder, who has previously created billions of dollars in value, and Limit Break is also the second most valuable in history before generating revenue High NFT projects;
4. Doodles’ 20x EV/Revenue ratio happened before the NFT.NYC conference in June, possibly before the NFT bear market really hits;
There are several aspects to evaluating a company beyond the money raised, and valuation, dilution, and multiples can all tell a different story. Intangible assets like market timing and teams can also make a big difference. VCs invest in the future, but everyone sees the future differently!
I didn’t give some great summaries, but hopefully this helps you understand how these companies are valued. What is unique about NFTs is that the proceeds are public, even though they are private companies.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/star-nft-projects-such-as-yuga-labs-and-opensea-from-the-perspective-of-valuation-dilution-and-multiples/
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