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I disagree about joining a startup worth over $1B. First, compare it something that actually is de-risked, a big company. Amazon has grown 6.5x in the past 5

by birken 8y ago

I disagree about joining a startup worth over $1B. First, compare it something that actually is de-risked, a big company. Amazon has grown 6.5x in the past 5 years. Google has grown nearly 3x in that period. So in addition to have basically no risk of failure, you get high compensation, fully liquid stock and pretty decent growth if you are lucky. Let's compare that to unicorns. I own some shares in a unicorn that has been worth over $1B for nearly 3 years. In that time myself and all the other shareholders have had exactly 0 opportunities to sell the stock. I'm not saying the valuation is made up, but I certainly wouldn't say anything is de-risked. Taking a lot of money in investment just means the outcome is expected to be bigger and bigger. It doesn't mean less risk and it doesn't mean more liquidity. If you want upside, there is just going to be so much more potential if you join a really early company. If you want to de-risk, join a big company.

WisNorCan 8y ago
The valuation increase in the FAANGs are a historical anomaly. I’ll bet you that Amazon will not 6.5x in the next 5 years. I am not saying that Amazon is a bad company, or working there is a bad idea. Just that reversion to the mean is a powerful force.
- birken 8y ago
  Maybe it an anomaly and maybe it isn't (I can't predict the future), but I know the growth was real. If I bought stock 5 years ago and sold it today, I could pocket those gains. That is the problem with looking at private company valuations and trying to decide if they are good investments or not. You don't know how the story is going to end for the common shareholders and what the overall return is going to look like. I'm not saying the upside wont be there, it very will could be, but the level of risk is still much much higher than the big public tech companies.
- mrep 8y ago
  6.5x is big but not that crazy when you consider they are growing at %40+ YOY (even more in the past). How long that continues is anyone's guess but I can see them gaining just as much if we don't have a recession between then.
  - WisNorCan 8y ago
    AMZN’s current valuation does not assume 0% future growth. It already assumes exceptional growth and expanding margins. Amazon has to do better than that for the valuation to increase.
    - user5994461 8y ago
      Doesn't it just assume that people have to put their pension fund in something?
frisco 8y ago
This is a really interesting phenomenon. There is crazy irrational illiquidity on mid/late-stage startup equity. Right now the conventional wisdom is that it's better to go to Google & co because startup equity is all flickers on a wall because you can't sell. I bet in 5 years there will be a thriving private market for mid-stage company common and junior preferred. I'd be really interested in to learn more about which "unicorn" you hold stock in and whether you're interested in selling some (as you seem to imply). I've been thinking a while about buying this type of thing (or even setting up a fund to do it). I think there is a lot of value to be had in providing liquidity to employees of these types of companies. There are a few reasons this isn't done much today, but I'm 95% sure they can be overcome. My email is in my profile if you're interested.
- gammateam 8y ago
  "right of first refusal" prevents a burgeoning secondary market from forming but yes, there is ESO Fund and other companies which you can basically become a debtor to in the event that you become liquid. you get cash and also get to potentially share in the upside.
  - frisco 8y ago
    There are a bunch of hurdles to clear: the ROFR, usually a co-sale agreement, there may even just be outright restrictions on transfer. But these can usually be worked through by simply talking to the company. If they want to exercise their ROFR, cool, the employee still gets liquidity. If others want to co-sell, I might buy more or you might have to prorate. Transfer restrictions are usually just about the company not wanting a ton of randos on their cap table they don't know, and can often be talked through.
user5994461 8y ago
>>> Let's compare that to unicorns. I own some shares in a unicorn that has been worth over $1B for nearly 3 years. In that time myself and all the other shareholders have had exactly 0 opportunities to sell the stock. I've seen liquidity events at smaller companies. VC offered to buy back shares from employees, at roughly 1/4th of what they would be worth if the company could IPO overnight. Point being. You will NEVER be able to sell your shares unless a company is public.
puranjay 8y ago
If you got 100 shares every year as an Amazon employee, your 500 shares would be worth close to a million. I know some friends who've been able to buy houses in places like London simply because of their Amazon shares

by birken 8y ago

WisNorCan 8y ago

The valuation increase in the FAANGs are a historical anomaly. I’ll bet you that Amazon will not 6.5x in the next 5 years. I am not saying that Amazon is a bad company, or working there is a bad idea. Just that reversion to the mean is a powerful force.

birken 8y ago
Maybe it an anomaly and maybe it isn't (I can't predict the future), but I know the growth was real. If I bought stock 5 years ago and sold it today, I could pocket those gains. That is the problem with looking at private company valuations and trying to decide if they are good investments or not. You don't know how the story is going to end for the common shareholders and what the overall return is going to look like. I'm not saying the upside wont be there, it very will could be, but the level of risk is still much much higher than the big public tech companies.
mrep 8y ago
6.5x is big but not that crazy when you consider they are growing at %40+ YOY (even more in the past). How long that continues is anyone's guess but I can see them gaining just as much if we don't have a recession between then.
- WisNorCan 8y ago
  AMZN’s current valuation does not assume 0% future growth. It already assumes exceptional growth and expanding margins. Amazon has to do better than that for the valuation to increase.
  - user5994461 8y ago
    Doesn't it just assume that people have to put their pension fund in something?

frisco 8y ago

This is a really interesting phenomenon. There is crazy irrational illiquidity on mid/late-stage startup equity. Right now the conventional wisdom is that it's better to go to Google & co because startup equity is all flickers on a wall because you can't sell. I bet in 5 years there will be a thriving private market for mid-stage company common and junior preferred. I'd be really interested in to learn more about which "unicorn" you hold stock in and whether you're interested in selling some (as you seem to imply). I've been thinking a while about buying this type of thing (or even setting up a fund to do it). I think there is a lot of value to be had in providing liquidity to employees of these types of companies. There are a few reasons this isn't done much today, but I'm 95% sure they can be overcome. My email is in my profile if you're interested.

gammateam 8y ago
"right of first refusal" prevents a burgeoning secondary market from forming but yes, there is ESO Fund and other companies which you can basically become a debtor to in the event that you become liquid. you get cash and also get to potentially share in the upside.
- frisco 8y ago
  There are a bunch of hurdles to clear: the ROFR, usually a co-sale agreement, there may even just be outright restrictions on transfer. But these can usually be worked through by simply talking to the company. If they want to exercise their ROFR, cool, the employee still gets liquidity. If others want to co-sell, I might buy more or you might have to prorate. Transfer restrictions are usually just about the company not wanting a ton of randos on their cap table they don't know, and can often be talked through.

user5994461 8y ago

>>> Let's compare that to unicorns. I own some shares in a unicorn that has been worth over $1B for nearly 3 years. In that time myself and all the other shareholders have had exactly 0 opportunities to sell the stock. I've seen liquidity events at smaller companies. VC offered to buy back shares from employees, at roughly 1/4th of what they would be worth if the company could IPO overnight. Point being. You will NEVER be able to sell your shares unless a company is public.

puranjay 8y ago

If you got 100 shares every year as an Amazon employee, your 500 shares would be worth close to a million. I know some friends who've been able to buy houses in places like London simply because of their Amazon shares