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

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

#41

Post by notahacker » Mon, Apr 02, 2018, 9:05 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…

In order to have a portfolio sufficiently weighted towards the the right deal(s), it is necessary to say no to enough of the wrong deals. (And of course to have access to the right deals, which many of the most advantaged startups can conclude far more quickly and discreetly with VCs than by marketing their business plan to the public.)

Modern portfolio theory isn't adequate protection when the probability of the average retail investor picking a portfolio consisting entirely of losers is sufficiently high.

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

#42

Post by JumpCrisscross » Mon, Apr 02, 2018, 9:08 PM UTC

conanbatt wrote: post #38

JumpCrisscross wrote: post #31

Earlier quoted context omitted.

> 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 ticket…

> There are more protections for investors than for employees in options

Negotiated at great legal expense.

> Investors are also provided considerably more information

Information rights are not a default. In any case, every shareholder--common or preferred--in a Delaware corporation has the right to inspect the company's books and records [1]. Enforcing this right, however, is expensive [2].

> they sue regularly

Which, again, requires lots of capital.

> The sec could just as easily say "sec compliant" as a bonus for enterprises, and those that arent, arent

Observe the 1930s (or cryptocurrency boom). Accredited investors would go for the former; clueless investors be sold the latter. The latter would lose money and promptly (a) end up on the public balance sheet through our social safety nets or (b) foment a crisis, having taken bets they couldn't afford.

[1] http://codes.findlaw.com/de/title-8-corporations/de-code-sec...

[2] https://www.bizjournals.com/sanjose/news/2018/02/23/judge-or...

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

#43

Post by maxxxxx » Mon, Apr 02, 2018, 9:17 PM UTC

It's just another symptom of increasing inequality. There is now enough private money floating around so there is no need for taking money from the general public. The main purpose of an IPO is to dump the stock on retail investors once valuation isn't increasing anymore.

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

#44

Post by conanbatt » Mon, Apr 02, 2018, 9:17 PM UTC

JumpCrisscross wrote: post #42

conanbatt wrote: post #38

Earlier quoted context omitted.

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 ticket…

> There are more protections for investors than for employees in options Negotiated at great legal expense. > Investors are also provided considerably more information Information rights are not a default. In any case, every shareholder--common or preferred--in a Delaware corporation has the right to inspect the company's books and records [1]. Enforcing this right, however, is expensive [2]. > they sue regularly Whi…

> Which, again, requires lots of capital. > Negotiated at great legal expense. > Information rights are not the default. Every shareholder--common or preferred--in a Delaware corporation has the right to inspect the company's books and records [1]. Enforcing this right, however, is expensive [2].

That goes back to my original criticism. If employees cant afford the legal expense of proteccion, then the stance has to be that private equity to employees should be illegal. Since they cant protect themselves, nor its a risk their portfolio should have.

I dont find the narrative that people are too irresponsible on their own money to play the stock game (but yes to the casino or state sponsored lottery) unless they worked for a place where the information asymmetry is formalized. (just because you have the legal capacity to ask for documents doesnt mean you can or will. We all have the capacity to be physically fit but we arent, so asking someone to be fit before they do something else is truly onerous).

> Observe the 1930s (or cryptocurrency boom). Accredited investors would go for the former; clueless investors would be sold the latter. The latter would then lose their money and promptly (a) end up on the public balance sheet through our social safety nets or (b) foment a crisis, having taken bets they couldn't afford.

Id read some articles about it, but its going to take quite a bit to be persuaded of the opposite with such an example. Remember that right now real companies expose themselves to extreme regulatory risk if they asked an ICO for their own securities: most likely illegal. The reason ICO's are mostly scams is because it is practically illegal to do it with a real company. Who would sell 30% of the company at 10 million when they can sell 2% at 50 million?

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

#45

Post by dlp211 » Mon, Apr 02, 2018, 9:18 PM UTC

leojg wrote: post #20

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

I think shareholder expectations determine what a company does. If the company is a growth company, shareholders will gladly allow the company to innovate, but if it's a blue chip, they will expect dividends.

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

#46

Post by conanbatt » Mon, Apr 02, 2018, 9:18 PM UTC

JumpCrisscross wrote: post #39

conanbatt wrote: post #32

Earlier quoted context omitted.

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.

So a company has to claim it loses money to be absolved of any moral burden?

IF only the SEC accepted that.

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

#47

Post by JumpCrisscross » Mon, Apr 02, 2018, 9:21 PM UTC

conanbatt wrote: post #46

JumpCrisscross wrote: post #39

Earlier quoted context omitted.

> 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.

So a company has to claim it loses money to be absolved of any moral burden? IF only the SEC accepted that.

> So a company has to claim it loses money to be absolved of any moral burden?

State and federal governments aren't private companies.

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

#48

Post by troupe » Mon, Apr 02, 2018, 9:22 PM UTC

kspaans wrote: post #40

pcwalton wrote: post #33

Earlier quoted context omitted.

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.

From what I see of gambling behavior, I'm not convinced that at $20 ticket price would help the people who are most likely to lose money they can't afford in the lottery.

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

#49

Post by nokcha » Mon, Apr 02, 2018, 9:23 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…

I think that the rich and the poor should have equal protection of the laws, as a matter of principle. Investor accreditation could be done on the basis of passing an exam (similar to how lawyers need to pass a bar exam in order to practice law) instead of on the basis of net wealth or annual income.

>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.

I disagree. I don't meet the wealth or income requirements for 'accredited investor' status, but if I had been allowed to invest some money in early-stage tech start-ups, I could have done quite well for myself.

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

#50

Post by commandlinefan » Mon, Apr 02, 2018, 9:24 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.

I've never dealt with SOX compliance personally, but I did deal with PCI compliance. Now, PCI compliance isn't government-mandated, but since the penalty for non-compliance is that they take away your ability to take credit cards, it's treated as though it were a government mandate in a corporate setting. My observation about PCI compliance was the regulations themselves were clear, helpful, and well thought out. The burden was the months upon months spent arguing about who interpreted which regulation which way (and God forbid you just ask the regulators!), and an apparently certifiably insane executive board that would rather spend $1000 avoiding each individual regulation than spend $10 adhering to it.