Chris Matthews said something on his Hardball TV show last night that I found disarming. The set up is what makes the payoff satisfying, so I’ll quote pretty much his whole lead-in to a particular segment of the show:

"We all studied in school, those of us who took economics, the Marxist theory.  It‘s called the labor theory of value.  You get paid for your labor, and there shouldn‘t be any extra money made.  Now, of course, we have all gone beyond that with neoclassical economics. And we say, no, there ought to be some money for entrepreneurial — entrepreneurialism.  If a guy or a woman starts a company, they risk money, they risk most of their lives to get a company going, whether it‘s a laundry or it‘s a big bank, whatever it is.  They deserve to make a big profit and live better than anybody else. That‘s the way the system works. But these guys who make money off money...is that necessary? I mean, I have got [to] like anybody you can think of, whether it‘s Iacocca, Spielberg, anybody who makes something, whether it‘s a movie or it‘s a car, you say, great, he ought to make money. But this money that is being made just off of money, is it necessary for our system to have people that make [money off of money] — and, by the way, are the entrepreneurs losing the money that they should be getting from this money?" 

This resonated with something a friend, a veteran venture investor, told me a couple months ago. I won’t convey what he said nearly as precisely as I nailed the Chris Matthews’ quote (thanks to the show’s transcript), but my friend said something like this:

“Wall Street’s pitch to the entrepreneur for the last fifty years has been: you go build your business and operate it and make it valuable. Once you’ve done that, sell it, liquidate it, and turn the cash over to us; we will diversify your wealth, spread it around, extend it, because we know how to do that really well and you don’t. Your money is not only safe with us, it’s safer with us than it would be if you stayed in the game running a business somewhere out there in the middle of America.”

And the Great Recession has put the lie to that pitch, my friend said. From here on out, I’m re-constructing more than paraphrasing:

"Those who bought the Wall Street pitch have lost forty to sixty percent of their net worth. And so it will become clear once again that the way to gain wealth, keep it and expand it is to do it the way the robber barons of the 19th Century did it — by owning and controlling operating businesses. It’s fine to hire others to come in and manage them, but if you want to keep your wealth, you have to own businesses that turn on the lights (real or virtual) every day. Diversification doesn’t mean stocks and bonds, it means owning and operating several or many different businesses. This is also the best hedge against inflation, because you will always be paid in the current currency; and you won’t be having Wall Street taking its cut, coming and going, up years and down."

This is all well and good for the tycoons and would-be tycoons, but most entrepreneurs I work with still need liquidity because, first and foremost, they are restless; having succeeded, or failed, or succeeded-and-failed-at-the-same-time with a given venture, they will invariably, at some point, need to move on to the next thing.

Can you pull some liquidity from your venture, keep running it, and hire management into it while you go focus on the next one? This is a model that I think we may see play out here in the next few years:  the serial entrepreneur who stays a shareholder, and perhaps a board member, as he hands off the day to day operational responsibility, and draws cash from one business to seed the next one. This may be a model that is unique to software, social networking and other Internet-oriented ventures, however. This may be a byproduct, a benefit, of those who’ve learned to bootstrap during the Great Recession.