Very interesting insights on the current state of play for VC, that I didn't know (much) about. Thanks. Two (contentious) comments though:
1. Instead of pussy-footing around with the "liquidity" euphemism, how about just "cashing out" (or, the opportunity to do so). I was not understanding at the beginning because liquidity has so many meanings in the finance space (especially if you include macro).
2. On your hypothetical Stripe early employee or (any-stage) investor: unless 1. they've got a *big* diversified portfolio outside of their Stripe holdings, and 2. if long-term *risk-adjusted* return is their goal, they'd be crazy to hold that stock after it goes public, not cash out and diversify. Great example, Buffett showed in spades what wins in his 10-year bet on S&P index vs fund of hedge funds. (S&P ruled.) Which just reiterates what Fama and French and the DFA funds demonstrated back in the '80s — the whole foundation of modern portfolio theory.
One possible angle: As an investor in multiple short(ish)-turn real-estate (re)development LLCs, I'd be pleased if they made it easy to sell shares to other current investors/"share"-holders. They don't. I have no idea whether I'd take advantage. Would depend on the #s. I also have no idea how this sounds from inside the VC world, would be interested to hear thoughts. Thanks!
1. Sure; cashing out is a bit part of liquidity. Although sometimes VCs distribute liquid stock to their investors instead of cash, and then those investors can decide what to do with it. But yes, what I mean is crystalizing the IRR/return for the investor or employee.
2. I mostly meant the "LP" -- investor in the venture fund -- could choose hold the stock after it went public. I suspect that by now most early Stripe employees have cashed out whatever amount they think they want to take off the table and have put it in an S&P 500!
Re: shares in real estate LLCs, how would you value the shares? would that create a tax consequence for the managers and other investors? what if your valuation disagrees with the manager's carrying valuation? I don't know much about real estate, tbh, but of course the big issue in all such cases is: do you have enough buyers & sellers to make a market?
Very interesting insights on the current state of play for VC, that I didn't know (much) about. Thanks. Two (contentious) comments though:
1. Instead of pussy-footing around with the "liquidity" euphemism, how about just "cashing out" (or, the opportunity to do so). I was not understanding at the beginning because liquidity has so many meanings in the finance space (especially if you include macro).
2. On your hypothetical Stripe early employee or (any-stage) investor: unless 1. they've got a *big* diversified portfolio outside of their Stripe holdings, and 2. if long-term *risk-adjusted* return is their goal, they'd be crazy to hold that stock after it goes public, not cash out and diversify. Great example, Buffett showed in spades what wins in his 10-year bet on S&P index vs fund of hedge funds. (S&P ruled.) Which just reiterates what Fama and French and the DFA funds demonstrated back in the '80s — the whole foundation of modern portfolio theory.
One possible angle: As an investor in multiple short(ish)-turn real-estate (re)development LLCs, I'd be pleased if they made it easy to sell shares to other current investors/"share"-holders. They don't. I have no idea whether I'd take advantage. Would depend on the #s. I also have no idea how this sounds from inside the VC world, would be interested to hear thoughts. Thanks!
1. Sure; cashing out is a bit part of liquidity. Although sometimes VCs distribute liquid stock to their investors instead of cash, and then those investors can decide what to do with it. But yes, what I mean is crystalizing the IRR/return for the investor or employee.
2. I mostly meant the "LP" -- investor in the venture fund -- could choose hold the stock after it went public. I suspect that by now most early Stripe employees have cashed out whatever amount they think they want to take off the table and have put it in an S&P 500!
Re: shares in real estate LLCs, how would you value the shares? would that create a tax consequence for the managers and other investors? what if your valuation disagrees with the manager's carrying valuation? I don't know much about real estate, tbh, but of course the big issue in all such cases is: do you have enough buyers & sellers to make a market?
All good thoughts. Thx. Will ponder further...
PS, those multiple real-esate LLC investments combined are <15% of my portfolio.