Conversation

I recently learned this pattern is common now: Step 1: Invest in a startup at 100m Step 2: a couple of up rounds later you’re at unicorn level, so 10x yay Step 3: Use private stock appreciation as collateral for debt 👀 Step 4: Market crash, survival down round, margin call!
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I don’t recall talk of this kinda shit in dotcom bust but maybe it was happening and I just wasn’t paying attention
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And what do you actually do if margin called if the stock isn’t liquid yet even on secondary market? 🧐 Sell other assets to cover?
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Didn’t feel that risky when you felt like you could recover $100m of value from a company valued at $1b. Now it’s evident that a stock can fall a lot more than 90%.
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the investors from the previous round? b/c they'll get paid back when the startup raises the next round or IPOs?
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We've been asked to do this at my fund but never actually done it so I have some experience with this. Its usually at a low quantum (<20% of the valuation) and at pretty high rates (9%+) and used by VCs to recycle into new investments once existing ones start doing well
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