This morning, I was on the floor of the NYSE promoting my new book, The Innovation Blind Spot. In the book, I talk about how we use a “one size fits all” structure of venture capital to support new companies. Incredibly, the way we finance the dreams of today’s entrepreneurs uses a structure that originated in 19th century whaling. (more information on that here). We’ve focused our innovation economy on WHAT we’re investing in, not HOW we’re investing.
But more important news was happening behind me. Social + Capital, a Silicon Valley venture capital firm, today created a new holding company, Hedosophia, and took it public on the New York Stock Exchange. Chamath Palitpaya, the founder of Social + Capital, said in an interview last month with Recode’s Kara Swisher that capitalism and democracy are the two greatest inventions to govern humanity — but in America today, they’re both decaying, in large part because power and resources are being increasingly concentrated in a few people.
The big companies of today are hollowing out entire industries and communities. Today, if you pitch a venture capitalist, they’ll ask, “What’s your exit strategy?” This usually means, “Which big company is going to acquire you?” Our economy is becoming highly concentrated — according to the Economic Innovation Group, more Americans are working for big companies than ever before. This is killing our economy — as economist Simca Barcai outlines, corporate consolidation and acquisitions have cost the average family $14,000.
But entrepreneurs seek to “exit” to a larger company because they feel like they don’t have a choice — their investors want an “exit strategy.” I’m excited about the Hedosophia IPO because Chamath and the team at Social + Capital is giving entrepreneurs a different way to provide their investors an “exit” — companies can become a part of this holding company, and investors can sell their shares on the New York Stock Exchange. It’s kind of a Berkshire Hathaway for the little guy.
I’m most excited about the innovations that help entrepreneurs build companies to last, not to flip. In The Innovation Blind Spot, I highlight the example of New Belgium Brewing (who brought you Fat Tire Beer) — a billion-dollar company that founder Kim Jordan sold to her employees, giving janitors secure retirements. My firm Village Capital invests often in rural areas with a revenue-share methodology — this Bloomberg Businessweek article highlights one investment, Fin Gourmet, that is creating quality jobs in rural Kentucky, and we share in the revenue growth of the company.
If we want to actually restore America’s entrepreneurial dynamism, we need to focus our innovation economy more on ideas like today’s IPO-that re-think HOW we invest.
