[HN Gopher] Stuck in a downturn, startups ghost investors
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       Stuck in a downturn, startups ghost investors
        
       Author : JumpCrisscross
       Score  : 49 points
       Date   : 2024-01-24 16:32 UTC (6 hours ago)
        
 (HTM) web link (www.bloomberg.com)
 (TXT) w3m dump (www.bloomberg.com)
        
       | datadrivenangel wrote:
       | https://archive.is/pSbmF
        
       | cj wrote:
       | That's pretty expected. I don't have too much sympathy for the
       | investors here.
       | 
       | To a certain extent, investors are the ones who are creating an
       | incentive for companies to stay private for longer by funding
       | gigantic late stage rounds rather than having the company simply
       | go public.
       | 
       | Private companies don't need to share info. Public ones do.
        
         | alexsereno wrote:
         | Private companies still have fiduciary responsibility, but yes
         | you're totally correct about the private-for-longer incentive.
         | So many paper only unicorns the public market isn't accepting
         | anymore
        
       | jimnotgym wrote:
       | Pet subject time.
       | 
       | It can happen that VCs attend board meetings, have the right to
       | appoint directors but don't appoint them, as a way of holding
       | power over the rest of the board. They do this (amongst other
       | reasons) to avoid being directors of a company that might fail
       | (as many companies do in the early years). This legally should
       | make them 'shadow directors' and should mean they have the same
       | responsibilities as a director, but I haven't seen this enforced.
       | 
       | Anyway, if they became real directors, like they should, then
       | they would have open access to the financial records. Hoisted by
       | their own petard.
        
         | bequanna wrote:
         | > to avoid being directors of a company that might fail
         | 
         | Why does this matter? Just trying to avoid the bad optics of
         | being the director of a failed company?
        
       | eli wrote:
       | If investors wanted information rights they should have made that
       | one of the terms.
        
         | sam1r wrote:
         | Couldn't one make the argument - the terms could have always
         | been better in hindsight?
        
           | eli wrote:
           | Yes, though it's usually the founders coming to that
           | realization and not the professional investors who are
           | supposed to know better.
        
       | vngzs wrote:
       | Funny this doesn't mention structured equity. Matt Levine touched
       | on this in a recent Money Stuff column for Bloomberg Opinion, and
       | he had a way to turn this problem into a business model:
       | 
       | > There are, these days, a lot of startups that used to be worth
       | $1 billion and are now worth $500 million. Some of them raised
       | money at $1 billion valuations, back in the good times, and now
       | they need to raise money again. It is, for some combination of
       | good and bad reasons, extremely undesirable for a startup that
       | raised money at $1 billion to raise money again at $500 million.
       | Therefore there is a business opportunity for a fund that will:
       | 
       | > 1. Give startups money at a $500 million valuation, but
       | 
       | > 2. Say that it's at a $1 billion valuation.
       | 
       | > This is called "structure," or "structured equity." Bloomberg's
       | Gillian Tan reported Friday:
       | 
       | > > Philippe Laffont's Coatue Management raised about $3 billion
       | for a structured equity fund that allows closely held companies
       | to avoid raising money at lower valuations, a person with
       | knowledge of the matter said.
       | 
       | > > With the market for initial public offerings in a funk and
       | lower risk appetite from large venture capital investors, some
       | startups have sought to raise convertible notes and pursue
       | structured financings instead of accepting a lower valuation
       | through a traditional equity funding round.
       | 
       | https://archive.is/Uy4nZ
        
         | Paul-Craft wrote:
         | I'm very confused here. How is "structured equity" not just
         | considered "lying?" In other words, why is this not just fraud?
         | How is it even legal? They're literally just making up numbers
         | that are independent of the business's financial health,
         | revenue, TAM, or any other damn thing that ought to go into
         | writing an honest valuation.
        
       | strangattractor wrote:
       | I actually shed a tear reading this article. Mostly from LOL or
       | maybe from my allergies.
       | 
       | First - pretty sure that if investors require that info to
       | receive investment, a company seeking that investment will
       | provide it for them. It sounded to me like this "VC" is picking
       | up shares on the secondary market from owners of the stock
       | desiring an early exit - not necessarily the company wanting
       | investment. Caveat Emptor.
       | 
       | Second - until that company becomes public it's value is more
       | like the state of Schrodinger's Cat rather than a knowable value
       | - it is simultaneously alive and dead;O
        
         | umeshunni wrote:
         | It says so right in the subtitle:
         | 
         | > A dearth of information can halt transactions on secondary
         | markets.
        
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       (page generated 2024-01-24 23:01 UTC)