## Metadata - Author: [[Benn stancil|Benn Stancil]] - Full Title:: The Whole Scheme - Category:: #🗞️Articles - Document Tags:: [[startups|Startups]], - Finished date:: [[2023-12-23]] ## Highlights > This is not how anyone thinks about startup equity. Nobody—neither employees nor the early-stage VCs who invest in startups—value a startup’s equity by estimating the future dividends that the startup will pay its shareholders and plugging a bunch of numbers into a [Black-Scholes model](https://substack.com/redirect/0e2ebfd4-f315-4b48-94d5-407e2873dc7e?j=eyJ1IjoiMm5hMXBqIn0.mbNFJInbw294ygJ9bshbQHCrSmw8mopBsA3-R-GfPnQ); they value the equity by guessing how much someone else will pay for it in the future. Their return isn’t funded by the operations of the business; it’s funded by a future investor. ([View Highlight](https://read.readwise.io/read/01hjaxf25e8v5c3etw1e1ctsqx)) > If I had to guess, that’s what this deal is all about: Insight and Clearlake saw a $900 million annual revenue stream that they can buy at a relative discount. Slash sales and marketing spend,⁷ flip the annual loss into a profit, and bank the cash for as long as Alteryx’s sticky and slow-moving enterprise customer base holds up. If the business takes off, great; Alteryx could be spun out or sold at a higher price than they paid for it. And if the business stagnates, that’s fine, so long as it’s still making money. For capital allocators, that’s *their* whole scheme. ([View Highlight](https://read.readwise.io/read/01hjaxt0gqwvyktk8kxw2304fh)) > Here’s another, more general way to interpret the Alteryx deal: The Silicon Valley scheme is getting harder to run. Alteryx [has 8,300 customers](https://substack.com/redirect/858bab05-57ea-4891-8776-94754f6387bf?j=eyJ1IjoiMm5hMXBqIn0.mbNFJInbw294ygJ9bshbQHCrSmw8mopBsA3-R-GfPnQ), makes $900 million a year, and is growing at twenty percent a year. In this market—of higher interest rates, and governed by [more aggressive anti-trust regulation](https://substack.com/redirect/ddb95383-b427-49f2-880f-f51f6a543240?j=eyJ1IjoiMm5hMXBqIn0.mbNFJInbw294ygJ9bshbQHCrSmw8mopBsA3-R-GfPnQ)—a company with those performance metrics is valuable because of the cash it can make, and not because of what it might eventually be worth. ([View Highlight](https://read.readwise.io/read/01hjaxtnpr047h903ktnramv29))