Disqus - Latest Comments for Michael

Re: Startup Ecosystems Take Time

Michael — Tue, 10 Nov 2009 12:07:58 -0000

Not to put a damper on things. I agree with Fred's sentiment here. But Silicon Valley history is closer to 100 years old.

http://web.mit.edu/ipc/publications/pdf/00-014.pdf

Re: Why The Flow Of Innovation Has Reversed

Michael — Tue, 30 Sep 2008 12:49:31 -0000

On the other hand, there is absolutely validity to the notion that company management has to move from push to pull based methods of product development and accounting. And if that's what you mean by reversal in the flow of innovation, fine. "Innovation" is kind of a loaded word.

Re: Why The Flow Of Innovation Has Reversed

Michael — Tue, 30 Sep 2008 12:46:56 -0000

I'm not completely convinced. Sure, the consumer internet has demonstrated that social networks could be valuable for coordinating activities inside large companies. But most of the technology under the hood was developed and implemented by engineers who had to solve new problems in order to get the thing to work. And those skills, in turn, were developed by working on the cutting edge science and engineering that is taught and researched at universities.

Has the flow of technology development reversed? Or does it just seem that way to the VCs that are trying to expand the market of consumer internet technology? I remember during the dot-com bubble, there was a moment when all of sudden, it was B2B that was where the money was, not consumer.

...and that came right before the bottom hit.

Re: Meetup - The Original Web Meets World Company

Michael — Wed, 23 Jul 2008 11:19:25 -0000

Great idea for a company, nice interface. Expect great things.

Re: 10gen

Michael — Mon, 21 Jul 2008 12:00:48 -0000

So what happens when the 10gen cloud meets the Google cloud? Will they be friends? Just kidding. Sorta.

Re: The Weird Economics of Information

Michael — Wed, 04 Jun 2008 11:37:49 -0000

I believe the paradox can be resolved by considering the underlying dynamics behind the static demand curves taught in Econ 101.

In a nutshell, the static demand and supply curves reflect a frequency distribution for patterns of consumption and production for a population of people within a window of time.

Information has an unusual pattern of consumption -- for a given population, the frequency distribution will shift to higher and higher frequencies over a period of time -- meaning that the "fat head" of the demand curve is likely to get fatter and fatter.

Re: Google's Data Asset

Michael — Wed, 04 Jun 2008 13:01:59 -0000

I don't think the marginal utility increases. I just think the "fat head" of the demand curve is going to get fatter and fatter.

Re: Google's Data Asset

Michael — Wed, 04 Jun 2008 13:01:59 -0000

I don't think the marginal utility increases. I just think the "fat head" of the demand curve is going to get fatter and fatter.

Re: Getting bigger on a budget: look to low-cost office solutions for profitable growth

Michael — Mon, 02 Nov 2009 17:25:24 -0000

Agree with the earlier commenter. I am also an unhappy former customer. I signed a credit card charge release and found out only when I tried to cancel that the release included terms and obligations that had never been discussed prior to my signing up. The staff at the office that I used was also poorly trained and adversarial prior to the problems I had with canceling. Regus has a good idea, but has blown it by choosing to cheat their customers. My blessings to the class action lawyers who go after this company and its shady practices.

Re: My Vision For Social Media

Michael — Mon, 02 Jun 2008 10:59:54 -0000

I agree. But those thoughts and experiences won't be available within the flat hierarchy of web pages that we have now. There will be online hierarchies of information corresponding to the offline hierarchies of power.

Re: Doriot Quote Of The Day

Michael — Tue, 03 Jun 2008 15:48:41 -0000

You may be right. As a corollary, I would add that there would probably be less wasteful rent-seeking among VC funds for best teams if there were a steadier stream of ideas worth commercializing. IRR won't go up for the industry as a whole, but the returns might be more evenly distributed.

Re: Taking Risk and Mitigating Risk

Michael — Tue, 03 Jun 2008 15:56:17 -0000

"Markets are never rational in the short term. And almost always rational in the long run."

Or as Benjamin Graham would have put it: in the shortrun, markets are a voting machine; in the long run, a weighing machine.

I do not believe that risk and return need be correlated. Return is a function of your information and ability to process it better than the others in the market. Risk is a function of your ability to accurately assess your ability to correctly price return. The two need not be (and are not often) correlated.

Re: Doriot Quote Of The Day

Michael — Tue, 03 Jun 2008 22:40:46 -0000

What would you say is a longhair project now?

Re: Where To Go For Inspiration?

Michael — Fri, 20 Jun 2008 04:51:38 -0000

I don't think this is so mysterious a question. Think about how it works in offline and you'll have your answer. When you're getting bored of the conversation at a party, you wander off and join another group until you've had your fill of that conversation too. And then you repeat. On a longer time scale, you go to different parties with different groups of people to fulfill your evolving need for different information. The Internet is no different.

The thing you may have overlooked is that -- just like at parties -- you need to reach out to new groups in order to discover new information and common interests. You are a very lucky person indeed if the people you are interested in talking to always wander up to you and start conversations. That almost never happens to me anyway.

Then again, maybe you shouldn't take my advice on this. I haven't been to many parties since I was in college (many moons ago).

Re: Where To Go For Inspiration?

Michael — Fri, 20 Jun 2008 04:57:26 -0000

This seems right. But what's the highest barrier to interaction here? I think it's the fear of rejection. In some ways, being ignored online is more painful and permanent a record of rejection than being ignored offline.

Re: Where To Go For Inspiration?

Michael — Fri, 20 Jun 2008 05:09:08 -0000

Perception does structure thought. And to think is to see. But the converse is not necessarily true, depending on what Serra means. The late Paul Bach-y-Rita has shown that we can "see" -- i.e., perceive physical space -- with our sense of touch, for example.

But why is the immediacy of physical space important? I would say it's because it permits for depth-perception -- i.e., inarticulate information about how close we are to one-another -- and the higher bandwidth channel of communication that depth-perception permits.

Re: Where To Go For Inspiration?

Michael — Fri, 20 Jun 2008 17:13:39 -0000

Yes, but the immediacy recurs when rejection can be refresh digitally. Analog wounds heal as analog memory fades.

Re: Where To Go For Inspiration?

Michael — Fri, 20 Jun 2008 23:17:33 -0000

Eugene Volokh has been doing just this for the legal academic community for years at volokh.com

Re: Fred Wilson Dot VC

Michael — Fri, 20 Jun 2008 23:23:59 -0000

Congrats. That's a solid track record.

Re: Am I Bored With “Web 2.0”?

Michael — Sun, 22 Jun 2008 19:47:56 -0000

I'm sure you have great reasons for choosing Europe as your destination.

But if you want to see the future of the American economy, I would choose Japan.

Re: Zakaria Quote Of The Day

Michael — Sun, 22 Jun 2008 19:50:49 -0000

And the difference in business culture, in part, can be traced to the incentive-caused baises of corporate managers created by the Sloan method of accounting.

On the other hand, the lean management and accounting methods followed in Japan create their own cultural distortions.

I would like to see a harmony of these two cultures -- BOTH reasonable and sustainable quality AND return on invested capital

Re: Velib Is Awesome

Michael — Wed, 25 Jun 2008 18:45:01 -0000

They tried this in Copenhagen also. But at least there the tragedy of the commons problem defeated the efforts -- most of the bikes were in horrible repair. Private bike rental firms solve the commons tragedy in Copenhagen quite nicely by charging for damage.

Just like the French to go for the statist route, even with the evidence from Copenhagen against them.

Re: Velib Is Awesome

Michael — Wed, 25 Jun 2008 18:47:08 -0000

Not long. To keep the bikes usable, you must design a system that requires each user to pay for unreasonable wear & tear.

Re: Heading For The Exit Lane

Michael — Sat, 28 Jun 2008 19:27:34 -0000

Fred,

I believe your analysis is right on the nose. You should read the following speech by Stanford economics professor John R. Taylor about how Japan was able to avoid the inflation trap that the U.S. fell into during the 1970s. The upshot is that if the Federal Reserve were to raise interest rates dramatically right now, it might avoid some pain and suffering later over the longer term.

http://www.stanford.edu/~johntayl/Mayekawa%20Le...

Re: Heading For The Exit Lane

Michael — Sat, 28 Jun 2008 19:31:24 -0000

That should be true, but it depends crucially on investors being able to identify and reach consensus about "real value" over the time-scale relevant to fundraising and growth.

I believe that this cannot happen until accounting standards are changed to provide a more realistic picture of how firms work. The current accounting standards were developed with a picture of firms in liquidation as the model. Newer accounting ideas focus more on how firms are like engines, with inputs (including capital) being fuel for future cash-flow.

We can't invest or manage what we don't measure.

Re: Zakaria Quote Of The Day

Michael — Sun, 29 Jun 2008 16:14:58 -0000

But political reform won't help if it isn't cognizant of the root cause of the problem, which is that we live in a much larger, much more decentralized institution now than ever before in history. Globalization is both the cause of and solution to our problems.

The designers of large-scale institutions, such as multinational corporations, need to take a page from the drafters of our constitution, and realize that large-scale, long-term institutions need to be organized around a common vision of the world. What common vision is more inclusive than a vision of individual human happiness ("life, liberty, and the pursuit of happiness")?

The good news is that thanks to modern neuroscience, we know more than ever before about how to design institutions that will facilitate cooperation and foster human happiness. Institutional designer need to optimize organizations to maximize two variables: money and time.

Re: The IPO Debate

Michael — Sun, 29 Jun 2008 18:06:43 -0000

Fred,

Why haven't more U.S. tech startups listed abroad?

Re: Zakaria Quote Of The Day

Michael — Sun, 29 Jun 2008 18:08:56 -0000

People are the same now as they have ever been. The difference is that there's more money at stake, and less transparency into its comings and goings. It's not the politicians per se. We all need to take responsibility for the flaws in our system of government.

Re: The IPO Debate

Michael — Mon, 30 Jun 2008 06:46:04 -0000

Thanks. That's about what I figured. I guess the discount for being less known is still larger than the premium for SOX. I'm guessing the underwriters aren't cheaper in London.

...I wonder if we'll see some more listings in Hong Kong over the next year or two though

Re: The IPO Debate

Michael — Mon, 30 Jun 2008 06:47:46 -0000

I bet it develops first in China.

Re: Happy Birthday America

Michael — Fri, 04 Jul 2008 12:05:53 -0000

It's exciting to live in a time when the need for and ability to make international partnerships has never been more obvious.

Re: Thinking About Groups

Michael — Sun, 06 Jul 2008 12:40:43 -0000

Maybe I've been reading them wrong, but isn't this what Ning is up to?

Re: Has The Cafe Moved Online?

Michael — Tue, 08 Jul 2008 04:11:43 -0000

This must be true on some level. The internet has definitely created new communities.

But I think the argument is easily taken too far. I think the tightest communities in the future will leverage the best of both online and offline worlds. Consider how Twitter has been used for spontaneous parties at the Shake Shack, for example. We need more of that.

In general, I'd say that the internet can be used very profitably to facilitate communication among people who would seldom if ever agree (or be able to agree) to meet in person. It's like a market price in that regard.

But the internet is just as poor as market prices at coordinating people when higher bandwidth communication is key. People go online to find potential dates; but they don't literally date online.

Re: More Globalization Thoughts

Michael — Tue, 22 Jul 2008 12:08:55 -0000

I'd like to see the numbers for Asia broken out by country. A while back, I remember reading that South Korea is the most connected nation on the planet. I would expect more Internet innovation to be coming out of there as a result.

Re: Venture Fund Economics

Michael — Sat, 02 Aug 2008 11:57:43 -0000

Hmm... where are the management fees and carried interest? A 2x return over 10 years wouldn't even get you fixed-income like returns with the fees being included.

Re: Venture Fund Economics: Gross and Net Returns

Michael — Sun, 03 Aug 2008 18:31:52 -0000

Kudos to you for opening your business model up to the entrepreneurs this way.

Re: Revolver

Michael — Mon, 04 Aug 2008 21:56:32 -0000

Why would you ever choose? Why do we love to rank things?

Re: A Secondary Market For Private Company Stock

Michael — Thu, 07 Aug 2008 10:48:50 -0000

have said before that we need a more active secondary market for founder shares and shares purchased by early investors in venture backed companies.

I completely agree. On the other hand, wouldn't it be easier to just drop the SEC rules that make it so expensive to register? SOX has been a total failure at preventing fraud on investors -- real estate bubble? financial bubble? hello? The only groups really benefited by SOX are the incumbent large corporations that have had less competition from new entrants.

Re: Community Organization Is A Conservative Notion

Michael — Thu, 11 Sep 2008 13:13:16 -0000

I think you've confused conservativism (as least as an ism) with libertarianism. Community organizing is an essentially radical tradition, which has more in common with classical liberalism (see Friedman's comments on the radicalism of classical liberalism in the intro to Capitalism and Freedom) than it does with any notion of conservatism with which I'm familiar. Certainly Burkean conservatives would not be in favor of new community organizations.

Re: Great Advice From Brad Feld

Michael — Fri, 10 Oct 2008 13:55:18 -0000

First sign of a bottom I've seen.

Re: Getting The Fill (aka buying on the way down)

Michael — Fri, 14 Nov 2008 12:09:31 -0000

All true, but there are other good companies out there that can be had at prices less than half their annual revenue.

Re: Getting A Piece Of My Action

Michael — Fri, 21 Nov 2008 12:04:39 -0000

Right on. The unintended consequence of SOX is that it favors incumbents.

Re: How To Survive A Horrible Seat Assignment

Michael — Tue, 16 Dec 2008 12:03:26 -0000

All the airlines are cutting capacity for 2009. Unfortunately, something like this scenario is going to get more common.

I know that netted out, investors have lost money on airlines since they were invented. But at this point, the difference in quality of service between commercial and low-end private (XO Jet, NetJets) is so great, that there is plenty of money to be made by the team that gets this right. The ability to hedge against oil is there. The ability to handle the logistics of scheduling is there (engineers are more available). I bet some airline startup is going to make a fortune coming out of this market downturn.

Re: The Founder's Footprints

Michael — Sat, 20 Dec 2008 15:00:31 -0000

There is some irony in your comparison of Jefferson to Obama, as Jefferson famously got the most important and divisive issue facing the founders wrong.

Re: The Founder's Footprints

Michael — Sat, 20 Dec 2008 15:04:28 -0000

If you don't know of him already, I would read a little about Gouverneur Morris. He's up there with Franklin in my mind. But of course he wasn't a president either. It's hard for me to count that against him. I wish that the cultural norm of their generation, which made power something to be accepted rather than grasped, were still the norm in ours.

Re: Selling Apple and Google Today

Michael — Wed, 07 Jan 2009 15:22:24 -0000

Good companies, but not as cheap as some other good ones right now.

Re: Thoughts on Google and Apple's Earnings

Michael — Fri, 23 Jan 2009 11:03:49 -0000

Buy puts one year out at 330. You make money by not losing money.

Re: http://www.avc.com/a_vc/2009/02/how-patent-trolls-are-a-tax-on-innovation.html

Michael — Tue, 17 Feb 2009 11:08:25 -0000

The simple fact of the matter is that the economics of consumer Internet startups are quite different from the economics of more capital intensive markets, including biotech, pharmaceutical, and even semiconductor equipment. So long as everybody is yoked together, nobody is likely to be happy.

But thanks for taking a slightly more nuanced look at the issue than most consumer internet VCs.

Re: Why Patent Trolls Are A Tax On Innovation (continued)

Michael — Tue, 17 Feb 2009 11:14:12 -0000

Valuing patents at the cost of litigation is an abuse of the system. But if tuned up properly, a patent system can actually promote innovation by keeping independent inventors in the game with established incumbents. Maybe they're unnecessary in the consumer Internet industry because capital expenditures are so low now on an absolute scale. That doesn't make them unnecessary in other industries, and new medical treatments, in particular, will be much harder to finance without patent protection for new entrants.

You may enjoy Michael A. Gollin's book on Driving Innovation, which he guest blogged about at Broken Symmetry:

http://brokensymmetry.typepad.com/broken_symmet...

Re: Why Patent Trolls Are A Tax On Innovation (continued)

Michael — Tue, 17 Feb 2009 17:56:10 -0000

Sounds like we agree. Software isn't so capital intensive either. Besides that any industry for which trade secrets are a viable alternative to patent protection is going to find patents a burden.

It's worth pointing out for non-specialists, however, that the Courts severely restricted the scope of software patenting last year in Bilski. As that decision works its way through the system and begins to show up in district court decisions, at least some of the patent troll problem for software and consumer Internet companies is going to go away. I would guess that the lawyers for nearly all of your portfolio companies defending suits brought by patent trolls are looking into Bilski defenses right now.

Re: Guest Bloggers

Michael — Thu, 19 Feb 2009 18:36:51 -0000

If you really want to get the inventors' point of view, you should invite Nathan Myhrvold to guest blog. I bet he'd be up for it.

Re: One Thing You Don't Need To Be An Entrepreneur: A College Degree

Michael — Thu, 26 Feb 2009 19:44:11 -0000

I'm no respecter of persons, and neither a degree nor the name of a school by itself is going to impress me. But people have to learn a field before they can make a creative contribution to it, and there are some fields that are hard to learn without at least some formal education. Add to that the fact that the youngest successes tend to attract our attention, and I believe there's some bias in our perception of these things. To wit, the Kauffman Foundation published statistics months ago showing how the average successful entrepreneur actually did have a formal education and is older than most people would guess. Sorry I don't have a link.

Re: The Venture Capital Math Problem

Michael — Wed, 29 Apr 2009 10:24:44 -0000

Yeah, I was just going to say. It can be hard to distinguish between a Poisson distribution and a power law. In most cases where people say "power law," I think they mean "power law to a good approximation within this range of the domain." True scalability is rare. If it's a poisson distribution, then it could be approximated as gaussian pretty well in the limit of exits at very low frequency. So maybe exits this year might be well approximated by a gaussian. But averaging over long time periods, probably a poisson distribution is a better fit.

Another thing to bear in mind is that the fit for a power law approximation is going to depend on whether you include the set of exits in the late 1990s early 2000s in your set.

My guess is that VC investment scales better than you'd expect looking at the distribution of exits over the past few years, but worse than you'd expect from looking at the late 1990s and early 2000s. The margin for error in that guess is wide enough to easily capture the numbers that Fred projects above.

Re: The Venture Capital Math Problem

Michael — Wed, 29 Apr 2009 10:43:35 -0000

Since the IPO market is now closed, I believe the limits to the scale of VC investment will over the next few years at least be set by the money that flows to startups from public company buyers.

My question about this is why do VCs emphasize their relationships to entrepreneurs to LPs? Are their VCs that emphasize their relationship to large companies?

http://brokensymmetry.typepad.com/broken_symmet...

In general, I think most VC funds could do more for the public company acquirers of their startups. For example, how many VCs have spent much time visiting with the engineers at Google, Cisco, and so on, figuring out exactly what they are most interested in seeing developed?

I think part of the answer to this is that Google and Cisco don't like people to know too much. But a VC with a good reputation should be able to negotiate confidentiality.

Patent rights together with know-how from a small group of engineers with one or two business people is all that are necessary to develop a product or service idea enough to justify acquisition in many cases. The traditional model is on steroids.

Re: The Venture Capital Math Problem

Michael — Wed, 17 Jun 2009 16:29:58 -0000

Well then we need an IPO market.

I appreciate the perspective.

Re: Startup Hotbed Inferiority Complex

Michael — Fri, 10 Jul 2009 15:29:54 -0000

If Union Square hasn't proved that startups can be successful outside Silicon Valley, then nothing does.

...but Union Square is smack dab in the middle of the biggest network of them all in the United States -- NYC.

My $0.02: People tend to systematically understimate the importance of social networks. And I'm not talking about their digital imitations like Twitter and Facebook. I mean the real, flesh-and-blood kind.

As Fred himself has pointed out on this very blog, there's a lot information that just doesn't come across except in face-to-face interactions.

My view is that you're simply going to spend more time and money by not moving to Silicon Valley. For some people, that's a fine tradeoff. For others, it makes more sense to come here, give it a shot, and then move on.

(Or get addicted to the culture and become an indentured servant to the culture through a Silicon Valley mortgage like me!)

Re: Startup Hotbed Inferiority Complex

Michael — Fri, 10 Jul 2009 17:28:35 -0000

I disagree. Until our brains are hardwired to it, not all information will be available through the internet. In fact, the most important and sensitive info will tend to stay offline.

Re: Startup Hotbed Inferiority Complex

Michael — Fri, 10 Jul 2009 17:43:00 -0000

Okay I hope you are right. Traveling sure is a pain in the @$$ right now.

Actually, part of the problem is that nobody wants to put money into the airline industry because investors keep losing their shirt on it.

Re: Should people in glass Facebook offices throw stones?

Michael — Fri, 04 Jul 2008 14:27:54 -0000

Morin's idea is a good one, and way more important than an industry squabble over APIs.

Rather than showing other social networking startups how it's done by opening Facebook's API to other UIs, Facebook (or a social network like it) should be working with government to make information more available.

The organizations affiliated with Larry Lessig's Change Congress campaign are already doing just that. But we should also have Change Administrative Agencies, Change State Government, Change Local Government, etc.

I actually really like what Granicus is doing in this regard.

Re: If Digg is worth $200M to Google, how much are Yahoo! Buzz and AOL’s Propeller worth?

Michael — Wed, 23 Jul 2008 00:21:34 -0000

Because Google is pretty much a substitute for Digg?

Re: Microsoft dreams up a new kind of search with BrowseRank

Michael — Fri, 25 Jul 2008 17:51:53 -0000

This has actually already been done in the legal search space by PreCYdent (www.precydent.com).

It shouldn't be suprising that PreCYdent was the first to solve the problem. Judges put their clickstreams into their opinions in the form of citations.

As an aside, PreCYdent is also the first portfolio company for Venetian Capital Management.

Re: MapLight: Bailout supporters received more money from banks and securities

Michael — Mon, 29 Sep 2008 21:48:34 -0000

This is a particularly good demonstration of public choice theory. Mancur Olson was noticing this stuff 40 years ago, and Arthur F. Bentley 100 years ago.

But some people don't believe in theory until they see the evidence themselves. Congrats to Maplight for such a powerful demonstration of the usefulness of their technology.

Re: Downturn may prompt increase in provisional patent applications

Michael — Tue, 28 Oct 2008 00:39:17 -0000

"You have to describe the invention, but you don’t need all of the supporting materials, illustrations or other documents. "

Um. This is simply incorrect. If your provisional application doesn't provide proper 112 support, then you won't get the benefit of its filing date. Period.

It is simply bad advice to advise a company or inventor that they can save costs by filing provisionals. Provisionals will never mature into patents without being refiled as nonprovisionals. You cannot save the time and money required to get a patent by filing a provisional. Filing provisionals should be done only to preserve rights, for example, when trade secrets have been or will be disclosed accidentally and there is no other way to avoid loss of (usually foreign) rights.

Re: The VC model is broken

Michael — Wed, 12 Nov 2008 19:52:48 -0000

Ressi has some good points. Although it's never been cheaper to communicate with a large audience, private investment is still confined to a relatively tiny set of networks.

The problem is that these networks are protected from competition with any real alternative means of financing by... the SEC. The rules for private placements effectively prevent entrepreneurs from leveraging new technology to their advantage in reaching out to potential investors. Until the SEC rules change, not much is going to disrupt the power structure within VC and PE.

On the other hand, I think the serious mismatch between the supply of new product ideas and the supply of business teams to execute good ones is going to get corrected by investors with a renewed focus on IP.

Re: Reader poll: When will the economic winter begin to thaw?

Michael — Fri, 02 Jan 2009 14:50:35 -0000

The thaw began when the excessive optimism turned into excessive pessimism, about six weeks ago.

Re: Why FAS 157 is stupid

Michael — Thu, 15 Jan 2009 19:42:28 -0000

I'm starting to like these rants. :-)

I was flabbergasted when I first learned about FAS 157 back in 2007. I kept asking the accountants who were teaching me about it, "Why should my valuation be so closely tied to what's happening in the market right now when I might have bought a long time ago, and might not be selling for a long time in the future?" In fact, the mark-to-market rule is pro-cyclial, turning one good exit into a market-wide rally -- or one bad writeoff into a market crash.

But the accountants shouldn't be faulted too much for the rule. Accountants are not theorists, even if accounting rules require a good understanding of theory.

The fault lies with the financial services industry, which wanted rules that would promote more buying and selling. Buy and hold is good for everybody but the croupiers.

Re: Microsoft’s cloud goes dark for 22 hours

Michael — Tue, 17 Mar 2009 11:04:28 -0000

Is there any additional information about how the outage occurred? There so much editorial commentary here and so little fact.

Re: Cisco buys Pure Digital for $590M, claims market leadership in video capture

Michael — Thu, 19 Mar 2009 14:13:29 -0000

A great sign of life in the valley. Let's hope this is the first of many more deals to come this year.

Re: Does a venture capitalist’s size — and network — matter?

Michael — Mon, 29 Jun 2009 17:01:13 -0000

Dynamic centrality is the term for these sorts of networks.

http://papers.ssrn.com/sol3/papers.cfm?abstract...

Re: Sequoia’s Moritz grills California’s controller on state budget issues

Michael — Fri, 10 Jul 2009 17:05:23 -0000

California “has not been net cash flow positive since July 12, 2007,” he said.

Wot? Since when has any government ever been cash-flow positive? What on earth can this mean?

Re: Why corporations must return to investing in venture capital

Michael — Wed, 22 Jul 2009 17:41:36 -0000

Great essay. A few comments:

"American corporations have been slashing internal long-term research and development spending for decades, "

Part of the dynamic here is due to a change in the law of patent ownership, and a migration of human capital that resulted. The Bayh-Dole Act of 1980 gave universities the right to take title to patents. University tech transfer took off at the same time that early-stage R&D became less economic for large corporations. Yet the transactions costs of technology transfer have plugged some -- but not all -- technology pipelines from universities to corporations. For computer hardware, for example, it may be the case that vertical integration from early-stage R&D through to commercialization is more cost-efficient from a social perspective than negotiating and acquiring the same R&D from VC-backed startups or even university R&D labs (when that's even possible). For drugs, for example, the system seems to have adapted quite well and there are now private equity intermediaries providing future royalty financing to universities for this work.

When I point these facts out to VCs, the general response is, "Ideas are cheap, it's the team that executes on them that adds all the value." I understand that view, and there is no doubt that good operating teams are hard to come by. But the fact is that not every technology needs 5 years and $50 million in financing to find a home inside an established manufacturing, marketing, and distribution channel. In general, VC money is not well-aligned with keeping a pipeline moving at a steady flow, but rather with swinging for the fences.

A possible solution is for some VCs to specalize in technology transfer. But until patent rights get stronger and universities get more used to giving up control over patents to inventors (see Stephen Quake editorial here: http://judson.blogs.nytimes.com/author/Stephen-...) and limited partners get more organized and sophisticated in their understanding of how and when early-stage funds will produce decent returns, that solution remains a pipe dream -- or rather, a dream of an unclogged pipe.

Re: i am neurotic. - holy trinity: wallet, phone, keys

Michael — Wed, 28 May 2008 12:39:16 -0000

This is very practical. It helps you to avoid losing them!

Re: The need for new theory

Michael — Mon, 30 Jun 2008 04:36:10 -0000

You are right about the importance of theory. These days, people think experiments are all that matter because we've been getting our theory free from universities for so long. But that won't last.

For my part, I've been trying to go back to the history of patent law, accounting, and economics, to figure out why innovation has stalled in the U.S.

My conclusion is that it's not patent law. It's our theory of accounting, which treats IP as an asset. Since IP is human capital, it should be treated that way by accountants, managers, and (eventually) investors. Making a change in our theory of how IP adds value to a firm should eventually restore the cultural norms of cooperation and collaboration between inventors and large corporations, which have deteriorated over the past few decades.

Re: Please Discuss

Michael — Fri, 30 May 2008 13:31:29 -0000

1. Must be incorrect unless the tax adjusts for wealth effects. All else equal, a higher tax deprives the taxed person of a larger number of opportunities that would otherwise be available.

Re: What is Class F common stock?

Michael — Thu, 23 Apr 2009 16:55:34 -0000

Any comment on how F is different from FF?

Re: Time for Another Transition!

Michael — Mon, 04 May 2009 23:40:26 -0000

You are unusually articulate for such a young baby.

Re: Potholes on the road to riches Abnormal Returns

Michael — Wed, 12 Aug 2009 13:12:02 -0000

I won't argue with your characterization of buy-and-hold strategy as "avoiding taxes" so long as we're clear who most of the "taxes" are going to -- i.e., to the brokers. Berkshire-Hathaway pays a lot of taxes.

Re: Potholes on the road to riches Abnormal Returns

Michael — Wed, 12 Aug 2009 13:49:09 -0000

I like this story. But what is the relevant time horizon? Or at least, how can one make rough measurements and estimates of that time horizon?

Re: Ideas Matter

Michael — Sat, 21 Jun 2008 18:46:52 -0000

The idea in your column -- that ideas matter -- is such an important one that I hate to see it hobbled by a paragraph (immediately after the Keynes quote) that suggests that farmers are to blame.

Now is a terrible time for us to be mixing up the issue of protectionism with the separate issues of the benefits and disadvantages of a more agrarian economy.

Re: Compulsory Volunteering

Michael — Wed, 09 Jul 2008 12:12:49 -0000

"Compulsory volunteering" as a label makes about as much sense as "libertarian paternalism." Awful non sequiturs.

But there may be some Hayekian insight hidden in "choice architecture" (a/k/a "libertarian paternalism") if it means building government institutions that facilitate cooperation (and thus growth) through privately adaptable rules.

...and if that's the case, then perhaps there is something Hayekian silver-lining to the idea of "compulsory volunteering"?

Consider that no child ever "volunteers" to do chores.

Re: Compulsory Volunteering

Michael — Wed, 09 Jul 2008 16:57:23 -0000

@BoscoH

How about this explanation: cooperation is the source of wealth in our economy. According to Adam Smith, we can cooperate in two ways: voluntary exchange and divisions of labor.

What promotes voluntary exchange and divisions of labor? Is it profit? Well, yes. Profit is a very useful focal point for coordinating people when communication is difficult or impossible.

But is it only profit? Well, no. Sometimes people will cooperate by exchanging time for better schools, better jury decisions, better neighbors, &c. In fact, the primary role of social norms -- norms that operate in parallel to legal norms -- is in promoting these forms of cooperation.

...but as the world has become more complex, legal norms have had to play double duty as social norms. Think about how many family conflicts are now mediated by divorce lawyers. Think about how divisions of labor in the how have shifted from "I'll specialize in lowering costs and you specialize in earning income" to "Let's renegotiate on the fly."

What we need is legal norms and cultural norms that foster growth -- i.e., norms that promote cooperation.

Fortunately, the constitution is practically a how-to manual for building such institutions! For the rest, we have Hayek.

Now do we understand why he saw socialism as inevitable? Well it is but it's nothing to be afraid of. At least it's better than keeping paternalistic government authorities on life support.

(Sorry for the longish comment; but I figure it's on topic.)

Re: Ellis on the American Creation

Michael — Mon, 14 Jul 2008 17:29:39 -0000

I think the group of people who made their way to the New World between 1620 and 1775 were quite exceptional.

As were their parents.

Thanks for the summary. Sounds like a book I have to read.

Re: Brains

Michael — Mon, 21 Jul 2008 16:28:21 -0000

As a heavy internet user, I have noticed changes in my behavior and thought processes too. The biggest problem seems to be that you have to really use your imagine to guess from the written words on blogs and blog comments what other people are really trying to say. This is both good and bad. It kind of enhances whatever natural verbal skills you might have to begin with. But it kind of atrophies other social skills, such as the ability to read facial expressions and communicate through other nonverbal cues. A computer screen is a very narrow bandwidth means for communicating between people. I look forward to seeing the medium evolve to take advantage of the nonverbal means for communicating that we possess.

Re: Southwest knows more than we do

Michael — Tue, 22 Jul 2008 20:56:38 -0000

I like this post. Showing respect for the people who are working on the ground and watching how they do things almost always leads to interesting observations.

Here's my conjecture: the problem is with the sorting that needs to go on on the plane. If you assign seats, then there's a bottleneck whenever a person seated towards the front needs to put stuff away in front a person seated toward the back. Southwest's method of assigning groups but leaving the exact seat unassigned results in fewer bottlenecks during the seating process because most people will just grab the first seat toward the front of the plane. There is no net difference in time between seating everyone from back to front and seating everyone from front to back -- it's the bottlenecks that slow things down.

Re: Leisure Time Is Valuable

Michael — Mon, 28 Jul 2008 11:45:42 -0000

The person who sent you that comment would be considered the perfect employee by a great many companies. But not mine.

Re: Twitter

Michael — Mon, 04 May 2009 08:46:07 -0000

My ID: riemannzeta

Re: Query

Michael — Tue, 12 May 2009 14:09:12 -0000

While not physically threatened by their government, the currency peg does represent at least a form of indentured servitude to the extent that it results in a net redistribution of wealth away from labor into Chinese government coffers.

Re: Smith Understood This Reality

Michael — Wed, 03 Jun 2009 08:31:05 -0000

If you look at the recent work on scalable growth in networks (Barabasi and Herbert Simon before him), then you'll find that there are two basic requriements for scalability:

* Growth

* Preferential attachment

Small hubs become hubs of hubs as a network grows through preferential attachment. In other words, for growth to scale, there must be preferential attachment.

But why? Mandelbrot had the answer fifty years ago, albeit in the context of the information content of language. The answer is because self-similar network structure minimizes the network infrastructure needed to spread information throughout the network. Self-similar structure is information-flow efficient.

So is division of labor limited by the extent of the market? Yes, but it's the minimization of the costs of infrastructure that drives division of labor within a growing network.

Re: Smith Understood This Reality

Michael — Wed, 03 Jun 2009 15:53:34 -0000

To be honest, I can't tell wheter K Ackermann and Greg Ransom are sincere and not tenured economists or tenured economists busting my chops. Perhaps I'm being a little cavalier. But the fact remains that comparative statics assumes away any local structure to an economic equilibrium. There are many ways to embed such structure back into a model of economics, but networks are a relatively easy one for us to visualize these days, and the data sets and algorithms are already there for other reasons. Why not? I think Hayek had this kind of view in mind when he wrote *Sensory Order* anyway. I'm still looking for the natural experiment that will conclusively demonstrate the value of thinking this way...

Re: Smith Understood This Reality

Michael — Wed, 03 Jun 2009 19:08:21 -0000

Glad you were being sincere. I completely agree.

This is the first sentence of Paul Samuelson's *Foundations of Economics* (1947):

"The existence of analogies between central features of various theories implies the existence of a general theory which underlies the particular theories and unifies them with respect to those central features."

In 1947, the general theory was thermodynamics. Today, it's self-similarity and renormalization group flow. All of the systems you mention bear out characteristics of that more general theory.

One thing that's holding us back is the absence of a clean, conceptually accessible experiment that falsifies neoclassical theory, but not RG flow.

Know of a case where a cycle of exchange that begins and ends with the same actor, and proceeds on the same indifference curve, nonetheless results in a change in the actor's wealth?

Re: Hubris

Michael — Tue, 22 Sep 2009 13:38:27 -0000

It's not exactly news that Steven Chu has a healthy ego.

And I have to admit, driving around California in my compact car, I get really annoyed at how many Hummers and SUVs there are. How much car do people really need? SUVs are a big negative externality. I think they should be taxed more heavily.

Re: Ratio charts run amok Abnormal Returns

Michael — Fri, 23 Oct 2009 15:57:39 -0000

Nice post.

Re: Francis Ford Coppola's Insight About Sin.

Michael — Tue, 29 Sep 2009 11:57:56 -0000

"when you make eyes in place of an eye, a hand in place of a hand, a foot in place of a foot, an image in place of an image, then you will enter [the kingdom]."

http://www.gnosis.org/naghamm/gosthom.html

Re: Comment Length

Michael — Wed, 30 Sep 2009 11:29:16 -0000

A more interesting measure of comment quality would control for comment length.

Re: Applied Philosophy, a.k.a. "Hacking"

Michael — Wed, 14 Oct 2009 17:07:28 -0000

To discover great hacks, we must always be searching for the true nature of our reality, while acknowledging that we do not currently possess the truth, and never will.

Or even acknowledging that we may not even be converging on the truth, or that if we are, it's happening too slowly to matter in our lifetime!

Re: Google's Data Asset

Michael — Wed, 04 Jun 2008 13:01:59 -0000

I don't think the marginal utility increases. I just think the "fat head" of the demand curve is going to get fatter and fatter.