Allen Latta's Thoughts on Private Equity, Etc.
  • Allen's Blog
  • Blog Post Categories
  • Glossary of Private Equity Terms
  • Resources
  • About
  • Contact

My Rebuttal to Mark Cuban's Post on Why This Tech Bubble is Worse Than the Tech Bubble of 2000

3/6/2015

0 Comments

 
Mark Cuban has published a post on his Blog Maverick site called "Why This Tech Bubble is Worse Than the Tech Bubble of 2000", which is an interesting read, but one with which I generally have a different perspective.

The distinction Mr. Cuban makes is that in the Tech Bubble of 1999-2000 the tech companies were publicly traded, while today the tech companies (apps and small tech companies) are not.  Mr. Cuban contends that investors in public companies during the Tech Bubble had liquidity - the ability to sell their stocks on the public market.  Today, investors in these private companies have no liquidity, and so can't sell their stock if things turn south.  

A second point he makes is that there are significant numbers of "Angel" investors investing in these companies and he first states that he thinks most of the investments made by these angels are under water because of the lack of liquidity.  He then takes a jab at equity crowdfunding, the rules for which have not yet been finalized by the SEC, because he believes "there is no reason to believe that the SEC will be smart enough to create some form of liquidity for all those widows and orphans who will put their $5k into the dream only to realize they can't get any cash back when they need money to fix their car.

I respectfully disagree with much of Mr. Cuban's post.  First, he assumes that we are in a bubble today, while I think there is lots of disagreement on this point.  Please see my prior blog posts on this for more on whether we are in a bubble.  Second, as the law stands today, it is mainly accredited investors who invest in these private companies.  An accredited investor in the US is one who has net worth of $1 million (not including the value of their primary residence) or who has income of at least $200,000 each year for the last two years (or $300,000 together with their spouse if married).  This seems to contradict Mr. Cuban's comment about these Angel investors not knowing what they have gotten into.  Third, the Jumpstart Our Business Startups (JOBS) Act does provide for annual limits on investing through equity crowdfunding platforms.  The Act provides that people earning under $100,000 the investing limit is the greater of $2,000 or 5% of their income.  These limits suggest to me that the maximum losses incurred by "widows and orphans" should not be devastating.

I do agree that the lack of liquidity in private company securities means that it is harder to exit the investment, but my view is that sophisticated investors understand this already, and for unsophisticated investors there are protections in place already (and probably more to be included in the SEC rules) that will prevent them from betting the farm on a poor, illiquid investment.

Link to Mark Cuban's post:
http://blogmaverick.com/2015/03/04/why-this-tech-bubble-is-worse-than-the-tech-bubble-of-2000/

Links to prior posts on whether we are in a tech bubble:
http://www.allenlatta.com/allens-blog/are-we-in-a-venture-capital-bubble-more-thoughts
http://www.allenlatta.com/allens-blog/is-venture-capital-in-a-bubble
http://www.allenlatta.com/allens-blog/fred-wilson-on-the-bubble-question
http://www.allenlatta.com/allens-blog/tech-bubble-andreessen-and-conway-say-no
http://www.allenlatta.com/allens-blog/tech-bubble-two-views


0 Comments

The Potential of Crowdfunding: The Pebble Example

4/20/2012

0 Comments

 
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 
  


0 Comments

Crowdfunding Platforms To Create Self-Regulatory Body: JOBS Act

4/5/2012

0 Comments

 
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 
   

0 Comments
    About this Blog

    This Blog is a collection of thoughts on a variety of topics of interest to me, including:
    • Private Equity
    • Buyouts
    • Growth Equity
    • Venture Capital
    • Corporate Finance
    • Investment Banking
    • IPOs
    • M&A
    • Technology
    • Economics
    • Law
    I hope you find this blog of interest.
    View my profile on LinkedIn

    Categories

    All
    Anti-Dilution
    Berlin
    Board Of Directors
    Brazil
    Buyouts
    California
    China
    Cleantech
    Corporate Finance
    Corporate Venture Capital
    Crowdfunding
    Dilution
    Dividend Recap
    Economics
    Emerging Managers
    Endowments
    Entrepreneurship
    Europe
    Fund Terms
    General
    Growth Equity
    Healthcare
    India
    Innovation
    Investment Banking
    Ipo
    Israel
    Law
    Legal
    Libor
    Life Sciences
    Listed Private Equity
    London
    Los Angeles
    LP Corner
    M&A
    Mexico
    New York
    Pensions
    Politics
    Private Equity
    Public Stocks
    San Francisco
    Secondaries
    Secondary Exchanges
    Silicon Valley
    South America
    Speaking
    Stock Market
    Stock Options
    Tax
    Technology
    Travel
    United Kingdom
    Valuation
    Venture Capital
    Venture Capital Deal Terms
    Webinars


    Archives

    October 2021
    August 2021
    July 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    February 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    February 2016
    January 2016
    November 2015
    October 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011


    Copyright Notice:

    ​All original works on this site are 
    © 2011-2020 Allen J. Latta. All rights reserved.  Neither this website nor any portion thereof may be reproduced or used in any manner whatsoever
    without the express prior written permission of Allen J. Latta.

    LP Corner® is a registered trademark of Campton Private Equity Advisors.  Used with permission.

    DISCLAIMER:  Readers of this Blog are not to construe it as investment, legal, accounting or tax advice, and it is not intended to provide the basis for the evaluation of any investment.  Readers should consult with their own investment, legal, accounting, tax and other advisors to the determine the benefits and risks of any investment.

    Private equity investments involve significant risks, including the loss of the entire investment.

    This Blog does not constitute an offer to sell or the solicitation of an offer to buy any security.

Copyright © Allen J. Latta.  All rights reserved.