Venture Capital vs. Private Equity

I had my own doubts. Venture capital and private equity are very different disciplines. While both purchase stocks in privately held businesses, I wasn’t sure how to quite feel about PE being so risk averse. It was incredibly rare to find a VC portfolio driven by disruption opportunities. I looked closely into the increasing private equity buyouts of startups, and I’m learning there are key areas VCs could learn from PE’s economics.

I had a feeling that most VCs don’t provide as much value as they claim. Even in my own case, I wasn’t sure exactly what value I could add when I’m not in the deep-end with them in the business, team, market, and the opportunity. Private equity owns the business to steer through a rapid performance transition and selling them. With a clear line of responsibilities and a full team, it makes the investment with the goal of liquidation without the fund being dysfunctional. PE also has the advantage of drawing deep insight in different stages of growth whereas a VC may lose interest. I think once more public companies and investors embrace buy-to-sell strategy, they would benefit in refueling under-managed businesses and create a more efficient market.

Moving Toward Value-Based Financial Systems

(Originally written: 11.13.2018)

I’ve been thinking cross-culturally about finance institutions and how we can reinvent the modern systems in a value-based investing approach.

The growth of finance made civilizations possible, as the role of finance and institutions – money, bonds, banks, corporations, helped urban centers to expand and cultures to flourish.

Finance was at key moments of history as different apparatus, as products were developed and reinvented in the course of history. Finance innovations emerged to solve economic problems of time and geography. An example – a religious institution like Templar that became a legal system in Europe to adjudicate disputes and rights became a theoretical foundation for Europe’s unique financial architecture. While its extensive geographical network provided for an easier transfer of money through space, Templar dissolved. Its distribution of wealth made it a political target, a loss of its original mission.

Chinese financial system was different from the Greco-Roman to be more nimble – the political context determined its solution. For Europe, its reliance on capital market lies in the fragmentation and weakness of medieval states.

Finance markets and political context today coexist and complement, but the past gives us lessons on how we can risk share and adapt variations of the tools to different kinds of societies. Discoveries of financial solutions led to its civilizations most important achievements – writing, mathematics, how we save and invest, and how to harmonize global economy. It also created problems like slavery, imperialism, and other crises.

Financial thinking in a modern economy is difficult – as crashes and bubbles always take people by surprise – and I think it is because we rely too much on specialized tools from legal arguments to modern portfolio theory. As we move toward a collective global civilization with a greater proportion of the population in complex societies, finance needs to keep up.

The market is driven by spontaneous, mutual hope, often irrationality or optimistic dream. Businesses play a game of skill and chance, where it relies on average results of many investments through ebbs of hope and cold calculation. A large portion of it depended on spontaneous optimism than mathematical expectation.

Gambling investors based on hopes of new technologies enabled technological progress. Companies that harness the spirit – enable the markets to overcome the financial inertia – a force in the economy. The market sentiment that often holds the economy back because of irrational fears, managed correctly with public expectations, could become a force for good.

The risk in individual investing is often inside us – how well can we ride out plunges and the market – how much experience do I have or confidence do I have and go against the current? Could I make a lot of money? Can I rely on my willpower to endure the probabilities and consequences?

Progress is based on optimism. Good innovation can be celebrated where modern economies reward activities that create value than extract them. The shared values – where creating of value can be more collective – based on a dynamic division of labor focused on problems that 21st century are facing – can be more sustainable and preliminary to an economy where we create value than extract them.

It’s an essential thesis that optimism has and continues to drive financial markets and fund economic growth, and that optimism can be tied to higher motives and collective goals.

Investments with Political Vehicles

(Originally written: 10.12.2018)

American leadership promotes of governance, democracy, human rights, and global stability. How does this translate into social investments overseas?

Businesses consult political risk, such as power structure and roots of political legitimacy, to make decisions on overseas investments. Democracy, which involves social systems, tax laws, and a regulatory environment, enables a positive, sustainable, and local growth for social enterprises.

Economic growth often provides legitimacy to dictatorship, but democracy provides a stable political environment, with less corruption or government seizures of business. Therefore, it protects financial return with the discipline of the market by supporting our key allies under diplomatic turmoil.

For instance, India is an economically independent country with aims to enhance its strategic space and capacity for independent agency. If the objective of bilateral economic engagement is to accelerate the integration of the two economies, only a resolute defense of the free market with an open focus on increasing FDI – would allow it to overcome its vast development deficits to liberalize the economy while strengthening state capacity.

India can increase the use of digital payments and support digital finance technology projects to not only scale its technologies, but strengthen its resilience.

The most important task in strategic logic of each bilateral relations is the success of the affiliation, and how its benefits are to be conceived. Especially in a country where geopolitical rivalry coexists with economic interdependence.

Investment readiness remains a key issue for ventures. It requires understanding of risk and how to price it. Transaction and reporting requirements can be quite high. By opening up the private capital to solve difficult foreign policy challenges fundamentally guide critical capacity building and equip allies to support strategic priorities. Therein, it responds to on-the-ground conditions targeting specific vulnerabilities for sustainable and scalable growth of enterprises. I hope we can provide a role in development – the social impact investment ecosystem – to create liquidity in the market incentivizing a genuine strategic partnership with deep-rooted shared interests.