Thursday 12 March 2009

Vulture capital runs out of carcasses

The genius of Lord Mandelson has announced a challenge to British Investors, go find the new business that will build a new economy. I don't think he mentions the economy the Government just flushed down the drain, as that would go against the spirit of 'looking to the future.'

The world of the VC's has been a bust model for a long time. Investing in companies has produced maybe 2 or 3 in a hundred that take-off. For that you have had to work really hard and throw a lot of money in that gets eaten by numpties. The Dotcom boom really was the last hurrah of this as a big industry.

It is no coincidence that the smart people decided that Private Equity: buying companies that at least had been successful once; or hedge funds (gambling other peoples' money), was going to be a lot easier than Venture Capital.

In the UK the success of the BBC Dragon's Den suggests that the Entrepreneurial spirit is alive, but the investments are small and again often have limited success, if any.

The real problems in the UK today are varied, but they are not VC related. A great list was left by an anonymous poster yesterday, I copy it below:

"Mark to market, mark to fantasy.
Level three assets, ratios.
No discernible market value.
Off-balance sheet structures brought back on - upon counter party bankruptcy, marked to zero.
Commercial Real Estate.
Tenant less shopping centres, - business rates.
National capital flight, corporate and private, - rapid currency depreciation = inflation.
Consumer squeezed."

Go fix these Mandy and stop posturing.


loveandtheplanet said...

All are swine before those who make themselves Lords. You cannot make a beer-brewing capitalist from champagne-swilling socialists such as Mandelson.

Venture Capital never gets off the ground in Britain? Not one politician has dared suggest the reform of economically-burdensome Employment protection laws. Companies laden with dead-wood even now are blowing down in the Global Economic Storms. They sidestepped Employment Law Reform by playing with Management Buybacks, Employee Shareownership, Outsourcing, etc. In the end, the only way of getting rid of dead wood in the West European legal framework is to let the whole tree die, just, indeed, as they will let the trees in the Amazon die from global warming.

Tom Powdrill said...

Let's face it - VC is the nice end of the PE spectrum that all politicos like to talk up. I'm pretty sure Osborne bigged up VC a year or so back in a speech to exactly the same audience.

Anonymous said...

There is a lot of talk, by a lot of people, about money. Unfortunately most of them do not have the slightest idea what money is. Most of them view it as something that comes out of a bank, whereas it is actually something that is, sometimes, put into a bank for safe keeping.

At its most basic a piece of money is a token exchanged for a quantity of energy. This token can then be exchanged for another portion of energy when needed. Prior to the introduction of money (by whom, and when, is not at this point important) the means of exchanging energy was by barter.

Now energy is a transitory commodity so how was it packaged in order to exchange it?

In the DBM (Days Before Money) everyone grew their own produce and were self sufficient in virtually every way, but of course it was often the case that when, for example, a sheep was slaughtered, there was too much meat for consumption just at that precise time (and to wait for someone to invent the ‘fridge would have meant that the mutton would “go off”) so it made sense to swap some of it, with Alf down the road, for maybe half a dozen turnips and a bit of honey.

The only thing that was involved in breeding and rearing that sheep was energy. It had been conceived in the normal way by the interaction of one the family’s ewes with the family ram, or perhaps a neighbours ram (in exchange for a couple of cabbages), and it had been delivered by the family shepherd and raised on the family land. It had fed on hay, during the winter months, that had been gathered by the family, from the family lands or from the common. All that had gone into it was family energy. (Some of that energy had also gone into shearing it during the summer, and turning the resultant wool into clothing.)

Similarly Alf had sown some turnip seed on his family land. This seed had been saved from last year’s crop, by the simple expedient of letting one or two good healthy turnips run to seed. The land had been cultivated by ploughing, using the family’s home bred oxen and rough home made plough. The honey may have been gathered ‘from the wild’ or may have been produced by Alf’s family “bee herd”!

The basis of this transaction was simply an exchange of “packets of energy”. The energy used in the production of the goods.

This exchange of packets of energy was not restricted simply to food. Over the centuries (millennia really) it would include pieces of flint worked into tools, pieces of bone and horn similarly worked. Later on metal ores would be dug up and made into tools and then exchanged for foodstuffs. What ever it was that was bartered it was, in reality, an exchange of energy, of work.

Of course the world changes and develops and eventually somewhere along the line tokens, representing the expended energy, were devised, and these tokens were very benficial. Now it became unnecessary to go out and kill a sheep if you just happen to fancy a turnip or some honey. Instead. you simply used some of the tokens you received in exchange for that last basket of poultry. These tokens, or coinage, also made markets and bazaars possible. You could now take all your surplus sheep to market and come home with a pocket full of tokens and this would enable you to go back again each week to buy just one fresh turnip and maybe a fresh cabbage, should you feel that way.
The markets and bazaars did another thing however. They presented, to the world's ever present thieves, a better and much more lucrative way of acquiring for themselves the packets of energy produced by others.
They simply waited until the man who had just sold his produce was on his way home and then simply “relieved” him of it, in some lonesome spot.

Help eventually arrived, however, because in all these market towns were money changers, necessary for the provision of small change for the purveyors of sweet meats and trinkets etc. and for “foreign dealers”. These money changers were quick to realise that they could protect the seller’s/merchant’s gold/money until his next visit to market, in their strong rooms, and they could charge him a nominal sum for doing this. So as time went by all the big sellers/merchants kept the bulk of their wealth in the strong rooms in town, and only took home with them just what they needed until next market, which was very little. Suddenly we have the start of banking. Which is, in effect, is a series of various repositories, for the safe keeping of tokens for energy, work done.

There is one story in the New Testament that tells of Jesus overturning the tables of the money changers in the temple. Now I am a sceptic agnostic atheist, but, the fact that this story appeared at all says something about the views of the writer of this tale, whosoever he happened to be. There must have been some sort of serious financial problem associated with these money changers some time before 250 AD.
Could it have been that they were in effect parasites, using the packets of energy of others for their own ends?
As the world has moved on, over the last few centuries, the link between energy/work/effort and money has been gradually diminished to the point where today there are countless thousands who are totally divorced from this concept, but the connection is still exactly what is has been since the first barter took place.

All the world’s raw materials, the starting point of all production, still cost nothing. The cost is in the human energy of getting that material, be it mining the ore, extracting the oil, breeding and feeding the animals, chopping down/growing the trees, and then processing and converting all that material into processing machines or products.

The accountants will tell us that production costs are divided into three categories, labour, raw materials and overheads. But will refuse to accept that it is all human effort, human energy, that give rise to every one of those three. ( I will concede that there are things that are added to the “Overheads” which are not human energy, like the chairman’s bonus and the penthouse for his mistress, but then they are totally out of order on any balance sheet under any heading!) Quite a large quantity of the energy is not spent hewing coal or labouring in the grunge foundry but is spent in ancillary activities connected with successfully getting the product to the consumer, but it is nevertheless “productive effort”.

The result of his effort furnishes the energy provider with what is these days called “Purchasing power” to enable that individual to provide, for himself and his dependants, the necessities of life. Or more correctly should do so. Unfortunately so blinkered has most of the world become that the worker and the consumer are seen as two distinct species of animal, whereas they are both the same one. They are in fact two parts of that indivisible Earthly Trinity, The Worker, The Consumer and The Voter.

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