This supports an earlier story by the Wall Street Journal on the topic that was covered in a prior post. Here's a link to the post: http://www.allenlatta.com/1/post/2012/04/layoffs-expected-for-wall-street-investment-bankers-wsjcom.html
According to a report on Fortune Term Sheet, Wall Street financial company are poised to slash nearly 21,000 jobs, focusing on investment banking and trading departments. The layoffs will include senior bankers, and those remaining could see compensation drop by 30%. Here's the link: http://finance.fortune.cnn.com/2012/04/30/wall-street-layoffs-21k/
This supports an earlier story by the Wall Street Journal on the topic that was covered in a prior post. Here's a link to the post: http://www.allenlatta.com/1/post/2012/04/layoffs-expected-for-wall-street-investment-bankers-wsjcom.html
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The TechCrunch post "Be Concise! - The Top Questions Asked At A Y Combinator Interview" has a list of over 50 questions that entrepreneurs have been asked during the Y Combinator interview process. As I reviewed the questions, it seemed to me that these questions are also useful to entrepreneurs as they prepare their marketing documents. For example, one of the questions is "How big an opportunity is there?" This is something every investor will want to know and all fundraising presentations I have worked on (as an investment banker and lawyer) have had something about the market opportunity (size, growth rate, addressable market, etc.). If entrepreneurs go through these questions before they prepare their marketing documents, the final product may be more thoughtful and complete.
Here's the link: http://techcrunch.com/2012/04/27/be-concise-the-top-questions-asked-at-a-y-combinator-interview/ In "Disruptions: With No Revenue, an Illusion of Value," author Nick Bilton presents a case that there is a technology bubble, based upon (a) how some start-ups are advised by investors not to have revenues, as revenues lead to valuations driven by science, where no revenues means "finger in the wind" valuations; and (b) most venture capitalists are more interested in quick flips with eye-popping premiums. An example is no-revenue Instagram being acquired be Facebook for $1 billion, and other examples of multi-million dollar acquisitions of zero revenue companies are provided, including YouTube.
This led to a thoughtful response by Chris Dixon on his blog. In "Is it a Tech Bubble" Mr. Dixon argues that the situation is more nuanced, and provides seven thoughts:
Links: "Disruptions: With No Revenue, an Illusion of Value" http://bits.blogs.nytimes.com/2012/04/29/disruptions-with-no-revenue-an-illusion-of-value/ "Is it a Tech Bubble" http://cdixon.org/2012/04/29/is-it-a-tech-bubble/ Tech entrepreneurs are able to develop ideas much faster and for less money than in years past. This has led to entrepreneurs changing their company's business model mid-stream when they find the original business model didn't have traction or that feedback suggested moving in a new direction. This rapid shifting of business models is now known as "pivoting" and in the case of Instagram, paid off very well. Instagram, founded just a few years ago, was started as a mobile check-in site, but pivoted into the photo-sharing application that was acquired recently by Facebook for $1 billion.
The Wall Street Journal article "'Pivoting' Pays Off for Tech Entrepreneurs" discusses this phenomenon of pivoting, and how venture capitalists are embracing it. It's an interesting read. Here's the link: http://online.wsj.com/article_email/SB10001424052702303592404577364171598999252-lMyQjAxMTAyMDIwNjEyNDYyWj.html "Aqui-Hires" are acquisitions where the acquiring company (usually a larger company) is primarily acquiring the talent at the smaller company, usually a start-up. Michael Arrington, the founder of TechCrunch and now the founder of venture fund Crunch Fund, has written a very good article that is posted on From the Crowd discussing a component of Aqui-Hires, being stock grants issued by the acquiring company to the key employees of the start-up at values that are often much greater than the acquisition price. The issue is whether the stock grants should be considered part of the overall price of the acquisition.
Why is this an issue? Because these Aqui-Hires often end in losses to investors of the start-up, and the start-up's investors may feel that they should share in the value of these stock grants. It's an interesting issue, and Mr. Arrington's column explains it well. Here's the link: http://finance.fortune.cnn.com/2012/04/25/startup-investors-may-request-acqui-hire-protections/ Wired Magazine has posted an interesting interview with Marc Andreessen titled "The Man Who Makes The Future: Wired Icon Marc Andreessen." The interview traces Marc's remarkable career, as inventor of the first graphical web browser Mosaic, to co-founding Netscape (the IPO of which helped fuel the dotcom era), to starting Loudcloud (an early cloud computing services business), to co-founding venture capital firm Andreessen Horowitz. It's an insightful article and a good read.
Here's a link to the article: http://www.wired.com/epicenter/2012/04/ff_andreessen/all/1 The Wall Street Journal reports that the ax is about to fall on investment bankers at some of the largest banks, as a result of lower M&A deal volume this year. According to the article, global M&A revenue fell 17% in the first quarter of 2012 compared to the same period last year. With pay and bonuses shrinking at the banks, it's a tough environment for bankers.
Here's the link: http://online.wsj.com/article/SB10001424052702303978104577361833023859446.html Reuters reports that China's internet sector has seen a dramatic fall in venture capital investment. According to the article, Chinese Internet companies raised $138.5 million in the first quarter of 2012, compared to a whopping $866.5 million invested in the same quarter last year, a decline of 84% (data from Thomson Reuters). Last year, China's internet sector received $3.6 billion in venture investment, over double the $1.7 billion invested in 2010.
The article cites several reasons for the decline in venture investment in the Chinese Internet sector include a general pull-back from an overheated sector, recent accounting scandals involving Chinese firms listed on US stock exchanges, tougher US listing requirements for Chinese firms, poor market performance of recent listings, and a shifting towards newer sectors. I was recently in China meeting with venture capital firms, and the sense that I had was that there was a general cooling attitude towards venture capital investing in Chinese tech companies. In addition to the factors cited above, a common reason that I heard was that liquidity in general (IPOs and M&A) was proving more difficult and taking longer than expected. It's a good article and worth a read. Here's the link: http://www.reuters.com/article/2012/04/23/net-us-dealtalk-china-internet-idUSBRE83M0AY20120423 A couple of good weekend reading articles on M&A and why M&A deals fail are "Why So Many M&A Deals Fail" and "If Financing is Marriage, Is M&A Death?" by Ashkan Karbasfrooshan, which are posted on TechCrunch.
Here are links to the articles: http://techcrunch.com/2011/12/17/why-so-many-ma-deals-fail/ http://techcrunch.com/2012/04/21/if-financing-is-marriage-is-ma-death/ Pebble is a new "e-paper watch" which is a smart watch (in development) that will download data and apps wirelessly from an iPhone or Android device. The video on the www.getpebble.com website is pretty informative. Basically, the Pebble is a customizable watch that runs apps and connects wirelessly to an iPhone or Android device. In addition to being a customizable watch, the Pebble can do things like act as a running odometer, a gps-enabled bike computer, show text message alerts, caller ID and control smartphone music apps, all available when your phone is with you.
Pebble is a project of a small team of engineers led by Eric Migicovsky, and they previously developed a smart watch for Blackberry called inPulse. Pebble has received pledges of nearly $5.5 million (at the time of this writing, and rising fast) from over 37,000 backers on Kickstarter, the funding platform for creative projects. This is not an equity fundraising - this is funding obtained from people who believe in the project and want to see it succeed. In general, they get nothing in return other than the satisfaction that they helped the company get off the ground. Why did Erick Migicovsky go to Kickstarter to fund this project? Based on several reports, it was because he could not receive backing from venture capitalists, despite having gone through the respected Y-Combinator program and having received backing from some respected angel investors. To me, what Pebble has done is very impressive, and portends favorably for the new crowdfunding form or equity fundraising that was recently passed into law by the Jumpstart Our Business Startups (JOBS) Act. Soon sites like Kickstarter will be able to help companies raise equity financing directly from investors - small amounts - but it will enable people enthusiastic about a project to obtain a (very) small equity stake in the company in addition to helping it get off the ground. This could be big... Links: Pebble website: http://www.getpebble.com/ Kickstarter website: http://www.kickstarter.com/ Articles on Pebble and Kickstarter: Forbes: http://www.forbes.com/sites/anthonykosner/2012/04/19/who-needs-venture-capital-pebble-smart-watch-raises-over-5-million-on-kickstarter/ GigaOM: http://gigaom.com/2012/04/18/forget-the-money-kickstarter-turns-pebble-into-a-platform/ Prior posts of crowdfunding: Wall Street Examining JOBS Financing Act: NY Times DealBookhttp://www.allenlatta.com/1/post/2012/04/wall-street-examining-jobs-financing-act-ny-times-dealbook.html JOBS Act Jeopardizes Safety Net For Investors: Andrew Ross Sorkin http://www.allenlatta.com/1/post/2012/04/jobs-act-jeopardizes-safety-net-for-investors-andrew-ross-sorkin.html JOBS Fundraising Act to be Signed into Law on Thursday http://www.allenlatta.com/1/post/2012/03/jobs-fundraising-act-to-be-signed-into-law-on-thursday-venturebeat.html The JOBS Act is Good, But SarbOx Shouldn't Get All the Blame: http://www.allenlatta.com/1/post/2012/03/the-jobs-act-is-good-but-sarbox-shouldnt-get-all-the-blame-greg-gretsch-post.html Unintended Consequences of the JOBS Act: http://www.allenlatta.com/1/post/2012/03/unintended-contradictions-of-the-jobs-act-dan-primack.html Fundraising Bill Passes Senate: http://www.allenlatta.com/1/post/2012/03/fundraising-bill-passes-senate-enables-crowdfunding-and-eases-ipo-regulations.html Splunk, a data gathering and analysis company, priced its IPO at $17.00 per share, opened trading at $31.98 (for an opening pop of over 88%), and closed its first day of trading at $35.48 for a first day increase of over 108%. Splunk's IPO is impressive, and bodes well for the broader technology IPO market, including Facebook's IPO expected in May.
Splunk's IPO raised $230 million, with $212.6 million going to the company and $16.9 million going to selling shareholders. At the closing price, Splunk's market capitalization was $3.28 billion. Morgan Stanley was the "lead left" manager of the offering, and was joined by Credit Suisse, JP Morgan and BofA Merrill Lynch as joint book-running managers and UBS, Pacific Crest Securities and Cowen and Company as co-managers of the offering. Venture capital investors in Splunk include Sevin Rosen (17.7% post-IPO ownership), August Capital (17.7%), JK&B Capital (15.2%), Ignition Partners (10.5%) and Technology Crossover Ventures. Links: Splunk's IPO press release: http://www.splunk.com/view/SP-CAAAGW7 Splunk's latest S-1A filing (prospectus not available at time of posting): http://www.sec.gov/Archives/edgar/data/1353283/000104746912004425/a2208909zs-1a.htm Facebook is targeting May 17 for the date of its initial public offering, according to a report by TechCrunch, citing "multiple sources close to the company." May 17 is a Thursday.
Here's a link to the article: http://techcrunch.com/2012/04/18/facebook-targets-may-17th-for-ipo-date/ Venture capital investors in Facebook include Accel Partners, Andreessen Horowitz, Elevation Partners, Founders Fund, Greylock Partners, Kleiner Perkins Caufield & Byers, Meritech Capital Partners, Millennium Technology Value Partners and Technology Crossover Ventures. Here are links to prior posts on Facebook: http://www.allenlatta.com/1/post/2012/04/the-rationale-behind-facebooks-acquisition-of-instagram.html http://www.allenlatta.com/1/post/2012/03/facebooks-updated-ipo-registration-statement.html http://www.allenlatta.com/1/post/2012/2/facebook-files-for-ipo.html As I discuss in my prior post, Path and Instagram are focusing on social networking on mobile devices, which is where I see the future of social media. As more and more people use their mobile devices to connect with each other through apps like Instagram and Path (and Facebook and Twitter, etc.), these companies become more valuable. Path and Insagram are very different companies, with different business models and approaches to mobile. There's a good article by Om Malik on GigaOM that discusses how Path and Instagram are different. It's worth a read.
Link to the Om Malik article on GigaOM: http://gigaom.com/2012/04/16/why-path-is-no-instagram/ Link to my prior post on Path: http://www.allenlatta.com/1/post/2012/04/mobile-personal-networking-app-path-raises-30-million.html Path, a mobile application that enables people to share comments, photos and videos with close friends and family (a mobile personal journal), has raised approximately $30 million in a financing round that values the company at roughly $250 million, according to reports. Redpoint Ventures led the round and was joined by Greylock Partners, Kleiner Perkins Caufield & Byers, Index Ventures, and personal investors including Sir Richard Branson.
Path is a year and a half old, and reportedly has almost 3 million users, and is not profitable. Why is this important? Because mobile photo-sharing application company Instagram was acquired by Facebook last week at a valuation of $1 billion. As people shift their social networking experiences to mobile platforms, companies like Instagram and Path become more valuable. Links to stories on Path: WSJ.com (subscription firewall): http://online.wsj.com/article/SB10001424052702304299304577348302143474314.html TechCrunch: http://techcrunch.com/2012/04/16/path-announces-30m-round-of-funding/ AllThingsD.com: http://allthingsd.com/20120416/path-confirms-series-b-funding-from-redpoint-richard-branson-and-others/ GigaOM: http://gigaom.com/2012/04/16/path-30m-funding-round/ Private equity firm The Carlyle Group, L.P. has filed an amended S-1 registration statement with the SEC indicating that it expects to sell 30.5 million common units (representing limited partner interests) at $23 to $25 per share, for a maximum offering size of $762.5 million and maximum implied IPO market capitalization of $7.6 billion. Carlyle's listed competitors include Blackstone Group, L.P. (ticker: BX), KKR & Co., L.P. (ticker: KKR) and Apollo Global Management LLC (ticker: APO).
JP Morgan is the "lead left" underwriter for the offering, and is joined by Citigroup and Credit Suisse as joint-bookrunning managers. Link to Carlyle's amended S-1 registration statement: http://www.sec.gov/Archives/edgar/data/1527166/000095012312005979/x83442a7sv1za.htm Links to articles discussing Carlyle's IPO: WSJ.com: http://online.wsj.com/article/SB10001424052702304299304577346561593778158.html?KEYWORDS=Carlyle+Group Bloomberg: http://www.bloomberg.com/news/2012-04-16/carlyle-seeking-as-much-as-762-5-million-in-initial-offering.html I attended the SuperReturn International conference on private equity and venture capital in Berlin earlier this year, and was impressed by the speakers and format of the conference. Before the conference I had posted a link to an article on ReadWriteWeb discussing East Berlin's start-up scene (link here), and so was curious to learn more. At the conference, it was clear that Berlin had become a center of activity for technology start-ups.
Bloomberg Businessweek has now posted a good article "Berlin Cracks the Startup Code" which expands on the earlier ReadWriteWeb article and identifies some of the venture capital firms active in Berlin and some of the Berlin start-ups that have received funding from international venture capital firms. One key takeaway is that more than 500 tech start-ups were founded in Berlin in 2011, an impressive number. Link to the Bloomberg Businessweek article: http://www.businessweek.com/articles/2012-04-12/berlin-cracks-the-startup-code Link to my prior post on East Berlin's startup scene: http://www.allenlatta.com/1/post/2012/02/east-berlins-start-up-scene.html As an investor in private equity funds, fund terms are of keen interest to me. Carried interest (profit share) and management fee are cornerstones of the economic agreement between the general partner and the limited partners in a fund. According to a Reuters story, Bain Capital is reportedly raising a new global buyout fund and offering investors options on the economics. Apparently, in a prior Asian fund, Bain offered investors two fee options: (1) a 2% management fee with 20% carried interest after a 7% hurdle rate, or (2) a 1% management fee with 30% carried interest after a 10% hurdle rate. I applaud Bain for offering investors options on fund economics, as it shows an understanding that different LPs view economics differently.
Also of interest is that Bain itself is committing a large portion of the fund, showing "skin in the game" and aligning their interests with their investors. According the the Reuters story, Bain employees committed about 15% of the capital of the prior Asia fund. I am a big believer in GPs making a substantial commitment to their fund (and it not be funded by loans or management fee offsets), as it demonstrates a belief in the strategy and helps to align GP and LP interests. Here's a link to the Reuters article: http://www.reuters.com/article/2012/04/11/us-bain-idUSBRE8390Y620120411 Here's a link to a related peHUB story: http://www.pehub.com/144737/bain-capital-plans-smaller-fund-may-offer-3-fee-options-reuters-exclusive/ Yesterday's post covered some of the reasons why Facebook acquired Instagram. Don Dodge, a Developer Advocate at Google, has posted some thoughts on his blog why the acquisition makes sense, which add to yesterday's analysis. Don points out that the acquisition price is roughly $30 per user, when Facebook is valued at roughly $100 per user. So if Facebook can monetize the users, the acquisition makes a lot of sense. In addition, as discussed in yesterday's post, Don points out that everything is going mobile, and Facebook needs to upgrade its mobile application, so the acquisition also helps Facebook from that perspective. He also points out why Instagram might not be worth $1 billion to Microsoft or Twitter. Interesting read.
Link to Don Dodge's post: http://dondodge.typepad.com/the_next_big_thing/2012/04/why-instagram-is-worth-1b-to-facebook-web-20-just-went-mobile.html Here's a link to yesterday's post on the rationale behind Facebook's acquisition of Instagram: http://www.allenlatta.com/1/post/2012/04/the-rationale-behind-facebooks-acquisition-of-instagram.html Facebook announced yesterday that it was acquiring mobile photo-sharing application provider Instagram for approximately $1 billion in cash and Facebook stock. Why would Facebook pay so much for a two-year old company with only a dozen or so employees and no revenue? Reports have identified several reasons for the largest acquisition in Facebook’s history:
Instagram completed a $50 million round of financing just last week. Venture capital investors in Instagram include Greylock Capital and Sequoia Capital. The acquisition is expected to close later this quarter. Link to Facebook's press release: http://newsroom.fb.com/Announcements/Facebook-to-Acquire-Instagram-141.aspx Links to articles on the acquisition: WSJ.com: http://online.wsj.com/article/SB10001424052702303815404577333840377381670.html CBSNews.com: http://www.cbsnews.com/8301-205_162-57411761/facebook-buys-instagram-...but-for-what/ NYTimes.com: http://dealbook.nytimes.com/2012/04/09/facebook-buys-instagram-for-1-billion/ When I was a lawyer representing companies and venture capital funds, I was always intrigued by the disparity of due diligence conducted by venture capital investors and entrepreneurs. Venture capitalists typically spend a lot of time conducting due diligence on the market, technology, business model and the entrepreneurs. Entrepreneurs typically spend a little bit of time investigating the venture capitalist and the venture capital firm, focusing mainly on reputation. The TechCrunch article "Things to Consider Before Saying 'I do' to Investors," explores some of the due diligence entrepreneurs should be conducting before accepting a check. One great piece of advice is for entrepreneurs to conduct reference checks on the investor. Here's the link: http://techcrunch.com/2012/04/08/things-to-consider-before-saying-i-do-to-investors/
Biotechnology investing isn't for the faint of heart. Long investment periods, the perils of the FDA approval process, and a high mortality rate are a few of the issues that confront biotechnology investors. Venture capital investing in biotechnology start-ups has fallen off over the past few years, partly due to poor returns, but also because the long investment period doesn't work well in the typical 10-12 year life span of a venture capital fund. Xconomy.com has a good article on the new trends in biotechnology investing that are emerging to address some of these issues, and it's worth a read. Here's the link: http://www.xconomy.com/national/2012/04/09/investing-in-biotech-isnt-just-for-the-investors-anymore/
AllThingsD.com has a good article about the impact of the new Jumpstart Our Business Startups (JOBS) Act on the tech IPO market. The article discusses how the Act relaxes certain regulations for "emerging growth companies" when going public, and explores other things like whether companies will ease the use of restricted stock grants. It also has links to summaries of the JOBS Act. Useful reading. Here's the link: http://allthingsd.com/20120405/how-will-the-jobs-act-affect-tech-ipos/
With the Jumpstart Our Business Startups (JOBS) Act expected to be signed into law today, restrictions on fundraising for private companies will be loosened, and "crowdfunding" will become legal. The new law allows companies to raise up to $1 million per year from individuals, subject to certain limits, through crowdfunding portals that are both registered with the SEC and members of a national securities association. Efforts to create this national organization, which will be a self-regulatory body, are examined in the TechCrunch article "With JOBS Act Becoming Law, Crowdfunding Platforms Look to Create Self-Regulatory Body." Here's the link: http://techcrunch.com/2012/04/05/with-jobs-act-becoming-law-crowdfunding-platforms-look-to-create-self-regulatory-body/
Prior posts on the JOBS Act: Wall Street Examining JOBS Financing Act: http://www.allenlatta.com/1/post/2012/04/wall-street-examining-jobs-financing-act-ny-times-dealbook.html JOBS Act Jeopardizes Safety Net For Investors: Andrew Ross Sorkin http://www.allenlatta.com/1/post/2012/04/jobs-act-jeopardizes-safety-net-for-investors-andrew-ross-sorkin.html JOBS Fundraising Act to be Signed into Law on Thursday http://www.allenlatta.com/1/post/2012/03/jobs-fundraising-act-to-be-signed-into-law-on-thursday-venturebeat.html The JOBS Act is Good, But SarbOx Shouldn't Get All the Blame: http://www.allenlatta.com/1/post/2012/03/the-jobs-act-is-good-but-sarbox-shouldnt-get-all-the-blame-greg-gretsch-post.html Unintended Consequences of the JOBS Act: http://www.allenlatta.com/1/post/2012/03/unintended-contradictions-of-the-jobs-act-dan-primack.html Fundraising Bill Passes Senate: http://www.allenlatta.com/1/post/2012/03/fundraising-bill-passes-senate-enables-crowdfunding-and-eases-ipo-regulations.html The Jumpstart Our Business Startups (JOBS) Act, which makes it easier for smaller companies to raise money privately and to go public, is expected to be signed into law today. This could mean big business for investment banks, as more companies may move forward with initial public offerings. In "Wall Street Examines Fine Print in a Bill for Start-Ups," the way investment banks are approaching the new opportunity is examined. Here's the link: http://dealbook.nytimes.com/2012/04/04/wall-st-examines-fine-print-in-a-new-jobs-bill/
Here are links to prior posts on the JOBS Act: JOBS Act Jeopardizes Safety Net For Investors: Andrew Ross Sorkin http://www.allenlatta.com/1/post/2012/04/jobs-act-jeopardizes-safety-net-for-investors-andrew-ross-sorkin.html JOBS Fundraising Act to be Signed into Law on Thursday http://www.allenlatta.com/1/post/2012/03/jobs-fundraising-act-to-be-signed-into-law-on-thursday-venturebeat.html The JOBS Act is Good, But SarbOx Shouldn't Get All the Blame: http://www.allenlatta.com/1/post/2012/03/the-jobs-act-is-good-but-sarbox-shouldnt-get-all-the-blame-greg-gretsch-post.html Unintended Consequences of the JOBS Act: http://www.allenlatta.com/1/post/2012/03/unintended-contradictions-of-the-jobs-act-dan-primack.html Fundraising Bill Passes Senate: http://www.allenlatta.com/1/post/2012/03/fundraising-bill-passes-senate-enables-crowdfunding-and-eases-ipo-regulations.html Picking an investment banker is both easy and hard. Easy because it's as simple as inviting bankers to pitch the business, and hard to find the bank that will really do the best job. In M&A, bulge bracket firms can have all sorts of conflicts of interests; smaller, boutique M&A advisory firms have less internal conflicts but may not have the breadth or depth of experience. In "How to Pick a Banker: Nasdaq CFO Cites Red Flags," some of the considerations are outlined when hiring a bank for M&A deals. Worth a read. Here's the link: http://blogs.wsj.com/cfo/2012/04/03/how-to-pick-a-banker-nasdaq-cfo-cites-red-flags/
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