4 ms·
As long as the valuation of the company is going up more than the dilution, the value of existing shares goes up. In an early stage company that might mean rai
by birken 10y ago
As long as the valuation of the company is going up more than the dilution, the value of existing shares goes up.
In an early stage company that might mean raising a Series A where the valuation of the company goes up 100% and shares are diluted by 35%. Value still going up.
For an ultra late stage company like Uber that means ~5% dilution in this round and the total value of the company might go up 10-20%. The value of your shares is still going up.
For simple back of the envelope math, assume you invested 10k into Uber's seed round valued at 3.5 MM. Then we'll simulate some excessive amounts of dilution, so let's say our 0.28% stake is diluted by 30% 10 times (which is a ton of dilution and way more than would have reasonably happened).
You are now down to 0.007% of Uber. 0.007% of 65 billion is $5.1 MM. Not bad for a 10k investment.
Based on more reasonable dilution estimates my guess is a 10k investment in Uber's seed round is worth somewhere between 25-50 million.
- hkmurakami 10y agoYou aren't taking into account multiple liquidation preferences, ratchets, and profit guarantees on a downround IPO that are in the term sheets for this round. Warning of such "dirty term sheets" is Benchmark's Bill Gurley. http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/ http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/ http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/ http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/
- perbu 10y agoDid Uber accept any such preferences when taking investments? I thought only clueless entrepreneurs fell for such trickery.
- hkmurakami 10y agoIt is widespread suspicion that Gurley's post was directed at Uber's latest fundraising round (as an early investor, they take a hit from these dirty terms)
- bogomipz 10y agoHow did you calculate the 5% dilution figure? I didn't see where in the article that they mentioned what percentage of the company the would give for that 3.5 billion. Different sourc?