Saturday, March 29, 2014

Principal-Agent Problem

FLG has written before about what he sees as a principal-agent problem in the last decade or so of Microsoft's history:
Microsoft, to take one example, wastes so much money getting into new businesses looking for growth that FLG thinks shareholders would be better off just milking Windows and Office and call it a day.
A recent piece on Marketplace about how Facebook is transforming into a venture capital/holding company makes FLG think this might be a uniquely and especially problematic issue with regard to tech companies:
Victor Hwang, CEO of T2VentureCreations, a Silicon Valley Venture firm puts it this way:  “On Wall Street, the biggest fear is missing the numbers, not making earnings.  In Silicon Valley, in the startup world, the biggest fear is obsolescence.  Because obsolence is the equivalent of death.” 

Unlike Mark Zuckerberg, FLG as an investor doesn't particularly care if Facebook as a company remains relevant.  He just wants that stream of revenue maximized.  The crux of the matter turns on a simple issue for FLG -- Does he think that Zuckerberg is going to be better at picking the next set of winning companies than he is?  If so, then maybe investing in Facebook makes sense, but FLG is not at all convinced that is the case.

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