Salman knows that the future is tech, and he's doing the strategic thing by moving Saudi money into other industries and outside of the country.
What does it mean for American innovation to be backed by oil wealth?
21–30 of 129 posts
Re: What does it mean for American innovation to be backed by oil wealth?
#22One thing to point out: Oil is still _huge_ when it comes to investment and sheer amount of financing available. Anything involving large-scale finance will have oil money involved in it in some way. Frankly, even at the height of the tech boom, the tech industry has never had significant capital available compared to the oil industry. I've worked in both... Folks in tech think 100 million in capital is a lot. In oil…
I was at an iron works a while back where I learned that an industrial grade blast furnace was, ballpark, $100 billion. This was built 100 years ago. That day I decided I just didn’t and wouldn’t ever understand capital markets.
> I learned that an industrial grade blast furnace was, ballpark, $100 billion.
That seems like a very large number for the construction of any industrial installation. Just poking around the net the numbers I found were $220/ton of pig iron produced, and another source that claimed a $2.5b cost in 1980 and $5b today. If the $220/ton figure is accurate a $100b blast furnace would be producing 455m tons of pig iron a year. According to wikipedia a modern furnace can produce about 5-6m tons per year.
Re: What does it mean for American innovation to be backed by oil wealth?
#23Comes close to an important point, and then misses it completely. The problem is not that Saudi money would get them influence at new U.S. tech companies. The problem is that Saudi money is getting pushed into "tech" companies that have unsustainable business models, and this is sucking all the oxygen (e.g. available developers) from other projects that could accomplish more.
Imagine two startup ideas. One, could be profitable, and eventually turn into a $100million company that does something useful. The other, will never be profitable, but makes promises of being worth $40billion. Which one gets the (inexperienced VC) money? The second. Which one would be a long-term bonus for the U.S. economy? The first.
That is the problem; too much money from Softbank (much of that from S.A.) pushes all the developer and other resources into goofy ideas that will end up going bust, instead of more rational ideas that could be long-term useful.
Re: What does it mean for American innovation to be backed by oil wealth?
#24Earlier quoted context omitted.
Unfortunately most of the companies in this generation of "unicorns" are being pumped and dumped by VCs. This idea that you can buy your way to a monopoly, get large market share like Amazon and Google,then figure out how to profit from your position in the market will backfire spectacularly and public investors will have to pay for it.
have to is a strong statement. Public investors need not buy a single share of a mis-valued stock.
That's the problem: Approximately half of the US stock market is made up of passive funds like index trackers which make up a large percentage of American 401k and retirement plan portfolios.
As soon as a company IPOs they enter into the portfolio of millions of passive investors, who unwittingly become bagholders for companies like Uber and WeWork that have no sound fundamentals or viable business model.
The market has become very distorted due to this and a myriad of other reasons. Everyone is gunning to find the next winning unicorn lotto ticket without any regard for fundamentals in a sort of collective pump-and-dump scheme. Thankfully there was a glimmer of rationale with Uber and Lyft's failed IPOs, and I expect WeWork's will be even more disappointing.
Re: What does it mean for American innovation to be backed by oil wealth?
#25One thing to point out: Oil is still _huge_ when it comes to investment and sheer amount of financing available. Anything involving large-scale finance will have oil money involved in it in some way. Frankly, even at the height of the tech boom, the tech industry has never had significant capital available compared to the oil industry. I've worked in both... Folks in tech think 100 million in capital is a lot. In oil…
I was at an iron works a while back where I learned that an industrial grade blast furnace was, ballpark, $100 billion. This was built 100 years ago. That day I decided I just didn’t and wouldn’t ever understand capital markets.
that doesn't make any sense. the capital to build, and operating expenses, aren't anywhere near $100B (direct costs). $100M makes more sense.
Re: What does it mean for American innovation to be backed by oil wealth?
#26I second the author's recommendation to read The Prize by Daniel Yergin. Was very illuminating.
Re: What does it mean for American innovation to be backed by oil wealth?
#27Saudi wealth is seeking to diversify, so its using its patrimony to seek alternative income streams to oil. So good for Saudis. This fund is seeking opportunity in many places, among them SV. That’s also a good thing, for the most part. In short, I don’t see it being so negative that it comes from oil. It’s funneling research away from oil
You don’t see it as a negative that SV has received billions in investment money from a Saudi prince who had a journalist brutally dismembered in the Saudi embassy in Istanbul?
It becomes positive when the wealth is transferred and lost. If wealth is increases this isn't a good outcome.
Re: What does it mean for American innovation to be backed by oil wealth?
#28One thing to point out: Oil is still _huge_ when it comes to investment and sheer amount of financing available. Anything involving large-scale finance will have oil money involved in it in some way. Frankly, even at the height of the tech boom, the tech industry has never had significant capital available compared to the oil industry. I've worked in both... Folks in tech think 100 million in capital is a lot. In oil…
The average cost for an offshore oil drilling rig is now about $650MM. The ones that can go really deep are even more expensive.
Re: What does it mean for American innovation to be backed by oil wealth?
#29One thing to point out: Oil is still _huge_ when it comes to investment and sheer amount of financing available. Anything involving large-scale finance will have oil money involved in it in some way. Frankly, even at the height of the tech boom, the tech industry has never had significant capital available compared to the oil industry. I've worked in both... Folks in tech think 100 million in capital is a lot. In oil…
I was at an iron works a while back where I learned that an industrial grade blast furnace was, ballpark, $100 billion. This was built 100 years ago. That day I decided I just didn’t and wouldn’t ever understand capital markets.
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Re: What does it mean for American innovation to be backed by oil wealth?
#30Earlier quoted context omitted.
have to is a strong statement. Public investors need not buy a single share of a mis-valued stock.
That's the problem: Approximately half of the US stock market is made up of passive funds like index trackers which make up a large percentage of American 401k and retirement plan portfolios. As soon as a company IPOs they enter into the portfolio of millions of passive investors, who unwittingly become bagholders for companies like Uber and WeWork that have no sound fundamentals or viable business model. The market…
Major market index funds do not buy into recently IPO'd stocks because such stocks are not in major market indexes. While pension funds may buy in a little, most will not because recently IPO'd stocks are considered highly volatile and thus outside the remit of their investment objectives. Everyone is not gunning to find the next "unicorn lotto ticket". Lots are, but they are a minority of the money in the equity markets. Further, the equity markets are much smaller than the debt markets (i.e. bonds) these days. Do not mistake press attention (they go after the exciting stories) for actual market activity.