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- ESO's Monthly Start-Up
Election Day is Here and VC’s are Divided
With endless political ads, constant news updates, a social media frenzy, and 10+ donation campaign texts a day (I thought the STOP text was there for a reason?), you’d have to be extremely off the grid to not know what’s going on tonight. Yes, the presidential election is here once again.
Which candidate is going to be better for venture capital? Venture Capitalists are currently divided on that matter. While supporting a Trump presidency may be practical for VCs given his emphasis on lower corporate taxes and deregulation, some VCs are arguing that a Harris presidency may be better for the long-term horizon due to policies more focused on income inequality. The division on VC sentiment can be seen most clearly through how prominent VCs have donated during this election, as seen in the Business Insider chart below. The most notable donation that has come during this election cycle are Marc Andreesen and Ben Horowitz putting millions of dollars behind the Trump campaign. However, the majority of a16z’s political donations for the year have been to groups working to elect block-chain friendly candidates, regardless of political affiliation. In the Democratic camp, Reid Hoffman of Greylock has personally pumped tens of millions in recorded donations into the presidential election and key congressional races.
Key concerns for venture capitalists and start-ups this election cycle have been antitrust matters, cryptocurrency, and as always, taxes. Both candidates appear to have a pro-tech stance which should bode well for venture. While some of the previous Biden administration policies have alienated parts of the investment sector concerned about tax policy, antitrust scrutiny, overregulation, and harsher criticism of digital assets, many VCs are hopeful that Harris’s close ties to Silicon Valley will make her more lenient than her predecessor if elected. Trump’s campaign also has ties with Silicon Valley, with JD Vance previously having a short venture capital career. Additionally, Trump’s plan to cut corporate taxes further and encourage deregulation should be beneficial to the industry. He also has been a major proponent of cryptocurrency, even going so far as to have his own crypto project. Notably though, neither candidate has commented on the Lina Khan issue that is currently dominating M&A discourse right now.
With all that being said, who is our predicted winner tonight? Venture Capital funding for next year. The past few election cycles have resulted in the year that follows being great for venture. More specifically, a Crunchbase survey done over the past six presidential election cycles has shown that total investment across all stages rose sharply to moderately in four post-election years. With the lackluster funding environment that we have been in for the past couple of years now, an uptick is much needed, and we are hopeful the trend will continue.
Why this Matters: Ultimately, the pro-tech stance by both of the candidates is going to be a positive for the VC ecosystem, and if the post-election fundraising trends continue as they have in previous cycles next year, venture capital should stand to benefit next year, no matter who ends up in the White House. Simply knowing who will be in office should provide a boost to markets compared to the uncertainty we have faced over the past year.
Tips of the trade
A section where we provide helpful tips for anyone with stock options or shares at private companies.
Understanding Fair Market Value (FMV) for Your Equity
The Fair Market Value (FMV) of a startup is simply the accepted value of one share of the company’s stock, as determined by a third-party.
How is the FMV determined?
The Fair Market Value (FMV), also known as the 409A price, is determined through a 409A valuation process. In this process, a third party assesses the company’s stock value based on various factors. This valuation tends to be conservative compared to potential open market prices, as 409A firms apply a discount to account for the limited liquidity of private stock.
It is used for granting stock options, determining taxes, and assessing a company’s value. Below we’ll dive into why the FMV matters for startup employees.
When you are hired, and grant stock options, your strike price will be equal to the current FMV.
Your strike price represents how much it will cost to purchase aka exercise your stock options, turning them into shares. At the time of your hiring, the FMV directly dictates how expensive your option exercise will be.
If you have 1,000 options with a strike price of $1/sh, it will cost $1,000 to exercise.
When you exercise your stock options, the FMV dictates how much you owe in taxes.
Stock option taxes vary whether you have ISOs or NSOs, but one thing remains consistent: they are paid based on the spread between your strike price and the current FMV.
If you 1,000 options with a strike price of $1/sh and a current FMV of $5/sh, you will owe taxes on the $4,000 of on-paper gain.
The FMV can be used to assess the value of your equity.
As mentioned above, the FMV is typically a conservative price, but it can be used as a conservative floor for what your equity is worth today.
If you know the price of your company’s last round of preferred stock, comparing it to the FMV can provide valuable insights. Generally, as a company matures, the FMV moves closer to the last round price (LRP); by the time of an IPO, preferred and common stock are valued equally. If the FMV remains significantly lower than the LRP, this may indicate that the company is still in early stages or that its valuation may lack solid fundamentals.
Additionally, changes in FMV often reflect the company’s trajectory. FMV typically shifts only after major events, such as new funding rounds, but any significant drop or increase suggests a material change in the company’s business.
Overall, the Fair Market Value is one of the most important metrics to understand as a private company employee with equity!
Funding your option exercise can be expensive and a require a large capital outlay. Feel free to reach out to us to discuss your options for partnering with ESO to exercise your options risk-free.
The ESO Fund does not provide legal, financial, or tax advice.
Public Multiples Check-in: "Yesterday's Price is not Today's Price"
Equities slid in October as the 2024 presidential election has drawn near. The S&P 500 fell 0.9%, the Nasdaq slipped 0.5%, and the DJIA lost 1.3% in October. Of the industries we track, all saw multiple increases year over year, with Cryptocurrency and Real Estate leading with 81% and 50% increases in forward multiples, respectively.
Why this matters: We are likely to see some continued volatility as markets digest the results of the election over the coming days. Once the dust settles, we should have a better idea of what policies impacting the market we will be able to expect with the next presidency.
October's Top Ten:
The biggest news this month has been OpenAI raising the largest VC round ever. The artificial intelligence company raised a total of $6.6B at $157B valuation in October.
Softbank’s Vision Fund is reportedly investing $500M in OpenAI’s latest funding round. The announcement comes on the heels of Apple’s dropping out of plans to participate in the round.
OpenAI’s most recent round investors may be waiting a while for the company to reach profitability. A report released this past month suggests OpenAI will lose a staggering $44 billion before it becomes profitable in 2029.
Cerebras Systems announced this past month that they are likely going to postpone their IPO after facing delays with a U.S. national security review. The news comes on the heels of the Information released a report detailing how the co-founder and CEO’s past accounting fraud felony may be impacting the company’s ability to draw investment banks to run the listing.
Perplexity AI, an artificial intelligence search engine challenging Google, is currently in talks for a new funding round at a $9 billion valuation. This would more than double their previous valuation of $3 billion in June.
GoPuff has fired their CTO after he was arrested on felony battery charges. Sreekant Kotay allegedly assaulted his longtime romantic partner.
Stripe is acquiring stablecoin platform Bridge in a $1.1B deal. The deal would mark one of Stripe’s largest acquisitions and fulfill its CEO's promise to support stablecoin payments earlier this year.
General Catalyst has raised $8B in fresh funds to back startups globally. The venture capital fund is going to have specific geographical focuses in U.S., Europe, and India.
Waymo, Alphabet’s self-driving unit, has closed a $5.6 billion funding round to fuel robotaxi push. The series C funding brings Waymo’s total capital raised to more than $11 billion after it raised $3.2 billion and $2.5 billion in two earlier rounds.
Elon Musk’s xAI is currently in discussions to raise money at $40 billion valuation. The startup hopes to raise several billion dollars in the new funding round.
Why this matters: OpenAI’s round dominated the headlines for the month, along with additional news of closed funding rounds or discussions of funding rounds. With the couple of years being very lackluster in terms of funding in the VC ecosystem, the news is much needed.
Hot startups that are still hiring!
Open positions are per the company's website.
About ESO Fund
ESO Fund empowers startup employees to turn their stock options into reality. Since our inception in 2012, we've been dedicated to providing risk-free funding for the exercise of stock options, ensuring that individuals can seize the opportunities embedded in their equity.
Our mission is simple: to make equity compensation accessible and understandable. Through our innovative solutions, we've assisted countless individuals at 650+ companies in realizing the full value of their stock options, contributing to the success stories of numerous startup employees.
For more information on ESO Fund and how we can help fund your option exercise, please refer to our website at www.esofund.com!