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!
Conversation
My question is: Who exactly is lending against equity in privately held startup stock?? And why? It’s not unencumbered collateral…
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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
Replying to
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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