With 41% of all U.S. venture capital investing activity, Silicon Valley is the nation’s unrivaled tech early technology investing epicenter.
As the innovations and wealth that have flowed from Valley Tech companies - from Apple to Cisco to Ebay to Facebook to Google to HP to Netflix to Pixar to Oracle to Yahoo and thousands more - have enriched the world beyond measure.
And since the start of this year, almost impossible to believe stories of fortunes being made there have inspired us all (and provoked more than a little jealousy, too!).
I profiled a pair of these stories - Jim Goetz of Sequoia Capital parlaying a $58M investment into WhatsApp into a $3B fortune when in February Facebook purchased the messaging app
And Super Angels Peter Thiel and Sean Parker, who through their Founder’s Fund invested $16 million into virtual reality headset maker Occulus VR, which returned more than $740 million when Facebook bought the business last month.
Great for them.
But it does beg the question: Has Silicon Valley become so dominant - has it so separated itself - that the best opportunities can only be found there?
Of course not.
In fact, the argument can be made that the worst place to invest right now is in Silicon Valley.
As the stories above illustrate, deal prices there are high, and there is more money than ever (including $7 billion in fresh capital raised last quarter) chasing fewer and fewer deals.
So smart money is starting to look elsewhere.
Like in Los Angeles.
Long renowned as a digital media and entertainment hub, LA Tech investing activity has never been greater, with both funding and deal activity at a five year high.
Smart investors are making a lot of bets on young LA companies, with 70% of all area investing activity happening at the Seed and Series A stages.
Like in the Valley, Internet and Mobile-related businesses dominate - with close to 80% of all venture activity being concentrated in these areas.
These investments are paying off, with 59 recent venture-backed Tech Exits, including Demand Media (IPO), Cornerstone on Demand (IPO) Riot Games (Purchased by Tencent), Edgecast (Purchased by Verizon), Servicemesh (purchased by CSC), LiveOffice (purchased by Symantec) and Integrien (purchased by VMware).
And many, many investing “win” stories like these can be found in Tech Centers like New York, Boston, Chicago, Austin and more.
Yes, the Valley is great but it is far from the only game in town.
And there is a strong case that its best investing days may be behind it.
The word to the wise here is to look elsewhere.
To Your Success,
P.S. Click here for a recording of my private equity investing webinar: What Peter Thiel and Sean Parker Know about Investing and What You Should Too.
Don’t you just love these booming markets? Well, if you don’t, try on these IPO, M&A, and financing stats from 1st Quarter 2014:
Initial Public Offerings: 72 companies went public in the U.S. in the 1st quarter - the largest number of new issuers since 2000 -raising a total of 11.1 billion. And, as of Monday 54 of the 72 of them were trading above their IPO price.
Mergers & Acquisitions: Global mergers & acquisition activity totaled $710 billion (Thomson Reuters), up 54% from last year.
Private Equity. Private equity firms did 850 deals, representing investments of greater than $152 billion (Pitchbook), up 11%.
Venture Capital. 1,348 companies raised more than $15 billion from venture capitalists, up 36%.
They also raised $10.3 billion for 578 funds in the 1st Quarter, up 51% from last year.
After many years of ongoing economic and investment dreariness, isn’t this so refreshing?
And aren’t we heartened that the doomsayers have been proven so fundamentally wrong?
Wrong about the U.S. economy.
And wrong about what is so clearly the dominant leadership position of this country in all of the great technologies growth industries of the 21st Century - software, biotechnology, energy, digital media, and more.
And beyond the numbers, there are some great stories.
Of new industries being built, of fortunes being made. Here is one of my favorites:
Last week, Facebook acquired virtual reality headset maker Occulus VR for approximately $2.24 billion.
Among the investors were Peter Thiel and Sean Parker, of PayPal and Napster fame, who through their VC The Founder’s Fund last year invested $16 million into Occulus.
Upon Facebook’s purchase of the company and correspondingly of their shares, their position is now worth more than $740 million, or a return of close to 50X on their invested capital.
How did they do this?
What selection strategies did they utilize to identify companies with this kind of return potential?
Well, attend my webinar Thursday - What Peter Thiel and Sean Parker Know about Investing and What You Should Too - to find out.
On it, I will share:
- Why the majority of investors presented the opportunity to invest in Occulus declined to do so
- How Thiel and Parker and their fund partners diligenced the deal and decided to invest in Occulus instead of in the dozens of virtual reality technologies then and now in the marketplace
- How Big Data and Black Swan portfolio theory and modeling were critical to their valuation analysis on the deal
- How today’s booming IPO and deal market, discussed above, is affecting (positively and negatively) the technology deal marketplace
Register now via the below link:
To Your Success,
P.S. Interested in the topic but can’t make the webinar time? Well, do register and will make sure that you get a recording of the presentation.
Global Technology Mergers & Acquisitions Activity is now at its highest year-to-date level since 2000 (in terms of both dollar volume and deal number).
Overall there has been $65.2 billion of M&A activity announced year-to-date (Thomson Reuters).
And then layer in the the crowdfunding boom (both donations and investment-based) and the exploding growth of peer-to-peer lending sites like Lending Club and Prosper.com, and never before have there been so many and so good “digital” places for those seeking and those providing capital to connect and transact.
More entrepreneurs and businesses having access to outside capital than ever before and...
…for the first time investors having the ability to efficiently build diversified portfolios of private equity and debt investments with strong, positive expected value.
Now compare all of this freshness and innovation against the ongoing dreariness of the “public” markets.
From 2000 to today, the Dow Jones has risen from 11,078 to approximately 16,268 (as of 03/26), or approximately 42%.
During that same time inflation has reduced the dollar’s purchasing power by almost exactly that same amount (38%).
So basically 15 years and ZERO real investment return.
Now what do these two fast diverging worlds, the increasingly innovative and transparent one of private investing on the one hand, and the flat and more opaque than ever one of the traditional public market returns on the other, mean for the entrepreneur and for the smaller investor?
Quite simply, it is all good.
For investors, it means access to higher returns.
Research from the Kauffman Foundation Angel Returns Study and the Nesta Angel Investing study, compiled by Robert Wiltbank, have demonstrated that the "...average angel investor (across the U.S. and UK) produced a gross multiple of 2.5 times their investment, in a mean time of about four years.
And for the entrepreneur, it means more, quicker, and cheaper access to capital, especially in smaller amounts.
Which leaves more time and energy for what entrepreneurs want to do and what we all need them to do…
…starting and growing profitable and innovative companies that make the world a better place.
Amen to that.
To Your Success,
P.S. To listen to a replay of my Thursday webinar, where I explored some of the key lessons learned from Sequoia Capital's $58 million investment into WhatsApp - and subsequent $3 billion windfall - upon Facebook's purchase of the messaging app last month, click here.
A version of this article originally appearedin Entrepreneur Magazine and can be seen here.
This Saturday, I took my sons to Toys"R"Us to buy them baseball gloves. A great American tradition to be sure, and with opening day just 2 weeks away, both spring and the national pastime were in the air.
I looked for the American baseball glove names of my youth - Rawlings, Wilson, Easton, Spalding, Cooper.
My boys happily tried on gloves (most much too large for their little hands) to find the perfect fit.
For whatever reason my eye was caught by the fine-print label on one glove and its none too surprising "Made in China" imprint.
My curiousity piqued and my young sons' attention of course being diverted by all of the amazing toys in the store, we started wandering about.
Tonka. Backloaders, dump trucks, bulldozers, and more. Made in China.
Chutes and Ladders. Gnip Gnop. Battleship. Twister. Yahtzee. Risk. Connect Four. Made in China.
The erector sets have evolved impressively from the clunky sets I remembered. Made in China.
Hundreds of Hot Wheel model race cars - beautifully modeled Camaros, Jeeps, Corvettes, and more. Made in China.
On to the figurines and action figures. Dale Earnhardt Jr., Tom Brady, Lebron James, Albert Pujols. Staring out lifelike from their boxes and Made in China.
Blond-haired blue-eyed Barbie and Ken. Made in China. GI Joe. Defending our freedoms and Made in China.
Notes To Self
Call me old-fashioned, call me protectionist but it just didn't feel right to buy my sons Chinese - manufactured baseball gloves.
Then thinking practically as a striving parent does, first order of business was to go home and get my boys immediately enrolled in intensive Chinese language instruction because by golly if this is how the world is now then where is it going?
And on this thought I caught myself. I realized I had fallen for the classic mercantilist trap and confused "Made In" with "Value Added."
What's the difference? Well, for you parents reading out there put it this way - none of you I would surmise want their sons and daughters to grow up and work in a factory (though, of course, it is like all work noble and deserving of praise).
But a LOT of you would be VERY happy if your son or daughter went to work as a product designer for Lego.
In marketing or public relations for Mattel.
In corporate finance at Rawlings.
At the NFL league office.
In post-production on the movie Avatar.
As eco-friendly packaging and shipping designers for Toys"R"Us itself.
These Are the Good Old Days
While it is hard for many to accept, it is beyond clear that America is MUCH wealthier today than it was in the so-called good old days when the U.S.A. was the manufacturing capital of the world.
What's The Point?
Very simply, wealth and power in the modern world is NOT about making things. It is about reconceptualizing them.
Apple. Google. Microsoft. In Apple's famous (and grammatically incorrect) advertising campaign, none of these great American companies actually make anything in the strict sense of the term. But they invest lots and lots of time and money in thinking different about them.
To put it another way, modern wealth and power are NOT in the things themselves. They are in their recipes - the instructions of HOW to make them.
And in making new and better recipes, American entrepreneurs lead the way by miles and miles.
And assuming government stays out of their way, they will continue to do so.
To when my little boys enter the workforce and beyond.
Last week, I shared how between 2011 and 2013, Sequoia Capital invested approximately $60 million in WhatsApp – the instant messaging subscription service bought last month by Facebook for $19 billion.
And how Sequoia’s return on that $60 million was close to $3 billion, or more than 50 times its original investment.
I then offered to share some of our research findings as to the selection strategies that early-stage technology investors like Sequoia now utilize to identify companies with this kind of return potential.
Not surprisingly, the response was overwhelming.
So much so that only a very of those who wanted to learn more were able to get in before registration sold out.
So to accommodate all of the requests I have agreed to re-present our findings and will do so via web conference tomorrow at 7 pm ET / 4 pm PT.
To register, click here: https://www2.gotomeeting.com/register/647747626
On it, I will share:
• Why the majority of investors presented the opportunity to invest in WhatsApp declined to do so
• How Sequoia partner Jim Goetz diligence the deal and decided to invest in WhatsApp instead of the literally hundreds of comparable messaging applications then and now in the marketplace
• How Big Data and Black Swan portfolio theory and modeling were critical to Sequoia’s valuation analysis on the deal
• How today’s booming IPO market, with through March 1st more than 42 IPOs raising $8.2 billion – the highest YTD activity since 2007 – is affecting (positively and negatively) the technology deal marketplace
• And much, much more
Register now via the below link:
To Your Success,
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!