The $80 million price tag wouldn't have been achieved if they hadn't raised $80 million first. When an acquisition sells at the same price as money raised, good sign the company isn't worth that much - it's just the minimum $ amount that would allow the Board to sign off on it.
Sometimes that minimum is too high compared to the company value and so no sale happens and the company just dies.
> When an acquisition sells at the same price as money raised, good sign the company isn't worth that much - it's just the minimum $ amount that would allow the Board to sign off on it.
You realize this makes absolutely no sense, right?
No, I still actually do not follow, nor does this seem equivalent to what you said.
"sale_price < real_company_worth"
This statement in that conditional seems like it could never be true.
If sale_price == total_money_raised_owed, then real_company_worth <= total_money_raised_owed because sale_price = max(total_money_raised_owed, real_company_worth).
Therefore, inside the conditional, sale_price = total_money_raised_owed >= real_company_worth, therefore sale_price >= real_company_worth which is the opposite of sale_price < real_company_worth.
you're right that my math is wrong in regards to sale_price < real_company_worth - it should have been the other way around... (real_company_worth < sale_price)... I guess I needed more coffee...
max is correct though (whichever value is highest, that sets the base price).
shareholders would rather lose only half of their investment then all of it. It's quite possible for a company to sell at a shareholder loss.
And of course, some sheareholders lost their stakes in this sale.
> Because the company’s obligations to its preferred shareholders exceeded the sale price, investors won’t be paid out in full, according to a document reviewed by Bloomberg.
No! Why do you think people are going to pay $80M for Genius if it's worth $1M?
Companies rarely sell for less than the total amount raised. This is true. It doesn't mean that buyers regularly pay double for something because the company wouldn't otherwise sell. It means the buyers just don't buy it!
If Genius was really only worth $1M - we probably wouldn't ever hear about it - because they probably wouldn't ever sell it for that price.
Have you ever been part of a company sale before or been at a private meetings/meetups where founders talk about how they sold their business? I've never sold a company, but I've talked privately with many that have (and have raised considerable sums).
Very common that the baseline is the amount of money raised - it's why sometimes companies die and not get sold. Other times, companies will use amount of money raised as leverage to increase the final sale price (based on investor expected returns).
Money raised plays a huge factor in regards to sales price, or if a sale occurs at all.
If they had $79m in cash/liquid and no debt then their enterprise value was $1m and a sale for $80m would make sense at a $1m valuation. But yeah, doubt that.
> When an acquisition sells at the same price as money raised
The acquisition did not sell at the same price as money raised so this assertion is invalid. The article directly stated this - did you read the article you are commenting on?
"Its price tag of $80 million represents less than what it raised over the years in venture capital, according to PitchBook."
The thesis you have been hammering this tiresome thread is that a company can't possibly sell for less than the amount that's been invested in it (with the implication that buyers will then be willing to pay more than they would otherwise if it's what it takes to meet that number, which is just weird), and the very example you were discussing in fact disproves your thesis. So.
I'm not sure if you ever used StoreKit or their subscription API... its so full of holes and poor documentation and poor implementation that it's a nightmare to work with (particularly subscriptions). Don't believe me? There's a YC startup raising millions of dollars dedicated to solving the subscription implementation problems Apple has created...
But it doesn't force them to allow other purchasing mechanisms, just that they cannot bar "calls to action that direct customers to purchasing mechanisms". My read on that is that Apple is still allowed to force Apple-only IAP, but they cannot bar CTAs to external purchasing mechanisms.
> [Apple] are hereby permanently restrained [..] from prohibiting developers from including in their apps [..] buttons [,..] that direct customers to purchasing mechanisms [..]
I'm not sure how exactly to interpret that but it seems reasonable to interpret that has being able to put a button in your app that takes someone to a checkout page.
Epic is trying to get this done. But the companies are afraid that could trigger anti-trust cases against them. It’s complicated - but they’re watching and I believe big tech has grown tired of Apple’s power.
That’s the problem with paid apps... but I also believe now it’s a problem with devs not validating the app receipt to check for refunds and prevent access.
For in-app purchases, up until a few years ago, users would always have access to them (even after a refund) then it followed the same rules as paid apps - access always maintain but one couldn’t restore.
Subscriptions however are unique as a server would constantly check the receipt from Apple, which would show a refund flag, so you could block access. Now they even send you a push notification to your server to indicate a refund.
With iOS 14, in-app purchases will get a “notification” when a user receives a refund on device (with IAP encompassing subscriptions).
"for less than they had raised" - that's actually not true and sloppy journalism from the journalists that wrote it.
If you look at North's funding - the difference between the suspected purchase price of $180M and what they raised ($200M) is a $24M loan they received from the government of Canada [1], which was called back shortly after (because of layoffs) [2].
The remaining $4M difference is probably interest on a standard debt financing loan of $40M they received [3] and some rounding error in the $180M suspected purchase price.
It seems Google bought them for the exact amount raised, in both debt and funding.
Sorry for the quibble, but it's only a win in Vegas because the expected value in Vegas is negative due to the house edge. The expected value of human effort is typically positive, so a push is not a win in the development of companies.
The expected value in tech startup investment is also negative, I'd suggest. Just like Vegas, all the rational players are really just gambling on the 100x jackpots, and all the "dreamers" who believe and double/triple down on their ideas that never make a profit - fund the whole game.
> The expected value in tech startup investment is also negative, I'd suggest. Just like Vegas, all the rational players are really just gambling on the 100x jackpots
Expected value is precisely the quantity that says that the value of a 3% chance of 100x returns is a 3x return. Also, how can you say that the expected value of investment is negative, but that the rational players are gambling at all? Perhaps you mean that the 3% chance of 100x (or whatever) is irrational for the founders, which may be true, but that isn't really what your words say.
Sure, but "3% chance of 100x returns" is firmly in "dreamer" territory. Best guess I can find is that it's at least an order of magnitude smaller than that:
A 0.3% chance of a 100x return is a 70% loss. (And over 10 years, a 3x "return" is pretty much just breaking even anyway)
The "rational players" in this game are the VCs who're raking 2%/year from the investors in their funds (whether they succeed or not), and also skimming their 20% liquidity event bonus - so they benefit from the winning funds without ever having any personal financial risk in all the losing funds.
In my opinion, pretty much every other tech startup investor could be categorised as one or more of 1) Dreamers (who genuinely believe _this_ one is going be "their unicorn!!!"), 2) Lottery players (throwing away a hopefully insignificant enough amount of money to them, in return for the entertainment of maybe winning big one day) 3) Horse race gamblers (someone who believes they're better informed than 99% of the other investors in their chosen horse/jockey/startup/founder) 4) early stage employees who wittingly or unwittingly accepted vesting options as part of their renumeration (these are arguably somewhere on the spectrum between #1 and #2) or possibly 5) insider traders (pretty much a legally actionable case of #3).
(And I say this with the hindsight of having been the first four of those - some of them several times over...)
From what I've been told they didn't. Only the founders managed to get anything out of the sales, plus took pretty lavish salaries while the company was operating (a lot of it from government subsidies).
Given that analogy, I'm curious how a VC would view this kind of exit. Is breaking "even" seen as some kind of success given the higher failure rate for venture backed companies?
A friend of mine was CTO as a startup that raised like $100 million. They knew it was gonna flop after a while, and wanted to wind the company down and return 50% of the VC’s money. The VC told them to take extreme risk and/or drive the company into the ground before returning the cash. A 100% loss was expected, but a 50% loss was somehow an embarrassment.
Pretty sure PG has talked about this and said something to the effect that all of their money is made on the extreme outliers rather than the ordinary failures or modest successes. Knowing that, it kinda makes sense that they'd rather see the startup push and try to go big rather than just going home.
Well, it depends on the numbers involved. If they estimated a 5% chance of getting $2 billion, then that would be a 2x expected return on a $50 million cost, which is entirely rational for investors with huge pockets. But if they estimated a 1% chance of getting $2 billion, then that's a 0.4x expected return (an expected loss of $30 million), which is irrational, unless the "embarrassment" is a significant factor for the VCs, and that would be interesting.
Yes, that's a fair point--the numbers for the potential upside and downside matter a lot here. I was only trying to make the case that in some cases, the downside risk may not hold a candle to the potential upside.
I also think that they want to see founders who are willing to charge up those hills rather than to shirk away from challenges that seem to be too big for them. Sort of like burning your ships behind you in terms of morale--if it's go big or go home and you can't go home, there's only one choice left.
Supposedly for a VC it is a bit better to liquidate at break even than to limp along with an uncertain future, because VCs no longer have to spend time going to board meetings.
Just a tip: always have your domain start with the brand name. “Get___” “try___” “by___” etc are terrible because when a user is searching to quickly go to your domain, they’ll type your brand name first (as that’s what will come to mind).
In this case “r”, but your site won’t be listed as a quick suggestion cause the domain starts with “g”.
I’d suggest “reployapp” or “reployenv” or something where brand followed by a word/descriptor.
Seems you're using Chrome, which autocomplete in the URL bar really sucks (probably on purpose)
Try Firefox and have fulltext search available for you, will make your life a lot easier. Firefox also don't have any incentives to send you to a search result page and much rather find you the correct website directly.
"able to maintain their own lifestyles using grants from the Canadian government" - that's absolutely false. North/Thalmic was flush with cash for a long time, and though their Myo didn't sell "well" - it still brought in millions.
Not denying the founders had lavish lifestyles, but they were running a company that raised 15M series A, and 120M series B - so that's honestly "expected". The grant I assume you're referencing was a 34M loan, which was to be paid out over time, and was recalled once North announced layoffs last year.
I won't defend their business decisions or argue they were a "promising startup" - I think they deserve the criticism. But I'd rather not throwout some false stories or accusations.
It's "expected" that founders extract millions from a failing company while employees working for years at below market salaries get nothing? I don't disagree but it's just sad.
The startup lottery just doesn't make sense for employees, even early ones. Founder is the only position worth holding. Early employees need to start demanding more from their founders.
My personal experience strongly says so as well. Been a very employee at two different companies - at least one made an “exit” - only the founder made any money at all. I took a deep pay cut for two years.
The startups my dev colleagues worked in Toronto, the ones that got acquired none got any equity. I think it’s common in Toronto for employees at startups to not get equity. Ive also read canadian founders often sell below their companies worth
Maybe lavish is a bit of hyperbole. And after their 15M series A, I can assume they had competitive salaries given their life decisions (modest homes and cars).
The last 6 years he's been campaigning for progressive ideas. M4A is talked about constantly, he pushed what healthcare should be in America beyond the ACA. He got younger more diverse people elected to congress and on a state level, and has helped unions, workers, and others receive the wages and benefits they deserve by using his current standing as a public figure.
Sometimes that minimum is too high compared to the company value and so no sale happens and the company just dies.