While recent downturns in the stock market have tempered the excitement of many small-time investors about the e-commerce stocks there is still enormous money to be made in the venture capitalist merging of information and money—and often at little risk. In many ways, the Internet economy has become circular and self-fulfilling: “a hot stock causes more customers to buy your product, having more customers causes more people to buy your stock, etc.”[ix] The current temptations are great. The ultimate costs may be even greater:[x]
“Since its modern beginnings in the early 80s, venture capital has been universally understood as “risk capital.” The buttoned-up pension fund managers and college-endowment investment officers who have historically provided VCs their capital made a point of never investing more than 5% of their assets in venture funds. These limited partners would typically invest 2% or 3% of their assets. Allocating any more than that would be too risky. The last thing you wanted was to own a big chunk of stock in hare-brained failures like pen computing or multimedia CD-ROM companies. But at some point, in the past two years, that 5% rule changed. The average pension fund or college endowment now gives VCs 6% to 8% of its assets. Some dare go as high as 20%. Risk capital, it seems, isn’t so risky anymore. Encouraged by the returns of earlier funds, limited partners often implore VCs to take as much of their money as possible.
One reason limited partners once found venture capital so scary was that the business was a minefield of failures. Accepted VC math was that out of ten investments, four would end up losing money or breaking even. But ask VCs about their recent failures and you realize that isn’t true anymore. Yang, 41, recently told me he couldn’t think of any failures. Then he remembered a company called Whistle Communications. While he was still a partner at IVP, Yang put $6 million into the company. Its product, an Internet server for small businesses, worked like a charm, but the company couldn’t figure out how to sell it to the fragmented small-business market. So in June, Yang and the other directors sold Whistle to IBM for more than $100 million, a transaction that made IVP four times its money. With failures like these, who needs successes?”
Thus, we find that postmodernism has not left behind the value of money. However, money has begun to hold hands with information. Together they are transforming the world in which we live. This union of money and information is seductive and volatile. We are witnessing a new form of postmodern edginess, as well as a new set of ethical dilemmas.
