Tech Brew Ride Home - Mon. 11/08 – McAfee To Go Private

Episode Date: November 8, 2021

McAfee is taken private. The recently passed Infrastructure Bill complicates the tax picture for crypto. Also, playing NFT games could seriously complicate your tax bill. The latest installment of Today In Elon Musk, and since we’re hitting old features today, let’s check in with how Masa Son is doing. Sponsors: OurCrowd.com/ride Overland.com/techmeme Links: McAfee to Be Taken Private in $14 Billion Deal Including Debt (Bloomberg) House Sends Infrastructure Bill With Crypto Tax Provision to US President (CoinDesk) NFT games are fun. Filing taxes afterward is a nightmare. (Protocol) Elon Musk’s Twitter Poll Results Favor Tesla Stock Sale (WSJ) A Drone Tried to Disrupt the Power Grid. It Won't Be the Last (Wired) SoftBank Vision Fund Posts a Record Loss on Coupang’s Plunge (Bloomberg) Learn more about your ad choices. Visit megaphone.fm/adchoices

From origin to legend. I need to become a symbol. I need to become the hero. Someone's got to step up. Build the legacy. Let's get to work. You want to get nuts? Let's get nuts.

I'm allergic to nuts. Lego Batman, legacy of the dark night. This is my favorite part. Available May 22nd on PlayStation 5, Xbox Series XS, and PC. Rated E10 for ages 10 and up. Welcome to the tech meme, right? home for Monday, November 8th, 2021. I'm Brian McCullough. Today, McAfee is taken private. The recently passed infrastructure bill complicates the tax picture for crypto. Also, playing NFT games could seriously

complicate your tax bill. The latest installment of today in Elon Musk, and since we're hitting old features today, let's check in with how Massa's Son is doing. Here's what you miss today in the world of tech. Advent International has agreed to take McAfee private in a deal worth $14 billion. which includes about $4 billion in debt. You say McAfee, or maybe I just did, or I say McCaffee, or sometimes I guess I say both, because I can't remember. Anyway, this is an interesting turn for a long-storied tech company, quoting Bloomberg. An investor group led by buyout firms Advent International, Permira advisors, and others agreed to take McAfee Corp Private. The private equity consortium will pay $26 a share in cash, according to a statement Monday.

The purchase price represents a premium of about 23% over McAfee's closing share price of $21.21. On November 4th, the day before Bloomberg News first reported details of the potential deal. Founded by cybersecurity entrepreneur John McAfee in 1987, the company was a pioneer in developing antivirus software for personal computers. McAfee left in 1994 and was found dead in a Spanish prison cell in June this year. hours after Spain's national court approved his extradition to the U.S. over multiple tax fraud charges. Macafee was acquired by Intel in 2010. In 2016, Intel announced it had signed an agreement to transfer a 51% stake in McAfee to the investment firm TPG in a deal that valued the spinoff company

at $4.2 billion, including debt. McAfee returned to public markets in October last year, end quote. So apparently last week finally was infrastructure week. Some sort of infrastructure bill is, I guess, heading to the president's desk for signature after a vote in the House on Friday. And heads up to crypto folks, it might make your lives more difficult because the bill amends U.S. tax code section 6050I to require certain recipients of digital assets worth more than $10,000 to report sender details to the IRS. Quoting Coin Desk. The crypto industry was concerned about a tax reporting requirement within the bill that sought

to expand the definition of a broker for internal revenue service purposes. The reporting requirements would see all brokers report transactions under the current tax code. Industry proponents worried the definition would be too broad, capturing entities like miners and other parties that don't actually facilitate transactions. Another provision included in the bill to amend tax code section 6050I has also stoked fear in the crypto industry. The law written nearly 40 years ago to apply to in-person cash transactions over $10,000 essentially requires recipients to verify the sender's personal information and record his or her social security number, the nature of the transaction and other information,

and report the transaction to the government within 15 days. Unlike other tax code violations, violations of 60-50 are a felony. And some lawyers have pointed out that applied to cryptocurrencies and other digital assets like non-fungible tokens, it would be nearly impossible to comply with the law, end quote. Speaking of NFTs, by the way, I'm not a tax professional, I'm just telling you what I'm reading, but if you've jumped on the NFT bandwagon this year, you might want to be aware that even minor actions in, say, an NFT game, a game, not just buying or selling NFTs, can be a taxable event, an inconvenient reality, exacerbated by the lack of raw transaction records from many NFT games. Quoting Protocol. In a matter of months, NFT gaming became a multi-billion dollar industry by combining two things people already loved,

video games and getting rich from crypto. But it turns out the play-to-earn model also has the incredibly inconvenient side effect of turning even minor actions taken in a video game into taxable events. Did you sell your cute digital creature on Axi Infinity? That's a taxable event. Did you sell it less than a year after you bought it? The answer is almost certainly yes, given the timing of the play-to-earn boom. Well, then, it's a short-term capital gain. If you converted your NFT into a cryptocurrency before cashing out, that counts as two separate investment transactions.

Even seemingly trivial in-game item swaps can have tax implications. Making matters worse, NFT games don't typically keep track of all your transactions for tax documentation purposes. So while there are plenty of services designed to assist with crypto tax filings, it can be difficult to get the raw data that feeds into those products. By contrast, mainstream crypto trading platforms like Coinbase prepare customer trade data for tax services either in the form of CSVs or direct software integrations. Taxes may come as more of an afterthought for a lot of the investors, noted Jen Kim, head of product at NFTBank.A.I. We're actually getting more questions, she said. There's quite a number of people reaching out, and I think that is associated with just general mindset toward the end of the year, end quote.

Kim also pointed to the added complexity that comes with the so-called sponsorship model employed within play to earn gaming. While the name suggests an altruistic support system, scholarships are all about making money. Thousands of scholars in places like the Philippines and Venezuela play games on behalf of NFT owners or managers in exchange for a share of the resultant earnings. Scholarship managers therefore operate business partnerships within NFT games. That triggers business tax requirements rather than capital gains. It also likely adds overseas tax implications since many managers live in developed nations and lend to scholars in developing nations. By some estimates, around 40% of players on Axy Infinity are now based in the Philippines. On the Axy Infinity Discord server, hundreds of messages pour in every day from individuals seeking scholarships in the form of borrowed Axes.

The would-be scholars provide details such as their age, gender, marriage status, internet connection, and location. They advertise their willingness to dedicate entire days to earn for managers, and it's not unusual to see scholars offer to play up to 12 hours a day. Tax scrutiny isn't just on the scholarship managers, though. In September, the Philippines Bureau of Internal Revenue announced an investigation of digital influencers that some players interpreted as targeting high-grossing Axi Infinity players, according to the rest of the world's reporting, end quote. although I did see this little ray of hope from Jeff Roberts of DeCrypt. Quote, IRS doesn't have the resources to audit the wealthy. Would they actually go after small-time NFT traders? Either way, Congress needs to pass the de minimis exemption for crypto, end quote. Though, again, depending on the IRS being too busy, is definitely not sound tax planning advice, in my opinion.

Should we talk about Elon? Let's go ahead and talk about Elon. You might have heard Elon Musk held a Twitter vote this weekend to ask if he should sell some of his Tesla shares. Referring to recent proposals in Congress that wealthy individuals should be taxed on assets they hold but have not yet sold and thus not yet capable of triggering capital gains taxes, Musk tweeted on Saturday, quote, Much is made lately of unrealized gains being a means of tax avoidance. So I propose selling 10% of my Tesla stock. Do you support this? Yes or no? After 3.5 million votes, the yes votes won 57.9% to 42.1%. Quoting the Wall Street Journal. Twitter users said Elon Musk should sell 10% of his Tesla stock, a stake valued at about $21 billion

after the chief executive pulled them and pledged to abide by the outcome of the vote. Quote, I was prepared to accept either outcome, Mr. Musk tweeted after the poll closed. Mr. Musk holds more than 17% of Tesla, a stake valued at over $200 billion, according to the most recent available data in fact set. One-tenth of that stake could be worth around $21 billion based on the stock's Friday closing price of $1,22.9. Mr. Musk and Tesla didn't immediately respond to requests for comment after polling closed. Mr. Musk doesn't accept a cash salary from Tesla. His compensation package entitles him to stock awards. He typically doesn't say, sell stock, though he has done so to cover taxes on past stock options. Tesla's performance has

entitled Mr. Musk to additional stock options this year. Selling shares he already holds could help the cash-poor billionaire exercise some of his vested options. If Mr. Musk were to sell stock, now would be a good time. The current top tax rate on long-term capital gains is 23.8%, but Congress has been considering raising it. Changes in capital gains tax rates often take effect immediately to prevent gamesmanship. Tesla shares have risen about 75% over the last three months, end quote. Yes, well, not only that, but quoting Darra Obasancho on Twitter, quote, Elon Musk has Tesla options expiring this year, which he must exercise or lose billions of dollars. When he does, he'll incur a tax bill. The Twitter poll was basically a strategy credit since he was

going to pay the taxes anyway. He is a PR genius, end quote. I'd also note that since Tesla stock has gone up so much recently. If he did sell around $21 billion worth of stock, it would basically just represent the gains he made in just the last few weeks. But other folks could interpret this as Musk selling at the top of the market. Tesla stock did open down a bit this morning before rallying. The FBI and the U.S. Department of Homeland Security say a drone dangling copper wires tried to disrupt a Pennsylvania power substation back in July of 2020. Apparently the first drone attack targeting U.S. energy infrastructure that we know of. You know, I keep my eye on these sorts of infrastructure attacks, not because they fascinate me as much as they scare the heck out of me.

Industrial and infrastructure hacking and sabotage are Black Swan events that I don't think are really Black Swany so much anymore. They just haven't happened yet, quoting Wired. In July of last year, a DJI MAVAC2 drone approached a Pennsylvania power substation. Two four-foot nylon ropes dangled from its rotors, a thick copper wire connected to the ends with electrical tape. The device had been stripped of any identifiable markings, as well as its onboard camera and memory card, in an apparent effort by its owner to avoid detection. Its likely goal, according to a joint security bulletin released by DHS, the FBI, and the National Counterterrorism Center, was to, quote, disrupt operations by creating a short circuit, end quote.

The drone crashed on the roof of an adjacent building before it reached its ostensible target damaging a rotor in the process. Its operator still hasn't been found. According to the bulletin, the incident, which was first reported by ABC, constitutes the first known instance of a modified unmanned aircraft system being used to specifically target U.S. energy infrastructure. It seems unlikely to be the last, however. In a response to a request for comment, a DHS spokesperson wrote that the agency, quote, regularly shares information with federal, state, local, tribal, and territorial officials to ensure the safety and security of all communities. across the country, end quote. When it comes to the potential for consumer drones to wreck havoc,

experts have sounded the alarm for at least six years, saying that their broad availability and capabilities provide opportunities for bad actors. In 2018, an explosives-laden drone carried out an apparent assassination attempt on Venezuelan President Nicholas Maduro. ISIS and other terrorist groups have used consumer-grade quadcopters for both surveillance and offensive operations. But the Pennsylvania incident represents an alarming escalation in drone use, state side. The U.S. has had incidents before a drone landed on the White House lawn in 2015, and a recent surge in drone sightings near airports and other critical sites has sent the FAA scrambling. Until now, those intrusions could be written off as accidental. No longer.

I'm surprised it's taken so long, says Colin Clark, Director of Policy and Research at the Sufan Group, an Intelligence and Security Consultancy. If you have a modicum of knowledge of how drones work and you can access some crude explosives or just ram into things, you can cause a lot of damage, end quote. The operator of the Pennsylvania drone appears to have attempted a less brute force approach, but efforts to hide the operator's identity may have contributed to their failure to connect with the intended target. By removing the camera, the joint bulletin says they had to rely on line of sight navigation rather than being able to take a drone's eye view. While this effort failed, the reports analysts are clear that it's unlikely to be an aberration. If anything,

they expect to see drone activity, quote, increase over energy. sector and other critical infrastructure facilities as use of these systems in the United States continues to expand, end quote. Finally, today, it's been a while since we checked in with Masa Sahn. Last we left him, his horrible year of blowups like Uber's tepid stock performance and the whole we work thing had passed and the Vision Fund portfolios seemed to have turned around. Well, SoftBank apparently reported a record Q2 Vision Fund quarterly loss of 7.3B,000, billion as the value of softbank holdings like coupang and DD plunged. And also, there was a $3.5 billion net loss reported overall for the entire company, quoting Bloomberg. Masayoshi Son's Vision Fund

has been a volatile contributor of profit and loss since its creation in 2017. The first downturn started in 2019 with Uber's disappointing public debut and the implosion of WeWork, followed by the impact of the coronavirus. Then a global surge in technology shares boosted Vision Fund's profit to new records for three consecutive quarters last fiscal year, thanks to Blockbuster listings by South Korean e-commerce giant coupang, U.S. delivery firm DoorDash, and Chinese online property platform, K.E. Holdings. Now the plunging value of some of those companies and a tech sector crackdown by Chinese regulators have once again pushed the business into the red. If you look at the Vision Fund's performance so far this year, pretty much everything

they brought to market so far has lost money since listing. Kirk Boudre, an analyst at Redex Research and Tokyo said ahead of the earnings announcement. That's an incredibly poor track record. They have been behind a lot of overpriced IPOs. It makes you wonder whether this whole cycle of investing, taking the company's public, and then getting your money back is broken, end quote. SoftBank's shares have slid about 24% this year, end quote. I said about the global supply chain that we might not be living in a stable world anymore, at least as stable as recent decades, and the supply chain might not be able to handle the volatility that we see. in the world anymore, but when you're investing in startups globally, I guess the volatility

also comes for your portfolio. Quick reminder about the ride home fund. We've written four checks to four really exciting startups in the month or so that the fund has been live. And my reminder is that if you want your money to be a part of those four investments, you have until the end of the month to invest in the ride home fund. You can invest in the fund whenever you want because it is a rolling fund. but on December 1st, any money that comes in will be applied to deals we get in on in Q1.

So if you want to have a piece of our first bets, reminder to go to ridehomefund.com and subscribe by the end of the month. The only other thing I have to tell you about is that we scored some appointments to get our kids' COVID vaccine shots. So that's one more anxiety off my mind, especially going into the holiday travel season. Yay! Talk to you tomorrow.