Sat Apr 27th, 2013 at 02:43:33 PM EST
Been shown fifty ways from Sunday, one of the necessaries for a vibrant economy is the creation of new businesses. Venture Capital and Angel investors have become the primary way new business ventures are funded.
I was watching a YouTube talk last night on the early history of Silicon Valley and the lecturer mentioned in passing the top investment for a start-up in the Valley in 1955 was $300,000.
Which piqued my interest and I decided to delve into it a wee bit using wage rates and VC investment as the analytical tool. (Without a great deal of thought, granted.)
Notice: all data is from US sources.
In 1955 the average yearly salary was $3,851 and the minimum salary was $2,000/yr ($1.00 hour x 2,000 hrs.) The top VC investment was $300,000.
In 2012 the average yearly salary was $42,980 and the minimum wage was $14,500 ($7.50 x 2,000 hrs.) In 2012 total VC investment was ~$32 billion spread out over ~3,500 companies for an estimated average (mean) of $9.1 million.
In 1955 the top investment of $300,000 was 77 average yearly salary and 150 minimum salary "wage equivalent" investment.
In 2012 the average investment of $9.1 million was 212 average yearly salary and 1,255 minimum "wage equivalent" investment.
I expected a difference. I wasn't expecting that big of a difference.
Possible, tentative, conclusions, based on not much, is this could either indicate a steep decline in the relative bargaining positions between Labor and Finance since 1955 or workers in 2012 were willing to trade off immediate return in salary against the expectation (hope) of much greater return down the road, or even a bit of both. Or it could be a willingness on the part of workers to accept a lower salary for better working conditions - where "better" includes all sorts of intangibles and externalities, e.g., working on the leading edge of a particular technology. Even given all that, I submit a fairly firm conclusion based on the above can be made: a sharp decline of the bargaining position of unskilled US workers versus their skilled counterparts has taken place since 1955.
This becomes important since there a lot more hamburger flippers than Computational Bio-informatic Neuro-linguists and an economy based on mass production for mass consumption requires the hamburger flippers to have enough consumer discretionary income to consume, massively. If the situation is such that overall consumption is dropping we can predict VCs will begin to pullback from investing in new businesses due to the higher risks involved by increasing product availability in a declining product-purchase environment.
Which is exactly what is happening.
"The decline in funding for Seed/Early stage companies is firmly in place - we've seen a drop in dollars and deals both quarter-over-quarter and year-over-year," remarked Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. "We're seeing fewer new venture funds being raised which means less capital is available for new investments. And, we're seeing venture capitalists be very cautious with the capital that is available due to the lack of a significant number of liquidity events. Instead, venture capitalists are continuing to support the companies already in their portfolio."
Given all this, it seems to me the policy implications are clear. IF vibrant economy requires VCs to invest and and VCs will only invest if they see a risk-worthy economic environment then:
- Knock it off with the stupid, intellectually vapid, Austerity that removes purchasing power from the hamburger flippers
- Put programs in place that puts purchasing power into the hands of the hamburger flippers