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Why IPOs Don't Matter - Silicon Valley Examined 16
On this episode of the Silicon Valley Examined podcast, Robert Hendershott and Don Watkins discuss why companies are staying private longer, and what the future holds for IPOs, and other tools for raising capital, including ICOs, SPACs, and more.
INSIGHT
Speculations on the Future of Money
Robert Hendershott and Don Watkins
What does the future of money look like? Or, to put it differently, how will we transact in the years ahead? Most answers fall into one of two categories: (a) not much will change and (b) Bitcoin!
The smart money (no pun intended) is that not much will change (seriously, no pun intended).
After all, money has changed relatively little over the past century, even though the economy that it supports has evolved to be virtually unrecognizable. We are still using dollars (or the foreign equivalent), albeit often in electronic form, the same as our great-grandparents.
And why not? Dollars can buy you millions of different products, delivered to your doorstep in days (or even hours). Dollars are accepted in most of the world and have held their value reasonably well for the past 30 years (don’t ask about the next 30).
That’s to say nothing of government support. You need dollars to pay taxes and you have to accept them as legal tender. Regulators typically discourage, hinder, and even ban alternatives.
On the other hand, centralized money, including dollars, can (and historically has) been manipulated to the detriment of holders. Dollars aren’t perfect—and innovation has a way of improving on the imperfect. Is it reasonable to assume something better than the dollar could or should emerge?
To see what might be possible for money going forward, we need two distinctions: 1) “Money” versus “money” and 2) “money” as one of four features that together describe things of value.
There are many things with the feature of “money” that are not “Money.” Capital-M Money is a commonly-used and universally-accepted way to transact. Today, US dollars are Money.
Valuable things are some combination of:
money (valuable because they are accepted as payment)
asset (valuable because they are claims attached to a value-creating process)
commodity (valuable because they are an input to a value-creating process)
collectibles (valuable because we are excited to own them)
To get a sense of this model and how the attributes blend, consider why people own Bitcoin.
Bitcoin may not be Money, but it is money: we can use it to transact, though only a modest percentage of its current value stems from its role in payments. Bitcoin is not an asset by our definition but is a commodity to the extent that the Bitcoin blockchain is a value-creating process. Bitcoin is definitely a collectible—people own Bitcoin because there is a limited supply, and it is cool to own Bitcoin (and cool collectibles often rise in value over time). So, in our model Bitcoin is a blend of money, commodity, and collectible.
Not coincidentally, these are the same three attributes that gold had when it played the role of Money, prior to the rise of fiat currency. And, like Bitcoin, the supply of gold is limited, giving both at least one desirable feature of Money that the dollar lacks.
Capital-M Money—today the dollar—is the foundation for the entire modern value mix. Assets, commodities, and collectibles have their values denominated in Money. Money is what connects society economically by allowing people to easily transact, even across large distances and long times.
While much of the financial system is transforming, including money, Money has not. Part of this is inertia. Capital-M Money’s value is rooted in the fact that it is a universally accepted medium of exchange, which makes it extremely hard for competitors to emerge. And that inertia is further bolstered, as we noted, by government. The government prevents monetary change in the name of stability hinders and thereby blocks the kind of experimentation and discovery that leads to innovation in other areas of the economy.
How could that change? Will Bitcoin become Money? Or, to ask the question more precisely, how could money become a much larger part of Bitcoin’s (and, more generally, crypto’s) value blend? Could this evolve into Money? Could the forces that drive progress elsewhere finally provide the catalyst for modern Money?
Maybe. But one possibility no one is talking about is that instead of Bitcoin leapfrogging the dollar, we see a more complex, emergent form of monetary evolution.
Our connected world eases the creation and use of money (think frequent flyer miles and hotel points) that is not explicitly connected to the dollar. If this trend towards more and broader forms of money continues (think an Amazon coin that gives you the same 5% discount that an Amazon credit card provides), markets (or blockchains or something even better) could—and very likely would—develop to provide seamless conversion between these different forms of money. While individually each is money (not Money), if you eliminate the frictions between myriad forms of money, they meld to become something more.
From there it is a small step for this new money ecosystem to emancipate from the dollar. A cloud of cryptomonies become Money, more flexible and resilient than any single Money. And able to evolve with technology instead of being largely locked into a legacy financial system. Each individual money is free to experiment, evolve, and even fail while the aggregate Money remains robust.
Rather than the dollar being supplanted as Money by a single cryptocurrency like Bitcoin, dollar Money could die a death of a thousand cuts by a thousand cryptotokens that together emerge as Money for the 21st century and provide the bedrock for what is today unimaginable financial innovation.
Or maybe something even better! Whether we ever find out depends on whether we leave space in the world of money for experimentation and learning, giving Money the freedom to evolve.
QUICK TAKES
These groceries are a steal
I always tell this dumb joke about how I like standing in grocery store lines because it’s pretty much like 90% of your time at Disneyland. Well, it’s looking more and more like we’re on the cusp of the end of grocery store lines.
Tesco, the UK’s largest supermarket chain, is implementing “just walk out” tech for the first time in a trial run in its Holborn, London, location.
The trial, dubbed Tesco GetGo, will allow shoppers to buy groceries without scanning items or checking out at a till.
Tesco, of course, is following in the path of Amazon Fresh, which has already started rolling out seamless checkout stores. I’m hoping this trend picks up speed. Nothing is more valuable than extra time.
m(iracle)RNA
Derek Thompson has a fantastic interview with BioNTech founders Uğur Şahin and Özlem Türeci on the future potential mRNA technology in The Atlantic. The question Derek set out to answer?
Perhaps synthetic mRNA is like a miraculous key that humankind pulled out of our pockets in this pandemic, but it was so perfectly shaped for the coronavirus that we shouldn’t expect it to unlock other scientific mysteries any time soon.
Or perhaps mRNA is merely in the first chapter of a more extraordinary story. This month, BioNTech announced that it had initiated Phase 2 trials of personalized cancer vaccines for patients with colorectal cancer. It is working on other personalized cancer vaccines and exploring possible therapies for malaria using a version of the mRNA technology that had its breakout moment in 2020.
The interview is interesting throughout, but this bit on cancer was particularly exciting.
Türeci: We have two types of mRNA vaccines for cancer. First, we have our off-the-shelf vaccines, where we’ve identified molecular features of tumors that are shared by many patients. These are molecules that are broadly present in cancer cells but not in normal cells. By targeting these molecules, you can fight the cancer without getting collateral damage to healthy cells. Second, we have highly personalized vaccines. We identify cancer mutations that are unique to every patient. Every cancer patient has their own mutations, like a fingerprint. We biopsy the tumor, sequence it, and design a unique, individualized vaccine for each patient.
For both types of therapies, we have shown, in early clinical trials, that they are safe and that the tumors shrink. We have moved our vaccine development into Phase 2 trials for melanoma and head and neck cancers. We have also started our treatment for individualized vaccines for high-risk colorectal cancer.
What I love about this, besides the obvious, is that Şahin and Türeci have every right to bask in one of the greatest achievements in medical history—helping conquer COVID-19—and yet instead they’re eagerly focused on an even greater challenge. Incredible.
Elizabeth Holmes is clearly not an Ingenuism Weekly reader
We’ve written about the importance of failure and we’ve written about Elizabeth Holmes and her alleged fraudulent practices at Theranos. But Andy Kessler makes the case that the former could have prevented the latter.
As the Elizabeth Holmes trial for alleged fraud at her startup Theranos winds on, the biggest question is: When the company’s blood testing machines didn’t work, why didn’t she change tactics? Real entrepreneurs fail early and often. Ms. Holmes instead was stubborn and chose deception over failure. That’s a shame. Despite today’s IPO and SPAC fireworks, the truth is that in Silicon Valley most ideas fail. Heck, most companies fail. More than half of venture-capital investments are smoking holes in the ground. Fortunately, success often rises from the ashes of ruin.
Kessler goes on to give a terrific rundown of some of history’s great business failures. He concludes:
A friend once confessed to being nervous about joining a startup. “What if it fails?” he asked. After my usual suggestion of adding a zero to whatever share amount they offer, I said, “So what? You’re still you. You won’t fail, though the company might. You can always get another job to make money or start something else.” Failure is an option, even if it isn’t the preferred one. I wish someone had told that to Ms. Holmes.
My take: innovators embrace failure as a necessary means to their goal of innovating. But what if that’s not your goal? What if what you really want is people to think you’re an innovator? To put you on the cover of magazines and praise you as a visionary? Well, then failure won’t help you. It can only hurt you.
Elizabeth Holmes refused to acknowledge her failures because, whatever she told herself, her goal was never actually to succeed.
18 wheels of data
Well, you learn something new every day. It turns out that some data transfer jobs are so big that the data actually have to be shipped physically.
It was 2016, and DigitalGlobe—a commercial satellite-imagery leader with upwards of $700 million in revenue—was the first-ever customer for Amazon Web Services’ “Snowmobile,” a new way to physically transfer large amounts of data: via a 45-foot shipping container on wheels.
The truck held not only Scott’s life’s work, but also that of the company he founded: a satellite image library with 16 years of Earth and space records.
It had taken a couple of months to get everything ready and then upload the company’s entire satellite image library—10 petabytes of data, or 5x the amount contained in all US academic research libraries—to the Snowmobile. After the data was translated and encrypted, the truck headed back to a cluster of Amazon data centers to upload it to cloud storage.
Scott gave the 18-wheeler one last pat before it drove away.
Honestly, I don’t know that there’s any big lesson here. I just found this surprising and oddly delightful.
Until next time,
Don Watkins
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"Money" is the widely accepted medium of exchange. In other words, it is the commodity or token used to price all (or nearly all) other goods and services that are exchanged. No cryptocurrency today qualifies as money: Cryptos are bought and sold *with* money. Nothing that I know of is priced in cryptocurrencies. Cryptos' exchange values are too volatile against economic goods to be used as money. People should realize that if cryptos - say, Bitcoin - will someday be used as money, this doesn't mean you have to own Bitcoin now. Wait till it is adopted, then benefit if it is a superior form of money. Otherwise, you are speculating. Last point: No money can be effective in an advanced economy unless the government agrees to enforce contracts denominated in that money. If the government refuses to enforce contracts that use Bitcoin or accept tax payments in Bitcoin, it will have very limited use as a medium of exchange. It's nice to think a spontaneous, "free market" currency could end-run government in the same way Uber got around the taxi company regulators, but the universality of money makes this a doubtful prospect.