Ben Gilbert: evaluation

Transcript context

…For 500 million, I'm still going to take my 200 million back if you guarantee a return like the ratchet. It’s like, nah, I'm going to take my 200 million and I'm going to take a 20 percent return. So founders, employees, rest of the shareholders in the company, you thought you just sold for 500 million but you actually sold for whatever you call it, 200 million at that point. In this scenario, you take huge private round on huge private round and you build up all this liquidation preference, all this money that’s going to go to these investors that are happy to say, sure, we’ll give you a higher valuation because it’s lower risk for us. If you want that higher valuation, sure. But if things go south, then we’re going to get the money off the top before any of the common shareholders do. And so, you get yourself into the situation where suddenly have a $6 billion valuation, you start to realize that the public markets aren’t going to give you that $6 billion valuation because it’s a very different climate out there. You have a lot of people on that roadshow that you’re talking to that are all talking with each other. It's not a small conversation between a CEO and a few partners at a firm. It’s much more like it gets pushed down if there’s a narrative out there that wants to push it down. And so, I think depending on the story that's told when you’re IPO-ing, you can really get burned by that and that's what sort of Square was realizing, was uh-oh, we are not going to be able to IPO it at $6 billion or it's looking like we’re not going to be able to. There was like a 9-month period for Square where they’re issuing all these stock options as part of the compensation. So employees are hired in, they’re given 25% of their compensation in the form of stock options but it turns out those stock options have a strike price where the valuation of that company is $6 billion. And today, the valuation is only 10. I mean, it's $4 billion higher but on a percentage basis, if you’ve got stock options, then it’s relative to the performance of the company and the growth of the company since then. You’re not really being rewarded for that.…

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