Silicon Valley’s ‘unicorns’ have regulators worried • Hacker News Board

Re: Silicon Valley’s ‘unicorns’ have regulators worried

#51

Post by Animats » Sun, Apr 03, 2016, 2:51 AM UTC

erikpukinskis wrote: post #30

djcapelis wrote: post #19

Earlier quoted context omitted.

Isn't that true for all forms of investment? Including VC?

To some extent, yes. But if the company is private, a minority shareholder can only sue a majority holder under the terms of the sale. In a public company they can sue under the terms of the SEC. If the company is private, the majority shareholder can act against financial interests if they like. Public companies are trying to box out specific areas where they might legally do that: C-corps, mission-based exemptions…

I suspect when the chips are down, the courts will rule that Google can't just burn a pile of value because "we like Science" or some such thing.

That's when stockholders file lawsuits alleging violation of director fiduciary responsibility. This can happen with a startup if the management proposes a funding round that's a significant lose for existing shareholders. The directors have the obligation to act in the best interest of the stockholders, not the management.

It also comes up when a company has assets and is losing money, and the stockholders want to liquidate and get some money out, while management wants to burn all the cash out to the bitter end.

Re: Silicon Valley’s ‘unicorns’ have regulators worried

#52

Post by zavi » Sun, Apr 03, 2016, 3:07 AM UTC

ilaksh wrote: post #31

The real problem with these unicorn technopolies is they centralize too much power and control over various aspects of our society. They take on pseudo-governmental roles. Whether they are on the stock market or not is mostly a concern for rich traders. The solution is going to be moving away from proprietary platforms created by technopolies to decentralized open platforms.

#Bernie2016 #420

Re: Silicon Valley’s ‘unicorns’ have regulators worried

#53

Post by nxzero » Sun, Apr 03, 2016, 3:23 AM UTC

avita1 wrote: post #48

nxzero wrote: post #41

Earlier quoted context omitted.

For starters, make the rules for the first 365 days after the IPO the same as being private; which would include limiting the first year of the IPO to qualified investors.

Doesn't that defeat the purpose of an IPO? The P does stand for public after all.

Doing it this way would remove a lot of risk for the general public after he 365 days passes. Have a better idea?

Re: Silicon Valley’s ‘unicorns’ have regulators worried

#54

Post by jholman » Sun, Apr 03, 2016, 6:35 AM UTC

x5n1 wrote: post #15

trevyn wrote: post #4

Earlier quoted context omitted.

Bahaha yes. "White echoed the concerns of some industry insiders that these tech start-ups are missing out on the market discipline public companies receive by being accountable to the whims of public shareholder." Really? Being accountable to whims is a good thing?!!

It puts the fear of the markets and investors in the mind of the CEO and makes him or her work like a dog. As it should. There is definitely something to that. Don't meet analyst expectations and get burned. Yes that keeps you performing rather than doing your thing. At least in the short term it does some thing. In the long run we don't know how it rolls.

Let's start by assuming that the SEC think that capitalism is a good idea, and that the property rights of owners should be respected. I'm not saying that _I_ think that, or think the converse, but I think it's a reasonable bound for the present conversation.

The CEO, and the company in general, are already accountable to investors (i.e. the collective owners of the company), to exactly the same degree that (s)he'd be accountable after an IPO, modulo only the fact that presumably the CEO's ownership share would decrease. The owners of a private company can require as much or as little transparency or accountability as they choose, with the added benefit that they can require that the transparency only extend to themselves (the owners), and not be made public to the benefit of the company's competition. In constrast, the owners of a public company cannot choose to require less transparency than the SEC demands. So the current owners stand to gain nothing from this additional restriction. In short, whether or not the company (and its owners) benefits from the access to additional capital that hopefully comes with going public, it's hard to understand how any of the other features of going public could possibly be superior to staying private.

I understand why the SEC exists, and without having an opinion of whether the actual SEC actually does their job well, I think that having such an agency promotes the public good, by making investment in public companies safer, and thus in turn giving companies better access to another form of capital, and thus in turn allowing greater economic collaboration between strangers. That's a pretty cool thing! But when the SEC says "Hey, companies that don't need public capital, you should voluntarily put yourselves under our control. It'll help your 'discipline'", I just cannot fathom how that makes sense, except through the cynical lens sarcastically expressed by @fiatmoney.

How can anyone take this argument seriously?

There may be some public good promoted by forcing companies to go public. I don't hear anyone making that argument, though. And besides, what of the property rights of investors?

Re: Silicon Valley’s ‘unicorns’ have regulators worried

#55

Post by nivertech » Sun, Apr 03, 2016, 8:54 AM UTC

Negative1 wrote: post #50

The whole situation is a bit confusing to me. A bunch of people have given a disproportionate amount of money to a few companies and those companies now have massive valuations. If the people giving them money shared the regulators concern, it seems simple enough to just, well, stop giving them money. And yet Slack gets $200 mil just a few days ago. So what is happening exactly? Is there unrealistic optimism happenin…

These are not real valuations. The more realistic valuations are for common stock.

Most of those deals are really a debt disguised as an equity.

It just a way to give companies loans, which should be repaid via either cashflow or future IPO.

When reading news headline just replace: "Uber raised another $1B round" with "Uber took another $1B loan".

One of the unicorn CEOs said:

We need to be worth a billion dollars to be able to recruit new engineers. So we decided that was our valuation.

If you are issuing options to employees based on valuations fabricated to attract them, you are pretty clearly committing securities fraud.

http://blogs.wsj.com/moneybeat/2016/04/01/sec-chief-warns-si...

Re: Silicon Valley’s ‘unicorns’ have regulators worried

#56

Post by _yosefk » Sun, Apr 03, 2016, 8:58 AM UTC

golemotron wrote: post #25

_yosefk wrote: post #8

Earlier quoted context omitted.

You could buy shares in GS or any other public company investing in private companies and/or underwriting IPOs, so there's that. That said, the idea that public capital markets are widely considered to be a way to increase equality , of all things, is stunning to me. I thought/think that people supporting capital markets view them as a method for companies to raise capital in exchange for a share of future profits, a…

> That said, the idea that public capital markets are widely considered to be a way to increase equality, of all things, is stunning to me. Never underestimate the power of spin. Private just has to look worse than public on equality, and it does. I wouldn't be surprised to see an article about this in the next few weeks as journalists compete for eyeballs.

I've already seen such an article, but I still can't imagine hordes of protesters fighting for the privilege to invest in unicorns, especially now that much of the bubble has popped.

Re: Silicon Valley’s ‘unicorns’ have regulators worried

#57

Post by tim333 » Sun, Apr 03, 2016, 9:22 AM UTC

The problem is:

"Public pension funds—the state-run investment pools responsible for the retirement benefits of nearly 20 million Americans—have quietly been funding the recent boom in venture capital."

Then when it eventually turns out the unicorns aren't worth all those billions it will be your pension money burnt. At least when things float you get a reasonable estimate of their actual value.

http://www.bloomberg.com/news/articles/2014-09-23/are-public...

Re: Silicon Valley’s ‘unicorns’ have regulators worried

#58

Post by coupdetaco » Mon, Apr 04, 2016, 6:35 AM UTC

ubernostrum wrote: post #14

cynical_sheet wrote: post #10

What natural right do these regulatory agencies (or group of thugs known as government) have to regulate free people who choose to associate freely? What they are doing is deeply immoral.

What "natural right" do people have to free association? (hint: the answer is none, because there is no such thing as a "natural right")

Natural rights are those rights given to you by god.

Re: Silicon Valley’s ‘unicorns’ have regulators worried

#59

Post by mcamaj » Wed, Apr 06, 2016, 1:58 PM UTC

The federal government wants Silicon Valley's largest private companies to go public. The official reasoning is that this will allow these giant companies to build better governance models, and become more transparent. But what's wrong with private companies, and do they need to be public to have more reporting requirements?