Originally Posted by
BeatNavy
No. That’s not how valuation of a private company works. You have it backwards. What other investors pay in private company funding rounds is based on the “valuation” and price per share set by the company for that round of funding, and finding those willing to pay the company’s set price for the shares. It isn’t like a public market where there are buyers and sellers setting the price with a bid/ask. Neeleman says hey, we are worth 1.5bn based on my business plan and estimated cash flow projected over the next few years. Here’s ____ number of shares you can buy for ____ price based on this valuation. He phones his PE/HF buddies, they throw down their wads of cash, as well as accredited friends/family/employees at various stages/funding rounds, and again, that’s at the price they set, not at a negotiated or market price (because there is no market, as breeze BOD/mgmt sets that price).
You could say that retrospectively, since banks, PE firms, and people paid ____ per share, the company is therefore worth that price per share for the total number of shares. But, that’s not really a true valuation of the company. This exact discussion was had in one of their interviews/company presentations, and was cited as one of the main reasons why they didn’t want to offer equity—they stated that it gets too muddy with valuations when people want to sell if the company hasn’t IPOd yet.
And last, nobody that I’ve seen in this thread, including me, has said it was a scam, or that there wasn’t real money behind it. $200+ million obviously didn’t come from friends and family, and anyone with that kind of money likely isn’t throwing it on the table without some serious due diligence. Gotta separate the investment thesis/business stuff from pilot compensation. The former is (likely) solid. The latter is not. My argument is that there should be overlap between the two—as compensation ought to include a chunk of the financial risk of going to a startup that underpays via equity that, if successful, will make up for it. But, it doesn’t. Unless you put your own money into it. But that isn’t compensation. That’s an investment, and an entirely different discussion.
I understand how private companies are valued. And all I was responding to is the notion that the 1.5B valuation is somehow pulled out of thin air.
That valuation was subject to some scrutiny by sophisticated investors. So it isn’t just Neeleman making stuff up but also others - sophisticated PE firms - buying it. And they don’t do it for some charitable reason but believe that they can make money at it.
is it worth 1.5B or just 1B - who knows? But someone believes that they can make a serious return on it - and serious being 30-40% p.a. for this kind of investment risk. That’s all what matters.
Should it be part of pilot compensation? Nobody is forced to work there or to buy shares. It’s a creative way on playing on people’s hopes and dreams. But everyone has to do their own due diligence.