3 ms·
I think that's fair, but this seems to be changing. When I talked to our employees about receiving equity they valued it way below what prospective investors wo
by JamesBarney 4y ago
I think that's fair, but this seems to be changing. When I talked to our employees about receiving equity they valued it way below what prospective investors would.
- mlyle 4y agoProspective investors have preference items, rights, and control. This is why common is valued "way below"-- and it's rational for employees to view it the same way.
- JamesBarney 4y agoFor sure. (Though in our case the investors only had preference and moderate anti dilution rights vut had less control than common) We raised over a year ago and have grown revenue 300% YoY, and only had .5 arr in preferred. And they didn't value it as highly as the investors a year before. They preferred cash.
- HWR_14 4y agoIf your example is "they don't value it as much" is based on a valuation over a year ago, it seems to be flawed. Could you raise at the same terms? Those young whippersnappers wouldn't even buy your house in 2009 either!
- JamesBarney 4y agoI'd be surprised if we couldn't raise at 3.5x ARR, typical SaaS margins, and 300% YoY growth.
- HWR_14 4y agoI'm not saying you couldn't raise. The question is could you raise at the same terms? As I understand it, even if your valuation goes up, there's a lot more demand for more preferential treatment of the shares, etc. A little over a year ago seems to be the recent peak of VC funding and valuations.
- whimsicalism 4y agoThe risk-calculus is diffferent. If an employee is going all in on a company, they need better risk compensation than a diversified VC that has an EV on their investments.
- deleted 4y ago[deleted]
- JamesBarney 4y agoI totally get it but if they're valuing it below investors they're definitely valuing it below market.
- whimsicalism 4y agoBut there isn't any public market.
- JamesBarney 4y agoThere's not a public market but there is a market.
- whimsicalism 4y agoWhy would I value equity at its price in a market I can't even access? Again, VCs don't care about ability to liquidate because they are diversified, but an employee certainly does because they are not diversified at all.
- JamesBarney 4y agoThis argument started with me saying that employees aren't overvaluing equity like they used to. And you are seeming to make the argument that employees are overvaluing equity but also valuing it below what the founders could sell it for. I wouldn't call that overvaluing, I'd say employees are correctly and rationally undervaluing common stock due to their undiversified portfolio.