Written by Jay Turo on Sunday, November 15, 2009
Two pieces of startling news to consider when thinking about how money is really made in our brand-driven 21st century economy:
Director Cameron, of Titanic, is blowing away ALL movie cost records here. To give a feel of the size of the bet that Cameron, Fox, and private equity partners Dune Entertainment and Ingenious Media, are taking on the film, Avatar may have to become one of the top-twenty grossing movies of ALL time just to break-even!
2. Ms. Kim Kardashian, kindly described by Wikipedia as "an American celebutante, socialite, model, actress, businesswoman, and television personality" is the 8th most followed person on Twitter. She trails only Ashton Kutcher, Britney Spears, Ellen Degeneres, Oprah Winfrey, and oh yes, the President of the United States.
This is relevant only because, whatever you think about the quality/lines of work and political leanings of others on the list, at least they have actually DONE SOMETHING to become famous.
Ms. Kardashian, for all of her obvious charms, is that particular modern phenomenon of seemingly being famous because she is, well, famous.
The logicians of the time - most prominently John Stuart Mill- associated the term "Black Swan" to the concept that a "previously perceived impossibility may actually come to pass."
Bringing it to November 2009, man who would have thought that a) a movie featuring a love story between 2 ten-foot tall blue aliens and b) a 29-year old actress with no major film or television credits or awards would have far more brand and marketing dollars and reach behind them than every single technology startup in the United States combined?
The answer: Nobody. And more importantly, the phenomenons of Avatar and Ms. Khardashian CANNOT - I repeat CANNOT - be retroactively analyzed for guidance as to what the next new thing will be. As Kim might say - "just don't go there."
So the true Black Swan acolyte does not look for guidance from past, outlier events, he or she does seek lessons. Here are three:
It is what getting rich in America SHOULD be about. But the statistics tell a far different story.
Think about the size of Avatar's reach - a $300 million production budget? $200 million for marketing? There probably aren't 10 technology startups in the whole world with these kinds of numbers behind them.
And the nice thing about a movie versus a startup is that you can usually find out in real-time if you have something. Don't you think the VC's with their full portfolios of "waking dead" startups would like to find out as Fox will with Avatar, in like 2 weeks, if they have something?
2) "Vanilla" investment in business models, in corporations, LLCs and the like, are almost passing into the realm of quaintness. I come back to my good friend Rafe Furst and his brilliant idea of the personal investment contract.
Investing in any one of Ms. Kardashian's various companies (perfume, clothing, DVD projects) is highly risky and on the surface, not all that attractive. But being able to invest in the Kim Khardasian personality brand itself - with her top 1,000 website and 2.8 million Twitter followers (put this in perspective - Jim Kramer's Mad Money gets about 300,000 viewers/day) - is a sure-fire moneymaker.
That is philosophy - here is money-making: The big, big outlier events - the 1,000 to 1 shots and beyond - are always, always, always, UNDER-PRICED in the marketplace.
Bet on them.
Written by Jay Turo on Monday, November 9, 2009
Passing with surprisingly little fanfare, today is the 20th anniversary of the fall of the Berlin Wall.
One of my most enduring memories of my college days (I was an International Relations Major at Stanford, Class of 1990) was a class that I took from an extremely engaging and charismatic young professor on Soviet Foreign Policy.
One statement that my professor made stayed with me - that probably none of us in our lifetimes would see the Berlin Wall fall.
a) The inevitable brain and talent drain that an opening of the wall would bring about
b) The more that people in the old Soviet republics and in Eastern Europe were allowed to see with their own eyes the freedom and prosperity that liberal capitalism creates, the more likely they would be to rebel against their masters.
Thus, the Soviet leadership, out of pure and obvious self-interest, would never allow it to happen.
Well, the rest is history. Six months after this perhaps off-hand classroom statement, the Berlin Wall came down. And 15 years later, my young and charismatic professor - Condoleezza Rice - was named the 66th United States Secretary of State.
I am not exaggerating when I say that of all of my college experiences and memories (at least the ones I can remember..:), that that day and that class and Professor Rice's statement stayed with me. Why?
1. It inculcated in me at a very early age that the future is very, very uncertain, and that there is often little correlation between the depth of one's understanding of a topic and the ability to PREDICT about it.
Professor Rice KNEW the Soviet Union - even then she was considered one of the nation's most knowledgeable and versed thinkers and commentators on topic. And yet she, like so many others, was wildly wrong here.
2. While I could not put it into words until last year when my good friend and perhaps best thinker on "systems of prediction" I know - Rafe Furst - introduced me to Nicholas Taleb's masterpiece "The Black Swan," I and many others intuitively felt that something VERY, VERY, VERY outside of the realm of prediction took place the day the wall fell.
3. And more deeply, BECAUSE it fell outside the realm of prediction, it MATTERED. The "smell test" on these kinds of moments are simple - they are the ones we remember where we were when we first heard about them.
For my generation - The Space Shuttle Disaster (and Reagan's incredible speech that night), The 1987 Stock Market Crash, the fall of the Berlin Wall, Clinton's impeachment, September 11th, the capture of Saddam, and the fall of Lehman (for those of more business/financially-minded) fall into this category.
My friend Rafe and Taleb tie this core life insight to business and investing.
How? By only wagering on the unpredictable. Raynor in the Strategy Paradox makes the same point. BIG success and BIG money are only made on the BIG outliers - everything else is just transom.
In a strange way, the fall of the Berlin Wall was a seminal event in my youth that pointed me to my life's work. It affirmed by belief in liberal capitalism and in the "way of the West" as the right and proper end of history.
And in business, it led me to entrepreneurship and to private equity.
Why? Because it is in the aspirations of the entrepreneur and of their backers that the power of the unpredictable is made most real in business.
Those that grasp it - the Bezos, the Brins, the Pages, the Josh James of Omniture, the Aaron Patzers of Mint.com, the Kevin Planks of Under Armour, MAKE history.
And hopefully take the rest of us along for the ride.
I look forward to your attendance and feedback.
Written by Jay Turo on Tuesday, November 3, 2009
Google. Omniture. Mint.com. All massive private company investing success stories and all shared some critical characteristics:
1. They all took a while to blossom. In the case of Omniture, it was 13 long years from company founding to exit last week via sale to Adobe for $1.8 billion.
2. Those that made the most money by far were those that got in early. Sure, it would have been great to have owned Google at its 2004 IPO price of $85/share, but some of the FIRST investors in Google in 1998 bought their shares - on a split-adjusted basis - at eight CENTS/share.
3. All had/have great leaders. Josh James, founder and CEO of Omniture, has led his company through a failed acquisition, through having to lay off 3/4 of the company's employees a week before Christmas, an IPO, and attracting the best software talent far from Silicon Valley (in Omniture's case, suburban Utah).
4. Lady luck smiled on them. In the case of Mint.com, Intuit's inability to move their key personal financial software apps to the "cloud" (in spite of having 100 x more software developers working on it than Mint) was the key stroke of luck that led to Intuit buying them in September for $170 million.
The key question with luck, always, is how we can make it work for us. And the stories of Google's, Omniture's, and Mint.com's success point the way.
I look forward to your attendance and feedback.
Written by Jay Turo on Monday, October 26, 2009
Below is the transcript of my talk – “Where Will We All Be in 2019,” delivered at Growthink’s 10-Year Anniversary Celebration on Thursday, October 22nd at the Sheraton Gateway Hotel in Los Angeles.
Also please register for my Thursday webinar,where I review private company investing trends and opportunities.
Click here for more info and to register.
I look forward to your feedback, to connecting and to another 10 great years!
*Do note that as much as all of us would like it to be this is not an investment guarantee. It is, however, a statement of great confidence in the Growthink business model, in our team, and in our growth prospects.
Written by Jay Turo on Monday, October 12, 2009
Tired of reading about the same over-shopped, over-hyped, over-followed technology companies? Intel. Cisco. Dell. Microsoft. Even Google, Amazon, and Apple.
All great companies for sure but the under-reported truth is that the real money has already been made on them. They are already big and famous and have lots and lots of smart people following and trading them. As investment opportunities, they are yesterday's news.
Hot Technologies of the Next 10 Years
Now, if you want to make real returns, you need to identify the growth stories of the next 10 years. Companies that are early in their lifecycle. Ones that have protected positions in fast growing market niches.
And you need to invest in them BEFORE everyone and their Uncle knows about them.
How To Do It
It is really as simple as 1 - 2 - 3.
First, find a dynamic growth industry. Second, identify a company within it that is well-positioned to grow as the industry does - the proverbial "boat lifted by the rising tide." And finally, investigate the company's guts - its technology, its historical and projected financials, and most importantly, the quality and determination of its management.
Solid State Drives - A Classic Next Generation Technology Play
Let's take a look at the solid state drive (SSDs) business. Solid state drives, based on computer memory rather than a rotating disk, are replacing traditional hard disk drives at an increasingly rapid clip.
This is a technology transition not unlike when we moved from cassette tapes and LP records to compact discs, or from compact discs to MP3 players. The basic idea is accomplish the same functionality - in this case electronic data storage - and to do so faster, more reliably, and with lower power consumption.
Well this transition is happening in the SSD industry big time. The industry as a whole is growing at a rate of over 80%/year (IDC).
IDC further estimates that the market for SSD devices will grow from $932 million in 2009 to $5.6 billion in 2012. Other industry analysts take a similar view, with some foreseeing over 100% annual market growth for a number of years as the technology transition heats up.
Ok This Makes Sense - Now What Do We Do?
Now let's find a company uniquely well-positioned within this industry. It would be even better if this company was one that not a lot of people know about, yet already has GREAT products that consumers love.
And even better - suppose this company was not a dreamy-eyed startup but one with a 7-year history of going from startup in 2002 to over $150 million in revenues last year?
Finally, dig a little below the surface and get a sense of their plan for growth. Are they thoughtful in all their business aspects - technological, marketing, operations? Is management both intense and mature? Can they protect their place in their market niche from the big boys? And most importantly, can they grow as the industry around them grows?
If you can find a company that has this kind of 1 - 2 - 3 logic, and if you can get in on it at the right price, you have something special.
How To Find a Company Like This?
Well guess what, we are right now connected with a company like this. One on the verge of having its shares publicly traded, and one that is looking to connect with a select group of investors to fuel its growth.
Best regards, and look forward to your attendance.
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Written by Jay Turo on Friday, October 9, 2009
Los Angeles, CA. October 9th, 2009. For Immediate Release. Jay Turo, CEO and co-Founder of Growthink, today announced that it honor of Columbus Day on Monday, that Growthink offices will be open for business.
"Being of proud Italian heritage, I have always admired the spirit of entrepreneurship, initiative, and good old-fashioned going for it that Christoforo showed on his great trip," Turo said. "And those of in the capital-raising business (especially as Columbus Day falls right in the middle of capital-raising season) can all learn a LOT from the strategic, angel investing round he raised from Queen Isabella to finance the trip. And he put his presentation together, I understand, without the latest versions of Powerpoint and Excel."
"In honor of his achievements and his spirit, Growthink, unlike the yesterday's news post office and the bailed out banks, is excited to be working and serving the world's entrepreneurs this Monday."
Written by Jay Turo on Thursday, October 8, 2009
Very, very sad news today that Luis Villalobos, Founder of the Tech Coast Angels and angel investor in 57 early-stage ventures, died suddenly yesterday at the age of 70.
I had the extremely good fortune to have Luis be one of the first clients of Growthink back in 1999. Luis hired us to do a lot of the "blocking and tackling" work in assembling a business plan for a fund/incubation concept - Gazelle Labs - that he and a number of the other principals of TCA had established. Truth be told, we should have paid Luis to work on the project.
First of all, because even at that time, he had forgotten more about entrepreneurship and early-stage investing strategy than most of us will ever know. And because of his attention to detail and intellectual rigor, he set a standard and an expectation of work product that we have tried to carry through with here at Growthink in the last 10 years. Wisdom worth many, many, many times the fees we earned on the engagement.
I have fondly reflected on my experience of working with Luis over the years. He embodied the best qualities of the American entrepreneur and angel investor - hard-headed and brutally realistic, challenging AND extremely giving of his time and energy in support of aspiring entrepreneurs.
He will be missed. May America produce more of his kind.
Written by Jay Turo on Monday, October 5, 2009
To be filed firmly in the categories of the rich get richer and it does usually make sense to be both lucky and good, this week’s New Yorker notes that Jeff Bezos was one of the early investors in Google.
Yes, that Jeff Bezos. Founder of Amazon.com. #33 on last year’s Forbes’ 400 with a net worth of over $8.7 billion.
The story is this - 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 search engine in a $1 million follow-on investment round.
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 Bezos does not disclose how many of those shares he still holds, at the current price of Google stock they would represent an investment position of over $1.5 billion.
Why did Bezos invest in Google? In his words, “…There was no business plan…They had a vision. It was a customer-focused point of view.” And more tellingly he adds, “I just fell in love with Larry and Sergey.”
In addition to being a tale to which the normal reaction is to just say “wow,” Bezos’ Google investment offers a number of great lessons for aspiring, private company investors:
1. He Thought Long Term. Even though Google has been the fastest rocket ship growth company in the history of capitalism, it was still SIX YEARS from Bezo’s investment in the company to liquidity. Private equity overnight successes simply do not exist.
2. He Got In Early. Sure, it would have been great to get into Google at its IPO price of $85/share, especially as the shares are up over 535% since then. But Bezos got in, after adjusting for stock splits, at EIGHT CENTS PER SHARE!
Talk about leverage. That translates to a 112,000 percent increase from investment to IPO, and then if he held onto the shares to another 535% on top of that.
3. He Invested in People. At the time of Bezo’s investment, there were a large number of very well-funded and far more successful search engines already on the market. Remember this was 1998 not 1994. Yahoo. Alta Vista. Lycos. Excite. Looksmart. Webcrawler. Infoseek. Inktomi and GoTo to name just a few.
But Bezos was attracted to Page and Brin as people, as technologists, as leaders. And obviously their customer-centric focus really tracked the way that Bezos looks at the world and is embodied in the Amazon customer service experience.
So while a business opportunity, in its abstract is great, evaluating the people leading a business is a FAR MORE RELEVANT investing best practice.
4. He Took a Shot. For every Jeff Bezos who invested in Google, there are stories of literally dozens of investors that were presented with the opportunity and did not.
This of course does not mean that the probability of any early stage private company investor having a Google-like success in their portfolio is anything but very low, but it does mean that it is far greater than the ZERO percent likelihood of success of those who did not invest.
As they say, you can’t win if you don’t play.
5. He Got Lucky. As hard as it is for many to accept, luck is a key, and sometimes the key, variable in successful investing.
As opposed to fighting or getting philosophical re this reality, a far better question to ask is “How can I improve my likelihood of, for lack of a better turn of phrase, getting lucky?
Best regards, and look forward to connecting.
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Written by Jay Turo on Sunday, September 13, 2009
Did you know that the current stock market rally, which has seen the S&P 500 rise over 54% from its low of 676 on March 9th, is the greatest in history?
Lazlo Birinyi, founder of Birinyi Associates, notes that since March the S & P has risen 0.31%/day on average.
This is three times faster than the previous fastest recovery in 1982, which averaged an increase of 0.12% per day.
He calls it the "Usain Bolt of markets. We just blew through the records."
Tracking the uptick in the market has been rising consumer and economic confidence.
The Conference Board Consumer Confidence Index was up in August to its highest level since December 2007.
And the Discover Business Watch Small Business Confidence measure jumped last month to its highest level since February 2008.
How to Take Advantage?
The problem is, of course, first determining if you've missed the rally, and then how to translate this improving business sentiment into opportunity for you.
For those of us that aren't Washington politicians or C-level executives of Fortune 500 companies, the best pathway to do so is via entrepreneurship and via involvement in private companies.
But, and it is a very key but, you have to know what you're doing. As the famous saying goes, "A little knowledge is a dangerous thing."
Quite simply, when it comes to investing in private companies you must "do it right or don't do it at all."
Best regards, and look forward to connecting.
P.S. There are 50% and more rallies every year in various private equity sectors. You just need to know where to look.
And before you start looking, you need to know what to look for.
Written by Jay Turo on Monday, September 7, 2009
Medtronic. Cardinal Health. Guidant. Becton, Dickinson. St. Jude Medical. Hospira. Fresenius. Varian Medical.
Why Should You Care?
Is there money being made in the sector now - even in this tough economy? You bet your life there is.
America's spending on healthcare will top $2.5 trillion this year alone, accounting for more than 17% of the nation's spending, and may double in the next decade.
And Danaher, the industrial conglomerate, made big moves in the sector by buying MDS's analytical-technologies business for $650 million.
P.S. Medical devices is a bright and hot sector in the midst of a mostly dismal technology investment climate.
Stop crying in your soup about how tough it is out there and do something about it.
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