Tiger Global's Biggest Venture Fund Has 18% Loss After Markdowns
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No one wants valuations to come down:
* VC firms don't want to write down their portfolios aggressively, because doing so will make raising the next fund much more difficult.
* Institutional LPs don't want VC firms to write down holdings either, because they themselves want to show good performance too.
* Portfolio companies never want to raise money at lower valuations than the last round's, suffering dilution, unless they absolutely have no better choice.
Maybe they should take those exorbitant profits and do them anyway. "That would put a ceiling on wealth accrual," you say? Good.
All businesses can do that whenever they want. If they don't require an independent audit, they are taking on a bit more risk, because you are trusting the customer(company A here) to not lie to you.
But it's mostly not practical because independent audits can take a lot of time, and there are only so many auditors out there. Sure if there was more demand prices would go up and more auditors would enter the business, eventually, but it takes time to onboard.
I argue it's a great system right now. Companies can choose how much risk they want to take on based on how much trust and lies they are willing to try and sell or accept. At some point the truth will come out and you better hope you appropriately factored in your risk(s).
Without risk, there is no chance of reward, it's just how the system is. Other systems that try to remove the risk from the environment haven't had a very good track record so far.
I don't agree.
>Without risk, there is no chance of reward
I also don't agree with this. What you're saying is that we have a mechanism to prevent people from scamming each other, but you'd rather not implement it because you see yourself as more capable of profiting off the scam arbitrage. I think that's kind of sick. Companies aren't people, there's no natural expectation of privacy rights. As with software, a society where the books are open is more secure and more able to capitalize on that security.
Let's say your parents, with whom you have a great relationship, are selling their house to downsize and you want to buy it. How tempted are you to get an independent house inspector to audit the house and make sure it's still standing and that you can trust your parents that the house is as the say it is? Essentially zero percent. Meanwhile there is your druggie cousin's dealer who has a house they are wanting to sell and you want to buy it. How tempted are you to get an audit done on THAT house? basically 100%?
We already DO implement the mechanism to avoid scamming people, TRUST. If you have it with someone, you are much more likely to not require an audit, the less you trust that person, the more likely you are to want an audit.
> What you're saying is that we have a mechanism to prevent people from scamming each other, but you'd rather not implement it because you see yourself as more capable of profiting off the scam arbitrage.
No, I'm talking about the basics of economics in our system. If you invest in US treasuries, they are very boring, guaranteed by the biggest government on the planet and very very safe. They also pay next to nothing in real(inflation adjusted) terms. If you invest in companies(aka stocks), then there is real economic risk, but the returns are ridiculously more than the boring, safe US treasuries. Same with your employment. You can go get a boring govt or academic job and be very safe @ work or you can go choose a very risky, but lucrative job that pays a lot. Everyone is free to choose their risk adjusted returns as they personally see fit for their levels of risk tolerance. The more risky will try to make it big and be the next Musk, Bezos, Gates, etc. The less risky will work at the local DMV or school.
> Companies aren't people, there's no natural expectation of privacy rights. As with software, a society where the books are open is more secure and more able to capitalize on that security.
I agree with this, but that's not related to this discussion at all. Personally I think companies should always have open books. That doesn't change that company X thinks the asset is worth $X and Company Y thinks the asset is worth $Y. They can either not do business or hire an independent auditor. Forcing an independent auditor into every asset valuation is just adding extra bureaucracy that isn't needed.
>When the asset changes hands, it is sold and the then current market price is known.
Volume is down in many asset classes and the "distressed property" pricing is not being allowed to affect like appraisals in areas like commercil real estate. So, the truth actually isn't coming out, as a matter of practicality.
>We already DO implement the mechanism to avoid scamming people, TRUST.
This is a terrible mechanism absolutely ripe for corruption, which brings us to...
>You can go get a boring govt or academic job and be very safe @ work or you can go choose a very risky, but lucrative job that pays a lot.
Unless you leverage your public or bureaucratic position for personal gain, like trading securities on insider information or using your expertise to either gain a lucrative private position after reaitgning or gaining a public position where you can steer policy towards your interests. But that never happens in America.
>No, I'm talking about the basics of economics in our system.
Right, scams. Profit is taken off the arbitrage of information asymmetry that, in a better system, would not exist (at least so egregiously). Your "trust" is lipstick-pigging the inherent scamminess of free enterprise as it exists in our society.
>I agree with this, but that's not related to this discussion at all.
It's actually the central issue. People are making poor decisions based on their poor access to information. Consensus is deterministic when the information under consideration is equal. What I'll give is that, practically-speaking, that equality is impossible, but it's much easier to approach when one party isn't allowed to hide a massive component of their valuation.
Again, I've yet to see you explain how this auditing process would be more expensive to society than arbitrage-bred profits that are then gambled away in bad market bets and economic crises. What you're running up against is the fact that capital accrual is more expensive to society than distribution to pay for basic goods and services. Hoarding money is more expensive than just using it. Sorry.
We would have independent auditors that verify the supply chain information is accurate, adding lots of extra cost for these auditors. How are they paid?
How do we keep the auditors honest? What if they are incentivized in some way to not be completely truthful in their auditing?
How many people do you think will be willing to do that?
I'd bet the amount of people willing to do that is effectively zero. Especially over a pack of gum.
You bet your sweet patootie I do. It would go a long way towards curbing human rights abuses, too. But you're engaging in a bit of a slippery-slope fallacy, because we were talking about large property and business sales, not gum.
As to how to implement this regime, I'd love to put the big brains that are currently relegated to glorified ad sales, Ponzi scheme engineering, and bigot-corrections (that would be tech, finance, and social justice advocacy, respectively) on it.
It's not 100% but for the enterprising sort you can figure it out.
This is basically what investors do all day, track down and dig into companies and how they make their money. Then they apply future growth compared to current value and decide if they want to buy in on the future of the company or not.
If they are not public companies, then you have to have a plausible excuse for the private company to share that information with you. Investor as the job title usually gets the job done, provided they want more money invested.
It is no longer going to be feasible for a Stanford/Harvard college drop-out to be able to bolt together 15 different SAAS offerings into a package and tell investors THIS will change the world.
And those that didn't matured/pivoted/whatever into something that could not simply be written off as lego-bricking solutions.
2021 was a height of "more money on the market than productive things to do with it". Startups are expected to operate in 2-year fundraising cycles - VCs used to push you to increase burn rate if you had a longer runway.... So right now startups that raised at the top of 2021 are facing potential fundraising now. The equivalent company would have 2-3x lower valuation in 2023 compared to 2021 - based on my discussions with other founders, what board members say, etc.
Surprised to see DDG in Tiger's list of investments.
Should I view that as just part of the broad markdown or has something changed to DDG in particular that makes its biz model less viable?
The tide coming out with interest rates will hopefully reshuffle the industry.
Theranos enters the chat and would like to have a word.
Theranos is the perfect case in point: no biotech VC invested in Theranos. Not a single one. They avoided it like the plague because anyone who did any due diligence knew that using blood from a finger prick for accurate diagnostics was a physical impossibility.
The list of Theranos investors is all "dumb money" like Rupert Murdoch, Betsy DeVos (that Betsy DeVos), Larry Ellison, Robert Kraft, and the Walton family among others.
The DJIA is a relatively meaningless index and is only around for it's historical significance, if anything.
"Startups weather a dismal year – 543 have declared bankruptcy or shut down":