Former Sun CEO Scott McNeely's breakdown of a 10x revenue multiple reveals its absurdity. To justify it, a company would need 100% of revenues as dividends for 10 years, with zero costs, R&D, or taxes. This simple arithmetic serves as a timeless sanity check against hype-driven valuations.

Traditional valuation models assume growth decays over time. However, when a company at scale, like Databricks, begins to reaccelerate, it defies these models. This rare phenomenon signals an expanding market or competitive advantage, justifying massive valuation premiums that seem disconnected from public comps.

When a company is growing 10x or 50x year-over-year, obsessing over the entry multiple is a mistake. An initially 'insane' valuation can look cheap in retrospect. The primary focus should be on determining if the company is on an exponential curve; price is the least important factor in that equation.

Investing in a high-growth company like ClickHouse at a $15B valuation isn't complex; it's a direct bet on "growth persistence." The entire financial model hinges on the assumption that the recent, extreme growth rate will continue for another 2-3 years. Any premature deceleration invalidates the entry price.

Public market investors systematically underestimate sustained high growth (e.g., 60%+), defaulting to models that assume rapid deceleration. This creates an opportunity for private investors with longer time horizons to more accurately value these companies.

Despite its massive price tag, Anthropic's valuation is justifiable on a forward revenue multiple basis. If they achieve another year of hypergrowth, their NTM revenue multiple would be lower than public tech companies like Palantir, making the current round look inexpensive.

Many PE firms use backward-looking commercial due diligence, which is superficial and fails to assess a target's true growth potential. A more effective approach is go-to-market focused due diligence that evaluates the scalability of the future revenue engine, not just past performance.

Financial models struggle to project sustained high growth rates (>30% YoY). Analysts naturally revert to the mean, causing them to undervalue companies that defy this and maintain high growth for years, creating an opportunity for investors who spot this persistence.

Public market investors view revenue multiples as a shortcut to estimate a company's future earnings. A 6x revenue multiple implies a 20x earnings multiple once the business reaches 30% margins. This mental model shows that profitability and cash flow, not just revenue growth, are the ultimate drivers of valuation.