Friday, June 29, 2007

Love thy founder

More Yahoo noise.
Six months ago, Bart Schachter, VC, Blueprint Ventures had said only an illegal immigrant from Mars wouldn’t notice the growing irrelevance of Yahoo. He has strong words how the Terry Semel tenure at Yahoo is a lesson for VCs, who tend to want to bring in professional CEOs and jettison passionate founders.

Here’s from this superb post of his -

“Perhaps there’s a lesson to be learned by entrepreneurs and venture capitalists. The habit of venture capitalists is to insert professional managers as CEOs of their start-ups. However, the impulse of these professional CEOs is to excise the highest compensation they possibly can (plus a healthy severance package). The alignment may or may not exist, but the passion always rests with the founder. That’s where the story starts, and that’s often where it ends.

The Yahoo story has is a classic Founder Odyssey. Like Ulysees (ok, maybe more like Steve Jobs), Jerry returns to reclaim his home and land. This has the making of a great story, one played out at Apple, Microsoft (how many Presidents paraded through Bellevue in the last 20 years?), and more recently Dell. True, Jerry’s odds are against him. As a college graduate he lacks the college-dropout credentials of other Founder Odysseys. But perhaps he has the passion and alignment needed to bring the company home. Who is next? Vive Le Founder.”

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Thursday, June 28, 2007

Valuation models get a Wharton banality stamp

The more exotic a financial product gets, harder is it to price. This has been recently confirmed by a Wharton study (you would’ve pooh-poohed it if someone as earthy as I had said that). All existing valuation models have their basis on historical price of a product and market dynamics are changing so fast that variables from the past can’t form the only basis. For eg.A common model input for valuing stock options is its future stock price volatility, essentially a call on underlying stock price. How accurate can it be? You have to make room for the new variables that sprout in future and guessing that is the hardest part.

This was in fact the dilemma that a recent Wharton roundtable tried to unravel.

I liked the remark made by Mark Carey of the Federal Reserve Board, in so far that it echoed what I had always maintained – “Fair values are unverifiable. Any model is an opinion embodying many judgments.” The best model is always a matter of opinion and the determinant can only be its market.

The takeaway? Nothing new. While financial modeling will continue to be controversial, it’ll keep getting better. The progression will be more towards evaluation by unbiased outsiders using those models than by the model designers.

Classical Whartonian ending on a note of hope. How convenient to leave all things open ended? When there’s nothing more to organize, reorganize. Couple of years later, same topic will resurface in the form of another conference, more subscription. Try reminding them of the earlier conference and its summation, well…that’s too low on priority. [Am I joining the larger chorus of bored ones out there?]

My limited intelligence favors Auctioning. It’s the ultimate acid test that stands taller than all other models. Power to the highest bidder. The bid factors in everything - intrinsic value, market perception of future prospects and above all the satisfaction that you didn't sell cheap. Market is God. Period.

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Monday, June 25, 2007

From social retailing to walking economy

If your girlfriend/wife has expensive tastes and you’re a skimper, there’s no way out now.

A New York technology company called IconNicholson has developed a "magic mirror" that enables customers to view themselves in a series of outfits - without ever having to remove their garments. What's more, shoppers who try on actual outfits can stand at the mirror and invite their friends to review the look via the Web. Those friends then can comment by sending text messages that pop up on the mirror's surface.

While such social retailing may bring together the entire universe of networking concepts through the use of the Internet, the webcam and the webcast to enable shoppers to interact with their family and friends, you can’t skimp around buying cheap stuff by hiding behind “I thought you would like it”. Your girlfriend could also dig out the most expensive outfit from the designer's collection and e-mail a thumbnail sketch to you while you’re trying on the clothes. That image also could be digitally superimposed over your reflection in the magic mirror for her review.

Tech giant Cisco Systems has developed a system to allow shoppers to electronically check the store's inventory for the correct size garment. They can then talk by phone to a salesperson, who will bring the item directly to their changing room stall. That way, shoppers don't have to go through the hassle of getting dressed and trekking back to the display rack. In other words, buy you must.

With that hair line in recession, stomach a victim of inflation and both of these together giving a deep depression….feel like a walking economy already?

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Mother's peeve

When we bought our first Television, my grandmother just turned a knob to watch M.S.Subbulakshmi render her favorite raga. That was three decades ago. Now my mother cannot watch the video of her grandson in unless we’re home. She just can't keep up with all the booting, logging in, URL, UID and password, download and all that. She snuck a wistful glance at the TV that she's so much used to, even as I was going through the motions to animate her grandson on my computer screen.

Her argument – “I get to see the same image on the monitor as I do across the TV screen – what’s all this fuss?”

To her, it’s the effect that matters. Not the exoticism of the technology behind it. Neither does she need or care the other accompanying features. Why not `grandma friendliness' be made a feasibility criterion before every product launch? Guess it's quite sensible.

Advancements in technology have no meaning if they fail to eliminate real life complexities. Be it the fountain pen, offset press, the mariner’s compass or the clock movements, the bets were clearly on ease of use and common sense.

Like David Gelernter says, the bureaucratic overhead of everyday life should diminish, significantly. Real digital institutions should move closer to reality. It's the Information Beam that matters, not the computer, the operating system or the network -- just as for most people the film or TV program matters, not the camera, the projector or the communication satellites.

But I am beginning to wonder whether that touchstone has been altered in the current digitized firmament. Mom just showcased one.

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Saturday, June 23, 2007

Charpais for Frisco

When we have power outages in India, our life goes on as usual. Light a few candles for visibility and bring out a Charpai (click and scroll down) to sleep outdoors or in the balcony. A few gripes and curses (at the power companies and politicians) later, we do manage to catch some sleep on the charpai, letting the mosquitoes have a great night of `bloody' feast.

But if it blacks out in Silicon Valley….ah, there you go – VCs go the extra mile.

Could this be a Charpai export opportunity for India ?

Better check out with Sand Hill road VCs and do something fast…before China catches up, that is.

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Happens only at Yahoo

Yahoo recently bought sports content website for $100 million.
Interestingly way back in 2001, Yahoo had offered to buy the then-loss making Rivals for $25 million. The company was on its last legs. The deal fell through as Yahoo insisted on "a incredibly complex structure" in order to keep the losses low on books. VCs liquidated their holdings. The founder bought out all the assets and rejuvenated the company with a "non-bubble cost and mentality". Six years hence, the site was sold for $100 million to Yahoo itself.
Happens only at Yahoo...?

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Wednesday, June 20, 2007

The real problem at Yahoo !

Compared with most companies, Yahoo is in good shape.

But Yahoo's problem is that it's compared with Google, one of the fastest-growing and most profitable companies in the world.

Google now makes more money in a single quarter than Yahoo does in an entire year. The contrast represents a harsh comedown for Yahoo, which was the larger of the two companies when Google went public in August 2004.

Despite having more popular products that keep people on its site longer than any other property on the Web, Yahoo found itself a distant second to the awesome moneymaking machine that Google had become. That Google moxie ultimately led to the dramatic management shakeup, with Terry Semel replaced as chief executive by co-founder Jerry Yang.
Alright, now what ?

Competing with Google in search is costly, and there are no guarantees that Yahoo will ever match Google’s ever-improving algorithms. Even it if it succeeds in narrowing the gap somewhat, Yahoo could make more money by simply outsourcing search to Google :-)

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Tuesday, June 19, 2007

Can Dharavi revive the bond market ?

Less than a week after global tenders were floated for the over Rs. 9,000 crore ($2.25 b) Dharavi Redevelopment Project (DRP), black flags have come up all over the sprawling settlement which is dubbed Asia's largest slum. The residents and small business owners inside the slum feel the rehab scheme isn’t making good their livelihood that their present abode gives – that it helps only the private builders who get more FSI to build on and profit.

You can’t blame the protesting slum-dwellers. They have not been assured of suitable alternative residence / workplace that would allow them to carry on their livelihood in the DRP. So why wouldn’t they object ?

Fact is that Maharashtra Government is no Michael Milken.
But it badly needs him or someone who had acumen like him to devise an instrument like high-yield Junk bonds that could be a brilliant innovation to revitalize the $1 b Dharavi economy. When Junk bonds enable businesses (that are currently denied access to capital) to invest in infrastructure and equipment, they will have fewer reasons to protest. Notably many SME businesses like pottery, jewellery, leather goods that operate from Dharavi.

And all this makes me wonder: Who will be the junk bond king of Dharavi? Perhaps some bond trader from Dalal Street would like a second act as philanthropist and investor?

Could be a worthwhile trade even.

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Monday, June 18, 2007

(Belated) confessions from a B-School grad

“While B-schools do a great job of imparting hard technical skills, the emphasis on areas such as people management and everyday execution doesn’t seem to be adequate. However, the one key area where B-schools need to get their act together is around nurturing and developing a mindset oriented towards risk, entrepreneurship and creativity” says Sriniket Chakravarty who graduated from a top tier Indian B-School in 1996 (coming 11 years too late ?).

Here’s more, straight from his gut.

“Why does this happen? One reason is that the competitive and unidirectional environment in B-schools offers little room for serious thought on making individual choices along various vectors such as the level of responsibility, goals and aspirations, social and family needs and so on.

Nor is there any emphasis on developing value systems around personal success, social role and integrity. Further, the enormity of focus in B-schools on the conventional rules of the game is entirely devoid of specific incentives for risk-taking and creativity.

Contrast that with the reality of the business environment, where big success is far more correlated to the ability to take entrepreneurial risks, even within the context of large organisations.

For instance, the recent successes of both entrepreneurs and managers in emerging businesses such as retail, telecom, BPO and media can be attributed to their ability to take early risks. Successful organisations want entrepreneurial leaders who are able to lead from the front and create value amidst uncertainty. In the context of risk-taking, learning to manage failure is also very important”.

Can you agree more ? The Jury has never been out on this.

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Saturday, June 16, 2007

Capital gain or business income ?

The clichéd question is back.
Now it’s almost become a habit for India’s CBDT to confuse tax payers by issuing conflicting opinions and then consolidating all that mess into one super mess in the form of a Circular – but its title will read `clarification’.

The latest circular implies that tax officials will have to look into the holding pattern of the securities bought and sold, the sale-purchase ratio, the time involved, the funding sources and the overall transaction volume etc. If you were even remotely connected with the business of trading in the stock market, you would ask “ so what’s new ?”

Amarjeet Singh, partner, KPMG India, echoed my sentiment: “This circular does not make a huge material difference as it is just an aggregation of previous principles. In the case of litigation, this clarification gives them (FIIs) an upper hand. Now, I have principles on the basis of which I can ask for the courts to give me a benefit (in litigation on tax reatment).”

Oh, yeah…everything is clear now. CBDT has done its job. May you all rest in peace. Time to get back into the woodwork.

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Monday, June 11, 2007

Is that you ?

Anyone who has ever thrown around a stack of liras or rupees knows that people are sometimes more extravagant with currencies that have high face values. A paper recently published in The Journal of Consumer Research explored that effect.

“You feel more rich if you have more units of currency,” said Dilip Soman, a professor of marketing at the University of Toronto, and one of the paper’s authors.

In one study, students in Hong Kong, when asked to allocate spending from an imaginary paycheck of 9,000 Hong Kong dollars, devoted an average of 532.35 of those dollars to food spending.

Two weeks later, the students were asked to imagine that they had moved to the fictional country of Tristania, where a Hong Kong dollar equaled 18 Tristanian dollars, and therefore their pay was 162,000 Tristanian dollars. The students splurged, spending 30 percent more on food in real terms.

Full report here. (NYT free sub).

I somehow felt it’s too fickle a finding. Wouldn’t people be intuitive enough to reduce whatever they buy in terms of a base currency and figure out its worth ?

Well, may be I am missing something out here.

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Saturday, June 09, 2007

Papal affections of Dubya

President Bush met today for the first time with Pope Benedict XVI, a religious conservative like the American president but who raised his worries in their private meeting about the war in Iraq.

I was reminded of this joke when Dubya seemingly mistook the previous Pope John Paul for Dalai Lama earlier. (see photo) Haven't stopped laughing till this day…!


Friday, June 08, 2007

One surge and the covers get ripped

Often when there’s a surge in Wall Street, a few bullish asses get covered (and that of bears, get ripped). But when you get some sound bytes from illustrious investors like Wilbur Ross, the billionaire financier, you blog – I do it because I can save it for future and see if their calls go right. And if they do, well, I would learn a thing or two on how great minds work.

Here’s what he said to CNBC’s money honey, Maria Bartiromo - the private equity frenzy is saddling many companies with high levels of debt, and he added that the ultimate holders of the debt are often unaware of what they are getting into.

“The problem is that the people who make the initial credit decisions don’t end up owning the paper,” he said. “They flog it off to the outside world — who generally don’t know what’s in the portfolio.” Ross further explains that the excessive buyouts have sucked floating stock out of the market and it is this lack of supply that pushes stock prices up than earnings expectations.

Richard Bernstein, chief investment strategist at Merrill Lynch, sees a different potential scenario at work.

In a note published recently, he writes that interest rates and stock prices (or, more specficially, price-to-earnings ratios) usually go in different directions. But they both have been rising lately — a situation that historically doesn’t bode well for leveraged buyouts. Higher interest rates would make it more expensive to fund a leveraged takeover, and higher P/E ratios mean that the deals are pricier to begin with.

“Investors right now can’t imagine how the L.B.O. boom would end,” Mr. Bernstein writes. “Rising rates and rising equity valuations could do the trick.”
Read the full story here and here.

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