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Snap Jumps in Debut After App Maker Raises $3.4B in IPO

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Re: Snap Jumps in Debut After App Maker Raises $3.4B in IPO

#281

Post by khazhou »

dvt wrote: post #279
khazhou wrote: post #274

Earlier quoted context omitted.

Assuming the founders held 30%, the employee equity was 1/30,000th that of founders. I don't understand how engineers are ok with their boss getting 30,000X their compensation.

First, equity isn't compensation, it's ownership. Second, it's about risk. Third, it's about luck. So, if you get paid a market salary and benefits, you can't really expect to own much of the company that's providing you with that salary and benefits as it's essentially burning money on you. If you came in and said "can I get 1% ownership if I take 15k a year with no benefits" that would be a different story, but tha…

If you go in to a startup and say "I'll take 15K a year w/no benefits" you'll get a flat-out NO. That big exit-event equity is not for engineers. It's for founders.

Re: Snap Jumps in Debut After App Maker Raises $3.4B in IPO

#282

Post by WillPostForFood »

angryasian wrote: post #229
askafriend wrote: post #148

Earlier quoted context omitted.

The MySpace argument is tired and stale and not even that insightful. MySpace made several mistakes as a company that had nothing to do with their premise (connecting people, the same as Facebook). It just turned out that Facebook had better execution in the long run.

I disagree, Myspace could have done incredibly well if they focused on their strengths in music early on. Instead they wanted to be a media company going in a bunch of different directions, which sounds very very familiar. Snap is doing publishing with content partners, they announced special formatted tv shows, hardware and glasses, AR and adtech.

Wanting to be big in music = wanting to be a media company, and comes with a similar set of pitfalls, namely being beholden to a bunch of anti-tech established music companies. Also, I'd challenge whether there is room for incredible success. What's the biggest music success? Spotify? Pandora? Compare that to Facebook, and it is clear which direction had more potential.

Re: Snap Jumps in Debut After App Maker Raises $3.4B in IPO

#283

Post by khazhou »

stanmancan wrote: post #277
khazhou wrote: post #274

Earlier quoted context omitted.

Assuming the founders held 30%, the employee equity was 1/30,000th that of founders. I don't understand how engineers are ok with their boss getting 30,000X their compensation.

Because the engineer doesn't assume any risk assuming they're being paid market salary? The engineer can stop working when they clock out? The engineer doesn't have their own awesome idea? Or they don't have the desire to run their own company?

There's certainly some types of startups where the risk rationale does apply. For example, the founders who went with zero pay for two years and got an early working version and happy customers before hiring their first employee. Yeah, those founders can justify their big percentage.

But the Silicon Valley mold is: a couple of guys quit their jobs, hit up VCs for a month or two with the roughest sketch of an idea, get funded, and hire their first employee a couple of weeks later. That employee gets maybe 1% maximum, or the order of 1/50th or less of what the founders. Meanwhile, the engineer will bust his ass, show up at work every day and code some more at night, debug on weekends, etc. "We're all in this together, team!"

Then on the happy day years later, the founders start pricing out their MacLarens, while the engineers blink "WTF" at their actual payout.

Re: Snap Jumps in Debut After App Maker Raises $3.4B in IPO

#284

Post by econner »

dvt wrote: post #268
kapkapkap wrote: post #267

Can someone comment as to what kind of payday this IPO translates to for say the 30th engineer hired by Snap? (I realize that this is impossible to answer accurately, and that there is still a 4 month lockup)

Interviewed with Snapchat about 3-4 years ago (sub-100 employees). Did not get an offer, but their interview process was pretty standard and professional. They were giving out 0.001% equity at the time. I'd say it would come out to 250k-500k, but it's very hard to extrapolate. They were already a mega hit with like 10 employees so I doubt anyone that hasn't been there super early (like first 5 employees) will become…

This just can't be right.

In fact, Snap's extreme generosity to employees has already swelled the existing share count. In 2016, it awarded 105 million new restricted share units (RSUs). All of those units, plus around 80 million awarded in previous years, will vest with the IPO. Those grants will represent one in six of Snap's shares. At $16 a share–the estimated high end for the price paid by the underwriters–those grants will enrich its 1,859 employees by $2.9 billion, averaging $1.5 million per person, although the rewards are, as usual, heavily skewed towards the top brass. And that's just a taste of what's coming.

http://fortune.com/2017/02/22/snap-ipo-dilution/

Re: Snap Jumps in Debut After App Maker Raises $3.4B in IPO

#285

Post by lordnacho »

unholiness wrote: post #189

Economics novice here. How did we get such a huge difference (40%!) between the IPO price and the current price, when both sides had $3.4 billion at stake on getting that price "right"? Is there some huge information disparity here? Moreover, if investors feel that $24 a share is a fair price, why weren't they swooping in before the IPO and, say, offering $20 a share for the whole chunk? Sorry if this seems like a ri…

You've found an interesting corner of the market.

I was partner in a hedge fund that hired a equity trader once. He's the only trader I've ever met who begged a broker to be nice to him.

So how does it work? Why on earth do IPOs pop so reliably on the first day? (FB is an interesting exception)

The company is only going to be a market virgin once. They don't have a lot of experience as a public company, of course. They certainly don't have a list of funds who are going to buy their stock, that's why they hire an investment bank to help them.

So what does the IB do? Well, they are most definitely not IPO virgins. They do however need to maintain relationships, so that they can tout their relationships to future IPO firms. So how do you do that? Of course you price the offering so that shares are scarce. That way you get two things. One, a reputation for presenting fund clients with almost sure winners. Two, a reputation for having ample access to buyers for your IPO firms. Three, funds will listen to your sales pitches (across many lines of business) because they know that now and again the IB will hand out goodies to their friends.

For instance a lot of Hedge Funds have backup prime broker accounts just in case bad things happen. The PB folks love to sign up funds because it's a foot in the door in case you get angry with the primary PB. So what do they do? They make strong hints that you should open an account so you can get some free money now and again. The amount of free money can be quite substantial per client, in the tens of millions for the largest funds. Ordinary desks will likewise say "hey trade with us, we'll see to it you get something in return from our IPO guys". Now naturally not everything promised can be delivered.

Why does the stock always pop on IPO? Why don't people who aren't allocated shares just walk away? I think this is psychological but seeded by the low-pricing dynamic. If you know the bank knows how many people are interested at different prices, and that they'll price it low, you know the price will go up. But everyone buying is going to augment that, especially if missing out on an allocation means you have to make up that PnL by jumping on the obvious trend.

BTW, rights issues are a similar dynamic, driven by access to shares that can be lent out for short selling. Free money for people who get the shares, bank decides who they want to do business with in the future.

Re: Snap Jumps in Debut After App Maker Raises $3.4B in IPO

#286

Post by Erik816 »

eldavido wrote: post #223
Erik816 wrote: post #188

Earlier quoted context omitted.

The "economy" is much, much larger than a few social networking apps.

Social networking is becoming the dominant form of media. Media controls what people think, including their politics, and what products they buy. You need to stop and see the big picture here. facebook is basically as powerful as the entire TV industry combined, with all the power concentrated in a single company. The NYT recently reported that the average US facebook user spends 50 minutes/day on facebook. And peopl…

I never said social media was not powerful. The question is what percentage of the "economy" it makes up. This source[1] puts the share of the "internet economy" at 5.6% of US GDP. I'm not sure how those terms are defined in this study. But the point remains that no matter how powerful you think the internet and social media have become, the economy is large and diverse.

Here is one breakdown of GDP by category[2]. Even if you are generous and include all retail (6%), information (4%), and entertainment (4%), that is still only 14% of the economy. I think people forget just how much economic activity is tied to things like government, real estate, healthcare, manufacturing, etc. The poster I replied to seem to imply that social media was making up most of the economy, and I think that's demonstrably false.

[1] https://www.statista.com/statistics/250703/forecast-of-inter...

[2] https://en.wikipedia.org/wiki/Economy_of_the_United_States#G...

Re: Snap Jumps in Debut After App Maker Raises $3.4B in IPO

#287

Post by nandemo »

cbhl wrote: post #257
jmharvey wrote: post #134

Earlier quoted context omitted.

It could be an indicator that a lot of people invest without regard for foundational questions like "does this valuation make sense" or "does my ownership interest grant me any control of the company?" And I'll be the first to raise my hand on that front. On the face of it, I'm not really interested in owning a stock like this. But I've stopped picking stocks entirely, now I just invest in the stock market through in…

Is Snap big enough that indexes tracking the S&P 500 would buy up Snap? If not, what index funds would?

> Is Snap big enough that indexes tracking the S&P 500 would buy up Snap?

With the risk of stating the obvious... index funds tracking the S&P 500 index buy exactly the 500 stocks that form the index, no more no less (modulo some derivatives that are highly correlated with the index).

So they will buy Snap whenever S&P decides to include Snap in the S&P 500 index. Snap has already surpassed the minimum necessary market cap (~U$5 billion). There are other criteria, but ultimately the inclusions and exclusions are decided by committee [0]. When they do decide change the index, they announce it well ahead of the date when the change is effective.

[0] S&P U.S. Indices Methodology http://us.spindices.com/documents/methodologies/methodology-...

Re: Snap Jumps in Debut After App Maker Raises $3.4B in IPO

#288

Post by hndafu »

eldavido wrote: post #222
rubicon33 wrote: post #140

Earlier quoted context omitted.

You are not alone. I have been struck with amazement at the rise of apps like Snap, Twitter, and Instragram. They have captivated an entire generation, leaving me on the sideline. As a developer, I suppose I'm not the most social being on the planet, but it does concern me that I have become "detached" from everyone else. I spoke with an Uber driver the other day whos 14 year old son has 700,000 instragram followers…

I think there's a socioeconomic side of this that isn't discussed enough. I have a highly engaging, challenging job that pays well. I'm a holder of an advanced degree, regularly read long-form books, and am engaged and will be married soon. Frankly I think I'm pretty typical a lot of people on HN, and developers in general. I don't consume much media, though. I entirely checked out from facebook and haven't looked ba…

> Are we drug dealers?

An additional explanation is that you're a bunch of self-absorbed cunts.

Re: Snap Jumps in Debut After App Maker Raises $3.4B in IPO

#290

Post by was_boring »

dvt wrote: post #279
khazhou wrote: post #274

Earlier quoted context omitted.

Assuming the founders held 30%, the employee equity was 1/30,000th that of founders. I don't understand how engineers are ok with their boss getting 30,000X their compensation.

First, equity isn't compensation, it's ownership. Second, it's about risk. Third, it's about luck. So, if you get paid a market salary and benefits, you can't really expect to own much of the company that's providing you with that salary and benefits as it's essentially burning money on you. If you came in and said "can I get 1% ownership if I take 15k a year with no benefits" that would be a different story, but tha…

I don't know about years prior, but Snapchat's executive team is making over a million a year. Not much risk at this point.
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