Economic innovation for a bright new world
Venture Capital: the enemy is us
On June 15th 2005, some 7 years ago, I came publicly to the conclusion from having worked in Silicon Valley for 17 years with many startups, that Venture Capital is broken economically (and argued the semantics of “broken”), created numerous blogs on the subject since, and produced The State of Venture Capital, now viewed by more than 11,519 people, reflecting the economic incompatibility between entrepreneurial assets and the role of its arbitrage, Venture Capital.
Only now does the Kauffman Foundation in a blistering report regarding its own performance as a limited partner in Venture in so much concede to my points of view.
Geniuses they are not
“We have met the enemy and he is us” is an interesting and frank report considering that the Kauffman Foundation is an organization many limited partners have called on for advice, has been used to feed the President’s impetus for ill-conceived programs as Startup America, fed the NVCA’s crumbling protective stance, and by virtue of Kauffman’s “economic genius” Paul Kedrosky (who apparently also contributed to the report) has percolated and held a hand above the institution of venture capital on Sand Hill Road for as long as I can remember.
The Silicon Valley emperor has no clothes is what I wrote a long time ago. The institution has been proven wrong, and it is time for its sinking ship to drag along its “economic geniuses” who kept it alive and made a healthy living doing so at the expense of the public.
Downstream recommendations
And while the report may be shocking to many, detecting the poor economic outcome of venture capital is only half (and the easy part of) the battle. The recommendations in the report filled with attributions from exactly those people who are responsible for its malaise, are merely downstream optimizations aimed to artificially adjust the undesired economic outcome, rather than a rethink of how venture capital should economically align with outlier entrepreneurs.
The delay in acknowledging the systemic problems in venture capital are as damning as applying the wrong fix suggested by Kauffman’s recommendations now. The likelihood that venture capital will change from subprime to prime using Kauffman’s recommendations is like expecting a bad sales person to sell more by changing his incentive. The answer to improve the performance in venture capital lies upstream, not downstream.
Fixable
But venture capital can be fixed with the same economic model that will fix our economy as a whole. Yet that fix requires the pain endured by the current model to drive for support and new courage to look for economic answers upstream. To question why we build financial systems the way we do, and wonder why we did not design them to deliver perpetuity to their underlying assets. I will describe exactly that and a new economic model with pragmatic (transitional) steps in my upcoming book.
It takes a lot of courage for the Kauffman Foundation supported by its interim CEO, to admit what they have preached for many years as the messiah, was simply wrong. It proves once again that any kind of socialism in the pursuit of outlier performance should be shunned. Especially since venture capital is merely the derivative in the exchange between the assets of limited partners and entrepreneurs.
Our fight, our win
Today I will relish in being proven right once again. Not for my personal sake, but for the sake of the recovery of entrepreneurial capacity that we have thrown away with the bath water for more than twenty years. My victory today is a small win for entrepreneurs, and a big win when policy makers start paying serious attention to what I have to say. The battle I am fighting is really not mine, it is all of ours. And one with an upside capacity to yield more than 20% of U.S. GDP that can set a new and much brighter example for us and the rest of the world.
Now is the time to perpetuate economic upside, rather than to staunchly protect downside.
Now is the time for courage.
>> Download the Kauffman report directly from their website here
.Introducing 2012: The State of Venture Capital
Read the complete article...
SOPA spawns the need for economic reform
This time my response was to an article on Reuters PEHUB titled “SOPA Headed for a makeover”. It clarifies my stance on SOPA, and that we should not rush to regulate before we understand how it ties to our core economic principles. And given that we violate economic freedom all too often, to apply regulations today that depend on such flawed implementation of freedom is bound to do more harm than good.
Here is my response:
Most of us look at this as an Internet problem but it is not. The root problem we need to solve (before we apply lucid regulations) is that we define what economic freedom really means (with or without the internet).It is a myth that free-markets do not require regulations. The implementation of a free-market requires regulations so every participant enjoys the same definition of freedom, and protects other participants using that same definition. Free-markets are not a free-for-all, meaning you are allowed to just do what you want. The way financial systems in violation(!) of free-market principles have been able to run amuck with our economic systems.The implementation of a true free-market system is now, really for the first time, being challenged by the internet as its distribution. And the time has come to shore up our economic definition before we apply it to the internet.I applaud meaningful regulation that secures everyones definition of freedom. But I would suggest to tread very carefully, for I see those who do not understand the basic fundamentals of a free-market implement regulations that throw the economic baby out with the bath water all to frequently.
The full article, including my comment can be found on Reuters’ web site here
.Internet reform is economic reform
I am for the perpetuation of a free-market on the internet, but not if that purported compliance creates a free-for-all that violates free-market principles. It is a myth that free-markets do not require regulations, but those regulations need to be deployed with the proper recognition of what those free-market principles are. The latter is where most regulations fall apart and in turn do more harm than good.
Here is my commentary to Neelie’s blog posted on the European Commission’s website:
The internet for the first time forces countries to adopt a singular economic system across its distribution and that puts enormous pressure on the agreements needed between countries.While on the surface the U.S. proclaims to be in support of free-markets (and I am, living and working there), the implementation of a free-market requires regulations so every participant enjoys the same definition of freedom, and protects other participants using that same definition. Free-markets are not a free-for-all, meaning you are allowed to just do what you want. The way financial systems in violation of free-market principles have been able to run amuck with our economic systems.The implementation of a true free-market system is now, really for the first time, being implemented globally with the internet as its distribution. I applaud Neelie's work to balance the defunct free-for-all with meaningful regulation that secures everyones definition of freedom. But I would suggest to tread carefully, for I see those who do not understand the basic fundamentals of a free-market implement regulations that throw the economic baby out with the bath water all to frequently.
The original article can be found here
.The musical chairs of asset management
