Hi Ven, love reading your blog although i only understand half of what you say. Can you explain in simpler terms what you mean by "There is no "wealth" unless there is a liquidity event."?
"Wealth" as we think about it is essentially "net worth" right? But what exactly is net worth? Is it the sum of the relative value of our assets, or what we can actually *get* for those assets in case we needed hard cash? The classic thought experiment I use is, let's say I start XYZ corp and sell .001% of this company to you for 1 dollar. Now, this business is "worth" $100,000, but can I actually sell all of XYZ corp for this price to Blackstone? You can similarly think of a big stake, even in a publicly traded company, in this manner. This is why private market valuations are so suspect — if shares are only transacting in each seed round, I might be "worth" 2 billion dollars based on my stake, but realistically I don't have that much wealth — without a "liquidity event", aka another seed round, IPO, or whatever, that actually gives you a transaction where you *can* transact, you can't figure out how "true" that valuation is
Hi Ven, love reading your blog although i only understand half of what you say. Can you explain in simpler terms what you mean by "There is no "wealth" unless there is a liquidity event."?
thanks!
"Wealth" as we think about it is essentially "net worth" right? But what exactly is net worth? Is it the sum of the relative value of our assets, or what we can actually *get* for those assets in case we needed hard cash? The classic thought experiment I use is, let's say I start XYZ corp and sell .001% of this company to you for 1 dollar. Now, this business is "worth" $100,000, but can I actually sell all of XYZ corp for this price to Blackstone? You can similarly think of a big stake, even in a publicly traded company, in this manner. This is why private market valuations are so suspect — if shares are only transacting in each seed round, I might be "worth" 2 billion dollars based on my stake, but realistically I don't have that much wealth — without a "liquidity event", aka another seed round, IPO, or whatever, that actually gives you a transaction where you *can* transact, you can't figure out how "true" that valuation is