Tuesday, January 17, 2012
John Maynard Keynes on Occupy Mitt Romney
"No man of spirit will consent to remain poor if he believes his superiors to have gained their goods by lucky gambling. To convert the business man into a profiteer is to strike a blow at capitalism, because it destroys the psychological equilibrium which permits the perpetuance of unequal rewards. The economic doctrine of normal profits, vaguely apprehended by everyone, is a necessary condition for the justification of capitalism. The business man is tolerable so long as his gains can be said to bear some relation to what, roughly and in some sense, his activities have contributed to society."
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Yes absolutely.
The media is buying into the spin that this is an attack on venture capital. But the Venture Capital 'Angels' who put money into tech startups mostly have their money in the hands of the whiz-kid(s) who are merrily spending it, in the early years of a tech startup there is literally nothing to loot and the payoff is generally at the IPO.
Private Equity is a different model altogether. Whereas VC Angels see money loaves cast on the water hoping they come back three fold, PE types start eating their catered sandwiches from the git-go and charge it to the takeover's account (management fees/dividends).
What is going to kill Romney (or should) is not that every investment didn't result in a viable company going forward, most VC Angels can ruefully point to their own equivalents of WebVan, but that even the failures (e.g. GS Tech) still gave Bain huge returns in the meantime.
In fact it would be interesting to compare Bain's ROIs on 'successes' like Staples as opposed to 'failures' like GS Tech. Because they had a huge ROI on the latter, it is hard to imagine that beat that financing a big box low margin office supply chain.
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