For Billion-Dollar Companies, Venture Deals Outstrip Going Public(blogs.wsj.com)
blogs.wsj.com
For Billion-Dollar Companies, Venture Deals Outstrip Going Public
http://blogs.wsj.com/digits/2014/08/19/for-billion-dollar-companies-venture-deals-outstrip-going-public/?mod=WSJ_hpp_sections_tech
9 comments
I see where you're going with this, but try to understand the common man can't always be a founder... cause the common man has bills/mortgages/rent/families/kids and a whole lot of other things to deal with. Also, have you been out there in the startup world lately? There are tons of people out there with ideas (mostly bad, some possibly good) -- and no money.
I imagine these big investments will push the costs of tech labor up (designers and devs) -- since there are people out there with the money now -- which can possibly be a good thing and a bad thing... But in either case, it will become harder to price talent/skills properly.
I imagine these big investments will push the costs of tech labor up (designers and devs) -- since there are people out there with the money now -- which can possibly be a good thing and a bad thing... But in either case, it will become harder to price talent/skills properly.
Except in the days before the "heightened burden of SEC regulation" IPO shares were largely only available to wealthy clients of the banks that underwrote the IPOs. The rest of us were just as left out.
Not sure I understand. IPO shares are still only available to the wealthy clients of the banks that underwrite them.
That was my point - nothing has changed. The OP was suggesting things were better in the past.
Yeah, I think that comment conflates three things:
1) The regulatory burden of going public (Sarbanes-Oxley compliance et al.) pushes companies to stay private, which keeps the average Jane from investing in those companies via the public markets.
2) For those companies that are privately held (whether that's because of the regulations in #1 or for more fundamental reasons), separate regulations (accredited investor rules et al.) prevent the average Joe from investing privately.
3) On top of #1 and #2, market forces and norms give more investment opportunities (both public and private) to large, established players than individual laymen. For example:
* Companies may prefer to take $1M each from 5 large investors than $1k each from 5000 people, both to reduce logistical burden and because those large investors statistically have other unique things to offer like expertise, advice, and connections. This is unfortunate for the small-time-but-sophisticated investor, but seems quite rational.
* IPO shares only being offered to large friends and clients of the underwriter. The justification is reduced logistical overhead as in the previous case, but the true motivation is widely suspected to be cronyism.
2) For those companies that are privately held (whether that's because of the regulations in #1 or for more fundamental reasons), separate regulations (accredited investor rules et al.) prevent the average Joe from investing privately.
3) On top of #1 and #2, market forces and norms give more investment opportunities (both public and private) to large, established players than individual laymen. For example:
* Companies may prefer to take $1M each from 5 large investors than $1k each from 5000 people, both to reduce logistical burden and because those large investors statistically have other unique things to offer like expertise, advice, and connections. This is unfortunate for the small-time-but-sophisticated investor, but seems quite rational.
* IPO shares only being offered to large friends and clients of the underwriter. The justification is reduced logistical overhead as in the previous case, but the true motivation is widely suspected to be cronyism.
The tech industry is just a vehicle for money laundering by the rich now. At least IPOs gave engineers and workers a chance to win a lottery ticket.
Developers, stop slaving away for the VC's. You are wasting your time and have no chance of getting paid until we reform the economic foundation of our trade.
Developers, stop slaving away for the VC's. You are wasting your time and have no chance of getting paid until we reform the economic foundation of our trade.
Well you do get secondaries, but it's usually only something like 10% of vested stock, while your still working there. The lack of a public market also makes it far more risky to hold the stock for long term capital gains tax rates. I agree the lack of IPOs make equity earnings less valuable to the typical employee.
I wish more people knew this. Even if you beat the odds and the startup you work for goes places, you may only get 10%-15% of the proceeds now, and be hoping for the rest even further out in the future. Almost certainly better to just work for a public company from the start.
Are you saying you only get 10-15% of the proceeds of YOUR vested stock? So if I have 1% of a $100m company, my shares would only get me $100k, not $1m? Can you explain or link to a source of more information?
Petalpete - the comment above refers to pre-ipo sales of employee stock.
A bunch of private companies that hit billion dollar valuations let employees sell some of their shares. That person is claiming that those sales allow employees to sell 10-15% of their vested stock.
Of course, if they do that, they still keep the other 85-90%.
A bunch of private companies that hit billion dollar valuations let employees sell some of their shares. That person is claiming that those sales allow employees to sell 10-15% of their vested stock.
Of course, if they do that, they still keep the other 85-90%.
This is exactly what I meant, thanks for filling in the details.
If you have 1%, most likely you are an early employee.
There's a formula: VCs and founders get reach, early employees get screwed and employees get their market salaries.
There's a formula: VCs and founders get reach, early employees get screwed and employees get their market salaries.
You can opt to sell in the IPO/secondary, but otherwise you're generally free to trade when the trading window is open for current employees (typically) 180 days give or take post-IPO.
Some possible explanations:
1) Inflation - a billion dollars isn't what it used to be.
2) Stock market bubble causing investors to look elsewhere.
3) Founders are younger - they aren't looking to retire yet so let it grow, let it grow, don't need an exit yet.
Also some founders are able to trade equity for big cash in a funding round
http://www.businessinsider.com/snapchats-founders-pocket-10-...
http://www.businessinsider.com/snapchats-founders-pocket-10-...
The bar for becoming a billion dollar company is less nowadays of course. If you multiply the inflation rates from 2000 to now, you get a %36.77 amount of inflation since 2000. Todays billion dollar companies are approximately the year 2000's $750mm companies.
http://forecast-chart.com/forecast-inflation-rate.html
http://forecast-chart.com/forecast-inflation-rate.html
Seems like this would be a natural consequence of the increasing concentration of wealth. The top 1% of the population control 43% of the wealth in the US. But for the 99%, much of that wealth is illiquid and not readily available for investment (particularly speculative investment). So I wouldn't be surprised if the 1% controlled as much as 90% of the liquid wealth available to invest in young companies, making it unnecessary to go to the public markets.
By the way, what's the minimum income, to be in top 1% of incomes in the US?
Around half a million dollars. Source: http://www.brookings.edu/research/essays/2014/saving-horatio...
The VC model is more conducive to the Greater fool theory: http://en.wikipedia.org/wiki/Greater_fool_theory. While social psychology and public sentiment certainly plays into the valuation of public companies, being a public company typically restricts valuation to more standardized valuation models and scrutiny; it's much more transparent overall.
It appears there's only room for 11 or 12 big IPOs per year. If the current trend holds and late-stage investors are creating more private unicorns than the public can bear, we have a problem. The fallout from this mismatch wouldn't look like a tanking stock market. Just a lot of formerly impressive companies quietly being acquired for a relative firesale. I suspect Box and Square are both in this situation.
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Raising money in public markets nowadays makes the company significantly less agile. Marc Andreessen has been advocating staying private for as long as possible in quite a few places, including here
http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-a...
http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-a...
Being a company that's large enough to go public makes a company significantly less agile. But of course, I'm totally shocked that a venture investor would argue for companies doing things that benefit venture investors.
Well, before he was a venture investor he ran a company. And, generally speaking, VCs tend to be supportive of IPOs.
But, if you don't IPO, how do you exit, leaving the muppets with the stock, whilst you run with the cash?
Staying private means actually building something? Of value? That is not simply another shitty Rails site, or tries to skirt around regulations and pretends to be 'disrupting' things?
Oh dear, this won't go down well at all with the chattering classes on HN!
The regulations are meant to protect the everyman, but the perverse result is that the opportunity to participate in these fantastic returns is now restricted to the executive tier at the startups, the rich accredited investors, the VCs, and the private equity firms.
The rest of us are left out ... unless we become founders ourselves.