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Woodstock for Nerds: Highlights from Manifest

James Bailey4 Comments

I’m back from Manifest, a conference on prediction markets, forecasting, and the future. It was an incredible chance to hear from many of my favorite writers on the internet, along with the CEOs of most major prediction markets; in Steve Hsu’s words, Woodstock for Nerds. Some highlights:

Robin Hanson took over my session on academic research on prediction markets (in a good way; once he was there everyone just wanted to ask him questions). He thinks the biggest current question for the field is to figure out why is the demand for prediction markets so low. What are the different types of demand, and which is most likely to scale? In a different talk, Robin says that we need to either turn the ship of world culture, or get off in lifeboats, before falling fertility in a global monoculture wrecks it.

Play-money prediction markets were surprisingly effective relative to real-money ones in the 2022 midterms. Stephen Grugett, co-founder of Manifold (the play-money prediction market that put on the conference), admitted that success in one election could simply be a coincidence. He himself was surprised by how well they did in the 2022 midterms, and said he lost a bunch of mana on bets assuming that Polymarket was more accurate.

Substack CEO Chris Best: No one wants to pay money for internet writing in the abstract, but everyone wants to pay their favorite writer. For me, that was Scott Alexander. We are trying to copy Twitter a bit. Wants to move into improving scientific publishing. I asked about the prospects of ending the feud with Elon; Best says Substack links aren’t treated much worse than any other links on X anymore.

Razib Khan explained the strings he had to pull for his son to be the first to get a whole genome sequence in utero back in 2014- ask the hospital to do a regular genetic test, ask them for the sample, get a journalist to tweet at them when they say no, get his PI’s lab to run the sample. He thinks crispr companies could be at the nadir of the hype cycle (good time to invest?).

Kalshi cofounder Luana Lopes Lara says they are considering paying interest on long term markets, and offering margin. There is enough money in it now that their top 10 or so traders are full time (earning enough that they don’t need a job). The CFTC has approved everything we send them except for once (elections). We don’t think their current rule banning contest markets will go through, but if it does we would have to take down Oscar and Grammy markets. When we get tired of the CFTC, we joke that we should self certify shallot futures markets (toeing the line of the forbidden onion futures). Planning to expand to Europe via brokerages. Added bounty program to find rules problems. Launching 30-50 markets per week now (seems like a good opportunity, these can’t all be efficient right?).

There was lots else of interest, but to keep things short I’ll just say it was way more fun and informative doing yet another academic conference, where I’ve hit diminishing returns. More highlights from Theo Jaffee here; I also loved economist Scott Sumner’s take on a similar conference at the same venue in Berkeley:

If you spend a fair bit of time surrounded by people in this sector, you begin to think that San Francisco is the only city that matters; everywhere else is just a backwater. There’s a sense that the world we live in today will soon come to an end, replaced by either a better world or human extinction. It’s the Bay Area’s world, we just live in it.

Is Equity Crowdfunding Beating Adverse Selection?

James Bailey1 Comment

Most new businesses are funded with a combination of debt and the owners’ savings; equity funding has traditionally been relatively rare:

Source: Kauffman Foundation

Partly this has been a regulatory issue. Raising equity adds all sorts of legal burdens. Traditionally businesses could only accept equity investments from accredited investors and a small number of friends and family unless they did a full IPO and became public (hard enough that there are less that 5000 public companies in the US out of millions of businesses). This changed with the JOBS Act of 2012, which allowed small businesses to raise money from large numbers of non-accredited investors without having to register with the SEC.

Following the JOBS Act, equity crowdfunding sites like WeFunder emerged to match new businesses with potential investors. But equity crowdfunding has taken off relatively slowly:

Total dollar amount raised by regulated CF crowdfunding campaigns. Source: FAU Equity Crowdfunding Tracker

Its seen more success recently with some additional regulatory relief and the overall market boom of 2020-2021. But at ~$400 million/yr, its still well under 1% of all venture investment (~$300 billon/yr), which is itself tiny relative to the public stock market ($40 trillion market cap).

Why has equity crowdfunding been slow to take off? Partly its new and most people still don’t know about it. Partly early-stage companies aren’t a good way for most people to invest a significant fraction of their money; you probably want to be at least close to accredited investor levels (~$300k/yr income or $1 million liquid wealth) for it to make sense, and those at the accredited investor level already have other options. WeFunder is up front about the risks:

The other issue here is with asymmetric information and adverse selection. Its hard to find out much information about early-stage companies to know if they are a good investment; part of the point of the JOBS Act is that the companies don’t need to tell you much. The companies themselves have a better idea of how well they are doing, and the best ones might not bother with equity crowdfunding; they could probably raise more money with less hassle by going to venture funds or accredited angel investors.

I’ve long thought this adverse selection would be the killer issue, but my impression (not particularly well-informed and definitely not investment advice) is that there are now quality companies raising money this way, or at least companies that could easily raise money elsewhere. WeFunder has a whole page of Y-Combinator-backed companies raising money there. This week Substack, an established company that has already raised lots of venture funding, offered crowd equity and reached the $5 million limit of how much they could legally accept in a single day.

Overall I think this model is working well enough that I’m no longer in a hurry to become an accredited investor. Accredited investors have many more options for companies they can invest in and aren’t subject to the $2,200/yr limit on how much they can invest in early-stage companies. But even if I completed the backdoor process of getting accredited without being rich, I wouldn’t want to put more than $2,200/yr into early-stage companies until I was a millionaire, at which point I’d be accredited the usual way. And while most companies aren’t raising crowd equity, enough are that there seem to me to be no shortage of choices.

Best Books 2021

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I read 23 books in 2021, but none that were written in 2021. Tim Ferriss stopped reading new books deliberately but for me it just happened, something about this year made me want to hang out in the ancient world instead.

I read about how five thousand years ago the Indo-Europeans figured out how to ride horses and use wheels, and so ended up spreading their language to half the world. I read about the Bronze Age Collapse three thousand years ago. Also set three thousand years ago are the semi-mythical events of the Aeneid and the Odyssey; I particularly enjoyed Emily Wilson’s new translation of the latter. From two thousand years ago, Caesar’s Commentaries reads like an action-packed fantasy novel but gives real insight into history and strategy. It was also a good year to go back to the Biblical events of two to three thousand years ago, though I didn’t make it cover to cover.

The one book about the modern world I gave 5 stars in 2021 was The Dictator’s Handbook: Why Bad Behavior Is Almost Always Good Politics. The short version of my review is that it’s secretly a development economics book:

Bueno de Mesquita, author of The Dictator’s Handbook, is a political scientist but his analysis is very much economic, in both the methods (rational choice & methodological individualism) and in the focus on material incentives as the main driver of behavior. The book is good as a manual for aspiring tyrants, but suprisingly great as an explanation for why many poor countries stay poor.

So overall compared to 2020 I don’t have many good books to share, apart from things like The Odyssey that you presumably already know about. The best new writing in 2021 probably isn’t happening in books at all, but in Substacks. Many bloggers switched to the Substack blogging/newsletter platform last year because it makes it easy to monetize their writing, while many professional journalists switched over as a way to keep being paid to write while enjoying near-complete editorial freedom. I recommend Byrne Hobart on finance and business strategy, and Razib Khan on history and genomics. Probably my favorite writing of 2021 was the return of Scott Alexander to blogging, now at Substack as Astral Codex Ten. He is also a great demonstration of just how much the monetization game has changed, as less than a year into the new Substack he is making enough money to start giving large amounts of it away.