The Gotham Gal and I have been fortunate to accumulate signficant capital over the past fifteen years. And the vast majority of it is invested in startups. We get distributions from a sale of one company and within months that capital (after taxes) is invested in more startups (including non profit startups). This has caused a few liquidity issues over the years. The Gotham Gal is always saying that we'll set aside a bunch of cash next time and then we go and do the same thing. I guess we can't help ourselves. Investing in startups is more appealing to us than leaving cash in the bank or putting capital into the bond market or the stock market.
When I think about the history of silicon valley and startup ecosystems in general, this is the pattern I see. Entrepreneurs, angel investors, and VCs take the profits from one deal and turn around an invest in more deals. They recycle capital back into the startup economy. If you look at silicon valley right now, particularly in the early stage/angel/angel list market, this is what is going on. Early employees of Google, Facebook, and a bunch of other succcessful tech companies have taken a considerable part of their paydays and become angels. And it makes sense. They work in the startup economy. They understand the technology, the market, and the gestalt of startup life. They are allocating capital to the startup ecosystem.
I bumped into a friend last week who sold his company a few years ago. He spent the required time with the buyer and then left. He's been spending his time since starting a family with his wife and investing in startups. He told me he's not sure he'll make a lot of money angel investing, but he's hoping to at least breakeven. So he's not doing it soley for the returns. He's doing it to stay connected to startups and support other entrepreneurs. I am certain he's not alone in his approach to angel investing.
I've been told that the US venture capital and startup system is the envy of the world. If so, then I think the rest of the world should pay as much attention to the way entrepreneurs recycle their capital as anything else. Yes, the institutional venture capital system is a big part of the success of our tech startup economy. But it starts with entrepreneurs and angels. Most VCs don't supply capital in the first year or so of a company's life. So startups need to get their initial capital elsewhere and that early money is where the real special sauce is. Think about Andy Bechtolsheim's $100k check to Google or Peter Theil, Mark Pincus, Reid Hoffman, and Sean Parker's early angel investment in Facebook. These entrepreneurs were recycling their capital back into the startup economy. Yes, those investments have paid off bigtime. But they also supplied capital when the company needed it the most.
The Gotham Gal and I allocate most of our capital to startups for many reasons. We do think we are going to generate good returns over the long run doing this. We have generated almost all of our capital over the years by investing in startups. But we also do it for the psychic benefits of investing in startups. When you back an entrepreneur early on, it is like making a large gift to a good cause. It feels really good. And when that entrepreneur uses your early support to create something important and valuable, it feels even better. You can't get that kind of feeling earning interest from a bank or trading stocks and bonds. And that's a good thing. Because capital formation for entrepreneurs and startups is the key to a healthy economy. And for all the problems we face in our country, we have a startup financing culture that is the envy of the world. And I'm really happy and fortunate to be part of it.
Living in Buffalo, NY — the recycling of capital and talent, is what lacks in this town… and any non-tech city. We know this and we believe that with a greater (ease) access to capital these days (AngelList, etc), that if we can get a bunch of startups going in this town and get one or two successes, that’ll be the driver to recycling capital locally for us (and retaining talent from our universities). [Think: BlueMountain in Denver, CO, and there are many other stories like that]
exactly. it snowballs. but you have to get the snowball rolling down thehill
New Zealanders please take note!!! I hear people talk and talk about being like Silicon Valley etc, and you’ve illustrated perfectly here one way those people can put-up or shut-up.
Thanks Fred for sharing your insights. It seems like there ought to be better incentives written into the federal tax code to benefit those who like you, and Gotham Gal, plow a significant portion of income back into funding startups – which create jobs and help the economy on so many levels.
there is section 1202 of the federal tax code, that provides a 50% reductionin cap gains taxes for small business stock held for five years or morehttp://www.law.cornell.edu/…the problem is i don’t do a good enough job keeping tax records on all ofour investments and take advantage of this provisionbut it is there for those who can do that
To me 5 years is much too long a requirement. What if it were shortened to 2 years – wouldn’t that provide a powerful incentive for better record keeping?
maybe. but it is designed to make sure we are talking long term patientcapital
It’s too late now but Obama’s Small Business Jobs Act of 2010 actually put a 100% cap gains tax holiday on investments in small businesses held for five or more years (made before December 31, 2010).Was certainly not a singular reason for our investors to join the party but they certainly appreciated the possibility for a tax holiday and the thoughtfulness of bringing that option to them.
It’s been extended until the end of 2011″The temporary 100% exclusion of capital gain from the sale of certain small business stock under IRC § 1202 was extended further through 2011 by the H.R. 4853″http://en.wikipedia.org/wik…
Recycling of capital is what has been missing for a long time in Europe. Many successful European entrepreneurs left the game after they sold their companies.Thankfully this is changing and a lot of new folks have set up shop to do institutionalized angel funding: Atomico (ex Skype founders fund), proFounders (ex Lastminute/Bebo founders), European Founders Fund (ex Jamba/Ebay Germany founders), Passion Capital (ex Last.fm/QXL founders), Team Europe Venture (Spreadshirt founder), Notion Capital (ex MessageLabs founders)… Still much lower volume than in the US, but I’m hopeful.
this is the single best indicator that the european startup economy ispoised to expand and grow significantly
This is so true! As an entrepreneur, I would rather invest in my company because I know what my plan is and I want to execute it anyway, rather than investing in Google or Apple because my share will go from $300 to $302 over a year. I know, some companies rise even more, but nothing beats taking $100k and making millions out of it. It’s an awesome feeling for the entrepreneur also.It’s all in the culture. Other countries try to do this, but they need to change the culture, not just make money available.
Finally, recycling that makes sense!Besides aluminum cans.-XC
Have you thought about the end-game for The Wilson Capital – would you be prepared to divulge what it is?How would you like to see what you’ve accumulated being put to use once you’re no longer around to manage it?
i haven’t thought about it much yeti’m hopeful our kids, at least some of them, will take an interest in ourshared passion
You can adopt me and I promise I”ll make it my passion 🙂
isn’t it the same appeal as casino? 😉
i think of the stock market as a casinostartups are like a poker game among friends
yeah but you guys are still using the casino’s poker chips at your weekly poker game. whoever wins and wants to cash out has to go to the casino……maybe some day you guys’ll roll your own casino (unless you’re scared)
Are you referring to playing with other people’s money (e.g. the Limited Partners). If so, I think I can understand your statement/comment. If it is just LP money someone is investing than yeah I agree, it is “easy” to invest in the startup economy when someone else is bearing the financial risk of loss. I think, though I am by no means certain, Fred was talking about investing his own money; not just that of the LPs.
the whole tihng goes back to wall st and the IPO casino. the VC game is currently a hits business; the few big wins pay for the majority of losses. those big wins require an IPO. even in the world of smaller exits, it is just flipping to pre-IPO companies that need the IPO window to justify buying smaller companies. or, if it is selling to an already public company, that company’s ability to make acquisitions is largely a function of its public stock value, which is often used as payment for acquisitions and to provdie the confidence needed to make acquisitions.
Ok, I think I kind of see where you are coming from and do not totally disagree about IPO casino or the notion that public companies often “overpay” for startup companies that ultimately yield no long term economic benefit. However, if and when that does happen, I personally would prefer to know that the few who do make money off those type of deals (e.g. the early investors – and yes sometimes they are at the expense of the shareholders of the acquiring company) are plowing money back into the system and are not just holding it back in their personal bank accounts.
Not scared. Watching Facebook do just that with envy
Lol yeah right!!!! Fb is going to go public and they are a goldman companynow anyway. Not the weekly poker game. If anything, that just means the samefolks who turned the markets into a casino are now looking it expand intoyour weekly game.
Love the analogy. And next step is more gals at the poker table. Just like Gotham Gal is doing.Women are a bit averse to poker — many see gambling as 100% bad. That mindset has to change, too. They do a lot of philanthropy or straight portfolio management but investing in startups is a hybrid. You have to be willing to lose the money, but also be doing it in pursuit of a greater satisfaction.
Maybe more like craps than a poker game?… Because the energy at the craps table is really contagious, and when it’s cooperative and good it feels SO great and is so much fun but when the table cools, you’ve got to know when to dial it back or walk away!
Love it, Fred.Recycling capital, both financial and intellectual, is key to building a healthy ecosystem. It’s also something a handful of us have recently been expressing our frustrations with here in Seattle, where people often make it big and then move on.I hope we can turn that around.
NYC used to be like thatbut it changed in the early part of last decade
I like how this reflects communitarian values. Money by itself is kind of useless – money in a community is very useful.
Yup. JLM said here recently that he doesn’t love money, he loves what he cando with it. I second that sentiment
Years ago a classmate of mine had retired from the military and decided to get into politics in the Commonwealth of Virginia. I had not spoken to him in about 25 years but knew he had served the country well and was retiring as a Colonel of Artillery.He solicited a contribution and I sent him a good sized check as I could not think of a single other person in my class more suited to politics.Years later after he had had a fairly long run in politics — still running BTW — he told me that that check had provided to him the opportunity to launch his campaign when he was uncertain he could get out of the starting blocks. He was running against an entrenched incumbent who was very well funded.The rest is history except for the unbelievable satisfaction that I have had through the years seeing what an honest, passionate and effective political leader he has become. I suspect he will run for Governor in the next few years and I expect him to win.He told me this story some years long after raising money was a problem for him and I have always felt good about it. Way more than the amount of money involved.I love what you can do with a bit of money.
that’s it JLM. that’s the thing. it’s so powerful. i love that feeling almost as much as my wife and family
Funny how you see communitarian values and I see the values of individualism. Left to his own devices, and his own capital, Fred does what is great for many others out of his own self-interest. No men in black boots with guns necessary, eh?
Honestly, the best communities are enforced by social values that everyone shares (aka guilt tripping) No boots necessary :)I guess I see it as communitarian mostly because he ins’t trying to keep the money to go diving in it (i’m having weird images of scrooge mcduck diving into money… http://www.youtube.com/watc…
Most underrated TV theme song of all time?
Possibly – considering I was under 5 when i saw that image, and I still remember it, must have been a good opening
I have an original cell of this that I’ve had on my wall forever.One of my favs.
I’m a community capitalist!
So true. StartUp investing is like a drug with good outcomes.
Next time around I want you guys to think about me. 😉
Doing what makes you feel good is a true driver…in business as well.I believe as well that advisors and mentors are giving back intellectual and experiential capital when they work for equity.Sometimes it pays back, often it doesn’t but it feels good for certain.
Interesting. Powerful. Poignant.”When you back an entrepreneur early on, it is like making a large gift to a good cause.”
Fred, not to rain on your parade but VCs total wise has suffered a net loss last 15 years its only after you look at 35 and 50 years before we see net gains. Recycling capital without fixing the broken system does not help in the long term.The trends that may underly this are:-increasing debt loads among those that might generate innovations.-increasing prosecution of software freelancers from using LLCs to offer software development services thus being force to give some of that dev service money by force to a middle party such as temp firm.-housing/living expense bubbles-new SEC laws increasing the paperwork costs of each deal-influx of VC money in areas that might be over-crowed-government research grants over rewarding in certain areas due industry lobbyingwhen that same industry makes maximum use of freely educated skilled workforce without giving back..yeah the Bio-Medical industry for exampleI think the solution in the short term is some micro-business formation in which empower those groups that have debt loads to use free-time to form a small business that than generates revenue to wipe out the debt load. Than at that time we would have more innovation ideas with the full idea pool that VCs have access to because we have empowered some of the debt load group that are skilled to get rid of the debt holding them back from making a startup type risk.
absolutely. debt is the problem. everything else is just a distraction. what do all impoverished economies have in common? corrupt government, weak currency, high levels of debt.
Is there an economy just now that you find not to be “impoverished”?
not really, the whole world has a debt, corrupt govt, weak currency problem.but it may be useful to think of economies not in terms of nation-states(i.e. not US economy vs chinese economy) but rather networks (i.e. internetstartup economies, seafood economies, housing economies, etc). from thisperspective there are some pockets of wealth. at least until governmentcomes in and takes it all. :)in terms of the nation-state economic paradigm, i still like “long east(excluding japan)/short west” as a basic forex trade. but for the most part,i think the whole world sucks. i like africa, in that i think it is reachinga bottom and there will be some great bull markets to come out of there(much like how china and india have transformed over the past decade) thoughi think it will probably be like china and india in that they will haveawesome pockets of industrialization/innovation but still have huge partsthat illiterate, starving, etc (just like china and india). the only way isee the trend of income inequality being reversed and a middle class beingre-born is through the rise of virtual economies that displace nation-stateeconomies, though i have a bit of one track mind on that issue.
What numbers are you referring to?
Recycling capital is what makes a business capitalist, rather than how capital is often supplied today which separates capitalists as the financier and the business owner as entrepreneur.What gives capitalism a bad name is when capital is simply used to fuel its own end, capital for capital sake, forgetting that the lifeblood of society is ideas and innovations infused and tended by capital. The 2008 bailout is of course the most extreme example of this.Start-ups as I see them are simply the most capitalist form of grassroots action, so for me this notion of recycling capital is a private form of grassroots activism, just as social causes are a public form of grassroots action.This distinction IMHO shifts the vertical way we look at work into a horizontal perspective, where people would normally line up against each other in silos can now begin to see that profit and non-profit start-ups and social causes have a common cause. Even if the ends maybe distinctly different there is a common cause which is in the grassroots purpose.[v.o.M.]
That’s an amazing admission on your part, wrapped in a powerful but simple principle: recycling capital.Some of the best and most successful companies continuously re-invest their gross profits to fuel their growth, at the expense of lower net profits but resulting in more sustainable and stable growth patterns over time.If I am fortunate enough to be in the same position as you are one day, I would do the exact same thing.But here’s a question- what’s your investment thesis when investing your own money vs. USV’s?
We invest in things USV does not invest in
man, 27 comments in at the time of this writing and already so much happiness and feel goodiness. ugh. gross.i’d like to drop some rain on the parade.is this really recycling? sort of, in my opinion. here’s my take:1. some people ivnest in businesses, they succeed, they begin to re-invest.2. government prints a whole bunch of money, it trickles down via the FIRE economy (finance, insurance, real estate).3. as VC is a part of finance, some cash comes in here, and leads to a bubble. 4. capital gets wasted, lots of malinvestments because excess capital distorts valuation and analytical process. recycling and waste are opposing concepts. 5. instead of allowing asset prices to fall, which would be painful and result in some unemployment increase in the short term, govt injects some more money, causing the cycle to repeat.from this perspective, there is some recycling going on, but there is also the addition of new stuff via expansion of the money supply. of course this expansion comes at the expense of capital somewhere else, which in our current times means dollar devaluation. so, it is part recycling, part transfer of wealth from lower classes to the finance economy via monetary inflation.startup finance is currently inseparable from the FIRE economy. it may be the envy of the world, but it is also a part of the system of poverty and the regressive tax on the poor that wall st is. #ohsnapfortunately, though, the game is coming to an end. what awaits us will be something far more efficient. real recycling will begin in the new economy.
You may be right. But I’m still doing what I’m doing
Fair enough, your game is legit as you at least can recognize it is abubble. But the house is going to come crashing down soon and it will hurtfor everyone when it does. We are at a point of negative growth; waste isgreater than recycling. This doesn’t change until there is real reform.
Not to side track the discussion but do your thoughts above coincide in any way with Warren Buffet’s (and many others) thoughts on the ultimate recycling of wealth and capital … not leaving large sums of money to successor generations. It is my understanding that one of the premises underlying this line of thinking is that a successor generation is not necessarily going to be as good at allocating capital as society, at large, might be. I recognize this is a potential VERY personal topic; one that you and your wife may not have had with your children yet. However, I am curious because a few comments above really were quite intriguing to me. Thanks.
Buffet is a very strange guy on a lot of fronts but is an investment savant on his own terms. He is the god of compound interest having made a bit for a long, long, long time but his misses have been as spectacular as his hits.Beware taking life advice from an investment savant as much as from Lindsey Lohan. Sure they are accomplished in a certain field but life advice it is not.I suspect he has some weird thoughts on passing along his wealth because he did not do such a great job in marrying, remaining faithful and raising his kids. Too much entitlement amongst the kids results in rags to riches to rags in three generations.I don’t think the government or Warren Buffet should be sticking their nose into the wealth I have created — and paid taxes on at least once — during a lifetime. But, hey, that’s just me.
Yeah, but I am not talking about giving it away not taxing it. And his decision was, from what I understand, a similar rationale as your stated above … rags to riches to rags. So, give it away and allow someone (or society potentially) to allocate that capital efficiently … or at least as efficiently as possible.P.S. Did you get my text the other day?
Buffet can do whatever he wants w/ his wealth as long as he does not pontificate that his answer is the right answer.Yes, I did. Thanks.
Ok great; wanted to confirm that you did.
Amen brother.I always thought is was strange how Buffet was lionized. Sure he has to be one of the great investors of all time.but he is also one of the great bs artists.His whole frugal living thing goes down great with the press – but not many people get away with flying around on private planes to live with their mistresses for years. Nor do they get away with calling derivatives “instruments of mass destruction” and then using more of them than almost anybody else. And they don’t get away with the types of political stuff he has been able to walk away with.I’m with you. If they tax it once – leave it alone.By all accounts, I’ve done well in life – but when I get taxed, it is at the top marginal tax rate and then the top state ax rate etc.. All in probably close to 40%. So let me understand why the government, upon my death wants to take 50% of what’s left – and thinks that is reasonable. That’s a 70% tax rate ultimately.They have to get rid of all the loopholes – and then radically simplify.
i haven’t crossed the bridge yet. i know its coming though
Fred, one of the most fascinating documentaries I’ve ever seen is called “Born Rich”. It was produced by an heir to the Johnson & Johnson fortune, and contains a large number of moments I found alarming.http://video.google.com/vid…I suspect that it might be available on NetFlix, too. Anyhow, I suspect that it will make you inspect the engineering standards of the bridge before you cross it.
Born Rich was a good documentary film. I saw it a number of years ago on HBO. I recall a Vanderbilt heir (I am pretty sure this young man was in the Vanderbilt line) worked in a museum or something. For some reason the interview with this young man really stayed with me. I was struck by the level of self awareness some of these rich “kids” had aout wealth. How some of them did not want it handed to them; that said I also believe the other side of the coin was represented in the documentary film. Glad you brought that picture up.
I saw it and I agree
Sargent and Eunice Kennedy Shriver’s kids are all doing amazing things for others – running Special Olympics, Best Buddies, Conflict Resolution and Intervention Programs for at-risk kids, Mark Shriver is VP of US Programs for Save the Children! As a matter of fact, Sargent Shriver’s oldest grandchild who is 22 (i think) just wrote a book for girls about self-esteem… so there are certainly contrary cases… rich kids, like most kids are shaped more by what their parents value (with their time, attention and resources) than what they have or don’t have.
We are an immigrant nation. First generation works their fingers to the bone making things. The next generation goes to college and innovates new ideas. The third generation…..snowboards and takes improv classes.
What about throwing a couple bucks in short and mid-term bond funds just to keep a little nest egg for the kids? I’m assuming that’s the reality of whats happening in your portfolio. Nobody wants a liquidity issue when the bills for the kids college tuition arrive–we all know those costs are only going one direction.Benjamin Graham and Warren Buffet might be on to something with the whole asset allocation thing, especially when we’re talking about alternative assets making up the bulk of a portfolio.
We are in a different place. I’m not suggesting others do what we do. We’vegot a daughter in college and another on the way. Annual tuition isbasically one less angel deal we do
It also shows that you believe in your product. A VC who believes that he may get better returns elsewhere should consider switching professions. Paulson started 2010 with $10B of his own money invested in his fund. Supporting entrepreneurs and compounding returns, sounds good to me.
Paulson is doing way better than me. But I wouldn’t be good at his job
Bus man’s holiday.
Guys who make a lot of money in an endeavor which incorporates their own vision, sweat, blood, toil and tears almost always make lousy investors in the stock market.The stock market does not reward those instincts.You feel more comfortable when drawn to the same kind of investment that has underpinned your success. You recognize it more clearly because your professional vision is refined and keenly focused.This is true in many aspects of life. If one has good judgement regardless of where learned, he is likely to have a bit of applicable good judgement everywhere as long as he does not stretch it.A guy who has shot scratch golf, even when rusty after years of not playing, can think his way around the course and still shoot 80 because he recognizes what he can and cannot do.
Wheelhouse is extremely important…a great point by JLM here.From my experience (both personal and watching the experiences of others), liquidity is actually an enemy for this type of mind. It invites too much second-guessing, too many options.Some of us need the pressure and singular option of private investing/entrepreneurship. There are no outs….just oars.
burning the boats seems to be a recurring theme here these days
Just keep both oars in the water so you don’t go in circles.
Thus the case for an investment manager. Doesn’t matter if it’s the dude at the local Fidelity down the street. Some preservation of capital is important and there are very simple financial instruments available to ensure that one can hold on to their wealth and continue to invest in startups.
i suppose i should hire one of those but i’ve been resisting it for 15 years. i just can’t bring myself to do it
If you’ve ever read the Nasim Taleb books (Fooled by Randomness / black Swan etc…) he makes some excellent points about diversification and investing.His basic premise is that you need a certain level of income to live the life you choose – and everything else is a lottery ticket (i.e. an early stage investment).So based on this – why hire an investment advisor. you love the stuff you do – your record would indicate that you are excellent at it, you have a wife with similar proclivities, and you show no signs of slowing down (and my guess is that even if USV didn’t exist tomorrow you would still be investing because you are curious)Figure out what the right # is – and add some cushion – then put that much in some sort of bond fund where the after tax yield get you where you need to be.Everything else goes into start-ups.Simple, in keeping with you personality and skills, cheap.
Thanks for giving me the comfort to keep doing what I’m doing
i can’t either. i don’t know if that’s a big mistake or not but it never felt right for us.
terrific point JLM
yeah, been there
Completely agree w/ you. I had two exits, and albeit small, I’m making my first angel investment.So proud of the founders I’m about to invest in and excited to be with them as they make a go at changing the world.
Would you be willing to share the breakdown of how your total investment portfolio is allocated? It sounds like you invest almost nothing in traditional vehicles like the stock market, bonds, real estate, etc?
We have a lot of real estate. I want to be able to “touch and feel” ourassets. To me that means entrepreneurs and buildings
Svminipreneur, what kind of annualized yearly return are you hoping to make from this investment?
No fucking clue. I don’t have goals like thatReminds me of one of my favorite entrepreneur stories. The punch line is “nofucking clue ” Do you think I can use that title for a blog post?
Fred,For some of us, who are still green to investing in small companies, and may only have a couple thousand to invest at times, what is the best way to invest?
First question is can you do it. Are you an accredited investor?
Peter Lynch made a lot of money at Fidelity and drove a huge amount of individual investing preaching the “buy what you know” mantra. I don’t see why this would be anything different – folks that have experience (and success) with startups will certainly be interested in investing back in that space. Also, I think this post applies to your post earlier this week about accredited investors – given the lack of IPO’s these days, I don’t see why folks with experience in startups can’t invest of them (even in small amounts) similar to how somebody might buy $1K or $5K of Oracle stock.
I’m with you
Funny isn’t it? How men with money and capital do things that are great for a great many others….out of their own self-interest?According to many, the US is just ripe with fat-cat asshole CEOs who are greedy exploiters of the common man. It’s just that no one actually knows those pigs.Funny though….everyone loves and respects the rich guy THEY know.Keep doing your thing Fred…..the people citing stats of the collective are as meaningless to you as a 58 page business plan.
Actually I have met both kinds of folks, folks who reinvest driven by their self interest that generate rewards for many but I have also ran into folks who do nothing more than take for the sake of taking.
You’re right. I suppose I forget the latter before dessert.
Actually, I know rich people I don’t respect at all….and I know rich people I do respect….A lot of it has to do with general kindness and kindness in the community and outside of it.
Very well said Shana
its cool that you made a lot of money in the VC ponzi scheme
That’s a lame comment. If you’ve got a beef, lets hear it. We’ve got peoplehere who are smart and open minded. Its the perfect place to air your pointof view
I’m a 1st time entrepreneur currently burning my savings, bootstrapping a startup. To use an analogy by Shai Agassi, I feel like I’ve just started crossing the desert with half as much water I need, but reading things like this makes me feel good that I will find more water in the desert as I’m crossing it! I’m thankful for people who “recycle” 😉 I hope to one day be the one “recycling”
At the risk of raining on the parade and stating the obvious LOL – most investment advisors would not advise having most of one’s assets in startups. If they did they would justifiably be looking at sanctions. But it’s certainly OK as long as you understand the downside and have enough in a well-diversified conservative portfolio that you wouldn’t lose any sleep if you knew you weren’t going to have any exits as far as the eye can see. When you say you can’t help yourselves… doesn’t hurt to get some help from a consigliere CFP type you trust and meet them once a year to make sure things don’t get too out of line LOL.
You are right, so it is important to be realistic. Even all those ‘bad, greedy’ guys have to maintain a spread between safety and risk. If things do not seem right, it can be a matter of their current investment not performing, so it is a bad time. Don’t burn bridges, for if you have a well thought blueprint that moves forward, they may be interested next year.
Most investment advisors would not recommend entrepreneurs like gates andbezos keep so much of their net worth in their companies eitger
true, true. Aubrey McClendon – $3b fortune in Chesapeake stock, wiped out in 2008, one of many and his company actually prospered, unlike Dick Fuld, Jimmy Cayne, Harry Macklowe.http://newsok.com/market-sl…leverage kiils – OTOH – I believe in the 80s Steve Ballmer went and margined up his MSFT stock to buy more when it tanked, seems to have worked out for him LOL.would view 2000 and 2008 as something that could happen every 10 years and not necessarily the worst-case scenarios, try to be in a position to weather episodes like those and hopefully have firepower to help out ventures that need it and take advantage of rare opportunities like Ballmer did.
Great post. Speaks volumes about you and Joanne far beyond just investing. It’s nice when the good guys win some time.
Nice. I like the definition of “capital == money reproductively deployed”. hence it’s possible to like capital and not really care about money, something i think is true of many people in tech.
People who say they don’t care about money might as well be saying they don’t care about wrenches. At least then their ignorance would be entertaining.
well of course they care about money to an extent- supporting theirfamilies, taking vacations, etc. but most tech people i know are moreexcited about capital than money.
We agree. Most of us are much more excited about what the wrench can do than the piece of steel itself.The rest are useful once we learn to seduce their greed 🙂
Good point Andy. That is why design HAS to be rev favorable… if you please the greedy, it is none of their business what you do investing forward.
Doesn’t basic Macro say that though?
Do you have a list of your investments and their exits?
Usv.com/investments for usvNot for our angel deals
Usv.com/investments for usvNot for our angel deals
Here in China there are now 1st and 2nd generation startups which have exited and we’ve increasingly seen this pattern of reinvesting into the start scene as well although it’s still quite limited and nascent compared to the US. There’s also been an historical trend of informal investing channels in China for generations since capital through traditional means has been not as easy to come by. And plus there are a spate of IPOs on deck here in China this year in the multi-billion market cap ranges which will add to available pool even more so I’m sure China will catch up with the west soon.
Another way of putting Richard, the Law of Accelerating Returns applies to more than money and/or memory space. The younger Chinese are beginning to see what can be done thinking outside the box, though there is still fear in that.On that side, their strength will grow helping to eventually tilt the balance between the leader who wants controlled democracy and the military that want totalitarianism marching to conquest.Law of Acceleration will apply to both intellectual capital and money made, simply a decreasing time span between doublings of knowledge, creatitivity and revenues.Though I have come off to some as too progressive (hence, naive), I stand by our being able to move through mid century w/o being militarily invaded. It is in the hands of the younger generation of China and the rest of the world.
As thoughtful and honest as this post is it does give me pause to consider that much of this capital recycling could be good money chasing after bad. As others have mentioned, the US VC industry has seen negative returns. Shouldn’t the lofty altruistic “goal” be to see the overall pie getting larger and that invested capital yields greater capital formation, even if that were to mean some value created gets pulled out, migrates to other asset classes, and some companies are never started as a result?I realize your post reflects your and Gotham Gal’s individual investment preferences, and by your own words your returns have justified your strategy. But if other VCs/angels habitually generate negative returns I would hope that they’d gracefully bow out. Of course it is their money to do with as they see fit, but I don’t see unending failure and capital destruction as a noble pursuit.
Wow …this is in stark contrast to Buyout and Hedge Fund managers, who simply splurge on larger mansions, more opulent offices, bigger boats, art, and wait staff in white gloves, serving from silver teasets.
Just flew coach from LA to NYC
That’s why I say, “how to become an angel one day?”Great post!
Wow, a few choice phrases and this could have been off like that marketing discussion.That the Obama Administration is “anti business’ or been “tough” on Wall Street is complete gibberish. If the banks of another country had torn apart the world, we would have demanded heads roll and did so after the Asia crises in 98.The only ones getting beat up here are the guys in the middle
i’m glad i know you.
That feeling is mutual bijan
Spin-offs from FW’s companies is commonplace. Looks like JLM could be the first “blog spin-off” considering his volume of quality comments! He deserves a tab to himself on avc.com! ;-)Thanks a MM dude!
Great article Fred. I think that being an Seed Investor is the most prestigious role in our society.Your article focuses in on the money side of the investment, but there is another side as well which is time. Often, that is a much bigger investment. I was recently at a DC Tech event that had an investor panel and an entrepreneur panel. Much of the discussion was about how address problems as a young company. One of the people in the audience asked how do you get past the simple idea.Obviously the answer is around execution etc etc, but for a first time entrepreneur, nothing is obvious. We need more money in the system, but we also need more time too.
When I sold my first company to Morgan Stanley I did the very same thing. I too enjoyed the process of connecting to like minded entrepreneurs, but what I did not expect is where it would take me.Soon my circle of friends and experience grew. Soon, I was serving on public boards and gaining a lot of exposure and epertise to all the new regs and the way in which auditors had so fundamentally changed. I gained a much better understanding of compensation serving as Chairman of that Comp committee and as a member of others.In some ways not being the focus of a board, like I was in running my previous companies was also very eye openning. I gained a much better understanding of what a board good do to help and then again to hurt.Soon, one of my companies – Altiris – was being acquired by Semantec. Having sold my company to a big time player, I was in a great position to assist the CEO and yet the fact that they were already public, created a whole new series of learnings.In the end I learned what I think other entreprenuers who are dead in the wool eventually learn. Creating your own company is still a ton more fun and invigorating than particpating from the sidelines.So, I started a new company (XYDO), recruited a world class team and here we go… I resigned from all the other commitments and it’s off to the races again. This time however, a little smarter and wiser along the way. I loved the investing experience and would not give it up for the world.
Best of luck and fortune with XYDO. its great to see you back in the game
Did the 1st 3 yrs of my post college career at a bulge bracket bank. I’m an unpaid co-founder living on tuna fish and it feels much better getting up every morning. I’m sure its a similar sensation investing in passion and talent versus investing in numbers on a screen.
You should setup a covestor “for startups” account that we can all follow and invest alongside you.
How do I handle allocation? Cut myself back or speak for more?
The same is true for data. You could probably do a similar post about recycling and redistributing data for the greater good. The Companies that have does this well have prospered while the walled garden approches have not.
So true. Loving the open venue data I initiative from Foursquare
I love to consider this attitude as a passionate dedication to entrepreneurs’ skills and motivation. Something is turning that way also here in Italy. The founder of Diesel, the fashion entrepreneur Renzo Rosso, recentrly invested in a tech incubator: http://www.h-farmventures.c….
Fred, I think it’s not about capital anymore. They take your money so that you’d help them, which is a magnitude more valuable than cash. Cash looks the same from anybody. You’re a great venture investor. NYC/America is lucky to have you. You need more people like you and the country will find its way out.
So you are an VC with entrepreneur mindset. Not regular businessman or investor.
Firstly, this is a terrific post! I am reading this blog for quite some time & enjoy both the content and great follow up discussions but for this one I couldn’t help but add my comment.Secondly, I wanted to point to one analogy which resonates with me. IMHO the communities where the idea of Recycling Capital emerges, grow organically and ARE ALIVE, because that’s exactly what one should call autonomous adaptive complex systems with ability of self-reproduction and self repair (with capital serving as a lifeblood)!That provides a sharp contrast with other societies/communities that DO NOT possess these qualities and are therefore sort of dead or inanimate. There rich people take money and run with their yachts/Ferrari/mansions, because in their game of life the ones who have the most toys at the moment of death win))Would love to hear whether you agree or disagree with this take.PS: from http://en.wikipedia.org/wik… :Living organisms undergo metabolism, maintain homeostasis, possess a capacity to grow, respond to stimuli, reproduce and, through natural selection, adapt to their environment in successive generations. More complex living organisms can communicate through various means.I think that these qualities describe a successful and alive startup environment quite nicely)
I totally agree
Even thought the US is the envy there is still much room for improvement. I think we could see an even bigger re-investment if the concept of 1031 exchanges were extended to startup investments.
Great article. I could not agree more and think it is great to read that there are people out there with these feelings. I am an entrepreneur Effioa.com and MyDrinkOn.com. Raising capital has gotten tough in the sense it is hard to always trust people and their goals. Glad to read there our people out there who think of the “big picture” and encourage innovation!
Minor typo – “Peter Theil” should be “Peter Thiel”.
Would a non-profit investment firm pay taxes on earnings if they are never paid out, because there are no LPs? The funds from the sale of stock would go right back into a funding pool that is used for more investments.What is the point of a venture fund that doesn’t cash out? Leverage. If the fund recycles positively, after a few iterations, there could be significant accumulated capital. The focus of the firm would be entirely on the product missions of the companies funded and benefiting the ecosystem.I’ve been mulling this over for a while. It’s obviously hypothetical, but I’m wondering why it doesn’t exist. Even if it weren’t except from taxes, it should be possible to generate a positive return on each iteration, if smaller.
Agreed. Here in France, successful entrepreneurs have created two or three years ago funds (Jaina, ISAI and KIMA are the most prominent ones) or invest as individuals. (Some of them have invested in my startup.) They are fast, helpful and “get it”.It started to kick the ass of secretive, clueless and slow moving incunbant investors that have been freezing the ecosystem for so many years. It is really a game changer!
Fred,I LOVE this concept. I try to employ the same principles when investing or looking for new opportunities for my investors. The tricky part is exit strategy. When things don’t go according to plan…recycling often doesn’t meet the 3-5 year time frame that idealism has forecast for me. That said, when you to face a write-off or a need to recapitalize an existing investment, do you push an existing portfolio to the finish-line faster than anticipated or simply inject “new funds?”
“just dont know of any personally…. ” is what usually follows.I think we can agree that there are greedy assholes in every neighborhood,no? Stall the hyperbolic class warfare our current admin embraces soboldly?
For years I was in YPO and got to know lots and lots of CEOs in the Austin-San Antonio corridor. I can say that the assholes were under-represented as compared to the general population.I can also say that I met more rags to riches Horatio Alger types than any other association with which I was involved.These were not big corporate buys as a rule, though Harte Hankes, Michael Dell and Pace Picante, were all members.The class warfare in the US has got to stop.
the current administration saved the ass of the last administration, but is absolutely aligned with Wall St and the corporate influencers in Washington. But I digress.The class warfare has been sustained over the past 30 years against the middle class and the poor, and continues.That said, sure, lower corporate taxes, but close the loopholes and enforce trade agreements, keep the current ind rates but close loopholes, ban corporate lobbyists and instead hold frequent hearings with stakeholders, and I’m on board.Oh–throw in the elimination of the job-killing, resource-draining, expensive and ineffective insurance industry.
I agree–the attacks on the middle class and poor need to stop.
The entire tax code has to be junked but let me give you some stats that I find interesting:FY2009 individual tax collections — $1.175T <<< TFY2009 payroll tax collections — $858B <<< BFY2009 corporate tax collections — $225B <<< BWhat this indicates to me is that there is comparatively little corporate tax collected in the US which either argues for making no changes or — my view — eliminating them completely.To take it a step further:TY2008 Top 1% AGI — $380,354TY2008 Top 10% AGI — $113,799The notion of sending the bill for everything to the top 1% or the top 10% is not really such a great idea.All of this suggests to me that we MUST focus on spending because the depth of the incremental tax pool is pretty damn shallow.
Of course, the real issue is that neither administration has saved the ass of Main Street and neither administration knows where Main Street lives.The people are screwed as long as lobbyists — acting on behalf of corporations and individuals so fundamentally dishonest and lazy as to not do their own heavy lifting — can rent, rent to own or own politicians.If you get the money out of politics and make politicians scramble for every vote without having the money to focus group everything, then the citizenry will regain power.It is all about power and you can buy power most efficiently with money and scum bag lobbyists will do or say anything while delivering the money.If you boiled down the entire Senate and Congress and K Street and the White House, you could not fill a thimble with either honesty or patriotism.
Further to CC below —I find Obama to be virulantly anti-small business in both his sympathies — he thinks everybody running a small business is a millionaire — and his programs.When “creating jobs is job #1” is our mantra and you are not funding the SBA to its hilt, then you are not a very smart guy.He tilts just a bit pro-big business given his adopting Jeffrey Immelt as the brother the Brotha never had. Not many Presidents have had a major CEO as a bitch.He tempers that by being the only President in recent memory capable of pissing off the US Chamber of Commerce. That is a remarkable feat.What he really is is pro-banking, pro-Wall Street and pro-financial services while being completely clueless as to how those entities impact Main Street.But in absolute fairness, he does not know anything about business, not even the most fundamental things.Of course, this is what you get when you hire a community organize to organize the government of the US.
JLM: I would have added this comment in response to your later comment in this thread but DISQUS is set here to not allow further indented comments so let me just add here that I’m in complete and hearty agreement and support of all you have said here starting from Charlie Crystle’s opening gambit.
For this reason Paul, it is important to emphasize design. I took the task of putting the pieces together enabled by an AI engine with cognitive ability that can create revenue to both reward the investor and pay R&D forward to move closer to Artificial General Intelligence.Some would think, “Ah, this is all easy (to get money)”, but when you do something that truly crosses borders, it takes time to settle in.We are at a time where tech can do more than something overly ‘niche’. This is why opportunity for the Angel is actually a good one… they just need to learn not all things are simple little $100k seeds because you can go 3x that and do over 10x more.
True, but the cut spending side HAS to put together a simple plan that can be understood… which they haven’t.The bigger solution is lifting all boats. As long as politicians from both parties can subsist on fear, the collective human thought pattern falls into being taken care of by whatever entity…. simple.From the collective ‘tech/tech investor’ it is time to show some balls and do what is useful (establish collateral) and empower the bigger group. That combined with efficient communication/collaboration will enable going after the debt.
yup, gotta echo charlie here…..the only class warfare is the attack on the poor and the middle class. the eradication of the middle class is almost complete.