Shooting Fish In A ..
Madeleine wants a fish and is relentless about it. Her persistence a fine quality. Usually.
Along with everything else, US corporations have been slashing internal, long-term research and development spending, and, most recently, investments in venture backed start-ups and venture funds (my photo from the local pet shop). Where our nation once at the forefront of global innovation, we are being surpassed by places like Korea or China. Consider GM. Those blowhards should own the electric or hybrid market; instead they fought Washington to keep their SUVs while failing entirely to commit anything to the next, next thing. Now they are a fraction of their size and might. GM an easy example, but not alone: AT&T's Bell Labs, IBM's Watson Labs, and XEROX PARC were turbines of innovation and the envy of the world. They were also cool. Imagine being some super-educated geeko with computer science or engineering degrees (sorry Roger on both counts) working in the salt mines - here was the way out. And more: perhaps the closest thing to rock-stardom as these tighty-whities might get. Today, no more.
The data shows: in 1981, US companies with more than 25,000 employees represented approx. 70% of the investment in industrial innovation, according the the National Science Foundation. By 2006, it was 36%. The slack during this time picked up by small companies who absorbed investment: from 10% of US R&D in '81 to 40% today. No surprise. Further, public companies originally venture capital-backed today are 17.5% of the US GDP and have created more than 12 million high-paying jobs over the last 30 years (source: Venturebeat). Without venture capital, we would be Germany. Or Bulgaria. High growth tech businesses re-employed the redundent during America's 1980s downsizing - remember all that m&a and Gordon Geco stuff?
I learned in MBA school that the first thing to shutter, when looking for "efficiencies" to justify a merger or"unlocking value" after the deed done, is the research department. The reason, other than conserving or freeing cashflow, the market - which can do things better than an individual (company). In short, better to buy, or have the option to buy, technology developed on somebody else's risk. It also eliminates the problem of "project creep" which, as Arthur has told me, is what happens when 100 engineers given a free hand. They do what smart people do - explore, test, waste shareholder money.
Today's increasing problem stems from corporate isolation, some arrogance plus a dose of complacency and a pinch of corruption. From the 1980s, substantial R&D cost savings transferred back to venture innovation via m&a and investment partnerships, where a General Partner (GP) managed commitments in return for a share - 20% - of the take. This kept the brain muscle working, gave corporates access to best-of-breed entrepreneurs and universities and made a lot of people rich. All good in our capitalism. Today, I often must argue that venture an asset class given the miserable returns these last ten years but this silly: of course it is, only the best investments not looking for IPOs or mega-exits. Base-hits, ie, smaller deals in capital efficient companies, have always been the industry's bread-and-butter before large cap funds arrived circa 1999 (a large-cap fund making a $50MM investment in one company, for instance, looks for a $1B exit to get its multiple). Smaller, specific deals exactly what buyers want or need. So today, without corporate dollars and tax incentives, we lose the ability to innovate and lead having squandered resources in larger, value destroying funds. Britain has suffered this fate (who recalls the de Havilland? Neither do I but it was the first commercial airline and British). By failing venture, our companies are a fish in a barrel.
The data shows: in 1981, US companies with more than 25,000 employees represented approx. 70% of the investment in industrial innovation, according the the National Science Foundation. By 2006, it was 36%. The slack during this time picked up by small companies who absorbed investment: from 10% of US R&D in '81 to 40% today. No surprise. Further, public companies originally venture capital-backed today are 17.5% of the US GDP and have created more than 12 million high-paying jobs over the last 30 years (source: Venturebeat). Without venture capital, we would be Germany. Or Bulgaria. High growth tech businesses re-employed the redundent during America's 1980s downsizing - remember all that m&a and Gordon Geco stuff?
I learned in MBA school that the first thing to shutter, when looking for "efficiencies" to justify a merger or"unlocking value" after the deed done, is the research department. The reason, other than conserving or freeing cashflow, the market - which can do things better than an individual (company). In short, better to buy, or have the option to buy, technology developed on somebody else's risk. It also eliminates the problem of "project creep" which, as Arthur has told me, is what happens when 100 engineers given a free hand. They do what smart people do - explore, test, waste shareholder money.
Today's increasing problem stems from corporate isolation, some arrogance plus a dose of complacency and a pinch of corruption. From the 1980s, substantial R&D cost savings transferred back to venture innovation via m&a and investment partnerships, where a General Partner (GP) managed commitments in return for a share - 20% - of the take. This kept the brain muscle working, gave corporates access to best-of-breed entrepreneurs and universities and made a lot of people rich. All good in our capitalism. Today, I often must argue that venture an asset class given the miserable returns these last ten years but this silly: of course it is, only the best investments not looking for IPOs or mega-exits. Base-hits, ie, smaller deals in capital efficient companies, have always been the industry's bread-and-butter before large cap funds arrived circa 1999 (a large-cap fund making a $50MM investment in one company, for instance, looks for a $1B exit to get its multiple). Smaller, specific deals exactly what buyers want or need. So today, without corporate dollars and tax incentives, we lose the ability to innovate and lead having squandered resources in larger, value destroying funds. Britain has suffered this fate (who recalls the de Havilland? Neither do I but it was the first commercial airline and British). By failing venture, our companies are a fish in a barrel.
