As far as I understand company IPO allows to raise huge amount of money. Once they raised this money why do they care about share value on a daily basis? This valuation is different than cash flow and considering it too much deeply impact long-term strategy, no?
Ask HN: Why do companies care about their own valuation?
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Re: Ask HN: Why do companies care about their own valuation?
#2Same thing with stock market, I couldn’t understand that people swapping stock amongst themselves. No money going into productive use
Re: Ask HN: Why do companies care about their own valuation?
#3Imagine if you're the CEO of the company and you own 100000 shares of it. Then your net-worth between 100$/share and 120$/share will differ by $2 million. Quite a difference, isn't? And I think most board members hold certain amount of company's stock, and usually most people want their net-worth to grow as much as possible, so they try to do certain things to increase the stock price.
That's one of negative things about stocks in general in my opinion, because people quite often have short-term (lasting a quarter or two) outlook.
Re: Ask HN: Why do companies care about their own valuation?
#4Same thing with stock market, I couldn’t understand that people swapping stock amongst themselves. No money going into productive use
You buy a portion of the business. Why wouldn't you want to do that if you have some cash and see a nice deal? It's a beautiful system.
Re: Ask HN: Why do companies care about their own valuation?
#5Another angle to think about is the opportunity the company has to raise additional capital after IPO. All things equal, if the share price offered by the market is higher, it is cheaper for the company to raise additional capital by selling additional equity. The company will usually also have an alternative way of raising capital by taking on debt rather than selling equity.
Re: Ask HN: Why do companies care about their own valuation?
#6Imagine if you're the CEO of the company and you own 100000 shares of it. Then your net-worth between 100$/share and 120$/share will differ by $2 million. Quite a difference, isn't? And I think most board members hold certain amount of company's stock, and usually most people want their net-worth to grow as much as possible, so they try to do certain things to increase the stock price. That's one of negative things a…
Same argument is also possible if the CEO/board/other insiders have a decent chunk of their net worth as options for the company stock. But in that case, the increase in insider net worth can be highly nonlinear as a function of the price of the company's share price.
Re: Ask HN: Why do companies care about their own valuation?
#7Since equity based compensation is a large part of many equity packages, if the stock price was falling or at least not rising, that would be a reduction in salary. Companies like equity based compensation because of tax benefits and it generally seems cheaper since they can always issue more stock.
Re: Ask HN: Why do companies care about their own valuation?
#8Imagine if you're the CEO of the company and you own 100000 shares of it. Then your net-worth between 100$/share and 120$/share will differ by $2 million. Quite a difference, isn't? And I think most board members hold certain amount of company's stock, and usually most people want their net-worth to grow as much as possible, so they try to do certain things to increase the stock price. That's one of negative things a…
> That's one of negative things about stocks in general in my opinion, because people quite often have short-term (lasting a quarter or two) outlook.
That could be easily fixed by requiring all executive and board members' stock to be held for, say, 3 years after vesting before selling.
Re: Ask HN: Why do companies care about their own valuation?
#9Imagine if you're the CEO of the company and you own 100000 shares of it. Then your net-worth between 100$/share and 120$/share will differ by $2 million. Quite a difference, isn't? And I think most board members hold certain amount of company's stock, and usually most people want their net-worth to grow as much as possible, so they try to do certain things to increase the stock price. That's one of negative things a…
> That's one of negative things about stocks in general in my opinion, because people quite often have short-term (lasting a quarter or two) outlook. That could be easily fixed by requiring all executive and board members' stock to be held for, say, 3 years after vesting before selling.
Has it really vested at that point then?
Or is it just a longer vesting period?
Re: Ask HN: Why do companies care about their own valuation?
#10It’s a feedback to the CEO how good their company is. Buy putting a price on it (valuation), she/he gets feedback on how she/he is contributing to value increase.
in theory this factors in all aspects, e.g. more than just revenue, because it’s a comparison with other companies as well.
reality IMHO: it’s bullshit to manage short term valuation only.