News today at this link: How Coinbase Became the Top-Funded Bitcoin Startup
History shows that a few of the 49er miners made money. A larger number made money on goods and services provided to miners. Coinbase is selling wallets to put money in.
An idea that could not be sold to traditional VC investors relates to who makes allocation of resources decisions using money as a tool, risk and asymmetrical knowledge. Focus on the last term: Asymmetrical knowledge.
Wikipedia defines asymmetrical information. But not Knowledge Asymmetry. At this link Wikipedia says there is no page for that term but gives references to its use.
"Less than two years ago, Brian Armstrong had to struggle just to explain
the idea of Bitcoin to investors. On Thursday, his startup announced
that it had raised what may be the largest funding round to date in the
Bitcoin space."
Brian had asymmetrical subject matter expert knowledge of the problem domain. Traditional VC investors do not. They know information, seek asymmetrical information advantage to reduce the risk of investing. Generally, financial Information they can extract knowledge from in the problem domain of money. They might have tech experts that can advise them regarding the domain of investment. How good are the advisors. If they were really good they would more likely be sitting in the chair of the investment seeker. Maybe that is where startup failures go to live out their remaining days.
Brian had the knowledge of Bitcoin but it was difficult to communicate to non-knowledgeable VC investors or even their tech advisers. His knowledge was bleading edge stuff.
Emerge here the tech oriented, knowledgeable VC investor. Investor who themselves have created a personal fortune in a tech area that do not have to be "educated" in order to have the knowledge, not just the information to make an investment decision. Netscape founder Marc Andreessen for example.
On a smaller scale look at Interwest Partners Raising capital to invest in tech oriented startups but focusing on two areas: Information Technology and Health Care. The VC business has a knowledge base of experts in both areas. Knowledge advantage wins over information advantage. A VC seeker with a tech idea in these areas does not face the formidable challenge of educating the decision makers.
VC has the big advantage today of both being the domain of bigger players that get in first and if the VC entity has a deep subject matter knowledge base it also has the asymmetry advantage over traditional VC that is more financial information oriented. Often using that information asymmetry not for the advantage of investors but, as exemplified by Wall Street, to take moral hazard advantage of investors with less information, much less knowledge.
Perhaps at the basic level that is the difference between traditional financial VC investing and Tech oriented and knowledgeable investing.
Financial VC is motivated by money, any way it can be made on financial information terms based on their knowledge of money and the extent to which they can be educated (or bluffed) by a capital seeker.
Knowledge Based VC in high tech areas is more likely to be motivated exactly by what motivated them to get to the position of making decisions to invest in the ideas and knowledge of those looking for financial support. Passion for the state of the art and its advancement. Financial rewards? Tech is evolving toward Open Source Systems. Those that have benefited financially and greatly from technology are perhaps more inclined to Open Source inclinations of contributing to the commons of the domain than experts in money and how to wring it out of the financial system in whatever way is possible. A financial oriented domain where the contributing back to the commons was expressed by "leave a little on the table, pigs get slaughtered". That is not even the generally shared inclination of their domain. Now the inclination of the financial world is that if you do not know who the mark is then it is you. Always play with other peoples money.
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