I broadly agree with this—especially the "returns don't matter" thing. It's actually become quite frustrating to me from the VC chair, since most LPs seem to have no idea what returns actually are / are expected / will be. I kind of understand given how long the timeframe is for VC funds, but this becomes a game of "flashiest salesperson" or "shinest object" (which is what this Forbes ranking is).
Regarding the changes though, I have some unfortunate news that at least at base level, these are already implemented without fixing the issue.
1) ESG methodologies: most all VCs have adopted them (along with DEI statements). They generally mean nothing, aside from not investing in stuff like human trafficking. Creative has an ESG policy, but because of my personal bad experiences with how non-profits run, it calls out the absurdity of most policies in letter and talks about how we try to follow the principles in spirit.
2) Lock-up periods—some VCs may be able to keep these at a minimum, but 180 days post-IPO is fairly standard as an imposition from investment banks. Some even go to 1-year. Unfortunately, to go longer would also start to make a lot of business unviable (because LPs demand their money back). They'd probably all just do other things to get around it, in terms of M&As-only, or something weird like SPACs again. Or they would try to shove this off in-kind (as shares) to LPs. You may be right that the price collapses post-IPO, but pump-and-dump should probably be an analysis not from day-1 of IPO, but ~180 days after.
1. I wasn't literally proposing ESG methodology for VC investing. I was merely giving an example where investing may not, and in healthcare, should not, have just one objective, such as financial gain. It may also have additional objectives, such as social and medical outcomes.
2. Yes, in most cases, VCs and SPAC operators are selling after the lockup period. My investigations into Babylon Health (https://sergeiai.substack.com/p/the-madoff-of-digital-health-how) and Clover Health (https://sergeiai.substack.com/p/cms-just-killed-clover-health) confirmed this. In fact, Clover retained the services of the "SPAC King" himself, Chamath Palihapitiya, by paying him 15% of all IPO shares for his services. Sure enough, he sold all of his shares shortly after the lockup period, netting a cool $300 million.
Sometimes, however, there are things like "private rounds of strategic financing", "pre-IPO private placements", and other nifty ways to essentially organize a secondary market before the IPO. That’s where earlier VCs could also be also unloading their shares.
I broadly agree with this—especially the "returns don't matter" thing. It's actually become quite frustrating to me from the VC chair, since most LPs seem to have no idea what returns actually are / are expected / will be. I kind of understand given how long the timeframe is for VC funds, but this becomes a game of "flashiest salesperson" or "shinest object" (which is what this Forbes ranking is).
Regarding the changes though, I have some unfortunate news that at least at base level, these are already implemented without fixing the issue.
1) ESG methodologies: most all VCs have adopted them (along with DEI statements). They generally mean nothing, aside from not investing in stuff like human trafficking. Creative has an ESG policy, but because of my personal bad experiences with how non-profits run, it calls out the absurdity of most policies in letter and talks about how we try to follow the principles in spirit.
2) Lock-up periods—some VCs may be able to keep these at a minimum, but 180 days post-IPO is fairly standard as an imposition from investment banks. Some even go to 1-year. Unfortunately, to go longer would also start to make a lot of business unviable (because LPs demand their money back). They'd probably all just do other things to get around it, in terms of M&As-only, or something weird like SPACs again. Or they would try to shove this off in-kind (as shares) to LPs. You may be right that the price collapses post-IPO, but pump-and-dump should probably be an analysis not from day-1 of IPO, but ~180 days after.
Thanks for the insights, James!
1. I wasn't literally proposing ESG methodology for VC investing. I was merely giving an example where investing may not, and in healthcare, should not, have just one objective, such as financial gain. It may also have additional objectives, such as social and medical outcomes.
2. Yes, in most cases, VCs and SPAC operators are selling after the lockup period. My investigations into Babylon Health (https://sergeiai.substack.com/p/the-madoff-of-digital-health-how) and Clover Health (https://sergeiai.substack.com/p/cms-just-killed-clover-health) confirmed this. In fact, Clover retained the services of the "SPAC King" himself, Chamath Palihapitiya, by paying him 15% of all IPO shares for his services. Sure enough, he sold all of his shares shortly after the lockup period, netting a cool $300 million.
Sometimes, however, there are things like "private rounds of strategic financing", "pre-IPO private placements", and other nifty ways to essentially organize a secondary market before the IPO. That’s where earlier VCs could also be also unloading their shares.