“Doing Capitalism in the Innovation Economy”
A Conversation with Bill Janeway, Senior Advisor, Warburg Pincus, NYC and Cambridge, U.K., and author of a new book of the same title; hosted by Mark Anderson
Bill Janeway: The conversations we’ve been having here over the years have been useful in fleshing out ideas about risk and uncertainty, about what can be measured and managed, cash control as tools for hedging against unknowable, dynamics of information economy.
New book is called “Doing Capitalism in the Information Economy.” Out in October.
Mark Anderson: Facebook — I didn’t buy. I didn’t try to buy. What is your view on that?
BJ: The significance of the IPO as it actually happened is strategic. There is research on IPOs and VC returns, which are closely coupled to state of IPO market in particular. Shouldn’t think about VC as a separate special asset class.
Since bursting of .com bubble, IPO market has been as much in retreat as the 1970s. Very few IPOs, mostly from companies that didn’t need the money. Hasn’t spilled over so that speculative capital flows. Two major efforts to promote IPO bubbles. Data tech has failed, clean tech failed. Social media is the one narrow area that has created excitement.
Inside investors created more stock to push their own economic agendas. We can’t blame them for that. With Facebook, the market’s telling us it was overreaching. I wouldn’t dream of getting into who did what and said what on road and whether litigation was legitimate. From a systemic point of view, it is not likely to regenerate a vroad, vibrant IPO market. The signal going is was that there was a strong amount of regional retail interest.
This IPO has doubled down on the pressure of the IPO market, which will create strong ripples downstream for the entire market.
The Jobs Act is reducing the cost of being a public company by reducing regulatory oversight, but is not going to reconstruct ecosystem of the 70s for supporting small scale businesses and their integration into the economy.
MA: I wonder if we’re seeing a very long term trend in banking in general. An explosion of ideas about how people can become their own due diligence rather than letting Goldman Sachs tell me one thing and then do another. We’ve lost respect for banks as gatekeepers. I’m seeing successful attempts to make smaller amounts of money through the internet.
BJ: For web-oriented, consumer-oriented start-up, the cost of getting into business is so small. For a category, crowd-sourcing will work, but on the other side the opening of the scale real change is happening. Creating a forum for amateur investors to fund larger companies.
Took 10 years to make pricing transparent, with the emergence of the new digital economy, it not only became respectable to invest, it became an engine of growth.
MA: There’s a retreat on the part of retail investors from private markets at a time when they feel they can’t possibly compete with Goldman Sachs. Complicated by Goldman’s ability to relocate and colocate their servers nearer and nearer NASDAQ so that they have a microsecond of advantage.
BJ: I take high frequency trading as a positive aspect of business, but trading has 0 to do w anything about fundamental economics of business. Some HFT specialists put in 100 orders, jam the book and pull 90 orders at the last minute, blocking access to exchange for some near or long term investor like Fidelity. There’s a whole set of v. complex but important regulatory issues here.
There is an aspect of IP that needs to be shared. Creative and funders from fed govt insisted on looser regulations. Certainly desire to capture proprietary innovation, but not enough. Still, there are certainly innovations that have made the economy by being open, like the internet and DARPA.
For-profit, entrepreneurial business are just as important as looser investment. There’s a balance of integrating between political, financial (speculative, bubble and crash dynamic) and how between them and out of that interaction come the great waves of innovation that have led society to where it is today.
MA: How does innovation economy remain healthy?
BJ: The notion of the follower nations, working to catch up goes back to the East India company. The least read great economist is Friedrich List, a german, who wrote about the national system of innovation. Has to do with how risk necessary to compete against other leading nations only takes place with the support of larger actors and organizations.
MA: Where is future of regulation on equities markets?
BJ: Still living through consequences of 2008. Not maybe even halfway through. This time it was different: We’ve experienced the 1st global financial crisis of big state capitalism. Govts were big enough to save financial system from its own issues. Working through reg response to those excesses is still a long-term game. I still expect more regulatory oversight (JP Morgan, Facebook) It’s slow and painful and doesn’t expect a lot of exuberance.