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.
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.