Sunday, March 30, 2014

on venture capitalists

hi there

this is one of them infrequent posts that comes about as a request to do it. well, sort of. the request was "something about investment bankers", but i am sure you will agree with me - if with nothing else here - that venture capitalists sounds way, way cooler than investment bankers.

is there a difference, you may ask, between a venture capitalist and an investment banker? oh gosh blimey yes. from a fashion point of view, what with their "power ties" and eccentric coloured suits, a venture capitalist would get quite cross with the suggestion that a grey suited investment banker is in the same league as they. possibly.

this picture, as i suspect you need me not to tell you, is from the celebrated 'Merchant Banker' sketch off of Monty Python. for the most part through this post, it's best you keep this in mind as a frame of reference.

right, differences. basically an investment banker works for - yes - an investment bank. investment bankers are approached by entrepreneurs and businesses for - yes - investment. investment bankers grant this if the return on investment looks all but guaranteed to please the shareholders of the investment bank for which they - yes - work. risks of investing in a business that is likely to displease shareholders and the like seldom happen, unless somehow one of them "rouge trader" types gets to play with the investment banking train set.

a venture capitalist is the, if you like, antithesis of the investment banker. or vice versa. the venture capitalist is the one that acts instead of reacts. as in, a venture capitalist actively seeks businesses and entrepreneurs to invest in or buy out. whilst the investment banker looks for safe, sturdy things, the mind of a venture banker is to look for failing businesses that should not be failing, buy them cheap as a consequence and fix.

absolutely none of the above would in any way at all be enhanced by an image of a show called Lambing Live that i was recently encouraged to watch, but here is one anyway.

what have we learned so far? well, a venture capitalist has the more impressive sounding name and the more derring-do sort of lifestyle and day to day thing to do. this is enabled, as in the venture capitalist is proactive whereas the investment banker is reactive, by the fact that a venture capitalist has an awful lot of money at their disposal. either they are a wealthy sort of person or have people who have backed them to do "whatever they like" with an awful lot of money. an investment banker has a salary. they are obliged to perpetuate receipt of that salary by not displeasing those who pay it. theoretically an investment banker, if they obtained enough coins of money, could go off on their own and become a tally-ho venture capitalist, i suppose. it would be a bit like an accountant deciding that they wished to be a lion tamer.

it's not at all likely that a venture capitalist would turn into an investment banker, however. not unless, of course, the venture capitalist bought an investment bank. if a venture capitalist cocked up enough so that they required employment, it is stunningly unlikely that they would gain such employ with an investment bank.

the words "job and income stability" are ones that a venture capitalist, look you see, has nothing at all to do with. in the pursuit of millions if not billions they take extraordinary risks. even the most well thought out risks with a management plan carry the real threat of losing oodles of coins of money. are the investment bankers, with their reliable income, one up on them here? depends on your perspective. i am inclined to say yes myself, really, but it's all down to your own perception on the value of money.

so an investment banker has a dull yet stable life, whereas the venture capitalist has a lively existence which has no clue whatsoever that stability is an actual thing. how are we doing so far? time for some practical examples of how they operate? ok, i will try.

legend, and probably his autobiography, says that this chap started off his career flogging second hand records out of his Dad's car, aged but 15. this is a chap, then, we could call an entrepreneur. quite a few people have called him quite a few other things too, but we shall leave that aside for now.

he had some splendid ideas. ones that made him a good deal of money off his own work and entrepreneurial flair. thus this chap was able to go to investment bankers, show them some awfully exciting numbers, show them plans as to how he was going to generate even more, bigger if you like, exciting numbers and thus secure investment on the strong likelihood of a high, or at the least perfectly acceptable, rate of return on investment. that's how business works. and, i believe, how this chap's business has worked over the years. he does not look like he is short of brass, after all.

now, then. imagine if his brilliant ideas did not work - maybe because he was an actual twat or something; and there was no query at all that the idea was sound. in would come the venture capitalist, waving a cheque, taking the company, sacking staff, hiring new staff and presumably making a success of it. that's the theory, at the least.

that venture capitalists fire staff - in particular managers - from the businesses they buy is something that gives them the majority of their bad name and bad reputation. which is kind of weird, really. for them to be wrong to do so suggests a thinking that speaks of no manager has ever been bad-to-useless at all; that they are always the innocent victim of circumstance. a school of thought, one attended by venture capitalists, is that if the managers were doing the proper job with the sound idea, then the venture capitalist would have been able to get nowhere near the gates of their concern.

bashing a venture capitalist for firing managers that led a business or company to the point where it could be undervalued and bought cheap is a bit like the constant bashing of Pope Bono I for "not paying taxes". it's like, yeah, you have worked hard for decades, you have made millions off of your hard work - just how keen would you be to give as absolutely much of it away as you could in taxes?

the picture here is of one of them venture capitalists, the late Lord Hanson. i have selected him because i have memories from the mid-80s of that class, celebrated 'newspaper' The Sun running frequent attacks on him, his ideas and, well, more or less anything he did. this is sort of like the pic that The Sun ran of him; except for some reason i think they rather preferred to show images of him waving around a rather impressive fountain pen. why i know not, perhaps for the priapic value of such a thing, this being rather likely as then they also ran stories knacking Elton John for his preference for men and stories celebrating Gary Glitter for his deft skills in seducing schoolgirls. they, i believe, take different approaches to both of those topics these days.

why did they keep on knacking Lord Hanson? no idea, although i suspect it was down to The Sun seeing London (innit) as the centre of the known universe, and Lord Hanson having the audacity and nerve to be a success without hailing from London (innit).

an image or example of an investment banker? anyone you see heading to work in a grey suit. that's about it. either they are an actual investment banker or they aspire to be an investment banker.

the 1980s were, you hardly need me to tell you, the zenith or perhaps zeitgeist of the venture capitalist. those days are all gone, now, of course - too many rushed to be venture capitalists, too many lost money, too many woeful governments around the world ill-managed economies from the 90s onwards. venture capitalists, to a degree, exist today, but they are not as flamboyant, interesting or as public as they once were.

a bit like musicians, then. the early 90s were the last time interesting bands came along in any significant number. reason enough to beautify this blog post with an image of Donnington.

investment bankers? of course they are still around, and i pointed out above how to spot them. they shall forever be around, for business does not need the venture capitalist. remember that whole stability thing, and the example of the chap that sells records, yeah? when a chap grows tired of selling records and wishes to make the logical step of going into space travel, suggesting that they will be shotting in to space minor members of the British Royal Family, it is the investment banks that they consult for coins of moneys.

not that venture capitalists have gone. they have evolved. quite a few successful entrepreneurs quite like the exciting sound of being a 'venture capitalist' and so have a go at it, look you see. example? that tv show Dragon's Den. yeah, that's right - they like to call themselves dragons, and go off on (ad)ventures. it sounds more exciting; less boring nerdy type.

as much as it is that investment bankers will stay around so long as their is business to invest in, their necessity and importance is being challenged by the thing that some call 'the internet'. in two mighty ways this 'internet' thing, which indeed is a thing you can get a man at the computer menders to put on a disc for you i fancy, has brought about new venture capitalists and new investment bankers.

what is this pretty picture i present you with? partially a work of genius; mostly the coming into being of the principles of the Merchant Banker sketch out of Monty Python.

it is the "million pixel project". a lad in England called Alex Tew decided, in 2005, to sell off one million pixels on a webpage - in minimum blocks of 100 - for US$1 each. result? the novelty factor and the viral ways in which word spread meant that he sold and thus made a million in a very short space of time. what need, then, of either venture capitalists or investment bankers if you can raise a million with such ease?

quite a bit, many would argue. efforts and attempts to replicate, mimic or just plain rip-off this idea have all failed. failed badly in some cases, with several sites trying to do the same thing showing off a mere dozen or so pixels sold off. a one off success, then. no investment banker is going to touch it since it's nothing long term, no venture capitalist is going to be interested as there's no business to take over as such.

something of the internet that both venture capitalists and investment bankers will both thrill to is this whole kickstarter / crowd funding thing. it's the Merchant Banker sketch off of Monty Python, that is the idea of people giving money for no particular return, multiplied by many, many numbers.

kickstarter or crowd funding things do what they say on the box. basically someone has an idea that they think is class, but can ill afford to bring into being all by their lonesome. they throw up a website, then, asking people to donate small amounts to make it all happen. frequently there is a reward for doing so - the amount you give translating into a bigger award. effectively it makes many people venture capitalists, or if they use their business head instead of their "that sounds cool let me give it money" brain, investment bankers.

some fail, some succeed in answer to your question about kickstarter and crowd funding things. just like real business in the real world, then, yeah. so does it provide a means and way to replace "traditional" venture capitalism and investment banking? oh hell no. the days of kickstarter and crowd funding being viable and - importantly - popular are drawing to a close. why?

this is the 'Oculus VR'. a virtual reality headset. yes, indeed, it does look stupid. it looks as dumb as it did when shown off in things like The Lawnmower Man in the 90s. it makes that Google Glass thing look sensible in comparison.

but loads and loads of computer types got all excited about virtual reality once again; in scenes somewhat reminiscent of everyone getting all excited about 3D cinema just because some fella remade Dances With Wolves with some Smurfs in it. and so it raised a whole load of coins of money from people very excited to see this become a real thing. it was hip, it was trendy, it was something that "the kids" wanted to see and were quite prepared to wave a few dollars at.

and what happened to the collective few dollars that were raised? the makers of Oculus VR tinkered away and researched, got a viable prototype ready, suggested that they might be ready to go ahead with manufacturing and selli....oh, look, a big company has just waved billions at us, let us sell it to them instead.

my view, as in the view of someone who didn't give money in the hope of one day having a box with flashing lights available to put on my head, is "nice one, them". the views of those who did throw money at that, enthusiastic as close proximity to flashing lights as they are, is slightly different. they are horrified that they have sold out to a corporate, even if it was a corporate that barely a decade ago was some dude in his bedroom setting up a site for his own amusement. are they likely to once again throw money at a dream if that dream is to be sold to a corporate? unlikely.

should this whole Oculus VR thing become an actual thing and the kids are satisfied with a box displaying flashing lights on their head, then the disgruntled ways above will soon be discarded. the kids will throw their PayPal details at other ideas that excite them, no matter who goes ahead and buys it up.

but what of the venture capitalist? will their kind ever be seen again? will Bono, instead of berating the "death" of the record industry, throw all that money he has saved on tax into a record label, believing he can fix and heal everything? might the nouveau bourgeois of Dragon's Den grow tired of sitting in a studio looking non-nerdy , opting instead to go out and actually look for opportunities instead of waiting to see which ones make it past auditions for their consideration? entirely possible, really. that tv show cannot go on forever, and soon Bono will tire of doing that thing on stage where millions worship him. well, maybe entirely possible is a touch optimistic.

so there, for the most part, you have it. is it a question, dear reader, if i would rather be a venture capitalist or an investment banker? if so, i would think that those who know me will know the answer. yes, if it had to be one of the two, an investment banker. i just don't have the entrepreneurial way of thinking about me, nor the inclination. i would rather be an investment banker, then, dreaming of one day being a lion tamer.

i can only hope and trust that what the person who requested this has got that for which they wished! for everyone else, if this has provided some mild amusement and accidental insight, so much the better!

be excellent to each other!!!!!!!!!!!!!!!!!!!!!!!!!!!
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