Finance Geek

The US could learn something about monetary discipline and pro-capitalistic tax policies from a couple of unlikely sources: China and Russia.

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There are 2 main time limits: How long debt stays in your credit reports and how long you can be sued for it. If you’re struggling, here’s what you need to know.

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The New York Times editorial board calls for Google to show its secret sauce to the government, but fails to make its case. The money’s not in the rankings, at least not the way the Times thinks it is.

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Stocks tumbled Friday, with the Dow recently down more than 200 points and the S&P off 2.5%.The decline is widely being attributed to disappointing results from Bank of America, Citigroup and GE, as well as weak consumer sentiment data. …

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While most of the market sells-off dramatically, Goldman Sachs shares are rising today, continuing a move that began Thursday afternoon ahead of the firm’s $550 million settlement with the SEC.  That’s a record settlement for a Wall Street firm

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Ending nearly a month of speculation, the wizard of Cupertino or one of his designees will emerge from behind the curtain this afternoon to say something about the Apple iPhone 4. Will it be free bumper cases for iPhone 4 owners? Or could it be the full recall that many consider unlikely? Here are five recalls that would make any company shudder.

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Never doubt the herd mentality of investors. On the back of the recent 7% gain in stocks, investor sentiment turned very bullish this week. The AAII survey of individual investors saw the bulls double, while the bears shrunk by nearly a third.

But

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The Dow’s 7-day winning streak ended Thursday, but just barely. The Dow closed well off its lows of the day amid news of BP’s apparent success in capping its “oil volcano” in the Gulf and expectations of

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NEW YORK (TheStreet)–Talk about coincidences!
In case anyone retained any shred of doubt that the Securities and Exchange Commission’s civil fraud case against Goldman Sachs was politically motivated, Thursday’s events have laid those doubts to rest.
We now have a startling double coincidence linking politics and the SEC’s case against Goldman. First, on April 16, the SEC happened to announce its Goldman case just hours before President Obama gave an important speech launching his push for financial reform legislation.
On Friday, just as Congress passes that same legislation,…

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If you have been reading this blog over the past couple of weeks you might have picked up that I’m a big admirer of Steve Blank and his thinking about how to build startups.  Yesterday he wrote a blog post entitled Welcome to the Lost Decade (for Entrepreneurs, IPO’s and VC’s) which sets out the changes to the environment in which we are all working and explains how tough life is going to be for the startup ecosystem as a result.  As I said I’m a big fan of Blank, but I think he over states his case this time.  In the rest of this post I will pick out the salient points from Blank’s piece and then finish by saying why I think the situation isn’t as bad as he makes out.

Blank’s starting point is that the startups and their venture funds used to rely on the IPO markets to provide liquidity and latterly to fund the later stages of growth, but that the IPO market has been moribund for a decade.  As you can see from the two charts below the difference between the nineties and noughties is stark.

It is true that the picture has improved this year as H1 2010 saw 2x the total number of IPOs in 2009, and from our perspective the public markets are working much better, Tesla (in which DFJ is an investor) got out OK a couple of weeks back and we have a handful of other companies that might float soon.  However, whilst the recent uptick in venture backed IPOs sweetens the picture a little we are still a long way short of the 150-200 IPOs per year of the early 1990s, let alone the activity levels during the bubble.  Moreover, the macro economic picture remains unexciting and it is hard to see much change from the current status quo over the next couple of years at least.

As a result VCs making investments now, and by extension the entrepreneurs who take their money, must plan for exit via M&A and as Blank points out that means lower exit values.

I don’t think that means we are in a ‘lost decade’ though.  It does mean that making money out of startups for both entrepreneurs and their investors needs to be done differently, and will often be more difficult, but it is still very doable.

Here are the reasons why I remain optimistic:

• The fundamentals for startups get stronger all the time – the pace of innovation continues to increase exponentially and startups’ ability to move faster than large companies is becoming more and more of an advantage
• In many sectors the capital requirements to start and grow a business are decreasing
• New sources of liquidity for shareholders in startups are emerging to fill the gap the IPO market has left – e.g. DST
• The economy and IPO market will come back eventually (not that you should plan for it today)

That said, this is absolutely not a time to be complacent, and I think Blank is right to assert that a startup will have to be stronger to survive now than was the case 10-20 years ago.  As he says, capital efficiency is much more important than it used to be, and raising capital takes longer and needs more creativity and forethought than it has for a while.  But these problems are surmountable.  And for the entrepreneurs that figure out how, the prize will be big – competition is weaker today than it has been for a long time and businesses that are founded today will hopefully be exiting into the next boom some 3-5-7 years hence.

For VC funds this means that the optimum size just got smaller – more capital efficient companies and lower exit values both point that way.  That means living off fat management fees is increasingly a thing of the past which I guess makes life tougher – but that is probably a good thing as it puts the focus 100% on delivering great returns and generating carry.

Finally – I owe a thanks to Mark Gibson of Advanced Marketing Concepts for pointing me to Blank’s post.

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