Todd Dagres Tumblog

Regulating the Little Guy Down.

Tue, 03 Nov 2009 15:52:18 -0500

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.

Photo

Wed, 22 Jul 2009 11:20:37 -0400

Covestor goes Live

Wed, 22 Jul 2009 11:19:37 -0400

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.

Down with Hate

Thu, 02 Jul 2009 13:29:56 -0400

Down with Hate

How to deal with Hate

Thu, 02 Jul 2009 13:27:00 -0400

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?

Stay loved my friends,

10 Things an Entrepreneur won’t say to a VC

Mon, 15 Jun 2009 14:08:06 -0400

10 Things an Entrepreneur won’t say to a VC

Look into the Inference Engine

Tue, 09 Jun 2009 15:06:08 -0400

Look into the Inference Engine

Real-time is nice but predicting the future- sublime.

Tue, 09 Jun 2009 15:04:38 -0400

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.

Classic Def Leppard Rock of Ages Video

Tue, 09 Jun 2009 09:00:18 -0400

Classic Def Leppard Rock of Ages Video

Rock of Ages Broadway Connection

Tue, 09 Jun 2009 08:58:58 -0400

Rock of Ages Broadway Connection

Rolling Stone dishes on Rock of Ages

Tue, 09 Jun 2009 08:56:39 -0400

Rolling Stone dishes on Rock of Ages

Photo

Tue, 02 Jun 2009 10:58:00 -0400

Get REAL- time

Tue, 02 Jun 2009 10:55:00 -0400

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.

I remember when venture was fun.

Thu, 28 May 2009 13:33:00 -0400

I remember when venture was fun.

Grumpy Old VCs

Thu, 28 May 2009 13:30:32 -0400

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.

Mo’s New Ride.

Wed, 29 Apr 2009 11:36:00 -0400

Mo’s New Ride.

Here’s the solution to the problems of the Car Industry

Fri, 10 Apr 2009 17:56:36 -0400

Here’s the solution to the problems of the Car Industry

Fix the Cause, not the Symptom

Fri, 10 Apr 2009 17:55:15 -0400

The trouble with makig batter cars is that they are still cars. They are pretty inefficient becasue they suck on dinosour juic, glog the roads, cost a lot and are idle about 90% of the time.

The War between Free and Pay

Fri, 03 Apr 2009 16:47:20 -0400

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.

”The good news is, you have money up the Wazoo. The bad...

Wed, 01 Apr 2009 12:03:00 -0400

”The good news is, you have money up the Wazoo. The bad news is, you’re constipated.”