Crazy valuations

New bricked
Jun 9 16 Comments

I feel like the upper management of my company is taking a lot of risk. We are a b2b startup (no consumer facing) at a late stage (series D) and despite growth growth being definitely slower than it used to be, I just heard a rumor that they’re trying to raise more money at a valuation of 50X our current revenues, which is simply insane, our competitors who are public are in the 10X multiple. They are basically setting themselves up for failure.

Letting aside for a second the VCs who give money at such crazy terms, why are the execs risking so much rather than trying to sell ship at current valuation, which I think they could? I think by being so “over leveraged” the risk is massive.

A couple execs (vp of sales and vp of product) already left. I asked for coffee with them (I was an early employee so I have a good relationship) and they informally confirmed that the company is becoming too risky for them (due to revenues not materializing and CEO chasing higher valuations) and they don’t want to be caught in the middle if things go down for reputation issues.

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TOP 16 Comments
  • Google uzaname
    "They are setting themselves up for failure".
    No, they are setting up themselves for retirement. They are setting you up for failure.
    Jun 9 4
    • New bricked
      OP
      Best I know upper management has common options just like everybody else. Are you trying to say that even if the company gets sold for less than the valuation and common stocks goes to zero, they’ll still get large bonuses out of it?

      To be fair, a couple execs (vp of sales and vp of product) already left. I asked coffee with them (I was an early employee so I have a good relationship) and they confirmed that the company is becoming too risky (due to revenues not materializing and high valuation) and they don’t want to be caught in the middle if things go down. So your point is debatable to some degree.
      Jun 9
    • Google uzaname
      I assumed it's not common but some form of preferred.
      Jun 9
    • New bricked
      OP
      No way, execs get common. Even founders just get common stocks. In the very best case they are able to negotiate double trigger clauses or something similar, but nobody who doesn’t put hard cash money in the company gets preferred.

      If you have other data, please share.
      Jun 9
    • Google uzaname
      I've seen preferred for execs but these were employees 2-10. In this case, my first thought is that they are clueless.
      Jun 9
  • Google
    AIMLOK

    Google

    BIO
    I once served 5TB
    AIMLOKmore
    Did they sprinkle AI into their pitch?
    Jun 9 1
    • New bricked
      OP
      No AI fortunately
      Jun 9
  • LinkedIn stuffy🐷
    Given that they can raise money, why is it a problem to raise at 50X revenue vs 10X revenue? They just raised 5X more money selling the same equity.
    Jun 9 6
    • SolarWinds AnEngineer
      Damn LinkedIn, your first startup is going to run roughshod over you.
      Jun 9
    • LinkedIn stuffy🐷
      I don’t work for startups period.
      Jun 9
    • New bricked
      OP
      Preferred vs common stocks is something that it would be useful for you to know not only if you work in startups but also if you decide to engage in private equity transactions such as real estate syndications investments and such, so it’s good to know that high valuation is not always a good thing if you cannot sustain it with organic growth.
      Jun 9
    • Amgen Fin4eng
      You are looking at it from the perspective of a worker bee that doesn’t think the company will be very successful. From an executive perspective, getting more money for less equity gives you further run rate while retaining more of the company for future rounds, even if they need a down round because growth slows. The market sets the valuation with shaping from CEO.

      If you don’t believe in company/valuation, you might be able to sell back your equity to company or investors at 25-30x revenue vs the 50x they are raising so you cash out
      Jun 9
    • New bricked
      OP
      I might understand that if that was an early round, but this would be a series E with amount of money in the order of 100-200M... how many more rounds would the CEO realistically want to raise after a series E?! We’re not even a unicorn! I find all this insane, worker bee or not.
      Jun 9
  • Oracle mickjogger
    It's obviously learned behavior of someone among the investors or founders who has seen this work at some other place. They are driving this.
    Jun 9 0
  • New / Eng Gopher
    Can you please explain 'how' in the last part. I have little to understanding of these concepts.
    Jun 9 0