Here’s Why Pinterest Made A Huge Mistake Raising $225 Million

 
 
 

Image-bookmarking site Pinterest has raised a gargantuan $225 million funding round led by Fidelity Investments, according to TechCrunch, with participation from Andreessen Horowitz, FirstMark Capital, Bessemer Venture Partners and Valiant Capital Management.

With this most recent cash boost, Pinterest is valued at $3.8 billion — a hefty chunk of change for a company that only started experimenting with revenue models earlier this year.

In the world of social media, of course, you can never fault a company for failing to turn a profit; the most important factor is stickiness, and to its credit, Pinterest is stickier than a toddler’s hands. The site has over 70 million users, according to The Next Web, with 5 million articles ‘pinned’ daily.

Company valuation is a notoriously inexact science, as we’ve reported before. During the first dot-com boom, many websites were judged by their viewership numbers; some companies, like Mark Cuban’s Broadcast.com, were acquired for more than $10,000/visitor. That methodology led to a lot of burnt investors, and now company’s are valued on a mix of engineering prowess — between $750,000 and $1.5 million/engineer, usually – and animal spirits.

Considering Tumblr has over 110 million registered users, with between 30-50 million considered “active” when Yahoo signed the $1.1 billion acquisition deal, it seems that much of Pinterest’s valuation is inertia — in other words, built on flimsy math. TechCrunch points out that the company may have priced itself out of acquisition territory with this most recent funding round — and that’s not to mention the $200 million Series D round the company raised in February.

CEO Ben Silbermann says the money will be used for tech acquisitions and international expansion. Whether Pinterest pulls in revenue based on e-commerce, pure advertising, or a mixture of both, they better hope the model sticks.