ShmoopTube

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Finance a la shmoop what does capital-intensive mean? lots and lots and

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lots and lots of capital yeah that's what it means starting a website, two [Two young kids setting up a website in a garage]

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kids a garage and a nice home computer not capital intensive, drilling for oil

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in the North Sea highly capital intensive...

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well capital needed for the two kids in a garage building a search engine about

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two million bucks capital needed for the oil rig well like ten billion bucks and

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why does the capital intensity matter well if you can create Google that

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generates a few billion dollars of free cash flow a quarter for a total capital

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input of maybe a hundred million dollars ie a few rounds after the garage round [Equity investment agreement documents appear]

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then investors in it make an absolute killing like if you don't dilute

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yourselves and the stock goes up a lot life's good yeah hundreds or thousands

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of times their original investment if you create BP British Petroleum or Royal

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Dutch Shell or Chevron which also have a few billion dollars of free cash flow a [Cash flowing into fuel tanks]

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quarter but it takes you ten billion dollars in capital to generate those

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returns then yes you get a nice investment return but it's nothing that

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you know Vikings sing songs about and it's the allure of the capital [Man typing on laptop]

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unintensive businesses like building a website in Yahoo or a search engine in Google or a video streaming

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site in Netflix that takes relatively small amounts of capital to start and

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then produces mounds of free cash profits that has made venture

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capitalists fall all over themselves hoping to find that one little garage [Person looking through binoculars at garages]

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with the next great white whale yeah that's intensive...

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