December 2022 – DAN REICH

2022 In Review

What a time to be alive. I asked a machine to provide me with a template to reflect on the year, and now, I’ll do just that.

Personal Reflections: Our family grew to four with the addition of our son, Brayden. Our daughter Michaela is now three and a half years old, and the “time flies” cliche becomes emblazed in my skull a little more each day. I became an uncle, we moved to a new town, and the silver lining with Covid-19 became apparent: I could spend more time with my family and experience a work-life balance I never experienced before. And speaking of family, I was able to make another small dent in the universe by rededicating my childhood school, and renaming it in honor of my grandparents who were Holocaust survivors.

Professional Highlights: I achieved some of my financial childhood dreams with the sale of two of my companies, TULA and Troops, to incredibly iconic companies with Proctor & Gamble and Salesforce (and Slack). But the best part? The people that helped me build those businesses also had life-changing events. There is something incredibly rewarding about building a platform that lets other people do their best work, and seeing it come to fruition is one of the greatest gifts there is. This is one of the reasons I’m so drawn to entprenuership. And if that wasn’t enough, I went on a wild goose chase trying to free some crypto coins from a hard wallet, backed a bunch of amazing founders, and doubled down on beauty with another business I’m excited about called DIBS Beauty.

Challenges and things that keep me up at night: One of my grandfather’s best friends past away. He too was a Holocaust survivor, having survived Auschwitz. I used to think, “one day they won’t be here, and they won’t be able to tell their story.” That day is here. And as their voices diminish, the drum beat of anti-Semitism gets louder and louder with incidents and hate crimes being at an all-time high. Against this backdrop, we have a recession, a population with insufficient education and understanding of history, an economic environment that provides incredibly ripe conditions for scapegoating, and people with pulpits willing to use these conditions to their benefit at the expense of humanity, decency and democracy. We’ve seen this movie before. I’ve been warned about this movie before. Only now, I wonder to what degree my kids will experience this movie.

Looking ahead: I mix these things and more together and I’m still the most optimistic I’ve ever been. We have rockets launching into space and landing on floating barges, artificial intelligence driving cars for us and creating generative images on the fly, gene editing being commercialized, energy being created using nuclear fusion, and the list goes on. I believe that our political institutions will continue to erode, but I’m also confident that founders and innovation will outpace our self inflicted wounds. As one example, while politicians debate things like climate change for political theater, entrepreneurs will develop products and services that people will love (e.g. Tesla) and also produce benefits needed to combat climate change. In short, the spirit of American entrepreneurship will continue to win out.

Conclusion: Despite the hardships and global conflicts that exist, and yes, there are a lot, it’s never been a better time to bet on yourself and try to be a change agent for good. It’s easy to get hung up with the million and one broken things going on, but we each have an opportunity to make a difference in our own lives and the lives of others. The question we should all ask is, how do we do that? And with the year coming to a close, what will our New Years’ resolution be?

For me, I’ll continue to invest in myself, invest in my family, and be a change agent for good. Seems like an appropriate and simple list.

I’m looking forward to an even better 2023.

Happy holidays and happy new year!

The Nuance of Free Speech

The recent controversy surrounding Twitter’s decision to permanently ban several high-profile accounts has sparked a renewed debate about free speech and the role of social media companies in upholding it. This issue is complex and multifaceted, with no easy answers.

On one hand, companies like Twitter are expected to act as guardians of free speech and uphold the principle of free expression. In this view, Twitter should be a “global town hall” where all voices can be heard and where people can engage in meaningful dialogue with one another. However, as companies operating in the private sector, they are also entitled to their own moderation policies and the right to decide who can participate in their community.

One way to think about this issue is to consider a local bar and restaurant. Everyone is welcome to come in, eat, drink, and talk among themselves. But what if someone stands up at the bar and starts yelling at other patrons? They might start screaming about how Fauci is a crook, how Jews are Satan, or how inflation is ruining our country. People start to yell back, dinner is ruined for some, and a fight might break out. As the bar owner, you have the right to free speech too. You also have the right to decide who can participate in your community and whether or not someone’s behavior is acceptable.

The challenge we face with social media companies is that they are more powerful than most countries. When the people who use these platforms, like scientists, journalists, or even presidents, cause a ruckus and spark a debate, and then get banned, the implications and consequences can be dramatic. We are seeing this play out in real-time and how these decisions impact the most important issues of our time.

Furthermore, our elected officials are often unable to keep up with the times and technology. This leaves us with a group of people, just like us, trying to do their best and make difficult decisions. However, these people also have their own biases and ideas of what is right and wrong.

Ultimately, the debate about free speech on social media is likely to continue for some time. While some may believe that these platforms should be bastions of free expression, others may argue that it is more important to protect users from harmful content.

The echo chamber of social media turns nuanced issues into black-and-white issues, and this is one issue, that has a lot of nuance to it.

Qualified Small Business Stock and ChatGPT

Qualified Small Business Stock (QSBS) is a critical topic that most founders are unaware of.

Instead of writing my own blog post about what it is and why it is important, I asked ChatGPT:

describe what qualified small business stock and why it is financially beneficial to people that have equity that qualifies as qsbs

And the answer:

Qualified small business stock (QSBS) is a type of investment in the equity of a small business that offers certain tax benefits to the investor. QSBS is generally defined as stock in a domestic C corporation that is acquired at its original issue, directly or through an underwriter, and that satisfies certain requirements regarding the corporation’s active business, gross assets, and length of time the stock is held.

One of the main financial benefits of QSBS is that it allows investors to exclude a portion of the gain from the sale of the stock from their taxable income. For example, if an investor buys QSBS at a cost of $100,000 and sells it later for $200,000, they may be able to exclude up to $100,000 of the gain from their taxable income. This can result in significant savings on taxes and make the investment more financially attractive.

Another potential benefit of QSBS is that it may qualify for a lower capital gains tax rate. Under certain circumstances, the gain from the sale of QSBS may be taxed at a maximum rate of 28% rather than the higher rates that apply to other types of capital gains. This can further reduce the tax burden on the investment and increase the potential return on the investment.

Overall, QSBS can be a financially beneficial investment for people who have equity that qualifies as QSBS, as it offers potential tax savings and may be eligible for a lower capital gains tax rate.

It missed an important point about how much tax exclusion you can benefit from so I followed up with:

What is the total amount of money an investor can exclude from the gain of the sale if the equity is treated as qualified small business stock?

And the answer:

The total amount of gain that an investor can exclude from the sale of qualified small business stock (QSBS) depends on several factors, including the amount of the gain, the length of time the stock was held, and the amount of the exclusion that was previously claimed on the stock.

Generally, an investor can exclude up to 50% of the gain from the sale of QSBS if the stock was held for more than five years. This means that if an investor buys QSBS at a cost of $100,000 and sells it later for $200,000, they may be able to exclude up to $100,000 of the gain from their taxable income.

However, the amount of the exclusion may be limited if the investor has previously claimed an exclusion on the same QSBS. In this case, the exclusion is limited to the greater of 10% of the stock’s adjusted basis (i.e., the cost of the stock plus any improvements made to it) or $10 million. For example, if an investor previously claimed an exclusion of $5 million on the same QSBS and the stock’s adjusted basis is $100,000, the exclusion would be limited to $10,000 (10% of the adjusted basis).

In summary, the amount of gain that can be excluded from the sale of QSBS depends on several factors and can vary depending on the specific circumstances of the investment.

Lastly, I needed an image for this post. So I asked Dall-e-2:

create an expressive oil painting of a dog in a suit, smiling, depicted as an explosion of a money flying all around them

The results:

So there are two really important and unrelated points here:

If you are a founder or early-stage employee, you should internalize QSBS and speak with your accountant about it.
It’s worth spending some time with OpenAI and ChatGPT. It’s wild and only took me 5 minutes to create this post.