I have difficulty seeing Unicorn (the scooter company) here as anything other than an intentional joke on current VC. They call it Unicorn, they put nothing into actually making a product, and they close up shop immediately after spending all the money on growth -- unlike with Wag, that really doesn't seem like something accidental.
> Wag was looking to raise $75 million. It went to SoftBank and was like “will you give us $75 million?” SoftBank was like “no haha we’ll give you $300 million,” because that is SoftBank’s whole thing, it loves to give startups vastly more money than they want or need. And so Wag took the money. And then like a year and a half later Wag will get rid of SoftBank by giving back, I don’t know, but I am going to say some number less than $225 million (“well below” the valuation at which it invested). Wag got the $75 million it needed for free.
I remember someone telling me something about how 'hard' it is to get a good return when you have a massive amount of money. I suppose they meant beat the market or something like that...
But there are so many examples of folks with massive amounts of cash trying to hit it big(er) ... maybe at some point that big wad of cash really is better off in some index fund or some mixed fund that offsets risks or whatever. It seems like shooting for the moon makes people make bad choices because they feel they have to do things differently.. and ignore some obvious missteps.
> how 'hard' it is to get a good return when you have a massive amount of money
The real problem with scale close to whole countries is that if your money isn't contributing to the growth of the entire economy, you can't really get a return at all.
You can't extract value out of an economy that is stagnant, if the money you are pumping in is merely recirculating in zero-sum mode.
At the small scale this can work, because there are enough small-time losers who lost money when you got it without hurting the balance of the economy, but at the large scale this cannot since there aren't enough losers to lose money to pay you off (or alternatively, there is a war going and/or the government is buying).
So any investment portfolio big enough which doesn't move the economy to be more productive is bounded by the entire economy and in general do worse, because the market might be reacting to the fund & preying on it.
Also "more productive" is a very weird term - giving people public transportation, fast internet or cheap child-care can make a society more productive. Underemployment of intelligent people into subsistence levels of productivity is basically a crime perpetuated by well intentioned folks from the pre-automation era.
The real problem is the idea that you need a return on your money.
You don't. If you're a multi-billionaire you can spend the rest of your life wasting millions a year on super-expensive toys and prestige houses and whatever else you feel like amusing yourself with, and you're not going to run out.
The irony is that this kind of gameified wealth chasing is itself paper-pushing makework. At best it's a financial version of Minecraft - building a pointless but showy thing just to prove you can - with the markets as the gaming environment.
WeWork, WagLabs, and most VC investments contribute absolutely nothing of value to the world. If they didn't exist, no one would even notice their absence.
Meanwhile real problems - climate change, political stability, creating a dynamic culture of scientific innovation and creativity - go unaddressed.
The LPs in VC firms are rarely "multi-billionaire" individuals. They're generally institutions like school endowments, or pension plans. These institutions absolutely do need a return on their money to support the needs of the organizations they support.
I'd make the argument that something like Calpers is quite different to a college or hospital endowment.
Calpers has a huge deficit, whereas Harvard has far more than they're likely to ever spend (especially considering the fact that colleges with the largest endowments also attract enormous donations from wealth individuals).
You're basically making a point about the Harvard endowment and like maybe....5 other college endowments? This is a small percentage of the LP pool, so....not all that important to the discussion.
Isn't a large part of CalPERS problems related to the fact that they ended up being the one holding the potato when the housing crisis started? I thought before that they were very solvent.
> WeWork, WagLabs, and most VC investments contribute absolutely nothing of value to the world. If they didn't exist, no one would even notice their absence.
The irony of posting this on Hacker News...
Snark aside, to a first approximation, voluntary monetary transactions happen when one party gives another party something of value. If you move money around and end up with more than you started, that's because you moved money around in ways that provided real value to people. Now obviously this is an incredibly crude approximation, but the onus of proof is firmly on you to prove that VCs aren't providing value to the world. And please don't go the "I only said most investments contribute nothing of value" route, unless you also have a way to only pick startups that'll actually provide value (hint: if you knew how to do this, you'd be richer than Masayoshi Son).
In this economy you make the most money by creating the perception of value through psychological manipulation.
Actual use-value creation is different and economically secondary.
WeWork is a perfect example. It's an IPO-brand - barely failed, but it was close - instead of a sustainable business. Like competitor IWG/Regus.
This why branding and marketing are a thing. You use them to increase the perception of value. An unbranded widget or service can have identical use-value to a branded one, but the perception of value can be manipulated to make one far more expensive.
As for VCs - VCs are destroying value, because VC culture is geared towards unicorn farming and IPO cash outs, not stable-but-unspectacular business development.
There's a huge amount of potential value being lost because sustainable but unspectacular businesses are starved of growth funding.
There's very little capital available anywhere for these businesses. Banks won't touch them, they can't go straight to IPO, and VCs aren't interested.
In fact VCs are mostly a subset of the investment industry, which makes its money from client fees, not from returns. Clients are tolerant of mediocre returns as long as there's the prospect of a lottery-winning unicorn jackpot somewhere in the portfolio.
As for Masayoshi Son - I have no idea what his game plan is. Nor does anyone else, clearly.
I appreciate this is framed as "incredibly crude approximation", but here's a contrived counter example to try to highlight ugly detail that language such as "providing real value" may gloss over:
> If you move money around and end up with more than you started, that's because you moved money around in ways that provided real value to people.
If I drive the getaway car for my friend's bank heist in return for a 30% cut of the spoils, we can argue I'm moving money around in ways that provide real value to other people (where by "people" we specifically mean my bank-robbing friend).
> providing value to the world
By "providing value to the world" do we mean "providing value to at least one other person ignoring other parties who may have lost value"?
I think as a general rule of thumb it is quite dangerous to conflate "profitable activity" with "providing value to the world".
That's a good point, and one that can't be made often enough.
Conventional accounting excludes externalities, including consequential losses to third parties. AirBnB can pride itself on "providing value" but in fact it massively distorts local economies, and has a very detrimental effect on the availability of affordable long-term rentals.
Tenants in that market suffer directly because their rents are higher, and there are fewer properties available to them.
That's a net cost to them, as a group, and of course it doesn't appear on AirBnB's accounts.
If you want to claim you're "providing value" the burden of proof is on you to provide an economic summary that accounts for externalities and is demonstrably non-zero-sum.
Doing this realistically would reveal that many corporations are essentially rent-seekers, oligopolists, and trivial arbitrageurs, not value creators.
IMO it's going to be impossible to avoid making this change to accounting standards - probably by the middle of the century, at the latest.
Which is good, because genuine value creation is a wonderful thing and deserves all the support it can get.
The money you are talking about belongs to pension funds, sovereign wealth funds, university endowments, etc. If the money went missing, people would notice. People wouldn’t be able to retire, schools would shutdown, countries would face hard times, etc. The idea that institutional investors get their money from primarily individuals is a common misconception.
I don't think anyone is saying anyone NEEDS to do anything. These people with a bunch of money simply decide that they WANT to.
Are you proposing they not be allowed? That after you hit some arbitrary number of accumulated wealth that you are forced to watch paint dry and disallowed from engaging with the rest of the world? How would that even work?
Your personal sense of morals may label this as undesirable but it's very hard to think of any consistent legal framework for enforcing it past maybe "take their money if you think they have too much money (ie more taxes). Even in that scenario they are allowed to invest what they've got though.
> At best it's a financial version of Minecraft - building a pointless but showy thing just to prove you can
Well, except that with real money you get real power, and having real power is far from a pointless endeavour. See for example those nerds who after earning real money they went off to build electric cars, buy NBA teams, and even build spaceships.
Almost anyone can turn $1 into $2. But if you want to turn $100,000,000 into $200,000,000 you can't just do the first thing one million times. Maybe it's easy to find 1 customer, but one million customers will require different approaches.
The people investing in such companies already have massive wads of cash in index funds, hedge funds and just about everything else. A portion of the portfolio is also usually dedicated to more risky investments (such as this) for the small chance at a 10-100X return vs the usual ~1.05X or similar.
I use Rover pretty often for medium-term dog care for trips and such. It usually costs me $400-$1000 for a week or two so it definitely provides a valuable service and good revenue.
Jeez I can take my two dogs to a full on dog ranch for a week for less than that. They get to play all day with dogs and run around on an old farm...
dog ranch = dog kennel
Options in major cities are much more limiting. The nice places like that are absurdly expensive. Rover helps make it more affordable to board your pup for longer trips.
My building in Miami has a 24 hour dog walker that you can call or text, and if you've got an apple device, you can even facetime with your dog, and it's part of my Condo Fees. Because of that, I really have no need for Wag or Rover.
> If you need a little bit of money to grow your business modestly, you can raise a lot of money from SoftBank to grow your business crazily, and then put most of it in the bank and use a little bit of it to grow modestly instead. SoftBank will be disappointed with the modest growth, and you can say “sorry it didn’t work out” and then buy them out at a lower valuation with the money you have left over from not growing your business crazily. Free (modest) growth capital!
It's interesting how much SoftBank has screwed themselves with their strategy lately in such high profile ways. I wonder if this is unique to SoftBank or if there's other big VCs that are experiencing similar problems and flying under the radar.
Who funded Evernote in and out of the unicorn club?
There seems to be a lot of bullshit that people are investing in, which I suppose is fine if you have money burning a hole in you pocket. Things like uBeam, and the Tesla Wardenclyff wireless power thing in TX, come to mind.
> with officials at the $100 billion fund preferring to sell or liquidate the company and other investors preferring to downsize the business while focusing on sustainable growth and profitability.
The fact they went with continuing to grow a sustainable company is what is most interesting about this story and counter to the popular SV narrative. There is still hope left past the headlines.
There are a lot of people looking to build legitimate businesses in the startup world and VCs doing pump-and-dump growth>product schemes tend to be the exception not the rule.
The high-risk splashy investors like Softbank get 100x the amount of press... the Wall St crowd also loves talking about them, which is the subsection of the SV/tech world Levine excels at critiquing.
Maybe Masayoshi Son secretly hates Mohammad bin Salman and the whole Softbank Vision Fund was just a clever way to basically light Saudi oil money on fire while maintaining plausible deniability.
Looking at Softbank's investments, I am having trouble coming up with a better explanation for their behavior.
Many Saudi money investments over the years have gone to ridiculous non-returning projects. As much publicity as they've been getting, I suspect the Soft bank guided investment have actually moved the bar upward on the quality of Saudi project investments.
The Saudis have this huge problem of trying to turn all the oil wealth into something, anything more permanent to diversify their economy before the oil runs dry or climate regulations cutoff the money flow. Earlier work more independently seems to not to have come to much so. Soft Bank and maybe even to some degree the ARAMCO IPO are possible ways to try to tie into global capability to try to up their conversion success.
I'm wondering why Saudi Arabia doesn't just buy the S&P 500 like any index fund. It doesn't seem that hard to diversify? Is it not possible at their scale?
Norway has a trillion dollar sovereign investment fund and they seem to be profitable and uncontroversial?
Even dropping $0.1 trillion into the $25 trillion SP500 fund would affect the price and cause inflation. Index funds do not have the capacity to absorb that much wealth, so large funds like the one in Norway seek out other investments just like Vision Fund.
> Norway has a trillion dollar sovereign investment fund and they seem to be profitable and uncontroversial?
You're comparing apples to oranges. One is a sovereign wealth fund managed by citizens, for citizens. The other is a wealth fund managed by royalty, for royalty, with the main goal being to keep said royalty in power.
Are you implying that royalty likes to lose money? Morever, thr Sauds run a massive welfare state, so it’s a little unfair to claim that Norway’s and Saudi Arabia’s funds are so different.
Firstly, the royal family could care less about the welfare of the average Saudi citizen. Secondly, the royal family has full control over the fund (with zero accountability).
Given these two facts, there is much less harm if they play hard and fast with the fund. Besides, most of the royal family already has their welfare guaranteed for life in the form of personal investments and the monthly salary.
I'm no expert, but from what I imply from general coverage I've seen is that a lot of the cashflow is spoken for in operating Saudi gov't, public basic-income like payments, and family / ruling class payments. Again my guess, but making the case you need to cleanup the company finances for external investors and public accounting purposes may have been easier than trying to separate it out outright internally - either for the purpose of better long term diversification or, maybe, for the more cynical interpretation of gaining more family control of the asset of Aramco.
Norway was pretty unique in that early on they decided to route most of the cashflow into their fund. They're an (the only?) exception to what has been called the resource curse. Oil riches usually don't work out as well as in Norway.
I don't get this part either. Imagine if they'd just thrown that money into AAA international real estate(ie buy skyscrapers outright in 20 major cities) or just run it like a private equity hedge and just bought major stakes in 20 world companies.
It seems hard to imagine that those strategies wouldnt have done alot to diversify and future proof their wealth without gambling on something like wework.
Maybe these transactions would be blocked under some type of foreign influence laws but maybe they could have also snuck under the radar by laundering credibility and origins through the vision fund.
And why should Saudi Arabia to that? It’s a terrible idea. 100% exposure to US equities is a bad bad idea. Ideally as an investor, you wsnt to build a portfolio of uncorrelated assets.
It would still be a lot more diversified than the Softbank fund is. Okay, so maybe multiple index funds in different countries? And a bunch of bonds funds?
I guess it's more correct to say the (partial) sale of Aramco is a major part of their diversification efforts, and the IPO is the first step in that. They wanted to sell more, and surely will if the price is right.
Reality may not be too far a departure from fiction. Great writeup by Professor Galloway on how this could have been a CIA job in the form of a Homeland treatment I found really fun to read:
Well written, I enjoyed it. It is a fictional story, just because something like that seems like it could happen in the world doesn't mean its reality. I think it plays into the desire we have to have order in the world, some unknowing or unseen force driving things and the world is not as chaotic as it really seems. Its the same thing that drives people to theorize about what is really going on behind the scenes about other events, e.g. suicides, plane crashes, etc.
The economic system is driven by greed, there are countless other companies that have essentially been vaporware with no serious amount of foreign investing like WeWork had. Stock symbol GTAT was one that went bankrupt on contract to make sapphire screens for Apple. They weren't a scam but way over promised on what they could do, fooled Apple's due diligence to spend half a billion dollars on a plant in Arizona to make these sapphire screens. Both American companies, GTAT headquartered in New Hampshire and mostly large US institutional investors as their main shareholders.
WATT is another one that I know of and have been following, claims the ability to wireless charge phones not on a mat but in a given area or in a room. However they is no feasible way they can simply overcome physics on that: radio waves follow an inverse square law for power density and they won't get the type of power delivered for that and other reasons. Using a mat if you want wireless charging is about as good as its going to get for the trade offs that come with that. Anything else just doesn't seem economical or able to provide enough of an advantage for people to buy it.. getting that advantage is going to be really hard especially with the technology the company is developing, cause inverse square law. Also wattage for charging a phone is increasing, and we're now seeing power adapters using GaN and delivering 40+Watts in a small form factor... the gap will continue to widen and they won't be able to overcome physics. Yet the stock was as high as 15 or so dollars a share in the last year. Now down to around 2... in this market that is no easy thing to do. Heck even Apple couldn't get it right to make a mat that could charge 3 different devices at once and had to cancel it because, once again, physics.
Enron is the classic example for vaporware and downright fraud. If any entity was hit the strongest by that it would be the state of California having lost billions in economic activity due to the rolling blackouts that company imposed on the state for years to make money.
Okay, that's actually pretty interesting. Practically though, no one is going to do that and it probably runs a foul of FCC regulations. I am pretty sure for that company they're not claiming they have the technology which makes use of this in anyway either.
If they use an ISM band the FCC wouldn't care. You wouldn't get cell signals while inside the room, but passive blocking is legal.
Researchers at Disney are probably looking at it because they want some walk-in interactive experience (like their VR stuff) where batteries would either be an ongoing maintenance hassle, or because they have dozens/hundreds of individual objects that would be impractical to recharge by hand. Hmm, like a big room filled with hundreds of mouse sized wheeled robots, or a thousand quadcopters...
If SoftBank wants to do something more productive with all that cash, I propose they invest a huge amount in some Japanese aircraft manufacturer so they can start building planes competitive with the 737MAX. The aircraft market is screaming for something like this, with the existing duopoly between Boeing and Airbus, and seemingly a new article every week about how bad Boeing is (today, it's some new whisleblower former 737 production manager alleging production problems with the plane). China is working on building such aircraft, but surely Japanese-made aircraft would be trusted much more. This would certainly be a much better use of VC money than subsidizing dog-walking.
I don't think throwing more money at the problem will speed it up too much, they need to build up the institutional knowledge with smaller projects like this before jumping on a jumbo jet.
Yeah, I've read about that, and it's good news, but more investment does allow faster expansion because building bigger planes requires capital investment in facilities. But you're right, you can only expand so fast because you have to build up institutional knowledge, however I will point out that I wasn't proposing that they jump right to jumbo jets, only that they need to more quickly build jets competitive with the 737MAX (which is a mid-size jet). Eventually it'd be great if they also built jumbo jets, but what the market needs the most right now is a modern 737 replacement made by someone other than Boeing. Boeing isn't trustworthy any more, and they're still bound and determined to stick with a 50-year-old airframe design no matter what.
I'll also suggest that, with lots of investment funding, not only could they buy more equipment and land and build facilities, they could also poach valuable employees from other aircraft makers to build up that institutional knowledge more quickly. Surely there's some disgruntled Boeing engineers who value quality and safety over executive bonuses who might like to work for a while in Nagoya?
There is of course a middle point here... "oh, I don't like this guy and he's incompetent enough so that I can be a little evil to him without risking any consecuence".
I'm guessing the risk was asymetric for SoftBank vs KSA. SoftBank probably made a ton of money guaranteed by the deals, plus the chance to make a ton more if they worked out.
KSA only makes money if it works out, and it's not.
Because it applies the convention of one forum to another. It assumes that the readers of this forum will be familiar with them and appreciate their inclusion.
More than themselves Softbank has/is harming the entrepreneurs who now think having modest growth is something one should never aspire for. They see headlines of billions of dollars in funding and assume this is the norm and if they don't get so much of funding then they have not succeeded.
But of course, the Softbank doesn't care - they have a different vision.
HN is not innocent in the propagation of the idea that modest growth is unacceptable. Just look at the number of people "validating" their ideas with landing pages versus just building something that solves their own problems (or problems within their circles) and growing organically from there.
You might as well play the lottery. You have better odds than thinking you will sell for a billion. Hell selling for 100 million or even ten. It's delusions of grandeur.
I never understand why earnings per share is always mentioned. Without knowing the number of shares and some math the number is totally useless. It's like saying comparing the price of a single share of two companies. It's meaningless on its own.
The reality is there’s too much money floating around. The saudis will eventually stop making so much from oil, they need income and cannot afford to sit on cash. But neither can anyone else, so they take risks to deploy huge capital. Probably they’ve made out big elsewhere
In VC? One of KSA's best known VC investment so far is Uber. They invested $3.5Bn at $65Bn valuation [1]. Uber has a current market cap of $47Bn.
One of their best investments has a near negative 30% return. If they just put money in the S&P 500 in 2016, they'd have gotten a ~64% return (positive).
Am I crazy to think they should invest it in modernizing their country and bringing industry to it? Why not invest in making Saudi Arabia the world leader in "X" for when the oil runs out instead of just blowing money on Uber and WeWork?
> The reality is there’s too much money floating around.
Jeeze, it frustrates me to hear such notions when Flint and many other cities still have toxic drinking water, millions are in debt for education and medical bills, impoverished by our rental arrangements, etc.
Perhaps parse that as "too much of the money that exists is floating around generating comical stories for Matt Levine, rather than being spent on increasing human well-being".
Do they have a research laboratory where they come up with patented cutting edge technology for walking dogs, like the Q Division in James Bond movies?
Or do they specialize in walking Labradors?
And I'm not so sure that "Uber for Dogs" is a such good metaphor, because nobody wants their dog sexually assaulted.
It's pretty normal for companies to add a name like Labs to differentiate the parent company from the main (in this case dog-walking) brand.
It says in the article:
> Wag had planned to use the cash to expand internationally and move beyond dog-walking into related pet services including grooming, boarding, food and veterinary care.
It's mostly just a paperwork/organization thing, not something to be taken literally.
When I worked in commercial real estate shortly before the 08 crash, a moderately large local insurance firm rented out an entire floor of a downtown office building as a PARC labs-like play. The employees seemed to spend most of their time shooting each other with nerf darts. Company was dragged down by the crisis a year later and they all had to get real jobs.
You jest, but you'll see the light once you try out their new cutting edge carbon fiber aerodynamically optimized dog leashes. Shave tenths of a second off your dog walk time. There's racing drivers that would literally KILL for that kind of time saving.
Is there a whitelabel gig economy platform that someone could use to start their own company? Kind of like a Shopify for the gig economy - you get your own branded website, apps, management platforms etc.
I wonder if Wag Lab's advanced sophisticated app supports Andy Quitmeyer's revolutionary disruptive fully open-source "Mark Your Territory" technology, from Georgia Institute of Technology and Digital Naturalism Laboratories, that enables your dog to check into Foursquare by peeing? You could track your dog walking and checking into their favorite places in real time!
I've heard this "it's hard to make money even when you're rich" often, and I just don't understand it.
You don't need to beat the market, you just need to beat inflation + your rate of spending, and you're winning the economic gain. That's very difficult when you're poor, but when rich it shouldn't be harder than a set of diversified index funds and not hemorrhaging money just because you're "rich".
Nope, you're exactly right, and it's one of the main engines behind wealth inequality. Once you reach what I personally call material escape velocity, the point at which your lifestyle + inflation < yield on your capital, your wealth accrues up relentlessly. It's like escaping a financial gravity well. Eventually you get to a level where you can weather just about any market shock and then there's basically no way to get sucked back down barring things like death, taxes, divorce etc. The people that have reached this point casually boost on higher while everyone else who hasn't and can't save vs lifestyle needs gets left behind.
You're also right people are thinking beating the market, but that's also a bit silly, you can just buy the market and match it, who needs to beat anything if they've reached this point...
> The people that have reached this point casually boost on higher while everyone else who hasn't and can't save vs lifestyle needs gets left behind.
The mistake in this line of thinking is that a small pool of billionaires getting richer doesn’t leave everyone else behind. Their money is effectively irrelevant in how rich the rest of us are. A 100% wealth tax on all billionaires isn’t enough to fund UBI for one year.
The only upside to “solving wealth inequality” is just to reduce rich people’s ability to big influence in politics. There is no economic or financial reason to do so.
It is very relevant in that it empties out the middle class, and middle-class consumption has always been the engine driving the modern American economy.
Middle-class people buy stuff. Poor people don't, because they don't have any money. Rich people don't, because once you've got five houses it's more appealing to stick your extra money in a bank or in investments than it is to buy a sixth one.
So when you've got an economy geared around selling consumer products and services, you need a middle class to make that economy go. If you make 5% of that middle class rich and the rest poor, suddenly there's nobody around to buy those products and services anymore. Which in turn means the jobs of the poor people disappear and the investments of the rich people take a nosedive.
No, it doesn’t empty out the middle class. That assertion is unfounded. The middle class in the US is so large that the wealth of the billionaires spread out amongst it is effectively a drop in the bucket.
> If you make 5% of that middle class rich
If you’re talking about the top 5%, you’re not just attacking billionaires, you’re hitting all successful small business owners, doctors, lawyers, engineers, etc. That’s an entirely different argument.
The top 5% is not wealthy enough to be affected by the proposed wealth taxes that people are currently fearing. Even the top 1% is not totally affected.
Yes, some of us are in the top 10%, even in the top 5%. No, we are not going to be up against the wall just for having a modicum of success.
> A 100% wealth tax on all billionaires isn’t enough to fund UBI for one year.
This doesn't sound right to me, though of course it depends a lot on what level you set the UBI at. In a US context we typically give numbers around 1/3 of median per-capita income (~$10k, out of $32k), and globally that would be ~$1k (out of $3k median per-capita income).
To give $1k to everyone in the world you'd need $7.7T, and billionaires have ~$9T, so it looks like this would work out.
(I don't think a 100% wealth tax on billionaires is a good idea, just surprised by your claim and looking into it)
That’s $12,000 per adult for a single year. That’s not enough to reach even a minimum wage full time income, let alone a livable wage. UBI is supposed to be something you can live off of. The $10k number you are citing is a joke compromise defeating most of the point of UBI.
UBI is supposed to supplant the need for a job. The $1000/mo proposed by Yang is poverty and it’s still in excess the of $10k cap. Are you starting to see why the numbers are so vastly off?
Money provides a claim on future labor. Having more of it in fewer hands leads to worse decisions for the human race. If I acquire all of the dollars in a rural economy and use them to cause a giant statue of myself made of butter to be erected, after the statue melts I have no money and no statue. The community has the dollars again, but they do not have the butter that was wasted (or the labor time which was wasted).
While it seems like this could be true under some circumstances, I don't see how or why this would be inherently true. (Also, picking "billionaires" as the standard here is a strawman; GP didn't say anything about billionaires.)
1. Each billionaire wasn't created by a small EFT from every adult, so there's no reason to expect that reversing the transaction would somehow fix the issue.
If we focus on where the money came from (we don't try to solve for individual billionaire-creating events like inheritance), I would imagine most of it can be described as accrued by extracting small slices from a great many individual transactions (including labor arrangements, government contracts, B2B, retail purchases; directly and transitively through investments, incentives, etc). Little slices of the value that transaction may go to a very large number of individuals, institutions, and corporations.
A great many things seem plausible. Billionaires (or anyone that, as GP said, reaches material escape velocity) could be getting richer by obtaining ever-shrinking slices while facilitating an always-growing number of transactions. Or Billionaires might be growing richer by "winning" (concentrating) slices that used to go to a larger number of people near the top of the wealth scale (via competition or consolidation). Or they could be obtaining slices that used to go to everyone else.
2. While I think I agree that the big benefit of solving wealth inequality is clamping the range of influence, I'm not sure what magical firewall limits the influence of the rich to politics (unless you have a very expansive view of the political).
I agree mathematically but wealth is very much a relative phenomenon, hence the term "inequality". Yes if an alien dropped a bunch of real wealth on the planet and gave it to a lucky individual, the others would be no poorer, but they would sure feel it (all else equal).
This is obviously a highly complex and lengthy topic that spurs tons of thought experiments but I generally agree with your latter point.
I think Bay Area real estate is a good analogy. Almost everyone is making more money than they were 10 years ago thanks to the tech industry, increases in minimum wages, etc... So technically everyone is wealthier, even after accounting for inflation. But thanks to increases in wealth inequality, the real estate market has gone bananas, resulting in the average resident feeling worse off.
I believe it's not a problem for an individual. Getting market returns is fine for a normal high worth individual (even if some of them won't accept that and demand ways to beat the market).
It's a problem for people in the financial sector whose income/wealth stems from convincing people that you can beat the market (convincing is really the key, but it's way easier to convince people of it if you've already had success--even if that was luck).
If you have a few million dollars to invest, you can beat the market by just finding a few arbitrage opportunities. But if you have $100 billion to invest, you need a lot of ideas--figuring out that a $1 billion company is incorrectly priced only lets you get returns from a fraction of the money you manage.
Note: I'm an outsider..maybe someone in finance could give a better description.
I think you are missing the feeling of getting "financial cancer" or in a "financial car crash", like this very unexpected thing that sometimes happen to people where there's a huge global financial crisis, or they get scammed millions. The fear of that happening makes you do higher risk bets to maybe "just jump a little bit higher just in case and of course it may be the chance of my lifetime...". In the realm of those bets is sometimes where the actual crisis happen so it's kind of a vicious circle and very hard to break.
Of course if all high risk high reward bets where guaranteed not to ever send the rest of the world crashing a burning it would be a virtuous circle, but history proves it's not the case so the fear of this financially crippling event still lingers.
I guess some simple (probably too-simple) possibilities are:
1. They aren't just trying to beat inflation. *
2. Viable ways to make money change depending on the scale of the money you're trying to tie up. A lot of things don't scale (or, maybe better said, scaling them requires additional competencies and may ruin the margins that made it worth doing).
3. You aren't the only one out there competing for opportunities. There's a lot of money out there seeking return.
* I'm shooting from the hip, based on my (potentially flawed) understanding of some reading I've done over the past few years on the body of Capital as Power (CasP) theory being built out by Jonathan Nitzan and Shimshon Bichler among others.
When they frame Capital as Power, one of the important implications is that it isn't an absolute quanta--it's a relative measure (i.e., power describes a relationship--one can have power in some relations, and not in others).
By framing it as a relative measure, they also suggest that attempts to increase one's capital are less about trying to beat inflation than they are about trying to gain power relative to others. I'm not sure I can unpack this in a very concrete way, but some implications are like:
- You could just beat inflation in a high-growth sector for a decade or two and still lose large amounts of power relative to the big players in the sector, and effectively end up transitioning from having enough power to check the other participants to having too little to keep them from pushing you around.
- You could lose money (absolutely) in a crisis, but still significantly increase your power relative to others.
A ball-less monkey can become richer in the United States, given some initial capital. And unless you are extra egregious committing white-collar crime, you don't risk going to jail. Just make sure you screw over someone down the food chain, that's all.
Yeah, sure, it's a bit idiosyncratic, but Matt Levine is a pretty well-known and popular columnist, not just some random guy. It's a daily opinion column on finance. He's not really going for "professional" so much as "approachable" IMO.
> you can say “sorry it didn’t work out” and then buy them out at a lower valuation with the money you have left over from not growing your business crazily.
Does SoftBank not have liquidation preferences???
This is the exact sort of thing that liquidation preferences prevent: buybacks at a lower value with the investor's own money.
Because otherwise, yes, you can indeed unscrupulously print capital.
EDIT: I suspect the author is either ignorant or grossly overstating the point.
Considering "the author" is Matt Levine, who is not exactly an unknown, I think ignorant is off the table. Slightly overstating the point for comedic effect certainly fits within the theme of the newsletter though.
> EDIT: I suspect the author is either ignorant or grossly overstating the point
Or SoftBank has a massive lack of core competency combined with being lucky enough to have hit the Saudi oil money well while drilling... imagine an alternate reality where Uber and WeWork have worked out, people would have hailed SoftBank as revolutionary visionaries.
Liquidation preference held by A over B can't possibly be relevant to a stock transaction between A and B, because if A is happy to pay that price for the stock, they are also happy to waive the preference to do it.
