Posts from December 2009

Public Policy and Venture Capital

I did a "Room For Debate" on the New York Times yesterday with Ken Auletta and John Markoff. Here's the first part and here's the second part. The topic was Google; are they too powerful and if so, what the government should do about it.

I said this about anti-trust efforts in technology:

I am not big fan of governmental intervention in technology markets.
Technology moves very rapidly and one decade’s dominant monopoly is the
next decade’s fading giant.

I would prefer our government focus on creating the right
environment for innovation and new technology development so that the
next Google can come along and change the game again. Things like
immigration reform (the start-up visa movement), patent reform
(elimination of software patents), net neutrality and open spectrum are
all much more important than filing an antitrust case against Google.

No sooner than when I wrote those words I found out about another public policy issue that impacts the technology startup world.

William Carleton pointed out to me yesterday on this blog, in the comments, that Senator Dodd's financial system reform bill contains two provisions that will be very harmful to startups. If passed as currently drafted, the bill calls for:

(1) increasing the threshold for accredited investors

(2) ending the federal preemption of "all accredited" offerings, so
that states would be permitted to regulate such offerings, even if they
meet federal requirements under Rule 506 of Reg D.

I'm not a security lawyer and I hope we get some discussion of these two points from security lawyers in the comments, but both of these seem wrong headed to me.

The angel funding mechanism is potentially the single most important funding mechanism in startup land. Most entrepreneurs get their first real investments from angels, not VCs. If you lower the amount of angel capital in startup land, you'll end up lowering the number of entrepreneurs who can get their projects off the ground.

So now there's one more thing we all have to start calling Washington about. I'm going to call my representatives about this. You might want to do the same. And while you have them on the phone, tell them we also want their support on the startup visa movement, elimination of software patents, net neutrality, and open spectrum. That seems like a lot to ask, but this stuff is important and getting more so.

Reblog this post [with Zemanta]
#VC & Technology

The Herd Instinct

One of things that always amazes me about investors is the way we move in herds. Developing markets are in, everyone invests in developing markets. Dubai blows up, everyone moves out of developing markets. Real-time is hot. Everyone invests in real-time.

I can understand the hot money game in highly liquid markets if you can get out before the party ends. But in illiquid markets, this kind of momentum investing hardly ever works.

And VC is among the most illiquid markets out there. I don't believe you can deliver top tier returns playing the "hot money" game in the venture business. Moving in a herd will put you in the middle of the pack at best and could put you in the bottom of the pack.

I think there are two approaches that work in the venture business. One is the contrarian approach. When everyone wants to be a consumer web investor, do software as a service/enterprise. Go where the money isn't.

Or you can just be earlier than everyone and anticipate where the herd is going to be next. That is really hard, maybe too hard to do well over a sustained period of time.

But I do believe that both of those approaches will get you top tier returns if you execute them well.

Following the herd, however, is not a recipe for good investment performance. And yet so many do it. That's why they are called herds.

#VC & Technology

Stuck In The Middle With You

John Heilemann has a cover story in the current issue of NY Magazine titled Obama Lost, Obama Found in which he details the challenges and opportunities facing the President. I took the time to read it last night, on the eve of the President's trip up to my birthplace and childhood home at West Point.

The President is going to irritate most everyone with his Afghanistan policy. The liberals want us out asap and a big troop increase is going be yet another sign that he's not one of their own. The conservatives will hate his emphasis on an exit strategy. And even if they approve of this decision, they'd never support him on anything and never will. 

Heilemann points out that Obama's approval rating is now sub 50 percent and even more worrisome for him and his team is that his "job disapproval" rating is in the mid 40s, higher than any president at this stage other than Bill Clinton.

His support of Bush's economic policies on the meltdown (ie the splurge) were pro-business and placed him as a friend of the banks and wall street and an enemy of the man on the street. His push to get healthcare reform done early in his presidency has also eroded much of his political capital. And now with his decision to re-invest in the war in Afghanistan, he is facing another political hit.

I've got many liberal friends who are at their wits end with Obama and think he's completely blown it, that he is spending too much time negotiating/pandering to the right with nothing to show for it. And I've got plenty of conservative friends who are saying "I told you so". I can't think of too many friends who are happy with the choices Obama has made.

But I'm having a hard time arguing with any of the decisions he's made to date. He is a pragmatist and anti-partisan who seems to me to be doing a pretty good job of playing a pretty bad hand.

His decision to support and expand the splurge are distasteful on many levels, but we have restored the markets confidence and the financial system is functioning. It could have been so much worse.

His decision to focus on getting a healthcare plan passed that covers almost everyone early in his Presidency is borderline political suicide as Clinton showed. But if not now, when? The US is the wealthiest country in the world and it is just not right that we can't find a way to offer basic healthcare to our citizens.

His decision to support and expand the war in Afghanistan is the hardest of his decisions to date for me to support. The US-installed government in Kabul is corrupt and hated by its own citizens. Propping up a government like that has never worked long term and I can't imagine it will work now. But Afghanistan is a strange place where loyalties shift daily and troops fight for the Taliban one day and the Northern Alliance the next. I want to hear the President out on this one before I come to any conclusions. We'll get that chance tonight.

I believe Obama is suffering from governing from the "far center" and pleasing nobody in the process. My favorite quote in the Heilemann piece is from Alex Castellanos, a republican media consultant:

He’s stuck, and it’s kind of ironic. Obama has
tried so hard not to be George Bush and Bill Clinton, and yet he is
becoming exactly that. The guy who ran against ideological division has
brought it back with such a vengeance that he’s lost the middle, but
not sufficiently to make his base happy. He’s got no friends.

#Politics