have demonstrated dramatically lately — and Zoom from the opposite point of view — public investors can have starkly different ideas than venture capitalists about the true value of particular startups. However certain those valuation figures may seem when listed in press releases or in databases, they're often anything but. As WeWork showedlast year, even the biggest and most mature startups remain risky bets.
Such factors can be a particular problem for tech workers, since many of them receive much of their compensation in shares and options in their companies. Many likely don't really know what their stock-based compensation is actually worth, because they may not appreciate that there's a difference between the nominal and actual value of their shares, the researchers said.
One particular term often can lead to a big difference between the value of the preferred shares held by venture investors and the common stock held by employees — something known as an IPO ratchet, Strebulaev said. That provision allows certain investors to get extra shares in an initial public offering — more shares than they previously held — if the company's stock doesn't debut above a set price.
Adam Neumann resigned as CEO of WeWork after the startup's public offering failed and its $47 billion valuation was slashed.For many of the companies in the index, even the brightest names, the chance that employees will see big returns from their shares is relatively small, according to the calculator.
"Given that these companies are so high-risk, you sort of have to think through that," he said. The nominal value of startups and their shares is typically only going to be realized, he added, "in extreme upside scenarios."The calculator does have its shortcomings. It only has data on a small portion of the 400-some-odd unicorns — venture-backed startups with a valuation of at least $1 billion — that now exist and nothing on the much wider universe of venture-backed startups.
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