HatTip to Carl W. Meltup? Hyperinflation? Out of the recession? Dow up 70% from last year, but why is unemployment at 16.9%? 39.4 million Americans on food stamps, up 22.4% from a year ago.
I wonder what "facts" here are disputed.
Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts
Monday, May 17, 2010
Tuesday, August 25, 2009
"Free Health Care Plan Costs Add Up"
Love this graphic...
$239 billion will be added to the Federal Deficit. I assume this added cost is not included in the recent announcement from the White House:
"Estimate for 10-Year Deficit Raised to $9 Trillion" NYTimes
$239 billion will be added to the Federal Deficit. I assume this added cost is not included in the recent announcement from the White House:
"Estimate for 10-Year Deficit Raised to $9 Trillion" NYTimes
Thursday, April 9, 2009
Clueless Tim Geithner Says Venture Capital Is A Systemic Risk
The Wall Street Street came out with this op-ed that had me scratching my head:
Is Silicon Valley a Systemic Risk?
Treasury decides to treat venture capitalists like hedge funds.
... The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."
Since then, venture investors have been trying to solve the mystery of how they could possibly threaten the financial system. Their work involves very little banking. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. The VCs and the companies in which they invest use little or no debt.
"I cannot imagine any venture fund being of a size to pose 'systemic risk,' so they either don't understand the nature of the business, or by including this provision they are sharing that their agenda is not the overt one disclosed," says Jack Biddle of Novak Biddle Venture Partners. What Washington needs to understand is that bank-style regulation could destroy the culture that created the microprocessor... (full article)
I'm sure Geithner is a smart man, but I agree with Jack Biddle above that he probably doesn't understand the nature of the business. Many smart people I met don't know the difference between venture capital, private equity, hedge funds, and other types of investment funds. It can get confusing, but Geithner is our Treasury Secretary! Either he doesn't get it and needs a "Venture Capital 101" class along with "Our Nation's Greatest Wealth and Job Creation Engine 101", or his staff must be really stupid or overworked and provided very poor research to him.
Is Silicon Valley a Systemic Risk?
Treasury decides to treat venture capitalists like hedge funds.
... The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."
Since then, venture investors have been trying to solve the mystery of how they could possibly threaten the financial system. Their work involves very little banking. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. The VCs and the companies in which they invest use little or no debt.
"I cannot imagine any venture fund being of a size to pose 'systemic risk,' so they either don't understand the nature of the business, or by including this provision they are sharing that their agenda is not the overt one disclosed," says Jack Biddle of Novak Biddle Venture Partners. What Washington needs to understand is that bank-style regulation could destroy the culture that created the microprocessor... (full article)
I'm sure Geithner is a smart man, but I agree with Jack Biddle above that he probably doesn't understand the nature of the business. Many smart people I met don't know the difference between venture capital, private equity, hedge funds, and other types of investment funds. It can get confusing, but Geithner is our Treasury Secretary! Either he doesn't get it and needs a "Venture Capital 101" class along with "Our Nation's Greatest Wealth and Job Creation Engine 101", or his staff must be really stupid or overworked and provided very poor research to him.
Monday, March 23, 2009
Joe Biden, The Enforcer of the Stimulus Package... Are You Serious?
This might be old news for some of you, but do people realize how idiotic the language of the stimulus package must be? And how poorly the execution and checks on the allocation of funding must have been established to have Vice President Joe Biden warning local officials not to spend on stupid ideas?
"So guys, no swimming pools, no tennis courts, no golf courses, no Frisbee parks," Biden said, even if officials can document that the project will create jobs quickly, generate revenue and keep people working over the longer term.
“The answer is: No. No. No,” he said. “It’s got to pass the smell test folks.”
Then he gave the warning some teeth.
“Because of the rules, the president and I can’t stop you from doing some things. But I’ll show up in your city and say, ‘This is a stupid idea,’” Biden warned, drawing laughs.
Yes, the idea of Biden ridiculing local government officials as a primary barrier to corruption, waste and "stupid" ideas gives me a lot of confidence in the leadership and execution abilities of Congress and the Obama Administration.
"So guys, no swimming pools, no tennis courts, no golf courses, no Frisbee parks," Biden said, even if officials can document that the project will create jobs quickly, generate revenue and keep people working over the longer term.
“The answer is: No. No. No,” he said. “It’s got to pass the smell test folks.”
Then he gave the warning some teeth.
“Because of the rules, the president and I can’t stop you from doing some things. But I’ll show up in your city and say, ‘This is a stupid idea,’” Biden warned, drawing laughs.
Yes, the idea of Biden ridiculing local government officials as a primary barrier to corruption, waste and "stupid" ideas gives me a lot of confidence in the leadership and execution abilities of Congress and the Obama Administration.
Sunday, February 22, 2009
What To Watch For On Convertible Debt Financing (Especially During a Downturn)
I've been involved in several discussions lately on convertible debt financing for startups. First, I should reference some good posts out there. My former advisor, Brad Feld (Managing Director at Foundry Group), has a good post here ("What’s The Best Structure For A Pre-VC Investment?"). The Venture Hacks guys have a good overview here, "What are the benefits of debt in a seed round?"
Pretty much everyone is in agreement that convertible debt is ideal for entrepreneurs during their company's seed round. You don't give up equity at this point and the valuation of the convertible debt is pegged to the next round of financing, which should be your Series A.
Other entrepreneurs might need convertible debt in the form of a bridge loan to your next round of financing. A common situation for 2009 might be a startup needing a $1 million bridge loan as they try to close their Series B financing since they want to avoid shutting down their operations.
Prior to the economic meltdown, I would tell entrepreneurs for any seed investment under $1 million you have to push for convertible debt. Since $1 million is the new $10 million under today's environment, I would probably say negotiate this for only deals under $500,000. Maybe even $300,000 depending on what region or country you live in.
Also the standard terms have changed. From my experience and speaking with a couple attorneys at Wilson Sonsini, which is considered the top Silicon Valley law firm, a standard convertible debt deal would provide the investor 6% to 7% interest, 20% warrant coverage, and 2 to 3 year maturity date. After the economic meltdown, it seems more investors are asking for 8% interest, 20% to 40% warrant coverage, and a backstop provision.
The last item is the one to avoid. Some aggressive investors (conservative in selection but aggressive on terms), which are becoming more frequent in today's climate, are asking for backstop provisions. This sets a deadline for you to close your next round of financing. If you don't close, the debt provided will convert to equity based on your current round or an agreed upon valuation.
Your startup might already have seed capital or a Series A at a set valuation. The standard term for a backstop provision is one year. Let's say if you have $1 million in convertible debt, your company is valued at $3 million, and you don't close within the year time, then that $1 million is converted to equity at the $3 million valuation. You've given up a third of your company. Crap!
Some investors might even try to negotiate for a shorter duration, such as 6 months. Don't fall into this trap especially if you're already in discussions with your next round investors. Financing rounds take longer than you think. Sure if you're in the top 3% of all tech startups, then you can close within a month. Most rounds take 3 to 9 months. Today I would say it takes 6 months to over a year.
Just say "NO" to any backstop provision less than a year. I would suggest to negotiate the opposite if an investor insists on having a backstop provision. Push for 2 years due to the current financial environment, or just avoid the backstop provision all together.
Pretty much everyone is in agreement that convertible debt is ideal for entrepreneurs during their company's seed round. You don't give up equity at this point and the valuation of the convertible debt is pegged to the next round of financing, which should be your Series A.
Other entrepreneurs might need convertible debt in the form of a bridge loan to your next round of financing. A common situation for 2009 might be a startup needing a $1 million bridge loan as they try to close their Series B financing since they want to avoid shutting down their operations.
Prior to the economic meltdown, I would tell entrepreneurs for any seed investment under $1 million you have to push for convertible debt. Since $1 million is the new $10 million under today's environment, I would probably say negotiate this for only deals under $500,000. Maybe even $300,000 depending on what region or country you live in.
Also the standard terms have changed. From my experience and speaking with a couple attorneys at Wilson Sonsini, which is considered the top Silicon Valley law firm, a standard convertible debt deal would provide the investor 6% to 7% interest, 20% warrant coverage, and 2 to 3 year maturity date. After the economic meltdown, it seems more investors are asking for 8% interest, 20% to 40% warrant coverage, and a backstop provision.
The last item is the one to avoid. Some aggressive investors (conservative in selection but aggressive on terms), which are becoming more frequent in today's climate, are asking for backstop provisions. This sets a deadline for you to close your next round of financing. If you don't close, the debt provided will convert to equity based on your current round or an agreed upon valuation.
Your startup might already have seed capital or a Series A at a set valuation. The standard term for a backstop provision is one year. Let's say if you have $1 million in convertible debt, your company is valued at $3 million, and you don't close within the year time, then that $1 million is converted to equity at the $3 million valuation. You've given up a third of your company. Crap!
Some investors might even try to negotiate for a shorter duration, such as 6 months. Don't fall into this trap especially if you're already in discussions with your next round investors. Financing rounds take longer than you think. Sure if you're in the top 3% of all tech startups, then you can close within a month. Most rounds take 3 to 9 months. Today I would say it takes 6 months to over a year.
Just say "NO" to any backstop provision less than a year. I would suggest to negotiate the opposite if an investor insists on having a backstop provision. Push for 2 years due to the current financial environment, or just avoid the backstop provision all together.
Thursday, February 5, 2009
With All Due Respect Mr President, That's Not True... Cato Ad
Solid campaign by the Cato Institute.
President Obama says that "economists from across the political spectrum agree" on the need for massive government spending to stimulate the economy. In fact, many economists disagree. Hundreds of them, including Nobel laureates and other prominent scholars, have signed a statement that the Cato Institute has placed in major newspapers across the United States.
President Obama says that "economists from across the political spectrum agree" on the need for massive government spending to stimulate the economy. In fact, many economists disagree. Hundreds of them, including Nobel laureates and other prominent scholars, have signed a statement that the Cato Institute has placed in major newspapers across the United States.
Friday, October 17, 2008
Unraveling The Economy
October 2008 saw Sigma Finance — the last of the SIVs (structured investment vehicles) — unravel, dragging 27 billion dollars down with it. The complex debt instruments called SIVs were central to the financial crisis. Sigma was undone when JP Morgan cut the short term funding line. The Sigma fund was managed by the ironically named Gordian Knot Limited of London.
Shakespeare couldn’t have written it better…In fact, Shakespeare makes reference to the knot in the first act of Henry V when he has the Archbishop of Canterbury say:
Turn him to any cause of policy | The Gordian Knot of it he will unloose | Familiar as his garter
Legend has the Gordian Knot securing an ox cart to a temple in the ancient Phrygian city of Gordium — tied to a prophesy that whoever could solve the puzzle would rule Asia Minor. Of course no one could until Alexander studied the problem and came up with a very different solution. Centuries later, Gordian Knot Limited’s activity in SIVs was part of a shadow banking industry so complex that, had it proved sustainable, all its participants may have become the new masters of the universe…a big finale in the dramatic financial play we have been watching at the dawn of the new century.
In one version of the legend, Alexander, seeking to legitimize his effort to conquer the world, goes to Gordium, which is under Persian rule at the time. Alexander is determined to fulfill the prophecy of the Gordian Knot. While wrestling with the problem, he eventually asks his seer if it matters how it is solved. Without a clear answer, he draws his sword and slices the knot in half. Hence the metaphor “cutting the Gordian Knot” which describes a bold and unconventional solution to a complicated problem. Similarly, for all it’s complexity, Gordian Knot Limited’s fund was summarily undone with a swift cut by JP Morgan.
It’s fascinating that that Gordian Knot Limited failed to see the irony in their name. When they structured their risk management approach, they apparently thought they were Alexander. It turns out they were the knot. It’s more ironic — almost prophetic — if you read the last lines on their website:
"Our aim is simply to make money for investors with minimal risk. And if the banking system becomes more efficient as a consequence, that’s good for everyone, and we’re pleased to have played our small part."
The banking system may not have become more efficient in the way they envisioned, but it has been been simplified by the elimination of quite a few players. The notion that a shadow banking system was the innovative solve we were all looking for seems naive in the immediate aftermath of the collapse. Hopefully, we will remember that things done in the shadows are usually done for shadowy reasons…Hopefully we will remember — and put to use — the reminder from Justice Louis Brandeis that Sunshine is the best antiseptic.
Original posted at InsideWork.
Shakespeare couldn’t have written it better…In fact, Shakespeare makes reference to the knot in the first act of Henry V when he has the Archbishop of Canterbury say:
Turn him to any cause of policy | The Gordian Knot of it he will unloose | Familiar as his garter
Legend has the Gordian Knot securing an ox cart to a temple in the ancient Phrygian city of Gordium — tied to a prophesy that whoever could solve the puzzle would rule Asia Minor. Of course no one could until Alexander studied the problem and came up with a very different solution. Centuries later, Gordian Knot Limited’s activity in SIVs was part of a shadow banking industry so complex that, had it proved sustainable, all its participants may have become the new masters of the universe…a big finale in the dramatic financial play we have been watching at the dawn of the new century.
In one version of the legend, Alexander, seeking to legitimize his effort to conquer the world, goes to Gordium, which is under Persian rule at the time. Alexander is determined to fulfill the prophecy of the Gordian Knot. While wrestling with the problem, he eventually asks his seer if it matters how it is solved. Without a clear answer, he draws his sword and slices the knot in half. Hence the metaphor “cutting the Gordian Knot” which describes a bold and unconventional solution to a complicated problem. Similarly, for all it’s complexity, Gordian Knot Limited’s fund was summarily undone with a swift cut by JP Morgan.
It’s fascinating that that Gordian Knot Limited failed to see the irony in their name. When they structured their risk management approach, they apparently thought they were Alexander. It turns out they were the knot. It’s more ironic — almost prophetic — if you read the last lines on their website:
"Our aim is simply to make money for investors with minimal risk. And if the banking system becomes more efficient as a consequence, that’s good for everyone, and we’re pleased to have played our small part."
The banking system may not have become more efficient in the way they envisioned, but it has been been simplified by the elimination of quite a few players. The notion that a shadow banking system was the innovative solve we were all looking for seems naive in the immediate aftermath of the collapse. Hopefully, we will remember that things done in the shadows are usually done for shadowy reasons…Hopefully we will remember — and put to use — the reminder from Justice Louis Brandeis that Sunshine is the best antiseptic.
Original posted at InsideWork.
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