Category Archives: Venture Capital

Acumen Fund’s Novogratz on Charlie Rose. Fighting Poverty with Profits.

Posted on by
Reply

Charlie Rose was rocking today with two superb interviews that enhance and challenge our perceptions of how to think about the world’s most pressing problems of poverty and health in the developing world.  [yes, I realize the global economy is part of this massive problem equation and agree that fixing it is of primary importance to developing world as well as to those of us who live higher on the hog].

Jacqueline Novogratz, a former Wall Street Banker turned Venture Capital Do-Gooder, on her book “The Blue Sweater” and her personal and business adventures using microfinance and entrepreneurial innovations.   Brilliant:   http://www.charlierose.com/view/content/10176

Connecting poor and wealthy to solve pressing problems in developing world: Acumen invests in innovative projects around the world, using the power of entrepreneurial capitalism to solve pressing problems of human need.

These approaches to development and poverty reduction are *so powerful* and *so effective* that it’s painful to watch how many people get bogged down fretting about issues like privitization of water and corporations as evil. We must focus on what *works*, regardless of our ideology.  The best representatives of that approach are folks like Novogratz, Gates, Yunis, and many others who bring their business brilliancies to the challenges of international development.

Rose’s next guest was ethics professor Peter Singer on the ideas from his book “The Life You Can Save: Acting Now to End World Poverty”.   Singer notes the major success of the Gates Foundation and also the fact that  while most Americans tend to say they think “too much” tax money goes to international Aid yet fail to understand how small our contributions are to international development projects, and actually suggest we should send “about 5%” when the real amount is about 1%.     Also makes the case that international development is actually in our own selfish best interest, but for many is not in our *perceived* self interest.   http://www.charlierose.com/view/interview/10174

Robert Rubin on Zakaria GPS

Posted on by
5

Today on Zakaria GPS we have Robert Rubin, Citibank and Wall Street megamoneymeister and Clinton’s Secretary of the Treasury.

Rubin is always one of the most impressive observers of the economy, and distinguished as one of the few Secty’s of treasury who presided over a Federal balanced budget.  He articulates complexity well and also avoids the partisan nonsense that clouds these debates.  For example he was complimentary of Paulson’s efforts

Main point was that we need to do more to address mortgages at home and bank level to stabilize things and that he wanted a *huge* stimulous package – probably not in the form of tax rebates because they don’t tend to hit economy fast enough and are often saved.

Rubin is Obama’s economic advisor (along with Volker, Buffett, Summers).  Rubin was very complimentary of Obama’s style and intellect, pointing out that at the meetings Obama is always quick to divorce the campaign considerations from the economic solutions, and to listen to those who agree and disagree.

The bad news is that Rubin sounded like he was not willing to go back to Washington and take the position of Secretary of the Treasury again even though many (certainly I) would like to see him there again.

George Soros on Zakaria GPS

Posted on by
87

Hedge fund manager George Soros is one of the world’s richest and most successful market watchers (and market manipulators?). Zakaria reports that Soros’ recent plays have netted him over 2 billion. He’s very controversial for his political views though my take is that great business folks can easily separate their politics from their business decisions.

Consuming more than you produce:/ That game is over.

Houses as piggy bank, instead of savings. [BAM! We are seeing this obvious but profound observation coming up a lot]

Misconception: Markets will correct themselves. They won’t. We have reached the end of a bubble cycle started in the 1980s when massive global markets and deregulation frenzy began.

Mortgages as the “detonator” of the nuclear bomb that is the current global crisis. Stock market in capitulation phase that has followed credit problems.

Can’t predict future because it depends on decisions. He says he was wrong in 1998 to predict some sort of climax to the bubble.

“The cost will be greater, the damage will be greater”.

“You need a government that believes in government”

Paulson bailout plan as ill concieved – same kind of financial engineering that got us into the mess. Paulson as behind the curve “all the way” because he buys into market fundamentalism.

The authorities have lost control of the situation.

Soros recommends: Mobilize private capital to buy into distressed banks and lift minimum reserve requirements to free up lending.

Reduce number of foreclosures by renegotiations to sound mortgages that will not exceed 85% of house value. Loss to be absorbed by mortgage owners (banks?). Govt will then guarantee mortgages to 85% value, which would encourages renters to buy. Some losses, short recession.

Soros: I understand the flaws which allows me to profit, but as a citizen I want better regulation. Markets and Govts are flawed. Less regulation, better regulation.

Soros (like Gates and Buffett?)  believes the anti-tax positions are false because supporting infrastructure with taxes is so critical to wealth formation.

Soros said he does have inordinate influence as a rich person on politics but , unlike many other rich folks, does not use it to improve his financial positions.  He thinks market fundamentalism abets power abuses in politics.

China built assets while we built debts.   Tremendous power shift.   But America will remain a leader and could be *the* leader with some changes.

Bill Gates on Zakaria GPS

Posted on by
7

Fareed Zakaria continues his amazing series of interviews on his CNN GPS show with Bill Gates.

Like Warren Buffett, a close friend of Gates, Gates will give away almost all of his wealth over the next decades via the Bill and Melinda Gates Foundation which focuses on global health and education initiatives.

Gates supports “some” inheritance taxes because we are all beneficiaries of the education and stability provided by the US infrastructure.

His preference for foreign development investment seems to be based on the idea that the need is much greater there, the return on the charity giving is much greater, reducing infant mortality wll *decrease* birth rates [this is a profoundly important observation that is well documented but poorly reported – many think helping the poor tends to increase births when this is false]. They talked about the book “The Bottom BIllion”.

On the future of computing and the Internet:

Shape of computers will change.  VIrtual wallpapers, tablet computing.

The whole economy is using software simulation, which makes development less expensive.

China as largest broadband market – probably for the rest of the century.  He seemed to think India was unlikely to catch up to China.

——–

He’s focusing more now on how to create visibility for issues like malaria prevention.

When asked how he’d be remembered – as a software pioneer or philanthropist – Gates didn’t answer but I think the answer is increasingly clear.  Gates more than any other person has brought a new era of Innovative huge scale development work that could turn back the tidal wave of poverty in our generation.  He’s helping to make it not only fashionable, but somewhat obligatory for the rich to pay a lot more attention to those in need.

Bailout Blues + Red Ink = Spending Revolution Needed.

Posted on by
830

Washington does not understand why taxpayers are so angry about the bailout.   Some pundits are calling this ignorance, but I think to the extent *anybody* can predict things taxpayers know pretty much what is going on here, and realize there is major hardship ahead whether or not the bailout moves forward as proposed, as a modified bailout, or does not happen at all.    Some of this is already reflected in the stagnant broader markets we’ve seen for the past few years, and some reflected today in the Dow’s drop of about 700 at the close.  But this is not a meltdown, suggesting to me that the rumors of total market meltdowns have been at least somewhat exaggerated.

Paul Samuelson noted today in an excellent article that we are basically seeing the bankruptcy of modern economics:

Our leaders are making up their responses from day to day because old ideas of how the economy works have failed them. These ideas were not necessarily wrong, but they’re grievously inadequate at the moment

The American experiment was spawned in large part as a revolution against military-inspired spending taxation from Britain.    Few today realize that the taxation levels of the 1770’s were so tiny by today’s standards that they would not raise a modern eyebrow, let alone spawn any kind of spending revolution.

Over the past 230 years times have changed and we now expect Government to tax us at what the founders would have seen as enormous and totally unacceptable rates, and spend *even more* than they take in, leading to a deficit so large it is in my view of greater economic concern – far greater – than the current recession (which will be getting a lot worse, bailout or not).

What would restore most taxpayer’s confidence?    Massive Government spending *cuts*, not massive Government spending as proposed in the bailout.

For most of the modern era Washington’s response to problems has been massive debt spending, pushing problems forward to future generations who’ll have to pay down our debt.   The Bailout was a similar response unless you accept the optimistic notion that all of that 700 billion will come back after the toxic assets were sold off by the Government.   Most likely based on my take some but not all will come back.

Venture math fun from Fred’s fund

Posted on by
Reply

Two of very interesting posts about VC fund economics are over at Fred Wilson’s joint:
First “Venture Fund Economics” |  Second

A challenge is that my understanding is that Union Square fund has done *much better than average* and therefore you would not want to make generalization about the VC industry from their experiences.    I also need to get some feedback from Fred regarding the time frames he is discussing in the specific example he gives of a fund’s projected performance.

As I noted about some of his Venture Capital observations some time ago it’s very important to make sure you are factoring time into these equations, especially when the time frames are in decades or many years.

Fred points this out in the first post as well, noting that doubling your money is not really that impressive if it happens over a ten year time horizon.    It is critical to always recognize how the current value of money is greater than the future value – the gist of the notion of how “discounting” affects investment and other economic decisions.

More bad news for Startups and Venture Capitalists

Posted on by
Reply

More bad news for Startups and Venture Capitalists from the New York Times “bits” section about technology trends.    Not only is the number of IPOs falling (zero in Q2 of 2008), but it also the number of mergers or aquisitions of startups appears to be way off as well.

Venture capital folks look to the most favorable “liquidity event” and generally that is an IPO where they may realize tens or even hundreds of times their original investments.    Also favorable though generally offering less profit than an IPO is an aquisition or merger where other companies take over the startup without it going public.

I found this number very interesting and potentially alarming for Venture investors:  An average of 8.6 years from startup to IPO, the longest in some time.    Given that the present value of money is greater than future value, time horizons this long suggest, for example, that even a doubling of your VC money over that long period of time would represent only a “fair to poor” return compared to alternatives.   Given that most startups never go IPO anyway it would seem that the risk factor is going way up for these investments.

No VC for you! Zero IPOs in Q2 2008

Posted on by
2

The New York Times is noting that there have been no VC funded IPOs in this second quarter of 2008, which appears to be the first time that has happened since 1978. I haven’t done enough research to suggest this is a huge anomaly but I think it is another mildly ominous happening in the world of US business economics. Last night on Charlie Rose a key guy a Llyods of London Insurance was suggesting that in his view the mortgage crisis here in the USA is not at all over, and also noted how business things are blooming and booming in Asia and India while they appear to be wilting here in the USA and Europe.

In my opinion the best we an hope for is a fairly soft landing as China, India, Vietnam, and other parts of the developing world take their (rightful) place as players in the global economy. We’ve had it pretty easy for the past 60 years after WWII reconstruction rescued many economies from post-war ruin. Unfortunately that beneficence has been long forgotten (and it helped our economy along anyway).

So tighten up that belt and start spending less, because business isn’t what it used to be and it’s not going to be back anytime soon – perhaps forever.

Yahoo Microsoft: Is the fat lady almost singing at $34?

Posted on by
1

Henry Blodget is whining that the Yahoo Microsoft deal is back to where it started, but I think Henry’s wrong … again!     

I’m glad Henry was wrong about the rumor that Yahoo’s Q4 would beat expectations because it was part of the reason I bought YHOO then, and even though the stock dipped due to a bad Q4, it surged on Microsoft’s offer of $31 per share so I’m well in the black.   But now he’s wrong to say the deal is not almost done.  I think this Yahoo Microsoft merger is coming very soon to an internet near you.

Citibank Analyst Maheney upgraded Yahoo this morning, anticipating a boost in the MS bid to $34.   Hey, maybe he read my blog post of about 6 weeks ago where I suggested Microsoft raise their bid to $34?    

Unlike Henry, I think this is not back to where it all started at all!

Yang didn’t want to merge, now he sees it as almost inevitable.  Yahoo board wanted more, now they know anything past initial offer is gravy.  Part of the show was probably the board protecting itself against lawsuits from the unlucky minions who bought their Yahoo at $35+, some at over $100.

Barring a Q1 miracle that would recalibrate Yahoo prices without help of MS bids, I think the fat lady is now almost done singing on this deal.

 Disclosure:  long on YHOO