Ratchet - when companies raise a down round, investors who invested at a higher valuation get issued additional shares. This effectively adjusts the price/valuation they paid. The number of shares issued depends on the type of 'ratchet' investors have. There are two main types of ratchets: 'weighted-average' and 'full-ratchet'; the latter is not company/employee friendly and is no longer common. For employees, what this means is that if there is a down round their equity will get more heavily diluted than they expect, because additional shares are issued to compensate investors who invested at a higher valuation.
IPO protections - you are correct. In late stage/pre-IPO financings, these protect investors from an IPO occurring at a lower valuation than they came in at, either through outright 'blocking rights' (preventing such an IPO from happening) or, as above, through ratchets that adjust their share price/valuation. Such IPO protection terms have increased in 2015/2016.
I'm curious - does anyone else think that the equality that matters is equality in material outcomes? I think that would be such a boring world. The real equality that matters is equality in dignity as human beings, equality before the law, equality in our respect to each other. I think the developed world has made monumental strides on these fronts, which are spreading around the world too. (Even though, of course, there is still work to be done).
Incidentally, I think even though (as Piketty claims) inequality may be increasing, the average person (certainly in developed nations, but also in developing ones) has also been unimaginably enriched over the past 200 years. By any ethically relevant standard (access to food, shelter, heating, technology, entertainment), we live unbelievably fortunate lives. This when our ancestors a mere 3-4 generations ago were unspeakably poor.
The danger is where inequality in rates of improvement in material outcomes leads to inequality in moral outcomes. To borrow some rather loaded language, the more the 1% can buy themselves legal advantage, the more unjust the world becomes. If the rate of legal advantage is affected by the absolute difference between the 1% and the 99% (which I'd argue is demonstrably true - beyond a certain point you've got regulatory capture, but even before then, paid legal representation is the lever that matters here), then it's trivially true that a more materially unequal world is more morally imbalanced in the absence of a somewhat socialist government.
Yes, the poorest and the average now are doing better than they were. That doesn't make defensible the disparity in gains between the richest and the rest.
I think the historical record is against this. Specifically: before the liberal revolution--the liberal idea that all humans are equal, which was truly revolutionary--it would have been unimaginable for a member of the peasantry to even claim equality with some lord, let alone build a legal case and have it heard. Again, it's far from perfect today, but better on many fronts. I imagine that differences will continue (they're unavoidable) but the mechanisms to cope with injustice will get better.
By what mechanism? I'd say that the historical record is specifically in support of this. Civilisations start out relatively equal, inequality increases over time as wealth concentrates in elites, then they collapse either to revolution or war, reset, and start again. What evidence do we have to support the idea that we should draw a line up and to the right?
Maybe more correctly: the vast majority of humanity was equal in its wretchedness, poverty, ill-health, and violence; the vast majority of people led miserable, hungry, precarious, uninteresting lives.
Again, I'm not saying we've done all we can do. I'm not saying that many of the rich don't behave reprehensibly. I'm not saying we can't do better. But the question is: How? How can we do better most effectively? I don't think the answer is 'tax global wealth and redistribute' a la Piketty--because that's not what enriched us so over the past 200 years.
So yes, it has gone up and to the right, especially in most recent history--though, because of human folly, there is no guarantee that it will continue to do so.
This is a misconception and not what the alluded revolutionary idea is quoted by in the declaration of human rights. All humans are created equal, and I'm sure that modifier was put in not by accident, even though I couldn't explain the difference.
Point in case, one conclusion seems to be that humans are precisely not equal to each other, everybody's worth is equally indeterminate. Edit: I am biased to say this because human worth is specifically mentioned in this context in the German Grundgesetz (foundation of the law) where it's called Wuerde (dignity) and encompasses more than the capitalist idea of material value.
Extreme material inequality can't be explained by some people performing better, so it's pretty obvious that it is unjust. How can unjust distribution of the material wealth be moral?
How can you morally justify that some people have to work more than 40 hours per week to be able to barely scrape by, while others can just enjoy their lives luxuriously without working at all.
Oh and in fact, poor people in western societies today have it worse than 20, 30 years ago.
How extreme can material inequality get before it's a problem? Well the Walton family have the same amount of money (wealth) as the bottom 160 million Americans. How much more extreme does it have to get before it doesn't become the issue?
Money is immaterial?!? As Homer Simpson once said (to his brain): "money can be exchanged for goods and services" - like healthcare, education, important stuff....
Is your idiocy also material? Maybe you should have it removed.
EDIT: Joking aside, the knowledge how to work a job is valuable, but immaterial. Undernourishment is often a matter of lack of the knowledge how to extract resources from the environment. Of course a lot of wealth is attained by theft. But what's theft of ideas, are ideas material wealth? Sure I'm talking semantics, I try to understand you. I don't assume you are totally wrong, I just tend to assume that my language faculty is sufficient to follow involved arguments. Often erroneously, but therefor I'm skeptic of others as well. I suppose the distinction between material and immaterial is largely immaterial, and the difference between abstract and concrete best hidden from conversation.
>I just tend to assume that my language faculty is sufficient to follow involved arguments
Spoiler alert - it's not. You didn't even use the right form of skeptic; you should have written 'skeptical.' Besides being a non-sequitur, your analogy is fatally flawed. It presupposes that it is possible to steal ideas, when in fact it is only possible to copy them. Furthermore, every homeless person knows how to extract resources from the environment: throw a brick in somebody's window and steal their stuff. Resources extracted. If by 'extract resources' you mean 'get a job and be a law-abiding citizen' then I question whether you have ever tried to rebuild a life from absolutely nothing while staying inside the confines of the law. It might be harder than you think.
Fair points, except I was thinking of technological supremacy, specifically the ability to build an aqueduct and that has to come before. It's supposed to be a metaphor for mind over matter and the asymmetry of life that has to be tolerated. Toll~ literally means to account, more or less, so I am not saying bigcorp exploitation was acceptable.
On skeptical, German has different grammar, but we share a large part of the vocabulary. Sometimes I have problems learning Idioms, other times I am unwilling to accept them because I think they are corrupt. I like talking semantics. Of course, the grammar has to be fit for that, so thank you. And please stop insulting other people on here. Don't take anything I say too serious, I am just bored and trying to get into a conversation, which is sad enough.
Piketty isn't really talking about "inequality in material incomes" so much as a theory that a small proportion of dynasties tends to accuulate such a large proportion of national resources that the economy ceases to operate like a competitive market and becomes a means for those holding the majority of the wealth to extract rent from those holding the diminishing remainder.
That can be a problem even if you find some inequality unproblematic or even regard some level of inequality as morally necessary to reward endeavour and ingenuity and encourage economic growth, and is a problem for progress in the future even if the baseline standard of living in developed countries is very acceptable by historical standards.
There are of course limitations to how accurate his theory is, not least because much of public policy has been designed to avoid it happening.
Nearly every assumption in this argument of Piketty's is flawed. Is it only the rich that have capital? What about human capital? What about creative destruction--the entry of new market players? Don't the rich (and their children) often squander their capital? More to the point: look at the evidence of the many rich people around us. Did they build this wealth by banking on r > g, or by putting idea upon idea and creating something new?
The book attempts to address these in rather more detail than can be managed here, but human capital isn't likely to get you to the ranks of fabulously wealthy without the backing of VCs and their already fabulously wealthy LPs, and wealthy dynasties are generally much better at structuring their portfolios to avoid being wiped out by "creative destruction" than smaller business owners. Piketty argues that our concept of "the rich" is heavily shaped by lists which are biased towards those who create companies because their wealth is much easier to estimate than the diversified portfolios of family dynasties, and that distinguishing between the two isn't easy either (Warren Buffet, for example, is entirely self-made but has done so entirely through disproportionately successful bets on r > g rather than creating something new, and many of the entrepreneurs that have succeeded by creating and marketing something new take the eminently sensible decision to diversify those riches and become rentiers to let their fortunes continue to grow later in life). Whether he's right or wrong about the composition of the rich in general, it's pretty obvious the HN concept of the rich is skewed towards the Zuckerbergs we can aspire to emulate rather than the Koch brothers we can't.
I agree with you: it is a long book, with more problems than can be enumerated and discussed here, but key amongst them is the idea that inequality--the Gini coefficient--matters above all else, and particularly matters more than the absolute improvements in living standards that we (most of us) have experienced in recent centuries. I don't think one's goal should be to enter the ranks of the 'fabulously wealthy'. Anyway, by definition, there will always be a bottom 10% or 20%.
I'm pretty sure that only a minority of rich people are really in the ideas and creation business. If you live in Silicon Valley it might appear different, but globally speaking, the rich tend to fall into the categories of (a) inherited wealth, (b) upper management, (c) non-hard-science knowledge worker types (finance and lawyers).
Yes, r > g is only an aspect for (a), but the Piketty argument also has to be understood as a warning bell. After all, wealth and the resulting political influence make it easier to ensure that mostly (a)-types ever get into (b)- and (c)-positions in the first place. (And the tendency for this has always existed and exists today, just look at the university system in most countries for evidence.)
If you look at things over 200 years we are doing much better but I think it's more important to look at it generation by generation. For example, growing up I will have had a comfortable life - going into adulthood supposedly my generation will be the first (no idea when that data goes back to) to do worse than it's parents. So throughout my life I will become less comfortable. It seems like we've now reached a point where the poor ACTUALLY become poorer and the rich become richer,
> The real equality that matters is equality in dignity as human beings, equality before the law, equality in our respect to each other.
But in practice these things are to some extent dependent on equality (or at least less disparity) in material outcomes.
"The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread." -- Anatole France.
> I'm curious - does anyone else think that the equality that matters is equality in material outcomes?
Maybe not directly, but...
> The real equality that matters is equality in dignity as human beings, equality before the law, equality in our respect to each other.
Material outcomes demonstrably affect all of those things, and cannot avoid doing so, generally, because "material outcomes" are power, and power is fungible, and those are all important areas to which power is applied.
Tyler Cowen addressed this in an interview, saying that the inequality that "really matters" is the difference in your living standard versus your sister's husband[1].
> I'm curious - does anyone else think that the equality that matters is equality in material outcomes?
You should not forget that inequality is not only about material outcomes. It is also about power to decide economic matters, such as how capital is invested. Shouldn't these matters be decided more equally by all members in society?
What people seem to care about is not net improvement, but relative improvement. It really comes down to if you feel like things aren't better because you are comparing them to other people. It's not right or wrong, it's just an impossibly moving target.
Agreed with you and k-mcgrady. I think maybe we will need to use more and more 'hacks' that make us aware that it's already reasonably good.
FWIW, Benjamin Friedman ('The Moral Consequences of Economic Growth') has great research that shows that when people stop feeling like they're advancing and participating in economic growth, moral and ethical ideals like open-mindedness, acceptance, tolerance, and democracy deteriorate, which is concerning.
GM Michael Stean lost to Cyber 176 (a mainframe 'supercomputer') in 1977 (at blitz). AFAIK this was the first time a computer defeated a GM; they began defeating IMs and experts some ten years before that. Kasparov himself lost to Fritz 2 at blitz as early as 1992.
"Under tournament conditions" is the condition everyone forgets. Go AIs were competing with ranked players given handicaps of varying degrees of absurdity.
Basically don't overestimate how much the 'adults' understand. There is a huge amount of hand-waving, FOMO, leaps of faith, etc... by VCs when they make (and manage) investments. When things work, they are explained ex-post facto in visionary terms. When they don't... people forget soon anyway.
I think the skills are OK. I find the average personality type I encounter in finance a bit abrasive: one-dimensional, sharp-elbowed, too full of certainties. I worry that this might be a general phenomenon in the corporate world :/ (of course, these people also tend to be much much happier).
The 'sigh' was almost reflexive: even writing the word 'finance' makes me feel bored.
This is an error in the article, and the responses above are incorrect. 'Ten on thirty' means $10 million invested at a $30 million pre-money valuation, with a post-money valuation of $40 million. This means that the $10 million acquires 25% (NOT a third) of the company.
'Ten on fifteen' would mean $10 million invested at $15 million pre-money, giving $25 million post and the investors 40% of the company. And so on.
Investors almost always speak on a pre-money basis: thus, $15 million pre-money is half of $30 million pre-money.
Here's what's scary: both could be right. Each interprets and constructs meaning from various gestures, actions, words, etc., through their own lens, especially retrospectively.
For example, guy and girl go out to dinner, have a great time, have a couple of glasses of wine. Girl goes back to guy's apartment; they are both light-headed, and end up having sex. Months later, after a breakup, the girl legitimately believes she was taken advantage of ('The asshole was using me all along; he plied me with wine and raped me'), while the guy legitimately believes that what happened was 100% consensual. It is obvious why after a tough break-up the girl may (choose to?) think this way. Also, she IS on some level right: the guy DID want to have sex with her, and the dinner and wine weren't a completely innocent gesture. But guess what: this is what relationships are like, and these situations are virtually impossible to avoid. Every relationship I've been in has had similar 'open to interpretation' moments.
Anyway, this is one reason why relationships today are sometimes an absolute hell; we live in a culture that encourages us to treat everything as means rather than end, including people, and at the same time we are obsessed with ourselves--obsessed with protecting our beautiful, world-deserving self, and are terrified that we might be being used, or that we might be using or accused of using others.
I'm surprised to haven't seen this mentioned yet, but based on the article and skimming the emails linked to, the woman was very religious, and the guy not at all (but went along with it anyway).
I'd argue that if you're an atheistic person, then the worst case scenario of dating a very religious person is something like that story. The amount of cognitive dissonance and self-imposed guilt and shame in religious people, especially when they're still young, is very likely to lead to messy situations like the one described. Young people are full of hormones and impulses that they want to act on, but the religion in their head tells them to feel bad about it. This can lead to absolutely absurd situations, where they're very happy to have sexual relationships but feel very guilty after them.
I dated a religious girl, and the emails exchanged by those 2 reminded me of my own relationship 7 or so years ago. Fortunately my story wasn't as messy as this one, but there were definitely a couple of hard earned lessons and very uncomfortable moments. Some of the stories that girl told me about her earlier life were quite unreal to me- for example, she and her ex boyfriend would have sex, then she'd feel guilty and go confess at church, and a day later they'd have sex again, etc. (if you're a priests, you must get to hear a lot of intimate stories from impressionable confused young people. And of course all priests are men... connect the dots as you will)
It's hard to draw any conclusions based on the article and material available - but to people that have found themselves in similar relationships, some of the interactions described aren't surprising. The lesson for me was, date people with world views similar to yours.
A nice effort, but it is jarring to see a simple word misspelled (twice) in the Arabic text in the headline image, a result of which is that instead of 'Print' the text says 'Follow' (specifically: instead of "Ittba'", with a hard 't' sound, which means 'Print', the text says "Itba'", with a soft 't' sound, which means 'Follow'; these two different 't' sounds are represented by two different letters in the Arabic language).
This type of oversight makes the work instantly less relatable (and credible) to Arabs.
You're right, I actually didn't notice that at first. It is weird that Ramsey made a mistake like that, I happen to know the guy(we met when he used to live here) and he does speak Arabic pretty well. He's not like someone with Arab roots who just decided to do a project like that, it's actually a language he speaks.
1. Management makes a share issuance, diluting all existing shareholders by X%. Management then turns around and distributes shares amongst themselves. Something like this can happen if management have majority control and can get approval from their VCs/preferred shareholders (who have reserved matters that can block share issuances). Often, the VC can work with management to get something like this done.
(A more complicated version of this happened with the Zuckerberg/Saverin saga).
2. An option pool--say 10%--is issued as part of an investment round. This dilutes all shareholders by 10%. The Board then distributes the option pool to key management. There's nothing a minority shareholder can do.
1. The scenarios illustrated in the piece seem horrible but are biased. Consider this: a VC invests $20 million in a business and acquires 50% of it, valuing it at $40 million post-money. Assume the remaining 50% is owned by founders/key employees. Five years down the line, the company hasn't done so well and is sold for $10 million. Without a liquidation preference, the founders and key employees get $5 million: a decent payout for losing $15 million of investor money.
2. Fred Wilson repeatedly makes the point that when VCs invest in a company at a valuation of $X million, they are not valuing the outstanding stock of the company at $X million the same way a public market would. Instead, what they are doing is buying a bond + an option. The liquidation preference is the bond part of the equation: the investors are betting that the company is worth at least its liquidation preference (which, at 1X, is the amount they invested). The upside that the company might have if it succeeds is the (deeply out of the money) option.
3. Today, 1X liquidation preferences are standard and widespread, and entrepreneurs have it good. If you want your eyes to water, go read/ask about liquidation preferences in term sheets after the dot-com crash ;)
I find your points unconvincing. If a VC is uncomfortable with betting on a startup, maybe he should find another line of work. About your second point: I'm not sure what argument you are making. Yes, of course the VC would like a guarantee. Maybe he would find it easier to sleep at night if he were a loan officer at a bank instead.
VCs are betting money. The founders and early employees are betting their time and foregoing other opportunities. If the thing blows up, the VC gets his investment back. The founders/employees can't recover any part of their investment. I still don't get why a liquidation preference is fair. The VCs are imposing it because they can. Any justification based on fairness is laughable to me.
Ratchet - when companies raise a down round, investors who invested at a higher valuation get issued additional shares. This effectively adjusts the price/valuation they paid. The number of shares issued depends on the type of 'ratchet' investors have. There are two main types of ratchets: 'weighted-average' and 'full-ratchet'; the latter is not company/employee friendly and is no longer common. For employees, what this means is that if there is a down round their equity will get more heavily diluted than they expect, because additional shares are issued to compensate investors who invested at a higher valuation.
IPO protections - you are correct. In late stage/pre-IPO financings, these protect investors from an IPO occurring at a lower valuation than they came in at, either through outright 'blocking rights' (preventing such an IPO from happening) or, as above, through ratchets that adjust their share price/valuation. Such IPO protection terms have increased in 2015/2016.