Not nearly enough startup employees understand liquidation preferences: http://www.nytimes.com/2015/09/23/business/dealbook/the-risk-of-a-billion-dollar-valuation-in-silicon-valley.html …
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Replying to @emerose
Preferences mean that it can be totally rational to invest at an absurd "valuation": you'll get paid even if the company sells for much less
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Replying to @emerose
The Times article takes pity on founders who get into trouble selling preferred stock to VC firms, but the bigger issue is the employees
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Replying to @emerose
Naive employees look at the difference between their strike price and the "valuation" of a company as though that's what they're earning
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Replying to @emerose
It seems like the last round proves respected investors think the company is worth X and if the company continues to grow it'll be worth >X
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Replying to @emerose
But the reality is that lead investors make their return <<X — and X already includes a ton of future growth and optimistic assumptions
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Replying to @emerose
It may well be that no one who can see the books actually thinks that X is a realistic outcome — but employees will never know that
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Replying to @emerose
Certainly, many folks at Silicon Valley startups earn plenty of cash too, so it's hard to feel too sorry for them (us!)
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Replying to @emerose
But more transparency around cap tables and preferences would help employees in the long run (and would let a bit of air out of the bubble)
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@emerose Whole brooha has some feel of people looking for a catch. (That said, I'm all for transparency around it.)
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