Fred Wilson’s blog entry about "a new path to liquidity" has resulted in a spectacular outpouring of very high-level comments, as well as responses from other bloggers such as Roger Ehrenberg. But I’m not at all convinced that there’s really a problem requiring a solution here.
For one thing, the "liquidity" that Wilson and Ehrenberg are talking about is not the same thing as the liquidity which went so disastrously missing from the financial system over the past few months, or the liquidity that the Fed is trying to inject into banks. No, Fred and Roger’s "liquidity" is really just a euphemism for "selling at a high price and making lots of money". Here’s Wilson:
Here’s the problem. The company/web service creation process needs some kind of end game. The entrepreneurs who spend years and risking a ton need a way to get paid for that effort. And those of us who finance their efforts need to get some return on our investment. We can argue about the magnitude of the return we need and a host of other things, but the fact remains that without a path to liquidity, all the innovation that is being created by the entrepreneur/VC equation will stop happening.
For those of you keeping count at home, the word "need" here appears four times in as many sentences. To Fred Wilson, that’s a lot of need; to me, however, it’s closer to a lot of greed. There’s no doubt that Fred Wilson and many others have made vast amounts of money doing what they do, and all power to them. But I’m less than panicked when Wilson warns that without VC capital, "the services we have come to rely on like Flickr, AIM, Delicious, Yahoo Groups, FeedBurner, etc" might somehow be less successful, or maybe not exist at all.
There will always be innovators, and there will always be entrepeneurs, and there will, most of the time at least, be people willing to risk money in order to help small entrepeneurs become big entrepeneurs, in the hope that they’ll make a fortune by doing so. To be sure, some economies, and some periods of time, are better incubators of such behavior than others. But when Fred Wilson starts painting himself and his profits as a necessary godfather of vital innovation, I get the same feeling I have when I read, say, Sebastian Mallaby on the critical importance of hedge funds. VCs and hedge-fund managers exist to make money, first and foremost. If there is a social upside to what they do, that’s fine, but if there wasn’t, then they would do the same thing anyway. (It’s also worth remembering that rich people seem to be extremely good at finding a social upside to most things, even FeedBurner.)
So I wish Fred luck in finding his "new path to liquidity". But I’m not going to lose any sleep if he gets lost along the way.