How to Understand Enterprise Valuation

Long-end price refers to what your company's valuation will look like 50 years from now, or 100 years from now.

The amount I invest in you now, or the money I lend you—that's short-end price.

Generally speaking, the portion where long-end price exceeds short-end price—that's your valuation.

Most high-paying jobs within reach of ordinary people are funded by venture capital—essentially, they're earning money from the gap between long-end and short-end prices, i.e., expected valuation upside.

If future returns end up lower than the cost of capital today, investors will walk away. Without that expected valuation to support it, companies can't pay high salaries, and ordinary people lose hope.

Investor capital will then flow into businesses like rent-collecting operations—high operating cash returns, no big future growth story, but reliably profitable.