Okay folks, we have a short video for you today. I want to talk to you about something that I believe is a huge elephant in the room, something that a lot of people overlook. and it's incredibly frustrating. If you are going to watch this video, make sure to watch the entirety of it because I don't want anybody to take my words out of context.

It's a very, very sensitive issue. Okay, so follow me here. So there's really two parts of the valuation of a company. Part one, you have the story: value, what the company can become, the vision, and then number two is what the company actually is.

the value it's creating in the present day, and the value that it holds in the present day. People buy stock and invest in companies because of a combination of these two things. Great now that we're on the same page. If you are, say, a founder, a Ceo, an early stage venture capitalist that got themselves a seat on the board of a company, or anyone that gets in on the ground floor before the company goes public, or before the company gets acquired.

Well, if you're in that bucket, you have two ways of making money. way. Number one is cashing in on investors by building a good story, a good vision, and selling it. Number two is cashing in on customers by building an actually good business.

If you're in this for creating a business, your goal is to cash in on customers. You sell a product or service, You take it to the marketplace, and then customers pay for yours instead of the competitions. You're happy because you make a profit, the customer's happy because they have a good product or service. Mutually beneficial, right? And both sides are happy.

But the problem is, and the way that equity markets work is that if you want to make a lot of money as an early stage founder or investor or whatever, you never actually have to get to stage number two. You never have to actually get to the point where you're having a successful business. In fact, a lot of people are simply in the business of convincing investors that they're going to be in a good business instead of your end goal being. I want to serve customers in a marketplace, and I need capital upfront to do that.

Some companies actually have the end goal of simply convincing investors that they're going to do that, and then the founders go and cash out, or their early stage investors cash out early. People that were on the ground floor go home and they buy a yacht. In other words, instead of being in business to serve consumers, you could simply be in business to convince investors that you're going to be in the business of serving consumers. and then they can rally up your stock to the point that they pre-factor in you actually having a successful business.

And it's a lot easier to sell a dream than to actually create one and make it a reality. And then once you've sold your equity, you could decide whether you want to stay with the company or not. If the company flops afterwards, who cares? The investors are going to pick up the bag right. Not only do ground floor people make money on doing this, but people that help companies go public or people that help with mergers and acquisitions.

people get huge cuts of these deals and then all of a sudden they make money regardless of what happens at the company. At the end of the day, the business of Selling Visions is very, very profitable, but the business of building business is a lot harder. Right in 2020 and 2021, you saw these companies go public via Spec. and a lot of the partners in these mergers made tons and tons of money regardless of the fact that most S packs got obliterated over the last 18 months.

Different deals have different lock-up dates for founders, but a lot of people that were executing in these transactions made out like bandits. Doesn't matter if the companies ultimately fail or not, they made their money. some of them ones that I've talked about. I really like others, they're just story stocks.

But let me give you a few specific examples of Selling Visions: One that's malicious and one that I think is honestly very, very innocent. Here's the malicious one: Thrones. This is the company that was started by Elizabeth Holmes and she managed to convince investors that they would be able to make a small automated device that could take very small amounts of blood and test for a ton of illnesses. Her and early execs and board members were able to sell this vision so hard and so well that they were able to get a valuation of 10 billion dollars without ever really allegedly having anything that actually worked.

At the end of the day, they were never able to make good on their promises and that valuation of 10 billion dollars turned into zero overnight. But early investors that cashed out made out like bandits and founder Elizabeth Holmes actually had a net worth as high as 4.5 billion. At one point, they made that money, not by selling actual products or by creating something. They made money by selling a vision.

In this case, they allegedly did it by line and manipulation and complete fraud and the founders net worth went down with the company. But still. If you're an early investor and you sold on the way up, you made tons of money. Company never did anything in this case.

It was so blatant that there were legal consequences, but in most cases it's completely legal to sell a vision, as long as you're not lying about what you have in present day. there's tons of companies that create very, very rosy images of what they're going to be able to do, what kind of technology they're going to be able to develop, and what kind of market they're going to be growing in and how they're going to do versus the competition. and then they actually go to market and they don't achieve 1 of that. If you've built an unprofitable company and you've sold a very, very strong vision of what it's going to be in the future and you really don't believe in that, but you're selling it so that people buy the stock wants to stop you from just pretending to try to make the vision go through and sell your shares before it comes out that that vision's never going to become a reality.

Sometimes stocks can remain high for years before anybody really finds out that they're not going to achieve their projections. You see so many early investors and founders and early ground folks go and sell equity before the companies even reached any of their progress stages, and they're allowing themselves to lock in the profits on the vision that they already sold. And quite frankly, Vision sales aren't always malicious. In fact, they can very much be innocent and incidental.

Just part of being a good business person, you're trying to sell what you have for a higher price than it's worth, and the more you get, the better. For example, you look at Broadcast.com founded in 1995 by several gentlemen and then later invested in and led by Mark Cuban. I'm a fan of Mark Cuban. seems like a great guy.

Look what he's doing with his pharmaceutical company right now. Not throwing any shade at him. Don't mix my words, but you look at where his original money came from. It was back in the dot-com bubble when everybody was paying top dollar for story stocks.

You sell someone a vision. you get tons of money. and when Broadcast.com went public in 98, the stock price scored 250 on the first day of trading, and Mark was worth 300 million bucks. Prior to that, he'd only made a few million dollars in his micro solutions company.

Then, nine months after ipo, Broadcast.com was acquired by Yahoo for 5.7 billion. Now, Broadcast.com like most of the most effective story stocks, does have a real foundation of being a real business. Broadcast.com had 570 000 users and they are making about 13.5 million a year in revenue. If you're paying 10 time sales for that, that's about 130 million dollars in valuation.

But at the purchase price of 5.7 billion dollars, Yahoo was paying 10 000 per user for an online internet radio company, each user was probably worth less than 50 bucks if you actually did the math. But Yahoo bought them for such an insane premium because of the story value and the premium placed on stories at that time. Then what happens? Well, Mark Cuban goes and receives a huge payday. He even made the world's largest e-commerce transaction at that time, a 40 million dollar jet.

he bought over the internet and then the dot-com bubble bus. And it turns out that the vision of Broadcast.com was not matched up with the actual value of Broadcast.com Few years later, Yahoo actually went and discontinued Broadcast.com and essentially the value of that Enterprise drops to zero. So, 5.7 billion to zero. And Yahoo shareholders and investors that stayed with that Enterprise were the ones that picked up the tap.

But Mark Cuban himself had made the smart decision to have sold the company before the dot-com Bubble bust and essentially cashed out all of the Enterprise value from the acquisition of Broadcast.com While the vision was still factored into the price, he was also very, very smart with hedging. So Mark kept the capital from selling the vision and Yahoo picked up the bag. When the vision turned out to be not real and again, to be clear, I don't think Mark Cuban did anything wrong. He sold a business that he helped create and was an early investor in to Yahoo for an extremely large sum of money.

He probably thought they'd be able to do a great job with it, but at the end of the day, it was actually worth virtually nothing, but he and other people in that company were able to walk away with huge paydays. The point is, whether on purpose or not, they never actually had to build a 5.7 billion dollar Enterprise. they just had to convince investors that it would be a 5.7 billion dollar enterprise. And they did that successfully.

It's not Mark Cuban's fault that there is a bubble valuation at that time period, nor was it their fault that it crashed after he had let them buy it. If Yahoo decides to buy my Zip Trader youtube channel for a billion dollars tomorrow, and within a couple years, all the viewership's gone and the value of the company's worth zero. Does that make me a bad guy for selling it to them for a price that's ridiculous? No. Who am I to say that they can't buy it for a billion dollars, right? That's on them if you want to make an investment.

Hey, fine. But the point that I'm trying to make is that in the stock market, whether you are a good or bad actor, you are essentially giving away your risk to investors. You are letting investors pick up your risk and even if your vision never pans out, you oftentimes will walk away with a very, very nice payday. This is the elephant in the room.

If I start a business and sell fund and that business fails, I lose money and I lose out. Sucks if I start a business and I let investors fund the enterprise. Well, if the business fails, they lose money. I lose my business and whatever money I put into it.

So all of us fail and all of us lose money. But if I go public via public market and I run it a few years so that I could sell my equity, well if it fails, the business dies, Investors lose money. But I actually make money. I was actually able to cash in.

So you're flipping the dynamic from my start a business and I lose money to I start a business And if I fail then investors lose money and I'm fine. I still made money. So if you win, you make money. If you fail, you also make money.

That's the elephant in the room when it comes down to early investors and people who are founding companies. If you go public, the other investors are picking up the tab for your risk and you're already getting paid regardless of whether you fulfill your vision. I think that's why you see so many founders go and say, well, I want to go ahead and let investors pick up the risk. Why do I want to take the risk If my vision fails? Oh well.

I'll just go do something else and make more money Because regardless of whether it works or not, I already made my equity by selling a vision and obviously it doesn't just have to be the public market. In the situation with Yahoo, Yahoo bought Broadcast.com from the public markets. In that case, it was the shareholders of Yahoo that ended up picking up the tab. But you get my point.

But the problem and why the system is like this in the first place is because if you do want to create a business, it costs a lot of capital to actually fund innovation. If you're trying to build a new company, you do have to be a salesperson and be able to sell the vision for that new company. For example, Steve Jobs, Elon Musk, both great sales people both sold visions to help fund their companies and they saw through the execution of those visions. Elon is still seeing them through except for the suspension in my car, which makes a lot of noise.

But that's another problem. difference between a good actor and a bad actor is that a good actor goes and sells a vision and has all the intentions in the world to actually fulfill that vision. And a bad actor goes and sells a vision and may not even have the intention to follow through with the vision. Their real customers may have been investors the whole time until the House of Cards collapses and then they could just say oh yeah, well, we failed Next, let's move on to the next business.

Good thing I sold all that equity after the walk-up periods, and it's not just talking about whether or not you sell shares in the company. There's plenty of good Ceos that we're going to go and follow through with the Vision that sells shares early on. For example, Jeff Bezos sold shares in 98, 99, and 2000, But then of course, he let the company for two decades through an insane growth period. But still, even in that situation.

think about this. He could have literally walked away at that point back in 2000, when that dot-com bubble bust with a hundred million dollars. Even if he decided to lead it for a few more years and it did go bankrupt. Well, investors had already paid him 100 million.

So who cares with most genuine founders? Companies are like their babies and they're not looking at it like that, but with a lot of bad actors or actors that just want to sort of put on the cost to investors. Investors are just simply placing a safety net for the founders and original investors. And honestly, I know. I said there's three scenarios here, but there's actually a secret fourth one that's even worse than the first three: The situation where you start a business and the business fails.

Investors fail, but then also taxpayers fail because the government goes and bails you out, but you still made money on your equity that you sold, or your share based compensation that you sold or so on and so forth. That's a whole other story. I'm not going to go there, but the point is, I guess in this world that we're living in, it's very, very important to be able to distinguish between companies that are in the business of selling themselves to investors or companies that are in the business of creating a business. You have to make damn sure that you understand the company you're investing in, the niche you're investing in.

And most importantly, in regards to this topic, you're actually doing work on the leadership behind the company. What is their past? What about other people that are venture capitalists in this? Do They have a history of investing in companies and then gutting them before they actually go to the final stage of actually being a business? Are they in the business of just selling visions? Some really, really important things to think about Anyways, folks, just a short rant that I wanted to give to you. Let me know what you think down below. Have a good one and I'll see you in the next video.