Saying No to "Winner Takes All"
The exit of equity investment involves trade-offs. After painstakingly nurturing a company for years, choosing to exit at its most glorious stage means not taking away the company's profits and no longer sharing in its growth. This mindset can be interpreted by rewriting a famous poem: "Profit is truly precious, growth is even more valuable, but for the sake of freedom, both can be discarded." Here, "freedom" refers to the liquidity of capital. The price of gaining "freedom" is neither past profits nor future growth. So what is it? It is the liquidity premium that the company obtains after going public.
The development of a business has three stages: start-up, growth, and maturity. Equity investors can choose to enter during the start-up phase and exit during the growth phase, giving up the pursuit of profit in exchange for liquidity premium. This behavior pattern sometimes also spreads to capitalists, turning them and even entrepreneurs into equity investors. In this situation, in the game of modern enterprises, it is not always "winner takes all". Capitalists without "freedom" are likely to be shackled.
Saying No to "Winner Takes All"
If this is the first round of the game, the winners are ranked in order: the highest book premium belongs to the capitalist, followed by the equity investor, then the entrepreneur, and finally the stock investor bears the trading risk. However, from the perspective of liquidity, equity investors exit with a premium and no longer bear the operational risks of the enterprise. In the game of modern enterprises, it is not always "winner takes all". Capitalists without "freedom" are likely to be shackled.
Equity investment's pursuit of "freedom" far exceeds its desire for profit. In the trade-off between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Landlord Fighting" is not always "winner takes all". After a company goes public, the capitalist has the highest book asset premium, but due to lack of freedom, their book asset premium fluctuates with the rise and fall of stock prices. Capitalists not only have to bear the operational risks of the enterprise but also the trading risks of stocks. After equity investors exit, stock investors will come and go like a revolving door, and entrepreneurs can also choose to exit perfectly after the realization of equity incentives. Only the capitalist does not have this freedom. In this round of "Landlord Fighting", the loser becomes the capitalist, because the enterprise's pursuit of profit maximization is both an incentive and a shackle.
After returning home, I learned about the game of "Real Money Landlord Fighting". In a three-person card game where two teams fight one, from the perspective of fairness, it is very asymmetrical. This is very similar to the way modern enterprises play. Capitalists, entrepreneurs, and equity investors sit as major players, issuing part of the shares to stock investors at a high premium. A year later, equity investments fade out, completing the entire investment process, and the internal enterprise returns to peaceful coexistence between the boss and the manager.
After returning home, I learned about the game of "Landlord Fighting". In a three-person card game where two teams fight one, from the perspective of fairness, it is very asymmetrical. This is very similar to the way modern enterprises play. Capitalists, entrepreneurs, and equity investors sit as major players, issuing part of the shares to stock investors at a high premium. A year later, equity investments fade out, completing the entire investment process, and the internal enterprise returns to peaceful coexistence between the boss and the manager.
Definition of Bubble
The development of a business has three stages: start-up, growth, and maturity. Equity investors can choose to enter during the start-up phase and exit during the growth phase, giving up the pursuit of profit in exchange for liquidity premium. This behavior pattern sometimes also spreads to capitalists, turning them and even entrepreneurs into equity investors. In this situation,
Equity investment's pursuit of "freedom" far exceeds its desire for profit. In the trade-off between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Landlord Fighting" is not always "winner takes all". After a company goes public, the capitalist has the highest book asset premium, but due to lack of freedom, their book asset premium fluctuates with the rise and fall of stock prices. Capitalists not only have to bear the operational risks of the enterprise but also the trading risks of stocks. After equity investors exit, stock investors will come and go like a revolving door, and entrepreneurs can also choose to exit perfectly after the realization of equity incentives. Only the capitalist does not have this freedom. In this round of "Landlord Fighting", the loser becomes the capitalist, because the enterprise's pursuit of profit maximization is both an incentive and a shackle.
Definition of Bubble
The exit of equity investment involves trade-offs. After painstakingly nurturing a company for years, choosing to exit at its most glorious stage means not taking away the company's profits and no longer sharing in its growth. This mindset can be interpreted by rewriting a famous poem: "Profit is truly precious, growth is even more valuable, but for the sake of freedom, both can be discarded." Here, "freedom" refers to the liquidity of capital. The price of gaining "freedom" is neither past profits nor future growth. So what is it? It is the liquidity premium that the company obtains after going public.
The liquidity premium of modern enterprises comes from the capital market. This premium is related to the company's profit, but there is no linear relationship. The fact that the GEM opening price soared indicates that the premium obtained by the company after going public mainly comes from the irrational madness of investors, because the growth premium represented by corporate profits has already been reflected in the issue price-earnings ratio. In fact, neither stock investment nor equity investment has the profit motive of capitalists and entrepreneurs. Although their gains are premised on the sustainable growth of the enterprise, stock investors focus more on the transactional premium of the enterprise, and equity investors focus more on the liquidity premium of the enterprise. I once said that transaction value is the mainstream value of modern financial markets. So what is the liquidity premium? It is a form of transaction value, which is commonly known as the asset bubble. If I were to define the asset bubble, it would be: the liquidity premium generated based on expectations and transactions.
Forum Signature: Peak Slaughter, Lingchen World, Landlord Fighting
Shenzhen Ultrasonic