00:17:35 · Molly O'Shea, Michel Del Buono
[00:17:35] S1: Why do you think so many people are doing secondaries right before large liquidity events? Wouldn't it logically make sense to hold on to it until after? [00:17:45] S0: You mean the person selling? Yeah. I think a lot of people have been working at these companies a very long time and have been accumulating this equity and just want to get some liquidity for their lifestyle. So I think that's one of the drivers. Some have left the company and they're working somewhere else, so they don't feel that attached to it. Yeah, I mean, are many personal reasons. But if 100% of your worth is in there, you can understand how people, even if it might make mathematical sense to hold on to the stock, might wanna sell before because all their wealth is there. [00:18:22] S1: You mentioned the structure of these, whether it's SPVs and that kind of thing being carry and fees. What is a good structure? What should people try to optimize for, and when are they getting fleeced?
00:18:38 · Michel Del Buono, Molly O'Shea
[00:18:38] S0: So really try to be in a structure where you're only one step removed from the shares. Ideally, you're straight on the cap table. That's really hard to do. But whenever I advise clients, I try really hard to get them straight on the cap table. If you are going to go through a vehicle and it's just L1, to use the industry term, make sure that due diligence who that is that's giving the shares, is it a reputable law firm that set the thing up? Are there safeguards in the documents around how the shares are gonna be? Are they gonna be placed in escrow or does the original owner have the right to pledge them, to borrow money against them? There are all these things. Because each one of these contracts is a custom contract, you need to get into the details. So the legal deal is actually very hard. And if you don't know ahead of time, like I'd say a lot of people don't realize, for example, people take loans out against their private stocks. Just because you put it into a vehicle doesn't mean you don't have the right to take a loan out against it. Right? So there are things like that. You have to sort of think of all these eventualities. But in order to think about them, you need to know what options these people have to start with. So it's a very difficult. You know, I'm still discovering things as I look at and I look at this stuff daily. So it's tricky. [00:19:57] S1: And then walk through the carry portion. Some people don't understand the difference in carry weight.
00:19:57 · Molly O'Shea, Michel Del Buono
[00:19:57] S1: And then walk through the carry portion. Some people don't understand the difference in carry weight. [00:20:03] S0: So let's say you buy the stock at $100 and then the percent carry, any increase in the value of the stock above $100 10% goes to whoever is creating this SPD. So that's the carry, right? And in some spaces, like in private equity, carry usually has a minimum return before the carry accrues to the person, so you might have a six, seven, 8% return to the investor before the SPV owner gets the carry, but in these situations I've never seen that. So they get from the first dollar of gain, they get to keep a portion of profits. There's nothing wrong with that per se. Just you need to be aware of that and bake that into your calculations to understand what net net amount you'll receive afterwards. [00:20:51] S1: So should they take a 5% fee and 10 carry or should they take 30% carry? [00:20:57] S0: That all depends on how much you think the stock will go up. Right? So if the stock if you don't think the stock will go up a lot, hand out lots of carry. If you think the stock's gonna go up a lot, you don't want hand out as much carry. So that becomes, again, a subjective. And when we do these analyses, we sort of map out different scenarios where the stock price might end up to understand that crossover point.
00:21:21 · Molly O'Shea
[00:21:21] S1: Yeah. Yeah. That's interesting. Sorcery is brought to you by Brex, the financial stack trusted by more than 30,000 companies, including one in three venture backed startups in The US. Nearly 40% of startups fail because they run out of cash. REX is literally built to help founders avoid that. Unlike traditional banks that let your money sit idle, chipping away at it with fees, REX is designed to help you spend smarter and move faster. Their all in one solution combines checking, treasury, and FDIC protection into one powerful account. You can send and receive money globally at lightning speeds, get 20 times the standard FDIC coverage through their partner banks, and even high yield from day one. With same day and even same hour liquidity, access your funds anytime. Companies like Scale AI, DoorDash, Service Titan, HIMS, Anthropic, Flexport, Robinhood and Plaid trust and use Brex. Start today at brex.com/sorcery. That's brex.com/sorcery. Turing is training the next generation of AI with tasks that require real expertise and real world judgment. That's why companies like NVIDIA, Anthropic, Salesforce and Gemini partner with Turing. Turing builds realistic reinforcement learning environments and data systems based on real operational traces. The kind of infrastructure Frontier Labs need to train superintelligence. Visit turing.com/sourcery. We talked about this last time with SPVs and you mentioned this a bit, but even just doing simple background checks and understanding who's the underlying person behind the the vehicle, making sure that it's credible and it's not some person that, you know, kind of like put together something. There was a tweet not too long ago where someone put together a vehicle and then fled the country and then never came back.
00:23:22 · Michel Del Buono, Molly O'Shea
[00:23:22] S0: Oh, really? [00:23:22] S1: They just took the money themselves. [00:23:26] S0: Remember, whenever you're doing a private investment, the contract, you're sort of excluded from the regulatory oversight by saying that it's a special contract only for qualified people that meet certain income thresholds. So those contracts are custom. It might strike you as unfair or not right in the way it's structured, but that's irrelevant because these are private contracts. Whatever you signed and agreed to, that's it. And your notion of what's fair or right doesn't really matter. You know what I mean? You've raised your hand. You said, Look, I'm a qualified purchaser, I'm a qualified person to do this, therefore I don't need regulatory support. Because these things happen with specialized exceptions to the regulation, but only available to people who self certify that they are okay with that. So you can't say I'm, you know, a big person, a big boy, big girl. I understand what I'm doing. And then turn around and be upset at the outcome. You have to do your legal and operational diligence.
00:23:26 · Michel Del Buono, Molly O'Shea
[00:23:26] S0: Remember, whenever you're doing a private investment, the contract, you're sort of excluded from the regulatory oversight by saying that it's a special contract only for qualified people that meet certain income thresholds. So those contracts are custom. It might strike you as unfair or not right in the way it's structured, but that's irrelevant because these are private contracts. Whatever you signed and agreed to, that's it. And your notion of what's fair or right doesn't really matter. You know what I mean? You've raised your hand. You said, Look, I'm a qualified purchaser, I'm a qualified person to do this, therefore I don't need regulatory support. Because these things happen with specialized exceptions to the regulation, but only available to people who self certify that they are okay with that. So you can't say I'm, you know, a big person, a big boy, big girl. I understand what I'm doing. And then turn around and be upset at the outcome. You have to do your legal and operational diligence. [00:24:33] S1: What are you most concerned about? In the overall macro, I guess this is a complete wide ranging macro question. Every category that you're seeing, whether it's the volume liquidity happening in secondaries, impending IPOs. We're gonna talk about credit in a second, but there are all these different markets that are doing funny things, whether it's because of the war, whether it's because of, I don't know, AI causing little sasspocalypses here and there. What are you most looking out for?