Microsoft hints, ‘fire Yang, and we might buy you’
June 23, 2008
Henry Blodget has a story from Bloomberg that Microsoft may be hinting about a new bid if Yahoo’s management team is changed. Read more from Silicon Ally Insider, “Microsoft to Yahoo Shareholders: Fire Jerry and We Might Bid Again“.
VCs, an endangered species. . .
June 20, 2008
Remember back in 2000/2001 when the bubble burst? The fallout is finally hitting the venture capital industry. Scott Ticer’s comment on the post about the study from the University of Dallas got me thinking, “What is really going on the VC industry?” The answer wasn’t hard to find. Yesterday Russell Garland wrote a story in the Wall Street Journal titled, “The Incredible Shrinking Venture-Capital Industry” where he suggests that the downsizing of the venture industry is still very much alive. Earlier this year I wrote about the departure of more and more VC professionals in a post titled, “Venture Capital’s Brain Drain“, of course my thoughts were anecdotal, but Russell’s piece seems to confirm my thesis.
According to the research unit of Dow Jones there are 30% fewer venture capital firms today than there were in 2000. Out of the total 884 venture capital firms, more than 224 (27%) didn’t make a single investment in 2007. Russell suggest that it is very likely that many of these won’t exist in the coming years (i.e. if you don’t invest you will die). Mark Heesen, the president of the National Venture Capital Association, explains “We are finally seeing what in our view is the beginning of the impact of the bubble. Venture funds typically have a life of at least a decade and firms can soldier on long after they have run out of capital to back new companies.” Even more troubling is the statistic that 55% of venture firms who did make investments in 2007 only completed 3 or fewer investments. 29% of venture firms only made one investment.
Staubach to be swallowed by Jones Lang LaSalle
June 16, 2008
Dallas-based Staubach Company is being purchased by Jones Lang LaSalle. The Staubach Company will become the brokerage arm for JLL in the U.S. Roger Staubach will serve as Executive Chairman of the Americas Brokerage, Greg O’Brien will be CEO and John Gates will be President. The deal should be finalized by early July.
Austin based CreditCards.com IPO Pulled
June 3, 2008
According to the Austin American Statesman, CreditCards.com pulled their IPO for a second time in a year. From the paper:
Austin-based CreditCards.com on Monday filed to withdraw its registration for an initial public offering. In a filing with the Securities and Exchange Commission, the company said it decided to withdraw its plans “due to current market conditions.”
CreditCards.com had planned their original IPO in 2007, but pulled it in November. The company had registered to sell 10.7 million shares priced at $13 to $15 each. Assuming a $14 per share price, CreditCards.com was seeking to raise roughly $108 million. It had planned to use a portion of the IPO proceeds to wipe out $79 million in debt. Austin Ventures owns around 65% of the company with the remainder owned by American Capital and other insiders.
Dallas Search Startup Viewzi Gets Press!
May 27, 2008
This evening Viewzi was profiled on Channel 11 News. Great press (I will post YouTube link when it gets uploaded). Here is my previous coverage:
Profy, ReadWriteWeb and The Inquisitr are talking about Viewzi’s beta launch. Profy giving the visual search engine high praise by suggesting, “Viewzi May Finally Have Won Me Over to Visual Search“. I have spent a little time playing with the search engine and it looks very sexy. I wrote about the company back in March when I compared it to SearchMe:
Local entrepreneur Brandon Cotter’s newest startup, Viewzi, has been in the works for more than a year and is currently in private alpha. I caught up with Brandon and the Viewzi team at Barcamp/SXSW and he explained that Viewzi should be released in public beta in April. Brandon and I go way back (I was returning $15MM to investors when my account came up $100,000 short; he loaned me the $100,000 on a handshake until I could re-capitalize my startup).
This morning Kara Swisher wrote a posted about a new visual search engine called SearchMe. She reported that Sequoia Capital (the key investor in Google and Yahoo) invested $31MM in the Mountain View-based company. She describes the search engine as a mash-up of Google with Apple’s iTunes 3D interface. According to Kara, Google is working on a similar project in its labs. In my view (and Kara’s) SearchMe looks like a complete iTunes rip=off.
Of course, both are pre-beta so I have only seen private demos of each, but they are surprisingly similar in their ‘view’ of search. To honest, and I am biased, I think Viewzi’s model of engagement with users is more intriguing. Viewzi attempts to allow ‘makers’ to create their own ‘views’ of a particular search term. To start there is a ‘view development kit’ and in the future their will be an online wizard to allow anyone to create a custom view. There is real power in this sort of community engagement: think wikipedia + google + iphone = Viewzi.
For those of you interested in a great product, coupled with great people and a great value (i.e. pre-money valuation) I recommend talking to Brandon about Viewzi.
Failure isn’t a bad thing. . .
May 20, 2008
interesting video:
[via]
Yahoo boon for Icahn and Pickins!
May 20, 2008
When Microsoft pulled its offer for Yahoo off of the table everyone assumed YHOO would tank. It did slide to the low $20s, but recovered quickly. We assumed YHOO would close lower than $22, but when it recovered to the $24-25 range I was confused. Very quickly it became apparent that other forces were at work. Specifically Carl Icahn and (now we know) his friends.
Most everyone has heard that Carl Icahn bought 59 million shares of YHOO at $25, but what you may not have heard is that Carl called a few of his friends and suggested they do the same. The first ‘friend’ to publicly announce that he took Carl’s advice was T. Boone Pickens who admits to purchasing 10 million shares of YHOO. Carl’s bet (regardless of whether or not it works) has already earned him (assuming he sold today) more than $120 million (you will note based on the URL of the link that when Henry first wrote the piece he estimated that Carl was only up $60 million, but when he finally published the piece it was up $120 million - note to Henry change your permalinks). T. Boone Pickens has gained a modest $25 million. Nice work guys.
Microsoft’s Startup Team
May 14, 2008
Did you know that Microsoft has something called the Strategic & Emerging Business Team? According to Christopher Griffin, they focused on supporting the startup and venture investment ecosystem, especially high-potential companies working with our various technologies. They are structured similarly to a VC fund but typically invest via resources/relationships rather than with straight cash. You can get more info at Microsoft Startup Zone. In any event, Christopher contacted me about a post I wrote titled, “Raising Venture Capital in Dallas?” where I discussed the difference between west coast startups and Dallas startups. The next time he is in the area we are going to get together and I’ll keep you posted on our conversations.
Icahn to do Microsoft’s Dirty Work?
May 13, 2008
Carl Icahn thinks, ‘Jerry Yang is an idiot CEO’ and he may launch a proxy fight to take him out. According to David Faber, Icahn has built a significant position in Yahoo (50 million shares) and is building a ’short slate’ of board members (targeting 3 or 4 directors). Icahn played the same game with Oracle and BEA and I suspect he might be able to put the Microsoft deal back together once he was in control. Of course we will know by Thursday since that is the deadline…
Oil doesn’t equal happiness. . .
May 10, 2008
I just ran across John Boyd’s blog (John gave me a $40MM term sheet when he was with TL Ventures) and he wrote an interesting post titled, “To be a country with large oil reserves…be careful what you wish for.“ He asks why the countries with the largest oil reserves aren’t the happiest. . .
| Country | Reserves |
Production |
Reserve life |
|---|---|---|---|
| (109bbl) | (106bbl/d) | (years) | |
| Saudi Arabia | 260 | 8.8 | 81 |
| Canada | 179 | 2.7 | 182 |
| Iraq | 115 | 3.7 | 101 |
| Iran | 105 | 3.9 | 74 |
| Kuwait | 99 | 2.5 | 108 |
| United Arab Emirates | 97 | 2.5 | 107 |
| Venezuela | 80 | 2.4 | 91 |
| Russia | 60 | 9.5 | 17 |
| Libya | 41.5 | 1.8 | 63 |
| Nigeria | 36.2 | 2.3 | 43 |
YHOO will close at $22/share
May 5, 2008
…according to the wisdom of the crowd who reads Fred Wilson’s blog and who took the time to vote (I did along with 1,800 other folks with nothing better to do yesterday). Here is the chart from Fred’s blog:
Fred believes the stock will close at $26, but at $22 he thinks Yahoo is a steal (16x EBITDA). The pre-trading had YHOO around $22, but the stock is now trading around $23.29 as of 9:38AM EST.
Update: YHOO is recovering to around $24 on rumors that Microsoft may have called off the deal just to get YHOO back to the table. The theory is that once YHOO’s stock tanks, Yang and team will get back in the game and get a deal done. Hm… Maybe?
DoubleClickers Don’t Worry!
April 11, 2008
First, I am not a lawyer and I don’t play one on TV. Valleywag recently reported that Doubleclickers got screwed by Google when they asked them to sign non-competes and then terminated them a week later. Do no evil, eh? Anyway, Valleywag reported that these Doubleclickers are being ‘forced to find jobs outside their industry’. This isn’t true.
First, the agreement is overly broad and wouldn’t be enforceable in most states (including Texas). Second, Google is so big and broad itself that it would be VERY hard to find a company that wasn’t “a client or customer within the last twelve months of my employment with the Company.” Under this clause I suspect that Doubleclickers wouldn’t be able to work for Valleywag, much less an internet related company. So if I was ‘forced’ to sign such a contract a week before I was fired I would feel VERY comfortable ignoring it.
Credit crunch, time to start shopping. . .
April 8, 2008
Citigroup, Bank of America and Wells Fargo are going to curtail lending to preserve their capital ratios. The FDIC is reporting that these banks will likely be downgraded and will no longer be considered well capitalized. The FDIC is saying, “We are dealing with an unprecedented situation.“ What does this mean? Companies who use credit to finance their operations will have a harder and harder time finding debt. If they can’t find debt they will have to hunker down to survive, slowing their growth turning our mild little recession in a much more serious matter.
I have several friends who are in the middle of equity rounds with venture capital firms and deals that were supposed to close last month haven’t closed. The venture funds are tightening their investment criteria and looking for ways out of deals that haven’t closed. This is especially true for deals that require debt along with the equity infusion. It reminds me of 2001 in the telco space ~ lots of opportunity, but very few people willing to act.
If you have the capital it is time to start shopping for companies. Look for businesses that use debt to finance their operations. Staff augmentation businesses come to mind.
Higher Gas Prices = Higher Router Sales
March 27, 2008
The maximum number of routes most all upstream routers (running BGP) can handle is 256,000 unique routes. In December the world hit 238,000 routes and today the number is around 244,000 routes. The growth expectation is 2-4K per month meaning most routers will hit their limit in July. The big carriers have been upgrading all year, but there is a huge number of businesses and smaller internet businesses running BGP that won’t be able to handle the routes by the end of the year. There will be a mad dash to buy new routers (don’t bother checking eBay you won’t find a compatible upstream router and if you do, buyer beware lots of people trying to dump their old routers to unsuspecting folks).
What is going on? Turns out all of those folks in India and China are getting jobs, making money, buying cars and browsing the internet. We have achieved peak oil and now that Chinese and Indian consumers are filling their tanks full of gas we will continue to see oil prices to increase for the foreseeable future. Those same people weren’t on the internet a few years ago, but as they get on new routes are created. Those routes are having a huge impact on the entire internet infrastructure.
What will happen to unsuspecting businesses and ISPs in July? First, they will start freaking out, dropping random routes, taking new routes, dropping more random routes and taking in new routes ~ “a cup spilleth over”. Older routers will lockup or become so unstable they might as well lockup. My advice? Buy CSCO. (note: I know the picture to the left is a ‘wood router’ and not an internet router, I thought it was funny).
Islam and Venture Capital
March 26, 2008
You might be surprised that Islam has more than 1.5 billion followers on the planet (there are 2 billion Christians) and they have money to buy things you make and money to invest in your business (and they won’t fire the founder). Turns out the Islamic world is an untapped market for entrepreneurial activity. We are evaluating the possibility of launching a new business in Dubai and raising money from various sources in the UAE. From what I can tell, Islamic venture capital is in an evolutionary state, but there are some basic things you should think about when considering raising money from Islamic investors:
- Sharia (Islamic law) will govern ALL investment activity. Spend some time making sure your proposal and planned activities will be consistent with Sharia. For example, a typical preferred stock offering may not pass muster if it includes the collection and payment of riba (interest). Also, don’t bother attempting to raise money for any business if you intend to service businesses that are considered haraam (unlawful) such as companies that sell pork, alcohol, porn, gossip and so on.
- Capitalism was developed between the 8th and 9th century in the Islamic world (medieval Europe didn’t pick up these concepts until the 13th century). My point is that instead of thinking you (as an American) invented capitalism; realize that the Islamic world invented various concepts including contracts, partnerships, limited partnerships, credit, debt, profit, loss, capital, revenue, promissory notes, trusts, startup companies, savings accounts and so on long before anyone knew America existed.
- Mudarabah (profit sharing) is the most common arrangement between a rabal-maal (Islamic investor) and the mudarib (entrepreneur). The entrepreneur provides expertise, labor and management. Profits made are shared between the bank and the entrepreneur according to predetermined ratio. In case of loss, the bank loses the capital, while the entrepreneur loses his provision of labor. It is this financial risk, according to the Shariah, that justifies the bank’s claim to part of the profit. The profit-sharing continues until the loan is repaid. The bank is compensated for the time value of its money in the form of a floating interest rate that is pegged to the debtor’s profits.
- Musharakah (joint venture) is the most common arrangement between an Islamic company and a Western company. Musharakah is a relationship between two parties, both of whom contribute capital to a business, and divide the net profit and loss pro rata. This is often used in investment projects, letters of credit, and the purchase or real estate or property. In the case of real estate or property, the bank assess an imputed rent and will share it as agreed in advance. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions.
At the end of the day you need to understand that the core of any Islamic venture capital funding is an agreement to share in the risks of the business venture in return for the profits derived from the venture. Interest-bearing lending is a violation of Sharia. The good news for entrepreneurs is there is no such thing as ‘personal guarantees’ under Sharia; specifically because it is unlawful to lose what you have not contributed (i.e. if you didn’t invest any money in a deal, you can not owe any money in the event the venture fails). Additionally, under a typical mudaraba financing structure the investor is prohibited from involvement with management of the business, under Sharia, day-to-day and overall management must be left to the entrepreneur.
Looking for resources? The DIFC (Dubai International Finance Center) and the DFSA (Dubai Financial Services Authority might be good places to start. Major Islamic venture capital firms include: Injazat Capital Limited and Venture Capital Bank BSC. Good luck!
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