It’s that time of year again. The time when the Yearly honors are bestowed. One of the best known is Time Magazine’s Person of the Year. The annual magazine cover used be ”Man of the Year” but the PC police replaced “Man” with “Person.” I suspect at some point it will be “Organism of the Year.” We don’t want to leave out animals and plants- that’s not PC. So I thought I would add my honor to the list to balance Time Magazine and others. I call my Yearly honor “D Bag of the Year. ” To be fair, the Time Magazine “Person of the Year’ isn’t necessarily a “good” person. They are just the “Person of the Year” according to the brain trust at Time. There have been several questionable characters on that list i.e. W, the Ayatollah, etc.
My motivation for D Bag of the Year is to highlight great examples of bad examples. These are people that do more harm than good. Many of these people would be more useful as food than members of society. Please don’t label me a Hater. I am a Lover with a dark side that emerges when I see a foul committed. Everyone has the right to throw a yellow flag (and a red challenge flag twice a game). This is me throwing my flag. So here are the finalists that didn’t win but deserve credit for discrediting themselves:
o Jesse James. What a nitwit. Did he really think he could fool all the people all the time. He wins the Tiger Woods Award but not the D Bad of the Year.
o Bernie Madoff. Bernie is a finalist again this Year because his actions led to the suicide of his Son. I wonder how the fellas in the cell block will celebrate this Holiday Season with Bernie.
o Philip Markoff. The Craig’s List Killer. A promising medical Student with a pretty Fiancée and the world by the balls. Apparently it wasn’t enough or he just had a screw loose. He robbed the family of the woman he murdered by offing himself this year before he could be prosecuted putting him the running for D Bag of the Year.
o LeBron James. The way he dissed the good people of Cleveland on the way out was classless, egotistical and selfish. It’s bad enough to be struggling to make ends meet in a rusting Industrial City without a kick in the balls.
o Major Nidal Malik Hasan. This D Bag killed innocent people and fellow soldiers on his Ft. Hood rampage. It’s bad enough our boys have to fight the enemy overseas. He is a Coward and a D Bag.
o Brett Farve. Sending pictures of your junk to a young woman is a good way to land yourself on the D Bag of the Year list. Thinking that you are so fabulous that the mere texting of an pic of your unit will cause women to rush to your bed in a horny fit is an even better way to get on the list.
o Tony Hayward. He wanted his life back even as birds were dying, fisherman were starving and the Gulf Coast line was awash in Petroleum from his well. I’d say he got his life back and a slot on the list.
o The Entire Cast of Jersey Shore. Are you F-in’ kiddin’ me. Apparently Americans are fascinated by human train wrecks. This is proof positive that being a major D Bag can make you famous. These guys are potentially perennial winners.
Winner of D Bad of the Year
John Edwards. This former trial lawyer and North Carolina Governor edges out some of our other Finalists. He might have escaped the dishonor of being crowned the winner had it not been for the unfortunate passing of his wife. This dude is as slippery and slimy as the Grinch without the redemption. His most D Bagalicious quality is his gift for prevarication. He has a black belt in lying. Congratulations John. You are the winner of the 2010 D Bag of the Year.
o Charles Rangel. Yes, you did it and no you can’t hide behind your elected desk and claim immunity.
o Julian Assuage. Yes he is. I actually love watching the Politicos squirm but this guy didn’t do it for the good of mankind. He did it for attention.
o Pfc. Bradley Manning. He stole confidential information and gave it to Assuage to publish knowing that it could compromise the safety of some. While his motivation may have been understandable, his approach was not.
o Nancy Pelosi. Sorry. Had to do it. She just irks me. So does Barney Frank. They fiddled while Rome burned and then screamed “fire.”
o Mahmud Ahmadinejad. The President of Iran is more of a rabble-rouser than the true head of State but his threatening rhetoric is sufficient to win him a spot on the list.
o Kim Jong. This big-haired dictator is rattling his little saber in Asia. He is in the same basic class at Ahmadinejad.
o Mark Sanford. The South Carolina Governor squeaks onto the list because he is such a weasel. He doesn’t make it up to the finalist section because he fesses up when pinned down.
Editor’s Note: You may have noticed that the list this year is full of Politicians. Sad but true. The very people that we elect and entrust with our well being seem to have a propensity to act like D Bags. I think one reason is because dishonesty, hubris and abuse of power are sure-fire ways to land on the list. Another reason is that the public light shines brightest on celebrities; and, elected officials tend to have a deep-seated desire for attention. Unfortunately for them, attention is a double-edged sword.
Who didn’t make the list? Adam Wheeler, the 24 year old student that lied his way into Harvard and received $50k in scholarships and grants pretending to be a transfer student from MIT and Phillips Academy with a stellar record of achievement. In reality, he was a B student from Bowdoin. The lying and robbing another student of a chance to go to Harvard is a D Bag move but he does get points for his Chutzpah. I wonder how many others have gotten away with that. Methinks a bunch. That’s it for this Year’s list. Tune in next Year to see who’s been naughty and a major league D Bag.
Apple has desktop computers, portable media players, mobile phones, tablet computers, a media gateway (AppleTV) and a vast library of content. AppleTV is a weak sister to Apple’s other products because it doesn’t share the same level of design, user experience and simplicity as Apple’s other, more successful products. If I were Apple, I would consider making a TV that combines a media gateway, navigation system and DVR capability that is easy to use and integrates what is needed to connect web video to a TV i.e. a seamless and plug and play broadband connection to the TV. After all, a TV is just a monitor. Apple already have most of the components for their TV. All it needs to do is design a bigger screen that incorporates elements of AppleTV and the iTouch/iPad and some enhanced navigation. iTunes is already there with a large library.
Of course Apple needs to figure out a few things like how to get the studios and networks to allow them to distribute their content including live sports, news and their catalogs of films and TV shows. They are already half way there and the Industry is moving there a break-neck speed. of course Apple will have to ease up on its control-oriented approach and open up to allow the consumer to access all legal content and not just what Steve wants you to see.
What would the Apple TV (let’s call it iTV) look like- it would be between 42’ and 55’; it would be white (black maybe later); it would have an OLED screen; it would come complete with a media gateway and a direct connection to a broadband modem (including a high speed wireless connection like WiFi). The iTV remote could be an iPad or a iTouch. The iTV would come with iTunes, and some elements of Apple TV. The 42’ unit will cost 50% more than the high-end LCD/LED TVs on the market. Apple won’t have much trouble getting the premium price from its legions of devotees.
The tricky part of the iTV introduction will be navigating the traditional video distribution ecosystem including Studios, Networks, Broadcast Cable and Satellite Services, and deals with the HBOs, Blockbusters and Walmarts of the World. While we have made huge progress towards freeing content from the grips of tight fisted studios, we still have miles to go. Google with GoogleTV is testing the waters with Sony and the Android OS. Unlike Google, Apple loves making money on hardware and a TV is one big honkin’ piece of hardware.
Apple won’t care about stepping on some toes or creating some disruption but they will have to establish some deals with content owners and distributors to gain the full effect of entering the TV market.
So, stay tuned for Apple’s TV announcement. Of course they may have already decided not to enter the TV market in which case the space will be open for a new TV that does what Apple would do if it designed a TV.
A blight looms on the horizon. An engineering talent blight to be exact. The bumper crop of consumer internet seeds and start-ups cropping up around the country (with concentrations in SF/SV and NYC) and binge hiring of engineering talent by companies such as Google and Facebook are creating a shortage of talent. A blight ensues when there are hundreds of companies looking for the same people. I would guess that there are at least twice as many engineering jobs in start-ups as there are people to fill them. Just look at the job boards and hiring pages on the company’s web sites.
The availability of seed and Angel money, the preponderance of infrastructure as a service and open source code, and the capital efficiency of consumer internet businesses are combining to create a shortage of talent to perform critical functions. Add to this the “suck up all the good engineering talent” approaches of some powerful web companies and you have a shortage of people in key areas such as User Interface, Engineering Management, System Architecture, System Administration and good old fashioned coding.
For some requirements, outsourcing is fine. There are shops that excel at contract coding and consulting. India Inc. is ready and waiting to develop your code. Running your system on Amazon servers, hosting at RackSpace, using Akamai for content delivery and farming out discrete code development can be effective ways to reduce internal manpower and capital requirements. However, some functions are risky to farm out. I’ve seen companies burned outsourcing UI, system engineering, and even iPhone app development.
For a consumer internet company, the UI is a critical element of the business. The UI requires specialized skills combining technical and artistic talent. Since the web is a living thing and consumers are fickle, the UI often requires constant care and feeding. This is a role that is hazardous to farm out for many companies. The same is true for Engineering Management and Senior System Architecture roles. Unless the technology is trivial or the scale of the system isn’t significant, these roles can make or break the company. Scaling issues, security vulnerability, and other technical issues can have a devastating impact on a young company. Even a Sys Admin role can be critical to a company that operates a meaningful code base.
If you are a consumer web company or an enterprise web company and you don’t think you’re competing with technology, don’t worry, you’re already dead.
So, if you are a talented UI, Engineering Director, System Architect or Sys Admin congratulations, you are the belles of the ball. The scores of little start-ups being seeded need you. The big, “Monopoly-money” web companies want you. The key for you is to pick the right ones. It’s an opportunity cost issue. One byproduct of the engineering talent shortage is the problem of a revolving door where people jump from one company to the other building a portfolio of vested stock. This happened in spades back in the Internet Bubble era. This is not necessarily a bad thing if people go to the companies that deserve them. Luckily, all companies in the Spark Portfolio deserve the best people ;). Feel free to check out the jobs boards on their web sites.
So what is a company to do? Make sure you’re surrounded by people that are first rate at recruiting talent. There is always talent but remember that A’s attract A’s and B’s attract C’s. Look off the beaten trail for people that don’t want to live in the Valley or the City (or Taxachusetts for that matter). There are talent centers in the Beltway, Research Triangle, Austin and Great North West. There are also pools of talent north of the border in Ottowa, Montreal and Vancouver.
Having development centers in Tel Aviv, Shanghi and Oxford, England can work if you have the right people managing the projects (Spark companies have centers in these cities.) The H1B Work Visa effort is also an important source of technical talent. The flow has diminished as xenophobia went on the rise. Alas, the US is falling behind in producing the quality and quantity of engineering talent required to keep the armies web companies humming. The Government should do no harm. If they want to do good then they should create incentives for kids to undertake and excel in technical educations and careers.
Establishing a relationship with an outsourcer that goes beyond just work for hire can work i.e. performance-based compensation and a participation in the success of the project. In some cases it makes sense to acquire your third party developer. Groupon just did this with their CA-based iPhone developer. This is happening a lot lately.
Finding good talent will be a key differentiator for start-ups. Of course not all these companies will survive. Perhaps the growing shortage of talent is a good thing: a form of Darwinism to trim the herd when money is loose and barriers to entry are low. If so, the rich will get richer, so to speak. A lack of people to go around will drive up prices (salaries that is) and drive down the hiring barriers (companies will settle for what they can get). To boot, outsourcers and contractors will see a boon in their businesses as companies try to rent vs. buy talent.
If there were a stock market for engineering talent I’d be buying. I might also be buying futures on UI developers and derivatives on System Architects and Sys Admins. I wonder if Goldman is already doing it. They seem to know how to make money during a blight. Maybe I’ll start a stock exchange for technical talent and call it the C++SE or the NERDAQ.
In anticipation of Apple’s new iBox product due out in 2011, we announcing a new, $100m Fund dedicated to investments in companies building Apps for the iBox. Below is a description of the product. We intend to begin evaluating companies immediately. If you are developing an iBox App, please forward a summary to Apps@iWantmyiBox.com.
We were treated to a sneak peak of the iBox and were duly impressed (see enclosed photo).
The iBox promises to revolutionize the Consumer Electronics Industry by offering, for the first time, a sleek, well designed container to carry all your Apple products. The iBox will transport and store your iPods, iPhones, MacBooks, iMacs, iPads, and Lisa products that you have accumulated. The iBox will not support non-Apple products such as MP3 players, Windows devices and Smart Phones. Initially, the iBox will not support WiFi or Cellular service. However, a subsequent version is planned with built in camera, WiFi and 4G so you can access the iBox and its contents remotely. The iBox is expected to sell for $199 for the Standard White version and $299 for the Black U2 version. Apple Stores, Best Buy and the Container Store are expected to carry the product line when available.
As a participant in the start-up world I am always trying to gauge the supply and demand function. How many companies are being funded, by whom, in what segments and with how much capital? The trending topic in the start-up market is Seeds. Lots of Seeds. Angels are back with a vengeance after lying low following the Dot Com bust. The Financial Meltdown in October, 2008 didn’t dampen the Seed investment environment, but rather, energized it. The Seed investment became the bridge between a pure start-up and a Series A round with VCs. While VCs were licking their wounds, focusing on the Portfolios and looking for later stage deals with less “risk”, the Angels and Seed investors stepped in and filled the gap. Alumni from successful companies such as Google, EBay, Paypal, and others have the money and experience to help companies gets started.
Seed investing is becoming a more organized and structured form of investment. Angels like Ron Conway, Peter Thiel, Chris Dixon, Chris Sacca Jeff Bezos and Serge Brin have been active investors for some time. Ron Conway has morphed in SV Angel and perennial Angels Peter Thiel, Sean Parner and Dave McClure have Formed Founders Fund. The newest entry is Mike Maples taking a Partner and renaming his Angel fund Floodgate (I think Floodgate is apropos of the Seed funding environment in general). Programs such as Techstars and Y Combinator, among others, have emerged to add a boost to the Seed scene. These programs hatch batches of enterprising and hungry little chicks.
Some VCs have jumped into the Seed space by forming their own seed programs. Spark has Start@Spark which has resulted in 3 new investments in the last 12 months. Our average seed has turned out to be larger than we expected at around $500k because that’s what was needed to get to the point where a larger round could be raised. Other VCs have introduced various programs for seeding companies ranging from free room and board to $250k loans. Seeds are becoming more competitive and growing in size. Seeds of $1mm are not uncommon.
Most of the seeds are for either Consumer Internet start-ups or suppliers of software or services to enable established companies to address the Consumer Internet. There are also seeds going to start-ups tapping into emerging ecosystems such as those of Apple’s iPhone, Facebook and Twitter. These companies don’t require a lot capital to bring a product or service to market so Seed funding is an effective way to get started. It seems the Seed is the new Series A and the Series A is the new Series B. Ideally, the Seed round is “friendly” in that it is either a convertible loan or minimally dilutive without bells and whistle terms.
So what does the boom in Seed funding mean? First, it means smallish amounts of cash available to Entrepreneurs with good ideas. Second, it means Investors with small amounts of money and large amounts of experience are available to fund and mentor new companies. Third, it means more competition for VCs at the seed stage. Fourth, it means a bumper crop of start-ups with funding from $250k to $1mm entering the market. Lastly, there will be a long line at the VC counter as Seed investments line up for follow-on funding.
I, for one, have been impressed with both the quantity and quality of companies receiving Seed funding. Most of the activity is occurring in the Valley. New York, due to its Media prowess; and, Boston with its Academic and High Tech pedigree, are also making the scene. VCs should be welcoming the presence of the expanding Seed investment community. What’s not to like about having the chance to invest in a start-up that has a working product and some early momentum. In other words, it’s nice to see the “Dogs eating the Dog food” before you invest. VCs can work with Angles and Seed Funds as feeders and Farm teams. VCs can also team with Seed investors in hybrid deals that include Angel terms and VC follow-on investment potential. I think the service performed by the Seed investors is valuable and helps fill a gap in the market between self-funding and Series A.
The less pleasant byproduct of the boom in Seed investing will be a fairly high mortality rate among Seeded companies. Looking on the bright side- it’s far better to fail quickly than to fail slowly. Seed funding will run out sooner than a Series A if the company is on the wrong track. As the bar for funding is lowered and more companies are started, the quest for follow-on funding will be intense. By their nature, Seed funds and Start-up programs are not designed to provide substantial funding beyond the start-up phase. That means VCs will be called on to take the baton from the Seed investor and fund the companies to the Promised Land. Some companies will be acquired before a VC round is needed. While the total purchase price might not be huge, the Entrepreneur’s result could be sweet. For those Entrepreneurs wanting to go big, the VC route is likely to follow the Seed funding.
The result of the current boom in Seed funding will be a bumper crop of start-ups. Many won’t make it but some will go on to become valuable companies. For Investors and Entrepreneurs alike, it is important they keep the bar high, the friction low, raise enough capital to hit a major milestone, treat the Seed round as a bridge to a larger VC round relative to terms and timing, and compromise on spending but not on the size of the opportunity. In the end, the quality of the team, market opportunity and product differentiation are what matters- no matter how you get started.
The Private Sale space is taking on a life of its own. The combination of E-commerce, social networking, supply imbalances, and People’s desire for discounts all enable the space. The space can be divided in to 2 main segments: 1) private sales groups like Gilt, Rue LA LA, and HauteLook; and, 1) Group buying sites like Groupon, Living Social, Scoop Street and a host of knock-offs. The Private Sale group is all about building a list of subscribers and offering Brand Name Products art deep discounts at a specific time and for limited quantities. The Group Buying sites are based around offering Metro Area-based services and products (rather than National Brands) to a list of subscribers with a “tipping point” for the coupon or deal to be valid. The main distinctions are National offers to Individuals vs Local Offers to Groups of Subscribers. Both models feature “push” emails and social connections via Twitter and Facebook. Both offer between 40% and 75% discounts and both categories have a time and quality element. The Group Buying sites take no inventory while the Private Sale sites take inventory and handle returns.
The early successes of Gilt and Groupon have spawned loads of copycats and fast followers. The Groupon approach in particular is being ripped-off shamelessly. The barriers to entry are relatively low and the economics are compelling. I have spotted 5 Groupon knock-offs in London alone, 3 in Germany and a dozen in the US. I would not be surprised to see coupon sites and companies in adjacent businesses pile in to space, particularly the Group Buying Space. The question is- how long will the economics remain compelling? My guess is not so long. The margins enjoyed by these companies are sure to shrink. Also, as the economy turns around the excess inventory is likely to shrink cutting into supply.
With competitors piling in it’s likely that margins will shrink. The copycats out there will have a difficult time differentiating their propositions to the merchants and brands. Particularly in the Group Buying space where the barriers to connecting local merchants with local buys are low. That said, there is an opportunity right now to establish leaders in the space and segments the market into several large niches. The keys to success will be the quality of the teams, approaches taken in the market, financing, and an unfair advantage.
Two trends will develop in the Private and Group sale market- 1) they will converge and 2 they will start to break up into niches. Companies such as Gilt have been branching into services and Groupon has experimented with National brands. We have already seen fragmentation as new sites pop up focused on Baby Products, Furniture, etc. The venture community has started to pile into the space with Accel leading a $30mm round in Groupon and Living Social raising an additional $5mm from VCs. Rue La La was having its leg humped by PE firms as it sold out to GSI for $350mm. Several other Sites are in the process of being funded.
The space will be fun to watch and consumers will benefit from the growing choice of discounts. Whether a new distribution channel is being created is unclear at this time. If I were a betting man, and I am, I would predict several winners in the space and lots of train wrecks. The copycats and doppelgangers of the space, you know who you are, will have a tough time. The innovators and companies capable of establishing an unfair advantage and carving out their own space will have a fighting chance at a good exit. What is an unfair advantage you ask? It’s what differentiates a leader from an “also ran”. Enough on that for now. Advice for Investors- Caveat Emptor.
The Government is regulating the “Little Guys” into a lower financial class. By Little Guys I mean individual investors with less than $1mm in assets. By lower financial class I mean these Little Guys can’t invest in a multitude of financial services products that are available to the Rich Guys.
The meltdown of the financial markets and ensuing finger pointing are exacerbating the problem. The Government wishes to add even more regulations to protect the People from the demons in the Financial Industry and from themselves. The limitations on how and where the Little Guys can invest have been put in place to protect these would-be drunken sailors from financial oblivion. The regulations prevent or prohibit the Little Guys from investing in Alternative investments and performance-based investment funds. Of course, they can go out and borrow 5X their potential take home income for the next 20 years to buy a house. The Government believes that that’s good for America, especially the Little Guys. But it’s bad for the Little Guys to lose money playing on the Rich Guys turf. Is that because they’re not smart enough? Or is it because they can’t afford to lose money? Or is it because it’s the easiest way to prevent those that are less intelligent, more naive or pathological? I think the issue is that the Regulators find it easier to use a broad brush of regulation to protect the People rather than apply narrower and more intelligent brushes. That means that while the top 1% of the population have access to myriad financial products and opportunities, the other 99% does not.
The term “alternative” has been soiled by the financial meltdown. The smart guys on Wall Street hoodwinked the not so smart guys that were supposed to watch them. These very same Regulators that were asleep at the financial switch are responsible for making sure the Little Guy doesn’t get conned by the financial hucksters on Wall Street. So no performance-based managers or hedge funds, no private placements, no access to endowment-like funds. If you are going to blow your life savings, do it on “Conventional” investments like buying stock in Fannie Mae, or AIG or GM. Yes, buy a house with a big mortgage and buy stock in GM and AIG.
If all of these Alternative investments were evil, why would rich people invest in them? Why wouldn’t the government prohibit rich people from losing their fortunes in these financial product? The answer is because it’s easier to regulate the 99% by prohibiting them from investment opportunities because the Government doesn’t want to take the risk that someone loses their house or goes bankrupt because they went “all-in” with an alternative investment. Of course, they can bet their house on conventional stocks or go to the local casino and lose their shirts with less than $1mm in assets.
Is it possible that regulations that protect the Little Guy actually keep the little guy down? Little Guys can’t do what the rich guys do. Not because they don’t have the intelligence or assets, but because the government won’t let them. They are being protected against themselves. Why can’t a high school professor or electrician or fireman with $75,000 in savings invest some portion in alternative investments? They could be quite sophisticated and savvy when it comes to investing their money. They could possess the restraint and discipline to not bet the farm a speculative investments. I know lots of people with assets under $1mm with good investment sense. They have the presence of mind to limit their investments, diversify, and even protect themselves against volatility and financial risk. Couldn’t they be trusted to only invest what they can afford to lose? Shouldn’t they be given a chance to invest in financial products that have made the Rich Guys loads of money? Yes, they have also lost the Rich Guys loads of money over the last year. Much of what was lost was tied to lunacy in the mortgage and debt markets. Institutional Investors lost their minds and overleveraged against bad assets. The result was pandemonium. Guess what, the Little Guy was hurt just as much on a percentage basis in terms of asset value because their 401Ks, and Mutual funds were heavy into Fannie Mae, GM, etc and their home equity is gone. Guys like Barney Frank encouraged the Little Guys to concentrate 75% of their net worth in their heavily morgaged houses.
Why is it safe for the Little Guy to taste the forbidden investmnent fruit now? Well for one thing, the shit has already hit the fan, and while it may still be flying around, it’s built in to the market now. That’s another way of saying that this might be a good time to get into the market. Including the Rich Guys’ market.
Why do I care? Because I don’t think it’s fair that people with less than $1mm in assets are prohibited from investing in financial products that can make them money and protect their assets. Of course I don’t want financial “bad guys” and con men to be able to take advantage of average citizens. If they do, and get caught, they go to the “big house”. We have regulations (laws) against people being defrauded, stolen from, and abused. What I do want to see is a democratizing of the investment space. I want to see new transparency and openness. I want to see people gain access to a broad array of investment opportunities that can help them to build their fortunes. I want to see Little Guys tap into the best performance-based managers. I want to see little guys have a chance to invest in private companies with the potential for huge, life-changing returns. In short, I want the other 99% to have access to the same investment opportunities that the 1% enjoy- even if they don’t always bring joy. How can alternative investments become accessible to everyone? There are three options: a) deregulation, b) re-regulation, c) more regulation and d) intelligent regulation. I prefer “d”. What I propose as intelligent regulation will be the subject of the next blog post.
About a year ago Spark invested in a start-up called Covestor that we hoped would give people an alternative means of managing their money. If you look at the data, the Institutional Money Managers haven’t done a great job beating the basic indexes. This means that people are paying fees for active management and not doing any better than if they passively invested in the market indexes themselves. There are Money managers that have beaten the market but they come and go and few justify their existence based on their returns. In the last year or so, the Investment Management Industry has been in turmoil to say the least. This would seem to be a perfect time to introduce a new way to manage your money. Enter Covestor. The company offers an alternative to the institutional money management machine.
Covestor.com has been around as a social investment site until now. On Covestor, investment results are transparent. An individual investor can establish a track record and share investment results with the Community. The company’s recently released upgrade transforms the company from a Social Investment Community site to a web-based Investment Management firm. Covestor Investment Management (CVIM) is the platform that allows you to manage your money. As a subscriber, you can invest real money into a Multi Managed Account (MMA), the world’s first of its kind. You can then choose from a variety of investment models that equate to your investment goals and appetite. The models are in the form of individual investors with certain investment styles and characteristics. You can choose from a selection of Investment Strategies or Model that match your investment needs.
To become a CVIM client, one must establish an account with Covestor/CVIM and put some money in the MMA. The money actually stays in the clients brokerage account but is directed by Covestor. When a client follow a Model, the money placed behind that Model automatically replicates the investments made by the Model. Clients can decide how much to put behind the Model and can increase or decrease the amount at any time. Clients can also follow multiple Models thereby creating a portfolio of Models. The Models available to follow are screened by Covestor and the choices depend on the risk profile and investment approach sought i.e. aggressive growth vs. value-oriented. CVIM ensures that its clients can only subscribe to models that fit their risk profile and permits fine-grained control, such as excluding trades in the stock of the company they work for. As Models trade, CVIM evaluates these trades and replicates the trades in the client’s account based on the rules established for the MMA account.
As CVIM adds more managers to the platform, the choice of Investment Models increases and clients can change based on the actual performance of those Models. The result is a way for you to find and follow investment strategies outside the traditional institutional money management firms. I think of CVIM as an American Idol of investment managers. You can vote for the managers you like based on their performance. Due to regulations, I am not able to talk about the performance of Covestor’s Investment Models or CVIM program. However, you can see for yourself by going to Go to http://www.cv.im.
Unfortunately, we regularly encounter hate in our lives. Hate is just depression turned inside-out. The best way to kill hate is to disarm it. To that end, here are some responses to people that elicit hateful behavior or utter hateful comments. I call these DBH (Don’t Be Hatin’) responses. These statements are designed to disarm the individual manifesting the hate.
Pease feel free to add DBHs of your own. I will create a “Top 10 List” after receiving your additions. I hope this exercise proves helpful to you as you encounter hateful situations. If not, then please don’t hate on me. I’m still mourning the recent loss of celebrities that I’ve never met and whom didn’t give a rusty rats tail about me. Here you go:
Suggested Responses to Haters and Hateful Behavior
you otta lay off dat hater-ade.
why you you drivin’ me down route hatie- hate?
step off with dat hate.com shizzle.
why you gotta enter the hatrix like dat?
must have been som’n you hate.
that’s so 2000 and hate
stop actin’ like you from hatie.
get out from b’hind da hate ball.
stop drivin’ dat hate-teen wheeler.
why you gotta be singin’ “Hate Days a Week” on me?
you gonna go blind if you kee master-hatin’ on me.
man you stuck in the haties.
dude don’t hate me ‘cause you ain’t me.
why you gotta play me like john and kate plus hate?
Real-time is nice but predicting the future- sublime.
Real-time is hot right now. Real-time messaging, Real-time social networking, Real-time search. These are powerful movements based on the value of what is happening right now. But, what is more valuable that knowing what is happening now? That’s easy- knowing what WILL happen. Imagine having insight into what will happen tomorrow or next year. I will argue all day long that nothing is more valuable than being able to predict the future.
Imagine a search engine that helps you to predict what will happen. I call this an Inference Engine (rather than a Search Engine.) Of course it’s futuristic and even science-fictional to think we can write software that predicts the future. That said, can we write software that can scan and analyze real-time information, patterns and trends and in so doing can provide insight into what will happen? I think so. To some extent it being done in financial markets. Algorithms and black boxes scour the web and data feeds for an inkling into what’s happening and how it will affect the future results. Data mining platforms strive to crunch massive amounts of information quickly to provide insight into consumer behavior and trends in purchasing. Given the vast amount of real-time and historical information available on the web, isn’t it possible that some events can be inferred? The Hollywood Stock Exchange has done a reasonable job for years of predicting box office results based on a virtual market for movies. This form of prediction is largely based on “crowd-sourcing”.
While Google is the 800 lb Gorilla in search, the service doesn’t do a good job of predictive search. I consider Google good for searching things that have happened. The current state of the art and most promising innovation in search is real-time search. I consider Twitter Search and OneRiot good for real-time information queries. Rather than indexing the web and returning relevant search results, real-time search brings results as a stream of information based on the search terms. I believe Real-time search is the current next thing. It is available now and the wave is building. (See my previous post below about the value of real-time search.)
As for an Inference Engine, I have found nothing. There are a few companies out there claiming to deliver predictive information based on the mining of mounds of data. However, there is no consumer search service that even comes close to delivering predictive search. By bouncing around Twitter, OneRiot and Google I am able to gather information that can help make predictions. However, I have to do most of the work. I would much rather type in a phrase of series of key words and see a prediction pertaining to my search language. I can see a widget or app using Twitter to feed an Inference Engine based on trends. OneRiot can enable searches based on real-time data that includes the velocity of trends, themes and sharing. Taken a step further, OneRiot could potentially help predict events into the future. The question is how far and how accurate.
The challenge with building an Inference Engine is finding, analyzing and presenting predictions based on onforseen future events. Clearly, searches must be bounded and the results must be limited to situations where the chance of success is greatest. For example, asking what lottery number to pick is not reasonable because it is purely chance and no information available (legal that is) would help imporve your odds. A bounded query would have to be based on information available on the web including real-time information. The Inference Engine could include crowd-sourcing, chaos theory and quantum physics. I don’t really care as long as it works. Examples of a inference queries could be- “number one movie next week”, “stock market direction tomorrow” , or “home mortgage rates in one month”. Each of these predictions would be based on information that is available on the Web up to the second the query is launched. The search could also be persistent in that it could be updated continually based on new information. Given that these predictions would be effected by events in the future, the persistent nature of the search would be powerful.
My purpose in writing this post is hoping that it leads to funding an Inference Engine company. I don’t normally signal my investment intentions but in this case I am making an exception. I believe there are people working on this unstructured search problem and want to cast a broad net. So if you are aware of any company or individual working on search technology to predict the future, please pass it along. Thanks.
I had an interesting conversation last week about the media and entertainment landscape with a guy that advises people running the major media and new media companies. We discussed the state of the market and where things are headed. We talked about what’s happening with the traditional media companies i.e. the studios, the TV networks, the radio stations groups and such. The conversation turned to the rapid fragmentation and disintermediation underway in the Industry. This was not a revelation. We’ve known this for a while and we’re seeing the evidence every day. What did surface was the observation that a powerful trend toward real-time information is underway. We concluded that information has a shelf life and information about what’s happening “now” trades at a premium.
The real-time flow of information is enabled by digital distribution and is further fragmenting the media landscape. A kid with a cell phone video camera, for a brief moment, can produce information that’s more valuable than what is available on CNN or in the New York Times.
Of course the quality of the information is a determinant of value. An investigative article in the New York Times that breaks a major story is valuable information. However, the flow of real-time information over ubiquitous networks is increasingly stealing the thunder of the traditional publishers. The premium paid for “new” information is true with most content. A first run movie or new episode of a TV series are more valuable than the same exact content available later. Why are books published first in hard copy? So that publishers can charge more for the book when its new. Real-time stock quotes cost money but quotes delayed by 15 minutes are free. Few people care to read a day old newspaper, and so on.
There’s an old joke that highlights the value of timely information. It goes something like this-
A man visits the hospital for a check-up and receives a call from his doctor 1 week later. The doctor says ” I have bad news and worse news.” The man says “give me the bad news first.” The doctor says “you have 1 week to live.” The man says “what’s the worse news?” The doctor says ” I forgot to call you last week.”
Our society is becoming more and more real-time. We want to know what’s happening now. We also want content that is relevant and meaningful. That means local content that is contextually relevant and targeted is the most valuable information of all. Kids value information about what their friends are doing and thinking NOW more than anything else. Advertisers will pay a premium for an impression that is attached to real-time, relevant information because the viewer deems this content to be highly valuable.
So what does this trend toward real-time mean for the Industry. First of all, it means that advertising rates will move to match the value of the information. Real-time content will command higher CPM than older content. Search results that incorporate real-time search results should be more valuable than search results that are based on older information. Publishers will increasingly steal from their traditional pre-recorded, programmed, and on-demand content to feed the real-time beast.
Conclusion- advertising will increasingly flow to real-time information and content. Publishers will pursue real-time information and try to provide relevancy. This trend will further fragment the media industry because content will come from everywhere and go everywhere filtered by viewers’ preferences and tastes. Portals will become irrelevant. Newspapers, magazines, and local TV stations, will evolve to navigation and filtering platforms along with original content that is creative and original. Premium content will bifurcate between real-time information and original content. There will still be a market for professional content. The last hold-out for the TV and Radio networks will be live sporting events. Once again, the Live i.e. new content-based sporting events will carry the greatest value and the highest CPM. Great creative content will still be in demand. Great movies, TV series, and Creative content will continue to be monetized. However, anything that has anything to do with news or information will increasingly have to be real-time or find itself relegated to the archive crypt.
Lately, I’ve been hearing statements like: “the Venture Capital market will never be the same”, “the good ole days of Venture Capital are gone” and “Venture is dead”. I would expect these comments from bloggers seeking attention or journalists throwing out controversial headlines. However, these words are coming from the mouths of Venture Capitalists. Et tu Brute? The VCs delivering these comments seem to have one thing in common- they are grumpy old VCs. There are VCs that have been at the game for a long time. They made lots of money before the bubble burst in 2001. They now find themselves in a global recession. The IPO market is moribund. The M&A market is depressed. The 10 year VC returns are lousy with nearly 2/3 of funds raised over the last 10 years under water. LPs have allocation and liquidity issues making fundraising much tougher. Venture-backed companies are going under. Established VCs have portfolios laden with struggling little companies. They don’t see any imminent liquidity. Several of their funds are probably not going to generate Carry (the percentage of the profits retained by VCs after returning invested capital). They now have to deal with younger Partners that didn’t make money in the last bubble and are clamoring for better economics. There is little or no wining and dining by investment banks and lenders. In short, the business is not as fun as it was 10 years ago, or even 3 years ago.
So why shouldn’t we conclude that Venture is dead? Because we don’t steer using the rear view mirror. The financial markets and Venture Capital results are cyclical. They always have been and they always will be. Over the last 40 years the VC market has been highly correlated to the financial markets. Is there data to show that the correlation is no longer true? I think not. When the NASDAQ rises again, the VC market will follow. As for the business of Venture, are there not still opportunities to build great companies based on innovative new technologies? Are there not talented entrepreneurs seeking to start companies? Consider the combined opportunities in the Information Technology, Media, Life Sciences, and Energy Industries. The potential value to be built in these Industries is enormous. Let’s not confuse a snapshot of the current financial markets with the future potential of the Venture business. The VC market will rebound and the people with the energy and passion for the business will reap the rewards. In the meantime, Venture will undergo a generational shift. The shift is underway as fewer firms with fewer GPs raise fewer dollars and back fewer companies. This is part of the cycle. It isn’t the fun part of the cycle but it is normal.
The future may be cloudy but it’s not totally unpredictable. There will be VC-backed IPOs and attractive M&A transactions. When? I’m not sure but I am confident that it will happen in the next five years. Five years may seem like a long time but Venture is a long term business. My guess is that some VCs won’t want to wait that long. There are those that don’t have to keep slugging it out. They have F-you money. If they don’t like the way things are going they can check out. They can leave like MacArthur did- just fade away. But as they fade away, I pray that they continue to proclaim the death of Venture. And I hope people listen. It would be great if the money flow slows even further. It would be lovely if the Venture industry continues to contract in terms of firms, people and money. The good times will be even better with fewer VCs funding competitive deals.
So I say thanks to the grumpy old VCs. Thanks for spreading the word that Venture is over. Just don’t mind me continuing to beat this dead horse. And don’t tell anyone that the dead horse isn’t really dead, but rather, resting in preparation for the next derby.
There are clear signs that the content distributors (MSOs, Telcos, Wireless) are making careful little plans to limit the distribution of rich content (video being the main item) over the web. Witness AT&T’s desire to limit the flow of video over their mobile networks. Time Warner Cable is planning to go to tiered pricing for bandwidth in an attempt to charge more for video and music downloading. What may seem to be a cost capping exercise may actually be an attempt to exert control over who gets what content where. The FCC needs to be on the ball here to make sure things like net neutrality and equal access are not thrown asunder. A battle is quietly waging over how to restrict access to content. through the web. That’s the battle. The war is between free and paid.
At the core of the inherent conflict is the carriage fees that the distributors pay to the producers for the right to distribute their programs and the availability of these same programs for free over broadband networks. Why should Comcast pay Disney for the right to broadcast programs that are streamed over the web for free. That’s part of the reason Hulu demanded that Boxee not browse Hulu content. NBC and Fox were worried that their TV shows would be streamed onto TVs. Imagine that- TV shows on TV.
The Cable guys are now working with the Content guys to figure out how to charge people for the content whether they get it over cable networks or through the web. There seems to be some momentum behind putting in place content management systems that would tie licenses to consume content with personal identity. Imagine subscribing to a service offered by Time Warner that entitles you to view any Fox or NBC content you want when you want it whether you get it on cable or through the web. Even on your mobile phone. The reality is that someone has to pay for the content. Premium content isn’t cheap to produce. A TV episode can cost $5mm+ to produce. We all know that with DVRs and the Web, the 30 second TV spot is “dead man walking”. Technology is rendering traditional ads ineffective. Advertisers are starting to realize that they are paying for trees that fall in the forest.
One example of the problem is the emergence of ZillionTV. ZillionTV is supported by Disney, NBC, Universal, Sony Pictures Television, and Warner Bros. You can buy a new ZillionTV box for around $50 and get on demand access to network TV shows through your broadband connection- if you are willing to watch the commercials. This is akin to the old behavioral testing boxes in which as rat received a food pellet if it pressed a bar. If you watch the ad, you get the TV pellet. This is just one attempt by the content guys to fight the erosion of traditional TV advertising.
The reality of today’s video entertainment industry is that audience fragmentation is increasing. Viewership is dividing more and more as more choice of on demand content makes its way onto cable networks (600 channels and nothing to watch) and the web (6 million channels and hard to monetize). The fragmentation issue is not going away. The producers and distributors need to embrace new technology and policies to monetize the fragmented viewership and cross platform distribution. We have passed the point where a TV show can command a higher CPM on the web than it can on broadcast TV. Hulu has proven that even if it is having trouble selling more the 60% of its inventory.
The key to success in retaining viewers and monetizing same as TV converges with the web will be to employ technology to target and measure the response of advertising. The closer an ad matches one’s needs, the less it is an ad and the more it is content. With this technology will come a new level of transparency that will illuminate the actual viewership channels are receiving. The current ratings systems such as Nielsen’s are wholly inadequate to track the true viewership of the multitude of channels being broadcast and streamed over the web. When the actual viewership of some cable channels is know, there will be a major reaction on the part of advertisers. The convergence of broadcast TV and the web will enable this transparency and the Darwinism that will follow. The result will be fewer cable channels and more accurate measures of the effectiveness of advertising. Then, the fragmented audience will be mapped and matched with ad dollars.
Not only is the audience fragmented across channels but also across media. We have seen the teasers of a TV viewer watching a show on a TV set, moving to a computer and then a cell phone while never missing a second of the action. The technology to enable such as journey is nearly here. The policies and content management systems to enable the content to be delivered, tracked and monetized is being developed. My belief is that within a couple of years we could see viewers having access to a “right to use” content . That’s different than Today’s model of access to channels through your cable package, video subscription or pay per view ala Comcast, ITunes or Netflix. In all likelihood, the incumbent distributors and networks will be the gatekeepers of these “licenses”. The content guys will find it difficult to cut the Cable, Telco, and Wireless guys out of the equation given that they own the connections to the viewers. So, if you subscribe to Verizon FIOS entertainment package, broadband service and have a Verizon Wireless phone, you can watch whatever content included in your subscription on demand across all three screens. You get it when and where you want it and the producers and distributors of the content get paid. Seems like a fair deal to me. Of course we aren’t there yet.
There are lots of issues and technical hurdles to be worked out. The biggest challenge is implementing the multi-platform “right to use” licenses. Policies, business models and technical systems need to change. The content producers will worry about “analog dollars turning into digital pennies”. The distributors will fuss about how to maintain ARPU and what they have to pay for the distribution rights. The tension between these two camps has been there for decades and will continue. Given the velocity of change driven by new technology such as high speed broadband, streaming video, file sharing and social networking, change is inevitable. The old system of tethering content to specific devices and media will become obselete. The new paradigm will be linking people to content regardless of device, network, medium or location. At the end of the day, consumers should be considered along with the rights of the content producers and distributors to make money.
Well another quarter passes and no IPO’s. That’s 0, nada, nichts, niente, 余, 无 in the last 2 quarters. In fact, the IPO market has been largely dormant for 8 years. The space between the private and public equity markets is severely constipated. Few deals have snuck out and they weren’t necessarily the ones that should have made the move. The problem created by the lack of an IPO market is the lack of capital for innovative growth companies. A few such as Facebook have been able to access institutional capital privately. However, access to public capital has been the life blood of young growth companies for the last 4 decades. Companies such as Microsoft, Apple, Google, Genentech, Cisco, Intel, Netflix, etc. would not be where they are today (creating loads of jobs and pushing the US to the forefront of technology) without access to public capital.
Today, there are dozens of companies constrained by a lack of capital that is stifling their innovation. My guess is that there are roughly 100 companies with the personnel, products, market opportunity and financial stability to be public. They are still private because of a combination of government disincentives, corporate ambulance chasers, timid investment banks, and nervous institutional investors. The result of this constipation is a squeeze on innovation. Sarbanes-Oxley has done its part to squelch the IPO market. That handy bit of legislation has made it expensive and troublesome for companies to offer stock to the public. Such legislation has been a veritable full employment act for lawyers and accountants. I have news for you, lawyers and accountants to not drive US innovation and competitiveness- quite the contrary.
When a company reaches a certain point in its development, an IPO is a tremendous source of capital to allow the company to spend the funds required to do something meaningful. I remember when Akamai went public. The company was building an expensive infrastructure to speed content across the web. Without an IPO, the company would not have been able to create a meaningful business. Today, the company employs thousands of well paid professionals and pays lots of taxes. There are lots of other examples.
Of course there are examples of companies that went public that should not have taken the plunge. But zero IPOs is a far cry from a selective market. I recall back about 15 years ago when I worked at Montgomery Securities. Montgomery was a boutique firm that specialized in growth companies. We took lots of small, promising companies public. Some didn’t make it but lots of them did and are still around in one form or another. Today, there are bulge bracket monoliths such as citigroup, morgan stanley, goldman sachs, merrill… no wait, they are now part of another monolith, and so on. There aren’t any firms specializing in providing investment banking services to smaller, growth companies. Due to the largely justified separation of banking and research that happened after the Internet bubble burst in 2000/2001, there is little motivation to provide research on smaller companies. The big I-banks are nearly incapable of servicing pre-IPO growth companies. They must generate millions of dollars in fees to justify answering the phone.
So what’s the solution? First of all, the government should do less rather than more. The current financial crisis was caused by what amounted to negligent supervision by people like Barney Frank, Chris Dodd, and a host of others. The smarter guys such as those packaging mortgage-backed securities were driven by greed and enabled by the “watchers” that were asleep at the switch. So, we don’t need more legislation, but we could use smarter supervision. The difference is knowing what’s going on and being able to influence it rather than establishing crushing legislation to force everyone to jump over government imposed hurdles. While Washington is at it, why not foster a more paternalistic environment for growth companies to fund their innovation.
The NASDAQ is trying to establish a new class of public offering aimed at allowing growth companies to tap the public markets without having to pass the proctology daily exam required by the current rules. The government should support this effort by allowing the NASDAQ to experiment with a lower bar. The capitol hill crew should supervise this endeavor, with people capable of understanding it, but avoid legislating it into oblivion. Another good move would be to take Sarbanes-Oxley and re-write the rules to be less of an expensive administrative burden and more of a set of clearly stated guidelines. The government should limit the negative impact of class action law suits brought by lawyers with printing presses that go off every time a stock drops 20%. In other words, the government should encourage growth companies to raise capital in the public markets rather than erect barriers. I might even go as far as saying Obama and company should focus less on motivating people to own houses and more on encouraging people to own growth companies.
Finally, we need a few smart and influential people to lead the charge in building confidence in the public offering process. I call it a process because it starts, rather than culminates with the IPO. The IPO is the coming out party. To re-open the public markets for IPOs for innovative growth companies a combination of institutional investors, investment bankers, and boards of directors must mount a charge to breathe life into the system. I am not advocating returning to 2000 when two guys and a dog could go public. I am saying let’s go back to 1997 when a solid, well run company could go public. That’s it, we need to go back to the future. Let’s fire up the flex capacitor and renew our public market system to allow people to invest in the future of great little companies seeking capital to drive innovation and create value for shareholders and employees.
I have been thinking about what devices and services I would like to see introduced in the next few years. These are somewhat random and not in any particular order. Some are things I want and some are things I would like to see made available to the public. Here’s my current list:
Foldable OLED 7’ OLED screen for Blackberry and IPhone for e-book reading and web surfing. IPhones are a lousy way to read a book and Kindles et al are another clunky device I don’t want to carry around. OLED screens will have the clarity, contrast and color suitable for book and magazine reading as well as web surfing.
Blackberry or IPhone with 2 Camera video conferencing. I love IChatting with my family and want to be able to do it when on the move.
Electric guitar that plays the notes and cords I want without having to hit all the right frets and strings. In other words, a self-correcting guitar that has the song programmed in and can act as a teaching device as well as a jamming device. A piano along the same lines would be nice too.
A personal music player that comes with a subscription that includes 12 new songs per week based on my preferences and the popularity of the songs. The songs are download daily over the air and appear in a playlist for the day including previously released songs based on my preferences. I like the IPod but I don’t like having to constantly download songs on to it. I also don’t particularly like Rhapsody or the other music services because they don’t deliver the new stuff or the older stuff in an intelligent way that makes it easy to play whenever and wherever I want.
A car that doesn’t use gas and can go 350 miles and can cruise at 80+ mph on whatever alternative fuel or energy it uses. Fuel cells or electric would be fine. Anything that costs the same or less than gas. I would even pay more to avoid sending money to people that want to kill us.
A device that can save someone form choking on food. The Heimlich doesn’t work well enough and there should be a device that solves the problem.
A personal device that keeps bugs such as noseeums/midgies, mosquitoes and green-headed flies away. I would be fine with a separate device for each pest such as a device that emits a frequency that we can’t hear or an odor that we can’t smell but keeps the little bastards away. The sprays are annoying and don’t keep the bugs from swarming and dive bombing.
A pair of sunglasses with built-in monitors that simulate a 40’ TV monitor. The glasses need to be cool and light, not like the current Jordie-looking things that are out now. They should look like glasses and have a wireless connection to a IPhone/IPod/PDA and a mouse/keyboard simulator.
A personal security system that can signal when there is a threat rather than rely on a conventional alarm system. The system would be based on the person rather than the place. The system would warn you if there is a person with malicious intent in your area/personal space. It would be programmable and would have a connection to a monitoring service and Police.
A gun/pistol that has a biometric trigger so that only I can fire it. Nuf said.
A simple and effective test of my genetic make-up, physical condition and lifestyle that can pinpoint problems, potential threats and things to avoid. Using some blood, a piece of hair and/or a scan, I would like to have a complete virtual physical that includes my genes. The tests out there now are not effective, much too costly and can lead to paranoia.
A exercise system/device that can exercise several targeted muscles area at once and provide feedback and track progress. The concept is a round cage-like ball that includes handles, straps, resistors, and sensors. Imagine climbing into the circular cage and exercising arms, legs, torso, back, etc. by pulling, pushing, squatting, stretching, bending, etc. The system would deliver the equivalent of 1 hour of stretching, Pilates, weight-lifting and resistance traning in 20 minutes.
That’s enough for now. I have some more but I don’t want to overdo it. Besides, I couldn’t afford all that if were available anyway.