A letter from Daniel Faloppa, Equidam CEO & Founder
In 1976, a young visionary and a shy computer programmer sold off their few possessions to pursue their dream. A year later, they convinced the first investors to invest $92,000 and secure a bank loan of $250,000 to get them started. By 2012, it was the most valuable company in the world: Apple Inc.
This story (though perhaps without such a dramatic outcome) is repeated every day by thousands of individuals around the world. People make the difficult decision to abandon career stability and chase a big idea which in some way makes the world a better place for the rest of us.
What all of these stories have in common is that these ideas were not generated by a group of financiers in a boardroom. They were born of inventive, passionate individuals.
However, we can’t discount the value of the decisions made in those boardrooms. In no way could these companies have started without the allocation of capital that is the main feature of finance. Despite its many shortcomings, finance pursues a function that is not only essential to human beings but, I would argue, good for the world. It rebalances capital towards the best ideas and allows a more equal distribution of resources.
It allows founders, investors, and entrepreneurs of humble origins to grow their efforts into world leading companies. Even Equidam, with its low initial capital requirement, couldn’t have been started without our first crowdfunding campaign.
This rebalancing, empowering and ultimately meritocratic aspect of finance is what attracted me to it in the first place.
Of course, this process is not flawless. The world is full of misallocated funds, being it for human errors or human biases. We’ve all seen how greed, poor incentives and controls, and poor decisions can lead to vast negative effects of finance in the recent Financial Crisis, sovereign debt crisis and now in our “inflation crisis”.
In its smaller size, the VC market is also experiencing a crisis. After the bull market of the past 10 years, the rise to god-like status of famous VCs like Tiger Global and Softbank, VCs are left in 2023 wondering whether they were really generating alpha (picking the best companies and outperforming the market) or just riding a beta wave (funneling cheap money to the asset class that luckily got the highest returns).
Startup founders are then left wondering “if my value was just hype, is what I’m doing really worth doing?“. And how can we blame them? A large valuation gathers large pr that gathers more investors and customers and the cycle repeats. In the bubble, everybody starts believing the pied piper of success.
So how do we distinguish value from hype? How do we stay grounded and realistic when these swings can take up to 20 years to unfold?
By striving for knowledge on fair valuations.
The keywords here are both important. Fair means calculated in a balanced way, considering a normal market, with normal buy and sell pressures, and that tries to be rational and free from biases, human biases, racial biases, gender biases, buy side or sell side etc. Valuation means the process of determining the value of something. Which might differ from the final price (as price can be influenced by a large amount of irrational factors).
Fair valuation is our main target at Equidam
By striving to make fair valuation easier to calculate, we hope to give the tools to both founders and investors to understand the value of the company and have a productive discussion about price. To allow them to navigate hype and downturns with confidence, to compensate their employees fairly and to make solid returns for all stakeholders.
That is why at Equidam we would never:
- Have different parameters and/or methodologies for buy and sells sides
- Display information in a way more favorable to one side
- Knowingly implement biases in the valuation process
And this is our commitment to:
- Strive for a fair valuation
- Strive for transparency to highlight the good but also the bad of a valuation
- Prioritize consistency over time and understanding to closely following the hype
- Share information openly and equally with both parties of the deal
- Strive to communicate truthfully and fairly data and conclusions
A fairer market will make all of us better off.