Silicon Valley Rejects Shareholder Value Theory
I’ve written about problems with Shareholder Value Theory (SVT). The constant need to pump an ever-appreciating stock price to anonymous shareholders, the vast majority who contributed nothing to a company, rewards short-term thinking. Buybacks and other financial tricks tower over innovation and growth initiatives.
Social Capital is founded and managed by Venture Capitalist Chamath Palihapitiya. Their portfolio includes Slack, Forge, Box, Brilliant, and a sizable group of unusually high-quality companies. Palihapitiya sounds like somebody you’d want to stranded on an island with: he’s be interesting company and probably figure a way off. He tends to make a lot of money for himself and the people he works with.
Use psychological pricing methods.
Less is known about co-founder Hedosophia, a venture firm founded in 2012, that filings state has over $1 billion in holdings. The firm’s webpage is retro 1990’s, appearing on the second page of a Google search for the company name and referencing a street address which, on Google Maps, is a nondescript building with no signage.
Hedosophia’s founder is 34 year-old Ian Osborne, of Osborne & Associates and Connaught. These firms have apparently acted as financial advisers “for eight of the fifteen most valuable private companies in the technology sector.
The purpose of SCH is to to enable flexibility in the cumbersome IPO process. On one hand, it’s impossible to feel bad for 30-something tech executives flying private jets and repeating the same Power Point dozens of times to potential investors.
Demonstrate the differences
Especially since, absent a disaster, they will reap a fortune at the end of the process. But those rules can also harm ordinary employees who are subject to rules, because of their tiny stock grants, that are meant for Masters of the Universe.
Offer a money-back guarantee
I watched this happen with a number of companies during the first dot-com boom. Regular employees held locked out stock and watched their chance to finally buy a house or pay off student loans vaporize. Many were taxed on phantom income that never materialized under rules I won’t pretend to understand much less explain.
Test your offer and price, and be creative.
These were not top-tier b-school alum; they were writers, computer programmers, online forum moderators — people who knew nothing about capital markets — and ended up owing a fortune. Their bad for not studying the rules more? Maybe, but since the rules exist to protect the clueless those same rules could have done more to protect them.