Re:After A Hot Start, Justin.tv Spins Off Socialcam, Its ‘In...
by byrneseyeview on Tuesday August 30, 2011 @03:09PM
(#2942797)
Well, they own a stake through Justin.tv. If Justin.tv makes a good deal, it will naturally be a good deal for investors.
An example might clarify it. Let's say Justin.tv thinks SocialCam is worth $1 million. So, those 100 shares are worth $10,000 each. In the scenario above, SocialCam might:
- Sell 50 shares to an outside investor, for $500K. (So there are now 150 shares. But the company is worth $500K more, or $1.5 million. $1.5 million / 150 shares = $10K per share, the original price).
- Grant options with a $10K strike price. This would dilute existing investors, and thus slightly reduce the value of their stake. But a) this is standard for many companies--they issue shares to managers, and figure that the equity incentive pays for itself through higher performance (see http://paulgraham.com/equity.html ), or b) SocialCam's founding team might exchange their Justin.tv shares/options for SocialCam shares/options. As long as investors agree on the value for both companies, that's a fair deal.
I hope that explains it. This kind of thing is usually done with board approval, after discussion with the board, so it's unlikely that anyone did anything underhanded.
An example might clarify it. Let's say Justin.tv thinks SocialCam is worth $1 million. So, those 100 shares are worth $10,000 each. In the scenario above, SocialCam might:
- Sell 50 shares to an outside investor, for $500K. (So there are now 150 shares. But the company is worth $500K more, or $1.5 million. $1.5 million / 150 shares = $10K per share, the original price).
- Grant options with a $10K strike price. This would dilute existing investors, and thus slightly reduce the value of their stake. But a) this is standard for many companies--they issue shares to managers, and figure that the equity incentive pays for itself through higher performance (see http://paulgraham.com/equity.html ), or b) SocialCam's founding team might exchange their Justin.tv shares/options for SocialCam shares/options. As long as investors agree on the value for both companies, that's a fair deal.
I hope that explains it. This kind of thing is usually done with board approval, after discussion with the board, so it's unlikely that anyone did anything underhanded.