Pump and Dump Presentation PDF

Pump and Dump Startups have become unprofitable cashing-out shell operations "Stock Graph" is marked with CC0 1.0. The mega investments of Softbank shook Silicon Valley “Pump and dump” obliterates the basic economics of industries, and causes th...

Pump and Dump Startups have become unprofitable cashing-out shell operations "Stock Graph" is marked with CC0 1.0. The mega investments of Softbank shook Silicon Valley “Pump and dump” obliterates the basic economics of industries, and causes them to evolve artificially and incorrectly Jan 16, 2023  Who Pays For This? Question: when unprofitable "Grandparents" by premus is licensed under CC BY 2.0. companies are bleeding cash - whose money are they spending? Pension funds contribute 65% of the capital to the US VC market 90% of VCs fail to keep pace with the stock market since 2000 Institutional investors typically allocated 90% of IPO shares Jan 16, 2023  Unicorns Generated by OpenAI’s Dall-E, using the prompt ‘unicorn Unicorns = 1 billion USD valuation with rainbow dollar bills’ Here’s a dirty secret: 90% of unicorns are cash losing Let’s call Unicorns what they really are: pension fund subsidized monopoly forming Jan 16, 2023  Who is Winning Here? "Cuban Cigars" by ankarino is licensed under CC BY 2.0. LPs are bleeding cash both pre- and post-IPO, and 90% of startups fail. Who is winning? VCs live off the “fee stream” (2 and 20) Normal people bear the risk, fund managers always win Jan 16, 2023  Term Sheets Matter Hypothetical situation: Unicorn startup raises several "Signature Contract Close Up Tool Edited 2020" by rounds of VC to great fanfare chimpwithcan is licensed under CC BY 2.0. Mistakes are made, growth slows, valuation decreases Company sells for hundreds of millions, which still seems like great accomplishment Founders + employees earn nothing, investors get everything This is due to “liquidation preference” Jan 16, 2023  Liquidation Preference The principle behind liquidation preference (“liqpref”): Investors put 100k in company for 50% of "Is there a sale on? @ Lowestoft, Suffolk" by timparkinson is licensed under CC BY 2.0. shares Company is sold for 150k Euros 50% (75k Euros) goes to founders 50% (75k Euros) goes to VC Investor loses 25k Euros from exit This is obviously not fair Liquidation preference protects against this scenario Investors receive preferred shares, with liqpref=1 When company sells for 150k Euros, investors now get 100k Euros, 50k Euros for founders Jan 16, 2023  Multiples + Participation VCs generally ask for “multiples” of liqpref, due to risk Investor puts 100k Euros into company "Calculator and Coins" by Images_of_Money is for 50% of shares, with liqpref=3 licensed under CC BY 2.0. Company sells for 500k Euros First 300k Euros of sale goes to investor No participation = 300k is all the VC gets Preferred participation = VC also gets 50% of remaining amount (100k Euros) VC gets 400k Euros, founders get 100k Euros Jan 16, 2023  Preference Stacks “Preference stacks” across multiple investment rounds Benny's Chop House is licensed under CC BY-SA 2.0. A Round = FFF (100k Euros) "Benny's Chop House Chocolate Layer Cake" by B round = VC (tens of millions), with preference VC is paid ahead of earlier investors On disappointing exit, not only founders but FFF get nothing The larger the B or C round, the more likely ALL the money goes to the VC Jan 16, 2023  Why Founders Accept This "Playing hardball" by theilr is licensed under CC BY-SA 2.0. VCs play hardball They offer $$$ with T&Cs If you don’t accept, they will go to your competitor Startup incubators generally don’t mention any of this Jan 16, 2023