Daedalus

Private Investor
Working (6-15 years of experience)
258Joined Nov 2022

Bio

Participation
3

Career investor and friend to the effective altruism movement. 

How others can help me

Things I am interested in: 

  • A tutor for philosophy / history of philosophy 
  • A tutor for genetics / genetic medicine 
  • A tutor/mentor for biosecurity topics 
  • Opportunities to contribute to EA organizations in a governance capacity 

How I can help others

I have over a decade of experience investing in and managing technology companies as an investor/board member. I have been involved in a number of nonprofits in a similar governance capacity. I care a lot about financial literacy and operational excellence at impact organizations and believe this is a major blindspot for the EA community. I know a good bit about the biotechnology and healthcare sector, including global health, should domain knowledge in either of those areas be helpful. 

Posts
2

Sorted by New

Comments
18

Answer by DaedalusDec 05, 20222012

EA orgs should take financial stewardship and controls more seriously. More organizations should have financial professionals or there should be shared financial resources. Boards should have more financial experts even if they serve ex officio on finance/audit committees.

It seems like we're splitting hairs. What I'm saying is that millions and millions of people are hearing about EA for the first time via articles like this: https://www.nytimes.com/2022/12/01/technology/sam-bankman-fried-crypto-artificial-intelligence.html?smid=nytcore-ios-share&referringSource=articleShare 

Maybe this won't matter for the marginal Berkley EA Club joiner, but I'm worried this will do some harm for donors and non-EAs that EA orgs have to work with in order to be successfull. EA orgs often/usually have to interact with the outside world, sometimes with fairly establishment/conservative organizations who have leaders who read the NYT and WSJ. 

Maybe I'm raising this alarm because I experience this directly daily working in finance with a bunch of people who are on boards of foundations and nonprofits who now have a very negative view of EA. Maybe this is a niche concern and it doesn't matter in the grand scheme of things. 

Things that I think played particularly badly: 

  • Not being totally direct on his parents' real estate acquisitions. These are a bad look even if you buy the argument that the only way to find space in the Bahamas is to buy a few hundred million of extreme lux resort condos. I know a small handful of very wealthy people who would be able to immediately talk about how they have financed / held their RE assets. 
  • Not being totally direct on his relationship to Alameda: the guy lived with principals of and founded/owned 90% of the firm which was also located in the Bahamas (and maybe dated the CEO?). I have no more intel than what's available in the press but it just does not read as truthful as an outsider. 
  • Drug use: who cares, but it has become a meme and I think he would have been better served to say: 'yeah, I have a special patch-based scrip for ADHD meds I've used throughout my career - not sorry about that'. 

My only update is that I think this community (based on the EA forum only) is under-rating the PR damage from all of this. For a lot of people SBF =~EA, and this interview does not appear to be playing well (source: twitter, group chats etc.). I'm not sure what to do about it  but I thought I'd share that observation from outside the EA/LW bubble. A few other thoughts:

  • Unfortunately, I  think SBF's comments to Vox about ethics ("so the ethics stuff - mostly a front?") have been misread to mean  that his entire earning to give / EA worldview was somehow a cynical sham. While I think FTX's downfall indeed involved some risky and unethical  business dealings, I  don't think same is saying anything like this (obviously). In fact,  he may have even EV'd himself into taking some of these risks in service of his earnest philanthropic goals (epistemic status: who knows). 
  • Some people who really don't like EA, and longtermism in particular, are using the FTX downfall as a sort of proof that EA exists to launder the reputations of the wealthy. While I think these arguments have little merit, they are getting a lot of play in left-leaning circles and I think have the potential to do damage, especially to people with limited exposure to EA who are "getable" in the sense that they care about similar things to EAs and may now be less likely to work on / support EA cause areas.  

My non-EA group chats, mostly finance professionals, are tearing this apart. His claimed lack of knowledge of a number of key metrics and figures is not credible. The real estate question about his parents got an even more heat (I think justifiably so). 

When FTX raised $420 million from an array of big-name investors in October last year, the cryptocurrency exchange said the money would help grow the business, improve user experience and allow it to engage more with regulators.

Left unmentioned was that nearly three-quarters of the money, $300 million, went instead to FTX founder Sam Bankman-Fried, who sold some of his personal stake in the company, according to FTX financial records reviewed by The Wall Street Journal and people familiar with the transaction.

 

https://www.wsj.com/articles/ftxs-sam-bankman-fried-cashed-out-300-million-during-funding-spree-11668799774?mod=hp_lead_pos4

Just drawing attending to the bankruptcy filing day one statement, which really is something else. This is just a brief intro filing and by no means comprehensive, but the sentiment is incredibly damning for SBF and his inner circle. Putting aside the Vox interview and questionable EV thinking re risk, it also appears that FTX was just  badly run. If the plan was to run a high risk/reward strategy (even if you thought you might need to obfuscate activity in the future), you would not have such poor internal controls and governance. It all looks a lot more ham-fisted than I thought possible. I honestly don't get it. 

The bankruptcy filing is something else, including the statement (from the man who restructured Enron) ‘Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.’

There are huge private equity firms that focus on buying venture secondaries. No one is talking about selling to individuals. There is also enormous demand for these, especially from firms unable to get into deals with primary capital. FTX raised far less than they could have in the 2019-2021 market to limit dilution, which is a totally reasonable strategy. The demand for exposure to FTX surely far outstripped the ‘supply’.

All I’m saying is that as a professional investor this is extremely common and uncomplicated, especially for hot venture companies. I have friends close friends who took tens of millions off the table in 21 through secondaries in far less exciting and earlier stage businesses. On if my neighbors works at StepStone and entirely focused on venture secondaries.

My broader actual point was this: I don’t blame Will or Nick or any of the FF people for this - this stuff is super niche financial markets minutia. My broader point/concern is around governance, financial controls, and funding strategy at EA orgs (looking in from the outside and reading a few case reports). If FF had a CFO they should/would have flagged the concentration risk and developed some proposals immediately. At the most basic level I just want you guys to hire some good finance people!

There is an established mechanism for doing this called selling shares into the secondary market.  From Carta: 

Between 2012 and 2021, the global market for venture secondary deals grew from $13 billion to $60 billion. This growth happened in part because the primary market for venture capital also grew: Over the same span, annual global venture investment rose from just over $50 billion to well north of $600 billion. This growth culminated in a record-setting 2021

https://carta.com/blog/venture-capital-secondary-market/ 

I'm sorry this is not correct. Private companies have stock, it is just not publicly traded. I personally own stock in a number of private companies, as do funds I help manage. During or in between financing events, it is customary for existing holders of stock or options to sell on the secondary market, either to incoming investors or third parties. In 2020/2021, while the venture and tech markets were hot, these transactions were extremely common. Secondary shares are often sold at a discount to market, which over the past two years were very modest. The idea that it was impossible to generate liquidity is simply incorrect and a strategic CFO could have pointed that out. 

Load More