Comment by jasode | Hacker News Reader

Comment by jasode | Hacker News Reader

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>I'm not sure what distinction you think you're making. They bought a lump of the company at whatever valuation and that's termed an "investment". However my point is that I don't suspect they're strictly after a return on investment here.

The distinction is that "acquire" means controlling interest. Investing $497 million when the valuation is over $1 billion means... (doing the math) ... Tencent has less than 50% ownership. At this point, Tencent only has an investment and not a controlling interest. Therefore, Tencent did not acquire Scalapay (yet).

This isn't being pedantic about semantics. Instead, it's being very clear about who controls Scalapay based on how much ownership percentage was purchased.

Another example of the difference... in 1997 when Microsoft invested $150 million in Apple, it did not purchase enough ownership % to consider it an acquisition. The $150m is a lot of money but MS didn't acquire Apple with that transaction. (https://www.google.com/search?q=microsoft+invests+%24150+mil...)

EDIT reply to: >Valuation has nothing to do with controlling interest. They are unrelated.

Setting aside a multi-class stock arrangement with 10x voting rights which would be unusual for non-public company at this early stage because it requires approval by the previous investors & founders, the post-money valuation is mathematically related to the ownership percentage purchased -- and therefore determines if there's a controlling interest.

> Investing $497 million when the valuation is over $1 billion means... (doing the math) ... Tencent has less than 50% ownership

Technically, no. You can acquire control of a $100bn company for $1 if the shareholder agreement says so. Votes and dollars don’t have to correlate, particularly in Italy.

Practically speaking, you’re probably right.

> Investing $497 million when the valuation is over $1 billion means... (doing the math) ... Tencent has less than 50% ownership.

> This isn't being pedantic about semantics.

You are quite simply wrong. Valuation has nothing to do with controlling interest. They are unrelated. A company can have 100 shares, each worth $1, and be valued at $2,000,000,000.

You're wrong.

In what way am I wrong?

> company can have 100 shares, each worth $1, and be valued at $2,000,000,000

Not OP. But that company is worth $100.

“Worth” is an ambiguous term, however, as it encompasses value in both par and market. One case makes you right. The other, the other.

A company is worth what people are willing to pay for it's shares. The share price is not the same as valuation, which can be seen in the example above. It can also be seen with what is commonly called value investing, which is used by possibly millions of people, purchasing shares where the book value is greater than the trading value.

> company is worth what people are willing to pay for it's shares

If you say a company’s shares are “worth” $1 per share, you imply that’s what people are willing to pay for it. If you’re playing with the word “worth,” it’s your incumbency to explain that deviance from the common use.

Par value is a legal term. Book value is an (increasingly anachronistic) accounting term; actually, several terms, since GAAP book is separate from IASB or Chinese book, but I digress. Each of which are separate from market value, which is also various; consider a public stock: does one take the bid or the offer or the mid market tick? At Noon or the closing or a VWAP?

Companies play with their headline valuation. In this you are correct. But they’re playing with the ambiguity that stumbles you.

You agreed with my comment elsewhere. Please stop with strawman restatements and arguing for the sake of arguing.

> Technically, no. You can acquire control of a $100bn company for $1 if the shareholder agreement says so. Votes and dollars don’t have to correlate, particularly in Italy. [1]

[1] https://news.ycombinator.com/item?id=30455219

It's technically possible. You can imagine a company with exactly 100 shares, and a contract that allows the company a right to buy any share put up for sale pre-IPO for $1. Then all 100 shares are "worth" a dollar, even if the price in the market without that clause would be $20MM. That would correspond to a $2 billion valuation.

If people are willing to buy shares only at $1/share and there are 100 shares, then the company is valued at $100. It may previously have been valued at $2M!

In the case of pre-public companies, where there is not a robust, liquid market in shares of the company, it can be difficult to figure out what the valuation of the company is. In that case, we often revert to the most recent time when lots of shares were sold, and what they were sold for. In the hypothetical scenario you refer to, this is a bad approximation.

If a company has, for example, liquid assets worth several million dollars, no liabilities that need to be paid off, but someone is willing to sell the company for $100, then that's a dumb valuation, but it's still the valuation.

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