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.
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.
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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