The Racehorse Who Gambled

Expected Value, Discounted Future Cash Flows, and Stealing from the Future (a Rough Draft)

the famous young genius founder of an offshore cryptocurrency exchange with a jewfro. He has been transformed into a horse: his head is attached to a horse's body

Boy, Substack’s LLM image generator will NOT generate a horse with Sam Bankman-Fried’s head, no matter how I try. Still, interesting results.

This week’s draft excerpt from Stealing the Future is extremely drafty - it is, in fact, more of a sketch, based on my recent reading of Liliana Doganova’s excellent and exciting book Discounting the Future: The Ascendancy of a Political Technology. The book both analyzes and recounts the intellectual history of “discounting” as an accounting and finance practice.

Discounting, particularly given its role in venture investing, is obviously central to the FTX story functionally. It also has a clear relationship to the view of the future embedded in Effective Altruism. But exactly tracing those connections - and more important, contradictions - is complex. So what you’ll find below is an ‘essay’ in the most conventional sense - a series of thought experiments and half-starts towards some conclusion that is never quite reached.

The below will be go through many more iterations before it makes it into the forthcoming book (Repeater Books, October 2025, baby). That’s why these previews are reserved for my small circle of paying supporters - if you want to read more like this, consider joining us.

Expected Value, Discounted Future Cash Flows, and Stealing from the Future

Sam Bankman-Fried and his cohort exist in a strange, dual and divided relationship to the future.

On the one hand, most overtly, Effective Altruists profess belief that the future has equal weight to the present, in their core argument that future human lives have equal weight to present human lives. While the outward emphasis is on an ethical equality between present and future humans, this formulation in practical terms inevitably implies and implements a functional equivalency. This equivalency invites - in fact, demands - an equalization of investment spending between that focused on the present and that focused on the future, without accounting (in several senses) for either the inevitable downside risk of failure, or the pure existential fact that the future is not where we live.

But while Effective Altruism as an ethos suggests that we throw away the logic of discounted future cash flows, many of the individual members of the Effective Altruist and broader Rationalist and Longtermist movements, and the overwhelming majority of the major funders that have backed them, are the fruit of venture capital. Venture capital's function is to imagine a future where a present technology, business line, or individual company is worth much more in financial terms than it is now. Venture seeks to buy that future revenue in the present - but at a heavily discounted price, adjusted above all for the risk that this bountiful future doesn’t come to pass.

This "discounting" of the present price of a future thriving business is a widespread, in fact nearly universal form of financial analysis. It is used to decide whether stocks, bonds, or even cryptocurrencies are undervalued or overvalued, relative to their "discounted future cash flow." In a more conventional transaction like a corporate bond sale, discounting is used to set the interest rate collected by lenders, based on a combination of the riskiness of a company’s debt and the time horizon for paying back the loan. A number called the “discount rate” is used to reduce those future dollars in a consistent way and arrive at the “net present value” (NPV) of future cash flows. The discount rate reflects a company’s risk profile, and its potential upside, relative to wider economic conditions.

In venture capital, discounting and the calculation of Net Present Value becomes much more of a vibes-based exercise. The underlying data isn’t public, but more to the point, there’s usually no real data at all, because most venture-funded companies are still at the stage of investing in turning an idea into a business, rather than generating revenues from a fully-functional business. A venture-funded company is initially just a series of ideas to be attempted, with estimates of the possible revenue if things work out.

There are attempts to nail down this logic through metrics like "total addressable market," a tally of all the money being spent in a company's field, which establishes a maximum for estimating its eventual value. But venture capitalists are very open about the reality - sayings like "you invest in a founder, not an idea" are widespread, making clear that valuation is generally about intangibles like personality, relationships, credentials, and sheer talent as much as metrics.

Largely because it's so much based on intangibles, discounting and valuation in venture capital is a material locus of power struggle between the founder of a company and its venture investors - and if things go well, later, the investing public joins the fray. Venture investors want to put their money in an idea when its valuation is as low as possible, allowing them to buy a larger percentage of company equity. Founders, at this stage, instead want a high total valuation, because they want investors to pay more, in real cash, for a smaller percentage of the company.

If a venture-backed company “goes public” with a stock offering, those investors switch sides: they want the valuation to be as high as possible, so they can get the maximum return on those early investments. The public, including journalists and analysts who at least notionally represent them, generally want neither low nor high, but an accurate picture of revenues and costs, because those numbers have a relatively direct impact on the price of a stock over time, and so weigh heavily on the decision to buy an IPO or an existing stock, and at what price.

One deep problem with this system arises because venture capital markets are private, meaning that startups don’t have to publicly disclose their actual costs and revenues. This creates a very clear motivation for founders to create as much froth and hype around their company as possible.