Secondary shops flooded with unicorn sellers
techcrunch.com
techcrunch.com
Maintaining a near-zero interest rate creates artificial demand, and encourages investment of capital in inefficient enterprises. The thought process is "hey, I lose value with money in the bank. I'd be better off if I found something -- anything -- else to do with it!"
I think that once things take a turn, housing will also turn again, because in many areas the median house now costs enough that it's beyond the reach of the median person. That environment is unsustainable over a large time scale. Ultimately, we'll need a correction that sticks if we want to avoid repeating these events, and for that to happen we'd need a government willing to tolerate a politically unpalatable permanent reduction in asset prices.
(edit/note: I do find it odd that under a Democratic president, the major flows of borrowed cash (debt) have been directed to the big guys, while under a Republican president, they were directed to the little guys. Both were a terrible idea, but it seems backwards for what one would expect.)
http://politicalcalculations.blogspot.com/2015/04/the-curren...
I am unable to give exact dates, but there is a 25% chance that it will begin in the spring (what year, I cannot say)
If the near future is the unicorn version of the dot-com bubble, its aftermath would be a good time for tech stocks you're interested in.
My point is that there are plenty of financial instruments that exist precisely so you can "put your money where your mouth is".
You can quote me on that too! :-)
Not really. The Iraq and Afghanistan wars together cost something on the order of $750 billion, which was less than one year of stimulus spending at the beginning of the current administration.
Ignore this person. They don't know what they are talking about.
The estimate cost of the Afghan + Iraq War is estimated to be $4-6 trillion when you account for long-term medical care and disability compensation for service members, veterans and families, military replenishment and social and economic costs.
Source: http://www.hks.harvard.edu/news-events/news/articles/bilmes-...
ARRA didn't even crack a trillion.
I don't see it. Maybe bubbly areas like SJ will correct a bit, but at the end of the day real estate is a supply/demand calculation. YoY% increases don't look like they did in the last bubble.
The more people who want to live somewhere -- whether renters or buyers -- the higher the prices go, until sales start dropping off. Real estate is like anything else: it's worth whatever you can convince someone to pay.
EDIT: I am specifically referring to the "Price to Income" chart in my comment below, not the one that shows up by default. Sorry for the confusion.
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Uncheck everything but the 'US' graph. Different data sources give different ratios, but they all show that it's still well above historical norms & headed up. Some data sources say that it's already approximately back to where it was in the peak (see a link further down, that chart is up-to-date), others like this one only show it ~1/2 way there (note tat this chart is two years out of date), but either way we're above what has been stable in the past.
People are just stubborn and think that if they can't afford the type of house they want in the type of neighborhood they want in the city they want, then housing must be in a bubble and out of reach.
Just look to how much online universities typically charge for tuition. Answer: the max given in federal financial aid.
It's not so much that any one entity is "too big to fail", but all the big entities are too interlinked so they cannot fail separately.
"Too expensive" does not equal bubble. It has to be expensive because speculators are driving the price up, thinking they're all fooling each other. As soon as they get get scared that the other speculators might be thinking of selling the price suddenly collapses as they race to not be the last to divest.
If something is expensive because it's scarce, is actually being practically used, and there are no substitutes, then there is no way to make the price suddenly collapse other than flooding the market with new supply, and it would take many years to increase the supply of housing by a significant percent. If the price of housing drops a bit all of the homeowners aren't going to rush to sell their homes in a panic like you might see with a purely speculative asset.
Even in an insane place like SFO, a few high profile failures can shutdown the cash pipeline for all sorts of companies. No cash, no coders, no rent.
2008 proved that when people are underwater, they walk away from mortgages because they see no consequence.
For primary residences most are driven by loss aversion ("I'll sell it when it comes back to the price I paid for it, I don't want to lock in my losses, and this is still a decent place to live").
You're right that some markets experienced steeper declines than others, and the ones that descended quicker were highly leveraged through 0% down, or interest-only (or both) loans. Post-2008 lending scene has been much more restrictive, I can't imagine a lot of people being highly leveraged at the moment.
In the early to mid 00's the idea of "flipping" real estate became popular. The idea was that you would agree to buy a property, and then sell it very quickly, often setting up a deal to sell it before you even fully closed on it yourself. There were a lot of more-or-less amateur investor types who flocked to markets with cheap real estate and strong population growth - e.g. Las Vegas and Phoenix - and started flipping houses. This was pure speculation completely divorced from underlying demand.
I don't think there is anything like that happening today - at least not nearly on as large a scale. So, while I would disagree with the idea that "the market didn't collapse" - it did in some locations - I certainly do agree that it's not likely to collapse in quite as dramatic a way any time soon.
Both of them were chiefly monetary initiatives rather than fiscal. The Fed acts pretty much independently of who's President, which explains the "oddness".
It really seems like if we all agreed to keep the music playing, the music would continue playing. But once we decide it's going to stop, it has to.
You actually can't just keep dumping money into companies that are doing nothing but burning it.
But, yes, for the record, I do want the bubble to burst, because the world has real problems and I just got a cold recruiting email from someone building a GIF keyboard. "Silicon Valley" is a spectacular, world historical squandering of brain power and it needs to stop.
Are you implying that there are less-frivolous actors offering competitive salaries and getting ignored, or that SV is inflating the price of programming labor? Because if the latter, and you're hoping for a correction of programming salaries down to lower-middle-class clerical work that humanitarians can afford, won't those with brain power just "squander" it in some other better-paying field?
How?
Outside the bubble, New York has always been like this, and it's not because of the tech industry.
Like the Bay Area, New York appeals to a lot of people, and with the appeal comes competition for housing. The Bay Area is a desirable place to live -- the weather is always excellent, there's plenty of stuff to do (try finding a mountain to ride your bike up in New York City), etc. People pay it because they like it. I don't think it's because tech is there.
First, the aforementioned funding bubble.
Second, a correction to depressed wages due to collusion between the big tech companies.
Third, increasing demand for tech workers in historically non tech sectors (Eg. Home Depot has mobile apps for home improvement).
I have no idea what the attribution split is. But I'm fairly certain wages will be propped up in the event of a funding collapse.
The non-tech sector seems perfectly content to pay engineers 60k under constant threat of outsourcing. In the absence of Silicon Valley competing for talent they'll get away with less, not more.
Google/Facebook/Apple/Microsoft/etc have been and will continue competing for talent. 2005 to 2009 was hardly a time of "easy money", yet the big tech companies still had to resort to collusion to combat demand for engineers.
EDIT: Easy data point, YCombinator was only a 20k investment back then. Very different story of access to funding.
Say what you will of all the bullshit we fund, every one of those represent projects where talent can improve their skills, and many of these will eventually stop working at a bullshit startup and get recruited by one of the companies actually building something valuable.
China has a middle class as big as the entire US, and a huge number of millionaires in USD, and an unstable, opaque state-run economy, so huge numbers of rich Chinese are buying real estate abroad to protect their wealth and to give their kids a life in the US.
I would be happy to see a movement to keep Chinese money out of the U.S. housing market, at least in places like SV.
You're right it's not that big but it's the biggest in the world: http://qz.com/523626/chinas-middle-class-has-overtaken-the-u...
That's the quote right there!
See: the results of Sweden's negative interest rate policy (ie a huge housing bubble).
I offered some of my exercised options for sale on SharesPost [1]. The SharesPost representative contacted me; she said that she had a potential buyer interested, but the bid was slightly lower than my initial ask and the volume they wanted to buy was a little lower than what I had offered to sell initially. We agreed on the deal.
I filled out some paperwork and sent proof that I was a legitimate seller. SharesPost representative got in touch with my employer. My employer had the right to first refusal which they waived. The process took few weeks with escrow etc, but was smooth.
SharesPost charged me a %ge fee. I also had to pay for the escrow service.
Is this the kind of thing employers might freak out about if they are blindsided by the request?
The proceeds I got from the sale were treated as long-term capital gains. I got a 1099-B from SharesPost.
> Also, what sort of communication did you have with your company before/during this transaction regarding it?
I mentioned my desire to sell some of my stock to my manager. I was directed to speak to the head of legal department. Here is what I learned that person. The company could not provide me with a buyer, or advice me to sell/hold etc. But once I found a buyer, the company was bound to agree to that sale or direct me to another buyer who was offering at least the same price.
When secondary brokers have more buyers than sellers of a particular private stock, they come looking for you - and that's the time when you want to do your selling, not when people are freaking out and you're competing with others actively looking to unload their holdings.
Just to spell it out - that's the perfectly clear indication, not 'oh hi I have 125,000 shares of X to sell'.
I'm concerned but still not convinced this will shock the rest of the economy, at least not all on its own.
During the dotcom bubble crash, Cisco all by itself destroyed more market cap from top to bottom than the entire unicorn bubble is worth combined (and that's before inflation adjusting for 15 years).
This current tiny mess? It's hardly even a single line sideshow to the rest of the US or global economy, what's going on in China, the commodity markets, negative interest rates in Europe or Japan, etc. A ~1% value drop in just the US residential housing market is worth as much as every unicorn combined.
I am assuming investors are blown away by something before writing those checks.
I guess still to me virtual reality glasses seems like a very cool gimmick. If its a general purpose consumer product its success would be really dependent on a "killer app" and affordability. I guess we'll see... thats a lot of money invested.
The model I have really come to like is EquityZen's. (https://www.equityzen.com)
Using a crowd sourced approach, a group of accredited investors (buyers) can participate in purchasing a block of shares as a fund. A win for the smaller individual investor who could not normally participate due to various constraints (ie buying power, transaction costs).
Likewise, its also a win for sellers and it applies to the Unicorn's of the world. It gives these shareholders access to a market they wouldn't normally access.
It seems that selling shares privately is becoming more common, any model that connects a larger group of accredited buyers to accredited sellers is good - IMHO.
What kind of situation could turn this into a systemic risk? Institutional investors getting involved? Is there any evidence of that happening? "Unicorn derivatives"? Is there any indication such a thing might exist?
Seems like it is possible that a unicorn crash could just leave a bunch of rich guys in Cali somewhat less rich than when they started.
And of course employees might be hurt by this I guess... especially the young ones who traded work for worthless stock. But you know what... I signed up for the army after 9/11 so I know what its like to get bamboozled in your 20's... it sucks but you get over it. If I was in their shoes though I would probably looking to cut my losses and liquidate too.
Tom Petty - Learnig to fly lyrics "Well I started out down a dirty road Started out all alone And the sun went down as I crossed the hill And the town lit up, the world got still
I'm learning to fly, but I ain't got wings Coming down is the hardest thing
Well, the good ol' days may not return And the rocks might melt and the sea may burn"
It's not easy for an employee to get access to a secondary market anyway, but yes they should also be enforcing the transaction rules.
In other words you can't sell except as part of a board approved sale of the company or a public offering. I think opportunities to buy are based on new issuance of stock (for accredited investors) not based on trades of existing stock.
Anyone know why / what triggers that? When is it typical for stock granted to employees to actually be resellable?
Two months ago, an early Uber employee thought that he had found a buyer for
his vested stock, at $200 per share. But when his agent tried to seal the deal,
Uber refused to sign off on the transfer. Instead, it offered to buy back the
shares for around $135 a piece, which is within the same price range that Google
Ventures and TPG Capital had paid to invest in Uber the previous July. Take it or
hold it.
The employee also learned that Uber had amended its bylaws more than a year
earlier, in order to restrict unapproved secondary sales. It was unclear if the
bylaw change actually applied to shareholders who had not been party to the vote —
lawyers seem to disagree on this point of Delaware law — but Uber threatened
litigation if he tried to proceed. So he held. The financial and reputational
hassles of a lawsuit would have just been too much, even if he had won.
Does this generally piss off the employer? I wonder if the employee faced any sort of retaliation or anything from this.
No, it should not piss off any employer!
The equity that is offered to you to as part of your employment is remuneration for your efforts. The employer should not be upset at you for wanting to convert that to cash. It is true that the employer might not want their stock to go to outside parties. In that case, they should arrange for alternate arrangements (buybacks, employee-liquidity in funding rounds etc). But you are not doing anything inherently unethical to warrant any retaliation.
All reasons why managers might make life difficult for said employee after the fact.
With that said, it's obviously in their interest to provide some liquidity to avoid their long-time employees from defecting to GOOG or NFLX or FB, which reward with perfectly liquid stock grants, so in case of demand from the buy-side an employer would orchestrate a secondary market transaction. On the buy side in most cases you'd see an SPV managed by the VC who invested in previous rounds (which helps with keeping the cap table low).
Ironically, for smaller VCs entire economics of their firms are based on these SPVs (which sometimes charge upwards of 2% management fee on top of 20% carry - and that's for a chunk shares sitting quietly doing nothing).
Wouldn't this be more reliable to do by keeping control via different classes of stock and or limiting the total size of the employee option pool to some significantly less percentage than the founders have? What's the most common/recommended size of the employee option pool (I want to say I've heard it is like 5-15% depending on the age of the company)?
This is both to maintain control and to avoid having more than 500 shareholders, which triggers all kinds of additional regulations.
I _think_ the JOBS Act of 2012 increased this to 2000 instead of 500.
So, not necessarily just "wealthy" individuals.
You can instead have a high income (the $200k mentioned) and zero wealth. I suspect that many more people qualify as accredited under the income requirement than qualify under the asset requirement.
http://money.cnn.com/2014/03/14/news/economy/us-millionaires...
http://www.politifact.com/truth-o-meter/statements/2013/mar/...
But this is one of those words that should probably be set aside for the purposes of debate in favor of something more specific, because arguing over the definition of a term that doesn't actually have a standard definition isn't terribly productive.
"Shaq is rich; the white man that signs his check is wealthy. Here you go Shaq, go buy yourself a bouncing car. Bling-Bling . . . . I ain’t talking bout Oprah, I’m talking about Bill Gates. OK!. If Bill Gates woke up tomorrow with Oprah’s money, he would jump out a …window. I’m not talking about rich, I’m talking about wealthy
- Chris Rock"
If he weren't a comedian, I'd say Chris Rock is so full of shit it's not even funny, but I guess they're two separate things (meaning that in this instance he's objectively full of shit, but that has nothing to do with him being subjectively not funny to me; there are other comedians who're just as full of shit, but I still find them funny.)
If you're a seller and you did not verify investor accreditation, you're opening yourself up to a lawsuit when things go bad with the investment - what if the buyer comes back and claims he was defrauded and duped into buying shaky securities?
The broker participating in such transaction, in theory, has a chance of having their license revoked due to participation in alleged fraud.
Still a relatively small volume of sales we are talking about here. Does anyone have any information on the structure of the secondary market - big players, regulation, etc. The article was light on details.
None of this made sense to me. You're going to restrict your early employees from making money? No one owns more than .5% so why would one be worried at all? To me it just seemed like another example of a CEO believing their employees are second class citizens and that they don't deserve any money until the CEO is RICH.
Because the CEO holds less than a decision-making stake to himself? It wouldn't matter that everyone has a tiny percentage if an outside party is willing to spend enough money to buy them all.
That second part... why that isn't ALWAYS the focus is beyond me.
Edit: Adding a clarifying statement as my point wasn't specific enough. I'm very aware that early stage investments are VERY speculative, but when we're talking about a company moving into 1BN+ valuation territory, fundamentals should be in focus.
Business fundamentals -- bottom-line numbers on the P&L statement -- are not furthered by increasing the number of active users alone, or by delighting users. Only ad revenue would increase the fundamentals being discussed here.
There are certain technologies and trends whose full potential is not presently obvious, or realizable, and the ability to exercise that potential could be capped or cut short if investors force a near-term focus on profits. It's the same reason why we ideally teach children any number of skills which have no direct application to their future vocations. Future options are sometimes more desirable than current profits.
Like Yahoo, some companies are very challenged when it comes to building intuitive UI/UX. It's too bad the market focuses on financial performance and market share rather than more fundamental aspects of competence.
Being able to draw with a pen is awesome, and the killer feature that makes it work is "Insert Space." You can pick a point and push everything below it down, like you would when making edits in a word processor. All the layout and diagram flexibility of handwritten notes, but without the usual limit that you run out of space or have to work in the margins if you want to go back and add anything in the middle.
The trick now is to work out where the bottom of the market crash is going to be, and cash in on the companies that will survive this next recession, but whose stock price is still being hammered.