This Issue at a Glance
Justin Fishner-Wolfson, founder of 137 Ventures, focuses on providing private market liquidity solutions for founders, investors, and employees. This issue explores a unique perspective on private secondary market investing. Core thesis: Information asymmetry in private markets is lower than in public markets, which may actually lead to superior capital allocation—because secondary investors can directly access detailed management data (such as customer cohort analysis and internal financial models), whereas public market investors can only rely on S-1 filings and quarterly earnings calls.
Theme 1: Scale and Pricing Mechanisms of the Private Secondary Market
Justin Fishner-Wolfson believes the private secondary market transaction volume has grown approximately 100-fold, currently accounting for about 15%-20% of primary market transaction value.
- Historical Context: When Facebook raised funds at a $50 billion valuation in 2010, a large number of employees held paper wealth but had no cash. Fishner-Wolfson found that almost no institutions in the market offered liquidity solutions, so he founded 137 Ventures in 2011. He believes Facebook was not an isolated case but the beginning of a long-term trend where companies go public much later.
- Pricing Mechanism: Secondary transaction prices typically fluctuate within a ±20% range of the primary round valuation. Fishner-Wolfson points out that the primary round valuation serves as a powerful psychological anchor — even if fundamental analysis suggests the valuation should be higher or lower, both sides of the transaction find it difficult to accept prices that deviate too far from that anchor.
- Scale Estimation: If "secondary" is narrowly defined as liquidity transactions for founders, executives, and employees, it accounts for about 15%-20% of the dollar volume in the primary market; if it includes broader secondary transactions such as LP stake transfers, the scale is even larger.
Theme 2: The Information Asymmetry Paradox Between Private and Public Markets
Fishner-Wolfson presents a counterintuitive view: private market investors receive an order of magnitude more information than public market investors, which may actually lead to better capital allocation.
- Specific Manifestations of the Information Gap:
- Private investors can engage in hours-long deep conversations with management and request cohort data from customers
- Companies directly provide internal financial forecasting models
- Public market investors can only obtain limited information from S-1 filings and quarterly earnings calls (typically just three questions, often evaded)
- Advantages of Crossover Investors: Institutions like D1, Tiger Global, and Coatue that invest in both private and public markets can leverage their deep understanding of management teams from the private stage to make better decisions in the public market. For example, they can judge whether a CEO means 100% certainty or a 50-50 chance when saying "definitely" on an earnings call.
- Why Not Introduce Public Market Mechanisms to Private Markets: Fishner-Wolfson explicitly opposes making private markets as liquid as public markets with daily trading. Employees watching stock prices daily would be a severe distraction (e.g., when Facebook's stock fell 50%, employees spent significant time discussing personal impacts rather than work). He believes "one or two tenders per year" is a better solution — SpaceX adopts this model.
Theme 3: Defensibility — The Core Screening Criterion for Investment
Fishner-Wolfson emphasizes that the core of investing is finding companies with long-term defensible business models, not just focusing on short-term growth.
- SpaceX Case (First Investment in 2008):
- Counter-Positioning Model: SpaceX convinced the government to shift from "cost-plus contracting" to "fixed-price contracting." Under the traditional model, the higher the supplier's costs, the more profit they made, with zero incentive to reduce costs. Under fixed pricing, if SpaceX could reduce rocket manufacturing costs to $100 million, the savings became profit. Competitors found it difficult to switch from one business model to another.
- Economies of Scale: SpaceX has reusable rockets, with launch costs far lower than any competitor. The Starlink constellation project leverages this advantage — SpaceX is the only company with reusable rockets and is vertically integrated, making constellation construction costs far lower than any other potential competitor.
- Palantir Case:
- Fishner-Wolfson notes that market criticism of Palantir (low margins, contract-based, non-recurring revenue) was based on the company's state 10 years ago, but investors failed to update their views. Palantir successfully transitioned from customized consulting sales to standardized products that can be deployed for government or enterprise clients in a short time, building a high-margin, high-stickiness business.
- Key to Government Business (B2G): Requires a sufficient balance sheet to withstand long sales cycles (the government's sense of time is completely different from startups) and an understanding that the government is not incentivized by "saving money" — one must understand its political processes and problem-solving logic.
Theme 4: Customer Focus and Natural Expansion — The Growth Path of Great Companies
Fishner-Wolfson believes the best companies focus on customer needs, not the product itself, and naturally expand their service scope based on that foundation.
- Framework: Companies should focus on "what customers need, what customers trust you to do, and how to make customers' lives easier." This is not a lack of focus but a deep focus on customer needs.
- Gusto Case: Naturally expanded from payroll management to health insurance — customers trust you with payroll, so they naturally trust you with insurance. But Gusto should not help customers buy office supplies, as that goes beyond the boundary of customer trust.
- Data-Driven Financial Add-On Services: Fishner-Wolfson is particularly bullish on the "platform + financial services" model because the platform has a structural information advantage:
- Gusto: Knows employees have actually worked in the past two weeks and directly controls the company's bank account (since it handles payroll), so lending to employees is essentially "risk-free lending" — far superior to high-interest pawnshop loans.
- Flexport: As a freight forwarder, it actually holds the goods, knows the cost of goods (via customs declarations), customer order frequency, selling prices, and gross margins — this information makes lending decisions far superior to those of third-party financial institutions.
- Business Model Fishner-Wolfson Explicitly Avoids: Pure lending businesses. Because the fastest way to grow is to relax risk control standards, and management may change, making the quality of the loan portfolio unpredictable.
Theme 5: Cost of Capital, Capital Allocation, and the Entrepreneur's Insurance Mindset
Fishner-Wolfson proposes that entrepreneurs should view fundraising as "insurance" rather than "dilution," and emphasizes the critical role of time in capital allocation.
- Definition of Cost of Capital: For 137 Ventures, LPs expect a net IRR of 20% and a fund multiple of at least 2x net returns. Applied to individual investments, this requires 5-10x returns (since not every bet will hit). Fishner-Wolfson believes entrepreneurs should understand their investors' cost of capital — "if you don't know how others make money, they are likely ripping you off."
- Fundraising as Insurance: During the market turmoil in March 2020, Fishner-Wolfson advised portfolio companies to raise funds immediately — even if it later proved unnecessary, the marginal dilution cost was low; but if needed and not raised, the company could go to zero. This is an "insurance premium" mindset, not a "dilution" mindset.
- The Time Dimension of Capital Allocation: Fishner-Wolfson points out that the LTV/CAC ratio ignores the time factor. If $1 in customer acquisition cost takes 20 years to recover $100,000, it is meaningless. The key is the payback period — once capital is recovered, it can be reinvested in customer acquisition, creating enormous compounding effects.
- The Danger of Excess Capital: Fishner-Wolfson warns that giving certain entrepreneurs too much capital can actually destroy the company — "some people, given an unlimited credit line, will drive the company into a ditch, whereas with limited capital they could have succeeded."
Mentioned Positions
| Position |
Guest Stance |
Key Data |
| SpaceX |
Bullish (long-term hold) |
First invested in 2008, before Falcon 1 succeeded (had already failed twice); now has reusable rockets, Starlink constellation, Starship project; TAM continues to expand |
| Palantir |
Bullish |
Transitioned from customized consulting to standardized products, high-margin, high-retention government/enterprise business |
| Gusto |
Bullish |
Customer-focused organization, expanding from payroll to insurance, loans, and other financial services |
| Flexport |
Bullish |
Freight forwarding + financial services, holds actual possession of goods and complete data chain |
| Wish |
Neutral (already invested) |
Global e-commerce platform targeting non-affluent populations; Fishner-Wolfson believes investors underestimate it due to lack of understanding |
| Intercom |
Bullish |
Collects large amounts of customer data to optimize services |
| WorkRise |
Bullish |
Large labor market platform, has already added insurance, factoring, and other financial services |
| Anduril |
Bullish (position not explicitly disclosed) |
Government technology company, benefiting from a shift in government procurement models |
| Stord |
Bullish (position not explicitly disclosed) |
"AWS-ification" of warehouse infrastructure — fractionalizing and software-enabling warehouse space |
Judgments Worth Remembering
1. "The information density in private markets is orders of magnitude greater than in public markets" (Fishner-Wolfson) — Private investors have direct access to management's internal financial models and customer cohort data, while public market investors can only piece together information from S-1 filings and quarterly earnings calls. Crossover investors (e.g., Tiger, D1) leverage the information advantage accumulated during the private phase to make superior decisions in public markets.
2. "Secondary transaction prices typically fall within ±20% of the primary round valuation" (Fishner-Wolfson) — Not because the primary round price is correct, but because it serves as a powerful psychological anchor. Deviating beyond this range makes the transaction unacceptable to both sides.
3. "SpaceX's counter-positioning model: shifting from cost-plus to fixed-price contracts" (Fishner-Wolfson) — Under the traditional government contract model, higher costs yield higher profits; under fixed-price contracts, if SpaceX can reduce rocket manufacturing costs to $100 million, the savings become profit. Competitors struggle to switch from one business model to another.
4. "Financing should be viewed as insurance, not dilution" (Fishner-Wolfson) — In March 2020, the recommendation was for portfolio companies to raise capital immediately, even if it later proved unnecessary. The marginal cost of dilution is low, but if capital is needed and not raised, the company could go to zero.
5. "The LTV/CAC ratio ignores the time dimension" (Fishner-Wolfson) — If $1 in customer acquisition cost takes 20 years to recover $100,000 in value, it is meaningless. The key is the payback period, because recovered capital can be reinvested in customer acquisition, creating a massive compounding effect.
6. "Giving entrepreneurs too much capital can destroy the company" (Fishner-Wolfson) — Some people, given unlimited credit lines, will drive the company into a ditch, whereas with limited capital they might have succeeded. Low cost of capital is not always an advantage.
7. "The platform + financial services model has a structural information advantage" (Fishner-Wolfson) — Gusto knows employees are actually working and controls the company's bank account, making loans to employees "risk-free loans"; Flexport physically holds the goods and has complete cost and selling price data. Third-party financial institutions cannot access this information.
8. "Fractionalization of the physical world is the next big trend" (Fishner-Wolfson) — Similar to how AWS fractionalized servers, physical infrastructure such as warehouses (Stord) and freight (Flexport) is being fractionalized and software-enabled, allowing customers to purchase in "packs" rather than entire warehouses, dramatically improving efficiency.