Making Sense Of Dichotomy

I watch the financial markets and see a stock market that is now totally ruled by fear.

And on main street, we are facing inflation in food and energy and deflation in housing and wages. The economy may or may not be in a recession, but it clearly sucks for large parts of the US.

And yet in our business we are seeing a lot of bullishness. Our companies are growing, revenues are up not down.

We are working on a potential investment right now and there’s more money wanting in the deal than the founder can or will take.

Many of our companies have done financings recently and most of them have gone exceedlingly well (by my measure).

So what gives? How can the public markets and the economy be so bad and the web/tech/venture business be so good?

Yesterday, in the middle of a bad day in the markets, Intel announced that they are seeing ‘strong demand’. Consumers and businesses are still buying computers it seems.

Some of that is because business (certainly the tech business) is increasingly global and much of the developing world is expanding rapidly. So even if the US economy is stalled, there’s plenty of business to be done elsewhere.

And some of this is because technology is driving a lot of these changes. Capital is moving out of the US because technology is making it easier to do so. Jobs are moving out of the US because technology is making it easier to do so

I met with a hedge fund manager at the start of this year and he described his portfolio as short banks and dollars long oil and tech. That sort of sums it up for me.

Don’t get me wrong though. I am worried that the bullishness we are experiencing in web/tech/venture will be impacted by what is happening on wall street and main street.

I think we are already seeing a more conservative posture by most VCs on the newfangled web businesses that have been created in the past four years. It is ‘show me the money’ time, as it should be.

I am confident that many of these ‘newfangled web businesses’ will deliver on their promise of revenues and cash flows. But many will not. We haven’t seen a huge number of doors closing in web startup land and I think we are going to see more soon

The fact is that the IPO market is dead as a doornail and the M&A market is behaving more rationally and selectively. I don’t think bad investments get bailed out nearly as much in the next couple years

But even so the dichotomy of a bad public market and a good venture market is real and makes sense to me. I’ve always felt that financing new technologies, companies, and business models ought to produce positive returns in good times and bad. I guess we’ll see how true that is.