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Correct me if I am wrong, but the infusions of cash into startups of this scale are probably historically unprecedented. If this is true, then nobody really kno

by cft 10y ago

Correct me if I am wrong, but the infusions of cash into startups of this scale are probably historically unprecedented. If this is true, then nobody really knows what the outcome of this is going to be for the companies that appear sound: AirBnB, Uber, as well as for the whole Silicon Valley startup ecosystem. It may well destroy it for good.

prostoalex 10y ago
Late-stage investors have become proficient at extracting various ratchets and preferences (e.g., BOX). Even if the worse comes to worst, that $850 mil is probably recoverable at 1x liquidation preference. In a low-rate environment we have today it seems like a reasonable allocation of cash compared to buying something like German bonds at negative rates.
deleted 10y ago
[deleted]
ryporter 10y ago
Investors are not blindly giving these companies cash (insert tired Theranos joke here). They see far more information we do, and they do more due diligence than most investors do in publicly traded companies, including (and especially) during the first dot-com bubble. That ended rather catastrophically, and Silicon Valley was never in danger of being "destroyed for good."
- cft 10y ago
  Fundamentally, the underlying inspiration for these huge infusions is debt. On the microeconomic scale, it will take a long time for Airbnb to generate $3.5bn in profit, that has already been put into it. On the macro scale, tens of trillions of US debt make zero interest rates possible, which in turn creates a lot of fake money looking for returns on investment.
  - ryporter 10y ago
    Fundamentally, the underlying inspiration is the growth of these companies. The fact that interest rates are so low, and that investors are chasing yield elsewhere, helps to enable it. However, these deals would still happen even if debt were more expensive. On the other hand, if the company weren't showing promising growth, then the deals would not happen.
    - cft 10y ago
      Good luck!
hibikir 10y ago
It's an interesting situation that has broken quite a few other pieces of the puzzle. Companies can now raise money while private for a decade. Stock options become useless, because nobody is going to work somewhere for 10 years, or save for the taxes on the options that one can't sell. The stock market doesn't even get to sniff these companies until they are behemoths either. Along with it, the SEC loses power, and aggressive investment opportunities become harder to access for all but the very rich. Everyone that isn't a venture capitalist of a founder on one of those companies should be concerned about this.

by cft 10y ago

prostoalex 10y ago

Late-stage investors have become proficient at extracting various ratchets and preferences (e.g., BOX). Even if the worse comes to worst, that $850 mil is probably recoverable at 1x liquidation preference. In a low-rate environment we have today it seems like a reasonable allocation of cash compared to buying something like German bonds at negative rates.

deleted 10y ago

[deleted]

ryporter 10y ago

Investors are not blindly giving these companies cash (insert tired Theranos joke here). They see far more information we do, and they do more due diligence than most investors do in publicly traded companies, including (and especially) during the first dot-com bubble. That ended rather catastrophically, and Silicon Valley was never in danger of being "destroyed for good."

cft 10y ago
Fundamentally, the underlying inspiration for these huge infusions is debt. On the microeconomic scale, it will take a long time for Airbnb to generate $3.5bn in profit, that has already been put into it. On the macro scale, tens of trillions of US debt make zero interest rates possible, which in turn creates a lot of fake money looking for returns on investment.
- ryporter 10y ago
  Fundamentally, the underlying inspiration is the growth of these companies. The fact that interest rates are so low, and that investors are chasing yield elsewhere, helps to enable it. However, these deals would still happen even if debt were more expensive. On the other hand, if the company weren't showing promising growth, then the deals would not happen.
  - cft 10y ago
    Good luck!

hibikir 10y ago

It's an interesting situation that has broken quite a few other pieces of the puzzle. Companies can now raise money while private for a decade. Stock options become useless, because nobody is going to work somewhere for 10 years, or save for the taxes on the options that one can't sell. The stock market doesn't even get to sniff these companies until they are behemoths either. Along with it, the SEC loses power, and aggressive investment opportunities become harder to access for all but the very rich. Everyone that isn't a venture capitalist of a founder on one of those companies should be concerned about this.