The debate is raging over whether or not the government should take equity positions in the financial firms whose subprime sewage it is purchasing with our squeaky clean taxpayer money.
Is there any question? In my world, there's a fundamental rule of the free market: he who can write the check gets the equity. And the hungrier the supplicant, the larger the chunk.
No one knows that better than the VC world, and no one in the VC world knows that better than John Doerr, who is by any measure the world's most successful venture capitalist.
More than Paulson, more than Bernanke, more than pretty much anyone in Washington I'd trust Doerr to negotiate my stake in the bailout. Unlike the investment banking crowd who successfully destroyed billions in wealth and capital, he and his team at Kleiner Perkins have created billions of value through their visionary investments in small companies like Google.
Here's how it would essentially work. Anyone who is sitting on dreck and wants relief would have to present their case to Doerr and his analytical truth squad. They'd analyze the value of what's there - and if the instruments are so squishy-soft they have no "mark-to-market" pricing, that goes into the total valuation picture -- and come up with a solution that might resemble this:
"Look, we'll take these mortgages, CDOs, credit-default swaps and any other poisoned fruit you've got off your hands.
Based on what you've shown us, your business has assets of $1 billion in real money, and $1 billion in dreck. We value your dreck at 20 cents on the dollar, or $200 million, which means your company is worth $1.2 billion. You need an injection of $500 million in liquidity right now, and since the credit markets aren't open to you, we're the lender of last resort. Tough luck. You've done that to yourself. We'll give you $500 million in return for roughly 40% of your business.
The first $200 million that's collected goes into the entity and gets divided based on ownership. If we're wrong, though, and you collect more than $200 million, then that means we underpaid for the business. So to be equitable, instead of dividing it pro rata, we'll take just 25%. We're entitled to a cut of that because if it wasn't for our capital injection, you'd be toast.
As for compensation, we'll set up a comp committee that we'll run."
That's just one approach. I'm sure Mr. Doerr and his team would be much more imaginative -- and probably much tougher -- than that imaginary dialogue. The point is that a) they are smart, tough, and unconflicted; and b) they would look at the bailout through the optic of "how much can I get?" versus "how much do I need to give, and how fast can I give it?"
This is a negotiation. A big one, a huge one, but still a negotiation. We - which means all of us - hold the chips and the checkbook. Somehow we're forgetting that. John Doerr wouldn't.
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