Chapter
Dilutive Effect of Stock-based Comp on Company Ownership
40:12 - 59:56 (19:43)
The issuance of stock-based compensation is dilutive, thus reducing a shareholder's relative ownership in a company that generates cash flow. Companies reporting positive free cashflow boosted by stock-based compensation do not reflect the company's actual profitability.
Clips
The subscription-based model where a software business has a positive net dollar retention and high gross margin is an excellent business to own.
40:12 - 45:22 (05:10)
Summary
The subscription-based model where a software business has a positive net dollar retention and high gross margin is an excellent business to own. However, transitioning from a high-growth phase to a cash flow phase will see investors change the way they value the company, meaning that the business becomes less fun for the management team to grow.
ChapterDilutive Effect of Stock-based Comp on Company Ownership
EpisodeE85: SBF's crypto bailout, Zendesk sells for ~$10B, buyout targets, US diplomacy, AlphaFold & more
PodcastAll-In with Chamath, Jason, Sacks & Friedberg
Stock-based compensation is a common practice in Silicon Valley that allows companies to pay employees with shares, but this dilutes shareholder ownership and reduces relative value.
45:22 - 54:34 (09:11)
Summary
Stock-based compensation is a common practice in Silicon Valley that allows companies to pay employees with shares, but this dilutes shareholder ownership and reduces relative value. Activist investors may use this practice to drive change in company leadership.
ChapterDilutive Effect of Stock-based Comp on Company Ownership
EpisodeE85: SBF's crypto bailout, Zendesk sells for ~$10B, buyout targets, US diplomacy, AlphaFold & more
PodcastAll-In with Chamath, Jason, Sacks & Friedberg
Companies sometimes use stock-based compensation to create an appearance of profitability and increase their cash balance, but this money is not real and does not reflect the company's true profitability.
54:34 - 59:56 (05:21)
Summary
Companies sometimes use stock-based compensation to create an appearance of profitability and increase their cash balance, but this money is not real and does not reflect the company's true profitability. Shareholders are also affected by diluted shares and decreasing ownership in the company.