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Airtable CEO on the continued importance of getting a ‘unicorn’ valuation

105 points by chatmasta 8y ago

primitivesuave 8y ago
Would love to hear from other founders here comment on raising money when you don’t need to raise. To me it seems unfair to dilute employee equity for the sake of having an extra 100M in the bank.
- confiscate 8y ago
  ya but if you raise an extra 100M, that most likely is an up-round, which means the value of employee's equity has increased example: as an employee you own 10% of the company. The 10% is worth $10. After company raises a 100M round and dilution has occurred, you own 1% of the company, but that 1% is now worth $50 who is being treated unfairly? I don't quite understand
  - bduerst 8y ago
    The problem arises when the company exits at below the ridiculous valuation, inflated by the up rounds. Investors in the unicorn know it's a ridiculous market cap, but will lock in preferential payout on the exit. This means that while the employee private equity may increase in value, the employees get pennies on the dollar during the exit because the majority of the payout goes to the investors who inflated the price to begin with. It gets worse when employees pay taxes on the equity at the inflated valuation, but there are ways claw that back later.
    - airstrike 8y ago
      > The problem arises when the company exits at below the ridiculous valuation, inflated by the up rounds. But you don't have the counterfactual to know what the company would have exited for without the ridiculous valuation. Probably a lower number.
      - bduerst 8y ago
        An exit is an exit. Failed companies getting acquired is still an exit, whether it happened early without funding or later with a ridiculous valuation. The difference is the expected value of income that the employees are given in equity, which is especially nefarious.
    - harryh 8y ago
      Investors in the unicorn know it's a ridiculous market cap, but will lock in preferential payout on the exit. This is not a thing that happens in the vast majority of circumstances. Preferences are for downside protection not a way for investors to actually make money. No one invests with the goal of making use of them.
      - bduerst 8y ago
        The "vast majority of circumstances" are not investment rounds propping up a unicorn. Investors who play in this arena are not stupid: https://angel.co/blog/liquidation-preference-your-equity-could-be-worth-millions-or-nothing https://angel.co/blog/liquidation-preference-your-equity-cou...
        harryh 8y ago
        Good Technology had $556 million in funding: https://www.crunchbase.com/organization/good-technology https://www.crunchbase.com/organization/good-technology Per your link, they sold for $425 million. The investors lost money. That is not the outcome they were hoping for. However, their preferences did provide them downside protection which was, as I noted, their purpose.
        bduerst 8y ago
        Per both links: 1) Good Technology was valued at $1.1 Billion. 2) The investors lost money, but the employees lost much more. -> This is the problem with unicorns. You've completely missed the point.
        deleted 8y ago
        [deleted]
        harryh 8y ago
        #2 is not at all clear. Investors lost (collectively) over 125 million dollars. The only employess that lost money are those that exercised stock options and had to pay taxes on unrealized gains. It's highly doubtful that this totaled nearly as much as the investors lost.
  - marcinzm 8y ago
    The value of the company has increased either way, the fact a round happens doesn't change the underlying value but merely signals it. Since employees generally can't sell their shares either way that signaling doesn't impact them. So, in your example, before the round you actually owned $500 and after the round you own $50.
    - airstrike 8y ago
      > So, in your example, before the round you actually owned $500 and after the round you own $50. That's not how the math works. In the prior round people didn't know the value of the company. Maybe it was worth $100M, maybe it was worth zero. The expected value (weighted average probability of all scenarios) of your stake in the company was worth $10 per the parent
    - confiscate 8y ago
      No. I see what you mean, but in practice that's not what happens. Numeric value is determined at time of sale. Without a sale, the object has no "value". It might be useful to you in some way, but it's value is 0 unless you can sell it. There is no such thing as "underlying value" example: I have a normal orange that I bought for $5 at the supermarket. The orange's underlying value is $5. If I sell it to my friend for $10, the value of the orange is now $10. If no one is willing to buy it, its value is $0. The same thing happens when you raise a new round. When you raise a new round, you've made a "sale": someone paid money for it. That exchange of money/shares is what determines value.
      - ivalm 8y ago
        While I agree that selling something at the highest price you can is the best way to appraise value, I disagree that an up round necessarily increases the equity value of employees (unless the employees can sell off their equity during the round). To use your orange metaphor, while it is true that if no one else wants the orange the value of the orange is $0, I don't have to sell it to have a good idea of what the price of an orange is. For example, if there are people offering to buy my orange for $8 and I know that a typical bid-ask spread for fruits is %50 of the bid and most transactions occur at midpoint I can be relatively certain that the orange is worth $10 despite no transaction occurring and there being no market for oranges (if there is a generic orange market you have access to then the entire point becomes moot since you can just take the market price).
- throwaway-1283 8y ago
  if you're raising at a higher val, then owning a smaller % of something worth more is not a bad thing...
  - modeless 8y ago
    Raising money doesn't make you worth more.
    - airstrike 8y ago
      It does if the implied valuation is higher. And it signals to the market that you're worth $x which is greater than your prior valuation (assuming one exists), which anchors the price a buyer will pay for your business
      - rococode 8y ago
        I wonder if anyone has statistics on how often a new funding round increases valuation enough to offset dilution. I suspect that's generally the case, but I may be biased by the fact that funding rounds I hear about are more likely to be the successful ones.
    - throwaway-1283 8y ago
      raising money by itself doesn't, but it does if you are raising at a higher valuation and the share price increases.
    - harryh 8y ago
      It absolutely does because then you have the money. It might not make an individual share worth more (because of dilution), but it 100% absolutely makes the total value of the company go up.
- jedberg 8y ago
  It's always good to take credit if you're reasonably sure you can make a return greater than the cost. When money is flowing easily, and therefore the cost is low, there is a good chance that you can make a great enough return to outweigh the cost. Money is cheap right now, so it makes sense to get a lot of it while you can so you can ride out the next downturn when money will be expensive.
  - rightbyte 8y ago
    So stacking up debt is how you stay on top of a downturn in the economy when it comes?
    - jedberg 8y ago
      Yes, if you have a good plan on using the money. Keep in mind that these are investments, not loans. So they don't have to be paid back. The investor is taking the risk that they believe you can do something with the money. When I say that "money is cheap" I mean in dilution cost, not interest. Although to be fair a lot of corporate debt can be written off without destroying to company so it's not a bad option for bigger companies to issue debt either.
    - jcheng 8y ago
      It can be. See Ford in the mid-2000s under Alan Mulally--that was his play and it was spectacularly successful compared to the counterexamples at GM and Chrysler.
- the_reformation 8y ago
  "I’m a big fan of Slack Technologies Inc.’s approach to corporate finance. Near the peak of the unicorn boom, in 2015, Slack Chief Executive Officer Stewart Butterfield correctly noted that “it might be the best time for any kind of business, in any industry, to raise money for all of history, like since the time of the ancient Egyptians.” The relevance of that point to Slack was not obvious, though, because it happened to have all the money it needed. A less financially savvy tech unicorn might have taken that as a reason not to raise more money, but Slack decided that cheap money was cheap money. ...Is 2019 the best time in history for tech unicorns to raise money from the public markets? Ehh, not particularly. The S&P 500 is down more than 10 percent from its peak last year. Volatility is up. There is an overhang of several very large rumored unicorn initial public offerings, most notably one from Uber Technologies Inc., which might distract investors from other unicorns. Fortunately for Slack, it still doesn’t seem to need any money, perhaps because it did so very much top-ticking in the private markets. This gives it a certain amount of flexibility with respect to corporate finance. So: Slack Technologies Inc. is planning to go public through a direct listing, " https://www.bloomberg.com/opinion/articles/2019-01-11/direct-listings-are-a-thing-now https://www.bloomberg.com/opinion/articles/2019-01-11/direct...
chollida1 8y ago
So my first reaction was that this is just a vanity metric. However, in the public cash equity markets there is an actual benefit to having a "large" market cap. note: Here I'll use market cap for public companies and valuation for private companies as measuring roughly the same thing even though they have some differences. One of the greatest tail winds a stock can have is to be in a popular index, this means that ETF's will be a forced buyer of their stock. Most indexes have a market cap component and the amount of money tracking large cap indexs dwarfs the amount in small cap indexs so a larger valuation is obviously useful. It can also help public companies borrow as debt to equity is a ratio that most people consider when choosing to loan( buy bonds) from a company so again market cap matters. It also helps a public company pay its employee's in restricted shares as these can be cashed out immediately by employees for actual money as the shares come off restriction so again a growing market cap has the benefit of giving employee's raises without any money leaving the company. Microsoft used this better than anyone during the 80's and 90's. It's less clear to me why a valuation of over $1B matters to a private company though. Even stock options don't really seem to matter as a reason for wanting a larger valuation as typically employee's can't immediately convert options to cash. In that case only the IPO price(hence public valuation would matter). Is there any reason other than signalling that this company belongs with the likes of Uber and Airbnb? EDIT agree with the child posters but they don't really answer the question of why $1B is important for the valuation in a way that, say, $990M would not be.
- chatmasta 8y ago
  > It's less clear to me why a valuation of over $1B matters to a private company though. > hence public valuation would matter There is your answer. IPO valuations have to come from somewhere, and the most recent private valuation is usually a good starting point for what investors will pay.
  - calgaryeng 8y ago
    I'm reasonably certain that the starting point for public valuations is not the most recent private valuations. These deals are typically centered around public valuation comps (i.e. other similar companies) based off of revenues/EBITDA/etc.
payne92 8y ago
This is a double-edged sword for private companies. On the positive, it's generally good to raise money when you don't need it. You're more likely to get the most favorable terms. (Or, stated diffrently, it's hardest to raise money when you need it most, with a zero cash date looming). On the negative, it creates a high bar to clear for the next round of funding. If you don't raise enough, and need more funding later, doing a down round is extremely painful. Worse, if you have anti-dilution and other provisions, the cap table gets blown up. Lots of agita. Public companies: different circumstances (market cap is a currency for acquisitions). Finally, I'm respectful of audacious and aggressive entrepreneurs, but I've got a very sensitive hubris detector. A billion is an arbitrary ego number, and "We don’t entertain offers.... . . and it’s literally not worth the time of day, talking" is crazy. Tell that to Groupon shareholders that held stock during Google's (reported) ~$6b offer in 2010. Ouch. Pride goeth before the fall.
- Simon_says 8y ago
  > If you don't raise enough, and need more funding later, doing a down round is extremely painful. I hear this a lot, but I don't quite understand the sentiment. It's painful for whom? The earlier investor, sure, but not the founders. Scenario 1: I have a round of funding at $1MM valuation then later a round of funding at a $10MM valuation. Scenario 2: I have a round of funding at $100MM valuation then later a round of funding at a $10MM valuation. Scenario 2 has a down round, but it's unclear to me how anyone in this scenario is worse off besides the suckers who bought in at a too high valuation. They just overpaid; that's all. The business and the other shareholders are strictly better off because they were able to get more cash for the shares sold.
  - PeterisP 8y ago
    The investors of the that $100MM round very likely have some downside protection in the agreements, so that the following down round disproportionally dilutes all the owners before that $100MM round - the founders, initial investors, and employees.
    - 8y ago
Scarbutt 8y ago
Curious, how do these products get introduced at established companies? I suspect training and adopting new workflows adds lots of friction, so how do they do it?
- fellars 8y ago
  It happens organically with Airtable. We do custom implementations of it with companies. Most get started by someone because its so easy to get up and going but then reach a point where they need some more expertise and bring us in.
manishsharan 8y ago
Their tools reminds me of Borland's Turbo Pascal --- in that it made programming accessible to the masses .. well us geeky kids then. I wonder if Borland's acquisition price comes close to $1Bn in today's dollars.
- titanomachy 8y ago
  $75M in 2009. So no, not remotely.
  - andrewf 8y ago
    Borland declined dramatically. https://www.cnet.com/news/borland-a-big-lesson/ https://www.cnet.com/news/borland-a-big-lesson/ reckons Borland peaked at a $7 billion valuation, and they did spend hundreds of millions on campuses and acquisitions in the early 90s.
capkutay 8y ago
Honest question: is the unicorn valuation just a tool for VCs to inflate the value of their stock in the second market? Here's a scenario that happened recently. Investors X and Y invested a $30 million Series A in UnicornCompany. Lets just say its a $200m valuation. Those same exact investors invested a $50m Series C at a $2 billion unicorn valuation (no new investors). Doesn't that mean their initial investment is now worth 10x in the open market? Thus making their return at least $300m on $80m invested?
- bb88 8y ago
  Yes, but they actually have to sell their shares for $x billion if they want to see any actual profit. Future investors are likely to be skeptical if the current and projected income doesn't match the valuation.
- tim333 8y ago
  It's more complicated than that. What a company actually trades for in the open market is down to investors opinions and may be different from 'what the company is worth', which is also a little in the eye of the beholder. However after the C the VCs may be able to report a 10x return to their investors.
- mikekchar 8y ago
  No. You are conflating "valuation" with "value". Let me give you an example. My company has 10 shares total and I manage to get you to buy one of them for $100. The logical conclusion is that the shares are worth $100 each and the company is worth $1000. You hold 1 share, and I hold 9 shares. I also have the $100 you gave me. So one can say that you bought 10% of the company at a $1000 valuation. But let's say I don't do anything at all with the money you gave me and I had no other money to begin with. What that means is that you have 1 share and I have 9 shares and $100. If we liquidated the company now, you would get $10 back and I would keep $90. The company has a value of $100. Now let's say that somebody is really interested in buying shares. I give you the OK to sell your share and somebody offers to buy it for $10,000. You sell your share for $10,000 (10% of the company). The logical conclusion is that the other 9 shares are worth $90,000 and the whole company has a valuation of $100,000. But I still only have $100 in the bank :-) Now, let's say that encouraged by the huge profit you made, you buy 4 shares at $20,000 each from me. The valuation of the company is logically $200K because there are 10 shares and the last time someone bought some it was for $20K each. You own 40% of the company. I own %50 of the company and they person who bought the original share from you owns %10 of the company. The company has $80,100 in the bank. You try to sell your 4 shares now, but nobody wants to buy. The shares have a nominal value of $8,010 each ($80,100 / 10 shares), but nobody feels like buying. Your shares are worth 0 because I control the company and don't want to liquidate. Basically, I conned you into giving me $80,100 :-) Shares are worth what other people are willing to pay for them. Whether or not someone will be willing to buy your shares back for the current "valuation" of the company depends a lot on the circumstances. Whether you are even able to sell your shares depends on agreements you made, etc, etc. You can easily have a company with a $1 billion valuation whose stock is worth less than toilet paper in reality. Companies that are pre-IPO are really ripe for the hype machine. You generally can't trade their stock except at a "liquidation event". You can invest in them, and their valuation might climb, but you can actually realise any of that profit. If they pull a Theranos on you, then you lose all of that money. Once a company has IPOed, the stock is traded freely on the stock market. Since it is liquid, you are more likely to be able to sell your stock close to its current valuation. Keep in mind that this is still not the same as value -- stocks usually trade a prices of multiples of the current value (because people believe the companies will increase in value over time). Edit: I have trouble multiplying by 4... :-P
etaerc 8y ago
It is actually quite stupid to get a unicorn valuation if you are not a really good fit for world conquering business. In all other regards it is people gambling using other people's money and using your time&health. Most ideas simply aren't that kind of idea. And if you don't get other investors with your idea think about simply doing a full time job and considering your project a hobby. It can still turn to make you a tidy profit. And I can promise you that if you are talented you can also work for big corps and enjoy a good life there. Sure the tasks don't seem to be very meaningful, but if you fake a new chat app as a unicorn startup it's not that much more meaningful either.
chirau 8y ago
What is the difference between
chirau 8y ago
QUESTION: What is the difference between an "accredited" investor giving a company money at a billion dollar valuation and just another regular person? If A16Z gives a company 100M at a 1B valuation, it becomes a unicorn. Does the same apply if my neighbor gives me 400M for 40% (1B valuation) of my company? Does that make my company a unicorn? If it does, what about if he gives me $1000 for 1 millionth of my company? Or maybe with 5 or 6 other investors bringing on their $1000 as well at the same valuation and adding validation? Whose valuation counts and why?
- crooked-v 8y ago
  "Accredited investor" in legal regulation terms is mostly a polite way to say "has enough money to not be permanently ruined if one of their big risky investments ends up in the hole". That is to say, if your neighbor has 40 million dollars in the first place, he almost certainly counts as "accredited", unless he's also got 50 million sitting around in liabilities.
kumarski 8y ago
Been begging them to make a function that is "Date Cell was updated on."
- fellars 8y ago
  That exists. Its currently in beta. I have had access to it for months. You should be able to ask them to turn it on for you.
dafty4 8y ago
https://www.youtube.com/watch?v=7_KnUi3t2JI https://www.youtube.com/watch?v=7_KnUi3t2JI
potatofarmer45 8y ago
Any demonstrated success of a startup signals to partners, investors, customers and employees that the future is bright and these parties adjust their actions (often to the benefit of the startup). Unicorn status is just one such signal(abient a very powerful one). It's much much easier to hire good engineers at a lower payrate when the signaling is good because they actual believe the paper equity they get is actually worth something down the road. In the same vein, positive signals and the good press that comes with it helps you win business. In our case (no where near a unicorn), but we were featured in a local paper. That paper was seen by the CEO of a company we were in negotiations with and were stuck down on a lot of DD work. They wanted all these assurances we would still provide services and won't just take the money and go bankrupt a year later etc etc. CEO saw us described as the "next big thing in X" and intervened. He told us later he "knew" we were going to be huge and wanted to lock us in early as a partner. Contract was signed less than a week later. Unicorn status is largely a vanity metric, but it's also a power signal that if used correctly, gives a lot of benefits to the startup.
- dasil003 8y ago
  What I find frustrating about this is if it leads a founder take liquidation preference multiples or other disadvantageous terms that drastically reduce my chance of seeing any payday as an employee. I've been around, so I'll take solid financials over juicy-looking smoke and mirrors any day, but my worry is the median startup employee is young and inexperienced enough that it probably serves the founder to play these games.
  - yowlingcat 8y ago
    Unfortunately, I think that ship sails when you take VC funding. Founders that can fundraise and run corporate BD/sales well and/or are experienced can mitigate this by having a stronger hand to bargain with, but it's just unavoidably the case that VC money comes with strings attached. They indemnify themselves differently from debt investors, but as you point out, that comes from liquidation preferences as well as preferred participation and more. While I would say that it seems probable that many startup employees are young and inexperienced enough that it services the founder to play these games, I'd definitely say that the incentives are definitely in favor of this dynamic. It's unfortunate. I'd prefer solid financials and growth, just like you. The only real way to avoid this kind of game is not to play -- have an independently wealthy founder/stakeholder, or a very close relationship with an angel investment firm that can afford to be long term. It's challenging to find that from people managing Other People's Money.
username223 8y ago
> until somewhat recently, we’ve been able to sustain our operations without any external capital [owing to] a product that monetizes itself, from a customer base that gets real value from us. Translating this bafflegab into english is educational: > We used to be profitable because people liked our product enough to pay more for it than it cost us to produce. Now we're not, so... unicorn?
Animats 8y ago
There's so much dumb money floating around that too many "unicorn" failures are being propped up. In the self-driving car area alone, we have: - Cruise Automation. Showed a video of simple lane following and hyped it as self driving. Got acquired by GM for 1 billion. Claimed to have a production-ready car in 2017.[1] GM now trying to dump them.[2] Being propped up by funding from Softbank. - Otto. Showed a video of a self-driving truck.[3] Turned out this was on an isolated road with lead and trail vehicles preventing any interference. Acquired by Uber. Valuation only 680 million, though. Used to hype Uber valuation. Self-driving technology so fake it killed a pedestrian.[4] Being propped up by funding from Softbank. - Tesla. Showed a video of a self-driving car in 2016.[5] Turned out this was the one successful run from many tries. Full self-driving never seen again from Tesla. Softbank and Tesla discussed funding but Softbank declined. [1] https://www.businessinsider.com.au/general-motors-cruise-production-ready-2017-9 https://www.businessinsider.com.au/general-motors-cruise-pro... [2] https://www.bloomberg.com/news/articles/2018-06-15/gm-is-said-to-explore-listing-shares-of-cruise-self-driving-unit https://www.bloomberg.com/news/articles/2018-06-15/gm-is-sai... [3] https://www.youtube.com/watch?v=Qb0Kzb3haK8 https://www.youtube.com/watch?v=Qb0Kzb3haK8 [4] https://www.economist.com/the-economist-explains/2018/05/29/why-ubers-self-driving-car-killed-a-pedestrian https://www.economist.com/the-economist-explains/2018/05/29/... [5] https://www.theverge.com/2016/10/20/13343828/tesla-fully-autonomous-test-video https://www.theverge.com/2016/10/20/13343828/tesla-fully-aut...
- contingencies 8y ago
  Tesla has media presence, an existing customer base and an existing distribution network. Even if they come to the party late, they're not unlikely to take a slice of the market. Therefore, if I were investing in that sector I wouldn't discount them as a meaningful contestant, remembering they can always buy their way in to third party tech.
  - gamblor956 8y ago
    Blackberry has media presence, and existing and very loyal customer base, and an existing distribution network... Oh wait...that didn't work out so well for Blackberry (or Palm or Microsoft). Does anyone remember when Creative dominated the media player market? Or when everyone thought Sony would take over the electronics world? When everyone thought Yahoo needed to be broken up before it threatened the internet? if I were investing in that sector I wouldn't discount them as a meaningful contestant, remembering they can always buy their way in to third party tech. One thing most of Tesla's competitors all have in common is that their business interests are opposed to Tesla's business interests. This means that a licensing of self-driving tech is extremely unlikely.

105 points by chatmasta 8y ago

Would love to hear from other founders here comment on raising money when you don’t need to raise. To me it seems unfair to dilute employee equity for the sake of having an extra 100M in the bank.

confiscate 8y ago
ya but if you raise an extra 100M, that most likely is an up-round, which means the value of employee's equity has increased example: as an employee you own 10% of the company. The 10% is worth $10. After company raises a 100M round and dilution has occurred, you own 1% of the company, but that 1% is now worth $50 who is being treated unfairly? I don't quite understand
- bduerst 8y ago
  The problem arises when the company exits at below the ridiculous valuation, inflated by the up rounds. Investors in the unicorn know it's a ridiculous market cap, but will lock in preferential payout on the exit. This means that while the employee private equity may increase in value, the employees get pennies on the dollar during the exit because the majority of the payout goes to the investors who inflated the price to begin with. It gets worse when employees pay taxes on the equity at the inflated valuation, but there are ways claw that back later.
  - airstrike 8y ago
    > The problem arises when the company exits at below the ridiculous valuation, inflated by the up rounds. But you don't have the counterfactual to know what the company would have exited for without the ridiculous valuation. Probably a lower number.
    - bduerst 8y ago
      An exit is an exit. Failed companies getting acquired is still an exit, whether it happened early without funding or later with a ridiculous valuation. The difference is the expected value of income that the employees are given in equity, which is especially nefarious.
  - harryh 8y ago
    Investors in the unicorn know it's a ridiculous market cap, but will lock in preferential payout on the exit. This is not a thing that happens in the vast majority of circumstances. Preferences are for downside protection not a way for investors to actually make money. No one invests with the goal of making use of them.
    - bduerst 8y ago
      The "vast majority of circumstances" are not investment rounds propping up a unicorn. Investors who play in this arena are not stupid: https://angel.co/blog/liquidation-preference-your-equity-could-be-worth-millions-or-nothing https://angel.co/blog/liquidation-preference-your-equity-cou...
      - harryh 8y ago
        Good Technology had $556 million in funding: https://www.crunchbase.com/organization/good-technology https://www.crunchbase.com/organization/good-technology Per your link, they sold for $425 million. The investors lost money. That is not the outcome they were hoping for. However, their preferences did provide them downside protection which was, as I noted, their purpose.
        bduerst 8y ago
        Per both links: 1) Good Technology was valued at $1.1 Billion. 2) The investors lost money, but the employees lost much more. -> This is the problem with unicorns. You've completely missed the point.
        deleted 8y ago
        [deleted]
        harryh 8y ago
        #2 is not at all clear. Investors lost (collectively) over 125 million dollars. The only employess that lost money are those that exercised stock options and had to pay taxes on unrealized gains. It's highly doubtful that this totaled nearly as much as the investors lost.
- marcinzm 8y ago
  The value of the company has increased either way, the fact a round happens doesn't change the underlying value but merely signals it. Since employees generally can't sell their shares either way that signaling doesn't impact them. So, in your example, before the round you actually owned $500 and after the round you own $50.
  - airstrike 8y ago
    > So, in your example, before the round you actually owned $500 and after the round you own $50. That's not how the math works. In the prior round people didn't know the value of the company. Maybe it was worth $100M, maybe it was worth zero. The expected value (weighted average probability of all scenarios) of your stake in the company was worth $10 per the parent
  - confiscate 8y ago
    No. I see what you mean, but in practice that's not what happens. Numeric value is determined at time of sale. Without a sale, the object has no "value". It might be useful to you in some way, but it's value is 0 unless you can sell it. There is no such thing as "underlying value" example: I have a normal orange that I bought for $5 at the supermarket. The orange's underlying value is $5. If I sell it to my friend for $10, the value of the orange is now $10. If no one is willing to buy it, its value is $0. The same thing happens when you raise a new round. When you raise a new round, you've made a "sale": someone paid money for it. That exchange of money/shares is what determines value.
    - ivalm 8y ago
      While I agree that selling something at the highest price you can is the best way to appraise value, I disagree that an up round necessarily increases the equity value of employees (unless the employees can sell off their equity during the round). To use your orange metaphor, while it is true that if no one else wants the orange the value of the orange is $0, I don't have to sell it to have a good idea of what the price of an orange is. For example, if there are people offering to buy my orange for $8 and I know that a typical bid-ask spread for fruits is %50 of the bid and most transactions occur at midpoint I can be relatively certain that the orange is worth $10 despite no transaction occurring and there being no market for oranges (if there is a generic orange market you have access to then the entire point becomes moot since you can just take the market price).
throwaway-1283 8y ago
if you're raising at a higher val, then owning a smaller % of something worth more is not a bad thing...
- modeless 8y ago
  Raising money doesn't make you worth more.
  - airstrike 8y ago
    It does if the implied valuation is higher. And it signals to the market that you're worth $x which is greater than your prior valuation (assuming one exists), which anchors the price a buyer will pay for your business
    - rococode 8y ago
      I wonder if anyone has statistics on how often a new funding round increases valuation enough to offset dilution. I suspect that's generally the case, but I may be biased by the fact that funding rounds I hear about are more likely to be the successful ones.
  - throwaway-1283 8y ago
    raising money by itself doesn't, but it does if you are raising at a higher valuation and the share price increases.
  - harryh 8y ago
    It absolutely does because then you have the money. It might not make an individual share worth more (because of dilution), but it 100% absolutely makes the total value of the company go up.
jedberg 8y ago
It's always good to take credit if you're reasonably sure you can make a return greater than the cost. When money is flowing easily, and therefore the cost is low, there is a good chance that you can make a great enough return to outweigh the cost. Money is cheap right now, so it makes sense to get a lot of it while you can so you can ride out the next downturn when money will be expensive.
- rightbyte 8y ago
  So stacking up debt is how you stay on top of a downturn in the economy when it comes?
  - jedberg 8y ago
    Yes, if you have a good plan on using the money. Keep in mind that these are investments, not loans. So they don't have to be paid back. The investor is taking the risk that they believe you can do something with the money. When I say that "money is cheap" I mean in dilution cost, not interest. Although to be fair a lot of corporate debt can be written off without destroying to company so it's not a bad option for bigger companies to issue debt either.
  - jcheng 8y ago
    It can be. See Ford in the mid-2000s under Alan Mulally--that was his play and it was spectacularly successful compared to the counterexamples at GM and Chrysler.
the_reformation 8y ago
"I’m a big fan of Slack Technologies Inc.’s approach to corporate finance. Near the peak of the unicorn boom, in 2015, Slack Chief Executive Officer Stewart Butterfield correctly noted that “it might be the best time for any kind of business, in any industry, to raise money for all of history, like since the time of the ancient Egyptians.” The relevance of that point to Slack was not obvious, though, because it happened to have all the money it needed. A less financially savvy tech unicorn might have taken that as a reason not to raise more money, but Slack decided that cheap money was cheap money. ...Is 2019 the best time in history for tech unicorns to raise money from the public markets? Ehh, not particularly. The S&P 500 is down more than 10 percent from its peak last year. Volatility is up. There is an overhang of several very large rumored unicorn initial public offerings, most notably one from Uber Technologies Inc., which might distract investors from other unicorns. Fortunately for Slack, it still doesn’t seem to need any money, perhaps because it did so very much top-ticking in the private markets. This gives it a certain amount of flexibility with respect to corporate finance. So: Slack Technologies Inc. is planning to go public through a direct listing, " https://www.bloomberg.com/opinion/articles/2019-01-11/direct-listings-are-a-thing-now https://www.bloomberg.com/opinion/articles/2019-01-11/direct...

chollida1 8y ago

So my first reaction was that this is just a vanity metric. However, in the public cash equity markets there is an actual benefit to having a "large" market cap. note: Here I'll use market cap for public companies and valuation for private companies as measuring roughly the same thing even though they have some differences. One of the greatest tail winds a stock can have is to be in a popular index, this means that ETF's will be a forced buyer of their stock. Most indexes have a market cap component and the amount of money tracking large cap indexs dwarfs the amount in small cap indexs so a larger valuation is obviously useful. It can also help public companies borrow as debt to equity is a ratio that most people consider when choosing to loan( buy bonds) from a company so again market cap matters. It also helps a public company pay its employee's in restricted shares as these can be cashed out immediately by employees for actual money as the shares come off restriction so again a growing market cap has the benefit of giving employee's raises without any money leaving the company. Microsoft used this better than anyone during the 80's and 90's. It's less clear to me why a valuation of over $1B matters to a private company though. Even stock options don't really seem to matter as a reason for wanting a larger valuation as typically employee's can't immediately convert options to cash. In that case only the IPO price(hence public valuation would matter). Is there any reason other than signalling that this company belongs with the likes of Uber and Airbnb? EDIT agree with the child posters but they don't really answer the question of why $1B is important for the valuation in a way that, say, $990M would not be.

chatmasta 8y ago
> It's less clear to me why a valuation of over $1B matters to a private company though. > hence public valuation would matter There is your answer. IPO valuations have to come from somewhere, and the most recent private valuation is usually a good starting point for what investors will pay.
- calgaryeng 8y ago
  I'm reasonably certain that the starting point for public valuations is not the most recent private valuations. These deals are typically centered around public valuation comps (i.e. other similar companies) based off of revenues/EBITDA/etc.

payne92 8y ago

This is a double-edged sword for private companies. On the positive, it's generally good to raise money when you don't need it. You're more likely to get the most favorable terms. (Or, stated diffrently, it's hardest to raise money when you need it most, with a zero cash date looming). On the negative, it creates a high bar to clear for the next round of funding. If you don't raise enough, and need more funding later, doing a down round is extremely painful. Worse, if you have anti-dilution and other provisions, the cap table gets blown up. Lots of agita. Public companies: different circumstances (market cap is a currency for acquisitions). Finally, I'm respectful of audacious and aggressive entrepreneurs, but I've got a very sensitive hubris detector. A billion is an arbitrary ego number, and "We don’t entertain offers.... . . and it’s literally not worth the time of day, talking" is crazy. Tell that to Groupon shareholders that held stock during Google's (reported) ~$6b offer in 2010. Ouch. Pride goeth before the fall.

Simon_says 8y ago
> If you don't raise enough, and need more funding later, doing a down round is extremely painful. I hear this a lot, but I don't quite understand the sentiment. It's painful for whom? The earlier investor, sure, but not the founders. Scenario 1: I have a round of funding at $1MM valuation then later a round of funding at a $10MM valuation. Scenario 2: I have a round of funding at $100MM valuation then later a round of funding at a $10MM valuation. Scenario 2 has a down round, but it's unclear to me how anyone in this scenario is worse off besides the suckers who bought in at a too high valuation. They just overpaid; that's all. The business and the other shareholders are strictly better off because they were able to get more cash for the shares sold.
- PeterisP 8y ago
  The investors of the that $100MM round very likely have some downside protection in the agreements, so that the following down round disproportionally dilutes all the owners before that $100MM round - the founders, initial investors, and employees.
  - 8y ago

Scarbutt 8y ago

Curious, how do these products get introduced at established companies? I suspect training and adopting new workflows adds lots of friction, so how do they do it?

fellars 8y ago
It happens organically with Airtable. We do custom implementations of it with companies. Most get started by someone because its so easy to get up and going but then reach a point where they need some more expertise and bring us in.

manishsharan 8y ago

Their tools reminds me of Borland's Turbo Pascal --- in that it made programming accessible to the masses .. well us geeky kids then. I wonder if Borland's acquisition price comes close to $1Bn in today's dollars.

titanomachy 8y ago
$75M in 2009. So no, not remotely.
- andrewf 8y ago
  Borland declined dramatically. https://www.cnet.com/news/borland-a-big-lesson/ https://www.cnet.com/news/borland-a-big-lesson/ reckons Borland peaked at a $7 billion valuation, and they did spend hundreds of millions on campuses and acquisitions in the early 90s.

capkutay 8y ago

Honest question: is the unicorn valuation just a tool for VCs to inflate the value of their stock in the second market? Here's a scenario that happened recently. Investors X and Y invested a $30 million Series A in UnicornCompany. Lets just say its a $200m valuation. Those same exact investors invested a $50m Series C at a $2 billion unicorn valuation (no new investors). Doesn't that mean their initial investment is now worth 10x in the open market? Thus making their return at least $300m on $80m invested?

bb88 8y ago
Yes, but they actually have to sell their shares for $x billion if they want to see any actual profit. Future investors are likely to be skeptical if the current and projected income doesn't match the valuation.
tim333 8y ago
It's more complicated than that. What a company actually trades for in the open market is down to investors opinions and may be different from 'what the company is worth', which is also a little in the eye of the beholder. However after the C the VCs may be able to report a 10x return to their investors.
mikekchar 8y ago
No. You are conflating "valuation" with "value". Let me give you an example. My company has 10 shares total and I manage to get you to buy one of them for $100. The logical conclusion is that the shares are worth $100 each and the company is worth $1000. You hold 1 share, and I hold 9 shares. I also have the $100 you gave me. So one can say that you bought 10% of the company at a $1000 valuation. But let's say I don't do anything at all with the money you gave me and I had no other money to begin with. What that means is that you have 1 share and I have 9 shares and $100. If we liquidated the company now, you would get $10 back and I would keep $90. The company has a value of $100. Now let's say that somebody is really interested in buying shares. I give you the OK to sell your share and somebody offers to buy it for $10,000. You sell your share for $10,000 (10% of the company). The logical conclusion is that the other 9 shares are worth $90,000 and the whole company has a valuation of $100,000. But I still only have $100 in the bank :-) Now, let's say that encouraged by the huge profit you made, you buy 4 shares at $20,000 each from me. The valuation of the company is logically $200K because there are 10 shares and the last time someone bought some it was for $20K each. You own 40% of the company. I own %50 of the company and they person who bought the original share from you owns %10 of the company. The company has $80,100 in the bank. You try to sell your 4 shares now, but nobody wants to buy. The shares have a nominal value of $8,010 each ($80,100 / 10 shares), but nobody feels like buying. Your shares are worth 0 because I control the company and don't want to liquidate. Basically, I conned you into giving me $80,100 :-) Shares are worth what other people are willing to pay for them. Whether or not someone will be willing to buy your shares back for the current "valuation" of the company depends a lot on the circumstances. Whether you are even able to sell your shares depends on agreements you made, etc, etc. You can easily have a company with a $1 billion valuation whose stock is worth less than toilet paper in reality. Companies that are pre-IPO are really ripe for the hype machine. You generally can't trade their stock except at a "liquidation event". You can invest in them, and their valuation might climb, but you can actually realise any of that profit. If they pull a Theranos on you, then you lose all of that money. Once a company has IPOed, the stock is traded freely on the stock market. Since it is liquid, you are more likely to be able to sell your stock close to its current valuation. Keep in mind that this is still not the same as value -- stocks usually trade a prices of multiples of the current value (because people believe the companies will increase in value over time). Edit: I have trouble multiplying by 4... :-P

etaerc 8y ago

It is actually quite stupid to get a unicorn valuation if you are not a really good fit for world conquering business. In all other regards it is people gambling using other people's money and using your time&health. Most ideas simply aren't that kind of idea. And if you don't get other investors with your idea think about simply doing a full time job and considering your project a hobby. It can still turn to make you a tidy profit. And I can promise you that if you are talented you can also work for big corps and enjoy a good life there. Sure the tasks don't seem to be very meaningful, but if you fake a new chat app as a unicorn startup it's not that much more meaningful either.

chirau 8y ago

What is the difference between

chirau 8y ago

QUESTION: What is the difference between an "accredited" investor giving a company money at a billion dollar valuation and just another regular person? If A16Z gives a company 100M at a 1B valuation, it becomes a unicorn. Does the same apply if my neighbor gives me 400M for 40% (1B valuation) of my company? Does that make my company a unicorn? If it does, what about if he gives me $1000 for 1 millionth of my company? Or maybe with 5 or 6 other investors bringing on their $1000 as well at the same valuation and adding validation? Whose valuation counts and why?

crooked-v 8y ago
"Accredited investor" in legal regulation terms is mostly a polite way to say "has enough money to not be permanently ruined if one of their big risky investments ends up in the hole". That is to say, if your neighbor has 40 million dollars in the first place, he almost certainly counts as "accredited", unless he's also got 50 million sitting around in liabilities.

kumarski 8y ago

Been begging them to make a function that is "Date Cell was updated on."

fellars 8y ago
That exists. Its currently in beta. I have had access to it for months. You should be able to ask them to turn it on for you.

dafty4 8y ago

https://www.youtube.com/watch?v=7_KnUi3t2JI https://www.youtube.com/watch?v=7_KnUi3t2JI

potatofarmer45 8y ago

Any demonstrated success of a startup signals to partners, investors, customers and employees that the future is bright and these parties adjust their actions (often to the benefit of the startup). Unicorn status is just one such signal(abient a very powerful one). It's much much easier to hire good engineers at a lower payrate when the signaling is good because they actual believe the paper equity they get is actually worth something down the road. In the same vein, positive signals and the good press that comes with it helps you win business. In our case (no where near a unicorn), but we were featured in a local paper. That paper was seen by the CEO of a company we were in negotiations with and were stuck down on a lot of DD work. They wanted all these assurances we would still provide services and won't just take the money and go bankrupt a year later etc etc. CEO saw us described as the "next big thing in X" and intervened. He told us later he "knew" we were going to be huge and wanted to lock us in early as a partner. Contract was signed less than a week later. Unicorn status is largely a vanity metric, but it's also a power signal that if used correctly, gives a lot of benefits to the startup.

dasil003 8y ago
What I find frustrating about this is if it leads a founder take liquidation preference multiples or other disadvantageous terms that drastically reduce my chance of seeing any payday as an employee. I've been around, so I'll take solid financials over juicy-looking smoke and mirrors any day, but my worry is the median startup employee is young and inexperienced enough that it probably serves the founder to play these games.
- yowlingcat 8y ago
  Unfortunately, I think that ship sails when you take VC funding. Founders that can fundraise and run corporate BD/sales well and/or are experienced can mitigate this by having a stronger hand to bargain with, but it's just unavoidably the case that VC money comes with strings attached. They indemnify themselves differently from debt investors, but as you point out, that comes from liquidation preferences as well as preferred participation and more. While I would say that it seems probable that many startup employees are young and inexperienced enough that it services the founder to play these games, I'd definitely say that the incentives are definitely in favor of this dynamic. It's unfortunate. I'd prefer solid financials and growth, just like you. The only real way to avoid this kind of game is not to play -- have an independently wealthy founder/stakeholder, or a very close relationship with an angel investment firm that can afford to be long term. It's challenging to find that from people managing Other People's Money.

username223 8y ago

> until somewhat recently, we’ve been able to sustain our operations without any external capital [owing to] a product that monetizes itself, from a customer base that gets real value from us. Translating this bafflegab into english is educational: > We used to be profitable because people liked our product enough to pay more for it than it cost us to produce. Now we're not, so... unicorn?

Animats 8y ago

There's so much dumb money floating around that too many "unicorn" failures are being propped up. In the self-driving car area alone, we have: - Cruise Automation. Showed a video of simple lane following and hyped it as self driving. Got acquired by GM for 1 billion. Claimed to have a production-ready car in 2017.[1] GM now trying to dump them.[2] Being propped up by funding from Softbank. - Otto. Showed a video of a self-driving truck.[3] Turned out this was on an isolated road with lead and trail vehicles preventing any interference. Acquired by Uber. Valuation only 680 million, though. Used to hype Uber valuation. Self-driving technology so fake it killed a pedestrian.[4] Being propped up by funding from Softbank. - Tesla. Showed a video of a self-driving car in 2016.[5] Turned out this was the one successful run from many tries. Full self-driving never seen again from Tesla. Softbank and Tesla discussed funding but Softbank declined. [1] https://www.businessinsider.com.au/general-motors-cruise-production-ready-2017-9 https://www.businessinsider.com.au/general-motors-cruise-pro... [2] https://www.bloomberg.com/news/articles/2018-06-15/gm-is-said-to-explore-listing-shares-of-cruise-self-driving-unit https://www.bloomberg.com/news/articles/2018-06-15/gm-is-sai... [3] https://www.youtube.com/watch?v=Qb0Kzb3haK8 https://www.youtube.com/watch?v=Qb0Kzb3haK8 [4] https://www.economist.com/the-economist-explains/2018/05/29/why-ubers-self-driving-car-killed-a-pedestrian https://www.economist.com/the-economist-explains/2018/05/29/... [5] https://www.theverge.com/2016/10/20/13343828/tesla-fully-autonomous-test-video https://www.theverge.com/2016/10/20/13343828/tesla-fully-aut...

contingencies 8y ago
Tesla has media presence, an existing customer base and an existing distribution network. Even if they come to the party late, they're not unlikely to take a slice of the market. Therefore, if I were investing in that sector I wouldn't discount them as a meaningful contestant, remembering they can always buy their way in to third party tech.
- gamblor956 8y ago
  Blackberry has media presence, and existing and very loyal customer base, and an existing distribution network... Oh wait...that didn't work out so well for Blackberry (or Palm or Microsoft). Does anyone remember when Creative dominated the media player market? Or when everyone thought Sony would take over the electronics world? When everyone thought Yahoo needed to be broken up before it threatened the internet? if I were investing in that sector I wouldn't discount them as a meaningful contestant, remembering they can always buy their way in to third party tech. One thing most of Tesla's competitors all have in common is that their business interests are opposed to Tesla's business interests. This means that a licensing of self-driving tech is extremely unlikely.