Here is the full interview I did with Tim Sykes - enjoy:
Joining me for tomorrow’s 3rd show of WatchMojo Live is Tim Sykes.
Tim Sykes is an investor, author, entrepreneur and media personality who parlayed $12,415 Bar Mitzvah Gift money into a fully audited pre-tax sum of $1.65 million from 1999 to 2002 before founding his hedge fund, Cilantro Fund Management, LLC in 2003. Author of An American Hedge Fund, Sykes was born in Connecticut but attended school in Tulane, Louisiana and today lives in New York City. Since the beginning of 2008, Timothy has been the #1 trader/investor, out of 25,000+ on Covestor.com, a website that tracks and verifies all trades, by earning 365% as the overall US stock market dropped 40%. He has written for AOL and featured on ABC, CNN, CBS, CNBC, FOX News and far too many other places to name in this blurb. Catch him on WatchMojo Live on Wednesday November 11th 2009.
Let’s hope he brings the ladies tomorrow:
Check out his site here. Check out the show tomorrow, Wednesday, at 3pm EST on WatchMojo Live.
Somehow*, I came across Paul Lee’s post on high valuations, he’s a founding member and Senior Vice President at the Peacock Equity Fund, a joint venture between NBC Universal and GE Capital:
A high valuation is problematic for a number of reasons. The first, and probably most important, is the impact on the company’s ability to attract quality talent. That’s not to say that you couldn’t (I’m sure the aforementioned microblogging site is seeing a flood of resumes). However, most people in the startup world join startups for the equity upside in a liquidity event or IPO (although the garage sale furniture and stale pizza at 1 a.m. is tremendously appealing). When a highly priced round is completed, guess what–the strike price of the options also go up. In effect, the hurdle for the options to be “in the money” has gone up and the value of the options has decreased. The motivation for the employees coming in after the financing has been materially altered.
Another difficulty in raising a highly priced round is the set of expectations from the new investors. Given the high valuations, the milestones that you’d have to hit to justify the valuation are usually aggressive. The difficulty in setting such aggressive milestones is that if you only complete 50%, you’ve basically built a bridge to nowhere. When you next need to raise capital, you may be faced with a down round, or in extreme circumstances, a complete recap or non-funding. Lawsuits and tensions around the board about fiduciary responsibilities are common. Not very fun stuff.
It sort of reminds me of a quote from a low-profile entrepreneur named Bill Gates who started a software company in Seattle back in the day. He quit to run a non-profit to help end poverty:
One challenge Microsoft did face, and that Netscape now faces, is coping with a high market valuation. Netscape has little income, but investors have valued its stock at more than $2 billion. When a company’s shares have a high value, expectations from investors, including employee-owners, are correspondingly high. Failure to meet those expectations can be damaging. If you’re giving share options to employees so that they can participate financially in the expected success of a company, a high valuation hurts. If the market’s already anticipated the great work those people are going to do, then their stock options won’t appreciate much in value, if at all. This can make the options worthless. Many times in the past I have felt that Microsoft stock was higher in value than it should be. Subsequently I was proven, in a sense, to be wrong. Controlling expectations—whether about deliveries, product features or stock value—is often wise in a technology business. It’s a lot better to under-promise and over-deliver.
Read more about that here.
[* A lie. You will see why and how I was on Fast Company in a few days when I post the Fast Company article that mentions WatchMojo.]
Could it happen? Sure, why not. Markets are looking for a catalyst and if any media company could IPO these days, NBC Universal could be it. See the interview with John Battelle here:
We had a long conversation last week with Barbara Corcoran, whose real estate empire rose to the top of the NY residential world. She sold her company recently to focus on her media interests, but for all intents and purposes, she remains queen of NY’s real estate market. In this part, we talk about the real estate. Read Part 1 here, Part 2 here, and Part 3 here.
WatchMojo: Well, let’s get to it, what is your read on the real estate situation right now?
Barbara Corcoran: Well, right now I think we are definitely in the midst of a market turnaround. So, and hold on just one second, there are some good numbers that I’ve got this morning, and maybe because I always like to have an opinion than try to find the stats at support. For example, if you look at all the communities across America, they are usually always watched very carefully every month a hundred and sixty major markets.
For the first time in this quarter a hundred and twenty-seven of them went up in price; that is amazing to me.
I don’t think people realize that, you know because people are so much expecting more bad news that they are not on the game as to what good news are out there. And, some of the markets have gone up tremendously.
Markets that I think most people have written off as being in the dumps like San Francisco open area. I don’t think people realize that those house prices and condo prices are really shooting up all across the state. So, the main thing is a hundred and twenty-seven markets, and hundred and sixty markets are up for the first time in sales price. And, the bottom-line in this really, and I know a quarter doesn’t make a lifetime. But, it’s first time we saw prices go up in most of the major markets across the US, and somehow people have the moods for bad news I think.
WatchMojo: Bad news is good for a headline, yes. This article will be called Barbara Corcoran killed New York’s Real Estate market. Just kidding. So, what is your read on the recession and the economy overall?
Barbara Corcoran: Well, I think we have a lot of problems. We have fewer jobs; we have people mistrusting the economy in every ritual way. We have tons of foreclosures which is a terrible black file that hangs over the real estate market. And, Ash, frankly hangs over every market, because people don’t spend when they think they have supposed value you know. We have assured financing for all kinds of things, new businesses, homes; we have banks under appraising. So, people who have the cash to buy it find the appraisals were coming in too low, because it would be compared to less quarter spaces. And so, you have so much bad news that people are in a negative mood, but I think it’s slightly better than it was three months ago; don’t ask me why, but it seems my own circle of friends and business people seem a little bit happier. And, what else is going on in the economy, I don’t know. The only news I ever read is real estate frankly.WatchMojo: I’m a Web entrepreneur… so I must ask, how has the internet affected real estate?
Barbara Corcoran: Oh, it’s been a Christmas gift to the real estate market from the get go.
I am speaking about the internet overall. It took the keys out of the hand of the broker and handed them to the buyer and the seller. Now, a seller can appraise their on your home; they don’t need to go at real estate broker. The buyer could drive by fifteen houses; see if they like them from the outside without ever needing to ask the real estate broker if she would have an appointment on Sunday at two, you know.
So, what it has done is it’s set lose the statistics and the information within the marketplace and the inventory to anyone who wants it in easy fashion with just a click or two. What it’s done for the real estate broker that kicked and screamed in the beginning, because they didn’t realize how good this was, it’s realized them from the terrible labor of showing ten houses.
If people don’t like them onside of the outside it saves them endless phone calls of people saying how big or small is the room. Now, they look at the photos and dimensions online, and it’s made the negotiation process faster, and it’s dramatically increased the number of transactions a typical broker can do in America now, and almost double them, and I would say eight years or nine years.
So, the average sales from selling twice as material things I used to with the help of the internet. So frankly, there is absolutely, it’s been the Christmas gift to the real estate industry, and it keeps on giving you know.
WatchMojo: Do you think that real estate remains like the best long-term investment to make?
Barbara Corcoran: Yeah, I believe long-term, the question is how long-term is long-term.
You know prices have gone down almost exactly a third in three years, okay? So, most people would say my God, why would you ever want to invest in real estate, but I’ve lived through too many identical markets to this even if you’d say we’ve never seen it like this. No, it’s a different twist on the old thing, but it’s still the old thing you know. And, markets are very slow to unwind, but they recover in a flash. When they start to spin, they spin quickly and people will forget about this. You don’t think so, but people will forget about this the minute they have to bid against another buyer. People have short memories and besides just people have to live somewhere.
WatchMojo: Yeah, that’s true. You’ve heard of the greater fool theory that on the way down there might not necessarily be somebody there to buy an asset, but on the way up there will be someone who will be willing to bid higher.
Barbara Corcoran: Absolutely. And, people look comfortable with real estate, again the moment they have to buy in a crowd which happens quicker than people remember.
WatchMojo: Who do you blame - I know nobody likes to say blame and blame is a strong word, but we want a really negative headline (laughs). So who do you blame or what do you blame for the real estate mess?
Barbara Corcoran: You know what, I don’t blame anybody.
Everybody is responsible for their own actions.
And so, the bank has made mortgage money so available, so inexpensive, and so to some degrees deceptive. You know they were the lending industry, because the big lie that was told, and I don’t even think it was intended as a lie, was always you can “always refinance” and “what knowing envisioned is a house value going, falling below the mortgage amount. And so, the number one thing that people were counting on when they signed up for, so one, so I guess not to blame, but I guess one factor is certainly the over-promising mortgage market, okay that you could “always refinancing. The other thing is places were going up so dramatically in every market that you have to be a fool to sit on the sidelines if there was anyway you could buy and get it on the game. So, anyone who wasn’t buying, so like there were nobody, that they were left behind.
Anybody and anybody who could work an angle to buy a house is buying a house. So, you had inordinate amount of demand, so you can say hey, blame the buyer. I’d say don’t blame the buyer, anybody sitting in that position then is just like a fool if they didn’t buy. And of course, they promised you can always refinance.
You know just tease a rate 2% owner set for three years, oh three years from now, you don’t like it popping up you know, your monthly payment doubling; you could always refinance. Well, and then people lost jobs, they couldn’t refinance either on that sense you know.
WatchMojo: Tomorrow, we talk about NYC, and the hit - if any - it has taken since the econopocalypse.
From MSNBC:
Now that Apple has once again passed Google in market value, can the consumer-electronics maker maintain its lead?
While Apple’s capitalization has risen above that of Google for short bursts in the past, it has remained higher since July 22. As of Aug. 11, Apple was worth $145.87 billion, compared with Google’s $143.40 billion. This could be a momentary shift in Wall Street’s whims — like when Cisco Systems briefly surpassed Microsoft to become the world’s most valuable company in 2000.
More likely, Apple has more solidly unseated Google as tech’s No. 2 powerhouse and is now on track to one day challenge Microsoft for the crown. While both Apple and Google are likely to remain highly valuable in the coming years, there’s reason to believe that Apple may outshine Google in the eyes of investors.
A couple of pieces I wrote ages ago:
- Google is 21st Century’s Monopoly
- Will Google Surpass MSFT’s Value by 2010?
- Will Google Become World’s First Trillion Dollar Market Cap Company?
Maybe I should look into Apple’s odds?
Last week online advertising firm Kiptronic was acquired by CDN Limelight Networks for $12M. Now $12M is nothing to sneeze at, but with $7.3M in funding (according to Crunch Base), it’s not quite a home run, either.
In fact, the sale represents the challenge that all video technology platform companies (be it in ad serving or analytics) face: to really scale and becoming meaningful, they need to infiltrate the leading player: YouTube, and the rapidly rising #2: Hulu.
In this case, I imagine Kiptronic felt it was on the outside looking in, and Limelight’s parallel world distribution (via the CDN route) was a viable alternative. I had spoken to Kiptronic in the past and told them that embracing their technology was based on their getting through to YouTube, where we do 40% of our streams (less than most content providers, by the way).
Of course, with YouTube being part of Google, who has its own ambitions in ad serving and analytics, so it will be a cold day in hell before they open up to third parties who either compete with it or might become acquisition fodder for it. Google is a student of history:
- it itself grew thanks to Yahoo!’s naive decision to feature Google’s search technology on the portal, then the largest site in the world.
- and seeing YouTube grow into the $1.65B beast it did thanks to MySpace’s users embedding all of those YouTube embeds, YouTube isn’t stupid enough to let athird party company grow on its coattails.
One of those third parties we work with and root for is Tubemogul. We use their analytics and distribution tools.
Today, TubeMogul announced a series of partnerships with firms like Blip.tv (we use Blip.tv’s amazing video player on our WatchMojo.com property, where we do 3% of our total streams) and DailyMotion (one of our many distribution partners). The two companies will now integrate TubeMogul’s analytics straight into their websites.
We welcome further clarity and transparency in the marketplace, because right now giving advertisers an accurate sense of our total reach of nearly 5M streams per month is challenging.
Taking a step back, I think this reality highlights my belief (albeit biased) that content companies present better investments than technology bets in the video market, for we can tap into YouTube and Hulu’s ecosystem and grow in tandem with at investment levels.
According to Robert Hendershott, a professor of private equity and entrepreneurship at the Leavey School of Business at Santa Clara University, venture capital is becoming obsolete for Web start-ups.
Reason #1: VC’s Risk/Reward Profile is Unsustainable
I think venture capitalists are becoming obsolete because their risk and reward profile became unsustainable.
VCs will admit that they are looking for the home run, if not grand slam, when looking at companies to invest in.
But the thing is, in baseball, you can only win if you are willing to take a walk, get a single, double, the odd triple etc. When VCs prospect (look at pitches - both proverbial and figurative), they are constantly looking for grand slam pitches and swings.
More often than not, doing that ensures that you strike out or take too many walks. In baseball, you can win by getting enough walks. In the world of VCs - where you’ve raised billions from pensions and endowment funds, you can’t “walk” (sit on your capital). Smedley Butler used to say that war is a racket. I think VC is a racket: Many earn management fees and don’t have any successes to show for it.
But instead of aiming for a number of 2-10x returns, VCs aim for the proverbial grand slam but end up striking out more often than not.
Reason #2: Binary Outcome - Grand Slam or Stop Playing Altogether
The larger reason why VCs have become obsolete comes after they have invested in a company. Speaking to an entrepreneur who initially shunned venture capital in favor of angel financing, he mentioned to me that VCs have a binary outcome mindset where it’s either “grow and win quickly” or “fail”.
VCs, I thought, were supposed to build companies that last and adopt a long term view. In practice, it’s the opposite. But whereas in baseball a team commits to playing the full nine innings and even go to extra innings to win, when VCs realize that their bet was misplaced, they simply take the bats and balls and go home.
This all reminds me of the Casey at the Bat poem:
In the poem, a baseball team from the fictional town of Mudville (implied to be the home team) is losing by two runs with two outs in their last at bats, but they think they can win “if only” they could somehow get “mighty Casey” up to bat. Two weak hitters manage to get on base, and Casey comes to bat with the tying run in scoring position. The beloved Casey, Mudville’s star player, is so confident in his abilities that he doesn’t swing at the first two pitches, both strikes. On the last pitch, the overconfident Casey strikes out, ending the game and sending the crowd home unhappy.
‘Nuff said.
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