Bill Gurley of Benchmark is one of the smartest VCs I know. His investments include Uber, DogVacay, GrubHub, Zillow and OpenTable.This is a great filter for assessing investing in private companies as well.
We created a list of 10 factors that public investors consider when trying to qualify if a company is deserved of such a prestigious and lofty valuation. These factors are:
1. Sustainable Competitive Advantage – how big is the competitive Moat?
2. Presence of Network Effects – does the model tip to a single vendor?
3. Visibility/Predictability – is the revenue consistent
4. Customer Lock-in / High Switching Costs – is it expensive to leave?
5. Gross margin levels – How much leverage exists is the business?
6. Marginal Profitability Calculation – is the leverage still expanding?
7. Customer Concentration – are there key dependencies?
8. Major Partner Dependencies – are there key dependencies here as well?
9. Organic Demand vs. Marketing Spend – is customer acquisition expensive?
10. Growth – how big will the future be?
