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Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

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Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#11

Post by avar »

csense wrote: post #4

It's a tough problem. In the late 1990's, there was a big wave of accounting scandals (Enron, Worldcom, etc.) Which led to heavy regulation (the Sarbanes-Oxley Act). The Act was a well-intentioned attempt to protect retail investors from crooks. The problem's that compliance is so burdensome and expensive that firms don't want to enter the public markets until they're already large (or if they're forced to when their…

I don't know if this is true, but if it is wouldn't there be a really obvious pattern of the market value of initial IPOs going up compared to before SOX was passed? Is there such a telltale pattern?

Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#12

Post by JumpCrisscross »

sol_remmy wrote: post #9

Thank goodness the government protects me, a non-accredited investor, from investing in any private companies! I'm too stupid to make investment decisions without going broke! https://passiveincomemd.com/not-secret-society-accredited-in...

I used to be skeptical of accredited investor requirements [1] until cryptocurrencies happened. That an entire space can (a) go from zero to fraud in the blink of an eye and (b) not only ignore the delineation between gambles and core investments, but develop a collective disdain for it and anyone espousing it, has me convinced of the rule's wisdom.

Investing in start-ups costs money. Diligence costs money, negotiating terms costs money and staying up to date on corporate actions costs time, and when it matters, more money. Those who can't afford that not only sets themselves up to get screwed, they bring down the quality of the ecosystem.

There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision.

[1] https://www.sec.gov/files/ib_accreditedinvestors.pdf

Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#13

Post by fricat1ve »

kspaans wrote: post #8
empath75 wrote: post #7

Earlier quoted context omitted.

If everyone is just doing passive investment, there's no real price discovery, it's just valuable companies getting more valuable just because they're already valuable. It also screws with management incentives for the companies when their 'owners' are completely checked out and uninterested in performance.

Vanguard is hardly a passive owner: https://about.vanguard.com/investment-stewardship/policies-a...

Essentially toothless because an index fund is going to invest the money either way.

Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#14

Post by jmalicki »

xivzgrev wrote: post #3

Kind of a disvirtuous cycle isnt it? More income inequality means fewer people have more money. If you need to fundraise it would be preferable to raise from fewer than more - lower transaction costs and oversight. These private individuals then capture more and more of the growth becoming further enriched. At some point though it seems like it would backfire. If wealth is sufficiently concentrated than those individ…

By disvirtuous do you vicious, or something else?

Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#15

Post by charlesdm »

tspike wrote: post #5
fricat1ve wrote: post #2

Another step along the path to public markets becoming essentially a suckers' game to siphon money away from passive investors. Those who possess actual money seem to understand that real investments come with terms and conditions. Not just "Here's 10% of my salary, see you again when I retire."

Could you explain how this would work in practice? If I'm allocating a percentage of my salary to, for example, Vanguard's total stock market index, how would that get siphoned?

One simplified example: say people are investing in a passive property fund. Those funds generally yield around 3 to 5% per year.

You're a smart entrepreneur. You build a huge skyscraper for $200m. You manage to generate a yield of 10% on that $200m. Most of the $200m is debt levered against the asset. The building subsequently gets sold to the fund on a yield basis. They'll pay $400m, i.e. $20m in yield p/a = 5%.

Smart entrepreneur just made $200m.

Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#16

Post by [deleted] »

tspike wrote: post #5
fricat1ve wrote: post #2

Another step along the path to public markets becoming essentially a suckers' game to siphon money away from passive investors. Those who possess actual money seem to understand that real investments come with terms and conditions. Not just "Here's 10% of my salary, see you again when I retire."

Could you explain how this would work in practice? If I'm allocating a percentage of my salary to, for example, Vanguard's total stock market index, how would that get siphoned?

[deleted]

Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#17

Post by nordsieck »

JumpCrisscross wrote: post #12
sol_remmy wrote: post #9

Thank goodness the government protects me, a non-accredited investor, from investing in any private companies! I'm too stupid to make investment decisions without going broke! https://passiveincomemd.com/not-secret-society-accredited-in...

I used to be skeptical of accredited investor requirements [1] until cryptocurrencies happened. That an entire space can (a) go from zero to fraud in the blink of an eye and (b) not only ignore the delineation between gambles and core investments, but develop a collective disdain for it and anyone espousing it, has me convinced of the rule's wisdom. Investing in start-ups costs money. Diligence costs money, negotiati…

> There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision.

You say this as if its obvious, but I'm not even convinced that it's true.

Sure, there are all sorts of strategies that VC firms employ to mitigate their downside, but those are only marginally effective. The real reason the successful ones are successful is because they were part of the right deals, not because they lost less money on the wrong ones.

Modern portfolio theory is adequate protection from that kind of risk.

Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#18

Post by maerF0x0 »

I've long thought about a law whereby companies over some 409a valuation must allow public trading of their stock. For example maybe all companies over $5B or some other quite large valuation would be required to allow public sale of stock.

This would be good for much of society. It gives liquidity to employees, it creates a market forces valuation, it allows pensions and other institutions to more accurately index the economy as a whole.

What are some downsides I'm missing?

Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#19

Post by andrewtbham »

avar wrote: post #11
csense wrote: post #4

It's a tough problem. In the late 1990's, there was a big wave of accounting scandals (Enron, Worldcom, etc.) Which led to heavy regulation (the Sarbanes-Oxley Act). The Act was a well-intentioned attempt to protect retail investors from crooks. The problem's that compliance is so burdensome and expensive that firms don't want to enter the public markets until they're already large (or if they're forced to when their…

I don't know if this is true, but if it is wouldn't there be a really obvious pattern of the market value of initial IPOs going up compared to before SOX was passed? Is there such a telltale pattern?

It is true

https://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-...

Re: Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant

#20

Post by leojg »

maerF0x0 wrote: post #18

I've long thought about a law whereby companies over some 409a valuation must allow public trading of their stock. For example maybe all companies over $5B or some other quite large valuation would be required to allow public sale of stock. This would be good for much of society. It gives liquidity to employees, it creates a market forces valuation, it allows pensions and other institutions to more accurately index t…

Public companies tend to focus on making money instead of innovation?

They become slaves of their quarter reports and lose the ability of investing in long term projects?

Maybe a bit exaggerated? :D

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