We all heard about the idea of private equity firms. This is regular discussed by the financial media. Entities such as Blackstone and KKR regularly make headlines.
These funds are great in theory. However, in practice they tend to crush companies while extracting as much value as possible. Basically, we are looking at modern day financial pillaging.
When it comes to the top dogs, we are talking about tens of billions of dollars. Some of these are huge entities, involved in some of the best known companies in the world. They also have a way of inserting themselves in industries, completely dominating what is taking place.
In this article we will take a look at private equity and how Web 3.0 can change it.
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Web 3.0 Is The Counter To Big Money Players
Before going any further, let us mention what private equity is.
These are firms that take a controlling stake in private companies. The idea is to buy them up, improve efficiency to make the company more profitable and then sell the entity at a later date (say 5 years).
On the surface this looks good. There is, however, a darker side.
To start, the way to improve efficiency is to lay people off. While that is often a necessary part of restructuring, these firms push the levels as low as they can. This could have major consequences in fields such as healthcare.
Another problem, this one from the financial side, is these deals are funded with debt. Basically, the firms are not using their money. Instead, they leverage the assets of the company being purchased to finance the deal. Again, on the surface this isn't a negative, yet the practice limits future operations.
Private equity firms tend to specialize at selling during bull markets. That means that while structural changes might be made, the true return is simply taking advantage of market dynamics. They step out with a profit, leaving behind a company that has even more debt than before.
Basically, private equity is the counterparty to Blackrock and Fidelity, firms that take large stakes in public companies.
These are the entities that are in control. Obviously, we can only look at publicly traded companies but these firms are usually large stake holders in most companies you do business with. They are known as institutions.
We cannot see with the same degree of transparency what private equity is doing since the entities they are acquiring are private. That said, we see how the big money game is played and what they do to leverage their power.
Distribution and Fragmentation
What we are looking at is centralization. No matter how we analyze this, we are dealing with a system that favors the larger firms. They are able to deploy capital in a targeted manner. Also, the industries they are going after are highly centralized.
Web 3.0 takes the opposite approach. Here we are dealing with smaller. Instead of a few major entities, the goal is millions. When we look at some different industries, the idea is to ride the wave of fragmentation.
Here is where the network-state idea enters. As networks have more built on them, they end up becoming similar to nation-states. However, the entities on top are all individual, with different communities participating. With so many options, the attention economy expands in more directions.
Nothing epitomizes this more than entertainment.
Hollywood is owned by a combination private equity and the likes of Blackrock. Movie studios are like everything else with these funds have impactful stakes. Then we have private equity swallowing up things such as the talent agencies.
No matter where you look, the big money players have their hands in it.
Web 3.0 changes this.
It starts with the fragmenting of attention. Instead of turning to content created by the major studios, distributed on their platforms, we can start to focus our attention elsewhere. When this is done tens of millions of times per day, it has an effect.
We also see the advancement of AI tools also favoring this. As we enter the next wave of abundance, AI content creation is going to be a major part of this. That means things such as talent agencies will not wield the same power.
Having Our Own Money
The financial possibilities with Web 3.0 are enormous. I do not believe many have fully grasped the power of having the ability to create our own money. Certainly they are not aware of where currency derives it value and what needs to be done there.
However, if these things take place, we could see a massive shift, probably in a short period of time.
The abundance-scarcity model is always in play. What happens when that which was scarce suddenly becomes abundant? One of the keys to all this are networks. Those are becoming abundant meaning that even a distribution channel like YouTube is going to feel the pinch.
Having our own money means different incentive structures can be developed. At the same time, the potential to build an entirely new financial system is before us. This means being able to leverage the value we create, much in the same way as private equity and hedge funds.
The major difference is we are able to do it without raising money. Unlike Wall Street, the value created from our activities is what provides the value. With the proper financial tools, we could see an ever expanding vault of value that can be put to use so as to counter the present system.
This is why we discuss the idea of something such as Hive bonds.
Like most topics regarding Web 3.0, the possibilities expand the further we dig into it. Nevertheless, it always seems to revert back to the same simple concept: decentralization.
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You're right man .... The larger firms are always favored 🤧🤧
Again, on the surface this isn't a negative, yet the practice limits future operations. Would love to know more about how it (debt) creates the limitations you said, thanks.
Adding to that, I keep on also seeing your positive views about web3 hedge in the financial industry and economy. A lot know about this, yet are still ignorant to adopt.
When a company is saddled with more debt, the cash flow is affected since it has a higher cost to service the debt. That means there is less money available to do other things for the business.
Basically many PE firms look to slash costs, make the numbers look better, and ride the market wave by selling into the bull. The core of the business isnt much better. Actually, it is worse because it how has the debt.
Web3 backed finance systems would do well in the long run because of the greater control that can be made and ensured by the continual process. More and more companies are already availing it to perfection, but the question is how can the measure be adopted large scale?
We have seen back a pair of decades time ago how digitalization came in and encompassed a greater degree of people, institutions and financial farms to take advantage of the newly added systems that held technology in a different way.
Lets see how it rolls forward in the ever updating markets.
Private equity is even destroying the real estate market here in many parts of the US. They're buying huge swaths of homes and commercial properties across the US for more than market value. This is artificially inflating prices and making it impossible for people and businesses to afford to buy or rent.
I feel really bad for my younger peers because many have given up on the possibility of owning a home. Between the millions of illegals flooding into our country and big companies like Blackrock buying up homes and renting them out, the housing prices are just stupid inflated right now.
That isnt really a big deal. People make it out to be but there is a problem. The masses will jump on board with banning them from owning which will kill the buy demand. That would be worse.
What these entities overlooked is the liquidity issue with homes. You can firesale a business. Even when it is on the block, it is still operating, driving in revenues. A property, it has costs associated with it.
These companies thought they would streamline the upkeep and become national landlords. It is biting them all in the ass. Look at the losses Zillow (Not PE) took. Blackrock is going to have to write down a lot.
This is something that business owners should be excited about. There should be more funding available for them in the future. We have seen some examples in Hive already. The way Holozing went about their funding through delegation is interesting. There are Hive projects that are voted and funded by the community. You mentioned bonds.
There are lots of opportunities.
However, to achieve it, we need to build.
I sure hope you're right. I'm getting really concerned at how every year we get closer and closer to one giant Globohomo company owning everything worth owning. Every industry is consolidating. I see that as a bad thing.
How is every industry consolidating. Take media, for example, that is going in the exact opposite direction. And that is a powerful mechanism because it is the communication arm of the government.
While the major players are joining forces, the industry is fragmenting like we never saw before. This is making it impossible for them to compete, as evidenced by their recent numbers.
There are very few sources of reporting. Reuters and AP are the two big ones. Pretty much everyone else just riffs off their articles.
Between Blackrock and Berkshire Hathaway, most publicly traded companies are owned by very few people. In my own industry, fuel, the fuel depots I pull from are all getting bought up by one company. Used to be three different companies owned the five depots I pull from. Now one company owns four and there is one rebel holdout that still owns the one.
#hive
" I do not believe many have fully grasped the power of having the ability to create our own money. "
That's very true and everyone is looking forward to the generation of the Web3. I am just afraid that it will not be misused