On To Google Ventures
It was almost exactly 19 months ago that I laid down the proverbial writer’s pen and picked up the less proverbial pen for writing checks. It has been an amazing experience getting a fund up and running, learning, and ultimately, making a lot of wonderful investments. I’ve enjoyed it so much that I’ve decided to dive deeper by joining Google Ventures as a general partner.
Just as I took my time in deciding to switch careers a year-and-a-half ago, I’ve been talking with the Google Ventures team for a few months now. After getting to know the partners and hearing the vision for the fund laid out by managing partner Bill Maris, it became clear that this would ultimately be a perfect fit.
Google Ventures sits in a truly unique space within the venture capital industry. They have the resources to make investments at any stage, but more importantly, they have the talent and knowledge required to do so. The partnership is brimming with experience when it comes to starting companies, building products, and scaling.
“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today.”
—Rep. Barney Frank • Discussing a $2 billion trading loss that JPMorgan Chase had suffered recently as the result of a misguided hedge fund strategy. Frank, whose Dodd-Frank financial reform law has come under scrutiny by the banking industry for being too restrictive, is using this as an opportunity to argue against loosening the standards — pointing out that the company argued it was going to lose $400 to $600 million from the regulations. ”In other words, JPMorgan Chase, entirely without any help from the government has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them,” Frank said.
As Worries Ebb, Small Investors Propel the Markets
nytimes.comWhile the rising market may lift the nation’s collective spirits, it will not necessarily restore everyone’s portfolios. In good times and bad, many individual investors tend to buy and sell at precisely the wrong moments. They dump stocks after the market falls and buy stocks after the market rises, the opposite of what investors aim to do.
Some market experts worry that might be happening this time, too. People who got out as stocks plummeted in 2008 and early 2009 have already missed a remarkable rally. The Standard & Poor’s 500-stock index has soared 120 percent since March 2009, passing the 1,500 milestone. This year alone, the main indexes are up 5 percent. Now, the investing public seems more afraid of missing out than of misreading Wall Street again.
Investing really plays against every instinct. You need to buy when things don’t look so great, and sell when everyone else thinks something looks awesome.
As Warren Buffett says, “Be greedy when others are fearful and fearful when others are greedy.”
"Silicon Valley’s math is getting fuzzy again."
In my last post, I linked to something that First Round Capital’s Josh Kopelman wrote in 2007. His post was prompted by — wait for it — a New York Times piece declaring that “Silicon Valley’s math is getting fuzzy again.” We were in a BUBBLE! Ahhhhh!!!!
Reading over that post now, it’s pretty awesome.
As Brad Stone and Matt Richtel reported in October of 2007:
Internet companies with funny names, little revenue and few customers are commanding high prices. And investors, having seemingly forgotten the pain of the first dot-com bust, are displaying symptoms of the disorder known as irrational exuberance.
No, that wasn’t written yesterday — but it sure reads like it was.
“Bubble” proof point #1 from 2007:
Consider Facebook, the popular but financially unproven social network, which is reportedly being valued by investors at up to $15 billion. That is nearly half the value of Yahoo, a company with 38 times the number of employees and, based on estimates of Facebook’s income, 32 times the revenue.
Oh that silly little Facebook with its insane $15 billion valuation.
The company is now weeks away from going public with a market value of around $100 billion. Yahoo, meanwhile, it now worth just under $19 billion. And they’re currently suing Facebook like chickenshits who realize their time is at an end.
Facebook’s revenue is now past a billion a quarter. Yahoo’s revenue last quarter was about $1.2 billion. Profit for the two companies is about the same. What a difference a few years makes…
“Bubble” proof point #2 from 2007:
Google, which recently surged past $600 a share, is now worth more than I.B.M., a company with eight times the revenue.
Google still happens to be right around $600 a share. It’s now worth just under $200 billion. IBM? $239 billion. Guess what? The market corrected itself.
But — Google has closed the gap with regard to revenue. Google’s revenue is now just about half of IBM’s on a quarterly basis. And IBM’s revenue is flat while Google’s is still growing.
Crazy, I know. Such a bubble.
“Bubble” proof point #3 from 2007:
More broadly, Internet start-ups are drawing investment based on their ability to build an audience, not bring in revenue — the very alchemy that many say led to the inflation and bursting of the dot-com bubble.
Again, that sounds like it was written yesterday. Either no startup has brought in any revenues in the past 5 years, or it’s extremely silly to imply that young companies will never bring in revenue because they’re not today. You decide.
“Bubble” proof point #4 from 2007 — a quote:
“There’s definitely a lot of betting going on, and it’s not rational,” said Tim O’Reilly, a technology conference promoter and book publisher.
I’d — wait for it — bet that a lot of investors from back then would disagree. And that’s even when you include the broader economic collapse which had absolutely nothing to do with the tech scene.
“Bubble” proof point #5 from 2007:
Putting a value on start-ups has always been a mix of science and speculation. But as in the first dot-com boom and the recent surge in housing, seasoned financial professionals are seeming to indulge in some strange instinct to turn away from the science and lean instead on the speculation.
Major bonus points for calling the housing crisis what it was, but point deduction for equating the 2007 boom times with the dot-com bust and the housing collapse. Not. At. All. The. Same.
“Bubble” proof point #6 from 2007:
“The environmental factors are much different than they were eight years ago,” said Roelof Botha, a partner at Sequoia Capital and an early backer of YouTube. “The cost of doing business has declined dramatically, and traditional media companies have also woken up to the opportunities of the Web.
“That does open up the aperture for a different outcome this time,” he said.
Wait a minute, not actually a “bubble” proof point at all! A voice of reason! There may just be a reason why Botha is one of the best in the business. Perhaps he should write the next “bubble” post for The New York Times.
“Bubble” proof point #7 from 2007:
Some trace the start of the new bubble to eBay’s $3.1 billion acquisition of the Internet telephone start-up Skype in 2005. EBay’s chief executive, Meg Whitman, reportedly outbid Google for the company. This month, eBay conceded it had grossly overpaid for Skype by about $1.43 billion, and announced that Niklas Zennstrom, a Skype co-founder, had left the company.
Not a sign of a bubble, just simply a shitty deal. Big difference.
And wait, didn’t Microsoft just buy that same company last year for $8.5 billion? Yup. Some will use that as a sign that we’re actually in a “mega bubble” now, I’m sure.
“Bubble” proof point #8 from 2007:
Google’s acquisition of YouTube last year for $1.65 billion, under similarly competitive bidding, might have accelerated the transition to loftier values. Google executives and many analysts argued that YouTube was well worth the price tag if it became the next entertainment juggernaut.
It has. And it’s now a good business for Google. That didn’t stop one analyst cited in the piece from saying “We are almost going back to year 2000 types of errors.”
Right.
“Bubble” proof point #9 from 2007:
Twitter, a company in San Francisco that lets users alert friends to what they are doing at any given moment over their mobile phones, recently raised an undisclosed amount of financing. Its co-founder and creative director, Biz Stone, says that the company was not currently focused on making money and that no one in the company was even working on how to do so.
This will be used as another proof point that we’re now in some sort of “hyper bubble”. But Twitter is likely to see something in the neighborhood of $400 million in revenue in 2012. Not Facebook revenue. Not massive. But not nothing. And growing.
Need I go on? Other examples from the article include Geni (which is still around, and paved the way for Yammer, a CrunchFund portfolio company which appears to be doing quite well). And Ning, which ended up selling for around $200 million — right around its perceived (and implied crazy) valuation at the time of the NYT story. Not bad for a “bubble” company.
But here was the most interesting passage from the 2007 story:
Mr. O’Kelley, formerly of Right Media, said other entrepreneurs had begun to think that the financing game is best played by avoiding actual revenues — since that only limits the imagination of investors. “It’s a screwed-up incentive structure, just like you had in the first bubble,” he said.
Compare that with:
“It serves the interest of the investors who can come up with whatever valuation they want when there are no revenues,” explained Paul Kedrosky, a venture investor and entrepreneur. “Once there is no revenue, there is no science, and it all just becomes finger in the wind valuations.”
We’re not just recycling the “bubble” talk, we’re recycling the key arguments behind all of the talk. The dangerous thing here is the implications that the same behavior that led to the 1999 actual bubble is happening all over again. It’s not.
It wasn’t in 2004. It wasn’t in 2005. It wasn’t in 2006. It wasn’t in 2007. It wasn’t in 2008. It wasn’t in 2009. It wasn’t in 2010. It wasn’t in 2011. And it’s not now.
Sometimes it takes — gasp — time to nail a business model. Some startups (and an increasing number, I’d say) focus on this from day one, some don’t. Some take the Google route. Or the Facebook route. And those routes appear to be working out just fine despite what a certain fear-mongering post from 2007 would have had you believe.
Hindsight may be 20/20, but foresight doesn’t have to be as blind as a bat. Again. And Again. And Again.
Lunch with Warren Buffett
No longer just America’s favorite investor, in recent years he’s become a kind of public sage…
James Surowiecki talks to Buffett about the economy, his investments, & his position on taxes: http://nyr.kr/Rp3qLz
BEST* Way to Spend Your Tax Return
*totally biased “BEST” — just throwing that out there.
I’ve had a lot of girlfriends tell me that they just don’t understand investing and/or anything related to the stock… market (they say stock market as if they’re speaking an alien language… with… unnecessary… pauses… and… everything). And just how do they even set up and do the “whole brokerage account thing.” They just tune it all out because it’s just “not their thing” and they “don’t really care” and they’ll “worry about it later” because they have a work 401K, and they put money into that and don’t ever need to look at it. And, I get it. I’ve been there. And, kudos for maxing out your 401K (muy importante)!
Almost five years ago, my super nerdy boyfriend-at-the-time (read: now my adorable, intelligent, loving & caring husband) encouraged me to start my own brokerage account. I had a small chunk of change from my tax returns that I HAD plans for — happy hours, shoes, bags, and whatever else was super important to me at the time.
BUT, I listened to Brian. I picked stocks based on companies that I truly believed in (and stocks where I could afford more than 1 measly share… don’t shoot for Google… go for ETFs, or, right now, Facebook… which is still affordable). I digress…That small chunk of change from my 2007 refund has GROWN into a sizable amount… and… I’m not cashing out just yet.
To be honest, it’s true that playing in the stock market is a gamble… it’s not an overnight thing, and most definitely not every pick was/has been consistently in the green. I win some and lose some. BUT, I’m not “betting” anything that I can’t afford. This was all money that was paid in for months without my recollection (over five years ago… meaning I would have already burned that money and had nothing to show for it— except for maybe a closet full of items with tags-still-on and a bag of donations to the Salvation Army).
This is where CHOICES come into play. And, unless you need that refund for rent, or basic necessities (and, I’m going to sound like an advertisement), please, FOR YOURSELF, consider taking part of your refund and trying something new. Talk to a parent, friend, or someone you trust who can help get you started on a little… investment… portfolio… outside of your 401K.
#when did i become such an adult
#almost 29… going on 50
Tesla Is Worse Than Solyndra
slate.comScott Woolley chose an awful title, but makes an interesting point about the government’s 2009 loan to Tesla:
Personal loans made in 2008 by Elon Musk, Tesla’s co-founder and CEO, provide a telling contrast. Musk received a much higher interest rate (10 percent) from Tesla and, more importantly, the option to convert his $38 million of debt into shares of Tesla stock. That’s exactly what he ended up doing, and the resulting shares are now worth a whopping $1.4 billion—a 3,500 percent return on his investment. By contrast, the Department of Energy earned only $12 million in interest on its $465 million loan—a 2.6 percent return.
The government had huge leeway to demand similar terms as part of its loan, given the yawning gap between its interest rate and the cost of Tesla’s next-best source of capital. The government was ponying up more capital than all of Tesla’s previous investors combined. At a bare minimum, the Department of Energy could have demanded a share of the company equal to the 11 percent Musk received for his $38 million loan the year before. Such an 11 percent share would be worth $1.4 billion to taxpayers today.
Of coures, the government is not an investment firm — BUT they did take large ownership stakes in some of the banks during the bailouts.
Also, the government had the option on up to 3 million Tesla shares as a part of the loan — BUT those options evaporated when Tesla paid back the loan early (which was part of the incentive to do so).
