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March 19, 2014


Mark Montgomery

Many of us had hoped this was the case with the commercialization of the Internet, and was essentially true for a couple of years until institutions woke up to both the threat and opportunity, and flooded the environment with the largest subsidy in history. We've been in a series of historic bubbles, busts, crises and reactions ever since. The needs to keep RE valuations high in key metros like SF, NY, EU etc… governments are tied to taxes and transactions costs.

I think it's important to drill down into the topic in business and investment to the granular level, and when we do we find that economies of scale and barriers to entry still exist in many sectors--I like to use railroads as one example that is unlikely to be seriously disrupted as that industry enjoys barriers of physics, scale, capital and legislation. However, it is true that many industries and sub industries are quite likely to be disrupted. Spencer Ante posted a nice brief piece on LinkedIn today that I think captures it well in enterprise IT "trillion dollars up for grabs".

Generally speaking I think all of this is fine, natural, and necessary. The problems arise when we distort markets to dangerous levels with protectionism, legislation, or policy to include massive subsidies hiding behind venture capital, stock markets, subprime mortgages or FRB policies. As I first witnessed up close and personal cleaning up the S&L crisis for private owners one property and business at a time, with the RTC the cure was indeed worse than the cure for the honest actors while rewarding bad actors. The moral hazard it created literally planted the seeds for the much larger crisis to come, which has now caused very dangerous moral hazard. These lessons have been learned, we need not repeat, nor increasingly can we collectively afford to do so.

Back to topic at hand--one problem is funding models--unlike earlier brick and mortar models in franchising, institutional VC doesn't typically invest in small scale anything, including large scale that serves small scale, nor do most of their LPs want them to (back to RE and tax problem above relative to policy). While some of our great challenges are still technical, the most costly I see still are in organizational, monetary, and capital. - MM

sam beal

Tesla vs. New Jersey in a nutshell

Mark Montgomery

Cure is worse than the disease, that is.

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