Ultimate Democratization
The year was 2000 and we had just come through the Y2K scare relatively unscathed. It was not for lack of scrambling and effort as you may recall, so who knows whether we averted a crisis by getting out ahead of it by sounding the alarms, or if the concern was over-hyped and was never really a big risk. Either way, it was nice to see that Y2K did little to slow the advent of the internet…and then the NASDAQ died in March, 2000. I remember that well since I and several friends launched an internet incubator fund that very month. Timing is everything.
We had enough money raised under the banner of B2B-Hive, which was a cute-sounding name in early 2000, which became an insufferable name for answering the phone when things in the new media space got a bit more serious and a lot less cute. After a year we changed our name to Beehive Ventures, which sounded somewhat Mormon to some (Utah is the Beehive State), but also sounded a lot more professional than B2B-Hive. At least we didn’t have to get rid of the wall of bee-related paraphernalia we had been given by everyone we knew when we set up shop. It is amazing how much bee crap exists. I imagine there are other members of the animal kingdom that are very thematic and thus have lots of thematic stuff on offer. Cats and dogs for sure, lions, tigers and bears most likely, but I bet if there were a will and a way to quantify and rank order these critters, bees would be right up there. Despite the bubble bursting on the dot.com world, we convinced ourselves that we were older and wiser and could take a nascent trend called the internet and decide better than others what would and wouldn’t work.
There were four of us and I used to like to say we were two Wall Street guys who met two Madison Avenue guys and and that we were destined to combine our capabilities to create great things. We had at our core a company that had been formed by the Mad Men and financed by our Wall Street crowd. The company was called eMarketer and it was a data aggregator about doing business online. The concept was that this research hub was going to give us a big edge in picking and choosing which e-commerce start-ups would be most likely to succeed. It all sounded great and it did get us about $40 million with half of it coming from my recent employer, Deutsche Bank. I can’t say that the concept of a research hub ever became the game-changer I thought it would be, and I can’t say that was what caused Deutsche to invest. They did things on a whim and reversed that whim in another two years when the guard changed. eMarketer was the salvation of Beehive, but it was a business with intrinsic value built and run by one of the Mad Men to perfection, not the incubator hub we thought.
I have summarized a story that was much more involved and took many years to happen. There were many lessons and aspects to the story. One that I take from it more than any other was that the four of us partners, even though we had our various moments when I’m sure we all wondered why we had entered into an even 25/25/25/25 split arrangement, thinking another split was more equitable to the value added, ended up by my estimation contributing to the success of the fund very evenly over the twenty years it has existed. It was exactly the way you would want a partnership to work with each partner adding different value at different times, but collectively adding up to a sum greater than the parts. It was almost a perfect partnership in that regard.
The other thing I distinctly recall was that in 2000, having watched the whole internet phenomenon unfold, I was convinced that brick & mortar were dead and that everything was moving to e-commerce. I was very idealistic and naive. What I liked most about the internet was less that it was a presumably lower-cost platform from which to sell anything from shoes to insurance, and more that it represented one of the greatest democratization vehicles of all time. Everyone, anyone, everywhere wanting anything would be able to do as they wished regardless of how much capital they had available. It had the potential to replace capitalism with something without a name that would be much better because it was not based on privilege or connections and much more based on the purest of value added. Value added technology, value added business models, value added buzz and new media marketing. It was one half insightful and correct in its predictions and one half unfounded presumption that was well ahead of its time. The dot-bomb brought many down to earth while many, most notably Amazon, eBay, Google, Apple and yes, Facebook, Uber. Snap, Netflix and Airbnb and even, dare I say it, Twitter, flourished. Meanwhile, retailing, real estate, entertainment and consumer electronics started to go through their gradual and inexorable demise as we have known it.
In 2013, the year Beehive from eMarketer started to look like it had come around and would pay off big for my partners and our investors, I got introduced to Fintech and became a General Partner in a Fintech Venture Capital business. Fintech means Financial Technology and it was focused on a couple of specific themes. They were payment systems, peer lending and robo-investing. Payments were meant to undermine the biggest flows in the financial services industry. It would change the status quo of Visa and MasterCard as well as every major bank with global payments going through smartphones and the cloud so that anyone, anywhere could move money with ease and low cost. Peer lending was about disintermediating lenders and investors such that private credit became the driving capital formation vehicle of the future. Technology would allow for the complete and efficient parsing of risk so that investors only take the risks they want and at the lowest rate of friction of all time. Robo-investing was the logical extension of the trend toward indexing but one step better. Robo-investing was not bound by predefined indices, but is more proactive and yet automated by artificial intelligence such as to remove the worst aspect of investing, the human trait of being undisciplined. All three Fintech themes revolved around the guiding principle of the democratization of finance like e-commerce was the democratization of commerce.
Both the e-commerce and the Fintech phenomenon have accomplished a growing amount of what they set out to achieve and it is fair to say now that almost everyone in the traditional commercial and financial worlds take them both very seriously. But both have merely shifted capitalism in their favor, intelligently for sure, but still capitalism with only a tinge of democratization. What I have now begun to wonder is whether that is about to change due to the Coronavirus economic tumult. I do not know what to call it. It’s not just a recession or depression. It is more than a paradigm shift. It is not disruption driven by Uber-smart technologists and BizDev folk. It is a massive impending shift of the existing economic and political order. It might flow towards the predatory capital that is already sniffing around. But I suspect it will not, since this is less about assets and capital and more about governance power and calming and serving the masses, especially those that provide us with our basic Maslowian needs. We are on the cusp of ultimate democratization. Hang on, it’s gonna be a helluva ride.