I miss the old-fashioned investor. Long ago, when I was newly minted, I catered to a retail clientele. A market-leading mutual funds organization, when this market was still small, saw fit to hire me and round out a class of youngsters staffing up its service center. I sort of knew how to brush my teeth, was then experimenting with my shoelaces, dabbled in some other stuff, mildly incidental to the job. This résumé was acceptable enough. The risk that came with it was diminished by the product being mutual funds, and by a branch manager who hovered like a cloud.
We had a regular guest back then, I don’t remember his name but let’s call him Mr. Blenderbonder, a retiree. Once every week or two Mr. Blenderbonder walked in to check on his portfolio and ask us what was “hot” that day. To be clear, these were mutual funds; as many of us now know, mutual funds are diversified portfolios of securities, designed specifically to not become hot or cold, but to be diversified. So we used to tell Mr. Blenderbonder about whatever fund of ours was receiving the most press attention or brochures from the marketing department, really for lack of a suitable response. “Put me in!” he used to say. (I can never forget that: “Put me in!”)
The manager would talk to Mr. Blenderbonder, and probe to see if he really thought it a good idea. Sometimes Mr. Blenderbonder changed his mind, other times not. Sometimes he lucked out – his account value tweaking up a notch – and sometimes he did not. He would come back to transfer the money into some other “hot fund” – Put me in! – which sometimes we talked him out of but were at other times unable to – the man insisted. I don’t think Mr. Blenderbonder cared about the actual performance, truth be told, as much as he did about the activity, about sitting down with us to dissect the market and his most current perspectives. And by the same token, Mr. Blenderbonder was shrewder than we (youngsters) realized. He knew what he was doing and he knew his limits. His swashbuckling gambits rarely took him out beyond some no-load bond fund or another.
But this was a very long time ago. This was before LTC and sub-prime and Bear and Lehman and the inexplicable flash crash; before hedge funds and high-frequency trading; before, in short, the sophisticates took over. Mr. Blenderbonder, according to reports, has gracefully bowed out, alienated in many ways from the investing ecosystem. The structures and the mechanisms are too complex to suit the retail fancy now, and the pace of flow is too enormous for him or her to fathom. This is speaking figuratively, of course, Mr. Blenderbonder does not in actuality exist. But there is a category of investors out there – I know there is – who would participate constructively in the market if they could comprehend and trust it more. There is a category of investors who would simply like to deal with finance on a human level, and whose renewed participation would make the market more efficient.
There have been many reasons offered for the recent pickup in activity and valuations in the angel and seed-stage investing field. For the most part, these explanations have had to do with diminished entry costs, quicker exits, and flashy exit values. Some of these explanations are more valid than others, but none of these takes into account the human factor: The angel markets (and venture capital) are among the last remaining bastions of purely human interaction in financial capital. These are fields in which investor and investee can still be old-fashioned and deal with each other like people rather than volatile data. One meets with another directly, says “put me in!” and comes back a week or two later to see how things have been going. One gets to posture, spin, digress, and all such things for which people are beloved.
So while it is true that cost and exit economics have played a role in this private finance realm, perhaps these are not so much root cause as fortuitous circumstance in an evolution that runs parallel to an otherwise mechanized and increasingly concentrated institutional landscape. The JOBS Act, in this way of looking at matters, is not so much a catalyst as a natural reaction. And those who are worried about risks to the “small investor,” as he or she dabbles in venture-stage platforms, need not be overly concerned: Remember that Mr. Blenderbonder was savvier than he got credit; and the fat finger, after all, belonged to someone else.