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

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.

Continue Reading

16 rules of engagement to rocket fuel your start-up’s growth

Here are 16 things that essential if you are going to see your young start-up flourish into a high growth mid-market tiger:







1. Don’t be alone
The experienced, objective and dispassionate adviser / chairman / non-executive director (mentor) can make for a powerful combination with the passionate yet inexperienced entrepreneur who is not always as objective as is required. It’s someone to talk to and vent your frustrations at – safely.

2. Hire a high calibre senior leadership team
You need one of these if you are serious about growth. Too many founders think they can do it virtually by themselves or employ junior managers and expect director level results. Recruit for greatness.

3. Challenge
It is no longer all down to you and if your leadership team is motivated by long term growth in the value of the company then it’s likely they now own part of it too. You have to respect their views and listen to their advice. Expect to be challenged. If you aren’t something is wrong – you have a weak team or you are overbearing. Both are equally dangerous.

4. Learn to lead not manage
This means you have to build a great leadership team and then let them get on with it. Your role as CEO & founder is to provide the direction and uphold the vision and focus – through the ups and downs. Pick the right people and they’ll build a great company for you. Too often, a promising young business is stifled because the founder cannot make the leap from being the nexus of all decisions to leading a team. More of what got you here is not what will get you to where you want to get to. You have to let go and delegate, not over manage.

5. Trust
I trusted my fellow directors 100% that they always had the best interests of Coffee Nation at heart. We had a simple vision and were always aligned. Of course, we didn’t always agree but that is healthy.

6. Style

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.

Read more

Entrepreneurship - What do you need to know?

In today’s day and age, consumers possess a very calculated mind as it helps them see every company they come across in a clear, context manner with reference to cost factor, time taken for travel, quality, quantity, and many more .This is where a wise businessman must equip himself with fair knowledge and understanding of these needs and desires of the customers, and know how to canvass them using his innovative skills, in order to attract a large set of people towards his business. After all, why would they seek his company’s service when they can get a better service at a cheap rate in a neighbor company?

He must also be aware that people keep changing. If you are desperate about succeeding, you ought to think differently, that is the rule. Hence on knowing this well, he must operate in a more established manner as his only goal is to satiate his customers in general, making him standout from rest of his rivals.

Moreover, he must thrive hard to change their mentality in order to become his regular, loyal customers. But he never should take them for granted. Each customer is unique, such that their tastes and expectations tend to be different. He should consider this fact after doing a thorough research and form a more realistic approach rather than an artificial one. The following are the essential questions to ask yourself, if you are sincere about starting a business.

1) Are you going to take risk as a sole proprietor? What sort of customers are you planning to deal with? How will your business be different from that of your competitors? Do you have effective marketing techniques to run the same?

2) When the idea of a business startup popped into your head, was it because were you inspired by the victory of another startup? If it is so, you should be unduly cautious and brilliant enough to avoid imitations or falsifications of any kind that might lead to unnecessary conflicts.

3) You may start your business any time at any place; but a crucial point or situation may arise where you have to abandon it due to family issues, time constraints, and lack of money, investors, etc. Are you 100% sure, you are ready for this?

4) Let us suppose you have started running your business and is quite content with its progress coupled with auspicious and impressive profit  of which you are confident in getting .Suddenly, an unexpected, heavy loss occurs and ruins your business abruptly leaving you all scattered to tiny pieces. In this case, will you promptly quit or have the courage to start over again?

After asking these questions, you still are very much interested, the following are some of the important aspects that you should never fail to concentrate during the course time of running your business.

a) Enthusiasm for Entrepreneurship

How can startups collaborate with big corporations?

Going into some form of partnership with a bigger brand can be an enormous opportunity for a startup and take at least some of the heat off when you’re first setting out.

However, the actual partnership deal can itself be strewn with hidden dangers, and the validation, press, prestige and growth you assumed would follow from a successful partnership may not be so immediately forthcoming as you’d imagined. Just getting a foot in the door often takes tremendous amounts of time and effort, and then after the contract is signed the delivery of real, mutual value can also be a challenge.

But partnerships with big brands can and do work well when approached intelligently and with no undue expectations of magical transformations suddenly taking place. Here are a few points to take on board when considering such an arrangement yourself.

Press isn’t everything

Getting the word out about your business does not in itself guarantee success. Increased press coverage can in fact be a mere passing spike, and everyone can cite examples of where massive press launches led to complete failure only months later. Press should be seen as a means to other ends such as fundraising, but going into partnership for this reason alone would not be cost or time-effective, as well as a sad waste of resources that could better be spent elsewhere.

Contact the right advocates

Thoroughly investigate the advocate company’s business goals, mandate and experience of similar projects before committing. Just because a small group of enthusiasts in the organisation have shown an interest doesn’t necessarily mean that the key players are on board, and they are the ones who will ultimately sign off the Det ar enkelt att lara sig spela spelautomater pa natet , och om du ar helt ny som spelare sa kan du valja att spela dina forsta rundor genom att bara satsa pa ett enkelt nummer. deal.

Read more

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. 

Continue reading 

Startup Advice From 7 Successful Entrepreneurs

Starting a business can be exhausting, exciting and exhilarating--all at the same time. This is precisely why it's refreshing to hear words of encouragement from those who have done it before--and succeeded. We spoke with entrepreneurs we admire to cull the single best bit of startup advice they could muster--and the experiences that led to it. They're simple mottoes, to be sure, but their impact can be tremendous.

"Don't think, do."

So said a stranger to Jeff Curran, founder and CEO of Curran Catalog, a high-end home furnishings company in Seattle, more than 20 years ago.

The two men were sitting next to each other on a cross-country flight, and Curran, then 25, had just broken into the catalog business. They got to talking, and Curran spilled his idea for a startup while his neighbor interjected with devil's-advocate questions. When the plane landed and the two rose to claim their bags from the overhead bins, the stranger finally opened up his can of insight. Those three words inspired Curran to pour $15,000 of his own cash into launching his company, which has grown into a profitable B2B and B2C brand.

"After that plane flight, I'm sitting in the bathroom at my parents' house and I pick up [a financial] magazine, and this guy was on the cover," remembers Curran, now 47. Turns out the man was mutual-fund maven Mario Gabelli.

Curran still lives by Gabelli's advice. Earlier this year, after learning about profit margins in the high-end car-accessories business, Curran Catalog launched a new product line: designer flooring for collector and European automobiles. "There is such a thing as overthinking a big decision," Curran says. "Sometimes you just have to get it done."

Read More