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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

#31

Post by JumpCrisscross »

conanbatt wrote: post #27
nordsieck wrote: post #17

Earlier quoted context omitted.

> 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 on…

The proof of the opposite is easier than that. That phrase implies it should be illegal to give stock to employees.

> That phrase implies it should be illegal to give stock to employees

Not necessarily. I identified three asymmetries for which capital matters: the costs of diligence, negotiation and keeping up on corporate actions. Employees gain an insider advantage in respect of the first and last. In respect of the second, employee stock options contracts are--relatively speaking--on the regulated end of the private markets. (Despite that, employees still get screwed on a regular basis[1].)

There is also the forced savings component. If an executive saving 30% of their salary were considering a start-up job with a 30% pay cut, the cut is 100% a speculative move. To a middle manager saving 1%, on the other hand, part of the difference can be explained as forced savings. Those forced savings may outweigh the speculative downsides of the position.

[1] https://www.bloomberg.com/view/articles/2015-12-23/good-tech...

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

#32

Post by conanbatt »

JumpCrisscross wrote: post #26
conanbatt wrote: post #25

Earlier quoted context omitted.

If the state used that argument, it wouldnt be able to run lotteries. It is, as many other measures, used by some to profit at the expense of others. Investors have their competition blocked, and ignorant. If a company had the opportunity to go public a lot earlier, they would gain massive leverage over the traditional investors, which means better terms and cheaper money. Cryptocurrency showed precisely the opposite…

> If the state used that argument, it wouldnt be able to run lotteries Lotteries are transparently run by the state as negative-sum games.

I fail to see how that makes it any better.

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

#33

Post by pcwalton »

conanbatt wrote: post #25
JumpCrisscross wrote: post #12

Earlier quoted context omitted.

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…

If the state used that argument, it wouldnt be able to run lotteries. It is, as many other measures, used by some to profit at the expense of others. Investors have their competition blocked, and ignorant. If a company had the opportunity to go public a lot earlier, they would gain massive leverage over the traditional investors, which means better terms and cheaper money. Cryptocurrency showed precisely the opposite…

State lotteries are unethical for many of the same reasons why accredited investor requirements exist.

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

#34

Post by FeepingCreature »

RussianCow wrote: post #23
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…

> What are some downsides I'm missing? Maybe forcing owners to give up equity in their business just because their valuation hit some magic number? Keep in mind that not all $5B companies are Silicon Valley, VC-funded startups, and some founders still retain the majority (or in rare cases 100%) of their equity. I also think you're over-exaggerating the benefits. None of those things seem like problems that need fixin…

This wouldn't per se force owners to give up equity, it'd merely prevent them from making it available to a limited circle of investors.

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

#35

Post by jjoonathan »

ehmish wrote: post #29
jbob2000 wrote: post #10

Earlier quoted context omitted.

This is a false dichotomy. Just because the regulations we imposed in the past made things burdensome, doesn't mean that regulations we impose in the future have to be burdensome. I'd want to understand why they're burdensome. Give me some concrete examples. Everybody talks about how regulations are burdensome but nobody actually mentions the specific things that are a burden.

You're required by to set up systems to ensure accounting information can not be tampered with, even if people tampering with accounting information isn't considered to be a high risk. To make it more concrete, it means you can't push to master any more in a git repository to fix some botched merge because, it happens to deal with revenue in some tiny corner of it's functionality and every change has to be approved b…

In light of git's enforced immutability constraints and the fact that multiple approval for merges is SOP at many large companies, I suspect that isn't a very good analogy.

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

#36

Post by notahacker »

conanbatt wrote: post #32
JumpCrisscross wrote: post #26

Earlier quoted context omitted.

> If the state used that argument, it wouldnt be able to run lotteries Lotteries are transparently run by the state as negative-sum games.

I fail to see how that makes it any better.

A lottery is marketed as a game in which one spends a small sum of money in the hope of winning a large sum, not as a place to park ones savings in the expectation of increasing their value over time. And still likely offers a less negative ROI than unregulated securities offerings to retail investors.

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

#37

Post by kspaans »

fricat1ve wrote: post #13
kspaans wrote: post #8

Earlier quoted context omitted.

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.

False! SNAP has been explicitly excluded from the S&P500 index for exactly this reason[0]. I'm not sure if "whole market" passive funds would include it or not. At the very least VTI has 0.03% of assets in SNAP[1]. Not much to worry about.

0 - https://uk.reuters.com/article/us-snap-s-p-idUKKBN1AH2RV

1 - https://www.etfchannel.com/symbol/snap/

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

#38

Post by conanbatt »

JumpCrisscross wrote: post #31
conanbatt wrote: post #27

Earlier quoted context omitted.

The proof of the opposite is easier than that. That phrase implies it should be illegal to give stock to employees.

> That phrase implies it should be illegal to give stock to employees Not necessarily. I identified three asymmetries for which capital matters: the costs of diligence, negotiation and keeping up on corporate actions. Employees gain an insider advantage in respect of the first and last. In respect of the second, employee stock options contracts are--relatively speaking--on the regulated end of the private markets. (D…

There are more protections for investors than for employees in options. Investors are also provided considerably more information. And they sue regularly.

Employees getting screwed can be perfectly legal. So yes, I agree it has regulations, and it has them slanted. IF employees could re-sell their stocks in the open market, then employees could protect themselves from all of these.

So instead, they get lottery tickets with their name on it, with unclear terms and information obscurity.

In any case, the argument against is very simple. Who wants to pay the sec for the sec to make it impossible for you to do something. The sec could just as easily say "sec compliant" as a bonus for enterprises, and those that arent, arent. Those who care about not getting fleeced, will go get legally fleeced by sec compliant companies, and those that dont care, wont.

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

#39

Post by JumpCrisscross »

conanbatt wrote: post #32
JumpCrisscross wrote: post #26

Earlier quoted context omitted.

> If the state used that argument, it wouldnt be able to run lotteries Lotteries are transparently run by the state as negative-sum games.

I fail to see how that makes it any better.

> I fail to see how that makes it any better

Lotteries are not run, nor marketed, as investments. Some people mistakenly think of them as such. They predictably lose money.

Because of private lotteries' histories with fraud, almost every modern nation has the state run (or heavily regulate) lotteries.

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

#40

Post by kspaans »

pcwalton wrote: post #33
conanbatt wrote: post #25

Earlier quoted context omitted.

If the state used that argument, it wouldnt be able to run lotteries. It is, as many other measures, used by some to profit at the expense of others. Investors have their competition blocked, and ignorant. If a company had the opportunity to go public a lot earlier, they would gain massive leverage over the traditional investors, which means better terms and cheaper money. Cryptocurrency showed precisely the opposite…

State lotteries are unethical for many of the same reasons why accredited investor requirements exist.

It's a lot easier to fix though: make minimum ticket prices higher. At $20 or $100 each, there is more sticker-shock friction to prevent overspending on lottery tickets.
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