Take Your Lumps
The Gotham Gal and I went through our (actually her) angel investments yesterday and figured out which ones went under in 2018 so we could take the tax write-offs on our 2018 returns.
It is an odd exercise. Kind of like reading the obituaries.
But it is an important exercise for several reasons.
First, taking the write-offs against the gains shelters the gains so they can be re-invested in full. Over her first six years of investing (2007-2012), she has realized a bit more than she invested and the losses have sheltered the gains so all of that capital can be reinvested. And the investments that remain unrealized from that cohort are all solid now and will likely produce another 2-3x on invested capital.
But it also a nice “post mortem” process to go through the ones that didn’t work and think a bit about what went wrong. We don’t obsess about the losses, but taking some time to run through them is helpful.
Sometimes failed investments turn into the “living dead” in which you end up a tiny investor in another company by virtue of an acqui-hire, a distressed sale, or some other such transaction. It is generally a smart idea to sell your stock back to the company or another shareholder or abandon your interest and take the loss on those kinds of investments. The tax loss is often worth more than the stock you own. A regular process of going through the losses will surface opportunities like that too.
The bottom line is that angel investing is risky business. Super early stage investing, like the kind the Gotham Gal does (she is most often the first check into the company), will produce loss ratios of 50% or higher. The winners eventually bail you out and super early stage investing ought to produce 3x on capital or better (or you shouldn’t be doing it). One nice advantage of this model is the losses come early and the wins come much later. Taking your losses, getting the write-offs, and sheltering your gains is an important part of the model and it is best to have a regular process to make sure you are taking the losses when you can.
Agree with everything. The only thing I would add is think about what went wrong every day. I know this seems negative but it only is if you obsess about it as you say. I start every day thinking that at the end I will think about what I did wrong.In our society today it has become even harder to admit you were wrong. Hell there is a term: flip flopping. When you get presented with new information (like there was not market fit or a big enough total addressable market) admit it, and as you say move on or address it by adjusting accordingly. Don’t take the Brain Damage of “sticking to your guns” and “fighting tooth and nail” with sharp elbows.
I’m a big fan of saying “I was wrong”. I’m often wrong .Way more times than I’m right .
Something I like doing when I am trying to understand a topic better is take a position with the expectation that someone will likely disagree. Hopefully their disagreement will illuminate something I missed. It’s a tactic that sometimes comes off as being a know it all. But I sincerely subscribe to what you’ve called strong convictions that are loosely held.
Me too. I don’t love being wrong but owning up to being wrong admits, accepts responsibility and you can move on. I believe at the service academies the standard response is “No excuse Sir/Madam”
It is easier to say that when you are:a) CEO or in a position of powerb) sitting on a high demand resourceThere’s a reason so many people don’t want to say it.
There is valuable information in failure. For me it is like software debugging and stress testing or materials testing in civil engineering, extended to human processes.How did it fail? How much load did it take to fail? This will help spotting the weak points, the cracks in the model and correct and avoid them in the future.Postmortem analysis is one of the best things you can do to any organization or process. It works if the analyses produce corrective actions though, not if done as a sport.
I agree. I hate it when a politician who changes position on a subject (after an educated decision) is accused of “flip flopping.” To me it shows ignorance to not be open to changing opinions when new facts are presented.
Accused of flip flopping by people who are writers or in the media. Those are the real ‘doers’ in our society.All you need to know about the media is typified by AOC being on ’60 Minutes’ last night.
I cannot bring myself to watch that show. I did when they interviewed Cruz and Beto. They slammed Cruz and made it look like Beto was running his campaign on a shoestring (when he actually raised more money that any other Senate race in history.)
Could not agree more. Ever since the Audi story in 1986. Getting interviewed on there must just be an ultimate hack job.
That Audi story has stayed with me till this day. Why? Cars are an emotional and in some cases a fantasy purchase. And once you have some negative it’s near impossible to get rid of with that type of object or situation. Live by the sword die by the sword.What’s interesting is that you couldn’t show someone that story today and have it mean anything to them. You’d have to live through it first hand.I remember when I had my first boat. Someone said that if it ever takes on water (almost sinks I mean) ‘it will never be the same in your mind’. That turned out to be true. My boat had a leak and was under water. And in my mind it was never the same. Why? Fantasy vs. actual utility I guess.I will tell you one other time where this happened to me. I remember seeing the planes hit the towers and all the sudden NYC didn’t seem invincible any longer. All those ‘tough’ New Yorkers running around scared really impacted my thoughts on the city and it’s people. What did it impact? Not the reality but the ‘fantasy’ of what my mind thought of NYC prior to that attack. ‘So tough!’. ‘So together’.This is similar to if you are in high school or really elementary/middle school and there is a ‘tough’ guy that you think can ‘take the whole school’. Then you go somewhere and he gets ‘beat up’. No way you think of him the same way, right? Why? The fantasy. You are overdoing his strength in your mind.(Note in the case of NYC I recovered over time and hold it in high esteem once again).
One of best cars was an Audi A8L with an S8 engine that thing was like driving your favorite chair at 90mph not even worried
I know; I know; we’re not supposed to look rationally at, or take at all literally, the statements of politicians. Well, I violate that.On AOC, I took her statement on renewable energy, saved it, with a reference, and indexed it.So, that statement is to have the US on 100% renewable energy in 10 years.There’s NO WAY renewable electric power can supply the present loads on the US electric power grid in 10 years. Before some fantastic, improbable, progress in the basic physics and chemistry of energy storage, there is NO WAY EVER to have renewable energy power the grid at anything less than massive, economy crushing costs.Basically AOC’s proposal would take the US economy back before electric power, back to about 1900. Electric power is so important now for our economy, people, daily needs, etc. that tens of millions would DIE miserable deaths.No enemy of the US could ask for or hope for a more effective destruction of the US. Definitely any and all enemies of the US would look at AOC as the best team player they have.So, AOC is uninformed, misinformed, just plain wrong, wildly overly emotional, irrational, irresponsible, dysfunctional, dangerous, a dupe of enemies of the US, etc.Oh, by the way, the Mexican drug cartels have really, Really, REALLY, REALLY good reasons to regard Nancy/Chucky as star players on their teams. Sorry ’bout that — it’s just flatly obviously TRUE.Somehow politicians and their media allies are out to destroy The Enlightenment, The Age of Reason, the astounding progress in science, engineering, the economy, security, and standard of living.E.g., recently I’ve been making little pizzas, one per lunch or dinner when I’m not eating something else. The flour for one pizza, 8 pizzas per Kg of flour, costs just under 9 cents. Seeing the 9 cents, out of curiosity yesterday I added up the costs for all the ingredients for the whole pizza and got a total just under 40 cents. With the dough and sauce done, I can get a pizza ready to eat, start to finish, in 20 minutes, easily. For making the dough, that’s fun and takes 8 minutes for the kneading, not much longer for the rest, and is fun.Lesson: The US has amazing, astounding, unbelievable agricultural economic productivity.There’s a terrific way to reverse that productivity, all our magnificent basic physics and electric power engineering, etc. — just listen to AOC.Lesson: Irrationality is REALLY ugly stuff.I saw a little about AOC on Breitbart. I didn’t know CBS had her on. Dumb de dumb dumb CBS. But absolutely positively I refuse to pay any attention at all to ABC, CBS, CNN, MSBNC, NBC, or NYT — have to regard them as an NYC echo chamber of the far left and really, really close to the not so long ago surprisingly strong NYC Communists — literally.For AOC, Nancy/Chucky, etc. I’ve formulated a rule: If want to get a lot of attention in the media by saying dumb things no sober person should ever think, say something carefully considered to be as dumb as possible. Then too many people will suspect that actually no one would ever say anything so dumb and, thus, not flatly reject the statement and, instead, pay at least a little attention if only out of curiosity.No, people, AOC is fully as bad or worse than she sounds.Lesson: Political leaders who say really dumb things can cause really bad results for everyone, and history is awash in examples.Giving all the examples would take a bookshelf, and giving fewer than all of them would massively understate the disasters.
A mentor of mine, Joe Parente at KPMG, used to say about staffing consulting teams to “shoot the wounded”– if you know in your heart of hearts that a team member on a project team isn’t working out (and you both have done your best to make it work and there is objective evidence to show it’s not working out – can’t just be a whim), rip the band-aid off and make the change sooner than later.This is true in consulting projects, employer-employee relationships (how many times do PIPs lead to a turn around vs an exit?), romantic relationships, and, it sounds like, angel investments too.It’s painful but when it’s over, it’s over. This sort of dealing with the hard stuff now instead of putting it off (and letting it fester) is also is a big theme in Ben Horowitz’s “The Hard Thing About Hard Things”. There’s not much good to come from ending up with too many of the “living dead”.
Here is the thing. When people say things like “shoot the wounded” or “starve your losers”. It directionally is correct, and I am not sensitive, I’ve fired more people than 99% of the people on this board including one Friday. BUT you get people that take this “literally” and it allows them to act in a way that borders on socio pathological behavior.
Yeah, I hear that. That said “shoot the wounded” and “starve your losers” within the context of teaming/staffing are different things — it’s that many managers will put off changing out a staff member on a consulting project for far too long. They pay less attention to him/her; give them less interesting, perhaps more difficult tasks; and overall turn that person into a sacrificial lamb or sorts, which in turns builds up all sorts of resentments across the team — avoiding all that bad, somewhat passive aggressive behavior, is the impetus I think to “shoot” rather than “starve”. Same thing on partner track at consulting firms/law firms etc — better to sooner than later tell someone “you’ll never make it” than let them sit in purgatory for years burning precious years of their career going nowhere (i.e., starve them while eeking out a bit more output).
I do not disagree with your overall point.I lost track of firing people at over 100.There are many people that I have fired that have gone on to do well, they just weren’t a fit for our environment. Hey I have a plant in my office from a guy I fired who said you don’t have enough plants please take mine. He later said, I might not have been a great product guy but I am a great consultant. Ok, hey you want to look good and go to meetings and be super personable there is a bank in Wilmington, DE for you. No issue. We are not that place, and I am not debating whether or not they are a wrong place.But think about saying that statement: Shoot the wounded. You get young “brotastic” people that start running around taking pride in “shooting the wounded” think if you said that as a leader that really was going to shoot the wounded.I say I feel no shame in changing my mind or making bad decisions. I feel shame in at least 90% of the people I’ve fired. I (and my team which is a direct reflection on me) did not figure out they were not a right fit.
Yeah, it’s a good point. The phrase itself is problematic, and not really the phrase to use when counseling younger leaders for sure. I also think a key point too – again one that Horowitz makes in his book – is that when it doesn’t work out it’s at least as much the fault of the manager as it is the staff member. Perhaps the person was a bad fit along. Perhaps they didn’t get the coaching and training they needed. Perhaps they weren’t set up for early wins to build confidence within and credibility amongst the team. Perhaps the manager (just like in a romantic relationship or in an investment) so wanted it to work out they looked away from the warning signs, the nagging early doubts. It’s nearly always at least partially the fault of the person in charge as it is the person (or investment) being “shot”.
CDN billionaire used to fire the bottom performer in his car dealerships, I think every quarter.He didn’t use bravado, he’s actually quite a sensitive dude……’Doing us both a favour. If you do not have enough pride not to come in last, you should not be in sales and I should not keep you here.’
Let me ask questions. How do you think that made customers feel when they came in? Why do you think there are so many car buying services that let you get around the sales person? Not debating whether you fire underperformers. But when you have people that are playing in a “Hunger Games” scenario…….how do they act?
Just the worst performer…….
Maybe the owner did a terrific job recruiting and had a class of 100% winners, ALL of them making money for the company. So firing any of them would hurt the company now and would present a recruiting problem for the future, e.g., the next person hired might be worse.Similar things seem to have been really bad for GE and Microsoft.
Most of what I have seen in hiring and management was something out of the Queen in Alice in Wonderland or the theater of the absurd.E.g., IIRC Lou Gerstner early in his time atIBM, said thatIBM is the most arrogant, inwardly directed, process oriented company I have ever seen.Clearly he meant this as a severe condemnation.The inwardly directed part from what I saw in IBM likely included a lot of what the fields of organizational behavior and public administration call “goal subordination”, e.g., each person pursuing their own personal gain by fighting, sabotaging, others, say, down the hall, inside the organization.My startup is moving nicely to going live. If it works, then I’ll have to hire. I’ve downloaded, kept, and read JLM’s notes on hiring, job descriptions, appraisals, etc.From that I see the role of job descriptions. I conclude that if the job descriptions are well designed, everyone does at least reasonably well on their job description, and the appraisal, compensation, etc. are done well, then the hiring and managing will be in relatively good, really, very good, shape.But nowhere do I see anything about “fit”. What is this stuff about “fit”? The objectives and criteria look vague, subjective, amorphous, and likely dysfunctional for the organization. In particular, too much on fit would seem to empower gossip, issues of style, political correctness, subservience, obsequiousness, etc.Can you explain fit: I’d like to know before I have to recruit or hire, whether I do or should care about fit or not and also what others might be thinking about fit?
.The job of any CEO from a hiring perspective is to provide an atmosphere in which people can excel and do their best work.Performance appraisal — formal system tied directly to compensation with a strict adherence to the attainment of written objectives — provides the kind of feedback that allows a company and an employee to evaluate the fit, performance, and future.In a good performance appraisal system, the tough questions get answered — Can you expect to get promoted in the next 90 days? Twelve months?Can you expect to be fired in the next 90 days? Twelve months?How do you compare to company peers?How does your performance compare to last year? Are you showing an appropriate level of growth?A firing is almost always a failure. It means something went wrong in the hiring and management process.There is a disruption cost to the company and there is a fair question raised — do we know what we’re doing in our hiring?An employee should demand the same questions be answered.http://themusingsofthebigre…In almost every instance in which I see a company with high turnover, I also see no performance appraisal system or a very weak one that does not tie performance appraisal to objectives.JLMwww.themusingsofthebigredca…
Don’t know I re-read this morning as I was going through emails. Starve your losers has to do with investments. I.e. just stop paying attention to them. Anybody who says that about employees is plain sick and stupid. But I have seen it. You are right the only thing much worse than going around shooting the wounded is purposefully treating someone poorly in the hopes they quit. They will respond in kind and you will have all sorts of problems. And that is why I say you are directionally correct.
I am wondering if your partner appreciates that you play that role. Because I know that I would. Definitely have lost money by not being more callous and heartless in getting rid of people in the past.
It’s a very fine line. Now look I think a ton of big corporate people hang on to people waaaay too long.But you always say when people are giving advice here…….don’t take too literally.
Some organizations expect a new manager to fire people, and the new manager just does that in a kind of sacrifice ritual, particulary the sociopaths you mention that are more frequent than people think. From there, the survivors fear the new guy so, establishing his power.I think that type of alpha-managment is stupid. Not personally stupid, because it usually produces good dividends for the executor, but organizationally stupid. The whole thing could be done with better results and less wasted energy through careful hiring and surgical removal if it is necessary. After all, who let them (the “bad”) in? That is the first I would remove or at least review his flawed process in detail.
You know the three envelope theory right?A new person comes in to replace an old manager.The old manager gives them three envelopes and tells them when they run into trouble open them up in order.Envelope 1: Blame your predecessorEnvelope 2: Do a “re-org”Envelope 3: Prepare three envelopes
Ha ha, (in spirit) like the ant letter story I’ve mentioned here before.About the envelopes theory, you probably meant it and just wrote it in short, so skipped it, but it would sound better if it is mentioned that some months or years pass between the 3 openings, and each time an envelope is opened, it is due to some crisis in the company.
Yes it was quick. The long story is each time you have a crisis open an envelope.
Good point about personally stupid vs. organizationally stupid. Hadn’t come across it expressed that way before, although knew about the concept.
Using metaphors like “starve the losers”. “living dead”, or ” rip the band aid” does a poor job of describing the situation with people who are not a good fit. They paint the landscape in one color without nuance or shades. It can be useful when describing investments, portfolios, business units, etc. but not for people.People are complicated. When something does not work out, it can be as much or more the hiring manager’s fault. Situations vary and the most important thing is to handle it with grace. Which translates to thoughtful conversations, feedback, and seeking to understand motivations and dynamics than jump to conclusions because something is not working as you want. If you decide to let go, do it not from a place of ego, but from one of empathy, both for the organization and the individual.
@cavepainting Read my comments further in the thread in my back and forth with Phil S. I agree that the words itself are a problem. It’s the larger idea of being decisive when things have clearly not worked out rather then hope things will get better only to avoid a hard conversation.
yes, really do understand your point. But language is a proxy for intent and how we think about these things. Language like this when wielded by managers without adequate discrimination leads to unintended but very corrosive consequences to culture. It also becomes a tool for insecure managers in big companies to kick out smart subordinates who are probing their strategy and judgement.I am not a big fan of generic advice like “Pull out the Weeds Fast”. Every situation is different and reasons and motivations differ widely. Reason from first principles, seek understanding, and then do what’s right for the situation.
.You may apply general principles, but every relationship is a bespoke relationship.JLMwww.themusingsofthebigredca…
I imagine this style of investing teaches the investor A LOT about business in general — very engaging work.I also think that many people make a huge mistake e when they decide to “do angel investing” when they’ve managed to amass a lot of capital, and your post spells it out clearly. This type of investing seems to require a program and not just a couple of little friends and family style investments. The losses are going to happen, so the numbers have to work for you.
YES.Fred has been signaling that we are going through another cycle. I have seen three. He has a much better vantage point to see it than me. And for those that have a “program” as you say will not get washed out like the vast majority that “dabble”
Absolutely. You need to make a lot of them and sustain it over long periods of time. Diversification is your friend
Define diversification. Because the truth is that each investment you make adds risk since all the investments are iid. I think there is a misnomer that if you invest in one health tech, one fin tech, one SaaS, one social media, one hardware you are diversified. You aren’t really since startups aren’t an S&P Index.I also disagree with those that say if you put XX amount into XXX amount of startups you will guaranteed yourself a 27% IRR because of math. They aren’t calculating variance correctly.
I think Fred is merely saying that you need to have 100 investments to make it work.Most people angel invest once.
In a way, isn’t that the blackjack strategy?
The whole point is to take risk against the book or strategy.I’d personally call it linear vs. non-linear.Most people hate playing cards with me especially because I can’t read what’s on the cards very quickly and in fact never read what’s on the cards, everyone reads them for you and belts out what they are. This creates time to think.
What is leaner v. non-linear? The losses incur in angel or blackjack are linear. The returns to both may be non-linear. Angel returns have a higher return potential although a likely lower expected return.
Yes, referring to the “both” concept. The information gathered during the context of the cycle is in reference to both of their portfolios. Non-linear against the book.Of course could mean nothing.
Changed my mind: yes.
Exactly. I’ve known plenty of people who get some cheddar and decide this special little food product or whatever is going to make them more money and then *poof*. Gotta have a program, IMO, or it’s not really worth doing. Would be better off putting that scratch into something else most likely.
I’m very appreciate of GG’s transparency as she invests in a class of businesses that few speak about and many that touch my passion points.I’ve developed a special appreciation of her point of view because of that over time.
Same here. GG is writing the book on the topic for sure.. it just happens to be a blog, and it’s got a few themes besides seed/angel investing. (I read it for the travel and food especially 🙂 )
Actually, she should write a book.
What you and GG do is a standard practice in tax planning. Are the majority of your (her) angel investments in company’s that are pass-through entities? If not, what mechanism do you use to recognize a change (decline) in value, 409A?
Do you have a bucket of write-offs where your conclusion is “I don’t know what happened?” I would be concerned about always trying to fit a mistake, or loss, into a narrative when randomness/unknown may be the correct answer.
It’s surprising, difficult, but true that taking losses early and letting winners run seems to be the formula for long term investment success
Pressing winners as well.
This idea has driven a TON of evil VC behaviour in the last 40 years.
I would say pressing hopeful winners.
And it’s true for every time horizon, even day trading… and oddly (or perhaps correctly) requires a strange brew of humility to admit defeat and cut losses early and ego to believe you could be THAT right and let winners run
There are some serious horror stories of VCs concluding that an investee may make it but will never be a 20 bagger…..so they do things like switch out the CEO, who then blows through cash in a burn off to dump the loss into fund that has winners, etc, etc.
As an investor, you learn a lot from failed investments and losses. If you haven’t had enough of those, you aren’t as good as what you will be, after learning from them.
Just starting in angel investing here. So, we need to liquidate in the year in question to take the write-off, right? Curious how she is making a decision about investments now that would require an action last year. It’s seems pretty likely I’m missing something though.
One of the biggest issues is getting the paperwork.
But you can do the paperwork on an investment indicating it’s a loss, even if you didn’t sell it last year?
Yes, but you have to show that you could not get the paperwork from the company and the efforts you made to acquire it.
.See my comment above. You can only take a deduction for a worthless security in the year it became worthless.However, you can file your tax return (w/ an extension until Oct 2019) and take the position the securities became worthless in 2018.There has to be a fact set to support this assertion and you can use carryback and carryforward provisions of the IRC.If you are “selling” a security rather than declaring it “worthless” then all bets are off and you have just normal buy-sell capital gain-loss tax accounting.Get professional advice. I am not professional advice.JLMwww.themusingofthebigredcar…
Did the same. It is healthy to talk about failed investments if you approach it correctly. Don’t beat yourself up. Think back to how you were in that moment. What did you miss? I have made some investments out of a profit sharing account and am looking to move them to a Roth IRA so there is some valuation work to be done which is also helpful. My angel portfolio looks pretty good right now but as anyone who has invested early knows, it can change. Never a win till the wire comes into your account.By the way, going to be in LA soon. It’s finally “time” to get to know the guy. Fred will remember what I am talking about and hopefully laugh since we have daughters.
What did you miss?You may not have missed anything. A large part is simply luck and things that you can’t predict and what you don’t see, right? It’s finally “time” to get to know the guy. Well contrary to what I said above with relationships there are things you can perhaps predict.I just went through this with one of my daughters. About two years ago she wanted me to ‘meet the guy’. I really didn’t want to until they were serious. So we finally met and he was over the top nice in many ways and quite frankly I came away thinking he was almost to perfect. Was just a feeling that I had. I honestly didn’t like him or care for him at all. My ex wife loved him. My wife thought he was fine and liked him. Ditto my mom and sisters and really everyone. Not me. A bit later my ex wife even said ‘he’s the one this is it!’. I really hoped that wasn’t the case. My ex wife was really never good at reading behind the lines. She liked people and blocked out social cues and nuance. (Was a good cold caller because of that btw..) I am really hard to fool. If I make a mistake it’s because I am ignoring cues not missing them.Well later I noticed a few things such as how his behavior changed (‘the delta’ I call it) from the first time we met. I definitely saw this as a red flag. Eye contact, interest, attitude clear difference. Others said ‘oh he was just having a bad day’. But I was pretty sure that wasn’t the case. I have always found ‘deltas’ in behavior significant. I could predict when employees were going to quit by a change in their behavior or pattern. No eye contact when you see me? You are getting ready to quit (this is an easy one I am sure others see that and know it no big deal).Well the perfect relationship with the super nice guy broke up. After two years my daughter confronted him about where the relationship was going. He didn’t answer in a way that made her happy. And that was the end of it.One other thing (super important). My two sisters had issues with who they married because in part of how my parents blessed their ‘very fine families’. As such they overlooked negatives or looked no further into the person because of the ‘very fine families’. I don’t mean ‘rich’ really but more or less what you would consider ‘fine’ people (from the perspective of someone who was raised in the 30’s and 40’s). As such I am sure that played a small role in the decision making process. However after the fact as always things come out with the person and the family (while important) doesn’t negate those negatives. Once again I didn’t particular like the two guys that much or really at all. And I am not saying that from a ‘my sister/daughter deserves the best!’ perspective either.Good luck!
Mind elaboritng why you’d prefer to not meet your daughter’s interests until some sufficiently significant serious moment?
Well for one thing they were in NYC and I am not. So I kept saying ‘ok come down here and I will meet him’. My daughter didn’t want to do that. So I figured that if it wasn’t important enough to come to see me then it wasn’t that important and I wasn’t going to take the effort to travel to meet him where he was.You see if I was the guy and I thought it was important to meet the Dad then obviously I would have gone to meet the Dad. So sure I am putting the way I am and my values on the other person.I am not into displays of respect generally and all that jazz. When my Dad died I told my cousin whose son was a big doctor in Texas that his son didn’t have to fly in to go to the funeral it was cool if he didn’t. He really appreciated it. I don’t believe in suffering to show respect. I think it’s lame and quite honestly to easy to do for some people. Has to be self motivated.
For me it was time. Do you want to meet every boyfriend-or just the ones worth meeting. It allowed me to give them their own independent filter. When it was time, they told me.
Mistakes get made because people see what they want to see. The filters of their mind bias the output skewing the results. To see something for what it is and not what you want it to be is another way to describe wisdom.People in any selling context (especially in dating, job interviews, fundraising, or selling companies) are making something look more than what it actually is. The degree of exaggeration or misrepresentation varies but the onus is on the party being sold to be aware.
I agree about eye contact.Secret score card: For a significant other (SO), they should (1) give you knowledge of themselves, i.e., keep you informed on their thinking and feeling about their life and especially about your relationship, (2) care about you, e.g., want you to be safe, healthy, busy, productive, happy, not hurt in any way, at any time, from any source, for any reason, and want to help protect you from being hurt, (3) respect you, e.g., not attempt to manipulate, fool, or take advantage of you, and (4) respond to you, e.g., if you ask a question they will give you an honest, forthcoming answer,There is more, but this secret scorecard of four items is a good start. Unobtrusively, look at couples and see how many do well on all four; only a small fraction of couples do well on all four.Of course, it is good to have this scorecard secret since, as for a lot of measures, once they are understood by the person being measured, the measures can be gamed. In particular, some people are just terrific at acting.Sure, as usual about people, I got this list of four from E. Fromm, The Art of Loving. I’ve continued to think that he knew very well just what the heck he was talking about, i.e, had a LOT of experience, thought about what he was seeing, and boiled down the cases in the data, good or bad, to doing good or bad on those four items.Also get a heck of a strong pre-nup. E.g., no matter how happy they are in the early years of a marriage, by the time the youngest intended child is in the first grade, your SO can go bored, unproductive, uninterested, unhappy, resentful, angry, and hostile. Fromm also discussed the role of being productive.Instead, there is plenty to do: (1) Can make money, get solid financial security, and maybe do some philanthropy. (2) In the family, can do a good job of parenting, e.g., help with child development from my usual list:academic, artistic, athletic, creative, emotional, empathetic, entrepreneurial, ethical, mechanical, moral, psychological, quantitative, rational, religious, romantic, scientific, social, technical, verbal, etc.Then continue doing well as a grand parent.Then (1) and (2) should keep everyone busy and productive and, thus, happy.
Anyone interested in angel investing should consider Jason Calacanis’ terrific book on the subject, “ANGEL” (https://www.angelthebook.com/), based on his firsthand experience.Other than buying his book, I have no connection with the author or publisher.
Looks like I am going to have to add another Wilson to my daily reading list. I am assuming she has written some lesson’s learned from the failures. As Fred moves higher up the “food chain” of business thought, I miss the individual business stories.That is my only complaint about Jason (TWIS) – I would like to hear interviews about the failures a much as the home runs.
CONTRIBUTORS:we are positively partial and ears all in on the investments that Joanne Wilson makes.Angel investing requires a person to accept an average of 50% in losses to fund startups and assist the economy.There is a section in the I.R.C. (Internal Revenue Code) Section 1244 which gives investors the ability to take an ordinary income deduction on losses rather than the standard capital loss deductions. And an important qualifier of the Angel Investor being apart of raising the 1 Million Dollar of capital raised by the Startup. If a person qualifies for the 1244 the benefits can be writing off $50K for single flier or $100K for joint. A person can pay $42K less per year.DISCLAIMER: WE ARE NOT CERTIFIED TAX ACCOUNTANTS OR TAX PREPARERS. OUR INFORMATION SOURCE IS THE GPO (Government Publishing Office)https://www.govinfo.gov/con…Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT
.Failed investments and taking tax losses is a modestly complicated issue if done correctly. It is totally unrelated to a drop in value of a security which is not a taxable event.You only have a limited number of ways to be able to exit a failed investment:1. The company gives up the ghost and liquidates thereby pitch forking their corporate charter — one cannot own stock in a corporation that does not exist.Therefore, the terminal value of the investment is easy to determine. It is usually zero, but there can be terminal assets such as software and a bunch of laptops. The company has to provide a final liquidation summary and file it with the IRS.They have to turn in their corporate charter in the appropriate state. This also begins to toll any outstanding but undiscovered liabilities for the corporation.2. You sell your stock at a loss. This is simple capital accounting and the only element of art is whether it is a short term or long term capital loss.3. You can declare your securities as “worthless.” This is both the simplest and the hardest one to deal with.To be worthless, there has to be some external proof of that status — #1 above, the termination of the business even if not properly wound up, the disappearance of the management of an enterprise, insolvency, bankruptcy, sale of assets, and several other such things.You can’t just say, “I don’t dig it anymore.”This is covered by 26 US CFR 1.165-5 Worthless securities. Be careful because there is a difference between the Code (the law) and the implementing regulations. Read both, but the Treasury Regs are the rules which implement the law.One of the most important things about worthless securities for an investor is to “abandon” them in a reasonable manner and with a logic that stands muster with the IRS. The IRS is quite easy on this issue, particularly if the company ceases to exist. This step of officially and formally abandoning a security — thereby giving up any and all potential future value — is a good thing to do.The other big thing is the “effective date” of the securities becoming worthless. This is important because that is the year in which you MUST take the hit. The hit — deduction — is up to $3,000 on ordinary income and up to the balance against the appropriate (short term or long term) capital gain.The IRS can be pissy if you declare something worthless in 2018 and it actually became worthless in 2016.This is a toothless tiger because there are carryback and carryforward rules at work here also. You can also go back and amend a prior return.Of course, if you don’t have any prior capital gains this can be a real problem.You don’t have to declare something worthless in the year it happened. You only have to declare it worthless by the time you file that year’s tax return. So you could look at your portfolio in 2019 and declare something worthless in 2018 tax year, but it would be cleaner to have it done in the right time frame also.You didn’t hear this from me, but there is likely a bit of back dating at work here. Nah.If you have a convertible note, you are in a whole different world as that is a “bad debt” and while it ends up in the same place, the methodology and thinking is just a little different.This is 26 US CFR Sec 166 – Bad debts.Any competent tax attorney or tax accountant is going to know this landscape, but it is important to ensure that the dead entity does some of this work for the investors.I have never really seen a failed company wind its business up correctly, but I have taken my fair share of hits.One more consideration is if you are taking a 1244 approach. It is also a little complicated.JLMwww.themusingsofthebigredca…
A friend whose family knows much more about money than I do explained: “There are lots of ways to write off losses against gains. The problem is having the gains.”!!So, the first few years of angel investing stand to be painful because will likely not yet have gains to make good use of the losses.
Since GGs gains are from companies she is holding for more than 5 years, a 1202 stock approach of her winners (and selling to AVC) can be as much as 100% tax free.
Per usual all great points especially for the Angel investor. I find this line one point on returns one should expect the most realistic about Angel investing: “…The bottom line is that angel investing is risky business. Super early stage investing, like the kind the Gotham Gal does (she is most often the first check into the company), will produce loss ratios of 50% or higher. The winners eventually bail you out and super early stage investing ought to produce 3x on capital or better (or you shouldn’t be doing it).
We think about similar things with our volunteer projects at Code for Boston. Although instead of writing down tax losses we end up trying to figure out whether our volunteers should stop “wasting their time” on a project that won’t succeed. The first project I lead was a write down and my only regret was not stopping sooner. Starting 2019 with a retreat for all the project leads so we can take stock of where we are and where we are going.
I can think of some other takeaways… Wisdom? Future colleagues with whom to do business? A larger pool of potential investors?
I am sorry to hear that.
.In an ideal world, you would make a declaration of winding up and liquidating the business, provide a final accounting for the business showing a blank balance sheet, and surrender the corporate charter. Each state will have some other requirements.The surrender of the corporate charter may also trigger a tolling of any liabilities out there.The cessation of the business also provides some protections to the founder.A newspaper “widely distributed” statement of winding up and liquidation is useful.You may also provide a statement showing the funds raised and the returns on those funds. In a liquidation, they would all be zeros.Actually, you are providing something of value in the termination of the business. An investor is writing off their investment against other gains thereby providing a bit of tax relief.JLMwww.themusingsofthebigredca…
I think the answer is ‘ you should. ‘At some point the OpCo would be dissolved and a Certificate of Dissolution would be appropriate for investors.
Are there some convictions you held that ran counter to almost everyone else at your company and/or investor group? Maybe the culture of your company prevented you from fully acting on your convictions. How will you be able to work in your future work environment in a way that allows you to profit from your convictions?Related personal anecdote about trying to understand what I considered to be a major failure:I was laid off from my first job, which was an analyst position at Ernst & Young. I lasted for almost one year. I knew I wasn’t a fit for the company but was extremely upset about failing in my career path. My parents were disappointed in me, etc…From what I could tell, after some reflection, I was terminated for two reasons. The first was due to the fact that most of my clients went out of business (e.g. Lehman Brothers, Capmark Financial) and E&Y needed to downsize. The second, and this is me reading between the lines as to why I and not other analysts were terminated, was due to my valuation opinions. I concluded, and wrote that every clients real estate portfolio was impaired. Publishing these opinions would accelerate the demise of these clients b/c they were public companies. It won’t surprise you to learn that my valuation opinions were unpopular and were overturned by the engagement partners. The term regulatory capture would apply here.In the immediate aftermath of me being laid off (ahem, fired), it was hard to think of anything good that came of that experience. I didn’t write memos the way they liked. I fought with senior management about the valuation of our clients’ properties. I was told that I was a nice guy who did everything incorrectly. Maybe I was (am?) the man who knew too little.By chance, I met someone who made commercial real estate investment decisions using similar analysis as I, and I grew into a world where I was able to profit from my way of analyzing assets. People refer business to me because I will provide a client with an unpopular opinion that I believe that to be true based on my research.The ways in which you uphold your integrity and operating principles will stand out and allow you to meet other people who want to do business with you. Sucks that this is something most people have to pay a steep price for. I hope that the dissolution of your current venture will beget something even better. Best wishes!
We really do need to get together.One thing that consistently and constantly shocks me at big organizations is exactly what you are talking about.Expressing a negative opinion is like a death sentence.