The stockmarket sucks. Most money managers have earned less on their equities than if they’d invested in 10-year treasuries, which yield around 3%. Many top money managers are actually down on the year. Most of the hot stocks are now below what they opened the year at — e.g. Apple and Google, or roughly where they opened, e.g. Amazon.
Starting your own Internet company is now the perferred way to riches beyond your wildest dreams.
I am also scouring. Conclusions so far:
1. You’ll find an opportunity in area you’re familiar with. Tarzan swings from one vine to another. In my old days, I used to say, “What this industry needs is a ….. ” and I’d start something, typically a new magazine or a trade show, etc. I knew what to start because I was there. I didn’t need due diligence. I knew the gotchas.
2. New Internet online businesses are immensely capital intensive, meaning they do require lots of capital. You don’t need a steel mill. But you need marketing dollars and expensive software programmers.
3. Most Internet startups fail — because of lousy management (which doesn’t listen) and lack of money for marketing. A lot of marketing these days is viral. That’s more difficult and fickle than simply advertising on TV, like in the old days. You need a president who knows how to talk to the presss.
4. You need to be on your feet and working 24/7. None of the big companies — eBay, Facebook, etc. started out to be what they are today. They stumbled into it by dint of watching, listening changing every nanosecond. This is not easy.
OK. Now read this from a recent issue so the Economist.
Internet companies are booming again. Does that mean it is time to buy or to sell?
Some of the most prominent start-ups are preparing for stockmarket listings or are being bought by big firms with deep pockets. On May 9th LinkedIn, a social network for professionals that took in revenue of $243m last year, set the terms of its imminent initial public offering (IPO) on the New York Stock Exchange (NYSE), which value it at up to $3.3 billion. The next day Microsoft said it was buying Skype, an internet calling and video service, for $8.5 billion.
Other firms such as Groupon, which provides online coupons to its subscribers, are likely to go public soon. The return of big internet IPOs, rarities since a bubble in telecoms and internet stocks burst in 2000, and the resurgence of large mergers and acquisitions among technology firms is dividing opinion in the industry. Some veterans see a new bubble forming in the valuations of start-ups and a handful of more mature firms such as Twitter, which is still hunting for a satisfactory business model five years after the first tweet. More sanguine voices retort that many young companies have exciting prospects and that there are plenty of corporate buyers, such as Microsoft, with the money and confidence to snap up older internet firms still in private hands.
Yet both sides agree that the internet world is being transformed by a number of powerful forces, three of which stand out. First, technological progress has made it much simpler and cheaper to try out myriad bright ideas for online businesses. Second, a new breed of rich investors has been keen to back those ideas. And, third, this boom is much more global than the last one; Chinese internet firms are causing as much excitement as American ones.
Start with technology. Moore’s law, which holds that the number of transistors that can be put on a single computer chip doubles roughly every 18 months, has continued to work its magic, leading to the proliferation of ever more capable and affordable consumer devices. Some of today’s tablet computers and smartphones are more powerful than personal computers were a decade ago. IDC, a research firm, estimates that around 450m smartphones will be shipped worldwide this year, up from 303m in 2010.
Moore’s law also underpins the growth of “cloud” services, such as Apple’s iTunes music store, which can be reached from almost any device, almost anywhere. Such services are hosted in data centres, the factories of the cloud, which are crammed with hundreds of thousands of servers, whose price has plunged as their processing power has soared. Everything is connected ever faster, with ever fewer wires.
These technological trends have given rise to new “platforms”—computing bases on which other companies can build services. Examples include operating systems for smartphones and social networks such as Facebook and LinkedIn. Some of them are used by hundreds of millions of people. And the platforms are generating oceans of data from smartphones, sensors and other devices.
These platforms are vast spaces of digital opportunity. Perhaps the most striking example of the innovation they have sparked is the outpouring of downloadable software applications, or “apps”, for smartphones and computers. Apple’s App Store, a mere three years old, offers more than 300,000 of them. Users of Facebook are installing them at a rate of 20 million a day. Services such as Skype have also benefited from the spread of smart devices and lightning-fast connectivity.
Some excited people have likened this technological upheaval to the Cambrian explosion 500 million years ago, when evolution on Earth speeded up in part because the cell had been perfected and standardised. They may be exaggerating. Even so, creating a web firm has become much easier. By tapping into cheap cloud-computing capacity and by using platforms to reach millions of potential customers, a company can be up and running for thousands of dollars rather than the millions needed in the 1990s.
Thanks to the boom’s second driving force, finance, these companies have no shortage of eager backers. Although too small to interest many venture-capital firms, they are being fought over by wealthy individual investors, or “angels” in the venture industry’s jargon. Many of these financiers made their fortunes during the 1990s bubble and are eager to put their know-how and cash behind today’s tiny companies.
Some “super angels”, such as Aydin Senkut, a former Google employee who runs Felicis Ventures, and Mike Maples, a software entrepreneur who oversees a firm called Floodgate, are occasionally making bets comparable to those of conventional venture funds, which gather and invest money from a wide range of institutional investors. Individual investments of up to $1m are not uncommon. Sometimes angels are clubbing together to provide young firms with even larger sums.
Their cumulative impact is staggering. According to the Centre for Venture Research at the University of New Hampshire, angel investors in America pumped about $20 billion into young firms last year, up from $17.6 billion in 2009. That is not far off the $22 billion that America’s National Venture Capital Association says its members invested in 2010. Much of the angels’ money has gone to consumer-internet firms and makers of software apps.
The financing of more mature tech start-ups has also changed. Elite venture-capital firms such as Andreessen Horowitz and Kleiner Perkins Caufield & Byers have raised billions of dollars in new funds in the past year or so. Some of this money has been pumped into “late-stage” investments (eg, in Twitter and Skype), allowing companies to remain private and independent for longer than used to be the norm.
Venture firms are not the only ones with internet companies in their sights. Some would argue that it was DST, a Russian holding company now renamed Mail.ru, and a related investment fund, DST Global, that set off the boom. In 2009, when most investors in America were sitting on their hands, both poured hundreds of millions of dollars into fast-growing prospects there such as Facebook and Groupon. Those investments seem likely to pay off handsomely.
American hedge funds, private-equity firms and even some mutual funds have followed, falling over one another in pursuit of the shares of popular internet companies. Investment banks including Goldman Sachs and JPMorgan Chase have also set up funds to help rich clients buy stakes.
Their task has been made easier by the advent of secondary markets in America, such as SharesPost and SecondMarket, that allow professional investors to trade the equity of private companies more efficiently. They have also made it simpler for employees and angel investors to offload some shares—and have enabled the world at large to observe a remarkable rise in valuations (see chart 1).
American consumer-internet companies have not been the only beneficiaries of this flood of cash. The boom’s third driving force is the rapid globalisation of the industry. Europe, which has at long last developed an entrepreneurial ecosystem worthy of the name, is home to several impressive firms. These include Spotify, an Anglo-Swedish music-streaming service with more than 10 million registered users, and Vente Privée, a French clothing discounter with annual revenue of some $1 billion.
Much more striking, however, is that the latest round of euphoria involves emerging markets that were mere spectators during the last one, above all China. The country boasts not only the world’s biggest online population, but also its fastest-growing. The number of internet users there will rise from 457 million last year to more than 700 million in 2015, according to the Boston Consulting Group (BCG). And the Chinese are no longer mostly playing games, but are diving into lots of other online activities, notably shopping. Between 2010 and 2015, predicts BCG, China’s e-commerce market will more than quadruple, from $71 billion to $305 billion—which could make it the world’s largest.
Such forecasts have stimulated plenty of venture capital, both foreign and domestic. Albeit with a dip in 2009, the amount raised by Chinese venture funds has grown sharply, rising from nearly $4 billion in 2006 to more than $11 billion in 2010 according to Zero2IPO, a research firm. The sum invested increased from $1.8 billion to nearly $5.4 billion. Much of this went into internet start-ups.
Positive mental attitude.
A friend of mine was part of a psychological experiment. He was given this pill that was supposed to radically increase his IQ. It worked on rats. They could run a maze with one eye closed. They got a little cocky, thought they were better than other rats. Anyway this friend of mine was given this pill, took it for a couple of years. It was amazing. He went to college, got his Ph.D. in astrophysics in two years, really amazing.
Then he found out he had been part of the control group. They had given him a placebo.
Dumb as a post, and here he was stuck with a Ph.D. in astrophysics. What a waste. Really sad.
Harry Newton who is presently babysitting our new puppy while Susan attends pilates. At 6lbs, Rosie makes the perfect lap dog, when she’s not presentating us with warm brown presents on our nice white carpet or chewing up every paper of mine she can find. Right now she’s two feet from my feet and sleeping. I am blessed with and thankful for small mercies.
Rosie, with her mouth closed. A serious blessing for my magazines and the leg of my desk.
