NEW ENGLAND CAPITAL VENTURES

Today is a strange day. It is strange because I realized no matter how hard anyone works – in the end – if we’re lucky and smarter than the guy sitting next to us – we’ll get it right. If not – we will continue with the hope to get it right somehow. There is really nothing you or I can do anything about how things are going to go. It’s all about how you can influence others to listen to your rants.

I started attending board meetings and investor presentations at the age of 10. Often, my father used to pick me up from school and have me do my homework at his office. This was the early 80’s. In the beginning, I was confused as to what people were really trying to say during these meetings. Answers to questions were meant to confuse rather than clarify. My questions to these gentlemen were generally ignored under “you’re too young to understand” but I continued my quest to try and decipher the conversations that occurred on a daily basis.

I soon found out that communication clarity had a decreasing return - higher the position lower the quality of communication. The engineers were at the top of my list – even at Grade 6, I knew what they were saying and understood why they were saying it. But I had no idea what the VP’s and C-Level were talking about. They used a lot of big words to say the same thing a hundred different ways. They sounded really important and intellectual and had several degrees after their names. My ‘ah-ha’ moment finally came to fruition after I was laid off the first time from CMGI back in the hay-days of the internet boom. It took me a solid decade and a half to understand what the board in those meetings really meant.

What he meant (as I understood 15 years later): I have no idea about our market size or our existing production capacity or how many people actually want what we make. In fact I don’t even know what we make anymore and who we compete with. But I’d like to go ahead and invest all our reserves in this deal anyways.

Dilbert was right after all!

This example clarifies why we screwed up in 2000, 2008 and about to do it again in a few years. In fact, economic cycles used have longer bell curves and it seems they’re getting shorter and shorter. With increasing and over-communicated media frenzied self-reporting news junkies that we are, our responses to everything is faster. John Chambers’ email to his employees about the confusion that reigns supreme at Cisco was in the hands of googlers within 20 minutes after he pushed the “send” button. How do you think we reacted at this and how do you think Wall St. interpreted this email? Now imagine you are in 1997 and it took you 2 weeks to get to this story and by the way – only in the hands of a small elite internet minority. Do you think we would have reacted the same way? It just means our idiocy is brought to light much faster than it used to. Before we did not have a voice – now – we blog. Capital market decisions are based more on speculation than facts. Speculation is just a fancy word for “I don’t have a clue so let’s bet”.

Whether you like it or not – the state of the economy is in a constant flux because there is so much information out there, most of it absolutely useless and out of context, that it is impossible for an average person to make sense of what’s really going on. Add the complexity of cross-border trade dependencies of goods and services and you’ve got yourself a big mess. And it’s this average person that is running the economy. Decisions in households and companies are more reactionary than factual consensus based. This results in nonsensical decisions and skewed economic outcomes.

Think about it – with all the combined knowledge of financial super-houses and the Fortune 500’s and with all their IT prowess – we still screwed up and no one had a clue what hit them. We let our lack of common sense run so supreme and deep that we defied all economic theories. And then we played the blame game. This is similar to 3 - 5 year olds eating sugared candies running around amok and banging their heads on the dining table and blaming the table for hurting them.

Our Government operates in an even greater conundrum and it would be waste of everyones time and effort to get into those details. Long story short – the Government is even more clueless than the private sector – the only difference is they have access to nukes, tanks can blow up countries and print cash.

And the other side of the grass is not green either. The EU is in deeper doodoo than we are given they operate as a union of countries – most of their monetary parameters completely out of sync with each other. So comparatively, we seem less stupid and other countries were copying us to put our “policies” in place.

Economists are a shrinking minority in my opinion. Before, theories worked because the level of market influence was controlled and fairly sustained with most information never communicated. Today, it’s the complete opposite both at the micro as well as macro level so there isn’t really a point to any of these economic text book theories. This is a bold statement to make but I stick to it. The past 3 cycles have baffled even the most renowned economists. I think we are over analyzing and making things more complicated than they need to be. I really believe common sense goes a long way and if people really wanted to hedge bets, they should put information in perspective.

But that’s wishful thinking. The real economic dependancies are not supply and demand factors – its information. The speed, the medium and the rate with which information is communicated. Look at how google rates its news stories – based on how many times it has been read. Whether or not there is any relevance to capital markets or not – most predictive modeling algorithms at hedge funds and private equity market leans towards frequency of information – not depth of information. There is no contextual approach in today’s world.

For a lot of young entrepreneurs entering the capital markets – remember – it’s not really about facts or how smart you are. People have already made up their minds and who you know. It’s about how you can navigate through all the idiocy floating around and finally bet on something or someone that you hope won’t screw-up.

After all – that’s the basis of venture capital, isn’t it? Try it a hundred times – maybe we’re right once. J

Create something that can filter through the information overload, put things in perspective and logically explain if the news should have any bearing on capital markets. Essentially – write a code to replace the economists’ job function. Now that’s a killer app!