Who will the winners in the post-Finreg Capital Markets? June 27, 2010Posted by bernardlunn in capital markets.
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The “first major overhaul of the financial system since the 1930′s” is in the final stretch to becoming law (details here from WSJ). There is lots of talk of who will lose and what Goldman Sachs will do – to be or not to be (a bank) that is the question. And of course lots of critique from all sides – too much regulation, too little regulation, the wrong regulation and so on.
My question is simpler. What companies will win from this? Specifically, what companies will win the trust of individual investors and small companies seeking access to capital. I am choosing those two constituents, because they are the ones that have been sidelined by the last few decades of speculative, shadow market craziness. The firms who have done well – the Fortune 500, the hedge funds, private equity funds – will still do well (their lobbyists earned their pay, inserting small but critical bits in late night haggles).
But in the end, the health of the capital markets and of the economy as a whole is determined by two parties in a simple transaction:
1. A young high growth company needs access to capital (debt or equity or both).
2. An individual investor, either directly or via a fund, invests in that company.
Both parties have been totally alienated and left out of the party. But they are the essential parties to the transaction. So who will gain their trust?
I can think of three actual companies and one type of company.
The three companies are:
1. Vanguard. To the individual retail investor, John Bogle should be the hero. His consistent story over decades – that the cost you pay to fund managers is the biggest factor in your eventual payout – has finally become accepted wisdom.
2. Charles Schwab. With the founder back at the helm, we see a consistent focus on serving the individual investor and their advisers with quality products at low cost.
3. Grant Thornton. Who? The first two are obvious. As per Wikipedia, Grant Thornton is a “Grant Thornton International is a global organisation of accounting and consulting member firms which provide assurance, tax and specialist advisory services (SAS) to privately held businesses, public interest entities, and public sector entities. Grant Thornton International Ltd is a not-for-profit, non-practising, international umbrella membership entity organised as a private company limited by guarantee. Grant Thornton is incorporated in London, United Kingdom, and has no share capital.
Why I rate Grant Thornton is their leadership on this initiative: http://blogs.wsj.com/venturecapital/2010/06/22/grant-thorntons-proposed-alternative-public-market/# Where others in America propose “shadow markets” that lock out individual investors, this Grant Thornton proposal tackles the problem for the small cap company without tossing out the SEC regulatory protection for the individual investor.
The one type of possible winner is a startup with a disruptive online model for connecting the two parties, probably using some mixture of P2P Finance and auction pricing. I see lots of contenders but these are very early days, way too early to call a winner.
Destruction Of The Creative (Middle) Class June 18, 2010Posted by bernardlunn in Uncategorized.
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I live in an area where many people make their living with creative work – music, painting, photos, movies, etc. At a recent party on Memorial Day, the relaxed conversation by the pool got a bit more stressed. One person after another told stories which all could be summed up as:
“The price for my work has crashed 90% in the last few years”.
No creative activity was spared and all were represented at the party. Nor did anybody see this as a cyclical issue to do with recession. All of them were preparing for this as the new normal. The culprit of course was the Internet.
Do you remember Richard Florida’s Rise Of The Creative Class? The concept was (is) appealing. No more gatekeepers. Creative folks can meet their customers directly.
But the direct evidence points to something that is more like the hollowing out of the creative middle class. Power law is at work. The best do even better. One person at the party described how he had a turning point in his career, after seeing his income plummet, and how after that business totally took off.
The bottom end makes money for the content aggregators – just ask Demand Media. The work that they offer is a life-saver for those that have nothing else. But they may aspire to that solid middle class of creativity and that may turn into a mirage.
Then I saw this from Jaron Lanier (via AlwaysOnNetwork). This bit resonated:
“If you want to know what’s really going on in a society or ideology, follow the money. If money is flowing to advertising instead of musicians, journalists, and artists, then a society is more concerned with manipulation than truth or beauty. If content is worthless, then people will start to become empty-headed and contentless.
“The combination of hive mind and advertising has resulted in a new kind of social contract. The basic idea of this contract is that authors, journalists, musicians, and artists are encouraged to treat the fruits of their intellects and imaginations as fragments to be given without pay to the hive mind. Reciprocity takes the form of self-promotion. Culture is to become precisely nothing but advertising.”
One example. The folks who make money building and selling gadgets that people use to listen to music, tell the artist who complain about not being able to sell music:
“let them sell T Shirts”
The musicians at this party took the view that they did not get into music to sell friggin T Shirts!
I see the power law in writing. Great authors do fine. Top quality publications like Economist do fine. At the bottom, content mills like Demand Media do fine. It is all the stuff in the middle that is hurting. In that simple sentence are millions of middle class families.
I buy into what Clay Shirky writes in Congnitive Surplus – if we spend less time watching TV we can share for free what we create for fun. That is fine as long as the lower levels of Maslows Hiearchy of needs are taken care of. But when people don’t know how to pay the mortgage, sharing is a luxury.
The technically creative folks, the ones creating gadgets and sites aggregating “content” seem to be doing well. But when “art” becomes “content”, something is wrong.
Not sure of the answer, but the problem looks real and deep for many.