00:09:07 · Michel Del Buono, Molly O'Shea
[00:09:07] S0: Right. So you can have several trusts for your kids, your parents, what whatever. And each of those, depending on how you structure them and it's complicated and probably above my legal knowledge. But each of those can get if it's structured right, its own QSBS exemption. [00:09:26] S1: Mhmm. Is there any more to that? Like, what what like, I'm just curious. Okay. So coming from someone who doesn't know all the nuances between all of this, like, I know I asked you this before. Like, how do you lay it out? I know within all of these structures and entities, there's like seven more layers and like more nuances and like whether it's strategies, portfolios, you like, where you domicile it, all those sorts of things.
00:09:49 · Michel Del Buono
[00:09:49] S0: Right. So, I mean, obviously, if you can multiply your QS BS benefit across several trusts, you're going to get that 10 or $15,000,000 of benefit each time. So it's huge. Right? So the economics of that are very compelling and easy to understand. But to your point, this and is where it kind of delves into sort of people's families and their personal preferences and how they're some people don't want to leave everything to their kids, some people do. So that then dictates how big those trusts are, dictates what kind of strategies are in them. It dictates how you distribute money out to the recipients. When? Do you give the money to people when they're 30? Do you give them money when they're 40? Do you allow them to, if they're younger, to invest in, I don't know, a startup that they're running or not? So all that becomes really personal, and that's why this exercise is, it's hard to generalize because it's so personal, and effectively all these trusts are kind of handmade, custom made by attorneys. It's a lengthy process because you have to decide all these things. And I think where people fall down a lot is that when they start realizing you make these decisions that have long ranging implications, they don't really know. They haven't decided yet. Do I leave all my wealth to my child or half my wealth? And then they get stuck on that and they never progress forward and then miss the boat on getting the tax benefits. Right? So I think a lot of the preparation is actually sort of psychology, philosophy, family values, whatever you wanna call it, have all that thought out so that when it comes time to structure things, you already know, yeah, my niece Molly is gonna get X amount and she's gonna get it when she's 40 and here's gonna be the trustee that controls that and so on and so forth. If you don't have those basic things thought out, trying to structure the trust itself is not the difficult bit. It's these things you define inside it that are difficult. What
00:11:48 · Molly O'Shea, Michel Del Buono
[00:11:48] S1: are the biggest mistakes that people commonly make? [00:11:52] S0: Well, I think the biggest one is they don't think about this, and then at the last minute they try to sort of build all this and run all these roadblocks, which are again complicated discussions they have to have as a family, as a broad family, and to think about these things, and they're not ready to do that, they haven't thought about it, and they don't have the time to do that. And so then they drop the ball in terms of getting these things done. So, I mean, this sounds really trivial, but at the end of day, be prepared. So some people come and are very prepared and they have this sort of family values document they wrote out that they all agreed on about how the inheritance is going to work and who gets what and what the inheritance is for. Some people are very prepared and that makes life a lot easier. [00:12:32] S1: The last conversation we had, you mentioned you don't and not I don't know if I'm allowed to say advice, but you've seen and you may not suggest that someone liquidates their entire position on day one, to trickle it out and start putting it in different places, not to put words into your mouth. You have the liquidity event coming up, how do you then manage it across the next year or two?
00:12:57 · Michel Del Buono
[00:12:57] S0: So I think wealth managers, asset managers, it's very self serving for them to say, hey, you should liquidate everything because obviously they're not going to charge you fees on your concentrate position. It's your stock. You brought it to the table. But they will charge you fees if they build you a stock or a bond portfolio or private equity portfolio. So it's self serving for them to say to you, I'll liquidate everything because you should diversify and get out. Now, I think the statement you should diversify, I mean, to some degree, you probably should for a rainy day, but the degree to which you do that becomes a personal preference. I can't put myself in your shoes. Some people are very risk averse, so they wanna get out of everything as fast as they can. Others really wanna ride the wave of the company. History has shown that hanging on to your stock, generally speaking, not always. I mean, there are counterexamples, of course, to everything. Generally, you know, stock that got you to the liquidity point, it will probably continue to do pretty well. And if anything, you're the most informed person in the world about that stock. So for me to come in and sort of tell you that you should sell it or not sell it is it's silly. Right? I don't know more than you do. So you're the one who needs to sort of assess whether you truly think that stock will continue to to run and how much, therefore, should you keep it or not. Right? But I'd say the vast majority of people should keep it for a while, at least as long as they're engaged in the company. Right? There comes a point where some people disengage from the company.
00:14:28 · Molly O'Shea
[00:14:28] S1: The last conversation was also anchored on the SpaceX IPO upcoming that's gonna be a very large wealth creation event across California, Texas, wherever, you know, alumni have gone after. Mhmm. But another topic that's kind of an undercurrent of a lot of liquidity over the last year and will continue to be is secondaries, whether it's Anthropic, OpenAI, don't know, Andoril, SpaceX, people that are doing tenders. It could also be Stripe. And so with those in mind, could you just talk through one, like the best practices for secondary sales and then going through these events too and what to look for, what to not look out for?
00:15:08 · Michel Del Buono
[00:15:08] S0: The secondary market is very active right now. Everyone wants to get a piece of the brand name companies. And so this whole industry has sprung up around that. Brokers, friends of founders that happen to have a position. But the challenge always with these things is that the companies generally are structured, their bylaws are structured so that the employees cannot necessarily transfer the stock to outsiders. So what ends up happening is the employee creates a company, Molly Corp, and then Molly then transfers some of her stock into her own company. The company will allow that because it's a technical get transferred just to herself. And then she sells shares in that company and others. And these others, you know, people are trying to get into these companies, don't really have a direct claim on a stock. They have a claim on Molly company. Right? And that's called the level one or L1 type structure. And then what's happened is there's so much demand that let's say I bought shares in Molly Corp, right? I now go create Michel Corp and sell shares in that to other people, that's now a level two or L2 type structure. So you see things L1, L2, you can see L3 nested structures. Each time you're further and further away from the stock, and so there's more and more risk that you don't get what you thought you would. Right? Because who's to say that the original person that started the very first company doesn't borrow money against the shares or sell them outright because there's no real sort of controls on that necessarily. People just say, I pledge to you that I'll give you the returns when the company IPOs. They're not necessarily saying, I will hold these stocks in escrow for you. So there's a lot of legal complexity in there, and I think people are so excited about getting these things that they gloss over these details. The other thing, of course, is that people layer in a lot of fees, carry, so it's not unusual to see one in ten, two in 20 type structures or a 5% transaction fee. And often it's not done at the last round. It's done at a significant, increase the last round. So it's a very complicated space. I would really ask the viewers, be careful. It's a very hairy, complicated topic.