Investors And Jobs
Badtux asks the basic question: Do ‘the rich’ create jobs?
MalWart is recognized as the world’s largest retailer, and is worth billions. If you read about Sam Walton and the building of his company, one of the things you will learn is that Wall Street wasn’t involved until after it was already a rapidly expanding empire. The ‘initial stock offering’ was Sam Walton selling stock to friends and neighbors, not a big bell-ringing ceremony involving investment bankers.
After a market downturn, a journalist asked Sam Walton what it was like to lose a billion dollars. He replied that he didn’t lose anything – that money never really existed. A lot of people learned that lesson during the global meltdown when their ‘million dollar house’ lost its value almost overnight, as did their 401K.
‘The rich’ aren’t investors, they’re gamblers, Wall Street is one of casinos they frequent. The only thing they actually invest in are Treasury bills. Of course the Treasury bills could be used to create jobs repairing infrastructure, but the political parties don’t want to do it.
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Well, *some* of the rich are investors. I know that because they gave our company some money in exchange for a piece of the company. That said, they’re just *one* possible source of funds. For example, one of our investors is a university pension fund. That’s not “the rich”. Another of our investors is an industry giant in our industry that wants our product finished ASAP so they can start selling it into their customers. That’s again not “the rich”, though they’re a Fortune 500 company, it’s just a company that needs a solution and has decided that buy (part of) the company rather than build it themselves is the way to get it since what we’re doing is outside their core competency.
There’s a lot of sources of funds and we tapped most of them. “The rich” was only one of them.
– Badtux the Entrepreneur Penguin
It’s not hard to separate the investors from the gamblers. Are they putting up the money for long term income, or simply looking for a big payout?
When I was investing, I had the physical stock certificates. When things changed and brokers starting talking about leveraging and margin buying, I got out. Too many people were convinced to borrow against their equity in their homes to gamble in the market. That was a fools’ game, because the ‘house always wins’.
Small businesses as we know are started with personal capital, then money from friends and relatives, and when you have established yourself you can go to the bank for a loan. No one goes to venture capitalists if they can avoid it, but loss of control is using very high.
You sound like you have a decent mix, with some long-term investors involved.
Going to the bank for a loan really isn’t viable in today’s banking climate. They aren’t interested. They make more money by keeping cash on reserve at the Fed than by lending it.
We established the company with personal capital and then cashflow from operations. The investors came in only after we had demonstrated we didn’t need them, because that’s the only time you can get investors without giving up too much control of the company. A decent mix means you end up able to play them off against each other too if one of them decides to be uppity… especially since we had twice as much money clamoring to get in as what we actually accepted. That other money is still there waiting if one of the current investors gets upset that we don’t follow his advice verbatim and stomps off home.
But anyhow, even though we didn’t absolutely *need* the investor money, the particular mix is important for convincing major corporations to buy our product. We’re no longer just a handful of guys in a tiny office working off of folding tables and hand-me-down equipment. We’re backed by XYZ Ventures, Big-A$$ Security, and Richer-than-Rich Big Name Angel Investor. It makes a difference. And then there’s Big-A$$ Software Company that wanted to make an investment because they have a major problem that we can solve for them (but we aren’t building it for free — cash on the barrelhead, baybee!), but their long-time CEO has “decided to retire” (with a bit of prompting from the Board of Directors) and they can’t actually do anything until their new CEO is selected and in place… I’ll let you marvel at the fact that said company would be interested in investing in a Linux-based software company :).
Anyhow, it has definitely been an experience. The two money guys who initially financed and started the business know their stuff and watching them in action is like watching a pro baseball game a few hours after watching a Little League game… the level of play is just way up there by comparison with what I’ve seen at other startups I’ve worked at. They’re definitely playing the long game… this is their retirement fund that they invested in the business, not anything on Wall Street.
The most I got from a bank was a short-term line of credit for equipment purchases for customers. It was rarely used, but it it was necessary to cover while corporations were stalling on paying their bills, and something came up. It saved the hassle of the paperwork with individual vendors for net 30 accounts, as some of the people involved might have cash flow problems and the guys in Taiwan and Korea wanted cash up front. Strange business in the early days.
If you are going to do it on the Internet, you are going to use some flavor or derivative of Unix to be successful. Good, bad, or indifferent that’s the way things are.
People don’t know that the primary purpose of an IPO is to cash out the venture capitalists. By the time Wall Street gets involved the company is firmly established. The problem is that often the people who actually created the company’s worth may decide to cash out and move on, which tends to be a disaster.
Wanting long term income is investing, and it is the sanest approach for a stable economy. Too many start-ups suffer from management that thinks you can hire someone to manage the finance side. They needed the old ‘business data processing’ track in computer science that required accounting courses as well as IT courses. Understanding how businesses really work is important before you try to start one.
Hmm, the old ‘business data processing’ track is the one that I took. Go figure :).
If we IPO I’m going to stick around until Medicare kicks in, if they’ll have me that long, because I’m part of the 401-Scam generation that will have no real retirement thanks to Wall Street looting pension funds. So waiting to take Social Security until it’s at its max is probably my best bet. My share of the business would be enough to buy a house with the proceeds anyhow, but not much more. Of course living in an area where ordinary suburban tract homes that sell for $120K in your area sell for $750K here makes that a pretty chunk of change…
It looks like the market is going for another bubble burst next year when the Fed finally stops buying, so the recovery in 401Ks will be short-lived.
The best way of buying a house down here is to buy the land and have it built by a real local. The tracts are all over-priced, and they contractors who build them disappear after they are done. That also avoids having to cover the bribes necessary for most of the crappy houses built by outsiders to get by the inspectors. The materials are cheap, and so is the labor, so there is no reason to pay more than $100K for a nice new house.