Saturday, May 17, 2008
My 116 mile week
As I have posted before, we have a FirstRain team competing in the Vineman Aquabike in the Sonoma Valley on August 2 - and so we have started seriously training now.
Having never been much of an athlete on land (I'm more of a fish) it's been a challenge for me to start building up biking stamina given my crazy travel schedule - so this week was a big step up for me. And I was not the only one. It was bike-to-work week here and so several California team members rode to the office and the Aquabike is beginning to have the team building effect I hoped it would as we compare notes on our bikes, routes and aches and pains!
My week consisted of:
32 miles with my honey on Sunday
50 miles (to work and back) on Wednesday - in the heat wave
34.5 miles early this morning with my HR director, Ana.
The last is the longest ride I've done at once since we rode up the West coast of Italy at 21 years old - and even so I feel great! Now I am on the road with a packed schedule for a week.
I think we're all going to make it and be a strong team - it's clearly time to buy FirstRain bike shirts.
Friday, May 16, 2008
The sea change of private equity going mainstream
While private equity used to be peripheral to mainstream banking there is a change under way and the private equity world is growing rapidly in size and influence. Unknown to most of us, many of the products we buy are owned by PE like Dunkin Donuts, Chrysler or Hilton - see the article on PE's ownership of Times Square.
There's a fascinating analysis in this weeks CNNMoney article The Year of the Vulture. They predict numerous changes rippling through the industry:
- a shakeout should occur, which is healthy and most industry veterans would welcome it “It squeezes out a large number of marginal players." TPG (formerly Texas Pacific Group) co-founder Jim Coulter describes the sea change this way: "There aren't 100 bankers showing up with companies they want you to buy, but the ones they're offering are much more interesting.”
- PE firms going public – in the 1970s it was Merrill, Goldman, Morgan Stanley and Lehman. Today it’s PE as “Blackstone famously went public last June, just before the window of opportunity slammed shut. KKR and Apollo have IPO registrations pending at the Securities and Exchange Commission, a reason they cited for not talking to Fortune. You can be sure that other firms will file at the first opportunity.”
- PE firms will become full service financial organizations – LBOs, hedge funds, bonds, money management etc.
- creatively making money in new ways now that LBOs are few and far between and the debt markets shriveled up
- and intriguing to me - double cropping. PE is offering capital to the institutions with the greatest need - the very same banks that financed their original deals. Because the buyout firms have so much new money flowing into their funds they are now buying up banks' used-loan inventory, “like a vulture seeing sustenance where others see only roadkill”. "The flavor of the day is buying your own debt at below face value" says David Rubenstein, co-founder of the Carlyle Group. "I'm buying bank debt in my deal with leverage from the bank that made me that deal".
- the biggest double-cropping transaction to surface thus far: a deal in which Citi unloaded $12 billion of buyout loans onto Apollo, TPG, and Blackstone.
The days of easy money are over, so private equity will have to get creative. It's a real question whether going public is really the smartest thing for them to do because they will find themselves handcuffed once they have to report quarterly results to public shareholders.
Thursday, May 15, 2008
The danger of "no comment"
One of the Hedgeworld stories sent out today is "The danger of "no comment" By Anthony Payne, Peregrine Communications. You need a login (so you won't be able to read the body unless you have one - but it's free).
The essence is that hedge funds are too secretive and need to mature to manage media relations - now that they have so many assets under management and have gotten some bad press recently.
Too many in the sector view journalists as the enemy and think the media are somehow out to get them. Ideally, from their point of view, the press would simply go away and they could continue to operate under the radar, away from the glare of media coverage.
Fat chance.
Hedge funds now control more than $3 trillion globally—about the same as the U.K. mutual fund industry. There are reported to be more than 5,000 single-manager hedge funds. It is no longer a cottage industry with a dozen or so players, insulated from the attentions of the press by the simple fact that few journalists had heard of them. It is now a mainstream industry with unparalleled financial power and the capacity to move markets all over the world. It attracts the interest of regulators and legislators everywhere. It is the press's legitimate duty to report on it.
... and...
This, from Investors Chronicle last week, details the public perception of the hedge fund industry: "Since the spectacular collapse of Long-Term Capital Management in 1998, hedge fund failures have continued to attract critical comment, and many blame overly generous incentive structures within the hedge fund sector that have allowed very average fund managers to make personal fortunes despite delivering poor performance to their investors."
That pretty much sums it up: fund blow-ups, exaggerated returns and vastly overpaid managers. This is far from the truth, but it's what the public believes, because that's what they read. Probably only the used car business has a worse image.
But what joe public thinks affects regulators, and more importantly affects politicians. Anthony Payne's point that, in the end, hedge funds are hurting themselves by not managing the media is absolutely correct.
We track hedge funds on the web, reporting on fund openings and closings, liquidations, people moves and hedge fund news from around the world. One thing I can tell you about hedge funds is that - even though they are secretive about themselves - they want to know what everyone else is doing. They like to watch themselves.
Wednesday, May 14, 2008
When an editor forgets his brain
I participated on a panel at the Red Herring conference in San Jose - "Women CEOs in Tech". It was an interesting discussion on why the dearth of female tech CEOs? what are the contributing reasons? and then telling stories and answering questions about our experiences. From my perspective it was a chance to share the work being done by the Anita Borg Institute, and for me to share my observations on how much things have changed in the last 20 years.
In response to the question - Have you ever experienced discrimination and how did you deal with it? I talked about my belief that the best way, unless it's malicious, is to deal with it with humor and I was reminded of a funny story from my past - which I shared.
Sometime in 1998, when I was CEO of Simplex and Aki Fujimura was COO, we were invited to a press meeting called "meet the editors" with Electronic News. Jim Detar was the editor-in-chief at the time and we arrived, exchanged cards with Jim and his two cohorts, sat down and prepared to answer questions.
Jim asked a question related to company strategy and I answered. (Aki and I had agreed in advance that I would answer strategy questions and he would answer product questions). As I answered Jim looked irritated but said nothing.
Jim then asked a second question - which I answered. This time he was visibly annoyed and took no notes.
When I finished he said "No, I don't think you understand the reason for this breakfast - we are here to talk to the executives". He hadn't realized I was the CEO; he hadn't checked my business card and because I was a woman he assumed I was the PR lady. Because Aki is an Asian male he assumed Aki was the executive.
I smiled, explained that I was the CEO, and suggested we keep going.
To Jim's credit he recovered after a few questions and then sent me a card in the mail a few days later. It was a brown card with a drawing of a brain on it. Inside he had written "I am sorry I forgot to use it, Jim". Of course I laughed and I forgave him.
James Detar is now an editor with Investor's Business Daily. I wonder if he remembers?
Update
Mike Cassidy covered the panel today in the San Jose Mercury News
Solving business search beyond keywords
I wrote a response to the "Is Keyword Search About To Hit Its Breaking Point" on AltSearchEngines - which Charles posted today and which I had commented on in this blog a couple of weeks ago.
Here's what I wrote:
A gauntlet was thrown down in the recent Techcrunch post, “Is Keyword Search About to Hit Its Breaking Point?” With a provocative up-and-to-the-right Web generations curve, the article claimed that the semantic web is the solution to the limitations of keyword search. And it’s coming in 2010 – if we’d just adopt the standards that would help computers extract meaning from the web.
I’m a believer in the general case, eventually. But, in many important domains, the solution is in production use today. Keyword search is a fantastic technology when a few words and popularity drive you to the right answer. It is a lousy solution when the answer involves an obscure concept or a relationship with common keyword characteristics. Unfortunately that is the case for most qualitative (text-based) business information. The semantic web is held up as a solution but, prior article aside, most in the field believe we’re a long way from this goal. Even is semantic tagging is enough, relying on people isn’t scalable or precise. Using machines is not yet reliable.
A real world solution
But there is a way to solve the problem. Decide on a domain and then solve within that domain.
This is being done effectively today for the investment and market research community today using what we call search-driven research. In the world of the professional investor or the executive, business decisions rely on fresh, conceptual information. Since it is both subtle and obscure, that information is extremely hard to find. Keyword search is not effective and a new paradigm is required. Truly valuable insights typically involve entities and their relationships - complex concepts that can’t be captured in keywords. Fortunately, they can be discovered once you’ve correctly identified and formalized the relevant concepts in each domain. The process demands detailed models which go way beyond keyword and tagging exercises.
Investment and market research is a classic long tail problem; the high end of the Pareto curve contains the least empowering information. The search solution requires a shift from using prominence and popularity as a proxy for value to using business impact as a proxy instead.
For example – consider the portfolio manager who holds a pharmaceutical stock and wants to stay current on the market trends that affect his portfolio. Keyword search around, say, “drug discovery” or its synonyms produces no significant results beyond general education and company references. However, when conceptual knowledge about the domain is modeled, the search results can be high precision and value for the user. Actionable information discovery must happen at a much higher conceptual level.
Three step solution
The solution to model markets requires three technology families:
First - modeling the entities in a market. For business and investment decision makers the key entities – often colloquially called “topics” – include concepts like companies, market trends, management, brands or supply chain members – to name a few. The models of these entities drive detection based on a combination of keywords, grammar and natural language processing – and the web results are organized and tagged with the entities or business topics.
Second - modeling relationships between entities. In addition to modeling the entities, modeling the relationships between entities reveals the meaning. Relationships have many different types – for example status relationships such as competition between products or, in contrast, action relationships such as a merger between two companies or an executive moving from one company to another.
Third – detect events by identifying temporal patterns in the relationships between entities – detecting changes in how entities are arranged relative to each other in time.
Of course, all this wizardry needs to be combined with pragmatism to be useful in business – removing duplication, de-junking, factoring in source authority, normalizing and ranking results– to produce meaningful results from the unruly beast.
But the end result achieves the objective of the semantic web – to be able to use the web as a vast database of rapidly-changing, useful, decision making information. So rather than describe keyword search as reaching a breaking point, I’d describe it as useful for the problems it’s solving today, but not able to scale to the next class of business problems which can be solved using a domain-specific approach today.
Tuesday, May 13, 2008
How to evaluate a startup for you
I have a young friend who works at Google, is considering a startup and came to me for advice this weekend about how to think about his decision. He's in the very fortunate position that he's not yet 30, he's made a nice nest egg because his first startup, in which he was an R&D engineer, was bought by Google early enough that his stock had meaningful value and so he can now step back and decide what he wants to do next without significant short term financial pressure.
As we sat in my garden enjoying the sun, we walked through a set of questions I asked him to help him think through whether the company he's considering is the right one for him.
1. What's the strategy and business - and can you get passionate about it?
Startups take a huge amount of energy to get off the ground and scale. If you don't care about the end product, or the impact of the business on its customers, it will turn into a grind when the going gets tough - which it inevitably will at some point. Even if the technology problem is fascinating the end solution needs to have meaning to you.
2. Can you make a difference to the company?
Again, it's about personal satisfaction, especially for engineers. Can you connect with the impact of the product on the end customer - and is the company impacted by whether you do an OK job or a great job? The fun ones are the ones where your technical breakthroughs flow directly to the top line.
3. Does the job/company you are considering meet the needs for where you are in your life and career?
This is a fuzzy one, and it is important to look at life and career. When I am advising I ask pointed questions like -- what is the experience you most want to get (independent of making money) and do you get it in the job you are considering? Remember, it may fail and you don't want to have wasted time on too many dimensions at once. Does it provide the technical/skill development/management/market experience you need next?
If I am talking with a friend I'll also ask the marriage/kids question and tell brutal stories from the choices I made - or better yet get my 16 year old daughter to tell them and she doesn't pull her punches. It's 1000% critical if you are married that your spouse is supportive of what you are doing because they pay the price.
4. Do you admire the CEO? And will this CEO be around for while?
Company cultures are made, or rot from, the head. If there is a terrific founder in place who you trust and has the maturity to work with the investors and bring in a new CEO if needed - great. If there is a terrific CEO in place who's there to stay for a while - great. But if there is a founder who's brilliant but clearly flaky and you know he's going to be replaced soon, be wary unless you are coming into a position of sufficient control that you feel you can influence the decision.
5. Can you learn from your manager?
For people early in their careers it's critically important that you work for someone who can teach you. There are a thousand ways to do things wrong for every way to do something right and it's much more efficient in the first 10 years of your career to work for someone who can teach you the basics, with quality, quickly.
6. Can you make money?
Again, any startup, if it's on a path to success, with eat the lions share of your time, so make sure the ROI is worth it. Think through revenue over time, look at comps for valuation multiples, consider your option package and the potential for future options, find out how many shares are outstanding and how many more rounds of cash are probably needed (and assume it's at least one more than they tell you) - and then do the math. Do you think you'll make enough money to make the financial risk and short term reduction of earnings worthwhile?
7. Finally, and most importantly - will it be FUN?
Definitely the most important question. Life is very short.
Monday, May 12, 2008
II career advice for the sellside?
If you were a sellside researcher - who would you take advice from? FirstRain sent me an article from Institutional Investor via eFinancialCareers.com. It reflects the trend we have been seeing of talent leaving the sellside (where let's face it the money isn't what it used to be) and moving to the buyside or independent research. This is a trend, reported on by Integrity Research, that's growing buyside research dramatically over the next few years.
So, if you want to move, it looks like crossing the pond, or even the Mediterranean/Adriatic, opens up significant, although competitive, opportunity.
"Demand for analysts is rising at buy-side firms in Europe, and so is the number of sell-side analysts contemplating a move," says Institutional Investor magazine. Moving to the Middle East also raises the odds of landing a buy-side research job, the story says.
The bad news is, competition among candidates is intense. Migration from sell-side to buy-side research, which picked up following the research scandals early this decade, is swelling further amid the recent market turmoil that's pummelling investment banks while leaving most asset managers and hedge funds unscathed. As a result, “There’s a lot of good talent out there," recruiter Victoria True of Armstrong (International) in London told II. Candidates with previous buy-side experience have a real edge over those leaving the sell side.
Still, opportunities for would-be migrants abound. "There are still a number of U.S. hedge funds that do not have a European presence and are looking to establish one," True said. She also noted that many buy-side firms are rapidly expanding into the Middle East and are looking for analysts willing to relocate.
Friday, May 9, 2008
The deal is dead - move on
I am amazed at the level of coverage continuing on the Microsoft/Yahoo debacle. It appears some arbitrageurs are still in the stock, dissecting the words of Microsoft Chief Strategy Officer Craig Mundie after he said "Yahoo could always come back again and say please buy us for $33 (a share) and I'm sure we might reconsider it but we're not assuming that's going to happen," in an interview with CNBC. Given the hostile nature of the discussions over the last month that is simply not going to happen - and the analysts resuming coverage is the best indicator that the deal is dead. If there was money to be made for the bankers by keeping it alive they'd be doing it.
If you've ever been in the middle of a merger negotiation (frequently in the middle of the night) you know there is always a moment when the deal almost falls apart. The issue will be price, or people, or strategy, but at that critical moment both CEOs need to step up and decide that they want to get the deal done, and that to get it done they have to make a concession. It's a tough moment, having been through it personally buying companies, and selling my own, and it's a moment of truth when you find out who really wants a deal, and who doesn't - no matter what they have been saying up to that point.
It certainly looks like the Yahoo board made a mistake - dispatching Jerry Yang to do a deal that he didn't really want to do, or not being involved enough to help him get it done. Major Yahoo shareholders are understandably mad because of the immediate risk that not getting to a deal has introduced. But the best insight I have read as it fell apart draws the parallels between Gordon Crawford's (of Capital Research Global Investors) campaign to get Steve Case removed from AOL Time Warner and how he is chastising Jerry Yang now.
"I'm extremely disappointed in Jerry Yang," said Gordon Crawford, a portfolio manager at Capital Research Global Investors, which owns over 6% of Yahoo's shares. "I think he overplayed a weak hand. And I'm even more disappointed in the independent directors who were not responsive to the needs of independent shareholders."
But Yahoo is by no means on the ropes and the two companies are so different culturally that had the merger gone through it would have been fraught with execution risk for the Microsoft shareholders and a boon for Google hiring - so here's hoping that the good core that is Yahoo is not materially damaged in the long term by this mess and that the board and Jerry Yang show progress quickly, or bring in a new CEO who can help Yahoo realize it's potential and grow the next phase.
Thursday, May 8, 2008
Icahn's options strategy to skirt anti-competitive reporting
In follow up to my recent post that activism is on the rise - I saw a fascinating piece on Bloomberg recently on a detailed anti-regulatory strategy used by activist investors like Norman Peltz and Carl Icahn -- in which they use options to avoid ownership disclosure rules that the U.S. Fair Trade Commission oversees.
For those who don't eat-and-sleep the regulations, activist investors essentially need to file with the FTC and notify the firm itself when they cross over the threshold of owning more than $63M of a firm's shares. They then must wait for FTC approval before continuing to accumulate a position. Passive investors face a more lax collar, and can own up to 10% of a firm before filing with the FTC.
These FTC reporting rules are in addition to the SEC's Form 13D, which must be filed within 10 days of an investor acquiring more than 5% of a firm's shares.
The article details transactions in which Icahn purchased options from Goldman Sachs to buy MOT's stock -- rather than the shares themselves -- as he prepared for a rapid accumulation of stock. This essentially put him in a position of being able to pounce on the company, but without disclosing that he was on the verge of doing so.
It's a gray area for regulation, though Jeffrey Zuckerman, who brought cases against this practice in the 80s, is quoted as saying that the FTC "looked at [the practice] back in the 1980s and, rightly or wrongly, concluded at the staff level that this should not be allowed.'' More recent comments have said it looks at situations on a "case by case" basis.
As investors sharpen up their game in the hunt for greater and more alpha-generating information, the activist investors are expanding their playbooks to avoid providing their peers a free ride.
Wednesday, May 7, 2008
Release 2.0 on Web 2.0 and Wall Street
Our CTO - Marty Betz - was interviewed in a very interesting article in Release 2.0 April issue: Money 2.0 - One year later, the connections between Wall Street and Web 2.0 are getting stronger and moving in surprising directions by Jimmy Guterman
"The disconnect continues," says Martin Betz, FirstRain’s vice president of technology. "I was surprised when I arrived here at how disconnected Wall Street is from technology. It’s amazing how much the web is untapped or simply uninteresting to many finance people. A big part of what our sales force has to do is explaining to hedge fund managers that there is quite a lot of useful data on the web that they haven’t seen. Those few hedge funds who are using data from the web usually say they’re getting analyst reports or Google alerts. Those are very primitive ways of thinking about data on the web. The perception that new and valuable information is available hasn’t taken hold in a widespread way. But it’s out there. Looking for new data sources is not what we do predominantly. Most of the data we crawl and collect is publicly available. It’s just that much of it is obscure and unfiltered."
As you’d expect of an executive whose company is in the business of selling data to such a reluctant audience, Betz maintains that "data from the web, if collected and analyzed properly, will give you an advantage. The noise of the blog world has led the conservative people who run Wall Street to think that the whole system is noisy or junky and that’s simply not true. For companies like ours to succeed, we have to deliver the information in a format that’s understood by the program-trading tools these people are using."
Betz says speed isn’t necessarily the key part of the value proposition FirstRain is promoting. "We don’t promise you that you’ll see something first. What we promise is that you’ll see aggregated and filtered information you wouldn’t have seen otherwise." So it’s a qualitative edge as much as a quantitative edge that Web 2.0 firms are selling to Wall Street. "Trading is still full of human beings collecting qualitative information and then testing it."
That qualitative information is what’s next for Wall Street.
Tuesday, May 6, 2008
The First Call sales story
Bruce Fador, former CEO of First Call, (now Thomson Reuters) came to talk to my sales team today. He's an advisor to the company and an experienced executive with both successes and failures under his belt - both of which he's willing to talk with the sales team about to help them learn.
Key learnings he shared with us - which are a valuable backdrop to any new company selling into the buy side:
- be resilient - sales were very tough the first year when the service was new - every sale was a fight
- place tremendous emphasis on sales process and uniformity of sales process - the pitch, key messages and objection handling
- do peer reviews of sales process and team sell when you focus on a new territory
- focus on what pain you are solving for the customer - and respond to the customer's input by showing how you can "solve the pain"
- listen to the customer - anticipate the customer's need by listening very carefully
- bring all feedback to management and R&D, be willing to fight for functionality and commit to how functionality will increase sales
It was encouraging and inspirational for my sales team to hear Bruce's stories about how he built the success at First Call, and they were also impressed by his openness about what went wrong on his next one - World Street. He takes them both in his stride with a sense of fun that they enjoyed.
We asked the question about the tipping point - how many clients did First Call have before they did not feel they were on a missionary sale fighting it out in the mud for every client?
Bruce's answer - 500 clients - and then they scaled very fast to 3,000 clients and 40,000 users. That's the point at which customer adoption becomes defensive not offensive. It was great to hear - we're on our way!
And the quote for the day - "Remember this is Wall St. If you are helping them make money you are a star"
Sunday, May 4, 2008
How to review a sales team
Sales teams thrive on a balance of structure and freedom. Enough structure that they know what they have to work with and what’s expected of them, enough freedom that they can be creative, run their own territory and make money.
I have found that taking a sales team through a territory review process a couple of times a year can help them, and help me, find that balance. I am on my way to New York tonight to participate in one of the team’s reviews tomorrow with my VP Sales, Todd Rudley.
The first thing that is important, before you can ask a sales person to walk you through his/her strategy and plan, is to be clear on who has what territory. At FirstRain we have defined over 30 territories in the US and Europe (we don’t sell in Asia yet). Every territory is defined by accounts (eg. US majors #1 has a list of named large accounts), by alphabet in a geography (eg. New York A-D), by assets under management (eg. SouthEast <$2B) or by pure geography (eg. Corporate West - a list of western states).
Some sales people have one territory, some have 2, depending on the richness of the territory today for our current products and on the experience of the sales person. By defining the structure now though we reduce confusion within sales today and as we grow.
So, on to the review itself. It’s a meeting where the sales person makes a presentation with his/her manager to us – to Todd, me and then if other execs are interested they are certainly welcome to join us and hear what’s happening first hand. The sales rep develops a presentation that covers:
- the territory and an overview of the total opportunity within it
- their quota and progress against quota year to date
- the current quarter’s campaigns – both strategy and tactics to develop and close
- the longer term campaigns that affect the latter part of the year (or the following year)
- their process for developing accounts – eg. if it’s a cold calling type of territory how many calls per day and what’s the conversion and closure rate?; if it’s a major account strategy how are they approaching development of the key relationships?
- their forecast
- what’s working for them with the product and marketing
- what’s not working – what additional help they need.
In my experience everyone will approach their presentation slightly differently, even if you give them the same structure, but by covering these topics we get a good feel for both how the sales person is doing (will they be successful or not on the path they’re on) and what additional resources and support they need to be successful (our job is to get them what they need – obviously).
It also gives sales management insight into their own forecast. Having gone through the reviews do they still believe their own forecast or not – would they change it? This is especially important for a small company where as CEO you need to be very on top of cash burn, as I have posted before.
Our new quarter started May 1 and I have 7 back-to-back reviews tomorrow, on the hour for 7 hours. Should be interesting…
Smart Business coverage of FirstRain
I was interviewed by Smart Business a few weeks ago – talking about how I build management teams of small companies. The article is
In employees we trust
How to build a team that complements your strengths
By Matt McClelland
Smart Business Northern California May 2008
Returning to Market Mine
Back on line after a couple of days in the sun with a close friend celebrating her milestone birthday.
Tuesday, April 29, 2008
Lunch with me - for charity
The Anita Borg Institute is raising money at our annual Women of Vision evening in May - and we're auctioning off lunch with board members. So, I'm up for auction, alongside the heads of R&D for Microsoft and Google (I sure hope they fetch more than I do) for lunch conversation and I'll cover pretty much any topic - within reason!
I did this for ABI once before a few years ago and it was great fun. I met with a female entrepreneur starting a company so we had a lot to talk about.
Activism on the rise
I read a fascinating statistic in InRich.com last week - evidence that "Annual meeting season is here, and some shareholder dissent is in the air."
Did you realise that "Nationwide this year, shareholders so far have offered about 1,106 proposals for company meetings this year, not including proxy battles over board seats, according to advisory firm RiskMetrics. For all of last year, shareholders offered 1,164 proposals."
That means that 30% of the way into the year we have as many proposals as all of last year.
There was a good, comprehensive article on this topic in FinAlternatives recently The Year of the Activist Hedge Fund that discusses the importance of timing and the ability of the investor to accumulate enough stock to take control before the company realizes what is happening. It also discusses SPACs: Blank check companies, better known as SPACs – Special Purpose Acquisition Vehicles, are quickly becoming the new darling of the activist investor. SPACs are newly formed companies that raise equity capital through an initial public offering for the sole purpose of pursuing a business combination in a dedicated industry or geographic location. And although the purpose for raising a SPAC is quite different from the goals associated with investing in them, a number of activist investors are exploring the value of doing both.
But while SPACs sounds like a good way to raise capital for an aggressive activist move they don't always work - see the sad story of A SPAC that went splat to see what happens when the timing is wrong. Ellen Hancock is a family friend and so I heard this story from the inside and it's a sad one, as much about people as markets.
I also see hedge fund activism through the eyes of my board member, Charlie Frumberg, who runs Emancipation Capital. The majority of his fund's significant gains in 2007 came from his tech investments where he was very active and since I have him on my board, and see the incredible contribution his ideas make, I know any company that he decides to get personally involved in is better off. So his firm is a good example of the positive impact activist hedge funds can have, unlike the challenge often described if you are a CEO caught in Carl Icahn's cross hairs.
If there were more like Charlie, activism being on the rise would be a good thing.
Monday, April 28, 2008
Sea change or table scraps?
Guest author: Todd Enders, FirstRain
As I watch the ongoing jockeying for advantage between newspapers, web publishers, and Yahoo, it increasingly looks like the consolidation of web advertising platforms is going to be another puncture in the hull of the web 2.0 bubble. When advertising is the source of your revenue, consolidation in channels is not a happy event.
By web 2.0, I'm referring to the web/mobile companies that build and hype a feature/application to drive usage (digg, bebo, etc.) -- and thus eyeballs. This leaky-boat situation may be more than deserved, per Kara Swisher's rant on how consistently web 2.0 entrepreneurs use the word "advertising' as a sort of escape-from-a-real-business-plan talisman.
But I think the conversation reveals the elephant in the room: how CAN technology businesses (other than Google, Facebook & Yahoo) make money on the web without the advertising monkey on their back? Digging around the web, it becomes obvious that there is some confusion out there about the term 'business model', including posts that confuse exit strategy with business model, but I think the answer "yes" lies in Chris Andersen's framing of three-party systems in last month's Wired:
"The most common of the economies built around free is the three-party system. Here a third party pays to participate in a market created by a free exchange between the first two parties. Sound complicated? You're probably experiencing it right now. It's the basis of virtually all media."
To be clear, 99.9% of the web's three-party system business models are advertising-based (today), but the size, growth and peculiarities of the web's "parties" opens the door to move beyond advertising -- and to get one or both of the parties to pay. Those parties are:
Party #1: Authors of the web's written content: hundreds of billions of pages, growing astronomically -- completely disorganized
Party #2: Readers of the web: over a billion unique combinations of interests, growing astronomically -- completely disorganized
Party #3: Web technology entrepreneurs
To address another elephant in the room when talking about the web: Google's approach to search works well when hunting for the most widely-known and popular information, but it provably does not work well for finding the most valuable information (whether that's the most pertinent or the least well-known).
I think the opportunity is in connecting the impactful parts of Party #1 to the interested, able-to-pay members of Party #2. And the answer to "what's the most valuable information?" is different for each unique pairing between the parties. Pulling this off is not as easy as saying "advertising" -- it takes significant technology and domain-specific models to make the delivery of unique data to an interested constituency possible. That takes research and deep knowledge of every domain you go after.
It's a slightly longer road, but it takes the web to a more interesting place.
Why CFOs need to watch the web
Terrific coverage in Financial Week today on how our capability - search-driven research - and products like ours, can be of value to CFOs and VPs of IR. When I spoke with Carleen Hawn for this article we discussed the need for CFOs to stay up on the information their major investors are seeing. No CEO, or CFO, wants to be surprised by an investor call.
Carleen picked up one of the examples I gave her: FirstRain picked up a blog, in mid February, revealing that Netflix was surveying it's customers about interest in downloading movies onto the Xbox 360 as part of it's game console strategy. At the time this strategy was not visible to the buyside and so this prompted a host of questions in our customer's mind. Bruce is a PM (at a major institution that we treat as confidential). He read the blog, picked up the phone and called Reed Hastings, CEO of Netflix, to get a quick understanding of the strategy and what this could mean for the company's future. Now this topic is all over the press, but two months ago this was new and Bruce valued that he got the heads up to get on top of the issue and it's impact.
Saturday, April 26, 2008
The breaking point of keyword search
Via Techcrunch and Radar Networks - comes a view of the breaking point of keyword search. It's the ineffectiveness of keyword search that drives FirstRain's value to our customers; Google et al produce results that are voluminous and the most popular (most highly linked) but the least useful for hard questions.
For the business professional, be they a portfolio manager or a brand manager, it's the less popular - hence differentiated and insightful - information that is needed. That's the opposite of keyword-based (see here for a study by Integrity Research on how Google doesn't work for financial research). Solving the problem today requires an approach using both natural language processing and categorization (machine tagging) technologies - somwhere between web 2.0 and web 3.0 on this chart. But in-depth insight is created when you have models of markets, and domain specific knowledge coded into the search appraoch. Then users can answer their hard, market questions from the web.
Thursday, April 24, 2008
The rumors of hedge funds death have been greatly exaggerated
As the financial industry continues to work through it de-leveraging of itself, there's been a lot of ballyhoo about the death of hedge funds. A Hedge Fund Research report shows major pullbacks from hedge funds in the first quarter.
But the data shows that star power is still attracting new funds:
- Greg Coffey of GLG is starting a new fund
- InvestCorp has put an additional $8B into a fund of hedge funds, primarily Paulson & Co., where John Paulson took home first place in Alpha Magazine's top earners for 2007 list
- Josh Bimbaum, who made Goldman billions by betting against subprime loans, is starting a new structured products fund.
In addition to stars, specialty plays are also drawing new investment, like San Francisco-based Electranet's new energy efficiency fund, just launched by former energy traders (Enron!), or David