Digital Rubicon Musings

Devil's Bargain: When Investors Get Too Low a Series A Valuation

noreply@blogger.com (Charlie Kemper) — Wed, 22 Feb 2012 16:11:00 +0000

I see a lot of posts these days about startups raising huge early-stage investments at ridiculously high valuations. What no one talks about, and what I think is equally dangerous, is the opposite: startups raising small early-stage investments at low valuations.

When startups in New York City, especially ones with teams of three or more founders, raise low amounts like $500,000 on sub-$3 million valuations, it ends up undermining the success of their startup. Why? Because there doesn’t end up being enough incentive for the founders to stick around.

The first problem is that $500,000 generally isn’t enough for a startup to show any significant progress over the course of a year. In New York City, it barely even covers the cost of living.

Let’s say you have four co-founders who decide to live on a very conservative $40,000 a year. That’s $160,000. And we’ll assume they hire four more employees at $60,000 a year (because only a founder would be incentivised enough to work for $40,000 a year). That’s another $240,000.

On top of all that there are costs associated with raising money, as well as overhead, which can run upwards of $100,000. Before they know it, the founding team has burned through $500,000 in a year and has to raise more money.

But most companies need 2-3 years to really see product-market fit. After one year, their business model isn’t firm. They need to gel, pivot, and truly study the market. That takes time and money. And $500,000 doesn’t give you enough of either.

The second problem is that when founding teams are too large, no one founder owns enough equity to stick around. Let’s say your four co-founders from before sold 25% of their company and set aside a 15% options pool for employees. At this point, each founder only owns 15% of their startup. After subsequent rounds of funding, any one of them can expect his share to get diluted down to 5-10% if he she is lucky.

But because the startup has run out of money after a year, the founders now have to reevaluate whether they should raise more money. Each one says to himself: I just made no money for a whole year. I worked really hard, but we don’t have traction yet. Do I want to go raise more money, deal with existing investors (and the headaches that go along with that), all to have my ownership diluted down to 5%?

This is the point at which at least one of the founders usually bails. And when founders bail, everyone loses.

I’m seeing more and more of this happen in New York City and it’s a dangerous phenomena. We’ve seen tremendous growth in the New York City tech scene over the past few years, but if we want to compete with Silicon Valley, it’s important that we make sure entrepreneurs are incentivised to stick around for the long-term.

We need to educate entrepreneurs to be wary of investors who want to give you small investments at low valuations. What’s the sweet spot?

Raise an amount a startup can actually show progress with, around $1+ million, or 18+ months of burn.
Keep the founding team smaller than three people.
Preserve cash and be liberal/generous with option grants.

If founders follow these rules, they’ll be able to show more progress before they need to start thinking about raising another round and what’s more, they’ll own more of their company when they do it.

That keeps founders happy, investors happy, and ensures the sustainability and viability of the New York City venture community.

Somewhere lies a golden mean of start-up valuation....

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Psyched about ER Accelerator's inaugural class!

noreply@blogger.com (Charlie Kemper) — Tue, 31 May 2011 16:55:00 +0000

New York, NY - May 31, 2011: ER Accelerator (ERA) today has announced the 10 startups that will participate in its Summer 2011 program, set to kick-off in New York at its Times Square offices on June 6th.

“We are very excited to have received interest from such a wide group of top-flight entrepreneurs for our inaugural ERA program,” said Murat Aktihanoglu, Managing Director. “We are thrilled with the group of companies which will be participating, and we look forward to working with them and our extensive mentor network to help these companies succeed.”

ERA will be located in the heart of New York City at 1500 Broadway, overlooking Times Square. The state-of-the-art office building has facilities including private rooms for startups as well as various meeting rooms.

“We believe there is no better place to be starting a technology company today than New York,” said Jonathan Axelrod, Managing Director. “We look forward to helping to build the next great generation of New York tech companies.”

The participants in the ERA program were selected from hundreds of applications from all over the US and the world. As part of their participation in ERA, each startup will receive a $25,000 investment, access to 180+ mentors and three months of free office space at the ERA office.

The companies that have been accepted and will be participating in the program are (in alphabetical order):

BuzzTable - BuzzTable puts the "old school" table buzzer on your phone, establishing a direct line of communication between the restaurant and their customer. The focus is customer retention, incentivizing customers to return through loyalty rewards, deals, and a more personalized relationship.

Centzy - U.S. consumers spent $540B on local services like haircuts, massages, oil changes, and yoga classes in 2010, yet over 80% of local service businesses do not post prices and hours online. Centzy is a new search engine where consumers can find accurate prices, hours, and ratings for every service in their city.

LetGive - LetGive provides a platform that connects application developers, charities, and socially conscious consumers. The platform allows developers to turn their applications into fundraising vehicles for nonprofits and charities in the LetGive network. The entire donation and distribution process is managed seamlessly by LetGive.

Nabfly - Nabfly is a mobile tagging platform that lets people scan posters with their phones and engage with a brand through a native application. Nabfly makes it easy to remember and interact with the cool things you see walking around a city.

numberFire - numberFire is an analytics platform that uses quantitative modeling to bring new insights and analysis to the world of sports.

Parking Panda - Parking Panda is a mobile, real-time parking discovery tool. It enables parking space owners to rent out their underutilized spaces to a community of drivers. People in need of parking can save money and time by finding a place to park and paying right from their phone.

Pricing Engine - Pricing Engine is a business intelligence service for digital marketers. It provides users a simple visual interface to discover actionable insights for improvement. The service includes patent-pending advertising optimization and valuation across the full range of creative and targeting options, media choices, and pricing models.

PublicStuff - PublicStuff’s web-based solution addresses the service needs of both local governments and residents by increasing consumer participation while also driving down costs for public agencies. The municipal platform allows agencies to cost-effectively manage communications with the public and better manage the delivery of services. The consumer platform allows the public to request a variety of services.

sitesimon - sitesimon makes it easy to find and enjoy new content online. Users can share their browsing seamlessly, connect with what their friends and others are looking at, and be recognized for discovering sites that others love too.

WebThriftStore - WebThriftStore enables anyone to turn their unused "stuff" into tax-deductible, charitable donations. The product makes it easy to offer anything online, and then allows consumers to use their social networks to convert it into cash for the charity of their choice.

Each of the ERA companies will receive other perks like free legal services from Gunderson Dettmer, and other professional services and support from selected partners and sponsors, such as Amazon, Microsoft, CBRE, Cogent Communications, American Airlines, Steinberg Foreman Group at Morgan Stanley, Phone.com and Manning Publications. These services include free hosting, free banking services and other support.

“We are extremely proud of the sponsors who are supporting ERA and our companies,” said Charlie Kemper, Managing Director. “They have helped us create an experience which we think is unique among accelerators”.

Through its partnership with American Airlines, the Accelerator will now offer unique travel benefits for all of its startups. Each will receive 10,000 Business ExtrAA points, which are redeemable for up to five domestic round-trip flights on American Airlines flights, American Eagle or AmericanConnection or used for other travel awards. “This is an unprecedented opportunity for our startups to be able to travel to where ever they need to be to build and expand their companies, thanks to the generous support of American Airlines,” said Murat Aktihanoglu.

"We are happy to support the ER Accelerator program and to continue to encourage the growth and long-term success of the SMB community through our products, services and strategic partnerships." said Karen Buls, American’s Director – Small and Medium Enterprise Products, Marketing and Sales Strategy.

At the heart of the ER Accelerator program is its 180+ mentors, including experienced entrepreneurs, operating executives, technologists, and investors who will provide hands-on support to participating startups. Mentors include Fred Wilson, Esther Dyson, Randy Komisar, Brian Cohen, David Pakman, Lewis Gersh, Jeff Stewart, Howard Morgan and other such leaders connected to New York and the technology community. Startups will interact with this group of experts through hands-on individual coaching and interactive group discussions.

About ER Accelerator:
ERA is an early-stage investment fund and business accelerator based in New York City. ERA organizes 3-month programs where it funds 10 startups and provides them with office space, mentoring and free services to accelerate the growth and success of these startups. ERA has been launched out of the NY-based non-profit Entrepreneurs Roundtable which was founded in 2007. ER is dedicated to fostering the startup ecosystem and helping entrepreneurs succeed. It provides educational opportunities, community-building functions, and introductions between start-ups and investors through free monthly events in New York, Philadelphia, Turkey and Japan.

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Have it your way...

noreply@blogger.com (Charlie Kemper) — Tue, 09 Nov 2010 22:27:00 +0000

Mass personalization or mass customization has been the holy grail for many industries for years, and now finally the technology is here to enable it. Processing power, communications infrastructure, and data management tools have been the hold-back to industries truly shifting from the Ford Model T approach to business ("People can have the Model T in any colour--so long as it's black") to one in which the promise of just-in-time becomes real.

The auto industry has long wanted to be able to build customers cars to spec. Currently, the process to order a custom car is painful, if even possible. Dealers pre-buy the most commonly ordered vehicles and will do their best to make sure you drive something off the lot, something that's not exactly what you want but good enough. This will change over the next years as the interwebs continues to allow the linking of customers directly into a real-time supply chain (a cause of the deemed Demand Economy).

The media industry has long wanted to deliver you tailored content and target advertising. Certain aspects of direct mail were sometimes customized based on geography and census data. More recently, direct marketers started using personalized URLs in printed material, however this sort of personalization is still nascent. Magazines have dabbled is different covers based on geo-targeting, but this has been more of a gimmick. Within cable television, the likes of Black Arrow, Visible World, and Canoe all suggest that mass television advertising will improve, some day delivering different experiences to each of us based on our demographics and view habits. Why should I ever see an ad (in any medium) for a product that I would never buy or be in a position influence a buyer? The interwebs is now starting to change all of this for all forms of media, from the web, to mobile, to magazines, to news, to television, etc, etc.

The topic of cable television has been beat to death, but needless to say that there is quite a strong consumer desire for a la carte programming and the infrastructure is here to allow it.

The textbook industry is no different. In fact, many of my professors supplemented standard textbooks with assembled course packets of their choosing. Then, these packets, once photocopied and stapled together, are now digital and web delivered. As content rights shift away from large publishing houses and individual authors gain access to improved syndication & monetization tools, it's not too hard to imagine a fully customizable curriculum, modifiable in real-time by educators on an as needed basis.

Thanks to the migration to on-demand/SaaS, the enterprise software industry can now provide custom interfaces for each end user, depending on their functional role, responsibilities, clearances, etc. A decade ago, it was cost prohibitive to deploy enterprise applications with hundreds of variations of permissions, but, today, administrators can tailor user interfaces to the exacting specifications & needs of their end user clients. This trends spreads across not just enterprise-wide applications, but also desktop specific ones and many IT departments now have the flexibility to support users on different platforms, operating systems, mobile devices, etc.

The apparel industry should provide me with clothing that fits me perfectly. Starting with basic customization like Zazzle, CafePress or Vistaprint to technologies that enable retailers to provide cuts & fits for every different body shape. As the percent of clothing sales on the web continues to grow, retailers will more & more provide shape & sizing varieties that inventory-based retail cannot support. Companies like StyleCaster and MyShape are already heading in that direction. And fun businesses like GoTryItOn or PlumWillow make shopping/dressing a social experience. The interwebs should eventually allow me to have perfectly tailored shirts & pants for (nearly) the same price/cost as off-the-shelf apparel in the same amount of time.

The quick-service restaurant business has seen an evolution from McDonald's type fixed menus to Chipotle's and Subway's make-your-own burrito and sandwich, respectively. As corporations can now get real-time feedback on consumers purchasing habits, expect to see more real-time changes/adaptations to changing trends.

Financial services has evolved to the point where you can nearly build your own banking/credit package. Many of my credit cards are personalised to the point where you can pick & choose different benefits & rewards combinations based on your particular needs. Additionally, many card companies now allow personalized printing of the card itself. Definitely more to come in the area of consumer finance, but it will be slow as this segment is bogged down by bureaucracy and regulation.

Online cereal / granola businesses like me&Goji or MixMyGranola are fast gaining traction as are protein/health bar companies like YouBar or ElementBars. These outfits use the web to allow for customized mixing & preparation of specific kinds of foods. There is no reason why this trend will not continue across other food categories as online shopping continues to grow.

Dell makes nearly customizable PCs and has for years. Although it's seemingly gotten more difficult once again to get an affordable machine built to spec. Maybe there's another wave of customization to come?

As this post has gotten ridiculously long, I'll end here. But, the point is, the interwebs allows for so much more than we currently see and soon enough we'll have anything & everything our way...

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Areas of Investment Interest

noreply@blogger.com (Charlie Kemper) — Fri, 01 Oct 2010 18:27:00 +0000

I'm regularly asked what kinds of investment areas I think are of interest. I find that to be a generally broad question, since overall I'm interested in fast growing innovative, transformative, and defensible businesses. Those kinds of companies could be in almost any industry and come up from left field. So, I wish I could be more specific about the next Google or Cisco or Crocs, but if I knew exactly what those were I would go start them instead of seeking to partner with entrepreneurs smarter than me.

Given that, here are some themes that I think make sense today (this post has somehow gotten out of hand lengthwise).

Internet business that broadly address the female demographic, both content-wise and commerce-wise. Women spend $0.85 of every dollar spent in the United States, yet a mere fraction of the web is devoted to them, both from a media perspective and commerce perspective. Glam, CafeMom, iVillage, BlogHer, and SheKnows have all built impressive businesses, but something is still lacking in this category.
Web based software & services focused on local businesses and/or small businesses that become deeply integrated into the business process. Both small and local businesses are in dire need of easy-to-use enterprise-grade software solutions that can help them run more efficiently, acquire customers more cost effectively, streamline their supply-chain, manage employees, etc. Obviously, Salesforce is the big kahuna but businesses like Intacct, OpenTable, ZocDoc, Carbonite, SeamlessWeb, Angie's List, and MindBody are examples of concepts with this focus.
The migration of enterprise software to leverage web integration; the shift to SaaS/xSP, and delivery, license pricing to term for instance. Most of the incumbents in software are seemingly incapable of evolving their product suite, recreating pricing models, and adapting to a different sales process. Across dozens of vertical and horizontal plays, new startups like SuccessFactors, Xero, xactly, Less Software, Accept, or Zendesk seem to be making headway.
Companies that think differently about advertising (not just banner ads) and view digital media as an evolving opportunity in out-of-home advertising, business-to-business media, mobile location based services, etc. The vast majority of ad dollars need a high quality home in large buy formats and most of the existing alternatives to television do not yet suffice, yet almost everything around is now networked, capable of reaching consumers 24/7 (not just in front of the PC or the TV). Businesses such as AdSpace Networks, JumpTap, FourSquare, Paxfire, etc are working on big ideas.
Big opportunities lie in the localization of ecommerce, of the internet, where companies bridge the gap from the internet being pervasive & global to consumers being local. Such opportunities tie heavily in to the broader theme of personalization of the web where web-enabled traditional brick & mortar businesses can thrive. The thinking behind Milo, BlackboardEats, Et.sy, HomeAway, H.Bloom, SeamlessWeb, and FishBowl are some great examples.
Vertically focused software solutions such as targeted business software products addressing a particular vertical/niche need are of interest. Within many industries, there exist specific applications that improve the industry by leveraging the internet to deliver novel business services. Companies like LiveOps in the call center business, FitLinxx in the health segment, Black Arrow & Visible World in the television space, Tablet Hotels in the hospitality arena, The Active Network in sports & events, or ThreeStage Media in the conference industry.
Online education presents an enormous opportunity for further innovation. With the digitalization of content and the democratization of publishing, traditional businesses catering the education sector are in dire need of visionary change. Hybrid businesses that leverage & combine both online tools and offline physical attributes to improve curricula are poised to succeed. Likewise, opportunities exist in the areas of collaboration and the broken down geographic borders that once separated education. Companies like Tutor.com, Lynda, Knewton, Sangari, Udemy, Chegg, 2tor, TenMarks, Revolution Prep, and Flat World Knowledge are all interesting, but there is way more to go.
Business that are global in nature, leveraging the internet, can now reach & serve several billion end users without needing more than one office. Companies like OLX, Spring Wireless, and Skype are impressive businesses, but there should be room for more globe-flattening ideas. Obviously, outsourcing is a well established trend, but an emerging middle class in the BRIC countries will continue to be a great source of potential monetization.
Growing data sets within the enterprise or on the web have created opportunities for business intelligence, analytics, information organization, and real-time web businesses. Companies that create businesses around the management and extraction of value from enormous data sets are very compelling. Some examples are Gracenote, WeShop, or IDAnalytics.
Broadly speaking, the entire healthcare industry is ripe for innovation. From medical software to data management to enterprise applications to consumer empowerment tools, there are great businesses driving value to the entire industry. Web based tools like ZocDoc, networking monitoring solutions like WellAware & Living Independently, and business services technology companies like AirStrip, Castlight, AwarePoint, & Epic Sofware are all working on great opportunities.
Technology companies servicing the financial services industry, specifically within the areas of payments, web-enabled customer tools, and fraud & security, can solve & address real pain-points and needs. Interesting companies like VenMo, Andera, Square, and PrivaSys are all working on big ideas.
The growing shifts in cloud computing, SaaS, or xSP represent broad opportunities to invest in innovative infrastructure companies. Enterprise focused storage companies like Nirvanix, end-user tools like Dropbox, application vendors like PivotLink, management services like Okta, hosted service providers like AppRiver, security services like Panda Software, or authentication applications like Ping Identity all address massive needs within the hosted universe.

There are a couple of other tectonic shifts that are early in the making, but will likely spawn some interest businesses.

Online video is a massive whitespace driving tremendous change within the television industry, however regulation, piracy, copyrights, and quality are all mostly unclear for the time being.
A shifting communications infrastructure, led by the migration to VoIP is only getting started. The integration of communications tools into every aspect of business is potentially far reaching.

Generally speaking, I'm a fan of companies that aim to be big, industry changing plays, by leveraging software and the interweb to be disruptive. I'm also partial to businesses models/products that are elegantly simple. In other words, their products/solutions need to be low in friction, easy to use, understand, sell, implement, execute, etc. And, accordingly, a reasonably high gross margin that can be defended over time. Obviously, long-lasting content, repeatable products/services, and recurring or subscription revenues are all compelling business model features.

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The Stickiness of Online Media

noreply@blogger.com (Charlie Kemper) — Wed, 30 Jun 2010 21:23:00 +0000

Online content properties critically need a own/develop a compelling reason for media consumers to come back, and "a better experience" just doesn't cut it.

On the interwebs, consumers have nearly infinite choice of news sites and we are all faced with a seemingly endless buffet of information & content destinations to choose from. Never before has the media industry had to deal with such a techtonic shift of available inventory & fragmentation to the nth degree.

So if content isn't so differentiated and distribution isn't controlled, what's the glue that makes a reader come back to a specific web property? Does "brand" have enough strength in a world of attention deficit disorder and infinite choice? Over the past decade, or even past couple of years, we have seen companies rise in from nowhere thanks to the power of the internet. Yet, I question the long-term sustainability of a brand for a content destination online. Not because a brand can't get awareness, but more because thousands of brands can get awareness and consumers don't have to stick to just one media outlet.

Printed newspapers & magazines are by & large "pushed" to consumers. The New York Times is delivered to our doorsteps and Time Magazine shows up in the mail. Since these products are delivered to us (for the most part) we are practically forced to read them. Before the Internet, I read the NYT day in & day out because (a) it was one of the few options and (b) because it fell in my lap. Once I signed up it was made easy for me and I was hooked on a handful of media brands/outlets, rarely changing my devotion.

When broadcast television was introduced and became prevalent, the same held true for that media. Practically push as well, the TV was the centerpiece of the living room and we had the choice of a half dozen channels to choose from. If the TV was on, there was a 1 in 6 chance that we were watching said media companies content. Empires could be built because the $70 billion in ad spend was spent across a handful of media properties.

With cable, TV faced fragmentation and the broadcast channels had to step it up a notch. But, even so, we consumers are still laze and the top ten channels on the cable box still get most of our attention. It's hard to be channel 73 but it's really easy to be channel 1 or 2. Viewership in the latter dwarfs the former. And, although cable expanded our channel choice exponentially, it's still a finite selection of content.

The fragmentation caused by the Internet is a million times worse! Very few new media companies have figured out how to get consumers' repeat attention in the world where media isn't push.

Steve Rosenbaum recently wrote a post called Content Is No Longer King: Curation Is King, which argues that content is no longer scarce and in fact "it's everywhere, it's overwhelming, and it's gone from quality to noise." I couldn't agree with Rosenbaum more. However, I would also argue that curation isn't all that scarce either. Rosenbaum added to his thesis of curation in this post about online media consumption, but all that highlighted to me is that nobody is really winning as it's a dog eat dog business and there are no barriers to entry right now.

Vin Crosbie also recently opined on the matter with "the greatest change in the history of media is that, within the span of a single human generation, people’s access to information has shifted from relative scarcity to surfeit." This is exactly the change that leads to the question being posed here - with so much content available everywhere, in hundreds of forms, by hundreds of editors, how does it get monetized at scale? How does a single media company own & defend enough scale on the hyper-competitive internet?

One way that new media companies have created recurrence in consumer usage is by creating a communications channel, which is critical to walled garden media companies. Communications services create a network effect barrier. Hotmail was one of the best acquisitions MSN has ever made. Yahoo has webmail and Google has gmail. Search engines rely heavily on return & recurring traffic from their respective mail applications. Even Facebook now relies heavily of it's messaging tool. Blackberry has managed to hold on to millions of consumers because of it's closed BBM network and Bloomberg seemingly still holds strong because of the critical use of Bloomberg chat by thousands of traders everywhere.

Content & product alone don't seem to be enough to get users to come back. When it comes to choosing where to go on the web, users need a stronger deeper hook than just "better" content. It's painfully clear that content is not "king" today and instead the world of online content is being ripped apart by aggregators, curators, and indexers. Twitter, RSS, and Bit.ly are fantastic tools for disseminating content, but they clearly devalue the destination.

How does one create a single content brand that can withstand the attention deficit affliction on the web?

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News Isn't That Complicated

noreply@blogger.com (Charlie Kemper) — Wed, 12 May 2010 20:09:00 +0000

A few days ago, Google’s economist-in-chief, Hal Varian, was the keynote speaker at the Federal Trade Commission’s hearings on the future of journalism - "How Will Journalism Survive the Internet Age?" Of note specifically is the slide deck from his presentation, entitled "Newspaper Economics, Online and Offline."

Varian assembled the following chart in his deck:

In addition, he subsequently derives a number of macro trends affecting the online newspaper model, consumer habits, etc, etc. No need to discuss those here since he covered them so aptly, so I will just ask the following question: What if, newspapers could, from one day to the next, turn off the print business entirely and become pure play online businesses?

In the interest of grossly oversimplifying a restructuring, I've taken a stab at revising the income statement (yes, I know, there are dozens of additional atrocities on the balance sheet that I'm ignoring) to the following:

Note that the net margin is still $13, on roughly half of the revenue!! Whether that incremental margin percentage is sustainable over time is debatable, but one of the beautiful things about restructurings is that you get to look at things with a clean slate.

With printed newspapers out of the picture, in my perfectly rudimentary analysis, I've assumed that retail & national advertising remain where they are, that classified revenues take a nosedive by over 85%, newsstand sales vanish, and subscription sales manage to maintain by simply shifting to web only (for premium editorial, crosswords, or things such as tablets). On the cost side, I've assumed that 33% of administrative overhead costs are saved by the simplified model, that production costs are halved since print isn't needed, and distribution & raw materials vanish.

Obviously, you might have a different take on my assumptions, but the basic exercise is that if you stop focusing on revenues so much and instead focus on gross profits, the world might improve dramatically (or might not look so bleak, as in the case of newspapers).

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The Third Inning of Innovation

noreply@blogger.com (Charlie Kemper) — Wed, 21 Apr 2010 15:17:00 +0000

Although the general economic outlook in the United States is not great - John Mauldin uses the term "muddle-through" economy, I'm extremely optimistic about the prospects for innovation during the next several years.

The internet has changed the game for startups & venture investing dramatically. The worldwide number of internet users is approaching 2 billion in 2010; up from only 2 million in 1990 and 430 million in 2000. Although US penetration rates are over 80% today, the rest of the world is rapidly coming online from a connectivity percentage of roughly 25% today. Obviously with the declining cost of computing, connectivity, and mobile broadband, internet media will only continue to grow outside the developed nations of the US and Western Europe. Marshall McLuhan's "Global Village" really is finally coming in to its own. By 2015 there will be nearly 3 billion internet users, over 5 billion cell phones in use, and over 2 billion wireless internet users.

The last wave of innovation pre-internet (so, personal computing & software, and even early internet) had a fraction of the addressable market that internet companies can reach today. Put in to context, a mere 30 million PCs were sold globally in 1992. Today that number is estimated at over 360 million units globally. And that doesn't even count the 1+ billion mobile devices sold annually, many of which are rapidly transitioning to 3G data enabled.

There is certainly an increasing pace of innovation, and a lot still to be "invented" leveraging this broad thing called the "internet" and its reach globally. As a friend put it to me over breakfast last week, "we are only in the third inning" of this game of change.

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Please Define the VC Industry

noreply@blogger.com (Charlie Kemper) — Mon, 22 Mar 2010 19:10:00 +0000

Over the past months, there has been a lot of debate & discussion around how many VC funds there should be and how much money should be allocated to the VC asset class by investors. Many venture capitalists and pundits have argued that the VC model may be "broken" and needs to shrink for things to be better.

"While the venture industry is known for backing icons such as Google, Genentech, Home Depot, Microsoft and Starbucks, less than one-in-five of the fastest-growing and most successful companies in the United States had venture investors, according to the study."

What that tells me is that the VC industry is broken because investors weren't able to get into the 4 of 5 other fastest-growing companies. Maybe if VCs spent less time blogging (yes, I get the irony here), tweeting, and checking-in they might be able to spend more time proactively sourcing and adding value?

I could go on and on with tongue in cheek commentary about the debate, but I won't. Instead, we should reflect on some data. According to the NVCA, in 1989 there were 389 firms in existence and in 2009 the count was 794. Roughly speaking, that's about twice as many firms. Considering the impact that both the Internet and globalization has had over the past 30 years, that doesn't seem so unreasonable. Additionally, how possible is it that the actual count of firms 30 years ago was off? After all, this is a cottage industry and it's very private.

The average capital under management per firm in 1989 was $73 million and today it's 226 million. This points to (a) the institutionalization of the industry (ie firms raising multiple funds over time) and (b) some level of inflation over a thirty year period.

The average fund size raised thirty years ago was $47 million, today $121 million. Although inflation probably only accounts for the average fund size growth to about $80 million, that incremental $41 million, I would argue, likely comes from "mega" funds skewing the average.

With that as a preface, here are some questions that I keep asking myself about the data and about the many conclusions that pundits have made about the industry needing to shrink:

What about firms like NEA that manage two funds of $2.5 billion each? And, Oak Investments with a 2006 fund at $2.5 billion as well? Are those entire amounts considered "venture capital" and is it fair to put those dollars in the same bucket as a $150 million True Ventures fund?
Although not as large as the above, what about firms like Austin Ventures, Accel Partners, Battery Ventures, and Sequoia? They invest in both startups and (sometimes) buyouts. And, in fact, some of these firms have invested in publicly traded PIPE securities.
What about the Founders Collective at $40 million? Is that angel money or is that venture capital? How about IA Venture Partners, David Rose, or Ron Conway's vehicles?
Do Insight Venture Partners, TCV, Summit, and TA Associates count as venture funds since they do provide growth equity to technology companies but also often provide liquidity?
What about the later-stage venture capital and growth equity shops that play the venture game: FTV Capital, Tudor Ventures, InvestorAB, or Institutional Venture Partners?
Is Elevation Partners considered a venture investor since they provided some capital to Yelp? What about Digtal Sky Technologies (DST), the Russian Internet-focused investment firm that's put $200 million in Facebook? Do they, and other non-domestic shops, get included in the numbers?
Mostly offline today, how do hedge funds get counted in the mix? Firms like DE Shaw, Moore, Galleon, Pequot, and Tiger Global have all made significant investments in venture capital over the past decade?
And, what about secondary direct shops like Saints Capital, Industry Ventures, W Capital, and Millenium Tech Venture Partners? They provide liquidity to selling shareholders & founders, but also often provide growth capital. What percentage of their funds are considered venture capital?
What about firms like Kennet Partners or InvestorAB that have offices in Europe and in Califonria? And, what about the dozens of venture capital funds that have offices in China or in India? Does geographic expansion have any say in the relative increase to the venture capital asset class?
DCM, Canaan, Globespan, and Greylock are in China, India, Japan, and Israel, respectively, in addition to having headquarters in the United States. Is it fair to compare their current fund sizes to a fund size from twenty years ago when they only invested in the United States?

I don't think that anyone is capable of "bucketing" these investment dollars accurately. The reality is that the PEVC asset class is a blur.

I keep seeing plenty of really interesting private investment opportunities and am strong believer in the overall asset class. There are certainly problems around compensation and alignment of interests, but that's an entirely different post for a different day.

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The Coming Data Deluge

noreply@blogger.com (Charlie Kemper) — Mon, 25 Jan 2010 16:34:00 +0000

The top vendors in the overall storage software market are led by EMC with 24% share in 2008, followed by Symantec at 18%, IBM at 13%, and NetApp at 8%. Interestingly, although these players command substantial presence smaller companies continue to chip away at market share. I would not be surprised if, in ten years, the list of top ten vendors shuffles around quite a bit.

According to IDC, the total data created by businesses and consumers is roughly doubling every 18 months. At this current rate, the universe of content created across the globe will grow five-fold by the end of 2012. And, there’s no clear end in sight. It doesn’t take much to understand this when one starts to think about their own personal storage growth over just a few months. Among others, the obvious following factors are playing a key role in this data deluge:

Global growth in Internet users, broadband penetration, and Internet-connected devices (both in terms of multiple computers per user and, now, powerful mobile devices).
Adoption of social networking applications and the exponential growth in media (photos, video, & music) that gets duplicated & distributed across the network.
Increasing bandwidth availability (which enables richer and bigger applications, especially video).
Migration of content stored on old media (paper, film, etc.) into digital format (movies, music, legal files, letters, books, magazines, etc) and the coming digitization of healthcare and other records.

This increasing deluge of digital data, I believe, is bolstering a continuously growing demand for focused storage software (and services), starting with traditional backup & recovery (with improved functionality across platforms & media), replication, archiving, and storage management.

Another important data point to consider is that today corporate organizations spend, on average, 28% of IT capital expenditures on data storage hardware, software, and services. That’s a massive percent. Given that a large majority of that is hardware today, how will that percent evolve over the next ten years as data continues to grow exponentially and historic data continues to accumulate?

Put into perspective from a consumer angle; think about what your files would look like if you had kept every single photo you ever took, every letter/paper you ever wrote, every card you ever received, every drawing you ever drew, and every document you ever saw or read. Had you kept all of that material/ media for your lifetime, how would you manage it today? How would you go about finding something? How would you decide where to file something?

In this digital age, where we are individually clearly keeping more personal media than we ever have before (just think about the number of digital photos you have on your hard drive versus three years ago), we are individually spending much less, as a percent, than corporations do. Our spending on media & communications has dramatically increased over the past twenty years, but our personal spending on filing & storage of that media has not increased in a corresponding manner.

This material increase in data clearly presents a huge opportunity for continued innovation in capacity optimization technologies and more efficient system architectures to address this massive piece of our IT ecosystem (both in corporate environments and in the consumers’ living room).

Storage is a key component of this wave of digital media innovation we are living in. So, if you ask me, the innovative companies in storage software are going to appear & grow mainly because of:

As mentioned above, absolute growth in bits & bytes, highlighting increased for storage management and protection processes, both for ease of access and for cost reduction.
Cloud computing, which is shifting the physical location of data, and demanding new tools & solutions to deliver storage-as-a-service, archiving & de-duplication, and multi-tenant management.
Increasing platform & application complexity, where we are moving from a singular platform (Microsoft) and a handful of application standards (text, images, email) to multiple platforms and applications.

This last point is critical. A few years ago, we lived a world where we basically backed up Microsoft and, mainly, MS Office applications (along with some basic 2D & 3D media files). Today, storage software has to deal with heterogeneous environments (for instance, various kinds of mobile data devices, networked computers, netbooks, and Apple, gaining ground in the desktop world), and an increasing number of file types & media.

There is clearly a lot of innovation yet to come in an industry that many view as mature.

Kurzweil's Transcendent Man

noreply@blogger.com (Charlie Kemper) — Mon, 25 Jan 2010 15:40:00 +0000

A few years ago, at some technology conference, I received & read The Singularity is Near by Ray Kurzwell, and all I could think of was Skynet from the film series The Terminator. The book insightfully explores the merging of technology and biology, and its implications for the future. The 672 page tome dives into nerdy augury of the coalescence of genetics, nanotechnology and robotics. As a Blade Runner fan, Kurzweil's predictions of evolution are a scientists wet dream.

Paul Kedrosky recently posted the above trailer and it's gotten me excited to to see the documentary, Transcendent Man. As in the book, Kurzweil argues that artificial intelligence is improving exponentially, and eventually – the latest ETA is apparently 2045 – computing will become self-conscious and "alive". Bring it.

Mobile Operating Systems

noreply@blogger.com (Charlie Kemper) — Wed, 06 Jan 2010 15:04:00 +0000

Yesterday, Google introduced its long-awaited touch-screen phone, called the Nexus One. This long-awaited new device/announcement is driving some chatter about the future of the Mobile OS world. Much of the chatter is around pricing (to carriers), revenue model, and market share. Google is effectively paying carriers to sell it's phone (platform) with the intent to generate revenues from search down the road. That's a substantially different approach than Apple took with the iPhone.

Rather than re-hashing all the ins & outs of Apple versus Google, Bill Gurley does a good job here.

But, the question to ponder is whether the market will evolve as Macintosh and Windows did or whether Apple will hold ground & continue to grow. Will, over time, the Mobile OS world sustain multiple providers or will we end up in a world where one OS dominates market share?

Is there a developer, application, and user network effect in the mobile world? Any kind of network effect could impact this outcome uniquely.

On the face of things, it would seem to me that Google is taking a page from the Microsoft Windows playbook and Apple is taking a page from, well, the, uh, not so successful Apple Macintosh playbook.

It could also just be that the Mobile OS world can end up looking very much like the video game console industry, with three players (Microsoft XBox, Sony PlayStation, & Nintendo Wii) today equally vying for market share along with several other players (Sega, Atari, 3DO, NEC, RCA, etc) making waves here & there.

What about RIM, Nokia, Motorola, and Symbian in this above discussion? And, dare I say, Palm? Is it sound to simply assume that these players are out of the running?

Although more free market examples would imply a standard Google & Microsoft analogy, only time will tell how the Mobile OS world evolves differently. As mobile applications become more complex, 3G connectivity becomes more pervasive, and devices become more powerful, the Mobile OS landscape will also become more expensive to compete in. For now, though, my guess is that it's still pretty early to start predicting the next Windows.

Video Killed the Radio Star (redux)

noreply@blogger.com (Charlie Kemper) — Mon, 23 Nov 2009 20:22:00 +0000

Welcome to the future of unlimited ad supply! With the development of digital networks, the internet, and mobile communications, the media industry is faced with a nearly limitless supply of potential advertising inventory. Hmm.... Will the demand curve move up to meet this new supply? Google has demonstrated that it can attract new demand (new advertisers), but how far will it go?

Without getting into details of the Law of Supply and Demand in Economics 101 (something well covered here, as it relates to Google), I think it's worth understanding the impact of abundant supply on the various sectors within the media industry.

The Internet, Schumpeter's latest example of creative destruction, with an unlimited supply of content, broad reach, and (near) perfect performance measurability, has all but crushed the oligopolies that have dominated the media landscape for the past 50+ years. Until the Internet, the primary media outlets were, in order of advertising importance, (a) television, (b) newspapers, (c) radio, (d) billboards, and (e) magazines. And, the way that Madison Avenue determined how to allocate advertising budgets and pricing was (a) sexiness, (b) reach, and (c) measurability. It was simple, television ads are very sexy, can have local or national reach, but have weak measurability. Newspapers present a different reach but are inherently more local. Radio is an auditory experience, therefore more stimulating, but difficult to measure. Billboards can provide local or national audiences and, depending on the target, are more or less measurable. Magazines provide a visual medium with targeted demographics within national distribution, which is great for targeted branding, but difficult to measure.

Then along came the good ol' Internet, which over time continues to provide exponentially better measurability than any of the legacy mediums. And, more importantly, provides better targeting / effectiveness because of the availability (technologically and otherwise) of better consumer data (at a basic level, specific geography, sex, age, and various preferences).

But it's not just the world wide web that's screwed things up! The ad world has been in constant evolution over the past 50 years. The Buggles nailed it in 1981 with their MTV hit, Video Killed the Radio Star. And, now, the digitization of everything has impacted each particular media outlet directly. So, what specifically has happened to the five traditional media outlets over time:

Television. Ever since the proliferation of cable television, we (viewers, advertiser targets) have faced content overload. In addition to basic broadcast television networks (e.g., ABC, CBS, NBC, CW, Fox, PBS) and local-access television channels, there are now hundreds of other specialized and premium channels, all of who survive largely on advertising revenue (although many also receive subscriber fees from the cable operators for, on average, 5-50 cents per subscriber per month. Without that subscription revenue, many of these cable favorites would not survive. So, not only is the ad revenue threatened by the proliferation of media, but so are other revenue streams threatened by disintermediation. Commonplace living room toys such DVRs threaten ads as does streaming internet video, downloaded video files, Hulu, YouTube, DVDs, AppleTV, Netflix, and on-demand directly from the set-top box.

Newspapers. The obvious first to bear the brunt of the impact of the Internet, newspapers aren't completely new to competition. At one point, as the only medium really, newspapers held a dominant role in society ever since the movable type at the beginning of the 17th century. However, newspaper magnates were threatened by the proliferation of their own industry, dailies, weeklies, & monthlies, and then magazines and eventually even radio. Over the past century, newspapers have survived the various competitive threats, mainly because of their strong-hold over local markets to deliver local advertising and the ever growing demand for local advertising. However, by the early 1990s the availability of news via 24-hour television channels posed an ongoing challenge to the business model of most newspapers. Paid circulation declined, and advertising revenue (roughly 80% of most newspapers’ income) followed suit. Less than a decade later, the Internet (led by hundreds of news portals and Craigslist), started to take a big bite out of an already weakened industry.

Radio. The first twenty years of radio thrived in a non-ad supported environment. Many of the first stations that started in the 1920s were owned by manufacturers (for the primary purpose of selling more radios). NBC was started by RCA in 1926. Even once radio stations began relying on advertising revenues, the standard analog television was introduced in the 1940s then color television in the 1960s. Radio barely had time to establish itself as a powerful ad medium before television took the main stage. Interestingly, when radio became more prevalent in the 1930s, many predicted the end of records. Radio was a free medium for the public to hear music for which they would normally pay. Indeed, the music recording industry had a severe drop in profits after the introduction of the radio. For a while, it appeared as though radio was a definite threat to the record industry. Radio ownership grew from 2 out of 5 homes in 1931 to 4 out of 5 homes in 1938. Meanwhile record sales fell from $75 million in 1929 to $26 million in 1938.[*] Sounds familiar, doesn't it? Today, radio (and music sales) are threatened by MP3s (driven by iPods), podcasting, web streaming, satellite radio, and mobile device streaming. Traditional radio stations no longer dominate the car, which was the primary place of use for the past several decades. With mobile phones emerging as media platforms (iPhone) and broadband speeds available over-the-air (3G+), control of audio consumption has been marginalized and user choice is now nearly unlimited.

Billboards. The out-of-home advertising industry is a little more complicated to synthesize, mainly because it's less "standardized" than the other media. It's also difficult to understand exactly when billboards started, but it certainly happened after lithography was invented, and likely took growth in the mid/late 1800s. Clear Channel is the oldest formal outdoor advertising company in the United States as their roots trace back to Foster & Kleiser, which was formed in 1901. The decrease in printing costs (think PCs and printers) over the past decade has allowed the industry to flourish from initially just outdoor billboards to wall posters, transit busboards, airport ads, shopping mall advertising, subways, taxicabs, and movie theaters. So, not only has the amount of available space (avails) increased dramatically within the industry, now billboard operators are again increasing inventory (and broadening applications) by introducing digital signage (an exponential multiplier effect). Digital signs are now seen, not only on highway billboards, but also in stores, doctors' offices, shopping malls, and gas stations at the pump! Out-of-home is a great source of lead generation for advertisers but this proliferation of choices is quite overwhelming. Advertisers seeking to reach consumers who are "on the go" today not only can choose from the dozens of aforementioned venues, but now can get listed on mobile phones coupled with mapping services or GPS navigation devices (in car or handheld).

Magazines. Last, but certainly not least, magazines, periodicals, or serials are publications, generally published on a regular schedule, containing a variety of articles, generally financed by advertising, by a purchase price, by subscriptions, or all three. With the exception of, presumably, AARP The Magazine, most magazine titles are facing declining circulation and declining ad pages, which can be a compounding problem because generally circulation drives ad rates. Magazines, by and large, are an ideal advertising medium for contextual branding (golf equipment & services in Golf Magazine or auto-related ads in Car & Driver). And, although many titles have come and gone, the magazine industry traces its roots back to familiar titles such as National Geographic and Good Housekeeping, both of which were launched in the late 1800s. Given such, over the past century, the industry has seen and survived the introduction of radio & television advertising and the evolution of newspapers & billboards. More importantly, the magazine industry itself has created fractionalization. For instance, there are twice as many titles today than a decade ago with two-thirds of the volume. The top 25 titles have been squeezed the most, their unit volume declining by one-half over the decade, only causing more choice (read: difficulty) to the advertiser. This is driven by a major shift in consumer preferences from mass to niche & special-interest titles. Ten years ago, half the volume came from the 25 largest titles; today the proportions have been reversed; almost 75% of volume comes from the several thousand smaller titles. In addition to competition from within the industry, today, magazines are also facing the same threat as the other traditional mediums, the proliferation of web content (and ad inventory) on the Internet. The proliferation & consumer adoption of mobile readers such as Kindles and multimedia devices such as the iPhone presents an entirely new set of parameters for the industry to grapple with.

And, so what's happening to the newest of the outlets:

Internet. Since the days of Netscape & AOL, the Internet has been in constant motion and continuous reinvention. The number of world wide web pages continues to grow at astronomic rates and the availability of content (blogs, books, videos, ezines, photos, etc, etc) does not appear to be slowing any time soon. To address the massive amount of insatiable inventory, hundreds of ad networks have popped up slicing & dicing viewers & advertising opportunities every which way. These ad networks, along with search engines, social networks, and "mega" content portals provide advertising an astounding amount of choice & reach. Mobile content services and online video are both relatively nascent but poised to explode and flood the market with advertising availability. These options, feeding off of tremendous growth, are also fiercely competitive, driving prices down within the Internet sector and also for the other four traditional mediums.

All of these changes, brought on by technology over the past decade plus, are creating a flood of increased ad supply in a market that historically had strong pricing power for "virtual" goods (definitely not cost-plus).

One of the overarching challenges the industry faces is one of resources on Madison Avenue. At the end of the day, enormous budgets are controlled by a relatively small number of actors who seek ease of deployment as much as they do advertising effectiveness. Also, as the Internet continues to commoditize its display ad inventory across increasingly fragmented and nameless ad networks, advertisers will need more, not fewer, places where they can count on a certain quality of content, a quality of audience, and a quality of service. Where will this put the ad rates for so-called long-tail web content? How will those rates compare to broadcast television, magazines, or audio? Will the ad market truly be efficient at pricing? Clearly, we've seen that the stock market isn't capable of it, so why should expect admen to be any more efficient?

The overarching question still holds -- is the ad market a zero sum game? Or, will the demand curve shift to meet this new supply curve? I imagine, like anything, it's likely a combination of the two.

Piracy Isn't Going to be Solved by DRM

noreply@blogger.com (Charlie Kemper) — Tue, 17 Nov 2009 18:21:00 +0000

Intellectual property piracy is a major problem facing the software and media industries today. It's always been a huge problem outside of the US and it's not becoming a much much bigger problem everywhere now that the Internet and broadband is more pervasive. Software piracy rates in places like Bangladesh and Armenia are north of ninety percent and, even in the United States, stolen software is estimated at one in five users. The Business Software Alliance regularly publishes a report on the issue.

Worldwide, roughly 41% of all software installed on personal computers is obtained illegally, with foregone revenues to the software industry totaling $53 billion.

These are staggering figures, and they only account for software. The music industry also studies the challenges. One credible analysis by the Institute for Policy Innovation concludes that global music piracy causes $12.5 billion of economic losses every year. Again, enormous figures. I've read old reports (from five years ago) that sales of bootleg music accounted for roughly 34% of all sales globally. Outside of developed markets, it would seem those numbers push well past 80-90%.

The data and staggering figures are certainly equally similar for television, video games, and film. Digital distribution, empowered by rapidly growing broadband access and pervasive mobile device internet access, is only rapidly accelerating the problem.

Industry leaders have tried various solutions to the address piracy. Software developers have tried to use "keys" as a means to control distributed copies and the music industry attempted to employ digital rights management through Apple iTunes. But, both of these attempts have largely failed to solve the problem.

As I see it, there is really only one viable solutions to intellectual property piracy. And, DRM is not it. The solution is (or almost) free content distribution with merchandising, advertising, or feature upsells. A low entry price-point (free or negligible), but peripheral monetization is how the IP industry needs to think. Zynga gives games away for free, but makes money on virtual goods. Google gives software away for free and makes money on advertising or by charging for increased storage/features. Musicians should give music away for free (or a very low cost) and monetize concerts and t-shirts. Online video should try to thrive at the intersect of nearly free (thwarting the need to pirate, yet still generating some high gross margin revenues) and monetize through volume, product placements, embedded campaigns, and interactive viewer engagement.

The net-net is that some form of hosted model with a free or cheap pricing model is a clear front-runner as a means to control piracy.

Hosted, on-demand, in-the-cloud software is one way to tackle the problem for the software industry. The drawback with that are that today (and for quite some time to come), Internet connectivity is not truly pervasive so use is somewhat confined.
The music industry has and continues to toy with various streaming, on-demand radio-like services, ranging from Napster to Pandora to Ruckus. Although not perfectly refined, they will get there eventually. Likewise, the music industry could/should look to reducing the cost of the actual music and instead monetizing the periphery (as they already do with concerts and physical products).
The gaming industry is on the forefront, with an explosion in hosted games online and online gaming communities. This industry "gets it" and is faster at exploring alternative revenue streams such as virtual goods and advertising. Piracy was a major issue in Asia, and that drove a "need" to migrate from a pay video game model to a free video game model with virtual goods. Zynga is a great case study on that model.
Video, television, and film are the least well positioned to deal with the the issue, but partnerships with Internet Service Providers can help address this. Revenue sources are bound to change (notably the syndication stream), but better customer data with targeted advertising could mean higher CPMs and product placements integrated with web strategies could provide for longer-term customer loyalty. American Idol (with interactive voting) and Heroes (with the Sprint campaign) are prime examples of the evolution of live television. The long-form film industry (excluding physical theaters) has a lot of wiggle-room in my opinion to play with pricing. A movie at the theater is $10, which is not an extraordinary sum to begin with, so with less expensive direct distribution and reasonable merchandising strategies, it would seem that the free or nearly free online showings (a la Cable On-Demand) could provide for the same bottom line.

My post clearly evolved into a lengthy, incomplete treatise that covered a lot but said little, so I'll stop here. But the thought that walk away with is that the next few years are poised to see some significant change in "soft" (video, music, software, etc) product pricing as recessions have historically accelerated structural change, and I don't expect this recession to buck that trend.

Declining 10-Year Venture Returns

noreply@blogger.com (Charlie Kemper) — Fri, 06 Nov 2009 22:53:00 +0000

I'm fascinated by this concern that many venture capitalists (and LPs) have about 2010 catching up with the industry. Folks are concerned with plummeting ten-year venture asset-class returns. This recent article in the Wall Street Journal sums up the "problem" neatly. The following statement, I fear, is a gross over-simplification of the analysis.

The best quarter ever was the last three months of 1999 when the end-to-end return to fund investors was 83.4%. To see what is likely to happen to the 10-year return, look at the nine-year return as of June – it was minus 5.2%.While people who track venture fund returns have been expecting this, the 10-year figure is widely followed and its decline can only add to the perception that venture capital is not what it used to be.

Below are a chart from VentureBeat that highlights the issue as it's changed over the past twelve months. The trend is clearly not in the right direction.

Although I definitely agree that too many VC funds have gotten too large and that the resulting arithmetic seems unlikely and challenging, the asset class is far from broken.

This is a slight different representation of similar data.

Asset managers can pick from a variety of different asset classes, and portfolio theory tells us that we should diversify. However, had I not invested in the venture asset class ten years ago, and instead invested in the major equity indices, I would not be better off. Below is the NASDAQ performance over exactly the past 10 years.

And, here is the performance of the Dow Jones Industrial Average, the S&P 500, and the NASDAQ on a different scale.

How can you tell me that the venture asset class is broken without providing an alternative? Performance is relative, unfortunately some might say, so looking at one product's performance in isolation is not an appropriate way to evaluate a portfolio strategy.

More importantly, as it relates to the venture capital asset class, at the end of the day, it's very much a cottage industry run by human beings who manage different strategies and investment tactics. When evaluating venture capital performance, interesting data might be to better understand how fund size over the past ten years has affected returns and likewise geographic focus has affected performance. Other evaluation criteria could/should include sector focus as well (life sciences versus software versus clean tech, etc). I bet that several of these three criteria have as much to do with performance as vintage year, just as capitalization (size; large cap, small cap, etc) and industry (industrials, technology, healthcare, etc) impact public equity indices differently.

Thoughts on the Comcast NBC Announcement

noreply@blogger.com (Charlie Kemper) — Fri, 02 Oct 2009 21:28:00 +0000

This is a brilliant move on behalf of Comcast in my opinion. Namely, as a hedge against unknown FCC regulation and as a vertical integration strategy to be well-positioned in the Internet-video era. Brian Roberts is playing his cards right. The net net, I couldn't disagree more with this WSJ commentary.

Mainly, this acquisition is clearly a move to protect & prevent any unwanted deterioration in pay-television from rogue online video. With Comcast owning a major network and controlling it's content, online distribution of that content will certainly be better managed. And, more importantly, the monetization of that content should prove much easier for an access provider (since interests will not only be aligned, but they'll be one).

Also, this kind of vertical integration is an interesting change in the relation between content and distribution. There have been so many divestitures in the sector as content assets were separated from distribution over the past years as entertainment companies saw less value in controlling their own distribution (see Time Warner, etc). Comcast could be on the leading (contrarian) edge of communication companies reassessing their strategy vis-a-vis content. Considering this market environment for ad supported businesses and the decline of syndication fees, now is the right time to be buying.

There is no doubt, however, that the regulators are going to be all over this. It will be interesting to see how this is dealt with in Washington DC.

Publishing: The End is [Not] Near

noreply@blogger.com (Charlie Kemper) — Wed, 02 Sep 2009 17:40:00 +0000

If print publishers simplistically provide two services, editing and distribution, and the internet is the great disintermediary, then it would seem that the critical industry of editing is still safe.

Not only does this discussion apply to printed books, but also to the music industry (one main difference being the music industry generates boatloads from live events, which the book business fails to do).

So, if one believes in Schumpeter, then the business of publishing/producing must be broken down. At then end of the day, there is still plenty of money to be made. It just needs to be made slightly differently.

In an attempt to be overly simplistic, a successful business should be singularly judged not on revenues or market share but on cash flow. So, at a basic level, its okay if revenues go down by 50% so long as gross margins go up by 2x (ie. the same gross profit) or if operating expenses go down by a substantial factor (due to a simpler business model), or some combination of the two.

So, the question is that if only 1 of the 2 jobs that the publishers do is getting disintermediated, why is it the end of the world for publishers? Yes, things are changing. And, yes, jobs will be lost (and gained). But, with such a critical asset (the editing expertise), these companies should be far from doomed if well managed.

Pulled from a recent New Yorker article on the Amazon Kindle is this tidbit.

The newspaper industry, [Russ] Wilcox [founder of E Ink] figured, was a hundred-and-eighty-billion-dollar-a-year business, and book publishing was an additional eighty billion. Half of that was papermaking, ink mixing, printing, transport, inventory, and the warehousing of physical goods. "So you can save a hundred and thirty billion dollars a year if you move the information digitally," he told me.

And, according to Wikipedia, the book publishing industry employs 25,000 people in New York.

A digital book on Amazon still sells for nearly the same price as a printed paperback (or roughly a 15% discount). Based on that and the above estimate of costs in the business, it would seem that gross margins on that product have skyrocketed with the advent of digital delivery. Higher gross margins means more profits (one would think), especially if operating expenses remain flat, which we might be able to assume.

I'm pretty sure that the vast majority of those 25,000 people are not actually "printing pages" or "making paper" or "driving trucks" for the delivery of books, but rather they are likely engaged in a variety of value-added publishing services such as editing, discovery, marketing, etc, etc. Those value-added services are still needed by authors regardless of how a book is distributed.

So, rather than worrying about the publishing industry being destroyed, we should think more about the printing industry seeing declines. Wait, hasn't that already been happening for at least a decade?

Geographic Shifts in Innovation (& VC)

noreply@blogger.com (Charlie Kemper) — Tue, 01 Sep 2009 16:15:00 +0000

Chris Dixon has a good post on the recent resurgence of New York in the startup / venture scene. I agree with a lot of what Chris says, but I think it's more complex than that. Yes, it's true that for the past 8 years or so, developers in New York flocked to financial services because the pay was (is?) better and the upside was just as good. But, I think that focusing on job availability as it relates to developers is only one part of the equation.

There's a lot to be said about ecosystem, which Fred Wilson aptly points out in his post. It's not fair to compare New York to Boston to Silicon Valley to Mid-Atlantic without taking a look at the incumbent industries that operate in them.

The Boston Globe recently published a list of the top 100 employers in Massachusetts in 2008. In looking through the top 50 (by employee headcount), I broke down the list into 10 categories of relevance (Software & Infrastructure; Medical Device, Biotech, & Pharma; Consumer Brands; Business Services; Finance; Media; Defense; and Industrial).

Interestingly, the two largest categories (by far) were the first two (Software & Infrastructure and Medical Device, Biotech, & Pharma), with 14 companies (or 28%) and 13 companies (26%), respectively. Based on this, we can state that more than half of the 50 largest employers in the Boston area were in categories that VCs generally invest in.

Specifically, to address one of Chris Dixon's points, Boston had an infrastructure & software boom driven by the likes of EMC (founded in 1979), Iron Mountain (1951), 3Com (1979), Nuance (1992), Parametric (1985), ModusLink Global (1986), Lionbridge (1996), Virtusa (1995), Novell (1983), Teradyne (1960), Analog Devices (1965), Akamai (1998), etc, etc. Note the founding dates of these industry leaders and, more importantly, the kinds of businesses they are -- enterprise software, infrastructure software, and infrastructure equipment.

I don't know much about the life sciences sector, but some of the top on the list worth noting are Medical Device companies like Boston Scientific (1979), Millipore (1954), PerkinElmer (1931), & Biogen (1978), and Biotech companies like Genzyme (1981), Parexel (1982), & Sepracor (1984). Also note the founding dates for these companies.

The only media company on the list is IDC (1968).

So, what does this all mean? Well, it means that Boston's ecosystem (and people skills) should be centered around Software & Infrastructure and Medical Device, Biotech, & Pharma.

What companies are New York City's largest employers? I can't quickly find anything better than Wikipedia, so based on that list of 25 ranked by revenues, here are some numbers (it's probably a decent representation of employment if you exclude hospitals & universities, which tend to employ large numbers). Over half are financial services companies, 14 to be precise, 5 media & telecoms companies, and mixed bag of the rest. So, what does that mean? Well, it means that New York's ecosystem is centered around Finance and Media & Telecoms. Okay, that's clearly obvious to all reading this but it had to be said. More importantly, per Wikipedia (again):

New York is by far the most important center for American mass media, journalism and publishing. The city is the number-one media market in the United States with 7% of the country’s television-viewing households. Three of the Big Four music recording companies have their headquarters in the city. One-third of all independent films are produced in the Big Apple. More than 200 newspapers and 350 consumer magazines have an office in the city. The book publishing industry alone employs 25,000 people. For these reasons, New York is often called "the media capital of the world."

That's a lot of people creating an ecosystem.

If one looks at the segments of the Internet "evolution" or, more succinctly, the wave of venture innovation started in the late 80's, it started with the personal computer and related equipment. Then, opportunities were abound in software to run those computers. That was followed with the networking of those computers and the hardware to do so. Then, we started seeing (again) opportunities in software to take advantage of that networking. Those new ideas started small, led by basic content services such as Yahoo! and other web pages. Now, (amongst many other things) we're on to enabling those networked computers to become a new distribution channel/mode for existing demands (software, music, printed text, video, etc, etc). Interestingly, this new wave has roped in several new industries to the opportunity for innovation. And, more uniquely, those industries are not necessarily based in the traditional "technology" hubs of Boston (Rte 128) and Silicon Valley.

Media is in New York. So, by sheer numbers, innovation in media is going to have to have a significant presence in New York. Obviously, other places will benefit from innovation in media (Seattle due to Amazon, Virginia due to AOL, Kansas City due to Sprint, Silicon Valley due to Google/Apple, Boston due to IDC, etc, etc), but given the number of people concentrated in New York that work in media, we should continue to see the startup ecosystem thrive in this city.

Video: Nothing in Life is Free

noreply@blogger.com (Charlie Kemper) — Mon, 03 Aug 2009 20:11:00 +0000

A series of recent press and articles have me thinking about the concept of "free" on the Internet and more, specifically, the evolution of television/video in this world of "free" textual content online.

Specifically, Malcolm Gladwell's insightful article in a recent New Yorker about Chris Anderson's new book, FREE (full disclosure: I have not read Anderson's book), Alan Patricof's interview of Fox about the evolution of television, and Fred Wilson's blog post about his love of the word freemium in the context of the web all got me thinking.

So, for starters, freemium is by no means a new concept. It's existed in the world of television since the earliest days (so I struggle to understand why it deserves such branding & hoopla). Broadcast television was free (and still is), but most of us now spend $50-100 a month for our cable/satellite bill. And, many folks now spend $12.95 a month for satellite radio, when traditional radio has been free for over 100 years (and continues to be).

Taking this a step further, those actually ARE freemium concepts. Why? Because television programming AND television broadcast reception are free. Because radio programming AND radio wave distribution are free. My Internet connection is not free, I pay an ISP roughly $30 a month for service, therefore my Internet content is not free. Accordingly, mobile content isn't free either, as pay wireless carriers roughly $50 a month for data.

Ironically enough, the old adage, Nothing in Life is Free, rings true here. But, I actually think it becomes more apparent as one thinks about television and online video.

I struggle to believe quality/produced online video can be supported solely through the traditional display advertising model. So, contrary to the popular opinion, I predict that online video will not become a new platform in its own right. The profitability of quality online ventures will likely be curtailed by excessive production costs, expensive distribution infrastructure, and limited focus.

Setting the stage; the average 30 minute sitcom costs about $1-2 million to produce. A high quality 60 minute action drama costs from $3.5 million (Lost, ABC) to nearly $10 million (Rome, HBO). Today, Lost has roughly 11 million viewers per episode. Lost is, by all accounts, a blockbuster success. If Lost were a web only video stream and were monetized at today's $40 CPM, then Lost would generate roughly $440,000 per episode in gross ad revenue. Even at twice that CPM, and $880,000 in gross ad revenue, that's a far cry from the $3.5 million in production cost.

Basically, I see no way for a show like that to survive outside the mainstream broadcast model because there is no way to cover the production costs and generate a profit. The free video strategy consistently forgets that production costs exist. Current models for production of TV shows requires the prospect of hits that generate a lot of money. In the current television scenario, shows air at a deficit (advertising covers about half the production cost) and Syndication / DVD sales make up the long tail profits. If the show was on the web for free, then all of those revenues from Syndication / DVD sales would disappear.

In addition to a questionable economic model, the pay television industry (Time Warner, Comcast, Cox, etc) has a lot at stake with the growing share of online video. And, unlike the Newspapers and Magazines that preceded them, these players happen to also be the service providers that provide broadband Internet to most folks.

The core risk for the industry would be to see consumers cutting their video cord, canceling their cable subscription, and moving back to a single play broadband service. At $30 a month for broadband service, that just won't fly. This cannibalization risk of the traditional business model is one of the key reasons for the fervent debate about net neutrality in Washington DC.

Of the estimated $1.6 billion in online video ad spend today, roughly $1 billion+ of which goes to content owners directly. That is a small fraction of the $17 billion in carriage fees generated from basic cable networks in affiliate revenues, but it's a threatening amount (to both the affiliates and the content producers).

So, as I see it, highly quality content producers are economically aligned with their affiliate partners (the pipe) for the foreseeable future. Syndication businesses, DVD season sales, and pricing for cable networks and broadcasters could all be affected as online video attempts to become a core distribution platform. Are new video portals (Hulu, Veoh, etc) capable of replacing broadcast networks (NBC, ABC, etc) as distribution moves on-demand? I find it hard to believe, because ultimately they provide very little in the value chain.

With the understanding that high quality video can't be economically supported by online ad sales, we have to look at the service provider that delivers the pipe. As the cable operators did with television, segmenting video content by basic content, premium sports packages, and movies channels, these same ISPs are readily in a position to meter our Internet habits.

US cable and telecom operators are already testing monthly Internet traffic caps that would vary from 40GB (Time Warner Cable) to 150GB (AT&T), and 250GB (Comcast). And, I fully expect to see more of this in the coming months/years.

If I am to consume hours & hours of Hulu & YouTube video online, at some point it will start costing me more than the $100+ a month I already spend on Television/Internet with Time Warner. Again, not free.

Someone will collect and someone will pay, because nothing in life is free.

Shopping Online Directly from OEMs

noreply@blogger.com (Charlie Kemper) — Wed, 01 Apr 2009 16:08:00 +0000

There is one thing about the evolution of e-commerce that continues to bug me. I just don't understand why product OEMs don't operate their own online storefronts.

A few days ago, I decided to search for a new impact vest for my upcoming kiteboarding trip to Cabarete. I specifically wanted the North Kiteboarding Impact Vest as I had tried it on last summer and liked the look & feel. So, as with anything, I started my shopping by typing in the appropriate key words in to my trusty search engine of choice.

The results came back listing about 10+ different retailers based in Oregon, South Carolina, Florida, North Carolina, California, the United Kingdom, etc, etc. Some of these retailers had inventory information on their site and others didn't. From what I could gather, most of these sites were operated by brick & mortar stores rather than being pure-play online businesses. So, given that I knew that this item had been on back-order for some time (I had inquired about this same product several months ago), I decided to email a handful of these retailers (six, to be specific).

"Hello. I'm desperately trying to get my hands on a North Impact Vest. Not sure if your site is up to date, but could you check if the North Impact Vest for Seat Harnesses (in Large) is available? Thanks, Charlie"

Only one of the retailers had it in stock and could ship right away. The other five emailed me saying they would check with North and get back to me. A day later, they all got back to me say that they could get their hands on one from North and have it shipped to me. One of them actually forwarded me the email response from North to his inquiry.

As an online shopper, I really had no affinity for any of these stores as none of them were physically near me. So, my purchase decision analysis was based entirely on (a) price and (b) availability (and not necessarily in that order). Ultimately, I ordered from the first (and only) store that responded with the product in stock.

Here's what I don't get. Why doesn't North want to take control of their brand? More importantly, if their retail partners are merely taking orders and North is drop shipping than why give them such a meaningful cut? All of these retailers are merely middlemen and the internet has no need for middlemen. I completely understand an OEM's desire to support their brick & mortar retailers, but the internet is a different distribution channel where price & shipping rule the day.

Physical store retailers command and deserve margins of 30-50% from the sale of third party products. That makes complete sense as all of these retailers have to pay for sales personnel and pay for rent on the physical space. And, many of them have to factor in distribution, warehousing, and inventory costs. Lastly, many/most brick & mortar retail operations have their own brand which requires marketing investment to support.

Shopping or selling online is a different game which should be played differently. Amazon is the only online retailer that even closely resembles the offline world. Most other e-commerce players play the game differently (eBay, iTunes, NetFlix, etc). The internet is much more akin to direct mail and direct response television than it is to traditional retail.

So, again, my question is, why don't the major OEMs operate their own online storefronts? They could operate these storefronts merely as a service to their brand-loyal customers and not step on their distribution partners toes by never selling product for less than MSRP.

Dell sells online and in stores. Apple does too. In fact, in the kiteboarding world, Best Kiteboarding does too. Interestingly, these are some of the most successful companies in their respective product categories.

In many niche categories where traditional brick & mortar retail still dominates the distribution channel (such as kitchenware, home & garden, exercise equipment, children's products, sporting goods, etc), specialty micro shops have taken to dominating the online shopping experience. Companies such as Mercantila, NetShops, CSN Stores, Blue Lava Group, Specialty Retail Shops, etc, have taken a sizeable presence in certain product categories by focusing squarely on (a) search engine optimization and (b) consumer reviews & customer experience. These kinds of businesses clearly marginalize the online portals of traditional retail brands like Macy's, Sears, Office Depot, Walmart, etc. So, why should OEMs let their branded products be peddled entirely based on price. It's not in their best interest. The web is not only a medium for brochure-ware; it's also a medium to connect, interact, & serve customers.

Given consumer reviews are prevalent and can be found across hundreds of content-focused or affiliate sites such as Epinions, ConsumerSearch, ConsumerReports, CNET, Edmunds, Angie's List, etc, products and brands can rise & fall on their own without the need or distraction of an intermediary. Comparison shopping engines such as Google Products, Price Grabber, Shopzilla, Shopping.com, NexTag, and BizRate make it super simple to find the cheapest trustworthy merchant.

There is a lot to learn from the successes of direct selling online by the likes of prAna, Under Armour, Dell, Sony, Apple, etc. These companies own their brand image and they control their customer experience as best they can, but they also support their brick & retail partners fully.

It's time for brands to step up to the plate and control their destiny online.

Congress is Clueless

noreply@blogger.com (Charlie Kemper) — Fri, 12 Dec 2008 21:35:00 +0000

I just got around to reading the actual bill that was presented in Congress on Wednesday. I'm embarrassed by how overly simplistic the 37 page document is. Read it here.

The document was basically a term sheet with standard legal gobbly-gook around the edges. All things considered, for 37 pages, it as a pretty weak term sheet. The document has little/no substance on restructuring or milestones and clearly demonstrates how incompetent our Congressional leadership is. Mainly because these guys are debating the nits & nats of something that has no teeth. I could have written this bill in one page (although I wouldn't have).

My favorite part was this ridiculous clause:

During the period in which any financial assistance provided under this Act to any eligible automobile manufacturer is outstanding, the eligible automobile manufacturer may not own or lease any private passenger aircraft, or have any interest in such aircraft, except that such eligible automobile manufacturer shall not be treated as being in violation of this provision with respect to any aircraft or interest in any aircraft that was owned or held by the manufacturer immediately before receiving such assistance, as long as the recipient demonstrates to the satisfaction of the President’s designee that all reasonable steps are being taken to sell or divest such aircraft or interest.

That took up half a page. I find it pathetic that through the entire document, which resembles an overly-wordy standard financial/equity/debt term sheet, they include this provision. There's very little mention of other operational targets, but, hey, let's make sure they fly commercial.

Auto Industry Bailout

noreply@blogger.com (Charlie Kemper) — Wed, 10 Dec 2008 22:07:00 +0000

This is ridiculous. I see absolutely no reason for Congress to step in and bailout the domestic auto industry. Why didn't Congress bailout Webvan in the 90s? What about Yahoo? They could use some cash. Global Crossing? Enron/PG&E? What about the hundreds/thousands of other small businesses that are struggling because of the economy? Heck, what about the hundreds of businesses that are failing because they're poorly run. Where do we draw the line?

The Big 3 are failures and have been since the 70s. The domestic auto business is structurally flawed (dealers, unions, overcapacity, and over-extended) and has proven incapable of innovating (poor design, terrible quality, no fuel-efficiency improvements, and out of touch).

The United States purchases 12-16 million new vehicles per year. Market share of the Big 3 has declined precipitously since the 70s and that has nothing to do with the economy. The companies are failing because they have been mismanaged over decades. Period. Full stop.

Letter to Senator Obama

noreply@blogger.com (Charlie Kemper) — Wed, 05 Nov 2008 21:12:00 +0000

Congratulations on your milestone victory yesterday. I can’t begin to express how proud I am of you and our country on a whole. You ran a flawless campaign and have inspired millions across the United States. Although your election was monumental, now comes the hard part.

You’ve certainly inherited a mess. Our nation is embroiled in two wars: one in Afghanistan and one in Iraq. Our financial system is in shambles, ranging from continuous Wall Street meltdowns to the Political entangled Fannie/Freddie to soaring American household debt. There is a lot to fix, and it’s not going to be easy.

So, if I might impart a few ideas for you to chew on as you plan your move to Washington DC:

Build a Bi-partisan Administration. Take time to select the right cabinet members to help you forge a better future, not just focusing on tomorrow, but also on the ten years to come. Look to bring on opposing views to your administration – balance is key.

Simplify our Tax System. Reagan started this in the 1980’s, but there is still a ways to go. There are clear needs for immediate tax hikes (within reason), but another source of capital can come from simplicity. Sit down with Steve Forbes and hear him out; maybe even appoint him to your Cabinet. Be careful with your treatment of capital gains taxes. We must encourage investment and entrepreneurial spirit. Small businesses run our economy and many start small businesses with the hope for eventual payouts.

Be Careful with Regulation. Poor financial regulation is, in large part, what got us in this financial mess. Government oversight and regulation is a two edged sword. As you look at fixing the chaos we’re in, remember that our system of beliefs is rooted in small government and freedom of business.

Approach Healthcare Reform Cautiously. It’s clear that our system is broken, but there are many lessons to be learned from the drawbacks of nationalized healthcare in other countries. Countries with health systems based on greater government control tend to have more obstacles to care, such as long wait times, rationing and restrictions on the choice of doctors. Be wary of rampant administrative costs. Regardless of the outcome, at a minimum, we need to focus more on preventive care rather than reactionary medicine.

Support the Freedom of Choice. Our nation was built on the premise of the separation of church & state. Uphold this. Americans should have the right to choose. Abortion is not a religious discussion. Gay marriage is not a government’s decision. We are a nation of immigrants with different beliefs, backgrounds, languages, and should all have the right to not see our government impose on those individual rights.

Invest in Alternative Energy Research. Release us from foreign energy dependence. This will take time, but we should start now. We don't even need to spend that much on research to make simple changes to our energy policies. In addition to alternative energy, we should work on solving on foreign dependence now by migrating to existing solutions, even if not perfect. Drill at home, nuclear energy, etc. The policy needs to be comprehensive and have a 20+ year outlook. Incentivize the auto industry to innovate.

Maintain Free Trade. We live in a global economy. Imperialistic barriers cannot make any sense moving forward, however beneficial to the American worker in the short term. Competition will only make us stronger and better in the long run. Since our early days, this has been one of the main tenets of our economy. The colonies which became the United States generally supported free trade; indeed British restrictions on trade were a major factor in the war for secession.

Reform Campaign Finance. There is no longer any reason to for our electoral college system to exist. But, understanding that changing our electoral process would be a challenging undertaking given the embedded political interests, I encourage you to do what’s right and support substantial campaign finance reform. We, as Americans, do want change. And, we also want choice. Having to choose from two parties not only minimizes the potential change we see, but also narrows the field of possibilities.

Focus on Education. This is our future, our children’s’ future, and our nation’s future. Do not spare a dime on this matter. Come up with a plan to improve the quality of our teachers and our school systems. Sit down with Mark Warner (VA) and hear him out. Not only would investing in better public education would prove critical to helping the United States emerge from tough times stronger than ever, but it is the foundation for innovation that has driven us during the past century. Improved education would help us elect better officials, make smarter decisions, live healthier stronger lives, and cope with change as it’s needed.

Support our Immigrants. We have always considered ourselves the “melting pot,” driven by the rich tradition of immigrants coming to the United States looking for something better and having their cultures melded and incorporated into the fabric of the country. “Give me your tired, your poor, your huddled masses yearning to breathe free…” These are the people who are, have been, and will be the driving force of our country.

Listen to the People. During your acceptance speech you stated: “I will always be honest with you about the challenges we face. I will listen to you, especially when we disagree.” This was quite possibly the most critical statement you have made, in my opinion. If you can stick to this, I believe you will, I have no doubt that you will succeed.

I hope this letter gets to you and that you can, at least, acknowledge one more opinion out of the millions of opinions that you’re receiving every day.

It's Time

noreply@blogger.com (Charlie Kemper) — Wed, 05 Nov 2008 16:56:00 +0000

The Economist published a fantastic commentary on the US Presidential Election last week that is a very worthy read. It's an extremely well articulated and thoughtful analysis on the election, the candidates, and their respective strengths & weaknesses, most of which is hard to dispute.

Memory is Fleeting

noreply@blogger.com (Charlie Kemper) — Tue, 30 Sep 2008 16:35:00 +0000

Just yesterday, a friend of mine sent me this New York Times article dating back to September 1999. Yes, 1999. Interestingly, the article, Fannie Mae Eases Credit to Aid Mortgage Lending, discussed how Fannie Mae decided to ease the credit requirements on loans that it would purchase from lenders after coming under pressure from the Clinton Administration. Ahem.

Humorously enough (if we can even provide some levity to the terrible state we're in), the writer of the article can proudly say, I told you so.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's. "From the perspective of many people, including me, this is another thrift industry growing up around us," said Peter Wallison a resident fellow at the American Enterprise Institute. "If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry."

How soon we forget.

A lot of people want to point fingers and place the blame, but I'd like to point out that "Wall Street" or "Investment Banks" are not singular entities who control policy or team under a joint modus operandi. The blame can be squarely placed on policy makers here. And, given the date of the aforementioned article, I'll let you choose which policy makers we're talking about. A lot of things have gone wrong over the past years but, generally speaking, poor execution comes from poor leadership & subpar planning.

One thing is for certain (in my humble opinion), bigger government and more policy will not help us get out of this mess in the long run. Frankly, it's what got us in this mess in the first place.

Mauldin on Energy

noreply@blogger.com (Charlie Kemper) — Tue, 05 Aug 2008 22:41:00 +0000

John Mauldin comments on the US energy policy in a recent newsletter subsection called Some Thoughts on Energy. This is a great piece. He presents some great analysis and solid opinions. This passage sums it all up:

Either we are going to see the economic life sucked out of this country, or we can respond by doing everything that is in our power. There is not a shortage of energy. There is a shortage of leadership to produce the energy we need. A real energy policy would also have the benefit of boosting the beleaguered dollar.

Net. Net. We just need to start investing today, across the board, in all facets of cleaner energy, and in domestic natural resources. Period.