Are We in a Tech Bubble? A Recap of a Jefferies Discussion with Lou Kerner

Key Takeaway

The current state of tech valuations (private & public) is always hotly debated, with a particularly sharper focus recently. To this end, we hosted Lou Kerner for a discussion on the state of the industry and asked him to weigh in on the bubble debate. Lou's opinion is that while valuations in the sector may be high, they appear reasonable in the context of the broader mkt, and we are not in a bubble comparable to what was seen in '99-'00.

Some key takeaways:

Lou's full presentation is available at http://bit.ly/TechBubble

The amount of people online is staggeringly higher than during the 2000 bubble. Between 1995 and 2000, the number of people online jumped from ~40MM to just above 400MM. However, between 2000 and 2014, that number skyrocketed to ~3B (with ~2B smartphones accessing the Internet). This growth is driving up valuations.

Multiple disruptive technologies are growing rapidly, and the convergence of this tech is enabling new business models. These technologies include mobile tech, social media, cloud, big data and crowd sourcing. Some examples of disruptive business models are Uber (mobile tech + crowd sourcing), WhatsApp (mobile tech + social media) and LendingClub (big data + crowd sourcing). The next wave of emerging tech (Internet of things, wearables, virtual reality, etc...) is poised to continue the wealth creation.

A look at some data:
·         When comparing NASDAQ growth CAGRs, we do not see the sustained outsized market gains present in the '00 bubble. Between Jan '90 and Jan '00, the NASDAQ experienced a CAGR of 26.5%, compared to only 9.1% between Mar. '05 and Mar. '15 (in line with the 44 year historical CAGR of 9.3%)
·         Tech co. market value as a percentage of the S&P 500 is actually currently below the LT trend. Currently, tech cos. comprise ~20% of the S&P, while they peaked at 35% in '00.
·         Day 1 IPO pops were massive between '98-'00, with the top nine IPO pops averaging a day 1 return of 505.2%. At the close on 4/5/01, those prices had dropped on average 96.1%. The top nine Day 1 IPO pops in '13-'14 averaged a return of 101.3%. The average first day pop of all IPOs in 2014 was 13%.
·         Additionally, the number of Tech IPOs by year has decreased significantly from the peak of 350+ in 1999. During 2013, there were less than 50.

Companies are taking a significantly longer time to IPO, with the average age at IPO of 8 years in 2013 more than double the average age of 3 years during 1998-1999. Companies are realizing that being public is painful, and that needed capital is available in the private markets. While Traditional VCs and Hedge Funds are ramping their private shares investing, traditional public share investors, like T. Rowe Price, Fidelity and Wellington, have also joined them in investing in the private markets. In conclusion, considering the puts and takes, Lou does not necessarily see the current landscape in a comparable light of the '99-'00 tech bubble. Tech valuations seem to be reasonable within the scope of the broader market, and the current opportunities for value creation from disruptive tech companies remain at all time highs.

Lou Kerner is the founder of the Social Internet Fund, investing in primary and secondary shares of private social media, mobile, big data, online video and ad tech companies. Lou was the first social media analyst on Wall Street at Wedbush Securities, where he started the first trading desk for private shares on Wall Street. Lou was also previously an equity analyst following media companies at Goldman Sachs.

Courtesy of Jefferies US Internet Team *,  Jefferies Equity Research
 pitz-fitz@jefferies.com

The Ultimate Guide to Startup Marketing

Starting a business is exhilarating. Unfortunately, the “build it and they will come” theory doesn’t hold much weight and those overnight success stories you hear about are often the result of behind the scenes years of hard work. Simply put, startup marketing is a unique challenge often times because of the limited resources, whether it’s time, money or talent.

You have to be sure every effort, no matter how small, is well-planned and flawlessly executed. And to make it even more difficult, the traditional marketing strategies don’t always work.

Startup marketing is a whole different science. How so? The secret is properly combining the right channels: Content Marketing and PR.

So, starting from the beginning, here’s the complete Startup Marketing Manual.

Foundation

Before you start laying bricks, you need a solid foundation. A successful startup marketing strategy follows that same principle. Before you jump into marketing your startup, make sure you have the following bases covered.

1. Choosing a Market

It’s easy for startup founders to believe the whole world will love their products. After all, founders eat, sleep and breathe their products. The reality is that only a small portion of the population is interested in your product.

If you try to market your startup to everyone, you waste both time and money. The key is to identify a niche target market and go after market share aggressively.

How do you choose a market? There are four main factors to consider:

1. Market Size – Are you targeting a regional demographic? Male? Children? Know exactly how many potential customers are in your target market.
2. Market Wealth – Does this market have the money to spend on your product?
3. Market Competition – Is the market saturated? As in, are their many competitors?
4. Value Proposition – Is your value proposition unique enough to cut thru the noise?

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Entrepreneurs Talk about Raising Money

Here are more of their experiences and insights on getting startups funded.

Lower Infrastructure Costs 

With the growing availability of cloud-based computing and services, fewer startups need to spend their money on hardware. “In the early days of Spotify (2006-07),” recalls Enh, “we spent weeks looking at data centers and negotiating with hardware vendors, then finally co-locating. When we started Wrapp five years later, we didn’t need to buy any infrastructure. Higher and higher layers of business service are available in the cloud, so you get more and more stuff without having to buy or do it yourself.”

This has changed seed funding in particular, since startups can lower their initial costs and get products out faster. And for later rounds, notes Reddy, cloud resources make it easier to put up a prototype to show investors.

Changing the VC-entrepreneur balance

Those lower costs can affect the VC-entrepreneur balance, Enh believes. “Large, traditional VCs with hundreds of millions of dollars need a portfolio of about 200 companies to do angel investment properly. Anything that lowers the cost of starting a business may present VCs with the problem of keeping their money active.”

Besides VCs, it’s helpful for the ecosystem to have angels and accelerators willing to invest, says Fears, especially in Latin America where there are fewer institutional investors. “There’s also a growing community of 25- to 30-year-olds,” he adds, “who have had a couple of successful exits and want to invest $50-75,000 in first-time entrepreneurs. Those investors add a lot of value because they are willing to coach and mentor.”

Terms vs. valuation

In the offer, what’s more important for the entrepreneur to examine: terms or valuation?

Of course, the press will focus more on the valuation, but the terms are your agreement with the investors and you’ll have to live with it (and them) a long time.

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Venture Capital: 5 Tips for Nailing the Full Partnership Pitch

You have already had one (or likely multiple) meetings with a subset of a firm’s investment team, including a principal and perhaps a general partner. You’ve impressed your point person (or people) sufficiently so that you have been invited to present to the broader partnership. What do you do now? Here are five things to keep in mind.
 

1. Focus on Style, Not Just Substance

This may sound counterintuitive. However, if you have been asked to come in and present to the full partnership, you have already done a good job defining, defending and articulating your business plan, and addressing many questions and concerns. Your initial contacts from the firm have likely already written up one or more memos introducing your company, and have had multiple internal discussions about your company’s compelling prospective investment.

Now it's showtime! Most likely, the partnership will already be familiar with the facts around your team, market, business model, product, customers, competition and financial projections. They are now looking for the “X factor” — your ability to present with pizzazz, to capture and sustain the attention of the room, to project a degree of informed enthusiasm and to showcase your natural leadership and sales abilities with a healthy spark of charisma.

2. Balance Confidence With Thoughtful Introspection

You know your business better than anyone else. It is important for you to project confidence and conviction around the viability, magnitude and trajectory of your business. It is the job of those in the room to challenge your assumptions or to present perspectives that counter your thesis. It is your job to respectfully but credibly convey what you are doing and how you will actualize your plan.

At the same time, be introspective. The best CEOs and entrepreneurs know their strengths but also recognize where they need help. 

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Simple Tips to Attract Venture Capital

When it comes to technology ventures, software has been taking the lead in terms of the number of rounds cleared, however shifts in technology have made it practical for hardware companies to raise capital for their projects. The biggest reasons why software has taken the lead is because the iteration cycle is smaller and also the fact hardware tends to be more cumbersome.

Today however, investors are now branching into hardware startups because device development has become much easier than in the past. Rather than requiring specialized equipment which often filled entire labs, Arduino and Raspberry Pi boards now allow virtually anyone (including children) to hone their Electrical Engineering skills with only a standard computer and a curious mind.

Ultimately however this shift in hardware will be covered in a later article, but it is important to note that venture capitalists are now warming up a bit to hardware despite it being more complex than software.

The Benefit of Crowdfunding

While many venture capitalists and traditional financiers look down on crowdfunding as being a modern day gold rush where everyone is looking for a quick buck, crowdfunding can be a vital entrepreneurial tool if used properly. In particular a crowdfunding campaign can be used to test the waters and make sure your idea actually has a market. Additionally if you have a successful crwowdfunding campaign, you can take that to an investor to justify your request for funding.

Keep in mind that this method only works with hardware/product startups since crowdfunding isn’t really intended for service oriented companies.

What VC’s Look for in Entrepreneurs

One of the most important points taken from the venture capital panel at CES is that the average venture capital investment lasts longer than the typical marriage. This means that one of the biggest factors an investor considers when making a decision is how well the team members know each other. Ultimately investors will only consider working with teams who have already weathered major challenges since entrepreneurship is rarely a smooth path.

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The advantages of having a partner for business startups

Two types of business operations in the form of a partnership that has been very popular today. Because if compared to the benefits the business owners who have the sole monopoly on the business owner is one of the shareholders that the difference is quite large. Together with the form of business in the current structure in the economy to facilitate business operations in the latter, more in this era, so you do not really have a chance to see emerging businesses that stem from the same owner, but only a little. The advantages of strategic partnerships with the following.

1. A capital increase.

Fund business is that of matching the story is well known for business. The partners will help business operators are promising to raise capital to expand much more. This is beneficial to invest in things that will not expand branch offices. Funds for the purchase of products. Employs. Working capital in the company. That these issues will have very limited if the company is owned only one shareholder. The financing will be difficult to run than companies that have business partners who share the same management.

  

2. Have an advisor on hand to help.

The assisted forward advice without having to pay employment benefits that the company is a partnership with business over the sole owner. Of course, because it operates in part to be indispensable, although, it is not difficult to see problems in the operation. This is to meet all the experience of business life. Having a good advisor who understands the problems and needs access to the company will help alleviate the burden on the operators to be very they are ready to be behind the scenes who help support the idea of ​​entrepreneurship and ready to be ahead in removing obstacles to encounter problems. It is helpful if businesses will open tremendous business partner with a partner. How bad because two heads are better than one head, lean on dinner.

3. has broad social networking business.

10 Marketing Tips For Startups

Marketing is a full time job, and when you’ve got a newborn startup on your hands, strategic marketing is key. With the competition in the startup scene at an all time high, calculated marketing tricks can either make or break a new company. As a new startup, money for large scale marketing campaigns isn’t always in over abundance, so how does a company market big on a small budget? Believe it or not, you don’t have to break to bank to properly execute some effective marketing strategies. So for those of you in need of some creative guidance to get your marketing strategy off the ground, here are 10 marketing tips for startups.

1. Hire a Marketing Division

Before getting your marketing strategy off the ground, the first step is to build a strong and savvy team. Whether you have one dedicated employee focused solely on marketing, or a team of staff building and strategizing new marketing campaigns, having a marketing division is a must. If you ask a startup owner what his schedule is for the day, you’re most likely going to get a jam packed list of to-do’s. With so much on a startup founder’s mind, marketing is one important task that often gets overlooked. So, if you want to successfully market your startup, first be sure that you have a reliable team whose job description includes developing, and deploying daily marketing strategies.

2. Choose your Target Audience

Sometimes that great concept, or idea you have in your head just won’t fly with the masses. One of the most important steps to effective marketing, especially in the startup world, is to choose your target audience wisely. No offense, but you’re not Coca Cola. Unless you are an internationally recognized brand, a marketing strategy that attempts to appeal to the entirety of the general public is surely going to flop. 

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