Comment by lifeisstillgood | Hacker News Reader

Comment by lifeisstillgood | Hacker News Reader

lifeisstillgood

VCs are not too big, they are (apparently) investing in the wrong companies.

If humanity overall wins out, the next 20-30 years will see industries we can barely imagine grow to maturity. From electric driver-less cars, to new forms of power generation (even fusion), new building methods, new education, and vast mega-cities will spring out of nowhere.

In the West, in the rest of the world, we will see vast demand for things that are barely off the drawing board. And they will need support industries, innovating widgets and helpful doo-hickies.

All of which will take specialised knowledge, innovation and investment. Just what VCs are supposed to do.

(PS I strongly suspect Fred Wilson already knows this, is intelligent enough to be hiring clever VCs in India, China Sudan, and doing presumably cleverer things than I suggest.

But it annoys me that the article seems mostly - oh no! cloud is cheap, so there are no companies anymore anywhere in the world that need high risk investment. Gaaahh!)

Here is one that is a perfect example: http://www.ted.com/talks/donald_sadoway_the_missing_link_to_...

Edit: added link, minor fixes

I don't think Fred's investors want to be sinking money in renewable energy. If you look at the returns to that asset class, they've been pretty bad.

It's great to do big things and change the world, but the pension funds backing Fred want to earn a good return.

"returns to that asset class, they've been pretty bad."

Renewable energy assets have a pretty good IRR, in the mid-teens to low 20% - and even higher if you look at the 1995-2004 vintage.

To any LP that is an above average return, in fact, it is above any equity return threshold for asset manager incentives/carry.

Where did you get the data for you to say that "they've been pretty bad"?

I always return to this bet with John Kay:

http://books.google.co.uk/books?id=6BLqprHdwygC&lpg=PA15...

returns for the most successful railroad companies were mere 5% - competition kept things down (although speculation in early years lead to phenomenal returns - if sold)

However, a moderate VC return is 3fold over ten years - which is ~12.5% YoY (unless my maths is bad). But then that is 12.5% of millions and millions not just one company.

I struggle to understand your point - I'd love to here a bit more to understand it.

The IRR numbers I mention refer to UFCF/equity, i.e. no exit (hence return) via company/asset sale.

That the return (assuming no sale at top of a bubble) for the best companies in the biggest industry of 19C was only 5%-10%. (Based on equity, it seems Harford did not calculate dividend return which may make a difference)

Making 15-20% without an exit is a great deal - supporting I think your point.

Indeed, I agree. I'd be curious to know how common was the use of debt during that period. 5%-10% is a good return on an unlevered asset, debt could provide an additional turn - then, I don't know how the Kd and CPI was during that period.

During the 19th Century, U.S. railroads relied primarily on debt issues to finance their growth. This policy contributed to major financial crises (www.biu.ac.il/soc/ec/wp/16-01/16-01.pdf)

Is that what you mean - or derivatives?

just wanted to know - now it's clear

I wonder what the returns on social media and fiddly web apps will be looking back 10 years from now.

For the VCs and pension funds, or the investors at large that trust the IPOing banks?

For VCs. Just VCs.

For most of them, it won't matter what the return 10 years from now is, they are cashing out much sooner

I just meant long enough for the benefit of hindsight. How will the corpus of Web 2.0 investments look. That's what I'm getting at.

Being 31, growing up when I did, sometimes the things discussed in TED, and the wonderful future you allude to, seem like flying cars.

And not to be down on you, or the future in general. Maybe this is a side effect of growing not only when I did, but where, being in more rural Georgia. Or being "not an optimist".

That all aside, power storage really does seem key. Imagine if electric cars could be refueled by an easily accessible battery change out? And one imagines if everything is electric, then advances in any power generation tech transferable to electricity instantly gives advantage to everyone. Yeah, that future is a romantic one. But I just don't know.

Well, flying cars do exist: http://bostonherald.com/jobfind/news/technology/view/2022081...

To be less of a dick: I did put in a caveat of "if humanity wins" - my sort of catch-all term for avoiding the collapse of a global civilisation that arguably has been in existence since, well, Gutenburg, or possibly Newton.

But the idea is that the available-at-one-point-to-one-socieity-sum of human knowledge has been only expanding since a given point (the burning of library of Alexandria would count as a net loss of knowledge so it does not go far back this idea), and that if it is to keep exapnding we are going to solve something. Maybe cancer, maybe flying cars. Maybe something else.

But there are only two directions - up and down. I am hoping for the up. I can understand the doubt. We humans are real good at screwing it up. But ... I think the scientific method is permeating enough societies that even if Western world collapses, India, Brazil etc are likely to be independant civilisations themselves. (I have had pleasure of working with many Indian natives over here, and their generation is going to want some serious changes back home.)

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