Historically, I've viewed stocks as funny money. It's not real until it's converted into something you can use.
Given the lack of utility for stocks, I've long preferred owning real estate. Being able to touch, see, and enjoy your investment without experiencing daily volatility is a huge win. And the feel good wealth effect of a neighbor's house selling for way more than you paid feels more impactful than a stock going up by the same percentage.
When you can enjoy your asset AND make money, it feels like you got something for free. We all like free, so real estate wins.
But given the magnitude of private company gains in recent years, I'm beginning to change my tune. Venture capital paper gains are starting to feel incredible, even though I can't spend a dime of them.
Instinct's Amazing Funding Run
I invest about 20% of my investable capital in startups and venture capital funds. Companies are staying private for longer, so more of the value creation happens before the public gets a shot.
And living in San Francisco, where startups are everywhere, I feel like I must invest in venture or risk becoming a permanent underclass citizen. Whether I'm playing poker or pickleball, I cannot help but run into someone who works in AI.
San Francisco is a boom bust city. After a tough three-year COVID period where the rest of the country wrote us off, we're back baby. Even with mortgage rates marching higher, the housing market is hot because wealth creation is far outpacing the cost to borrow.
Then something wild happened with Instinct, an AI assistant you interact with by text message. No new app required.
Noah Shinn, a 23-year-old former research scientist at Sierra, registered the company in April 2026. Conviction and Greenoaks backed the seed round at a reported $50 million valuation. In early August, Kleiner Perkins led a $75 million Series A at a $500 million valuation. Three weeks later, Index Ventures and Benchmark co-led a $250 million Series B at a $2.5 billion valuation.
Now Instinct is reportedly in talks to raise $1 billion at a $10 billion valuation, with Sequoia and Benchmark in talks to lead. That's a potential 200X gross return for seed investors in about five months.
In 20 years of venture investing, I've never seen this pace of funding or valuation growth. I thought YC company growth trajectories and valuations were impressive. Instinct is on another level.
Update 9/28/26: Instinct closed the $1 billion at $10 billion round.
Why Paper Investment Gains Feel So Good
Whether the valuations are justified is anyone's guess. Instinct is free, invite-only, and already running into compute constraints, hence the need for funding.
But if Instinct becomes one of the two or three dominant AI assistants people text, it could sign up hundreds of millions of users and generate enormous revenue. We all text now, which is easier than opening an app.
As a beta user for the past month, I like that Instinct reminds me about capital calls and appointments I sometimes miss. After being out of the workforce since 2012, my calendar discipline has atrophied. Instinct helps tremendously with a FIRE lifestyle.
By chance, I'm a Limited Partner (LP) in one of the funds that invested in Instinct. Whether Instinct becomes a rip-roaring success or not, I feel terrific about the investment.
Committing capital to a traditional venture fund is a leap of faith in the General Partners' (GPs) ability to find and win the best deals. Each time a GP wins a deal that balloons in value, that leap of faith feels a little less crazy.
Flowers to the GPs at Conviction, Greenoaks, and Kleiner Perkins for getting in before Sequoia, Index, and Benchmark with a billion dollars. I consider Sequoia the preeminent VC firm in the world. Being early to a deal they want later is the closest thing to venture gold. Usually, it’s the opposite way around.
Good feelings from paper gains spill into everything. You're more patient with your rambunctious kids. You're nicer to your spouse. Some guy cuts you off on the 101 and you let it go.
As a capital allocator, you feel vindicated. As a provider, you feel like the future got a little brighter for your family. The hope within grows a little brighter.
None of this money exists, but everyone around you gets a better version of you for a few weeks anyway. There’s just one downside for me. I’m broke again at 49 because the capital calls have far outstripped my forecasts!
Paper Gains In Venture Speak: MOIC, TVPI, And DPI
If you're going to feel good about paper gains, it’s good to review venture capital vernacular. DPI is what matters most. MOIC and TVPI are the feel good funny money metrics.
Here are the key metrics, applied to my actual situation.
I committed $340,000 to this early-stage fund. Let's say the fund invested 5% of its capital in Instinct at the $500 million Series A. My pro-rata share would be about $17,000.
MOIC (Multiple On Invested Capital)
MOIC measures what a specific investment is worth versus what was paid for it. It's usually shown gross, before fees and carry.
Let’s say the Series B diluted existing shareholders by about 10% ($250 million / $2.5 billion). A $1 billion raise at $10 billion dilutes by another 10%. So if the new round closes, the math is 20X × 0.9 × 0.9 = roughly 16X gross MOIC. My $17,000 becomes about $275,000 on paper.
But GPs don't work for free. After a 20% carry on the gain, my share drops to roughly $223,000, or about 13X net. Top-tier firms often charge 25% to 35% carry, so the net number can shrink further.
TVPI (Total Value to Paid-In Capital)
TVPI is the fund-level scorecard. It equals distributions plus remaining net asset value (NAV), divided by the capital you've actually paid in. Note that it's paid-in, not committed. Funds call capital over several years.
Say I've paid in 40% of my commitment, or $136,000. That's $17,000 in Instinct, about $100,000 in other companies held at cost, and the rest eaten by fees. If Instinct is marked at $275,000, my TVPI is roughly $375,000 / $136,000 = 2.8X gross before carry. Not bad for a fund that just launched.
One catch: marks lag. A GP won't mark Instinct at $10 billion until the round closes and it shows up on a quarterly statement. At the last priced round of $2.5 billion, my stake is closer to $77,000.
DPI (Distributions to Paid-In Capital)
DPI is cash actually returned divided by paid-in capital. My DPI is 0.00X. Zero. Zilch. Nada.
This is why LPs say you can't eat TVPI. DPI is the only metric that buys a car, pays tuition, or funds a down payment. Everything else is funny money, which brings me right back to where this post started.
Investing Small Money Still Feels Good
Here's what surprised me most. I've long argued that it takes investing big money to make life-changing money. If you're not willing to bet big with conviction, you might as well put everything in an S&P 500 ETF and settle for average.
My views have softened with a huge percentage return, despite a small after-tax dollar amount.
If I could sell my Instinct stake and keep 65% after taxes, I could finally buy a new family car with some money left over. Hooray. But alas, I can't sell, nor do I want to. And if the shares qualify for QSBS treatment and get held long enough, the eventual tax bill could be much smaller anyway.
If Sequoia and Benchmark are willing to pay $10 billion, I'm happy to ride along. They are incredible private company investors who are betting on a 10% potential $100+ billion outcome.
Let's call my Instinct exposure $250,000 if the $1 billion round at a $10 billion valuation closes. That's a top 10 individual company holding in my portfolio.
My largest is Google, at about $1.1 million after I trimmed $200,000 in my tax-advantaged accounts once Mezzi found some hidden stock exposure I didn't know I had. If Instinct ends up owning the text message assistant layer, it could one day pass Google as my top holding.
Or Meta's new free assistant, Muse, could eat its lunch and Instinct goes kaput. That's venture for you. You cannot count on your chickens until your cash gets returned to you. At least Google will be around for a long time with its monopoly-like profits and fortress balance sheet.
Investing In Venture Removes FOMO
If you live in San Francisco, the AI startup capital of the world, you will experience maximum FOMO if you don't work in AI. Even techies who don't work at an AI company feel it. The chasm between the haves and the have way mores keeps growing.
Now imagine getting bombarded by AI everywhere you go, and not only not having a job in AI, but not having a job, period. Meanwhile, AI is ripping off your website's content and siphoning your search traffic. Now add a wife and two young children to support.
Phew. The stress and FOMO must be intense! These are a couple of the downsides to FIRE nobody talks about.
At least many of my FIRE peers have working partners bringing home multiple six and seven figures as dentists, orthodontists, doctors, lawyers, finance managing directors, and techies. My wife and I both want to live free, so we don't.
Hence, the more I invest in venture capital, the less FOMO I feel. Most of the time, I won't own the next hot company splashed across the news. There are thousands of venture firms, and a couple dozen tier-one firms raise the lion's share of LP capital each year. Getting access is hyper competitive.
But the more quality funds I'm an LP in, the greater my chance of owning a piece of the next revolutionary company. And when one hits like Instinct, the paper gains feel wonderful. Even if I can't eat them.
Readers, Some Questions For You
- Do paper gains in private investments feel as real to you as gains in your brokerage account or home equity, or is it all funny money until the DPI shows up?
- What percentage of your investable capital are you willing to lock up in venture capital for 10+ years, and has AI FOMO changed that number?
- Is a $10 billion valuation for a free, invite-only AI assistant rational, or a sign we're getting closer to the top?
Invest In AI You Can Touch
Venture gains are exciting, but you can't live in them and you can't collect rent on them. AI runs on compute, compute needs physical data centers, and power and permitting are the binding constraints.
If you want exposure to the AI buildout through real assets instead of paper marks, check out Fundrise, a long-time Financial Samurai sponsor. AI runs on compute, compute needs physical data centers, and power and permitting are the binding constraints on both. I've invested over $500,000 across Fundrise products to diversify and earn more passive income.
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Thanks for the post Sam! Here are my thoughts:
1. I can’t relate to a closed end fund as i haven’t participated, however i would imagine it is somewhat similar to stock option equity payout/windfall from a startup being acquired or going public which i have experienced a couple times – but unfortunately no home runs!! In those situations it seemed hard to know the true value of the shares until the event happened, so expectations stayed low and felt good at the time even if hindsight is 20/20 that it wasn’t a life changing event as you dream about playing the tech/startup game.
2. At 38 yrs i think i would be willing to lock up around 20% of investible capital for 10 yrs, and AI FOMO has definitely increased that allocation as the fear of being left behind or permanently in the underclass is real.
3. A 10 billion valuation to own the text message layer sounds like a drop in the bucket if the tech is real!
Question for you Sam; how are you classifying your VCX holdings with regards to your net worth allocation? We have about 9000 shares and that represents about 15% of our investible assets net worth (not including primary home equity or 529 savings). Are you marking the full value of your VCX investments to your Alternatives bucket – or also marking a portion to stocks/equities since it is now a public instrument?
FWIW We are currently around $2m NW and getting to the point where asset allocation is turning into some big numbers, but realizing it is so important to look at the %’s rather than dwell on the $ amount itself!
Thanks so much for all the knowledge you share!
I consider VCX as part of my 20% venture capital allocation for sure. Even though it is publicly listed.
All I know is living in San Francisco, I don’t want to get left behind on the Anthropic boom. It would be just too painful.
TJ,
Im also in same situation as you as far as my VCX shares being around 15% of my total investable assets (12.3% to be exact as of late “31.43” a share).
It started as a speculative investment at slightly under 5% of my total investable assets when it was closed end at fundrise, but risen since.
I never wanted to have over 5%-10% exposure of my total portfolio, but at the same time, I do not want to sell too big a portion at once to get hit with captial gains.
I also just purchased some DXYZ maybe 1% of TIA, wince its currently trading at or below its NAV. So my total exposure is around 13%.
I feel a little more comfortable being at 13% with multiple people saying they’re good with 20% of their TIA in private venture capital.
I have 15% of my net worth in VC, some of that is gains. I started investing in VC in 2018 with a traditional Australian fund – I now have invested in 3 of their funds, a coinvestment (lost money but we got most of our capital back), and the equity of the manager who want to IPO soon. My best VC investment so far is Novig, which I am sure you have now heard of. I invested $5000 in the seed round via Unpopular Ventures on Angellist. It is now worth around $200k, but marks lag a lot on Angellist. It makes me happy that my Angellist investments are beginning to work out. Regarding VC markups in general, on the one hand, I don’t need to decide whether to sell or not, on the other hand, I worry that the number will go down again if the GP doesn’t get an exit soon.
Thanks for this – as a regular investor without access to the early early investment in a new company, I’m left to invest in something like VCX. It’s been a great vehicle to invest but I’m wondering what’s the longer term outlook for VCX — when VCX first rolled out as an ETF, the excitement was exhilarating and mind boggling. The value skyrocketed but it was inaccessible to me as my shares were locked, and I could not sell at those high prices.
now that my shares are unlocked, unrestricted, the value is up but not by a whole lot.
I guess it’s waiting for Anthropic or some other holding to come public — but I’m wondering what’s that going to do for the share price? Once Anthropic is public, why would anyone buy into VCX to get access to these hot pre-IPO companies? Cuz at the same time, would VCX hold the Anthropic shares or sell them? It seems like a non-event to the price of VCX as it depends on whether VCX holds them or reinvests elsewhere.
then we’re left looking at how good VCX is able to use their funds to invest in the next big thing.
I didn’t get into VCX very early, actually just got in before it spun off as an ETF, so I’m not seeing the huge advantage that you have. So for new money, is investing in VCX still a good idea if they sell their positions soon after they come public?
thanks for all that you do and the many thought-provoking ideas!
-bonnie
Yeah the private shares are tricky. I do include it in my net worth. It depends on the durability of the company. The profitability… mine is definitely value that isn’t disappearing. But there is zero certainly in when it will convert into eating money. Internally, I worry less about my savings rate, and more about being healthy, present with my family, and focused on not making major mistakes. The risk isn’t “can I retire some day” it is “well what if i get injured, sick, or incur a major debt or expense”. So the private money just puts me on defense.
This is a great anecdote of how hot investing in private AI companies is.
It also gives a window into how hot the anthropic IPO will be once it’s officially a go.
Retail investors will always be Johnny come lately. They are not connecting the dots about how much demand and FOMO. There will be once the major AI LLM companies go public.
The funny thing is, Noah Shinn probably couldn’t get into a top 25 university given he went to Northeastern. But he can build a multi billion dollar startup and join a top startup after college.
So for people out there who are worried about their race or identity holding them back for pedigree, no Shin is a great example about the importance of doing.
Great post, Sam! Wouldn’t mind being in your shoes with awesome VC opportunities like that. To answer your questions:
1. No… I learned from when VCX went public, don’t count your chickens before the lockup period expires (and they become free range chickens!). After all those gyrations, I finally took VCX completely out of my net worth calculations on Empower. Wherever it settles down in bonus to what I consider “stable” funds I have available in retirement.
2. Since I’m only 1 or 2 years away from hanging up the spikes (and with about $300k already locked up in Farm Together 10 year investments), I don’t think I would be looking for any other long term lockups. I keep telling myself I’m going to get more conservative and get more into bonds (especially with rates as high as they are now), but I keep not being able to get away from the stock market sugar high!
3. I think it’s a sign that smart people believe this will be cutting edge technology once it becomes public. It’s always crazy until it’s not! Elon wants to catch rocket motors with a giant claw and reuse them??? lol
How do you invest in these funds? Do you go through a platform like Fundrise, or is direct access/a relationship with the funds required to participate?
Additionally, are you still trading options as a way to generate income?
You can just buy VCX through your brokerage given it is publicly listed. In fact, I just bought some more today as I’m trying to build a bigger position before the Anthropic IPO.
For traditional VC investing, you need to know someone, be a founder, or be able to add value to the GP or portfolio companies. Given a lot of the top VCs are in the San Francisco Bay area, you might be able to meet several of the GPs if you live here long enough and go to events and such. I have lived in San Francisco since 2001.
Once you establish that relationship, I am sure it will open more doors for you.
On a side note, what is your philosophy on options trading? Are you participating in that as well as venture capital?
Cool. Let me know your thoughts about venture investing, and what you’re doing and how you are trading options. Where are you on your Financial independence journey?
I think you are mixing him up with big ERN :)