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How Wall Street Middlemen Help Silicon Valley Employees Cash in Early

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Re: How Wall Street Middlemen Help Silicon Valley Employees Cash in Early

#21

Post by btilly »

chollida1 wrote: post #4

I think if anything, this type of arrangement will only increase. it won't be long until this gets securitized so you can buy a basket of pre-ipo stocks that are at the mezzanine level of funding. Employee's get to take a bit of risk off of the table, investors get to buy into pre-ipo stocks. As long as we can create a suitable vehicle to get around the share holder limit, and I'm pretty sure this is a well researche…

You may be right. But if so, beware.

One of the problems in this arrangement is that the companies themselves don't want to encourage it. Therefore there is always going to be a trust issue of, "How do I know that you really can deliver this stock?"

Securitization allows people to get comfort of, "There may be some bad actors, but this is diversified enough that I'm sure that this slice of pie is safe." The problem with that is that now the people originating deals have little incentive to be careful. The people buying deals have no insight. And the people reporting on deals have interests more strongly aligned with issuers than purchasers. This conflict of interest can result in demand being met through ever more shady stuff being in quickly put together deals.

When that blows up, the entire sector will blow up at once. Like subprimes did in 2008. Or like the S&L crisis in the 1980s.

The phenomena is called control fraud. And it is a cycle that repeats in different asset classes. No matter how many times it happens, it will happen again due to the combination of people not learning from history and people's willingness to believe that they've figured out how to get rich.

Re: How Wall Street Middlemen Help Silicon Valley Employees Cash in Early

#22

Post by 31reasons »

chollida1 wrote: post #4

I think if anything, this type of arrangement will only increase. it won't be long until this gets securitized so you can buy a basket of pre-ipo stocks that are at the mezzanine level of funding. Employee's get to take a bit of risk off of the table, investors get to buy into pre-ipo stocks. As long as we can create a suitable vehicle to get around the share holder limit, and I'm pretty sure this is a well researche…

>>Imagine an ETF that pools shares in pre ipo stocks. Now you can take the positions that the unicorns are over priced and short them. This should give us much better insight into what the entire market thinks these startups are worth.

That goes against the practice of "pump and dump". Investors who invest 50mil+ and raise valuation to billions and sell the company to Googles of the world not going to like your idea. They might do anything in their power to stop it.

Re: How Wall Street Middlemen Help Silicon Valley Employees Cash in Early

#23

Post by themagician »

rday wrote: post #19
themagician wrote: post #13

Earlier quoted context omitted.

"The opportunity is risky to be sure, only for educated investors as ready and able to lose money as to make money." That's bullshit. We let poor people gamble and they aren't "ready and able" to lose anything. The laws around accredited investing are a disgusting example of how the 1% legally entitle themselves to opportunities while excluding the other 99%.

I don't think the gambling analogy works here. You can't invest 5 dollars in a company 1000 times until you have no money left. Also gambling odds are heavily controlled. Could you imagine a pit boss telling you "Table 5's die have an unfair advantage to land on 7"? Conversely, people raising money tell you exactly why they will succeed and why they are a better choice than some other company. These people can be ver…

That analogy isn't about odds. It's about the why.

The reason we don't let 99% of people buy shares of private companies has NOTHING to do with protecting the wealth of the 99%. Nothing. Zero. And to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting.

It has everything to do with creating a private market where the 1% can get in early before the price rises as public money flows in. Wouldn't want too many poor people to get in early. Wouldn't want to have to deal with a bidding war against poor people. Better off to just exclude them from the buying process when the price is low and then sell it to them later when everyone wants it.

It's an institutionalized example of a law designed to maintain a plutocracy. It's disgusting.

I never really understood just how stacked the cards were until I tried to buy FB shares on the secondary market one day. I wasn't allowed to. What the fuck? Then I got married and I became an accredited investor over night. I'm like, "Wow. Really? REALLY?!?! This is how it works?" Then I lost my status as the result of a divorce. So a few years ago I was smart and experienced enough to take on that risk. Now I'm not.

Re: How Wall Street Middlemen Help Silicon Valley Employees Cash in Early

#26

Post by nostromo »

ScottBurson wrote: post #11

So this is where Sarbanes-Oxley has gotten us: to where it's so painful to run a public company that companies put off their IPO much longer than they would have, so people figure out how to trade the stocks anyway -- but in doing that, they have to go on far less information than they would have had, pre-Sarbanes-Oxley, when the company would already be public. The law of unintended consequences is alive and well.

It reminds me of our response to the 2008 crisis.

We all learned the dangers of having banks that are too big to fail. But now we have fewer banks than at any time since the great depression, in part because Dodd-Frank is more difficult for small banks to follow than the large banks.

http://www.wsj.com/articles/SB100014240527023045794045792323...

Re: How Wall Street Middlemen Help Silicon Valley Employees Cash in Early

#27

Post by maaku »

sohailprasad wrote: post #20
pthreads wrote: post #15

Earlier quoted context omitted.

"Collectively, we owe it to founders and investors, and the economy, to create reliable secondary markets. That’s why Equidate was founded." No we don't! There are no reliable secondary markets and there is not going to be one simply because they are based on pure speculation. It exists for one reason only - shareholders of pre-IPO companies don't want to wait years and hence are willing to trade their shares for imm…

"It exists for one reason only - shareholders of pre-IPO companies don't want to wait years and hence are willing to trade their shares for immediate cash." Yes, secondary markets are designed to provide liquidity to shareholders in pre-IPO companies. At the same time, most investors who want access to pre-IPO stocks have no ability to participate. Value creation has increasingly shifted from the public markets towar…

Because you cherry-picked the examples and chose not to mention the vast majority of companies who's value went to zero?

Re: How Wall Street Middlemen Help Silicon Valley Employees Cash in Early

#28

Post by Domenic_S »

themagician wrote: post #23
rday wrote: post #19

Earlier quoted context omitted.

I don't think the gambling analogy works here. You can't invest 5 dollars in a company 1000 times until you have no money left. Also gambling odds are heavily controlled. Could you imagine a pit boss telling you "Table 5's die have an unfair advantage to land on 7"? Conversely, people raising money tell you exactly why they will succeed and why they are a better choice than some other company. These people can be ver…

That analogy isn't about odds. It's about the why. The reason we don't let 99% of people buy shares of private companies has NOTHING to do with protecting the wealth of the 99%. Nothing. Zero. And to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting. It has everything to do with creating a private market where the 1% can g…

> to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting.

Really? Because a lot of that group said they "didn't know any better" and were "misled" when it came to bad mortgages during the crunch. Whether you believe them or not, that was their argument and it worked.

There are entire industries based on exploiting people with bad money management skills (payday lenders, rent-to-own, etc). Clearly the population exists.

Re: How Wall Street Middlemen Help Silicon Valley Employees Cash in Early

#29

Post by sjg007 »

themagician wrote: post #23
rday wrote: post #19

Earlier quoted context omitted.

I don't think the gambling analogy works here. You can't invest 5 dollars in a company 1000 times until you have no money left. Also gambling odds are heavily controlled. Could you imagine a pit boss telling you "Table 5's die have an unfair advantage to land on 7"? Conversely, people raising money tell you exactly why they will succeed and why they are a better choice than some other company. These people can be ver…

That analogy isn't about odds. It's about the why. The reason we don't let 99% of people buy shares of private companies has NOTHING to do with protecting the wealth of the 99%. Nothing. Zero. And to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting. It has everything to do with creating a private market where the 1% can g…

The new SEC rules that just went into effect should allow this right?

Re: How Wall Street Middlemen Help Silicon Valley Employees Cash in Early

#30

Post by f00sion »

mblevin wrote: post #16
chollida1 wrote: post #4

I think if anything, this type of arrangement will only increase. it won't be long until this gets securitized so you can buy a basket of pre-ipo stocks that are at the mezzanine level of funding. Employee's get to take a bit of risk off of the table, investors get to buy into pre-ipo stocks. As long as we can create a suitable vehicle to get around the share holder limit, and I'm pretty sure this is a well researche…

That would be great - but companies are going to be exercising right of first refusal and changing option plans left and right long before that happens. Actual price transparency (with low volume that will further distort the differences) for thumbsuck, pie-in-the-sky valuations in an overheated market has only a major downside for founders and investors. Remember your incentive stock option plan can be changed on a…

If companies are buying the shares back based on ROFR then everybody wins. Employees get the liquidity and the company keeps control, but you can't do that without having a place to attract potential buyers.
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