I have been trying to stay publicly quiet on the recently passed Jobs Act as at times I get fed up with my endless stream of put downs as the response to the massive false positivity in Venture. I prefer to spend most of my time thinking about and working on how to fix the systemic incompatibility between venture capital and innovation. But I get asked by many to give my perspective and so here it is.
First off, I am not going to stoop down and submit to the details of the Jobs Act, for the simple reason that a conversation of how to cure the economic equivalent of cancer should not evolve into an endless debate of whether Tylenol or Aspirin during that malaise is the better relaxant.
Meaning, I have no faith in the Jobs Act’s ability to solve the more fundamental and pressing requirement of economical repair and to contribute to a more vibrant and prosperous economy. And any time spent by the government on the passing of these downstream economic corrections, merely kicks the economic can of much-needed economic innovation further down the road, whilst pacifying the voting public.
The postnatal abuse of freedom
Put differently, the creation of the Jobs Act subscribes to a behavioral pattern I see us adopt so often. To name just one, the creation of so many fitness programs (every money-scrubbing celebrity has one), is the signal that we ignore comfortably that we (in the U.S.) eat too much, eat unhealthy, poison our food with production stimulating chemicals, and absorb too much sugar that feeds the popularization of the proverbial fitness bottom-feeders.
The unbridled multi-generational luxury of a free-for-all ignores and tolerates a lack of prevention that not-if-but-when we least expect it, accumulates regression and surreptitiously knocks on all of our collective doors at once. And so the Jobs Act is only there because we ignored to implement the preventive mechanisms that put our economy and Venture Capital in this precarious situation.
The losing gambit
The removal of the 500 shareholder rule, the enablement of crowd-sourced funding, the permits of general solicitation and an easier path to IPO all lead to a further sub-priming of the asset class analogous to the above described scenario of us getting fatter.
An easing of the downstream economic inefficiency will not deter from the fact that successful investing in groundbreaking innovation requires an arbitrage that is as anti-socialistic as the outliers they aim to serve. Because only those outliers can produce $1B companies that produce tangible social economic value post-IPO with the potential to contribute 20% of GDP. So, the commoditization promoted by the Jobs Act is economically incompatible with the needs of the underlying asset, and no amount of money (but the adjustment of risk) will erase that incompatibility.
To reiterate, the Jobs Act exists because Venture Capital has neglected its role as the competent arbitrage for economic upside of innovation. First angel investors deployed their help to the sector, then micro-VCs, then private startup programs, then secondaries, then government-funded programs (like Startup America), and now with its most recent rescue effort, the easing of the Jobs Act and further support by the public (that lost the most in Venture Capital’s previous endeavors already).
My ability to predict the impact of the Jobs Act on the performance of Venture Capital stems from my experience as a salesman confronted with many customer objections. I would ask Venture Capital that has used many of those objections and excuses in the past, a simple question not unlike the following. If we were to provide the easing you suggest in the Jobs Act, what will your performance then yield? And I predict their promise will be consistent with the easing that has been provided to them in the past, and the accelerated sub-priming of innovation that has yielded.
So, while on the surface the Jobs Act sounds as good as a brand new fitness program helping the obese, its emphasis and deployment is counter to the needs of groundbreaking innovation that can have a lasting economic impact for years to come.
Those in government who create the proverbial fitness programs for innovation are the snobs afraid, ignorant or not knowledgeable enough to ruffle the feathers of the real economic problem. They play hooky to their fiduciary responsibility and as a result actively stimulate those who trade short-term gain for long-term economic prosperity.
Children, not our government at play
The role of government is not to tinker with the outcome of an economic system (downstream), but to change the economic system (upstream) so it produces the desired outcome. Government should not attempt to create jobs (that are highly temporal anyway if not supported by sound economics) but build an economic system that is just as progressive as the magnificent resources we have at our disposal. That compatibility cannot be achieved with an economic labyrinth that is in blatant violation of the economic freedoms – we constitutionally are owed – designed to stimulate and protect us all.
I truly understand the need to put a band-aid on a bleeding economy, but not when that is all we are doing. It is time “the experts” stop fooling the public.