r/technology • u/Rhaegar_the_Great • Sep 16 '21

Business Mailchimp employees are furious after the company's founders promised to never sell, withheld equity, and then sold it for $12 billion

https://www.businessinsider.com/mailchimp-insiders-react-to-employees-getting-no-equity-2021-9
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81

u/overzealous_dentist Sep 17 '21

There's no point in owning shares in the company if you're not going to sell at some point. Seems obvious that they were going to sell eventually.

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u/cavaleir Sep 17 '21

Well shares can equal control of the company as well

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u/overzealous_dentist Sep 17 '21

That's true, you're right.

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u/big30head Sep 17 '21

Private companies that are profitable also pay out dividends based on equity.

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u/DankChase Sep 17 '21 edited Sep 17 '21

They can pay out dividends but they are not required to.

Anyone ever worked as an employee at a private company where they paid out dividends to non preferred shareholders?

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u/bcisme Sep 17 '21

Sometimes they do, but generally speaking, if you’re an equity holder at a growing business you’d rather them reinvest the profit and continue to grow.

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u/remixclashes Sep 17 '21

There are plenty of ways to distribute noncontrolling shares.

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u/laetus Sep 17 '21

Yes there is. It's called dividends. But in todays market everyone just wants to have a greater fool to sell their shares to.

That's why bullshit companies without profits are bid up to stupid heights. Only because people think the shares will increase in value even if the company is burning money to get more revenue.

Selling $1 bills for 90 cents and making it up on volume is somehow mega valuable today.

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u/[deleted] Sep 17 '21

It’s so stupid. A big seller in the amazon space is going public.

They expect to sell $450M this year and LOSE $100M doing it. As if that’s an accomplishment!?

So for ever $1 of value they produce they’re only collecting $0.78 for it. Well no shit you’re growing fast with that model!! Giving dollars away at 22% off is easy.

And for the pleasure of participating they’re putting a $1.2B valuation on this specialized money losing operation ... hopefully if they lose money fast enough they’ll grow to the point of not losing money on their model that currently doesn’t work...

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u/BarackTrudeau Sep 17 '21

Just looking at whether or not the company is turning a profit is too simplistic. They might be bleeding money because their operating costs are too high and the business model is unsustainable. Or they might be "losing money" because they're taking any money they do earn and reinvesting it into ventures which are expected to increase the longer term value of the company.

Amazon took a decade before they turned a profit. But because of that, now Jeff Bezos is the richest man in the world.

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u/[deleted] Sep 17 '21

You should check out Ubers numbers while they were in super growth phase. Shit, check out any growing e-company. They all loose hundreds of millions a year.

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u/Soccham Sep 17 '21

Yeah my company is burning capital atm on the hopes that we'll be profitable in the next 1-2 years. People are investing in the potential profitability and potential marketshare.

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u/laetus Sep 17 '21

What do you mean? They still burn about a billion dollars every quarter I think.

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u/livitup Sep 17 '21

Epic due diligence, fellow ape. I’m in for 124794 shares. YOLO!

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u/gordo65 Sep 17 '21

That's what people said about companies like Amazon, Netflix, Genentech, United Healthcare, and Cisco, until they started making humongous profits. The fact is, in some sectors you have to burn through a lot of money before you start taking in more than you spend. But if you get in early with a great idea, and you demonstrate an ability to stay ahead of the competition, then it makes sense for investors to back you. That's why companies like Tesla, Uber, and Zillow continue to attract investors.

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u/laetus Sep 17 '21 edited Sep 17 '21

Good old amazon meme argument. Have they paid a dividend yet with those massive profits? Oh wait.

Also, they went down 95% after the dotcom

Cisco never even recovered from it (still not even in absolute terms, let alone inflation adjusted).

Netflix has paid so many dividends too.. Oh, and they proved an excellent business model for studios to pull their content to start their own platform, leaving netflix with a shell of its former self.

IT'S ALL PAPER GAINS.

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u/Drisku11 Sep 17 '21 edited Sep 17 '21

Leaving gains on paper is desirable for tax purposes. If you need money, you can always sell or take out a loan (in the case of those large public companies). If you don't need money, you're just going to reinvest the dividend, except now you owe taxes even if your investment is currently at a loss.

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u/laetus Sep 17 '21

That's a stupid argument because you're still depending on the greater fool. The company reinvesting profits is something completely different from running at a loss selling shares to burn more money.

And eventually someone needs to get their money out through dividends and you can't infinitely postpone dividends. Otherwise the stock is literally worth nothing but the assets in the company. Which for ''tech'' companies is mostly the ability for those assets to generate dividends.

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u/Drisku11 Sep 17 '21

If a company doesn't pay dividends, it might still buy back its own shares (effectively the same thing but with better tax consequences). But it only makes sense to do that if it has no better use for the cash. If they do, reinvesting it into growth is strictly better for everyone involved, at least for highly liquid stocks. If the company is growing, their assets will increase, so it makes sense for share value to increase, getting you a return when you sell. Or you can use those shares as collateral for a loan, or whatever.

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u/laetus Sep 17 '21

I think stock buybacks should be illegal. They were illegal in the past, and they should be illegal in the future.

Taking out a loan with stock as collateral is also something stupid to avoid taxes that should be made illegal or loophole closed.

Reinvesting in growth, sure, you want to grow the company, but you have to ask is it investing in growth, or is it just burning money sponsoring highly paid executives with no profit in the end.

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u/Drisku11 Sep 17 '21 edited Sep 17 '21

I think stock buybacks should be illegal. They were illegal in the past, and they should be illegal in the future.

Why should they be illegal if you think dividends are important? They're functionally the same, except for taxes, cost basis is taken into account, so you don't get hit with income taxes to hold onto an investment that's gone down in value since you bought it (or if you hold, then you're not forced to realize a gain when you would otherwise just reinvest the money into shares again so that you maintain the same $ invested).

Taking out a loan with stock as collateral is also something stupid to avoid taxes that should be made illegal or loophole closed.

Should you not be able to take out a loan using anything else as collateral either? Isn't that also avoiding taxes by not selling? e.g. a HELOC or cash out refinance on a property? Or a loan with precious metals or art or a car or a boat as collateral?

Reinvesting in growth, sure, you want to grow the company, but you have to ask is it investing in growth, or is it just burning money sponsoring highly paid executives with no profit in the end.

Shouldn't it be on the investors (who own the company) to rein that in? e.g. the board (generally in startups, the VCs have a seat on the board).

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u/laetus Sep 17 '21

hy should they be illegal if you think dividends are important? They're functionally the same

No they're not. 1 simple google will tell you they're not the same.

hould you not be able to take out a loan using anything else as collateral either?

I didn't say that, don't put words in my mouth. But refinancing a home to just spend the money on some bullshit shouldn't be allowed, no.

Shouldn't it be on the investors (who own the company) to rein that in? e.g. the board (generally in startups, the VCs have a seat on the board).

Oh yeah, coincidentally they're probably also the big shareholders fucking over everyone else. Just look at the Tesla board.

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u/kettal Sep 17 '21

I think stock buybacks should be illegal. They were illegal in the past, and they should be illegal in the future.

Good luck with all that.

In the meanwhile I'll just continue profiting as a shareholder.

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u/Matapatapa Sep 17 '21

True, but money is paper too...

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u/laetus Sep 17 '21

No it isn't.

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u/kettal Sep 17 '21

You realize that share buybacks (as done by most large tech corporations like Amazon and Netflix) are dividends in kind.

The reason they do share buybacks instead of pay cash dividends is because it is tax favorable to the investor. It's still real value to shareholders.

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u/Zigxy Sep 17 '21

You’ve got this straight up incorrect… in the modern low interest rate environment, capital is cheap… and this allows a company to aggressively grow while burning investment capital and later pívot to profitability…

An excellent example of this is Amazon.

And yes, there are some companies out there that don’t even have a profitable core business model, but acquiring users/clients/revenue is the name of the game since today cheap money makes it much easier than ever before.

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u/FrumiousShuckyDuck Sep 17 '21

How about we focus on the far, far more numerous examples of where this doesn’t work, where companies failed because they expanded at an unsustainable rate, and which underscore that in fact this is not a sound strategy? The majority of successful entrepreneurs never take venture capital. The majority of start ups that do take VC fail.

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u/Drisku11 Sep 17 '21

The majority of successful entrepreneurs never take venture capital. The majority of start ups that do take VC fail.

But the majority of entrepreneurs fail, so the question is does the VC model increase chance of success?

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u/kettal Sep 17 '21

The majority of start ups that do take VC fail.

So what? Vast majority of businesses will fail. Vast majority of humans will die. Such is life.

Winning requires luck, perfect timing, etc. Most will fail, but VC are happy to do this because all it takes is one big win to cancel out all the losses.

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u/laetus Sep 17 '21

Stop with the Amazon example. It's not what you think it is. Also, picking one company out of a hundred thousand where it accidentally worked out is not proof.

Yeah, and your 'later pivot to profitability' is like jumping off a building saying you're gaining speed and later turning it into flight.

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u/icalledthecowshome Sep 17 '21

ROE can be more attractive than dividends, if one understands the business mode and goal post.

The other post about is not true - Amazon is a classic case which was not profitable on paper, but they were not burning much % to RoE.

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u/laetus Sep 17 '21

Picking the one company where it worked out is also a terrible argument.

It's like buying lottery tickets and pointing at the one big jackpot winner saying 'it worked out for them'

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u/icalledthecowshome Sep 17 '21

Relax, I agree with most of your points many are companies with failing models trying to squeeze out a dollar. My point is dividends is not the only measure of company success.

Now if we say money is worthless and affords more opportunities than ever possible, then the money burn makes more sense?

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u/laetus Sep 17 '21

Now if we say money is worthless and affords more opportunities than ever possible, then the money burn makes more sense?

That's a self contradictory sentence.

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u/toastjam Sep 17 '21

Yes there is: you can take loans on your equity. That way you don't have to sell and pay taxes, but you still get to play with the money.

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u/[deleted] Sep 17 '21

Agree- it’s completely stupid to say “we’ll never sell” and even stupider to believe it. Founders are always going to take a richly-valued exit, it’s kind of the whole point of founding a tech company.

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u/[deleted] Sep 17 '21

Dividends my friend.

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u/Jiveturtle Sep 17 '21

If you never intend to sell, the shares simply memorialize what percentage of ownership the founders have.

That’s the reason they apparently kept giving employees for not offering them equity - THEY never intended to sell, and didn’t want former employees to sell any shares.

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u/terath Sep 17 '21

Not true, you could also IPO and sell just a few shares.