Jul 14 2014
Some thought the government’s approval ratings couldn’t get any lower. They were wrong.
Jul 14 2014
The Highway Trust Fund, which has a projected 10-year deficit of $172 billion, is due to run low in July, and if nothing is done the administration will have to reduce funding for states for transportation projects beginning August 1. Congress is considering replenishing the fund from general revenues.
Jul 14 2014
Economists have long argued that there is such a thing as a market for spouses. The old theory, associated with University of Chicago Nobel laureate, Gary Becker, is that people marry for the same reason that nations trade with one another: comparative advantage. If men are better at earning money in the labor market and women are better at taking care of home and children, it makes sense for them to combine forces within marriage so that they can then specialize in what they each do best. The problem with Becker’s theory is that with the expansion of labor market opportunities for women,…
Jul 14 2014
An article headline in Saturday’s Wall Street Journal read “Rate Talk Heats Up Within The Fed.” As Journal reporters Jon Hilsenrath and Michael Derby explained, “A debate is intensifying among the Federal Reserve’s regional bank presidents about whether to push interest rates up from near zero sooner than planned…”
Jul 14 2014
We have not saved enough for the retirements that we have promised people, public or private. Moreover, that problem is greatly understated by current reporting methods. This may seem an undramatic candidate for addressing one of our biggest problems, but that’s part of my point. Unlike hurricanes or wars or debt ceilings, we don’t have to deal with retirement funding today. However, this problem grows and eventually will metastasize. Until the looming pension crisis is dealt with, one way or another, no one’s retirement is secure, no government fiscal projections are fully credible, and no…
Jul 14 2014
Coindesk just published their quarterly ‘State of Bitcoin‘ presentation. This slide stood out for me:
Looking at the massive year on year increases in most of these metrics I’m reminded of some wise words from Jeff Bezos. In around 2002 I was stuck in my hotel room in Egypt due to food poisoning and the only English TV available was an American business channel. I forget which it was. In fact the only thing I can remember from 48 hours of television is an interview with Jeff Bezos. When asked why he founded Amazon he said that he was working on Wall Street in the early 1990s when someone showed him how fast the internet was growing he knew that something very important was happening. Otherwise you just don’t get growth like that.
You can see from the chart below that the number of internet hosts grew 10x from 1989 to 1993 – that’s roughly 2x a year. Bezos founded Amazon in 1994, so this was the data he was looking at. You can see from the table above that Bitcoin adoption is growing faster than that – 3x to 685x depending on which measure you choose. As with the internet back then major use cases are still unclear, but as with the internet they will come.
Jul 13 2014
Nobody knows what the total value is of all the tax breaks given by state and location governments as incentives to attract or keep businesses within their borders. A 2012 estimate by the New York Times placed the sum somewhere above billion per year. All these incentives create three problems: states over-compete against each other, local communities become hostages to large employers, and small, perhaps innovative companies are placed at a clear disadvantage.Economists have used game theory to show that pro sports teams pay athletes more than their standard worth because signing an…
Jul 11 2014
Business Insider has just published a great deck showing the potential in ecommerce. We’re focused on the ecommerce ecosystem, so I guess I would say this anyway, but the opportunity is truly exciting. TL;DR ecommerce is a juggernaut already, still growing fast and with miles to go. Billions of dollars of retail are coming online for the first time each year and will do for some time to come.
These are my two favourite slides:
Jul 10 2014
It is amazing what occurs by accident, in the moment in which we least expect something to happen greatness often follows. This is true of nearly every major discovery, though the “answers” were often laid out in the process of trying to peer inside the mythical veneer of whatever the human mind can endeavor to examine. It takes an accident or unintentional deviation to awaken the conscious senses to see and understand what was previously hidden or believed unimportant or erroneous.
There’s a lot of people now who think that the only way to make money in venture is to have an investment in one or more stand-out successes with exit values of $1bn+, the so called ‘Unicorns‘. The thinking goes that for early stage investors it’s all but impossible to tell which those companies are likely to be, and that the best strategy therefore is to give yourself the maximum chance of being in a Unicorn by investing a small amount in a large number of startups. This is sometimes called a ‘spray and pray’ strategy.
At Forward Partners we have a different view.
The first challenge is to the premise that the way to make money in venture is to invest in Unicorns. If you have a small fund then it’s very possible to generate good returns by investing in companies that achieve exits in the £100-500m range.
Let’s run the numbers.
A good fund returns 3x cash-on-cash to it’s investors. If you have a £30m fund (our target) then you need to give £90m back to your investors. Add a bit to cover management fees and you are looking for exit proceeds totalling £100m. If you have 30 companies in your portfolio and 20% of them are hits then you need each of those hits to return £17m on average. That could be six exits at £100m where you have a 20% stake, six at £200m where you have a 10% stake, six at £400m where you have a 5% stake or any combination of the above.
In other words, no need for a Unicorn. We still want to back Unicorns, of course, and many of our investments have that potential, it’s just that we’re not relying on getting lucky.
Which brings me to the second challenge, which is with the premise that at the early stage it’s all but impossible to accurately predict which companies are going to succeed and which aren’t. If the definition of success is $10bn+ I can agree, but at lower levels I think skilled investors who stock pick can materially out perform the market average you will get from spray and pray.
When you boil it right down it takes two things to be a skilled investor: smarts and good information. Let’s take the information piece first. If you have been a successful investor for a while then you will have seen lots of companies up close and had a distant connection with many more. You will also be well networked and be amongst the first to hear about new deals and new trends. These amount to substantial information advantages. However, information is only useful if you have the smarts to exploit it properly. That’s partly about the ability to spot patterns, and partly about the discipline to reflect and think deeply about what you are doing.
I like to think that we have the information and the smarts to be good stock pickers, and that we will have enough exits in the £100-500m range to make Forward Partners a great fund. Then, if we have done our job well, there is also a reasonable chance that our best company will turn out to be a Unicorn. Then the fund won’t be great, it will be amazing.
Jul 10 2014
British debates about welfare reform have often been influenced by American ideas. The Clinton-era welfare reforms were echoed in some of Tony Blair’s alterations to British benefits. Gordon Brown, as Chancellor, introduced a new Working Tax Credit as a direct result of studying the Earned Income Tax Credit. Brown particularly liked the political advantages of a ‘tax cut for hard-working families’, as opposed to a ‘benefit handout to welfare families’.
Jul 10 2014
Washington has a long-standing fascination with the nation’s energy markets that generates an endless stream of legislation and regulation in pursuit of a wide range of policy objectives, from energy independence to climate change. For almost a decade, the government has been struggling to implement renewable fuel standards with the aim of increasing the role of ethanol and other biofuels. New mandates have been established, but it is becoming increasingly obvious that the law has created more questions than solutions. Problems first began to emerge when the economy collapsed, and with it,…
The federal debt was regularly in the news from the summer of 2011, when the arriviste tea-party Republicans refused to vote for a higher debt ceiling unless the Obama administration agreed to spending reductions, until the end of 2013, when another debt-ceiling impasse closed the government for two weeks before the House capitulated.The subject has since vanished from public debate. One reason, no doubt, is that the results of the debt brinksmanship of 2011-2013 was so pathetic. The ceiling was increased by more than trillion, all of it promptly borrowed and spent, in exchange for …