
Mark Suster: Raise Money Now So When The Party’s Over You’re Sitting Pretty - websirnik
http://techcrunch.com/2011/06/18/mark-suster-raise-money-now-so-when-the-partys-over-youre-sitting-pretty/
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spenvo
Except that as soon as this becomes conversational wisdom the market has
reacted. The moment for a land grab pitch has passed. Let's be real and make
some money.

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rjurney
Kinda makes me want to get a job, and raise money with a really strong team of
bubble pop refugees once this bubble is over. Who is it that said the best
companies tend to get founded after the bubble, and grow a lot/monetize during
them?

Kinda makes me wanna do that. But not really.

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maxklein
The money is not free. This guy has an interest in you raising money, because
it means that he owns a part of your company.

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jamesgagan
The ones whowill be sitting pretty will be then ones who don't need market
money.

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blumentopf
I think this bubble is primarily fueled by central banks making money
available to primary dealers basically for free. This is unlike the New
Economy bubble where the money came from peons who invested in stocks. As soon
as the central banks (the Fed in particular) step on the brake, it's over.
Thus, lots of truth in what this guy says.

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hollerith
That cannot be the whole story because even if they get the money interest-
free, investors are not going to invest in start-ups or venture funds unless
they believe they can a better return there than they can in other
investments.

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TheSkeptic
When the central banks pump money into economies, it has a cascading effect
that influences the behavior of investors directly and _indirectly_.

Take a wealthy individual who is a limited partner in several VC funds. Like
most wealthy individuals, he has investments across numerous asset classes.
Many of those asset classes (equities, commodities, etc.) are heavily impacted
by the Fed's policies. Needless to say, this individual is far more likely to
feel comfortable pouring some money into a new VC fund he has been pitched
when his other investments are doing well courtesy of Helicopter Ben's
printing press.

Without willing investors, VC firms can't raise new funds and certainly, had
there not been a massive pumping of cheap money into the global economy from
the central banks, many of the massive VC funds, more than a few of which are
being used to buy up shares in companies like Facebook and Zynga, would not
exist.

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timr
_"Take a wealthy individual who is a limited partner in several VC funds. Like
most wealthy individuals, he has investments across numerous asset classes.
Many of those asset classes (equities, commodities, etc.) are heavily impacted
by the Fed's policies. Needless to say, this individual is far more likely to
feel comfortable pouring some money into a new VC fund he has been pitched
when his other investments are doing well courtesy of Helicopter Ben's
printing press."_

That's just exactly wrong.

"Helicopter Ben", as you oh-so-blithely put it, is injecting money into the
economy (as was Greenspan -- a famous conservative -- who started the
process). This tends to _lower_ interest rates across all sorts of different
asset classes. It's a big part of the reason that savings accounts are
returning <<1%, and why people have been taking their chances on ever-riskier
investments for the better part of two decades. They _can't get returns_ in
safer asset classes.

People aren't investing in VC funds because they "feel comfortable" -- they're
investing in VC funds because they can't match the inflation rate in anything
better. Nobody invests in a high-risk asset if they can get great returns in a
low-risk asset, no matter how "comfortable" they may feel.

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TheSkeptic
First, you seem to confuse "rate of return", "inflation rates", and "interest
rate." They are _not_ the same thing, yet you conflate them.

But let's roll with it. You still make a number of flawed assumptions:

1\. That all investors believe inflation is the problem. George Soros, for
instance, is more concerned about _deflation_ and up until recently, had
significant holdings in gold as protection against deflation. Ironically,
others, like John Paulson, are still holding gold as a protection against
inflation. Only time will tell who made the right bet for the right reasons.

2\. That an individual seeking capital preservation has to take on "ever-
riskier investments." High net worth individuals _do not_ have the same
investment options as you do. There are numerous ways you can preserve cash
(without sitting in cash) without having to bet the farm, even in today's
economy.

3\. That diversification plays little to no role in investment decisions.
Again, if your portfolio has large exposure to equities, commodities and other
asset classes that have gained substantially over the past two years, you are
far more likely to feel comfortable cashing out some of your gains and/or
throwing idle cash into other asset classes.

4\. That VC provides a solid return. If you look at the 10 year returns, VC
hardly looks like the asset class an aggressive investor would park his money.
See [http://finance.fortune.cnn.com/2011/02/16/venture-capital-
re...](http://finance.fortune.cnn.com/2011/02/16/venture-capital-returns-more-
in-short-term-less-in-long-term/).

5\. The above brings us to your last flawed assumption: that every investment
decision is rational. If every investor made truly rational decisions, the
desire to protect against inflation would not lead one to invest in VC. You'd
be overweight commodities, FX, etc. Again, there are a whole host of reasons
investors throw money (generally a small portion of their total portfolio BTW)
at VC. Diversification is one of them, but don't doubt the lure of bragging
rights either. If you golf with high net worth individuals, you'll quickly
learn that they like to brag about their investments, even if they're not
necessarily good ones. After all, nothing says cool like "I have $2 mil in a
fund that owns a bunch of Facebook stock."

At the end of the day, my original point stands: when the central banks pump
money into economies, it has a cascading effect that influences the behavior
of investors directly and indirectly.

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becomevocal
I agree.

Raise money. OK. Lets all do it - everyone in! Mark is a smart guy, and
obviously right on the mark.

But please lets focus on businesses with a real business. Those will continue
through the ups and downs.

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jvandenbroeck
Anyone an idea how long it will take before things are back to normal - if
there is a bubble? Months? Years?

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noelchurchill
Well I suspect this bubble (if it is indeed a bubble) is somehow related to
the recent stimulus efforts, so I suppose it depends what the Fed does after
ending QE2 at the end of this month, if they eventually begin a new round of
QE (in one form or another), and how long they maintain exceptionally low
interest rates.

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firefox
At least this time we know when the bubble is coming.

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olivercameron
This time? A bubble was widely reported back in the late 90's too. It's not
like it came out of nowhere.

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mtoddh
No doubt - even Greenspan's "irrational exuberance" comment was back in 96,
well before things peaked.

