9 ms·

New research indicates ‘Unicorns’ are overvalued

252 points by good_vibes 9y ago

WestCoastJustin 9y ago
If you are looking for the table of companies, like I was, then download the report via https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455 and skip to page 48.
skdotdan 9y ago
You don't say?
cjlars 9y ago
The key issue is that a lot of startups use various contractual terms -- things like options on exit, liquidation preferences and others -- to take money into into the business at high nominal valuations, while still offering downside protection (optionality) to investors. The public at large usually just quotes the nominal valuation and goes from there. However, the optionality of those terms has substantial financial value, so the nominal valuation is often far from the truth. These authors have developed a system to tease out the optionality using standard financial methods (using methods like Black-Scholes, for example), which can give us all a better understanding of the true worth of these companies. Far overdue in my opinion.
- deepGem 9y ago
  I totally agree. A startup founder has to spend so much time and energy understanding these preferential downside protections. Raising money is so time consuming solely for this reason. If everyone were to just stick to the fundamentals of simple accounting, the startup world would be a far better place. I really appreciate what these professors have done.
- gjem97 9y ago
  FWIW, this is what a 409A valuation is supposed to do. But that is often done long after a funding round is closed. The PR people and journos need a simple number to report on the story as the deal is announced. I would argue nobody really knows what the company is worth at that point (with the exception of the new lead investor, who may have a model for it).
  - jsw97 9y ago
    Interestingly, the authors look at 409A valuations, which funnily enough have the opposite problem. From the article: "Low values reduce taxes; coincidentally, 409A valuations commonly use questionable assumptions that significantly deflate values." (p. 8)
- bogomipz 9y ago
  >" while still offering downside protection (optionality) to investors." I'm not familiar with tern "optionality" can you say what that is and how it provides downside risk protection to investors? Thanks.
  - gjem97 9y ago
    The optionality in startup investing has mainly to do with the "limited liability" in Limited Liability Corporation (other types of corporations and partnerships also have limited liability). That is, if you invest a dollar in a corporation, your losses are capped at a dollar. But, your gains are potentially infinite. Another instrument that has that characteristic--limited downside and infinite upside--is an option. The startup equity isn't actually an option, but it is useful to discuss its "optionality" because it does have some similar characteristics.
    - bogomipz 9y ago
      Thanks for the explanation. A related question I have then is would RSUs be considered as providing downside risk(but no upside) for employees then as the value is independent of the companies actual performance?
      - jsjohnst 9y ago
        I'm far from an expect, but unless I'm misunderstanding your question, no, that's not it. RSUs negate some of the downside risk for an employee (vs an option), but have similar upside. With an RSU, it has value as long as the company has value, with an option, it has no value unless the sell price is above the strike price.
        bogomipz 9y ago
        I probably didn't articulate that as well as I could have. You answered my question though thanks. I actually don't hear about RSUs as much except for some unicorns that seem to be staying private for longer and longer.
tomblomfield 9y ago
TL;DR it is not fair to take the per-share valuation at the last round of funding and apply it to all stock if the newly issued stock has preferential rights. 10 apples are worth $100. 90 oranges are not therefore worth $900.
- akud 9y ago
  Well, also that the act of creating the apples devalued the oranges.
deleted 9y ago
[deleted]
EGreg 9y ago
This is what Edgser Dijklmnopqstra was saying back before these unicorns existed. We have drifted far from the vision of people building up computing.
- deleted 9y ago
  [deleted]
JackPoach 9y ago
No shit, Sherlock
- ourcat 9y ago
  You quite literally took the words from my mouth/keyboard.
maxehmookau 9y ago
Bears shit in woods. Pope catholic.
deleted 9y ago
[deleted]
artellectual 9y ago
The key thing here isn't about the fact that they are overvalued. It's more important to discuss the repercussions and what anyone is doing about it. It's not just Sillicon Valley, it's the startup scene all over the world. How much is something really worth. Well how much is the next person willing to pay, that's really what this is all about. I've been down the road of VCs, exits etc... before and to be honest most of it is just fluff people make up, loop holes in the way things are valued, forget basic business and accounting they literally are making this up as they go. Most VCs I feel have a detrimental effect on startups, the only thing a lot of them provide is money, which isn't always what a startup needs. It doesn't matter to the VCs that they are mostly wrong, they just have to be right once. The question we need to ask here is what happens when it all crumbles down, due to the fact that all this is going on. How valuable something is ultimately depends on how many lives it improves. Whether something is valuable or not is measured by the amount of pain inflicted on society if the startup didn't exist, and ultimately if something is not needed, it wont survive anyway. The market is cruel like that, and having VC money shields entrepreneurs away from that crucial factor. All this fluffed up valuation has nothing to do with the survival of a business anyway.
- charred_toast 9y ago
  That's what I was trying to argue sarcastically, apparently ineffectively.
- Applejinx 9y ago
  I respectfully disagree. Functionalism isn't really the ultimate value: our world would look different if it was. The ultimate value is instead rather circular: how much something is worth, is how much you can make people think it's worth. As we head towards general AI, we can generalize this: how valuable something is depends on how much people and AIs/systems think it's worth. Whether it improves anything at all, is very much optional.
- ethbro 9y ago
  > The question we need to ask here is what happens when it all crumbles down, due to the fact that all this is going on. The problem there is that anyone riding right up until the very end has a pretty substantial return advantage over the folks who stepped off early and turtled up. Which gives a perverse incentive to stay all in, which gives everyone an incentive to keep the wheel spinning for as long as possible, which is probably why crashes only tend to happen with an external spark.
surrealize 9y ago
If you've been an employee at a unicorn and have common shares/options, check out table 8 (page 48) that lists common share valuations according to their model. AIUI, the common share FMV they list should be comparable to the 409A common share valuations you may have gotten. Roughly speaking, assuming the funding round in the table is close in time to the 409A valuation.
sebleon 9y ago
The deal terms for unicorn investment rounds are less about company fundamentals, and more about the scarcity of great startups. There's more money than there are good deals in Silicon Valley, so later stage investors are forced to offer more money for less equity in order to beat other term sheets. This ends up looking like sky-high valuations, since investors that offer fair-market-valuations are unlikely to get picked. Founders naturally gravitate towards minimizing dilution.
- johan_larson 9y ago
  There's more money than there are good deals in Silicon Valley, ... Is that true? VCs aren't acting the way they would if they really believed it. If they did, they would refuse funds from potential LPs, since they really can't find professionally responsible places to invest it. But that's not what they do. Alternately, they might take the LPs' money, warn them carefully that they could be investing in some real longshots, and then be willing to invest on fairly generous terms in any number of startups that look to be competently run and pursuing plausible opportunities. But that's not what they do, either. Something doesn't add up.
  - moxious 9y ago
    The VCs of course need to maintain return but they are under some pressure to push money out the door and invest, as their fee is a percentage of funds invested. There are many funds structured in a way where it's better for the fund (not necessarily for the investor) to invest 2x in questionable companies, than just 1x in great companies, lest they lose fees on the remainder.
  - hectorr 9y ago
    The 2 is more important than the 20.
- zxcmx 9y ago
  Or more generally, "welcome to the over-valuation of every asset class". Cryptocurrencies, housing, various kinds of stocks - there's more money than ever in the world, all of it chasing a return. More complex packaging is part of it (think confusopoly of mobile plans applied to investing) and I think the paper has useful advice for "non preferential" investors, but it's not the whole story.
arjie 9y ago
I think when a model is presented like this, it should also show the examples where it fails. In the article, they show Square (Series E valuation at 6 B, pre-IPO 2.66 B) where the "fair valuation" correctly models closer to pre-IPO at 2.2 B. However, let's look at another example. Take Nutanix (Series E valuation at 2 B, pre-IPO at 2.1 B). This model values it at 0.8 B on their table, almost a third of the IPO price. There is no explanation forthcoming in this article as to why that's the case. This makes it seem like the Square example was cherry-picked. I picked NTNX at random, so I don't know if it's the one exception. I'm not going to exhaustively check every result, however. I expect them to do that for me and not sell me a story without pointing out the terrible exceptions.
- gjem97 9y ago
  This is why the myth of "market capitalization" is so persistent. Often what you have at an IPO is a conversion of preferred shares to common shares. So effectively the 8 classes of preferred shares do become the same as the common, and the "simple" market capitalization number becomes real. However. How many startups never IPO? 99%? 99.9%? In acquisition or liquidation scenarios, those common shares are often worth a lot less than preferred. And because these scenarios make up a large proportion of the probability distribution, it means the expected value of common shares is a lot lower. Even unicorns that are far more likely to IPO can raise bridge rounds that cause major dilution for the common shares, rendering previous market capitalization numbers useless.
fs111 9y ago
news at 11
NumberCruncher 9y ago
Evergreen: https://m.signalvnoise.com/press-release-basecamp-valuation-tops-100-billion-after-bold-vc-investment-c221d8f86ad7 https://m.signalvnoise.com/press-release-basecamp-valuation-...
singaraja 9y ago
Square is valued at 8.69B in https://beta.finance.yahoo.com/quote/sq https://beta.finance.yahoo.com/quote/sq So if this article is to be trusted it is overvalued by 4.4 B $. that is another square.
TrickyRick 9y ago
Perhaps this is the beginning of the end of what is essentially a new IT bubble? After all, it bears all the traits of the last bubble so all that's missing is a trigger.
- akuji1993 9y ago
  Will be probably happen. I guess the trigger will be something like Twitter going down under and not getting VC the payment that they WILL WANT in some close future. I guess then comes a few years of VC being a lot more cautious where it's going to be harder to sell your company idea to them. It's phases all the time and we're on a high right now.
  - TrickyRick 9y ago
    Although right now money is so cheap and there isn't really any alternative if you want ROI. That said, US interest rates are on the rise more so than those in Europe so perhaps the end might come sooner than most people think.
gjem97 9y ago
> The average unicorn, the researchers note, has eight stock classes for different types of investors, including founders, employees, venture capitalists, mutual funds, and others. As an aside, this is why I think that any effort of a prospective employee to divine the value of a stock option package is likely in vain. Without a detailed accounting of the ins and outs of the preferred stock that is senior to your common shares, it is nigh impossible to tell how much the common shares (and options thereon) are worth.
- JonFish85 9y ago
  And to add to this, it's impossible to predict the future. Even if you are privy to all relevant details to come up with an accurate "value" to attach to your shares, you have no idea what sort of deals will be made in the future (stock-backed loans or later equity rounds come to mind). All it takes is one bad-for-common deal and you're wiped out, and common is usually the first to get the short end of the stick (and the last to find out).
- woah 9y ago
  This is part of what makes cryptocurrency "ICOs" appealing. Depending on how the token sale is set up, you can usually be sure of exactly what portion of the equity you are getting. Whether or not it will be worth anything in the future is another question of course.
  - dsacco 9y ago
    > Depending on how the token sale is set up, you can usually be sure of exactly what portion of the equity you are getting. You also trade off any ordinary protections as a consumer.
- mbesto 9y ago
  This is why I always recommend to individuals that when a startup offers equity in lieu of cash compensation to ask every financial/equity question imaginable. (what are you valued at today? how much investment have you taken? what's been diluted? etc etc) People don't like to have that conversation because they think it's inappropriate. However, it's more inappropriate for a founder to tell you that you're getting equity in lieu of compensation and explain nothing about the value of that equity and potential future value of that equity based on the current state and future state assumptions.
romanovcode 9y ago
Wow, in other news - sky is blue!
hectorr 9y ago
Maybe all asset classes are undervalued relative to the currencies they are priced in.
neom 9y ago
I was fundraising last year for the company I work at and one of the investors asked me if I'd consider doing XYZ. I said, well that would put our share price to such that you would create a massive valuation on the business, so no. They seemed confused and said but wouldn't you want to make the company that valuable. I smiled and ended the meeting. What they wanted would introduce an enormous amount of risk to the business because Valuation != valuable. I would imagine this type of conversation is how founders end up on that list. I think our business is great, but I'm not delusional.
- gogopuppygogo 9y ago
  Was this DO you were fundraising for? I would think sky high valuation for something that large would be exactly what founders want.
  - neom 9y ago
    No, fundraising for DO wasn't like I've ever seen before as the revenue growth and customer growth was straight up and to the right when I joined (~employee 15). This was for the startup I founded after I left DO: https://techcrunch.com/2017/05/24/stae-helps-cities-take-advantage-of-their-data/ https://techcrunch.com/2017/05/24/stae-helps-cities-take-adv...
charred_toast 9y ago
Yeah, when fucking websites are worth more than real estate it takes a genius to figure out there is something amiss. /s
- trueSlav 9y ago
  Joking aside, acquisitions happen only because of the user bases. No one really cares about the thousands of man hours your shiny social network took to implement... in that sense, it's actually hard to judge what's overvalued.
gcb0 9y ago
you know how Nigerian scammers write bad English on purpose so they don't draw smart people by mistake and waste time dealing with them? unicorn valuation is the same mechanism. do it so obviously wrong that you only draw dumb people who think they are the only ones smart enough to see the valuation is off so they buy thinking they can profit from their clever and unique insight. and the scam is complete.
- dragons1air 9y ago
  I don't know why this was downvoted. It could've been worded better but the argument should be analyzed more. How likely is it that the current unicorns are actually just ponzi schemes? The ones bearing it are people who buy into the post-IPO share prices thinking it's the next Google. Ordinary folks don't have the capital and the network to collude. Instead of downvoting (might have ruffled some egos on here), can someone offer a rebuttal to OP's argument?
theprop 9y ago
More details on how they calculated everything would be nice. A better place went bankrupt!
markm248 9y ago
New research indicates lottery tickets are overvalued.
dmourati 9y ago
May I recommend anyone wishing to understand more about valuation read the book Venture Deals? https://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitalist/dp/1119259754/ref=dp_ob_title_bk https://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitali... The subtitle is tongue in cheek but also gives you a sense of how much you can learn and how rare company you are in once you understand the details.
pascalxus 9y ago
The subject title seems about right, but I take issue with the use of the word "new". they just found this out? Nevertheless, it's not that much: 50-100%. that's hardly a dot-com bubble bust.

252 points by good_vibes 9y ago

If you are looking for the table of companies, like I was, then download the report via https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455 and skip to page 48.

skdotdan 9y ago

You don't say?

cjlars 9y ago

The key issue is that a lot of startups use various contractual terms -- things like options on exit, liquidation preferences and others -- to take money into into the business at high nominal valuations, while still offering downside protection (optionality) to investors. The public at large usually just quotes the nominal valuation and goes from there. However, the optionality of those terms has substantial financial value, so the nominal valuation is often far from the truth. These authors have developed a system to tease out the optionality using standard financial methods (using methods like Black-Scholes, for example), which can give us all a better understanding of the true worth of these companies. Far overdue in my opinion.

deepGem 9y ago
I totally agree. A startup founder has to spend so much time and energy understanding these preferential downside protections. Raising money is so time consuming solely for this reason. If everyone were to just stick to the fundamentals of simple accounting, the startup world would be a far better place. I really appreciate what these professors have done.
gjem97 9y ago
FWIW, this is what a 409A valuation is supposed to do. But that is often done long after a funding round is closed. The PR people and journos need a simple number to report on the story as the deal is announced. I would argue nobody really knows what the company is worth at that point (with the exception of the new lead investor, who may have a model for it).
- jsw97 9y ago
  Interestingly, the authors look at 409A valuations, which funnily enough have the opposite problem. From the article: "Low values reduce taxes; coincidentally, 409A valuations commonly use questionable assumptions that significantly deflate values." (p. 8)
bogomipz 9y ago
>" while still offering downside protection (optionality) to investors." I'm not familiar with tern "optionality" can you say what that is and how it provides downside risk protection to investors? Thanks.
- gjem97 9y ago
  The optionality in startup investing has mainly to do with the "limited liability" in Limited Liability Corporation (other types of corporations and partnerships also have limited liability). That is, if you invest a dollar in a corporation, your losses are capped at a dollar. But, your gains are potentially infinite. Another instrument that has that characteristic--limited downside and infinite upside--is an option. The startup equity isn't actually an option, but it is useful to discuss its "optionality" because it does have some similar characteristics.
  - bogomipz 9y ago
    Thanks for the explanation. A related question I have then is would RSUs be considered as providing downside risk(but no upside) for employees then as the value is independent of the companies actual performance?
    - jsjohnst 9y ago
      I'm far from an expect, but unless I'm misunderstanding your question, no, that's not it. RSUs negate some of the downside risk for an employee (vs an option), but have similar upside. With an RSU, it has value as long as the company has value, with an option, it has no value unless the sell price is above the strike price.
      - bogomipz 9y ago
        I probably didn't articulate that as well as I could have. You answered my question though thanks. I actually don't hear about RSUs as much except for some unicorns that seem to be staying private for longer and longer.

tomblomfield 9y ago

TL;DR it is not fair to take the per-share valuation at the last round of funding and apply it to all stock if the newly issued stock has preferential rights. 10 apples are worth $100. 90 oranges are not therefore worth $900.

akud 9y ago
Well, also that the act of creating the apples devalued the oranges.

deleted 9y ago

[deleted]

EGreg 9y ago

This is what Edgser Dijklmnopqstra was saying back before these unicorns existed. We have drifted far from the vision of people building up computing.

deleted 9y ago
[deleted]

JackPoach 9y ago

No shit, Sherlock

ourcat 9y ago
You quite literally took the words from my mouth/keyboard.

maxehmookau 9y ago

Bears shit in woods. Pope catholic.

deleted 9y ago

[deleted]

artellectual 9y ago

The key thing here isn't about the fact that they are overvalued. It's more important to discuss the repercussions and what anyone is doing about it. It's not just Sillicon Valley, it's the startup scene all over the world. How much is something really worth. Well how much is the next person willing to pay, that's really what this is all about. I've been down the road of VCs, exits etc... before and to be honest most of it is just fluff people make up, loop holes in the way things are valued, forget basic business and accounting they literally are making this up as they go. Most VCs I feel have a detrimental effect on startups, the only thing a lot of them provide is money, which isn't always what a startup needs. It doesn't matter to the VCs that they are mostly wrong, they just have to be right once. The question we need to ask here is what happens when it all crumbles down, due to the fact that all this is going on. How valuable something is ultimately depends on how many lives it improves. Whether something is valuable or not is measured by the amount of pain inflicted on society if the startup didn't exist, and ultimately if something is not needed, it wont survive anyway. The market is cruel like that, and having VC money shields entrepreneurs away from that crucial factor. All this fluffed up valuation has nothing to do with the survival of a business anyway.

charred_toast 9y ago
That's what I was trying to argue sarcastically, apparently ineffectively.
Applejinx 9y ago
I respectfully disagree. Functionalism isn't really the ultimate value: our world would look different if it was. The ultimate value is instead rather circular: how much something is worth, is how much you can make people think it's worth. As we head towards general AI, we can generalize this: how valuable something is depends on how much people and AIs/systems think it's worth. Whether it improves anything at all, is very much optional.
ethbro 9y ago
> The question we need to ask here is what happens when it all crumbles down, due to the fact that all this is going on. The problem there is that anyone riding right up until the very end has a pretty substantial return advantage over the folks who stepped off early and turtled up. Which gives a perverse incentive to stay all in, which gives everyone an incentive to keep the wheel spinning for as long as possible, which is probably why crashes only tend to happen with an external spark.

surrealize 9y ago

If you've been an employee at a unicorn and have common shares/options, check out table 8 (page 48) that lists common share valuations according to their model. AIUI, the common share FMV they list should be comparable to the 409A common share valuations you may have gotten. Roughly speaking, assuming the funding round in the table is close in time to the 409A valuation.

sebleon 9y ago

The deal terms for unicorn investment rounds are less about company fundamentals, and more about the scarcity of great startups. There's more money than there are good deals in Silicon Valley, so later stage investors are forced to offer more money for less equity in order to beat other term sheets. This ends up looking like sky-high valuations, since investors that offer fair-market-valuations are unlikely to get picked. Founders naturally gravitate towards minimizing dilution.

johan_larson 9y ago
There's more money than there are good deals in Silicon Valley, ... Is that true? VCs aren't acting the way they would if they really believed it. If they did, they would refuse funds from potential LPs, since they really can't find professionally responsible places to invest it. But that's not what they do. Alternately, they might take the LPs' money, warn them carefully that they could be investing in some real longshots, and then be willing to invest on fairly generous terms in any number of startups that look to be competently run and pursuing plausible opportunities. But that's not what they do, either. Something doesn't add up.
- moxious 9y ago
  The VCs of course need to maintain return but they are under some pressure to push money out the door and invest, as their fee is a percentage of funds invested. There are many funds structured in a way where it's better for the fund (not necessarily for the investor) to invest 2x in questionable companies, than just 1x in great companies, lest they lose fees on the remainder.
- hectorr 9y ago
  The 2 is more important than the 20.
zxcmx 9y ago
Or more generally, "welcome to the over-valuation of every asset class". Cryptocurrencies, housing, various kinds of stocks - there's more money than ever in the world, all of it chasing a return. More complex packaging is part of it (think confusopoly of mobile plans applied to investing) and I think the paper has useful advice for "non preferential" investors, but it's not the whole story.

arjie 9y ago

I think when a model is presented like this, it should also show the examples where it fails. In the article, they show Square (Series E valuation at 6 B, pre-IPO 2.66 B) where the "fair valuation" correctly models closer to pre-IPO at 2.2 B. However, let's look at another example. Take Nutanix (Series E valuation at 2 B, pre-IPO at 2.1 B). This model values it at 0.8 B on their table, almost a third of the IPO price. There is no explanation forthcoming in this article as to why that's the case. This makes it seem like the Square example was cherry-picked. I picked NTNX at random, so I don't know if it's the one exception. I'm not going to exhaustively check every result, however. I expect them to do that for me and not sell me a story without pointing out the terrible exceptions.

gjem97 9y ago
This is why the myth of "market capitalization" is so persistent. Often what you have at an IPO is a conversion of preferred shares to common shares. So effectively the 8 classes of preferred shares do become the same as the common, and the "simple" market capitalization number becomes real. However. How many startups never IPO? 99%? 99.9%? In acquisition or liquidation scenarios, those common shares are often worth a lot less than preferred. And because these scenarios make up a large proportion of the probability distribution, it means the expected value of common shares is a lot lower. Even unicorns that are far more likely to IPO can raise bridge rounds that cause major dilution for the common shares, rendering previous market capitalization numbers useless.

fs111 9y ago

news at 11

NumberCruncher 9y ago

Evergreen: https://m.signalvnoise.com/press-release-basecamp-valuation-tops-100-billion-after-bold-vc-investment-c221d8f86ad7 https://m.signalvnoise.com/press-release-basecamp-valuation-...

singaraja 9y ago

Square is valued at 8.69B in https://beta.finance.yahoo.com/quote/sq https://beta.finance.yahoo.com/quote/sq So if this article is to be trusted it is overvalued by 4.4 B $. that is another square.

TrickyRick 9y ago

Perhaps this is the beginning of the end of what is essentially a new IT bubble? After all, it bears all the traits of the last bubble so all that's missing is a trigger.

akuji1993 9y ago
Will be probably happen. I guess the trigger will be something like Twitter going down under and not getting VC the payment that they WILL WANT in some close future. I guess then comes a few years of VC being a lot more cautious where it's going to be harder to sell your company idea to them. It's phases all the time and we're on a high right now.
- TrickyRick 9y ago
  Although right now money is so cheap and there isn't really any alternative if you want ROI. That said, US interest rates are on the rise more so than those in Europe so perhaps the end might come sooner than most people think.

gjem97 9y ago

> The average unicorn, the researchers note, has eight stock classes for different types of investors, including founders, employees, venture capitalists, mutual funds, and others. As an aside, this is why I think that any effort of a prospective employee to divine the value of a stock option package is likely in vain. Without a detailed accounting of the ins and outs of the preferred stock that is senior to your common shares, it is nigh impossible to tell how much the common shares (and options thereon) are worth.

JonFish85 9y ago
And to add to this, it's impossible to predict the future. Even if you are privy to all relevant details to come up with an accurate "value" to attach to your shares, you have no idea what sort of deals will be made in the future (stock-backed loans or later equity rounds come to mind). All it takes is one bad-for-common deal and you're wiped out, and common is usually the first to get the short end of the stick (and the last to find out).
woah 9y ago
This is part of what makes cryptocurrency "ICOs" appealing. Depending on how the token sale is set up, you can usually be sure of exactly what portion of the equity you are getting. Whether or not it will be worth anything in the future is another question of course.
- dsacco 9y ago
  > Depending on how the token sale is set up, you can usually be sure of exactly what portion of the equity you are getting. You also trade off any ordinary protections as a consumer.
mbesto 9y ago
This is why I always recommend to individuals that when a startup offers equity in lieu of cash compensation to ask every financial/equity question imaginable. (what are you valued at today? how much investment have you taken? what's been diluted? etc etc) People don't like to have that conversation because they think it's inappropriate. However, it's more inappropriate for a founder to tell you that you're getting equity in lieu of compensation and explain nothing about the value of that equity and potential future value of that equity based on the current state and future state assumptions.

romanovcode 9y ago

Wow, in other news - sky is blue!

hectorr 9y ago

Maybe all asset classes are undervalued relative to the currencies they are priced in.

neom 9y ago

I was fundraising last year for the company I work at and one of the investors asked me if I'd consider doing XYZ. I said, well that would put our share price to such that you would create a massive valuation on the business, so no. They seemed confused and said but wouldn't you want to make the company that valuable. I smiled and ended the meeting. What they wanted would introduce an enormous amount of risk to the business because Valuation != valuable. I would imagine this type of conversation is how founders end up on that list. I think our business is great, but I'm not delusional.

gogopuppygogo 9y ago
Was this DO you were fundraising for? I would think sky high valuation for something that large would be exactly what founders want.
- neom 9y ago
  No, fundraising for DO wasn't like I've ever seen before as the revenue growth and customer growth was straight up and to the right when I joined (~employee 15). This was for the startup I founded after I left DO: https://techcrunch.com/2017/05/24/stae-helps-cities-take-advantage-of-their-data/ https://techcrunch.com/2017/05/24/stae-helps-cities-take-adv...

charred_toast 9y ago

Yeah, when fucking websites are worth more than real estate it takes a genius to figure out there is something amiss. /s

trueSlav 9y ago
Joking aside, acquisitions happen only because of the user bases. No one really cares about the thousands of man hours your shiny social network took to implement... in that sense, it's actually hard to judge what's overvalued.

gcb0 9y ago

you know how Nigerian scammers write bad English on purpose so they don't draw smart people by mistake and waste time dealing with them? unicorn valuation is the same mechanism. do it so obviously wrong that you only draw dumb people who think they are the only ones smart enough to see the valuation is off so they buy thinking they can profit from their clever and unique insight. and the scam is complete.

dragons1air 9y ago
I don't know why this was downvoted. It could've been worded better but the argument should be analyzed more. How likely is it that the current unicorns are actually just ponzi schemes? The ones bearing it are people who buy into the post-IPO share prices thinking it's the next Google. Ordinary folks don't have the capital and the network to collude. Instead of downvoting (might have ruffled some egos on here), can someone offer a rebuttal to OP's argument?

theprop 9y ago

More details on how they calculated everything would be nice. A better place went bankrupt!

markm248 9y ago

New research indicates lottery tickets are overvalued.

dmourati 9y ago

May I recommend anyone wishing to understand more about valuation read the book Venture Deals? https://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitalist/dp/1119259754/ref=dp_ob_title_bk https://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitali... The subtitle is tongue in cheek but also gives you a sense of how much you can learn and how rare company you are in once you understand the details.

pascalxus 9y ago

The subject title seems about right, but I take issue with the use of the word "new". they just found this out? Nevertheless, it's not that much: 50-100%. that's hardly a dot-com bubble bust.