[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.

[no_wizard]

VTI is a minimum ten year horizon type investment though, which is why it’s often praised by the Boglehead crowd.

Hold it for 10-30 years and it’ll be up and to the right. On average 10% gains in a year, though like anything it always fluctuates

[mandelbrotwurst]

Yeah, I hear you. It definitely feels like there's been a shift toward investing based on sentiment rather than fundamentals, and there's certainly an argument to be made that's not a good outcome for society.

Personally I feel like it's a bigger issue for individual investors that in recent years companies now IPO only in later stages or not at all and that much of the more profitable bits of the growth curve are now accessible only to the private markets.

[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.

[lumost]

Would be quite interesting if WeWork et. al. were schemes by the financial backers to capitalize on cap weighting strategies. The folks involved would not have been opposed to this in the past.

[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.

[0xDEAFBEAD]

You're basically replying to tombert, not me. All I'm saying is, he has the opportunity to put his money where his mouth is if he really wants to. It's a funny definition of "no good" if you expect the stock to go up.

[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.

[tivert]

> 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.

I get that, we as software engineers have indirectly benefited from the scam.

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

I don't think it's hard to say. If the general population was made understood the full situation, they'd tell us software engineers to get lost along with the billionaire VCs, because the general population are the ultimate greater fools that pay for it all (either directly through the stock market, or indirectly through the businesses who make so much through monopoly off of them that they can easily afford to be greater fools).

We software engineers have had a pretty privileged time while a lot of people have been struggling (viz. the whole "learn to code" bandwagon from a few years ago).

[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"