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I'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 l

I'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 ago
Valuations 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 ago
  But, 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 ago
    Basically yes. Whatever it takes to hold up the value before dumping into the public
  - takinola 3y ago
    Not 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 ago
      Sorry, but cars are not companies. This doesn't apply even if it was correct.
steveBK123 3y ago
I 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
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takinola 3y ago

Valuations 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 ago
But, 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 ago
  Basically yes. Whatever it takes to hold up the value before dumping into the public
- takinola 3y ago
  Not 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 ago
    Sorry, but cars are not companies. This doesn't apply even if it was correct.

steveBK123 3y ago

I 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

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