5 ms·
Funny this doesn't mention structured equity. Matt Levine touched on this in a recent Money Stuff column for Bloomberg Opinion, and he had a way to turn this pr
by vngzs 3y ago
Funny this doesn't mention structured equity. Matt Levine touched on this in a recent Money Stuff column for Bloomberg Opinion, and he had a way to turn this problem into a business model:
> There are, these days, a lot of startups that used to be worth $1 billion and are now worth $500 million. Some of them raised money at $1 billion valuations, back in the good times, and now they need to raise money again. It is, for some combination of good and bad reasons, extremely undesirable for a startup that raised money at $1 billion to raise money again at $500 million. Therefore there is a business opportunity for a fund that will:
> 1. Give startups money at a $500 million valuation, but
> 2. Say that it’s at a $1 billion valuation.
> This is called “structure,” or “structured equity.” Bloomberg’s Gillian Tan reported Friday:
> > Philippe Laffont’s Coatue Management raised about $3 billion for a structured equity fund that allows closely held companies to avoid raising money at lower valuations, a person with knowledge of the matter said.
> > With the market for initial public offerings in a funk and lower risk appetite from large venture capital investors, some startups have sought to raise convertible notes and pursue structured financings instead of accepting a lower valuation through a traditional equity funding round.
https://archive.is/Uy4nZ https://archive.is/Uy4nZ
- Paul-Craft 3y agoI'm very confused here. How is "structured equity" not just considered "lying?" In other words, why is this not just fraud? How is it even legal? They're literally just making up numbers that are independent of the business's financial health, revenue, TAM, or any other damn thing that ought to go into writing an honest valuation.
- takinola 3y agoValuations of public companies are decided by a small number of parties. Those parties can decide the valuation is whatever they want it to be. As long as the underlying economics of the business are not obscured, there is no fraud being perpetrated. If it helps you can think of this as a transaction where the investor is providing a service of buying the startup more time to build up their valuation and in return obtains shares for a discounted rate.
- Paul-Craft 3y agoBut, the underlying economics are being obscured if I'm someone interested in buying shares of the company you say is worth $X but everyone else says is only worth $X/2.
- gloryjulio 3y agoBasically yes. Whatever it takes to hold up the value before dumping into the public
- takinola 3y agoNot really. Imagine you want to buy my car. I give you the make, model and let you test drive it. I also tell you that I paid $X for it and so I’m selling it at some related price F(x). At this point you have all the information to make an independent valuation. You may or may not be influenced by my view of the valuation but that’s on you to decide if you will pay what I’m asking or not.
- Paul-Craft 3y agoSorry, but cars are not companies. This doesn't apply even if it was correct.
- steveBK123 3y agoI thought the same and did more reading. It's generally "structured" because its something like preferred shares instead of regular equity. They give some liquidation preference to the new money so it has an incentive to pay more than a straight % value of true valuation. ie - if it gets taken out below certain levels where not all equity is going to get made whole, you are first in line and get made whole. "The preferred stock has the same upside as the common stock, but it has a lot of protection on the downside."
- deleted 3y ago[deleted]
- callalex 3y agoNonsense lying like this is how we ended up with the mortgage crisis.