It’s not as important as you might think. Counter intuitively it’s tied to success as a risky start up. Or arguably they should have got better terms during one of their raises - but hindsight and all that.
For the record I wouldn’t by them for 1.5 trillion dollars.
They do a raise and give an investor 10% of the company (or more accurately a claim), the company receives 10 billion dollars (valuing the company at 100 billion)
A year later the company is worth 1 trillion dollars. That investor’s claim is now worth 100 billion dollars. And then the 90 billion is booked as a liability and so a loss. If they IPO, that 10% gets converted to shares. The liability is gone.
Good for the investor. The startup needed the cash, so good for them. I’m sure they aren’t crying that their company is valued at a trillion dollars.
It’s not as important as you might think. Counter intuitively it’s tied to success as a risky start up. Or arguably they should have got better terms during one of their raises - but hindsight and all that.
For the record I wouldn’t by them for 1.5 trillion dollars.
Its important to the people deciding whether to give them more money.
As a selling point that they can deliver incredible ROI?
Well, no. In this case it’s an indicator that their funding model has costs.
They do a raise and give an investor 10% of the company (or more accurately a claim), the company receives 10 billion dollars (valuing the company at 100 billion)
A year later the company is worth 1 trillion dollars. That investor’s claim is now worth 100 billion dollars. And then the 90 billion is booked as a liability and so a loss. If they IPO, that 10% gets converted to shares. The liability is gone.
Good for the investor. The startup needed the cash, so good for them. I’m sure they aren’t crying that their company is valued at a trillion dollars.
Should it be worth that much? That’s different.