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Subprime ‘unicorns’ that do not look a billion dollars

ft.com

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Re: Subprime ‘unicorns’ that do not look a billion dollars

#11

Post by pbreit »

birken wrote: post #10

Startup L. Jackson has a good tweet about it: > 4/ You'd likely do better financially, on average, joining a Series A company, AND have more career upside. > Source: https://twitter.com/StartupLJackson/status/65515425472269107... Why anybody would want to be an employee at a unicorn company is crazy to me, especially in the world of ultra-inflated valuations. If you join a huge public company you'll get liquid stock,…

You're missing how startup equity works. At these multi-billion dollar companies, employee shares are priced way less than the valuations you are seeing published in the media. So you're almost guaranteed a nice payoff even if the company merely treads water.

Re: Subprime ‘unicorns’ that do not look a billion dollars

#12

Post by prostoalex »

birken wrote: post #10

Startup L. Jackson has a good tweet about it: > 4/ You'd likely do better financially, on average, joining a Series A company, AND have more career upside. > Source: https://twitter.com/StartupLJackson/status/65515425472269107... Why anybody would want to be an employee at a unicorn company is crazy to me, especially in the world of ultra-inflated valuations. If you join a huge public company you'll get liquid stock,…

Typically employees get options for common stock, which is discounted to preferred. Media report of valuations, though, typically multiplies the per-share price of latest preferred round by total number of shares outstanding, ignoring the layers upon layers of liquidity preferences, board seats or ratchet provisions thrown into the deal.

Re: Subprime ‘unicorns’ that do not look a billion dollars

#13

Post by birken »

pbreit wrote: post #11
birken wrote: post #10

Startup L. Jackson has a good tweet about it: > 4/ You'd likely do better financially, on average, joining a Series A company, AND have more career upside. > Source: https://twitter.com/StartupLJackson/status/65515425472269107... Why anybody would want to be an employee at a unicorn company is crazy to me, especially in the world of ultra-inflated valuations. If you join a huge public company you'll get liquid stock,…

You're missing how startup equity works. At these multi-billion dollar companies, employee shares are priced way less than the valuations you are seeing published in the media. So you're almost guaranteed a nice payoff even if the company merely treads water.

A low strike price only matters if there is some eventual liquidity for the shares. For common stock this means IPO, acquisition or some other share buyback. Both IPOs and acquisitions generally don't apply to companies "treading water", only the extremely successful and growing ones manage to IPO (and even then it doesn't work out so great for shareholders: see YELP or BOX) or get acquired. Get acquired for less than your ultra-inflated valuation? Then the common shareholders get killed by liquidation preferences.

And as for other share transactions, you'll need to find a buyer. Most savvy investors aren't going to be willing to pay huge valuation premiums for common stock. And if they aren't going to pay a premium, then you really haven't gained anything by issuing common shares at a lower strike price.

So basically, common shares have lower strike prices because they are worth less.... It isn't some magic trick that automatically benefits employees.

Re: Subprime ‘unicorns’ that do not look a billion dollars

#14

Post by adrianmacneil »

pbreit wrote: post #11
birken wrote: post #10

Startup L. Jackson has a good tweet about it: > 4/ You'd likely do better financially, on average, joining a Series A company, AND have more career upside. > Source: https://twitter.com/StartupLJackson/status/65515425472269107... Why anybody would want to be an employee at a unicorn company is crazy to me, especially in the world of ultra-inflated valuations. If you join a huge public company you'll get liquid stock,…

You're missing how startup equity works. At these multi-billion dollar companies, employee shares are priced way less than the valuations you are seeing published in the media. So you're almost guaranteed a nice payoff even if the company merely treads water.

Incorrect. The employee shares are priced lower because they are for common stock. If the company merely "treads water", then ends up getting acquired for lower than its previous valuation, it's likely that your shares will be worth little if anything (after preferred stock liquidation preferences).

Re: Subprime ‘unicorns’ that do not look a billion dollars

#15

Post by LukaAl »

pbreit wrote: post #11
birken wrote: post #10

Startup L. Jackson has a good tweet about it: > 4/ You'd likely do better financially, on average, joining a Series A company, AND have more career upside. > Source: https://twitter.com/StartupLJackson/status/65515425472269107... Why anybody would want to be an employee at a unicorn company is crazy to me, especially in the world of ultra-inflated valuations. If you join a huge public company you'll get liquid stock,…

You're missing how startup equity works. At these multi-billion dollar companies, employee shares are priced way less than the valuations you are seeing published in the media. So you're almost guaranteed a nice payoff even if the company merely treads water.

That assumes that the company reaches the IPO and its value holds. And still I don't get how lower they must be priced to be comparable to a growing startup, even risk adjusted. (And consider that the IRS could have something to say...)

If the company doesn't reach the IPO and get acquired, well check what liquidation preference means. Check this post to understand better how stocks in a startup works: http://heidiroizen.tumblr.com/post/118473647305/how-to-build... (it is focused on founders, but employee get the same treatment).

Re: Subprime ‘unicorns’ that do not look a billion dollars

#16

Post by kzhahou »

pbreit wrote: post #11
birken wrote: post #10

Startup L. Jackson has a good tweet about it: > 4/ You'd likely do better financially, on average, joining a Series A company, AND have more career upside. > Source: https://twitter.com/StartupLJackson/status/65515425472269107... Why anybody would want to be an employee at a unicorn company is crazy to me, especially in the world of ultra-inflated valuations. If you join a huge public company you'll get liquid stock,…

You're missing how startup equity works. At these multi-billion dollar companies, employee shares are priced way less than the valuations you are seeing published in the media. So you're almost guaranteed a nice payoff even if the company merely treads water.

Just a couple of days we all dissected Square's upcoming IPO. Valued at $6 billion, the average employee () stock value is at $294K, or $73.5K per year of vesting. Not super awesome.

() Not a founder or executive/director, who'll get up to 5000x that.

Re: Subprime ‘unicorns’ that do not look a billion dollars

#17

Post by hkmurakami »

kzhahou wrote: post #16
pbreit wrote: post #11

Earlier quoted context omitted.

You're missing how startup equity works. At these multi-billion dollar companies, employee shares are priced way less than the valuations you are seeing published in the media. So you're almost guaranteed a nice payoff even if the company merely treads water.

Just a couple of days we all dissected Square's upcoming IPO. Valued at $6 billion, the average employee ( ) stock value is at $294K, or $73.5K per year of vesting. Not super awesome. ( ) Not a founder or executive/director, who'll get up to 5000x that.

Average employee seems like a poor metric, considering that employee count increases exponentially.

I'd be interested a breakdown based on "joined at funding stage X". From what I understand, if you joined Square in 2011, when it was already super hot, you're doing pretty well and could sell your stock on the secondary markets for a handsome windfall even well before this IPO.

Re: Subprime ‘unicorns’ that do not look a billion dollars

#18

Post by AndrewKemendo »

dsugarman wrote: post #6
afarrell wrote: post #5

> whose co-inventor committed suicide two years ago after telling his wife that it was not effective I feel... strange about reading this in an article when it is framed as evidence of anything. People's reasons for committing suicide are often complex and to mention that here seems... improper for reasons that I can't quite put my finger on.

The rate of suicide for founders is significant, it is not talked about enough.

As a (not yet suicidal) founder, I'd love to see some numbers if you have access to any.

Re: Subprime ‘unicorns’ that do not look a billion dollars

#19

Post by AndrewKemendo »

kzhahou wrote: post #16
pbreit wrote: post #11

Earlier quoted context omitted.

You're missing how startup equity works. At these multi-billion dollar companies, employee shares are priced way less than the valuations you are seeing published in the media. So you're almost guaranteed a nice payoff even if the company merely treads water.

Just a couple of days we all dissected Square's upcoming IPO. Valued at $6 billion, the average employee ( ) stock value is at $294K, or $73.5K per year of vesting. Not super awesome. ( ) Not a founder or executive/director, who'll get up to 5000x that.

How is that not super awesome? All of those employees had market wages well before the IPO.

Re: Subprime ‘unicorns’ that do not look a billion dollars

#20

Post by pbreit »

birken wrote: post #13
pbreit wrote: post #11

Earlier quoted context omitted.

You're missing how startup equity works. At these multi-billion dollar companies, employee shares are priced way less than the valuations you are seeing published in the media. So you're almost guaranteed a nice payoff even if the company merely treads water.

A low strike price only matters if there is some eventual liquidity for the shares. For common stock this means IPO, acquisition or some other share buyback. Both IPOs and acquisitions generally don't apply to companies "treading water", only the extremely successful and growing ones manage to IPO (and even then it doesn't work out so great for shareholders: see YELP or BOX) or get acquired. Get acquired for less tha…

Both YELP and BOX made a lot of people very rich.
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