The startups Juul and WeWork are each “worth” over $38 billion. They each hooked in talented employees with their promise to change the world. And they each canned their CEOs last week amid crisis.

But that’s where the similarities end.

In fact, the two sagas together pull back the curtain on how Silicon Valley moneymaking really works. Just because your company is theoretically worth some ungodly amount does not mean that you are rich. The paydays do not arrive for everyone at the same time or on the same terms. And often it’s the rank-and-file employees who are left holding the bag when a company’s investors and founders strike gold.

At Juul, whose CEO Kevin Burns was ousted last week amid federal investigations into Juul’s marketing to underage users, employees have enjoyed an unheard-of windfall after the company was valued at $38 billion by Altria, the tobacco giant, late last year: About $1 million in effectively free money to each of its 1,500 rank-and-file employees.

At WeWork, where founder Adam Neumann was removed from the CEO seat as their IPO process crashed and burned, current and former employees are seething — with some even rooting for the company to fail. (After being valued at $47 billion, WeWork in the span of only a couple weeks tumbled to a price as low as $15 billion before pulling its IPO entirely on Monday.) Some are speaking out publicly after Neumann was able to take home $700 million in cash and loans based on WeWork’s high valuation while employees who joined the company recently could find their stock options worth close to nothing, depending on how WeWork eventually fares when it does finally go public.

It’s a reminder that a company’s “valuation” can mean both everything and nothing in Silicon Valley.

“It’s not as simple as saying your company is worth a lot of money. What it really means is a few people at the top are going to get rich,” said one former WeWork employee. “It doesn’t mean you are. And they don’t tell you that.”

Evan Epstein, who advises Silicon Valley on how to structure companies at the firm Pacifica Global, said he found many headline “valuations” to be inaccurate descriptions of a company’s worth.

“That’s the inside story of Silicon Valley,” Epstein said. “Employees don’t have much to fight for — or more ways to fight against that — because the people who make the decision are on the board.”

What even is a “valuation”?

Epstein said he thinks that a company’s “valuation” should equate to how much it is worth from the financial perspective of its employees or what are called common shareholders.

The problem is that in the land of Silicon Valley startups, that isn’t how this works.

A public company’s value is measured by the ups and downs of a stock-market ticker. Certain shareholders have more influence than others, yes, but the price is democratized — an equilibrium reached between the people who want to buy the stock and people who want to sell the stock. It’s accessible to anyone with a Yahoo Finance account.

A startup’s value? It’s traditionally dictated by what venture capitalists paid to purchase shares in the company whenever it last raised money — whether that was a month or a year ago. A new investor strikes a deal with a company’s board of directors, which offers new shares in the company in exchange for cash to fund growth. If you then expand that dollar-per-share price and apply it to all the shares, you’ll come up with how much the new investor thinks the entire company is worth.

(For example: If a new investor buys 10 percent of a company for $5 million, then the company’s “valuation” is $50 million, since that’s what the entire company is worth at that rate.)

There are three main ways in which this “valuation” figure can mislead people, each of which reared its head in the drama at WeWork, which was valued at $47 billion when SoftBank invested $1 billion into it earlier this year.

Most notably, none of this money is real . It’s an “on-paper” figure that is a mathematical construct. It doesn’t matter whether a company is valued at $50 million or $500 billion when it comes to building a product or paying for a catered lunch. A company only becomes indisputably “worth” something when it begins trading on a stock exchange, is acquired, or goes bankrupt.

. It’s an “on-paper” figure that is a mathematical construct. It doesn’t matter whether a company is valued at $50 million or $500 billion when it comes to building a product or paying for a catered lunch. A company only becomes indisputably “worth” something when it begins trading on a stock exchange, is acquired, or goes bankrupt. The figure is also easily manipulated . Because the figure is often the last agreed-upon price between one investor and one founder, a private valuation can be seen as simply the highest possible price that any single individual is willing to pay. And an inflated number often works for founders, too, because it can help their company build buzz and credibility.

. Because the figure is often the last agreed-upon price between one investor and one founder, a private valuation can be seen as simply the highest possible price that any single individual is willing to pay. And an inflated number often works for founders, too, because it can help their company build buzz and credibility. Investors can insert all sorts of protections to ensure that they make their money back before anyone else should their investment prove unwise. That’s when employees can get hurt. While investors can recoup some of their money when a company doesn’t turn out so well, the hardworking employees have no such recourse and can be left with their stock worth next to nothing.

The decisions made by WeWork and Juul

That explains why former WeWork employees are nervously sharing every news story the minute it lands in private Slack and Facebook groups, texting GIFs of dumpster fires to describe the mood, and even airing their public frustrations with their CEO, who presided over the evaporation of $30 billion in shareholder value seemingly overnight.

In fundraising rounds leading up to October 2017, Neumann was able to sell shares or take loans (against the values of his shares) worth $700 million, a highly unusual amount of personal financial gain before the company goes public. So even if WeWork goes bankrupt tomorrow, Neumann himself will be just fine; he’s set up a personal family office to manage his commitments to personal investing and philanthropy.

That hasn’t sat well with employees, who don’t want to see their leaders enrich themselves while the rank-and-file toils at their feet.

“I feel terrible for the employees there and none of them were given the option to liquidate when Adam bamboozled $700M out of the company,” one former employee wrote on Twitter.

That’s not entirely true. Some employees were indeed able to sell shares twice along the way, just like Neumann was. The most recent sale opportunity, in January 2019, offered employees $54 per share if they sold their equity to SoftBank, WeWork’s largest outside shareholder, according to WeWork’s financial prospectus, at an overall valuation of around $23 billion.

Not everyone was eligible to sell, nor did everyone take that opportunity. Those who did are, with the benefit of hindsight, thankful.

“I don’t want anything to do with WeWork, so I’m happy I sold my shares and got out of there,” another former employee, who sold his stake in mid-2017, told Recode. “I feel bad for people who believed they could get more money by staying on instead of selling to SoftBank when they had the chance.”

For those current and former employees who didn’t sell, they face a long road to turning WeWork’s pay packages — which are heavy on equity, in the betting spirit of all Silicon Valley employee contracts — into real money for a home or to pay off lingering student loans. It isn’t clear when the IPO, after which employees can easily sell their shares for cash, will happen. Nor is it known whether they’ll have another chance to sell their shares to an investor like SoftBank again.

If WeWork’s valuation does drop precipitously, as appears likely, the company could choose to “reprice” some employees’ options or issue additional ones. Those would be ways for the company to make its employees whole by sweetening their equity packages. But there’s no guarantee WeWork will do that.

Now, contrast this to what happened at another company with its own financial turmoil — but where the valuation game played out very differently.

Over at Juul — the leading seller of e-cigarettes — when they achieved a sky-high paper valuation following a minority investment at a price tag of $38 billion, the board gave a fat payout to its employees. Juul’s 1,500 workers received a total of $2 billion when the company received that rich valuation, paying employees $150 for each Juul share they owned.

It was an arrangement that longtime startup observers had never heard of before, employees being paid an average of $1 million in cold, hard, immediate cash. The payout was, among other reasons, apparently a way to quell unrest about selling more than a third of the company to tobacco giant Altria.

So when Juul CEO Kevin Burns was ousted last week amid a federal crackdown on the vaping industry — including a criminal inquiry that could potentially spell doom for the company — there surely was a pang of concern and chaos that gripped the $38 billion startup.

But what’s different about this and WeWork? Who knows what will happen to Juul’s value in the next few months, but its employees are already millionaires.

“The worst off are always the employees because they have stock options, they work long hours on the promise of a rocket ship, and in most cases they’re not successful,” said Epstein. But Juul, he said, was an outlier. “At least they got paid, and it’s a great story for employees.”

That’s when a valuation mattered. But it’s often the exception rather than the rule.

One former WeWork employee said he’s hoping to take that lesson to his next job. He recalled his orientation in his opening days at WeWork where leaders emphasized the equity he’d receive. He began to imagine his life when he had some real money behind him.

“What does that really mean? Can I eat equity? Can I spend equity?” the former employee says now. “This whole idea of a valuation being an incentive to work for a company? It might be a fallacy for me at this point.”