Stock and Bond Markets Dethroned: Private Fundraising Is Now Dominant • Hacker News Board

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

#21

Post by maerF0x0 » Mon, Apr 02, 2018, 8:20 PM UTC

charlesdm wrote: post #15

tspike wrote: post #5

Earlier quoted context omitted.

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%. Sm…

Smart entrepreneur had to take massive risks (albeit short term because of the sold yield) and do a ton of work over the timespan it takes to have that come to fruition.

Yes, I understand the reward is also super high. I'm just trying to point out that for most people if they tried this they'd likely fail to pull it off(competence) or run out of runway(contingency).

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

#22

Post by charlesdm » Mon, Apr 02, 2018, 8:23 PM UTC

maerF0x0 wrote: post #21

charlesdm wrote: post #15

Earlier quoted context omitted.

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%. Sm…

Smart entrepreneur had to take massive risks (albeit short term because of the sold yield) and do a ton of work over the timespan it takes to have that come to fruition. Yes, I understand the reward is also super high. I'm just trying to point out that for most people if they tried this they'd likely fail to pull it off(competence) or run out of runway(contingency).

Just pointing out how you can siphon off massive amounts of money from passive investors because they invest in a certain fixed way. Smart entrepreneur (he's smart after all) would also likely raise his capital from a wealthy family office, thus take very few risks himself.

Private equity roll-ups are another example -- you buy one amazing asset at 15x earnings, roll up a few other ok or "meh" businesses that you can buy at 5 to 10x earnings, and go public with a group that then trades at 20x earnings. Preferably while loading it up with a ton of debt before going public. Who buys that? Why your pension fund, of course.

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

#23

Post by RussianCow » Mon, Apr 02, 2018, 8:24 PM UTC

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 fixing.

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

#24

Post by conanbatt » Mon, Apr 02, 2018, 8:27 PM UTC

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…

Going public is super expensive. Are you saying the state should pay companies to go public?

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

#25

Post by conanbatt » Mon, Apr 02, 2018, 8:32 PM UTC

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…

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: it showed the tremendous pent-up demand for investments that regulations forbid. And the best way to reduce fraud is to increase competition. Who wants to invest in cryptokitties when the other startup has actuall revenue and sales and asks for less money than the latest ICO?

Figure 100% of YC companies ICO'ing in comparison to what ICO's are today. It would be massive amounts of cash with al ot less strings attached.

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

#26

Post by JumpCrisscross » Mon, Apr 02, 2018, 8:33 PM UTC

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…

> If the state used that argument, it wouldnt be able to run lotteries

Lotteries are transparently run by the state as negative-sum games.

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

#27

Post by conanbatt » Mon, Apr 02, 2018, 8:35 PM UTC

nordsieck wrote: post #17

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…

> 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.

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

#28

Post by maerF0x0 » Mon, Apr 02, 2018, 8:36 PM UTC

conanbatt wrote: post #24

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…

Going public is super expensive. Are you saying the state should pay companies to go public?

yeah its hard to say... I would imagine most companies could create new stock to sale in order to cover the costs? I was mostly thinking about creating liquidity for those who want to sell existing stock, more than raising from sale of new stock .

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

#29

Post by ehmish » Mon, Apr 02, 2018, 8:40 PM UTC

jbob2000 wrote: post #10

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…

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 by multiple people

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

#30

Post by Retric » Mon, Apr 02, 2018, 8:41 PM UTC

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…

This has less to do with Sarbanes-Oxley than you might think. The real shift is how much money is chasing very low returns. When 4% over inflation starts looking great companies don't need to go public to access billions in capital.