Thoughts on tech, venture capital and current trends
- Update
Okay so clearly I have not been posting at all recently and for that I apologize. However, I’m now working with Startup Weekend and am posting quite frequently there with some interesting topics. Feel free to check it out and as soon as things get a little less hectic I’ll start posting here again. I also want to redesign this beast but all in due course.
On a side note, finished up the MBA in May and now in addition to the Startup Weekend gig I’m working on an interesting app and managing to stay extremely busy. Oh yea, and I’m moving…Will post again soon, until then, talk amongst yourselves.
- New NIN album
Seeing as how I’ve posted just about every other NIN release here, I thought I would continue the trend. NIN released a new album today “The Slip” and it is totally free. This time there is not even a choice to donate so enjoy it while it’s out there.
- Quote of the day
While I was just looking through news I came across Exxon’s quarterly numbers and found the CNN quote to be quite interesting.
NEW YORK (CNNMoney.com) — Record oil prices netted Exxon Mobil a $10.89 billion profit in the first three months of the year, sharply higher than a year earlier but short of Wall Street estimates and below what was needed to set a new all-time profit record.
The profit was still enough to be the second-highest U.S. corporate profit on record, falling just short of the record $11.66 billion Exxon Mobil (XOM, Fortune 500) earned in the fourth quarter. The profit came to $1,385 a second, enough to buy nearly 382 gallons of gas at current prices.
The sheer size of the Exxon profit reported Thursday will still likely attract attention from consumer groups and lawmakers, who have been arguing for higher taxes on oil companies amid soaring gas and oil prices.
At this point I would hate to lean one way or another but this will surely be a major issue in the upcoming election. Perhaps I’ll try a quote of the day more often…
- New NIN track
It seems a pattern is emerging whereby I intermix all my tech, finance, and vc talk with some NIN news posting. To continue with the trend, Trent posted a new single that was released on the radio yesterday. This single is now free to download and remix. Clearly the 5 years between ever major NIN release model is now null and I am thoroughly enjoying the new “release stuff all the time” model. Exerpt from his post below:
Lots going on!
Some of you may have heard a new Nine Inch Nails track on your radio today. You can download your own copy of the track RIGHT HERE RIGHT NOW for free.Enjoy.
- Hedge Funds and Credit Derivatives
First off, I realize that my posting has been extremely light lately and that mostly is a direct result of it being my last few weeks of the MBA program. In any case, yesterday and today I came across some very interesting articles and managed to have a good discussion with one of my old Finance professors about the effects of the credit derivatives market growth. Paul Kedrosky posted a link on his blog yesterday (here) that summarized the findings of the ISDA for 2007. At first glance I didn’t think too much of it but after some short reflection and further analysis of the actual article, I was blown away by the size and massive growth in this market. A few quotes below summarize it best:
The notional amount outstanding of credit default swaps (CDS) grew 37 percent to $62.2 in the second half of 2007 from $45.5 trillion at mid-year. CDS notional growth for the whole of 2007 was 81 percent from $34.5 trillion at year-end 2006. The survey monitors credit default swaps on single names and obligations, baskets and portfolios of credits and index trades.
Notional amounts of interest rate derivatives outstanding, grew almost 10 percent to $382.3 trillion in the second half of 2007 from $347.1 trillion at mid-year 2007. For the year as a whole, interest rate derivatives notionals rose 34 percent from $285.7 trillion. For the purposes of the survey, interest rate derivatives include interest rate swaps and options and cross-currency interest rate swaps.
This type of increase in the market is astounding and that type of growth has to make certain individuals leery of impending problems. On that topic, I spoke with one of my professors with experience in this area and he noted that his major concern would be ensuring that the companies for which he is a board member understand the nature of those financial instruments. If anything, this market is definitely one to watch and with this type of growth, who knows what will happen.
The second interesting news tidbit I wanted to cover was a NYT article about hedge fund manager’s wealth accumulation this past year. For instance,
One manager, John Paulson, made $3.7 billion last year. He reaped that bounty, probably the richest in Wall Street history, by betting against certain mortgages and complex financial products that held them
Although I do not oppose such profits and the ability of these managers to seek out opportunities and exploit them (I would utilize those same opportunities), I do feel that this will bring a great deal of scrutiny upon the hedge fund market. With those profits and that much publicity, regulations will surely be considered to “close the gap” between the financial elite and the less savvy individual worker.
I will do my best to get some more posts up intermittently between all the other activities sapping my time.
- You shall not pass!!! (or IPO)
In light of all the recent Google App Engine coverage and fallout from the 37 Signals mishap, I think I’ll pass on rehashing the various intricacies of this new (and cool) service. Nevertheless, Fred Wilson from Union Square Ventures managed to stir up the finance community today with his post on the path to exits and the blunders that big M&A transactions are causing (SIA article here). His post covers the current drought in the IPO market and the problems that keep occurring when the internet giants attempt to consolidate and find focus within their respective industries. For instance, the following sections illustrate his point exceedingly well:
The IPO market is closed and frankly hasn’t really been that robust (at least for technology/web offerings) since the crash in 2000. And even when it’s open, it’s nuts to take any company public that cannot deliver consistent and predictable growth and earnings quarter over quarter for years. That’s what the public market investors demand and they should demand that as they have no control over the companies they invest in. The public markets should be for the best companies. Apple, Google, Amazon, eBay – those are good public companies. Skype, YouTube, and the current Facebook are not.
So if you can’t take a company public, how do you get out? M&A has been the primary answer in the web/tech sector for the past eight years. And it’s been a great period to sell companies. We’ve sold three in the past couple years out of our Union Square Ventures portfolio, delicious, FeedBurner, and TACODA, to Yahoo!, Google, and AOL, respectively. Were we happy to take their money? Yes. Were we happy with the outcome? Yes. Were they good buys for their new owners? On the face of it, yes.
Clearly his point about the IPO market being closed is absolutely right considering we only saw 1(?) in the month of March and that was not a valley occurrence. On the flip side, M&A transactions have continued as various web apps have been gobbled up by larger organizations looking for something to revitalize their service. AOL’s BEBO acquisition was questionable for instance, and other major transactions have yet to bear fruit for their owners.
Case in point, today Meebo found itself in a precarious situation where they clearly have been unable to achieve their desired valuation and sale price for an M&A transaction but are also in need of cash and therefore have decided to raise another round of financing (TechCrunch coverage here). This financing though will not likely come from venture capital and may involve a strategic partnership or investment for minority ownership by their primary buyer-targets.
Clearly it is an uncertain market right now and it seems more than likely that what consolidation does occur will happen at the hands of internet giants who are unable to manage their acquisitions. These companies that are unable to finance their growth through an IPO or appropriately priced M&A transaction will soon be faced with the same issues affecting Meebo. It is definitely an interesting time to be watching the tech sector and web app market as the economy continues to head down a shaky path.
- Starbucks’ new roast (a digression from the norm)
Given my venture and startup interests and experience it would be fairly safe to assume that I am wildly addicted to caffeine, especially in its purest coffee form. As a result, new happenings in the industry often cause some intrigue in my day-to-day. Given that, I received an email early in the week hinting that Starbucks would be doing something “big” today. Amazingly (/sarcasm) they introduced their Fresh Roasted Coffee today (after closing all stores to replace brewing machines two weeks ago).Being the fiend I am, I journeyed to the local store not long ago and experience this new brew. Needless to say, I was pleased and overall it was “fresh” tasting and good coffee. Given that I am not a connoisseur of sorts, I can’t tell any major differences but it was still good coffee. More than just the coffee however, I think this is a great attempt at recreating the experience and quality that Starbucks was based upon. With all the competition in the space and most chains offering a premium coffee line (McDonalds, Dunkin Donuts, Bagel places etc.) there has to be something to differentiate brands. Starbucks had seen steady declines in its share price given their huge growth and the problems that come with growth of that magnitude. Nevertheless, they are making changes for the better and hopefully with free wifi and a few other perks, they’ll begin to regain their brand identity that was so well established in the early 2000s.
Stay tuned for a post about Google vs. Amazon relatively soon… Oh and on a side note, great lineup this year at Lollapalooza (Nine Inch Nails, Radiohead, and Rage Against the Machine = they go to 11).
- Investment thesis v2 (this could be long)
I’ve been spending a pretty good amount of time (in between secret start up work) thinking about my personal investment thesis (v1 mentioned in a previous post) and have had some discussions regarding trends and things to watch out for. Eventually web 2.0 will transform into the next big trend with shiny buttons and stickers but I really think that we’re getting some quality advancement out of this “phase” of the web generation. Some might say that social networking and Twitter etc. are not “advancements” per se, and they may be right. But when you really think about it, the infrastructure that has been put in place and the data that is being added to the web on a daily basis is truly astounding. With this type of background, and the enormous development into web as a platform, I think we’ll see some really great things in the next iteration of web technologies.
With that in mind, I’ve left the first part of my thesis the same as I’m genuinely interested in the cool and happening technologies that the tech kids really love. At the same time however, I’ve added a section about enterprise IT and some options that might exist in that space. Despite the obvious downsides (slow, political, bureaucratic etc.) most major organizations will have to take advantage of the web technology that is out there simply to compete on the basis of price or differentiation. The possibilities for catalytic change seem to be pretty enormous and major success in the enterprise arena has already been proven, despite the lack of glamour or popularity. **I’ll post a working versions of this soon, I’m just tweaking it and working with it for now**
Finally, I just wanted to post some interesting thoughts about the entire thesis idea and drawing talent. A recent post on the Foundry Group site goes into great detail about the merits of location based investing. The following two paragraphs seemed to highlight some pretty important factors regarding where you make your investments, especially given my current location.
Our geography-agnostic approach also signals one of our core beliefs: We believe it’s a common venture capital fallacy that an investor must be constantly present physically to “manage” a portfolio company. Foundry Group isn’t in the business of investing in entrepreneurs who need to be micromanaged or who need us camping out in their offices to make stuff happen. And we suspect that really great entrepreneurs don’t want their investors stopping by in person for daily updates any more than we do (all you entrepreneurs, tell us if we’re off base here…). Between well-timed, in-person board meetings and all the great technology we have at our fingertips, geography really isn’t a barrier to effective communication and collaboration between a company and its investors, and we think our experience bears this out.
Nonetheless, we’ll admit that there are advantages to investing “locally.” Whether it’s helping our portfolio companies recruit new hires or minimizing the brain damage of hiring lawyers, accountants or other service providers, we like to leverage our local knowledge as much as the next guy. More importantly, local knowledge can pay off in vetting the entrepreneurs we invest in. Simply put, no amount of due diligence can substitute for really knowing an entrepreneur over an extended period of time. Having an entrepreneur in our backyard improves the likelihood of that kind of knowledge. So, as previously discussed, there are times when we’ll invest outside of our themes; often we’ll do so because of our “local” knowledge of a terrific entrepreneur.
With that I’ll end this rather lengthy post but clearly there are major arguments for both sides on the importance of location. For tech investments, it seems quite likely that I’ll end up on the west coast at some point simply for the fact that involvement in the community would be immensely beneficial for deal flow and development.
- Good People Day 2008
Thought I better post this up as well in lieu of GaryVee’s new day. Take a look at this video, great stuff. Support GPD08!
- Something slightly different…
Currently I am in the midst of a lot of different projects and have been pushing off writing a meaningful post for a few days. Although this does not count as “meaningful” it did manage to make me laugh given the portrayal of each of these internet stars. Enjoy the video and if YouTube removes it (as they’re being sued by Viacom) I’ll find another link! Also, I’ll plan on getting something useful up soon with all the interesting news in the market lately.
Edit: YouTube did remove the video and thus, here is a clip from that Episode. I’d recommend watching the entire thing if you have the time.
