How Wall Street Middlemen Help Silicon Valley Employees Cash in Early • Hacker News Board

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

#81

Post by q2 » Wed, Apr 01, 2015, 12:06 PM UTC

aluhut wrote: post #78

sohailprasad wrote: post #12

I'm the CEO of Equidate, one of the companies profiled in this article. The article raises excellent points on the pitfalls of trading pre-IPO stock on secondary markets. The opportunity is risky to be sure, only for educated investors as ready and able to lose money as to make money. Information is limited and protections are only as good as the integrity of the participants. That puts a premium on honestly, transpa…

"If they have liquidity they can start something new — perhaps a cure to disease, a new media company, or one that launches rocket ships." Just out of interest: do anybody buy this bullshit today? Do you talk like this in public?

>>> Do you talk like this in public?

Honest question: What is wrong with above sentence?

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

#82

Post by q2 » Wed, Apr 01, 2015, 12:17 PM UTC

ojbyrne wrote: post #40

soldergenie wrote: post #10

What happens in a market downturn and people suddenly holding private shares worth a lot less than what they paid for? Then, you have lawsuits from these holders claiming they didn't understand the risks of what they were investing in (e.g.: no financials statements, etc) and these schemes will start coming under the same regulatory scrutiny as public companies.

2 words: "accredited investors." 2 more words: "no recourse."

As long as this industry exposure is low, bubble bursts may not impact main stream economy but if the exposure is more, then as previous financial crisis shows,---due to inter linkages in finance sector and due to wrong judgments of even supposedly sophisticated investors,--- main stream economy cannot live insulated life.

So as of now, risk may be limited to investors in question only but if the scope and invested money increases, then it can create fresh financial crisis worldwide.

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

#83

Post by sroussey » Wed, Apr 01, 2015, 2:56 PM UTC

maaku wrote: post #27

sohailprasad wrote: post #20

Earlier quoted context omitted.

"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?

Indeed, if one could pick so well, then the public market is a great place and more liquid.

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

#84

Post by a_c_s » Wed, Apr 01, 2015, 4:50 PM UTC

gfodor wrote: post #60

refurb wrote: post #53

Earlier quoted context omitted.

I'm not saying an advantage isn't given to the wealthy, I'm just challenging the idea that that was the driver for the regulation. To be honest, the gov't is kind of stuck here. Let people make their own choices and they blame someone else. "I didn't know the mortgage rate was only a teaser!!" At least with the credited investor regulations, if they lose money, nobody has sympathy for them.

Seriously, the same people who complain about "accredited investors" being a privilege of the 1% are also going to use the phrase "predatory lenders." So, which is it? Can people be tricked into bad deals or can't they? I'm pretty sure if anyone could invest in private equity, overnight you'd see a flood of get-rich-quick ventures crop up and you'd see a lot of people lose everything. I'm not sure if I think the curr…

You do realize there is a difference betwixt a "lender" and a "predatory lender", right?

Mortgages are sold by people in a dual advisor/salesperson role, just like auto mechanics (and doctors and plumbers...). Non-predatory lenders give people reasonable advice about what kind of mortgage people can afford, just like an honest auto mechanic gives reasonable advice to people on what repairs are necessary and don't suggest unnecessary services or repairs.

Just as sketchy auto mechanics who try to overcharge for repairs or encourage a customer to have entirely unnecessary service or repairs done, predatory lenders knowingly push people to purchase mortgage products that they cannot afford.

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

#85

Post by oh_sigh » Wed, Apr 01, 2015, 5:41 PM UTC

angersock wrote: post #65

oh_sigh wrote: post #57

Earlier quoted context omitted.

Right...I wonder how the public would react to those "protections" if they were dropped a bit, but still out of reach for the average person. Let's say $100k in assets, not including your home and property. Now, about 15% of Americans have access to this pool. Do you think the other 85% is going to be happy about this? Right now, the way the regulations are set up, it seems like such a small minority of people have a…

Your argument here seems somewhat reinforce the "private club" theory.

Well, good, because that is what I was going for :) I think most people don't care about the arbitrary wealth limit on these investments because they either 1) don't know it exists, or 2) know it exists, but $1M is such a far off magical number that it's easy to think almost nobody has access to it. If the number was lower, but still high, I think people would see it for what it really is, and be upset that they are prevented by the government from using their money as they see fit, especially as it is the same government which runs the lottery and allows casinos to operate.

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

#86

Post by MCRed » Wed, Apr 01, 2015, 8:00 PM UTC

nostromo wrote: post #26

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...

(This issue hits politics, and below I give an illumination of why conservatives and liberals should both be concerned. But please note I'm not taking any position other than that people should learn more about the Federal Reserve.)

One of the "reforms" that was enacted in response to the 2008 crisis was to give the Federal Reserve regulatory powers. They now get to decide whether banks are "viable" or not and if they are not viable, can force them to merge with candidates of the federal reserves choosing.

This might sound reasonable to you, if you focus on the "Federal" part of the name and that makes you think of the Federal Reserve as an agency of the federal government (like the DEA or FCC)... but the reality is that the Federal Reserve is a commercial, for profit, bank owned by major banks. (The ownership is kept secret but the owners of the "too big to fail" banks are highly correlated with ownership in the fed.)

Thus you have a bank which has way too much power to begin with -- it literally profits by issuing US government debt-- able to force mergers of smaller, potentially competitive banks, with its owners.

This means that the owners of Morgan Stanley can force banks that might be competitive with Morgan Stanley into Morgan Stanley on terms that are good for Morgan Stanley, via the hand-wave of having the "Federal Reserve" decide that the target bank is "in danger".

I'm not giving you conspiracy theory, this is the literal facts of how the Federal Reserve was set up and is run. For an authoritative account of the history of the Federal Reserve read "The Creature from Jekyll Island".

Liberals are often very concerned about the corruption of government institutions or misuse of government power by corporations-- this is a far more relevant and dangerous example than most others of this action.

Conservatives are often very concerned about the undermining of the sovereignty of the country and the federal government, and here we have a major group that has massive control over the federal government (it is the Federal Reserve that enables deficit spending). Since conservatives oppose deficit spending, this institution is a key enabler of the massive government debt they are concerned about.

Everyone with a passing interest in finance and economics should really read this book. The Creature from Jekyll Island is wonderfully written and not too dry. (Lots of historical anecdotes and since they are from within the last 100 years they are pretty relatable.)

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

#87

Post by aluhut » Wed, Apr 01, 2015, 8:14 PM UTC

q2 wrote: post #81

aluhut wrote: post #78

Earlier quoted context omitted.

"If they have liquidity they can start something new — perhaps a cure to disease, a new media company, or one that launches rocket ships." Just out of interest: do anybody buy this bullshit today? Do you talk like this in public?

>>> Do you talk like this in public? Honest question: What is wrong with above sentence?

The examples are so ridiculously overhyped, I just can't believe anybody besides religious leaders would talk like that. Considering the persons position within this topic, makes the whole thing even weirder.

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

#88

Post by prostoalex » Thu, Apr 02, 2015, 12:05 AM UTC

a_c_s wrote: post #47

Domenic_S wrote: post #28

Earlier quoted context omitted.

> 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 wit…

1. Mortgage contracts are too complex for a layperson to understand. Often the amount of time people are given to sign them is less than it would take to read the entire contract through just once. 2. Getting a mortgage is an instance where the seller is also the advisor (similar to an auto mechanic or a doctor). 3. Consumers were actively advised to take out mortgages that the seller knew were more expensive than th…

Nobody really got screwed by misunderstanding small print on page 89 of the mortgage contract. The fraud (faking employment and income levels) was directed at insurers and buyers of those mortgages, not at the recipient.

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

#89

Post by prostoalex » Thu, Apr 02, 2015, 12:13 AM UTC

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…

> Wouldn't want too many poor people to get in early.

In reality loosening that restriction would lead to a reverse selection bias, where only extremely unfit companies would approach such investors. Talk to any startup and their preference of funding is ranked roughly this way:

1) Value-add VC

2) Non-value-add VC with big pockets

3) Value-add angel/superangel/seed fund

4) Non-value-add angel/superangel/seed fund

5) Randoms

By removing the gatekeepers we're back to that scene in "Wolf of Wall Street" where random brokers call up some widow in Nebraska to pitch her on some "high tech company about to go big" and forgetting to mention they're getting a 50% commission on this.

Meanwhile someone in the league of Google, Facebook or Uber would not go this route just because they already filled their rounds.

> 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.

This is less about treating the folks as "dumb" vs "bright" and more about access to proper financial professionals. Accredited investors typically have access to a financial advisor, investment consultant, attorney and a CPA whom they can ask to "look things over". The lower the total assets number, the higher are the chances that no financial advisor is ever involved.