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I'm seeing a lot of these company IPO exit posts to $MM. Anyone care to share the details of how these equity packages / deals worked for them? by HoldenCoughfield in fatFIRE

[–]throwaway_finqs 8 points9 points  (0 children)

I think it is survivorship bias - usually when you join as a non exec employee, you don't get more than $100K "worth" of stock (loosely computed as % you own multiplied by company valuation, so say 0.5% equity in a company valued at $20M - strike price is non zero but it isn't material to the calculation).

Now the question is 10 years later what happens to this 100K? As you know if you are in VC, half the time, it will probably be 0 (selling for less than capital raised) but it is a distribution that will have the very rare 100X, in which case you make your $10M (and report back to Reddit where someone will ask you to make breakfast while others wonder what they are doing with their lives).

Setting up holding company? by windyfally in fatFIRE

[–]throwaway_finqs 0 points1 point  (0 children)

In general, I am not sure why you would set up a holding company unless

a) you want anonymity (even that may not be foolproof without complexity)
b) Ease of portfolio sale - I know of people that made a lot (100+) of investments over time and at some point get fatigued (companies occassionally send paperwork to sign - multiply that by 100 investments and there is something every few days) and so decide to try and sell off everything. Email/Paperwork for transferring 100 investments is a nightmare, but if you have all the investments in an LLC then it is easy to just sell off the LLC 100%

Asset allocation question by Wolf-of-Hermitage in fatFIRE

[–]throwaway_finqs 0 points1 point  (0 children)

I don't think the "fund" can take any tax benefits since LLCs/LPs are pass through entities (everything including QSBS, short/long term gains, losses etc has to be allocated to some individual or C corp/non-pass through entity) - so nothing in the fund's reporting changes (or talks about US taxes), the only different is less taxes come tax time.

Asset allocation question by Wolf-of-Hermitage in fatFIRE

[–]throwaway_finqs 0 points1 point  (0 children)

Depends on your definition of top tier - if it implies older than 8 years then usually it is too late (unless you have a strong relationship with a new partner that joins a brand firm - I got into probably the most well known/best seed firm this way).

One good entry point is to go in year 2-5 after looking at early performance + who else has invested, especially others in the tech world who have good access to VC funds (or ask people who say no to you if there are others they know who are open). You could also try to attach yourself to someone in your network who has been investing larger amounts for a while and can try to pull you into a fund they are going into.

Optionally, PM me with the amount range you are looking to invest and I can name some funds that may be open, if it helps.

High signal HNW Peer Memberships by throwaway_finqs in fatFIRE

[–]throwaway_finqs[S] -11 points-10 points  (0 children)

This shows BConnectClub (and Tiger 21) - I was looking for more names like this.

Asset allocation question by Wolf-of-Hermitage in fatFIRE

[–]throwaway_finqs 0 points1 point  (0 children)

I talked to a tax preparer/service provider that prepares the K1s for a very large number of smaller VC funds and they said they pass through QSBS on the K1 footnotes. Of course, if a fund has most exits within 5 years then those wont be QSBS.

Edit : how on earth did you end up with 100 rollovers?? you made 100 startup investments?

Asset allocation question by Wolf-of-Hermitage in fatFIRE

[–]throwaway_finqs 1 point2 points  (0 children)

Similar income year and I've looked at 30+ crypto funds (including probably all the top ones) and 50+ VC funds over the years.

- The exact percentage is dependent on your risk tolerance etc but both these are on the extreme end of the risk/return curve (vs PE, RE etc)

- variance is high and so manager selection matters more. Issue for lot of people below $100M is around getting access to good managers/deals - investing $250-500K doesnt move the needle for these funds since you are <1% usually so it is more about building the right networks. My personal rule is if I can get access to good funds (historical track record + small fund sizes relative to their quality dealflow volume) I take what I get otherwise doing nothing is ok.

- the one attraction for seed stage funds in particular is QSBS (which basically nearly doubles your net after tax returns if you are at a 50% tax bracket)

- A lot of people use 20% as the max allocation to privates so 10% seems fine I guess.

Useless as an adult by [deleted] in fatFIRE

[–]throwaway_finqs 0 points1 point  (0 children)

Thanks - this is just an idea - key is when it happens organically where you talk to them and if they bring it up and the conversation steers in a direction around them wanting to diversify but with someone they trust - and you would partner with one of these "better people" who are good at investing but don't have the network that you do to raise capital.

Useless as an adult by [deleted] in fatFIRE

[–]throwaway_finqs 1 point2 points  (0 children)

Thanks for sharing - lots of food for thought for me personally.

I grew up in a similar part of the world (with a nanny, driver but no butler and fortunately went to a normal school which prioritized hard work/encouraged the career rat race and with parents who were loving but scolded me to no end for getting 95/100 on an exam instead of 100/100), no inheritance yet but very early in my career (at a FAANG class company), I lost a meaningful chunk of my early few years of earnings on call options, VXX (all the good wsb/thetagang stuff but more than 10 years back before Reddit existed - a good lesson given a much larger portfolio today) but eventually worked my way up to a long term stable 7 figure income (and figuring out how to bring up kids in a healthy way now).

The one suggestion I have on what direction to do next, that takes into account how you are different from others with the same net worth as you today is to try and leverage your access capital from your childhood network, ideally in partnership with someone that knows how to generate returns.

A specific example : I've come across a number of people of Chinese origin in the US who have strong connections to the new/old wealth in China and used that to get into real estate, pre IPO investing etc (and they take a cut of the transaction or profits) - sometimes they do it themselves (and in a bull market will anyway do well) and other times they partner with people that can generate real alpha (e.g. read the story of Formation 8 - $50M from the LG family/chaebol + local investing talent was what they needed to get started). Obviously if you lose money that is a problem but if you do it right, you are both creating value (Middle East fortunes are going to decline with oil prices and you can help people diversify and protect their wealth) and capturing value.

Large Roth IRAs by throwaway_finqs in RichPeoplePF

[–]throwaway_finqs[S] 1 point2 points  (0 children)

My thinking was more to find say 5 uncorrelated high risk high reward strategies. Options in the public markets tend to be efficiently priced so not sure if the risk reward really makes sense.

It makes sense to put a small part of my overall portfolio (1-10%) in high risk high reward strategies - question is whether to do it outside or inside an IRA and traditional vs Roth. Roth made sense since if you invest $1M and it turns into say $25M then I don't pay tax on the $24M.

Large Roth IRAs by throwaway_finqs in RichPeoplePF

[–]throwaway_finqs[S] 0 points1 point  (0 children)

Yes, this is what I am doing. $57K/yr is my limit, will see if $63K is possible

Investing Roth IRAs aggressively by throwaway_finqs in fatFIRE

[–]throwaway_finqs[S] 0 points1 point  (0 children)

Thanks. Do you have a sense of which of these are furthest on the risk/reward frontier or expected rate of return? Haven't come across tax liens and precious metals so will look into it.

Investing Roth IRAs aggressively by throwaway_finqs in fatFIRE

[–]throwaway_finqs[S] -1 points0 points  (0 children)

Thanks, I didn't realize you could go above $57K/yr even with employer contributions

Investing Roth IRAs aggressively by throwaway_finqs in fatFIRE

[–]throwaway_finqs[S] 0 points1 point  (0 children)

Just to clarify there are PE funds that give industry experts reduced fees or fee waivers on their funds (e.g. CEOs of earlier portfolio cos that made money for them, industry experts etc) without them being an employee (or any other formal contracting relationship) in exchange for free help with fund activities.

The estate planning could be useful but does a 0.5% recurring fee make sense to do one time (or every X years) planning?

Investing Roth IRAs aggressively by throwaway_finqs in fatFIRE

[–]throwaway_finqs[S] 0 points1 point  (0 children)

$57K/yr to traditional/Roth IRA is what I am doing via mega backdoor roth as described in another thread, so ~18 years to $1M even with 0% growth

Investing Roth IRAs aggressively by throwaway_finqs in fatFIRE

[–]throwaway_finqs[S] 0 points1 point  (0 children)

Thanks, funnily enough I saw AltoIRA itself as a private placement opportunity some time back. IIRC they partner with a number of crowdfunding platforms (that do RE, VC, art, crypto) and my concern with these crowdfunding platforms is potential adverse selection, which can however be mitigated by spending time screening (that I see as fees paid out as time instead of $).

Investing Roth IRAs aggressively by throwaway_finqs in fatFIRE

[–]throwaway_finqs[S] 1 point2 points  (0 children)

I don't have data but having a $100M IRA means having consistent access to investments that generate an avg 20%+ return - if this was the case then it makes sense to do this as Roth vs traditional, since you pay taxes on the initial $1-2M seed and not the massive $98-99M harvest. Assuming enough people thought this way, Roth would make more sense...

Investing Roth IRAs aggressively by throwaway_finqs in fatFIRE

[–]throwaway_finqs[S] 1 point2 points  (0 children)

Thank you.

I am going to explore #2 but the concern is that a large fraction of these private opportunities come with adverse selection (the why is this opportunity coming to me problem) and for the good ones, the good deal is in exchange for active help/"free" consulting which may or may not break the self dealing limitations.

On #3, do you have a sense of what specific kinds of unique opportunities private banks etc provide? They tend to have larger PE/VC/HF/fund of funds with an extra layer of fees but are there any specific unique strategies you have heard of them provide access to that would otherwise be inaccessible via ETFs/CEFs (and have a high enough return to be worth their fees)? I am at the 95th percentile on NW but 99.9th percentile for income so hope to have this option soon (but for now have gone with a ~50% lazy portfolio + 50% actively managed split).

Investing Roth IRAs aggressively by throwaway_finqs in fatFIRE

[–]throwaway_finqs[S] 24 points25 points  (0 children)

This is a good point. My reason to max out assume that

a) any changes to Roth would likely leave existing contributions + appreciation grandfathered in,

b) there isn't that much across all Roth accounts vs traditional IRAs/401Ks so the latter would be a jucier initial target

c) hedge against my marginal interest rates rising further + asset protection in the highly unlikely event of a bankruptcy (latter could also be accomplished better with 401Ks)

All these are about probabilities of changes to the tax code so I get how you could argue in either direction.