New Money

Money is traditionally viewed as having three functions:

  • a store of wealth
  • a medium of exchange
  • a unit of measure

If you have an excess of production today, you can store up that excess in a non-perishable form for future use, with the confidence this can be exchanged for almost any other good produced by almost any other individual. And you have a confidence (inflation aside) as to the measure of the other person’s goods you will be able to obtain.

“New money” has other more valuable functions for our purposes.

  • We use it as a means of inducement.1
  • We manipulate ‘perceptions’ of the value of our goods prior to an exchange.2
  • We view money, instead, as a lubricant for unsticking old prejudices and inventing new ways of working3.
  • We exploit people’s desire to own their own destiny by borrowing from the mortgage industry – the more you use of my money the longer it’s going to take you to have own your own destiny.4

Perkins (below) called it financial engineering. We fix our goals then comb the financial regulations (e.g., the FASB+ guidelines) to find the means to achieve our goals. Every regulation is open to interpretation and we pay financial professionals handsomely to inform us which avenues are still open for our financial engineering.

These [Clinical R&D Partnership] worked very well, until some years later the Securities and Exchange Commission decided it was too aggressive. Tom Perkins (2002). Venture Capitalist for the early biotech firm Genentech, as cited in Chance, Nécessité, et Naïveté: Ingredients to create a new organizational form

Initial Public Offerings for new exciting science-based industries bring in exorbitant multiples of earnings; or, exorbitant share prices in the absence of earnings. The ‘excitement’ surrounding the offering is subjective and tenuous. We split our new life science company into two companies: the exciting research company, staffed with world-reknowned scientists, and the unexciting clinical operations company. The multiples we receive on our IPO+ for the exciting research company give us an influx of cash that far exceeds anything we could have received had we tainted the excitement by mixing in the unexciting clinical operations. 1 + 1 = 10. Or, ½ of 1 = 9. ‘New money’ is money founded on passion and excitement.

Old Money” is seized up in NPVs, IIRs, and Time to Market+. It’s cold, hard, impersonal cash. There is no excitement. We turn the crank and whatever comes out we use as a basis for our decisions. This is the money of today’s industrial R&D. This is the money that drives many of today’s unproductive R&D behaviors: deadline bias+, early kills+, resource management+, etc.

New Money” is viewed as a means, as a lubricant, for our new industry. It is not counted the same way as old money. There is no crank. In dealing with the problem of Other People’s Money, we instead are concerned with ownership: you (the individual) give up more ownership in something you dearly value in exchange for more of my money.
Money is not accounted for as in NPV, because we’re missing the variable t=time needed for the calculation. We don’t know how long it takes to launch a blockbuster+ product with discontinuous discovery+. So we engineer new financial techniques and new definitions of money that greatly discount t=time as a variable.

Note: We also require, of course, ‘new men’ who perform this financial wizardry. As discussed these are men fully caught up in the passions and promise of the new science-based industry.

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