eStrategy Partners

Silicon Valley vs The Gold Coast

noreply@blogger.com (Jeff Cohn) — Wed, 22 Apr 2009 22:20:00 +0000

The Civil War II has begun but this time it’s not the North versus the South. This Civil War II is about money under management in the financial services industry and it’s the West Coast (Venture Capital & Private Equity) versus the East Coast (Hedge Funds). Let me see if I can paint the picture for you . . .

The bulk of Hedge Fund investment comes from the East coast – principally Connecticut and New York City – which has become the leading location for hedge fund managers. In 1999 there were 500 hedge funds with roughly $500B under management. In 2008 were 12,000 hedge funds with nearly $2.5 Trillion under management. 500% growth!

The bulk of venture capital investment comes from the West coast - principally Silicon Valley. In 1999 there were 1000 VC firms which invested $100 Billion. In 2008 roughly 250 firms invested less than $25 Billion. That is a drop of 75%. Meanwhile Venture Capital accounted for 18% of the U.S. GDP in 2008.

Have you ever asked yourself why VC's or angel investors don't have the ability to sell short (hedge losses) against every private company investment in which 90% go out of business. If VC firms could hedge there would be no job or wealth creation by companies who actually add value to society. VC firms get paid to take risk and are rewarded by 10% of their companies making 10X+ returns. Everyone involved prospers for obvious reasons!

Hedge funds on the other hand profit from short selling and the destruction of capital or stock prices. These funds are primarily responsible for the bulk of the job losses and wealth destruction in the last 10 years and has driven the Stock Market to its' lowest level in 15 years. No one has benefited from this wealth destruction except a few fund billionaire fund managers and investors who I would put in the category of Maddoff even though their practices were legal (today).

Most of the Billions of dollars that have moved away from the Venture Capital sector in the last 10 years has moved across the coast (West to East) into the Hedge Fund investment category and look what it has done. I am very happy that the SEC is considering rules to regulate short selling practices and require funds to start disclosing short positions in companies. Hopefully, this will actually bring money back into the category of Venture Capital and help IPO prospects like Facebook and Twitter.

It is pretty scary when one trader with $12M can manipulate oil futures by $10. I am tired of hearing about traders on TV and want to go back the basics of investing. Futures are for businesses to hedge and not speculation. Stocks are for investing not trading. Some day my wish will come true if Obama stays strong.

West Coast = Venture Capital Funds, Wealth and Job Creation
East Coast = Hedge Funds, Destruction of Wealth and Jobs

10 Ways President Obama Can Help Create Jobs

noreply@blogger.com (Jeff Cohn) — Wed, 21 Jan 2009 04:18:00 +0000

While watching the inauguration today I decided to actually be productive and put some thoughts on paper about how the government might help get us out of this depression (not a recession anymore).

1) Give tax credits for direct investments in private companies not funds or public companies.

2) Give tax credits for companies who make cash acquisitions and create liquidity for shareholders to restart the capital cycle.

3) Open up the IPO markets by reducing restrictions on companies to go public creating liquidity for shareholders which eventually cycles back to new companies.

4) Create a new Securities Exchange Commission that is willing to legitimately combat securities fraud and will bring back old short selling and uptick rules.

5) Give money to smaller regional banks and VC focused banks who can smartly lend money (debt) to companies who are creating innovation and jobs.

6) Encourage more government based Venture Capital funds (equity) to invest in companies who can help government harness the benefits of technology and become more transparent.

7) Give tax credits for hiring U.S. based staff

8) Reduce government regulations on big business monopolistic behavior stifling start-up innovation: Telecommunications, Energy, Biotech, Automotive, Media.

9) Demand more transparency from all financial vehicles who create jobs: private equity, venture capital and those that destroy jobs: hedge funds.

10) Weed out the government bureaucrats and lobbyist who waste tax payer money.

Media Optimization Firms Are Red Hot In Southern California in 2009

noreply@blogger.com (Jeff Cohn) — Fri, 16 Jan 2009 22:22:00 +0000

Media optimization is starting to become a headline buzz word in 2009 as the recession drags into the near year. Optimization is one solution to cutting costs that will virtually guarantee a return on your advertising investment if executed properly. If you are a savvy agency, advertiser or publisher and you are not using a platform or service to optimize your paid search, display and landing pages, you are getting behind the curve. Advertisers are demanding accountability and performance in this economic downturn and are increasingly moving toward performance based arrangements or CPA deals. Why, because it hedges some of the risk and the publisher or agency is required to produce results. The old model of buying impressions or clicks and hoping for conversions to sales is GONE for the sophisticated online marketing companies. Here are 4 companies using optimization technology to build competitive advantages in their respective spaces:

Magnify360 - Landing page optimization using predictive data analysis

Adisn - Display advertising optimization for advertisers

Rubicon Project - Publisher ad network optimization

Oversee.net – Domain parking ad network optimization

Stay tuned for a list of large publisher advertising networks in Southern California that I am gathering information on: Demand Media, Gorilla Nation, Specific Media, Tsavo.

99% of Angel Investors Don't Know What They Don't Know

noreply@blogger.com (Jeff Cohn) — Mon, 12 Jan 2009 23:36:00 +0000

Angel investing in startups is probably the most challenging form of private equity there is. Having been involved with the Tech Coast Angels for the last 10 years I have seen 150+ companies funded and very few successes. One thing I have learned over that time is that about 90% of the investors in each company "didn't know what they didn't know". Why? Unless you are full time investor looking at business plans all day long or have some particular domain expertise, angel investing will turn into a charitable tax exercise for you. However, the angel successful investments usually had these top 10 elements going for them:

1) Investors had to earn their right to be part of the investor syndicate and invest
2) Investor syndicates typically had less than 5 investors investing $50K-$250K each
3) The investor syndicate only had domain experts in the deal
4) All investors contributed contacts, industry knowledge or competitive intelligence
5) Investment was sourced through contacts and NOT blindly through random submissions
6) Sophisticated angels (like VCs) had looked at many other competitors from around the U.S.
7) Valuation was never an issue in negotiations and completing understood by both parties
8) The market was in a recession and lacked institutional Venture Capital competition
9) The management team had worked for previous start-up successes and failures.
10) The company had bootstrapped themselves into a beta product and had paying customers

Having investors who are unknowledgable about the game or industry creates numerous issues which I will expand on later.

The "EBAY For Lending" Is Getting Shut Down By The SEC

noreply@blogger.com (Jeff Cohn) — Wed, 26 Nov 2008 21:43:00 +0000

How stupid can the banking industry possibly be? The banking morons caused this financial crisis and now they are lobbying the government to shut down innovation. The fact that the SEC is shutting down one of the biggest innovations in the banking industry in the last 100 years. Peer to peer lending (an EBAY for loans) is just further evidence of how desperate the banking industry is at trying to retain control of money distribution, lending rates and liquidity. If you can't get a loan from your neighborhood "moron" banker why not bypass the traditional system and borrow from someone on the internet? Seems reasonable if you have a good reputation and credit history. Its a disgrace and I think this will only cause more sites to start because it actually works. Look up "Micro Lending" and see what it has done to entreprenuers in Africa. Yes there is risk but it can be diversified and reputation is everything. Reputation is EVERYTHING!

These two articles are a must read!

http://www.techcrunch.com/2008/10/16/prosper-and-other-p2p-lenders-get-squeezed-by-the-credit-crunch

http://www.techcrunch.com/2008/11/26/sec-outlines-its-reasoning-for-shutting-down-p2p-lender-prosper/

The Hedge Fund Bubble Will Pop With A Massive Short Squeeze

noreply@blogger.com (Jeff Cohn) — Tue, 28 Oct 2008 20:11:00 +0000

The herd mentality approach to shorting needs to stop in order to get our economy back on track. The first professional casualties of short selling like cows has just occurred overnight in Germany with a few hedge funds blowing up on margin calls. This Volkswagen 400% short squeeze in Germany is just what we might get with some large U.S. stocks since no one is expecting it. Don't forget your loses are unlimited when shorting versus going long! I can think lots of other Dow and S&P stocks that might be in a similar position.

Please remind any hedge fund manager you know that they contribute absolutely zero to the prosperity of our economy, innovation and job growth. I cannot wait to hear stories of hedge fund managers jumping out of windows with the squeeze I think we could get. I hope someday that LP’s realize that most hedge funds mainly contribute to destruction. What would happen if 100’s of billions of dollars started getting allocated back into venture capital? Who knows maybe job creation, innovation, IPO’s?

Yes I am angry and hope venture capital thrives forever as the financial vehicle to growth in the economy. Hedge funds deserve some hard times like our “.com crash” and should become the worst performing asset class for the next 10 years!!!

Quotes from Warren Buffet’s Interview on Charlie Rose

noreply@blogger.com (Jeff Cohn) — Fri, 03 Oct 2008 14:29:00 +0000

I firmly believe that this financial crisis will spur innovation to solve our problems. We will look back 5 years from now and likely have solutions to many of these problems which caused the current crises: transparency, liquidity, asset pricing, audit and credit. Government will stop the current bleeding by buying some "bad assets" but entrepreneurs will ultimately cure the disease by providing technology solutions and creating new markets. Here are some quotes from Warren Buffet's interview that should very inspiring and should provide confidence to any entrepreneur.

• The natural progression of business: Innovators, Imitators and Idiots

• Derivatives were national weapon of mass destruction.

• Cash isn’t king if it just sits there. This is a time when cash buys a lot more and a time to accumulate cash.

• Be fearful when others are greedy and greedy when others are fearful.

• In my adult lifetime I have not seen people as fearful as they are economically as they are right now.

• 8% of money market funds in the U.S. have been moved in the last 2 weeks to new institutions. 10s of billions of dollars which is incredible.

• We have a terrific economy that is like a great athlete that has just had a cardiac arrest and needs to be resuscitated. Don’t argue about inches where to shock should be applied.

• There is one institution in the world that can leverage up when big businesses are leveraging down. That is the U.S. government.

• Politicians pointing the finger at an executive that walked away with a golden parachute of a failed company and assigning blame is wrong. It’s a waste of time and we need to move forward.

• The U.S. government can borrow at 1% and buy assets that are yielding 15%. The government is going to make a lot of money and I’d like to have 1% of the $700B deal. I just don’t have $700B dollars or I’d take the deal.

• AIG would be fine today if they’d never heard of the word derivatives.

• Derivatives are a national weapon of mass destruction

• Leverage is the only way a smart guy can go broke

• The government might be buying $2 Trillion worth of real estate for $700B.

• We have a 7 for 1 improvement in the last century

• The private sector tried to save AIG but the problem was too big. The Feds structured the deal very very well

• I'd be much more interested to hear a debate between the next 2 Treasury Secretaries candidates, than the VP candidates.

Jeff Cohn's Interview With TechZulu

noreply@blogger.com (Jeff Cohn) — Tue, 15 Jul 2008 20:36:00 +0000

Cloud Computing Lowering Startup Barriers To Entry

noreply@blogger.com (Jeff Cohn) — Fri, 02 May 2008 03:24:00 +0000

Encoding, Storage, Load Balancing and many other web infrastructure services are now all accessible to just about any businesses in bite sizes. Previously startups had to purchase servers, load balances, routers, write some code and hire a hosting company to house and manage all of the hardware and software infrastructure. All of which requires many weeks of time, effort and lots of up front money to get your web company off the ground. Now entrepreneurs can write some code and purchase bandwidth, encoding, storage and many other services in bite sizes at a fraction of the cost and time. Companies like RightScale (Santa Barbara company recently funded by Benchmark) are providing a critical management console for cloud computing services to insure availability and reliability. I predict a bright future in Southern California for cloud computing software companies who are providing the "picks" and "shovels" to media companies.

Ad Tech SF Wrap Up

noreply@blogger.com (Jeff Cohn) — Sat, 26 Apr 2008 20:08:00 +0000

Optimization, lift, in-text advertising, social targeting, mashup ads, geo targeting and out of home advertising were key buzz themes. I would estimate that about 1/3 of the exhibiting companies where from Southern California which further validates the growing advertising ecosystem here. Here are some companies that I spent some time with that had very differentiated offerings amongst the rest of the noise at the conference. www.dapper.net, www.lotame.com, www.keibitech.com, www.scenecaster.com , www.triggit.com and www.kontera.com

Great Web Services Need Great Distribution

noreply@blogger.com (Jeff Cohn) — Fri, 11 Apr 2008 22:45:00 +0000

I am becoming increasingly frustrated with entrepreneurs who focus too much on product design without careful consideration of how to get distribution. In the current web 2.0 world of interrelated web services it seems the widget is the answer for today's lazy entrepreneur who is trying to get user distribution. Facebook is not likely going to buy your company and you are probably going to have to monetize your service through advertising eventually. 99% of startups need and exit through acquisition so why not stay focused and build product in partnership with an industry or customer who might buy you. Advertising dollars can be spent in lots of creative ways when true marketing value is created!

Uncovering The Opportunities Created By Google Android

noreply@blogger.com (Jeff Cohn) — Mon, 31 Mar 2008 21:15:00 +0000

Android is an Open Handset Alliance, a group of currently 30 technology and mobile companies, is developing the first complete, open, and free mobile platform. I will be spending this week in Las Vegas to attend CTIA 2008 Wireless and LeadsCon to learn more about opportunities this platform will create for the industry, especially around mobile advertising. Southern California has a large ecosystem of online advertising management talent that will eventually participate in the growth of this emerging industry. My primary mission is to learn more about developers using Google Android are planning for the future and the related opportunities it creates. I think the largest opportunities in the space for entrepreneurs will emerge around applications that perform "passive search" enabled by GPS. See the Phandroid Blog for a conference preview. Stay tuned for my comments on the Google Android subject.

Top Publishers Adopting Direct vs. Automated Ad Network Sales

noreply@blogger.com (Jeff Cohn) — Wed, 26 Mar 2008 17:53:00 +0000

ESPN becomes one of the first major publishers to drop ad networks as a means of selling advertising and not likely the last. Two sides have formed in the online advertising world - those who want to protect traditional, direct selling of premium content brands and the math-loving crowd that favors automation and data. Direct ad sales can attribute to a 2 to 3X premium on revenue and usually benefits the advertiser with tighter ad integration into the content. I think there is a clear opportunity for more publishers to capitalize on this direct ad sales trend and we will likely see this phenomenon move further down the tail into smaller and smaller niche publishers. See the Media Week article with further details on the story.

Google Ad Manager Will Make Publishers More Money

noreply@blogger.com (Jeff Cohn) — Mon, 17 Mar 2008 22:09:00 +0000

Google's new Ad Manager technology will soon enable premium ad banners to be sold directly to advertisers by publishers and when the clicks are used up on the premium ads it will revert automatically to use Google Adsense. This is a brilliant move and will further accelerate the gap between premium content and generic publishers who don't provide any unique content value. I have always felt that quality advertisers will find quality content and now there is one single platform to consummate these relationships. Today premium content publishers sell clicks direct at a huge premium using 3rd party billing and click tracking systems. Clicks are usually sold via banners and text ads at a 2x to 4x premium cutting out Google. I think this bad news for most ad networks who will soon need to specialize and/or be selling remnant inventory only. However, this theory assumes that most quality publishers want and know how to sell ads directly. I think hard working publishers and agencies will be rewarded and we will soon see lots of companies like the Rubicon Project and Gorilla Nation. Los Angeles has a vast ecosystem of advertising management talent to draw upon and will naturally be the beneficiary of this industry boom.

Most Investors and Entrepreneurs Don't Understand Online Advertising

noreply@blogger.com (Jeff Cohn) — Thu, 28 Feb 2008 18:55:00 +0000

Before you take an investment to start your Web 2.0 company that relies on advertising for revenue make sure you hire and partner with the right investors. Here is some vernacular you or someone on your team should clearly understand: CPM, CPE, CPA, CPL, CPC, Intext, Run of Network, Fixed Rate, Affiliates, Contextual, Remnant, Display, Behavioral, Retargeting and Demographic. There are over 300+ advertising networks with very little differentiation in a very complicated online advertising world. It is critical that Web 2.0 entrepreneurs and investors (including most VC's) rely on qualified advertising executives with relevant domain expertise. Southern California has an enormous ecosystem of former executives from Overture, Yahoo, Google, PriceGrabber, LowerMyBills, Oversee.net, Shopzilla, ValueClick, Business.com, Vendare, Vantage Media, Shopping.com, Advertising.com and Nextag. We can help you validate business plans and find these individuals who can help add credibility and value to your team.

Silicon Valley vs. Southern California

noreply@blogger.com (Jeff Cohn) — Thu, 21 Feb 2008 18:06:00 +0000

IPO vs. Acquisition, Band of Angels vs. Tech Coast Angels, Facebook vs. MySpace, Stanford vs. CalTech, Polished vs. Scrappy, 3rd time CEO vs. 1st time CEO, 10M Pre vs. 3M Pre-Money Valuation are some of the many common characteristics of Bay Area Companies vs. Southern California Companies. However, Southern California is catching up to its big brother and now accounts for two-thirds of the state's GDP, making it the 15th largest economy in the world? In 2007, the region saw the second highest level of capital investment in the U.S. (beat only by Silicon Valley) with 1.10 billion invested over 66 deals, the first time investments have topped $1 billion in a single quarter since 2000, reports VentureOne.

Contextual vs. Direct Advertising Monetization

noreply@blogger.com (Jeff Cohn) — Thu, 21 Feb 2008 00:03:00 +0000

Is contextual advertising starting to lose some steam? I have always assumed that most quality content publishers know exactly who their potential advertisers are and should sell ads directly to them for lots of reasons. If AdSense pays publishers on average $.25 cents per click, could you sell it directly to the advertiser for $.75-$1 profitably and provide more value? I would like to find a company that provides the best click management software to the small publisher and helps us get back to the basics of business and building relationships. I am looking for a software as a service company and not an ad network or ad server. Don't ask me how does it scales or makes money either as I want to solve the problem first. I think in the next couple of years we are going to see a lot of successful companies built that attack entrenched businesses that use the KISS philosophy. Keep it simple software or stupid.

Open Ads + Direct Advertising + Transparency = $

noreply@blogger.com (Jeff Cohn) — Sat, 16 Feb 2008 20:57:00 +0000

A real opportunity is finally emerging for a disruptive ad solution and not an ad network that focuses on enabling publishers to sell ads direct to advertisers. Google Ad Words has conditioned lazy ad agencies, publishers & advertisers to rely on content network syndication that has zero transparency. I believe good content attracts good advertisers and a simple solution is needed to manage these direct adverting relationships. Below is a overview of the current online advertising world if you are unfamiliar with this complex and often confusing industry.

From: openads, 3 days ago

Quantcast Revolutionizing The Advertising Industry

noreply@blogger.com (Jeff Cohn) — Fri, 15 Feb 2008 17:10:00 +0000

Have you ever asked yourself why Nielsen, Comscore, Alexa and Compete only give approximate viewer numbers for a specific TV shows or web site visitors? The answer is pretty simple . . . because its not in the publishers best interest to give the actual numbers because it would cannibalize the advertising that was sold against the inventory. With the technology that is available in 2008 I consider the current advertising tracking methods a scam to the entire industry. Enter Quantcast who is creating a new currency for advertisers to purchase ad inventory against more qualified demographics and actual traffic numbers. Click here for an example of how Quantcast provides free information to potential advertisers on my network of web sites. Stay tuned as I am following this one closely!

Could Google Become The Next Wireless Giant?

noreply@blogger.com (Jeff Cohn) — Thu, 14 Feb 2008 20:54:00 +0000

Range of and capacitiy have been major limitations for existing cell tower solutions. I am not an engineer but it would seem that if a cell down can only reach customers over a few square miles than the technology is probably old. I have heard Wifi and Wimax tests have proven to work up to 100 miles. I also know how to make a phone call using VOIP. So if you add 1+1 together you get a Wifi / VOIP mobile phone. Is it going to take an innovator like Google to enter the wireless carrier business before existing carriers will wakeup and invest in the future? Google does know how to provide a good service to its customers and monetize that experience through advertising profitably. Why can't the same be done with free mobile phones?

Could Amazon Become The Next Software Giant?

noreply@blogger.com (Jeff Cohn) — Wed, 13 Feb 2008 16:40:00 +0000

Who would have thought 10 years ago when online retailers Webvan, Etoys and Amazon were founded that one of these companies could eventually rival Microsoft, Oracle and Sun? During this 10 year period enterprise software licenses have been reduced by 1/10 from around $250,000 to $25,000 while bandwidth capacity has increased 100X from dial up speeds of 56k to greater than 5GB. Amazon has quietly become the world leader at selling high volume products at thin margins with zero customer service. Why not take that same level of quality service learned from selling millions of books at thin margins and start selling hosting application services at similar margins? The financial industry has given a sophisticated name to this new industry and we call it "Cloud Computing". Stay tuned!