Turning Nothing Into Something 21 comments
-
Font Size:
-
Print
- TweetThis
I spent some time yesterday at Musee De L'Orangerie with two of my teenage kids. It's an art museum in the Tuleries in Paris, housing the art collection of Walter and Guillaume and Monet's famous Waterlillies paintings.
As we walked through the lower level which houses the Walter-Guillaume collection, I was struck by how many amazing paintings were in this collection. It's a tour de force and easily worth hundreds of millions of dollars, if not more.
And yet every single one of these paintings started with a blank canvas and some paint. And of course the mind and hands of a master painter.
So much of what we come to value in life starts this way. Google (GOOG) started this way as did Microsoft (MSFT) and Facebook.
People ask me all the time whether the venture capital business is affected by the market meltdown. And for sure it is. It's probably less affected by the capital markets themselves and more by the bad economy that we've ended up in. But surely this mess we are in will impact venture capital and the startup economy.
But I also remind the same people that venture capital doesn't make money buying an asset that's worth one price and then selling it at another. Venture capital, and the entrepreneurs who fuel it with their ideas and hard work, makes money going from nothing to something.
That's a fundamental difference and we cannot ever lose sight of this fact. Nothing costs nothing. We don't have to pay for our ideas, imagination, and hard work we put into turning nothing into something. Well to be exact, the entrepreneur doesn't have to pay for any of those things. The VC does pay for those things and gets a piece of the ride from nothing to something as a result.
Yes, if price/earnings ratios go from 20 to 5, VC returns will go down. But we can still make money going from zero earnings to tens of millions of dollars of earnings. There's a return in that value creation in all markets, good and bad. And always will be.
I am going to spend a good part of this New Year's day at my favorite art museum in the world, the Pompidou, which houses amazing works of modern art, many of which have been created in the past decade.
And I am going to think about how that art was conceived of, created, and realized from basically nothing. It's inspiring and I want to go into this new year inspired so that I can participate in the nothing to something company creation process with enthusiasm and zeal.
Welcome to 2009 everyone.
Disclosure: Author holds positions in GOOG.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 21 comments:
But if I did worry I would do like the author and take off for Paris, which is only a couple of hours away; and the next time I travel there I think that I will give a brilliant talk about the situation now and the situation before and during the great depression. I might even sit in the Pompidou and prepare my song and dance.
We have a fundamentally flawed state in the U.S., with an unconstrained federal government that grows at its own volition. What it cannot raise through taxes, it spends by borrowing and printing. When it perpetuates inflationary policies that distort markets, causing excessive speculative booms, it blames market participants and heralds increased regulations and oversight to perpetuate the same.
George Bush may have been the most recent president to pull the trigger and commit our armed forces, but so has every president before him, in some fashion. The Cold War is over, yet we still have a 1.1 million man standing army, spend over $750 billion on "defense," and maintain bases in 130 countries. This is an empire supported by deeply rooted, powerful lobbying forces that are part of a defunct system, not a single administration.
American needs real reform, real change. The ousting of the Bush regime will only be followed by more of the same. The two party system is designed as such.
On Jan 01 09:11 AM Ferdinand E. Banks wrote:
> Interesting concept. In the last four years, thanks to Mr Bush and
> a majority of American voters, the United States economy started
> from something and has gone in the direction of nothing. Of course
> it won't go all the way because as I pointed out in another comment,
> the present macroeconomic and financial mess has NOTHING IN COMMON
> WITH THE SITUATION BEFORE AND DURING THE GREAT DEPRESSION! That judgement
> was apparently not well received, but I don't worry too much about
> that.
>
> But if I did worry I would do like the author and take off for Paris,
> which is only a couple of hours away; and the next time I travel
> there I think that I will give a brilliant talk about the situation
> now and the situation before and during the great depression. I might
> even sit in the Pompidou and prepare my song and dance.
Who stonewalled President Bush's attempts to reform Fannie Mae and Freddie Mac? It was Democrat Senator Chris Dodd and Democrat Congressman Barney Frank.
Who caused the run on IndieMac which led to the melt-down in the financial industry? It was Democrat Senator Chuck Schumer.
Who cooked the books in either Freddie Mac or Fannie Mae so they could get their bonuses? It was Democrats Franklin Raines and Jamie Gorelick.
Finally, the US economy was going great until the Democrats took control of Congress in 2006.
President Bush is an easy target, and gets hammered by the press, but if you bother to do a little research, you'll find the Democrats are a lot more responsible for this current mess than President Bush.
You both touch on truths and what you each say is not excluding the other.
Fred Wilson - - -
I found your premise interesting: many great things are created, seemingly, from nothing but human ingenuity. It brings to mind some history: the technology revolution grew out of the recovery from the last deep recession in 1981-82. Not that Microsoft grew entirely out of the creative genius of Bill Gates, the programmer. In fact it was someone else's creative genius and Bill Gates' business genius that got things started. Gates succeeded in getting a contract from IBM to provide a disc operating system for the (then in development) PC and then bought the DOS system from its creator. The IBM contract was worth many millions; I have read reports that Gates paid $50,000 for DOS.
Fred, you are not saying anything specific about what the needed changes are. I think the needed changes are in the area of wealth distribution. Whenever, wealth is concentrated in too few hands, be it Wall Street, Washington or Moscow, credit needed by the entreprenuer is frozen out. The Soviet Union fell because it could not find the flexibility to overcome this problem. When income is concentrated too much with a few wealthy executives, it freezes out compensation rewards for many who actually have more to contribute in terms of innovation and entreprenurial ventures. All these points may or may not relate to the situation of bonae. I can't say because I don't have the details.
If we are to truly come out of the current crisis stronger, I feel it will be because we find a way to prevent giving hundreds of millions in compensation to executive failures, find a way that government can move from directing commerce to enabling commerce and establish a set of rules that put boundaries on the use of leverage to compound money but do not unduly hinder the use of leverage to build the means of production.
I have heard the term "class warfare". I think we have had a battle of class warfare in the past few decades and the wealthy class (not only the financial sector, although they are the most conspicous at the moment) has won the battle. But I firmly believe they have not won the war. At least I hope not.
The changes we need will result in a system where the innovative have access to the resources to develop and implement their ideas, and a system that will reward the successful with wealth WHEN THE LONG-TERM RESULTS show that the success has lasting merit.
No longer would we have a system where a CEO can receive $100 million in compensation the year before his corporation goes bankrupt.
Then we would have a system where wealth would be created for those who EARN IT and not for those simply in a position to grab it.
On Jan 01 01:00 PM Crashnburn wrote:
> Finally, the US economy was going great until the Democrats took
> control of Congress in 2006.
Someone clearly hasn't been paying attention -- the economy was in the shitter since the late '90s and no one lifted a finger to fix it. Repubs had control for 6 years and did nothing. Dems took over for 2 and still did nothing.
If you insist on playing the partisan game, you'll overlook the facts and lessons available and miss out on the serious profits those of us without bias are already enjoying. I expect to make $$ in an Obama presidency, just as I did under Clinton and Bush (until 2008, at least).
That is really the driver of American progress and ingenuity, how well we educate our children. The political forces that be can only help or hinder that progress through supporting or not the intelectual well being of our greatest asset, our youth.
Fail in that and it doesn't matter how well your economy does or doesn't do. Although I may sound like a social worker or gred speech writer, this is simply the fact, decade in and decade out, a country advances on the academic excellence of it's youth. America thrived because of it's freedom and willingness to embrace technological advancements and support it. The day that stops is the day that the US, like the USSR falls from super power into a squabbling devisive has been.
When I say Bush Jr.'s policies failed it becomes quite apparent when you look at the global educational ranking. We are falling compared to every industrualized 2nd world country. Or look at the percentage of the government bugdet going to education, it's dropping. Or look at what the teachers have been saying it for years. No child left behind is a recipe for every child left behind. While the Bush Administration fronted a diversionary war to blame teachers for the bad performance it merely masked his national policy for under budgeting education.
Thanks for listening. Economics and education go hand in hand.
In dictatorships, people don't have that luxury.
Can you imagine 20, 30, or even 40 years of George W. Bush?
On Jan 01 09:09 AM bonae wrote:
> Everyone knows that Goo.gle has broken the rules with regard to creation
> of wealth, however this does not mean that the rules do not apply
> to google. For 19 months I have awaited my settlement from these
> CRIMINALS who engineered the You Tube deal with my INTELLECTUAL PROPERTY.
> Unfortunately in the Greedy World of VC Return/Demand there was no
> room for the actual creator of the YOU TUBE BUSINESS MODEL in their
> 1,650,000,000 PIG FEST of GREED.
>
> I got divorced on December 23rd, 2008, and would like to thank Sergei
> Brin, Larry Page and especially ERIC SCHMIDT for being the total
> scumbags that they are and instead of rewarding a Truly Brilliant
> Innovator taking the great efforts they did to quite personally destroy
> everything that meant anything to me.
>
> These three are the worst example of the Human Species and I greatly
> hope that they all suffer great personal loss in their lives and
> that God sees that their lives are filled with tragedy, disease and
> loss.
>
> That they are visited with tragedy 10 fold.
>
> Happy New Year, scumbags...
So American should look at ourselves first to understand why we believed in military power to bring peace and democracy to foreign land, why we believed debt-fiananced consumption will bring sustainable prosperity and happiness.
BTW, the Democrats took over Congress (with the Republicans keeping a veto in the Senate) in 2007, not 2006. The Republicans have far more to answer for in their six years (2001-2006) of complete control of Congress and the White House.
On Jan 01 01:00 PM Crashnburn wrote:
> Finally, the US economy was going great until the Democrats took
> control of Congress in 2006.
I fully agree. The US rose to international dominance 100 years ago when we created a quality public education system and increased the numbers of our people who could read, do math, and knew history. Part of why the US prospered was because it had a culture that respected scholarship. Countries that pursued other priorities stagnated, and are still suffering. Countries such as Mexico will remain poor in the 21st century because people think there's not enough money to fund education. Well, that was said a generation ago too, and it's why the poverty continues today.
Education policy is just one example of the government's influence on the economy. However, like most positive things government can do for the economy, the effects occur years down the road instead of immediately.
The thing the government is supposed to "create" is not economic growth in itself, rather it is an environment conducive to production and creation: safety, legal protection, tracking property rights, an educated population, infrastructure, and, yes, regulation and enforcement. The absence of these factors is why places like Hati and Somalia are so poor. Making money in those environments is impossible - many have tried and failed.
The competitive edge that led to America's rise 100 years ago was this focus on long-term investment and a willingness to sacrifice in the present so that the next generations would be more prosperous. I too, fear that this advantage has left our culture (look at the national debt).
On Jan 01 06:39 PM constructe wrote:
> When I say Bush Jr.'s policies failed it becomes quite apparent when
> you look at the global educational ranking. We are falling compared
> to every industrualized 2nd world country. Or look at the percentage
> of the government bugdet going to education, it's dropping. Or look
> at what the teachers have been saying it for years. No child left
> behind is a recipe for every child left behind. >
> Thanks for listening. Economics and education go hand in hand.
We find ourselves in this position because our economy is based more on "flipping" shares and contracts for a profit than actually producing real assets. Why work yourself to exhaustion building condos when the guy who flips them for a living earns 5 times as much just for doing the paperwork? Why work in a grubby manufacturing environment producing something when the guy who trades shares and shorts in the company earns ten times as much and vacations in Vail? Parents who worked in manufacturing, farming, or medicine used to be proud when their kids went to work on Wall Street producing nothing but making easy money from the work of others.
Look at our tax structure. Traders pay 15% taxes on their capital gains and dividends. Workers and entrepreneurs pay up to 35%. The incentives are skewed toward joining the financial casino rather than creating physical products and services, and as a society we have made the decision to structure it that way.
That structure is changing - not because of some moralist crusade, but because the value of the assets that the traders flip is loosely based on the output of the workers who produce them. We can't ALL be traders and shares can't go up forever without somebody doing the work to make them more valuable. The losses in the value of shares, derivitives, commodity contracts, real estate, and our currency reflect the inevitable realignment of price with production.
What I call "real" production, GDP minus debt-funded government spending and investment bank fees, has been in decline for decades. Perhaps that will change someday when nurses, factory workers, and teachers get more respect than the remaining hedge fund pseudo-alchemists.
On Jan 01 01:05 PM John Lounsbury wrote:
When income is concentrated
> too much with a few wealthy executives, it freezes out compensation
> rewards for many who actually have more to contribute in terms of
> innovation and entreprenurial ventures.
> If we are to truly come out of the current crisis stronger, I feel
> it will be because we find a way to prevent giving hundreds of millions
> in compensation to executive failures, find a way that government
> can move from directing commerce to enabling commerce and establish
> a set of rules that put boundaries on the use of leverage to compound
> money but do not unduly hinder the use of leverage to build the means
> of production.
>
> I have heard the term "class warfare". I think we have had a battle
> of class warfare in the past few decades and the wealthy class (not
> only the financial sector, although they are the most conspicous
> at the moment) has won the battle. But I firmly believe they have
> not won the war. At least I hope not.
>
> No longer would we have a system where a CEO can receive $100 million
> in compensation the year before his corporation goes bankrupt. <br/>
>
> Then we would have a system where wealth would be created for those
> who EARN IT and not for those simply in a position to grab it.
Here are some numbers from Federal Reserve's Flow of Funds (all numbers in billions):
Year, Total Household Financial Assets, Equities & Mutual Funds, Cash Assets
1981, 6951, 958, 1737
1992, 17054, 3893, 3290
1999, 34554, 12665, 4078
2007, 49457, 14272, 7352
You can clearly see that too much money went into equities during the late 90s under Clinton's watch. Then Bush had no better idea than to stimulate consumptions even more to counter the 2001's recession. Once personal consumption exceeds 70% of the GDP, you know that our country has put too little into investment for the future. So what Bush did was simply continuing what made Reagan and Clinton successful, but every good thing has its limit, and stimulating US personal consumption has reached its limit in 2007.