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For me, this whole WeWork fiasco has shown just how valuable the SEC and the S-1 filing process is. Let's be clear -- Neumann was fired because any investor who
by 40acres 7y ago
For me, this whole WeWork fiasco has shown just how valuable the SEC and the S-1 filing process is. Let's be clear -- Neumann was fired because any investor who read the S-1 was mortified and wouldn't touch the company with a 10 foot pole. If anything, this shows how lawless the private markets are and the lack of guardrails that are present to protect private investors -- perhaps this will lead to some reform in the private market and more transparency, but either way I'm glad that the SEC provides such a breath of fresh air when evaluating companies with large valuations.
- iamkroot 7y agoWhy do private investors need protection? Why can't they be held responsible for the foolishness of their actions?
- baq 7y agoWhat if there’s no way to know what’s foolish and what isn’t? The protection we’re talking about here is equal access to information which is a necessary prerequisite for an efficient market.
- Ididntdothis 7y agoBecause with the rise of 401k and lately low interest rates a lot of people were forced into the market who simply don’t have skill or time to learn these skills to make investments in an unregulated market.
- nradov 7y agoThe vast majority of 401(k) funds are in large-cap mutual funds which don't invest in IPOs. Most 401(k) plans also offer some sort of money market or Treasury bond fund. It takes about 5 minutes and zero skill to learn that T-bonds are safe investments.
- Ididntdothis 7y agoIt’s not like treasuries or money market return acceptable returns for people’s retirement portfolio.
- nradov 7y agoWhat is an "acceptable" return? No one has a right to achieve any particular return.
- Ididntdothis 7y agoA return that lets you retire in this lifetime seems to be the minimally acceptable return.
- nradov 7y agoReturn by itself is meaningless. If you want to discuss retirement then you have to account for the other variables: consumer price inflation, risk, contribution levels, lifespan, etc. For individual workers the most practical suggestion is to save more instead of expecting high returns.
- Ididntdothis 7y agoMost people don’t make enough money to save that much money so they can retire.
- crumpets 7y ago
- busterarm 7y agoIt's not that private investors need protection, it's that legitimate businesses have to compete against their fountain of capital and that all of these companies employ a lot of people.
- unreal37 7y agoThe model of driving every profitable company out of business by undercutting on price to a massive per unit loss, funded by venture capital, in an attempt to corner the market and have a pseudo-monopoly is bad for "the public" in the long run.
- busterarm 7y agoIt's bad for "the public" in the short run also, because competitor companies are employers and they can't afford to compete in the short run.
- 40acres 7y agoMarkets are more effective when there is truth and transparency, that's why the S-1 was so effective and derailing WeWork's IPO. Private investors don't necessarily need protection but if I was a big player in the private market I'd definitely be an advocate for more transparency.
- seppin 7y agoBecause fraud can be dressed up any number of ways, with no transparency it's impossible to know one way or another.
- didip 7y agoPeople's pension can get dragged into this mess.
- JumpCrisscross 7y ago> Why can't they be held responsible for the foolishness of their actions? Because it's politically difficult. Sometimes, infeasible. The public often pays for defrauded grandmas' mistakes. There are also positive externalities to stable business environments. Diligence costs money. Putting some of that cost on the issuer, once, is more efficient than each investor incurring it. Consistent rules around fraud and disclosure thus prompt new capital formation. The best examples of the need for this protection are the cesspools that are ICOs.
- tathougies 7y agoErm... okay, but grandma couldn't have invested in WeWork unless she was an accredited investor, and if she's an accredited investor, I'm not so sure we need to be feeling a lot of sympathy for her greed.
- JumpCrisscross 7y ago> grandma couldn't have invested in WeWork unless she was an accredited investor Which is a protection around American private capital markets.
- davidajackson 7y agoBut she can buy lottery tickets without understanding that her odds of a profit are worse than jumping on an ICO? Seems hypocritical to me. I'm no expert about legal matters. I'd appreciate if someone else can chime in here. But I found this with a brief search: "To be an accredited investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income in the current year." Let's say you're smart but poor. So, even after doing your research, you have to be richer to get richer? Again, seems hypocritical and feels like it does less to protect people. Now, let's say the SEC develops a test for an accredited investor status. How is the SEC supposed to test that you can assess good business ideas/risk efficiently? Some of the smartest people took bets that seems insanely risky and were considered stupid. I don't think there's a test able to judge this. As an aside: It would be cool if hacker news could let you attach a flair to your profile for an area of expertise, and then you could request input from people with a specific flair who are also commenting on a thread.
- KoftaBob 7y agoBecause the LPs who fund VCs aren't only using wealthy individual's money, people's pensions are in there too.
- mbesto 7y agoI generally agree with this, but: 1. Pensions are diversified for exactly this reason and VC isn't usually a large % of the fund. 2. This should be exerted through other pressures at that LP level: political, regulatory, etc...not at the GP level.
- deleted 7y ago[deleted]
- ClumsyPilot 7y agoWhat would it take to convince you that unregulated markets lead to fraud? Are events like 2008 and dotCom bubble unimpressive to you?
- spookthesunset 7y agoDon’t forget crypto currency. Massive* unregulated market that is probably 99% fraud. *of course because it is completely unregulated we have no real way to determine if it is truly a “massive” market or just a relatively small amount of people painting the tape with wash trading....
- ClumsyPilot 7y agoCrypto is an experiment, and everyone knows that. The 2008 crisis happened to AAA rated securities.
- nouveaux 7y agoOur economy and financial systems are built on trust. Fraud makes it hard to have productive transactions. Fraud also has a massive detriment to society. It's not that private investors needs protection. It's that people who commit fraud needs to be punished. It is the SEC's job to build trust and prevent fraud, which it looks like it's doing a great job.
- maerF0x0 7y agoI think part of the article's point is that private investors cannot be held responsible for their foolish because they cause "ripple effects" as externalities (eg: dismantling of a functioning taxi industry)
- perl4ever 7y agoI have the impression this is what lead to the Great Depression. Lots of people were saying, well, banks are failing, they screwed up, let them fail. More recently we had bailouts because the people running things learned about the Great Depression in school.
- john_moscow 7y ago>If anything, this shows how lawless the private markets are and the lack of guardrails that are present to protect private investors I would go stock up on popcorn. We may see some very interesting lawsuits soon. Unless the Saudis get him, well, the Saudi way.
- femto113 7y agoI’ll bet money he was “fired” for something much more banal, like using harder drugs than just the admitted marijuana. Still probably can credit the IPO process for bringing it to light, but I don’t think taking Neumann off the tiller of this company is going to make it any more attractive to investors.
- short_sells_poo 7y agoI think it also shows the stunning level of mass delusion in the SV VC space. To this day I don't know whether the people who throw around and parrot the valuations actually mean it. I mean, take the price of a small portion of an asset that is illiquid and in short supply, and assume the same price would apply for valuing the whole? This sort of crap wouldn't fly amongst kids in kindergarten, so I'm astounded that it is being perpetuated on this scale. I really feel like a massive reality distortion field has been pulled over our eyes by the inflow of easy money. I don't know, it feels like deja vu. The same mistakes were done in the early 2000s, then 2008. Except we all think that back then people were idiots to not see it.
- rossdavidh 7y agoTwo possibilities: 1) Jamie Dimon and Softbank/Saudi Arabia are the only idiots here, and everybody else just chipped in relatively small amounts; neither could be considered classically "SV VC". 2) Similar to many people deciding to all buy the same stock at the same time, bidding it up far beyond it's real value but hoping to sell before everyone else realizes it, the VC money was thinking that the sheer size of their investment would make everyone else get on board, allowing them to cash out. A sort of "pump and dump" before it technically went public, such that it is (perhaps) not illegal, except that they did it too late in the cycle so people spotted a bad deal before buying.
- short_sells_poo 7y agoSorry I should've been more specific. I didn't mean this valuation specifically. We is really looney bin category. I mean the industry as a whole.
- rossdavidh 7y agoOh, well in that case, it's a combination of: 1) lying, and... 2) there are no better numbers available for an early stage company. You can't go by profitability or revenue early on, because there's a lot you need to do before you get your first customer, and some of that continues to pay off. So, in the absence of reliable measures of value (a long history), they make do with the least bad method available (how much did somebody guess it would be worth). I think also, if you have to find a place to park billions or tens of billions of dollars, it's easy to convince yourself that the $10million company you're looking at is worth a billion, or the $1billion company you're looking at is worth ten billion. The alternative is to go back to your own investors and say, "sorry, there's not enough good ideas out there to invest in, here's your money back". It's got to be hard to convince yourself that's the least bad option.
- avinium 7y agoWhile you're right, I also wonder why anyone cares if a bunch of cash-rich, overconfident private equity funds get fleeced? They're more than capable of taking care of themselves. "Counterfeit capitalism" in the era of cheap money is probably a net benefit to the average Joe because it subsidies his co-working space/taxi trips/meal deliveries/etc.
- charwalker 7y agoUnfortunately the opportunity cost of those bad investments might sting many in the long run. I'm not going for any trickle down style economics just that smart investment may help a smart company blow up and solve a generalized problem. They can profit but over time that improvement might spread to another industry or company and slowly make many other groups better off sort of like how investing in NASA led to advancements in technology we all use today. I do think there should be greater checks for private capital but then again it is their money to throw around. I just lament the lost opportunity because a 50:1 unicorn was picked over a 5:1 more generalized solution, failed, and now although billions was put back into the economy no progress was made.