Mark Suster: Raise Money Now So When The Party’s Over You’re Sitting Pretty
techcrunch.com
techcrunch.com
Kinda makes me wanna do that. But not really.
In most countries, governments largely pander to the middle and lower classes, because that's where the votes are. As a result, the election cycles usually involve large government outlays leading up to elections. The media also tends to pander to the middle/lower class.
In the United States, governments largely pander to the top 1% of incomes because
a. the billionaire class has figured out how to craft a message to the middle/lower classes where they think they're being screwed by the government, and the proper response is to reduce the size of government.
b. the government keeps growing, but their focus is entirely on making the tax system more regressive.
c. the billionaire class has more control over the government, and ensures that more dollars go to them, and less to the middle lower class.
d. the media does the exact same thing as the government.
e. because the government is actually screwing the middle class, we can go back to (a) and repeat the cycle.
If you doubt what I'm saying, you really need to read the writings of the most important member of the Austrian school of economics... Grover Norquist:
while remembering that Mr. Norquist is one of the more zealous servants of the billionaire class.
We have NPR, but they can't really espouse liberal views, because the Republicans are always at their throats for grant money (I think most elected Democrats are corporate whores too - they're just more subtle about it). Other than that, there's probably a dozen decent newspapers in America, all of which are slowly dying, and as such can't afford to upset their advertisers.
Financial newspapers are an exception to this, but you'll never see the Financial Times or the Wall Street Journal suggesting that people like Lloyd Bankfein or Joe Cassano should tighten their belt buckles. In the US, the hand that feeds the media is biting everybody, but the media is afraid to bite back.
The independence of BBC is probably not perfect, but impressive. I might still trust NY Times and Washington Post more, as long as they don't write about big advertisers. There just seems to be less of organized political pressure on US media than when you have European parties.
For the European media I know enough of to have an opinion (Sweden), they are a sad joke. Let me give two examples.
1. Big advertisers never get bad stories.
2. After 1968, the left tried to take over the journalist occupation and seems to own it today. You can check this, by following one of the subjects where the left really care and compare with international press; Israel is good. (Pallywood has never been mentioned in Swedish mainstream media, neither torture between Hamas/PLO. There is a long, long, long list of examples like this.)
I've read bad things about e.g. Spanish press, but don't really know. There are, like USA, some incredibly good media in Europe -- and like in USA, most are garbage.
Take a wealthy individual who is a limited partner in several VC funds. Like most wealthy individuals, he has investments across numerous asset classes. Many of those asset classes (equities, commodities, etc.) are heavily impacted by the Fed's policies. Needless to say, this individual is far more likely to feel comfortable pouring some money into a new VC fund he has been pitched when his other investments are doing well courtesy of Helicopter Ben's printing press.
Without willing investors, VC firms can't raise new funds and certainly, had there not been a massive pumping of cheap money into the global economy from the central banks, many of the massive VC funds, more than a few of which are being used to buy up shares in companies like Facebook and Zynga, would not exist.
That's just exactly wrong.
"Helicopter Ben", as you oh-so-blithely put it, is injecting money into the economy (as was Greenspan -- a famous conservative -- who started the process). This tends to lower interest rates across all sorts of different asset classes. It's a big part of the reason that savings accounts are returning <<1%, and why people have been taking their chances on ever-riskier investments for the better part of two decades. They can't get returns in safer asset classes.
People aren't investing in VC funds because they "feel comfortable" -- they're investing in VC funds because they can't match the inflation rate in anything better. Nobody invests in a high-risk asset if they can get great returns in a low-risk asset, no matter how "comfortable" they may feel.
But let's roll with it. You still make a number of flawed assumptions:
1. That all investors believe inflation is the problem. George Soros, for instance, is more concerned about deflation and up until recently, had significant holdings in gold as protection against deflation. Ironically, others, like John Paulson, are still holding gold as a protection against inflation. Only time will tell who made the right bet for the right reasons.
2. That an individual seeking capital preservation has to take on "ever-riskier investments." High net worth individuals do not have the same investment options as you do. There are numerous ways you can preserve cash (without sitting in cash) without having to bet the farm, even in today's economy.
3. That diversification plays little to no role in investment decisions. Again, if your portfolio has large exposure to equities, commodities and other asset classes that have gained substantially over the past two years, you are far more likely to feel comfortable cashing out some of your gains and/or throwing idle cash into other asset classes.
4. That VC provides a solid return. If you look at the 10 year returns, VC hardly looks like the asset class an aggressive investor would park his money. See http://finance.fortune.cnn.com/2011/02/16/venture-capital-re....
5. The above brings us to your last flawed assumption: that every investment decision is rational. If every investor made truly rational decisions, the desire to protect against inflation would not lead one to invest in VC. You'd be overweight commodities, FX, etc. Again, there are a whole host of reasons investors throw money (generally a small portion of their total portfolio BTW) at VC. Diversification is one of them, but don't doubt the lure of bragging rights either. If you golf with high net worth individuals, you'll quickly learn that they like to brag about their investments, even if they're not necessarily good ones. After all, nothing says cool like "I have $2 mil in a fund that owns a bunch of Facebook stock."
At the end of the day, my original point stands: when the central banks pump money into economies, it has a cascading effect that influences the behavior of investors directly and indirectly.
The funding prior to this latest IPO spree is largely the result of capital not having a lot of good homes in the US economy these days. This is partially the result of low interest rates but also having a heavy regulatory burden on new industry which doesn't exist in IT.
Raise money. OK. Lets all do it - everyone in! Mark is a smart guy, and obviously right on the mark.
But please lets focus on businesses with a real business. Those will continue through the ups and downs.