Fund Mashing

i'm taking a week off of whatever it is i do in sf and hanging out in hawaii with my girlfriend. i'm having my own more ghetto version of bill gates' think week, reading magazines instead of deep thought treatises and surfing the net and even some blogging.  here's my first big thought...maybe we have entered a new era where great investment opportunities are actually worth more money. maybe the balance of market power between the capital providers and capital users is undergoing a permanent shift. we are seeing the top venture capital firms command 25-30% carries and an explosion in the number and size of hedge funds whose managers can earn more in a good year than even the most over paid ceo or innovative entrepreneur. i have been lamenting the lack of leverage for people like myself to spend their waking hours on new ventures, but maybe the  market is more efficient than i've realized. in a world of massive capital pools chasing fewer return opportunities it is exactly those people who create the most leveraged investments who will command the greatest profit for their ideas and efforts.

many people (including myself) have questioned the sustainability of this type of environment, where there seems to be more funds than actual investment targets.  however, it seems that the world of investment creation is beginning to evolve as well. in recent months we've seen hedge funds begin to replace banks and private equity firms in financing some major buyouts such as kmart and the manchester united football club (which i still dont get).  bill burnham and fred wilson have talked about vc's shifting to a more proactive macro theme based approach rather than the more passive waiting for good plans to hit their desks.

sure sounds like they're talking about the age old practice of merchant banking. i wonder if this was originally born in a time when the world's financiers ran out of enough bankable visionaries and found themselves in need of manufacturing their own.

idea capital may be open to anyone

i wonder whether the best entrepreneurs will also evolve to this merchant banking approach where they create much more leveraged investment opportunities to pursue new markets with far greater capital from the outset rather than bootstrapping.  in this new world, we may see a complete blurring and mashing of entrepreneur, vc and hedge fund. 

Comments

[Rags Gupta]

Mark,

Long time reader, first time poster:

Is this like the Idealab model of raising capital to work on a bunch of ideas (and then spinning off the ones that show promise)? Not sure that the entrepreneur gets the management fees from the pot of capital though...Also, using the fund to do buyouts might not be pretty if entrusted to the entrepreneurs to 'fix' (vs. operators).