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Coincidence, as Jeremy points out, is far from what’s happening here.
Unicorn founders talk openly to the media about their desire to get the $1B valuation, as it helps attract talent, media, etc. The cynical and basic talent calculation that they’re making here is that employees don’t understand options and so will be smitten with a headline valuation without knowing what it actually means.
And, candidly, they’re probably right.
There is an adage in VC land — “You set the valuation, I set the terms.”
This is what is happening to get that exact $1B valuation. Even if the fundamentals don’t justify the $1B valuation, the investors can lay on enough structure and terms to get the founders to a $1B headline valuation (while investors have the protections they need).
With the $1B valuation, founders get:
- desired media exposure to attract talent
- bro-grats tweets
- conference speaking gigs
- a place on this list
And investors get enough downside protection to make $1B palatable.
Perversely, the terms and structure on these deals most negatively impact common shareholders (employees) when things don’t continue up and to the right. In these exit situations, common shareholders, aka employees, get fleeced.
TL;DR — Employees should do their diligence on unicorns so they are able to distinguish marketing value from real value.
Also a worthwhile warning from Antonio Garcia Martinez. |
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