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Read Part I: Sneakers, Fire Fighters, and McKinsey or Part II: Fun with DCFs and Stock Comp.

If you were a technology CEO, wouldn’t it be great if you could issue all the stock you wanted to employees without your investors minding a bit? That’d be pretty awesome. And what if those investors also rewarded you for controlling your cash operating expenses, especially in this time of bubblicious salary increases for engineers? I think you’d be pretty excited about that, as a tech CEO, or even one of the employees.

Previously I argued that today’s Internet companies such as Facebook and LinkedIn might be issuing more shares for compensation and acquisition to stay competitive in this environment. I then argued that adjusting valuation methodologies to account for continual equity dilution would result in major (25-50%) reduction in market valuation. Neither traditional DCFs nor cash EPS multiples capture the future impact of stock issuance or the cost of buybacks to keep dilution to a minimum, and I know from work as a research analyst that share counts are given short shrift.

But why do we ignore it? Is it because buybacks only happen on the cash flow statement (and below the traditional “line” too)? When it comes to acquisitions, is it because we no longer amortize goodwill making acquisitions look like either a revenue boom or an impairment bust? Or is it because some other accounting rule blinds us to the ongoing impact? It could be any, all, or something else.

I posited that many casual investors (and not-so-casual ones) might not appreciate the shift to restricted stock units (RSUs) that has become commonplace as a replacement for stock options in Silicon Valley technology companies. Being ignorant of the ongoing accounting for restricted stock compensation myself, I decided to dig more deeply for my own benefit and those of my seven readers.

Based on my research, I think that the permanent impact of restricted stock dilution isn’t reflected well enough in traditional financial reports, and we need to pay better attention to the growing levels of non-cash stock compensation when valuing companies absolutely or on a comparable basis.


Disclosure: Of the stocks mentioned, I’m still net-long Google, and net-short Facebook. I recently ended a net-short position in Twitter. The numbers are very, very, very small, because I have partaken neither in the Bay Area tech bubble nor Bay Area real estate one to a material extent. I’m also not a CPA, and my most important primary source has been this PwC report on accounting for stock-based compensation.

Disclosure #2: I’ve been working on this post for a long time between other projects, and I just want to get it out—hence no illustration. If there had been an illustration, it would have been titled “Clay Davis / ‘Whatever that was, they don’t teach it in law school.’” Maybe I’ll add it in the future.


Let’s start off with a short review of how stock options and RSUs work. I’m going to limit my analysis to public companies.[1]

For public companies, stock options are granted to an employee and represent an option (duh) to buy a share at an exercise price which is the current trading price of the stock. If your stock is priced at $10.00 per share when you are granted an option buy it, then your option has exercise price of $10.00 per share. At the time, your option has no intrinsic value to you. You could just as well buy a share on the open market for $10.00.

But options also have “time value” because you’re able to buy that share for $10.00 up to ten years later as long as you’re still employed by the company. This “optionality” has value, and math people smarter at stuff like this have developed equations using volatility and standard market returns to calculate time value that when combined with intrinsic value results in a FAIR VALUE for the option. This is what the option is worth on its own, as an option, before you exercise it. Maybe that fair value is $5.00, and we’re going to use that for simplicity sake.

RSUs work almost the same way. Instead of an option to buy, RSUs are a contract to receive a share, for free, just like, “Hey, nice job, here’s a share of stock and a $10 Chili’s gift card. Don’t spend it all in one place. Well except for the Chili’s card, where I guess you have to.” If that sounds different from an option, it should be. A granted RSU for a $10.00 stock has an intrinsic AND fair value of $10.00 as opposed to zero for the option. So an RSU is more valuable from the outset, and it’s also more secure. The downside of an option in our example is you get nothing, absolutely nothing, if the stock doesn’t go above $10.00. The downside for an RSU in our example is whatever the share price ends up being (which could also go to zero, but usually doesn’t).

Options and RSUs are typically granted in return for a period of service at a company, the option’s vesting period, an important thing to know if you’re valuing your options in light of the fact that you usually hate your job and want to leave after eighteen months. Vesting periods are typically four years (or 2.67x job hating units), meaning you receive 25% of your grant each year. If you’ve been granted twenty options, then you’d be able to exercise five of them each year. If you’ve been granted twenty RSUs, then you’d receive five shares of stock each year. If you’ve been granted twenty Chili’s gift cards, hook a brother up with some queso.

All of this should be pretty straightforward, even remedial, for anyone working in technology. Let’s go to the accounting to understand how things might get funky.


Since options and RSUs both represents something a company gives to an employee in exchange for work, a company must recognize the impact of this non-cash compensation on its financial statements somehow. Unlike cash which should have roughly the same value in a year, an option or an RSU could have significantly different value depending on company performance, not to mention different values from each other. The company is granting something in the moment (which has periodic income statement consequences) that may affect the permanent capital structure (that is, the capitalization table). The result is that companies account for stock compensation in two places: as a non-cash operating expense in the period on the income statement and the full grant’s relative impact to the diluted share count.

The periodic cash expense doesn’t change with the stock price value. Once you issue an RSU or an option, the stock compensation stays the same over the four years of vesting. You issue 20 RSUs at $10, that’s going to cost you $50 / year. You issue 40 options at a $10 strike price and $5 option value, that’s going to cost you $50 / year. The only reason non-cash stock compensation goes up is through the issuance of more equity instruments to more people, not through any stock price appreciation. And because a company can issue more options for the same price, the same dollar value of options will result in far more dilution as the stock price goes up, even if a single option will never be as dilutive as an RSU on its own. For the purposes of this example, the breakeven between options and RSUs is roughly at 100% price appreciation.

The takeaways from these past few paragraphs on accounting are these:

  • Non-cash stock compensation on income statements doesn’t go up just because the stock has appreciated; it goes up because a company is issuing more equity at that higher price
  • Options are more dilutive when the stock price goes way up.
  • RSUs are more dilutive when the stock price stays the same or goes down.

We also have to figure out what the impact is of the full grant to the diluted share count, which tries to take into account the impact of dilutive securities on the capital structure. The typical practice is to net out how many shares the company can buy back versus what it doles out; we call this the treasury share method. For options, the company can buy back shares with the value from the cost of exercising, the theoretical value of unearned compensation not yet recognized (more on this later), and any tax benefits. For RSUs, there’s no cost of exercising. For simplicity, we will ignore tax benefits from stock options and focus on the other elements of the calculation: the exercise amount and unearned compensation.

For RSUs, shares are automatically added to the basic share count as they vest, because there’s no exercise provision. In the prior example, you’d get 5 new basic shares each year. Similarly, for the diluted share count, we only have to worry about unearned compensation since there is no exercise price. You take the $150 the employee is still owed, divide it by the current average share price, and assume you’re going to have dilution of the total unvested shares less this amount.

And why do we use unearned compensation? No one explains it well, not even PwC. The best explanation I found was a website half in another language that suggests “unearned stock compensation is a type of off-balance sheet asset in a sense: it can be used to offset future compensation expenses without bleeding cash.” Yikes. That’s just not how people work, even if I understand the math / matching principle.

For options, we go through the same process, except the company receives remuneration in the form of the exercise price. Vested options aren’t added to the basic share count unless they’re exercised, in which case, a cashless exercise usually takes into account the classic treasury share method for calculation. Otherwise, you take unvested, unexercised options and subtract out the amount you can buy back at the average stock price. Simple enough. Except once again, you also subtract the amount you can buy back from unearned compensation. Huh? Yes, it’s just like restricted stock. Too aggressive if an employee is leaving, and too conservative if an employee sticks around. The only reason why unearned compensation may work as a proxy for employee behavior for either RSUs or options is that if a stock has gone up considerably, it’s even more likely that an employee will wait out his or her vesting.

Let’s try to summarize this area:

  • Fully diluted share counts don’t necessarily reflect equity issuance or what will happen. They reflect stock compensation that has already occurred and a best guess otherwise.
  • Unearned stock compensation is not the best proxy for future share forfeiture; it’s based on stock price even though companies make assumptions about share forfeiture for periodic stock comp expense.

You may have noticed something else about these calculations. They all take into account the average share price during the period. Which means if you issue an option with a strike price for $10, and the stock price goes up to $50 by the end of the year, you’re calculating dilution using a buy-back price of $30.

Option and RSU Comparison2

Again, if that seems to be unreflective of reality, that’s because it is. So let’s add another thing to this discussion.

  • The greater the stock price growth or decline in a period, the greater chance the share count will not reflect the operating reality of the capital structure.

In my research over the past few months, I’ve only found one guy talking about this. Professor David Doran at Penn State has been looking at these same issues and come to similar conclusions regarding the accounting. In his research published in the Journal of Applied Business Research in 2013, EPS would be more reflective of reality if companies used ending stock prices (a decision which FASB and IFRS came to in 2008 and then let sit probably because it was the hell that was 2008) and also if the diluted share count didn’t take into account the impact of unearned compensation as described above.


So what of this?

  • We already ignore regular stock issuance as part of our discounted cash flow valuation. See Part II.
  • We also ignore non-cash stock compensation as part of our multiple valuations assuming that the current share counts best reflect the capital structure. See, generally, Wall Street.
  • Our accounting rules aren’t great at reflecting the capital structure, and the faster the stock price growth, the worse our accounting rules are.
  • And while all of this is true regardless of whether a company issues stock or options, restricted stock looks a hell of a lot better on the way up to investors than it does on the way down.

In good times like we’re experiencing today, share prices go up while more shares get granted, vested, and issued. It may even result in a kind of multiple expansion as stocks prices get anchored to certain earnings levels despite rampant dilution. Of course, employees receiving these shares then spend their spoils on Bay Area real estate driving up home values and rents to the chagrin of everyone else who neither owns real estate nor receives free stock.

In bad times, the reverse happens. We don’t even know what a macro economic downturn will look like in a restricted stock era. Unlike unexercised options which will disappear as stock prices go down, restricted stock dilution is permanent for investors. Share counts stay the same while earnings go down and multiples contract. Plus those accounting rules that served companies so well on the way up will taketh on the way back down; using an average share price as the denominator for diluted share counts will result in a lot more dilution.

So then, what do you do? You might follow my new rule of “beware the growth stock that beats on EPS instead of revenue,” but otherwise, I will try to come back with some other… uh… options.

[1] Private company options work slightly differently due to valuations based on preferred stock and no consistent market valuation. I’ll talk about private company options at some point because I find myself advising lots of startup friends on their options.

 

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Lemming! Lemming! Lemming!

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ILLUSTRATION: Panel from “Liquidation Preference” • watercolor & ink

Cross-posted from the Foundering Blog. Apologies to those who subscribe to both.

Despite a very clear and not-at-all tongue-in-cheek “all persons fictitious” disclaimer, we’ve gotten a lot of questions about who might be the basis for some of the Foundering characters . Who is “Perry?” the Lemming? Which firm is Lemming Capital? Did one of your board members try to molest one of you? Do you want to talk about it? Oh God, will you please stop crying?

Some of you have insinuated that you know these cartoon animals in real-life which really shocked me, because most of my imaginary friends are attractive women (Ed. Note: What about Jeero? Or that alligator? –fair point). It’s not that the FertilizeMe gang doesn’t borrow personalities from folks Bryan and I have met in our startup travails, but more often than not, the characters are amalgamations based on Silicon Valley caricatures or archetypes. Lemming Perry is a great example.

In venture capital, it’s a common story (and as far as I know, non-apocryphal) to hear of junior employees arriving in the morning to find a voicemail waiting from John Doerr, the well-known investor at Kleiner Perkins. Before Kleiner was known more for sexual harassment and before Doerr was more well-known for crying during a self-serving TED talk promoting cleantech investments, he was well-known for investing in companies like Google (where he still sits on the Board) and Amazon. So if you’re a twenty-five-year-old venture capital associate, receiving a voicemail from John Doerr would be pretty exciting. And the mother****er knows that.

“Hi, John Smith. This is John Doerr from Kleiner Perkins, and I have a special investment to talk to you about in the on-demand fertilizer space. Have you heard about FertilizeMe?” He proceeds to breathlessly describe the company, the opportunity in on-demand fertilizer fertilizer on-demand and asks you to call him immediately if your firm might be interested in this special opportunity that he’s sharing with you. Aren’t you lucky? Of course you’re calling back! Of course you’re investing!

I’ll call this the Lemming Pitch: “Follow me. Don’t mind the cliff. I know what I’m doing.” The story of Perry and Lemming Capital in “Bored Meeting?” represents a range of VC behaviors. Lemming Capital might be a second or third-tier VC firm that follows a more prominent one into a deal primarily because the prominent VC is involved. Or Lemming Capital is the financial institution who has zero knowledge of technology but will price an inside round to protect the Board from shareholder lawsuits (with a wink of course).(1) Or it’s the firm that gloms onto a relatively successful syndicate in follow-on rounds, syndicates that exist ostensibly to reduce risk but are often used to give these lower-tier investors an incentive in returns and brand halos to invest in more questionable deals in the future. Remember when we let you invest in Twitter in their Series D? Well what about FertilizeMe’s Series B?

The Lemming Pitch is an institutionalized scam taken to the next level. It’s like the demon spawn of a “100% guaranteed stock” scam crossed with a Nigerian spam email. Except then that demon spawn married the child of a Boiler Room pump-and-dump scheme and your uncle who sells Amway and subsequently gave birth to the Anti-Christ. Now you know why the shark’s named Damien.

Perhaps the funniest thing about the Lemming Pitch is that the higher your own self-regard, the more likely you are to fall for it. This happens with senior VCs _all the f***ing time_. Because admitting that an offer like this is a scam would mean that the person offering the deal doesn’t think very much of you. (He might not even like you at all.) But similar to the 100% guaranteed stock scam, these deals do work out every once in a while, thus allowing the firms to raise new ten-year funds. So if they’re lucky enough not to get stuck in a watercooler or forget the safe word at an S&M club, a firm like Lemming Capital can stick around for ten or twenty years before being replaced by the next mark.

And speaking of lemmings, Bryan and I were pretty honored to see the HBO series Silicon Valley namecheck lemmings this week as a tribute the recently departed Lemming Perry. Well, I guess it wasn’t a tribute to Perry and didn’t have anything to do with us at all, but it’s a fitting way to send off one of our favorite characters.

Lemming! Lemming! Lemming!

– Ben

(1) “Pricing the inside round” – There’s not much online about this situation, so Bryan and I thought we’d explain. When a startup goes sideways, often the only option for additional capital is from current investors—insiders—investing in what’s called an inside round. Nevertheless, the Board may go to a very friendly and less discriminating external investor who will validate whatever valuation has been chosen in return for access to this deal and others.

The valuation chosen is often flat to preserve the company’s capital structure (at least until the Board decides the founding team needs to go), but “pricing the inside round” allows the Board to ward off any pesky shareholder lawsuits regarding fiduciary duty and also allows the startup to suggest that it has succeeded in finding new capital from an external party. These investors are usually well-known to venture capitalists, so everyone in venture knows you’ve _really_ done an inside round. However, you can usually fool your employees, the press, your customers, and most of the competition.

In the comic, Lemming Capital is really more like a third-tier VC following Damien’s firm, since Lemming Capital is providing a significant capital infusion, but the insinuation, of course, is that FertilizeMe has been going sideways for a while.

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The Passing of Cars

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ILLUSTRATION: Godard’s Ro-bot Week-end • ink and digital • 3×5″

As I recount how I hacked my ignition coil gasket to fix my check engine light, my friend Allan tells me his nieces and nephews don’t want cars. They argue: Why pay for a car? Or gas? Or parking? Or ignition coils. Give me a walkable city or give me Uber! And anyway, the company they work for has a private bus to their neighborhood. My check engine light goes on again.

As I go to the auto parts to buy yet another quart of overpriced European oil, my friend Lafe tells me he’s selling his car. He doesn’t want it, but short of someone (e.g., his girlfriend) posting it for him on Craigslist, handling potential buyers, and then depositing the money in his bank account, my guess is that it’ll stick around for a while longer. It’s been eighteen months since he first described his second attempt since 2008 to go carless, but his plan isn’t a bad one.

In addition to Uber and private buses, there are still cabs and public transportation, not to mention Zipcar and Lyft and Sidecar and, you know, walking. And by not driving, you can then read on your phone breathless analyses of how your taking of Uber is changing the world. Pretty fantastic, right? As the 1980s predicted, cars are now transforming into robots too. Once we have robotic self-driving cars, we’ll all be riding in Google cars analogous to Google’s servers. Generic, cheap, easy-to-replace, with a high utilization rate, and a low carbon footprint. The exact opposite of my car.

While I do love my car and carrying around extra ignition coils and overpriced oil, I still haven’t bothered to Google how a transmission works. So I’m not going to bore you with an old man speech about the death of automobile culture. Also well covered these days is concern of how we’d program an ethical response into a self-driving car. Most of us who don’t work at Google would probably agree not to outsource a deontological/teleological debate about the value of human life to a Google product manager or a server farm. In ethical debate, the cloudiness of human intent matters in a way that it can’t in code.

Automobiles aren’t my issue here today; driving is. I’m always more interested in how a change in technology changes our long-term behavior. How, as James Boyle said, ideology runs to technology and then back again. And whether this technology will give us any clearer picture of what it means to be human or will it just fog it all up like my windshield when the compressor won’t kick in unless I rev it above 7,000 RPM (stupid car).


Like Robotech or Voltron, every day millions of Americans buckle into machines that can cause death and destruction. However, for the most part, when bad things happen, we call them accidents. Accidents happen. That’s fine. But what rarely happens is someone purposefully driving up onto the sidewalk to run someone over or cannonballing in the wrong direction on a freeway. We worry about hitting squirrels, for goodness sake. At least I do. Despite road rage, shitty drivers, a degradations of manners, and a general ignorance of physics, billions of moments pass each day without incident. Sure, folks in San Francisco may not know how a right-of-way works at a stop sign, but are they really that much worse than the rest of the nation? (Yes.)

I have no doubt that driving represents the most significant daily voluntary compliance with laws and social mores in the US. We all participate, yet we still get to show our personalities, resolve differences, and achieve our goals, with little outside influence. We create infrastructure, oversight, and the rest gets worked out amongst ourselves—from a headlight flash to a wave to even a few choice phrases in anger. We’re all in it together, and we trust that others will behave with the right balance of individualism and altruism, competition and cooperation. Driving is story we tell ourselves about ourselves!

Moreover, most of us cut our teeth in our teens, as we’re training to be adults. With a vehicle, we’re responsible for getting ourselves and others somewhere safely, for taking care of an expensive object, for our independence. Big corporations may produce cars and the gasoline that powers them, but they don’t own the vehicles we drive. Nor do they control or track where and how they go (unless you let them). Almost anyone can buy a crappy car or scooter, and learning basic maintenance doesn’t require an engineering degree.

In a future where some of us are driven around only by Uber or by robotic Hoke Colburns, what will replace driving as a communal act of participatory democracy? Where else will we be able to express our self-reliance? (And don’t tell me coding or Burning Man. That’s not enough.) What sort of rent-seeking hellbeast will we create when we give up independent ownership of vehicles? Having been mistaken and far too positive about the influence of the Internet the first time around, I’m always concerned with this question: do we lose just as much as we gain from our future robotic driving friends?


We don’t even have robot driving friends yet, and you may have already seen a change. If you’ve driven in San Francisco recently, has anyone cut you off and then slammed on their brakes in front of a popular brunch establishment? Have you seen a lot of double parking by non-taxi vehicles? Have you seen people driving even more poorly than usual? That they seem preoccupied with four phones in the window? Or have an aggressiveness typically displayed by a “my first BMW” driver or, you know, a taxi?

Or have your friends been a little bit more self-absorbed lately? Are their manners a little less noticeable? Does anyone you know feel a little bit more entitled than usual, getting in and out of a black SUV at dinner? Certainly you’ve felt the aggressive class tension that comes when the people who work in an area are no longer able to live there—something that just seems to feel worse and worse in the Bay Area. And maybe not. Maybe that’s just in my head.

The truth is that we know what the world looks like when we all live in close proximity with every convenience available on-demand. We know what it looks like when competition among drivers—nay, people—always trumps cooperation, when everyone is out for themselves, and to paraphrase Yossarian from Catch-22, you’d be a fool to act any other way.

We know that world. Welcome to New York.


Also: a postscript apology to my seven readers. My new project Foundering has kicked my ass. Once it launched, I thought, “Oh, this will be fine. I can do three comics per week and write one blog post and work two interim CFO gigs while finding new consulting projects to pay off my crippling credit card debt plus do other creative stuff. Absolutely yes.” But the real answer was a resounding no. I’m going to try to find a way to balance all of these projects, so the comic will probably go to twice a week. I’m not super happy with this post even, but I have to write something.

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“Foundering”

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Instead of joining another crappy startup* or working for another terrible founder**, Bryan Keefer and I “founded” a webcomic about the crappiest of all startups and the worst of all founders. Visit Foundering (FounderingComic.com), and let us know what you think of the first chapter of hijinks. We’ll update about 3x per week.

Regular blog updates will continue now that Foundering is live. I apologize for my absence, but for my six readers, just think: more pictures, fewer words, twice the fun.

* Not your startup, of course. Your baby is beautiful.

** Not you, of course. We’re definitely talking about someone else. All characters appearing in this work are fictitious cartoon animals. Any resemblance of the fictitious cartoon animals to real persons, living or dead, employed or unemployed, is purely coincidental and likely impossible, since they are cartoon animals.

 

 

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Dinner with McNulty

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ILLUSTRATION: Hippo Embarrasses Bunny at Dinner… Again • ink • 3×5″

I recently finished my sixth or seventh viewing of the 2002-2008 HBO series The Wire—that might seem like a lot (~400 hours), but they say TV reruns reduce stress. After a number of crappy startups and countless breakups, it’s The Wire—of all potential sources of comfort—that is my fix.

The Wire explores class, race, money, business, bureaucracy, among other themes—in other words, modern America. I think the show stands along with the documentary Hoop Dreams as the most accessible and valuable criticism of our society in the last twenty years. It’s one of the best pieces of fiction I’ve ever consumed across all formats. If you haven’t seen it yet, just stop reading this and come back in a few weeks. Maybe take some sick days.


Ready now? Great.

The Wire uses recurring dialogue, motifs, and parallelism to hammer home its themes, and one construct that stood out on this watching is the consistent use of meals to critique class mobility. In the first season, D’Angelo Barksdale and his girlfriend Donette visit a stuffy, upscale restaurant in Baltimore—waiters in suits, dessert carts, middlebrow, couples in their balding and short perm years respectively, tonally if not actually white.

Underdressed and arriving without a reservation, D’Angelo is markedly uncomfortable, asking Donette whether the folks around him suspect that he’s involved in drugs, that he’s a gangster. Donette argues, “Your money’s good right? We ain’t the only black people in here.” But D’Angelo is unable to fully explain his discomfort, just that there are things that stay with you, that “as hard as you try, you still can’t go nowhere.”

Donette has none of it. “Boy, don’t nobody give a damn about you and your story. You got money, you get to be whoever you say you are. That’s the way it is.” Her argument takes an immediate hit when D’Angelo picks up a sample dessert from the cart—the way you would at a cafeteria—before being admonished by an effeminate waiter. The action says more about class than any of the perhaps-too-on-the-nose dialogue that precedes it. D’Angelo is painfully aware of the gap between him and the “other” world around him while Donette is unaware of her own similar distance to the other world.


“For another pit sandwich and some tater salad, I’ll go a few more.” –Wee Bey

D’Angelo and Donette’s dinner scene is not the only mealtime exploration of the intransigence of class in the show. In Season Three, a leather-jacketed Detective Jimmy McNulty tries to bridge his blue collar world with the white collar one of a political operative on a date at an upscale southern restaurant in DC, only to find something similar to D’Angelo, that the woman looks through him, that his world doesn’t exist. In Season Two, parallel meals between Detective Kima Greggs, Lieutenant Cedric Daniels, and their respective partners in complete silence highlight a struggle over ambition and social climbing. Their partners want them to choose law over order, money over love, white collar over blue collar.

For Stringer Bell, his suit-and-glasses-lunch with Clay Davis and real estate developers in Season Three gives us yet another depiction of the truism, “if you look around the table and can’t figure out who the sucker is, it’s you.” Or more directly from Avon Barksdale when he encapsulates the concept of social distance for Stringer: “I look at you these days, String, you know what I see? I see a man without a country. Not hard enough for this right here and maybe, just maybe, not smart enough for them out there.” (More on Barksdale versus Bell another time)

But the most obvious redux of D’Angelo’s scene comes in Season Four when former police major Bunny Colvin takes “corner kids” to a Ruth’s Chris at the harbor as a socialization experiment where we get another depiction of how foreign the customs and mechanics of a restaurant can be to someone who’s never been somewhere other than McDonald’s. Being waited on. Handing over your coat. Choosing a temperature for your steak. When to use a straw. What a special is. The fact that no one else in that restaurant would spend three hours on their hair, but of course Zenobia would—this is special to her in a way that it might not be to regular patrons.

Unlike some of the other meals, however, I’d argue that this dinner says something positive about overcoming social distance, that perhaps it’s not intractable over generations. Bunny’s taking Namond on as a ward and his flourishing gives weight to that argument.

That’s something positive for a change, right?


In the context of the show, if not life, both D’Angelo and Donette are probably right about money and class in their own way.

As with any good tragic flaw, it’s D’Angelo’s self-awareness that prevents him from overcoming the gap in class he so clearly sees. For D’Angelo, he will always be betwixt and between two different worlds. His story ends in the third season after fittingly discussing The Great Gatsby in a prison book club when he explicates what he tried so hard to do at that dinner with Donette.

He tells his fellow inmates, “It’s like, you can change up. You can say you somebody new. You can give yourself a whole new story. But what came first is who you really are, and what happened before is what really happened. And it don’t matter that some fool say he different, ’cause the only thing that make you different is what you really do, or what you really go through.”

As for Donette, she can be who she wants because it’s unlikely she’ll ever see the gap; there’s no harbor to cross to reach that green light. It’s right there to be grasped.


P.S. There’s a webcomic coming soon from Bryan Keefer and me, but it means that I may be even more sporadic in my posts over the next couple of weeks. More soon.

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