<< (if I offer you $1 for x% of your company, is the company now necessarily worth $1/x?) >>
Great point. Secondary market transactions have to be included in the 409(a) valuation analysis and this caused a lot of problems for companies like Facebook who had active secondary markets (with rising prices) even as they tried to keep option strike prices low to recruit new employees. I am not an expert but I think the short answer is that if you buy $1 worth of stock then it can be ignored as a non-material transaction but if you buy $1 million then it has to be scrutinized along with all similar transactions which would be collectively factored into the formula for ''fair market value''.
Another minor point - when calculating return in this case, you have to adjust for the fact that this guy ''invested'' $18k but wasn't able to count that money towards his basis in the stock or realize long-term capital gains treatment the way a typical angel investor would have. This means he will likely pay an extra 20% in Federal taxes, which lowers his LTCG-adjusted psuedo-angel-investment return a bit further.
I always hear stories about early stage employees getting the short end of the stick during acquisitions. Could there be a chance that this acquisition ends up not in his favor and he is out $18k?
There was a subsequent 350m round in November so that means dilution for everyone.
So that, coupled with liquidity preferences for the venture investors, could mean he didn't get much.
He likely does have cash as well as shares in Walmart from this deal, but I doubt he made "millions" from this, and it is entirely possible he is close to breakeven (just as possible that he has a six figure amount). But we don't have any transparency from this.
This is the kind of gambling the society puts you on a pedestal for, so don't worry too much about the bet. Its a "good" one.
The surprising part is that Jet.com's legal department let this fly.
Stock is certainly a security. Stock options are just call options of a security, and also a security. Obviously there is some (future, conditional) value implied since it's a reward.
It doesn't really matter whether you are trading stock for dollars, or work, or fb likes, or whatever--it's still a general solicitation because they are being traded for something.
I'm not a lawyer but I have been involved in startups in the space for many years.
There is precedent of an almost identical enforcement action by the SEC, but my google fu is failing me.
But, I would think a line of defense would be that participants knew they wouldn't necessarily get anything for participating and presumably agreed to that in contest terms. At that point, the contest is just a giveaway -- and you can, in fact, give away stock.
Jet.com has something Wal-Mart can use to rocket its online presence forward: advanced online infrastructure, patents, a wealth of technology experts, and users.
Together, Wal-Mart can beat Amazon at its own game by doing what Amazon is already doing (building more, smaller DCs everywhere) using what they already have (massive retail locations everywhere).
It does have a cooler looking website than walmart, and possibly even amazon. FWIW.
(Also curious about the banned product lines if anyone can summarize/link to what's going on there.)
I doubt anyone monitors it, everytime I ring them they bounce me from idiot to idiot
I now need access to some invoices for purchases I made last year for accountant but cant login, and of course all my digital purchases are gone, the 2 kindles are useless.
- reviews of products
- no customer q&a section
- no 3rd party seller ratings
These are rather basic features in an ecommerce site. So no, I don't think the guys from jet.com are experts at all.
That isn't to say WalMart can't (or shouldn't) transfer some of their experts to Jet, and some Jet experts elsewhere. Just that they cannot afford to lose all their experts in the core business to the online dream.
I too expect this to turn out to be a terrible decision, but I've been proven wrong on my expectations before. Reasons like the above is generally why.
However, it does make sense for a company like Walmart. I don't know about 3B, but Jet is a drastically cooler brand for them in their ecommerce battle esp. among millenials.
Jet was previously fulfilling many orders from Walmart and now they can build a seamless integration to deliver competitively priced items quickly from the stores.
Every time I see a comment like this, it really makes me wonder who these mythical millenials are. I work in a company with 11 millenials out of 16 employees and NONE of them have even heard about Jet, let alone bought from it. Now that Jet was acquired and will be quietly folded into Walmart, it's more than likely they never will.
They use Amazon almost exclusively for all of their shopping needs.
Not sure where you got the notion that 'Jet is a drastically cooler brand'. It seems false both from anecdata I have and from the design of their website, which looks like a cheap knockoff of Amazon.
Sure - many millenials haven't heard of it yet, but that's beside the point. Everyone has heard of Walmart but they struggle online. In your anecdote, 30% have brand recall which isn't as bad as you make it seem.
The problem with Jet as it currently stands is that it isn't very compelling for word of mouth. I've used it and had a decent experience but never told anyone about it.
Anyway, Walmart can put more muscle behind it, likely deliver a better service and push a cooler brand than their own. At the same time - they can utilize their store inventory and distribution/shipping and potentially drive consumers to pick up in store same day (and drive more in-store revenue).
You make an assumption about them folding it in. I don't think they will, but if they do it will be a waste.
Also - your note about people you know using Amazon for all shopping needs doesn't mean that it will always be that way. Do you expect everyone to roll over because Amazon is the leader? Should nobody bother competing?
- Amazon has a LOT of fake reviews.
- They're pissing off merchants by competing directly with them.
- They often ship other merchant's products instead of your own if it's closer to the user.
I'm not that bullish on Jet either, but I wouldn't underestimate Walmart.
I think you misread the parent - he said that out of 16 employees, 11 were millennials and none of those had 'brand recall' as you insist on calling it.
Apart from that, I'd bet that most or all of the 11 millenials would say Walmart is probably one of the least exciting, least cool brands they're know.
There are some huge assumptions built into your comment.
So they've been eating the cost of shipping and overhead with no margins and have zero loyalty because they don't really have a unique value proposition.
They failed with their initial subscription model. They say they can keep costs low with their technology and rewards based shopping but they haven't proven anything.
It gets better with Walmart though - now they have a supplier and distribution hub that has great relationships with countless vendors.
Walmart brings the solution to that to the table. They already have the merchandise, and infrastructure. While the general opinion of Walmart is that they are terrible, Walmart's distribution and transportation infrastructure is King in that world.
Currently Jet.com fulfills orders by just going to the stores and purchasing and shipping.
A public company like Walmart, there's some people doing
some math here.
Yahoo also reported that it's writing down $482 million
in charges related to the declining value of Tumblr,
the social-blogging service that Yahoo acquired for
$1.1 billion in 2013.
and the company is writing off $7.6 billion related to
its acquisition of the Nokia phone business. That's more
than the $7.2 billion Microsoft paid for Nokia's phone
business last year.
1) A calculation of risk/reward on this investment
2) Determining whether result of 1 appropriately reflects Walmart's risk profile.
Given that Walmart decided to acquire, it is safe to assume this investment's risk of loss falls within Walmart's investment profile.
Translation: "I can't see how this deal makes sense but WalMart is a huge company so it has to make sense even if to me it doesn't".
By that logic no big company would ever fail or screw up. Every time there's a huge acquisition there are some people here making this fallacious argument or a variation of it. There are always people "doing some math" inside these companies, that doesn't mean that the success of any given strategy is a given.
The equation they're solving for is probably not, "How can we maximize Walmart's profits?", though. It's "How can I maximize my own immediate career goals?"
I think building Amazon wasn't cheap too. Amazon made losses for most of two decades straight, so Walmart dumping massieve money into building a competitor, with the insights of today, might still be cheap, relatively.
... the case for Amazon getting crushed by Wal-Mart doesn't stand up when you do some side-by-side comparing of their Web sites. What's wrong with Walmart.com? Put simply, it settles for taking orders for the products people come looking for rather than enticing them to buy things they hadn't even thought of buying.
It's 16 years later and Walmart still hasn't been able to compete with Amazon very effectively.
It's useful to note that those 10 biggest websites are operated by large retailers with a physical presence, so it doesn't necessarily mean they're in trouble (walmart, macy's, home depot, etc.)
But the gap between Amazon and the next biggest e-tail site is huge. It's more of a canyon than a gap, really.
are your serious?
Walmart's revenue was $482.1 billion in 2015 and amazon's was $107b
 - https://www.google.com/webhp?sourceid=chrome-instant&ion=1&e...
 - https://www.google.com/webhp?sourceid=chrome-instant&ion=1&e...
edit - sorry, i missed the .com part
Jet's last valuation was $1.6bn and it was, and continues to, burn cash like crazy. Investors aren't dumb, they see that.
So they add a terms to their investment whereby they guarantee a return on their investment. For a company that needs hundreds of millions of dollars and is trying to beat Amazon? Let's say 3x.
That means that if I put in $100m dollars at a $1.6b valuation, then you sell at a $4.8bn or above, then everything is fine because I got my 3x. If you sell for less, as they did, then I get my $300m first, before anyone down the line. That's called liquidation preference.
Jet was burning capital so they likely had to make a lot of concessions in fundraising. Given that their estimated total funding is around $800m, there isn't much else to go around.
You'll notice that some employees and the founders got around $300m worth of Walmart stock. Why would they need that if the company just sold for $3bn? Because the sale likely netted them next to nothing.
First, it's exceptionally unusual to see anything more than a 1x liquidation preference (i.e. investors receive their initial investment back before anyone else gets paid) among well-funded companies. It's somewhat common to see a 6-10% interest rate added on top, but a 3x liquidation preference is the VC equivalent of a payday loan.
The other component is whether the liquidation preference is "participating" or "non-participating." The easiest way to think about that is that a participating preference receives its initial investment back out of the sale proceeds, then shares in the remainder of the profits alongside the common stockholders. A non-participating preference is like a "greater-of" - basically downside protection in the event that the company is sold for a much lower than expected amount.
Suppose Jet's received $800m in funding like you said, and suppose the investors have gotten pretty aggressive terms - call it 6 rounds of funding that each took 20% post-money, all of which have a 1x liquidation preference and are getting 10% interest. Let's say the interest takes the preference to $1 billion because we're more or less making up numbers at this point, but we're in the right ballpark.
So the common stockholders (founders and employees) own 26% of the company at this point (.8^6), and a billion dollars comes off the top of the $3 billion sale amount. The common stockholders would therefore receive about $520 million.
The Walmart stock is publicly traded, so it's a lot like getting cash (though it may be subject to a short lock-up in a deal like this). Companies like to do combination cash/stock deals for a variety of reasons.
I've had options zero-out because the company, after investing with absolutely no preference given (which was part of what induced me to join), they took another round with preference funding at greater than 1x.
Curious to hear - were any of the following factors in play: (i) the company was struggling to stay afloat, (ii) the company was located outside SF/NYC, (iii) the company had less-experienced founders?
The founders had secured, until I joined, funding coming in without any preferences at all, or so management told me repeatedly. I don't know when that changed, or maybe management was lying to me all along.
Jet.com raised its A, A1, B1 and B2 with 1x liquidation preferences. Common will get a pay-out.
Since all of Jet's preferred stock is non-participating, their holders will probably receive a dividend, convert to common and then participate alongside everyone else. (All Jet preferred stockholders get an 8% dividend except A1, who got a flat 48¢ per share, so that's a bonus $45 or so million to preferred.)
EDIT: I suppose if the alternative is "run out of money next month and everyone's fired anyway", then worthless equity and a possible job maintaining that code at Walmart doesn't sound so bad.
$3b purchase price + $300m in Walmart options
The company raised $500-800m at at least a $1b valuation, no idea on later round(s), seem less reported, maybe a downish round?
Investor liquidation preference guarantees investors get their money back 1x or 2x or 3x or whatever (assuming they don't lose all of it).
So if they raised at a $1b valuation, sell for $3b, a 2x preference means there's $1b in profit left after paying investors. Again, assuming you know how the rounds were structured, which I don't. And not counting taxes. Or other contract terms that kick in on certain conditions.
So best case scenario, there's $1b for employees + $300m in options. Unless liquidation pref is 2.5x which means $500m cash left + $300m in Walmart options. If it's not vested, they can make a problem out of it (or they can accelerate vesting, but it's up to Walmart mostly). Most employees will probably need to do their time at Walmart, so to speak, and not get fired there.
Early employee maybe got 1%? That would have been diluted of course. But $10m is probably best case scenario (after taxes, you can afford a pretty nice place in the Bay Area and have some left over) If you got more like .1% of the company (still kind of a lot, really, and the founder sold their last co for $500m so better odds?), you just made a million bucks, which will be about 700k after taxes. And you've got a job at Walmart.
I would be surprised if the actual outcomes for employees were higher; unsurprised if lower.
That's an extreme overstatement - a 'pretty nice place' in the bay area would cost in the $1M range, maybe $2M if you have a pretty jaded view of 'pretty nice'.
> you just made a million bucks, which will be about 700k after taxes.
More like 500K - 39.6% federal and up to 12% CA state tax.
I would also like the ability to do something similar to the way a business can depreciate an asset over time. How about the opposite: IRS tells us how many years you can spread an _appreciation_ out over. Currently the tax code penalizes the guy who works below market for years and then sees a lump sum payday. Why should it?
That said, I'd be happy if we just did away with dual-basis of ISOs and eliminate the rube goldberg AMT credits.
One of the two major Presidential candidates (who shall remain nameless) has proposed capping itemized deductions at 28%. I think this idea is more or less a bipartisan compromise acknowledging the political impossibility of eliminating specific deduction categories (e.g. mortgage interest, health care expenses, property taxes, state income taxes), each of which has a very loud and vocal special interest lobby. If passed this would be an effective tax hike felt very acutely by option holders of acquired companies resident in high state income tax States (in other words, entrepreneurs in Silicon Valley and New York).
Re: taxes, capital gains.
I haven't looked into the walmart/jet deal but one hangup on this assumption is very often the entity purchasing was the entity that invested initially in the first place (directly or indirectly).
That is they are just moving money around and buying something they already own (either directly or indirectly and in some cases very very indirectly).
If the terms were favorable (standard preferred stock) the employees likely made several billion dollars (in aggregate) on the deal. If the terms were not favorable the employees could have made relatively little. You'll note that some other people in this thread are assuming various liquidation preferences just to validate their priors (employees always get screwed) with no real evidence to support their claims.
One way to look at it however is to consider the question "What is Walmart buying in this deal?" From my perspective they're not really buying a pile of code or a customer base or a brand name (none of that seems this valuable). What they are really buying is an energized and engaged team working until the leadership of a reportedly excellent CEO. They hope that this team will do a lot to help Walmart to capture a larger share of the future of e-commerce (where Amazon is clearly kicking their ass at the moment). So if a lot of the asset Walmart is buying is the people then it would't be an effective purchase if most of those people got screwed as part of the sale. This is just speculation on my part but I think it makes logical sense.
Jet.com differentiated itself from AMZN through concepts like "happier work culture", which, given WMT's reputation, is rich in irony.
There are some circumstances where in a big acquisition like this founders or key employees are asked to re-start the vesting clock on their shares. This is more common in small buys but can happen in big ones too. In this case you get some payout for e.g. the 2 years you were there and then the rest of your stock (and maybe a refresher) get spread over 3 or 4 years.
In terms of payout, if you assume by series C that 50-75% of the company was sold to investors then $1.5B to $2.25B will go to investors and the remaining 750 million to $1.5 billion goes to founders and employees. Obviously this is a huge range and you need the cap table to know what really happened.
We know that Jet has been a bit unconventional in their pay practices  with their transparent salary metric. But we don't know how their options differ. Sometimes options have a "change of control" clause. In those cases the vesting schedule for common shares is accelerated when the company is acquired.
TechCrunch says "$3B cash plus $300M in shares to the Founders and employees". That sounds like part of the acquisition offer is stock offers to employees to come to Walmart. The new stock options would have cliffs and restrictions as well but they are for a publicly traded stock (so you know that you will be able to trade them, vs a private company where you may never be able to trade them). If the Crunchbase article is correct and there are 1K - 5K employees, we'll assume the distribution follows the power law but even with that, smallest grants would be at least $100K if distributed over 5K points with a $300M total.
Second there is the "value" of common stock. If the company had raised a total of $800M, and already had a 2x liquidation preference with participation, that would have $1.4B to distribute across the final common pool. In common scenarios that would mean that people who had been employed for a year or more would be able to exercise n/48ths of their stock option (where n was months of service as long as n was 12 or higher). The Tech Crunch article also said that they had been shooting for a $3B valuation in the last funding round. Given that jump you might expect common shares from the resulting acquisition to have a value that was at least 2.1 times their strike price. That might not represent a lot of money though, a million shares with a strike price of 10 cents a share, now worth 21 cents a share is a $110K gain. That said it would depend on how many shares were outstanding. If they had held back 20% of the share pool for employee options, and distributed half of it, that would be 10% of the company in options, or potentially $300M in value. That arbitrarily lines up with stock number quoted in the press release. If that relationship was accurate, it would suggest that Walmart was converting the options straight to Walmart share options (another common practice) where the acquiring company keeps the previous vesting schedule.
Lots and lots of variables. On the plus side, if an employee did have a stock option and it was at least partially vested, that option was probably worth non-zero dollars so in the world of startups that counts as a win. How big a win will vary from person to person.
It seems not well known and somewhat controversial, but offers generous rates higher than everywhere else. For example, 4.8% from Expedia, 5.6% from Orbitz. Unlike every other cash back program they do not cap the amount for flights.
JetCash is effectively real cash because many items are available cheaper than even from Walmart, Amazon, or Costco. Presumably Jet was taking a loss on those transactions in the short term. It really has been my favorite cash back program ever.
The items that were cheaper than Costco weren't way cheaper, maybe 5–10% less, so I considered that they may have some kind of higher level membership that I don't know about.
The next logical thing to do with the Jet Anywhere program is to launch a credit card that creates customer stickiness to Jet.com. While some of the incentives are great, e.g., 20% cash back at Nike, the process is cumbersome (receipt -> photo -> email -> wait -> cash back!!).
A cashback credit card would significantly reduce friction, with minimum overhead for Jet. If Jet doesn't want to get into the credit business, it can piggyback on the system deployed by MasterCard for Sam's Club . Sam's Club is part of the Walmart umbrella of companies.
edit: Deleted redundant reference to Jet in the 2nd paragraph.
A $2k roundtrip ticket gets you flat $2.25 from Orbitz , or $112.00 from Jet.
To hit $1k per year off the 5.6% rate is ~$18k spent on flights & hotels. I think most people won't come close.
I don't spend on travel, though, so rules may be different there.
I resell, so I'm also explicitly excluded from jet's program.
Travel is a heavily restricted category. I wasn't able to find complete terms and exceptions for all of the programs you mentioned quickly, but for example, TopCashback caps flights from Orbitz at $3 . Discover Deals doesn't seem to support flights besides one weird deal with CheapOAir .
Even the original Dropbox "Show HN" pitch was agressively cynical about it; "I can do the same thing with a linux box and some scripts...", etc.
Also the claim that it would eliminate my need for a USB drive was 100% on point.
Raise your hand if you have a FireWire port ...
Raise your hand if you have both ...
Raise your hand if you have $400 to spend on a cute Apple device ...
There is Apple's market. Pretty slim, eh? I don't see many sales in the future of iPod.
That was one of the best features of the original ipod line. Not only did was it a device to play music with, I could also use it as removable storage.
But, the linked comment does miss the point. Specifically, it is doing a hardware spec comparison and not thinking about what it means when a large player is entering the market with a more-usable device.
And the linked comment (which is indeed an old chestnut) is typical of the spec-by-spec comparisons you still see in the tech press, and here on HN. It's a small reminder to look at the bigger picture.
On the other hand if you look at iPod sales numbers he was right. Their sales really didn't pick up that much until they released some new models: https://en.wikipedia.org/wiki/File:Ipod_sales_per_quarter.sv...
> No wireless. Less space than a nomad. Lame.
Amazon is getting worse for non-prime users. They've increased their free shipping limit, longer shipments, and kept pushing their deals onto Prime users only.
I've bought more from Jet.com this year than Amazon in the last two years and Jet was faster with its free 2 day shipping than Amazon's free shipping.
Right now those issues are mostly side-line grumpling, but I could imagine a few big incidents could possibly blow up into a substantial reputation issue. The unknown, of course, is can/will Walmart do any better.
So far, every item I wanted to buy has $49 min spend for free shipping attached to it, which is not something I have had to deal with - except for a few add-on items.
So I just switched to eBay sellers instead.
I realize the price may end up being similar but I want to know what that price is while browsing, not "add $5.99" at checkout.
But the number of non-prime users is also dropping.... so Amazon doesn't really care that much.
It is all total crap. We dumped a bunch of time and money into rebuilding everything as SOA and on all the latest technologies. Most of the work was done by an army of Indians that couldn't get jobs elsewhere in the valley. Absolutely nothing scales.
We have more servers in total than peak users to the site, and still can't get any respectable performance numbers.
The few smart people left here are super excited to jump over to Jet ASAP.
There was a massive push to hire as many developers as possible, so recruiting extended offers to everyone that applied. Senior engineers who have no degree or have ever worked at a tech company before.
I have no problem working with people who are capable of doing the work we need them to do.
Maybe that is the réal reason Doug bought it.
From your perspective is .com able to grow (handle growth) from tech. Stand point??
And to be clear, this isn't a cynical musing. I'm genuinely curious to see how this worked out for them.
- A Zynga-like order: give back unvested stock or you're fired
- There were "hidden" bank loans / lines of credit that need to be paid back first. These may not be known to employees, but generally they are the first in line to be paid back.
- If the cash acquisition is assuming they hit some earn-out targets, there's a very, very good chance that they won't get 100% of the money, and in fact could get a lot less.
- If the investors had some sort of very tough terms where they get a 1-2x return before participating in the common stock, that could make this worth very little to employees.
It is pretty gross when founders/management try to incentivize burnout with false promises, while banking a nice payday at the end of the rainbow for themselves.
I took a quick look at the cap table on CrunchBase and there is lots of smart money in it. It is definitely a win for the investors but how much of a win for common share holders is up to how hard the CEO fights for them.
I must have been very wrong. I don't see how Jet justifies 3B from Walmart.
I will credit them on one point - They do seem have great employee sat that is a result of investing lots of time and energy to create a healthy environment.
They must be burning lots of cash though. I placed a $100 order with about 7 items and it came in 6 different boxes.
It's an interesting business model for sure. They were spending $20-25m a month on advertising and then on top of that is selling things for less than they cost.
I have never ordered enough from amazon to make prime worth considering. The troubles I've had lately mean I just assume Amazon won't ship in time and so once I see something on amazon that I think I want I look to see who else sells it. I'll pay $.50 extra to have it shipped the next day.
Also, note that Amazon may take time to ship because they're sending it between their warehouses to ship from a closer location. For popular items they'll likely already have one near you, but for less popular ones they move it around before final delivery. So just because it takes time to ship doesn't mean it won't arrive as fast as other options. What counts is the expected delivery time, which is given when you order.
A cynical person might also believe Jet created itself to be sold off in this very way, too.
I would suspect one portion of it is their dynamic pricing model. I wish there were more info publicly available about the mechanics.
It's a pretty simple transfer of VC money to customers in an attempt to increase growth.
I guess it worked.
If you don't have Amazon's Prime, you'll see why Jet.com is worth it.
Amazon's free shipping for non-prime users are now 50$, takes 2-3 weeks to get anything, and they're limited the good deals to Prime users.
I've bought more from Jet.com than Amazon lately because the above issues.
If I was willing to pay 100$ for Prime, Jet.com isn't worth it.
Clearly she's mostly loyal to Amazon.
Amazon is built through and through as a tech company. The people running it all have tech backgrounds so they're all able to get behind the Bezos vision of automation and scale trumping all.
To give you an idea of how savvy the management of Amazon are, I heard rumours that Diego Piacentini (Bezos' lieutenant managing the retail business) was known to roll out his own SQL queries. My own head of the team, who was a more conventional "retail guy", barely knew how to use excel and had chiefly gotten to where he was by politics and tenureship, despite being younger than Diego. Whether it is true or not, it gives an idea of the mindset and skillset valued at the top of Amazon.
Now I'm almost certainly biased given that I've worked for Amazon and not for Walmart, but I'd be willing to bet that Walmart has more of the latter "old school" types than CS folks looking to solve new fields. And to me, that says that the odds are tipped against this integration being successful as catching up with a tech company would require an overhaul of Walmarts entire infrastructure and culture. Not to mention that Walmart are at the mercy of their shareholders, whilst Bezos is still majority shareholder.
I wonder if Walmart's more physical presence can help with this?
Our very own Marissa Mayer.
We also have Kevin Systrom on teh WM board.
Damn shame, I was hoping to maybe apply there at some point.
The inverse of this is why companies with "overvalued" stock fund acquisitions with stock.
But why cash or at least 100% cash? Just seems weird to me that at least some of it wasn't in stock. Is it because Jet was still private, so any stock in the deal would have been immediately liquidated by the VCs?
Because Wal Mart has lots of cash and that's what Jet.com shareholders wanted instead of WMT shares? Lots of deals by established companies are in cash and in the current environment where you're not getting any meaningful interest on cash that will continue to be a common thing.
Some additional info on tech stack:
Disclaimer: Microsoft employee, Nazgûl
They're pretty language agnostic from what I've heard, not always in a good way.