“Bill Janeway, a key creator of modern venture capital, tells the amazing story of the intersection of economics and innovation. This book is essential to anyone who wants to understand technology and how its creation will be financed for decades to come.”
— Marc Andreessen, co-creator of the Internet browser, co-founder of Netscape and Andreesen Horowitz
This post contains mostly my highlights from William H. Janeway’s Doing Capitalism in the Innovation Economy. This book changed the way I viewed bubbles, the government’s role in innovation, investing, and technological innovation in general.
The following text is quoted from the book, my notes are in brackets, and the quotes are Janeway quoting others.
Cash & Control mitigate crises
I have learned that the ability of any player in the game to hedge against what cannot be anticipated — to hedge against crisis — is a join function of assured access to cash and sufficient control of circumstances. Cash buys time to find out what is going on; control permits the player to use that time to shift the parameters of the problem. (pg 6)
Big Data doesn’t get rid of need for judgment
I learned to pursue parallel but methodologically independent approaches. First, one would project forward estimates of future cash flows, discounting them back at a rate judged to reflect an appropriate level of idiosyncratic risk specific to the perceived stability of the business and its competitive position, as well as to market rates of interest. In the language of the new finance theory just being propagated, this defined the “fundamental,” as if only one such number could be generated and as if all interested parties would agree on it. In practice, alternative approaches were invoked. One would identify more or less comparable public companies, then introduce market metrics such as price/earnings and market/book value ratios, making appropriate adjustments to reflect the particulars of each company in question. Finally, one would estimate the likely net realization from a hypothetical sale of the business, having due regard for “what a willing buyer would pay a willing seller, neither under any compulsion to transact.”
The layers of judgment in each of these methodologies for valuating companies were as evident then as they are now. In a financial universe transformed institutionally beyond imagining from that of the early 1970s, the same techniques remain central to the discipline, and they are just as dependent on judgment as ever, regardless of the reservoirs of data and massive computing power brought to bear.
US Defense Department had a crucial role in creating Silicone Valley
The National Science Foundation was endowed with a broad mandate across both the natural and the social sciences, but the Office of Naval Research’s initiative pointed the way. National funding of the basic research that enabled the IT revolution emerged largely from the Defense Department. The Soviet threat, [Continue reading]