William H. Janeway, one of the great tech investors, would be the first to tell you that being smart and lucky is the best of breaks. “I came to Wall Street in 1970 while still finishing my doctoral dissertation for Cambridge University because I knew what I did not want to do,†he writes in his book, “Doing Capitalism in the Innovation Economy.†His doctorate was in economics, and what Mr. Janeway didn’t want to do was spend his career inside academia. Instead, he made himself and others a great deal of money by investing in technology.
Mr. Janeway disliked how mathematical models and quantitative techniques had taken over the analysis of business, finance, and the role of government. That quantification of everything, he thought, led to arrogant conclusions, bad policies, and a tragic loss of the real-world color and nuance surrounding our lives in the marketplace. Things may have gotten somewhat better in economics since, he writes, but the false certainties of those mathematical geniues who created the 2008 derivatives debacle show that we still have a lot of relearning ahead.
He worked at Warburg Pincus when it first moved into speculative tech investments. He invested in start-ups, turnarounds, and buyouts. The firm helped create BEA Systems, which connected software applications to databases across much of the Internet. A cash investment of $54 million became a payout of $6.5 billion within six years. Most of the stock was sold on the eve of the great Internet stock crash of 2000, something he saw coming thanks to his reading of economic history, and the parallels with the tech stock manias of 1929.
More than a memoir, however, his book is an example-rich theory of the necessary tensions that create innovation and growth. In many cases, he says, developments such as electronics research and biotechnology begin life with government-led funding. Entrepreneurs seize on these discoveries, and shape them to meet social and business needs. Financiers, eager to create opp! ortunities that are not leashed by custom and law, back the entrepreneurs (whom Mr. Janeway, the former financier, assures us they rarely trust with the money.)
It is a system that has more or less worked for two centuries in Europe and the United States, but is now under threat. I caught up with Mr. Janeway in Cambridge, England, where he is teaching his book, to discuss why. Here is the edited interview.
Q.
How do you rate the climate for technology innovation today
A.
A little conflicted. Not only is the information technology revolution not over, as some people argue, it’s just starting, with things like cloud computing, mobility, and big data. Friends of mine in the Silicon Valley say it’s easy to raise early-stage money, and hard to get money to take companies bigger. It’s a happy hunting time for companies that know how to acquire technology.
At the same time, there is lots of stuff we should be doing in basic technology research that isn’t being done.Q.
Such as
A.
The government should be funding tons of work around decreasing carbon consumption in energy. In computers, government could play a role in areas like natural language processing and machine learning. Not just funding start-ups. It should be funding universities, and giving contracts to big companies that can build things, like General Electric.
It should be buying and testing products. What is neglected is how much the Department of Defense played a helpful role to the electronics industry in the 1950s and ’60s as a customer that guaranteed purchasing, but also insisted on improvement over time, and the sharing of intellectual property.
Q.
Why isn’t that happening now
A.
The government got into a “picking winners†approach when it invested in single start-ups, like Solyndra. They need to set up a more competitive environment for their needs.
A bigger part of the problem is that a lot of people in government don’t se! em to thi! nk government can play a positive role. You could construct an interlocking laundry list of things for the government to invest in. The government has to be empowered on both the production and the consumption side of energy research. But you can’t even have that conversation in Congress today.
Q.
Right now in the Valley there are perhaps 40 start-ups that are valued at $1 billion or more. Is this the sign of a bubble, or some special innovation in finance and technology
A.
I’ve heard people in the Valley say, “We don’t need to do an I.P.O. anymore, we have the Russian billionaires investing now.†It’s like every oligarch has to have a start-up. We’ll see how that one plays out. One or more companies will get public. Whether they do at a price that validates what they say they’re worth now, who knows
