Hello and welcome back to Equity, a podcast about the business of startups, where we unpack the numbers and nuance behind the headlines.
When is a company taking internal valuation cut a good thing?
Normally, when we hear about valuations going down, that's a red flag that things aren't going well at a given company or in the market at large. We wrote about Stripe's 28% internal valuation cut earlier this month and as we listened to different reactions to the news, we noticed some people had an unexpected take -- that this downward revision was actually a positive for the company's employees.
That's because the cut came from an internal 409A valuation appraisal, which is totally different from the investor-led valuations we normally hear reported on in the news. So we brought on two experts -- Phil Haslett of EquityZen and Sumukh Sridhara of AngelList -- to help us unpack what this valuation cut actually means for startup employees and what else they need to know about their equity compensation heading into a market downturn. For more information, you can also check out our TechCrunch+ piece about the matter, "Stripe’s new and lower internal valuation, explained."
Founders in front of investors vs founders in front of 409A appraisers pic.twitter.com/LAXsBrHGBM
— Flo Crivello (@Altimor) September 24, 2020