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So. If I value a company, of which I own 100%, at 1B, does that make me a billionaire?
by troels 10y ago
So. If I value a company, of which I own 100%, at 1B, does that make me a billionaire?
- deleted 10y ago[deleted]
- loeg 10y agoIf you can convince a 3rd party to give you $1 mil for 0.1% ownership of said company, yeah, you are.
- troels 10y agoNo. Then I'd be a millionaire.
- nicky0 10y agoIf you define as "millionaire/billionaire" as strictly the amount you hold in cash, yes. However, the commonly accepted definition includes entire net worth which would include the valuation of shares in companies owned.
- troels 10y agoThere are two differences though. One being that the equity is highly illiquid. The other (and more important) being that there is no market validation of the valuation.
- lotsofpulp 10y agoThe most useful purpose of being labeled a billionaire is being identified as one who has the ability to spend a billion dollars. Obtaining $1 mil doesn't qualify, and it's highly unlikely the other 99.9% of the company would be bought for $999M, so from my perspective the only other purpose of being labeled a billionaire would be for clickbait/marketing.
- nicky0 10y agoWhy so unlikely? Companies are frequently bought out at or above current valuation.
- lotsofpulp 10y agoThe ones I've heard about are usually publicly traded companies with sort of transparent finances so they're liquid. It's possible they're worth $1B, but I'd bet that more companies would like to claim they're worth $1B than actually are.
- cortesoft 10y agoWhat if I convince someone to give me one dollar for 0.0000001% of my company? Am I a billionaire then? How much do I need to actually have to be a billionaire?
- nicky0 10y agoHow about this definition: If you have enough assets (liquid or otherwise) to convince a bank to lend you a billion, you are a billionaire.
- troels 10y agoBy that measure, I can guarantee you that they don't meet the standard. Banks are rather conservative.
- loeg 10y agoYeah, that counts too.
- cortesoft 10y agoThe problem is that there is no connection between someone giving me that dollar and the value of my company; just because they say that they are giving it to me because they value my company at one billion dollars doesn't make it so. Maybe they are doing it to be funny, or to prop up the value of my company. They are only sacrificing a dollar, so there is no real cost to them. It also has no bearing on or indication that anyone else would also value my company at that much.
- doctorcroc 10y agoI'm all for the healthy skepticism of inflated valuations and the valley's tendency to forget that most venture funded startup wealth is illiquid, but c'mon -- what does this comment add to the discussion? Snark is not needed here; I'd rather engage in an earnest conversation about Stripe's valuation (if you have any thoughts there :))
- troels 10y agoPerhaps that was a bit snarky, but then let's also agree that the article is severely oversimplifying things. I guess I just react with annoyance when I see the press do that. I didn't mean to belittle the accomplishment of the founders btw - keeping such a high stake in a company at such a late stage IS impressive.
- doctorcroc 10y agoAgreed, generally if its on bloomberg/TC, etc, it's gonna be simplified for the catchy headline
- cortesoft 10y agoIt does contribute, by pointing out that this 'valuation' in no way makes them billionaires.
- rbcgerard 10y agoI'd say they're closer to being billionaires than being broke...
- invisible 10y agoIf others are willing to trade ownership in your company such that 100% equaled 1 billion then the answer would be yes. Valuations are made based on exchanges relative to the whole's worth. That's a simplified way of how public stock markets work too.
- cortesoft 10y agoA public stock market with common stock is very different than early funding with preferred stock. They are getting more than just at fraction of ownership; they are getting liquidation preferences and other perks that make the stake worth more than just the ownership percentage.
- deleted 10y ago[deleted]
- matt_wulfeck 10y agoSo if I buy a 0.0000000001% stake in his company for $1, then suddenly it really is worth $1B? I'm suddenly reminded of his onion article[1]: > U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion 1. http://www.theonion.com/article/us-economy-grinds-to-halt-as-nation-realizes-money-2912 http://www.theonion.com/article/us-economy-grinds-to-halt-as...
- bowersbros 10y agoNo, because you wouldn't be willing to buy the entire company, or a large enough percentage to show interest in the entire company
- NumberCruncher 10y agoBasecamp is valued at 100 B$: https://m.signalvnoise.com/press-release-basecamp-valuation-tops-100-billion-after-bold-vc-investment-c221d8f86ad7#.4gvg4umsd https://m.signalvnoise.com/press-release-basecamp-valuation-...
- ipnon 10y agoNo, but if a billion other people joined you in a similar fashion then yes. It's kind of like the Architect scene in the Matrix. To paraphrase, "ignorance is the most predictable of all human responses, but rest assured. This is the sixth time we have valued a unicorn, and we have become exceedingly efficient at it." Look into the efficient-market hypothesis. Basically, the potential for profit motivates the members of financial markets to always seek the most accurate valuation of a stock as possible. This means that if there was a discrepancy in the perceived value (in this case $9 billion) and the "actual" value (in your imagination something close to $0), then the price of the stock would be more-or-less automatically corrected because an enterprising individual such as your self would be able to capitalize on this gross negligence on the part of all other financiers. If we generalize this notion, we can conclude that the price of a public stock already includes all available information because if it didn't the potential to profit would see a shift in its price by people either shorting or longing it. So you are kind of right. Kind of.
- nicky0 10y agoA paper billionaire, yes.
- cortesoft 10y agoUp until a few minutes ago, the title did not include the 'paper' part.