Silicon Valley’s Unicorns Are Overvalued (2017) | Hacker News Reader

Silicon Valley’s Unicorns Are Overvalued (2017)

gsb.stanford.edu

31 pointsBrajeshwar10 comments

"Some unicorns have made such generous promises to their preferred shareholders that their common shares are nearly worthless."

Yup.

it doesn’t help that they use square as an example which had its last raise at 6 (they said that was overvalued) and now is worth 30 on open market

current valuation is irrelevant and doesn’t hurt the article at all. once a company is public you don’t have to become a private investor and worry about valuation. you can just buy shares on the open market.

the only thing that matters is the price at exit. and their point is made quite well with square.

It's obviously a truism that the preferred shares will have a higher valuation than other shares. And if you multiply the preferred share valuation by the total number of share you'll end up with an "overvalued" number. That doesn't tell us whether anyone is investing in at an overly high valuation though, since they're actually investing in preferred shares...

What sort of preferred shares are they? the one I know of effectively a form of debt with no voting rights.

as the article says it’s comnon to have 8 classes of stock, not just preferred and common. but you are probably generally correct.

where this does matter a lot is for employees.

This is based on the observation that the valuation "...doesn’t accurately reflect the preferred treatment some investors might get, the researchers say."

Which is irrelevant if the unicorn does well enough anyway.

That's not really the point of the article. It's saying that multiplying share price from the last round by all outstanding shares overvalues the company. The effect is increasingly relevant the further back in line you are for payout.

i don’t think that’s correct, in that you (and the article) is lacking nuance. the “valuation” is different for every investor. in fact for preferred shares the value may be accurate. but for common shares it is not. before a company goes public, there isn’t a single valuation. there’s a set of valuations.

article is 2017 but the paper was revised may 2018

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