Published in the San Diego Union-Tribune, June 10, 2024
by Neil Senturia
I can’t define it exactly but I know it when I don’t see it.
Try this on for size. In 2022, according to the FBI Internet Crime Complaint Center, there were 88,262 complaints of fraud from people ages 60 or older resulting in $3.1 billion in losses.
Now factor in that only 1 in every 44 cases is reported and you can see that old people lose a lot of money.
My thesis is so do young people. In my humble opinion, it is because like sex and death, it is not a topic much discussed.
All of us are at the mercy of financial scams, miscalculations, sales manipulations, deals we don’t understand, hidden costs, multiple fishhooks, unintended consequences and general stupidity when it comes to money.
In my particular little part of the startup world, understanding finance is a crucial requirement for building a company. I know you say you need to raise money, but how much, from whom, on what terms — the list is long. And usually, money is not the problem.
I interviewed a young genius who is thinking about a venture deal. He says he wants “smart money.” I challenged him to tell me what smart money looks like, and I got the deer in the headlights.
You want to scale the company. OK, debt or equity, on what terms, for how long? Not so simple. Ask Silicon Valley Bank, which made the wrong bet on long-term interest rates. Goodbye.
And what about your personal life?Buy a car or lease a car, used or new? Buy a house or rent an apartment? It’s on sale, do I really need it? Not as easy as it looks. Money is complicated.
Consider this — there are 330,000 wealth managers/financial advisers in the U.S. There are 15,000 stocks on the NYSE and Nasdaq. Looks like a lot of folks trying to get through the same door at the same time. And they all say they will take good care of you and your money.
And believe me, they have a target-rich environment. Only 57 percent of American adults are financially literate. Forty percent of Americans are unfamiliar with Roth IRAs, and 70 percent know about 401(k)accounts and don’t use them. Sell the winners, hold the losers, hoping they will come back?
Advice, where art thou?
Maybe just turn to AI? Ask ChatGPT or Gemini about stocks and bonds, and you get good solid answers. But go ahead and try to explain to the bot how you “feel” about money and investing. If you want some advice on how to leave money to your children or whether to buy a vacation time-share, the AI gurus are there for you. But for feelings about love and money, for that you have to go to the shrink. That is why money is complicated. It’s not just math.
A startup I know has a few hundred thousand in revenue and gets to the last round of “Shark Tank,” where it’s asked what deal it’s offering. The startup says it will give 5 percent equity for $1 million.
I meet with the startup and ask, how did it come up with that valuation? It told me, “It was how we felt about our company.” It said it wanted to avoid too much dilution. No surprise, the tank producers turned the startup down; it did not get on the show.
And finally, let’s blend in a tablespoon of greed and stupidity.
Andreas Bechtelsheim is famous for making the most celebrated investment in the history of Silicon Valley. He gave a personal check for $100,000 to two Stanford students while walking to work.
The company was Google. Nice move, but we all know the haunting question — how much is enough?
Bechtelsheim just settled an insider stock trading charge with the SEC. His profit on the trade in question was $415,726. He paid a $900,000 fine and was barred from serving as a director or officer of a public company for five years.
And just a note to the file, Bechtelsheim has a current net worth of approximately $16 billion.
Remember, it’s not the money on the term sheet that will bring you down; it’s all the other stuff. In your head.
Rule No. 808: Trust me, your mother did. Love you.