Thursday, March 24, 2016

Is a startup different from a tax shelter?

In Tom Slee's new article in Jacobin, he says that Uber's "current business depends not only on pushing all the risk onto individual drivers, but also on avoiding taxes (in non-US countries) through a 'Double Dutch' subsidiary arrangement."

As a thought experiment, what if: the Double Dutch comes first, and oh yes, it also happens to be about cars?

The whole point of PE and the LBO story is a change in the ratio of a business "doing something" to Slater/Walker saying "we're in the business of making money, that is what we do," and the use values of what the business is about are secondary. The attributes being assessed are financial attributes, not subject matter attributes. If subject matter attributes are assessed, this will be in context of their being ensconced by what they mean as financial entities, or as vessels for money laundering, etc. So this has a relationship with how portfolio companies are used and how they are approached. A portfolio company could be a PE's portfolio company or a VC's portfolio company. The idea is that subject matter follows finance. This is why the outcomes have been so perverse - like Magnetar, the funders of portfolio companies may profit off of failure rather than success. But when you're advertising to the general public, the logo will be associated only with subject matter and the public will think that subject matter is what it's about. It benefits the financier for the portfolio company to be seen in light of what it does. For Guitar Center to be framed in terms of music first, and finance second, rather than how the financier talk amongst themselves about the thing, which is ROI first, with musical instruments. For Curves to be discussed in terms of "exercise" rather than money - for Arctic Glacier to discussed in terms of "ice" rather than money, gives the financiers years' worth of a head start in which to operate. Or for the excitement of high-tech VC to be based on something supposedly real, (like communicating quickly over long distances or using platforms to match a need with an availability,) rather than a sales pitch that says that the perception of these amazing things is an excellent way to raise money, gives the financier years' worth of a head start. His adversaries are going to be gummed up in subject matter for years before they even remotely get a clue! As long as we're still talking about subject matter, we can be misdirected more easily. The overall theme is a differential between the controllers' ability and knowledge of disingenuous and instrument-like application of attributes to a finance venture (with subject-matter accents,) and the blinkered, narrow way that the people on the receiving end (the public, the press, regulators, advocates) will guilelessly assume that if it quacks like a duck, it is a duck. If no one has ever heard of Kalanick, Zimmer or Busque before, and they say they're new people with a new entity doing new things then gee, it must be true. If it says on the billboard that it's about cars, it must be about cars. And if someone wants to raise a possibility that it isn't true, this is going to take years to assemble, which gives the company several early years of opacity and no one bothering them. We should address the entire engine, and we should do it early in the lifecycle, and not just late. And we should use the past precedent of one wave of portfolio companies - deaths, rapes, assaults - to judge the hot new startup of 2020. They didn't just pop out of the womb - grizzled old veterans from Kleiner Perkins use baby MBAs as a puppet, in order to attain "benefit of the doubt" and a perceived "newness" from the public.

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