In Silicon Valley there are basically two ways of creating shareholder value: financial and strategic.

So why the difference? The answer lies in untangling a pervasive misunderstanding of how Silicon Valley works and where these astronomical values come from. To put this in perspective, Microsoft acquired LinkedIn for $26 billion in 2016 (7.2x revenue), in what was considered one of the richest tech deals ever. GitHub was acquired for close to 30x annual recurring revenue (an astronomical multiple). Microsoft’s $7.5 billion acquisition of GitHub is a perfect illustration of how value is ascribed differently in Silicon Valley than in the rest of the world. Strategic, not financial, value is what drives most successful outcomes. Strategic value, on the other hand, has little to do with any of those things and almost everything to do with how a company’s product and/or market position help or hinder another company’s (usually a bigger one’s) ability to be successful. While Microsoft’s acquisition of GitHub is major news, it is just another in a long line of illustrations of a basic truth about the primary value of most successful high-tech startups: Building a self-sustaining business is the exception, not the rule. Financial value is about multiples of revenue or earnings, sales growth, profit margins, and management theory. It’s about the ability to grow and prosper as an independent company. Microsoft’s $7.5 billion acquisition of GitHub is a perfect illustration of how value is ascribed differently in Silicon Valley than in the rest of the world. In Silicon Valley there are basically two ways of creating shareholder value: financial and strategic.

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