Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

nytimes.com

Post reply on HN
Print view View original

101–107 of 107 posts

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#101

Post by galtwho »

greggman wrote: post #98
galtwho wrote: post #95

Earlier quoted context omitted.

except for the fact that Employees and founders salary is generally below market rate while at the same time they are expected to work more than standard hrs( 8 Hrs?? ) and be available 24x7 to fix issues. Equity with promises of big payout is given as a reason to take such such a deal over a job at a Bank. Now these employees and founders know that these promises are empty and the example provided above is one good…

I'm probably not seeing the difference but it almost seems like by this logic a busboy (busperson?), the person that cleans up the dishes at a restaurant is owed $$$$$$$ because he could have gotten a higher paying job so he's sacrificing for the rest of us? Is a fast food worker who goes to company A at $8 a hr but expects to move up into a management position and then gets denied, is he owed money because he could…

By same token investors should be assured only a % of their principal in case of down rounds. You want the big payoff you have to take the big risk.

To be assured the whole principal or 2X is ensuring that the risk is transferred to other parties.

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#102

Post by kartickv »

greggman wrote: post #90
kartickv wrote: post #89

If I were a founder who wanted to make sure employees and founders get a better deal, what are my options? Can I accept money from investors only on the condition that they get paid only after employees and founders get paid a minimum amount, like $1M each? The stronger version of idea is to not grant stock / stock options to employees (or grant only one share if needed for legal reasons). Instead offer a guarantee t…

I'm confused. Employees and founders get a salary. There is no risk to them. If the company fails the investors lose millions of dollars, the founders and employees leave with 1-2-3 years of salary in their pockets and then go get another job. That is why investors get paid first. Am I missing something? I guess I don't understand where this idea that founders and employees should get paid first. In guessing because…

Besides, how many fresh-faced twenty something employees at a startup understand the fine print — things like liquidation preferences (optional, participating, stacked and so on), ratchets, valuation caps, and so on?

If people are signing up for something without really understanding the tradeoff, then the argument that they are taking more risk for more reward falls apart. It would be more accurate to say that they are being taken advantage of.

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#104

Post by frik »

pud wrote: post #87
mark242 wrote: post #53

Earlier quoted context omitted.

This is all you need to read: https://web.archive.org/web/20050715000000*/http://www.fucke...

Founder of Fuckedcompany here. Thanks! I wrote a book, too: http://www.amazon.com/Fd-Companies-Spectacular-Dot-com-Flame...

Do you have a backup of your old website? Archive.org "backup" is incomplete...

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#105

Post by sgt101 »

rcarrigan87 wrote: post #38
hluska wrote: post #2

I was pleasantly surprised by this article. I expected the usual 'the end is nigh, the bubble has popped, unicorns are screwed, we're all screwed' article. Instead, I was happy to find that it was about some of the ways that unicorns could or may have to protect employees, founders and early investors from down rounds. Purely as an educational experience, this article is certainly worth a read.

Yeah, it really is interesting to see the situation from multiple perspectives. I still wonder though, is this actually happening? Nothing in the many articles I've read suggests solid evidence that a majority of these companies are struggling. Just sound bytes from VCs pontificating.

Because they are private we often can't see the books, and the bits of the books that get out are not entirely reflective of the entire picture (if you know what I mean, nudge nudge great runner sir!)

However, my guess is that most of these companies are not actually profitable, and that most of them have business plans that require significant investments to make them profitable in the future. I think that most of them have a strategy that aims to "win" in the short term by dominating their categories and then to build out a business that capitalizes on their success, reaping profit in the future.

If so they are in trouble in that they are going to need lots more cash before they deliver profits. New providers of cash hold all the cards because if the current shareholders don't get that cash into the business then their stake is worth nothing. If the new providers of cash are the current investors then they need to squeeze hard to justify doubling down on the risk (most of them simply won't do this, but some of the funds with very deep pockets have histories of doing this with some assets)

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#106

Post by roymurdock »

at5 wrote: post #71
ewindisch wrote: post #42

It's been argued that the deal structure of companies, particularly unicorns, has begun to look like debt[1]. Low interest rates and easy money has created debt. Massive bubbling amount of debt. Crashing debt bubbles is not fun, just ask anyone that lost their shirt in 1929. There is a paper[2] from this past June that goes deep into this, highlighting how and why debt bubbles are so dangerous. TL;DR? At least checko…

Have to disagree. They're still preferred equity instruments with unique trigger provisions. Higher up in the capital structure but not debt; you can't credit bid using these instruments in a Chapter 11 scenario and they aren't afforded the same protections in bankruptcy court. What attracts investors to debt instruments are the interest payments. You'd prefer PIK (payment in kind) interest on debt as opposed to cash…

Great points.

I think the confusion is due to the fact that debt can (and will) be restructured in a downturn, just as equity will lose value. So they're both risky when you make a poor investment.

But, as you note, debt and equity both have distinct risk and payoff profiles that are determined by law.

Re: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

#107

Post by exw »

npizzolato wrote: post #55
exw wrote: post #35

Earlier quoted context omitted.

I don't think you are viewing this through the right lense. Valuations are a point in time vs. thinking about a company as a long-term investment - you should more think about which of these businesses has the best long-term potential to become the winner in a massive market, with a strong "moat" that makes it hard to compete, as well as extraordinary margins. Based on that criteria, Uber & AirBnB should be on top of…

I'm not going to speak to their ability to become winners in massive markets, but I don't see how Uber or AirBnB have a strong moat that makes it hard to compete. Both seem extraordinarily easy to switch away from to a competitor. Many drivers already drive for both Uber and Lyft at the same time, and it's very easy for consumers to use both apps. I haven't used AirBnB, but it seems like it would be easy to list your…

Both of these businesses have what are called supply-side network effects (https://en.wikipedia.org/wiki/Network_effect), which are not as strong as demand-side effects, but can still lead to dominant market positions. In more concrete terms this means that for you as a consumer, there is no DIRECT additional value of someone else joining the service (you don't care if your friend joins Uber), but the value of the service does go up with every additional supplier that joins the network (for Uber, this would mean shorter wait times when you want a car, etc.) The defensibility of these types of services is created through their supplier network, and their ability to create more value for those suppliers (and consequently consumers as well) that the competition. Uber / AirBnB can then use the revenue from their leading market position to innovate faster than their competition, create more services for consumers, pay for distribution / new customer acquisition, spend money on marketing and awareness, etc. all of which leads to them creating a massive moat around their market that makes it nearly impossible for anyone to compete with them.
Post reply on HN