[HN Gopher] Abundant Capital ___________________________________________________________________ Abundant Capital Author : tomhoward Score : 254 points Date : 2021-02-22 16:54 UTC (6 hours ago) (HTM) web link (blog.aaronkharris.com) (TXT) w3m dump (blog.aaronkharris.com) | enahs-sf wrote: | my question after reading this essay is, | | 1. why are there no startups building VC investing as a platform | akin to what carta has done for equity. | | 2. are there any ways to shore up the cost of the transaction | such that they benefit both parties as a service (eg. shore up | lawyer fees which are currently passed onto the fundraiser) | fallingfrog wrote: | What goes up, | Liron wrote: | > Founders should approach every fundraising as an auction. | | I agree. So what's the auction marketplace of startup fundraising | - a place where every deal can be posted publicly, or as close to | that as possible? | drewrv wrote: | Carta is building a private exchange, and their CEO alluded to | the possibility of using it to raise money in his blog post | announcing the trial run. | | https://henrysward.medium.com/finally-a-private-stock-exchan... | | _Once we have a liquid and active market for our shares, (in | our case we have enough liquidity to support ~ $100M of volume | per quarter), when we want to raise primary capital we simply | sell common shares out of treasury. | | This is powerful for a couple of reasons. First, we get better | price discovery on CartaX than going door-to-door on Sand Hill | Road. Second, all shares bought on CartaX are common stock. | There is no preferred stock, board seat, or covenants to deal | with in a primary. | | But perhaps most importantly, CEOs and CFOs don't have to spend | months raising money, doing roadshows, meeting with investors, | and negotiating termsheets._ | akharris wrote: | Demo Day does this for YC companies. Angel List does it, to | some extent. | | Other than that, it doesn't exist. Got some thoughts on this | part of the dynamic in the works. | borski wrote: | This, while seemingly a natural extension, is a bad idea, imho. | Investing in startups is inherently one of the riskiest | investments you can make, and having deals be public is a | problem, as 'normal' investors will be swayed by charismatic | founders into losing their homes. | | That said, 'auctions' for accredited investors already exist, | if the company choose to take advantage of it. There are seed | funding sites as well as AngelList, etc., to publicize deals. | | Some founders also choose not to publicize a raise (except | among the VC/angel networks) so as to remain under the radar | until they are ready to launch. | guntars wrote: | > 'normal' investors will be swayed by charismatic founders | into losing their homes. | | You mean their second or third homes, right? There's a | minimum net-worth requirement before you're able to invest in | a startup so a failed investment is not going to bankrupt any | investors. The founders are much more likely to end up in the | poorhouse if things don't work out than investors are. | seibelj wrote: | Another thing is it seems people want to move into VC rather than | keep building products. Investing is inherently lazy, it requires | decision making but not much work if you are the person who has | the connections to raise the fund. You can hire other people to | do the effort of managing investments because you can't be | dethroned from having the money connections. | | So people who actually make successful products get valued more | and more. The unfortunate part is you actually have to work for a | living, but luckily you keep getting more of the lazy people's | money. | poochinienini wrote: | This conversation is a bit misguided in its premises. There is | not that much excess capital compared to yesteryears when one | considers the real value vs the nominal amount. If anything, sure | capital will flow more freely and be doled out more freely in | ever increasing nominal amounts. | | However, let's stop and ponder, how much more will this capital | buy? Will it buy more actual assets? Will salaries go up? Then | you will get the same amount of engineers for the capital. This | is quite a decaying state, not that different to how despite, | more food being produced, and salaries "going upz and increasing" | the average person in the US can afford, worse quality food and | housing despite having "muh iphones". | | Long term this trend will further bitcoin's position as a more | useful nominal quantity. When will the salaries in fixed BTC | begin? Right now it is a bit unstable, sure "muh transaction | costs". But imagine schemes where pay is paid out yearly, | reducing the number of transactions, or where it is held in | escrow. | corry wrote: | With interest rates so low (and lots of headwinds for them to | increase in the short-term), one has to think that this will be | the new normal for a few years at least. The rise of SPACs is | another sign - they are disrupting both later-stage VC funds as | well as obviously vanilla IPOs. | | I wonder if the abundance of capital is not evenly distributed | through the startup lifecycle, but more heavily-weighted towards | later stages. | | Anecdotally, I've heard from founders that SEED rounds are | getting harder despite all the frothiness. Even back when we did | our seed rounds ~2015, we already heard "today's seed round is | yesterday's Series A" in terms of $ size but also minimum bar of | progress. And these days it seems that is EVEN MORE true. It's | also true it's easier to start a SaaS company than ever before. | But it's ALSO ALSO true that there is less and less SaaS | greenspace. Hmmmm. | ac29 wrote: | > With interest rates so low (and lots of headwinds for them to | increase in the short-term) | | Note that while interest rates are fairly low (especially for | short term <5 yr debt), the yield on a 10 year US treasury, | which is often used as a benchmark, has been consistently | increasing for about 6 months and is ~50% higher than it was at | the beginning of the year: | https://fred.stlouisfed.org/series/DGS10/ | fspeech wrote: | Yes but it is still below projected inflation, i.e. 10 year | real yield is still negative. | wayoutthere wrote: | So I actually think the flip side of this is that the founders | finding success tend to be much older -- in their late 30s or | early 40s -- because the green space that's available for SaaS | focuses on niche problem sets with mastery of a field required | to even define a product. | | This path to success is becoming the norm, but it happens | quietly because "guy leaves director-level role at a global | bank to build a billion dollar fintech startup" isn't as | appealing of a story to the media. This kind of founder is much | less of a risk in many ways than a younger one, but while the | founder may be willing to live off savings for a year or two, | the talent they would need to surround themselves with is also | more experienced, with domain knowledge themselves. So why | bother with a $500k seed round when it's going to take $5M at a | minimum to take a real crack at it? Now that we're out of the | "SaaS all the things" phase of this economy, you can't just | throw a bunch of overachieving 20 year olds at every problem. | seibelj wrote: | Salaries for good engineers have simply gone up. Competing with | FAANG for good engineers is expensive. Need $5mil to get a | small team for a couple years runway. That used to be an A. | Having one or more cofounders as capable engineers to get MVP | out is also beneficial. | flyinglizard wrote: | None of the early stage startups I know even tries to compete | with FAANGs on compensation. I don't know if it's because of | disparity of information on the side of the employees, or | simply people joining for a wild ride (I suspect it's both). | Not to say salaries have not gone up, but not to those | levels. | | That said, it is also uncommon for me to see startup | employees which previously worked for FAANGs (you do see | founders). | seibelj wrote: | No one is trying to pay 500k total comp but higher salaries | have become the norm. Getting someone sub-100k with | experience and knows what they are doing is impossible | unless you are exploiting them. | zhoujianfu wrote: | I wonder if the issues with seed rounds is that it's too much | work to deploy the (abundant) capital. | | If you've got e.g. $300M to deploy, you really don't want to be | doing less than $5-10M a pop. Seed rounds (even these new big | ones) are too small. If you do put $5M in, now you've now got | to lead. Ugh, more work. | | Easier to just plow $50M a pop into a few series Ds led by | others. | corry wrote: | Great point. YC's model allowed them to do seed investing at | scale, but the classic way is likely difficult to do well | even if you're great at picking companies. | fractionalhare wrote: | Harder to hedge against downside risk if you deploy $300M | capital in six bets rather than 30, though. | filoleg wrote: | Not universally true. I would assume that an average Series | D startup has way less risk of evaporating to zero than a | seed stage startup. With that in mind, the risk hedging | might actually work in favor of "six bets rather than 30". | But you will need actual numbers to do that risk | assessment, and I assume VCs do that. | | Let's say you invest $300mil into 30 seed bets, with each | bet having a 10% chance of returning a 10x, 15% returning a | 3x, and 85% of going to zero. But when you invest that same | amount into 6 series D bets, each bet might have a 50% | chance of returning 2x, 30% chance of going to zero, and | 20% chance of going 3-4x. If you do the math to calculate | the average expected payout using these numbers, you will | get an expected average payout higher for the latter | scenario. And assuming each bet is completely independent | from another, it seems like a pretty solid hedge. | | Numbers are obviously made-up for illustrative purposes and | are not the source of truth, but it shows a pretty good | hypothetical situation when doing 6 bets is safer than 30 | bets (given you have the same amount of money to spend on | those bets). But, I think, it is fairly commonly agreed on | that a Series D startup is way less likely to go to zero | than a seed stage one, thus making a singular bet on a | Series D startup much safer (but also less profitable in | case of a success). Given many enough of those bets, the | risk becomes pretty manageable and, imo, less risky than | seed stage investing. I am not trying to say that what I am | describing is the case, I am trying to say that it is a | realistically possible case. | | Saying this as someone with no experience with that model | whatsoever, so anyone is welcome to correct me if there is | something glaringly wrong or missing in my assessment of | this. | [deleted] | Judgmentality wrote: | > I would assume that an average Series D startup has way | less risk of evaporating to zero than a seed stage | startup. | | My estimate, admittedly not looking at data right now, | would be that a Series D company is roughly 100x more | likely to succeed than a seed stage company. | | But then again your returns could easily be less than | 100%, whereas with seed you can literally get a 100x ROI | (this actually happened for Uber). | rossdavidh wrote: | What we've heard/read about Softbank and companies like | WeWork definitely sounds like they were turning what should | have been smaller investments into larger ones, because they | needed to find a home for so much capital. | f430 wrote: | > As a thought experiment, assume that the abundance model is | here to stay | | this is a dangerous assumption. The feds are poised to raise | interest rates this year and it will have ripple effects, in | particular the abundance period of capital is slowly being | reigned in to avoid a loss of faith in the dollar and slow down | inflation. | mdorazio wrote: | > and slow down inflation | | What inflation? CPI has been absurdly flat for years, despite | all the QE and pandemic relief funds. Inflation is only showing | up in property and securities. | ajsharp wrote: | Not sure where you're getting this, but the Fed has already | signalled ZIRP through 2023, and there is little to no | inflation showing up in headline measures. Medium to long term | rates will likely rise this year, but historically cheap | capital is likely here for a few years at least. | mbesto wrote: | For the people in this thread who are unfamiliar with the current | capital markets: | | There is roughly 2.5T dollars in dry powder (uncalled capital). | In laymen's terms this means there is currently 2.5T dollars | sitting there not being deployed and $830B of this for PE Buyouts | alone. It looks like VC is ~$300B. In other words, investors | can't spend allocated money (from LPs) fast enough. | | https://www.bain.com/globalassets/noindex/2020/bain_report_p... | -> Figure 1.12 | siruva07 wrote: | From the title of the post, I thought he launched his own VC | firm. FWIW It's a good name. | cvaidya1986 wrote: | Agreed on most points. I'd add that some investors such as a16z | or YC add way more value by acting as partners so there is such a | thing as more 'valuable' capital. | nikanj wrote: | Prominent VCs like to spread this message. I'd take it with a | healthy pinch of "remember who's bringing the news". Obviously | the people offering less money are trying to sell the idea that | less money is somehow more valuable. | borski wrote: | Honestly, as a founder...it is. Dumb money is, in effect, | pretty useless, whereas 'smart money' comes with additional | benefits (provided you and the partner get along, etc.). It | isn't guaranteed, but we leaned _heavily_ on our investors | for advice and help, especially in those times when we were | either at a crossroads or dealing with a situation we had | never seen before (b2b enterprise contracts when all our | customers were SMB, etc.). | | Some of them were also helpful just as the equivalent of | 'executive coaches.' Being in the weeds constantly means it's | hard to be objective sometimes. Good VCs and good angels are | usually experienced and helpful, even if the incentives | aren't perfectly aligned. They mostly are though; growth | helps both the VC and the founder, so in that sense they're | aligned. | | But when deciding how big your option pool should be, your | incentives are no longer directly aligned. :) | playeren wrote: | Isn't that the case for most reputable VCs? Marketing your | product, identifying synergies in portfolio companies, | recruiting opportunities and so forth? Or are a16z & YC in a | class of their own in that regard? | borski wrote: | It's true for any of the tier 1 VCs. YC and a16z (and others, | like SV Angel) have some of the highest reputations in this | regard, though. | ihm wrote: | It's tautological but worth noting: capital is abundant for | projects which VCs as a class are already eager to fund. If you | have an idea which does not appeal to VCs, capital is not | abundant for you. | zuhayeer wrote: | With all the noise around NFTs right now, my immediate thought | was "Hmm so treat companies like NFTs, where investors bid on | price" | corry wrote: | Perhaps I'm a minority, but I got A LOT of value from my | investors (both pre-seed, seed, and series A). To the point where | I'd consider them core partners in my journey of building the | business. | | I know Aaron isn't saying that the investors don't matter. | | But when I think about why VCs hate going through an auction-like | process, at least part of it is human nature. Like, we're about | to work together for a long time. Let's not start off by | commoditizing what we each bring to the table. I understand the | POV that 99.999% of what VCs bring to the table is the literal | commodity of cash... but if you have good ones, they really can | help. | | In our case, we had multiple term sheets for our Series A so I | was able to optimize terms and get the partner/fund who I thought | would add the most value but at "market" on the other terms. | "Market" being what was on the other term sheets. That seemed to | work OK as a softer way of actually doing the auction. | | The real point in all of this is that if the VC's value-add is | true, then you shouldn't NEED to discount things because of that. | If it's real, then they should be happy to pay 'market rate' to | invest in you, and the impact of their other value will be that | together you build a better business, which is more valuable to | them too. | villasv wrote: | > To the point where I'd consider them core partners in my | journey of building the business. | | The startup ecosystem in Brazil is probably in a time lag and | perhaps this is why my experience might not be as insightful | here. Still, I agree with your comment 100%. The majority of | our early investors held some relevant experience in our field | or offered tangibly valuable networking opportunities. | | In fact, I think that the abundance of venture capital has the | effect of flooding the ecosystem with "regular-value investors" | (those that only have cash to contribute with), so these | "extra-value investors" that actually partner with you are | harder to find. And taking the authors suggestion of | intentionally starting a bidding war further exacerbates the | problem. | | Instead of finding someone with experience and maturity in the | field you're going to venture into, it increases the odds of | picking investors that don't really know much exactly because | they won't realize the bid was getting too high. By design | you're trading knowledge for higher expectations. | borski wrote: | Sure, but that's not how negotiation works; both parties are | trying to get as much out of the deal as they can, assuming it | beats both parties' BATNA. | | Also, that you had multiple term sheets means you... ran an | auction. It's wonderful that most of the terms were similar, | but getting multiple term sheets is effectively generating a | bidding war. You don't have to pick the one that is monetarily | best (we didn't, because we preferred the partners), but that's | why you're doing. :) | corry wrote: | Well, if we're defining "auction" to mean anything with | competing options -- rather than its typical usage, which is | price-only competition of something rather commodity-ish -- | then sure. | | My process had elements of an auction - using competing | options to determine "a market price" for various terms. BTW | - the VCs also had that, in that they could have put that | same capital to work in other companies vs mine. | | But that's not a pure auction. i.e. there's still room for | qualitative choice and optimization on both sides. This | should be most obvious to you in the non-monetary terms and | how difficult it would be to translate into $ terms (for | instance - how many seats on the board? How much lower/higher | of price makes sense for more/fewer board seats? Well, for | starters, it would depend on which VC is asking and what | stage the biz is in). Clearly these aren't pure auctions. | | Because (back to my original point) this is possibly a 10+ | year partnership you're getting into (longer than many | marriages). | | A good process is more equivalent to (1) speed dating, which | leads to (2) a handful of non-exclusive longer dates, (3) a | period of exclusivity (no-shop) and 'meeting the family' | (diligence), and then possibly, finally, (4) marriage. | nitsky wrote: | When I saw the headline of this article on HN, I assumed Aaron | Harris was starting a new venture capital fund called "Abundant | Capital" after leaving YC. How ironic that the article is about | how "new funds... seem to launch on a daily basis"! | cs702 wrote: | I agree, _at present_ , capital is abundant. That is, at the | moment: S(capital available) > S(investment | opportunities) | | And this imbalance of demand for and supply of investment | opportunities is showing up everywhere as... _asset price | inflation_. | | You can see it in rising angel valuations, rising early-stage VC | valuations, rising later-stage VC valuations, rising growth- | equity valuations, rising leveraged buyout valuations, rising | stock market valuations, rising cryptocurrency prices, rising | home prices, etc. Feeding frenzies and bidding wars for high | quality assets have become more and more common. Asset prices | keep going up and up and up... | | The _multi-trillion-dollar_ question: | | Is this _sustainable?_ | akharris wrote: | I'm not sure that any founder should make a decision based on a | future prediction of sustainability. Each founder should make | decisions based on the environment he encounters when making a | decision. | | In this case, the imbalance has existed for years and is | getting more pronounced. My thoughts here are based on that | dynamic. If this changes, then I'd likely change the advice. | SandersAK wrote: | Where do I sign up to LP for the AKH firehose fund? | borski wrote: | Importantly, the imbalance _has_ changed, and the valley has | not seemed to hold a grudge. There have been shifts during | the recessions, and certainly after the 2000 bust, but it 's | a fact of life: the power dynamic sometimes changes, and the | best deal you're able to get at the time is the deal you are | going to get. | | It's not entirely unlike mortgage rates, tbh; when you refi | matters, due to the rates being variable. When you raise also | matters, but sometimes raising is the important part, and the | terms are the terms. | throwz3123 wrote: | This sounds awfully a lot with stagflation. | | How can money which can't be spent hold value? | nostrademons wrote: | Of course not, but that doesn't matter if a.) you can get out | before the top or b.) the world will have changed by then in a | way that makes your _current_ position worthless or c.) there | is no alternative. | | Right now all three of those are true, to varying degrees. If | you correctly called the top in 2007 and got out of the market, | it wouldn't matter unless you got back in before 2012. As | someone who lived through those years - at every point during | that period, there was a _loud_ chorus of voices saying that we | were about to have a double-dip, prices didn 't really correct | far enough, and fair value indicated they should've gone back | to where they were in 2002-2004. | | Remember that if you're in cash, you've chosen to put your | wealth in an asset class whose controlling authority's _stated_ | policy is to make it worth consistently less every year. | grey-area wrote: | Everyone in every bubble since the beginning of stock markets | has thought: | | a) _They_ were getting out before the top, they 'd sell to | some other poor fool when it was time | | b) The world had changed completely and it was a new paradigm | (it's different this time!) | | It's wise to avoid cash in the long term, but it's unwise to | avoid it completely, and certainly when you sense things are | getting a little crazy, it is not at all unwise to shift some | of your holdings to cash, though you'll be mocked for it by | many, for whom risk is a distant prospect which happens to | some other poor sucker. | andi999 wrote: | Well, one thing is different. No inflation in commodities, | since China is offsetting it by cheap production. This | allow the central bank to keep interest low, which leads to | high inflation in assets. | | So depending on what the central bank will do, cash might | be good or not. | grey-area wrote: | Copper is seeing massive inflation right now. Retail | prices are not as yet, and perhaps they won't, but if | they see too much interest rates will rise and the free | money spigot will be turned off. | mbesto wrote: | > Copper is seeing massive inflation right now. | | An asset that isn't used as a medium of exchange does not | have the characteristic of _inflation_. An asset can have | an _inflated_ price (in a currency) but the asset itself | (in this case copper) cannot have _inflation_ if its not | used as a medium of exchange. The distinction is | important. | grey-area wrote: | How would you best describe the price rises in copper and | copper miners? Just copper prices are going up right now? | nostrademons wrote: | Commodities are going crazy: | | https://www.cnn.com/business/markets/commodities/ | | Crude oil, natural gas, silver, corn, wheat, lumber, all | up 2-3x since the bottom in April. In many cases (i.e. | everything not oil-related), this is not just recovery | from a dip: prices are significantly higher than | 2017-2020 levels. | | That said, I don't buy the conventional Wall Street | narrative that this means the Fed'll raise rates and | we'll get a stock market crash. Or rather, I believe | that'll happen, but it'll be too late and the currency | will have devalued 10x or more by then. The Fed has | pledged to keep rates low through 2023, and to allow | inflation to overshoot the 2% target to make up for the | last decade of ~1.5% inflation rates, and that any rate | movements will be "well telegraphed" for a long period of | time beforehand. They still have tens of millions of | people out of work. I doubt they'll act until it shows up | in headline CPIs for a year or two. | | Once inflation rates really get going, it's hard to tamp | them down. The Fed has a pretty fun (and quite | educational) game where you get to play the Fed chair: | | https://www.sffed-education.org/chairthefed/default | | Try playing one of the inflationary scenarios (they're | random, but just keep playing till you get one with a | tight labor market rather than a housing crash or | recession). If you don't raise rates early and often, you | quickly get into a situation where inflation is 7-8% and | you have to hike rates to 15% or more to tamp it down. | Why? Because inflationary expectations are subtracted | from the nominal interest rate to get to the real | interest rate. If inflation is high, you have to hike | nominal rates _even higher_ to get real rates to go up at | all, and you have to hike real rates pretty high to make | a meaningful dent in the money supply. | ac29 wrote: | > that'll happen, but it'll be too late and the currency | will have devalued 10x or more by then | | Im curious why you think inflation in the US is going to | go from <2%, not to 3, or 5, or 10%, but to 1000%? | nostrademons wrote: | Because in the absence of quick intervention (i.e. | Volcker), it's a feedback loop. | | The basic money equation from macro-econ 101 is MV = PQ: | money supply * velocity of money = average price level * | quantity of goods sold. Under normal conditions, V is | assumed to be constant, and so you either increase the | money supply to keep up with greater economic output (M | [?] Q) or if you increase it too fast, you get inflation | (M [?] P). This is "ordinary" inflation: it's | predictable, controllable by the central bank, and | follows roughly linear equations. | | When people _notice_ and then start to _assume_ | inflation, their behavior changes. If you _know_ that | your dollars are going to be worth 20% less next year, | you have an incentive to get rid of your dollars as | quickly as possible. You 'll spend them as soon as you | get them, because they'll quickly become worthless | otherwise. This shows up as an increase in V, and it | means that _even holding the money supply constant_ , you | still get inflation (V [?] P). Moreover, because the | cause of the increased price level was increased velocity | of money, this feedback loop becomes self-reinforcing: | the higher prices go, the quicker people want to get rid | of their money and turn them into hard goods. At this | point the central bank has lost control of the economy, | and you have hyperinflation. | | Looking at data on a few dozen instances of | hyperinflation, the threshold seems to be ~20% inflation | annually. Below this, consumers write off inflation as | annoying but don't change their behavior significantly. | Above it, hyperinflation seems inevitable: there are very | few instances of sustained inflation above 20%/year where | the government has later managed to bring it down, and it | usually ends with hyperinflation, a currency crisis, and | the replacement of the currency (and usually government) | with a new one. | | We've observed price increases > 20% in a number of | industries this year: commodities (listed above), | housing, food, and labor is getting up there. It hasn't | filtered down into CPI numbers because those are | averages, and inflation is flat or even negative among | some demographics. But prices in fundamental industries | tend to bubble up eventually, and if the Fed is focused | on bringing back the stagnant parts of the economy while | other areas are raising prices at 50-100%/year, inflation | will cross that threshold throughout the economy before | they can react. | | (Incidentally, historical incidents of hyperinflation | usually happen in the transition between a command to a | market economy, the two most common examples being when | wartime gives way to peacetime, and when communism gives | way to capitalism. The transition from a pandemic economy | to a normal economy has many elements in common with | that: there's a large shift in consumer demand while the | economy has been optimizing for pandemic production for | the last year.) | nostrademons wrote: | I agree with your reasoning, but I don't believe things are | "a little crazy", at least compared with how crazy they're | about to get. | | IMHO, we're at Greenspan's "irrational exuberance" speech | of 1996. If you pulled out of the NASDAQ in 1996, you | _never made it back_. (The nadir of the dot-com bust had | the NASDAQ at 1139 in Sept 2002; it was at 1133 in July | 1996.) In the meantime you would 've missed out on 4x gains | in the NASDAQ itself, and up to 100x in certain specific | assets. | | My indicator for when we're near the top of the bubble and | it's time to pull out is that folks like you will drop out | of the discussion and start keeping their opinions to | themselves. That's when it's time to sell; when you're | ridiculed for it. | grey-area wrote: | I do think there are some scary indicators (Value/GDP, | CAPE, MAPE, calls/puts) which indicate we're farther | along than that, but yes this could take years to reach a | top. The GME escapade and the massive rush of retail | investors into risky assets with perfect indifference as | to whether they are investing or speculating indicate to | me we're reasonably close. I have also been ridiculed | many times over the last year for expressing hesitation | about current valuations of Bitcoin, TLSA, GME or ARB. | | Perhaps you're right though, and this has a long way to | run... I'm afraid I just can't bring myself to invest in | things which are overvalued due to FOMO rather than | actually making money or having a prospect of making | money. Old-fashioned I know. | | The Shiller book on Irrational Exuberance is better than | the Greenspan movie IMO ;) | cs702 wrote: | Agree. I like to think of a), b), and c) as: | | a) "epistemic arrogance" -- you believe you're smarter and | know more than everyone else; | | b) "heads, you might win, tails, everyone loses anyway" -- so | you might as well gamble on heads; | | c) "f*ck it, load up!" | | And there's also d): | | d) "wait it out" -- if you're already rich and infinitely | patient, like Mr. Buffett. Maybe find a hobby to occupy your | brain -- e.g., play Bridge online. | usmannk wrote: | a) "epistemic arrogance" -- you believe you're smarter and | know more than everyone else; | | No, more like you decide to be less greedy than everyone | else. You choose to leave money on the table in favor of | getting out early. | bobthepanda wrote: | If you want to not get hurt, b makes this not necessarily | a good idea. | | If you think things are overvalued, there are two ways | for it to go: | | - the value of equities crashes in nominal terms and | consumer prices are stable | | - the value of the dollar itself declines, so that the | nominal values of equities stay the same but consumer | prices inflate to make the real value of equities revert | to the norm | | It's probably a mix of a and b, but outcomes that tilt | more heavily towards the latter would hurt people holding | cash more. And right now b is closer to official Fed | policy, since it would prefer that to getting into a | Japanese deflation trap. | dr_dshiv wrote: | Or, you know, try to create value day in and day out :) | cs702 wrote: | That's a _given_ -- at least from my standpoint. | woofie11 wrote: | I don't think this is a bubble, but expected inflation, due | to COVID19. | | I am guessing we will see cash devalue roughly 2x in the next | five years. As a result, there's a scramble where to put | money safely. | | If the alternative -- cash -- loses half of its value once | COVID19 financial measures start unwinding, all of a sudden, | investments just need a 50% ROI to be profitable. If I dump a | million dollars into a startup, and it sells for the | equivalent of $500k in five years ($1M after inflation), I've | come out neutral. | lotsofpulp wrote: | >Remember that if you're in cash, you've chosen to put your | wealth in an asset class whose controlling authority's stated | policy is to make it worth consistently less every year. | | We might as well consider VTI to be better than FDIC insured | on a 5+ year timeframe. FDIC only protects nominal values. | The Fed can protect real values. | dv_dt wrote: | If it is sustainable depends on the quality of investment | returns. But that phrase abstracts a lot - the quality of | things/services/business produces for that investment need to | lead to new or improved productivity in economic activity. | | It also may take a longer time frame for the improved | productivity to manifest than it does for the economic metrics | to reflect it. Meaning that one thing to watch out for is that | the capital abundance may recede before the investments are | able to return the productivity - and that would be tragic | because there are an abundance of neglected investment areas | which we as a society and an economy can realize benefits. To | the extent that our capital investment allocation paths don't | match societal needs is the real challenge with this bubble. | jasode wrote: | _>... asset price inflation. [...] Is this sustainable?_ | | No but society has basically locked us all into it. I made a | previous comment on why devaluing the currency causes a | worldwide game theory of economic actors _protecting their | purchasing power_ to counteract it: | https://news.ycombinator.com/item?id=15728480 | | Can we reconfigure society? It doesn't seem like it. Some | critics today think that Bitcoin's limit of 21 million to | support its philosophy against inflation is _wrong_. | | Hey, maybe it isn't society that wants inflation but it's the | US Govt and/or The Fed Reserve forcing it on us. Well, surveys | say the majority of Americans want $2000 stimulus checks so | that money has to come from _somewhere_. It 's easier for | politicians to _print new money_ rather than sell Yellowstone | Park to China for a few trillion dollars. | loceng wrote: | It seems that capital is only abundant through the VC-finance | industrial complex, relative dumb money from LPs who buy into | whatever thesis a VC firm constructs, and then those VCs will | relatively poorly make decisions - only expecting the success | of 2-3"unicorns" to pay off their losses and make all their | profit - meanwhile that forces, applies pressure to all of | their investments to charge more than they may otherwise need | to, and use tactics that may not be great, and then that leaves | them open to be competed against, disrupted; mind you, their | ideal scenario/exit is to IPO and pass that risk off onto | society in general. I am trying to combat this with the design | decisions for my projects, we'll see if I succeed or if it has | any impact. | s17n wrote: | The root cause is increased wealth inequality. "Capital" is | assets that are invested by their owner instead of just | immediately consumed. So, the amount of capital that exists is | variable, depending on the preference of asset owners, which is | a function of the rates of return they can expect, as well as | the utility of consumption. So its backwards to to say "rates | of return go down because there's too much capital" - what's | really happening is that a lot of assets are held by people who | are so rich that the marginal utility of additional consumption | to them is essentially zero, which in turn means that they are | willing to invest their assets until the rate of return is also | close to zero. | nly wrote: | Interesting concept. Do you have any links to research or | theories about this way of looking at it? | s17n wrote: | Nah, just made it up, it's probably total crap | danans wrote: | Even if you made it up, your comment is basically | describing the diminishing marginal utility of wealth. ht | tps://www.economicshelp.org/blog/12309/concepts/diminishi | n... | | https://www.investopedia.com/ask/answers/072815/what- | margina... | | The net effect is that consumption (and associated | demand) is suppressed at the lower to middle end of the | income scale, where individuals' income isn't enough to | sustain their needs + wants. When these individuals | spend, the demand for labor + raw materials per $ spent | is high, because they are often buying consumables or | durables (food, washing machines, etc). | | At the high end of the income/wealth distribution, there | are few needs that aren't met or exceeded, so their | wealth ends up chasing assets and investments that induce | far less demand for labor per $ invested. A the extreme | end of this are private equity funds (billions managed by | a small number of people). | A12-B wrote: | Ironically, whoever answers the question probably wont be paid | trillions of dollars. That is because the most likely answer to | the question is that it is not sustainable, meaning there's two | options: we switch to a non-capital system, and they don't get | paid, or everyone chooses to ignore them and they still don't | get paid. | idlewords wrote: | If you're new enough to computerworld that you've never been | through a downturn (and it's been a long time!), then take note: | this is what a crazy asset bubble looks like. This is what 1998 | felt like. | rmonroe wrote: | This article raises some awesome points. As a founder who is | going through a seed round right now, I'm working hard to | optimize our own fundraising process. Aaron refers to a plethora | of resources for effective fundraising, but it's often hard to | identify experts from rabble. | | Has anyone already curated a list of quality resources? I would | be greatly appreciative! | mritchie712 wrote: | I felt this pain when looking for debt so I put together a | curated list of non-dilutive capital providers [0]. | | Capital is abundant, but it's also pretty easy to dilute | yourself into single digit ownership. | | 0 - https://www.trypaper.io/ | akharris wrote: | There's good stuff on YC's Startup School Library: | https://www.ycombinator.com/library?categories=Fundraising%2... | borski wrote: | read all of Venture Hacks, seriously. Trust me, you won't be | disappointed: https://venturehacks.com/archives | | [edit] It's a bit dated, but the points and lessons are | timeless. The 'norm' has changed (SAFEs are more common over | convertible notes now, for example), but the rest is still | accurate. | josephjacks wrote: | This is horrifically BAD advice. Shopping a TS to a few folks is | not an unwise thing to do, but running a full-blown auction | absolutely is! | | Founders: If you want to ONLY optimize for max price + max check | size, the "partners" you bring into your business are bankers. | borski wrote: | You missed the point; Aaron wasn't saying to always optimize | for price and take "dumb money." His point was that founders | today have a choice, and that choice is important, and worth | recognizing. Because of the (present) imbalance of power, | founders _can_ be more aggressive with their fundraising. That | isn 't always true, though. | josephjacks wrote: | I hear you... but this "run an auction" narrative he's | proposing is very dangerous if implemented in any way close | to actual auctions. | hamhamed wrote: | I don't know about abundance. Maybe Aaron has confirmation bias | being around the industry so closely. Or maybe other founders | here can tell me otherwise. From my side, I can't vouch for an | over abundance of capital. | | It's been a year we're trying to close our round, missing 350k | from the $1M round and yet still growing 30% MoM. Yes covid | fucked our business in a sense, and we got hit since March - but | we remain ever so bullish esp given our sustaining growth. | di4na wrote: | That is the access problem he talks about in the notes. He is | right. All the number that we see from the industry shows that | there is a fuckton of capital. But it is _really badly_ | distributed. That is probably a far bigger problem right now | and one that need to be solved if this industry want to | maximise impact. | | There are interesting things happening in that space, but they | are still at the fringe. | corry wrote: | I made a comment further down that your comment jives with. | It's the idea that abundant capital doesn't necessarily mean | it's evenly distributed through the various stages. In | particular, seed stage seems not to have seen the effect yet. | | Hard data on aggregate seed funding through the years would be | interesting. | | Also - hang in there! 30% MoM is no joke, sounds like you've | done one the hardest things (made something people want). | pge wrote: | To add another nuance here - the other issue to consider is the | power-law nature of VC returns (meaning a small number of | investments disproportionately contribute to returns). Given that | dynamic, funds are eager not to miss out on those big winners. | The supply of companies that look like they have that potential | is less than the available capital can fund, so to those | companies, capital looks very abundant. Companies that do not | appear to have that potential may not experience the same | abundance of capital. The challenge for funds is identifying the | signifiers of potential outperformance, and it seems to me that a | lot of funds are looking at the same indicators (whether or not | they are the right ones) which makes for a feeding frenzy on | those companies. | lumost wrote: | From a fund perspective doesn't this eventually lead to the | softbank model? where winners are _made_ through overwhelming | capital. | kkotak wrote: | Completely agree. Capital is used to make Kings. Companies | like Uber, Lyft, WeWork - won't exist without this. As for | quality of the founders, I think, with enough money (and loss | appetite), a mediocre team can execute well on an decent | opportunity. | borski wrote: | It is hard for an incredible team to execute well on a | decent opportunity, even with ample capital; the 'it is | trivial once you have money' trope is just that, a trope. | Money does not make a company successful; financing helps | along the route, and helps allow the founders to take | bigger risks (with hopefully similarly outsized rewards), | but it does not execute for the founders. That part is | still on the founders, and is still the most important part | of any startup bet; 'can they raise future capital' is | certainly a factor in the decision, too. | borski wrote: | It can, but that implies capital is the only thing required | for good execution, and we know that's not true (as we saw | with some of the Softbank failures). | | However, if you need to make a bet, you make a bet, because | for a VC fund, the small chance of an outsized return (that | can return your fund) is better than a more likely chance of | a 'decent' return, so you often make a bet and double down | while it still seems viable. | | There's a reason Lyft kept getting funded even when Uber | raised significantly more. | technotony wrote: | > [3] When a company IPOs, it opens ownership up to anyone who | can afford a share. Imagine, for a second, an investor arguing | that this is a sign of low quality. | | I thought this note was important, this is precisely what | investors signalled when startups started being able to crowdfund | equity under Regulation CF. ___________________________________________________________________ (page generated 2021-02-22 23:00 UTC)