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All 148 Posts in the Category: Business & Finance

Apr 19

It’s IPO Season

Strap in for thousands of investors and employees to get liquid in the coming months. Lyft, Zoom and Pinterest are among the first out of the gate, and it’s clear to me that the market really only cares about two things:

  1. Top line growth: Revenue growth of 50%++ is really going to juice up the valuation. You get huge multiples because at these growth rates, investors expect these companies to quickly “grow into” their valuations. (Facebook IPOed at $104bn in 2012 on 2011 revenue of $3.7bn for a 28x revenue multiple. In 2016, it recorded $23.8bn in revenue, and $46.4bn in 2018.)
  2. Profitability: Obviously this isn’t a requisite, but if a company is continually making a loss, it raises the longer term question of whether the business model is fundamentally flawed – do the unit economics work? You’ll tend to get a lot of short interest if there is a crowd who doesn’t believe the business is actually able to make more money than it spends. Of course, it’s important to understand what is driving expenses. In most cases, it’s heavy investment to drive growth (but if it’s all going into sales, are they spending $1 to buy $0.95?). Free cash flow might be a better metric for seeing if the business model is sustainable, but you have to also be wary about other expenses like servicing debt (although debt financing is relatively rare in this place). Also, when a company IPOs, that event may trigger a bunch of employee equity to vest, which is recorded in the financials as an expense, and that can impact the headline numbers.

If you can make a profit and demonstrate tremendous growth, you end up with a company like Zoom, which is the only company on the list that is profitable, yet has eye-watering 100% y/y growth… and look what happened to it on the first day of trading.

Here are the stats for the recent IPOs:

  • Lyft (2012 / 4.9bn funding @ 24bn IPO val, 16.7bn val today / 2018 2.2bn rev on 911m loss, 2017 1.1bn rev on 688m loss) — I don’t really know what to make of this business and whether it truly can become profitable while sustaining a decent growth rate. The dip in value over the last few weeks shows a lot of skepticism in the market as well.
  • Zoom (2011 / 160m funding @ 9bn IPO val, 16bn val today / 2018 330m rev on 7.6m profit, 2017 120m rev on 3.8m loss, 2016 60m rev on 14m loss) — the most successful business in this post, in my opinion. Viral business model, clear consumer and enterprise strategies, what’s there not to like? Anecdotally, I see Zoom being used for work much more commonly than alternatives like Webex and Uberconference (although the latter has a great UI).
  • Pinterest (2009 / 1.5bn funding @ 10bn IPO val, 12.7bn val today / 2018 756m rev on 63m loss, 2017 472m rev on 130m loss, 2016 299m rev on 182m loss)

Upcoming IPOs

The tech companies below are anticipated to IPO in the coming year. Without doing much research on them (and only cursory searches to find the publicly reported financial data below), I’ve ranked them in order of what I personally think are the most promising based on what I know of their business model.

  • Airbnb (2008 / 4.4bn funding @ 31bn val / reported 2017 2.6bn rev on 93m profit) — an extraordinary business (I used to work there as a contractor so I admittedly have a bit of bias here). I turned down an attractive offer to join them as an FTE – something I did knowing I’d regret – but it was to do something that I also knew I’d deeply regret if I didn’t.
  • Slack (2009 / 1.2bn funding @ 7.1bn val / reported 2017 221m rev on ?) — I like this company so much that I bought some stock on the secondary market a couple of years ago
  • Uber (2009 / ~25bn funding @ 76bn val / 2017 net 7.8bn on 4bn op loss, 2018 net 11.2bn on 3bn op loss) — everyone knows about Uber. It’s got the biggest numbers out of them all, and there’s so much hype about them that, at least in the short term, the stock is going to pop once it starts trading. See also comments on Lyft above.
  • Peleton (2012 / 995m @ 4.15bn val / reported 2018 800m rev run rate & profitable, 2017 <400m rev) — in the longer term, Peleton needs to successfully expand beyond bikes to other products, like its new treadmill. It reminds me a little bit of fitness consumable makers GoPro and Fitbit, except that Peleton also has a great subscription business.
  • CloudFlare (2009 / $332m funding @ 3.2bn val / financials unknown)
  • We Company (2010 / 12.8bn funding @ 47bn val, 12/2018 annualized rev $2.5bn) — no idea if this is a sustainable model or what happens if the bottom falls out of the property market again, but through great marketing and positioning, it looks like they’ve beat incumbent players like Regus (now IWG) at their own game
  • Robinhood (2013 / 539m funding @ 5.6bn val / financials unknown) — massive user growth, but an opaque business model
  • Fastly (2011 / 219m funding @ ? val / 2018 145m on 29m loss, 2017 105m on 31m loss)
  • Asana (2008 / 213m @ 1.5bn val, 2018 100m ARR)
  • Postmates (2011 / 681m funding @ 1.85bn val / financials unknown)

Bay Area Impact

The NY Times wrote a provocative article entitled “When Uber and Airbnb Go Public, San Francisco Will Drown in Millionaires“. The basic premise is that, flush with cash, a bunch of professionals in their 20s and 30s will push up the pricing of everything in the city – most of all real estate. In an area where all-cash purchases of housing are common, adding thousands of millionaires to the pool doesn’t sound like it will help with affordability. No one knows what will really happen, but there are several different theories.

(1) Increased post-IPO demand for properties will lift pricing, as the cashed up millennials will be able to muscle out the competition by making all cash bids above asking.

(2) Sellers are holding onto inventory now, waiting for the demand to come later. A spike in supply at that time could actually mean that prices don’t move as much as they might.

(3) If you make enough money, it may make sense to move completely out of state. I know people who have moved (whether it’s actually moved, or moved for 181+ days) to no income tax states like Washington and Nevada to save the 10%+ income tax that California levies. (California taxes capital gains at regular income, with no special treatment for long term capital gains.)

(4) Buyers in the market today may move forward their plans to buy, to avoid getting caught in the post-IPO rush.

(5) Remember that there’s a 6 month lock-up period after most IPOs, so there’s a little bit of a lag. (The exception is direct listings, like what Spotify did and what Slack is reported to be considering.)

(6) The real estate market this year seems to have plateaued over the last 12 months or so.

(7) Macro factors are always at the back of my mind. The expansion cycle we’re in has been one of the longest in history, and it’s been fueled by historically low interest rates. However, all the value has been accruing in assets – not wage growth, which is why inflation appears stubbornly low. (Trump’s fiscal stimulus isn’t helping.) I haven’t looked at the figures, but I’m sure a tremendous amount of debt has built up in the system (money is cheap, and somewhat perversely, there are a ton of negative interest rate bonds that have been issued). That’s a powder keg waiting to blow. And when it blows, everything heads towards zero* – quickly. I have more thoughts on this, but that’s for another post.

*The great thing about buying a house using all cash, is that you’re not saddled with a big mortgage – so if there’s a downturn, you’re not going to be a forced seller of assets to meet debt repayments. Assuming you aren’t levered somewhere else, right?

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Aug 18

Million dollar artworks, sold in $20 lots

Masterworks is a like investing in a fine art work fund, but for individual artworks. I can see the appeal to some. From CNN:

Masterworks is one of a handful of new investment platforms hoping to widen access to the elite world of art collecting. The firm will purchase paintings at auction before transferring ownership to shareholders. It then takes a management fee — covering costs like storage, transportation and insurance — as well as a percentage of any profit made when the artworks are sold.

Fees are a roughly flat 10% management fee for the first 5 years, plus 20% carry. So basically a 2 and 20 model.

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Dec 15

Employees falling prey to unicorpses

A few articles have been written recently about the sale of Good Technology, a mobile security startup, to BlackBerry for about $425 million, after having attained Unicorn status through a previous round of private financing.

It’s a sorry tale for the employees, who saw the value of their common stock fall about 90% in a matter of months. To make matters worse, some forms of equity compensation require employees to pay taxes when they vest, meaning some employees were paying large amounts of tax on illiquid stock – the income tax withholding rate can be around 45% in California – only to find out that the tax they paid was more than what the stock was ultimately worth. Worse still was that some employees had purchased shares on the secondary market in the months leading up to the sale. (Good appears to allow its stock to be traded privately – not all companies allow this.)

Good had a layer of preferred stockholders – presumably all of them are financial investors – who had first dibs on the sale proceeds, leaving the common stockholders – which is what employees were – with the scraps. Good’s board is now facing a lawsuit from its common stockholders citing breach of fiduciary duty (most of the board were de facto representatives of financial investors – which is common, but does lead to a perceived conflict because directors are meant to be looking out for the company and not their funds, especially as the interests of the two may sometimes diverge). Employees are also complaining that executives painted a much more rosy picture of the company’s health than it really was, essentially misleading them as to the value of their stock. From a corporate law perspective, that is all very interesting stuff to me, but that’s not what I’m writing about.

Good filed to go public in 2014 so its financial statements were public. I am far from being a finance or accounting expert, but if I was going to buy more of my own company’s stock and further concentrate my position in it, I would take a very good look at its financials. I took a cursory look at Good’s 2014 financials. The following analysis is based on my shaky and questionable understanding of financial statements.

As with a lot of unicorns, Good showed strong revenue growth, rising from 117m to 212m from 2012 to 2014. However, revenues are only part of the picture. Good was not profitable. It was actually making large operating losses at 89m, 116m and 84m from 2012-2014. Earnings (or rather, losses) after interest, tax and depreciation were roughly the same. Large losses, by themselves, are not necessarily bad, as long as there is a good reason for them. If the losses are caused by investment and R&D activity, that can be positive, as long as you see positive results from the investment. If the losses are occurring because the things the company are selling are inherently unprofitable (and that includes all the support infrastructure that goes into selling and supporting things), then that’s bad. Good’s sales and marketing expenses were high, but they had actually pared down on that expense in 2014 while increasing revenues (a good sign), and reducing its losses. So if that trend were to continue, Good would eventually get to profitability.

But an 84m loss is a lot of  money to be burning through to get to profitability, and so we look at its balance sheet. And that’s where I see a problem – going into 2015, they only had 25m in cash available, plus another 50m or so that its customers owed it. That’s not a very long runway, when in the previous year they were burning through about 7-8m a month.

Sure enough, they were struggling in 2015, and by the time BlackBerry was circling, they had apparently exhausted their short term assets and needed bridge financing of $40m to tide them over during acquisition talks.

As a company employee, you’re at the coalface, so you are normally operating at an information advantage to an outside investor. You can see what is happening in the company on a day to day basis, and you know the people that make the company tick. So to double down on your employer can be a reasonable decision to make. But I feel that a lot of employees in the Bay Area don’t really make use of all the information that’s available to them. There’s perhaps an overreliance on what they get told by management:

At an all-hands company meeting in June, Ms. Wyatt again said Good was spending responsibly. Thanks to the cash from a recent $26 million legal settlement, she added, the company had “a ton of options,” including an I.P.O., according to a video of the gathering.

“We were under the impression that Good was doing well, that there was nothing wrong with cash flow and that we had a lot of options,” said Igor Makarenko, Good’s chief information security officer, who has been an employee since 1997.

If I was told that, and I was looking at the financials, I would have been nervous and asking some very specific questions.

In a part of the world where equity can make up a large percentage of employee compensation, I sometimes find it jarring how little an understanding there is among employees of how it works. Silicon Valley startups give equity to employees to incentivize performance and make them feel like owners – as the company’s fortunes rise and fall, so too do yours. But it’s also a financial investment, and you have to act like a financial investor if you really want to understand it.

(Or you can just join a company like Netflix, which replaces the typical equity component with cash compensation, leading to very high salaries. They do have an option purchase plan, but you have to consciously allocate some of your comp to equity.)


good-bs good-pl




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Jul 13

Startup Valley: A compilation of articles about Silicon Valley

Startup Valley is a collection of articles about the Silicon Valley ecosystem. I’ve been collecting various articles and books about the Valley for a while now, and I decided it might be nice to compile them into one site.

I’ve split the site up into numerous sections that examine various aspects of the Valley – the startup life cycle and various players that make up the whole ecosystem.

I have a lot of articles and book excerpts I still want to add, but it takes a bit of time to reformat the articles for the site, so new content will appear in dribs and drabs.  I’ve tried to format the site in a way that makes it easy to take your favorite e-reader and save the pages for offline reading. Hopefully it’ll be interesting material to some, and useful material to others. Feedback welcome.

Jun 13

Bloomberg’s Commencement Speech at Stanford

There will be many times in your life when you have to decide whether to play it safe or follow a dream. Most people play it safe – because it’s easier and the older you get, the easier it becomes. But if you won’t risk failure, you won’t fulfill your potential. And the opportunity to fulfill your potential lies at the heart of the American Dream. You’ve got that opportunity – and it’s the most valuable thing you’ll own in your life. Don’t waste it. Don’t let complacency eat away at it. And don’t walk away from it when things don’t go your way. If you don’t encounter setbacks in your career, if you don’t have doubts and disappointments, you’re not dreaming big enough. …

Whatever you find yourself doing next – work harder at it than anyone else and if you do, you’ll find opportunities you didn’t know existed. I always give the toughest jobs to the busiest people on my staff – because they’ve earned the right to do it. The reward for great work is more work – but that’s where the opportunities to grow and succeed are. And if you love what you do, you’ll want to be the first one in the office in the morning and the last one to leave at night – even if you’re working for yourself.

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May 13

Off to see the Wizard

Berkshire Hathaway is an unusual company. You may never have heard of it, but it is currently the fifth largest company by market capitalization in the world (after Apple, ExxonMobil, Microsoft and Google). Its original class of shares, Class A shares, currently trade for about $160,000 per share on the market (they’ve never been split). If you look up Berkshire on Wikipedia, you’ll see it’s classified as a “diversified conglomerate”. Berkshire owns stakes in a motley crew of companies. It owns numerous household brands – Geico, See’s Candies, Brooks among them – a few highly lucrative insurance and re-insurance businesses, a railroad company, a private jet leasing company, and significant minority interests in large companies such as Coca-Cola, P&G and Amex.

Although you may not have heard of Berkshire Hathaway, you probably would have heard of Warren Buffett – its CEO and largest shareholder. Buffett is of course well known as an investor and not an operator (even though he is a formidable operator as well – he acted as an interim CEO for Salomon Brothers in the 90s), so Berkshire from the top is essentially a fund. But it’s not a private equity fund – once Buffett buys a business, he generally intends to keep it “forever”. He makes sure the business has great management, and then apparently lets them get on with doing their jobs without a lot of interference.

Berkshire’s annual shareholder meeting is globally unique. Shareholder meetings are usually a formality required by law – staid corporate affairs that are run without a lot of public visibility. Berkshire’s annual shareholder meeting is held on the first Saturday of May each year and attracts somewhere in the region of 40,000 shareholders, some of whom have flown from other continents to attend.

You need to be a shareholder to attend (kind of). Up until 2010, to get in the door, you needed to hold at least one share, and the ante was about $3000 for one share of Class B stock. Berkshire split the stock 50:1 in 2010 to facilitate an acquisition, and then suddenly everyone could invest in Berkshire (I picked up a few shares at that time). Each year, when they mail out the annual report, they include a postcard which you can mail in to get 4 free tickets to the meeting (so you don’t strictly need to be a shareholder to get in – you just need to know one).

I flew to Omaha this weekend to check out what’s been referred to as “Woodstock for Capitalists”. I’m not a “Buffettologist” by any means. I’ve never read any books about him or by him. However, I do enjoy reading his annual letter to shareholders which is written in a very accessible and engaging style. And I do know enough about him and his worldview to want to listen to him in person – he is a living legend.

The meeting was held in a convention center. Omaha’s weather had dipped to a few degrees above freezing, so they opened the doors early some time before 7am. Near the entrance, a large expo floor is filled with booths manned by each of Berkshire’s portfolio companies. There were a lot of them, and some of them, such as See’s Candies” were doing swift business (they had about 15 cash registers operating simultaneously and a steady stream of customers throughout the day).

The main event was held in the arena. The meeting kicks off with a traditional hour-long movie. Humorous skits featuring celebrity cameos are interspersed with ads from Berkshire subsidiaries. That morning’s movie featured a cartoon depiction of Buffett and his business partner, Charlie Munger, dancing to Gangnam Style. Arnold Schwarzenegger featured in another skit, as well as a spoof of Breaking Bad (pushing “addictive peanut brittle”). The last skit was a version of YMCA celebrating Berkshire’s managers – with the YMCA initials being replaced by “BRKA” and “BRKB” (Berkshire’s stock ticker symbols). Cheerleaders from the University of Nebraska took to the floor at that stage. It was pretty festive and lighthearted.

And then Buffett and Munger took the stage. After introducing Berkshire’s high profile board of directors (Bill Gates was in attendance), they then proceeded to answer questions for over 5 hours with only a break for lunch. Buffett is 82 years old, but is astonishingly razor sharp and lucid. He has an amazing memory. Munger was very brief and pointed – often to comedic effect – and not afraid to say “I have nothing to add” or make a pointed barb at the expense of Buffett (or some hapless European nation). Munger’s not as charismatic as Buffett, but for a man of 89, still pretty remarkable.

The audience was mostly middle-aged, with scattered representation by MBA and other business students and other miscellaneous Buffett fans (interestingly, I noticed quite a lot of mainland Chinese there).

People took the opportunity to question Buffett and Munger about all manner of things – naturally about Berkshire and its investments, but also about politics, the economy, social media (Buffett just joined Twitter), and even their outlook on life in general. If you follow Buffett, nothing really new was said that hasn’t been written about before by or in relation to Buffett. However, in the words of another attendee, it was like going to church. You know what the message is, but you go anyway – for reinforcement, to be with like-minded people, and because Buffett is an engaging speaker. Another likened it to an annual pilgrimage.

Buffett is well known for being a “value investor” – a buy and hold investor who focuses on business fundamentals. People kept trying to figure out what his secret recipe is (“What are your top 5 financial metrics that you use?” “Are there any magic ratios which you look for?” “What are you top 10 books, aside from anything written by Graham?”) Buffett and Munger consistently explained that there’s no shortcut – you just need to get to know the business. (I thought it was kind of like the approach to investing in startups – you shouldn’t and can’t rely on the financials – you need to make sure you’re investing in a good business, which means knowing its management, its market, its product, and its prospects; and, interestingly, in isolation to the macro environment. The difference with investing in mature companies is that Buffett is also looking for companies whose price is undervalued against his evaluation of its value.) An estate lawyer asked him how much money people should leave to their kids so that they could, in Buffett’s words, have the freedom to do anything, but not the freedom to do nothing. Again, Buffett was quick to point out that there’s no magic number, and the focus rely should be on good parenting rather then how much money a child is left. And then he segued into wills and how he thought parents should ensure that they go over their wills with their (adult children) since “they’re going to see it eventually” and “it’s going to be better if the kids are able to discuss the will and have their say while the parents are still alive”. Other snippets: if you’re currently keeping money in cash, you’re getting killed (by inflation); and given the interest rate environment, now is a pretty good time to take out a 30 year mortgage and buy a house.

If you’re interested in the sorts of things that interest Buffett, the Berkshire meeting is worth a special visit – if only to see the Oracle of Omaha in the flesh.

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Feb 13

The Meteorite Hunter

An interesting article in Nat Geo reveals that there are only about 20 serious meteorite hunters in the world, and it turns out to be quite a lucrative, albeit dangerous profession:

Well, I’ve found three separate moon rocks in the Middle East. [Moon rocks are considered a type of meteorite that came loose from the lunar surface and fell to Earth.] And one of them I sold for $100,000 a week later. It was just a small piece—the size of a walnut. But the best meteorite I found was with my three partners up in Canada. It was actually discovered in 1931, but we went back to the location and discovered 53 kilograms [117 pounds] more. It’s an extremely rare type of meteorite called a pallasite, and it’s about 4.5 billion years old. We sold it to the Canadian government for just under a million dollars. Now it’s in the Royal Ontario Museum, in Toronto, and it’s considered a national treasure.

On the third trip over I had a robbery where they ambushed us and almost murdered me. I was down on my knees, with a bag over my head and a machete on my throat and a gun at my head, being beaten. Luckily they decided to just take everything and leave instead of killing us. It’s a dangerous line of work because it involves money, and people want that money.

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Jan 13

A transaction

Fortune Magazine: Why SurveyMonkey is holding off on an IPO

NY Times: SurveyMonkey Raises Nearly $800 Million While Staying Private

AllThingsD: SurveyMonkey Raises $800 Million in Debt and Equity for Tender Offer — Including New Investment From Google’s New Late-Stage Unit

Forbes: SurveyMonkey To Raise $794M In Recap; Valuation $1.35 Billion

From the Fortune article:

“I took my first company public and worked at Yahoo (YHOO) for seven years, and I saw plenty of decisions made because of what it would do to the stock price that week,” he says. One of Silicon Valley’s best networked (and well liked) executives, Goldberg also witnessed up close last year’s most tumultuous IPO, the still-underwater debut of Facebook (FB), where his wife, Sheryl Sandberg, is chief operating officer. “There are lots of good reasons for going public,” says Goldberg, ticking off growth capital, brand recognition and credibility with business customers as chief examples. “We just don’t have any of them.”

And yet, SurveyMonkey—which offers cheap, easy-to-use online surveys—has two reasons for raising capital. One is to reward the investment firms, Spectrum Equity and Bain Capital, that bought the company just over four years ago, when it was about a fourth its current size. The other is the perennial tech-industry rationale for an IPO: so SurveyMonkey’s employees can sell some of the stock that is a significant portion of their compensation.

Then there is the fact that SurveyMonkey undoubtedly could go public. Its revenues, $113 million last year, are growing at a 40%-plus clip. Earnings (less interest expense, taxes and depreciation and amortization) were $61 million, a software-like margin of 54%. Its “freemium” model—new users pay nothing, though significant numbers convert to paying accounts—encourages consistent growth because its sucks in customers slowly. The company has 2 million active users, about 360,000 of whom pay in the neighborhood of $200 to $300 a year for enhanced survey features.

And so, rather than go public now, Goldberg plans to raise nearly $800 million in equity and, in a rare move for a rapidly growing Web company, debt. Tiger Global Management and Google (GOOG) invested in the $444 million equity round SurveyMonkey closed in December. (Goldberg and Sandberg are investing as well, accounting for $50 million of the equity financing.) Other new equity investors include Iconiq Capital, the money-management firm that handles the personal wealth of several top Facebook executives; Social + Capital Partnership, a venture firm associated with prominent Facebook alumni; and Laurel Crown Partners, a venture and private-equity firm in Los Angeles. The new financing—a recapitalization in Wall Street jargon—values SurveyMonkey at $1.35 billion.

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Aug 12

Starbucks to process all card transactions with Square

This is huge:

Just when the mobile payment wars were heating up, Square dropped an A-bomb on the competition. Last night the payment processing startup, previously focused on small and very small vendors, announced a deal with Starbucks. Square will now process all credit and debit payments for 7000 US Starbucks stores. And Starbucks will invest $25 million into Square’s latest monster round of funding. Celebratory frappuccinos all around.

This article explains how this deal was done.

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May 12

Aussies in Silicon Valley

The SMH ran two interesting articles about Aussies in the Valley, and why there’s so much brain drain: Brain Drain and Tech Exodus:

“The Australian scene is at least 18 months behind the froth & bubble of the Silicon Valley. Singapore is probably 12 months ahead of of us as well. In terms of the availability of capital and risk appetite we are in the dark ages.

“Australian super funds hold the keys to about $1.2 trillion of which not even a fraction of a per cent is deployed into Australian VC – largely this is in equities – and they fight amongst themselves and are seen to ‘outperform’ on single-digit basis points!

“Private investors are equally risk-averse taking safety in passive investments such as property and cash wherein they see a risk-free return to be 5 per cent per annum compounding. In the majority of advanced economies cash in the bank provides a net negative return. Into the near future there will be no such thing as double digit (percentage) returns for passive, low-risk investments.

“There is no denying that our ‘risk aversion’ and short-sidedness is holding us back as a smart country failing at innovation on the grandest of scales.”

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May 12

NY Mag profile on Zuckerberg

As Facebook gears up to list on Nasdaq, NY Mag published an interesting article about Zuck:

“Mark has done two things in his twenties,” a colleague of Zuckerberg says. “He has built a global company, and he has grown up.” The second one made the first possible. When early mistakes risked an employee mutiny, Zuckerberg knuckled down and learned how to lead. He made himself the pupil of some of the best bosses in business but had the maturity never to let outsiders sway his overall vision. He got adept at hiring the right people, and, more important, firing senior employees whom the company had outgrown. Appalled at the way he was portrayed in The Social Network, Zuckerberg initially wanted nothing to do with the movie—then, deciding not to let it define him, he rented out theaters in a Mountain View cineplex and bused the entire company over to see it.

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Nov 11

Inside McKinsey

FT Magazine profiles McKinsey & Co. and describes how The Firm is dealing with the turbulence created by the Gupta and Kumar insider trading cases:

The culture binds staff closely to their employer. Some speak, only half in jest, about a code of omertà. Those who have worked there put a more positive spin on it. “Privacy is a natural outcome of people putting the client first and the work first,” says the former director. “It isn’t like … the big swinging dicks [of Wall Street investment banks]. People who get bigger than the Firm don’t last.” Ex-partner James Kondo agrees. Ego is “one of the things that destroys consulting firms”, he points out. Dominic Barton, he adds, “embodies the humility and low-key ethos that’s important to maintaining the organisation”. …

If the arrest of Kumar in 2009 – accused of leaking information gained while working for McKinsey clients – cut deep, the reports of Gupta’s alleged connection to insider trading, which started to circulate the following spring, risked infecting the whole partnership. “This was the guy who was representing the values globally,” says one corporate strategy head who was working for McKinsey as an associate at the time, adding that the sense of disappointment and betrayal was strongest among junior staff.


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Nov 11

The 57,000 page federal tax return

This is pretty crazy:

General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didnt pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked.

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Nov 11

Would you invest in United States, Inc.?

10 year treasuries are at 2% and 30 year treasuries are only 3.125% (well past the date that entitlement spending is projected to exceed GDP).

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How diaspora networks, migration and technology are changing the global economy

This week’s Economist magazine has two great articles on diaspora and how migrants impact the flow of commerce around the world – and how technology has change the importance of migrant networks: Weaving the World Together and The Magic of Diasporas. As part of two diaspora communities myself, I found it all a very interesting read. The focus is mostly on Chinese and Indian diaspora, but strangely virtually no mention about Jewish diaspora.

The creativity of migrants is enhanced by their ability to enroll collaborators both far-off and nearby. In Silicon Valley, more than half of Chinese and Indian scientists and engineers share tips about technology or business opportunities with people in their home countries, according to AnnaLee Saxenian of the University of California, Berkeley. A study by the Kauffman Foundation, a think-tank, found that 84% of returning Indian entrepreneurs maintain at least monthly contact with family and friends in America, and 66% are in contact at least that often with former colleagues. For entrepreneurs who return to China, the figures are 81% and 55%. The subjects they talk about most are customers (61% of Indians and 74% of Chinese mention this), markets (62% of Indians, 71% of Chinese), technical information (58% of Indians, 68% of Chinese) and business funding (31% of Indians, 54% of Chinese). …

Shrewd firms are taking notice. China’s high-tech industry is dominated by returnees from abroad, such as Robin Li and Eric Xu, the founders of Baidu, China’s leading search engine. Asked how many of his top people had worked or studied abroad, N. Chandrasekaran, the boss of Tata Consulting Services, a big Indian IT firm, replies: “All of them.”


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Nov 11

Four sticks a year

Globe and Mail published an excerpt from a newish book written by an ex-Lehman trader called Street Freak. I just placed an order for it on Amazon.

Louis frowned. “Anyway,” he continued, “so I asked him, ‘If you have my comp, do you have everyone’s comp?’”


“And he says yes. So I ask him, how much does a managing director make? He hedges a little bit and says it’s a really huge range, but says that pay can vary from one million on the low end to multiple millions on the high end.”


“So then I ask him, ‘How much does a VP make?’ And he says anywhere from a few hundred thousand up to four million.”

“Four million?” I exclaimed. “What the fuck VP makes four sticks a year?”

“Right? That’s what I said. I told him it has to be in structured credit or mortgages or something. You know what he said?”


“Nope: real estate.”

It all made sense now. These drunks who went and bought Archstone, the drunks who had risked the entire firm, were getting paid assloads of money. The traders thought that the bankers were getting rich. The bankers thought that the traders were getting rich. They were both wrong: the people in real estate were getting incredibly rich. How much talent does it take to buy a building and wait for it to go up in price?

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Nov 11

In Europe, something’s gotta give…

The spread between Italian bond and German bond yields hit a record today. Here’s what the chart looks for 10 year bonds:

Today’s Daily Reckoning dispatch writes:

Italy’s bonds have taken centre stage on financial markets. What’s at stake is whether Italy enters the feedback loop that ensnared Portugal, Ireland, and Greece. Once bond yields went past 6.4% in all those countries, they reached a kind of tipping point where investors lost confidence that those governments could ever repay their debts.

Ten-year Italian bond yields reached as high as 6.68% yesterday. That was 491 basis points higher than equivalent German debt. It’s not far below 7%, either. According to the Wall Street Journal it took Portugal’s yields 45 days to go from 6.5% to 7%. Irish yields did it in 34 days. Greek bonds did it in a day.

Bond traders call it “cliff risk“. A simple way to think about it is as a feedback loop, where rising bond yields lead to a collapse in confidence, which leads to more rising bond yields. The whole thing feeds on itself and accelerates. And in the government bond market, it appears to happen when 10-year yields go past 6.4%.

There are a few reasons for this. The simplest reason is that the interest paid on new government debt gets prohibitively higher beyond 6.4%. Government bonds are supposed to be “safe” because the government can always raise taxes to pay off bond holders. But a yield of 6.4% or beyond indicates the opposite: government bonds are not safe and may not pay off at all.

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Nov 11

Betting on Groupon

Over the last year, I have been having a long-running and sometimes heated (but civil) debate with a friend over whether it was a good decision for Groupon to turn down Google’s $6bn offer. To finally get away from “all talk, no action”, we made a bet with each other yesterday, just before Groupon priced.

The bet was that the average market cap over the one month period (based on the average of each trading day’s closing price, as reported by Google Finance) after the date 6 months after Groupon listed (i.e. 6 months from today) would be greater than $6bn.

We’re not finance guys, but this was roughly designed to factor in the 6-month lockup period and approximate a period in which many Groupon employees are likely to dump their stock on the market.

I think Mason was right in turning down Google, so I took the over side of the bet, and he took the under. The wager is nothing too glamorous – just a dinner. Although the venue was left unspecified.

Groupon priced at $20 last night – slightly above its $16-18 range. GRPN listed at $28 today, before falling to close at $26.11, giving it an implied market cap of about $16.6bn. To reach a value of $6bn, its stock price would have to decline to about $9.41. It’s a long way down from $26 to $9 (-65%), but it’s not unfathomable. Just look at Renren, which listed at $18 and, almost exactly 6 months later, is now just a little above $5.

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Nov 11

Greek bailout “strategy” unnerves European leaders

The Greeks want to hold a national referendum (next January) before agreeing to their bailout package. This did not go down well with the rest of Europe.

In Athens, Mr. Papandreou’s move unleashed political chaos on Tuesday after it emerged that despite having met his German, British and French counterparts only the weekend before, he had not told them of the plan to hold a referendum in January. Even his Finance Minister, Evangelos Venizelos, was caught completely unaware. It was widely reported that Mr. Venizelos was hospitalized Tuesday with stomach pain.

I’ll say. I have believed for quite some time that the question is not “if”, but “when”.  As in, when will Europe go down the tubes?

Greece is within weeks of running out of cash entirely, and a default would lead to a collapse of Greek banks and far worse austerity than any bailout would impose.

In the meantime, the German-Italian bond spreads continue to hit all-time highs.

I had lunch with a German, an Italian and a Frenchman yesterday and we got on to the topic of the economy. No one thought that Greece was going to get out of this alive, even if they take on the rescue package they want to hold a referendum on. The Italian was bewildered at why the markets were punishing Italy so much – too much in his opinion (it does have a Debt to GDP ratio of almost 120%). The Frenchman was worried at rising unemployment and that S&P was going to downgrade their credit rating any day now. The German reacted pretty much as you’d expect someone to react to throwing good money after bad. None of them regarded the political situation in their home countries as particularly rosy. It’s bleak almost everywhere and the powder keg is growing – so the question is, where do you park your money these days?

In the meantime, here is one German chancellor describing how big Greece’s debt is:

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Oct 11

The lucky country

Associated Press is reporting that median net worth in Australia is the highest in the world. Looks like Australia is currently in a really good spot:

The report showed that the median value of wealth – total assets minus debts – in Australia was $US221,704 per adult, while the average for all adults was $US396,745, 79 per cent more than the median.

By comparison, the median value for wealth in the US was $52,752, and the average was $US248,395, almost five times the median.

Australia’s proportionately bigger median compared with the average shows a more even spread of wealth than the US.

The report showed Australia’s median net worth of $US221,704 was the highest in the world.

Moreover, the report found the proportion of Australians with net worth above $US100,000 was, at 70.5 per cent, the highest of any country and about eight times the world average.

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Jul 11

The Debt Ceiling

I’m starting to get a touch nervous that Congress isn’t going to be able to pull its head out of its ass in time. Default day is only 14 days away and I still haven’t read any media reports of anything which looks like a viable plan.

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Nov 10

The CEO Whisperer

Stephen Miles is a CEO coach. He works with CEOs of very large multinationals, such as Marius Kloppers (BHP), interviewing them rigorously and providing them feedback and leadership advice:

Miles may not enjoy such biographical scrutiny, but it is the method he uses with his CEO clients. "Our first encounter was three hours," says New York Life CEO Theodore Mathas, "and I think we got up to when I was in the seventh grade. He asked questions like ‘Did you get your homework done?’ and ‘Did you spend more time with your mom or your dad?’ It was a little unusual." Miles says his goal is to understand what shaped the executives as human beings. "I care less about what they think than what they have done." Says Mathas: "He made me feel comfortable, but it was clear he wasn’t there to be my friend."

A side effect of his job is that he travels a lot.

Miles seems to live for his clients, even those he sees in person only once a quarter, with phone and e-mail contact in between. "He has this capacity to stay in touch and be available, wherever he is in the world," says Foster’s Crawford. "I just hope he doesn’t get overworked."

It’s a reasonable concern. Technically, Miles lives in Atlanta with his wife, Kelly, whom he met while in college. She started her career as a case-management officer at Kingston’s Prison for Women and now works as an associate principal in Heidrick’s leadership-consulting practice. They don’t see each other very much, however. In the tradition of the famously mobile management guru Ram Charan, who for years had no fixed address, Miles spends almost all of his time on the road, half outside the U.S. He has earned top-tier status from three separate frequent-flyer programs. (Even the jet-setting corporate downsizer George Clooney played in Up in the Air can’t match that.) To sustain their marriage, it helps that the Mileses have no children and Kelly endorses her husband’s travel needs. "We build in long weekends," he says.

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Nov 10

The real reason why merchants use Groupon

If you haven’t heard of Groupon, it’s a site which emails users an offer each day. The offers provide deep discounts (around 50%) on all manner of things – meals, consumer products, services, and so on – based on the premise that there’s power in group buying.

This premise would intuitively lead you to believe that Groupon can get these discounts because it’s able to buy in bulk. The upside for the merchant is they get a guaranteed chunk of revenue, and also introduce new customers to their business. However, when you think about it a bit more, you start to wonder how merchants can make any money when they discount their goods by 60%. Surely, their margins can’t be that high? And then you have to factor in Groupon’s cut – which has to be significant for it to earn its multi-billion dollar valuation.

It turns out that Groupon actually splits the sales revenue 50:50, which means that merchants cop a markdown on their goods or services of about 80%. There are very few businesses in the world – especially when it comes to consumer goods – that have that kind of margin, so the conclusion is that the merchants lose money. Why do they do it?

You see, for the merchants, it’s not about making a profit on these deals. For merchants, the value proposition is advertising. Groupon is a marketing channel for merchants, not a sales channel.

This post on NY Times’ blog does a great breakdown of all the factors weighing into whether it makes financial sense for a merchant to use Groupon:

There are eight key calculations you need to consider to determine whether this is a better advertising vehicle than something else you may already be doing:

1. Your incremental cost of sales — that is, the actual cost percentage for a new customer. If you are giving boat tours and have empty seats, your incremental costs for an additional customer are next to nothing. If you are selling clothes, your incremental costs might be 50 percent of the sale price. Food might be 40 percent. In any case, don’t include fixed costs that you would be incurring any way.

2. The amount of the average sale. If the coupon is for $75, will the customers spend more that that? I have seen more than one retailer complain that nobody spends more than the value of the coupon. That’s unlikely but I am sure it can feel that way, and that is my point: Keep track.

3. Redemption percentage. You don’t really know until the end, but from my experience and from what I have heard, 85 percent is a good guess.

4. Percentage of your coupon users who are already your customers. I’m sure this number varies tremendously depending on the size of your city, how long you have been around, and the type of business.

5. How many coupons does each customer buy? (The more they buy, the fewer people are exposed to your product or service.)

6. What percentage of coupon customers will turn into regular customers? Again, it can seem as if they are all bargain shoppers who will never return without a discount, but that’s almost impossible. Is it possible 90 percent won’t return? Sure.

7. What is the advertising value of having your business promoted to 900,000 people — that’s the number on Groupon’s Chicago list — even if they don’t buy a coupon?

8. How much does it normally cost you to acquire a customer through advertising? Everything is relative.

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Nov 10

In the business news

Ireland’s debt troubles are continuing, and it hasn’t been doing the Euro any favours. Bond yields are spiking and the economy is in bad shape. It looks like they will need to get financial assistance from the IMF and EU. However, as a condition of making this aid available, Ireland’s creditors-to-be are angling to change its tax policy. Ireland’s 12.5% corporate tax rate is one of the lowest in the EU, which has caused a whole bunch of IP-heavy companies to set up large offices there (Google, Microsoft, and some pharma). I wonder what effects this will having.

Is there another startup bubble in the Valley? "Certain areas of the Internet, there are some crazy things going on. Getting overheated. People are getting crazy, they’re showing up to their first meetings with term sheets. In the early stage market, two-, three-person teams are getting $30, $40, $50 million valuations. That’s not right." That sounds pretty crazy. There are lots of very early start-ups that seem to be managing to score $5m valuations as angels (and even some VCs) pile on, but $30-50m?

Meanwhile, the legal market in the US is still sluggish. As biglaw associates around the nation hold their breath waiting for bonuses to get announced (they’re really late this year!), things seem to be going quite healthily in Australia. And Google is hiring like crazy as well: 2,000+ job openings, including more than 50 legal job openings! I know two SLS people who were recently hired for the Brazil and Italy offices.

Twitter is try to raise funding at a $3 billion valuation. A few weeks ago, Michael Arrington wrote that, "The company is still effectively revenue-free." They have their promoted tweets… but they are hardly generating the revenue, let alone profit, that you would expect a $3bn company to generate.

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Nov 10

Hong Kong’s coked up bankers

Danwei has an article about the white-collar drug scene in Hong Kong:

“Hong Kong is like London on steroids!” he says. “Look where we are,” he adds, gesturing around the tight network of streets that make up Hong Kong’s main bar area [Lan Kwai Fong]. “This is a one-kilometer-square party zone. Everything is just more concentrated here.”

For young expats working in high-pressure and high-rolling jobs, Hong Kong has always been a party town. The majority of the foreign population is male and single, and looking for a good time before returning home to settle down.

As one long-term resident and bar and restaurant owner put it: “There are a lot of single guys here. They are often posted here by their companies, without their families and they like to party and go out chasing women.”

And just as cocaine has become the drug of choice in London and New York, it is now the preferred sharpener of Hong Kong’s expat community.

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Oct 10

And now, a word from the porta-potty industry

Porta-potties are being put in place for Saturday’s rally in DC:

Saturday’s rally is a pretty small-ish job for USS, which services 24 states. To give you an idea, the company provides the roaming restrooms for the Rose Bowl Parade and the Rose Bowl in Pasadena — including servicing all those tailgate party, and VIP tent needs.

But the company does a lot of business on The Mall — it was one of the porta-potty suppliers for the Obama inauguration.

“We supplied a good chunk for the Obama inauguration,” Barton said. “We did about 1,200 toilets and dozens of restroom trailers.”

The Obama inauguration, he said “cleaned out every portable toilet in the D.C. market to cover that one.”

“As far as we know, it was the single largest portable-toilet event that has ever happened in this country.”

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Oct 10

$15 trillion treasure

Fast Company has an article about Russia’s oil & gas exploits in the Arctic, with a mention of how it is affecting indigenous tribes in the area.

Years ago, geologists and engineers verified the existence of rich natural-gas deposits at Bovanenkovo through three-dimensional seismic imaging and exploratory drilling into the permafrost. Then, beginning in 2008, Gazprom brought in building supplies and constructed a 684-mile-long pipeline under the frigid Kara. With an estimated 4.9 trillion cubic meters of gas buried under the permafrost, Bovanenkovo has been described by company officials as one of the largest natural-gas finds in Gazprom history, although not as big as the Urengoy field, which is also in Siberia. “If Gazprom closed all its other gas fields and was pumping just from here,” I am told by my escort, Andrei Teplyakov, the youthful press officer for Gazprom’s Siberian operations, “the company could survive for more than a decade.”

The writing isn’t all that great, but the subject matter is definitely interesting.

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Oct 10

Buffett on Taxes

No one likes to see taxes raised, but some more than others. Tax rates are at historically low levels, and the US has a scarily massive budget deficit. Here’s what Buffett had to say:

We’re going to have to get more [tax] money from somebody. The question is, do we get more money from the person that’s going to serve me lunch today, or do we get it from me? I think we should get it from me. I have a lower tax rate, counting payroll taxes, than anybody in my office. And I don’t have a tax shelter — I just take the form and fill out the numbers. I think that’s very wrong, and I think that if we’re going to get money — and we’re going to need money; we are not taking in enough money at the federal government level … it shouldn’t be [from] the bottom 98%. It should be more from people at the top.

Which sounds reasonable. But then you scroll down and read comments like this:

What is the incentive to do better and develop yourself if the only thing you have to look forward to is a higher percentage of taxes if you do well in life. The way the middle class is going now, I would do better by earning less and taking what the government gives out. I am a proud taxpayer but I believe I already pay to[o] much and I am not even in the top tax bracket (yet!). By the way, I am still waiting on the IRS to send me some of MY money back, guess they are to[o] broke to pay me back.

…and you realize that things like this are a good idea. There are a depressingly large amount of those types of people in the comments section of that page (many of whom are arguing against straw men, and some people on $250k+ who simply don’t want to pay more taxes). Of course there are still other issues that need to be dealt with – but that fact alone doesn’t invalidate this argument.

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Oct 10

How fake money saved Brazil

Twenty years ago, Brazil was undergoing a bout of hyperinflation, with prices increasing at the rate of 80% per month. The story behind how they brought this under control is a fascinating one, and it relies less on pulling on the traditional economic levers and more on psychology (which is pretty much behavioural economics).

The four friends set about explaining their idea. You have to slow down the creation of money, they explained. But, just as important, you have to stabilize people’s faith in money itself. People have to be tricked into thinking money will hold its value.

The four economists wanted to create a new currency that was stable, dependable and trustworthy. The only catch: This currency would not be real. No coins, no bills. It was fake.

“We called it a Unit of Real Value — URV,” Bacha says. “It was virtual; it didn’t exist in fact.”

(Hence why Brazil’s currency is today called the Real.)

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Sep 10

Perpetual bonds

There is a class of bonds, called perpetuities, that do not have a maturity date and keep paying off forever (or at least until they are redeemed). “Consols” are perpetual bonds issued by the British government, and the 2.5% 1923 series has been paying out coupons for almost a century now, having come from a long lineage of bonds starting in the 18th century. They are relatively rare, but recently there has been some demand for them.

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Sep 10

The Street vs The Valley

A former Goldman Sachs quant recounts his days at the firm and compares it with his current job as a startup founder in a post entitled Why founding a three-person startup with zero revenue is better than working for Goldman Sachs.

To cite a particularly grotesque example, once a year, one of the partners would buy a pallet of White Castle burgers and first-year analysts and associates would have a burger-eating competition (with some nominal amount donated to charity). All trading on the Goldman Sachs trading floor would stop as every man on the floor would gather ’round to watch the plebes stuff themselves.

Trading turned from interest-rate swaps (minimal notional size: $50MM) to the over/under on the burger count for a particular analyst. Occasionally, one poor schmuck would puke, and the partner would rush to catch it with a plastic trash bin.

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Michael Lewis on the Greek Sovereign Debt Crisis

In fine form as usual, Michael Lewis writes in Vanity Fair about the Greek sovereign debt crisis.

The long-term picture was far bleaker. In addition to its roughly $400 billion (and growing) of outstanding government debt, the Greek number crunchers had just figured out that their government owed another $800 billion or more in pensions. Add it all up and you got about $1.2 trillion, or more than a quarter-million dollars for every working Greek. Against $1.2 trillion in debts, a $145 billion bailout was clearly more of a gesture than a solution. And those were just the official numbers; the truth is surely worse. “Our people went in and couldn’t believe what they found,” a senior I.M.F. official told me, not long after he’d returned from the I.M.F.’s first Greek mission. “The way they were keeping track of their finances—they knew how much they had agreed to spend, but no one was keeping track of what he had actually spent. It wasn’t even what you would call an emerging economy. It was a Third World country.” …

Oddly enough, the financiers in Greece remain more or less beyond reproach. They never ceased to be anything but sleepy old commercial bankers. Virtually alone among Europe’s bankers, they did not buy U.S. subprime-backed bonds, or leverage themselves to the hilt, or pay themselves huge sums of money. The biggest problem the banks had was that they had lent roughly 30 billion euros to the Greek government—where it was stolen or squandered. In Greece the banks didn’t sink the country. The country sank the banks.

Lewis this time takes us through the journey by drilling down into a monastery of monks which have been pinned down as the catalyst for exposing the sordid state of Greece’s finances, and ends up painting a picture of the Greek government and its citizens as Absolutely Dodgy.

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Jul 10

Goldman Sachs bans written profanity

The WSJ reports that GS has banned swearing in written correspondence, ostensibly as a risk management measure.

Goldman’s no-swearing dictate covers instant messages and texts from company-issued cellphones and emails. Verboten emails could get bounced to the compliance department. Others might be blocked completely, depending on the severity of the language.

There are no set disciplinary measures for offenders, but habitual profaners will be summoned by their managers to discuss cleaning up their language.

Good luck with that. I’m sure that profanity is pretty much a part of the culture. You’d think lawyers were more restrained, but they can be pretty bad offenders too (not so much in writing, but orally).

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Jul 10

That’s a lot of chocolate

A hedge fund bought $1 billion worth of cocoa beans last week, leading to rumors it was trying to corner the market and drive prices up. But…

Analysts believe Mr. Ward ended up on the wrong side of a private hedging arrangement with Swiss chocolate-maker Barry Callebaut AG. As a result, Mr. Ward’s firm, Armajaro Asset Management LLP, had to buy about 241,000 tonnes of beans last Friday on the NYSE Liffe, or London International Financial Futures Exchange.

The purchase was the second-largest ever on the exchange – and it was enough cocoa to make five billion chocolate bars. On Monday, reports surfaced that roughly half the cocoa had been sent off to Barry Callebaut and it is expected that most of the remainder will head to other candy-makers who had similar deals with Armajaro.

If you don’t cover a commodity futures contract, you end up owning the underlying commodity.

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Jun 10

Daily news rundown

  • iPhone 4 launch as WWDC – 960×400 screen, front-facing VGA camera, 5mp back-camera with flash and 720p HD video recording, video calls (over Wifi only), 24% thinner, up to 40% more battery life, steel edge doubles as antennae, gyroscope for 6-axis motion sensing, runs iOS 4 (multitasking), preorders on June 15 for a 26th launch
  • Jerome Kerviel’s trial is underway – remember the former Soc Gen trader whose bets blew up to the tune of 5bn Euros?
  • Investing in Russia apparently still fraught with peril link
  • GS having media problems in Chinalink

Bonus link

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May 10

Daily news rundown

  • FTC approves AdMob deal – Google will go on to acquire it – iAd, seen as a competitor, helped
  • Financial regulatory bill getting closer to being signed – the House and Senate are going to meld their versions of the bill – Senate bill has the Volcker Rule (prop trading restrictions for banks) and derivatives trading restrictions – needs to pass the conference committee before getting voted on by Congress
  • Government moving to IPO of its stake in GM – Lazard hired to advise
  • AT&T ups cell contract ETF to $325 – apparently in preparation for June iPhone launch and the rumored loss of exclusivity in several months
  • Twitter contesting subpoena demanding real names of users – subpoena from PA’s attorney-general is being attacked by ACLU and other groups (I’m very interested to see how this plays out in the media). Link
  • Google unveils Android 2.2 (Froyo) at Google I/O – quicker than an iPad – Google really is all about speed
  • Google announced Google TV – competing with Apple TV – platform that integrates web browsing, cable TV and Android – primed for Fall 2010 launch. Link
  • Google also developing iTunes competitor – AAPL vs GOOG. It’s so on.
  • Zynga acquires XPD Media, opens Beijing office
  • Germans ban naked short selling
  • Blackstone is setting up in Australia – Link
  • Thai stock exchange closed – parts of it were on fire as the violence in Bangkok continues
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May 10

Daily news rundown

  • Symantec close to buying VeriSign’s authentication services business for $1.3b
  • Zynga and Facebook announce 5 year deal – looks like the relationship has been salvaged (although it probably wasn’t genuinely in jeopardy to begin with). Link
  • Google buying Oslo-listed Global IP Solutions for $68m – to "build its real-time audio and video Internet capabilities"
  • Microsoft suing Salesforce for patent infringement – 9 of them
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May 10

Daily news rundown

  • Waddell & Reed not the cause of the May 6 temporary crash? – back to the investigation drawing board. Link
  • Standard Chartered gives employees a choice between BlackBerries and iPhones – big corporate-culture-shift win for Apple
  • Mallesons/Clifford Chance merger rumors cropping up again – fourth time lucky? Link
  • Apple now sells more mobile handsets than Motorola – with 8.75m iPhones shipped in Q1 versus Moto’s 8.5m – Apple now has 3% of global mobile phone market – that is nothing short of extraordinary (remember that Apple only sells one model… "you can have it in any color as long as it’s black"). Link – Nokia of course leads with 37%, but at least one analyst believes that Symbian’s days are numbered
  • Taiwanese manufacturers reckon 4.5m iPhone 4Gs to be sold in 24 days – according to rumor (I’ll be one of them… my 3G is on its last legs). Link
  • Engineer Alex Payne leaves Twitter to found BankSimple – an appealing idea – sounds like they will be eschewing some exception fees (but I think it’s gonna be very tough to pull off). Link
  • Booyah raises $20m – from Accel Partners – funded in an earlier round by Kleiner Perkins
  • Gilt Groupe raises $35m – from General Atlantic and Matrix – they’ve been in the news a lot recently
  • Groupon acquires German startup Citydeal – sounds like a very smart move and a good way to get into Europe – this is Groupon’s second acquisition after Mob.ly
  • Prominent names revealed as investors in Canvas, Moot’s startup – this is Moot of 4chan fame – investors include Conway, Andreessen, Josh Schachter (del.icio.us), Chris Dixon (Hunch) and Kenneth Lerer (Huffpost)
  • (Yes, too much Apple news.)
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May 10

Charlie Munger on Elementary Worldly Wisdom

A lengthy speech that Charlie Munger gave in 1994 was meant to be about stock picking, but approached it from the perspective of the general knowledge and mindset that surrounds the art. It’s very long, but there’s a lot of wisdom in it that time has not dulled.

And Warren and I don’t feel like we have any great advantage in the high-tech sector. In fact, we feel like we’re at a big disadvantage in trying to understand the nature of technical developments in software, computer chips or what have you. So we tend to avoid that stuff, based on our personal inadequacies.

Again, that is a very, very powerful idea. Every person is going to have a circle of competence. And it’s going to be very hard to advance that circle. If I had to make my living as a musician…. I can’t even think of a level low enough to describe where I would be sorted out to if music were the measuring standard of the civilization.

So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence. …

Some of you may find opportunities “surfing” along in the new high-tech fields—the Intels, the Microsofts and so on. The fact that we don’t think we’re very good at it and have pretty well stayed out of it doesn’t mean that it’s irrational for you to do it.

And this is another interesting passage:

When Warren lectures at business schools, he says, “I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all.”

He says, “Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”

Again, this is a concept that seems perfectly obvious to me. And to Warren it seems perfectly obvious. But this is one of the very few business classes in the U.S. where anybody will be saying so. It just isn’t the conventional wisdom.

To me, it’s obvious that the winner has to bet very selectively. It’s been obvious to me since very early in life. I don’t know why it’s not obvious to very many other people

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A very creative method of job searching

A $6 investment in Google Ad Words landed Alec Brownstein a advertising job at Young & Rubicam. One day, I’m pretty sure someone is going to propose to someone this way.

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May 10

Daily news rundown

  • ASIC blocks class actions against bank fees – it looks like that class action suit against the banks that I noted a few days ago has been blocked. Link
  • Rajaratnam claims an IM was about cricket – in a deposition of the Galleon Group co-founder accused of insider trading. Link
  • MGM, straining under ~$4b in debt, got a reprieve – lenders hold off on collecting on repayments until July 14
  • Prudential likely to begin $21b soon – raising funds to buy AIA, AIG’s Asian life insurance arm
  • Canadian tourist bitten on penis by a venomous spider in New Zealand – because it’s a slow news day. Link
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Net worth as one life metric

Net-worth Obsession is a Times article about people who track and publicize their net worth online. They total their assets, take away their liabilities, and are left with their net worth (or, if they were a company, equity). It’s a single number which encapsulates their economic well-being. Kind of like a score in a computer game.

Kincer happened upon a Web site called NetworthIQ, which allows people to record their net worths and display the ups and downs for anyone to view. Most people who share their data do so anonymously, but Kincer posts a link to his personal Web site, where he uses his real name. Kincer especially liked that the site allowed him to compare himself with others. It appealed to the Mega Man player in him. “NetworthIQ is kind of a game,” he said. “Can I get ahead of everyone? Can I be up there with the big shots?”

The interest in net worth is a kind of reaction to using salary as the benchmark number. Like a company’s income statement, even if you pull in a healthy revenue, if your expenses exceed your revenue, you’re not in good financial health. The converse is true, of course. If you only look at the balance sheet (net worth), you’re only seeing one part of the picture.

This is intuitive because managing personal finances is really not that different to running a business. You have your revenue (salary, interest on deposits, cap gains on investments, one-off bonuses like winning the lottery, etc.), and you have your costs (rent, entertainment, interest on loans, etc.). The difference between the two is hopefully profit. And how you deploy your profit, over the long run, can impact your net worth as much as what your salary is. Bankruptcy happens when your costs exceed your revenue, and your negative net worth exceeds your credit limit.

Eric Mills has tracked his net worth over time, which results in a pretty cool graph.

Mill now saves a quarter to half of his take-home pay in a savings account in an online bank, but he is not making as many extra payments as he could on the $20,000 or so in student loans he is carrying, nor does he have any money set aside for retirement. “I put a much higher value on flexibility,” he says. “And I feel like the better investment right now is in me. It’s much more important that I have as much freedom and liquidity as I can.”

Net worth is not precisely calibrated with financial freedom. If Mill used all of his savings to pay down some debt, his net-worth figure would remain the same, but he would have no emergency fund if he lost his job. For this reason, he has come to think of the figure as a number that doesn’t really tell his whole story.

However, to be more accurate, if he used some savings to pay down his debt, his net-worth figure would be higher over time. (Personally, Mill’s approach strikes me as a little myopic, but personal financial circumstances differ so much that any comment like that would be just speculation on my part.)

Tangentially, the U.S. has been running huge budget deficits, but unlike you or I, it can simply increase its own credit limit if Congress approves… which it would always do, otherwise the U.S. would default on its loans and the world economy would collapse. The U.S.’s self-issued line of credit – the debt limit – is now almost $14.3 trillion.

Hopefully, one thing that will occur to most of us while reading this article is the thought that crops up in the back of our mind that “happiness is not about maxing a number”. True, but in the case of net worth, it is one aspect of it, although research has typically shown it’s diminishing returns after a certain point.

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May 10

Goldman Sachs’ new HQ in NYC

The New Yorker reports on Goldman’s new building:

Goldman Sachs, one of the largest and most profitable financial firms in the world, has a different view of things. Several thousand Goldman employees have just moved into a sleek steel-and-glass headquarters in lower Manhattan that is emphatically not called One Goldman Sachs Plaza. At 200 West Street, as the building is known, the name of the firm appears nowhere on the exterior, or in the lobby, or even on the uniforms of the security personnel or the badges given to visitors. Forty-three stories tall and two city blocks long, the Goldman building appears to have been designed in the hope of rendering the company invisible.

And here are some photos: view from the 42nd floor; corner shot from same floor; view from the ground (sorry, the only ones I found on Flickr were HDR and B&W).

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Daily news rundown

  • SAP is acquiring Sybase for $5.25b, all cash – reportedly in an effort to compete with Oracle (which acquired Sun last year for $7.4b) – closing is scheduled for Q3 this year – SAP will also assume Sybase’s debt of about $550m
  • Transurban rejected a A$7.2b shareholder-led buyout offer – says offer too low – responding, two major Canadian shareholders who were bidders threaten to sell their 28% stake. Link
  • Baidu’s shares surge after 10:1 stock split – up almost 10% today
  • Now Morgan Stanley is being investigated – over some CDOs. Link
  • WSJ reports that VC industry looks like it’s picking up – M&A activity is healthy with 77 VC-backed companies being sold in Q1 ($3.9b vs Q1 ’09 $3.4b); 15 sold last week alone – 14 IPOs of VC-backed companies so far this year (compared with 8 for all of 2009 and 7 in 2008; Q1 ’10 raised $711m) – IPO pipeline "remains robust" – but, "Some venture capitalists caution the current spate of deals is confined to a relatively narrow set of high-growth or profitable technology and biotechnology start-ups." Link
  • Bank of England May 2010 inflation reportLink
  • Afriqiyah Airways plane crashes in Tripoli, killing 92 – mostly Dutch tourists – boy said to be sole survivor
  • FTC extends AdMob deal review by 2 weeks – due to iAd
  • China Mobile wants the iPad – and also the iPhone, but hasn’t got it yet (the iPhone has been selling really well in China). Link
  • Apple 4th gen iPhone allegedly turns up in Vietnam – teardown reveals an A4 Processor, 256MB RAM
  • More rumors that Verizon will get the iPhoneLink
  • HTC counterclaim accuses Apple of infringing 5 HTC patents
  • Gold hit another high, $1234.93/oz
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May 10

Daily news rundown

  • Australia’s Federal Budget was announcedSMH’s coverageGittins on the budget (video)
  • David Cameron is UK’s new PM – Lib Dems form coalition with Tories – Nick Clegg is Deputy PM – 5 Lib Dems get cabinet posts
  • JPMorgan, Citigroup and BOA join GS in recording trading quarters without any down days – in 61 trading days
  • Verizon rumored to be backing an Android-based tablet – combined with rumors that Verizon will stock a CDMA iPhone by the end of the year, and you have an interesting situation (what does Apple think?) Link
  • AT&T has been bringing forward iPhone upgrade eligibility dates to 6/21 – corroborates a June launch of the 4th gen iPhone. Link
  • MSFT’s Project Natal console probably launching in October – looks very cool. Link
  • CRM company Lithium acquires Scout Labs – rumored $20-25m in stock and cash
  • Mozilla CEO John Lilly leaving to join VC firm Greylock Partners – remains a director
  • Fenwick IP partner Michael Blum joins Quantcast as GC
  • KKR raising $500m in share sale
  • Mizuho planning to raise $8.7b – in common shares to meet increased capital requirements – Mizuho is Japan’s 2nd largest bank by assets
  • Gold futures hit record high of $1232.50/oz
  • Aussie banks in $400m class action lawsuit against them – relating to $5b in "exception" fees like late payment fees (I think the legal argument will be that the fees are penalties and therefore contractually unenforceable). Link
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May 10

Daily news roundup

  • EU delivers a $957b rescue package – markets recover as probability of Greek default dissipates – EU finance ministers agree to provide $636b in lending to deteriorating economies, IMF prepared to give up to $321b separately, ECB reversed policy and is now buying govt bonds and corporate debt, US Fed will also provide liquidity (see below), as will the Bank of Japan – in response, Greek 10Y bonds plummet from 10.25% last Friday to 4.72% today, Euro rose above $1.30, CAC40 up 9.7%, DAX up 5.3%, Dow up 3.9%, gold down slightly, oil up slightly
  • US Fed steps in to help EU with Greek credit woes – Bernanke opens up currency swap lines with the ECB to provide liquidity for the European money markets. Link
  • Obama nominates Kagan as John Paul Stevens’ replacement on SCOTUS
  • GS reveals its traders made a profit on every single trading day last quarterLink
  • Truth behind AT&T’s exclusivity agreement with Apple still as clear as mud – Link
  • Israel finally admitted to OECDLink
  • Fannie Mae reported $13b Q1 loss – still hemorrhaging money
  • Facebook hiring more lawyers – Timothy Muris, former FTC chairman reported to be a likely hire (ostensibly, to deal with FTC investigations) – they earlier hired Tim Sparapani, an ex-ACLU lawyer as director of public policy
  • BRK reports Q1 results – revenue up from $23b to $32b, net earnings rose from –$1.4b to $3.8b.
  • Macbook Air refresh rumored for tomorrow
  • Harrods was sold by al-Fayed to Qatar Holding
  • Meanwhile, in Zimbabwe… link
  • Push for derivatives on movie box office grosses likely to be nixedCantor Exchange in limbo (looks to me like Hollywood is being short sighted again, "The real reason most of Hollywood is opposed to this development is unclear, but it is probably simply the age-old story of large, conservative institutions being averse to change"). Link
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May 10

Daily news rundown

  • Apple sued by Nokia over 5 patents – Apple of course counterclaimed – meanwhile, Nintendo, after a decline in profitability, identified Apple as a competitive threat, or "enemy of the future"
  • iPad’s international release announced by Apple – May 28 in Australia, Canada, Japan and Western Europe; HK, Benelux, Mexico, NZ, Singapore, Austria in July – pricing is materially more expensive, apparently due to taxes (top-end model is GBP 699 vs USD 829) – iPad has reportedly sold out in US retail stores
  • UK election results in a hung Parliament – here are their options now – people turned away at poll booths and vote counting went all through the night and the next morning in a mismanaged election
  • Germans approved their portion of Greek bailout – 22.4b Euro over 3 years as part of 110b Euro package
  • Zynga announced Zynga Live – a move towards a split with Facebook after Zynga complains about Facebook’s 30% cut of Facebook credits and negotiations begin to break down
  • AIG announced $1.5b Q1 profit
  • HCA files for $4.6b IPO – health care company was taken private in a $21b LBO in 2006 by Bain Cap, KKR, and MLGPE
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May 10

Daily news rundown

  • Conservatives lead UK elections, but punters think hung Parliament on the way – the Times has a live feed of BBC’s coverage of the election which is on right now (it’s currently 4am GMT!) – Seats: 226 Con / 169 Lab / 36 Soc Dem / 26 Others (need 326 to win, 457 seats out of 650 called). Link
  • Freak wave of selling sees DJIA fall 550 points in 5 minutes, before rebounding to close the day down 3.21% (-349 pts) – DJIA was down around 1k pts at one point – AUD/USD fell 3c to 0.8780 – mostly caused by European jitters – Euro hammered, reached 14-month low of $1.28. Link. Some of it due to glitches and nerves – Accenture went from $40 to $0.01 for a couple minutes, P&G went from $60 to $39.37. Link 2. Update: looks like some glitch triggering a mass of automated trading programs. Link 3
  • TechCrunch reports how web struggled to keep up with stockmarket volatility – people like to trumpet how quickly Tweets move info, but nothing moves and acts on info as fast as Wall St (or at least the trading programs that traders use). Link. News anchors also struggled to keep up with it. Link
  • Peter Henning analyzes the three arms of litigation GS is potentially facing – SEC civil, criminal, shareholder derivative suits – also evaluates the desirability of obtaining a settlement. Link
  • Blackstone, TPG and others in LBO talks with $11b-large Fidelity National – would be largest LBO since Blackstone bought Hilton for $25b almost 3 years ago – FN is a leading technology provider to banks
  • ICANN switches on non-Latin TLDs – three new TLDs in Arabic script. Link
  • Judge denies AP’s request to unseal affidavit used to obtain search warrant in the Gizmodo iPhone investigations – DA argued affidavit contained names of “two individuals of interest, whom police do not want to alert”
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May 10

Daily news rundown

  • The UK goes to the polls tomorrow – general election being contested between the Tories, Labour, and Lib Dems, but none of these parties are expected to get a majority of seats in the 650-seat House of Commons, leading to a hung Parliament. A coalition will need to be formed to break the deadlock. Hung Parliament makes it difficult to pass legislation at a time the country faces a $250b budget deficit
  • Singaporean shipbuilder New Century cancels $3.84bn IPO – reportedly because the Singapore stock exchange received a complaint that a lawsuit against NC wasn’t mentioned in the prospectus. Link
  • Stack Overflow raised $6m from VCs – including Union Square Ventures
  • Supreme Court Nominees list narrowed to 4: Kagan (Sol-Gen), Woods (7th Cir), Garland (DC) & Thomas (9th) – Kagan is the odds-on favourite, but ATL thinks Woods is the front-runner for a variety of compelling reasons. The two men are probably out of the running
  • Fitch downgrades GS outlook from stable to negative – citing litigation issues. Rating remains at A+, but may slip if criminal indictment occurs (unlikely). S&P and Moody’s already have GS’ outlook at negative. GS closed the day down 0.84% at 148.19
  • Groupon opens Silicon Valley office – Chicago-based daily deals company was valued at $250m last December and, after funding from DST, was valued at $1.35b – 2010 revenue on a $350m runrate (although I question the usefulness of revenue without also knowing their margin)
  • Picasso sold for $106.5m at auction – record price for an auctioned artwork – buyer was anonymous, but speculation it was a hedge fund owner. Link

Bonus links

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Apr 10

Profile on Facebook’s COO

An interesting Vogue article on Sheryl Sandberg, Facebook’s impressive COO:

Zuckerberg says, “By the time I met Sheryl”—in 2007, on the way into a Christmas party hosted by former Yahoo COO Dan Rosensweig—“I’d almost given up on finding a person who’d be good in the COO role. But it was immediately clear from the crispness of her answers and the intensity she had when she talked that she was the kind of person who could do this.” For the next half hour, the pair barely moved from the entryway. “I’d just walked into the party with my girlfriend, Sheryl was standing there with her husband, Dave, and people kept coming up to us and asking very superficial questions. And we were just like, ‘Oh, yeah, OK, that’s nice,’ ” Zuckerberg remembers. “I mean, I have much less social tact than she does.”

Sandberg recalls “having this intense conversation in the front hall about how you ‘scale’ an organization,” using the tech-world synonym for “managing runaway growth.” “And everyone’s coming up and asking: ‘Do you want a drink?’ or ‘I like your dress.’ And Mark and I are like, ‘We’re trying to talk here.’”

My company’s CEO also gets several mentions, for reasons that are obvious. I think she actually came to our office once, but I stupidly didn’t put two and two together. I only realized who she really was after she left.

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Apr 10


Quick notes on a few prominent companies in the news. Apple’s fiscal Q2 results were announced today: $13.5bn rev, net profit $3.07bn (up 90% year-on-year for the quarter), against analyst estimates of around $12bn. Almost 9m iPhones sold (more than any other quarter), Mac sales up by a third compared to Q2 2009, with iPod sales stable. Q2 doesn’t cover some big things that entered or will enter the pipeline this quarter: iPad (estimated 1m sold already, and this is pre-3G and international releases), iAd (some estimates put it at generating 8% of revenue, or several billion dollars), the Macbook Pro refresh, and the iPhone v4 refresh. Apple is clearly going on a tear.

I had written an earlier post questioning the sensibility of Apple’s market cap taking over Microsoft’s when it was making half of Microsoft’s profits. With this strong showing, it is conceivable Apple will push up towards Microsoft-level profits, but if it hits it this year, I’ll be absolutely stunned. The market must be pricing in the growth potential over the next few years today. (Once this prospective growth is fully priced in, I wonder if a bubble will start to develop at that point?) Let’s see how Microsoft fares when it has its earnings call on Thursday.

Google also did well last quarter, but not well enough for investors who ensured that its stock price fell about 7% on announcement day. Google is fantastic at making (software) technology that works like magic. But they, and their hardware partners, can’t compete with Apple on one of the key reasons Apple does so well: industrial design. Industrial design simply isn’t Google’s ball of wax. However, it is an integral part of Apple’s branding. If you look at Android, it’s more fully featured than iPhone OS – but Android phones don’t have the same design cachet. If you look at MacOS X, it’s nice, but a lot of people think Windows 7 looks just as nice… but I believe MacOS is popular because the boxes it is installed in are popular. I speculate that proportionately more people install Windows on a Mac, than would install MacOS on a PC (if Apple decided to permit that one day). So Chrome OS is all nice and good, but if the devices that run it aren’t sexy enough, I’m not sure that Google is going to be competitive with Apple in the netbook-end of the market.

Turning now to the other big news of Goldman Sachs being sued by the SEC. When the suit was filed last Friday, Goldman’s stock price fell about 13%, shaving somewhere in the region of $10bn off its market cap. Reading through some peoples’ opinions of the worst-case scenario, Goldman is looking at anywhere from $100m to about $1bn in liabilities (whether in settlement payments or damages, including suits filed by other parties against them). There are also reputational effects as well, but I doubt they would have any impact.

As this BusinessWeek article says, GS is still going to be used by the people that count – clients and prospective employees. When I was an undergrad, I remember that among students there was this sense of an unofficial totem pole of professional services work, in decreasing order of desirability: private equity, i-banking, mgt consulting, law, and accounting/tech consulting/retail banking. Because private equity firms usually don’t hire fresh grads, that left i-banking as the most sought after industry for BCom students. At the top of that world was Goldman, followed by Morgan Stanley, JPMorgan, and so on (incidentally, the order was pretty similar to the order of what banks were most vulnerable during the GFC). That was back in 2002. Goldman has since had a massively successful decade, so I can only imagine that its aura has multiplied during that time. GS also had a successful quarter, reporting $3.3bn in net income.

In any event, it seems to me that the market has largely overreacted to the news. It will be interesting to see what unfolds over the next few months.

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Mar 10


As Apple stocks keep hitting all-time highs, much has been made recently of the rapidly decreasing gap between Microsoft and Apple’s respective market capitalizations.

At market close today, Microsoft had a market cap of about $259.5bn, compared to Apple’s $210.7bn. To catch up, Apple stocks would need to increase 23%, which would price them at roughly $286 a pop (assuming Microsoft’s price remains stagnant, which is not an unfair assumption, given the MSFT has been trading at about the level it is today since the start of 2001). Microsoft hit a record high market cap of nearly $600bn during the delusional dot com boom days – if it ever gets up there again, it will probably only be because of inflation.

Yet, when we look at the financials for calendar Q4, 2009, we see:

Microsoft Apple
Revenue (billions) $19.0 $15.7
Gross Profit $15.4 $6.4
EBIT $8.5 $4.7
Net Income $6.6 $3.4

Net Income for the whole year was $14.57bn vs $8.24bn. I’m by no means well versed in reading financial statements, but it seems clear that although Microsoft’s revenue is 21% higher than Apple (about the same as the difference in market cap), Microsoft has way higher margins and is thus almost twice as profitable. And at the end of the day, it’s the profit that counts, right? (I don’t care if you have a turnover of $1bn – if you operate on razor-thin margins of 1%, then a company with margins of 30% that only generates $50m revenue is making substantially more dough than you.)

Microsoft also has a lot of cash & short term receivables in the bank: $35.1bn, compared with Apple’s $23.4bn at year end (although some later articles seem to report a $40bn cash horde), so both companies are healthy in that respect and relatively unleveraged.

The argument is that Apple, with a promising product pipeline, has a bright future ahead, with higher growth rates than Microsoft. The iPad of course opens up a new revenue channel for Apple, and product refreshes for the iPhone, Mac Pro, and Macbook Pro due out this year will keep kicking along revenue growth. And what’s exciting that’s on the horizon for Microsoft? There’s not much that comes to my mind.

But just how much will the iPad do for Apple? An analyst from Morgan Stanley optimistically forecasts iPad sales in 2010 of around 6 million (with shipments to intermediary sellers clocking in at up to 10 million). Let’s take an average selling price of $650 – roughly midway between the 16gb non-3G model and the 64gb 3G model, and you get revenue of about $4bn. Based on estimates of production costs, the materials and manufacturing cost roughly 40% of the retail price (gross margin of 60%). Other reports say the gross margin is only about 30%. Let’s be generous and estimate the net margin at 30%, and we get net profit on iPad sales of about $1.2bn. Still not that close to Microsoft’s net income, but getting there.

There’s a lot of excitement surrounding Apple at the moment, and I would be wary about the possibility of a mini-bubble forming around Apple stock. If Apple’s market cap reached Microsoft’s at some point this year… it would be difficult to say that there is not some mispricing happening somewhere.

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Mar 10

NPR invests in a mortgage bond

In January this year, NPR’s Planet Money bought a portion of a mortgage bond for $1,000.  It’s one of those toxic assets, and defaults have decimated the value of the bond since it was issued. NPR have got an infographic showing the returns on their investment, together with the status of the 2,000 or so underlying mortgages which comprise the CMO to which the bond belongs. They’ve even quaintly given their investment a name, Toxie.

If you listen to the podcast, they talk about the process of finding the bond (which took a couple days) and making the trade and how people do research on securitized assets today. Pretty interesting.

They also mention the prospectus for one of the mortgage bonds they look at, which was over 600 pages. (They find a dealbreaker on page 136: “In the event of insolvency of Lehman Brothers, payments due under the interest rate … agreement may be delayed, reduced, or eliminated.”) Ok, so I can understand why no one actually read those things (except perhaps for Mike Burry) but I really pity the lawyer who had to write the damn thing. Incidentally, I had a brief stint working as a securitization lawyer. One of the matters I was on required me to trawl through pages and pages of documentation for several CDOs. I can’t remember what the goal was – I think the client was trying to spin off the good parts of existing securities into new ones or something – but the documents were horribly drafted. They are difficult to read through at the best of times, but when the drafting is crap, the documents become excruciating. It was actually a really interesting area of work and I enjoyed learning about the concepts, but the devil was in the details.

A bit more poking around shows that the whole bond was initially valued at about $2.7 million.  It recently traded at $36,000 (that’s a loss of almost 99%… ouch). It was issued by some entity called the Harborview Mortgage Loan Trust and the particular bond was apparently initially rated A- (which Moody’s regards as an investment grade security with “low credit risk”).

NPR will make their money back through interest payments if their bond isn’t wiped out within the year by mounting mortgagor defaults (if I understand things correctly, they won’t get their principal back at all – at the tier their bond is at, the principal is already gone). It’s basically a timebomb.

Good idea, NPR. I’m surprised that no journo did this last year!

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Mar 10

Rejected from uni, but still super-successful

This great WSJ article writes about some of the rich and famous who got rejected from their first university of choice. Included is a Nobel laureate in Medicine who got rejected from Harvard Med, twice. And Warren Buffett:

Rejections aren’t uncommon. Harvard accepts only a little more than 7% of the 29,000 undergraduate applications it receives each year …

“The truth is, everything that has happened in my life…that I thought was a crushing event at the time, has turned out for the better,” Mr. Buffett says. With the exception of health problems, he says, setbacks teach “lessons that carry you along. You learn that a temporary defeat is not a permanent one. In the end, it can be an opportunity.”

Mr. Buffett regards his rejection at age 19 by Harvard Business School as a pivotal episode in his life. Looking back, he says Harvard wouldn’t have been a good fit. But at the time, he “had this feeling of dread” after being rejected in an admissions interview in Chicago, and a fear of disappointing his father.

As it turned out, his father responded with “only this unconditional love…an unconditional belief in me,” Mr. Buffett says. Exploring other options, he realized that two investing experts he admired, Benjamin Graham and David Dodd, were teaching at Columbia’s graduate business school. He dashed off a late application, where by a stroke of luck it was fielded and accepted by Mr. Dodd. From these mentors, Mr. Buffett says he learned core principles that guided his investing. The Harvard rejection also benefited his alma mater; the family gave more than $12 million to Columbia in 2008 through the Susan Thompson Buffett Foundation, based on tax filings.

Most of them got rejected from Ivies to go to… another Ivy, but, whatever.

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Mar 10

NY Times interview with Meridee Moore

Meridee Moore founded Watershed Asset Management, a San Francisco-based hedge fund manging $2 billion.  Moore is a Yale Law graduate who moved into finance after 18 months at biglaw firm Simpson Thacher.

The NY Times article reveals some interesting answers:

Q. How do you hire?

A. We look at grades and scores, of course. We want the person to be competitive. Also, if the person has had a rough patch in his or her past, that’s usually good.

Q. Why?

A. Well, if you’ve ever had a setback and come back from it, I think it helps you make better decisions. There’s nothing better for sharpening your ability to predict outcomes than living through some period when things went wrong. You learn that events aren’t in your control and no matter how smart you are and how hard you work, you have to anticipate things that can go against you.

Q. What are some other screens?

A. We give people a two-hour test. We try to simulate a real office experience by giving them an investment idea and the raw material, the annual report, some documents, and then we tell them where the securities prices are. We say: “Here’s a calculator, a pencil and a sandwich. We’ll be back in two hours.” If an analyst comes in there and just attacks the project with relish, that’s a good sign.

Q. Is this one of those impossible tests, where you’re asking them to do seven hours of work in two hours?

A. Yes. But you’d be amazed at how well people do. After two hours, two of us go in and just let the person talk about what he’s done. The nice thing about my being trained as a lawyer, and never going to business school, is that I’m able to ask the basic, financially naïve questions, like: “What does the company do? How do they make money? Who are their customers? What do they make? How do they produce it?” That throws some people off.

Q. What else do you ask job candidates?

A. I try to ask something that inspires the person to talk a little bit about their family, whether it’s their brother and sister, their parents, where they lived. And usually it’s, “Why do you want to be in San Francisco?” And they’ll say, “Oh, well I have an uncle in the East Bay.” And I’ll say, “Oh really? What does your uncle do?”

I find that guys who have had strong relationships with women — whether it was their mother, their sisters, a teacher — tend to be secure in who they are, and tend to do well in our business.

Q. Why is that?

A. Well, they have to work with me, for one thing. And they have to be able to challenge others and have me challenge them without taking it too personally.

The other question I ask is if they’ve ever been in anyone’s wedding party. If someone has asked them to stand next to him on the most important day of his life, at least one person thinks they are responsible. It means they’ve been able to establish and continue a relationship. It’s not always true, but if you build strong relationships with people, you tend to go into a management meeting or a negotiation and come out of it with some respect. You go into it thinking: “I’m going to leave this situation better than I found it. I don’t have to kill everybody to get to the right result for myself.” These are good qualities in a person and a partner.

Q. What’s your best career advice to somebody just graduating from undergrad or B-school?

A. Find a mentor. And it doesn’t have to be a mentor who looks like you. They can be older, a different gender, younger, in a different business, but someone you admire and respect, and just attach yourself to that person and learn everything you can. I’ve done this my whole career. It is so valuable, especially if you choose a good one and they end up teaching you everything and then rejoicing in your success.

Actually, the whole of NYT’s Corner Office section has some pretty interesting reading.

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Feb 10

How Entrepreneurs Really Succeed

Malcolm Gladwell’s New Yorker article, “The Sure Thing, examines the popular conception that entrepreneurs are risk-takers and concludes that successful entrepreneurs are actually risk-averse. Or, cast in another light, entrepreneurs only seem to be risk-takers, because they jump on hidden opportunities that everyone else is ignorant about (and what’s unknown is risky). However, they have done everything from their perspective to actually mitigate their risk.

“The risk-taking model suggests that the entrepreneur’s chief advantage is one of temperament – he’s braver than the rest of us are. In the predator model, the entrepreneur’s advantage is analytical – he’s better at figuring out a sure thing than the rest of us.”

Gladwell recounts the stories of various entrpreneurs, including Ted Turner (who was adept at getting good deals for himself), Sam Walton (who initially financed Walmart with money from his in-laws, which was less risky than a bank loan), and hedge fund manager John Paulson, who made $15 billion in profit in 2007 and $5 billion in 2008, by buying up credit default swaps on subprime mortgage bonds. In all of these cases, the decisions made by the entrepreneurs were not a seat of the pants thing, but bets made after careful calculation.

Entrepreneurs, or at least the good ones, may actually be quite risk averse.

“When the sociologists Hongwei Xu and Martin Ruef asked a large sample of entrepreneurs and non-entrepreneurs to choose among three alternatives – a business with a potential profit of five million dollars with a twenty-per-cent chance of success, or one with a profit of two million with a fifty-per-cent chance of success, or one with a profit of $1.25 million with an eighty-per-cent chance of success – it was the entrepreneurs who were more likely to go with the third, safe choice. They weren’t dazzled by the chance of making five million dollars. They were drawn to the eighty-per-cent chance of getting to do what they love doing. The predator is a supremely rational actor. But, deep down, he is also a romantic, motivated by the simple joy he finds in his work.”

And why do so many successful entrepreneurs keep working even though they never need to work in their lives again?

“…one undisputed finding in all the research on entrepreneurship [is that] people who work for themselves are far happier than the rest of us. Sane says that the average person would have to earn two and a half times as much to be as happy working for someone else as he would be working for himself. And people who like what they do are profoundly conservative.”

The founders of the company I work at sold most of their shareholdings in it for an amount that guaranteed that they would never have to work again in their lives. Yet, they are still working at the company, doing what they enjoy. Another insightful Gladwell article.

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Feb 10

Buffett interviews Paulson

Warren Buffett recently interviewed former Treasury Secretary Hank Paulson at the Greater Omaha Chamber of Commerce annual meeting in Omaha. Which is timely, given my recent Paulson- and Buffett-related posts. In the hour-long interview, Buffett asks Paulson a variety of questions about his new book, China, Bush, investing, and other interesting topics. As the moderator at the says when he brought the interview to a close: “I know one way to get unpopular is to interrupt a conversation like that.”

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Feb 10

Lehman’s last weekend – from the Secretary of the Treasury’s viewpoint

An excerpt from Hank Paulson’s new book, On the Brink, recounts his weekend before Lehman went belly up:

He made it clear, without a hint of apology in his voice, that there was no way Barclays would buy Lehman. He offered no specifics, other than to say that we were asking the British government to take on too big a risk, and he was not willing to have us unload our problems on the British taxpayer.

It was shortly before 1 p.m. when Tim, (Security and Exchange Commission Chairman) Chris (Cox) and I addressed the CEOs again. I was completely candid. Barclays had dropped out, and we had no buyer for Lehman.

“The British screwed us,” I blurted out, more in frustration than anger. I’m sure the FSA had very good reasons for their stance, and it would have been more proper and responsible for me to have said we had been surprised and disappointed to learn of the UK regulator’s decision, but I was caught up in the emotion of the moment.

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Feb 10


In 2004, when I was writing about Google’s then-upcoming IPO, I made the point that the absolute price of a stock has an effect on the liquidity of a stock – mainly due to psychological factors. I brought up the example of Berkshire Hathaway, which at that time was trading at almost $90,000 for its A shares and about $3,000 for its B shares. At those prices, I noted that Berkshire was less liquid than some of its comparably sized peers (ie, Berkshire shares were changing hands relatively infrequently). A reader disputed this proposition, so it’s interesting to now revisit it, given what has happened at Berkshire over the last couple of weeks.

Aside from the fact that it’s Warren Buffett’s company, Berkshire is an interesting company. Berkshire itself is a holding company, with many, many wholly- or majority-owned subsidiaries (a large insurance and reinsurance arm, utilities, apparel, retail, etc). It also holds significant stakes in numerous major corporations (Moody’s, Washington Post, Wells Fargo, Gillette, Coke, Goldman Sachs, GE, etc). Consequently, investing in Berkshire is akin to investing in a diversified mutual/managed fund – Buffett himself has 99% of his personal wealth in the form of Berkshire stock. Berkshire’s business lines produce a lot of cash (somewhere in the region of $8-10bn), and it’s Buffett’s job to figure out how to invest that money.

Berkshire’s common stock (“BRK”) is split up into two classes. Its Class A shares have been the highest priced shares on the NYSE for some time now, so Buffett decided to create Class B shares, to allow “the masses” to be able to invest in BRK. A B share has 1/30th the rights of an A share, with two other differences: B shares have proportionately less voting rights, and cannot be converted into A shares (whereas conversion in the opposite direction is true). Consequently, a B share is theoretically worth slightly less than 1/30th the price of an A share.

B shares, however, are now priced at about $75. The reason for the repricing is that they underwent a 50-for-1 stock split a couple weeks ago. Berkshire is notable for having never distributed a dividend, nor splitting its stock (both of which are factors which helped to drive those stocks’ prices to lofty heights). The reason for the recent split was only to support the mechanics of a proposed acquisition deal.

The immediate consequence of the split was to drive up the liquidity of the stock. Small-time investors could suddenly afford to buy a handful of BRK shares, and the trading volume of BRK.B spiked that week. The other consequence was that BRK could now be added to the S&P 500 index. Despite its market cap of about $200b, BRK was absent from the index due to its low liquidity. Because there are many funds out there which attempt to track the S&P, any change to the stocks comprising that index would necessitate at least some of those funds needing to add BRK to their portfolio. This in turn would drive up liquidity (and price) of the stock.

Granted, five days of trading history with the new Berkshire B shares doesn’t provide much of a window onto long-term return potential. Average daily trading volume in the Berkshire Hathaway B shares has soared though, from 41,000 shares traded to as high as 6.6 million shares traded — and that was just on Monday. In the past five days, approximately 50 million Berkshire Hathaway shares have been traded.

Consider this: the 50 million Berkshire Hathaway shares traded over the past five days represent what would have previously amounted to almost three-and-a-half years’ worth of trading volume for the Berkshire Hathaway B shares. (src)

Interestingly, many still regard that BRK is still undervalued post-split (Buffett thought they were undervalued pre-split).

Finally, another side effect of the split is that the Bill & Melinda Gates Foundation will probably benefit nicely. Several years ago, Buffett pledged to donate about $30b to the Gates Foundation in the form of BRK stock, delivered over time. The Foundation currently holds about 78 million BRK.B shares, and because it is obligated to spend a certain amount of money by Buffett, the Foundation regularly sells its BRK shares on the market. The increased demand for BRK.B shares in the short-term should held the Foundation to unload stock at better prices. In the long-term, the increased liquidity of the stock should also enable the Foundation to more smoothly unload shares without jarring the market price as much.

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Jan 10

Profile on David Tepper

Bloomberg profiles David Tepper, who runs Appaloosa Management, which is responsible for managing the best performing hedge fund (with AUM of $1 billion) over the first ten months of 2009.  During that period, the flagship Appaloosa fund returned over 117% (an appaloosa is a type of horse).

Tepper has lived with his wife, Marlene, in the same spacious, stone-faced contemporary house in a nearby town since 1991. He owns no vacation homes. His three children either graduated from or still attend local public schools. He coached their softball, baseball and soccer teams. …

While Tepper is pleased to have done so well in 2009, he remembers the mistakes of 2008 just as vividly [when his fund lost almost 30%]. …

David Alan Tepper started modestly. He was born in Pittsburgh in 1957 to Harry Tepper, an accountant, and his wife, Roberta, an elementary school teacher. He grew up in a redbrick house in the neighborhood of Stanton Heights. One of his hobbies was collecting baseball cards — and impressing his friends by spouting statistics on the local Pirates and other teams.

“My memory is almost photographic, not quite,” Tepper says. “It drives my analysts crazy.”

Nevertheless, he was an indifferent student at Pittsburgh Peabody High School, he says, and something of a class clown. He remembers being kicked out of one class and told by the teacher, “Go roam the halls and act like the animal you are.”

Tepper began buying penny stocks in high school, sometimes conferring with his father on the subject. As a student at the University of Pittsburgh, he got more sophisticated, developing a system for options trading that helped pay his expenses.

He graduated with a degree in economics in 1978. Later he enrolled in Carnegie Mellon University’s Graduate School of Industrial Administration. At his first presentation, in front of 150 classmates and the dean of the school, Tepper explained how changing one input variable wouldn’t affect the outcome of a particular equation.

“I don’t give a shit what you put in here,” Tepper told the class, tapping on the blackboard.

After a pause, his fellow students burst out laughing. At the annual student follies, they composed a song to the tune of the Dr. Pepper advertising jingle: “I don’t give a shit. Be a Tepper. Be like Tepper.”

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Jan 10

Apple’s week ahead

Big week ahead for Apple. Tomorrow (1.30pm PST) it announces its Q4 2009 (fiscal Q1 2010) financials. The effect of earnings announcements on stock prices is all about market expectations. It seems that Apple is typically conservative when issuing profit guidance (or perhaps more accurately, infamous for low-balling). Analysts caught on long ago and have adjusted their expectations accordingly, but it will be interesting to see how well Apple actually did.

Here is an interesting article about Apple’s price movements at market close last Friday, and an even more interesting one on shorting of Apple stock.

On Wednesday, Apple is expected to release its tablet. Analysts have forecasted a tablet product could add several billion dollars to their top line. People will be looking at pricing point of the tablet and what it actually does on Wednesday (10.00am PST), but the bar set pretty high. Let’s hope it doesn’t cost $1000.

Apple needs to pull something out of the bag with this one. People are expecting a larger, cooler iPod – all the rumored features are nice and modern, but not revolutionary. The iPhone already does a lot. It needs to be more than an iPhone with a bigger screen.

Perhaps they are focusing more tying lots of licensed content into it, since it seems to be a media device that is aimed at tackling the Kindle market (and more), and that will enable them to do really cool stuff – a universal media library. Perhaps they have a new UI. Perhaps will be able to sense certain proximate devices like Microsoft Surface.

I expect to be able to use the tablet as a universal remote, as a substitute for the morning newspaper, watching  TV on the go, an exercise book in meetings. I expect to be able to hang the thing on a wall and hook it up to something which reports real-time information (like Seesmic Look, a Flickr feed, or a stock ticker). I expect to be able to use it for even cooler augmented reality applications (especially games!).

Jan 10

The story behind large-denomination currency

This is still legal tender:

You wouldn’t want to drop it.

Mental Floss writes:

In 1928, the federal government overhauled its system of printing banknotes. It shaved about an inch of length and just under a half of an inch in width off of the bills and issued the new smaller bills in the $1 to $100 denominations with which we’re familiar. However, the Treasury also issued larger denominations. They featured William McKinley ($500), Grover Cleveland ($1,000), James Madison ($5,000), and Salmon P. Chase ($10,000). …

When the Treasury discontinued the bills, they rapidly fell out of circulation. However, a few are still lingering; as of May 2009, there were still 336 $10,000 bills at large. At the same time, Slate reported that there were also 342 $5,000 bills and 165,732 $1,000 bills still floating around.

The large bills are now worth more than their face value, of course.

There was also a $100,000 bill that was printed, but it wasn’t put into general circulation.

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Jan 10

River Crab Society

A close friend of mine, an Aussie stock picker living in Beijing, has a new blog called River Crab Society. It promises to be an interesting mix of cultural quips and financial insights about China (if the rodent manages to keep the thing regularly updated).

China’s online travel penetration rate is only 5%. cTrip.com has a 50% market share of China’s online travel market. China’s travel market is going to be massive, so stock up on those overnight adult travel nappies!

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Jan 10

Intentional mortgage defaults

Unlike Australia, many mortgages in the US are no-recourse. This means that if a homeowner (the mortgagee) defaults on their loan, they can just give the bank the house keys and walk away without suffering any other penalty. In a market where a homeowner’s home loan costs more than the value of their house, it can make a lot of financial sense to voluntarily default and then walk away from it all. But there’s a stigma against this, despite this sort of call being made in the corporate world all the time. The New York Times examines this state of affairs in an interesting article.

Of course, from one point of view, a contract is a business deal and there should be no moral stigma attached to breaking it, because as a legal instrument, the innocent party has avenues of redress which theoretically compensate them for their losses. “It’s just business, not personal,” as they say. In the case of home loans, the “innocent party” is a big lending corporation which is knowingly bearing the risk of making loans which are no-recourse.

There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood an drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.

The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.

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May 09

So much for convergence

I’m juggling these forms of written communication:
– Emails
– IMs
– Facebook wall, comments, messages
– Twitter direct messages and @ replies

For some reason this strikes me as inefficient. After a certain point, ubiquity of contactability must have diminishing returns… maybe it’s the inconvenience of having to use multiple platforms to check for messages…

I’m heading back to Sydney tonight, going to lose 3G access on my iPhone… that might feel a little weird.

Apr 09

Stanford Venture Weekend 2009 Debrief

One of the entrepreneurship student organizations on campus hosted an event called Stanford Venture weekend last weekend. Students from across the university were invited to apply to participate, and a team of about 25 students was formed. The concept in a nutshell was that within a 54 hour period, the team would brainstorm an idea for an internet-related start-up, implement a prototype, and prepare a pitch. At 9.00pm on Sunday, three Sand Hill Rd venture capitalists (VCs) and a VC partner from Wilson Sonsini, one of the leading law firms for start-up representation, would turn up to hear our pitch, see a product demo, and provide advice and feedback. Two rooms were rented from the university in Meyer Library from 6.00pm Friday to the end of Sunday and the organizers kept us sustained with breakfast, dinner, snacks and drinks.

The weekend was pitched in the following way: “We believe Venture Weekend is a great way to get the community excited about entrepreneurship and to spend an intense weekend with creative people who want to actually bring an idea to life as opposed to sitting back and listening to YATAE (yet another talk about entrepreneurship).” Truth be told, I was excited by the opportunity, but pretty skeptical about the whole idea. The ingredients of a successful start-up include having a great team, and having a team which is passionate about the idea.

The quality of students that turned up was not at issue—a university like this has the luxury of a student body containing more talent than you can shake a stick at. The team was composed primarily of computing science grads and undergrads, with a sprinkling of MBAs, design schoolers, and a couple of law school students. However, “great team” refers not only to the individuals in it, but also how they work together. This competition would chuck together two dozen people, most of whom didn’t know each other, and hope they somehow would gel.

The second skepticism arose from the fact that the start-up idea would be the product of a brainstorming session, but surely no single idea was capable of generating enough passion from everyone in such a diverse group. Especially for something that would require a lot of hard work, an entire weekend, and a high opportunity cost. (Eg, law students have finals looming two weeks away.)

Surprisingly, these two things turned out to be less of a problem than I thought.

At Friday 6.00pm we gathered in a meeting room in Tressider with two large whiteboards. About 20 of us had decided to show up and the gender imbalance was massive—literally one girl, a CS undergrad. After some time for mixing, we split up into groups of 3 and started brainstorming ideas for a half hour. The first challenge was extracting the single idea to pursue from the mass of ideas people came up with. The deadline for this was 9.00pm. Each team of three got a chance to quickly run through their ideas with the whole group. The point of brainstorming is to throw up as many ideas as possible, but the major pitfall in such exercises is that people often jump in with criticism, and the proposer feels obliged to mount a defense. This detracts from the point of the exercise and bleeds away time.

Engineers often half-jokingly wonder what the value of MBAs are for in a start-up. Here their value was clear. A couple of them stepped up to facilitate the brainstorming session and impart some direction on the team. It must have been a bit like herding cats, though. By keeping the process moving forward, they slowly extracted a list of a dozen ideas which were written on the whiteboard and explained in more depth. The person who came up with the idea spoke for a while about it, and then people asked questions to get a better understanding.

Each idea was voted upon, and the five most popular were short-listed. Each of these were then examined again in greater depth—market size, revenue opportunities, difficulty of developing a prototype by the end of the weekend, competitor identification, team size needed, and so on. We then voted on the top two ideas we each thought we’d like to personally work on. Interestingly, people’s preferences shifted in the last round of voting (indicating to me the value of the preceding discussion), and we ended up with two clear leading ideas garnering ten and six votes. After much discussion, we eventually came to the realization that it was going to be unwieldy to coordinate a team of 20 on a single project. For instance, if you don’t need 10 coders, you shouldn’t use 10 coders—too many cooks. We elected to split into two teams pursuing the top two ideas, but made it clear that the teams weren’t exclusive. The point of the weekend was that the whole thing should be collaborative, so skill sharing between teams was important. Sometime around 10.00pm we made our way to Meyer in our respective teams to begin the two start-ups.

I found the process significantly more painful than my description probably reveals. Most people were quite outspoken, and although there were rarely problems with people interrupting others or things like that, it did mean that there were a large amount of valid opinions to juggle. Even deciding how to run a vote on the ideas was a difficult process in itself: should we vote on our top idea? Or top 2 ideas? Or on all the ideas we’d be willing to work on? Or should we vote on the ideas we think are viable? There was much wheel-spinning in the mud and I could see my initial skepticisms fulfilling themselves.

The rest of the night was very messy. We spent it trying to scope out the two ideas, but kept conflating the issues of what we should achieve in the weekend with what could be achieved in the longer term.

I’m not going to write much on the two ideas, but it is helpful to briefly detail them to get an idea of the different challenges facing each team.

The most popular idea was the creation of a platform for placing virtual objects in real world locations. These objects can be interacted with by anyone with a mobile device with GPS (typically an iPhone). The platform would enable a variety of applications, including gaming (giving people an easy way to organize and participate in scavenger hunts), informational (guided tours), and commercial (Livecoupon-type services). The idea was very similar to this idea brief I came up with in November last year. (This illustrates the fact that good ideas are a dime a dozen in this part of the world—executing an idea is a different thing altogether.) This idea was a major project to fully implement, but the potential upside was huge.

The second most popular idea was the creation of “university Twitter”, which I initially treated with disinterest because of the name. But that description is probably not apt. This is how I now view the idea: at tech conferences, many people liveblog keynote speeches, or join a chat channel to comment on what a speaker is saying in real time (kind of like a back channel for chatter). If you apply this idea to the classroom, you open up the possibility for real-time collaboration between students. You also provide professors with numerous benefits such as the ability to monitor and encourage participation, to obtain an objective measure of participation, and obtaining student feedback. This seems disruptive at first, but when you realize that most students are on Facebook or e-mail during lectures anyway, this is probably a good way to keep students on topic. (One anecdote: a friend of mine decided to join Facebook during a lecture. He sent out invites to all his friends in the same lecture and was amused to find all of them being accepted over the next five minutes. Clearly no one else was paying full attention to the lecturer, either.)

The first idea was the one I (initially) found more interesting. After all, the problem space was bigger, more complex, and it was an idea that I had previously come up with myself. We had another brainstorm and there were varying opinions on how to proceed. Lots of mutual misunderstanding, efforts to get people on the same page, and more wheel-spinning. Meanwhile in the other room, they were already brainstorming business names, drawing screen mockups, and moving forward. By midnight, we were clearly not all on the same page, and I think the frustration led to us calling it a night soon after. However, we had managed to draw up a quick and dirty database schema and some screen mockups.

Saturday morning came. When I arrived, we’d lost a few people and were left with about 12-15 who decided to stay on. The two groups were roughly evenly numbered and had started to fragment into sub-teams. Even though the products weren’t fully fleshed out, the sub-teams had decided to press on regardless and match up the edges later.

Some thoughts related to the sub-teams. I think the basic skills an internet start-up team traditionally needs include:

  • back-end coders (including SQL, database schema creation and optimization, and programming in languages such as PHP and Python);
  • front-end coders (including HTML, CSS, Javascript);
  • also, the back-end coders need to be able to talk to the front-end coders when interfacing the two ends together, so data manipulation skills are important (eg, knowledge of XML, JSON, AJAX, etc);
  • graphic designers;
  • if applicable, any technical people needed to develop models which back-end coders can translate into code (eg, economists, financial analysts, etc); and
  • “business people” (to help obtain funding, so they help to perform market research and viability studies, prepare and deliver presentations and pitches, and form and manage relationships with other relevant parties. They are also valuable in managing the team and providing leadership and direction.)

These roles are not exclusive. People are multi-skilled. There is no reason why a coder couldn’t also be a business person, or why a graphic designer can’t deliver a pitch to a VC. But typically, these skills are all desirable, if not essential.

Note that a “law person” does not appear in the list above. Law students are in the unusual position of not actually being able to really use their skills in a start-up. Not actually being California-qualified lawyers, we’re generally not allowed to give legal advice, draft contracts, or do any of the stuff that lawyers do. Providing legal guidance can skirt the fine line between violating and complying with professional conduct rules, so often the most we can do is spot legal issues and potential deal breakers. And then refer the team to a real lawyer, which is not particularly helpful for a start-up without any funding. What about incorporating a company? Maybe I could do it in Australia, but I wouldn’t trust myself to do that in California without legal counsel, and definitely not when there are equity division issues, among other things, present.

Besides being a lawyer, I’m in the somewhat unusual position of having a decent working knowledge of back-end coding, front-end coding, and (it turned out) graphic design. So I wasn’t completely useless. I’d rate myself as pretty competent in all three fields, although not an expert. So for example, I can reasonably easily develop most website prototypes, but I don’t know how to make a website or database scalable to handle high volumes of traffic. I don’t have experience managing large code bases, worked on by a team of coders (eg, using Subversion). I can design logos and page layouts, but I have zero talent when it comes to drawing original artwork. But I have been making websites for years and years.

After a couple hours of discussion that appeared to be going around in circles, some sort of vague consensus was reached about what the virtual objects platform product actually was. Soon after, the team roles were snapped up. Two people worked on coding the iPhone app, one worked on implementing the back-end API, and there wasn’t really a web front-end to code. A d-schooler set to work on designing page layouts. I twiddled my thumbs. I asked for something to do, but there wasn’t much. I was told to figure out how to interface Google Maps’ Javascript API with an iPhone App. My knowledge of iPhone App programming is limited to the first two online lectures of CS193P (available for free at the iTunes store), and I don’t know Objective-C, but I did a bit of poking around anyway. I discovered that iPhone 2.0 doesn’t have an easy way to translate Objective-C calls into Javascript calls (unlike the forthcoming 3.0), but someone had written a UIWebView component to do the job of translating the calls (at least for a partial set of the API). That occupied me for about 10 minutes. Then I was back to thumb twiddling.

Then an MBA on the Lecturefeed team was trying to create some graphics for their website. However, no one really had any Photoshop experience, so when I stepped in to help him, he asked if I wanted to help them do graphic design. Since I wasn’t doing anything else, I was summarily assimilated into the Lecturefeed team. Graphic design is probably the area I’m least comfortable with—I’ve never had any design training and all my Photoshop and Illustrator knowledge has been cobbled together through years of trial and error and online tutes. (Not that I had any formal training in web-oriented coding—I, like many coders, learnt all of that stuff out of my own volition—but the comp sci classes I took in undergrad at least taught me programming best practices.) The MBAs sketched the logo on the board, and were attempting to design it using Powerpoint(!) so I eventually ended up designing it in Illustrator. I fed images to the front-end coder as requested, worked on the color schemes, and troubleshooted design issues.

By the end of Saturday, things felt like they were moving along nicely. The coders were all doing great jobs, the iPhone app was slowly taking shape, and somehow both teams had managed to coalesce and make material progress.

Click for full sized image

Sunday came and I was told to design the logo for the virtual objects platform, but they hadn’t even come up with a name for it. They gradually decided on “Upquest” after a survey of available .com domain names, and I made a series of candidate logos. Meanwhile, the MBAs were constructing their neato slide deck and running rough market sizing calcs and financial projections. By the time the VCs appeared at the door, we had amazingly completed what we had set out to do. We had a fantastic presentation and working preliminary prototypes. My skepticisms turned out to be much more unfounded than I even hoped they’d be.

The feedback we got was happily positive. One VC was “very impressed” by our weekend efforts, and told us that relative to everything he sees usually, the standard that night was high and we were welcome to drop by his office in the future when things were more developed. I’m not sure how much of this was them blowing smoke up our asses, but VCs around here are well known for not pulling their punches and pouring cold water on ideas that don’t interest them. Then again I’ve heard the opposite as well—they don’t like to reject things outright because there’s no upside in potentially souring a future relationship.

However, the most interesting part to the weekend for me came after this. The partner from Wilson Sonsini stuck around to answer any “next steps” questions that we had. I asked him about what the typical process for start-ups was after idea formation. Nothing legal had been discussed by anyone up to that point, which I thought was positive because it meant that people were focused on the weekend’s activities rather than something potentially more self-interested. This would have been fine had this been like a class project that wasn’t taken further, but of course people from both teams were now thinking of taking things further.

Typically, a venture that is intending on becoming serious will incorporate. The new company is a legal entity in which ownership rights can be clearly divided (through division of equity) and a receptacle into which all IP developed can be assigned. Incorporation costs money in taxes, fees, and ongoing compliance obligations, and a company’s constitutive documents also need to be drafted. The more founders, the more complex or time-consuming the process will normally be. I was told repeatedly that it was highly advisable to retain legal counsel to assist with the incorporation process. Although not strictly necessary (there are online services that will do it for something like $300 a pop), it’s a question of risk tolerance. Things can go wrong with the paperwork, but no problem will arise if everything else goes fine. But incorrect paperwork can cause problems down the track—ownership or management squabbles and breakdowns in relationships between founders, for instance. And a company with an uncertain legal position creates risk that is a turnoff for VCs and other investors. (While the founders can scribble down an agreement to split equity on a napkin that will appear to work, these seemingly innocuous scraps of paper can cause major headaches later on.)

VC lawyers will usually defer fees and make take a nominal equity stake in the start-up if they advise it. Because the fees are deferred until the company receives funding, if the company fails in this endeavor, the lawyers won’t get paid. Therefore, VC lawyers perform their own assessment of start-ups to see what’s viable. (One yardstick they use appears to be what the opportunity cost of setting up a business is to the founders—do they have their livelihood riding on this, or are they doing this as a summer project to kill time while they wait for their full-time job to start?) VC lawyers can also connect start-up clients with VCs as well, so in this case the lawyers perform a bit of pre-filtering for the VCs. Having a reputable lawyer can assist with credibility and reputational capital that is useful when seeking VC funding.

The trouble with not incorporating is that it becomes difficult to determine who owns what, both in terms of IP and the business itself. Although the value of IP may be zero at the venture’s beginning stages, IP is nonetheless created and usually owned by the creator in one form or another, whether as copyright or otherwise (eg, code, graphics, some form of business input). If this IP is not assigned to the business in some way, then use of that IP may give rise to liability due to infringement of the owner’s right. Without a company, the IP has to be assigned to an individual. You could transfer IP to individuals as joint holders, but this raises its own set of thorny issues.

Understandably, we wanted to keep the ball rolling while the buzz was still in the room and we were still physically together in the same room, so an immediate attempt was made to try to figure out how to split the equity pie as soon as the lawyer left. A few people wanted something written down on paper. My lawyerly instincts began to kick in and I could see the numerous problems besetting this goal. First of all, some people had to leave due to the late hour. I didn’t see how it was possible to reach any sort of agreement when everyone who had a stake in the weekend wasn’t in the room. (Even those who weren’t interested in pursuing either idea might have some sort of IP ownership in some aspect of the project which could cause future problems were that IP to acquire commercial value.)

Secondly, there were a lot of people involved. Maybe six people wanting equity in each venture. Negotiating equity splits would be difficult. There wasn’t much contention over splitting a portion of the equity (10%) equally in reflection of the contributions of each team member even though the time spent actually working seemed to be weighted towards the coders. The bigger challenge was trying to figure out how to split equity based on future commitment. Each of us had variable time commitments, so it seemed to me impossible to reliably determine that night who was actually committed. For example, someone could say they wanted to work on it full-time over summer and therefore they should get a 25% stake. But an unusual opportunity might arise over the next two months which causes them to bail—but they still would have an ownership stake that didn’t accord with their contributions (and no one seemed to be considering contributing anything other than sweat equity). So there was suggestion of creating a vesting schedule for equity, or some sort of “temporary equity” (equity that “goes away” if you don’t get involved). Again, with that many people involved, I could see issues, and would expect many unseen issues, with doing something like this. There were definitional issues (how do you determine who is “involved”? How sufficient does the involvement have to be? How do you handle voting? If you allow other stockholders to vote that one stockholder is no longer involved and thus has to divest their property interest, how do you protect minority stockholders from being colluded against?). There were legal issues (was any of this even legal? Does a controlling stockholder have some sort of duty to look out for minority stockholders?).

Far too tricky to scribble down on a scrap of paper that night. The lawyer had also mentioned that these scraps of paper that float around can surface later on and complicate things. Furthermore, drafting a legal contract is an art form in itself. Just as with coding, there are right ways to do things, and wrong ways to do things. Sometimes the wrong way to do things works anyway because things go as expected. But often things go wrong—unforeseen circumstances arise, people do things which are unexpected, and when the values fall outside the boundaries which were hastily conceived late on Sunday night, if you don’t have robust code, or a robust contract, things break. Just like our prototypes, we could produce something that gave an idea of how things should work, but there’s no way it could be used in a production environment. Creating something purporting to have binding legal effect in that situation was kind of analogous to launching the prototype we had into prod. It’s dangerous and it simply won’t work.

So I put forward a suggestion. We could attempt to write down some proposal of how ownership in a future company was to be handled. We could write down an indicative stock split covering just the people in the room. We could even formulate some language about how a stockholder could be required to divest their holdings to other stockholders on a pro rata basis on the unanimous vote of other stockholders. (From the looks in the room, I discovered that the term “pro rata” is not as intuitively understandable a concept as I have come to believe and it probably should be replaced with something a bit more plain English in contracts generally.) We should then circulate the proposal to everyone by email, and call a future meeting. Anyone with an interest in obtaining equity should attend or indicate their interest if scheduling issues don’t permit attendance. The meeting would nut out the proposal more fully. Then, if people were really serious about moving forward, we should hire legal counsel to begin the incorporation process, using the proposal as a guide to what we wanted. We would then be told whether our proposal would be possible (I doubt the enforceability or validity of the divestment provision). The other issue would be to get everyone else who attended the weekend to assign IP over to the company for some nominal amount—something which may be administratively difficult to achieve, especially once people start leaving for the summer.

This suggestion seemed to persuade the group, and we left without putting anything down on paper but agreeing to set up a future meeting. My experience has been that interest quickly flags as time goes on, but the people that are genuinely motivated to carry on the idea, will.

It was an illuminating and interesting discussion to see people’s viewpoints, and the age old problem of lawyers frustrating businesspeople by raising roadblocks was evident. But part of lawyering is reducing the risk of bad consequences when things go wrong. Everything might seem hunky-dory when everyone’s in a good mood, but just like any computer programmer will tell you, there are always bugs somewhere in the code—if the code is used a lot, the bugs will turn up sooner or later. Legal bugs can be expensive to fix. Ultimately, though, legal risk is but one form of business risk, and like any type of risk, it’s usually a business judgment call whether it’s a risk worth taking. If everyone wanted to go ahead and draft up a contract that night, it would have been entirely in their rights to do so, nor would it have been particularly unusual.

The weekend turned out to be very worthwhile. I learnt heaps, met a lot of remarkable people there, and we put together something that exceeded all of our expectations (two prototypes!). All things considered, the organizers did a great job of coordinating things (even going so far as to get some Red Bull and In-n-Out burgers for us when we started clamoring for them). As part of the learning experience, a few things also emerged that would help to improve future weekends:

  • NDAs and confidentiality agreements are probably not necessary (and there were none)
  • Considering whether some legal paperwork should be distributed, such as an IP assignment agreement of some description, to be signed by anyone not interested in pursuing a venture beyond the weekend
  • Consideration should be given as to what rights, if any, the university might have over a venture that arises from the use of university facilities in developing it
  • The brainstorming session might benefit from the presence of facilitators (whether third parties or identifying a couple from the initial team)
  • Team sizes should be flexible, but not too large (it is difficult to envision a project that is scoped appropriately for a weekend of work, yet involves an army of 20 people)
  • Providing an overview beforehand of what the potential process is for taking things further, so as to set people’s expectations going into the weekend.
  • How will domain name ownership be handled? (We registered domain names for both ideas that weekend.)

A large part of the learning experience was also the interesting insights gained into entrepreneurial team dynamics when working with different sorts of teams. Last quarter, I had the privilege of working with a bunch of incredible people (a Sloan who developed Google Adsense, a few MBAs with military, start-up, finance and publishing experience, an accomplished economics PhD, and an EE PhD who sold a Facebook application company with a userbase of millions). I was maybe the youngest team member there, and the way the team operated was a lot different to a team I’m in this quarter, where I’m the oldest team member. One style was not necessarily better or worse (last quarter we never even got close to getting a prototype developed due to a series of other problems we encountered), but just the working style is tangibly different—how the team chooses to communicate, divide responsibility, motivate and deliver feedback to each other, prioritize values and goals, and so on. Often it’s a matter of adapting to fit each one (and vice versa). Venture Weekend was a different type of team again.

This post has been a braindump and probably contains various inaccuracies, but if I had time to go through it again, I’d likely end up making some edits.

Apr 09

Bailing out the U.S.

The Quiet Coup“, an article published in The Atlantic, is written by a former chief economist of the IMF that compares the troubles of developing countries it has had to bail out in the past to the troubles the US is currently facing. The systemic problems underlying the two different types of countries are more similar than you would instinctively think:

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

In its conclusion, the article points out that the difference between the US and developing economies is that the US’ privileged position in the world makes the necessary reforms that much harder. There’s something to be said about getting the dead wood out of the financial system. And there’s a disconcerting feeling that frittering away more funds and shovelling more IOUs on the growing mountain of debt in a rejuvenatory move whose effectiveness is questionable is the wrong path to take.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

The article is almost 7000 words long, but it’s worth a read.

Aug 04

Google IPO

And at long last, Google (GOOG) has floated. Initial pricing was $85, but the price is moving quite a lot throughout the first day of trading. More media coverage.

Google Float Price - Day 1

Anyone who got stocks from the IPO would have made around a 20% profit upon its release onto the market when the price jumped to around $100+.

Aug 04

Google IPO

The Google IPO Auction opens today (Friday in the USA) with a final IPO price to be announced sometime during next week. There’s been a bit of a kerfuffle about an interview the founders, Larry Page and Sergey Brin, did with Playboy for their September issue. The release of details may constitute some violation of securities legislation. Kottke has a full copy of the article.

Jun 04

Microsoft Patents Double-Clicking

“Microsoft has successfully patented using short, long or double clicks to launch different applications on ‘limited resource computing devices'” (link here, from Fuzzy). When electronic buttons have been around for decades, you’d think that clicking of any kind would be unpatentable. Well, one of the issues with the folks down at the patent office is that they are pretty swamped with patent applications. In the interests of efficiency, and keeping that pile of paper down to some manageable amount, they have a habit of not being very thorough with approving patents. In this, I suppose they rely more on the community to pick out the problematic patents, which more often enough emerge when a court action of some kind arises because a patent holder decides to sue.

Apr 04

Google Files for IPO

Google expects to raise around US$2.7bn from it. No date for the sale of stocks has been released. The online auction model they are using should open up opportunities to invest to ordinary people. The Washington Post has a good article about this (rego req’d).

Mar 04


This article from The Australian looks at the high under-representation of women in information technology and engineering. Bugger, eh? But it’s nothing we didn’t already know years ago.

Figures from the Department of Education, Science and Training show females were just 25 per cent of IT students in higher education in 2002, compared to 53.8 per cent in medical studies, 56.8 per cent in law, 56.1 per cent in accounting, 51.7 per cent in dentistry and 70.4 per cent in veterinary studies. … Engineering and related technologies is another a standout poor performer, attracting a female student body of just 15.9 per cent. …

Kaylene Clayton, who last year completed her honours thesis investigating school students’ perceptions of IT and how they influenced recruitment into IT studies, programs and careers, says IT is seen as geeky, nerdy and an antisocial occupation for socially inadequate people. …

“Girls really see IT as a tool, the boys are happy to get in there and tinker, the girls just want to get in and get it done,” she says.

I would say that the perceptions have a slight ring of truth, but remain largely a misconception. It’s just a stereotype branding that’s convenient and has stuck – nursing is for women, arts is for bludgers, etc. There are plenty of IT people who don’t match the description above – take a look at a lot of the bloggers and e/n people around. Then again there are plenty of people who do (anyone remember Bence? Although even he was funny).

Mar 04


Another excellent Wired article on Google’s impending IPO and the cultural and managerial shifts that a company has to adapt to when it transitions to a public company. It’s been a while since the days where a tech IPO seemed to be announced every minute. If all goes well with the float, Google’s stock will go north. Definitely in the short-term, and probably in the long-term. I will have to do a bit of reading on how I can invest into the American stockmarket.

See also Google-IPO.com.

Oct 03

Google IPO

Google thinking of IPO… via online auction. I-Banks queasy about US$500m in fees that they could have just missed out on. How typical of a company like Google to attempt something like this: “If Google really does bypass this system in favour of an online auction a revolution could ensue.” That may be a bit dramatic, but it’s definitely an interesting situation, seeing what Google decides to do.

Jul 03

Job Advert

Pete, a colleague back from when I was at OneSteel, sent me in this (and I wonder if the fact that I spent a bit of time designing an intranet shop for OS had anything to do with it? :)

They have taken the job off the site now, but this was the actual job description advertised on the seek site for this position http://it.seek.com.au/showjob.asp?jobid=2810116
So you were a top Web Developer, once, many years ago, until the “correction”. Now nobody cares and you are shunned in public, much as lepers were in the fifteenth century. Your modern-day equivalent of the chiming bell and vile burbling exclamations of “Unclean! Unclean!” is the obnoxious ringtone on your expensive mobile. There’s a good chance you listen to either Sisters of Mercy and Bauhaus or elaborate Paul Oakenfold remixes, with a bit of bootlegged Chemical Brothers thrown in for good measure. Maybe you find yourself missing the ashtray completely, and your ESC through F3 keys are thoroughly clogged up with burned, cancerous grey flakes. For better or for worse, you’re familiar with such repugnant images as goatse.cx and know what STFU means. In all probability your beverage of choice is Jolt/Columbian Cola, and you have the weeping stomach ulcers to prove it. You give copies of Photoshop 7.0 to your friends, thereby depriving a fat CEO somewhere of a heated driveway. You have a world-crushing collection of MP3s. Your author of choice: Neal Stephenson or William Gibson. You have every volume of Gaiman’s Sandman series, though you decided after Volume III that it`s all a bit of a wank. Sometimes, you pretend you are in The Matrix. Your half-elf mage/rogue is at Level 9, and has actually worked out how to put a Bag of Holding within another Bag of Holding without imploding Ravenloft. You can pronounce “Urotsukidoji” without hurting yourself, and can rocket-jump better than anyone you know. You have a bit of an attitude when it comes to Windows XP, and you like to recompile kernels.

Your spine looks like a u-bend.

Others may call you freakish. We call you lovely. And in reward for your loveliness, we would like to offer you this mildly exciting opportunity, if your idea of excitement is a RAM upgrade:

This is a fun little two week contract for a reasonably experienced Web Developer with plenty of HTML (well, duh), JavaScript and ASP know-how. Ideally you will also be fluent in the, and I quote, “uploading of ASP pages from a SAP business connector”. I said that out loud and Shub-Niggurath appeared and attempted to devour my soul through some impressive shambling and ominous tentacle-writhing, so I won’t investigate it any further.

But anyway, that’s the deal. Either you like it or you don’t, and we’re not about to tell you either way. It’s a two week contract for a company here in the city, and will probably be paying about $25 per hour, commensurate with experience. So apply now (or don’t), or call Gary Fernandes for more information.

Please contact Gary Fernandes quoting reference number SK/GFWD on: phone (xx) xxxx xxxx * fax (xx) xxxx xxxx

Jul 03

Does IT Matter Anymore?

A controversial article by the Harvard Business Review makes a case for how the IT industry, as it fits within businesses, has attained maturity already and has started its decline. That is, it’s at the stage where it no longer is an advantage in firms where it’s implemented, but a disadvantage in firms where it’s not implemented – no longer a key business driver, just a must-have part of the business. In my opinion, the article does raise valid points, but I would disagree that IT has reached a stage where it is “dwindling”. I do think that advances in information technology are likely to be restricted to being evolutionary, rather than revolutionary (as some new ideas were during the tech boom). Evolutionary advances do not mean a market will start to decline. IT is also a far broader concept than the idea of electricity or the steam engine – it is not a single phenomenon or entity, it encompasses virtually any technology that deals with the transfer of information and data. And when you look at all the technological advances that have occurred at the household level over the last few years, how many of them have been IT-based, as opposed to grounded in other fields of science? How many advances will continue to be IT-based as objects continue to be increasingly automated, interconnected and interoperable?

All in all, IT may have ceased in being revolutionary. But the same is true for all other value-add and corporate support services too: legal, financial consulting, strategic consulting… all those industries ceased being revolutionary soon after their inception, but they’re still employed. These things are all necessary parts of businesses, and IT has become that too. As long as you need someone to manage IT infrastructure, the industry will always have opportunities.

Oct 02

Corporate Cringe

Perhaps Cap Gemini Ernst & Young will rebrand soon. Perhaps they will take inspiration from a corporate theme song (mp3, 2.5mb) from their accounting compatriots and be known as Viva Viva Consulting. Of course, ZDNet has a Top 20 chart of corporate anthems, guaranteed to have you either cringing in your seat, or in an uncontrollable fit of laughter. This week, McKinsey just got taken over by KPMG on the charts for number one position. Save us.

Oct 02


The company formerly known as KPMG Consulting: BearingPoint (no spaces).

Jul 02

It’s all happening

Deloitte Consulting swaps one surname for another and will now be known as Braxton.

Meanwhile, “Monday” may never get to be used: “PwC is believed to have paid about $US5 million for the Monday trademark…It could take the record in terms of the most money spent on a brand that never really got to see the light of day.” (AFR, 1 Aug 02)

More on the Takeover

of IBM over PwCC.

Jul 02

Trusted Computing Platform Alliance

This article on K5, about Palladium, the TCPA, Microsoft and the entertainment industry in general, was so informative and interesting I had to mirror the link which I initially grabbed off Fuzzy’s. No doubt we’ll still hear “Palladium”, “Microsoft” and “money-grubbing dickheads” in the same sentence, but perhaps we should be more concerned about the entertainment giants.

Jun 02


The torment, it continues. Thanks Tama!

Jun 02


DC is too, looking at rebranding. Maybe they will call themselves “July” for the start of the fiscal year.

More Monday

Article on FT about Monday. Everyone I know (except for ADH) has shaken their head upon hearing about “Monday”. For me, the heavily Westie-accented form of the word, “Mundy”, keeps ringing in my mind. “Oim off ta werk fer Mundy!” Bloody brand consultants, what sort of a line of work is that anyway? Perhaps as they say, bad publicity can also sometimes be good as well.

Jun 02


PwC Consulting, the consulting arm of PricewaterhouseCoopers, in a bid to accentuate that they are a separate entity from the accounting firm, has changed their name to… Monday.

Whoever came up with that bright idea, shouldn’t have. But it’s just a name, right? (I can see the Monday-itis jokes coming from a mile away.)

Feb 02

IT Savvy

“A SURVEY by the World Economic Forum has rated Singapore as the best country in Asia with the potential to exploit the global IT network.” (link) I wonder where Australia ranks? Pretty low I’d bet, given Microsoft’s rubbishing of Australia’s IT industry (which everyone but Senator Luddite Alston agrees with).

Jan 02

DVD Recordables

DVD Recordable drives are now in the $1000 price range and are becoming more and more affordable. There are, however, a variety of standards still vying to be for the DVD-R world what VHS is for the video tape world. Here’s a brief summary article on DVD-RAM, DVD-RW, DVD+RW etc.

Dec 01

IT Salaries

The IT market may be in slump, but it still pays well, if you’re in the right job (and if you can find and keep a job, given the retrenchment happy management tactics going around at the moment): check these salary ranges out.

Nov 01

Requiring Respondents

I’m pilot testing a survey on m-commerce adoption for uni. If you are an Aussie, I’d appreciate it if you filled it out. It should only take 5-10 minutes. Thank ya.

Sep 01


Dot-Commers Trade Options for Books. What happens when those who left uni to join or start up a .com find themselves out of a job because their company has gone bust? They go back to uni of course.

Jul 01


Is it just me, or is the term “software ecosystem” in vogue now?

Apr 01

100 Dumbest Moments in E-Business History

Hahaha. This article details e-business shockers. Boo.com comes in in first position. But that wasn’t enough. They also come in at 20th, 31st, 57th, 86th and 101st.

Apr 01

Origin Dissolution

Desslock has written a rant (see 23/3 post) about corporate myopia in the form of EA basically dissolving one piece at a time, the once mighty Origin.

Nov 00


Buy.com’s Australian presense closed shop a few days ago. Australian market not big enough to support such a company? That’s worrying… Perhaps that’s why Amazon doesn’t have an Aussie branch, either.

Nov 00

Trans-oceanic Cables

November 15 Australia will get that rush of speed. Anyhow, that’s thanks to Southern Cross Cables – what is more interesting though, is that the site has info on how they actually lay the cable, and how they repair faults in it. I’ve always wondered how they repaired a cable fault in waters 3km deep. Now I’m wondering why I didn’t figure it out myself beforehand :)

Oct 00

Doris Day Syndrome

Here’s an interesting article (PDF file) we had to read for law. It’s about the Doris Day Syndrome and its relationship to software theft (piracy). The Syndrome describes when the early software writers wrote their programs (like Lotus 1-2-3 and GNU-Emacs), they copied bits and pieces from other programs, citing that knowledge should be universal and not allowed to be under ownership. Upon their program attaining success and popularity, however, these writers did an about-face and declared there should be stronger laws regarding protection of intellectual works as they were property, capable of ownership (and thus, theft). Not a technical document, read it if you’ve got the time. It’s all very well and good to say everything should be open-source, but how many of you, if you made a program, that “killer-app” that could instantly make you a multi-millionaire overnight – would you be so quick to open-source it and forfeit that money?

Oct 00

“That System Works”

I was doing some law research and came across this interesting quote by Napster’s attorney, David Boies:

The DMCA also set up a notification procedure, through which service providers like Napster can say, “Look, if you believe somebody is infringing, you bring us a notice. We will then shut them down unless they give a counternotice. If they give a counternotice, it’s up to the court to decide.” And that system has worked with Napster. Hundreds of thousands of users have been terminated because of those notices. Congress set up a system. That system works. 

Depends what your definition of “works” is, I guess.

Oct 00
Aug 00


ASDL? … you think Australia’s Telstra’s bad try Telecom (affectionately termed Telescum by many) are currently holding the market to ransom on the residential front.


Do some price comparison… I think sadly we lose. and I have to wait what seems to be a few years for Telescum to throw up a flatrate ASDL deal. or something less violent to the wallet

Ok, so NZ is worse off, but you guys did get ADSL before we did. Compared to the States, though, Oceania is getting the raw end of the deal.

Aug 00

ADSL Official Pricing

About $90 for 64kB/s downstream and 16kB/s upsteam? Overpriced… but what other option is there? Damn Telstra. ADSL Pricing Scheme.

Jul 00


As I was hoping, the Court of Appeals issued a stay and Napster will remain in operation until the court trial reaches a decision. Offspring are selling a new “Save Napster” t-shirt.

Interesting some of the defenses that come out of this from fans. Whatever the case, it is impossible to justify breaching copyright. An artist who releases their work commercially owns the rights to it. It doesn’t matter if downloading a sample prompts you to buy the album. The majority of people do not buy the CD of the songs they download. However, with the issue of file sharing and the Net – it is impossible to stop this transfer of copyrighted work. What use is an unenforceable law (in the case of distributed file sharing)? What the RIAA is trying to do is futile and damaging their reputation with the fans. Instead of trying to shut down Napster, it should be trying to capitalise on it – there certainly are positives that come out of it (even the activity is illegal). All this is nothing new to you, I’m sure.

Jul 00


So, NVidia has (really) shitty PR. There’s an intriguing story behind that link.


Pricing info for ASDL! Definitely interesting. From AJH.

Jul 00

The Internet Industry in Australia

Orphans of the Cyberage“. It’s an article in the SMH on why Australia has no really prominent Internet companies (that grew from startups this decade). Primarily it was the result of lack of VC and investor interest, and also a misdirected allocation of resources to multimedia (“Australia’s love affair with multimedia and CD-ROMs probably cost it any chance of catching the first waves of Internet surfing, says TVP’s Aaron.”) Reminds me of a when the CSIRO decided to research weather forecasting in favour of computers midway through last century. It’s a pity, because Australia really has the talent and skills – just not the right business environment.

Jun 00


Here’s someone having a bit of a whinge against technology. It better be tongue-in-cheek. :)

Jun 00

Microsoft Response

My comments in black.

Dude…What kind of hard drugs are you on?

Maybe if Micros~1 (sorry, that’s MS having to eat their own standards) is split up, then they’ll actually have (through competition) incentive to provide the public with software that is not incompetently made, and, well, simply second rate.

Show me a viable alternative to Microsoft software. And don’t tell me Star Office, because Sun also made a version for the Win32 platform.

I recently read a notice at school that said “School students now have the same discounts on Microsoft software as University students. You may now purchase a copy of Microsoft Office 2000 Professional Edition for just $269, $700 below the RRP.” I, as a yr. 12 student (or for that matter a uni student), can really afford that. No, really, that discount just makes it all worthwhile.

Look. How much software, Microsoft or not, have you actually bought? You can’t tell me more than half the software on your computer has been legally bought (and I’m sure you register all your shareware :P). Regardless, academic discounts are not restricted to Microsoft software. I mean, just take a look at Adobe Photoshop, or the Macromedia Suite. None of that is cheap, although with an academic discount it is significantly less expensive.

Look at Win2k. Back in 98, the rumour was that MS will merge Windows NT and Win 95/8, and from then on they will not have 2 separate operating systems: one “real” one, and one 2nd-rate one for the home user, but just one for everyone. Well, now they’ve released Win2k for businesses and Windows Millenium for the rest of us (and how much does it cost?). Wow! Look at that! HA!

Millennium is cheaper than Win 2000. I don’t know why they haven’t merged the two operating systems yet (sloppy scheduling? coders that don’t get things done on time? uh… but since when has any software company released anything on time?).

Finally, MS never release “corporate secrets” which would enable not only people who know what they’re doing to make their own alterations to their own copy of their OS, but even that would allow other OS developers to write in Windows compatibility! VFAT and NTFS specs were *never* released. Linux, for example, fully supports VFAT and supports reading NTFS, but only because someone reverse engineered them. Not that anyone that could avoid it would use VFAT, a vastly inferior filesystem and about the only one left that needs regular defragmenting.

I don’t dispute the fact that Microsoft unfairly competes. It does, it’s a monopoly. It’s in business.

BTW, with Win2K comes a built in disk defragmenter. NTFS4 was designed not to fragment, but over time, it did. NTFS5 now fragments like FAT does – but that can be fixed with the defrag program. The benefit of this is that NTFS5 gives better disk performance since it doesn’t have to search for contiguous blocks of space to write.

Did I say “own copy” in that last paragraph? Oh, I did, my mistake. Well, anyone who has actually *read* the Windows 9x EULA will find that it isn’t your own copy, but a license to use the software until such time as Microsoft says otherwise. Excellent.

I’m afraid that once again that this is quite common and not unique to Microsoft. That’s what a license agreement is: a license to use the software, although it still remains the property of the owning company. And realistically – have you ever heard of Microsoft revoking a legit license? (You do have a legit license, don’t you?)

Even Cityrail train tickets are merely a “license” to travel on their rail system. They can revoke that license if they want to – you don’t own a seat on a train – the ticket is just a symbolic thing stating that you have permission to travel.

Perhaps if Microsoft hadn’t made such low quality products, they wouldn’t have forced, firstly, many people to despair so much of getting anything good out of them that they decided to band together and do better, making their programs and code free to those who want them, and secondly, the US High Court to split up the monopoly.

Find me a viable alternative to Windows. Don’t tell me Linux because that OS has as much userfriendliness as trying to operate the Mir space station with an operating manual written in Sanskrit. It doesn’t look as pretty either (so it’s not as customisable, but how much toil do you have to go through to get your Linux desktop looking pretty?) and there’s always the WindowBlinds program.

Finally, if there is free source code (GPL) out there that is vastly superior to Microsoft’s own, why don’t they use all or part of it to improve at least some of their products? Because the only condition of the GPL is that anything derived from the code must also be released under the GPL. And releasing, say, IE under the GPL would kill Microsoft’s iron-fist monopoly grip on the web browser market, wouldn’t it?

I’m sorry, but it appears that the Internet has given rise to a generation of people who believe that all things should be made free. Microsoft is in business. Their job is to make money. Releasing their code to GPL is akin to giving away its products for free.

Linux is programmed in a decentralised fashion by a bunch of talented programmers around the world doing it because it’s their passion. They don’t make money out of it, and they don’t lose money from doing it. They do it for peer recognition. Unfortunately, you can’t run a business on peer recognition. Not in this reality anyhow. The decentralised fashion of Linux development is both a strong and weak point – although things can happen very fast, things tend to get disorganised.

I know I sound like a Microsoft weenie, but I’m not. I hate seeing people totally and blindly biased against something. I acknowledge Microsoft is a monopoly and is engaging in unfair practices. I believe that their business tactics do staunch innovation. I also believe that their products could be better. And, I absolutely hate their disregard for standards (referring to their move away from web standards in the next version of IE) . However, I do not think that splitting them up is a good way to go about things. The government is basically stepping in and chucking a spanner into their works just because they have been successful. Something like 90% of the computer market runs on MS OSes and in disrupting Microsoft, the DOJ is disrupting the computer market.

Jun 00

Mobile Phone Transmission

No way!! Microsoft has been ordered by US courts to break up into 2 companies. What a poor decision. Microsoft are appealing.

May 00

Brunt. FCA.

Ok the post title has little to do with this post, other than the fact that they both involve liquidation (the title is a Trek reference, for the uninformed). This article shows how Boo blew US$200 million in capital: abysmal web site design, zero business fundamentals, and by flying first class and styaing in 5 star hotels where possible. Read about it here.

The next time some misguided soul suggests building a site full of bleeding-edge technology, bandwidth-hogging graphics and “Internet entertainment”, you’ll be able to respond simply: “That’s how Boo.com lost $200 million, numbskull.”


Graeme Philipson wrote an article today that I agree with for once. It’s what I’ve been saying for the last few months – mobile commerce and technologies will be the next biggish stepping stone. Unfortunately his article isn’t online yet.

ADSL – One more time for today

Victor wrote: “I’d like to draw your attention to the “Frequently Asked Questions” section of the ADSL article fragment you posted. Do you notice how *nowhere* do they *actually tell you* how fast ADSL is? =)” I’ve heard that it is 1.5Mbps (faster than Telstra BPA’s 50kB/sec cap!) and is flatrate.

May 00

ADSL Update

3.5 Kilometers? Oh please let me be within range…

Coming soon – high speed services over the phone network
Telstra today revealed the first exchanges that will offer customers fast access to internet and data services over the standard telephone line in its drive to provide affordable and high quality internet access to all Australians.

From the end of August this year, the rollout of high-speed internet access via Asymmetric Digital Subscriber Line (ADSL) will commence in all national capital cities and Toowoomba (Qld), Launceston (Tas) and Bunbury (WA).

Ziggy Switkowski, Telstra’s Chief Executive Officer, foreshadowed the rollout in March at Telstra’s half year results when he outlined Telstra’s strategy to ‘broadband’ the country with cable, ADSL and satellite. Denis Mullane, Telstra’s Data Product General Manager said the technology would initially be installed in about 200 exchanges providing high-speed internet access to about 3.5 million premises targeting residential, small, medium, corporate and ISP customers. “About 90 per cent of Australian households and businesses will have access to Telstra’s high-speed media and data services by mid 2002,” he said. “The beauty of ADSL is that in most cases the line speed is 30 to 50 times faster than standard dial-up services and customers can make and receive telephone calls while surfing the net.”

Customers including small office, home office and small and medium enterprises will be able to have ‘always-on’ access to Big Pond Advance where they can enjoy high-speed access to the internet and CD quality music, video clips and video games.

Business customers will be able to establish high-speed links between premises, such as the office and home (teleworking), via Remote Network Access (RNA).

Information on which exchanges will get ADSL will be available on the Telstra website http://www.telstra.com.au/adslfrom Monday, 29 May or by calling 1800 151 454.

Internet Service Providers (ISPs) looking to offer high-speed upgrades totheir dial-up customers can call Telstra’s ISP Sales and Service Centre help line on 1800 624 512.

“We are committed to a very aggressive rollout program to achieve substantial high-speed coverage by the end of this year,” Denis said.

Customers who cannot get high speed internet access via ADSL or cable can receive similar services via Telstra’s satellite access. Each month as the rollout gathers pace, details of additional exchange coverage will be posted on Telstra’s web site. Telstra will unveil its customer pricing plans by August. Telstra’s wholesale customers will be offered a choice between two products to deliver broadband on copper to their customers – QuickStream and AccessLink.

Frequently asked questions
Telstra is bringing you great, new, fast internet access on your telephone line
* It’s non-stop. There’s no dialling up. And you make voice calls at the same time as you surf the net, all on the one line. It gives you access to real-time, interactive multimedia and video.
* Telstra will provide this using ADSL. It will transform Telstra’s phone network for the digital age and will be available from August this year.
[ADSL is an acronym for Asymmetric Digital Subscriber Line. The asymmetry allows you to download a LOT faster than you send out – the perfect symmetry for Internet users]

What can I use ADSL for?
* High speed always-on internet access
* Telecommuting (remote LAN access) and specialised network access
* Interactive video, including video on demand such as delayed TV segments
* High speed video games, video catalogues, and video information retrieval
* Collaborative computing
* Video conferencing
* Distance learning
* Internet and telecommuting applications for SOHO (Small Office/Home Office) applications.

How fast is it?
* High-speed always-on access gives a faster response to the internet and is a more satisfying experience.
* Or, about 30 to 50 times faster than standard dial-up services.
* Playing computer games online will be much faster
* Files are up-and-down-loaded much faster for instant sharing of photo’s, videos, and music
* ADSL means always-on, high speed internet
* It also gives you simultaneous internet and voice/fax capabilities over a single phone line – so you don’t need a second line for internet use and you can still make calls while surfing the net.
* Homes and businesses worldwide are already running out of spare lines on existing telephone cables, so ADSL spares the expense of providing new cable or copper lines for internet access.

What will I need to use ADSL?
* Firstly, because ADSL is a distance dependant technology, you will need to live within approximately 3.5 kilometres (cable distance) of an ADSL equipped telephone exchange.
* You will also need an ADSL modem and a computer with at least a Pentium 133, 32 Meg RAM capacity with a CD ROM , capable of supporting Windows 95 or upgrade to 64Meg RAM with NT 4.0. An external ADSL modem will normally require a 10BaseT (Ethernet) interface card.
* The modem connects over Telstra’s copper phone lines to ‘Customer Multiplexer’ equipment in Telstra’s local exchanges which switch data to and from a high speed backbone network.
* Business customers will typically use a router instead of an ADSL modem and provide internet or intranet access to a number of users simultaneously.

Denis Mullane
General Manager
Product & Business Development
Telstra Retail Services

May 00

.COMming it

I attended a BIT colloquium today about the “dot com space”. Basically it regarded an overview of opening an internet-based firm and what needs to be done in order for one to consistently grow and prosper. One point I particularly agreed with was that a .com company is “an ordinary company with a special status”. An internet company has to be run in the same way a conventional company is run – management, service, budgeting and revenue are all factors which must be taken into account. The only difference is that .com companies are capitalising on a new and arguably revolutionary way to do business (that is, online). Ignore business fundamentals, and the .com will flop regardless. Developing an “enterprise-wide” vision is also important. There are so many .com companies that base themselves on a single product (example), hoping it will be a “killer app”. Unfortunately, you cannot run a business on a single product (especially not when you’re giving it out for free!) – you have to diversify and expand (except in ultra-rare cases such as ICQ, but they got bought out). Common sense tells us that a business that gives their one and only product to customers for free cannot last long without some wide, future-looking strategy.

The recent “stock market correction” in tech stocks have caused concern for many people. Too many people reckon that the “internet age” is over and that .comming it is no longer a prosperous proposition. That’s not right. The IT industry is bustling and still strong. True, consumer hype has pushed up stock prices and consequently overvalued many tech companies. However, this does not mean the industry is hollow. There is a strong foundation underneath it all and the e-business model is definitely sound. Many companies are caught up in a “race for IPO” and only envision short-term gains. I mean there are much more avenues for the IT industry to expand in to. The prospect of “m-commerce” is largely untapped (due to the wait for infrastructure and hardware to be developed) and this represents a huge future market (everyone has a mobile!). In my opinion though, whereas e-commerce was revolutionary in terms of a way to conduct business, m-commerce, although significant, is more evolutionary new (in the way e-commerce was new). It takes the internet and makes it very accessible. With all these things being developed, I don’t think the IT industry will quiet down for quite some time.

The colloquium, which had speakers from AC and Telstra (that guy was a hypocrite… he emphasised that .com companies were all about service, and that service was paramount in any firm that is internet-involved. Telstra as we all know, is not exactly renowned for its service) also, mostly, answered my question about – where do startups get their venture capital from? The guy from AC was in charge of an AC subsidiary which provided assistance for people looking to start up a .com business – right from idea development, funding, implementation, publicising and expanding. Additionally the company has links to various venture capitalists (like the Macquarie and Deutsche Banks). I guess the relative availability of venture capital funding has made the industry so attractive, and this both can produce spectacular successes, just as often as it makes spectacular flops. Whatever the future holds, however, I’m convinced I’m going to be involved in an exciting industry that I love.

More On ADSL

From Dark Magnet

After first seeing this site a month or two ago I’ve been keeping my eye on it and watching to see if anything had changed. Well in the last few days they have added some interesting stuff. They have added a 46 page proposal of sort explaining how ADSL work and what expectations they have for it. I look through most of it and took note of the most intersting parts that i thought people would want to see.

One of the most important questions people will be asking is “Will i be able to get ADSL?” Well here is the answer to that question. There is also a planned rollout of the service which is here.

If you look at the first pic and see the area in which you live with a triangle near it then i think you will also have to live within 2.5 KM of your local phone exchange.
Lucky for me i do, I am about 1.9 KM from it, and seems i can’t get cable then i guess i can look forward to this within the next few months or so.

Shit. I definitely live more than 2.5KM from the nearest phone exchange. Does that mean I don’t get ADSL? You have got to be kidding me. Please tell me that’s not true. Please. (If it is, there’s no way Telstra will get 90% population coverage by 2001.)

May 00


Pricepoint is a computing hardware/software/office equipment price monitoring site for Australia. Finally, an Aussie price monitor.

Venture Capital

America has too much money.

In relation to your post the other day, there are actually venture capital companies out there that do that. They look for small up and coming companies that only have a lack of funds holding them back. They will basically do a thorough investigation of them and determine if they are actually likely to go anywhere. If it does look worthwhile, they will throw the capital at them expecting massive returns on it…


[…] Generally speaking, when it comes to computer/Internet related ideas there are people lining up to hear and invest in  the “next big thing”. It is a growth/growth market, after all. I have to admit, I’m not exactly sure who to approach to sell an idea, but there are firms out there that do nothing but invest in ideas and put the money up to complete and market a product. Since I didn’t actually create Napster, I haven’t done my homework and researched firms that could or would potentially invest in my product. :)

The process can work in reverse, but I don’t think that happens too often.
Alien Hate

That’s the trick, finding someone to approach. Thanks guys. And no, I don’t have any business ideas I need capital for. I was just curious, after missing my train that night and having to wait 30 mins for the next one. (But in the future, this info could be handy :).

May 00

Tricky, Tricky

Salon: Napster throws Metallica a Curveball.

When the going gets tough…

“The company said it would allow computer manufacturers to drop Microsoft’s Internet Explorer desktop icon, and also promised to prominently feature any software, including from Microsoft rivals, on the Windows desktop.” And more.

Apr 00


ADSL finally! Telstra claims 90% coverage of Australia by 2002 with rollouts beginning August. Hurry the hell up. Thanks to Fuzz *”* for this bit of news and the next bit:

Apr 00

Wise Move?

I sense a bankruptcy coming on with Onlinewarehouse: “Prove to us that you can purchase any advertised product on this site for less, and we will beat it by 10%! To claim this offer, fax or email a *newspaper/magazine advertisment or a *URL pointing to the proof.

Apr 00

Tell Me

How did this startup Aussie firm get $8 million investment for their first 6 months of operation? K*Grind is aimed at channeling broadband media to the youth market. Unfortunately Australia lacks broadband in a major way.

Mark My Words

I can see the wireless comms/tech industry really booming in the next 2-3 years. If it’s an industry I could get into, I would. And Bluetooth is a prime example of this. Especially since it is a technology standard that is not owned by a single entity. And since it’s been backed up by Microsoft (who have a habit of defining their own standards), amongst many others, it’s gotta go somewhere.

Apr 00


Aureal is dead? Pity. The Vortex 2 produced really nice 3D sound.

Apr 00


D&D to go Open Source?

Accompany.com changes its Name

Funny, I was at accompany only a few weeks ago. Now it’s changed its name for reasons, such as:

It’s true that Accompany, the company’s old name, was less than felicitous. Say the name aloud, and it sounds like “a company.” As in: “Who do you work for?” “Accompany.” “Which company?” “Accompany?”


Mar 00

Australian Bandwidth

Adam sighted this article on Slashdot (quoted below). Apparently Telstra will be rolling out ADSL and most Aussie households should be able to get it by August. Not quite cable, but hey, I’ll take any broadband you throw at me! Full story at NewsWire. Telstra is a monopoly of sorts – while the telecomms industry has been deregulated to some extent, Telstra still has tight control and ownership of much of the physical infrastructure. The only reason why they made their Cable service flat rate, was because Optus did.

Well as it seems Telstra, Australia’s telephone monopoly has finally been recognized as one, the Australian Competition and Consumer Commission (ACCC) has forced Telstra to grant full local loop access to its competitors and to bring extensive testing to a halt and begin the mainstream ADSL rollout by August at the latest. If you don’t live in Australia, Telstra is the only reason we’re all stuck to poor modem speeds, Telstra owns all exchanges in Australia and is privatised and thus wouldn’t open them to other companies so they could install the relevant ADSL equipment. As usual the full story’s at NewsWire. I think I’ll have my xDSL medium rare! :)

Mar 00

IT 2000 Convention

Well since they had absolutely nothing for me to do at work, they let me have a few hours off work to get down to the IT 2000 convention at Darling Harbour. The weather today was shit. Raining, and I didn’t have my umbrella. So I had to run from Town Hall station down to the exhibition centre. I got soaked.

IT 2000 is primarily a corporate show, but I was mainly on the hunt for freebies. This year they combined it with a Linux expo, so you had all these Linux zealots running about. I got free frisbees (aka Linux distros I’m never going to use) and a t-shirt from a company called Rackspace (I can’t even remember what they do now – typical!)

They were handing out free au.com domain names (I can’t work out whether they are subdomains or real domains – they seem to have their own administering registry, so apparently they are real domains). I snapped up one, I just need a couple nameservers now…

Verisign Acquires Network Solutions for HOW MUCH?

Holy Crap.

Feb 00

Optus Cable

Optus is dogging everyone living in appartments. Their flat rate cable modem service will NOT be available for anyone living in an appartment block (or any other dwelling classified as a multi-dwelling unit, or MDU). Technical problems they cite. This of course knocks out a huge portion of their market (low 20 year olds). And you do know now that Telstra will be changing their cable rates to flat rates starting in April, right? That’s what competition does, folks.

Incidentally, I hope the ACCC vetoes Telstra acquiring OzEmail (Australia’s largest and second largest ISPs, respectively).

Jan 00

Big This Year?

I reckon mobile connectivity will pop up a lot in the next couple years. Bluetooth, WAP, HDML are all buzzwords to do with this field. More importantly, they are industry-wide accepted standards, which is always key for something to take off. Bluetooth looks particularly interesting.

Dec 99

Optus Cable

Optus has released their cable modem pricing scheme. It’s bona-fide flat rate.

Dec 99

Why I Keep Whinging About Bandwidth

I’ve heard somewhere that Australia is one of the most heavily fibre optically wired countries in the world. The problem is, very little of this bandwidth is available to home consumers – both practically, and physically. Broadband cable services are limited to certain metropolitan areas, and even then, Telstra’s monopoly means the costs ($65 for 100 MB and 35c/MB over that) are exorbitant. Even when Optus introduces flat rate cable, their service is restricted to cabled areas – about 1 million people in a country with 18 million. Satellite is a broadband alternative for those not in cabled areas, but this still requires a modem dialup – a modem dialup which is most likely a timed STD call if you’re not in a suburb that’s deemed ‘big’ enough to have fibre optics running alongside the copper telephone wires. ADSL and DSL have been pretty much mythical, and what DSL services that do exist are clearly business orientated (over $1000 a month). How long do trials take?

Furthermore, I have a 56K modem, but I can only achieve 36K download speeds. This is “due to the quality of the phone lines, we cannot use 56k on the regional areas, until the service that we use to those areas is upgraded to a Digital Service.” Even the plain copper phone lines are old.

Articles like this keep enticing us with the raw power of huge bandwidth pipelines, but until the consumer has access to them at a reasonable price, it really has little impact on us. What’s more, it seems that Telstra/Optus halted their cable rollout. Why??

When you have this kind of infrastructure, it’s no wonder why Silicon Valley, and the US in general attracts so many IT people – that and the greater availability of venture capital over there. Much web site hosting is done across the Pacific (this site, for instance), simply because not only is it cheaper, but bandwidth is plentiful and accessible. You only have to look at Napster and view the flock of cable, DSL and T1 users to see how widespread it is in the US (and of course those “14.4K users” who miraculously achieve 100kb/sec download speeds). Why is Australia so slow? Is it because the telecommunications industry has been regulated until recently?

The article linked above says it will be a decade before fibre comes to the home, but by the time it comes to Australia, it’s more likely that this generation will be grandparents, and we’ll be telling them “when I was your age, they measured download speed in kBps!” Anyway, when in doubt, just blame Telstra.

Nov 99


That mythological Silicon Valley firm that hasn’t made a press release in its 3 years of existence updated their page (well, it no longer reads, “This page not here yet.”) Turns out they have been developing a new CPU (one that’s rumoured to emulate the Intel platform faster than Intel’s can run, natively) which they’ve called Crusoe. Which is funny cos it seems to be a reference to the chip’s portability (the Java of CPUs?) and Crusoe was pretty much stranded on an island for years – unable to go anywhere. Thanks to Renai for telling me about their updated site.

The standard dive into HTML source code produced this:

<!—Yes, there is a secret message, and this is it:
Transmeta’s policy has been to remain silent about its plans until it had something to demonstrate to the world. On January 19th, 2000, Transmeta is going to announce and demonstrate what Crusoe processors can do. Simultaneously, all of the details will go up on this Web site for everyone on the Internet to see. Crusoe will be cool hardware and software for mobile applications. Crusoe will be unconventional, which is why we wanted to let you know in advance to come look at the entire Web site in January, so that you can get the full story and have access to all  of the real details as soon as they are available.—>

Aug 99

Tech Support

Found an interesting page detailing someone’s experience working as tech support at OzEmail (Australia’s biggest ISP). Not a job with working conditions I would envy.

Jul 99

Corporatism & Messenger Wars

Microsoft doing what they do best. When will we see fixes to MS product bugs appearing within 3 hours?

A war erupted today between two Net titans – Microsoft and AOL – over the coveted area of instant messaging. Yesterday, Microsoft launched its new MSN Messenger which lets AOL and MSN users talk to each other, effectively ending AOL’s total control over the 25 million members of its instant messenger service. An angry AOL retaliated with a block to stop Microsoft users from communicating with its Buddy List. Today, Microsoft posted a software fix at http://messenger.msn.com to circumvent the block – but within three hours AOL had erected a new blockade. Expect corporate tempers to get very frayed . . . [The Australian]

Stolen from an e-mail from a friend.

Mar 99

PC IT 99

This show was supposed to be targetted at the commercial business market, but it turned out to be more orientated towards the home-level consumer. Looking at this convention today, and conventions like it 3 years ago, it really looks much more high-tech and slick. I was going to meet up with a friend at the cafe at 6:30pm. At the entrance, they make you register at a computer terminal, then they print this card with a magnetic stripe on it which contains your particulars. This card is used by the retailers to quickly grab your details (address etc.) – one swipe through a magnetic reader and you’re instantly added to their mailing list. This probably has been around for a while, but it’s the first time I’ve seen it firsthand. Pretty neat stuff.

Anyway it turns out I was quite lucky to find my friend. It turns out that PC IT was staged over three convention halls, each with its own cafe, and somehow, we arrived at the same cafe. Anyway I saw the Orb Drive which was camped right next to Iomega. Interesting comparing the Jaz Drive to the Orb Drive. The Orb is more than twice as cheap as the Jaz, and holds 10% more on one cartridge. The next stop was the Sony stand. I can tell you, it’s no lie when they say they make the best monitors in the world. I took a look at the top of the line 500PS (21″ Platinum series) – the best consumer market monitor available. That thing is simply awe-inspiring, jaw-dropping and drool-inducing.

Then it was a matter of going from booth to booth looking to scab some freebies. At Iomega they were giving away tonnes of these obnoxious devices. Their sole purpose in life is to annoy the hell out of everyone by producing a sharp and loud “click”. So all over the convention centre there was a background noise of constant clicking that got progressively louder as you approached the Iomega stand. They were using the device to promote the “Clik” drive which takes 40Mb disk that’s about a quarter the size of a 3.5 inch floppy (designed for digital cameras and laptops). Intel was chucking away little bunny men at the Pentium 3 stand, but I didn’t get one, which was quite annoying (I do have a Linux penguin sitting on top of my monitor now, however :). Last year Gateway was giving away small cows. One of those would be nice on top of the monitor. Do you have anything interesting on your monitor? Mail me. All in all it was quite a good convention, considering that I got free entry and ended up with a frisbee, a drink bottle, and various other miscellania.

Mar 99

PC IT 99

I be going to the PC IT 99 convention tomorrow. It’s a large PC convention being held in Darling Harbour, Sydney. They will be demonstrating the new Orb drive. It’s a “Jaz-killer” sporting 2.2GB cartridges at a fraction of the cost of Iomega’s Jaz Drive. The IDE version (over 10MB/sec transfer rate) of the Orb drive should come out at $400 (US$200 in America), and I think the cartridges are only $50 or so. I made a post on the Orb about half a year ago, when it sounded too good to be true. So it turns out it’s not vapourware.

Mar 99

More MCP Madness

Last month, I was talking about the MCP (Microsoft Certified Professional) Logo Usage licence agreement. Anyway, one day when I was at Educom (the training center where we get taught the stuff for certification), a bunch of us were back coming back from lunch on the elevator. Apparently Microsoft is trying to sell off t-shirts and other merchandise with the MCP logo on it. We were commenting on how “cool” it would be to have an MCP Shirt (there’s sarcasm there, just in case you think I said that seriously :) and making jokes about who on earth would buy one. Then another guy on the elevator says, “Shirt? That’s nothing. You hear about the guy who got the MCP logo tattooed on himself?” Stunned silence. “You’re joking.” He wasn’t. The tattoo earnt him a visit to the nerd’s Nirvana, Bill Gates’ very own mansion. Shit, eh?

How uh... groovy, Mr Gates.
No, I didn’t believe it either.

Feb 99


Passed third exam. Three to go. Microsoft sent me a propaganda pack. Apparently passing just one exam makes you a “Microsoft Certified Professional” (MCP). This gives you the right to put the MCP logo on your business card or whatever. They sent a sheet full of approved logos (you can’t just whack “MCP” down… you must use their official logo). And… get this. There was a bloody 6-page license agreement enclosed regarding the usage of the logo.

“You may not use or reproduce the MCP Logos in any manner whatsoever other than as described herein, in Exhibit A and in any applicable camera ready artwork provided by Microsoft. You acknowledge Microsoft’s ownership of the MCP Logos. You shall employ best efforts to use the MCP Logos in any manner that does not derogate from Microsoft’s rights in the MCP Logos and will take no action that will interfere with or diminish Microsoft’s rights in the MCP Logos… You shall mark every use of the MCP Logos with the trademark designations set forth in Exhibit A.”

“The Logo must stand alone. A minimum amount of space must be left between the Logo and any other object such as type, other logos, borders, edges, and so on. The required border of space around the Logo must be x wide, where x equals the height of the graphic, as represented by the height of the box that contains the words ‘Microsoft Certified.'”

"Do not say bad things about us or we will sue the pants off you."
Do I have to get myself a lawyer now?

Hmm. I think I just violated the license agreement. There’s probably a clause in there somewhere saying, “You may not make any remarks which may be interpreted (either directly or indirectly) as negative towards Microsoft’s image.”

Dec 98


I going to be sitting a course that, after it finishes in March, should make me a Microsoft Certified Systems Engineer (pretentious name for a Windows NT Network Mr Fixit). Starts in January so that should keep me busy for the rest of the holidays. Apparently you can earn $30-60/hour if you have this qualification.

Jul 98

IT Jobs

Saw a short article on “E-Commerce Top Ten Jobs” in the SMH yesterday. The salaries surprised me somewhat. “Entrepreneurial Consultants” which help business owners “re-imagine their company for the future and turn around enterprises in trouble” (like Apple :) can earn up to $250K (required background is an MBA, though). Application developers up to $150K (who I guess manage teams of people in making new software), Network Security Specialists may get $100K (white hackers etc.), while “Internet Architects” (“Webmaster ‘with muscle'” they describe them as) may also earn $100K. Then there’s the broker – 200K to $2M, they find new business opportunities and also act as a recruiter. There’s some serious money in the IT industry to be made :). What to do? What to pick?

May 98

Microsoft Windows 98

They still are in trouble. They’ve “won” one case, but still they can’t release Win98 on the scheduled June date… that’s because it looks like an anti-trust suit is going to be filed against them, and if one is (extremely likely), they will not be able to release Win98 on time. Even though the same laws won’t apply in Australia (that is, they can still release Win98 in Australia, if not in the US), they will not be shipping to Australia. Me? I don’t care what’s going on… as long as they get it out in time by the end of the year when I get my new computer :). I don’t want to have to upgrade from 95 to 98 if it comes out after I get a new computer, nor apply numerous service patches if it comes out too close to the end of the year. Of course, if it comes out too early, that’s not good as well – it may have some features that’ll make me drool :) but I don’t think that’ll be the case. An August release would be good.

Apr 98

It’s just not his Year

Surely you must’ve heard what happened to “Uncle” Bill. At Comdex ’98, he was giving a demo of the plug ‘n’ play “capabilities” of Win 98… and it crashed on him (blue screen crash). I’ve even got the video file of it :). Luckily, it was a Beta, so he sort of managed to salvage this situation with the comment, “That must be why we’re not shipping Windows 98 yet,” to which his shaken assistant replied, “Absolutely. Absolutely.” I cracked up when I saw the video clip the first time. Windows was detecting the scanner, and when it dumped the assistant (who was doing the talking), to the blue screen, the assistant almost shat himself. Hahaha.

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