Growthink Blog

[Report] Here’s Why the Stock Market is Broken


Remember the bull markets of the 1980s and 1990s, when everybody was making money in the stock market?

Bad News: Those days are GONE… and they’re not coming back

Click below to discover mine and Growthink’s exclusive report on WHY today’s stock market is broken -- and what you can do about it: <-- Click here

It’s almost hard to imagine how strong stock market returns used to be…

Just look at the average annual returns of the Dow Jones Industrial Average from 1982 to 1989:
•    1982: 19.61%
•    1983: 20.27%
•    1984: -3.74%
•    1985: 27.66%
•    1986: 25.58%
•    1987: 2.26%
•    1988: 11.85%
•    1989: 26.96%

The good times continued in the 1990s. On January 1, 1990, the Dow Jones was at 2,810. By December 31, 1999, it had exploded to 11,497 -- an increase of 409% in just 10 years.

But today’s stock market is BROKEN.

From 2000 to TODAY, the Dow Jones has only moved from 11,078 to 16,700 (only 40%). And INFLATION has reduced purchasing power by 37%... which means the net returns of the Dow Jones have been close to ZERO.

Download this report and discover why the stock market is broken – and what you can do about it.

What Every Investor Wants


Last week my post on Silicon Valley - where I posed that the Valley as an investment hub had become overbought, and that the best opportunities were trending elsewhere - elicited some great responses.

Perhaps my favorite was from a Midwest VC, in reference to one of his portfolios companies in the data center space..."Here is an excellent company which is part of our VC portfolio that is…in the midst of the cold Midwest in Rochester, Minnesota, a location where few Silicon Valley folks are brave enough to consider for investment."

Another came from a well-known super angel from Dallas, “very much admire the wealth and innovation coming from SV, but it is time for investors to step out and see all of the great technology companies starting and growing outside of California.”

I appreciate these sentiments very much, and they got me thinking as to what are the common threads amongst those that love, work and invest in the startup and small business sector.

It starts with a set of beliefs. First and foremost, a clear and passionate recognition that the blessings of our way of life depend on our thriving free enterprise system.

And a deep and abiding respect for those that create wealth via their own hard work, creativity, and opportunistic sense of risk and reward.

For the entrepreneurs, the owner-operators, “the risk takers, the doers, the makers of things.”

Those brave souls that embody Picasso's famous credo of "work being the ultimate seduction.”

From whom business is far more than simply a way to make a living.

AND as they do it, they make money.

A lot of it.

In fact, the vast majority of startups and small companies earn a far higher return on invested capital than their larger publicly-traded brethren.

In fact, companies on the Inc. 5000 - a list of the country’s fastest-growing privately-held companies - average annual revenue growth of over 70%.

And a good number of these companies take in outside investment to accelerate their growth.

Some from professional investors - private equity and venture capital firms - and some from individual, “angel” investors.

And when the better among them do, those that love and are passionate about entrepreneurship, about technology, and about making money, want to participate.

Here’s why:

1. High Rate of Expected Return. Angel investing is by far the highest expected rate of return form of investing, 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."

2. Home Run Potential. Smaller operating companies are the only form of investment that offer true "home run" potential.

Almost all great fortunes have been made via positions in small companies that became big. The list is legion, and runs from Standard Oil, DuPont, and Ford, through IBM, Hewlett-Packard, Wal-mart, Microsoft, and Oracle, to modern day supernovae like Amazon, Google, LinkedIN, Facebook, and Twitter.

And yes, Whats App and Occulus, too - companies still early in their business life but having already created fortunes for their early investors.

3. Connectedness. Perhaps my favorite, investing in smaller, private companies offers a connectedness, realness, and "human scale" interaction best compared to philanthropy.

It is the spiritual opposite of index, derivative, and Federal Reserve tea leave gazing that so unfortunately is what the media now considers “finance.”

Quite simply, early-stage investing is one of the last, pure forms of doing good while doing well…

…making a high personal expected, economic return decision while contributing to the entrepreneurial force of the world and providing fuel for innovations of all types that make it a better place.
What is better than that?


Silicon Valley: Only Game in Town?


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.

The "Why" and the "Which"


My company's strategic advisory board met this past week.

All I can say is wow – I benefited from it in ways that I barely could have imagined when first organized.

Here is what I got out of it:

That Often It is Better to Receive than to Give:  While advisory board members, unlike a formal board, do not have liability nor fiduciary responsibility, their time and energy requirements to participate are significant.

And for most smaller companies, the financial incentives it can offer advisory board members are relatively little compared to the value of board members’ time. 

A good if imperfect analogy is that for many senior executives their involvement with a smaller company advisory board is almost a philanthropic endeavor – where they give of themselves without expectation of direct reward – financial or otherwise. 

Correspondingly, the owners and managers of the small company must approach the sage advice and good energy offered by their advisory board fully in “receiving” mode.

For businesspeople of the mindset of always trading value for value and reciprocal obligation, this is hard. But only by clearing this space can the board’s counsel be best received.

And somewhat counter-intuitively, often only by management fully accepting the “gifts” of its advisors will the board member’s experience be richest.

Begin with the End in Mind: For companies beyond the startup phase, its operating executives are naturally pulled to the shorter-term challenges and realities - this quarter’s revenue and profits, this month’s sales, the challenges and angst of a difficult employee decision, etc.

An advisory board discussion, however, by both its nature and by the kinds of folks attracted to serve on it, naturally pulls to the longer view - to the big questions that all businesses should be regularly asking themselves always but rarely do.

These questions fall into the big categories of “why” and “which.” 

The "why" questions are hopefully embodied in the Company’s mission and its values, and need the regular attention of strategic planning sessions like advisory board meetings to keep them from existing only in “hot air.”

The “which” questions are in many ways the harder ones that an advisory board dynamic can specifically help address. 

You see - ambitious entrepreneurs and executives, especially after they have a little success, are naturally drawn to expanding their sense of their market opportunity, and correspondingly their list of product and service offerings.

This naturally leads to a diffusion of focus, of trying to be all things to all people.  A thoughtful advisory board will challenge management to more clearly define where they are aiming to be 1 year, 3 years hence and beyond, and from this vision where resources and attention should be focused today.

Speak Little, Listen Much: Managers and owners of emerging companies are often also the lead salespeople, the lead “evangelists” for their companies.

As a result, their default mode is to always be selling, always be pied-pipering their incredibly bright futures. 

This is natural and good, but in a strategic planning session it is of equal importance that the challenges, the obstacles, the concerning risk factors be sat and grappled with long and hard. 

Even if, especially if, so doing is buzz-killing and / or depressing.

Why?  Because it is often only in the “low negative” energy state that a certain kind of reflective creativity can flourish, and completely new approaches to solving vexing problems can be discovered.

Brevity is Next to Godliness: Strategic planning sessions in a modern business context should be tightly scheduled to last not more than 2 hours.  After this length of time, diminishing returns starts setting in fast. 

A tight frame also requires all participants to come to the meeting prepared.  And, in turn, that the meeting organizers select the right meeting homework and then plan and moderate the agenda with the proper balance of structure and free-flowing dialogue.

Doing all of the above requires work – a good guide is that for every hour of strategic meeting time there should be 5 hours of planning time by the meeting organizer and at least 2 hours of preparation time by each participant.

Conclusion: Given that the only way to increase the value of a business is to either a) increase its bottom line financials and/or b) to improve its strategic positioning and growth probability, creative planning sessions like advisory board meetings should be a FIRST priority of any responsible manager of a company with ambition.

They are classic Steven Covey, “non-urgent, extremely important” activities. 

Ignore them at your peril, and benefit from them in ways, like I did and will, well beyond reasonable expectation.

To your success,

Jay Turo

1st Quarter 2014: Best for Investing in 15 Years


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.


Tech M+A: $65.2 Billion and Counting


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, and never before have there been so many and so good “digital” places for those seeking and those providing capital to connect and transact.

The result?

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.

What’s up with WhatsApp – Part Deux


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:


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,


Exporting Services: Bursting Opportunities for U.S. Startups and SMEs


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.

Contrary to the image of imports and exports being only “stuff” flowing in and out of places like the Port of Long Beach, last week's Census Bureau noted that services accounted for 30%, or $57.4 billion of total U.S. exports in October.  And unlike our huge “hard goods” trade deficit, in the value of U.S. service exports was 51% greater than that of imports. 

Business, professional, and technical services were the fifth largest U.S. export category in 2008, and half of the top 10 major export categories were services.   And with U.S. service companies representing close to 15% of global commercial service exports, the United States is hands-down the world’s dominant service exporter.

Of many, let me flag three main drivers:

1.    Purchasing Power Parity. Purchasing power parity (PPP) posits that with free-flowing markets wages and prices worldwide approach parity.

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.”

Well, let’s leave for now the huge economic fallacy of this thinking and concentrate on the fact that the narrowing of the relative wealth differential between the U.S. and the rest of the world has allowed for phenomena like a Ukranian manufacturing company hiring U.S. advisors (i.e. Growthink) to help them define strategic growth opportunities in Poland .

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?

2.    U.S. Services are Increasingly Exportable. The drumbeat always goes on how “we here in the U.S. don’t “make anything.” Well, beyond the fact, that I note in my “Made In China” post that very few Americans dream that their children will grow-up and work in a factory, we here in America “make” the most important stuff that has ever existed we do it better than any society has ever done so.

That stuff? Ideas and Innovations. Strategies.

Or more prosaically, Brands. Websites. Entertainments in all their wondrous forms – Movies, Video Games, Social Networks.

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.)

3.    Global Best Practices. Perhaps my favorite, namely that business best practices worldwide are visible and replicable to and for all.  And the corollary, the really screwed-up and ineffective ways of doing things are also blatantly transparent. 

From lists like the “most business friendly” countries to California now having a portal where parents can see teacher’s ratings to the U.S. Senate studying Chinese technocrats to the simple reality that the Internet and mobile phones make it crystal-clear to all who is winning and losing in the world (see North Korea, Iran, et al.), the modern world has become a rickly competitive market in all its best senses.

The cream rises, and the inefficient, the bureaucratic, the regulatory dead-enders get left on the dustbin of history.

And guess who, when it comes down to doing business right, is the richest cream, the sweetest soup?

It is, of course, American startups and smaller and emerging companies.

And as they, like the U.S. economy as a whole, become almost exclusively services-focused, they will both lead and profit from their exploding opportunities worldwide.

Raising Money in 2014: Resetting the Frame


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’s Small Business Blog.

Brooks, Lengyel, Lombardi, and Wooden


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!

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