Written by Jay Turo on Thursday, March 27, 2014
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).
More entrepreneurs and businesses having access to outside capital than ever before and...
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.
Written by Jay Turo on Wednesday, March 19, 2014
An endearing, but dangerous quality of entrepreneurs and small business owners is their propensity to go all-in -- not only pouring all of their lives, hearts and souls into their business, but all of their money too.
Of course, many entrepreneurs simply need every penny they have and more to fund their businesses and there just isn't any money left to invest in anything else.
But once an entrepreneur gets beyond the survival stage, they need to think about how and where money is working for them in their own business, and where it could do better.
Oftentimes, a lot better.
The first challenge: Entrepreneurs live, breath, and too often suffer their own businesses so much that when it comes to investing, they can’t think straight.
I encounter a lot of entrepreneurs who have this massive built-in bias toward ongoing, disproportionate investment in their own businesses are correspondingly are often just blasé, disinterested, and even, dare I say lazy when it comes to thinking about money and investments outside of their “baby.”
So they take one of two approaches. The first is the passive one -- outsourcing money and investment decisions outside of one’s business to a wealth “manager.” While there are compelling financial planning reasons to do this -- i.e. "we need to save and invest this much and earn this rate of return by this date to comfortably retire" -- the expectation for actual investment returns via this approach should be kept pretty low.
In fact, the S&P Indices Versus Active Funds Scorecard (SPIVA) shows that average "managed money" returns trail the index averages by almost the exact percentages of the fees charged for managing the money.
The second approach is more scatter shot - whereby investments in “one-off” real estate, startups, oil and gas, and collectables opportunities, among others, are presented to the entrepreneur by a varying lot of well-meaning and potentially pilfering parties.
And entrepreneurs, as they are wired fundamentally as optimists, find these opportunities naturally appealing.
So they invest – sometimes to good and lucky effect, but often disastrously so.
Is there a better way?
Can the hard-working entrepreneur have his or her money earn a good rate of return? While managing risk?
And dare we dream – adoing so in a way that is in alignment with their entrepreneurial values and leverages their entrepreneurial skill sets, experiences, and industry knowledge?
Of course there is!
An approach built on diversification and one that leverages traditional managed money vehicles like public market stocks, bonds, and mutual funds, but also offers the opportunity for above average, and with a little good fortune, potentially excellent investment returns.
It looks, quite simply, like this: Invest in what you know.
Or, in other words, a restaurateur could invest in other people’s restaurants and food service businesses.
Healthcare entrepreneurs could evaluate investment opportunities in healthcare.
Those owning distribution or light manufacturing businesses, look at other people’s distribution and light manufacturing businesses.
Now, of course there are caveats to this approach.
The first is to be cautious and conscious as to industry risk – factors such as an uncertain regulatory environment or perilously fast changing technological change that create risks beyond the control of any one or several companies in an industry.
Secondly, to undertake this form of investment, especially when owning minority positions in private companies, transactional and deal term sophistication is a must.
So if you don't understand aspects of private equity investing like valuation, capital structure, control and anti-dilution provisions, it is probably better to either avoid this form of investing, or do so through a managed or private equity fund vehicle approach.
You may be asking: Why go through all the trouble?
Well, when done right, a properly executed and diversified "angel" investment approach like this can earn a very high investment return.
Research from the Kauffman Foundation Angel Returns Study and the Nesta Angel Investing Study, compiled by Dr. Rober 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."
Returns like this will not be found via traditional managed money approaches, and rarely -- especially when accounting for the huge opportunity costs of running a company -- in one’s own business.
So for those entrepreneurs with the stomach and the work ethic for it, an "Other People’s Business" investment strategy like this is one well-worth considering.
To Your Success,
P.S. To listen to a replay of my Thursday webinar, What's Up with WhatsApp?, where I explored some of the key lessons learned from Sequoia Capital's $58 million investment - and subsequent $3 billion windfall - upon Facebook's purchase of the messaging app last month, click here.
A version of this article originally appeared in Entrepreneur Magazine and can be seen here.
Written by Jay Turo on Thursday, March 13, 2014
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,
Written by Jay Turo on Thursday, January 30, 2014
Almost completely shrouded in the drumbeat of negativity that passes as business reporting these days has been the bursting growth in U.S. service exports – increasingly from U.S. startups and small businesses.
Protectionist types of course interpret this to mean that “our wages will get pushed down to “their” levels – or more viscerally, “if this keeps up we’ll all soon be making $2 dollars per hour.”
Why? Because on a dollar-for-dollar (or better yet, zioty-to-zioty) basis, it was a better value for them to import services like these from the U.S. The world is changing, isn’t it?
Even our current favorite whipping boy industry – financial services – continues to bring us world-bettering innovations like venture philanthropy (i.e. applying market principles to solve the world’s most pressing humanitarian challenges), super angel funds (overcoming the “outlier” or “Black Swan” conundrum of startup investing) and of course crowdfunding (democratizing fund-raising and investing in ways never before even dreamed possible.)
Written by Jay Turo on Wednesday, January 15, 2014
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.
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.
Written by Jay Turo on Monday, December 30, 2013
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!
Written by Jay Turo on Monday, November 25, 2013
Written by Jay Turo on Monday, November 18, 2013
Jeff Bezos is a great hero and role model for all entrepreneurs that dream of doing something really, really big, and…pulling it off.
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.
Written by Jay Turo on Monday, October 14, 2013
Watching the disaster of a process that is the D.C. budget drama, I found myself with a curious reaction.
Written by Jay Turo on Monday, September 23, 2013
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.
P.S. Click here to complete our survey on investing and entrepreneurship and have a free cup of coffee on us!
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