Marc Andreessen on Financial Crises, No IPOs, and Obama 17 comments
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Just before the worst of the market meltdown, I interviewed tech stalwart Marc Andreessen in front of an audience at Silicon Valley's Churchill Club. We got talking about the situation on Wall Street and how it has affected tech IPOs -- i.e., there are none. That led to an exchange about who he supports for president.
From the interview transcript:
About the lack of an IPO market:
The biggest and most important to Internet companies in the last five years have not been investable in the public market. MySpace got bought too early. Facebook hasn't gone public. You Tube got bought. Flicker got bought. You kind of go down the list of all these companies. Google (GOOG), I think to their credit, went public but other than that, you know, even VMware (VMW), again, it's a huge hit in this decade. Only went public after it had already sold as a public company. Only went public as essentially as a wholly-owned subsidiary of EMC (EMC).
So basically, the sort of thing that happened all through the '80s and '90s of -- tech companies would basically get into their expansion stage and then go public, in part to have access to capital, in part to have an M&A currency, in part as a branding and a credibility event and in part, because there was a base of investors that wanted to invest in high-growth technology companies. Those days, at the moment, are just over. Like it's just frozen.
About the broader picture in financial markets:
Now, I think that corresponds to a broader change that's happened in the equity markets which is with Sarbanes-Oxley and lawsuits and liability and Enron and WorldCom and all the rest of it, all the new government regulations and fear and paranoia around investors getting cheated by public company management teams basically. The whole idea of being a public company is much less attractive for anybody than it used to be and it's become much harder, much more expensive.
And so the net effect of what's happening is not only are tech companies not going public but also the public equity markets are essentially de-equitizing, they're essentially shrinking. Basically, over time, in the public equity markets, if there are no new offerings, some companies go out of business, which takes companies out of the pool and then other companies merge, which takes companies out of the pool. Other companies get bought out by private equity, which takes companies out of the pool.
And so left on its own, the pool of publicly investable companies will shrink and you can only replenish that through IPOs. And so if there are no IPOs, there it goes. And so essentially, what's happening is there's a two-tier class system that's developed on Wall Street, which is there's the investments for normal people and then there's the investments for, as John McCain might say, "Really fancy rich people," you know, the cosmopolitan types.
And specifically, there are hedge funds, private equity funds, private investments, Angel investments, venture capital funds. You know you can typically only legally invest in those if you are a so-called accredited investor, if you have a certain net worth, if you have a certain level of sophistication in the markets and if you have access to those investments. You can just go out into an exchange and buy those things.
And so the pool of investments available to sort of super sophisticated people is growing very quickly. The pool investments available to normal people is shrinking very fast. I don't think that was the goal with all the reforms in the last five or ten years but that has certainly been the effect.
Is it a crisis in terms of company formation? Not yet. Could it reverse itself? Yes, at any point. Does it -- oh, the other thing that's happening, there's more and more effort being put towards establishing essentially private exchanges. So a number of the investment banks are either looking at doing basically setting up exchanges where you can buy and sell shares in private companies sort of internally to a bank or if you're a client of the bank.
In the long run, I think it's a very interesting social and economic and political question of whether we really want to live in a world where public companies of shrinking, the base of public companies are shrinking.
About who he supports for president:
I'm hugely pro-Obama for a number of reasons and maybe the core reason that I run into with my friends in the Valley who say, "How on earth can you support a Democrat" is that I think Obama is much more centrist especially on economic issues than people think. And in particular, I say that because of his background and his education from the University of Chicago, in particular and his economic advisor who's a professor at the University of Chicago named Austin Goldsby. And his -- and the people who know him -- University of Chicago is not known as a radical leftist school. It's like the heart of like free market ideology. And those guys, even the ones who disagree with him on politics, those people -- those professors say, "This guy's a serious guy. He knows what he's talking about. He gets it. He's not some raving, liberal lunatic who's going to come along and try to Hugo Chavez everything."
It would be nice if there were more of a -- obviously, it would be nice if there was more of a track record where that was easy to say but I think that's a pretty safe bet. The other guy has a number of highly-qualified advisors like Meg Whitman who I hope have a lot of influence over there because otherwise, he himself admits he doesn't know anything about economics. He's never been in the business so I think it's a little bit of a crapshoot. So we will see.
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This article has 17 comments:
McCain might not know a thing about economics as did his predecessor so good luck there America, but he will be a great success in the warmongering arena. However, can America stand another one there? I do not think so.
Four or (OMG) Eight more years of the same stuff that gave us the last two weeks of excitement?
Give Me A Break !!
I'm voting, hoping, praying, and putting my money in Obama !!
1. There are very few tech businesses that can show hockey-stick growth patterns.
2. Small investors are tired of publicly-traded silicon valley companies constantly diluting the float with employee stock options. This depresses the stock price. Why else would a company like Cisco, which has phenomenal growth rates, have an essentially flat price?
If tech companies want to get real with investors, they should go ahead and pay their employees cash, so it would appear on the balance sheet. Investors would have an easier time understanding exactly where the costs are, rather than take it out of the pockets of investors by granting stock options. I mention this to executives, and they say, well then, tech companies would never be able to show a profit. And there people, is all the information you need.
As far a G.W. Bush "causing" this thing, take a look at the participation of Barney Frank and Chris Dodd and the Dems killing of Freddie/Fannie reform of 2005 when Franklin Raines (of Clinton era fame) showered select lawmakers with campaign $$$ before he walked away with $90M. take a look at Angelo Mozilo who gave "sweetheart" loan deals to Dodd to help forestall any regulatory moves. SA actually had a nice piece yesterday on some of these folks. Check out Alan (the self-proclaimed genius) Greenspan who gave us both the tech bubble and the housing bubble. The short answer is that there is enough blame to go around, but a LARGE part of it belongs to Congress
These 2 just are not qualified to be president, US Presidency has become a joke. I can bet, countries with 200M $ GDP have more qualified presidents than these 2 guys.
While it is very popular to bash Bush he did prevent more terrorism on our soil. He definitely spent too much money and made one huge strategic error in the Iraq war. That error was in disbanding the Iraqi military. All he needed to do was to double their pay and they would have gladly fought for the US and their own country. Would have saved 5 years of anguish. Bribery gets you everywhere, apparently.
A little preventative medicine (some sane market regulation) could have gone a long way to preventing a major illness later on.