David Rosenthal: belief

Transcript context

…Yeah. So I’m dying to get to tech themes. But before we do, I think it’s worth spending a minute on what would have happened otherwise. We talked a little bit about somebody else buying LinkedIn. I think that’s probably most likely. Clearly they were on sale, as you say, in more ways than one. But I think the other route is let’s say LinkedIn had managed to stay independent, they’re having a hard road executing on building another pillar of monetization on top of their network asset. But I want to throw in here a bit of discussion that’s come out in the press that I think is relevant that somebody pointed out, and I believe there was a New York Times article about this. LinkedIn’s stock-based compensation has grown hugely in the last few years and it actually was becoming a real problem for them. So a stock-based compensation, as probably many of our readers know, this is a concept in start-ups but also in public companies where part of your equity package as an employee is you get a salary but then you also get stock options in the company. LinkedIn had basically, over the last couple of years, been giving away huge amounts of equity to employees and that dilutes the existing shareholders. So, it’s a non-cash expense. So it doesn’t show up in like EBITDA metrics and stuff like that. But stock-based comp at LinkedIn went from 13 million a quarter in 2012 to 222 million per quarter in the first quarter of 2016. The problem there is well, if you start doing that and compensating your employees – Obviously, I’m a huge believer in employee equity, but the thing about cap tables is like there’s only ever 100%. You can’t have more than 100% of the equity in the company. So any time you give more out, you’re diluting everybody and so it’s like the LinkedIn stock had become this sort of like leaky sieve that was happening. That was a major problem that they would have had to deal with but now they don’t. Interesting. I think what happened otherwise, it would have gotten sold to Salesforce and in that case, I wonder for the future of what Microsoft is doing with Dynamics if they lose out on this deal because I’d feel like that’s a nail on the coffin for Salesforce.…

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