[ajsharp]

Important distinction: this is for a growth fund ("mature companies" in the article). Growth funds are typically fund dedicated to either later stage financings or follow ons from earlier stage rounds that the firm invested in. Growth funds are heavily reliant on an active M&A market, or companies that are likely to IPO. M&A is effectively dead right now, and many late stage companies have valuations that are too high to IPO without taking a big valuation haircut.

[SoftTalker]

> many late stage companies have valuations that are too high to IPO without taking a big valuation haircut.

Isn't the market what determines the value of a company? If they can't get the IPO price they want, then they aren't worth what they think they are.

[nostrademons]

That's the point. The value of a company is determined by the price that people are willing to buy & sell its shares at, but you don't have to be that person.

The VC fund in the article is basically saying "We believe that anyone buying late-stage startups at these valuations is a fool and is unlikely to get a better price when it goes to the public markets, and we are not going to be the greater fool with your money."

[s1artibartfast]

Emphasis on the "and" in "buy and sell". It is not one or the other, you need agreement to have a price.

[surgical_fire]

I wonder if that means that the grift is over.

The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.

This is bad.

[tombert]

Yeah, it really bothers me that as a society we've decided that ponzi schemes are actually fine as long as it has some loose "tech" branding associated with it. It seems like the startup strategy in Silicon Valley is "grow at all costs, worry about profit later, IPO, now it's the public's problem".

Of course someone could say "well they're not forcing you to buy the IPO'd stock!", and that's sort of true, but only in the strictest sense. My 401k, like I think nearly everyone's, is a mutual fund, and it invests in a little of everything. I also buy ETFs that do the same thing, because it's really the only way to preserve wealth, for better or worse. Even if I, for example, thought that WeWork's business model was unsustainable, I don't really have a way of "opting out" of buying their stock without effectively starting my own index fund, or having my cash lose value in an FDIC savings account.

[mandelbrotwurst]

Most (all?) retirement plans offer you some amount of choice in funds to invest in, and most companies of the sort you're describing are not included in many of the more popular indices. For example, WeWork was never in the S&P 500. Similarly, target date funds are one of the more popular investments options available as by default and/or recommendation in retirement plans. The first one I checked (Fidelity's Freedom Index) applies its U.S. allocation to large caps, which again means it does not include many of the companies you have in mind.

[tombert]

Fair enough, I guess if the company never makes it to the S&P500 or NASDAQ-100 you're mostly shielded from this stuff if you do the default funds. There are some questionable tech companies on the S&P, like Uber for example, but not as many and nothing as dumb as WeWork.

I have a lot of VTI stock right now, which if I understand correctly invests in basically everything in the America stock exchanges, though I guess an argument could be made that I should have known that dumb companies being included in there was always a risk.

Still, I don't have to like it, and I do think that a lot of these companies IPOing when they don't really have any way of actually making money is an issue waiting to happen.

[lumost]

I believe Warren Buffet was opposed to robo-trading strategies for this exact purpose. If the bulk of the money is going to fund anything with a market cap greater than $X, then it is useful for VCs to pump a stock up to $(X + Y) market cap to acquire funding via rebalancing.

From a VC perspective, you can exit as other funds rebalance into the stock at the inflated valuation.

[wbl]

The beauty of market cap weighting is only entrance or exit forces a rebalance.

[0xDEAFBEAD]

>I don't really have a way of "opting out" of buying their stock without effectively starting my own index fund, or having my cash lose value in an FDIC savings account.

Some other approaches:

* Buy long-dated put options for companies you think are overvalued, so your overall portfolio (retirement account+personal trading account) has 0 exposure to stocks you don't like. If a stock's price goes down, exercise the option before its expiration date and profit.

* Assemble a portfolio of sector ETFs and exclude the tech sector. Or buy regional ETFs in regions with low tech exposure. (If you're American, I recommend buying ex-America ETFs for hedging purposes anyways, since your career already gives you significant exposure to the American economy.)

Granted, you will be paying higher fees with these approaches, but given how dominant tech stocks are, if you really believe they are significantly overvalued, I think you should be willing to pay those higher fees.

[Timber-6539]

With an ETF you don't have to do any of this work. And generally, the market tends to go up not down. For most stocks. Even the ones you think are no good.

You are not going to make much shorting in general unless you have a nose for identifying the next Theranos et al.

[red-iron-pine]

> I don't really have a way of "opting out" of buying their stock without effectively starting my own index fund, or having my cash lose value in an FDIC savings account.

I've done that, out of necessity -- the US IRS hates foreign ETFs, and I live out of the US.

Market movers are almost certainly a Parato 80/20 thing, and most of the growth of the stock market, or even the S&P, is in a handful of companies.

Find the prospectus of any local Index funds and then start looking at their top 50 picks; cross reference that with a few others. Pull the 20 that stand out the most.

[jjav]

> Of course someone could say "well they're not forcing you to buy the IPO'd stock!", and that's sort of true, but only in the strictest sense. My 401k, like I think nearly everyone's, is a mutual fund, and it invests in a little of everything.

Every 401k has multiple fund choices, so pick one that does not invest in recent IPOs.

In fact this should be very easy because most funds don't participate in recent IPOs! Depending on the 401k, you might not even have any fund that invest in recent IPOs.

[nostrademons]

The previous grift is over, the new one (AI) is getting started. VC fund actually wants to exit the old market, where they are the greater fool at the bottom of the pyramid scheme, and enter the new one, where they can find new fools to unload on.

[throwup238]

> I wonder if that means that the grift is over.

It's just general market conditions. Once interest rates fall, tech VC will go right back to the grift.

Biotech has also seen a major slowdown this year too, despite the huge $43b, $14b, $10.8b, $10b, $8.7b, $7b and $7b [1] acquisitions last year and all the usual IPOs. It's just interest rates catching up to everyone's funds.

[1] Seagen, Karuna Therapeutics, Prometheus Biosciences, Immunogen, Cerevel Therapeutics, Reata Pharmaceuticals, Mirati Therapeutics

[surgical_fire]

I truly hope you are right, otherwise market conditions will only deteriorate further for whoever work in tech.

[klranM]

I think we just have near stagflation in Europe and a bad economy + inflation in the U.S. If certain wars are stopped, energy prices go to normal and the excess COVID money supply is gone, things will be as before.

But the U.S. population has to want it rather than voting emotionally again.

[electrondood]

Inflation is at 2.5%.

Unemployment has bottomed out again at 4%.

The stock market has been making all time highs.

The fed is lowering rates.

[AndrewKemendo]

This kind of appeal to economic authority is why we’re in this mess to begin with

None of these measures says anything about human health or anything other than the fact of dollars exchanging hands

Egyptian, roman, French etc… slave colonies probably had the best economic productivity on the planet. Who cares?

[wbl]

What bad economy? Labor market is a bit soft but still strong, GDP has been gangbusters for quarter after quarter.

[Wytwwww]

> stagflation in Europe

Where? I wouldn't be surprised if deflation becomes a real concern in the near future. Eurozone is already at 1.8% YoY

[tivert]

> ...things will be as before.

> But the U.S. population has to want it rather than voting emotionally again.

Why would the US population want:

>> The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.

? IMHO those greater fool-based moneymaking schemes can go die in a fire.

[surgical_fire]

> Why would the US population want:

>>> The whole VC/startup grift needs the greater fool to be either a big company with money to burn to do an acquisition, or the retail investor to be the greater fool via IPO.

I was the one that originally wrote that. Bear with me for a second.

I avoid working for startups, but the VC/startup grift indirectly benefits me, as they soak a bunch of software developers from the market at large, increasing demand and salaries across the board. I call it a grift out of sincerity, but I was never hypocritical to pretend I didn't benefit from it.

As for the general population is hard to say. The layoffs that affected tech reached way beyond cushy software engineer jobs.

We may recognize that building castles on sand is a bad idea. Perhaps our economies, and the rules that create incentives (perverse or otherwise) should be different than they are.

Fact is, we have a lot of fucking castles built on sand right now. If they crumble, a lot of people will be left to wander among the rubble.

I do hold a deep despise for the billionaire class that was the ultimate beneficiary of this whole "building castles on sand" activity. It's not them who will lose the most when everything crumbles though.

[Yeul]

An analyst on the radio talked about Saudi Arabia. Apparently their sheikh is tightening the budget and Arabs always were the biggest fool. It's having a huge impact on grifters world wide.

[s1artibartfast]

Value isnt singular. Every single transaction in the economy is the result of a difference in opinion about value.

My House has a public valuation, but the value it me is much higher, so It is not for sale.

Im sure there are several things that you dont buy for their market price because they have less value to you. You dont go into the store and buy every Item you see, or put every item you own for sale.

[SoftTalker]

Agreed, but if I decide to sell my car, what I originally paid for it, what I think it's worth, or how much I've invested in repairs, or how much I still owe on it, all has nothing to do with the price I can get.

[s1artibartfast]

There are an infinite number of ways you might choose to price your car. If you want it sold in the next 30 minutes, you'll have to settle for what anyone has in their pocket. If you're willing to wait 20 years, you might get a much higher price. Anyone who has bought or sold a used car will know that market price is an average, in reality prices are diverse.

With all that said, my point was to highlight the role of choice in deciding to sell or not. I wouldn't recommend selling your car if you owe more than the market price, and don't have money for a replacement.

[ajsharp]

100%. A lot of companies effectively waited too long to exit, and in retrospect probably should've gone public in 2021.

[aantix]

The Reddit IPO appears to be holding strong.

11.129B market cap.

There's an appetite for companies with low profitability, but promising future growth.

[CalRobert]

Reddit might be in an unusually good position since they hold a huge amount of natural human language they can sell.

[skrtskrt]

bit of a stretch to call that natural human language - forget the type of actual people that post there, it's been a massive astroturfing target for political and marketing bots for over a decade.

[Apocryphon]

r/HailCorporate

[everforward]

Yes, but the driving motivation is probably more financial than emotional. Trying to IPO at a price lower than the last valuation is announcing to the world that the last investors lost money, while simultaneously trying to convince the world to be the next investors.

In theory, the market will bounce back so IPOing now is effectively selling low.

[AYBABTME]

If they have enough cash/free cash flow, they don't have to take money at a lower valuation.

[JumpCrisscross]

> If they have enough cash/free cash flow, they don't have to take money at a lower valuation

Sort of? You're describing either a healthy business, at which point their market value shouldn't be an issue, or management holding the business hostage because they prefer their salary to shareholders having a return.

[gtCameron]

There isn't a return for shareholders if the valuations are lower. The problem is not management holding the business hostage today, the problem was investing at unsustainable multiples a few years ago.

Now the only options are to either cash out at a lower valuation and not make any money, or wait and hope the business grows to the point where you can get a higher total valuation despite the lower multiple and see a return on your capital.

[candiddevmike]

> management holding the business hostage because they prefer their salary to shareholders having a return.

But Ive been fed that the principal agent solution of equity and executive privilege prevents this! Next you'll tell me capitalism doesn't allocate resources efficiently.

[JumpCrisscross]

> the principal agent solution of equity and executive privilege

This phrase is distilled nonsense. Executive privilege [1] has precisely nothing to do with the principal-agent problem [2].

[1] https://en.wikipedia.org/wiki/Executive_privilege

[2] https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...

[akira2501]

> Isn't the market what determines the value of a company?

There are several markets involved here.

> then they aren't worth what they think they are.

Which is an indication that your market is corrupt or lacks the information discovery necessary for accurate pricing information to be generally available.

[TrackerFF]

Your house isn't always worth what you want it to be.

FOMO and free cash can work like magic for all kinds of assets.

[no_wizard]

A startup I used to work for within a year of interest rates rising and lower spend by businesses and consumers ended up cutting staff by ~84% and they nearly 100% outsourced development (it may in fact be 100% now but idk for sure).

They did this to avoid any changes to their sky high valuation, as if they went and fundraiser it would have tanked it.

At this point I think they’re hoping to meander along until they’re forced into fire sale or they get acquired for their customer base

[shivasaxena]

Not really, the DCF value of a company is sum of its discounted Future cash flows. But the value to a acquirer usually exceeds it because they can can extract a "hidden value" specific to them. It's called "acquisition premium"

If interested, look up "Valuation: Measuring and Managing the Value of Companies"

[CharlieDigital]

    > M&A is effectively dead right now

Curious if there is a reason why M&A is slow; any reading?

[candiddevmike]

I'm not sure if it's really anti-trust. I think companies are being stingy with M&A because most companies are no longer worth the acquisition cost. They're looking for more "strategic" buys as money isn't cheap anymore. You're still seeing M&A, it's just occurring with more complimentary companies that actually add value (or hires) to their existing portfolios.

[stackskipton]

Yea, my company has done a few acquisitions. Ones from 4 year ago were head scratchers, what do they add? Last one has been clear value add.

[mschuster91]

Biggest one IMHO is interest rates. The days of virtually-free credit lines are gone for the near to mid future - at least until the situations in Israel/Palestine and Ukraine/Russia are sorted out, but even then, China may want to take over Taiwan leading to the next global crisis.

Another reason is the AI craze. Everyone and their dog is focusing on being a/the dominant power in that area, so interest in "old tech" is waning.

And the last/smallest factor is that many of those individuals who exited in the last few years are hesitant where to put their money, and there is not much space for multi-billion dollar established companies to make acquisitions when they're all forced to let people go as a result of the post-/mid covid hiring spree and anti-trust authorities worldwide being very critical of more agglomerations at the moment - some because of strategic reasons (Europe in particular isn't looking too friendly to more of their companies being bought out by foreigners), some because they do not want to risk even more companies growing too-big-to-fail.

[snarf21]

You are exactly right, money isn't (essentially) free right now. There are better returns elsewhere.

[JamesBarney]

A combination of interest rates and cap tables being all messed up from 2021.

If you have a company that raised a 100m of preferred at a 500m valuation, are you going to take an offer for 150m? Most founders are just going to keep grinding hope things get better.

[ajsharp]

Will echo what many have said here already, but with a slight twist:

1. Anti-trust activity takes a HUGE portion of the liquidity that does M&A out of the market. That has a dynamic effect -- other players who are not under direct anti-trust scrutiny think twice about their potential M&A activity. This, in theory, should reduce M&A prices (reduction in supply supply), but this is probably largely offset by point 2. 2. Inflated valuations from 2021 era. Lots of companies raised ridiculous late stage rounds around this period. Then interest rates rose. Now your company that raised on 100x ARR is worth a lot less than it was. But the company still has to grow into and beat it's last valuation. Combined with the M&A dynamics, it's much harder to justify a post-money above what your last raise was if that raise was a post-covid valuation, unless the business is just truly on ripping (e.g. Wiz).

[hodgesrm]

It's not anti-trust in the case of smaller acquisition targets. There are also fewer strategic acquirers in some if not all markets. For example, if you built a good product 10 years ago on top of an open source project, there were a number of companies looking to grow by acquisition, such as RedHat, VMware, Rackspace, and Salesforce. Of those only Salesforce is still a factor.

Edit: clarity

[schmidtleonard]

Interest rates.

[bpodgursky]

Anti-trust

[jordanb]

Higher interest rates are also hurting LBOs which shouldn't affect startup acquisitions but does affect PE.

[JumpCrisscross]

> interest rates are also hurting LBOs which shouldn't affect startup acquisitions but does affect PE

Reasonable hypothesis, but not quite. LBOs' share of American buyouts has been falling monotonically since at least 2015 [1]. Buyouts have increasingly been smaller add-on acquisitions, with tech dominating activity.

[1] https://thesource.lseg.com/TheSource/getfile/download/bf99ca...

[hadlock]

From my M&A colleagues, they're saying it is largely interest rates.

[bbor]

Brings a tear to the eye… there are good things in the world! Nature is healing!

[jppope]

Anti-trust, yes. But also VCs funding a bunch of weak companies early stage for the last several years

[JumpCrisscross]

> Anti-trust, yes

The reason anti-trust action has chilled M&A is because there were only four strategic buyers. Due to decades of failed anti-trust.

The other reason isn't so much weakness as much as pandemic-era valuation madness. Reasonably priced, a lot of start-ups would sell for less than their last valuation. That would seriously cut into the founders' pay-outs, which are usually based on common stock.

[alephnerd]

I can only really speak to Cybersecurity and other adjacent parts of Enterprise SaaS, and M&A activity is fairly strong in both.

The big issue is a number of startups in that space raised at very favorable terms with Growth Funds in 2019-23, which made them extremely expensive to acquire versus to either build in-house or conduct a tuck-in acquisition.

What's I've noticed is that if it costs greater than $100-150M to acquire, it's difficult to make a case for acqusition versus build in-house unless you are extremely behind and need an internal culture change (eg. Cisco and Robust Intelligence being similar in magnitude to Cisco's previous foray into SDN w/ Meraki)

Series C and below remains fairly robust ime, as we can see with Dig Security, Talon Security, Robust Intelligence, NeoSec, etc.

[happyopossum]

With the exception of Robust, all of those are 2023 acquisitions. 2024 is not shaping up nearly so well...

[alephnerd]

There have been a decent number of tuck-in acquisitions in 2024. Flow Security (CRWD) and Eureka Security (TNBL) were fairly notable.

The main open question right now is about AI Security and Safety - specifically, whether to build or buy.

Most other segments (DSPM, OT Security, Vulnerability Management, CNAPP, etc) have largely been acquired and consolidated.

The thing is, there aren't that many startups in the space left that garner mutual interest in acquisition.

It's basically bimodal now, whereby

- a number of Series B/C startups have enough cash in hand to potentially do a tuck-in for a Seed or Series A AI Safety/Security startup and as such don't want to get acquired by a larger company because they have a strategic path forward to differentiating themselves from larger players [Acquirers interested, Startups uninterested]

- a number of Series E/F companies that have raised capital at multi-billion valuations but do not have a path forward to generate revenue at those valuations (eg. Lacework valued at $9B but ARR shy of $100M) [Startups interested, Acquirers uninterested]

Most notably, the earlier stage startups are now founded by startup founders who already have a $1M-50M net worth now due to successful cybersecurity exits in the 2019-23 period (IPO or acquisition). You can see this first hand in the Israeli and Bay Area cybersecurity startup scene.

[twoodfin]

Tabular, for example, seemed to do OK finding a non-strategic buyer.

[alephnerd]

Databricks' acqusition of Tabular was absolutely strategic.

Both Databricks and Snowflake are in the process of integrating Iceberg capabilities into their own lakehouses, because the industry is consolidating towards Iceberg, especially after Clickhouse and Dremio integrated Iceberg support in 2022.

This is why Snowflake preemptively announced the Polaris Catalog right before the acqusition by Databricks was announced.

Databricks, Snowflake, Dremio, and Clickhouse are all competing for the same piece of the pie, and much like Cybersecurity in the late 2010s to early 2020s, there is a drive to "everything" platforms, and RFPs can absolutely get sank due to lack of capabilties in comparison to a vendor.

[twoodfin]

Right, my point is there are a few more strategic buyers outside the trillionaires club.

[cellis]

Right, better to give the money back and preserve IRR/ reputation than try to simply earn carry.

[patrickhogan1]

They aren’t giving it back they are converting it into a new fund for early stage companies. The article is click bate.

[ajsharp]

Oh i missed that part -- that makes way more sense.

[JumpCrisscross]

> preserve IRR/ reputation than try to simply earn carry

Management fees. Carry is performance based.

[ned_at_codomain]

FWIW, the IRR clock doesn't start until they call capital from the LPs.

[JumpCrisscross]

> the IRR clock doesn't start until they call capital from the LPs

Capital calls must be honoured on short notice. That means committed capital must be kept low-risk and liquid. That has an opportunity cost. While you are correct in conventional IRR, particularly that touted by funds, only starting the clock when capital is called, LPs measure their own IRRs that consider the opportunity cost of committed uncalled capital.

[ned_at_codomain]

Yeah, that's a good point :)

Do you have any inside info on how some of these big LPs are modeling opportunity cost against their growth equity commitments? My understanding gleaned from friends has been that they're generally just cutting exposure to growth-stage software and planning to park the capital in pretty vanilla/liquid public equities and fixed income anyway.

Seems like no one really wants to be interested in increasing their exposure to PE or growth equity anymore.

[JumpCrisscross]

> how some of these big LPs are modeling opportunity cost against their growth equity commitments?

This isn't unique to growth equity but commiting to a capital-calling fund in general.

> no one really wants to be interested in increasing their exposure to PE or growth equity anymore

PE and VC suffered relative to private credit [1][2]. (Basically, folks want to lend to private companies more than they want to buy stakes in them.)

It's unclear whether growth is being uniquely impacted versus private equity in general, early-stage VC inclusive.

[1] https://www.institutionalinvestor.com/article/2dk6rmatv89c9u...

[2] https://www.bloomberg.com/news/articles/2024-10-01/jpmorgan-...

[blackeyeblitzar]

Thanks for sharing your perspectives in this thread. You seem to have a lot of deeper knowledge about how all this works. Any guidance on what to follow or where to learn to understand these complex dynamics of the investment world? I feel like much of what I’ve seen is more like the basics.

[financetechbro]

M&A is not dead. Not at 20/21 levels, but certainly not dead. Some sectors in tech are much stronger than others, now if you’re a company that is burning cash and doesn’t have an appealing growth profile then yeah you won’t get a deal done (source: me). IPOs are basically dead atm

[miki123211]

There's also the fact that antitrust regulators seem hell-bend on killing the M&A market entirely.

Historically, there were two main paths for startups, IPO and being acquired by a larger competitor. The latter path is now a lot more difficult, due to the DoJ, the EU and whatever the UK's thing was called suing everybody who tries to do an acquisition.

In the long run, this means fewer startups will get acquired, fewer startups will have an opportunity to exit, the potential upside for VC firms is going to diminish drastically, fewer companies will get funded, which will ultimately lead to the incumbents having all the power and startups having none. This is a very bad thing.

[woooooo]

Any links handy to justify that claim? My impression from headlines was that some massive enterprise M&A was blocked recently but not so much "startup exits". Maybe I missed it though!

[Vegenoid]

I don’t know very much about business - but having the goal of most new companies being to be bought by a larger company doesn’t really sound healthy to me.

[Ekaros]

Shouldn't goal for most companies to be self-sufficient and to generate reasonable dividends for their owners? Then depending on goals of owners they might or might not be private.

For me that sounds much more desirable than having a handful of extremely highly valued giga corporations. It cannot be long term good to have so much valuation concentrated to what less than 10 or so companies...

[happyopossum]

> Shouldn't goal for most companies to be self-sufficient and to generate reasonable dividends for their owners?

No, the company founders should be allowed to set their own goals and not have them dictated by regulators.

[dartos]

Sounds like a slippery slope fallacy.

What’s to say startups don’t start being creative or truly innovative and focus on making and selling products while making a profit?

I’m sure another viable exit strategy will be discovered

[_DeadFred_]

Man the 'it's really bad government is enforcing antitrust laws' crowd sure is pushing this hard on HN this week. You understand all of the original thought on capitalism explained how it was essential the government keep this type of control on markets in order for capitalism to work, right?

If your only business model is to get bought out by a larger company capitalism SHOULD world to reduce the number of startups.

Also, the incumbents just buying everyone up also = incumbents having all the power, and is also a very bad thing. Hence the creation of antitrust laws, and the concept of it being baked into foundational capitalist thought.

[londons_explore]

> late stage companies have valuations that are too high to IPO without taking a big valuation haircut.

AKA, we've made a loss, but don't want to admit it yet.

If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.

If you over declare, you pay more tax. (you'd pay perhaps 1% of the asset value every year, and that would replace income tax, capital gains tax, etc)

If you under declare, someone else will come take your asset off you for whatever value you said.

Suddenly this whole idea of "unrealised gains/losses" goes away, as does fake valuations for tax avoidance.

[krisoft]

> If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.

That feels problematic. How much is your wedding band? Or the urn with your grandma’s ashes? Or the favourite teddy bear of your child? Or all coppies and rights to your wedding photos?

I hope you declare them high enough or people might just take them for the lolz.

[s1artibartfast]

you are thinking too small. Buy up all the futures in food, 100x your stated valuation, and sell it back to the starving masses.

[krisoft]

Yeah. Maybe. That plan sounds hard. In particular at that level of disruption society will defect. You will owe all the food on paper, but nobody will enforce your right.

Probably it would be much more lucrative to snatch up the homes of older folks who accidentally misdeclared. With the right PR you can even label your victims as tax cheats! What a “beautifull” system!

[s1artibartfast]

Why should we let private profiteers benefit from the mistakes of the elderly. We should have the IRS snatch their homes directly for resale. This would optimize turnover and government revenue.

[FactKnower69]

feigning an inability to distinguish between private property and personal property to manufacture resistance to reform of political economy, what a concept

[krisoft]

Are you saying that when they said “all assets” they actually meant “some assets”?

[JumpCrisscross]

> I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value

This would make investment bankers and lawyers happy and nobody else.

Note that any company with a '40 Act investor already has public valuations per those investors' opinions published--it's how you get "Fidelity marks down value of Twitter stake again" headlines [1].

> this whole idea of "unrealised gains/losses" goes away

As does the entire American private capital market, including small business, since illiquid investments now become punitively expensive to hold.

The more I think about it, the more impressive this proposal becomes in terms of solving almost zero problems while actively making the problem worse in different ways.

[1] https://www.reuters.com/technology/fidelity-marks-down-value...

[singron]

This is has actually been used before.

Ports would tax ships on the value of their cargo. It wasn't viable for the port to create valuations themselves, so they left it up to the ship, but the port had the right to buy the cargo at that price.

The scheme kind of works well if it's liquid commodities (e.g. grain, oil, lumber) and the purchasing right is held by a non-capricious authority (i.e. one that only exercises that right to call a bluff).

Taking a down-round on an IPO can be very damaging to a company. Since employee equity is based on options, that puts those options underwater and means employees will make nothing in the IPO. Internally, the company is doing 409a valuations and admits in writing that the valuation is down.

[Gigachad]

I wonder how this works for items that have far more value to the owner than the market value. Say shipping my personal belongings to another country. The value of my stuff is probably quite low, but it would be incredibly inconvenient and disruptive if it was purchased at it's market value and flipped on ebay.

[lokar]

Do many companies pay in options anymore? I’ve only seen RSU for years now.

[singron]

Basically all early stage startups use ISOs. Public companies typically use RSUs. Some startups transition to RSUs before their IPO.

RSUs are kind of unworkable if the valuation will increase significantly before the shares become liquid since you owe taxes on their value as they vest whereas ISOs let you defer taxes until at least exercise if not sale.

[JamesBarney]

> If I were tax policymaker, I would force all assets to have a valuation every year, and published in a register, and allow anyone else to buy any of those assets for the declared value.

You and your dad run a plumbing business. Every year you have to pay someone 10k to get a valuation. Then strangers can buy a piece. Do you have an operating agreement? If not he can force a sale if the company.

I don't think this is a great policy.

[axus]

Couldn't the annual valuations be gamed by insiders? Who's going to impartially decide the declared value?

Best alternative I can think of is a soft fascism where the government receives a small stake in the company each year instead of cash. Then holds or auctions it as some bureaucrat sees fit.

[JumpCrisscross]

> Couldn't the annual valuations be gamed by insiders?

Yes. It's not even difficult to imagine. Management undervalues group assets to buy them on the cheap for themselves.

[fuzzfactor]

>Management undervalues group assets to buy them on the cheap for themselves.

It's not my imagination, I've seen how they sell the same assets back for a profit after enjoying some tax depreciation for a while too.

[happyopossum]

> and allow anyone else to buy any of those assets for the declared value.

Pretty problematic to force the sale of assets from private individuals in anything remotely resembling a free country.

That aside, wouldn't this just result in megacorps owning literally everything in a matter of a few years?

[londons_explore]

You mean those megacorps that don't like to pay many taxes? Means individuals can simply buy stuff off the megacorps.

[fluoridation]

Won't individuals also have to do those valuations? What prevents someone from taking the stuff right off your hands, and so on ad infinitum?

[ttymck]

"allow anyone else to buy any of those assets for the declared value"

How would this work?

[JumpCrisscross]

> How would this work?

Private ownership would become impractical for the hoi polloi.

The wealthy would need to pay a new class of bureaucrats to keep asset values up to date, to continuously incorporate new information into their marks. Everyone else would be better off renting--owning a car would be risky as it could be snatched from you at a moment's notice due to an overnight shift in the metal markets.

Remarkably similar to a feudal system, actually.

EDIT: What am I thinking, you'd just move all your financial assets overseas and maintain as little real property as possible domestically. The same thing folks do in the Gulf countries where the monarch gets stealsy from time to time.

[londons_explore]

Bob declared his car to be worth $18k in 2023. Fred fills in an official form, pays $18k to bob, and takes bobs car. Perhaps a 1 month handover period is given, and perhaps a 10% 'hostile sale' fee is given to the government to prevent abuse of the system to take houses from grannies.

Lets say any item worth over $10k (including cars, land, houses, companies, etc) would be part of the system.

Another way of looking at it is "all items in the nation are always for sale, and if you don't want to sell you better choose a high price".

Obviously if you don't want your stuff taken, declare a high value. But you'll pay a bit more tax for the privilege.

[s1artibartfast]

Perhaps we could institute a similar law for people and tax their self reported value of their time/labor. If you under-report you can be press-ganged into slavery for a specified duration, say 1 year.

This would ensure that people's labor and their bodies would be put to the most efficient economical use as well as increase tax revenue.

It would also solve the problem of undercompensating of workers. If your employer values your experience and knowledge, they would have to pay a premium for it, otherwise a competitor would buy you out from under them.

[gruez]

Poaching is already a thing. Why do you need a press gang law on top?

[s1artibartfast]

poaching is currently inefficient. Poachers have find employees and many employees refuse the offer for selfish reasons, Even if the salary is higher and would generate higher income taxes. These people are cheating society of tax revenue and growth it would otherwise have.

Lots of people hoard their time, spending it with friends, family, and children. This would force that time and labor into the market, where it could be taxed and contribute to social good.

A woman reading a book or singing to their child creates no taxable income, and doesn't contribute to GDP. Under the current proposal, If She didn't pay sufficient income tax on the time she selfishly hoards, a company like hooters could buy her and put her labor to more productive use.

[JumpCrisscross]

> perhaps a 10% 'hostile sale' fee is given to the government to prevent abuse of the system to take houses from grannies

So Bob is not only out a car, but down $1,800k to boot?

[ttymck]

Surely you can't be serious. Say, in this fantasy world, my car appreciates $3k. Can Fred still pay $18k before I have a chance to re-assess?

[londons_explore]

If some asset changes in value, you could reassess at any time.

Just like a car dealer changes the sticker prices on his cars every few days,

[pertymcpert]

Have you really thought this idea through before you write about it in public?

[sroussey]

This will be fun with crypto. You assessed yesterday and it shot up in value and I take it off your hands at 3am.

[happyopossum]

So now you have a full time job managing the declared value of all of your assets? Or perhaps you'd suggest families now have to hire an asset management firm?

this is ridiculous

[whatshisface]

If you show up at the tax assessor's office with a check for more than the self-reported value of my home, realistically plus the premium the government pays in eminent domain cases, you get the title. That idea is pretty much "eminent domain for all."

[jermaustin1]

This is terrible. I don't want to loose a priceless family heirloom (grandma's Sheraton-style rocking chair from 1890s) just because someone wants it and can write a check for $1 more than the assessed value. That discounts sentimental value. And if I now have to declare sentimental value and pay taxes on it, I'd rather burn it to the ground (grandma would approve).

[whatshisface]

A lot of people hate eminent domain too, for that exact reason. I think libertarians want to get rid of it entirely because it's an involuntary transaction.

[JamesBarney]

Yeah eminently domain isn't great. But also it's better than the alternative which is having a country without roads.

[lotsofpulp]

Not being born to a grandma who could afford a life stable enough to preserve and pass down such a chair is also an involuntary transaction, but libertarians don’t seem to talk about that.

[BobaFloutist]

That seems really annoying to deal with. It's possible it would lead to a better society eventually, but in the short term I'd rather speculators not buy my shitbox car out from under me because they spotted the chip shortage before I did.

[whatshisface]

It might not be so bad if you were allowed to accept an increase in your tax assessment rather than selling at the new price.

[JumpCrisscross]

> might not be so bad if you were allowed to accept an increase in your tax assessment rather than selling at the new price

Sounds like a bonanza for developers.

[Detrytus]

There’s a similar concept with real estate taxes in some countries: you pay your tax based on self-reported valuation, but if you sell for a price that’s higher than this valuation then you have to pay adjusted tax for like 5 years back.

[s1artibartfast]

You just eliminated the right to hold assets and conduct most long term planning. Sounds terrible.