51–60 of 196 posts
Fed buying trash MBSs with QE -> Investment Banks -> Stock Market -> Big Tech Companies -> Acquisitions -> Venture Capitalists -> Tech Companies -> Startup Employees -> San Francisco Landlords and Fancy Toast Restaurants.
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How important is a liquidation preference on a $500m round which values Uber at $40b? Not very. Moreover, most of the institutions doing these late stage rounds and secondaries are the same banks and asset management firms that float the IPOs. One of the unintended consequences from SOX is the creation of this public-private funding environment where huge private firms and high net worth individuals can invest, but s…
> How important is a liquidation preference on a $500m round which values Uber at $40b? Not very. Why is that?
[Edit: Wow was I not awake when I wrote this. Retracted but left up for posterity.]
Robert Shiller had an interesting analysis of the current stock market's "frothiness": http://www.businessinsider.com/robert-shiller-stock-market-b... Basically, the stock market is a bit overvalued, and people expect that trend to continue. However, peoples' level of confidence in the stock market pricing is very low. To me, if there's a coming crash, it's going to be because investors are overly anxious rather than…
Hopefully gradual increase in interest rates will result in stabilization of stock value as people pull out for safer low-rate returns (which are basically non-existent now). Then again the fed sure is taking their time...
This free money being doled out by the Fed to a select few entities will have consequences. My biggest fear is market will finally win over retail investors from 2008. Then, and only then will the big boys pull out leaving us holding the empty bag. Big boys who should gave bleed out if Bush Administration didn't throw them a coagulant? (I know a cheezy metaphor.) Oh yes, My America--you are the picture boy of Capitalism?
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The problem is that banks are leveraged to the hilt. If you have 30x leverage in 5 year duration bonds, and interest rates go up 1%, you lose 150%! ZIRP (0% interest rates) is a wealth transfer to big banks, a backdoor bailout.
Can you elaborate on this last statement?
(And if they don't find anything, they only pay 0% while they wait.)
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Except that the valuations are meaningless without understanding all the other undisclosed terms granted to the VCs in the latter rounds (eg. liquidation preference, participating preferred, etc).
How important is a liquidation preference on a $500m round which values Uber at $40b? Not very. Moreover, most of the institutions doing these late stage rounds and secondaries are the same banks and asset management firms that float the IPOs. One of the unintended consequences from SOX is the creation of this public-private funding environment where huge private firms and high net worth individuals can invest, but s…
It's substantial. If VCs get a 1x liquidation preference, then it's (effectively) a no-downside investment since Uber is worth (worst-case) $500M+. If they get >1x and are the last investor (most-preferred), then they are virtually guaranteed solid return. Late stage VCs know what they're doing and valuation is still only half the equation.
As for private firms and high net worth individuals.... that's an entirely different issue; I'm certainly not a fan of accredited investor regulation. I'm also not a huge fan of my retirement (401k funds) being invested into the startup ecosystem without any say in the matter either.
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> How important is a liquidation preference on a $500m round which values Uber at $40b? Not very. Why is that?
A 1X liquidation preference on a $500m investment is only relevant if the price of Uber declines by 98.75%. If it is 2X, then only relevant if price of Uber declines by 97.5%. [Edit: Wow was I not awake when I wrote this. Retracted but left up for posterity.]
Let's say a VC invests $500M into Uber at a $50B valuation (1% equity). If Uber gets acquired for sub-$50B, then the VC gets their $500M back despite their ownership percentage. As an example, if Uber were acquired for $25B, then the VC would get their $500M back rather than the equity value of their shares (1% of $25B => $250M). And if they had 2x liquidation preference, they'd earn $1B on a $25B liquidation.
This downside protection (sale of company for less than valuation at fundraise) is a key term on all priced rounds for this very reason. That's why these terms matter so much.
Here's my current map of where the money is coming from and going to. Fed buying trash MBSs with QE -> Investment Banks -> Stock Market -> Big Tech Companies -> Acquisitions -> Venture Capitalists -> Tech Companies -> Startup Employees -> San Francisco Landlords and Fancy Toast Restaurants.
NIMBYs then leverage it further by constraining supply.
Earlier quoted context omitted.
Except that the valuations are meaningless without understanding all the other undisclosed terms granted to the VCs in the latter rounds (eg. liquidation preference, participating preferred, etc).
How important is a liquidation preference on a $500m round which values Uber at $40b? Not very. Moreover, most of the institutions doing these late stage rounds and secondaries are the same banks and asset management firms that float the IPOs. One of the unintended consequences from SOX is the creation of this public-private funding environment where huge private firms and high net worth individuals can invest, but s…
"And the tech IPO is basically dead. The tech IPO market is at early 1980's volumes. For most of the 90's the majority of tech funding was public. This has reversed. It used to be routine to hit $20 million in revenues and go public. Not anymore." It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley. Before an engineer might vest after four or five years, just as the company is…
In practice, there are almost always offerings for employees to liquidate at roughly the same benchmarks that an IPO would have reached.
Can you elaborate a bit here. Specifically this is so vague its almost a useless statement "at roughly the same benchmarks that an IPO"