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Am I misunderstanding or am I the only one calling bullshit on all these firms for talking about making money where there's no liquidity event. These are mostly

Am I misunderstanding or am I the only one calling bullshit on all these firms for talking about making money where there's no liquidity event. These are mostly paper gains. Shenanigans.

Kinnard 10y ago
There seems to be a growing amount of "liquidity" outside of IPOs . . . almost a transition from "liquidity events" to simple . . . "liquidity" . . .
- staticautomatic 10y ago
  "simple liquidity" - whatever that even is - does not turn paper gains for the likes of Uber into real gains.
hugs 10y ago
Yes, it's bullshit, but when their LPs ask "How's it going?", reporting paper gains is how they get off the hot seat and/or raise the next fund.
- __derek__ 10y ago
  That sounds curiously similar to a certain geometric scheme.
  - cloudjacker 10y ago
    nobody with connections gets their funds frozen in an SEC emergency asset injucture, or FTC investigation the only way to get your liquidity ponzi scheme funds frozen by regulators is to: a) lose money b) not know any regulators If you got a) and b) covered, then you can start as many funds as you want, issue or rollover as many bonds as you want, dilute as much equity as you want keep the gravy train rolling
prostoalex 10y ago
Most of the world's investable assets (real estate, oil wells, corner ice cream parlor, a Taco Bell franchise) have not had a liquidity event but are valued nonetheless.
- boto3 10y ago
  They do have established business lines and are profitable, so the valuation models are supposedly more accurate. The unicorn startup models would have much higher variance, so that leaves a lot of room for hand waving and personal branding to be factored in.
- robotresearcher 10y ago
  Don't all those example assets change hands for cash (or equivalents) pretty regularly?
  - prostoalex 10y ago
    Valuation by comparables is an acceptable model if both parties agree on it. However, it's still far from a done deal as each transaction has its own minuscule details, and in commercial property, e.g., one party might value such things as location, quantity/quality of parking spots, proximity to traffic flows, quality of neighbors, recently incurred maintenance, etc. differently from the other. With that said, a 409a valuation firm (or potential acquirer) is likely to look at the peers, current and historic ones, to at least start at some ballpark figure.
- kinj28 10y ago
  How about securitising the assets in clusters just like MBS.
- ericd 10y ago
  Comps are a lot easier with those assets.
jsprogrammer 10y ago
I believe new AH funds offer liquidity events to established funds.
mathattack 10y ago
They can mark to market, but until the cash comes in, you just don't know. The article differentiates this. Sequoia’s 2010 fund is up 5.5 times and, unlike other venture funds that are mostly sitting on paper gains It's very hard to value equity when there are funky things (preferences, participation, etc) in the cap tables. Any given "valuation" is higher for some and lower for others, and in a hard to quantify way. And a "valuation" based on selling 3% of a company is very different than 50%. But... The values are non-zero. And the company needs to provide something that's better than no information to investors in the interim.
- staticautomatic 10y ago
  Sure, for Sequoia. But the next paragraph says Benchmark, for example, "has multiplied investors’ money 11 times net of fees in its 2011 fund...It includes blockbuster investments like Uber Technologies Inc. and Snapchat Inc." to which all I can say is...maybe on paper. My point is that the gains are unrealized until you get the actual money. So "multiplied 11 times" is only true of the monopoly money. Whether it's true of the realized gains remains to be seen.
  - mathattack 10y ago
    The chart also shows realized versus unrealized. It's analogous to GAAP accounting. GAAP accrual based earnings are good, but until you see the cash, it's just a best guess.
  - deleted 10y ago
    [deleted]
  - mathattack 10y ago
    It appears that a16z agrees with you in their rebuttal. :-) http://a16z.com/2016/09/01/marks-offmark/ http://a16z.com/2016/09/01/marks-offmark/
paulpauper 10y ago
So I guess the VCs who invested in Facebook and Google early on must feel pretty poor because it's only 'paper'. Most of these bets are 'binary' - if they succeed, there will more than enough liqudity to go around; if they fail, it's just a small part of the portfolio
LA_Banker 10y ago
a16z is getting punished (at least, in the article) for marking their paper gains more conservatively than other funds. Their LPs are likely smart enough to realize this.

Am I misunderstanding or am I the only one calling bullshit on all these firms for talking about making money where there's no liquidity event. These are mostly paper gains. Shenanigans.

Kinnard 10y ago

There seems to be a growing amount of "liquidity" outside of IPOs . . . almost a transition from "liquidity events" to simple . . . "liquidity" . . .

staticautomatic 10y ago
"simple liquidity" - whatever that even is - does not turn paper gains for the likes of Uber into real gains.

hugs 10y ago

Yes, it's bullshit, but when their LPs ask "How's it going?", reporting paper gains is how they get off the hot seat and/or raise the next fund.

__derek__ 10y ago
That sounds curiously similar to a certain geometric scheme.
- cloudjacker 10y ago
  nobody with connections gets their funds frozen in an SEC emergency asset injucture, or FTC investigation the only way to get your liquidity ponzi scheme funds frozen by regulators is to: a) lose money b) not know any regulators If you got a) and b) covered, then you can start as many funds as you want, issue or rollover as many bonds as you want, dilute as much equity as you want keep the gravy train rolling

prostoalex 10y ago

Most of the world's investable assets (real estate, oil wells, corner ice cream parlor, a Taco Bell franchise) have not had a liquidity event but are valued nonetheless.

boto3 10y ago
They do have established business lines and are profitable, so the valuation models are supposedly more accurate. The unicorn startup models would have much higher variance, so that leaves a lot of room for hand waving and personal branding to be factored in.
robotresearcher 10y ago
Don't all those example assets change hands for cash (or equivalents) pretty regularly?
- prostoalex 10y ago
  Valuation by comparables is an acceptable model if both parties agree on it. However, it's still far from a done deal as each transaction has its own minuscule details, and in commercial property, e.g., one party might value such things as location, quantity/quality of parking spots, proximity to traffic flows, quality of neighbors, recently incurred maintenance, etc. differently from the other. With that said, a 409a valuation firm (or potential acquirer) is likely to look at the peers, current and historic ones, to at least start at some ballpark figure.
kinj28 10y ago
How about securitising the assets in clusters just like MBS.
ericd 10y ago
Comps are a lot easier with those assets.

jsprogrammer 10y ago

I believe new AH funds offer liquidity events to established funds.

mathattack 10y ago

They can mark to market, but until the cash comes in, you just don't know. The article differentiates this. Sequoia’s 2010 fund is up 5.5 times and, unlike other venture funds that are mostly sitting on paper gains It's very hard to value equity when there are funky things (preferences, participation, etc) in the cap tables. Any given "valuation" is higher for some and lower for others, and in a hard to quantify way. And a "valuation" based on selling 3% of a company is very different than 50%. But... The values are non-zero. And the company needs to provide something that's better than no information to investors in the interim.

staticautomatic 10y ago
Sure, for Sequoia. But the next paragraph says Benchmark, for example, "has multiplied investors’ money 11 times net of fees in its 2011 fund...It includes blockbuster investments like Uber Technologies Inc. and Snapchat Inc." to which all I can say is...maybe on paper. My point is that the gains are unrealized until you get the actual money. So "multiplied 11 times" is only true of the monopoly money. Whether it's true of the realized gains remains to be seen.
- mathattack 10y ago
  The chart also shows realized versus unrealized. It's analogous to GAAP accounting. GAAP accrual based earnings are good, but until you see the cash, it's just a best guess.
- deleted 10y ago
  [deleted]
- mathattack 10y ago
  It appears that a16z agrees with you in their rebuttal. :-) http://a16z.com/2016/09/01/marks-offmark/ http://a16z.com/2016/09/01/marks-offmark/

paulpauper 10y ago

So I guess the VCs who invested in Facebook and Google early on must feel pretty poor because it's only 'paper'. Most of these bets are 'binary' - if they succeed, there will more than enough liqudity to go around; if they fail, it's just a small part of the portfolio

LA_Banker 10y ago

a16z is getting punished (at least, in the article) for marking their paper gains more conservatively than other funds. Their LPs are likely smart enough to realize this.