5 ms·

So normal people can't get into deals like this?

nefitty 10y ago
You know, I spent a few hours this morning almost fuming at how insanely lucky it is to get a return on $15k like that. I started panting at the possibility that I might somehow get this lucky, but of course, turns out it was $15k of a $500k investment -_-'
- verroq 10y ago
  You could have bought Bitcoin 5 years ago with $15k and be worth $3.8m right now.
- atomical 10y ago
  I had similar thoughts. I realized that these are "get rich quick" thoughts and for most people that never ends well.
  - skookumchuck 10y ago
    There was a story on Reddit a while back about a soldier who bought a Rolex in the 1960s for $120, and it was worth $70,000 today. Pretty lucky, right? But then someone pointed out that if he'd invested in the S&P 500 instead, it would be worth $25,000 today (if I remember the figures correctly). It's pretty hard to outdo investing in the S&P 500, and most anyone can do it.
    - stagbeetle 10y ago
      > There was a story on Reddit a while back about a soldier who bought a Rolex in the 1960s for $120, and it was worth $70,000 today.[0] > Pretty lucky, right? But then someone pointed out that if he'd invested in the S&P 500 instead, it would be worth $25,000 today (if I remember the figures correctly). What's not said is that from 1960 till 1980, you'd only make 200% (10% annualized). Compared to angel investing giving you 250% over 4 years (62.5 annualized).[1] This is also assuming you know how to time your trades properly and get in at a bottom. If you got in at the floor of the dot com crash you'd make, at most, 180% in the 15 years you held (12% annualized). If you got in at the floor of the 07-09 crash you'd make, at most, 250% in the 9 years you held (28% annualized). These are best case scenarios and it's unlikely for someone that believes in the S&P will know about market timing. The base of this argument is laden with guilt and regret over not having 20/20 hindsight. "If you got in at X you would have Y." The same is said with BTC, "if you got in at the beginning you would have been an Xillionaire!" However, this is no longer practical in the ironed-out, risk-adjusted world we live in now. The S&P's risk has been priced in and over-sized returns are no longer possible. You'll start seeing this with startups in the coming years too. As people start understanding them more, risk will be lower, and thus returns will be lower. [0] https://www.youtube.com/watch?v=li0mRLcGbU8 https://www.youtube.com/watch?v=li0mRLcGbU8 [1] https://techcrunch.com/2012/10/13/angel-investors-make-2-5x-returns-overall/ https://techcrunch.com/2012/10/13/angel-investors-make-2-5x-...
      - skookumchuck 10y ago
        It is not practical to guess at picking the right unicorn investment, collectible, or market timing. It remains practical, however, to invest in broad market indices. You won't become a zillionaire, but with consistent investing and discipline, such boring strategies pay off in the long term. If you're willing to accept more risk/return than the S&P 500, there are Nasdaq index funds, too. To play with various scenarios, there's a calculator: https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
  - manibatra 10y ago
    Exactly. Survivorship bias and also hindsight is always 20/20
- skookumchuck 10y ago
  Not quite as good, but if you invested in AMZN the day after its IPO at $1.49 on 7-27-97, it is $849.88 today. That's more than a 500x gain.
- driverdan 10y ago
  You could have put $15k into a startup that failed and lost it all. Learn about survivorship bias and confirmation bias.
mseebach 10y ago
Missing from the article is a mention of all the people who invested $15k in something and lost it all. Also, can you honestly say that you would have put $15k in Snapchat 5 years ago?
- atomical 10y ago
  It's a bit different when a friend, who has wealth and power, asks you if you want to invest in something. He doesn't need your money. Snapchat likely didn't need that 15k from the school. They could have gotten it elsewhere.
patio11 10y ago
Historically, to protect middle class people's retirement from swindlers and high-risk business deals, companies raising equity rounds are given the choice of three options: a) go public and accept the discipline of reporting requirements (which, the theory goes, de-risks the investments relative to private companies), b) raise money only from people one has a pre-existing social connection with (so called "friends and family" investment, which the government believes are less likely to be out-and-out scams and which would be difficult to sensibly prohibit anyway), or c) solicit investment actively, but only from sophisticated investors or investors who can afford sophisticated advisors. The vast majority of startups choose door #3, which requires that they raise from "accredited investors." There are a few ways to hit the sophistication bar; the most commonly invoked are an asset test (~$1 million in net worth exclusive of positive home equity) or an income test ($250k in income for 2 years with expectation of same in the future). This makes many normal people in the tech industry and in the professions (doctors, lawyers) into accredited investors, but excludes much of the middle class. Reasonable people can disagree on whether this is good policy, but it is more-or-less the law in the US. There are recently some exceptions due to the crowdfunding law, but they're as-of-yet outside of the startup mainstream. Accredited investors can't necessarily get into any particular deal; the most desirable companies quickly fill up, and since Snap was a fairly desirable company, the fact that an investor convinced their co-investors to sacrifice allocation in favor of getting a favored charity involved was basically a charitable donation all around. Accredited investors can generally find a company willing to take their money, but most investments in startups do not go well, even when the startups are executed competently. (This is the reason we have laws preventing e.g. 40 year old teachers from taking out a HELOC to put $100k into photo sharing for dogs.)

You know, I spent a few hours this morning almost fuming at how insanely lucky it is to get a return on $15k like that. I started panting at the possibility that I might somehow get this lucky, but of course, turns out it was $15k of a $500k investment -_-'

verroq 10y ago
You could have bought Bitcoin 5 years ago with $15k and be worth $3.8m right now.
atomical 10y ago
I had similar thoughts. I realized that these are "get rich quick" thoughts and for most people that never ends well.
- skookumchuck 10y ago
  There was a story on Reddit a while back about a soldier who bought a Rolex in the 1960s for $120, and it was worth $70,000 today. Pretty lucky, right? But then someone pointed out that if he'd invested in the S&P 500 instead, it would be worth $25,000 today (if I remember the figures correctly). It's pretty hard to outdo investing in the S&P 500, and most anyone can do it.
  - stagbeetle 10y ago
    > There was a story on Reddit a while back about a soldier who bought a Rolex in the 1960s for $120, and it was worth $70,000 today.[0] > Pretty lucky, right? But then someone pointed out that if he'd invested in the S&P 500 instead, it would be worth $25,000 today (if I remember the figures correctly). What's not said is that from 1960 till 1980, you'd only make 200% (10% annualized). Compared to angel investing giving you 250% over 4 years (62.5 annualized).[1] This is also assuming you know how to time your trades properly and get in at a bottom. If you got in at the floor of the dot com crash you'd make, at most, 180% in the 15 years you held (12% annualized). If you got in at the floor of the 07-09 crash you'd make, at most, 250% in the 9 years you held (28% annualized). These are best case scenarios and it's unlikely for someone that believes in the S&P will know about market timing. The base of this argument is laden with guilt and regret over not having 20/20 hindsight. "If you got in at X you would have Y." The same is said with BTC, "if you got in at the beginning you would have been an Xillionaire!" However, this is no longer practical in the ironed-out, risk-adjusted world we live in now. The S&P's risk has been priced in and over-sized returns are no longer possible. You'll start seeing this with startups in the coming years too. As people start understanding them more, risk will be lower, and thus returns will be lower. [0] https://www.youtube.com/watch?v=li0mRLcGbU8 https://www.youtube.com/watch?v=li0mRLcGbU8 [1] https://techcrunch.com/2012/10/13/angel-investors-make-2-5x-returns-overall/ https://techcrunch.com/2012/10/13/angel-investors-make-2-5x-...
    - skookumchuck 10y ago
      It is not practical to guess at picking the right unicorn investment, collectible, or market timing. It remains practical, however, to invest in broad market indices. You won't become a zillionaire, but with consistent investing and discipline, such boring strategies pay off in the long term. If you're willing to accept more risk/return than the S&P 500, there are Nasdaq index funds, too. To play with various scenarios, there's a calculator: https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
- manibatra 10y ago
  Exactly. Survivorship bias and also hindsight is always 20/20
skookumchuck 10y ago
Not quite as good, but if you invested in AMZN the day after its IPO at $1.49 on 7-27-97, it is $849.88 today. That's more than a 500x gain.
driverdan 10y ago
You could have put $15k into a startup that failed and lost it all. Learn about survivorship bias and confirmation bias.

mseebach 10y ago

Missing from the article is a mention of all the people who invested $15k in something and lost it all. Also, can you honestly say that you would have put $15k in Snapchat 5 years ago?

atomical 10y ago
It's a bit different when a friend, who has wealth and power, asks you if you want to invest in something. He doesn't need your money. Snapchat likely didn't need that 15k from the school. They could have gotten it elsewhere.

patio11 10y ago

Historically, to protect middle class people's retirement from swindlers and high-risk business deals, companies raising equity rounds are given the choice of three options: a) go public and accept the discipline of reporting requirements (which, the theory goes, de-risks the investments relative to private companies), b) raise money only from people one has a pre-existing social connection with (so called "friends and family" investment, which the government believes are less likely to be out-and-out scams and which would be difficult to sensibly prohibit anyway), or c) solicit investment actively, but only from sophisticated investors or investors who can afford sophisticated advisors. The vast majority of startups choose door #3, which requires that they raise from "accredited investors." There are a few ways to hit the sophistication bar; the most commonly invoked are an asset test (~$1 million in net worth exclusive of positive home equity) or an income test ($250k in income for 2 years with expectation of same in the future). This makes many normal people in the tech industry and in the professions (doctors, lawyers) into accredited investors, but excludes much of the middle class. Reasonable people can disagree on whether this is good policy, but it is more-or-less the law in the US. There are recently some exceptions due to the crowdfunding law, but they're as-of-yet outside of the startup mainstream. Accredited investors can't necessarily get into any particular deal; the most desirable companies quickly fill up, and since Snap was a fairly desirable company, the fact that an investor convinced their co-investors to sacrifice allocation in favor of getting a favored charity involved was basically a charitable donation all around. Accredited investors can generally find a company willing to take their money, but most investments in startups do not go well, even when the startups are executed competently. (This is the reason we have laws preventing e.g. 40 year old teachers from taking out a HELOC to put $100k into photo sharing for dogs.)