puddleglum is talking about Venture Capital, which really does invest in 20 fledgling companies expecting 19 of them to lose everything and the last one to provide huge returns. It’s a high risk high reward strategy that is suitable only for the very wealthy who have at least some skill in telling probable winners from losers. But even the best in the world have a poor track record when it comes to counting companies. When you score them in dollars, they do very well.
You’re talking about the average person investing for their old age. It’s a totally different thing.
In order for little companies to become big, the first type of investor is very useful. But only the very deep-pocketed should be doing that.
It’s true there have been a few, especially 20-40 years ago in Silicon Valley, that made riskier plays and got lucky, but these are the exception, rather than the rule. The idea of the wheelin’/dealin’ cowboy VC is an inaccurate stereotype for all but a vanishingly small number of cases.
These companies are looking to take a bit of risk in exchange for 25-30% returns, i.e. taking on a bit more risk for higher returns. They may also get involved with a few high risk ventures, but those aren’t going to form the primary investments for most VC groups.
The cult of personality of internet/tech/start up type billionaires on outlets like CNBC etc is annoying. But I just don’t listen to stuff I find annoying. I also doubt Cuban is a font of wisdom on a lot of stuff he’s asked about, and I have no argument with the general concept that luck plays a serious role in success (on his scale, or any smaller scale).
My push back comes when people try to use that to push for more collectivism, which I think is generally knocking down a straw man which says that because somebody like Cuban made a huge amount of money he must proportionally ‘deserve’ it. I don’t think half way intelligent people really think that’s a reason for the collective to have a relatively light hand wrt outsized successes like his. The fact that he’s lucky doesn’t fundamentally affect the efficacy of taxing people like him more or less IMO, which is what it eventually comes down to. Otherwise I just don’t care if he’s lucky or what other people think about that. The question is whether society is better off if those brass rings are out there. I think it is, basically. Though that general argument doesn’t imply some particular tax rate in % points. A higher one might make sense, or not, but it’s the silly side of politics to make that it central issue in that debate how ‘lucky’ he or people like him are/were.
Regus is very different from WeWorks. Other than the basic (and admittedly essential) similarity that they’re both leasing space in bulk and renting it out in small chunks, they serve entirely different markets.
WeWorks serves, basically, hipsters. Regus serves actual businesspeople who want turnkey office space, with internet connections and cleaning services and office furniture and all that stuff all there, ready to move in on a days’ notice.
I mean, small law firms rent office space at Regus facilities. There is no possible way a law firm could work out of WeWorks and be taken seriously.
How much of their assets are the putting into fledgling companies? If they’re putting most of their money into these companies then I’m sticking by what I said; they are not following a smart business plan and they’re almost certainly going to lose most of their money.
That doesn’t apply if they’re putting most of their money into safe investments and then putting a small fraction into high-risk investments. As I said, “Smart investors put their money into nineteen low-risk boring companies; companies that aren’t going to make them a fortune but also aren’t likely to disappear. Then, if they’re feeling sassy, they will invest in one miracle company and hope it will make them a billion dollars. These smart investors will treat the miracle company like a lottery ticket. It can be fun to spend a little money that you can afford to lose on a dream but you don’t bet everything you have on them.”
That link is from 1998 and mentions CD-ROMs as a hot new investment. Its description of the life cycle of a company is quite outdated.
Angel investing/VC is not really comparable to investing in a diversified portfolio of publicly traded vehicles.
In an typical angel investor’s/VC’s portfolio of 10-20 companies, the majority of the returns will come from 1 or 2 of them. A few will break even or return a modest amount, and assuming 50% will fail completely is very realistic (most reports range between 25%-75% failure). Angel investing/VC is about home runs, not singles.
A dedicated angel/venture fund is going to put nearly all of their assets into a relatively small amount of companies with extremely high risk/reward profiles.
However, most people that invest in these funds do so as part of an overall asset allocation strategy. An individual with $10mm net worth might only allocate a few percent of their portfolio to alternative assets like angel investing/VC.
The CEO of WeWork, Adam Neumann stepped down today, but will still be chairman of the parent company. He’s losing most of his votes (which were granted through special shares with twenty votes each, but that’s been reduced to three each).
Commentary about Elizabeth Holmes and Theranos: it was not just venture capitalists who fell for her scam…
I work for the European Patent Office as a patent examiner. The E.P.O. gives every year a series of awards to important inventors.
Elizabeth Holmes was nominated for the 2015 “European Inventor Awards” (category “non-European inventors”) and was ==)(== this close to winning it (!!). This link takes you to the website of the awards, and her entry as finalist (under “non-European inventors”) is still there, although all the information about her is now missing; only her name appears.
What is really worrying is that, just to be nominated, you must have had a granted EPO patent in your name. This means that somehow she managed to bamboozle some fellow examiners into granting her a patent related to her bullshit (!!!) [or, alternatively, that she was lucky enough to have her patent application looked at by a bunch of incompetents], and that the jury of the contest (who, at least in part, is supposed to be made up of people who are competent in science and engineering) did not see her bullshit for what it was (!!!).
I don’t know about the European Patent Office, but the American patent office doesn’t even try to analyze the worth of patents any more. If it’s vaguely plausible, with no obvious prior art, it gets stamped and the Patent office collects its money. In the old days they at least tried to reject them. I’ve got some patents that I’m not at all proud of, and which never got implemented.
So, them getting a patent doesn’t impress me. They always talked a good talk.
Apologies for the slight hijack - some weeks ago I had the opportunity to talk with a group of Patent Examiners from the USPTO who were here in an exchange program (we send senior examiners from one office to the other to learn about our respective search systems, procedures and databases, and if there is anything interesting, when they are back “home” they can teach it to others).
They told me that, officially, they are not even allowed to issue formal refusals. The procedure right now at the USPTO is basically, as I understood it, that they do the search and draft a communication explaining whatever problems there are with the application. Then the applicant sends back their arguments and (perhaps) new claims. At that point, if things are not acceptable, the examiner writes a “non-final rejection” communication with their reasons.
From then on, the ball is in the court of the applicant. It is up to them to send back the application with changes. That amended application may end up triggering another “non-final rejection” back…
…and on, and on. The only one who can end the process is the applicant; if they decide that it is not worth it to pursue the patent, they stop. But, in principle, so long as they pay the relevant fees, they can theoretically keep sending the same application basically forever.
At the EPO we have formal refusals, after what we call an “Oral Proceedings” (wherein the representative meets with the examining division, either in person or through videoconference, and a “final version” of the patent application is discussed). If, after an Oral Proceeding, it is deemed that the patent application as it stands there is not allowable, then a formal refusal is issued, that can only be overturned if it is successfully appealed in front of the Board of Appeals of the office.
(Also, after a patent is granted, there is a 9-month “grace period” here wherein others can challenge the validity of that patent in a procedure called “Opposition”, which is carried out in front of a panel of experts from the E.P.O., not in front of a judge. But I digress…).
Again, sorry for the hijack! To put back the tread on its rails, all these tales of weirdo CEOs brings to my mind the example of the Spanish José María Ruiz Mateos, the big boss of a Spanish conglomerate called “RUMASA”, who was really a weird guy, and who in 1983 had his holdings expropriated, divided and re-privatized piecemeal by the government because (according to the ministry of Economy) RUMASA was on the verge of bankruptcy. At the time that holding by itself represented something like 2% of Spain’s GDP; a HUGE amount for a single holding to control. If it really was on the verge of crashing down, the intervention would have been justifed. Suffice it to say that opinions diverge on that respect.
Ruiz Mateos probably went … a little unhinged after that. He is famous for stalking the Minister of Economy who signed off the expropriation and once jumping on him to hit him with his fist, screaming “¡que te pego, leche! ¡que te pego!” (=“Fuck, I’m gonna beat you up!”). He also went out in public dressed as some kind of third-rate superman expy; I don’t remember exactly why, but possibly at the time he thought it was a good idea. He also founded his own political party (which ended up disappearing). He was a member of the Opus Dei, but in 1986 he was expelled.
A rather colorful figure, it has to be said. I was but a teen at that time (1983), but the whole circus made quite an impression on me.
Sounds like how us ordinary folk will shell out $5 a week buying lottery tickets – a trivial amount spent that will not make a difference in someone’s life being gone in exchange for a really small chance of a huge payoff.
I think what’s being missed here is that people can be spectacularly good at certain things without their skills in other areas being similarly advanced. Lawyers, for example, are typically not very good businesspeople. It’s not what we’re trained for, and we’re also typically risk-averse as a consequence of the profession. Selling is a genuine skill, but salespeople are typically not the smartest people in the room, nor do they generally have outstanding skills in managing finances. The same is true for people who hustle. But by and large, it’s people with the ability to sell and hustle that Make It Big. Whether they stay big typically depends on how good their support networks are; a Jobs without a Woz would have failed miserably, for example.
As a general counterpoint to the main thrust of the OP: Theranos is gone, and WeWork is rapidly descending into irrelevance, having pulled their IPO and ditched Neumann as CEO. I wouldn’t be surprised to see, well, a lot of lawsuits targeting the $700m he pulled out of WeWork as he talked it up and tanked it from the investors.
And I imagine as a result people are going to be less likely to give SoftBank untold billions to pump into their next idiot scheme.
The fact that there are frauds out there doesn’t mean that there’s no meritocracy at all. It just means it’s imperfect. The gears of capitalism grind slowly, but you can’t fool people forever.
I’m not sure it’s descending into irrelevance; as Alessan said, there’s a product that people use. It’s just that their governance was shit and needed correction before jumping to the big leagues.
To your point, though, they will have some sorting out to do with their IPO valuation mess, particularly where SoftBank is concerned. They are much less credible as a publicly-traded company, but there’s still a product that people use, and if they can straighten out the leadership side of things, then they can go from there.
Meanwhile, how about Peloton? Good product, good valuation, no bullshit with governance (or so it would seem).
The Economist has an article on WeWork, and their view that the era of easy VC money for tech companies with a bit of buzz may be coming to an end.
I think this kind of question is worthy of a thread in itself, as I think the degree to which it is true depends on where / when we are talking about.
While being rich of course affords you a great deal of respect everywhere, in Europe, it certainly matters how you got rich. Securing a lot of investment for a loss-making tech idea might not put you in a much higher bracket than someone who inherited wealth.
In China, while people hang on every word Jack Ma has to say about starting and running a successful startup, most are not particularly interested to hear his views on anything else. So it is more about aspiration than hero worship.
And in the US, I think people are increasingly aware of the weak legs of many unicorns, and of the bad decisions made by many of the mega rich. There is still a perception / assumption that it’s somehow proportional to hard work though.
Oh, feh. Some $2,500? I remember seeing an ad about fifteen years ago for some sort of elliptical trainer that swore it could get you ripped by using it ten minutes a day. The price? $14,000!