This is why you should not compare FANG RSU with paper money "Lyft’s valuation rocketed by more than 400% between early 2015 and June of this year, to $15.1 billion from about $2.7 billion, but its share price rose by less than half of that, 143%." "But existing investors—including employees—only get a return if the share price rises. The value of employee compensation from stock awards is tied to share price, not overall valuations. For investors in Instacart, for example, the actual increase in value was less than the S&P 500 rose during the time between the delivery service’s fundraisings." https://www.theinformation.com/articles/as-private-tech-heats-up-share-prices-lag FULL ARTICLE When Instacart raised money at a $4.35 billion valuation in April, it marked a 28% step up from its previous valuation of $3.4 billion. That was surprising: Instacart raised the round as it was facing tougher competition from Amazon.com’s introduction of same-day Whole Foods grocery deliveries. It turns out, though, that investors weren’t as bullish as the valuation increase suggested. Investors in the round agreed to pay only 9% more for Instacart shares than in the last round in 2017. Most of the valuation increase was due to Instacart issuing new shares, which means existing investors saw little gain. There are plenty of signs that the private tech market has heated up this year. U.S. private tech firms worth more than $1 billion—such as Slack, Lyft, DoorDash and Oscar—raised more than $19 billion through the first seven months of the year, according to PitchBook, already surpassing the total of any previous year. And in those fundraisings, median valuations rose 73%, compared with a 42% for fundraisings last year. But investor enthusiasm is more muted than the valuation increases suggest. In several of these fundraisings, share prices didn’t rise as much as the overall valuation, according to state filings provided by the Prime Unicorn Index and data from PitchBook. That meant existing shareholders didn’t enjoy as much of a lift in the value of their stakes. In a raising in March of this year, health insurance startup Oscar saw its valuation rise about 19%, to $3.2 billion from $2.7 billion, but the share price increase was only 6%, according to securities filings by Fidelity, one of the investors in the round. Oscar provides health insurance plans to individuals and small employers, and has bet heavily that technology and data can improve and streamline health services. Slack’s valuation increased a hefty 40%, to $7.1 billion, although Slack shares rose 28%, according to a state filing. The discrepancy, which we’ve written about before, reflects different approaches in how a company’s valuation is measured. When companies issue new shares to investors or increase the number of options and other stock awards for employees or acquisitions, the firm’s valuation increases. Private company valuations are pegged to the number of fully diluted shares, which include stock awards. But existing investors—including employees—only get a return if the share price rises. The value of employee compensation from stock awards is tied to share price, not overall valuations. For investors in Instacart, for example, the actual increase in value was less than the S&P 500 rose during the time between the delivery service’s fundraisings. David Pakman, a partner at venture capital firm Venrock, said that investors pay closer attention to share price than overall valuations. “We care about price per share. That is the true effective measure [of performance],” he said. In particular, what “we care about is dilution for both us and the founding team and employees. If you raise a ton of money without the price going up, you end up diluting [shareholders].” To be sure, there are benefits when a company’s share count jumps significantly, because it usually means the company has raised a lot of money or has increased its pool of employee stock for more hiring. It’s not clear why some companies failed to win a significant increase in their share price, although their business prospects could be a factor. Oscar, for instance, has taken a few years to grow its business and improve margins to justify the valuation it previously received, and is trying to grow in the heavily regulated health insurance market. A person close to Oscar said that the overall valuation is a better measure of how new investors view its business prospects, which have been helped by significant growth in membership, even as the slower growth in share price affects returns for previous investors and employees. A $375 million investment last month by Alphabet was at a similar share price to the last round, the person added. Some companies won big share price gains despite tough conditions—such as DoorDash, which faces well-heeled and fast-growing rivals like Uber in food delivery. Investors in DoorDash’s latest round last month agreed to a share price increase of 151%, lifting DoorDash’s valuation by 186% to $4 billion. But the investors negotiated protections: If the company tries to go public at a lower share price than what they paid, the investors can refuse to convert their stock to common. That would make an IPO very difficult to complete. This protection is sometimes called a “blocking right” and can give investors leverage to veto an IPO at a lower price. Much of the rise in DoorDash’s valuation, from $600 million in 2015, is due to the issuance of extra shares. While its headline valuation is up nearly 570% since then, DoorDash’s share price rose only 144% during that span. Similarly, Lyft’s valuation rocketed by more than 400% between early 2015 and June of this year, to $15.1 billion from about $2.7 billion, but its share price rose by less than half of that, 143%. That makes investor gains at the companies more comparable to that of public company competitors. For example, while DoorDash’s valuation has risen more than six times since 2015, the gains in share price have lagged that of GrubHub, which saw its share price rise by more than 200% over the same period. Slack’s 99% stock gain between April 2015 and August of this year has lagged that of rival Microsoft over the same span, even as its headline valuation rose more than 150%.
Hmm, correct me if wrong- but Lyfts current price per share is around 47 , right, so as per this , it was at roughly 20$ in 2015 ?
Perhaps someone joined in 2015 at Lyft can share what stock price he joined vs what’s the price on 409A now?
I don’t think OP understands that there’s a difference post-IPO.
What’s the difference?
The difference is that post-IPO, share prices are actual stock prices and have actual paper money value. The company’s valuation is essentially just its market cap, number of stocks vs stock price. Pre-IPO there’s a difference. There are company shares, and then there is a separate valuation. These things are not necessarily, or often, connected. When the company IPOs, the share price might skyrocket or it might tank. https://www.quora.com/Does-the-pre-IPO-409A-valuation-typically-match-the-stock-price-once-the-company-goes-public
Yea...duh.
No shit there’s dilution with additional rounds. It’s part of the risk. Whoever wrote this article is an ass. “Valuation rose by share price didn’t” no shit Sherlock.
Lyft isn’t paper money. Since ‘em paper can’t be freely sold at a price determine by a buyer and a seller in a continuous double agent auction(I.e. stock exchange). Hence. The Lyft valuation is the price the “last idiot” paid for some piece of the company. Stock shares traded on public exchanges are paper money. Just piece of paper that can be exchange freely for money (unless you have $HMNY) TL;DR. Not freely traded with deep liquidity “securities” aren’t worth the paper they’re printed on.
What’s the authenticity of the published figures? Isn’t it extremely sensitive insider information? 5x valuation with 43% increment in stock valuation is scary! Folks who invested in AMD got 200% increment in stock over last 6 months.. some of my friend made 1,000% return within few years!
This is super misleading. A big chunk of the 400% increase in valuation is the cash that was invested. You can't compare post-money valuation growth to share price growth. Example Previous valuation: $4B New investment: $1B New valuation: $6B pre-money, $7B post money When comparing to share prices, that should be counted as a 50% increase in valuation - not 75%.
That totally makes sense. For the example, it basically increasing market cap to $7b from $4b, but allocating 1/7th of the ownership to the investor. Thus, 6/7th ownership to old owners So, the stock price growth is = 7b/4b * 6/7 = 50%. The question here is when MC grew almost 550% in last 3 years, how the hell stock price experienced mere 43% growth? Could anyone who joined pre-2015 era verify this?
TL;DR but this is common sense, right?
It is but not always obvious if you are joining from a public company where you are better aware of the share price and this level of dilution is not common. I joined my company when it's valuation was 11B and it will need to IPO at 15-16B for the stock price to stay the same.
Is there dilution in the IPO?