Taking Money "Off The Table"
One of the hardest things in managing a venture capital portfolio is managing your big winners. A big winner can dwarf the rest of the entire portfolio and you end up sitting on enormous paper profits that you can’t get liquid on. I realize that this seems like a great problem to have, and it is, but it is still a challenging situation.
We faced it in Twitter in 2010/2011/2012, in the years before Twitter went public (which happened in the fall of 2013). We had bought 15% of Twitter for $3.75mm in the first VC round in 2007 and though we had been diluted down a bit in subsequent rounds, we had a very large position that was worth in the neighborhood of $1bn by 2011. Our entire fund was $125mm and so we were sitting on a position that was worth 8x the entire fund. It was a wonderful situation in many ways but I was nervous that macro events or a setback at Twitter could go against us and the position would go down in value, possibly significantly.
The way we managed this issue is we sold a portion of our position in two secondary transactions and in connection with those sales, I stepped off the board, making room for an independent director who would be helpful as the Company scaled and got ready to go public. We sold about 30% of our position in those two secondary transactions for about $250mm and returned 2x the entire fund to our investors.
That allowed us to “chill out” and hold the balance until the IPO, which had a customary 180 day post IPO lockup. After the lockup came off, we distributed the balance of the position, returning another ~$700mm to our investors.
Though we sold stock in the secondary transactions at lower values than the eventual IPO, I have never regretted doing that and believe that it was the right thing for us to do for many reasons.
We have done similar things in many other situations including Zynga, Lending Club, MongoDB, and a number of other investments. We typically seek to liquidate somewhere between 10% and 30% of our position in these pre-IPO liquidity transactions. Doing so allows us to hold onto the balance while de-risking the entire investment.
I was reminded of this topic when I saw the news that Benchmark, First Round, and Menlo sold between 15% and 50% of their positions in Uber to SOFTBANK. I think they all acted rationally and responsibly in doing that. It does not mean that SOFTBANK is making a mistake purchasing the shares. There are many reasons to believe that SOFTBANK made a good deal. But if you look at First Round, for example, they have a position worth $2bn or more at the $50bn valuation of the SOFTBANK tender. I don’t know the exact details, but I believe First Round’s fund that holds Uber is less than $100mm. So they returned something like 8x the entire fund and still hold the majority of their position. That was “well played” in my book. Same with Benchmark. Same with Menlo.
Taking money off the table is smart portfolio management. It is very different from selling your entire position, which could be brilliant but is equally likely to be a mistake. Selling a portion of your position, returning a multiple or two (or eight) of the fund, and holding on to the balance works out for you no matter which way the position goes in the future. If the position blows up, you got a lot out and booked a huge gain. If the position goes up significantly, you make even more money on the part of the investment you retained. If it goes sideway, you got a little bit out early. It is a win/win/win pretty much every way you look at it.
Which takes me to crypto (naturally). If you are sitting on 20x, 50x, 100x your money on a crypto investment, it would not be a mistake to sell 10%, 20% or even 30% of your position. Selling 25% of your position on an investment that is up 50x is booking a 12.5x on the entire investment, while allowing you to keep 75% of it going. I know that many crypto holders think that selling anything is a mistake. And it might be. Or it might not be. You just don’t know.
Wow. It’s weird. I came to AVC today hoping I’d read a post like this (sound advice on money management). Thanks Fred.
Fred has great antennae.
Great post, thanks for sharing!It also reminds me of this graphic. With liquid investments (ex: crypto) you *can* sell 10-30% of your stack multiple times and the effect is not as big as you’d intuitively https://uploads.disquscdn.c… think.
You can add this advice to the those in this long stock market run. The market gods are at their cruelest when least expected.Can Softbank follow this scenario or do they need bigger hits?
Agree re Softbank informed educated longtail spread-bet/s I guess Deep Blue ran the numbers !!
The stock market was the first thing that came to my mind. The numbers are different but the principles are the same. Maybe that’s why individual investors have been heading for the exits:https://www.wsj.com/article…
I like the saying that the bus that hits you is rarely the one you saw coming.
Famous story in my family. Flamboyant western criminal lawyer uncle being interviewed by east coast media person, who is rather condescendingly asking about his rare (in Canada, at the time, maybe <10 civilians had one) permit to carry a concealed firearm.Q: ‘ These death threats…..surely the people that call don’t worry you? ‘A; ‘ Of course not. Its the ones that don’t call that worry me. ‘About 10 secs of dead air follows.You always get hammered by the unknown unknowns.
At least for now, the risk is higher with crypto due to the volatility.
Truth. Few are immune from the biases. The consistency of discipline is a great vaccine…very validating.
Best stone dead simple investing advice ever: put 25% in stocks, 25% in bonds; 25% in real estate; 25% liquid. Rebalance as needed (major moves) or every 6 months.
The Babylonian Talmud differs somewhat but is similar.http://www.jlaw.com/Article…”The Talmud (Babylonian Talmud, Pesachim 113a) records Rav’s business advice to his son Aibu, which included the idea to “sell your wares while the sand is still on your feet” (i.e., do not procrastinate, and sell as soon as possible). The idea of diversification – i.e., dividing one’s assets into thirds: 1/3 in land, 1/3 in business, and 1/3 kept liquid – is also mentioned in the Talmud (Babylonian Talmud, Bava Metzia 42a). The Talmud is providing some practical advice on how to become financially successful since this is something that is desirable.”
It’s explained by axiomatic utility function theory, e.g., if you don’t have a better reference,Guillermo Owen, Game Theory.That reference is old, but so is axiomatic utility theory, IIRC from von Neumann and Morgenstern, e.g.,”Von Neumann–Morgenstern utility theorem”athttps://en.wikipedia.org/wi…and the main goal of both your Talmudic wisdom and utility theory is not to be financially successful but to avoid going broke if only to have another chance to be financially successful later. So, when there is a risk of going broke, change behavior even in severe ways if necessary just to avoid going broke.By analogy, mountain climbers get really careful when they are near a ledge over a deep valley!So, why “take money off the table”? Not to make money! On average, you lose! Instead, the reason is greatly to lower the chances of going broke.Or, the goal is not really to maximize money or even the expectation (average) of money but utility. And what the heck is utility ? Well, we start with some seemingly obvious assumptions about what we want, the axioms, and then derive utility theory that says what we should do.So, from the obvious axioms and the resulting theory, we know that the utility functions exist. So, then, we can try to estimate the utility functions.But in simple practice, as in this thread here, we will notice that even with some really crude estimates of the utility functions, we are told to “take some money off the table”.So, we are maximizing utility. That also means that we are likely also not maximizing money.So, we can have an exchange in money between two players who have very different utility functions. That’s why Vegas and the state lotteries get rich taking money from poor people.Exercise: Fill in the details.All this horsing around, this and that, “dollar cost averaging”, indefinite and obscure wisdom, furrowing of the brow, wringing of the hands, and all the rest here in the thread today is just floundering around like people did before von Neumann clearly posed the problem and found a good solution.It’s right there, guys, in von Neumann, Owen, Wikipedia, etc.I like von Neumann! And Kolmogorov, Halmos, Lebesgue, Borel, Wiener, Doob, etc.
Note: BM 42a seems to imply you are in charge of the risks involving business, but that if you invest with someone they have fiduciary duty to safeguard your money. doesn’t really work with an exchange per say
>> BM 42a seems to imply you are in charge of the risks involving businessI do not see such an implication whatsoever.I think perhaps it would help to consider your remarks within the following context.I suppose..the 1/3 in land is a “bet” on a stable government because if a new government takes over, you would likely lose your land.Also, of course, land helps ensure you have food to eat.If I am not mistaken, during the times of the Talmud (about 1500 years ago) land was normally valued based on its ability to produce food (such as grain, olives, and livestock). Buying real estate within a walled city to build houses on probably would have been seen as an investment in “business” not “land.”If I recall correctly, the 1/3 in business was considered the risky approach because you can make or lose a fortune in business. Even a basic business like selling a commodity in a marketplace is often subject to sudden and unpredictable vertiginous swings upwards or downwards that can result in people making or losing a fortune overnight. That has always been the case.The only businesses that are not risky are ones that are not essentially businesses at all, but rather ones which are legally or least effectively protected by a powerful force. I am thinking of government granted monopolies (such as exclusive property rights like deeds to real estate and patents) or at least difficult to obtain and valuable licenses (such medical licenses or licenses to transport dangerous items such as spent uranium from a nuclear power plant) or, say, the Italian Mafia or Japanese Yakuza which often use violence and the threat of violence on behalf of their “clients.”If a store were the only one in small town that sold olive oil because some Mafia thugs ran all of its out of town, then would that store really be “in business”? I would argue that, that store would be essentially stealing money from its customers because it dealing dishonestly.In other words, an actual business is inherently risky.The 1/3 kept liquid was probably because…your crops might fail and your business might fail, but you could presumably dig up the gold and silver you had “buried in your backyard” so that you could go buy some food to eat, pay your taxes, buy some clothing, and patch your leaking roof.andbecause “a Jew always needs to have one suitcase packed.”A woman’s gold and silver jewelry in some ways is merely a way of displaying liquid assets that can be quickly transported in case of the need to quickly flee. Since antiquity gold and silver have functioned as money (currency). Even these days, when dictators flee their country ahead of a coup d’état they often take gold bullion with them.
“We typically seek to liquidate somewhere between 10% and 30% of our position in these pre-IPO liquidity transactions. Doing so allows us to hold onto the balance while de-risking the entire investment.” What are your thoughts on what these numbers should look like for a founding team that may have all net worth tied to their company? Have seen this occur too early but also too late for many companies that have potential for massive outcomes.
Jason Lemkin recommends no more than 5%: https://www.saastr.com/7-gu…
Have seen that but interested in what Fred thinks as that post doesn’t connect a secondary vs personal capital. Ex/ If a founder is worth $50M vs a founder who has nothing.
Fred’s answer makes total sense: you want them to be hungry but not starving.
.A right offered to one shareholder must be offered to all shareholders. That is why the Uber re-cap is being done via a tender offer.JLMwww.themusingsofthebigredca…
10-20% unless you are tossed out like Travis. Then 30-50%
I believe Uber is in FRC III which is a $126m fund, so prob about a 5x “off the table”Totally agree with the post, I’m often asked by potential investors if VC is like gambling and if so what kind, prob most similar to poker but without the ability to take money off the table as you can do in Blackjack and make sure you end up a winner or at least even which is wise money management. I’ve seen too many things “round trip” in my personal and professional investing career.
Softbank moves are always interesting. https://uploads.disquscdn.c…
As more liquidity comes to private markets one has to wonder when is the optimal time to “take money off the table.” Seems in many cases it might be much earlier than just before the IPO. VC has always been a very long game, but what happens when there are options to sell (presumably at a gain) every step along the way?
Great post.What I wonder about is this: If a decision to sell some of the position is made by all of the partners (and I would think that it is) to what extent does a VC firm vet a partner’s risk tolerance such that it goes along with this type of rational thinking prior to offering a partnership spot? After all some people are gamblers and will hold for door number 2 and a bigger win, right?To bring ‘dating’ and relationships into this (as I have done before) I assume the best way to vet behavior that you would want is to tell stories and then see and judge reactions vs. simply asking questions.  People have a harder time gaming a story vs. giving the right answer to a question no matter how skillfully asked. I don’t think that everyone can do this by the way. Someone made a comment yesterday about Vitalik being on the autism spectrum and it’s debatable to what extent someone with autism can read other people. My theory on Vitalik is that it could also be that he simply avoids eye contact because of the reaction that people may have had in the past to the way he looks (for lack of a better way to say it). Understanding that people can stare and make you feel creepy for many reasons of course.http://www.post-gazette.com…
.From a purely legal perspective, a limited partner may not legally participate in the management of a partnership.If a LP participates in such discussions, they become, under the law, general partners.A LP cannot lose more than their bait.A GP can be liable for all of the liabilities of a partnership.From a pragmatic perspective, I am sure there are plenty of such discussions.JLMwww.themusingsofthebigredca…
Would be an interesting post by Fred. In particular the USV ‘about’ page only says ‘partner’ and nothing more.https://www.usv.com/aboutKleiner on the other hand differentiates:http://www.kpcb.com/teams/l…Also I seem to remember a post where Fred discussed the time he was away from the firm and that others could vote and decide whether to keep him or not. (Or something like that don’t remember the exact wording but that was the takeaway).
.That’s an awkward use of the word.Back in the day, when I was raising money for big real estate deals, I would create a Limited Partnership between my company (developer, sponsor, manager) and limited partners.The structure might be a corporate 1% General Partner owned by the developer and limited partners owned by a separate entity controlled by the principals of the developer.The GP ran the deal. Nobody, but the GP, had any real responsibility for a management failure. Often, you could lay off a lot of this risk by obtaining a “completion bond.”The Limited Partners (investors) would put up the equity and the Limited Partnership would secure debt with which to wrap the equity.The LPs would get a preferred return OF their capital and a preferred return ON their capital (typically 8-10%).Thereafter, the LPs would get 50% of the remaining profits and the sponsors — acting through their own individual ownership and the 1% General Partner got the other 50%. This is a sweeter deal split than the current VC model.From an operational perspective, the Limited Partnership would contract with a corporation owned by the developer to provide asset (1% of total assets, annually) and property management (the greater of 4% of annual income or a fixed minimum, annually).The entire deal itself was called a “Limited Partnership.” The Weddington Tower LP.The investors were called Limited Partners. For the purpose of income taxes, these were “passive” partners.The General Partner and the developer interests had to take sufficient liability to enable them to be classified as “active” partners to be able to absorb the operating losses, the depreciation, and the interest expense. The rules are slightly complicated, but the tax benefits were enormous even post-1986.This is the context in which I used the term “limited partners” — meaning investors. In a VC fund, the fund itself is likely a limited partnership.One of the weird things about partnerships is the duty of the GP and the principals of the GP to offer subsequent opportunities to the same stable of limited partners. It is an odd quirk to the law.JLMwww.themusingsofthebigredca…
Just not a lot of minutes taken.
.At this level, you are dealing with first rate folks. The pension funds will also have a hierarchy, an investment committee, compliance, and legal oversight, so there is not likely to be too much gamesmanship.Most pension funds are not on the same level of experience as somebody like USV, so they are going to learn, but defer. Not too many pension fund guys will want to argue a point with an experienced professional. That was my experience in the real estate business.The guys who really understand their respective businesses were folks like GE Capital. They were a pleasure to work with because they were so smart, knowledgeable, and decisive. And, of course, they had tons of money.Still, it gets down to personal chemistry which is always enhanced by making a profit.JLMwww.themusingsofthebigredca…
That’s what I’m doing with crypto gains: I’m systematically milking some of my coins into fiat, so if it all goes to zero, I at least will have that. I must give credit to Brad Feld who told me: “Congrats on the crypto-investing. Make sure you are taking cash off the table on a regular basis – I remember the dotcom bubble very well.” His words have etched into my brain, and I think about it every single night when I go to bed before I start drifting off to sleep.
Congratulations on taking the wisdom of his experience.
when do you stop creaming the top? as the more you cream the less you have to build on? this is what im trying to figure out now. My answer so far is to cream until its all sold, and then re-invest if it keeps on rising… thoughts welcome
I have my “base” of coins that I don’t touch, which I bought years ago. I keep cashing in my free forked coins (except for BCC) and have been investing them in alt coins. I bought early on a variety of such alt coins at low prices, and when one of them gains massive value, I sell it and take some profits out and also take that opportunity to grow my “base” some more. For example, I had bought a lot of Verge at $.005 and sold recently at a huge profit. In summary, this strategy works if you got in early enough to have built a solid base to start with, IMO.
individuals generally have no obligation or realistic incentive to hit a grand slam. Funds have a different set of incentives and obligations and goals. A home run in crypto will, for most people, be a big deal in terms of reaching financial goals to live the life you want to live. It seems to me that’s more important than anything in making decisions in any financial situation.
“If you are sitting on 20x, 50x, 100x your money on a crypto investment, it would not be a mistake to sell 10%, 20% or even 30% of your position.”If you’re sitting on that kind of ROI, then I’d sell the whole damn thing. Don’t get too greedy. Play the prob game, especially w/ such a volatile asset. Where are you likely ever gonna see those type of returns again? Use your other assets and their performance as a benchmark. Never a mistake to lock in profit w/ a solid return, even if the asset continues to appreciate after liquidation. Personal investing and VC investing are not one and the same!Never look a gift horse in the mouth!
Easy to say, but when you have a large chunk that could easily go 10X, then it’s a different lifestyle altogether that’s being dangled in front of your face, pushing your gambling instincts into overdrive. So selling some? Yes. Selling all? No way, it’s probably easier getting off coke for those who are into that.
Agree, but gambling instincts are not rational instincts, unless one can truly afford to indulge and is playing with house money. How many people invested in crypto would be comfortable letting it all ride on black in Vegas (a 50/50 proposition)? My hunch is very little. Somehow crypto isn’t perceived as gambling, when it very much is. One can make the same claim about the stock market, but there’s considerably less risk and volatility there, especially over time, combined w/ regulatory and other circuit breakers that provide add’l layers of comfort.
I agree with your point. What I’m saying essentially is that when it’s all house money at this point it’s a fine line to thread between calculated risks, being too conservative and being too reckless.
(Agree with this generally).I’ll take the other side of it here though.but gambling instincts are not rational instinctsHow would you explain then the behavior of a VC that invests in things that essentially shouldn’t work? Bitcoin. Airbnb (high regulatory hurdles and hard to believe the basic concept will work). You could say that is rational or irrational depending on what other circumstances and investments the VC has going on and/or what a loss means to them vs. a gain. In other words ‘afford to indulge’. It’s baked into the behavior and consequently is rational to the VC. True gambling (slot machines or wheel) is nowhere near as rational. Even crypto is more rational. I can easily see a way to trade that more so than I can see pulling a slot machine handle. (And I assume you can as well, right?)Somehow crypto isn’t perceived as gambling, when it very much is.I think there is a range of ‘gambling’ though. If someone has a high enough net worth then not selling their crypto is really entertainment and not ‘gambling’ in the sense that they can afford to take a loss and the beat goes on. ‘Afford to indulge’.I would argue that ‘gambling’ also relates to how much you stand to gain relative to how much you can afford to lose.If you have a nest egg of $50,000,000 in assets then sure you can afford to buy $100,000 or even $1,000,000 of crypto even when it was $7000 a BTC. But big deal? So now it’s $14,000 to make the math easy. You now have something that if you sold you would have made $1,000,000. But you already have $50,000,000 so that 1m is not the same as to someone who that would be life changing.and is playing with house moneyI don’t like this concept period in any way. To me once it’s your money it’s your money and no different than money you made mowing laws. That’s why it’s money. If someone drops a cash gift on your doorstep of $100,000 then that is not ‘house money’. It’s the same as any money you ‘control’ and it shouldn’t be squandered and rationalized as ‘house money’. I think that expression like others such as ‘hold long term’ and ‘dollar cost averaging’ is bandied about by self serving interests in particular and obviously the gambling industry. I just love in particular ‘dollar cost averaging’.That said if the ‘house money’ gives you the ability to buy something or do something that you couldn’t before then that is rational. But it has nothing to do with the fact that you made the money in a certain way that should make you risk that money or bet it to make more money.I am not buying any crypto. Why? Because I am not looking for entertainment and in order to gain a life changing amount I would have to risk a life changing amount. And I have enough things to ‘entertain’ myself with and I am not a gambler and find no enjoyment in that at all.
When I occasionally go to Vegas or put money on a game, that is entertainment—with a fixed dollar amount tied to my risk tolerance. When I invest in financial instruments or RE, that’s obv not entertainment, and I pursue w/ a disciplined approach and asset allocation that has shifted w/ my age, income and lifestyle needs. Here’s the thing: Fred and many others on this blog are crypto or, at the very least, blockchain advocates. Certainly their prerogative, and most def there are a fair amount of strong, legit biz out there in various nascent stages. No one is explicitly giving financial advice (though Fred kind of tacitly did today), while no one either has a fiduciary responsibility to anyone reading or posting to this board. That said, a few weeks ago a regular reader here, can’t remember who, was strongly considering divesting all of h/her assets to invest in bitcoin, based on the continual touting of the currency on this board. Sure, one needs to have a caveat emptor attitude, but that nonetheless was somewhat troubling. Readers should keep in mind that VC investing is NOT the same as personal investing, and it should be viewed and treated accordingly.
.When you bet on a game and you WIN — that is entertainment. When you lose, it is a barbed wire enema.UGA + 3.5 looks like an entertaining bet to me.JLMwww.themusingsofthebigredca…
Should be a good game. I think Bama shuts down GA’s powerful running game and the Dogs’ freshmen QB finally gets exposed, well, as a freshmen. Tight game, but I think experience wins out. Bama wins by 10.
.Dawgs “freshman” quarterback has started in 14 games (going 13-1) in some of the toughest stadiums on the planet. He’s no longer a freshman.Most importantly, Kirby Smart has him read into the playbook with plays which are in his comfort zone. He is no longer learning the UGA playbook; the UGA playbook is now written for him and his skill set.UGA has big advantage on the O line. No surprise as this is what has given their running backs the holes to exploit.I don’t see Bama beating that line. In fact, I see UGA running wild.As the season has gone on, the Dawgs have used progressively more complex blocking schemes which has resulted in their backs getting a lot of explosive plays.Kirby Smart coached running backs under Saban at Alabama. Both schools have fabulous running games, but the Dawgs are more deadly once through the line. Nobody can catch Michel and Chubb once past the line.The Bama QB may be the weak link tom’w night. You have to know that UGA is going to come for him. They never broke Baker Mayfield, but they bent him.In the OU v UGA game, the Dawgs put up 45 in regulation and 54 in OT. They only had a single turnover (as did OU) and they beat the Heisman Trophy winner, who put up enough points to beat anyone.Saban is undefeated v former assistants, but Kirby Smart was his heir apparent. I think Kirby Smart has a peek into Saban’s mind. No doubt, Alabama will be ready to play.Last point, I like UGA’s ability to stay in the game. Against Oklahoma — Heisman Winner Baker Mayfield at full speed — it looked like they were going to get blown out. They stuck with it, executed their gameplan, whittled away at them and were tough as nails in Q4.I predict a UGA win, handily. Go, Dawgs!Who can’t love an all SEC NC – Dawgs v Tide?Roll Tide! Go Dawgs!JLMwww.themusingsofthebigredca…
Even more amazing when you consider that the SEC eats it’s own each season. Tide. Dawgs. National Championship Game in Atlanta a block off Peachtree. It doesn’t get any better than that. Go Dawgs!!
That was one helluva football game. You got to give Saban credit for replacing his 25-2 QB in a championship game w/ a freshman who hadn’t played all season. How many coaches would have done that? Balls. The kid came through. The Dawgs safety blew the coverage. The SEC is like a pro league.
.Nicky Satan owns college football.I was right, the Tide QB was the weak link. I just didn’t know they had a Heisman QB on the bench.Ballsy move to pull a 25-2 QB for a freshman. Key to victory.Dawgs lost their mojo in the second half.Great game. How does that kicker live with himself?JLMwww.themusingsofthebigredca…
The kicker just swore to name his first born Tua. He would have named him Tagovailoa, Tag for short, but was afraid no one could pronounce it.
Kicker is walking back.JLMwww.themusingsofthebigredca…
it’s a timing issue, and each token (investment) has its own ‘clock’. this is why i’m less pessimistic about the prospect of a general crash than some. most projects are not yet ready to deliver a +20x return, and so long as there’s the perception that they may eventually deliver that level of return then the incentive is to HODL. Bitcoin has the prospect of ETF approval by the SEC this year. That’s a massive carrot to keep people in the game.crypto will not be disinvented or disinvested. there will be ups, there will be downs. it’s got legs.
Looks like the SEC, etc. will treat crypto as a “asset” and not a “currency”. That could slow uses as something like a “currency” and slow much of the potential for “applications”. Then what valuable “applications” are left? If none, then crypto is just a zero sum game among investors with no reason for real growth. Then the crypto price increases will slow, people will stop believing in more big returns and sell, there will be too few buyers, the bubble will burst, and don’t be between a crypto owner and the door.Crypto needs to get real about valuable applications, hopefully ones where crypto is necessary, in a big hurry or the bubble will burst soon. Same for AI. IMHO, same for Uber, the big many billion dollar losing taxi cab company.For another example: I’ve just been shopping for the first server for my startup. What I find is that the last generation processors, motherboards, and main memory parts are CHEAP, and the new generation parts are MUCH more expensive with less utility or only a little better utility. For this last, the newer processors can do maybe 10-15% more computing per Watt of electrical power; for a mobile device or for a server farm of several acres, that’s important; for home or routine office desktop computers, it’s so small it’s tough to notice.To me, there are hints that some of the old parts are being deliberately pulled from the market, e.g., to force people to buy the newer, much more expensive parts.So, the parts sellers are hoping that buyers won’t notice that they have to pay much more for little more or even a little less. For “less”, suddenly support for error correcting coding (ECC) main memory costs much more and looks like it, too, is being deliberately pulled from the low end market.To me, the efforts of the parts suppliers to sell at their much higher prices will fail too soon: Some of the competitors will “break ranks” and let the prices fall back to the old generation. E.g., an old generation processor might cost $125 and a new generation, little or no better and maybe a little worse, might cost $400.”Break ranks”? Right, the situation looks like an international case of collusion in restraint of trade. As usual, the main cure for that is competition.E.g., AMD, once again, might conclude “I can’t sell my processors for the same prices as Intel, but I can sell them for 1/2 to 1/3rd the prices of Intel.” Then some motherboard and main memory people will join in.Some small business people running SQL Server will notice that SQL Server is big on ECC main memory and will want that, without buying some Intel Xeon processor for $1000 or several thousand. Then the memory suppliers, e.g., Kingston and Crucial, will have to start offering ECC memory again.Net, looks to me like AMD, Intel, the main memory makers, the motherboard makers, the disk drive makers, the Ethernet chip makers, etc. are no longer making progress very fast and stand to have to compete on price with narrow margins. E.g., the Ethernet chip makers made big progress quickly as data rates went up from ballpark 1 million bits per second (Mbps) to 10, 100, and 1000 Mbps, but getting above 1000, say, 10 billion bits per second (Gbps), long readily available for people who can make use of it, is running into big problems with the data rates of the last mile and the ISPs and with what the heck the users will do with data rates over 1000 Mpbs = 1 Gbps. Why, watch 20 movies at once?So, the Ethernet chip makers stand to have low prices.Disk? There are some software problems in going over 2 trillion bytes (2 TB) in hard disks, and apparently now making a 2 TB hard disk costs little or no more than making a 500 billion byte (GB), 250 GB, 200 GB hard disk. But the 500 GB hard disks are now going for about $28, new, quantity one, retail, Amazon.So, the hard disk guys appear to be running out of room for progress. Then, we have to guess that prices will fall.Progress in utility, guys, need new stuff that’s significantly more useful than the old stuff or face falling prices.I know; I know; I know; Intel has one or more chip foundries. I’m no expert, but IIRC there are foundries in Japan, Taiwan, South Korea and maybe Germany and, soon, China. Lots of foundries. Not everyone needs 5 nanometer (nm) line widths; can do a lot of computing at 14 nm, 28 nm, 40 nm or so. So, do a processor design, say, one where speculative execution doesn’t leave sensitive data in the processor cache, send the data to a foundry, get back chips, package and sell them.History shows that a lot of this tech stuff ages like butterflies. Need progress in utility, or prices will fall.Gee, guys, processors with speculative execution, branch prediction, out of order execution, extra register sets, multi-level, set-associative caches, cache invalidates due to work of multiple processor cores, etc. is now very old stuff.Long the easy way to get a faster processor was just to raise the clock speed. But for current transistor designs, getting processor clock speeds much above 4 GHz generates a LOT of extra heat and is a constraint.Can say much the same going “up the stack” from transistors to the user experience: Need some new utility, guys.I know; I know; I know; the computer science people decided to look at old books on classic multi-variate statistics, use a lot more variables and data, make some of the fitting nonlinear, and call the results “artificial intelligence”. Yes, that’s good and new, right? Guys, there the good is mostly not very new, and the new is too narrow in its range of utility and not very good.Look, computer science guys: Shut up, sit down, and listen up: Basically you are taking available data, processing it, and trying to get some good, new utility. You have discovered that for the processing you have cases (A) just program what people have long known how to do manually, (B) try some intuitive heuristics and keep the ones (the very few) that appear to work, and (C) try some classic applied math.Well, good that you reached case (C): That processing is necessarily mathematically something, so for some new utility, proceeding mathematically is wise. Alas, guys, you are depending on some applied math that was well known, well programmed, and heavily used way back last century.So, computer science guys, for some new utility, you need some math, both good and new. That’s not sufficient for the progress but it is darned necessary. So, net, get a ugrad pure math major, learn some more math, get to where can do some original research in math, meeting the usual standards, “new, correct, and significant”, that is, a Ph.D., and try again!Sorry you wasted your ugrad time on too much in C programming, Linux details, quicksort, AVL trees, LALR parsing, yet another compiler compiler, locking, concurrency, and reliability in relational database, structured programming, logic programming, object-oriented programming, functional programming, genetic programming, expert systems, and struggling with P versus NP, but you did.
if the application is a utility the market wants then the demand for the token will increase. asset or currency, the price goes up. that’s value.
Dont you have a fiduciary duty to your LPs to take some chips off the table after surpassing 10x return??
.A fiduciary duty is, literally, the highest legal duty a fiduciary (financial manager) owes or can owe to a beneficiary.It is a general duty, but it doesn’t kick in if there is specific language which mandates duties to be embraced and undertaken by a fiduciary.The test of the proper discharge of a fiduciary duty is the notion of “prudence” which is often referred to as the “prudent man rule.”What would a prudent man do in these circumstances?In certain circumstances, a prudent man would take more risk, while in others he would take less risk. This is why it is useful to have some of these circumstances dealt with in the body of the partnership doc.Nobody every gets exercised about a fiduciary duty until money is lost or insufficient money is made.While it sounds nebulous, it is very well litigated.JLMwww.themusingsofthebigredca…
.I note that there was a standard “lockup” period of 180 days after the IPO, but I am curious why you felt compelled not to distribute the stock?Public stock with a “legend” on it can be distributed, but the owners have to comply with the legend.Is a distribution of a share certificate from a limited partnership considered a “trade” for lockup purposes?One of the reasons I am curious is that such “legend” or “restricted” stock can be used to create a real or “synthetic” hedge. But, only if the restricted stock is held by the brokerage firm running the hedge.You can even hold shares with similar “restrictions” in public brokerages which then tag them requiring you to deal with the “restricted” stock department (Schwab does this).In addition, whenever one is a Director or owns more than 5% of a company, this happens, the requirement to go through the restricted stock department.JLMwww.themusingsofthebigredca…
nice technical deep dive. liking it.
You are saying that USV could have distributed the Twitter stock ‘ in kind ‘, if they followed certain restrictions?What are the chances LPs want to make micro-stock management decisions?
.I read Fred’s blog post to say he did, in fact, distribute the now public Twitter stock.You have to remember that investors in VC are likely to be large pension funds, such as UTIMCO (University of Texas Investment Management Company) who have enormous portfolios of stocks, bonds, and “other assets.”Back in the day, “other assets” was real estate (though now most funds have a separate asset allocation to real estate broken up into direct ownership and mortgages), venture capital, and, say, commodities.These are very sophisticated investors.Even so, they usually work through outside investment professionals even in stocks and bonds. Some pension funds (Ohio State Teachers Pension Fund, back in the day) used to have more direct hands on involvement.The Teachers Retirement System of Texas, a quarter century ago, got in a huge mess when they jumped into direct real estate investing. When the Texas recession hit, they lost their ass in a bunch of direct investments they’d made with developers. It was a mess and took them a few years to sort out and reorganize their strategy.The big problem is often how does a state sponsored pension fund obtain Wall Street class management when their comp is limited by state rules?UTIMCO was specifically created to overcome that problem.JLMwww.themusingsofthebigredca…
why is there a breakdown in direct assets and mortgages?
.Direct assets are investments in equity.Mortgages are investments in debt.JLMwww.themusingsofthebigredca…
We did distribute the stock. That’s what I wrote in the post
.That’s what I read in your blog post. Perfectly clear.My question was why did you wait until after the lockup was over to distribute it?JLMwww.themusingsofthebigredca…
If you don’t mind my asking, how did you do this? Call an i-bank for a private placement with institutions/high net worth clients?I think a well-packaged group of high-quality, still-private, pre-IPO companies could be an attractive “retail” investment but I imagine (a) accreditation rules make this tough and (b) many companies want to keep ownership concentrated, though a well-designed SPV could solve this.
Sheesh, what a longwinded way of saying, “Don’t put all of your eggs in one basket.”
If you haven’t been there, you don’t see the value of helping people manage the emotions of having all ( or a lot of your eggs) in a basket that got 10x bigger last year.
>> If you haven’t been there, you don’t see the value of helping people manage the emotions of having all ( or a lot of your eggs) in a basket that got 10x bigger last year.I have never been raped nor kidnapped nor won a massive lottery jackpot nor been a hero who saved a baby from a burning building. By your logic I would not be able to understand the emotions those victims, winner, and hero are likely to have experienced.Sure, to some extent that logic is correct. But specifically, not generally. That is, I would not know how it really feels. True. But I can easily imagine what it might feel like. Sympathy is not a substitute for experience. I agree. But sympathy does, to some extent, enable us to have a general sense of how other people are likely to feel in a particular situation.Fred might have said, “Be sure you have a wise advisor or group of advisors who will help you to see the value of not putting all of your eggs in one basket even when your emotions (and greed) tend to tell you to ‘go all in’ when you are riding high. ‘Make hay while the sun shines.’ Sure. But be sure to store some hay in the barn for the lean times that will eventually occur”.We just finished studying this phenomena a couple of weeks ago in parsha Vayigash (Torah portion Vayigash) after Joeseph convinced Pharoah to allow him to gather and store grain in Egypt during times of plenty so that when the famine occured the Egyptian government would have enough grain to feed their people.Vayigash in a Nutshellhttp://www.chabad.org/parsh…Be that as it may, I stand my my initial sentiment that this post of Fred’s was overly verbose.
When you have a winner on it’s tough. The behavioral economics concept of the endowment effect is brutal. When you look at data, confirmation bias seeps into your judgement. I have been there many times. I remember I owned a stock that had run up huge. I looked at it and tried to stay unbiased but didn’t. I lost most of the gains in the crash of 2008/09. I have had LOTS of trades on where you are up money and you feel guilty pulling the trigger to get out. Talking about it and shining light on how you handle it is the best way to educate the market. Of course, it’s a first world problem.
Did you have a wise advisor or group of advisors to help you to see the value of not putting all of your eggs in one basket even when your emotions (and greed) tended to tell you to ‘go all in’ when you were riding high?Croupiers like Fred Wilson run casinos like Coinbase so that they can profit from human foibles. Drug sellers, both legal ones and illicit ones, similarly profit from human foibles. The manage to circumvent the intellect and appeal to the heart and/or guts. That is, they bypass Shem to appeal to Yapeth or Ham (Noah’s three sons who metaphorically represent the intellect (Shem), heart (Yapeth), and guts (Ham).Ideally, Yapeth (the artist) dwells within the tents of Shem (the intellectual or wiseman). That means, the heart should be controlled by the head, not vice-versa. And Ham (our visceral desires, the Cananites were descended from Ham) should serve Shem and Yapeth.See…http://www.jlaw.com/Article…The Bible states (Leviticus 19:14): “You shall not curse the deaf nor place a stumbling block before the blind; you shall fear your God – I am your Lord.” In Hebrew, the sin of placing a stumbling block before a blind person is referred to as lifnei iver lo sitten michshol (before the blind do not place a stumbling block), or succinctly as lifnei iver.This verse is somewhat perplexing: Why single out blind people for this law? Was placing stumbling blocks before blind people a prevalent practice in ancient times? Furthermore, there are a large number of laws in the Bible that deal with causing injury to others, blind or not. This may explain why the Talmud felt the need to give the verse a more profound meaning. Thus, the word “blind” is interpreted metaphorically to represent any person or group that is unaware, unsuspecting, ignorant, or morally blind, and individuals are prohibited from taking advantage of them or tempting them to do wronand see…http://www.chabad.org/libra…May God expand Japheth, and may He dwell in the tents of Shem, and may Canaan be a slave to them.”
Wish we were in a trading pit together so I could speak “Chicago english”. it is not fit for public consumption. VCs are not croupiers. In entrepreneurship, you do put all of your eggs in one basket. It’s unavoidable.I am not a Talmudic scholar and while I am a Christian, I don’t necessarily follow God’s word when I am looking for investment advice but more about approach, attitude and support. Ecclesiastes 11:4-6 ESV might sum up the way a VC looks at a portfolio.”He who observes the wind will not sow, and he who regards the clouds will not reap. As you do not know the way the spirit comes to the bones in the womb of a woman with child, so you do not know the work of God who makes everything. In the morning sow your seed, and at evening withhold not your hand, for you do not know which will prosper, this or that, or whether both alike will be good.”
Meh.If it helps, he’s probably misreading talmudic law, specifically around the area of something called Honaah (overpricing) vs gambling in commodities of unknown amounts/values/quality. You wouldn’t have been able to trade in the pits with Orthodox Jewish people (who I know did/do trade commodities, because my father was a commodities trader at one point.)However, with abstract commodities and commodity like instruments like Bitcoins or a swap – This is actually somewhat of a contemporary Halachic problem due to the 2008 crash and orthodox Jewish people who have hedge funds/work in finance/partner in banks/what have you around the nature of synthetic CDS. The current consensus seems to be deciding that whatever the secular government decides is the answer to this questions – and as the SEC has given guidance to Bitcoin and other cryptocurrencies, a minori ad majus (kal v’chomer), it should have the same Business Jewish Law rulings as a synthetic CDS.Granted, I’m also not surprised. Business Halacha isn’t a well studied area of Jewish law among lay people (compared to say, laws around Shabbat), and breaking Jewish Law around Business doesn’t really have communal consequences.
>> If it helps, he’s probably misreading talmudic law, specifically around the area of something called Honaah (overpricing) vs gambling in commodities of unknown amounts/values/quality.I doubt it.I believe that Bitcoin is a commodity (not a currency) that is currently a collectible (Mark Cuban’s terminology, not mine) like, Pet Rocks or Beanie Babies. Once the fad fades the value of Bitcoin will likely hit zero because unlike a pet rock or beanie baby, which can be put a bookshelf to decorate a room, a Bitcoin is inherently worthless.The proliferation of “virtual currencies” and “initial coin offerings” is similar to each and everyone of us printing out a piece of certified, non-copyable paper which automatically projects all of its transfers onto a wall in a public square for everyone to see, that says, “This is rare and valuable.” After a while people begin to realize, those pieces of paper are not worth a $10,000 or $1,000 or $100 or $10 or even $1 but instead are essentially worthless. Then the fad dies (the bubble bursts) and the financial mania turns into a panic.Ty Warner, the founder of Beanie Babies is a billionaire. But today, with hindsight, it is obvious that Beanie Babies were merely a fad. Here’s a link to sold Beanie Babies on eBay https://www.ebay.com/sch/i….This is not rocket science. This is obvious. This does not require any sort of great insight or education whatsoever. I am baffled that most adults of sound mind do not see this.There are two problems I see from a Jewish perspective.First, persuading people to invest in Bitcoin, Ethereum, etc would have been like persuading people to invest in Pet Rocks or Beanie Babies: it is extremely speculative and therefore extremely risky. No it is not gambling, but it is akin to gambling.Second, Judaism encourages people to consider “the big picture.” See: ***************https://en.wikipedia.org/wi…He is popularly known as the author of two sayings: (1) “If I am not for myself who is for me? And being for my own self, what am ‘I’? And if not now, when?” and (2) the expression of the ethic of reciprocity, or “Golden Rule”: “That which is hateful to you, do not do to your fellow. That is the whole Torah; the rest is the explanation; go and learn.”***************Do we really want to live in a society where investments are made based on the Greater fool theoryhttps://en.wikipedia.org/wi… or do we want people to invest in fishing boats so they can catch fish or houses so that they will have a home to live in?
1) You assume I don’t have the background to know about hillel Actually , I do. I have a yeshiva education – and I went to a more liberal seminary post high school and learned gemara. I chose to leave orthodoxy after contemplating how I viewed morality and the law through a religious ideological lens. I did a lot of study before I did that as well; I’m not an idiot.2) I also have a good, solid economic background by choice, and have read derivative contracts of various types of commodities (futures and options and a few swaps) because I wanted to create a derivative at one point.which brings me to this I believe that Bitcoin is a commodity (not a currency) that is currently a collectible (Mark Cuban’s terminology, not mine) like, Pet Rocks or Beanie Babies. Once the fad fades the value of Bitcoin will likely hit zero because unlike a pet rock or beanie baby, which can be put a bookshelf to decorate a room, a Bitcoin is inherently worthless. You could say that about Gold, Dollars, Euros, or anything that has been associated with money and its qualities1) Store of value2) Medium of exchange3) a relatively stable unit of accountin factThe proliferation of “virtual currencies” and “initial coin offerings” is similar to each and everyone of us printing out a piece of certified, non-copyable paper which automatically projects all of its transfers onto a wall in a public square for everyone to see, that says, “This is rare and valuable.”Is the definition of the US dollar. It literally is how we decide the value of the dollar.With your definition of hona’ah, buying a us treasury (a common bar/bat mtizvah gift) technically would be gambling despite the fact that even though the value is “Unknown” it is also considered the risk free rate.So my question to you, why is a treasury NOT gambling (which halacha arbitrarily assumes is true). Essentially, why is halacha wrong about a treasury, or buying a stock and holding it, or a weather derivative, or a Synthetic Credit default swap. At what point does halacha decide what is a market, a skilled profession*, and outright gambling – and how does any artificial security irrespective of bitcoin/crypto currency backing differNote: despite the fact that I not a huge “rah rah” of digital currencies, I understand that they are similar in a lot of ways structurally to gold. I think the attachment to gold as a speculative flight to safety is stupid (same with bitcoin).*it’s also an open question whether professional poker players are gambling rather than working hard with a game that if you understand the mathematical odds of cards and how people lie, you can win.
>> Wish we were in a trading pit together so I could speak “Chicago english”. it is not fit for public consumption.I see.>> VCs are not croupiers. I did not assert they were. I asserted, essentially, that by shilling for crypto, Fred Wilson is playing the part of croupier. Crypto is an obvious hustle, at best, akin to what Mark Cuban calls collectibles but what I think of a Ponzi-ish scheme. Anyone who does not see that, is either not in their “right mind” or is using their heart or guts to look at crypto. It is an obvious fraud.>> In entrepreneurship, you do put all of your eggs in one basket. It’s unavoidable.I have been there, done that. Yes, in a “dog eat dog” society you need to “go big or go home.” That is, more or less, an essential component of Sodom and Gomorrah which were some of the wealthiest and most beautiful cities in the world at the time. (Think Monaco or Geneva).Judaism strives to create a society of justice not equality. However, in a just Jewish society the winner-take-all approach is thwarted by law. In a just Jewish society the idea is that each man must be able to make a living, not necessarily a killing.>> I am not a Talmudic scholar Nor am I.>> and while I am a Christian, I don’t necessarily follow God’s word when I am looking for investment advice but more about approach, attitude and support. I see.Ecclesiastes 11:4-6 ESV might sum up the way a VC looks at a portfolio.>> “He who observes the wind will not sow, and he who regards the clouds will not reap. As you do not know the way the spirit comes to the bones in the womb of a woman with child, so you do not know the work of God who makes everything. In the morning sow your seed, and at evening withhold not your hand, for you do not know which will prosper, this or that, or whether both alike will be good.”I have not studied Ketuvim https://en.wikipedia.org/wi…I’m not sure what that means but superficially it sounds to me like it is saying you need to put your head down and get to work and then pray to God that things work out.
*rolls eyes* You know, someone could make that argument about batei din and prozbulim vis a vis lifnei iver – given fluctuating interest rates*, a beit din could make bank during shmitta and yovel as they hold the loans and can act as a further creditor without competition. Instead, they could have done a really extreme version of kal v’chomer, gezerah shavah, and/or perat u-kelal to completely get rid of the idea of debt holidays during Yovel and Shmitta for anyone & any organization outside of the government while also promulgating anti usury laws.It would have created the same economic normally without giving incentive to batei din/ the government to have high interest rates because they could make bank during Shmitta and Yovel.(the idea of the prozbul never fixed the underlying economic issue of how loans worked around 70 CE, namely, usury, fluctuating real interest rates that were never considered as actual interest rates, and how liquid capital markets do and don’t affect the poor.)*Yeah yeah, nominally speaking there are no such things as interest rates among Jewish people in halacha. You can convert the interest rate into a loan fee, the ways Muslims do, and get out of the whole argument.
>> *rolls eyes* You know, someone could make that argument about batei din and prozbulim vis a vis lifnei iver – given fluctuating interest rates*, a beit din could make bank during shmitta and yovel as they hold the loans and can act as a further creditor without competition.>> Instead, they could have done a really extreme version of kal v’chomer, gezerah shavah, and/or perat u-kelal to completely get rid of the idea of debt holidays during Yovel and Shmitta for anyone & any organization outside of the government while also promulgating anti usury laws.>> It would have created the same economic normally without giving incentive to batei din/ the government to have high interest rates because they could make bank during Shmitta and Yovel.>> (the idea of the prozbul never fixed the underlying economic issue of how loans worked around 70 CE, namely, usury, fluctuating real interest rates that were never considered as actual interest rates, and how liquid capital markets do and don’t affect the poor.)Your arguments are reasonable in and of themselves but do not seem to refute my point because in essence you are asserting that, “Those in power can abuse it.”Like most governing bodies, a competent beit din can “make bank” anytime they like. The reason a Jewish king (melech Israel) like King David needs to to carry a sefer Torah and write a sefer Torah is that we are afraid that those in power will abuse it.>> *Yeah yeah, nominally speaking there are no such things as interest rates among Jewish people in halacha. You can convert the interest rate into a loan fee, the ways Muslims do, and get out of the whole argument.The basic idea in halacha seems to be, “It is better not to charge another Jew interest, yet you are allowed to do so in fact. However, we want to remind you that it is undesirable because it tends to weaken klal yisrael (the Jewish people).” Gambling and prostitution are treated in a similar manner by halacha: they are legal but considered to be inherently undesirable.Try to imagine a young single Jewish woman bringing home an affluent Jewish man for dinner who was either a money lender who lent money to other Jews (legally yet at high interest rates), a casino mogul (like Sheldon Adelson and Steve Wynn) or a pimp (in one of the counties in Nevada where prostitution is legal). It would be difficult to imagine her parents hoping this would be the father of their grandchildren.
Try to imagine a young single Jewish woman bringing home an affluent Jewish man for dinner who was either a money lender who lent money to other Jews (legally yet at high interest rates), a casino mogul (like Sheldon Adelson and Steve Wynn) or a pimp (in one of the counties in Nevada where prostitution is legal). It would be difficult to imagine her parents hoping this would be the father of their grandchildren.That’s easy enough. I grew up in the five towns, my parents would have been overjoyed by any of these. Do you not know how much yeshiva education costs, and how much currency being rich is worth in the frum world.Also, it is a radical assumption that batei din (or melech yisrael) are perfect/highly moral. I also find that halacha about writing a sefer torah suspect1) It seems like a type of idol worship2) Plenty of people wear and worship law without actually keeping it and respecting it, irrespective of the law system.______Though the larger point, don’t use halacha in a place it doesn’t belong, because there are people who would argue with you about your interpretation of it.
Details of deals are like catnip. Everybody’s addicted.
Addiction occurs when, metaphorically, Ham is in charge instead of Shem. See my comment above.
And if you don’t trust Shem? Plato was wrong about His gold/silver/copper idea in government, which is how we got to democracy. The Shem/Ever concept is just a simplified version of Plato’s argument.
>> And if you don’t trust Shem?Then you are probably headed away from Judaism and likely Noahidism https://en.wikipedia.org/wi… and therefore, by process of elimination, towards Paganism which has three common features: licentiousness (sexual immorality which starts out “tame” but typically leads to thinks like pederasty and beastality), murder (not necessarily killing people because killing in self-defense and soldiers fighting properly in battle who kill their enemy combatants are not murderers), and idolatry (think of Hindu’s bowing to idols)>> Plato was wrong about His gold/silver/copper idea in government, which is how we got to democracy. I never really studied Plato.Maimonides was a great admirer of Plato’s prized pupil, Alexander the Great’s tutor, Aristotle. (Alexander the Great was so kind to Jews that even today some Jewish boys are still named Alexander in his honor and usually go by the nickname of “zander” as in Alex-zander). However, Maimonides argued against Aristotle in areas such as hashgochoh protis https://en.wikipedia.org/wi…A sefer Torah (Torah scroll) is normally written in Hebrew (lashon hakodesh or the holy language) but it can, according to halacha https://en.wikipedia.org/wi… also be written in one other language: Ancient Greek. Yes. A Jewish Torah can be halachically written in Ancient Greek.Our sages teach us that Ancient Greek was the most beautiful of languages. And the wisdom of Ancient Greece was remarkable, even by today’s standards. But ultimately the Ancient Greek’s were pagans who created false gods in the image of man. Judaism believes man is made in the image of G-d. Hanukkah celebrates the Jews survival despite the attempt by Hellenists to destroy Judaism (but not Jews themselves) through assimilation.Regarding democracy, see the story of Korach (Moses’ first cousin the egalitarian demagogue who preached something kind-of-sort-of like democracy. See:I’m a Big Man!Parshas Korachhttps://torah.org/torah-por…According to halacha a proper Jewish government must at least partially be a theocracy with a Sanhedrin https://en.wikipedia.org/wi… (high court that also has legislative power). Yes, Judaism is very anti-American, anti-Enlightenment, I know. See the Haskalah https://en.wikipedia.org/wi…>> The Shem/Ever concept is just a simplified version of Plato’s argument.Perhaps. Like I said, I am unfamiliar with Plato.
TBH, if I were in paroh’s position, I would not trust someone who gave me advice based on dreams.
That is a non-sequitur. I was illustrating the importance of, “saving for a rainy day” which is similar to “not putting all of your eggs in one basket.”
Of course. And it can be explained by standard axiomatic utility function theory IIRC as in the von Neumann Morgenstern book, but since then it has been presented many places.E.g., in the movie The Big Short the two guys at their Brownfield Fund had turned $110,000 or so into $30 million, were shorting housing bonds, having to pay premiums to do that, and were worried that they would lose the whole $30 million. Okay: Take, say, $2 million each out of the fund, put it in a safe place, play with the $26 million, sleep well, have fun, and get richer and at least don’t go broke. But, maybe the movie wanted more drama??
Fred with your Twitter holding why didn’t you simply purchase a collar like Mark Cuban famously did after selling broadcast.com to Yahoo? Or isn’t that an option for a venture capital firm?https://www.linkedin.com/pu…
To quote my dear, late Dad:”The goal is buy low and sell high, not buy lowest and sell highest.””Never be embarrassed about making money.”
‘ Paying capital gains on a startup stock sale is a very good thing. ‘
You’re right that many in BTC/ETH are motivated by being True Believers more than by money.
Will USV be launching a token fund?I reckon you might have a very short list of token projects’s that you might quite like to invest in from a fund financed by your LPs, but not until there’s been a correction in the market. It’s obviously better to take stakes in teams, their projects, and their tokens after a Perez correction…if it happens.
In any investment, it is better to sell some of the stakes. If everyone did the same then the average loss would be minimized. But on the flip side, no one would become super rich either.Kind of dilemma
I agree strongly with Fred here (and, as an employee I did this at Twitter and would have done it at Google if I could have) Three quick adds based on different perspectives (the company, employees, ex-employees)1) From a company perspective VCs (and particularly board member VCs) derisking can be sub optimal in three ways: (a) depending on whether the company controls who is buying, it can lead to new, unwanted stockholders. As a private company that can be bad either because those stockholders might not have the same risk profiles or because they may have different (and perhaps unfriendly) reasons for joining the cap table. That means that the private company may face some of the downsides of being a public company before they are ready. (b) Fred’s post notwithstanding, the signal seen by the market on these, particularly when at a discount, is that the investor doesn’t have as much faith in the company as it did before. That can lead to some bad things (it can also lead to some good things, like a lower 409A). and (c) if the VC is a board member it can also mean needing to replace the VC, sometimes against their will. That can be good or bad depending on what is right for the company at that time.All this means that a company, may or may not have different interests than the VC and that a lot of that will be determined by whether the company is controlling the sale (as in Uber’s case) though that is somewhat complicated by the VC possibly being a part of the decision-making of “the company” in the form of their board seat.2) Fred’s logic definitely also applies to employees, including the CEO and senior executives. But note that all the problems above also apply to them. Add to that the fact that MANY VCs (and some companies) believe that employees shouldn’t take money off the table because they believe it will decrease their motivation. In my experience, this is not accurate but it can lead to pretty nasty employee – board members – company disagreements when all sides don’t agree, particularly when the board members are VCs who are themselves selling (and yes, some VCs are pretty hypocritical here). One way this sometimes plays out is to split people who have options (mostly employees) from people who have shares (mostly VCs and senior execs). I do not believe this makes much sense.3) This is even more true for ex-employees, particularly those that had to purchase their options so that they wouldn’t lose them and are therefore already liable for tax on their paper gains. They are the most exposed to a drop in value and should act accordingly. However, 1(a) (and sometimes (b) and (c) for important ex-employees) also apply here and the company and/or VCs may have opposing interests, particularly when the sale is to an unwanted buyer.
Great comment Amac. All true and all important to understand.Part of the reason I have been so vocal about this at AVC is I would like to dispell some of the notions that are out there that suggest that secondary sales by angels, VCs, and execs are badI think, done right and sized correctly, they are often very positive events for the companies
Agree. The more folks can understand the nuance here, the better.
Fred, have you guys sold of some of your Token in “Simple Token”? Aren’t you guys invested in their equity and in their tokens?
“Pigs get slaughtered” and “You never go broke taking a profit” come to mind. Thought the funds that sold Uber did the right thing too-and more importantly their LPs get some liquidity. That cash will get redeployed in new investments that can grow. Economic virtuous cycle.
I’m not sure I know of your position on the subject; but I hope you think venture investors should support the same kind of sales by founders in a pre-liquidity secondary. This should happen when selling selling 15-20% of the founder’s common will net the founder several million dollars.Like you as an investor, I believe this (also) allows founders of successful startups to “chill out”, and focus on growing the business without fear they may lose out on what could be their one big chance at a substantial gain.
I was going to comment asking for a post on this subject. At what point is it not a red flag to investors for a founder to begin taking money off the table?
Great advice and exactly what I did with my smallish crypto investment that is up 10x.
The analog to dollar cost averaging for purchasing works for sales also. Someone may have already stated this (didn’t read all comments), but your pre-IPO sale had no effect on price. Had you tried to liquidate $1B of Twitter in the public markets, it would have had adverse affects on your price point. Selling large blocks at a set price derisks adverse affects, especially a run for the exits in terms of signaling.
Can this be generalized to any investment – and how do you decide why/ that it is the right time?
Been following this disciplined approach to selling off in batches over time. I usually buy all at once.
ps just practiced this on $KODK on information via stocktwits yesterday morning. sold 50% with a huge gain before close of market yesterday and the rest of my position this morning. win/win/win.
Regarding your last paragraph. Wouldn’t you have to take into account the timing of when you hit a 50x gain? Because if you take profits before a year of holding, you have to pay like 40% of capital gain taxes, right?So let’s say I put $10 into a token that is worth $0.1:100 tokens @ $0.1 = $10 investmentAfter 3 months it grows 50x: 100 tokens @ $5 = $500. 50x returnsLet’s sell 25% of position. I’m left with:25 tokens @ $5 = $125. But I need to pay 40% taxes on this because I sold before 1 year. So I’m left with $75. That would be 7.5x return of original investment instead of 12x.Is my logic valid? Is there anything we can do to get around this? Any thoughts?Thanks!
Sold some ICX thanks to this post! Thanks a lot 🙂
I have used this methodology with stock and stock options over the years and it has served me well.