Capital is Abundant, Opportunity is Scarce

Last night I read an article in ARCHITECT stating that we are nearly back to pre-recession architectural fees. Good. But as we slide into another dip, how are we preparing? When the market starts to turn and nervousness appears, is this when we see disruption?

When the market is strong, there is an abundance of bandwidth, so bandwidth can be wasted. I wonder if capital is doing the same thing to investment. This is a time when we should not husband the use of capital, but aggressively be putting the capital to work.

There is a broader point. I spend half of the week in Palo Alto. We all want to talk about tech and we all want to discuss venture capital. But the total amount of capital invested in tech companies, and particularly in the unicorns, is on the order of $50 billion a year. This is a large sum of money from an absolute standpoint in terms of how we think about money on the day-to-day, but it is a small amount of money from a global context. There are a few ways to think about this… While there is $50 billion going into high tech, this year alone more than a trillion dollars will be distributed from the United States’ largest companies to their shareholders. So, for all the math majors – twenty times more is going to come out of big established companies than what is going into startups.

The macro question is not what happens with the $50 billion being invested in startups. The real question is what happens to the $950 billion that does not, and where does that go? Globally, there is more money in debt than in equity. Got it. There is $6 trillion of bonds that are returning negative yield. In other words, there is $6 trillion dollars in financial instruments where you have to pay for the privilege of owning them. Not only do you not get any money, but you have to pay to own them. The critical crisis in the economy at large is not that the unicorns are overvalued, the critical crisis is that there are not enough unicorns and big companies are not being nearly aggressive enough in investing for the future.

Capital is abundant, but opportunity is scarce. So, for architects and designers the problem in 18 months will not be a lack of available capital. The problem will be that we did not secure the right opportunities and clients prior to the dip. We did not aggressively invest enough in ourselves.

 

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