What is Square or any startup really worth?

There's an inverted Ponzi dynamic to this. In a Ponzi scheme, the earlier gain the most and the later the least. In this dynamic, the later are guaranteeing their returns at the expense of the earlier.

It makes sense because of the necessity of these companies to raise capital, but it also has a somewhat ironic tinge.

It is worth what someone is willing to pay for it. The correct question is: under what conditions is it worth it? Many valuations seem to rely on investor N+1 being even more gullible than investor N.

You can't defy gravity though; eventually someone is going to want to get a dividend. It must be more profitable to own shares in a firm than to not once the chain of fools has run out.

I'm confused here -- the argument is that a ratchet which is clearly going to trigger in the IPO is better for employees and other shareholders than a down round? Assuming the odds of IPO are 100%, and if we could assume the down round would be at the same price as the effective price due to ratchet, is there a difference?

I guess there might be other provisions in earlier rounds of equity which would be triggered by a down round vs ratchet in IPO, but is this mainly a distinction of optics?

Must answer question: Worth to whom?

Not every potential buyer will agree on the "worth" of X.

Ultimately X is not worth anything unless and until X is sold.

Perhaps the tense is wrong.

Not what _is_ X worth, but what _will be_ the worth of X (when X is sold).

In the end, "worth" is "price paid" (by some buyer).

Whatever it is acquired for. ;)

Url changed from https://recode.net/2015/11/13/how-startups-ratchet-up-their-..., which points to this.