Some Notes to Congress on the Economy | Hacker News Reader

Some Notes to Congress on the Economy

blogmaverick.com

28 pointssefner18 comments

It's nice to see the nod to Y-Combinator and the realization that many businesses can be started with much less money today. But there is also another point to realize. Have you noticed how large the barriers to entry are in some industries? Could anyone today really start a bank, an oil company, a car company, etc.?

Some markets (especially in technology) are opening with very low barriers to entry. But some markets are more closed than ever.

Could anyone today really start a bank, an oil company, a car company, etc?

Actually, a few businessmen in my home town got together and started a bank. Tesla Motors is an example of a car company started, according to Wikipedia, by a couple of guys with personal funds (while they created the business plan). Regularly, although rarely, companies start out small, attack some market, and then grow into the multinational corporations.

some markets are more closed than ever.

I definitely don't agree with this, at least not the examples that you mentioned. Technology makes it easier in all industries. Biotechs in pharma. Five Guys Burger and Fries in restaurants. Boutique hedge funds in finance. While I don't know the oil industry, it sounds like there are a lot of areas where a small startup could focus on and eventually become a bigger company, like owning a drilling rig (and run it well and according to best practices), or underwater surveying, or something.

FWIW, Tesla Motors is out of cash and may fold or be sold: http://venturebeat.com/2010/05/27/elon-musk-personal-finance...

There's a difference between the CEO being out of money, and the company being out of money.

Yes, but they're both in trouble. From the above article:

"Musk’s willingness to funnel his own cash into Tesla has for years sustained the faith of fellow investors and reassured would-be car buyers in 2008 when the company’s finances were in perilous shape." ... "Tesla, likewise, is dealing with its cash flow problems by borrowing money from a friendly source — the United States government, which has eagerly backed cleantech startups through a Department of Energy loan program. Tesla burned through $37 million in cash in the last three months of 2009, according to amended S-1 documents, filed with the Securities & Exchange Commission in preparation for its IPO. Tesla slowed this burn rate in the first quarter of 2010 to $8.4 million, but only by drawing down part of a $465 million loan from the DOE, while reporting a net loss of $29.5 million. Tesla’s sales were flat year-over-year in the first quarter, but declined precipitously in the U.S., according to a former Tesla executive."

My point is just that Tesla is not in fact a good example of how "anyone today" can start a successful capital-intensive business like a car company (which is how it was being used above).

I'm uncertain about the ability of independent start-ups to gain much traction in the petroleum industry. Much of that has to do with owning/having access to fleets of ships that are capable of bring you and your equipment to/from the right location on time.

That said, the BP oil spill in the Gulf of Mexico has indeed shown some light on potential niche fields that could be accessible to start-ups, e.g. Kevin Costner's Ocean Therapy device.

> Much of that has to do with owning/having access to fleets of ships that are capable of bring you and your equipment to/from the right location on time.

That's not the only way to build an oil company.

There are lots of folks who rent an on-shore drilling rig.

If you hit reasonable amounts of oil, transportation appears. Sometimes it's in the form of a guy who builds a pipeline from said small field to a place with better transportation.

Those are two of the many ways that folks have built oil companies without fleets of ships and the like. (It's not just "dirty work" - there are many tech opportunities in oil-relevant data analysis.)

For example, the only US billionare who died this year started his oil company with $10k and a pickup.

You don't need to start a "car company" to be in the car industry. As a new company, you should make components or technology for cars, oil drilling, banking, etc.

I started my own oil company. I'm 27. See: http://www.eser.org

Stats:

* There are thousands of independent oil and gas producers in the United States.

* Independent producers develop 90 percent of domestic oil and gas wells, produce 68 percent of domestic oil and produce 82 percent of domestic natural gas.

* Most independents have fewer than 20 employees.

See the "Independent Petroleum Association of America": http://www.ipaa.org

There is more to job creation than building the next Twitter. Twitter doesn't work on a schedule. Sri Ganesh's Dosa House and Can't Flush We Rush Plumbers do. The economy can survive without twitter, but without flushing toilets we will quickly find ourselves living in the dark ages.

As for people who lose money to carried interest, yes, some will go back to work at a the same bank they quit from (same pay, better security). Others will just raise management fees, resulting in a net loss of investment. More importantly, there will be a major loss of diversity in investments; as Cuban notes, the guy earning $30mm/year won't be dissuaded from investment, only the guy earning $500k (who could make a similar salary at a bank). This means a smaller amount of the investment strategy search space is explored, and we have fewer Michael Burry's. Is that a good thing?

In the interest of increasing angel investing, why not remove the legal barriers (accredited investing) and bring a whole new class of players in the game?

This would likely also bring a whole new class of con men into the game, although there are so many ways to get scammed on the Internet already that maybe one more doesn't matter.

the vast majority of wealth available for investment is represented primarily by institutions and entities, and secondarily by people who meet the requirements.

of the latter group, i suspect the vast majority do not invest anyway. it takes a lot of stomach to systematically invest in enough opportunities that a positive return is likely. it certainly makes me queasy from time to time.

anyway, i'm reasonably sure that there are ways to get around this for friends and family investment.

What would happen if a startup was seed funded by 30 people at 1K each? It could be very interesting. The company would only have 30K of investment, but on the flip side there would already be 30 people who want to see it succeed. 30 evangelists ready to pump whatever the company can produce. Nobody really knows how well a model like this would work, because it's not yet legal.

This has been tried in the past the result was an is mostly pyramid schemes and other forms of investment fraud.

See: multilevel marketing for a more common equivelent.

I had a similar thought when describing the idea. However, I don't think we're comparing apples with apples. The accredited investing law has been in place since 1933, so if the pyramid schemes you're referring to really are conceptually the same as what I described, they would have been illegal.

Accredited investment law's have significantly reduced the impact of most pyramid schemes because they make it far harder to get the ball rolling still you can find a few more recent examples at: http://en.wikipedia.org/wiki/Pyramid_scheme but mostly they are outside the US.

For a better look at the pyramid schemes closest relative:

http://en.wikipedia.org/wiki/List_of_Ponzi_schemes you can see several home grown examples mostly involving more wealthy people. What separates them IMO is Pyramid schemes give you plenty of foot soldiers to sell the idea, Ponzi schemes are limited to the initial con artists which focus on people with money by default.

PS: There is a friends and family exception to these things, so if you only need 30k you can probably collect to from people you already know. However, random strangers have a hard time distinguishing a reliable businesses from a con artist so it's a hard call to make.

This has been tried in the past the result was an is mostly pyramid schemes. See: multilevel marketing for a more common equivalent..

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