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It's pretty interesting that FAANG doing venture capital is basically like legal insider trading. They clearly have data on web traffic, consumer usage, advert

• malux85 6y ago
  Yeah, and Google has this with Google Analytics. Is Google Analytics free out of the kindness of their heart? NO. It's free because you can spot up and coming winners.
  • ThrustVectoring 6y ago
    Google Analytics is free because it is a complementary good to advertising spend. If the director of marketing tell the CEO "this $1000 campaign on Google drove $50,000 of sales at a 10% profit margin", the CEO is going to okay a lot more advertising spend. This winds up in Google's pockets. The same logic applies to why Amazon develops open-source software that makes developing cloud applications easier.
• Mikeb85 6y ago
  > They clearly have data on web traffic, consumer usage, advertising spend, etc. that other VC firms and investors generally don't have access to. I mean, this wouldn't be insider trading since anyone can do their own legwork to get this information. Insider information would be things that aren't (yet) disclosed to the public, not things that can be ascertained through thorough research. > Since startups aren't publicly traded, I don't think insider trading laws apply to trading their securities. Yup. Insider trading laws are designed to prevent the public from being at a disadvantage. Private firms don't need to disclose anything publicly, they can choose their investors, etc...
  • travisjungroth 6y ago
    Insider trading laws aren’t about fairness. They’re about the misappropriation of information. Knowing things others don’t and acting on it is fine. Acting on information that you have as a responsibility to someone else, or got from someone where that’s the case is not.
  • a13n 6y ago
    > anyone can do their own legwork to get this information Can they though? My point is that FAANG companies are uniquely positioned by having access to this data that the public couldn't possibly have access to.
    • Mikeb85 6y ago
      And hedge funds are uniquely positioned by having a bunch of economists and traders working for them. The point is it's not considered insider information.
      • synaesthesisx 6y ago
        Just like how CDNs are uniquely positioned with traffic data (and payment processors have spend data), right? ;)
        • sfifs 6y ago
          Exactly right. What do you think they're doing with that data - acting as social altruists? :-) Having unique data and insights you develop is not a crime - indeed it's what you specifically want. Sourcing and acting on information from inside the company you're not authorized to have is.
    • chrisseaton 6y ago
      > My point is that FAANG companies are uniquely positioned by having access to this data that the public couldn't possibly have access to. People working to build unique skills and data is normal competition and building up a competitive advantage, not 'insider trading'.
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• objclxt 6y ago
  > Since startups aren't publicly traded, I don't think insider trading laws apply to trading their securities. FAANG is legally allowed to use their access to information to make better investing decisions than other companies are able to Insider trading laws apply to all companies, be them public or private. It is illegal to trade based on undisclosed material information the other party doesn't have - the law doesn't care whether the stock you're buying is private or on an exchange. Here's an example: suppose you have a startup that's been going a long time, and some employees want to sell their stock on a secondary market. To avoid this, the startup offers to buy back employee stock, using the most recent valuation of the company to price it. However, the CEO knows that since that valuation was carried out the company is doing much better than expected - and the real value of the stock is much higher. This isn't disclosed to their employees. This is classic insider trading, and the SEC has taken enforcement action against private companies for doing this sort of thing. FWIW, I don't think Facebook actually has a large amount of material data in this case - a lot of what they possess (number of active users, platform engagement, etc) is already going to be known by the other party.
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  • ThrustVectoring 6y ago
    > It is illegal to trade based on undisclosed material information the other party doesn't have Insider trading laws are designed to criminalize misuse of confidential information, they're not designed to create a fair playing field. > FWIW, I don't think Facebook actually has a large amount of material data in this scenario - a lot of what they possess (number of active users, platform engagement, etc) is already going to be known by the other party. Facebook knows how much money widget-makers are spending to promote widget product pages on Amazon.
  • CalChris 6y ago
    That's not insider trading when the startup buys back stock and has more information than the employee has. It might be something else but it isn't insider trading. Now if the CEO was buying the stock rather the startup, that would be insider trading. Insider trading is an individual crime. https://www.investor.gov/introduction-investing/investing-basics/glossary/insider-trading https://www.investor.gov/introduction-investing/investing-ba...
• gimmeThaBeet 6y ago
  That's not really insider trading. Matt Levine pops up here all the time, and one of the really distilled mantras he has: inside trading isn't about fairness, it's about theft. Like the people who track flights to speculate on M&A, or use satellite and aerial imagery to look at parking lots. Gathering information isn't a crime, in fact gathering and acting on that information is explicitly what you want at an aggregate level. What you don't want is entities stealing or misappropriating information that doesn't belong to them. I think all the mentioned data categories are basically Fb's line of business, so if it's usable it seems like its pretty fair game.
  • laurentdc 6y ago
    > track flights to speculate on M&A, or use satellite and aerial imagery to look at parking lots This is very interesting, got any source or article? Thanks edit: found this https://www.theatlantic.com/magazine/archive/2019/05/stock-value-satellite-images-investing/586009/ https://www.theatlantic.com/magazine/archive/2019/05/stock-v...
    • raghava 6y ago
      > Their big break came in mid-2010, when Neil Currie, then an analyst at the investment bank UBS, bought parking-lot counts for 100 representative Walmart stores and published the results in a quarterly earnings preview. The number of cars in the parking lots, he wrote, suggested that Walmart stock was undervalued. > Currie’s prediction proved correct. As word spread that satellite images were a reliable predictor of corporate profits, a range of investment funds began buying retail-traffic data from RS Metrics. Many cargo-culting orgs can use this as an example to learn "corelation != causation". 1. Buy shares of X; or bet a high-stake deal with X's board to up the stock price by N percent within a period T. 2. Run some offers/programs - which are intended at the theater - not real revenue. Instead of usual 200 cars a day, store might see 400 a day, sales numbers and volume remaining unchanged 3. Objective achieved; use propaganda marketing to sell the idea to others 4. This ups the stock price anyway - cuz data! 5. Collect bounty from X's board for making good on promise 6. Profit! The theater might not be as simple as what's seen in this example, but this is exactly what startups in one way or other call "hustle" - and possibly the art of faking it till you make it.
• tfehring 6y ago
  Others have mentioned that "insider trading" isn't the right terminology here. But more generally, I honestly don't think this is an issue from antitrust perspective. Imagine that instead Facebook granted exclusive access to all of that data to an external VC firm for a fee. IANAL but my impression is that relationship would be perfectly legal - just like similar arrangements between, e.g., hedge funds and satellite data companies. Now, compare that to a retail store working with the store across the street to fix prices - very illegal, unless the same company owns both stores, in which case it's just called "price discrimination" or "good business". That type of instance - where the behavior would be illegal if it were coordinated between competing firms - is where antitrust concerns really come into play. Of course, it gets murkier (and becomes a very obvious anti-trust issue) when it comes to acquisitions of competing firms like Instagram. I wouldn't be surprised at all if Facebook's goal here is to acquire stakes in potential competitors while they're still small enough to fly under antitrust authorities' radar.
• cortesoft 6y ago
  As many others have pointed out, this isn't insider trading. To drive home the point of how much insider trading laws aren't about fairness, consider this: It isn't insider trading for Facebook to use all the information it has about web trends to buy companies. However, if a Facebook employee used the non-public information Facebook has to go and buy stock in those same companies, that would be insider trading and be illegal.
  • benrbray 6y ago
    I think you've pinpointed the exact problem. Most employees don't own a significant enough stake in their company to benefit from trades made by the company acting on company data. But executives do, and they personally gain from trading on behalf of the company. Trades that would be illegal for any other employee to make. I think what people mean is this isn't covered under the legal definitino of insider trading, but should be.
• bigpumpkin 6y ago
  Facebook will next give preferential treatments to startups it has stakes in through more access to data and users, while putting those who choose to not take Facebook's money at a disadvantage.
• bryanrasmussen 6y ago
  I remember reading an argument at the time, probably from Daring Fireball, that Zuckerberg has such a feeling for growth of social media by then, that he could see that Instagram was a great deal, also the same for WhatsApp.
• an_opabinia 6y ago
  First off, the best deals in VC have no real data. Some big part of fund-making today (Vintage 2020) will happen at the seed and pre-seed stage with pro rata rights. So what good is all of Facebook's data about some app that may only exist as an idea right now. Like "disappearing photos" or "miming song lyrics on video." Expect Google Ventures instead. If you're a Facebook / Google / Microsoft exec it is extremely lucrative to get shares in a company (sometimes as an advisor, sometimes as an investor) then acquire it through the giant company you work for. A lot of Microsoft execs were newly minted millionaires with the LinkedIn acquisition; a lot of Google execs had the same with Nest. Dell, HP, Oracle, VMWare... execs do this all the time. Lemme give you a broader perspective on, "Company does thing with its money with complex economics and risks outside of its primary source of revenue." These giant companies all have charitable foundations. If you're a main line employee, you want to donate something, your company will match it, it uses an outside contractor to vet the charity, it doesn't do any of that stuff for YOUR main line employee charitable contribution. You're an exec, you get 10-100x the donation matching benefit as the main line employee, and for some reason it's done through the foundation. Which goes to your family's charity. Run by your wife and kids. A lot of this stuff boils down to, "executive compensation plans." It's everywhere! The Overstock CEO's ICO scheme was insane. Normal people just buy back stock you know? But it's gotta be creative, take people by surprise. Some exec had to be motivated to do this and they're going to be motivated by their own personal money. No different than a VC. It doesn't mean that just because it's Facebook and not some VC firm they'll do any better. My expectation is they'll do a lot worse in both economic and accounting terms. The scheme will depend too much on Facebook being the acquirer in the long term so prices will be way inflated and insiders will be too incentivized to buy trash.
• emcq 6y ago
  It's no accident Facebook got a deal because they had great data; there is public documentation that Facebook acquried WhatsApp (and likely IG) using data tracking users from a VPN service they bought for much less: https://www.buzzfeednews.com/article/charliewarzel/why-facebook-bought-whatsapp https://www.buzzfeednews.com/article/charliewarzel/why-faceb...
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• kortilla 6y ago
  Gathering data != insider trading.
• pwdisswordfish2 6y ago
  Perhaps of interest/relevance: https://en.wikipedia.org/wiki/Onavo https://en.wikipedia.org/wiki/Onavo