We’re hosting a webinar today at 4 pm PT about equity investing in 2014, and you’re invited to attend.
To register, click here: https://www2.gotomeeting.com/register/638414410
On it, we will share some key statistics, especially that while from August 1982 to September 1999, the Dow Jones industrial average rose from 777 to 11,078, in comparison since 1999 it has moved only from 11,078 to 16,017 (approximately 44%).
Given that inflation since then has reduced purchasing power by over 37%, the net return for the period has been less than 1% per year.
So, on the webinar we will explain:
1. Why has this happened?
2. What should we do about it?
Well, first of all with overall GNP growth rate being cut in half, from averaging 3.6% annually from 1982 to 2000 to 1.8% from 2000 - 2014, there is simply less money to go around.
Then, the returns that are to be had…well they have been mostly eaten up by the huge big bank infrastructures built up as trading volumes have increased over twenty-fold since the 1980s.
Sadly, slow overall GNP growth remains our most likely macroeconomic reality, and does anyone really see Wall Street slimming down any time soon?
So what to do about it?
Well, on the webinar, we will suggest three prescriptions:
1. Give up on the public markets.
2. Find market inefficiencies.
3. Do it Right.
“Doing it right” should of course be all of our favorite, so we will share what we have discovered as to why today’s smart investors avoid the public markets and where, why, and how they invest now, including:
• How many of them no longer invest in “companies,” but rather only in projects
• How they are and how they are NOT planning to utilize the new laws regarding crowdfunding
• How they are utilizing “cross-border” and “in-kind” transactions to shelter returns from Obama era tax increases
• How they limit risk through "Black Swan" portfolio theory and modeling
Register now via the below link:
To Your Success,
P.S. Note, to preserve the intimacy of the presentation, we are limiting attendance to only 35 registrants so be sure to secure your spot right away.
This blog post was written by Mary Juetten, founder of Traklight.com, a site that provides inventors, creators, and small businesses with integrated software tools to identify and protect intellectual property.
Startups and small businesses are torn when it comes to protecting their ideas. There is a challenging balance between keeping the critical pieces secret and promoting products and services during fundraising – whether with angel investors, venture capitalists (VCs), or crowdfunding platforms.
The NDA question comes up more than you would think because scrappy entrepreneurs are always looking for collaborators, co-founders, and capital while jealously guarding their ideas. At least once a week, I hear one side of this debate or field a question on the topic.
What is a NDA?
Let me first say I am not an attorney (see the disclaimer at the bottom of this article). That being said, a Non-Disclosure Agreement (NDA) is a legal document used to protect ideas, know-how, and other secret sauce under a variety of circumstances.
One standard use of a NDA is protecting one company from another during discussions and negotiations. That means, if I approach Company A to code my software application, I want Company A and all their employees and contractors to keep all discussions about my project confidential. In the same situation, a mutual NDA means that everything Company A discloses about how they will work with me needs to be kept secret by me and my team. If I have a mutual NDA with Company A, I cannot go to software Company B and spill secrets learned from Company A.
As I said, I am not an attorney however I did go to law school (and yes, I graduated but chose to start my company rather than take the bar). The answer to almost every question in law school was, “It depends.” And that is the case here. Requesting and/or insisting upon a NDA depends on the situation. Are you hiring an employee? An independent contractor? Perhaps you are hiring a company for custom work, or are talking to potential co-founders, angel investors, or venture capitalists. Or maybe you are sharing information to collaborate or simply chatting in the grocery line.
NDA for Employees and Contractors
It’s my humble opinion that employees and contractors should be under NDA when you are revealing your know-how during initial discussions. It is purely good business sense to ask for that level of protection. The “I’ll show you mine, if you show me yours” strategy can backfire without a NDA, not to mention these handshake deals are not professional and can lead to messiness (a distraction when trying to start or grow a business).
Please seek professional advice to ensure that your contracts of employment, consulting, operating agreement, articles of incorporation, etc. have the appropriate non-disclosure provisions for your state.
NDAs are questionable for angels; NO for VCs
It is high unlikely the professional investor wishes to steal your idea. The main reason angel investors are reluctant to and venture capitalists (VCs) often refuse to execute a NDA is because they may then be limited in the future from funding similar companies. Another reason is that your company and products may conflict with their existing ventures.
One path forward is to only reveal enough information to interest potential investors while keeping mission critical secrets secret, especially in the first meeting.
No NDA for public pitch or demo competition
Trade secrets are no longer secret if revealed to the public. There is no confidentiality in a public setting, so leave your secrets at home. Disclosure of such secrets may impact the ability to patent here in the US and globally, so be careful in any public pitch, tradeshow, or presentation.
All entrepreneurs understand that the tough part is execution, not idea generation. And to be technical, ideas themselves are not intellectual property. So you need to think of the context of your discussion and what you are trying to protect.
Know your audience. If you have the next great software idea and you are not technical enough to code yourself it is likely a good idea to ask potential co-founders or software companies to sign a NDA before you reveal the details of your idea.
Does that mean you carry the NDA in your purse (or briefcase)? You may but it is mostly applicable for the meeting after your initial encounter. When revealing your secret sauce or business process in public, a NDA is critical.
In conclusion, if someone does not wish to sign a NDA, think of the context, timing, and the person before you walk away. That done, if you have that niggling, uncomfortable gut feeling about why the person will not sign the NDA, head in the other direction.
Visit Traklight and use “ID your IP” with Traklight’s compliments until February 28, 2014. Remember, you cannot protect something if you do not know you have it! Free “ID your IP” Code GROWT13 ($59 value).
Disclaimer: This article is intended to be general information and nothing in this article constitutes legal advice. Please consult with an attorney before making any intellectual property or other legal decisions.
As has always been the case, most commercial and neighborhood banks only lend against quickly “liquidatable” assets or at a small multiple of historical cash flow.
Given that most startups and small businesses have neither of these, for them attaining traditional bank financing has such a low probability of success that it is rarely even worth the time to pursue.
So, where should the creative and committed small business owner go for funding when the banks say no?
Here are three places to look:
1. Crowdfunding. Donation - based crowdfunding platforms like Kickstarter allow entrepreneurs to raise capital from one's social and professional networks.
And Equity-Based Crowdfunding, approved by Congress in April 2012, is very close to being through SEC rule-making.
While investor appetite will take time to develop, as it does the available pool of investable angel and venture capital (currently approximately $50 billion annually) will expand dramatically, and in turn closing the gap between the tens of thousands of companies seeking capital and the investors interested in providing it.
2. Family and Friends. Since time immemorial by far the most popular funding source for new and small businesses is to ask those that know you best to stake your entrepreneurial journey.
For sure it is emotionally loaded, as so many of us don't want to mix our personal and professional lives, but it does provide a great “gut check” as to how serious, committed, and “sold” you really are on your business.
Well, it is one thing to lose the money of strangers, quite another to do so of Uncle Jed who you'll be seeing each holiday season.
A way to “reverse the frame” in these family and friends dialogues is to recognize that while yes, a relative or friend is doing you a big favor by investing in your business, you in turn are returning the favor and more by providing an opportunity for an outsized investment return along with the unique excitement of being a stakeholder in a small business.
3. Sell Services. Especially for technology and consumer product companies, the long pathway of research, product development, and establishing distribution mean that often years can go by in the dreaded “pre-revenue” stage.
So as opposed to relying solely on investment capital to “deficit finance” this gestation period, how about generating some cash through selling consulting services in the interim?
As examples, a company building a new and proprietary mobile application could in parallel build apps for others, a new restaurant could do catering, or a consumer product business could sell research services regarding their market niche.
And, if structured right, in addition to paying the bills, consulting projects like these can also be utilized to iterate one’s product development forward.
Use these three strategies - and do so as with all matters related to starting and growing a business with creativity, determination, and persistence - and soon you will be laughing all the way to the bank.
This blog post is a reprint of an article written by Jay Turo in Vistaprint.com’s Small Business Blog.
This time of year offers many blessings - one of them being the pageantry of New Year’s Day college football.
I am excited to be rising before the sun on Wednesday and traveling to Pasadena with my six and seven-year old sons to their 1st Rose Bowl parade.
In the spirit of the day and of the year soon to be left in our care, here are a few of my favorite sports quotes that apply so well to the challenges and opportunities of life and business.
"Great moments are born from great opportunity…You were born to be hockey players -- every one of you. And you were meant to be here tonight. This is YOUR time.
- Coach Herb Brooks, 1980 U.S. Olympic Hockey Team Soviet Pre-Game Speech
My comment: this is the time and age of Entrepreneurs! Go for it!
"Funerals End Today”
- Marshall Coach Jack Lengyel, addressing the remaining members of his football team not long after 75 people, including most of the team and coaching staff - died in a 1970 plane crash.
My comment: Lengyel reminds us that the best to way to honor those that have passed is to live, to strive, to win.
"Leaders aren't born, they are made. And they are made just like anything else, through hard work. And that's the price we'll have to pay to achieve that goal, or any goal."
- Vince Lombardi
My comment: Hard work is the given, the base. It is a high value in itself and accomplishments of greatness and meaning are impossible without it.
"Don't measure yourself by what you have accomplished, but by what you should have accomplished with your ability.”
- John Wooden
My comment: To those to whom much is given, much is rightfully expected. We live in a global, golden age of opportunity. Think, dream, and do BIG!
Happy New Year, and may 2014 be the best year of all of our lives!
Jeff Bezos is a great hero and role model for all entrepreneurs that dream of doing something really, really big, and…pulling it off.
Like all legendary business leaders, he also has a number of management and creative peculiarities well worth studying and emulating.
One of my favorites is how Jeff manages the meetings of Amazon’s senior executive team, as described last year when Fortune named him Businessman of the Year:
“…the Amazon CEO's fondness for the written word drives one of his primary, and peculiar, tools for managing his company: Meetings of his "S-team" of senior executives begin with participants quietly absorbing the written word. Specifically, before any discussion begins, members of the team -- including Bezos -- consume six-page printed memos in total silence for as long as 30 minutes”
Bezos goes on to note that “Writing a memo is an even more important skill to master." Full sentences are harder to write," he says. "They have verbs. The paragraphs have topic sentences. There is no way to write a six-page, narratively structured memo and not have clear thinking."
Now when I learn of things like this, I understand why the success of a Jeff Bezos is no accident.
Remember, in addition to founding and leading one of the most successful technology companies of all times, Jeff Bezos also made arguably the greatest investment of all time.
The story is well-known but worth re-telling. In 1998 when Larry Page’s and Sergey Brin’s Google offices were a Menlo Park, California garage, Bezos invested $250,000 of personal funds into the fledgling startup.
When Google went public in 2004 that $250,000 investment translated into 3.3 million shares of Google stock. At Google’s IPO that represented a stock share position worth over $280 million.
While he doesn’t disclose how many of those shares he still holds, at the current price of Google stock they would represent an investment position worth over $2 billion.
So, what is it about what makes Jeff Bezos tick that allows him to have such great success when so, so many others - with similar ambition and arguably even greater talent - fall by the wayside?
I recently read a great book (bought on Amazon, of course) by Mark Helprin called "A Soldier of the Great War."
It is the amazing story of an Italian PhD student in aesthetics who was drafted into the Italian Army in World War I. In addition to being an unbelievable barnburner of a read and a tale of love and heroism and adventure, it is also the story of a young man trained as an "effete" intellectual struggling to come to grips / find wisdom from and peace with the horrors of war.
The story ends with its hero - Alesandro Giuliani - as an old man looking back on his life of books, of art, of family, of adventure, and of war and loss.
In the end it is the intersection of these two - of his great intellectual journeys tempered into character and resolve via the various "mortifications of the flesh" of his life - hard work, self-sacrificing, courageous deeds and words, and the willingness to push himself to the limits of one's endurance.
And from this coupling of intellectualism and ideas with a life of action and a love of the fight does flow the genius, power and magic of a Jeff Bezos.
So at your next meeting, do like Jeff and put down the PowerPoint and pull out the pen!
Watching the disaster of a process that is the D.C. budget drama, I found myself with a curious reaction.
And maybe even a little bit of a selfish one.
It was, by golly, how happy I am that I get to work in this so dignifying world of business and free enterprise and not have to waste my precious life energy on such nonsense.
And then feeling a bit more generous, I felt happiness for the hundreds of millions if not now billions of people worldwide that are able to do likewise.
To work in or at a business, just a plain old simple business.
A software development firm. A medical device company.
An accounting firm. A roofing company. An insurance agency.
A tanning salon. A yoga studio. A specialty retailer. A freight forwarding company.
Walmart. A donut shop.
Now don't get me wrong, government is important.
And that those that work in it often are mostly truly public servants and we should be thankful for their service.
And yes, our vexing public policy challenges require our attention and concern.
But it isn’t that important.
So much of the real action in this world of ours takes place in the micro.
In that wonderful world of business production.
The world of multi-billion dollar companies like Cisco utilizing information technology to accomplish the accounting miracle of closing their books each and every day.
The world of General Electric growing great managers and business leaders time and time again.
The world of amazing customer service at places like Zappos and how that service dedication translates to strong profits that fuel our world.
The world of that sumptuous donut fresh out of the oven.
The world where, with a click of a button on my phone, I can buy a mobile app that sends me my text messages as e-mails (but don't ask me why I want this).
The world where I order new leather seat covers for my car, from Greece, on Ebay, and at a fraction of the price of what the dealership is asking.
And oh yes, by doing so making a small dent in that nation's debt and fiscal crisis.
And it is the world of my own business’ unique processes and project tasks and how we will profit from this burgeoning new world of global service exports.
Yes, the real and meaningful action is in this amazing 21st century global world of ours of hundreds of millions of points and more of concentrated business production.
That creates for all of us, this transcendent potpourri, this never-ending buffet, of essential, helpful, frivolous, sometimes conspicuous, but so blessedly diversified consumption.
And you know what else?
History has taught that the more folks focus on getting great at what they particularly produce, no matter how great and glamorous or small and prosaic it might be.
Well, it is by so doing that all of our fiscal cliff and other challenges as if by some magical hand just seem to take care of themselves.
The word from the Fed last week that it would continue with its quantitative easing - purchasing approximately $85 billion per month in U.S treasury bond and de facto continuing to expand the country’s money supply - signaled that that the era of extremely low interest rates will continue.
Predictably, stock markets worldwide cheered along with it being seen as a very positive signal for the well-recovering US housing market.
Now, as to what it means that the Fed has, since 2008, expanded the U.S. Money Supply almost 400% - from $800 billion in 2008 to over $3.5 trillion today?
Well, it doesn’t take a Nobel Prize in Economics to reliably predict the inevitable outcome…
Now, in spite of its strong negative connotations, an inflationary economy while extremely painful for very many, also offers opportunities to profit and win.
Here are three:
Winner Number One: Debtors. This is obvious, but easy to overlook. Those owing money at set interest rates - homeowners with 30 year fixed mortgages and companies issuing bonds - will benefit enormously as the inflation train rolls in.
Let’s look at a worst but not overly improbable case - a hyperinflation period where all prices rise 10X, resulting in a $500,000 home able to be credibly listed for $5 million.
It sounds crazy, but over the years in countries where hyperinflation has hit, this has not been an uncommon occurrence.
Now let’s say that home was financed (or refinanced) with a $400,000, 30-year mortgage at a fixed rate of 3.5%.
Well, with its price increasing from $500,000 to $5 million - while the amount owed on it remains fixed - all of a sudden the house’s equity to debt ratio skyrockets from 20% to 92%!
Winner Number Two: Companies with Pricing Power. Businesses with the ability to increase prices quickly without seeing sales plummet - think luxury goods and easily adjusted staples like gasoline at the pump - will hold significant advantages over businesses constrained by “stickier” prices.
Examples of the latter include services like mobile phones contracts and gym memberships, and the classic example of restaurants not increasing prices because of the cost of printing new menus.
Winner Number Three: Private Companies for Sale. My favorite, as there is no greater form of an entrepreneurial, economic success than a sale of a business at an attractive price.
In a world of rising prices, the acquisition appetites of larger companies increase as their cost of money - as driven by their valuation multiples - decrease.
This is most evident for public companies, now trading at a rich 18x earnings (S&P 500), who are able to buy smaller, usually private companies with the relatively cheap currency of high multiple public equity.
This frothiness also drives the financing environment, where buyers (investors) and sellers (entrepreneurs, companies seeking capital) more easily strike higher risk, higher valuation deals (see Fab.com, HootSuite, and scores of others) with an ease that isn’t there in a flat or deflationary environment.
So, if you're an entrepreneur, think about accelerating and intensifying both your financing and exit planning efforts.
And for investors, remember that the worst strategy in an era of rising prices is to be standing still and sliding away in fast depreciating cash.
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Last week, I talked about the communication breakdowns that occur when investors and entrepreneurs talk about risk.
Well, in most forms of angel and early-stage private equity investing, these breakdowns flow from a misunderstanding of the power and nature of outliers.
The concept of outliers and how they apply to early stage private equity investment was best described by the Lebanese thinker and writer Nicolas Taleb, in his best-selling books "Fooled by Randomness" and "The Black Swan."
In the Black Swan especially, Taleb described the nature and importance of outliers in a modern, inter-connected economy:
“What we call here a Black Swan is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable."
Taleb continues, "I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives."
Less famous, but more helpful when it comes to designing an effective private equity investing strategy is Taleb's theorizing on how technological interconnectedness vastly intensifies Black Swan impacts.
This idea of technological interconnectedness is related - though not exactly the same – as that of the much ballyhooed Network Effect that is so much at the heart of many of the biggest technological and investment success stories of the last 15 years, Facebook, Twitter, and LinkedIN, being first and foremost amongst them.
In its simplest form, the Network Effect posits that the value of a network increases exponentially with each new user on it.
Or, in other words, the primary reason why folks use Facebook, Twitter, and LinkedIN is because there are a lot of other folks that use Facebook, Twitter and LinkedIN too.
And, as more users join, such the value for others to join grows that much greater.
And so on and so on.
Thus, one of the first screens that the intelligent early stage investor should utilize is the degree to which a network effect is present in a company's business model.
Now, let’s get to the rub of the matter as to how Taleb’s interconnectedness concept both informs and signals danger for the thoughtful investor.
Simply put, global technological inter-connectedness drives the winning business models to heights never seen before …
…and because of this, there are a lot fewer of them.
Simply put, the winners are bigger and happen faster than ever - Facebook's IPO was bigger and faster than that of Google’s which was bigger and faster than that of Microsoft’s, which was bigger and faster than that of Apple’s.
And because the winners are bigger, there are less of them.
So that giant sucking sound you hear is the consuming of so much of the energy and return in the deal economy into fewer, bigger and more lucrative deals.
To put it another way, turning $500,000 into $1.8 billion in seven years as Peter Thiel did as a small minority investor in Facebook is just not beyond extraordinary - it is also unprecedented.
And, correspondingly, returns of this scale crowd out and widely skew the distribution to fewer, higher returning deals.
Now, how should we respond to this brave new and highly challenging investing and entrepreneurial world?
Well, one obvious response is to proceed extremely carefully.
Investing in early stage private companies can be great fun and you can make money beyond your wildest dreams if the stars are aligned right doing it….
…but the probabilities of doing so in any one company or deal are low…and getting lower.
And unfortunately, this is true no matter how enthusiastic, how passionate, how hardworking, how brilliant the entrepreneur that is pitching his or her deal happens to be.
So does this mean that early stage private equity investing is for the birds? And that we all should just stay away?
Of course not.
You just have to do it right.
Next week, we’ll share how today’s most successful investors and entrepreneurs do just that.