• Damián Olive

The Age of the Entrepreneur: Capitalism Without Capital

Here’s an updated list of countries that have put humans on space:

  1. United States

  2. Russia / Soviet Union

  3. China

  4. SpaceX

Elon Musk and his company, SpaceX, have achieved in 18 years what 192 countries haven’t been able to do throughout their histories. The US itself hasn’t been able to do this, through NASA, for 9 years.

A big milestone for sure. But what does it mean? How to interpret this? Should we just ignore it as an outlier given Musk’s genius and drive? Hardly. This is no outlier. We’ve just entered a new era: the age of the entrepreneur.

The meaning is simple and profound. People can now succeed in projects that were up to now reserved for countries.

From labor and capital to digital capital

Things are happening so fast that it’s hard to understand how reality is changing. Two hundred years ago poverty rates around the world were at 80%. Now we’re down to around 10%. That remarkable result was largely achieved on the back of the industrial revolution, which meant one thing: control of capital and labor was the ultimate power, second only to the ability to tax capital and labor.

Being an entrepreneur meant you had to slowly or quickly get a hold of people and money. John Rockerfeller and Henry Ford come to mind. Lots of assets, lots of people. Sam Walton is a more recent example. That era is behind us.

Here’s an interesting set of numbers, the years it took each of these companies and their extraordinary leaders to get to $500 billion in market capitalization:

  • Exxon, John Rockefeller: 137 years

  • Berkshire Bathaway, Warren Buffett: 53 years

  • Microsoft, Bill Gates: 25 years

  • Amazon, Jeff Bezos: 22 years

  • Facebook, Mark Zuckerberg: 13 years

See the pattern? The first two companies are extreme examples of traditional leverage, where capital and labor were combined to achieve scale. Both Exxon and Berkshire Hathaway achieved impressive returns on invested capital for decades. That was, until now, the only way you could get to $500 billion in market value. That’s no longer true.

Microsoft, Amazon and Facebook are examples of digital leverage, where software has been added to the mix. They are capitalism without capital. Bill Gates likes to say that the first and only VC round they received is still deposited in the bank. They didn’t need that money or any money. Amazon’s $1.2 trillion in market value was achieved with total equity contributions of $1.3 billion. That’s a 900x return in 25 years.

If you’re not bound by the speed at which you can compound money (i.e. the return on invested capital) you get there faster. In fact there’s no real speed limits anymore. Scale, scope and impact go as fast as human ingenuity can travel.

Digital capital is cheap or free. It’s available to almost all of us all the time. We have access to unlimited information and a great amount of computing power. We are not that far off from the first one-person unicorn.

What does it mean for new generations?

Independent thinkers and builders (scientists, artists, engineers, etc) will design and create the world we live in, like they always have. Now they have tools to do it at massive scale, low costs and extreme speeds.

We can show our kids what’s available to them, guide them and see what happens when they tackle some of the challenges that we have been unable to solve.

We can graduate from the expectation that governments or traditional businesses will somehow bring about new solutions to old problems, let alone new problems like a global pandemic. They are not set up to do it and getting upset at “big business” or ineffective government doesn’t seem to be changing this. It’s time to bet on a new generation of entrepreneurs.