Living in a Bifurcated Market

New York City is a decidedly odd place right now. During 2004-07, Wall Street was a powerful engine that propelled growth and good fortune across a vast swath of the city, creating massive wealth, buoying an already heady real estate market with concomitant knock-on effects in retail, restaurants and entertainment and big-ticket consumer durables (e.g., cars and other high-priced toys). Today, it seems as if every days brings news of more large-scale layoffs on Wall Street, be it Citigroup, Lehman, Morgan Stanley, whomever. The unwinding is happening fast and furious, putting people on the Street with no clear prospects for employment. Because all firms are in the same position. Superstars will always have a home, but what about the merely good? They’re currently out of luck. Will Wall Street come back? Of course it will. But when? Not for some time. Nobody knows.

On the flip side, the technology, media and advertising communities are doing ok. Advertising will certainly suffer in an economic downturn, but there is so much more to do in technology that has a clear path to monetization and the media industry is in the midst of massive disruption, creating opportunities for smart, nimble, creative early-stage companies. The entrepreneurial vibe in NYC hasn’t been better during my four years as an active participant, and based upon the deals I’m seeing the performance of my portfolio companies I see little slowdown in this part of the NYC business ecosystem.

So how does one reconcile the troubles of old-line Wall Street with the promise of new-age digital media (and financial technology and other areas ripe for disruption)? Quite simply that by having a seemingly endless bankroll courtesy of the credit bubble, Wall Street has grown undisciplined and gotten distracted from managing risk. This explains the lions’ share of the problems we’ve witnessed over the past 6-9 months. Young start-up companies, however, attract and have available only a fraction of the resources open to large Wall Street and private equity firms. Even when venture capital investing gets crazy it doesn’t compare in size or scale to the Wall Street bankroll, not by a long shot. This keeps small companies hungry, disciplined and focus on winning. It also makes them easy to adjust to changed economic circumstances by deferring new hires, selectively laying off staff and intensely focusing on managing cash. Not quite so easy at large Wall Street firms, I’ll tell you from experience.

While sales at Manolo Blahnik and other hoity-toity boutiques will eventually get hit by the big-money Wall Street slow-down, restaurants and kitschy stores on the Lower East Side and in Tribeca are likely to keep on humming due to the vibrant small company scene. While this birfurcated existence can’t go on forever, my handicapping is that it will continue much, much longer than people expect. Contrary to the alleged statement of Charles Duell, that “Everything that can be invented has been invented,” we are in the midst of a time when innovation and idea generation appear to be at an all-time high. And it is imperative that we continue to provide incentives and opportunities for young companies to be formed and to bring their intellectual property into the marketplace. They are our future, and will serve as a counterbalance to the problems being experienced in the more established parts of our economy.

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COMMENT:

AUTHOR: mike simonsen

EMAIL: mike@altosresearch.com

URL: http://www.altosresearch.com/blog

DATE: 03/21/2008 12:25:28 AM

i was thinking this morning about your “New York feels just great” post of just a few months ago.  At the time it was clear that the business cycle was at a high, but it surprised me how quickly that tumbled.  Here’s hoping the startups remain vibrant even while Wall Street churns through its mess.

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COMMENT:

AUTHOR: fabian siegel

EMAIL: fabian@fabiansiegel.com

URL: 

DATE: 03/21/2008 07:32:49 PM

From a financial technology startup perspective, the current environment yields opportunity in finding talent and open ears for disruptive concepts. On the other hand I am still not quite sure how the more sober sentiment of potential investors and angels affects the ability to raise early stage capital (disclosure: just in the process of raising seed money).

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COMMENT:

AUTHOR: GMC

EMAIL: nhbc.genamlc@yahoo.com

URL: 

DATE: 03/22/2008 04:09:43 AM

If you spend everything you have because you wanted to make your investment opportunity as risk free as any investment opportunity can be, and it is one that is far above what any other person would want for a return after making such a sacrifice, but your motivations aren’t from the wall street mentality, or the old money, or even new money set, but you want to share the wealth by only including people like you, ordinary, and generally poor other than their ability to lay their hands on $10-$35K to invest in something that can help secure their retirement, how do you ever get past the fact that you spent your fortune proving it was safe, and then you learn you can’t take money from people who don’t meet financial qualifications who want to get in on a genuine ground floor opportunity that never comes the way of the average middle to lower class person. The term “rich get richer…” comes to mind. 

Can I restore my personal financial reputation after achieving the proof I needed that what I believed would return what it did, and now I have no money to put it intoo action?

New to entrepreneural activities, but know you need to surround yourself with people who aren’t, but it starts with the product or opportunity that is viable, and if it is viable, the rest should be obvious.  

Okay, pass on your wisdom…

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2 years ago | view comments |  Current Affairs