Nothing makes sense

I wasn’t feeling great going into the weekend, but some rest and fun was what the doctor ordered. I caught up with a lot of my college buddies via Zoom on Saturday and we all probably had a few drinks too many. Despite feeling a bit off Sunday, a good catch-up over beers (and shots) where we can take our mind off the current situation was exactly what I needed. I felt great this Monday and have been pretty productive overall.

On to the next…

A close buddy of mine exclaimed today that “he doesn’t see how this situation continues to push the market higher”. I had a good laugh as he tried to make sense of this market.

The truth is nothing really makes sense right now.

There is nothing normal about a global pandemic. There’s nothing normal about social distancing and shelter-in-place. There’s nothing normal about the leader of the free world being Donald Trump.

This is a unprecedented situation that’s going to be much worse before it gets better. The market will respond accordingly. Sometimes it’ll make sense and sometimes it’ll puzzle even the most veteran investors.

For those of us that are going through our first major crisis as investors, it’s time to stop trying to make sense of this market. It’s going to be volatile and the next few months will be a rollercoaster. We’ll need to buckle up.

Live and die by Zoom

I’ve been impressed by Zoom and surprised that there have not been any major crashes yet during the mandatory work from home era. It’s a testament to the company and the public market has been responding with a high valuation on Zoom stock.

While Zoom and videoconferencing has gone a long way over the last few years, there’s still a lot to be desired. Maybe I’m just old school, but I don’t think much can be done to replace that face to face interaction at the current moment.

On Friday, we had a company all-hands meeting and I couldn’t help but to think things were just a bit more awkward than normal. Our team is spread between Amsterdam and San Francisco so usually these calls make each office get together in a meeting room where there’s a lot of fun exchanges. We didn’t get the same effect on this all-hands.

On top of that, there were some minor technical difficulties. My screen was on a lag so my quick presentation was a bit derailed. People who had questions would ask them at same time causing the, “no you go ahead” exchange. Some people clearly had better microphones than others and a few folk were hard to hear.

On the flip side, maybe I’m just spoiled and looking for things to complain about. After all, video conferencing tools like Zoom allowed our team of 35+ spread all over the world to get together on a video chat.

Yesterday, my college friends and I started a happy hour video chat with 6 people that grew to over 20. Some people hadn’t seen each other for almost 10 years and Zoom brought us all together in a mini college reunion.

We were able to share stories, drink beers, and even take a few shots together. After about 4 hours, our crew was drunk and merry like we would have been if we had all been in a bar together in Seattle where we met. I had a blast.

Perhaps it’s not fair to complain about Zoom. Yes, there’s a lot left to be desired, but it’s made our lives significantly better during this time. Maybe my complaints are mainly just an adjustment period. Maybe by the end of this quarantine, I’ll look to Zoom as the thing that got me through it or maybe I’ll be so sick of it that I’ll never want to do a video conference call again.

Either way, I’m glad videoconferencing tools like Zoom exist and I am excited to see the new innovation that comes in the next few years in regards to video conferencing.

How to fix 83(i)

The market is volatile and we keep seeing massive recoveries followed by drops. A $2T stimulus package was finally passed and signed by Trump. America is finally first again… in the coronavirus cases. I’m in a very somber mood today. It was a really tough week overall — lots of highs and lots of lows and my emotions are all over the place.

I need to rest and recover this weekend. I plan to do a bit of work over the weekend, but mainly on stuff I am excited about so I can recharge and head into next week in a more positive mood.

I wrote a post a couple days ago about how Section 83(i) falls short for stock option holders. I’m adding the second part to the primer where I discuss how to fix 83(i). I am hoping to share the final product once it’s ready, but for now, I’m keeping things confidential and only sharing my primer.

Here you go:

Many employers will be forced with the tough decision to lay off employees to cope with the crisis. In turn, many employees will be left with vested stock options in which they likely do not have the cash to exercise, especially given the circumstances. The unfortunate reality is that if executed correctly by the IRS and Congress, the 83(i) election could have been a much needed tax break for employees affected by the COVID-19 crisis. 

Nothing is simple in U.S. taxation, but there may be a few “simple” tweaks that may be what taxpayers need today. 

• Change the 80% rule to require employers to offer options (ISO, NSO, etc.) and RSUs to 80% of employees. This eases the administrative burden of tracking ISOs, NSOs, and RSUs to each meet the 80% rule separately while maintaining the intent of the rule.

• Remove the requirement that forces employers to hold 83(i) stock in escrow. The escrow is an excessive requirement to ensure that the employee pays the tax bill in the future. People buy and sell assets including stock, cryptocurrency, etc. on a daily basis and they are required to self-report any gains/losses to the IRS. This should be no different.

• Allow the employee to defer the income taxes associated with exercise today, but allow the employee to surrender stock back to the company without paying that tax when the deferral period is over. This allows the employee to make the decision on whether to pay up the taxes associated or allow the stock to effectively expire preventing the difficult situation where an employee is required to pay tax even on worthless stock. 

The hope of the Section 83(i) election

I wrote a short-ish primer on the Section 83(i) election that was enacted as part of the Tax Cuts and Jobs Act. It isn’t meant to be published so writing isn’t great, but it’s meant to be a quick introduction for a project I’m working on. I’ll keep things vague for now and post if this ever goes live, but figured I share what I wrote.

The TL;DR is that the 83(i) has the right intent which is to allow private company employees to defer taxes, but is not practical due to the heavy restrictions for the company and limited benefits for the employee.

Here you go:

A Section 83(i) election has a lot of potential benefits that may be appealing to start-up employees. On the surface, it allows an employee with non-qualified stock options (NSOs) to exercise their options, and defer the ordinary income tax bill associated with exercising to as long as 5 years. However, the benefits to the employee are severely limited and could pose potential issues.

• The election only defers regular taxable income which would be for employees who hold non-qualified stock options (NSOs). For employees granted ISOs, you cannot defer the alternative minimum tax (AMT) liability. If you hold ISOs, you can still take the election, but you lose all tax benefits of having ISOs making it unattractive for ISO holders. 

• Employees still have to pay this back in a maximum of 5 years if the company still hasn’t exited. Although it buys you time to save for the tax bill, you’re still at risk to pay the tax bill down the road and be in the same position you were in today. 

• Employees are still liable for paying income tax on the value of the equity at the time of exercise. If the value of the stock drops after the 5 year period is up, they will be paying a higher amount putting them worse off than they would have been if they had waited. 

Furthermore, after the IRS released guidance on Section 83(i) in Notice 2018-97, it is clear that not only are the benefits for the employee limited, but the administrative burden for companies to offer the 83(i) election is heavy. 

• There is a rule that requires employers to make grants of options or RSUs to 80% of it’s employees. Employers must always calculate how many options or RSUs were granted to their employees every year to ensure it meets the 80% rule. Furthermore, there are restrictions on who qualifies to be part of that 80%.

• An employer must hold the stock in which the 83(i) election was made in an escrow account until the end of the deferral period when the employee fulfills the withholding requirement by paying the income tax. 

• An employer must provide notice of availability of Section 83(i) election. This likely means that employers will need to amend their equity plans to say whether they are making the 83(i) election, and if so, meet at stringent requirements every year. 

The intention of the bill is on the right track but after reviewing the fine print, it is difficult to see many employers offering this for the employees given the administrative burden and relatively limited upside for the employee. Small start-ups are focused on building a company and likely would not want to be burdened with additional work managing a 83(i) offering for their employees. Unfortunately, this is just another example of the clear disconnect in Congress on the issues that stock option holders and start-up employees face. 

Work from home life

I go through a lot of ups and downs working from home. Some days I feel overwhelming positive and that it’s going to be a great life lesson for me to go through this at this point in my life and career. Other days I feel trapped and helpless. I suspect I’m not the only one going through this.

I have many friends and clients who work from home nearly everyday. I never understood it. I love being outside. I love going to the gym. Going for a walk. Eating lunch by myself or with colleagues.

My up and down days are likely a product of the times mixed with a big disruption to my routine. Work has undoubtedly been tough over the last week and half. I miss my colleagues.

At the same time, I also have been doing a terrible job at sticking to my routine. I’ve been going to bed and sleeping in later. I no longer go on walks when I am stressed. I cook lunch at home as an opportunity to save money.

This may last a few more weeks at best and a few months at worst. I can’t control the coronavirus but I can control my routine.

Difficult decisions and conversations

The impact of coronavirus on the market and economy has forced a lot of people into making some difficult decisions. There’s no shortage of examples here.

Airbnb had to make a decision to allow refunds for all bookings due to coronavirus. Hosts are upset as they’ve had to take the blunt end of the cost. Flywheel, one of my favorite workout classes, has decided to lay off 95% of it’s workforce as it fights to survive.

There are thousands of other businesses as well making difficult decisions to lay off workers, cut pay, and/or close shop. My father’s small business that he has run for nearly 30 years is likely going to be closed as a result of this.

Even if not discussing layoffs or paycuts, every company will need to make business decisions that will have a real impact on others. I have a friend who “put 5 companies out of business” last week as she had to cut purchase orders from small companies who won’t survive.

At Secfi, we’ve had a lot of difficult conversations internally and with our clients these past couple weeks. This is the part of business that really sucks. No one wants to have to make these decisions or have these conversations, but someone needs to. There’s no magic easy button here. Very likely, the person on the other end of the decision or conversation will be upset, or even worse, angry.

This past week, I’ve relied on a couple tools to help me through these conversations: honesty and overcorrection.

I try to stay as honest as possible and calmly explain the situation and why we need to make this decision. Fabricating things does no good and most people will see right through this. I cut straight to the point and give my honest assessment of the whole ordeal.

After honestly explaining the situation, I then do my best to overcorrect the situation. There’s only so much you can do to control the situation at hand, but there are many other things you can do to try to help or make the situation right. Going above and beyond shows that you truly care and have empathy for the situation. It’s the least you can do after breaking bad news to the individual.

These decisions and conversations are not easy, but I know I’ll be a better leader on the other end once I am done with them.

Trends to follow in the new normal

I wrote about life post coronavirus in my blog post a couple days ago, Post CoVid-19: The new normal. I wrote about the opportunities that will be available in the post coronavirus world which I call the new normal.

I wanted to follow-up on that post and write about some of the trends that I have been seeing that people out there will be able to capitalize on.

Some of these trends may be brutally obvious while others will seem like a reach. Of course, a lot of these may never materialize in the new normal. Given that, only a handful of people in this world has ever seen a global pandemic like CoVid-19 and it’s naive to think that life will go back to being the same after the dust settles.

My list and observations as of today:

• Hygienic standards will be raised. It was a rude wake up call to the world, but perhaps we needed a reminder that you should wash your hands often and cough into your arm. Germs/viruses have always been spread this way, but it took a global pandemic for us to take it seriously. Look for people to react much differently to bad hygiene and for companies to take advantage and make it easier to be hygienic. Anyone want a sink that automatically plays a song that lasts 20 seconds to make us wash our hands better?

• Masks have been widely used in Asian countries to prevent the spread of germs. Contrary to belief here in the U.S., most use these masks so they don’t spread their own germs to others, not to necessarily protect themselves. I would not be surprised to see masks starting to become the new norm here in the U.S., much like it has been in Japan, Korea, and China. I’m looking forward to those $200 Supreme masks everywhere.

• Simple things such as doorknobs, elevator buttons, and iPads at checkout will be reconsidered. The new normal will see a large infusion of touchless technology. May we see a resurgence of using your feet to do things such as turning on the water or opening doors?

• Retail stores will continue to trend downwards overall. More and more people will switch from going to stores like Target to purely shopping online. BUT this opens the door the small box retailers. While large stores like Target, Walmart, etc. will start to disappear as they go more and more online, the small mom and pop stores will see a resurgence to fill the need of people who like to shop.

• Expect to see start-ups tackling mass and clear communication across large groups of people. This is the first global crisis since perhaps the Cold War. There is not a clear cut way and easy way for authorities and officials to communicate to everyone in an effective way. South Korea created a coronavirus app so the government can communicate and provide guidelines to their citizens. It’s about time for America to step up and do the same when the next crisis comes.

• Office space was becoming less and less common. The future of work will be less time in offices and more time working from home and other communal spaces. While this trend was already in full force, expect covid to accelerate this.

• May we see a resurgence of community soon? The advent of technology such as television, video games, and smart phones has seemingly made us more distant. Potential catastrophic events such as CoVid-19 will bring us closer together. I saw a sign the other day of someone in my neighborhood volunteering to help the elderly with groceries and food. I see business owners on Twitter dedicating their factories and offering free food to healthcare workers. People are looking to donate their stimulus checks on the internet. I suspect to see more and more startups that help people get off their phones and get together in their communities.

• For the first time in perhaps the world’s history, we are seeing the entire globe connect against a common enemy. We will soon see the power we can unlock when we work together against that common enemy. Globalization enabled this widespread pandemic. Globalization will also be the reason we end it. Expect to see even more globalization and connectivity in the world. The first part of Trump’s presidency was marked with America first and trade wars. Perhaps a global pandemic is what we needed to tear down walls and start working with each other better.

I plan to continue to write more about these topics as the new normal takes place. It’s an interesting time to be alive.

Post CoVid-19: The new normal

The doom and gloom is very much alive and likely won’t end for weeks at best. Like much of the rest of the world, I am paying close attention to the news and other sources of daily doom. I am not however paying attention to contribute to the panic, but rather to find opportunities in our post quarantine world.

Every crisis in the world has always doubled as an incubator for innovation. We don’t have to look far for great examples. Possibly the most famous company bred out of a crisis in recent memory? GroupOn which started as a deal site in the post financial crisis recession.

Once we get through this terrible situation, we’ll all be left adjusting to life post CoVid-19. Life outside this world of self-quarantine will largely go back to normal, but there will be differences and changes in everyday life, hopefully for the better of humans and this planet. This will be the new normal.

Those that are watching and thinking will be able to see the trends before they are here. For those that have been paying attention, the trends are forming already.

What we don’t know is also what I am excited about. How will entrepreneurs and companies adjust and innovate based on these new trends?

Not everything that comes out of this global crisis will be bad. There will be innovation and quality of life will get better for many. It’s out there for the taking, we just have to be bold enough to see these opportunities in the midst of a crisis.

Corona for start-ups

I’ve had a good amount of conversations with friends and business connections in the financial world regarding the market. As someone in the start-up world, the conversations naturally gravitate towards the impact of venture capital funding and start-ups.

Unfortunately, many start-ups won’t make it out of this coronavirus induced recession alive. Of course, the reality is that many would not have survived anyways even if this virus didn’t rear it’s head this year. Still this is a tough pill to swallow and a hard way to go out for many founders and employees with dreams.

There will undoubtedly be a lot of shoulda, coulda, woulda, and pondering what if. The start-up world we live in is one that can be very generous, but one in which the lights can turn off in a matter of days.

I don’t think anyone could have truly planned for a global pandemic like CoVid-19, but start-ups can and need to plan for rainy days, months, and even years. This of course is easier said than done, but the lessons learned from this year will likely stick and be more of a norm.

It’s a new day and age in start-up and venture capital land. It’s up to the start-ups to change their course of action and start planning accordingly to survive.

Lockdown goals

SF Mayor London Breed announced that residents are officially ordered to stay inside except for work or essentially shopping like groceries. We had known it was coming for quite awhile now, but it just got officially real.

Sophia and I are plenty stocked up, but there’s always that feeling that there’s more to get. I don’t think that’s going away, but I want to make sure we take a step back on the panic button a little bit for the rest of our community.

There’s a lot to be grateful for in times like these. Both Sophia and I have the luxury of being able to work from home and we are by no means struggling to make ends meet. That’s not the case for a lot of other people and I feel for those in the service industry particularly.

As I start our quarantine and home lockdown journey, I wanted to set a few goals for myself so I make the best out of the situation. We’re all in a tough place right now, but the best thing we can do is to continue as normal as possible and focus on personal growth during these times.

1. Reconnect with friends — while I don’t need a pandemic as an excuse to reconnect with friends, it’s a perfect time to give some old friends a quick call to catch-up on life.

2. Focus on work-life balance — this was one of my New Year’s goals and it’s been a mixed bag so far. It’s going to get harder by working from home as my home is now my office. I want to impose strict cut-off times.

3. Read more — my reading has taken a hit as podcasts have become more of a staple in my life. I have a long list of books I want to catch-up on so now is the perfect time to do it.

4. Stay fit — this will be a challenge now that gyms are closed, but there are so many ways to get a workout in even at home. Compound that with healthier eating habits and this may be a great opportunity to get in really great shape.

5. Be more involved in the community — things are going to get much worse before they get better. As we go through this journey, I want to be involved in the community and do what I can to help out. I’m not sure what this entails yet, but there will be many ways to give back over the next few weeks.

Easiest move ever and more corona talk

Sophia and I decided to move next door to get more space. Literally next door. We went from apartment 10 to apartment 11. We started moving last night on Friday and just finished a little bit after noon. There’s still some clean-up work to be done such as furniture shopping and hanging up photos, but we’re largely complete and watching TV.

It was the easiest move I’ll have in my lifetime. It’s right on time. If I’m going to be quarantined, I’m glad it’s in my new apartment as I have a great work set-up with a view. Sophia will have the dining table to work on in the other room so we have good separation.

I’m still trying to process how everything is going to play out in the next few weeks. My best is that this will be a mandatory work from home situation through the end of April. We already know there won’t be any major public gatherings or social events, but closure of restaurants and stores will be interesting.

If this gets to the point where everything will be closed, the impact on the economy will be devastating. There will be government bailouts and stimulus packages or many businesses will not survive.

My dad runs a small travel agency. We’ve all known it’s a dying industry and his business was not going to survive many more years, but this is might be the start of the end of his nearly 25+ year old business. He’s in a fortunate position to be okay financially, but it’s still hard to think about the impact.

We’re in a fortunate position at Secfi that we may not be directly affected in our line of business, but we will undoubtedly feel the indirect impact here. I’m still processing everything and will need to start putting more plans into action.

We’re all going to need to make sacrifices for the public good in the next weeks. We’ll be better afterwards.

Opportunities galore... be excited!

We knew it was going to get worse before it got better, and it really hit today. The markets were in a freefall again and there’s no signs of it stopping… anywhere. As I write this, even Bitcoin is down 45% today. Yes, that’s not a typo — that’s a one day drop.

To cap off the day, U.S. stocks are now in their worst single day loss since 1987. This sucks. We all lost a lot of money today and these past few weeks and we’re likely going to lose even more money.

So why am I excited? Well, there’s only one thing we have left now and that’s optimism. I can check the news and portfolio every 5 minutes and promptly put myself in a self induced panic attack, but I choose not to.

Instead, I’m choosing to stay positive and look forward to the opportunities that come from this.

Every dire situation in the past has bred opportunity for people who seek it and can overcome the panic and fear. Even in recent memory, we can look back to the ‘08 financial crisis and see all the companies that were born during the great recession including GroupOn, Lyft, and Uber.

Whatever that opportunity may be — whether it’s new product ideas, investments in cheap stocks, or simply time for you to refocus — these opportunities are and will be out there for the taking.

It won’t be easy, but it’s up to us to take a deep breath and find a way to get through the shitty times so we can prosper down the road.

If none of the above helped, I recommend listening to Howard Lindzon’s daily pod he’s been doing called “Panic with Friends”. I’m almost through the first episode with Jim O’Shaughnessy and it did wonders for me. It’s always comforting listening to people a lot smarter than I am discuss the situation calmly and compare this experience with the last few crashes. It eased my fears and brought my spirits back up.

We’ll get through this.

Holy shit.

Perhaps it took the NBA being suspended for Americans to realize that this is real, but the panic has turned into real chaos.

The market is about to get worse. Much worse. Put your phones away and stock checking your accounts if you’re a long-term investor. Just don’t put yourself through that emotional rollercoaster.

Life as we know it is going to change for the foreseeable future. No NBA. MLB likely to be postponed. March Madness with no fans and likely to be cancelled. No events. Limited restaurants open, if any.

Life may start getting better in as early as a couple months, but it will be a long Spring at the very least.

The bright side? There will be lots of opportunities coming out of this. It’s up to us to keep our heads up and stay positive and look for these opportunities when others only see darkness.

We’ll get through this and hopefully we’ll learn a thing or two from it.

Belated Birthday post: Lessons for my 20 year old self

I started writing this long post on my birthday last Friday and had planned to add to it and eventually finish up through Sunday. Unfortunately, the coronavirus was in full force and the markets started to crash so I was quite distracted with the events and didn’t feel like writing much over the weekend.

The markets have calmed and I was happy to write this with a much happier and positive mindset.

For my birthday, Sophia booked us a reservation at Omakase on Friday night and a sushi dinner in midst of canceling our trip to Japan was exactly what I wanted. It was as great as advertised, but Sophia said it didn’t live up to Sushi Noz in NYC. That’s what I get for taking her there for her first omakase style experience.

I spent Saturday morning playing mini-golf with my 9 year old sister and it was equally parts exhausting and rewarding. After passing off my sister back to my parents, we did an escape the room game (we escaped!) and finished the night off at my favorite restaurant in the world, Thanh Long.

Despite the bad news on Sunday, I had an amazing time with my closest friends. I am insanely fortunate to have a supporting group of friends that will always be there for me. Markets come and go, coronavirus will hopefully be over soon, but moments with friends like this past weekend remind me what the important things in life are.

For my 30th birthday blog post, I thought I would do one of my corny “Letter to My 20 Year Old Self” posts to reflect back on my 20s. If anything, it’ll be great to just laugh at down the road when I turn 40 and maybe... just maybe I’ll have some insight from this to teach my future offspring.

I don’t actually feel like writing a letter, so I figured I’m going to do it in the way I would communicate with my own self… in bullet points.

Without further ado, notes to my 20 year old self:

1. Meditate everyday. A day with meditation > a day without meditating.

2. Start writing. Keep that journal that you once thought about. Start your blog. It’s therapeutic, you’ll learn a lot about things and yourself, and you’ll want to reflect back on some of your most important years in the future.

3. Think long and hard about switching out of that engineering degree. There’s a lot of high paying jobs in tech and building things is really awesome. You probably won’t listen and end deciding to go to the business school and work for a big firm, but you’ll realize that you were wrong soon enough.

4. Have fun and enjoy your youth, but take it easy on the drinks and realize that you don’t need to be wasted all the time. No matter how unfathomable as this may seem, you will one day get tired and realize that life isn’t about partying all the time.

5. There’s going to be a lot of toxic people in your life. Figure them out and get rid of them. It’s not that hard and you’ll be thanking yourself once you do. Life is too short to be wasting it with people that don’t give a shit about you.

6. Everyone has insecurities and you’re not special. The sooner you realize this, the happier you will be. Embrace yourself as you are and don’t try to change that for anyone.

7. Your metabolism will slow down no matter how much you think it won’t. You will gain weight and that’s okay. Start developing better eating habits so you’re not teaching yourself not to eat junk food after you realize this.

8. Those days where you think the sky is falling? You won’t remember them down the road so keep your head up and realize how little those things are in the grand scheme of things.

9. Embrace the nerd in you. There is nothing wrong with being curious and staying in and missing the party to read books or articles that interest you is perfectly okay.

10. Teach yourself better sleep habits. You may not feel it now, but 5-6 hours of a sleep is 5-6 times more miserable when you’re older.

11. Last thing. Don’t ever think getting a fake tan before a date is a good idea. You are an absolute idiot for thinking this and it won’t end well for you.

Black Monday

I had missed a few days of blogging as I was celebrating my birthday weekend with friends and had planned to finish a longer post on Sunday. Unfortunately, the news of the impending market crash started to trickle in and it was hard to get in the right mindset.

I decided to write about today’s events instead as some personal therapy.

Today marked the worst one-day drop in the market since the financial crisis. The circuit breakers kicked in for the first time in 20 years halting all trading activity for 15 minutes due to a 7% drop in the S&P 500.

The crash can be attributed to the growing spread of the coronavirus coupled with a very timely crude oil war. There’s no hiding it now and the panic has started to become real panic.

I want to say I’m immune to the emotion and that my willpower is strong, but this greatly affected my day today. This is the first major crash of my young investing life. I was 18 during the 2008 financial crisis and barely old enough to really understand the impact. This one hits differently.

My way of coping has been to read and learn as much as I can from some of my favorite investors. That has helped quite a bit, but it is not a cure.

The only cure is to ride this one out and wait for the markets to turn and stick to my plan.

One of my favorite reads was on a post by Ben Carlson today on his blog. My favorite quote:

“These are the days when you don’t need financial advice, you need a psychologist. This is why managing people is always more important than managing investments when you work in the financial services industry. Anyone can build a portfolio. Not everyone can stick to a plan.”

I have not overreacted to this market. Out of my friends, I am one of the few calm and rationale ones that hasn’t sold off everything. I am not sure if this is the best plan, but I am ready to stick to my guns.

Today was an emotional rollercoaster. There will be more days like it, but my worth as an investor will be determined by days like today.

Back where it all started

I grew up in the Sunset district of San Francisco. For those that don’t know, the Sunset is in western part of the city that 95% of transplants and tourists never venture of to.

Even though I grew up here, I would say I only venture off to this part of town perhaps once a month nowadays. Despite being only a 20-25 minute Uber ride, I treat going back to my parent’s home like I’m going on a trip.

I had to run an errand and have an optometrist appointment so decided to stay on this side of town. As I write this, I’m at a coffee shop on 8th and Irving.

My neighborhood has greatly changed since my childhood. This part of town was typically known as the working middle class area filled with lots of immigrants. The Sunset was a hodge podge of lots of Asians mixed in quite a few Irish.

The gentrification is real here. A few years ago, a brewery opened up blocks away from my parents home where a row of bodegas and laundromats used to be. Newer and taller housing units are popping up everywhere. Teslas and Porsches now roam the streets.

Despite all this, I love coming here because it’s home. Sitting in a coffee shop in the neighborhood I grew up is therapeutic and really what the doctor ordered after a long few weeks.

I walked by an old cafe called the Rain Tree Cafe where I recall I last ate at with my high school friend and his mom nearly 15 years ago. The sound of the N Judah going down the street is music to my ears. Seeing school kids walking down in their uniforms like I used to brings a lot of nostalgia.

Soon enough, the Sunset won’t be the Sunset as I know it. That’s life and the result of a changing city. Despite this, it will always be home.

Some of the smartest people in the world

The team has been working really hard over the last few weeks with some big meetings and presentations. Today was a big day for us as we had a few big meetings that were planned back to back on the same day. Everything went well and it was a big weight off our shoulders, but we are already thinking about the next steps.

That’s the reality of being at a small start-up. Lots of amazing highs followed by the reality that there’s much more work to do.

On to the next…

One thing that came to mind today is how fortunate I am to be working with some of the smartest people in the world on a daily basis.

My life at Secfi gives me access to some of the most talented founders, investors, and operators on a daily basis. I am in constant awe of the level of intelligence and accomplishment of some of the people we work with everyday.

I’ll be honest and admit that there are moments going into some of these meetings where I am brutally nervous given what these people have accomplished and their resumes. It can be intimidating at times knowing that they are taking a meeting with…. well me.

Despite my nervousness going in, I pretty much always leave these meetings much more calm. I think this correlation can be attributed to one of the key reasons that make these people so successful to begin with.

These highly successful people have a naturally calming aura that exudes charisma. It is a bit hard to explain, but perhaps the simple explanation is their ability to be leaders that inspire confidence in others.

I have a lot to learn in my life and career and I am fortunate to have the opportunity to learn from the best in the world.

Down goes Robinhood

The market rallied today and S&P was up almost 5%. The dominating news was Robinhood being down starting from 3 minutes after opening bell. As of 8:46pm PST as I write this, Robinhood is still down and experiencing outages although I was able to open the app for the first time today.

Apps and websites crash all the time. We’ve experienced outages on nearly everyone of our favorite apps at a point in time. However, given the nature of Robinhood’s business, this is a major issue. Robinhood’s 6 million users were not able to execute trades or even review their account. A large number of users undoubtedly could make the argument that they lost money.

As someone in fintech, I have a lot of sympathy for Robinhood. It’s hard to be perfect all the time and well, shit happens unexpectedly no matter how good you are and how much you prepare.

I am in no means giving Robinhood a pass on this. I struggled with the thought of not being able to see my account or make a trade today. They have without a doubt lost the trust of a lot of users.

With that said, there is a human aspect to all this. I know a lot of people at Robinhood and they are an extremely talented bunch but like all of us, human. I know they are working their tails off to get this back up and running and will hopefully learn from this as they continue to grow and disrupt the industry.

I’ll be rooting for them.

Bernie's proposed tax on vesting stock options

Senator Bernie Sanders and Chris Van Hollen introduced a bill titled “CEO and Work Pension Fairness Act”. You can read the bill here or get a quick rundown from Dan Primack at Axios here.

The bill is purportedly proposed to end tax advantages for CEOs and founders of private companies. I am all for fair taxation and raising taxes for the wealthy, but that argument is going to reserved for another blog post. This is focusing on the collateral damage of this proposed bill.

If enacted, this will greatly affect start-up employees and their equity compensation. The proposed bill will tax stock options at vesting for employees who make more than $130k a year and have more than $100k of vesting stock.

What does this mean? Start-up employees may be required to pay tax on options that they do not intend to exercise and likely cannot even sell. This is terrible policy that makes the regulatory issues associated with stock options even worse.

This is just the latest example of how disconnected Congress is in regards to how stock options (and taxation) work.

Start-ups will have to greatly reconsider their equity compensation plans which is a large part of the appeal of working for a start-up. Small start-ups give out equity to increase employee ownership and as a way to make up for the income gap as they cannot afford to pay their employees what a larger more established company can.

While far from perfect, granting employees stock options in the company has largely worked. It is a big reason why I joined Secfi and I know I’m in the majority who would say the same.

Stock options very simply is a form of deferred compensation. It really is not that much different than a company saying that we cannot pay you a bonus now, but if everything works out in X years, then we can give you a bonus then.

Using that simple example, it would not be fair to tax an employee on that promise for a cash bonus if X, Y, and Z targets are hit. The employee did not get the cash that year and it is not guaranteed. They would still have to hit X, Y, and Z targets in future years before that bonus materializes.

A stock option is not that different than that cash bonus example. It is effectively worth nothing until there is an exit or liquidity event which only happen if the company does well. Employees should not be taxed on those stock options as they are not guaranteed to ever be worth anything.

There are other ways to tax the wealthy. Enacting a bill like this would be disastrous for all parties involved and would directly hurt innovation.

Congress has proven time and time again that they are disconnected with the realities of stock options and have absolutely no clue how they work or their intent. Let’s hope Congress gets a grip and fixes this before it gains traction.

Everyone's a fintech now!

Another long week. I’ve got to do a much better job at stabilizing my hours and ensuring that I don’t take work home. It’s difficult and I’ve been proud of what I’ve done but the last few weeks have been rough and stressful. It’ll be my focus in March as we have a difficult month to close out the quarter.

I’m headed to Portland tomorrow to visit friends, shop at the Nike and Adidas stores, and do some wine tasting. Hoping to get some good R&R and then use Sunday to catch up on life back home.

On to the next…

We’re very likely in a sort of fintech bubble. Big banks and companies have realized that the red tape really hinders moving fast and innovating. Instead, they have gone to their big coffers of cash to acquire fintech companies instead.

We saw Plaid get acquired for $5b by Visa and now Credit Karma was acquired for $7b by Intuit. Shareworks was bought by Morgan Stanley in the last few months as well. With big cash piles, we may see this trend go on for a bit.

Andreesen had a great article on everyone becoming a fintech. While I truly believe that nearly every company will be “fintech” in some capacity, it is also really interesting to take a step back and see everyone trying to get a piece of the fintech pie.

Infrastructure companies such as Marqeta and Galileo have made it very easy for companies to offer banking services and issue credit and debit cards. No longer reserved for large companies like airlines, companies like Uber have their own credit cards with rewards. Lyft is offering free banking for their drivers.

Everyone seems to want a piece of this pie and given the recent acquisitions I can see why. We’re at an exciting time in fintech. I’m happy to be part of it with Secfi.