Twenty-Two Years of Job Creation Wiped Out in a Single Day 22 comments
-
Font Size:
-
Print
- TweetThis
I have worked in three venture capital firms over the past twenty-two years. First at Euclid Partners from 1986 to 1996, then Flatiron Partners from 1996 to 2004, and Union Square Ventures from 2004 until now. Between all three firms, I've been involved in the financing and development of about 200 companies in the past 22 years. Those 200 companies have, on average, created a couple hundred jobs each over the 5-10 year period of our involvement with them. So that's about 40,000 jobs in total that the three firms I've worked in have helped to create over the past two decades. Just to be clear, the number of jobs created per company has a wide distribution. Some have created thousands of jobs and others less than ten. My two hundred number is an educated guess and I have not done the work to determine an exact number.
But the news that our economy lost 75,000 jobs yesterday needs some context. That's a lot of jobs for sure, but how much? Well, it's basically double the number of jobs the companies I've been involved with over the past two decades have created. There's a lot of talk about creative destruction and renewal and many are looking at the venture backed tech companies to lead the way in renewal and job creation. And I am among those who believe that tech-based entrepreneurship is a big part of the way out of the mess we are in. But can we in the venture business collectively replace 75,000 jobs per day? No, we can't.
First of all, I sure hope we don't lose 75,000 jobs per day every work day this year. That would be 15mm jobs this year. I think a more realistic estimate of job loss this year is 3mm to 5mm. It could be more but I hope not.
There are about 1000 venture capital firms operating today. If my experience is typical, then each firm could be responsible for making investments each year that create about 2,000 jobs (40,000 jobs divided by 20 years). That's 2mm new jobs. But they don't all get created in the year of investment, it takes 5 to 10 years for the average company to grow to the average of 200 employees. And venture firms work together on deals so there's plenty of duplication in that number.
So the bottom line for me is that the venture capital business is not going to solve this problem we are in. We are going to play a role, possibly an important role, but we'll need more forms of job creation to get everyone back to work.
My friend Charlie O'Donnell may have a better answer, which is that entrepreneurship will have to do the heavy lifiting. As Charlie says:
Well, what if there are no openings come this May--literally none. No job postings. No on campus interviews. No job fairs. This isn't a fantasy. It's happening right now. Even the companies that are showing up to job fairs aren't hiring--they're just there for branding. Let's not even talk about the number of people getting laid off everyday.
You know what that makes all these students, and everyone else out there in the job market...
...besides screwed?
Entrepreneurs.
Charlie is talking about people coming right out of college, but I think this is going to be true for a lot of people who need a job going forward. The big companies are not going to be the answer. We are going to need more people going out on their own. Some will raise venture capital, but the vast majority will not. They'll bootstrap a business that hopefully can cover their cost of living. I think that is a more scalable model for replacing 3mm to 5mm jobs per year.
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 22 comments:
Well Clinton's job gains were not wiped out in 1 day but it looks like they will be lost by the end of 2009.
Yes ohrana is right, tech can't save the jobs market and arguments to retrain everyone to be a programmer or computer engineer is sheer fantasy. It takes years and years before jobs can be re-allocated and replaced in a market even with a $850 billion stimulus plan unless you are all going to ask them to operate like the gulags or N. Korean prison camps and assign them to dig another grand canyon.
Jobs is not a simple economic theory, it is figuring out real need and demand and how to produce it efficiently. Efficiency is not something the government does. Homey don't do that...
"Well a lot of politicians wanted us to become more like Europe. So here we are. Massive government spending. Overwhelming government regulations. No new jobs."
Take a trip over to this link to read about Soviet Britain.
(Hat tip to iTulip.com)
business.timesonline.c...
It details since the beginning of Labour's regime that Britain's government sector is now responsible for HALF of all of Britain's output, while in Wales it is over 70%. In Northern Ireland it is 78%!
And growing larger by the day. Want to know where Obamanation is taking us.....just look across the pond at the Blimey's.
Now to your second point......
"The only thing left is to give up having kids because we can't afford them and high taxes, too. Are we having fun yet?"
Sounds a lot like Japan!
Use the human body as the model, cash being the "blood", the government being the heart. Put the cash into each CELL, then the cash circulates around and winds up in the banks and on up the line. TRICKLE UP. Take out the excess liquidity with a 1% (+/-?) "infrastructure maintenance fee" on EVERY electronis debit transfer. Get rid of every other government function and let the market handle the details. That's pretty much all it takes.
Any questions? Email alan_jacquemotte@yahoo... or contact me via the u4prez.com website under alajac. We need to get our own party going to do this as the parties and the country have been being run by the bankers since 1789. I could use a little help on this.
The interesting thing about the job losses are the key word you used" "created." I can't recal the exact number, but our USA economy requires a job creation rate of several 1,000 jobs a month to break even. When you refer to zero job creation or job losses it's really bad news.
Even with the creation of 1.5 to 3 million jobs over the next few years under Obama's plan, that will mean a net decrease if the job losses continue at this clip (and the rate is projected to increase after this quarter and possibly beyond).
But more importantly, what does the comparison of jobs created by companies that Mr. Wilson dealt with and jobs reported lost in the US economy on Monday tell us? Likely, that the US economy is far, _far_ larger than just the few companies Mr. Wilson has done business with. Big surprise!
On Jan 27 02:57 PM Sentinel wrote:
> AlexS wrote above....
>
> "Well a lot of politicians wanted us to become more like Europe.
> So here we are. Massive government spending. Overwhelming government
> regulations. No new jobs."
>
> Take a trip over to this link to read about Soviet Britain.
> (Hat tip to iTulip.com)
>
> business.timesonline.c...
>
>
> It details since the beginning of Labour's regime that Britain's
> government sector is now responsible for HALF of all of Britain's
> output, while in Wales it is over 70%. In Northern Ireland it is
> 78%!
>
> And growing larger by the day. Want to know where Obamanation is
> taking us.....just look across the pond at the Blimey's.
>
> Now to your second point......
>
> "The only thing left is to give up having kids because we can't afford
> them and high taxes, too. Are we having fun yet?"
>
> Sounds a lot like Japan!
>
>
Keep in mind this number is ONLY related to job losses of major players. All of the employees who lose their jobs at smaller stores and businesses -- not included in these major stories -- and I'll bet there are tens of thousands of those people too.
On Jan 27 03:17 PM Owen wrote:
> I'm not sure what the point of this article is. Firstly, the 75,000
> number is not a daily number. The monthly reports from the Fed indicate
> a rate of around 20,000 jobs lost per day.
>
> But more importantly, what does the comparison of jobs created by
> companies that Mr. Wilson dealt with and jobs reported lost in the
> US economy on Monday tell us? Likely, that the US economy is far,
> _far_ larger than just the few companies Mr. Wilson has done business
> with. Big surprise!
Dont forget, Europeans could always escape to the USA for a better opportunity. Where are you going to go?
I think there are two pertinent questions here:
- How many jobs the firms created still exist (conservatively)
- What was the return on capital to create those jobs
I agree that new businesses, whether ground breaking, or merely better run and more efficient, will have to be part of job creation over the next year or so. That being said, some things have to happen:
- FASB will have to stop punishing businesses for the sake of accounting practices. After years of GAAP modifications that are contrary to the benefit of American business, especially private and small businesses, FASB finally is paying attention. Make sure they hear your voice at the FASB private business site www.pcfr.org/
- Venture Capitalist (this means you) will have to show greater attention to establishing diversity of investments. When all the VC firms launch lemming-like into the same areas, you get extensive competition, reduced return on capital, job destruction after some creation, and the pitiful returns after overhead most VC firms have had in recent funds.
yesterday needs some context."
Here's some context from Alan Greenspan (writing in 2007, "The Age of Turbulence", p. 169-170)
"Out of nearly 150 million people employed in the workforce, 1 million leave their jobs each week. Some 600,000 quit voluntarily, while roughly 400,000 get laid off, often when their companies are acquired or downsized." (1)
So, in normal (non-recessionary) times 400,000 per week or 80,000 per workday get laid off. In this context, 75,000 layoffs all announced on the same Monday seems less shocking.
Obviously, we're in a recession; so the layoffs that occur at Caterpillar's headquarters are not being fully offset by hiring at another firm, or even by Caterpillar itself at another facility.
A NET loss of 75,000 jobs per day for a full year would indeed be devastating to our economy. But in our expansive and dynamic economy, it's apparently not that remarkable for 75,000 positions to be eliminated in a single day. But layoffs tend to be large-scale and widely publicized whereas job creation tends to occur one employee at a time without fanfare.
According to the Bureau of Labor Statistics, payroll employment (establishment survey, not seasonally adjusted) shrunk 3.0 million from the peak in November 2007 through December 2008. That comes to NET job losses of 230,000 per month, or about 11,538 per work-day. If 75,000 jobs were eliminated each work-day over this period, then more than 63,000 were created each work-day, most without so much as a press release, let alone an NYT article.
The real issue as you point out -- and journalists routinely overlook -- is the slowdown in job creation.
(1) Alan Greenspan's figure of 150 million employed was undoubtedly based on the household survey, which captures about 5 million additional workers, many self-employed, who are not included in the institutional survey. He was probably also rounding up.
I graduated, with honors with a science and engineering degree during the 2002 downturn. Took me 8 months to find a job, and i was greatful. The demoralizing factor did not inspire entrepreneurialism. I had to scrap around bartending/waiting tables for months.
ultimately, it made me a better person. forced my hand to understand the markets/economy and position myself to not be dependent on a 'job'.
In the long run charlie maybe right, many will learn or be forced to become risk tolerant enough to be an entrpreneur (as i sort of became), but in the short-run... the demoralizing selfpitty aspect of graduating with out a job sucks.
I'm surprised that your grammar and spelling aren't better, considering the degree you earned.
But apart from that, I'm glad you found a job in your field, and hope your story inspires others to remain persistent.
> unfortunately, I am all too familiar with what it feels like to graduate
> during economic hardship.
Most of us graduating now will just go on and take a Master's