No...it's a direct listing. There are literally no shares on the market yet. He didn't dump a large amount, either. He sold a small fraction of his holdings, so that there would be shares to trade.
This doesn't make sense. All of the shares are available to trade as soon as the DPO happens, regardless of whether or not they exchange hands. People who want them are free to place limit orders, and if those limit orders remain unfilled, they are free to raise them until the price is attractive enough for sellers to fill.
In this way, a natural equilibrium is reached where buyer and seller are both happy and engage in a trade. It doesn't take some mandatory or pre-stipulated "having to sell some amount".
Anything that would attempt to influence holders to sell under the premise that they "need to sell something" to "create a market" doesn't make sense, and typically serves the interest of the people saying it.
Why not? "DPO" stands for "direct public offering." It's an offering. Insiders can now offer their stock to others for trade. Actual trades are not mandated. It just means the market is now open.
National exchanges like Nasdaq have minimum liquidity rules. To do a direct listing a certain amount of shares must be sold so that a trading market develops.
You're coming at it from the angle of, practically speaking, what do large exchanges require from their listers to agree to the process? While I'm talking about the literal definition and pure concept of a DPO.
There's no reason such high early liquidity is mandatory.
Sure in a theoretical world that doesn't exist you could have a DPO where nobody sells any shares. I'm not sure what relevance that has to our evaluation of the actual world that exists, though.
You haven't heard what I've said. My point is not that in the real world a market would exist without sales occuring (even though that is true).
My point is that the idea that some people "must" sell shares for there to be a market is false. "Must" implies: regardless of price.
If sales are not sold at opening-market prices, what happens is that offer prices increase until they are attractive enough to be filled.
This is a fill by mutual market price-discovery interest, rather than a fill by obligation. ("Must.")
My point is that "must" is incorrect, because even without it, trades would take place.
The idea that some group of insiders need to agree to liquidate no matter what on the first day is wrong, because natural market dynamics would incentivize it to happen anyway.
> If sales are not sold at opening-market prices, what happens is that offer prices increase until they are attractive enough to be filled.
This is literally exactly what happens in a direct listing. There is no obligation anywhere. Each person selling is selling because the price offered is attractive to them.
It's not that a group of insiders has to liquidate because there's a DPO. It's that there's a DPO because a group of insiders wants to liquidate.
Coinbase is the trusted inlet to trading crypto for individual investors. One of the blockchains, Bitcoin, has a 1 trillion dollar market cap, and the next largest has 259 bn. And coinbase captures a fee of some large percentage of transactions on those.
I would really like to know how much of the bitcoin trading is bubble and/or unbacked money printing by a certain coin, and what parts is actual value. There is way too much shady stuff going on to get my involvement.
Crime in general, including money laundering, or having a currency which is more stable than your own (hello Venezuela). I don't see a valid use-case in the West.
Some folks are counting un-exercised options as shares to make it sound like insiders sold less than they actually did, but you cant sell shares you dont own.
He could exercise and then sell his options, most of which are probably vested. It’s absolutely logical to count the unexercised vested options, and extraordinarily misleading not to.
The CFO exercised 20% of her options and then sold those shares, which the chart then spins as her selling 100%.
Whilst I fully agree, I think some might argue you want your CEO to be fully invested in the success of the company. At this point Brian Armstrong could just coast on the job, and live of his $300 M for the rest of his life.
It might be more motivating for him to not have that cushion. At least that is the theory people usually have.
He got so rich on the DPO that he learned the massive enrichment power of building a strong business. It's easy to picture a motivation to ring the register here, but it's also easy to view the windfall as a motivator.
He still has massive exposure to coinbase, certainly.
He no longer has the threat of poverty if his company fails. He has a nice 300 million cushion should anything go wrong. You could say that makes him less likely to put in maximum effort.
I understand, just think it's funny and slightly insane that 1.5% of his shares are worth a quarter billie.
His public character may be questionable by my standards (i.e. being a non BLM supporter - atrocious), but regardless I'm still genuinely happy for him! This is an exit entrepreneurs dream of.
Without the distorting action of governments printing money, interest rates might be set by market forces inside "crypto land".
This might lead to a long term situation where artificially low interest rates are paid in government controlled currencies, but market prices are paid in crypto currencies.
If this leads to a mass adoption of crypto-lending, then Coinbase might be where people hold their funds. Because it is even more complicated to stake coins than it is to just hold coins.
Are there any forums on the internet where a serious discussion about these types of topics can be held?
If one has the option to borrow at 0% on a currency that they believe will experience inflation, why would they choose to borrow in crypto (unless trying to short the market of course).
The current problem seems now that just not enough people are willing/able to do anything productive with capital, leading to a shortage of lending opportunities. In theory this should create a buyers market for anyone wanting capital, and to some extent it has. The problem is that, for whatever reason, people choose to poor capital into unproductive assets (IMO crypto being a minor culprit compared to real-estate or share buybacks).
At the higher level, I see this as a consequence of globalisation, where capital was made hyper mobile, and therefore it was applied away from home. Negative interest rates are a somewhat desperate attempt to put more capital in motion at home, but other policy has made this unattractive for anything but speculating.
"This is brilliant @balajis. India Totally need to add Crypto to India stack. Such a thoughtful piece. Will read it a couple of times and compile my thoughts around it."
This is basically an upvote blown up to a bunch of words I have to read.
Second reply just reads "@balajis you’re incredible".
I am looking for a discussion where only thoughtful comments that add to the discussion are posted. Or at least only those are voted to the top.
You can find a "serious" discussion of virtually any point of view on the internet now, the lunacy of an outlook is no longer a barrier to some group of people taking it seriously. However you have, on the second go, added the "thoughtful" qualifier. That, not so much. In fact, the lack of it should tell you something.
You're looking for "a serious discussion" of the "distorting action" of governments ... doing standard government monetary policy? Unfortunately, that's not a serious framing of of the situation.
It is distortion because the flow money of money is information. It makes the economy aware of where to assign resources. In this information network, the printing of money is adding noise to the signal. Making the economy less efficient.
You make it sound like there is an "undistorted" market yearning to breath free if only government would let go. This is quite ideological, hidden in that one word.
Does the role of government in law enforcement and armed forces that that allows markets to exist in the first place also fall under the category of "distortion" in this absolutist framing?
Do I understand it correctly, that the DPO did not put any money into the company?
If so, it was a pure "Here, we built something valuable. You can have it now if you pay enough" kind of deal with the investors?
Somehow this type of transaction always makes me feel a bit strange about the value of a company. Not sure if this is a rational thing or not. I think "Why did they bring it to the market at all?". What is the rationale for taking a profitable company that does not need additional funding public?
> What is the rationale for taking a profitable company that does not need additional funding public?
I think the main reason is to allow insiders who were compensated by stock (options) to cash those out. By creating an actual liquid market, it becomes a lot easier for people who hold the stock to sell it.
In general, direct listings allow more people to put money into the company, which should see its stock price rise. Which stock-holders like. Alternatively, it creates a more accurate view of the value of a company, which might make it easier to get loans.
A quick google says the valuation of the top YC companies combined is more than $300bn, although market capitalisation is a poor way to define how big a player is or how impactful they are in their space.
No! YC (assuming it's like other investment companies) is a management company, and just takes percentage. Industry standard is around 2% management fee and 20% of the gains, though it varies, and it may be quite different for YC, being quite a different kind of investment company (compared to more traditional VCs).
The rest of the gains go to the limited partners (LPs) - the institutional investors who put in the money. Of course the YC partners are investors too, particularly in the early days when YC was just a structure for the original four partners to invest in startups.
But these days most of the returns would go to external LPs.
Er YC owns around 7% of most of the companies it invests $150000 dollars in? The potential for them to keep adding 7% of many billion dollar companies seems very high... YC is an incubator not a VC or management company.
This isn't right - though my initial comment wasn't quite right either, it seems.
YC has had limited partners since 2014 [1], and at least some of the 7% equity is allocated to that LP fund, though it's not clear how much. For a few years before that much of the $150K was provided by outside VCs.
This must be the case, as YC's operations (number of companies funded) has been growing rapidly since well before their standout companies reached liquidity (though I heard somewhere they've sold some stock privately earlier to fund growth).
The whole ~7% was owned by YC itself back in the first few years when YC was just a vehicle for the original four partners to invest in startups efficiently, and they only invested about $20K per startup. But that ended in about 2012 when new investors came in and the deal changed from ~$20K to $150K.
Sure, they're still hugely successful! But it's just not a simple case of all those 7% stakes (less dilution) of every YC-funded company ever sitting in the ownership of a single YC entity.
Thanks for the clear and detailed information. I doubt they need the outside investment right now but I guess historically it was a great way to scale.
Cheers. FWIW it's not about "need" as much as it's about leverage. They'll keep asking "how much faster can we grow if we take in this much more funding from outsiders?" There is such a thing as too fast too, which they've found before, so it's about finding the right balance.
Don't people at this level not use trust funds or some such, some kind of entity which owns the shares. The entity in turned is owned by the person, but as long as they don't get the money, there are little tax consequences for selling.
I know this will get downvoted and what not ... I am actually wondering ...
1) Are people really concern before posting their actual thoughts on HN ( Is it not bad for a product developer to not know about actual thoughts but some carefully written words ? )
2) Why are people on HN so pessimistic about everything ?
Unlike most tech founders, Armstrong will be able to sell shares right away after Coinbase goes public. That’s because there’s no lock-up period as part of Coinbase’s direct listing, which differs from an IPO in that the company doesn’t raise fresh capital but instead allows existing shareholders to sell stock on the open market.
If this were a traditional IPO, a founder selling their stake right from the start would be a bearish sign that they do not believe in the current price.
The error is in people not knowing it is a direct listing and how they work.
