The retail investor

Investing platform startup Sandhill has been running this live auction of Databricks shares for the last few days. I’ve been following it closely as it’s a transparent view on retail investors bidding on a top private company. I don’t believe this has been done before so props to Sandhill.

The reason I’m interested in this is because I do this for a living, and I’m curious to how people who don’t do this for a living interact. I’ve followed Databricks very closely since joining Secfi and it’s been one of the top private companies in this space ever since.

The company just announced a fundraise and the projected share price should be around $75 give or take a few dollars based on some back of the napkin math. That is an upround from the Series I of $73.48, but not by much. Interestingly enough the round was announced during the live auction.

One noted observation is that bids have picked up since the announcement. Unfortunately, that could be a product of both the the auction coming to an end because people are waiting to put their bids in. Or the announcement affecting behavior. Likely a combination of both.

Secondly, it’s very interesting to see retail bidders putting in bids higher than that “market” for common stock. Yes, investors are buying in at $75, but they’re playing a different game. For one they are buying preferred stock. For another, they have different return profiles and holding periods than retail investors investing in a SPV that likely gets liquidated after an IPO.

The last 409A value was $55 and the market based on the data sources I’m seeing is somewhat around there as well meaning investors are typically buying common there. Pretty much ALL the bids made here are over the $55. As it stands now, the price of the live auction is $69.69. (I know… not a joke… but nice coincidence). So retail buyers are paying a premium to what they would or could typically get in the secondary markets.

In the secondary markets, there’s definitely a supply issue as there are likely more buyers than sellers right now so that’s something to consider. Regardless, it seems that retail investors are very much happy to pay a premium to be invested in a hot name like Databricks.

I’d love the opportunity to interview some of these people and get a bit of their strategy for putting thousands of dollars in Databricks at these prices. That won’t happen unfortunately. At the end, it’s a great company and could be a good investment despite paying a premium, but it’s fascinating to take a look regardless.

2021, what a time to be alive

I’ve started planning on how to close the year strong at Secfi and will be headed to New York for some in-person planning meetings. I’m excited to see everyone in person again and actually do some proper brainstorming.

On another note, I can’t believe that we’re almost in Q4 2023. The craziness of 2021 felt just like yesterday. A little under 2 years ago, the talks about interest rates rising began and officially put an end to the ZIRP world.

Whenever I catch up with friends who work in tech or investing, we almost always talk about those crazy days. We share war and horror stories. We laugh at others and ourselves. And we talk about how much we learned.

Some of the stories from that period are just downright insane. People in charge of millions of dollars throwing it around like it’s candy on Halloween. No real basis for investment decisions besides wanting to win. Founders running effectively live auctions for funding rounds.

We’ll likely never see a period like that again in our lives. And that’s a good thing. It was unhealthy and not the least bit sustainable. I’m happy to have lived through it and learned a lot then, but I hope to never see another 2021.

Free days and self-starting

Today is one of the rare workdays where I have minimal calls. Just under 2 hours worth to be exact. That’s a rare day for me as I typically live on Zoom nowadays.

I’ve always been fortunate to work in a role that has been fairly flexible. Even during the early days of my career at PwC, we had quite a bit of wiggle room where we weren’t always required to be in the office from 9-5. Of course part of that deal required a lot of late nights during times of the year.

When I transitioned to startup world with Secfi, I was largely by myself in San Francisco. We eventually hired people but for the first year and some change I was navigating the world through Slack and Google meets.

I love the freedom that I have in my career. As someone who is very self-motivated to get shit done, having the flexibility to create my own schedule allows me to maximize my productivity. Some of my best ideas and projects have come on days when I’m sitting alone in an office with my own thoughts.

It’s not always easy though. On a gorgeous day, I admit that I often want to leave the office and hit the golf course or the beach. It’s easy to get distracted with other tasks and responsibilities during these free days as well. It takes quite a bit of discipline when no one is watching over your shoulder.

I may switch things up this afternoon and try to work from a different WeWork to get my creative juices going. These free days are a rare treat for me and I fully plan on taking advantage.

Listening to my body part 35885

I’ve written quite a bit about my battles with getting older, adjusting my life style, and listening to my body over the last few years. It’s been a struggle at times changing some habits to combat my aging self, but I’ve also had some great successes over the last couple of years.

For one, I’ve slept a ton more in the last year and half than I have the rest of my life. I’ve adjusted my bedtime earlier and I no longer stay out late except in rare situations. Similar to that, I’ve also started to get more rest overall.

I’ve also cut down on my drinking quite a bit over the last few years. As the hangovers get worse, the alcohol becomes less attractive. I no longer have any nights out late at the bar. I try to drink more water between my drinks.

For as much progress as I’ve made, I’ve also realized yesterday that I probably haven’t made enough. After a productive Monday morning, I hit a wall in the afternoon yesterday and I was clearly exhausted from a likely combination of this recovery from being sick the last couple of weeks and a longer Saturday than my body could handle.

It’s definitely a frustrating situation. I didn’t have a crazy Saturday by any means. I golfed in the morning and watched football afterwards at my friend’s place. While I did drink a bit, I made sure to drink a lot of water and was even in bed by 11. This would’ve been a very calm night in my 20s, but alas I’m no longer in my 20s.

One thing that I’ve learned about getting older is that the bar constantly changes. I’m finding that I need even more rest nowadays and a big part of that is cutting back on the alcohol so I can get that rest. It also means taking more rest between my work outs. And working a bit less to balance out my life more.

It’ll be a bit of an adjustment period, but I’ll feel better for it afterwards. It also won’t be the last life style change I’ll have to make so I better get used to it.

Breaking 90 and addressing problems ASAP

I finally did it this past weekend. After a long 3 years of playing golf, I finally broke 90. I had a great round with the usual crew on Saturday. I couldn’t get off the tee for shit and my driver was all over the place, but my irons and short game held me together. My approach game was amazing as I was absolutely striping my irons all day. It wasn’t pretty or perfect, but I put together a solid round and finally got it done.

It was funny that it happened on Saturday because on Friday I went to Mariner’s Point to practice my short game for the perhaps my first time ever. My 100 on in has been the weakest part of my game, but it’s been brutal to actually practice that anywhere in San Francisco. Turns out that practicing the worst part of your game usually leads to good things as I stuck a 60 yarder to 2 feet and a 80 yarder to 1 foot on different holes.

Note to self - address your problems as soon as possible. I’m not sure why I avoided practicing my short game for so long, but I feel like an idiot now. I can’t help but think how much earlier I would have broken 90 if I did.

Going forward, I need to address my driver issues and practice some putting. One thing at a time though.

Tech drama in 2023

I’m really enjoying watching this drama unfold at Flexport. The Founder and then CEO, Ryan Peterson, hired a new CEO last year to run the company, and apparently they haven’t exactly seen eye to eye.

This all unfolded the other day when the CEO said he was stepping down, and Ryan was coming back in as CEO. This is not the abnormal part of the story as things like this happen often.

However, Ryan has been openly tweeting about everything that has happened at the company. It’s been absolutely hilarious to watch as there are not so subtle jabs at the previous CEO built into nearly every tweet.

The tech scene nowadays is never boring. For an industry once known for being a bit more private and laid back, this world is now filled by people with large egos and bones to pick. They’re also more than happy to do it online in public.

It’s funny to see the contrast behind the Bill Gates and Larry Ellisons of the world versus today’s tech leaders such as Elon. It’s the day and age of social media and everything is out there for better or for worse.

The cost of bad advice

At Secfi, we’re in the business of helping startup folks with financial advisory services and financial products. We build tools so startup employees can better plan around their equity. Those are completely free to use. If people want more in-depth help, they can work with one of our advisors.

Over the years of building this thing, we’ve seen some horrible financial decisions made by individuals and/or their advisors. I don’t judge financial decisions by their outcome - sometimes things just don’t work out for various reasons. But when I mean bad financial decisions, I mean obviously stupid ones that either take on no risk or take on too little risk for a person’s situation.

Both can be incredibly costly.

For example, a startup employee who doesn’t exercise early when the cost is low and can afford it in their financial plan will likely be left with much less in their pockets after exit due to taxes.

On the flip side, a startup employee who exercises by leveraging his home and taking recourse loans is likely overextending. It may work out, but if it doesn’t, this individual risks his entire livelihood.

The cost of this bad advice or bad decision can come back to haunt you years down the road. We’ve unfortunately seen a lot of this over the years. It may seem expensive today to get good sound advice, but at the end of the day it likely pales in comparison to the cost down the road.

When things just don't feel right

I’m on day 10 of this cold. The fatigue is nearly gone, but this cough does not want to go away. This should serve as a reminder that I now need to take it easy when I’m starting to feel sick. Taking a day or two off to rest and recover fully beats being a shell of myself for a week and a half.

One big lesson that I’ve learned at Secfi and investing over my 5 years is that you just need to trust your gut when things don’t seem right.

Early on during my time at Secfi, I was much more hesitant to bring “yellow flags” up for fear of being wrong. At that point, I convinced myself that I was new to this game of investing and that’s just how things were.

Sometimes it would be a odd signal that a bunch of executives were looking to sell out quickly. Or sometimes it would be a group of key engineers on what seemed to be a rocketship looking to leave early and leave a bunch of unvested options on the table.

Of course these are just signals and doesn’t mean necessarily mean the company was in bad shape. But I often found that these yellow flags would add up. Often when that happened, the company almost always turned out to be a bad investment.

Nowadays, it’s pretty obvious when things aren’t going well at a company for me. I can usually tell within the first 10 minutes if the executive or employee believes in the company in the long-term. When things just don’t feel right, we make sure to pass fairly quickly.

Aging

I’m at an interesting age in my life at 33. I’ve crossed the point where I’m officially in my mid 30s. I don’t know what the proper cutoff age for “youth” is, but I know the right answer for most people is somewhere between 20 and 35. I do know that I’m at best closing out my youth officially.

I saw a lot of college buddies in Seattle this weekend. I had a blast catching up with everyone, but I also couldn’t help but to think how much we’ve all aged. On one hand, we were acting a bit like college kids at times on Saturday. But on the other hand, the elephant in the room is that we’re all now in our 30s and can’t keep up any longer. Friends were pregnant. Some friends had kids to go home to. Some friends were just too tired.

I was further reminded of my aging self when I got home on Sunday. I had been battling a minor cold and cough this past week. I thought I had beaten it by the time I got to Seattle, but the cold came back with a vengeance on Sunday and Monday. Normally colds mean minor annoyances for me. Nowadays at age 33, it means I’m even more fatigued than normal and I should probably take some time off to properly rest.

Of course, it’s not all so bad. There’s this hard to explain beauty behind getting older and I have grown to liking most parts of it. I just wish I had a bit more energy and I could go away for a weekend without needing another weekend to recover. But that’s life.

Scary times in crypto

I’m off to Seattle for an extended LDW. I’m excited for the R&R before things pick up.

On another note, I’ve been reading just how much is happening right now in the crypto world with regulators and lawsuits. It’s a scary time right now for everyone in the crypto world.

Yes, there have been some big wins. But the SEC and other regulators did not seem to be letting up in their crackdown. I don’t know how things will shake out. I know the crypto industry needs regulation, but at the same time, there’s a real risk that over regulation really puts us behind the rest of the world when it comes to tech.

One thing is clear to me though and that is our current systems and rules do not work. We need a different enforcement agency and modern regulation in order to properly govern crypto. Given the state of our government, I unfortunately do not think that’s happening anytime soon.

Navigating the social media age

I loved the internet and computers growing up as a kid. I played video games online, built websites for fun, and was wowed by what I could accomplish over adults being literate in computers.

Then came the social media age which turned the internet into one giant popularity contest. I wasn’t a fan, but I needed friends in high school so I participated reluctantly. I was a freshman in high school when MySpace was a thing. It wasn’t a necessarily fun time as we spent more time angry at each other over Top 8’s rather than actually getting to know each other.

Eventually, MySpace turned into Facebook and it became yet another popularity contest albeit a much tamer one. It wasn’t great for my self-esteem at a very vital time in my life. And I was admittedly probably someone who contributed to those self-esteem issues for others as well.

I think growing up in that original era of social media was one of the big reasons why I don’t love social media overall. It made me a bit different as a person, in a not so great way. Sure social media has it’s positives - it’s entertaining for sure and helps me keep in touch with friends and family.

I turned out fine (sort of), but I know social media has impacted a lot of people’s lives in net negative ways.

Today, I have a presence but not a very active one. I have an Instagram I use for personal and mainly to keep in touch with friends. I have a Facebook that I never log into except to use Facebook marketplace. I have a Twitter which I used to use a lot more for work, but that has died significantly since Elon took over.

I’m not sure what Sophia and my strategy for our kids with social media will be. It’s something I think about a lot admittedly. I don’t want my children to feel left out of the digital age, but at the same time, I know how toxic social media can be for a developing human.

Small financial mistakes lead to big losses

I’ll never forget one phone conversation I had early on in my Secfi career. My then CEO added me to the provide some expertise around the tax side for a potential client. He was an early employee at Pinterest and helped build the company. He had exercised his stock options early and was planning around the IPO.

When my CEO heard that, he asked whether he had filed a 83(b) election with the IRS which effectively tells them to tax him now when the tax is $0. The call goes silent and it was immediately clear that no one on this person’s team knew whether they had or not. I won’t go into specifics of the details, but let’s just say he was a lot less wealthy because of some simple paperwork he neglected to file.

You only have 30 days after exercise to file the 83(b) and it can mean the difference between a $0 tax bill and large one if and when your company exits.

I’ll be filing 2x 83(b) elections for a couple of my angel investments today. Every time I file one, I think about these small financial mistakes or oversights that lead to a huge amount of money lost.

Goldman unloads another business

I’m a bit annoyed this Monday as I woke up with a small scratchy throat. How one gets sick in the middle of a 80 degree heatwave in San Francisco is beyond me. I don’t feel awful and I’m going to try to run this one off later this afternoon.

I’ve been following Goldman Sach’s moves around retail banking and financial management for awhile. Many years ago, it seemed like the firm was making a big push to retail by launching Marcus. They also acquired United Capital in 2019 which signaled their foray into a tier or two below ultra-wealthy individuals and families.

This has changed recently as Goldman is now looking to get out of the retail side of the business. To my knowledge, Goldman hasn’t said too much about the decision. However, I can imagine they quickly found out that retail and mass market is much harder than just sticking to their ultra wealthy clientele. Retail clients in this world provide a fraction of the revenue and often times just the same amount of work as the ultra net worth clientele.

In other words, it’s not an easy high profit margin business unlike their ultra high net worth business. I suppose at some point Goldman came back and just said, look our strength is in the ultra high net worth area. We’re Goldman and we should probably just stick to doing what we do best which is serving the top 0.5%.

Will they come back and try to make another run at retail clients many years down the road? I wouldn’t be too surprised. These retail clients will one day hopefully be in that ultra high net worth bracket and I’d imagine the hope for growth will one day come back.

Calm before the storm

I’m enjoying a sunny Sunday here in San Francisco. Sophia and I got brunch and then knocked out a grocery run early in the day. I cleaned the apartment a bit and then cleaned up my inbox heading into this week. I’ll probably head to the park and start a new book shortly.

Next weekend, I’ll be in Seattle visiting friends and watching my Huskies take on Boise State. That will wrap up a busy summer of travel.

I expect things to get a bit hectic at work after Labor Day. There are a lot of signs of the IPO market opening and we’ve got a lot of work to do to end the year strong.

For now, I’m enjoying the downtime. This next week should be relatively quiet. I don’t expect that to be the case much longer after Labor Day so I’ve got to enjoy the time I do have.

Dog days of summer

We’re coming on the unofficial last week of summer with Labor Day next weekend. It’s generally a period for people to squeeze the last of their summer travel out. A lot of the Secfi team is out of the office and a lot of our partners are as well.

The tech world isn’t neccesarily out of the office though as both Klaviyo and Instacart have filed to go public today. It’s been almost 2 years since the last notable venture backed tech company to go public. The closed window has been a tough period for many of us.

For me, this feels a bit like 2020 where things were quiet all summer. Then picked up significantly to close out the year. I’m not anticipating the same level of activity like in the fall of 2020 but there is quite a bit of hope on the horizon. I’m cautiously optimistic.

For me personally, I’ll probably take off a bit early on Friday and hit the golf course. Next week, I’ll close out my summer with a short trip to Seattle to watch my Huskies kick off the season. When I’m back, it’s going to be go time.

Focusing on what I have, not what I don't have

I have multiple conversations a day with startup employees and executives to talk about well, money. People reach out either looking for advice on money or to get money for their startup equity. Most of the individuals live in San Francisco or New York, so naturally the conversation usually goes into how expensive everything is.

And yes, it does suck a bit. My wife and I are not “wealthy” by any means. We haven’t gone through a huge financial windfall like an exit, but we make good money. And as two individuals in our mid 30s living in San Francisco, buying a home in the city is likely at best a few years out.

On top of all this, my job is to work with individuals who are close to going through a big windfall like an IPO. I get a first hand look at just who I am “competing” with in the SF housing market. It ain’t pretty for me.

I believe there’s two ways to look at my situation. One is to try to change your life style and do everything you can to make more money to be in the that next tier of wealth. The other is to just change your mindset about wealth and happiness. I aim to do the latter.

There’s always going to be pretty wealthier than you. That have more things than you. That have more free time than you. Chasing that fruitless effort that will lead to a life of unhappiness chasing something that is unattainable.

I’ve been fortunate to live a good life. I have an amazing wife who I love. I have great friends who care about me. I could always have more money, but that’s everyone. Instead, I try to live my life focusing on what I do have.

Wall Street will be Wall Street

I’m finishing Liar’s Poker by Michael Lewis finally. It’s a book that’s been on my read list for sometime and it’s as good as advertised. For those not familiar, it’s a book about Wall Street antics particularly at Salomon Brothers in the 1980s. The book is centered about Michael’s experience as a bond trader at Salomon Brothers during the peak of money making and the eventual downfall of the firm. As you can guess, it’s an inside look into how Wall Street firms such as Salmon prioritized firm and individual profits over their clients’ needs.

The viral talk of the day on FinTwit, ahem X-Twit(?), is on Chamath’s defense of his SPACs. He’s been fairly vocal in defending himself despite nearly all his positions losing the majority of their market cap since they’ve started trading publicly. In one Tweet today, he even mentioned that he didn’t lose money and blamed another individual for losing money for not selling when he did.

On one hand, I suppose you can say that Chamath was trying to do something different and in the age of social media and was a lot more public about things to do some good. You can even say he was trying to do the right thing. On the other hand, it’s hard not to see the similarities between most/all of Chamath’s SPAC deals and a simple pump and dump scheme. One in which retail investors are almost always left holding the bag.

As I see what’s happening today, unfortunately it’s blatantly obvious to me that nothing has changed in today’s Wall Street compared to Michael Lewis’ Wall Street in the 1980s. Institutional investors such as Chamath will always hold the upper hand in these situations. They’ll create or revitalize investment vehicles such as SPACs to line their pockets, and then be able to get out of them ahead of the average retail investor.

It’s not a fair situation and it’s never been a fair situation. Wall Street will always be Wall Street.

The myth of startup equity

I don’t know what percent of people join a startup primary for the potential equity payout, but I’d imagine it’s a good percentage. Everyone knows someone’s friend or cousin who become a millionaire when their company went public. Facebook’s graffiti artist made over $100m in startup equity. Most people won’t say it, but a lot of people join with wide eyes and high hopes of that one day becoming them.

Unfortunately, the reality is that very few startups actually get to an exit. Even fewer get to an exit that results in gigantic paydays that you’ve heard. And when they do, they often take many years longer than what people think. For companies that exit at a $1b valuation which is very difficult to do, very few people comparatively will actually make multi-millions of dollars.

Don’t get me wrong, most employees who go through a $1b+ exit will have a great payday and a lot of people will be financially comfortable for their lives. But it’s probably a far cry from the dream of each person making $10m+ each. In order for that to happen, you’ll have to be a fairly early employee at a company that exits at $10b+ like a DoorDash or Uber. Of course, those are very rare.

For everyone else at a company below $1b, the reality is that your equity likely won’t have any buyers at the moment even if the company is promising and growing. Secondary buyers are mostly interested in later stage companies with larger than a $1b valuation. Unfortunately, I don’t think the majority of startup employees understand that. We get inbound messages all the time from people at early stage companies looking to liquidate their equity.

I’m biased at Secfi, but I think everyone could benefit a bit from more equity education. Companies need to be doing more to educate their people and keeping expectations real. Employees will be better off and they can stay focused on keeping their heads down and grinding.

A splurge of a summer

I was catching up a bit on Sophia and my finances last night before bed. I was far from the early 20s panic of seeing my credit card bill after a long weekend, but it wasn’t pretty.

Sophia and I have been on a bit of a splurge. We started out by taking a fairly expensive trip to Japan for two weeks followed by a trip to Santa Fe. We’ve had a lot of friends and family visit as well meaning lots of expensive dinners as well.

That’s led to some much higher than average credit card bills these last couple of cycles. I don’t feel great about the amount we’ve spent this summer, but at the same time, I’m also of the belief that we need to be enjoying the time and freedom we have now. Things may change in the near future which will include a lot more nights staying in as well as much less travel.

As we wrap up summer, I’ll also be looking to tighten up our spending a little bit as well. We’ve had a great summer, but it’s time to tone things down a little bit before it becomes the new norm.

Friday afternoons

Like pretty much everyone in the working world, I love Friday afternoons. Of course, it’s the end of the work week, but more importantly, it’s my sacred time to catch up on life and start the weekend right.

I’ve had a pretty good routine for the last year or so on Fridays. I usually work from home and get an extra 30 minutes of sleep. I’ll usually do a few calls and then focus on getting stuff done. I’ll block my Friday afternoons off to get stuff done.

I’ll grab a nice lunch somewhere delicious, and then go to the gym for a quick end of the week workout. By 2, I’m usually posted up at a sunny cafe to switch things up. I’ll save most of my admin and creative work on Friday afternoons. Performance reviews, reviewing product designs, and writing newsletters usually fall to Friday afternoon for me. It’s a sacred time where I don’t have many, if any, clients calling and I can focus on my checklist.