The Wall Street Journal's recent front page article "Pensions Bet Big With Private Equity" explores the approach used by Teacher Retirement System of Texas with respect to its allocation to private equity.  According to the article, the $114 billion fund has committed about 30 billion to private equity, or roughly a 26% allocation to private equity, giving it the highest allocation among the ten largest pension funds in the United States, where the average allocation is 21%.  The returns from private equity for the pension fund have been 7.4% , 4.8% and 15.6% over the past ten year, five year and three year periods, respectively.  The pension fund is 82% funded, compared to the average funding level of 76% among large pension fund nationally.


It's an interesting article, but I feel it could have been more interesting if it had included specific comparisons to California's CalPERS and CalSTRS plans.  Here's the link:  
http://online.wsj.com/article/SB10001424127887323485704578258242293295894.html

Today's Forbes.com article "Crowdfunding Won't Solve The Venture Capital Series A Crunch" provides an interesting look at the growing gap between angel/seed financings and Series A financings.  According to the article (citing Pitchbook), the ratio of seed financings to Series A financings in 2008 was 1.9:1, but had grown to 3.3:1 in 2012.  Reasons cited for the gap include:

• Larger VC funds make Series A financings harder to do.
• The growth in angels and incubators.
• Poor investment decisions made by angels and seed investors.

I would add to this list another bullet point: valuations.  Many VCs I speak with say that angel/seed rounds have valuation inflation, which makes it much harder for an institutional VC to do a deal at the Series A stage.  If the valuation is too high, then (1) the company (and its angel and seed investors) have to take a haircut on valuation (and suffer dilution as a result), (2) the VC has to pay a higher valuation, or (3) the deal doesn't get done.

The article goes on to discuss whether equity crowdfunding can fill the Series A gap, and argues that no, equity crowdfunding will not do this.

It's an interesting article and worth a read.  Here's the link:  
http://www.forbes.com/sites/ryancaldbeck/2013/01/23/crowdfunding-wont-solve-the-venture-capital-series-a-crunch/

Lifetime Value (LTV) is a tool used in marketing to estimate how much a customer is worth over the entire time the customer remains with the company.  Bill Gurley, the author of the Above the Crowd blog, wrote an interesting post a while ago on the LTV formula and discussed several of its pitfalls.  In "The Dangerous Seduction of the Lifetime Value (LTV) Formula" he lists 10 reasons to "avoid worshiping at the LTV altar":

1. LTV is a tool, not a strategy.
2. The LTV model is used to rationalize marketing spending.
3. The model is confused and misused.
4. The formula is not absolute.  It's at best a good guess.
5. The LTV variables "tug" at one another.  The variables in the LTV equation are interdependent, not independent.
6. Growing becomes a grind.  Investing heavily in marketing doesn't necessarily lead to a commensurate drop in subscriber acquisition costs.
7. Purchased customers underperform organic on almost every metric.
8. The money could go to the customer to provide a better value proposition to the customer and to provide a better customer experience.
9. LTV obsession creates blinders.  Companies that obsess over LTV can become overwhelmed by it, whereas scrappy companies can find more efficient forms of marketing.  Bill uses a great example here.
10. Tomorrow never arrives.  It's difficult to create permanent equity value with LTV.

Here's the link:  http://abovethecrowd.com/2012/09/04/the-dangerous-seduction-of-the-lifetime-value-ltv-formula/
Also, some of the comments are very interesting.

J.J. Colao of Forbes, provided a defense of LTV in "In Defense Of The Lifetime Value (LTV) Formula."  The article points out that with the proper oversight, LTV can be effective.  It also provides a very interesting real-life example.  The article offers five tips for effectively applying the LTV formula in a business:

1. Prize customer experience above all else.
2. Keep the variables clean.
3. Isolate customer segments, and then apply the formula.
4. Don't rely on conventional marketing.  Use a variety of marketing approaches, such as viral, social and PR.
5. Maximize LTV to a point, then scale.

Here's the link:  
http://www.forbes.com/sites/jjcolao/2012/09/13/a-dangerous-seduction-revisited-in-defense-of-the-lifetime-value-ltv-formula/

Dividend Recapitalizations (also known as leveraged dividends) by private equity firms rose in 2012, according to an article today by Pensions&Investments.  In "Cheap Debt Means Private Equity Finally Pays Off" the use of dividend recaps in the US by private equity firms in 2012 rose to 77 in number and $33.4 billion in amount, up from 55 in number and $17.7 billion in amount in 2011.  Reasons for the increase included the availability of cheap debt, higher valuations of portfolio companies, uncertainty regarding the fiscal cliff and tax rate increases, and lenders having cleaner balance sheets.

Here's the link to the article:  
http://www.pionline.com/article/20130107/PRINTSUB/301079975/cheap-debt-means-private-equity-finally-pays-off#

Yesterday's Mercury News article "The Cleantech Cliff: Global Venture Capital Investment Plunged 33 Percent in 2012" discusses the difficulties that Cleantech investing experienced in the past year.  The article indicates that global Cleantech investment in 2012 was $6.46 billion, down from $9.61 billion invested in 2011, a decline of 33%.

Reasons for the decline include:

• Low natural gas prices make it more difficult for renewable energy projects to compete
• Capital intensive deals are out of favor with venture capitalists, after failures like MiaSole.
• Global economic uncertainty also took a toll

Here's a link to the article:  
http://www.mercurynews.com/business/ci_22305241/cleantech-cliff-global-venture-capital-investment-plunged-33

On the heels of Fortune's list of IPOs to watch in 2013 (see my prior post) is Forbes slide show of "The Next Hot IPOs."  Here's Forbes list of initial public offerings to watch for in 2013 or 2014:

• Twitter - microblog
• Square - mobile payments
• Dropbox - onlline file storage, backup and sharing
• Box - online content management and collaberation 
• LivingSocial - daily deals
• Coupons.com
• Atlassian - issue tracking, collaboration and software development tools
• Glam Media - lifestyle-focused content sites
• Spotify - online music
• Rovio - maker of the Angry Bird games
• AirBNB - short term travel accomodation rentals
• Hipmunk - travel website
• Jawbone -  maker of bluetooth headsets, speakers and wearable technology devices
• Pinterest - social network
• Survey Monkey - online surveys
• Alibaba - Chinese e-commerce company
• Inrix - location-based traffic information and directions
• Cloudera - big data company
• Marketo - marketing automation software company
• Marin Software - online advertising management platform
• Tableau Software - business analytics software

Here's the link to the slide show:  
http://www.forbes.com/pictures/emlm45egjdk/the-next-hot-ipos/

Link to post on Fortune's list of IPOs to watch in 2013:  
http://www.allenlatta.com/1/post/2013/01/10-ipos-to-look-for-in-2013-fortune-article.html

Fortune has published its list of 10 initial public offerings to look for in 2013, aptly called "10 IPOs to look for in 2013."  The article identifies the companies and adds some background on them.  Here's the list:

1. Twitter
2. Violin Memory
3. Square
4. Xoom
5. Dropbox
6. Arista Networks
7. Box
8. Marin Software
9. Kabam
10. Opower

Link:  
http://money.cnn.com/gallery/investing/2013/01/02/ipo-predictions-2013.fortune/index.html