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 forsaken." Here, "freedom" refers to the liquidity of capital, and the price of obtaining this "freedom" is neither past profits nor future growth. So what is it? It is the liquidity premium that a company gains 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 Growth Enterprise Market (GEM) opened with a sharp increase indicates that the premium obtained by companies after listing mainly comes from investors' irrational frenzy, 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 returns are based on the company's sustainable growth, stock investors focus more on the company's trading premium, while equity investors focus more on the company's liquidity premium. I have mentioned before that trading value is the mainstream value of modern financial markets. Then what is liquidity premium? It is a form of trading value, which is commonly known as asset bubbles. If I were to define asset bubbles, it would be: liquidity premium generated based on expectations and transactions.
Definition of Bubbles
Equity investors' pursuit of "freedom" far exceeds their desire for profit. In the choice between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Landlord" is not always "winner takes all." After a company goes public, capitalists have the highest paper asset premium, but due to lack of freedom, their paper asset premium fluctuates with the rise and fall of stock prices. Capitalists not only have to bear the operational risks of the company, but also the transaction risks of stocks. After equity investors exit, stock investors will come and go like a carousel. Entrepreneurs can choose to withdraw perfectly after realizing equity incentives, but capitalists do not have this freedom. In this round of "Landlord," the loser becomes the capitalist, because the company's pursuit of profit maximization is both an incentive and a shackle.
In the game of modern enterprises, it is not always "winner takes all," and capitalists without "freedom" are likely to be shackled.
The development of enterprises 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 such cases, in the game of modern enterprises, it is not always "winner takes all," and capitalists without "freedom" are likely to be shackled.
If this is the first round of the game, the winners are ranked accordingly: the capitalists have the highest paper premium, followed by equity investors, then entrepreneurs, and finally stock investors bear the trading risks. However, from the perspective of liquidity, equity investors exit at a premium and no longer bear the operational risks of the company.
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 forsaken." Here, "freedom" refers to the liquidity of capital, and the price of obtaining this "freedom" is neither past profits nor future growth. So what is it? It is the liquidity premium that a company gains after going public.
After returning to China, I learned about the game of "Landlord," where three people play, two against one. From the perspective of fairness, it is very asymmetrical. This is very similar to the way modern enterprises operate. Capitalists, entrepreneurs, and equity investors sit together, issuing some shares to stock investors at high premiums. A year later, equity investments fade out, completing the entire investment process, and the internal relations within the company return to peaceful coexistence between owners and managers.
Equity investors' pursuit of "freedom" far exceeds their desire for profit. In the choice between profit maximization and liquidity premium, equity investors prefer liquidity, while capitalists prefer profit maximization. Therefore, the game of "Landlord" is not always "winner takes all." After a company goes public, capitalists have the highest paper asset premium, but due to lack of freedom, their paper asset premium fluctuates with the rise and fall of stock prices. Capitalists not only have to bear the operational risks of the company, but also the transaction risks of stocks. After equity investors exit, stock investors will come and go like a carousel. Entrepreneurs can choose to withdraw perfectly after realizing equity incentives, but capitalists do not have this freedom. In this round of "Landlord," the loser becomes the capitalist, because the company's pursuit of profit maximization is both an incentive and a shackle.
If this is the first round of the game, the winners are ranked accordingly: the capitalists have the highest paper premium, followed by equity investors, then entrepreneurs, and finally stock investors bear the trading risks. However, from the perspective of liquidity, equity investors exit at a premium and no longer bear the operational risks of the company.
After returning to China, I learned about the game of "Real Money Landlord," where three people play, two against one. From the perspective of fairness, it is very asymmetrical. This is very similar to the way modern enterprises operate. Capitalists, entrepreneurs, and equity investors sit together, issuing some shares to stock investors at high premiums. A year later, equity investments fade out, completing the entire investment process, and the internal relations within the company return to peaceful coexistence between owners and managers.
Saying No to "Winner Takes All"
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 Growth Enterprise Market (GEM) opened with a sharp increase indicates that the premium obtained by companies after listing mainly comes from investors' irrational frenzy, 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 returns are based on the company's sustainable growth, stock investors focus more on the company's trading premium, while equity investors focus more on the company's liquidity premium. I have mentioned before that trading value is the mainstream value of modern financial markets. Then what is liquidity premium? It is a form of trading value, which is commonly known as asset bubbles. If I were to define asset bubbles, it would be: liquidity premium generated based on expectations and transactions.
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