Economic innovation for a bright new world
Public markets
Ignore the Dow
Friday - August 05, 2011.
Yesterday the Dow Jones plunged which produced excessive fear and got many in a tizzy. I was about the write a posting on it when Brad Feld beat me to the punch with an article on PEHub titled: “PSA for Entrepreneurs—Ignore the Dow!!”
I agree with Brad’s announcement but for slightly different reasons:
Get the article here
. We should instead be razor focused on diminishing our debt, or better jet improving income (rather than taxes).
I agree with Brad’s announcement but for slightly different reasons:
Agreed Brad, but for slightly different reasons. No one should correlate the Dow with the state of the economy. Simply because the stock market is not a free-market system (see my blog) and therefor is not representative of the value of the underlying asset. So get on with life and build great innovation.
Get the article here
. We should instead be razor focused on diminishing our debt, or better jet improving income (rather than taxes). Goodbye Secondaries
Monday - August 01, 2011.
Another Ponzi scheme in Venture is slowly coming to an end as VCs start to clamp down on Secondaries, not only to prevent a-synchronicity between returns for entrepreneurs and VCs but more importantly between entrepreneurs and LPs. Excessive diversification of risk by way of deal staging and round fragmentation already is a sign that many VCs do not understand upside investing, and they certainly cannot afford to lose any more downside (stemming from less hungry entrepreneurs) than they already have.
Secondaries are a new way to sell an aging promise to dumb money, useful in delaying the pop of a growing Venture Capital bubble. They are a sign that Venture Capital has not recovered at all, and is still desperately licking its sore wounds. What other Venture Capital constructs can we invent, short of telling LPs that the incompatible economic construct and the improper application of risk of Venture Capital are responsible for the suffocation of innovation?
[Links: PEHub
]
Secondaries are a new way to sell an aging promise to dumb money, useful in delaying the pop of a growing Venture Capital bubble. They are a sign that Venture Capital has not recovered at all, and is still desperately licking its sore wounds. What other Venture Capital constructs can we invent, short of telling LPs that the incompatible economic construct and the improper application of risk of Venture Capital are responsible for the suffocation of innovation?
[Links: PEHub
]Pump-and-dump IPOs
Monday - June 20, 2011.
- When startups cannot clearly describe their upside to the public prior to an IPO, many revert to inventing new accounting methods to describe their often financially challenged downside. Acsoi anyone? The real issue of course is that by pushing highly temporal value through the IPO process we play russian roulette with the trust of the public. And the social economic value of these “pump-and-dump” schemes is often hard to comprehend for those who are not specialists and thus hard for the general public to buy into. And when the public does not understand the value of the company (perhaps because a healthy balance sheet is not there yet), why not stay private and let the PE overhang take care of making the promise of upside become a reality first? Because we are going to need the public’s trust to recover from the deplorable performance in Venture. [Links: The New York Times Dealbook
]
IPO cracks; A $375 billion PE hangover
Thursday - June 16, 2011.
- We wrote about The IPO bubble and described once again how our financial markets are not free and therefor disproportionately and artificially assign benefit to a few. Steven M. Davidoff, writing as The Deal Professor for The New York Times Dealbook site chimes in with his own version. [Links: The New York Times Dealbook
] - Private equity funds have $375 billion hangover, which they can easily throw overboard in the macro-economically defunct marketplace of Venture Capital. I wonder if bubbles grow bigger in a vacuum. [Links: Pensions & Investments]
The IPO bubble
Tuesday - June 14, 2011.
But we can rebuild the trust in the IPO process (and thus innovation) with some simple, but groundbreaking financial reform.
Read the complete article...
The fiduciary responsibility of Limited Partners
Thursday - March 24, 2011.
Read the complete article...
ILPA etiquette
Friday - March 11, 2011.
- I too was asked to comment (about 1 year ago) on the Institutional Limited Partners Association guidelines, a document in which Limited Partners attempt to standardize on their interactions with GPs. I categorized the plan as "dining room etiquette", who actually pays attention to it anymore, even though arguably many should. The real issue between LPs and GPs is that the relationship allows for 10 levels of bottom heavy diversification to which no etiquette can produce sustainable returns. What the ILPA members need is a plan that stops laissez-faire investing from turning the underlying assets systemically subprime. [Links: ILPA
]
CalPERS changes and VC allocation
Wednesday - February 16, 2011.
Dan Primack at Fortune continues his unrelenting chase of CalPERS’
(California Public Employees' Retirement System) $229B assets under management (AUM). While Dan may not be as impressed with CalPERS’ transparency and its past, having had a couple of brief conversations with their “new” CIO Joe Dear and a CalPERS board member it appears their new leader is cleaning house as fast as its bureaucratic system allows him to. I too have found out those boats (pension funds) turn very slowly, and demanding it to move faster is a waste of precious energy.
Yet CalPERS is a large and important investor in Venture Capital with 8% or $2.5B in commitments of a total of $31.4B in Alternative investments dedicated to the sector.
The performance of Venture Capital comprised of a mere 1.1% of Total Assets Under Management is not really something to write home about, good or bad. Unless you recently discovered - like I did - that the deplorable (minus 4% average ten-year IRR) performance of Venture Capital comes from how we build the economic systems in finance and thus is much more symptomatic across other asset classes.
Simply put: any financial system using a laissez-faire economic system will inevitably turn subprime. And thus the asset allocation, while increasing in value because of the sheer size of the financial gamble it creates, will at the same time be hollowed out by the deflation of quality of its underlying (subprime) asset.
So unless pension funds really understand the money trail that feeds the underlying assets they will just be as successful as I was in finding a wife (i.e. substance, predictability, sustainability - a future) when I was 18 years old.
of CalPERS’ (California Public Employees' Retirement System) $229B assets under management (AUM). While Dan may not be as impressed with CalPERS’ transparency and its past, having had a couple of brief conversations with their “new” CIO Joe Dear and a CalPERS board member it appears their new leader is cleaning house as fast as its bureaucratic system allows him to. I too have found out those boats (pension funds) turn very slowly, and demanding it to move faster is a waste of precious energy. Yet CalPERS is a large and important investor in Venture Capital with 8% or $2.5B in commitments of a total of $31.4B in Alternative investments dedicated to the sector.
The performance of Venture Capital comprised of a mere 1.1% of Total Assets Under Management is not really something to write home about, good or bad. Unless you recently discovered - like I did - that the deplorable (minus 4% average ten-year IRR) performance of Venture Capital comes from how we build the economic systems in finance and thus is much more symptomatic across other asset classes.
Simply put: any financial system using a laissez-faire economic system will inevitably turn subprime. And thus the asset allocation, while increasing in value because of the sheer size of the financial gamble it creates, will at the same time be hollowed out by the deflation of quality of its underlying (subprime) asset.
So unless pension funds really understand the money trail that feeds the underlying assets they will just be as successful as I was in finding a wife (i.e. substance, predictability, sustainability - a future) when I was 18 years old.
Pensions are back, VC is easy
Wednesday - February 09, 2011.
- Pensions Top 1,000 are back in positive territory. Assets of the Top 1,000 grew by $484.6 billion in the 12-month period, to $6.56 trillion, according to Pensions & Investments' annual survey of the largest U.S. retirement plan sponsors. Hopefully they will spend some of their gains with a little more discipline to Venture this time around.
- Venture Capitalists will want you to believe the “magic” of innovation is a very complex problem with interplays and overlays, not in the least because it prolongs their cushy existence in the sector. I waste no time debunking that one with Paul Flamenbaum at Paul Capital Partners. Venture Capital is easy if you focus on how and where you deploy risk, rather than money.
Endowments on a rise, VC wasteland
Thursday - January 27, 2011.
- U.S. educational endowment portfolios grew 19.1% in the fiscal year ended June 30 to $346.5 billion, Harvard leading the pack. Curious to see the contribution of-and-to Venture.
- Quote of the day from PEHub
, “Venture Capital is a wasteland”. Any financial system with ten levels of bottom-heavy diversification is.
Vinnie Paz and Venture
Tuesday - January 18, 2011.
- The Venture business is being hypnotized by Venture Capitalists where the chasm between what they say is going on and what is really going on is enormous. A method to establish social control, so says Vinnie Paz’s in his song “End of Days”. Entrepreneurs should play this song on their way back from yet another frustrating false-negative pitch to 95% of VCs who’s arbitrage is defunct anyway. Excusez les mots.
Venture plummets, Capital efficiency retracted
Wednesday - January 12, 2011.
- Venture fundraising plummets, are Limited Partners finally waking up? Now let’s do a reset.
- Bill Davidow from Mohr Davidow Ventures now says companies require more money to grow up...what happened to the capital efficiency VCs have been preaching for the last ten years? Yup, it was nonsense to begin with. No longer are the winds so strong that all turkeys can fly. Thanks for not leaving a better Venture ecosystem behind.
The dark side of VC positivity
Wednesday - December 08, 2010.
Read the complete article...
Redefining Capital Efficiency
Friday - May 07, 2010.
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My advice to VCs
Sunday - April 11, 2010.
Read the complete article...
Investing in Venture unchanged, is the definition of insanity
Tuesday - March 23, 2010.
Read the complete article...
My message to LPs in Venture; more discipline please
Monday - March 15, 2010.
Read the complete article...
There never was a Tech bubble
Tuesday - February 23, 2010.
Read the complete article...
A new way in is the way out of Venture
Monday - January 11, 2010.
Read the complete article...
Why Einstein would be a better VC
Wednesday - January 06, 2010.
Read the complete article...
Why VC does not line up with innovation
Wednesday - July 01, 2009.
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How LPs should deal with VC
Monday - June 15, 2009.
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The trap of "Capital Efficiency"
Wednesday - April 15, 2009.
Read the complete article...
The curse of subprime VC
Tuesday - January 06, 2009.
Read the complete article...
The delicacy of european investments
Thursday - April 24, 2008.
Read the complete article...
10 Investment lessons learned over 10 years
Wednesday - March 12, 2008.
Over the last 10 years I've also been closely involved with early stage technology funding (advising VC firms and Angels) and have invested personal time and money in early stage ventures. That has given me a unique perspective of the challenges between entrepreneurs and investors...
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Domain expertise is over-rated
Saturday - September 30, 2006.
Read the complete article...
Cyclical innovation
Tuesday - August 29, 2006.
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The industry-analyst cookbook
Friday - August 11, 2006.
I couldn't help but chuckle when I read today's updated report on the Secure Content Management (SCM) market by number-cruncher industry analyst IDC. Having dealt with some of the companies in the top ten of that report, I can tell you that the numbers they report to IDC are not only incorrect but paint a picture of growth and penetration that could not be farther from the truth.
Yet, investors and entrepreneurs use this data to engage in new ventures together. Business partners base their strategic picks on it. Customers bet their careers on it. Even the suppliers (of SCM solutions) use this data to prove to their business unit managers how much progress they've made; what was the last time you got away with writing your own report card?
The problem with the IDC analysis is that it pretends to show what the size of the market is, and the operators in it, by simply adding the sum of finagled realizations. But what about the size of the total addressable market? A top down analysis of the market means nothing if it doesn't intersect with a bottoms up analysis (how applicable this technology is to the market). How many computers could be protected with SCM versus how many are? Is the sum of realizations really equal to the sum of opportunities? I don't think so. There is plenty of opportunity for SCM vendors that think different.
So, not only does the analysis of the opportunity stink, the facts are doctored too. Let's be real, Secure Content Management is a bull market with room for 130 competing vendors, sounds like no-one has cracked the code yet. Entrepreneurs should approach security from a new perspective that crosses artificial boundaries defined by the major players, let us know if you need help.
. Having dealt with some of the companies in the top ten of that report, I can tell you that the numbers they report to IDC are not only incorrect but paint a picture of growth and penetration that could not be farther from the truth.Yet, investors and entrepreneurs use this data to engage in new ventures together. Business partners base their strategic picks on it. Customers bet their careers on it. Even the suppliers (of SCM solutions) use this data to prove to their business unit managers how much progress they've made; what was the last time you got away with writing your own report card?
The problem with the IDC analysis is that it pretends to show what the size of the market is, and the operators in it, by simply adding the sum of finagled realizations. But what about the size of the total addressable market? A top down analysis of the market means nothing if it doesn't intersect with a bottoms up analysis (how applicable this technology is to the market). How many computers could be protected with SCM versus how many are? Is the sum of realizations really equal to the sum of opportunities? I don't think so. There is plenty of opportunity for SCM vendors that think different.
So, not only does the analysis of the opportunity stink, the facts are doctored too. Let's be real, Secure Content Management is a bull market with room for 130 competing vendors, sounds like no-one has cracked the code yet. Entrepreneurs should approach security from a new perspective that crosses artificial boundaries defined by the major players, let us know if you need help.
In search of the Economist VC
Wednesday - June 15, 2005.
Free market principles are over 400 years old when the Dutch started selling flowers using a manual auctioning system. eBay has done a masterful job of bringing this age old success to the internet in selling person-to-person goods. The benefit of eBay is macro-economic not technology (or user 'friendliness'). That may be the reason why it barely escaped the (2-3) veto at Benchmark Capital. The success of free-market principles can be extended to many verticals and it remains a big surprise to me that eBay has not delved into other verticals using these hard earned principles.
Recently, a new job site TheLadders where I posted my resume (for research purposes on marketplaces), raised capital with a new approach to job search. Instead of charging recruiters it charges the job seeker (specifically the ones above $100K/year salary) a price for access to the premium jobs on the site. A nice concept but how do we know that instead of trusting the applicant, we can now trust the recruiters. Are these posts for real. How are recruiters held accountable. How do I know if my personal data is not abused? As NY attorney general Eliot Spitzer declares: "For a market to be truly free and efficient and have the full confidence of its participants two things are required: integrity and transparency". Why would I trust a job site that does not tell me what transactions are committed. Would I be drawn to eBay if I did not know what products really go for?
Free market principles will change the record industry, new players like Apple have implemented the first phase of a free-market for music. Without truly recognizing it, the record labels are participating in a movement in which the stars are no longer produced by labels, but stars are produced by people. But Apple needed the labels to draw the participants into its marketplace first.
Open-source represents another form of free market principles. Virtually unlimited software development supply is matched with the diverse appetite for the Linux operating system. Why are we still entrusting the publishing of books to the demi-cartel of the book publisher. You can publish books in Audible on iTunes and the software is ready today to publish Adobe's PDF format (yes, in iTunes). What stops Apple from becoming the media hub where free market principles apply to any data type and buyers can tap into the Pareto and Long Tail supply simultaneously.
There are some real hurdles. Hurdles that require capital and domain expertise and VC's to fund them. But we need a different VC, not the technology nut that wants to send a new rocket into space, but one that understands the power of history and evolution.
Recently, a new job site TheLadders where I posted my resume (for research purposes on marketplaces), raised capital with a new approach to job search. Instead of charging recruiters it charges the job seeker (specifically the ones above $100K/year salary) a price for access to the premium jobs on the site. A nice concept but how do we know that instead of trusting the applicant, we can now trust the recruiters. Are these posts for real. How are recruiters held accountable. How do I know if my personal data is not abused? As NY attorney general Eliot Spitzer declares: "For a market to be truly free and efficient and have the full confidence of its participants two things are required: integrity and transparency". Why would I trust a job site that does not tell me what transactions are committed. Would I be drawn to eBay if I did not know what products really go for?
Free market principles will change the record industry, new players like Apple have implemented the first phase of a free-market for music. Without truly recognizing it, the record labels are participating in a movement in which the stars are no longer produced by labels, but stars are produced by people. But Apple needed the labels to draw the participants into its marketplace first.
Open-source represents another form of free market principles. Virtually unlimited software development supply is matched with the diverse appetite for the Linux operating system. Why are we still entrusting the publishing of books to the demi-cartel of the book publisher. You can publish books in Audible on iTunes and the software is ready today to publish Adobe's PDF format (yes, in iTunes). What stops Apple from becoming the media hub where free market principles apply to any data type and buyers can tap into the Pareto and Long Tail supply simultaneously.
There are some real hurdles. Hurdles that require capital and domain expertise and VC's to fund them. But we need a different VC, not the technology nut that wants to send a new rocket into space, but one that understands the power of history and evolution.