Posted by Jeff
Tue, 23 Sep 2008 22:50:00 GMT
Goldman Sachs just announced that it is going to raise money from my favorite investor - Warren Buffett. I was surprised to see that the terms actually reflect the risk usually reserved for highly risky startups extended to the most respectable investment bank in the world.
Forbes reports that Buffett will receive preferred shares that will yield 10% (think of this as debt), but also the ability to purchase common stock at $115, which are essentially in-the-money options.
Now, I’m a startup guy and I know that startup funding is usually something to the tune of preferred shares with an interest provision and the ability to convert to common. (Convertible Peferreds). This deal sounds terribly familiar.
Even if GS goes out of business, the scenario is the same as convertible preferreds - so Buffett gets first dibs in the shareholder pool on assets. In the case that goldman goes below $115, buffett is still collecting dividends (startups don’t pay dividends). In the case that Goldman shares gain in value, Buffett’s preferred shares increase in value AND he gets to exercise his options.
Anyway I look at this - looks like a great deal for Buffett.
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Posted by Jeff
Wed, 17 Sep 2008 21:19:00 GMT
But Why? I still use apple products and my roommates just upgraded to the 3G iPhone.
OK - google and HTC are going to come out with an iPhone compete. Fine. Do they have the Apple Store distribution? OSX core software? Apple branding? Just because the device is shiny doesn’t mean it is going to sell.
OK - MS just launched commercials with Seinfield. Have you seen them? They are not funny.
OK - steve lost some weight.
Apple is trading at 25x trailing earnings, where Wall Street usually gives 30-40X multiple. My guess is that Wall Street short sellers are riding the momentum so they can make a quick buck by continuous shorting during a time when apple doesn’t have much news. Where are the efficient market theory guys now?
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Posted by Jeff
Wed, 17 Sep 2008 20:53:00 GMT
As you know, I really love the markets. In fact, before we started CLZ, I was ready to take a hedge fund job with $1B (that was 9 months ago, lol - it may be $100M now).
What in the world is going to happen and what should you do?
Well - I’m not a financial advisor, and I don’t manage anyone else’s money except my own. But I look at the books of these major banks and ask myself…gee…there’s no way for me to value how much these ‘toxic’ assets are worth. Could they be in fact worth 0? Yes. What about negative value? Yes.
Now - I use a pragmatic method of evaluating companies. Basically a reasonable PE ration and reasonable asset liquidation value. The key in these values is to get comfortable with thinking that you are going to buy the entire business and treat it like a cash flow company. For example, a company that is trading 10X earnings today means that if you were to own this company, you’d get about 10% return / year, assuming no growth in earnings (buy the company for $1, every year you make $.10 cents) –> assume you reinvest correctly, you can do the same next year). Now if the earnings will double in 10 years, then you will get 15%. (approx. numbers here guys)
Both of these are not easy metrics, but let’s address earning power - I look at the company and ask 1) is the business stable? 2) can it do a couple of times more business 5-10 years from now as it is doing today? That’s it - I don’t bother reading analyst reports on future earnings. Who are they to know what is going to happen in business??? Truthfully, no one really knows what’s going to happen in business and earnings metrics are mainly bogus.
Now the asset parts of the equation usually is much simpler, you look at the balance sheet and say…OK…I get it. BUT THIS IS THE EXACT PROBLEM TODAY!!!
I look at the balance sheets of MER,MS,AIG, etc, and although I feel like I can see that the firms will be profitable in the future in their ‘normal operations’ (such as underwriting, etc) I have no idea how to value the TENS of BILLIONS of derivative positions. For all I know (although unlikely) these positions can turn out to be very profitable.
Conclusions - everyone is trading on rumors and whims and ‘herd mentality’ expect even greater swings in the coming days.
WHAT DOES THIS MEAN FOR YOU?
OK - let’s forget about the market in general. Does this affect the average american consumer? You bet. I recently brushed up some reading on the Great Depression, and it looks like people are going to be doing exactly like the government says - keep spending, and be assured that everything will be fine. Guess what? It’s NOT.
I’d start saving and cut down costs. Maybe move to a smaller apartment, instead of going to the gym - just workout outside (SF is beautiful, that helps), cook at home more. Build a nest egg of tens of thousands of dollars and wait. There’s no reason why the world wouldn’t recover in 12 months, but there’s no telling how painful the de-leveraging of these opaque assets is going to be.
In short - make sure you will be OK without a job for 24 months.
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Posted by Jeff
Thu, 04 Sep 2008 20:46:00 GMT
Well - the CLZ guys are leaving Zynga.
For the readers who don’t know, we originally started in the facebook space last year, and have been in it ever since. But some time in February, 2008 we sold the majority of our applications to Zynga (the social game company).
Some people mistakenly thought we actually sold the company, but really we just sold applications and stayed on at Zynga for 7 months after.
Why? Turns out that Zynga is growing quickly and it’s just not our game. As I wrote to the Zynga employees “During our time here, Zynga has greatly matured as a company and in it’s strategic directions. Given where we are, this transition makes
a great deal of sense.”
What next? Well Linus is thinking of going back to school at Stanford, I miss being in coffee shops, and James is looking to study Krav (see his earlier blog entry) much more.
Personally, San Francisco is beautiful in October, and I can’t wait to enjoy some time off.
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Posted by James
Wed, 23 Jul 2008 20:55:00 GMT
I’m sitting here with Jeff and Linus listening to Mark Zukerberg’s keynote at F8. He’s giving an overview of the new profile. This iPhone is really useful :)
Posted in Business | 2 comments
Posted by linusl
Tue, 01 Jul 2008 21:07:00 GMT
Last week it was announced that Microsoft would be buying Powerset for $100 million dollars. Powerset, for those who have never heard of it, is a search engine that was dubbed the “Google Killer” since it would allow users to do semantic searches. Unfortunately they have been years delayed and when they finally did release, 3 months ago, it was restricted to only Wikipedia and was severely inaccurate. However that was months ago and a lot can change.
After the acquisition was announced I decided to put them to another test and see how good they were at finding the title to the latest Bond movie (named Quantum of Solace) .
Here are the results:
Google won this contest by getting the answer in the first link:
Yahoo placed second with the answer in the 2nd link:
Finally Powerset rounded the rear and the answer was in the 4th link:
It seems like Powerset still has some ways to go. However Microsoft’s own search engine Live.com got the answer as the 7th result.
The morale of the story? Even if you’re bad at what you do, as long as you’re better than Microsoft,
you can still be worth $100 million.
Posted in Business | 1 comment
Posted by linusl
Wed, 04 Jun 2008 07:42:00 GMT
So the other day I was talking to some friends and an interesting issue came up. Are PR firms really necessary for a startup’s growth? I for one have never used a PR firm nor have I ever had an inkling to find one. This got me interested however so I went around to do some research. I wanted to know what exactly these people do and why they are useful.
I found several sites but the best article I read was from a guest writer on TechCrunch:
http://www.techcrunch.com/2008/05/25/pr-secrets-for-startups/
The author does makes compelling arguments for why these people are needed… they know the PR “secrets”.
However, being a skeptical person, I still had my doubts. Like I said above, if they were so important, why have I not already sought one out?
After more reading, my doubts were bolstered by this response from Loic le Meur (serial entrepreneur and founder of Seesmic, which is located right below us)
http://www.loiclemeur.com/english/2008/05/pr-secrets-bull.html
I absolutely love this rebuttal and his response really strikes a chord. Basically, a good product and strong community is greater than anything a PR firm could do. Loic, I couldn’t agree more and I am going to adopt your belief as one of my own tenants as well. This argument (at least in my mind) has come to rest.
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Posted by Jeff
Tue, 06 May 2008 22:48:00 GMT
It was more than 50 years ago (1949) that Benjamin Graham published the Intelligent Investor.
I am happy to report that - as far as I can see, despite the invention of TVs, the Internet, and real-time trading, Human nature in the Market has not changed at all in 50 years and people are just as emotional and impulsive as they were in 1949. Oh - and Efficient Market Theory? - needless to say, I’m not a fan.
What Graham said: Imagine that “one of your partners, named Mr. Market, is very obliging indeed. Every day he tells you that he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.” (Intelligent Investor p.204)
Irrational pricing of stocks? Let’s talk about Apple (Disclaimer: I own Apple). Near the end of last year, hype of the iPhone and iPod Nano launches led to an Apple ROCKET. We saw the stock go up from $122 (Aug 17, 2007) to $198 (Dec 31, 2007) in just 4 months. This was based on great sales combined with expectations that Apple will come up with a 3G iPhone and maybe snazzier Macs in MacWorld in January.
And then what happened? 1) NO 3G iPhone, and 2) the country is going to be in a recession is going to affect sales. Stock TANKs to $119 (Feb 22, 2008)
OK - so let’s take a look at these items a little closer. The issue of the ‘3G iPhone’ - it is clear to me that there is no doubt that Apple is going to come out with a second generation iPhone with 3G technology and probably GPS also. This will probably happen in June or December 08. Is Apple going to loose their competitive edge because they didn’t come out with it in ‘07? Have you played with the iPhone? That thing is an innovation freak of nature: I think it’s going to take companies at least 18 months to come up with a comparable product, the iPhone is just way ahead of its time. What about earnings? Sure, earnings will be lower than if Apple came out with the 3G iPhone, but that will only be temporary, until they get the 3G version made.
Now let’s take a look at talks of a recession. Last time I checked people who buy Apple products are well-off individuals who are buying electronic gadgets. My argument is that most people who are considering buying Apple products are not going to be impacted very much. Even if there is going to be some slipping of sales, a 40% reduction to stock price is still very much uncalled for.
I bought at 160 and kept buying as the stock tanked in January and February. Being a long term investor, I’m looking at at least a 2-3 year hold for Apple. They have the most innovative hardware personal electronics on the planet and arguably the most innovative operating system as well.
Who knows if there will be more growth to the stock price of Apple, but I’m certain that the company will continue to innovate in the decades to come.
Enjoy the Ride.
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Posted by Jeff
Tue, 22 Apr 2008 17:18:00 GMT
So what the heck is web 2.1??? First, the meaning of web 2.0 isn’t even clear, so how can you increment versioning on something that no one really knows the meaning of?
Well - here is a little history of the web that should qualitatively give you an understanding of what I see Web 2.0 is and what is now Web 2.1, which I will call The Viral Web.
The web as we know it today came a long way. First, you had Yahoo listing pages on one website like the yellowpages, then more data grew and Google started to make searching easier and more accurate. As for the content of webpages up to around 2000 were generally made by one person and then consumed by the masses. Examples of this are like personal home pages, online newspapers, and corporate websites.
Then the web started to evolve, things like Wikis (collaboration of many people for consumption by many people), YouTube (many people uploading videos to be viewed by even more people), and Facebook (many people customizing profile pages and uploading pictures to be consumed by even more people). In one sense, Web 2.0 involves giving users power to create content and using people’s social network to distribute information.
For a majority of websites, the discrimination is less clear - what do we make of websites such as eBay, where users put up items to be sold to other people. Even though eBay has been around for a while, it shares the characteristic of empowering users. There are many more examples in this area, and you can feel free to dub them whatever you want.
Recently, ‘Viral Marketing’ and ‘Viral’ growth have become the Fad of the Valley. Everyone wants their application, website, or plain old company to ‘Go Viral’. What is this really about?
Well this is really about harnessing the users ability to create content (such as in Web 2.0) in a different manner. In fact, the content that users create are actually messages sent to other users. For example, within the Facebook platform, we see this happening on many applications that attain millions of installations after just a few weeks! This is already happening outside of social network environments Ning has accomplished this by letting users create their own social networks.
The Viral Web involves startups taking the learnings from Social Networks and companies like Ning and applying the concepts broadly across other traditional internet companies. Having users participate in Viral Loops that the website uses is going to give the traditional internet companies a run for their money.
1) Essentially Nil marketing costs
2) Brand Names develop quickly
3) Further leveling the playing field between large and small companies (small companies can get big very quickly)
4) Lower overall cost structure of startups will make things cheaper in general for consumers (yay for us!)
The next few years are going to be quite exciting - get ready for the ride!
Posted in Technology, Business | 1 comment