
For two reasons, I really like Fred Wilson's recent blog post on hypothetical value to real value. Firstly, it is structured in the way that I think good blog posts are structured. He starts with a personal story (about this son) and then uses that to take a position and impart some knowledge about the venture capital industry. It makes for a more engaging read. Secondly, I like how he describes the journey and spread between hypothetical value and real value:
Venture capitalists and seed funds and angel investors make or lose money on the journey from hypothetical value to real value. And when the spread between the two narrows, the money we make is less. When the spread increases, the money we make is more. It is easier to drink your own Kool Aid in the world of hypothetical values. You handicap the odds of winning more aggressively. You trade ownership for capital at work. You accept the new normal. Real value doesn’t move so fast. Because it is right in front of you. You can see it. So it is not prone to flights of fancy. I try to keep this framework front and center in my brain as we meet with founders and work to find transactions that work for everyone. I find it to be a stabilizing force in an unstable market.
All of this is related to the notion that you make real money when you're right about something that most people think is wrong. Because that would be hypothetical value. If it were real value, then everyone would simply believe it. It would be "right in front of you." And this is pretty much true of all competitive marketplaces, including the real estate industry. Risk and uncertainty create opportunity.
Photo by James Sullivan on Unsplash
The Equality of Opportunity Project has a recent paper out called: Who Becomes an Inventor in America? The importance of Exposure to Innovation. Vox also has a summary of the findings, here.
The overall goal of the project is to “use big data to identify new pathways to upward mobility.” And in this particular study, they discover that in America there are many “lost Einsteins” – people who have the ability, but not the opportunity.
Not surprisingly, socioeconomic class, race, and gender play a significant role. Children from high-income families are 10x more likely to become inventors (measured in patents) as compared to children from low-income families.
Geography, place, and environment also matter. Where and how a child grows up has a significant impact on future outcomes. If a child grows up in a city/network that exposes them to other inventors, it increases the likelihood that they too will invent.
Where a child grows up also has an impact on the types of inventions, even if the child move cities as an adult. For example, the study found that if a child grows up in Silicon Valley but moves to Boston as an adult, it is still more likely to author patents related to computers because that’s what it was exposed to as a child.
These associations also impact in a gender-specific way. Women are more likely to invent in a particular technology if they grow up surrounded by similar female inventors. The presence of male inventors has no impact. This makes a powerful case for better gender diversity and strong role models.
If you would like to read the full paper, click here.
This blog post is a submission to a group blogging event being put on by Meeting of the Minds and Living Cities. The focus is on urban opportunity. Click here for more information about the event.
Since the beginning of time, the purpose of cities has been to bring people together to socialize with one another and to generate wealth. And, today, more than ever, the potential returns of being smart and being in a global city are huge. Cities are our economic unit. They are what’s driving the global economy.
But as the world continues to urbanize at an unprecedented rate and as the global economy becomes increasingly concentrated in select urban centers, how do we ensure that all city dwellers are connected to the economic opportunities being made available by this new information age?
Here are 3 suggestions.
First, we need broad and equitable access to education. I was deliberate in talking about the “returns of being smart.” Education and the right skills are even more critical today, because the labour market is not what it used to be. In Edward Glaeser’s book, Triumph of the City, he talks a lot about Detroit and how the greatest thing the city–and the car industry–did in its history was create lots of high paying jobs for people with little or no education. However it was also possibly the worst thing Detroit did because, today, the city is now stuck with that legacy. And those same high paying jobs for people with little or no education aren’t coming back. The labour market has changed.
Second, we need to ensure that people living in cities have the opportunity to be physically connected. That our cities offer strong transportation and mobility options and that our cities are designed to be inclusive. When I was visiting a friend in Los Angeles a few years ago and lamenting about the traffic, he responded by telling me that LA traffic is merely a socioeconomic problem. If you have the means, you get to live in desirable central neighborhoods where your commute is entirely reasonable. And if you don’t have the means, well, then you get stuck with a horrible 2-hour commute. We know that the rich will always outbid the poor for housing in any city, but as much as possible, we need to give people physical mobility so that they can then achieve economic mobility.
At the same time, the design of individual neighborhoods and buildings matters a great deal. If you’ve ever watched The Human Scale, you’ll likely remember the line:
“First we shape our cities and then our cities shape us.”
As one example, the documentary talks about how masterfully modernist architecture from the 60s and 70s achieved extreme forms of social isolation. It cleansed the urban environment of any sort of public life and brought it all up into disconnected towers. The problem was that it was far too rational. The power of cities lies in their organic and evolving nature. And when you constrain them with mechanisms such as single use zoning and other restrictions, you stifle their potential to generate economic opportunities for their residents–which, as we’ve said, is one of the main reasons people choose to live in cities in the first place.
Finally–and this is a bit of a tie in for everything we’ve been talking about–we need to be proactive about inequality. Research shows that there’s a direct correlation between income inequality and social mobility. The more income inequality a city or country has, the less intergenerational social mobility it has–not to mention that it also leads to more crime and other negative externalities. This is a complex issue though, and I won’t pretend that it can be easily solved with a better public transit and more bike lines. It’s something much deeper and more broad. This one is about a belief that cities should be designed to enhance everybody’s quality of life and to make everybody richer, not just a few.
Photo: Wikimedia

For two reasons, I really like Fred Wilson's recent blog post on hypothetical value to real value. Firstly, it is structured in the way that I think good blog posts are structured. He starts with a personal story (about this son) and then uses that to take a position and impart some knowledge about the venture capital industry. It makes for a more engaging read. Secondly, I like how he describes the journey and spread between hypothetical value and real value:
Venture capitalists and seed funds and angel investors make or lose money on the journey from hypothetical value to real value. And when the spread between the two narrows, the money we make is less. When the spread increases, the money we make is more. It is easier to drink your own Kool Aid in the world of hypothetical values. You handicap the odds of winning more aggressively. You trade ownership for capital at work. You accept the new normal. Real value doesn’t move so fast. Because it is right in front of you. You can see it. So it is not prone to flights of fancy. I try to keep this framework front and center in my brain as we meet with founders and work to find transactions that work for everyone. I find it to be a stabilizing force in an unstable market.
All of this is related to the notion that you make real money when you're right about something that most people think is wrong. Because that would be hypothetical value. If it were real value, then everyone would simply believe it. It would be "right in front of you." And this is pretty much true of all competitive marketplaces, including the real estate industry. Risk and uncertainty create opportunity.
Photo by James Sullivan on Unsplash
The Equality of Opportunity Project has a recent paper out called: Who Becomes an Inventor in America? The importance of Exposure to Innovation. Vox also has a summary of the findings, here.
The overall goal of the project is to “use big data to identify new pathways to upward mobility.” And in this particular study, they discover that in America there are many “lost Einsteins” – people who have the ability, but not the opportunity.
Not surprisingly, socioeconomic class, race, and gender play a significant role. Children from high-income families are 10x more likely to become inventors (measured in patents) as compared to children from low-income families.
Geography, place, and environment also matter. Where and how a child grows up has a significant impact on future outcomes. If a child grows up in a city/network that exposes them to other inventors, it increases the likelihood that they too will invent.
Where a child grows up also has an impact on the types of inventions, even if the child move cities as an adult. For example, the study found that if a child grows up in Silicon Valley but moves to Boston as an adult, it is still more likely to author patents related to computers because that’s what it was exposed to as a child.
These associations also impact in a gender-specific way. Women are more likely to invent in a particular technology if they grow up surrounded by similar female inventors. The presence of male inventors has no impact. This makes a powerful case for better gender diversity and strong role models.
If you would like to read the full paper, click here.
This blog post is a submission to a group blogging event being put on by Meeting of the Minds and Living Cities. The focus is on urban opportunity. Click here for more information about the event.
Since the beginning of time, the purpose of cities has been to bring people together to socialize with one another and to generate wealth. And, today, more than ever, the potential returns of being smart and being in a global city are huge. Cities are our economic unit. They are what’s driving the global economy.
But as the world continues to urbanize at an unprecedented rate and as the global economy becomes increasingly concentrated in select urban centers, how do we ensure that all city dwellers are connected to the economic opportunities being made available by this new information age?
Here are 3 suggestions.
First, we need broad and equitable access to education. I was deliberate in talking about the “returns of being smart.” Education and the right skills are even more critical today, because the labour market is not what it used to be. In Edward Glaeser’s book, Triumph of the City, he talks a lot about Detroit and how the greatest thing the city–and the car industry–did in its history was create lots of high paying jobs for people with little or no education. However it was also possibly the worst thing Detroit did because, today, the city is now stuck with that legacy. And those same high paying jobs for people with little or no education aren’t coming back. The labour market has changed.
Second, we need to ensure that people living in cities have the opportunity to be physically connected. That our cities offer strong transportation and mobility options and that our cities are designed to be inclusive. When I was visiting a friend in Los Angeles a few years ago and lamenting about the traffic, he responded by telling me that LA traffic is merely a socioeconomic problem. If you have the means, you get to live in desirable central neighborhoods where your commute is entirely reasonable. And if you don’t have the means, well, then you get stuck with a horrible 2-hour commute. We know that the rich will always outbid the poor for housing in any city, but as much as possible, we need to give people physical mobility so that they can then achieve economic mobility.
At the same time, the design of individual neighborhoods and buildings matters a great deal. If you’ve ever watched The Human Scale, you’ll likely remember the line:
“First we shape our cities and then our cities shape us.”
As one example, the documentary talks about how masterfully modernist architecture from the 60s and 70s achieved extreme forms of social isolation. It cleansed the urban environment of any sort of public life and brought it all up into disconnected towers. The problem was that it was far too rational. The power of cities lies in their organic and evolving nature. And when you constrain them with mechanisms such as single use zoning and other restrictions, you stifle their potential to generate economic opportunities for their residents–which, as we’ve said, is one of the main reasons people choose to live in cities in the first place.
Finally–and this is a bit of a tie in for everything we’ve been talking about–we need to be proactive about inequality. Research shows that there’s a direct correlation between income inequality and social mobility. The more income inequality a city or country has, the less intergenerational social mobility it has–not to mention that it also leads to more crime and other negative externalities. This is a complex issue though, and I won’t pretend that it can be easily solved with a better public transit and more bike lines. It’s something much deeper and more broad. This one is about a belief that cities should be designed to enhance everybody’s quality of life and to make everybody richer, not just a few.
Photo: Wikimedia
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