Archive for November 15th, 2011

Last week Tokyo was all abuzz about trade. Protesters were demonstrating in front of the Diet, talk show debates raged about the perils and prospects of joining the Trans-Pacific Partnership (TPP), and everyone waited to see what the relatively new Prime Minister, Yoshihiko Noda, would decide to do.
One might ask why the decision to join the nine current participants in those talks should be so momentous. After all, Japan is already a major trading nation, with one of the world’s largest and most sophisticated economies.
But Japan has been economically stagnant for decades. After a…

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The cloud has redefined more than just TV and movies — it has also completely altered the landscape on which the game console wars play out. Now that the “convergence box” has finally arrived on the scene some ten years after Microsoft and Sony thought it would, it turns out that it’s a thin client.




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Citing public safety and health concerns, NY City Mayor Mike Bloomberg ordered the police to clear Occupy Wall Street protesters from their base in Zuccotti Park Tuesday morning. Roughly 150 people were arrested during the eviction, including about a dozen people who staged a ’sit-in’ (or ‘out’) of sorts by chaining themselves to trees and [...]

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The biggest news in last week’s elections appeared to be the success that public sector union forces had in overturning Ohio’s new law that would have required more contributions from government workers toward their benefits and would have suspended some collective bargaining rights. In the wake of the referendum revoking the legislation that he had proposed to gain control of state and local spending, Ohio Gov. John Kasich told towns, cities and school districts that they would have to go back to the negotiating table and extract concessions from public workers to fix their budget…

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Follow The Daily Ticker on Facebook here! Two stories making headlines in recent weeks are putting renewed attention on allegations of crony capitalism in Washington: First, the fall of Jon Corzine’s MF Global, and second, a “60 Minutes” report on insider trading by members of Congress. The latter instance is an overt example how our [...]

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On Monday, President Obama articulated what many policy makers and economic analysts in the developed world have been thinking. Now that it has “grown up,” China should have a more adult attitude toward trade, protecting domestic markets, its currency, foreign aid, and participation in international institutions. Of course, that’s not quite how China sees itself [...]

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Follow The Daily Ticker on Facebook here! A new survey by Yahoo! Finance shows Americans have a disturbing lack of hope and a frightening lack of retirement planning. Among the highlights of the poll: — 41% of Americans say the ‘American Dream’ has been lost. — 37% of adults have NO retirement savings and 38% [...]

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Only a small subset of companies should think about raising venture capital – those that genuinely have potential to exit for say $100m and can substantially increase their chances of getting there by accelerating investment.  This is an important point as many companies that don’t meet these criteria waste time trying to raise venture.  If you are a regular reader you will know I have made it several times before.

I’m returning to it today after reading Roger Ehrenberg’s post on his excellent Information Arbitrage blog about how some companies make the mistake of committing themselves to having to raise venture capital when they think and believe they have the potential to get the big exit, but when in reality it is too early to be sure:

I think one of the hardest parts of being an entrepreneur is trying to honestly assess the magnitude of the opportunity being addressed and to finance the opportunity properly. For instance, there is absolutely nothing wrong with building a business that in all likelihood is a “small” outcome (let’s say an exit in the low tens of millions of dollars). …  But to be clear, the investment math of these kinds of businesses generally don’t work for venture firms and as such, should be capitalized and operated in such a way that they don’t require venture backing. …..

I frequently see disconnects between founders (“This business is going to change the world”) and venture investors (“Really? You are super smart and I love your enthusiasm but I respectfully disagree”) after a business has already been angel financed. The company has financed itself and calibrated its burn rate on the assumption that venture investment will invariably follow, and when it appears that this assumption was incorrect – doh! Unless you’ve got the right angels, it may be very hard to get additional financing out of your original syndicate. And if you’ve set up the business such that your structural burn rate leaves you between a rock and a hard place, there is generally only one answer left: fire sale/acqui-hire. And this is not what anyone was looking for going into this exciting, “world-changing” investment. This could have been prevented by spending less aggressively, getting to revenues earlier and selecting investors who have the mind-set and resources to support the company during its ugly teenage years (read: Years 2-3). And if, by chance, it really does appear that the company has the chance to be truly disruptive, smart and patient venture capital is always there to support a scale opportunity.

That’s a long quote from Roger’s post, and it’s pretty dense reading (not least because I cut some bits out) but to repeat/summarise his point is that

  • it is hard to know how big your opportunity is until you get into it
  • if you build a cost base that assumes the opportunity is big and you turn out to be wrong you will be in trouble
  • whereas if you keep your cost base down you retain the ability to generate a good outcome for everyone with a relatively small exit and you will always be able to raise venture later
  • therefore you should wait until you *know* your opportunity is big before you scale expenditure

This raises the question of when do you *know*? or more accurately how sure is sure enough?  As Roger says this is one of the hardest things an entrepreneur has to assess. 

One good test is when VCs start believing you.  Another good test is when you have talked to enough people that you know all the counter arguments and have good answers for them.  One pitfall to avoid is not trying hard enough to seek out counter arguments.  Another is to acknowledge a potential powerful counter argument, but not consider it properly, usually with a variant of “yes that might be a problem, but if it is we will fix it down the line, and if you worry about it now then you are focusing on the wrong thing, or simply don’t get what we are about”.



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Follow The Daily Ticker on Facebook here! After a third quarter of wild swings and a big rally in October, the stock market heads into the home stretch virtually unchanged for 2011. After Monday’s decline, the S&P 500 is down 0.5% year—to-date. Four key issues hold the key to whether 2011 ends up being the [...]

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You cannot read the description of the personal stock trading allegedly conducted by Rep. Spencer Bachus and other members of Congress during the financial crisis and conclude anything other than the following: Our government is completely corrupt. Yes, this behavior may be technically legal, because of an absurd loophole that makes insider-trading rules not apply [...]

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