Linden Lab CFO Bob Komin Disputes Sharespost's Ability to Accurately Track Valuation of Linden Lab

Linden Lab CFO and COO Bob Komin disputed the significance of Linden Lab's listing on Sharespost, a company that trades in shares of privately-held, pre-IPO companies like Linden. After I blogged Linden's Sharespost listing last Friday, which currently shows the company's value spiking, Komin -- known as BK Linden in Second Life -- stopped by New World Notes to post an extended comment. (Yes, I e-mailed to confirm BK himself wrote it.)

"I have been finding it amusing for some time to watch Linden Lab's 'value' move up and down on sharespost.com, and the various reactions it generates," Komin wrote (after citing Elvis Costello's "Red Shoes", a big cred-builder in my book.) "While it is kind of fun in the way watching a lava lamp is, I'm sorry to say they really have no basis for the valuation of the company and especially how it changes over time in what they report." In this, Komin echoed an earlier comment from Ian Wilkes, a founding Linden (and pal) who's since left the company.

Read both their extended (and fairly technical explanations) after the break. Having done so, I have a lot more insight on how Sharespost works, but at the same time, I'm still not clear on the question that launched the original post: Why has Linden Lab's Sharespost listing been flat since the June 2010 layoffs, then suddenly start wildly fluctuating this March? More research is needed.

Anyway, much more from BK Linden and Ian Wilkes after the break:

Bob Komin, CFO/COO Linden Lab:

"Oh i used to be disgusted And now i try to be amused." -Elvis Costello "Red Shoes"

"I have been finding it amusing for some time to watch Linden Lab's 'value' move up and down on sharespost.com, and the various reactions it generates. While it is kind of fun in the way watching a lava lamp is, I'm sorry to say they really have no basis for the valuation of the company and especially how it changes over time in what they report. They and their 'research' providers receive no information beyond what we publicly publish in the blogs so the valuation numbers are just as virtual as Second Life.

"Sharespost.com is good at what they really do. They are simply a buying and selling bulletin board and currently there are not even any open offers to buy or sell our stock and no transactions have taken place since September 2010. That makes it pretty tough to take a guess at a valuation right now, much less how that might have changed since then. And their 'venture-backed index' for multiple companies modeled after the Dow Jones index is a great aspiration, but until private companies have easier and more predictable valuations like public companies with high daily transaction volumes and widely available financial information for buyers and sellers the graphs may look similar but they have very little in common.

"The only accurate thing you can really take away from that site for any company is the price per share paid in a transaction that has already happened. Even converting that to a company's valuation requires that you know several other things including how many shares are outstanding and whether other equity or debt holders have any special rights. None of this information is provided to them and getting the fully diluted share count wrong can really change the valuation significantly.

"I recently participated in the process on sharespost.com for those wanting to purchase Facebook shares just to see how that works. The prospectus says upfront you will receive no information now or in the future about the company and that whatever information they do provide including fully diluted share count may be wrong. You have to give them credit they tell it like it is, but it didn't help me figure out their valuation or even whether the price I'd have to pay per share was reasonable."

* * *

Ian Wilkes: "I think you've misread this one. Sharespost lists the last completed transaction in September 2010, and completed trades are the only thing that generate a real price signal. Historically, in the absence of real trades, the site has derived a company's "value" from the listed posts to buy and sell for the company, which are incredibly deceptive, because posting a buy order in no way obligates you to follow through. I know this because I've seen decent prices offered on Sharespost and tried to sell into them, only to have the other (anonymous) party cancel their bid immediately, then re-post it later, artificially creating a false valuation for the company. So: until you see an actual trade, the Sharespost listed valuation for LL is meaningless."

So there's that. I welcome more insights on Sharespost and Linden Lab in Comments!

Comments

[Wizard Gynoid]

interesting. this kind of response would have been more timely after sharespost charted a dramatic drop in LL valuation last year. there must not be a conspiracy. here they are downplaying an INCREASE in Linden Lab's valuation!

[Ann Otoole InSL]

lava lamp lol. that got a full belly laugh out of me.

[Nyoko Salome]

'a company that trades in shares of privately-held, pre-IPO companies'... so this sounds like lol, what some sorts of modern economic/global marketscams have been turning into... 'speculating upon speculations?' gambling upon your own bets? rife for wild rumor... i understand the basic first tier of investing into a bankable, wallstreetable company offering asset to the world; i do not understand what is legal at all about economically 'speculating' upon one's own, or others, bets. it short-circuits the whole idea.

[Gwyneth Llewelyn]

Sharepost.com? It's a game.

No wait, it's a virtual economy.

Or perhaps it's a gambling scam?

Whatever! These days it's hard to figure out the difference :)

[Nyoko Salome]

http://latimesblogs.latimes.com/technology/2011/06/facebook-ipo-value.html

;0 eyes this and wonders if it isn't just a little extra 'speculation money' being tossed around while 'it's time to bet'? big money goes around the world - big money fools! ;0 i think that's how the song goes...

[Tateru Nino]

Bob's take on it agrees with mine.

[Ener Hax]

lol, i guess Sharespost hits a nerve to warrant a response!

way to give a sh!t about your customers - instead of stroking the ego of a customer like me, i think $3k a month is worth more of a care than Sharespost is, with a simple hello tweet you take the energy to respond to this?

the true measure is the one you do have some influence over - people like me - but it is easier and far more removed from your actual customer to just talk about this one measure

that's all Sharespost is you stupid tool - one measure out of hundreds but focus on it at the expense of others

[Arcadia Codesmith]

Economists like to pretend they're dealing with objective realities when they discuss value, as if they were real scientists instead of numerologists.

[Dale Innis]

I would hazard a guess that the reason the Sharepost "price" of LL used to be flat but recently started fluctuating around is that recently someone started putting in fake (well, quasi-fake) buy and/or sell orders ("orders") for (nonexistent) shares in it, either just to amuse themselves, or to see what would happen, or for some subtle and nefarious reason having to do with money and/or sex.

The important thing to remember here is that in the absence of money actually changing hands, the Sharepost numbers mean *nothing*. You might just as well (just as badly) spend your time counting how many times the letter "r" appears in Linden Lab press releases, and trying to get insights into the operation or future of the company by looking at the resulting graph...