I just finished Disrupted, by Dan Lyons. It is the — sometimes very funny — story of a 52-year-old career journalist who found himself “downsized” from his cherry job as the technology editor for Newsweek and then took a stab at working in the tech industry. He took a job at a company called “Hubspot,” which is now a public company (check it out). It is a competitor to Salesforce in general and Marketo in particular.
The book is a very cynical view of today’s cloud-based marketing subscription-based software as a service platforms, as well as startups and the venture capital business. Reading it, you wonder, 1) how any of these companies managed to attract funding in the first place; 2) how they managed to foist a public offering on the marketplace where, it would seem, only the founders and investors really made money; 3) why young people continue to flock to work for these companies for lower than market wages and stock options that are incredibly risky bets and, at best, pay marginal dividends; 4) the integrity of the venture capital business; and 5) why any pension, foundation or endowment fund would be gambling in this high-stakes, high-risk casino where the idea is to go public and not create real value or truly change the world in a meaningful way.
I’m all for technological investment and advancement, but this seems like a game of trickery and sleight of hand to me. And it’s scandalous, in my opinion, that public pension funds and other fiduciaries are risking their beneficiaries’ capital in these schemes, with people who obviously have very little ethics when it comes to balancing the interests of their investors, the founders in whom they’re investing, and the employees of these companies. Phrases such as “burn rate” and “spray and pay” and “pump and dump” are used to describe the so-called “investment strategies” of these venture firms. In my mind, that’s outrageous.
Real estate investing can be risky, but at least you’re investing in legitimate cash-flowing, profitable enterprises backed by real, hard, tangible assets that are serving a legitimate purpose (housing people or companies, so they can live and work in comfortable, safe environments). It seems crazy to me that it’s so hard for real estate investment managers to attract capital and — apparently — so easy for hot venture capital firms to attract money. Could this be another reflection that the tech sector is long past entering a bubble?
What do YOU think? I’d really like to know.
The views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.
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Geoffrey Dohrmann is president and CEO of Institutional Real Estate, Inc.
