Subprime ‘unicorns’ that do not look a billion dollars • Hacker News Board

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

#41

Post by kzhahou » Sat, Oct 17, 2015, 7:28 AM UTC

hkmurakami wrote: post #17

kzhahou wrote: post #16

Earlier quoted context omitted.

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.

I agree -- typical pitfall of average.

Do you have any sense of what the equity numbers would have been like at year 0, 1, 2, 3... based on your general knowledge of startups (not necessarily Square)?

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

#42

Post by kzhahou » Sat, Oct 17, 2015, 7:40 AM UTC

AndrewKemendo wrote: post #19

kzhahou wrote: post #16

Earlier quoted context omitted.

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.

"Market wage" doesn't end the discussion. Some people had market wage, some had above, some below, many were millionaires or hundred-millionaires coming in.

~$300K is great cash, but it's peanuts relative to $6B. Everyone worked hard, but only the founders and the very top tier actually get rich. The rest get one-thousandth or many-thousandths of what founders get.

People are shitty negotiators, and everyone just accepts that they should get a tiny little slice of the pie. I believe in part it's because they think everyone has a small slice. They don't realize how much the founders kept for themselves (they think it mostly all went to the big VCs), and how huge the drop was from founders to engineer #1, and from #5 to #6, etc.

Everyone just accepts that the leadership (and ONLY the leadership) should become ultra-rich at the end, while the rest move on to the next venture and hope to do a bit better next time.

"But I took the risk!" says the founder. Sure, buddy, you took the risk and everyone else just enjoyed a walk in the park.

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

#43

Post by andreyf » Sat, Oct 17, 2015, 8:00 AM UTC

prostoalex wrote: post #12

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.

What do you mean common stock is discounted to preferred? If all goes to plan, does liquidity preference matter?

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

#44

Post by mcintyre1994 » Sat, Oct 17, 2015, 8:08 AM UTC

> Forget the fact that some of these valuations are illusory because the most recent investors have structured their investments as debt in all but name, meaning that they will stand to profit even if the company is worth far less.

Can anyone recommend anything to read to get an insight into how one of these deals works?

It's always seemed like liquidation preferences push a deal a fair way toward debt because (I think?) they get paid first and fully before anybody else. But that doesn't seem to be a recent thing at all.

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

#45

Post by dawkins » Sat, Oct 17, 2015, 8:10 AM UTC

"some of these valuations are illusory because the most recent investors have structured their investments as debt in all but name, meaning that they will stand to profit even if the company is worth far less"

Can someone please explain this?

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

#46

Post by akiselev » Sat, Oct 17, 2015, 8:27 AM UTC

cycrutchfield wrote: post #38

akiselev wrote: post #28

Earlier quoted context omitted.

I am on board with your skepticism, but I don't believe your concerns are valid in the context of what Theranos is promising and what they have done ($400 million is nothing to scoff at in an industry where you have $0 revenue until a real breakthrough passes the FDA). The global pharmavertical industry is about $900 billion a year and has a very wide variance in types of products so the normal idea of what what valu…

Uh, 25x revenue? Are you conflating money raised with revenue? Because Theranos has not made anywhere close to 400m over the entire life of their company...

I apologize, I didn't look up any estimates/figures for Theranos and I think I mistook the funding number for revenue. I also haven't gone to Walgreens and taken a theranos test, although I do suspect that if Theranos is actually at Walgreens their ratio of valuation to revenue does not end with a divide by zero error.

Regardless, there are so many biotech IPOs based on literally zero revenue that this isn't even worth mentioning. Off the top of my head, these are the public biotech companies that I know of that went public with no revenue to speak of: Genentech (yes, THAT Genentech, biggest acquisition in histoty at over $50 billion by Roche), Celgene, and in the last year alone, Axovant Sciences, CytomX, Strongbridge, MyoCardia, RegenX, and Global Blood Therapeutics (I'm almost certain that "in the last year" in actually "in the last few months")

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

#47

Post by lmm » Sat, Oct 17, 2015, 9:40 AM UTC

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,…

Urgh that's not a source, that's just literally those words. I thought you meant the link was going to substantiate that claim.

If you join a Series A company your stock may well 10x on paper. But what're your chances of actually getting to cash that out? If you join a "unicorn" they can quite probably match the salary and perks you'd get at a large public company, and are likely to give you more stock, which probably still has better odds of getting a decent bump than the large public company stock does. Heck, apart from anything else, the "IPO bump" is a thing.

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

#48

Post by lmm » Sat, Oct 17, 2015, 9:42 AM UTC

adventured wrote: post #39

7Figures2Commas wrote: post #3

It's kind of amusing that so many in Silicon Valley rail against Wall Street and "financial engineering" when the biggest "winners" of this tech boom are products of Wall Street and "financial engineering."

If we're talking only about start-ups that have gotten big during this boom, then you're very wrong. Uber, Xiaomi, Airbnb, Palantir, Snapchat, Didi Kuaidi, Flipkart, WhatsApp, Pinterest, and Dropbox are among the biggest winners so far. There's nothing Wall St or financial engineering about any of those. They're all legitimate businesses and or services that consumers blatantly want.

Uber and Airbnb are very much about financial engineering. Most of their edge comes from tax avoidance and regulatory avoidance.

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

#49

Post by cavisne » Sat, Oct 17, 2015, 10:54 AM UTC

pbreit wrote: post #9

I don't know what to think of Theranos. On one hand, it is tackling a huge, important market and appears or appeared to have something legitimate. On the other, so many of its tactics seem designed more to increase valuation than successfully bring its technology to market. It's obscenely celebrity board completely devoid of any relevant experience. A ridiculous $9b valuation on a paltry (relatively) $400m raised. 10…

Reading through the press and Theranos response it's certainly ... weird.

My theory, assuming they aren't outright committing fraud.

The technology works, at least within a tolerance they think is reasonable. It's possible that early scientific staff (part of the huge turnover commented elsewhere) weren't happy with that tolerance.

Now they are in the process of getting FDA approved. At the same time Theranos is also following a Silicon Valley strategy, building an audience with a loss leading product. In this case it's doing blood tests at a price well below cost, using normal lab equipment, and covering the difference with VC money.

They dont want to admit this for two reasons

1) It exposes them to the competition, who know they are losing money on every transaction and it also would make doctors and patients wary of dealing with them

2) As discussed in the WSJ article taking less blood and using normal machines just means a less accurate blood test, which makes the benefit of not getting a needle much smaller and messes with their core marketing message

I think this also explains the directive discussed in WSJ to only submit sample results from normal lab equipment, as at the moment they are simply operating as a normal lab.

I think this is a clash between staff who think Theranos was all about creating a reliable way of doing blood tests with less blood, and the current direction they are taking building scale with traditional equipment.

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

#50

Post by danielrhodes » Sat, Oct 17, 2015, 10:55 AM UTC

mcintyre1994 wrote: post #44

> Forget the fact that some of these valuations are illusory because the most recent investors have structured their investments as debt in all but name, meaning that they will stand to profit even if the company is worth far less. Can anyone recommend anything to read to get an insight into how one of these deals works? It's always seemed like liquidation preferences push a deal a fair way toward debt because (I thi…

A lot of these big rounds these unicorns are raising have crappy liquidation preferences, making the signal they give off of confidence in the company look much different.