What are the odds?
I see so many startup friends overestimate the value of the options they get and so today, I’m going to propose a random idea.
I’d like your feedback.
The hypothesis is that this idea would help prospective startup employees understand the odds their options will be worth something one day.
It will also help employees who are leaving a startup and trying to figure out if they should exercise their options.
Tell me what you think by answering the poll further down in this newsletter.
More details below, but first, we got data…
Around the world, around the world
We used the CB Insights platform to gather funding and exit data for startups around the world and narrow down the globe's top tech hubs.
From Silicon Valley to London to Shanghai, we analyze 25 established and up-and-coming metro areas and their tech companies. Download the report here.
Some more on options
Before we get to the question, a couple of notes.
First, if a company says it's pre-IPO and it hasn't filed its S-1, that is BS branding. Every startup is in some sense “pre-IPO,” if you must.
Second, it is worth remembering that some companies are better at fundraising than building a business.
And being over-capitalized can often be bad for your stock options.
As Fred Wilson recently wrote, “...the higher the valuation, the less money the employees will make on their equity.” (His post is in The Blurb.)
Seemed like a good idea at the time
Innovation is hard, and it doesn't always work out when big brands try something new.
From bottled water for pets to the Blackberry Storm to the Juicero, we take a look at 132 products that were big, fat failures.
The 'raising VC is my biz model' company
A good way to evaluate startups is to look at the revenue-to-funding-raised ratio.
Here's a look at 2 BI players:
- Domo, which has filed for its IPO, has a revenue:raise ratio of 0.16.
- By contrast, Tableau had a revenue:raise ratio of 8.51 at the time of its IPO.
To be very clear, a high ratio indicates a company can turn funding into revenue (this is a good thing). So in this case, which company would you want stock options in? The answer is obvious.
Note: Domo’s last private company valuation was at $2.3B (clients can see its insane valuation multiple here). After its recent IPO filing, we highlighted the company’s overvaluation vs other BI companies in a recent client note. It reduced its IPO valuation by 75% last week.
BTW, who gets creamed in that valuation demolition? Employees.
A worldwide phemonenon
Companies in the Silicon Valley metro area have seen 12K deals since 2012 — more than all non-US metro hubs combined.
But investment is growing outside of California. We look at where deals growth is up and where it's down in our new Global Tech Hubs Report.
Do my options have a chance of being valuable?
So the idea is pretty simple.
First, you’d upload your startup offer letter (or details on the options you have which you might exercise). You’d include details on options (quantity, strike, etc.), plus some supplementary info that you might know about the company.
We’d use CB Insights data to assess the company, industry, and comps, and assess odds on your options being worth anything.
It’d be free.
So would you do it? Click below to vote.
Yes — to determine if I should exercise my options when leaving
Yes — to assess multiple job offers
No — I wouldn’t use this
Since some of you will write saying that the revenue:raise ratio is imperfect or that some startups are in markets that haven’t been invented yet, here is the reality.
- No analytics will tell you that you are at the next Google or that your options will def be worth zero.
- But being more informed with data and information before making a large life commitment (of time or money) is a good idea.
- Today, most employees at startups are at an information disadvantage and this idea might help fix some of that.
- Of course, if you choose to ignore the data, that is fine. There are plenty of non-financial reasons to join a startup.
AI for all
Microsoft is buying AI startup Bonsai as part of its goal to make AI "more accessible and valuable for all."
We previously highlighted Bonsai as an early-stage enterprise AI startup to watch. Read about it and 8 other noteworthy companies here.
The key to crypto: speed
In a lively conversation at Future of Fintech, Ripple CEO Brad Garlinghouse chatted with Fortune’s Jeff Roberts about the future of Ripple and why he believes XRP is better than Bitcoin (transaction speed), among other things.
Jeff also asked Brad if he owns any Bitcoin. Watch the video here, where these questions — and more — are answered.
Is it me you're looking for?
Some of our friends are hiring:
The Industry Standard
CB Insights data is the most trusted by those in the industry and the media. A few recent hits.
Inc. Michelle Cheng (@mbcheng15) writes about how the founders of e-commerce clothing brand Revolve built the company and quotes CB Insights senior retail analyst Zoe Leavitt (@zoe_leavitt).
Financial Times. Patrick McGee (@patrickmcgee_) reports that German data startup Celonis has reached unicorn status and cites CB Insights unicorn data.
CNBC. David Reid (@cnbcdavy) discusses the level of language Elon Musk uses on earnings calls and refers to CB Insights’ mobility earnings call analysis.
I love you.
P.S. On June 28, we'll be discussing enterprise blockchains and the future of decentralization. Register here to join us.