Sebastian Mallaby: prediction

Transcript context

…What do you think of the view that in recent years, there’s been a huge consumer retail tech boom? Basically FAANG stocks, right? And when that is over — it might be over now — the excess returns to VC will go away. If you look at venture capital for biotech, which has been hammered lately, as we’re speaking here, late January 2022 — and maybe venture capital is a limited model for one period of time, and otherwise, it just does okay. True or false? False. I say that because, in a cyclical sense, you might be right, but I think there’s a deep structural shift, which is really important. That is that intangible capital has become more and more important in our economy. The nature of intangible capital is that it’s hard to measure it in financial reports. To understand whether a particular software investment, for example, is worth a huge amount or, really, nothing, you need to understand what that software development within the company is doing. You need to be hands-on. You need to have the technical skills to evaluate that software project. The more that intangible capital rises as a share of new GDP creation, the more this venture-style hands-on expert investing is going to be valuable. Your explanation — if I understand it — to me seems to suggest that venture capital for biotech won’t work very well. You’re portraying it as something that’s very, very hard to do, a very limited skill, so you’re going to be wrong a lot of times. That means the times you’re right, the product has to be scalable very rapidly. But in biotech, there are regulators. You often need a sales force. It’s not scalable in the way that, say, LinkedIn or Netflix are scalable. Doesn’t that mean VC will just stay limited to a very small area of those things that are super rapidly scalable? Or if you think it’s pretty easy to pick winners, then you have to think the rents get exhausted.…

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