Greek Complexity

Mixed metaphors

In some spam I received today:

[Some business owners] exert much energy in rowing their boats, but no one is at the steering wheel.

Why am I reading this stuff!

Coulda, woulda, shoulda

[via Venture Intelligence India] Retroblogs:

Bessemer Venture Partners has a link on it's website of something that they call as Anti-portfolio. Contains a few names of the businesses they had opportunity to invest, but did not.

With names like Apple, Fedex, Google, Intuit, eBay, Intel, PayPal on its list, BVP has a very impressive Anti-portfolio. And it's interesting to see that they're so upfront about it.

BVP says:

Our reasons for passing on these investments varied. In some cases, we were making a conscious act of generosity to another, younger venture firm, down on their luck, whom we felt could really use a billion dollars in gains. In other cases, our partners had already run out of spaces on the year's Schedule D and feared that another entry would require them to attach a separate sheet.

But:

BVP passed on Federal Express seven times.

So I am inclined to think that BVP's explanation is pure bollocks! No one gives away a billion dollars! (Bill G doesn't count.) (And what's a Schedule D?)

What now puzzles me is, if they had such a lame explanation for not investing in these companies, why did they publicise this Anti-Portfolio in the first place? Perhaps the purpose was simply to poke fun at themselves. If so, bravo. Their introductory paragraph hints:

Bessemer Venture Partners is perhaps the nation's oldest venture capital firm, carrying on an unbroken practice of venture capital investing that stretches back to 1911. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.

Any insiders/affiliates want to comment?

Link: Missed Opportunities

VCs with too much money

On HBS Working Knowledge:

It might be hard for the ordinary business owner or consumer to imagine having "too much" money. But that's exactly where the venture capital industry finds itself: with too much money available for the number of emerging enterprises able to offer the promise of an excellent return.

HBS professor William A. Sahlman noted: "One of the historical factors in the venture capital industry… was too much money going into too many deals in the same industry, so it was very hard for any individual companies to succeed, and valuations got pushed up…I wonder if you think that phenomenon has gone away?"

Marc A. Friend, a GP with Summit Partners, said the reason you see "five of everything starting at the same time" in the early stages is because smart people are looking at the same data. "You've got big companies that are addressing wide markets and there are gaps in the product portfolio," he said. Engineers and product developers leave those companies to start their own businesses to fill in those gaps. And they're rarely alone."

Friend said most of Summit's funds that were ten years old or older were in the top quartile, and he said he believed the 1999 fund he's involved with would likely occupy a similar spot when exits were made and the returns counted. "But that means single-digit (internal rate of return)," he said.

Eeks.

Reflecting on the last fifteen years in venture capital, Intel's McCall observed, "It's been a pretty wild ride." He recalled making twenty-five to thirty deals a year in the mid-1990s, a pace that accelerated to $1 billion a year in 1999 and 2000. Like many of those who invested in emerging high tech companies just before the bursting of the Internet bubble, Intel Capital still has some regrets from those heady days.

"I think back on the 2000 investments and wish we had not done a lot of that," McCall said. "We're still getting a few exits out of that right now, but smaller exits for the most part."

It's nice to see VCs that admit they're human just like the rest of us! :-)

Link: The VC Quandary: Too Much Money

"Outlook bright for Asian PE"

...so says CFO Asia. A nice follow-up to my previous post on VC trends in Asia. This one is about how private equity investors in Asia are increasingly turning into buyers of non-core assets from Asian companies. Excerpts:

For CFOs holding on to a cash-generating asset that isn't core to the business, 2005 might just be the year to end the wait for that elusive right opportunity to sell.  [2004] was a landmark year for an alternative source of funds that had been lurking on the sidelines. Private-equity firms figured prominently in some of the biggest mergers and acquisitions in the region.

"Last year demonstrated that there are successful entrepreneurs with the ability and passion to grow very successful companies," says [Jamie] Paton [of 3i]. Until [some recent] IPOs of Chinese companies, "what was lacking in Asia was the role model" of PE-investment success.

Two sectors are obvious favorites. "Private-equity investors have been recently focused on industrial/manufacturing, and consumer/retail opportunities," says Hanning [of Morgan Stanley]. And they're looking for these assets in three markets. China's measures to cool its economy added new difficulties to private enterprises seeking to borrow money or sell equity at home, which means their CFOs are looking for other sources of capital. Likewise, the implosion of South Korea's credit-card industry - uncontrolled growth resulted in massive bad debts - has made consumers wary of spending, which then takes pricing power out of CFOs seeking to sell assets. The same is true of Taiwan, where global opinion on the technology sector this year leans on the bearish side.

Interesting. So not only are there opportunities because of the well-recognised growth of Asian markets, there are also some distress stories.

Paton: "What a private-equity buyer brings firstly is straight cash, not a mixture of cash and shares." Apart from the cash component, he says a PE investor also "allows the vendor to sell an asset to a group with no conflict of interest." And a PE company has a network of acquired assets that it can use to nurture newly bought assets, thus making sure the seller's former stakeholders are not left in the lurch. Says Paton: "We can build up not just the company but also its sales channel, among others."

How true is this, I wonder. If the PE investor truly has a network of companies in synergistic areas, then isn't that automatically a conflict of interest? It'd be like competing with a conglomerate.

Link: The Answer Is Private

VCs and early-stage start-ups

Two somewhat different points of view. My views follow.

Someone called Mike writes on Techdirt:

The one thing that seems the most interesting to me, however, is the fact that a good number of the companies presenting at the conference are all bootstrapped to this stage. While it's likely that some of them will score large buckets of [VC money], it's good to see at least some startups realize that starting up a company doesn't mean "get VC first." Of course, this may have been out of necessity. Many of these companies were born during the past few years when trying to raise money from VCs was a complete waste of time. The question, though, is whether or not things remain this way, or if the VCs are starting to turn their attention back to earlier stage companies again?

And Jeff Nolan responds:

First of all, the amount of venture capital that has been invested in the last couple of years has been substantial and growing by any measure, so the idea that a startup raising financing is "a complete waste of time" is factually inaccurate. What has happened is that we have reverted to a demand-driven financing environment which simply requires a company to demonstrate that they are fundable, which in many cases requires them to bootstrap early development.

Let me add my two bits worth about early-stage VC in Asia.

In Singapore, where I am based, early-stage venture capital is non-existent. Variety of reasons:

• Investors are risk-averse.
• There really aren't that many potential Googles out there in Singapore and the rest of South East Asia.
• Investors see a bunch of lower-risk but still fairly high-return opportunities outside traditional technology-based, Silicon Valley-type investing.

So truly innovative technology start-ups have had to bootstrap or tap angels, grow for a few years and only then consider approaching professional investors. I myself am working with a couple of companies that fall into this category.

In India, early stage VCs are slowly making their presence felt. I get the feeling that early stage VCs in India are primarily corporate VC arms. People like Intel Capital and Analog Devices have been there for quite some time. Others like Nokia and Cisco are now entering the market.

Established non-corporate/standalone "VCs" in India have so far been late-stage private equity players and not early stage VCs of the Kleiner Perkins or Sequoia variety.

A lot of money has gone into growth stories and I believe buyouts will slowly become a part of the scene as well. This isn't really about risk-averseness. It's about making "easy" money (in quotes because, well, is it ever that easy?!) by investing in less risky, later-stage ventures that still manage high IRRs because of India's booming growth in areas such as BPO and IT.

Another factor might be that, due to India's cost structure, a technology start-up in India would not be able to absorb the type of capital investment that Western VCs are typically used to making. A million dollars in India goes a long way. And the same VC can't sit around evaluating and making hundreds of $50K investments. It just doesn't work.

Now that early-stage VCs are (re)entering India, I'm curious to learn what kinds of companies are actually funded by them, at what stage and at what valuation.

In China, where my knowledge really isn't that deep, both early-stage VCs and late-stage PEs are making investments, and have been doing so for some time. In some areas, the market has been heating up, particularly in the Internet and wireless sectors. Steven White at INSEAD has done a formidable amount of research on VC in China. This paper from INSEAD Knowledge is one example.

Looking back up at this post, I've really rambled away from the original topic! Well, as long as it's useful to at least a few readers...

Idiots

Jeff Nolan:

Apparently, those folks at Greenpeace never thought to consider that storming a trading floor populated primarily by young, testosterone laden traders might not be a good idea. The Greenpeace gang did it anyways, they took on the petroleum exchange in London yesterday and literally got their asses kicked by traders. On the best of days a trading floor looks like a WWE event, I think Greenpeace gets a Darwin award for this stunt.

Link via instapundit: Times Online - Britain.

“We bit off more than we could chew. They were just Cockney barrow boy spivs. Total thugs,” one protester said, rubbing his bruised skull. “I’ve never seen anyone less amenable to listening to our point of view.”

keep in mind that the protestors gained unauthorized access to the trading floor and stormed it with bullhorns and a variety of props... they were not exactly on a mission to "have their point of view heard", they attempted to shut down the traders paycheck for the day.

... Protesters conceded that mounting the operation after lunch may not have been the best plan. “The violence was instant,” Jon Beresford, 39, an electrical engineer from Nottingham, said.

“They grabbed us and started kicking and punching. Then when we were on the floor they tried to push huge filing cabinets on top of us to crush us.”

Last night Greenpeace said two protesters were in hospital, one with a suspected broken jaw, the other with concussion.

Aren't there more effective (and safer!) ways to make a point? If they want the oil companies (and politicians, media, the general public...) to take them seriously, surely a stunt like this would never work! I actually think that Greenpeace tackles some important issues, some of which I agree with, but it's got to be done professionally. Stunts like this can only be counter-productive.

What's worse is that even getting beaten up doesn't seem to have beaten any sense into their heads. ("Thugs"? You were tresspassing on someone else's turf, you idiots! I thought the Times report on this episode was steadfastly and almost overly nonpartisan.)

Link: Venture Chronicles by Jeff Nolan: Greenpeace gets a can of whoopass opened on them

Child born with both male and female organs

newkerala writes:

In an unique case in medical science, doctors in [Ahmedabad] would conduct a complex surgery on a two-year-old child born with both male and female reproductive organs.

On detailed inspection, including conducting laproscopy, the doctors noticed that he had a uterus, fallopean tube and vagina on one side while a fully grown male reproductive organ on the other side of the body.

I wonder how the doctors decided that the child was a boy and not a girl. Or was it simply that the child had been treated as a boy since his birth, so the doctors chose to stick with that.

Being a biology novice, I don't even know if there is some sort of intrinsic measure of one's gender, especially during infancy, apart from looking "down there".

Link: Child with male and female organs to undergo surgery.

Yet another business networking website

Yet to try out. Their Take The Tour webpage has wording reminiscent of an article I read recently about Malcolm Gladwell.

Link: common.net.

Another very good article on blogs

[via Feld Thoughts] Another article on blogs. This one talks about why blogs aren't meant to replace email (what a notion!).

Link: The Rumors of Email's Demise Have Been Greatly Exaggerated, Part IV.

Very good article on blogs, bloggers and their relationship with traditional journalism

[via Tim Oren: Due Diligence]

Link: OpinionJournal - The Blogs Must Be Crazy.