Sep 30, 2008

Venture Capital affected by the crisis


Is already known that U.S is the economy with the biggest Venture Capital market, and reaches the first position of Venture Capital environment in the world.
And is also known that the Venture Capital began and is actually concentrated in San Francisco/Bay area.
Is the reason why some people created the "Silicon Valley Venture Capitalist Confidence Index" a company for measure the confidence in the VC market.
Is a quarter analysis and is based in a 5 points scale.

The index was created in 2004, reaching 4.3, but in the third quarter of 2007, the confidence pumped and put in 3.54, for this second quarter of 2008 the index reach their lowest level, 3.07.




The causes for this low level are related to:

Credit Crunch.

Richard Yen of Blueprint Ventures said “The optimism in the entrepreneurial environment has been dampened recently by the turbulent public markets, particularly the NASDAQ tech stocks.”

I see 3 points:

The problem is affecting the liquidity of the sector 
The VC & Entrepreneurs are not getting IPO because they dont see a good playground for it
Increasing of the interest rates will impact the Limited Partners (LP)

Re-structuration of VC firms:

Steve Carnevale of Point Cyprus Ventures said, “You are seeing more of the old venture firms breaking up due to generational problems, and new funds are becoming smaller. Some are concluding there is not that much need for another venture firm"

But, there are some Golden spots:

Jim Watson of CMEA Ventures said “The alternative energy and cleantech investment area is one of the best opportunities the venture industry has seen and it looks like a long term bet.”

Why?
Because if the oil prices continue to be so volatile the governments and the private sector will look for alternative sources of energy to supply their requirements, and this is a global topic.

Igor Sill said “The shining light ahead in Silicon Valley are those well positioned software companies offering a disruptive sales model (ala SaaS) Open Source and fraud prevention providers which become more attractive to recession affected corporations.”

Why?
Because the Software as a Service (SaaS) model offer a lower price for any kind of software implementations they require, also the SaaS gives the advante to the customer of not having to acquire any kind of hardware .
I think is the opportunity for companies with this business model to show the advantages of their models and how their customer could reduce IT expenses by implementing their services.

Uncertaint future?

Bart Schachter of Blueprint Ventures said “The IPO market will re-open in 2009 as the credit and housing crises ease and the US is headed by a new administration.”

Venky Ganesan of Globespan Capital Partners said “To paraphrase Dickens, It’s the best of times and it’s the worst of times. If you consider the cocktail mix of the credit crunch, high commodity prices, deteriorating consumer confidence and the lack of IPO exits for the venture capital community, then it’s the worst of times. Exits are the river Nile of the venture business and I am afraid the river has been dry for too long. However, if you are an incredible entrepreneur with an innovative idea then this is the best of times. Rents are cheap, people are available and the tourists are gone. While its hard to imagine now, some day in the future the economy will boom, consumers will buy, and, gasp, even housing will go up, and if you lay the seeds of growth now, you will reap then. Be greedy when others are fearful.”

What we can conclude:
There are some venture capitalist loosing the confidence in the market, there are others willing to have IPO in 2009 so they can recover their money, but i think the problem is bigger, after the failout of the Bailout and the stocks roller coaster, example, DOW JONES (Monday loosing 777 points and tuesday winning 485 points) is giving an uncertaint environment for the economy and surely for the VC sector.

My prediction for the incoming VC index report are: 
In third quarter will be under 3 points and with a tiny recover in the fourth quarter,

why?
because many Venture Capitalist support Obama,
This was reported in the Venture Capital Midas List for 2007 at Forbes (This list is a classification for the worlwide VC industry):

"Robert Nelsen of Arch Venture Partners (Midas List No. 73) says he was a Bushie who'd never supported a Democrat--until Obama came along.

"There is huge support for Obama among VCs and also high-tech CEOs," notes Nelsen, a $4,600 Obama contributor. "Every fund raiser in Silicon Valley is sold out. Basically, Obama is the right leader at the right time."


Just remember 2 issues:
-Obama will create a New Energy Venture Capital fund with Us $10bn per year
-Obama will win the elections.

Sep 25, 2008

How to stop the erosion of America Innovation System?

This is a topic that has been treated by several editors, writers and politicians, but the appropiate person to analyse the topic is the Pulitzer winning Thomas L. Friedman.

In repetitive ocassions he has been telling us what to do for mantain the first world position on innovation. 
"Unless we make America the country most able to innovate, compete and win in the age of globalization, our leverage in the world will continue to slowly erode"

So, the American people has 2 options,

1) Buy the McCain Speech for pursue the "Drill, baby,drill" strategy.
2) Put very attention to Obama mantra of "invent, baby, invent"

We already known the consequences of McCain plan following the strategies made by Bush administration, so in this article we are going to focus on Barack Obama plan for restore the confidence in America and not only mantain the first position on innovation but to advance in developing of green technologies to start buing independent of the oil.

If you go to the website of Obama you will find all the info of the presidential plan, here is the info for the INNOVATION plan.

SCIENCE, TECHNOLOGY AND INNOVATION FOR A NEW GENERATION

“Let us be the generation that reshapes our economy to compete in the digital age. Let's set high standards for our schools and give them the resources they need to succeed. Let's recruit a new army of teachers, and give them better pay and more support in exchange for more accountability. Let's make college more affordable, and let's invest in scientific research, and let's lay down broadband lines through the heart of inner cities and rural towns all across America.”

— Barack Obama Presidential Announcement Speech in Springfield, IL 02/10/07


The key points i have prepared for you are:

Sep 22, 2008

Why the innovation process fail and cause the financial Crisis?


When i heard the reasoning of Bruce Nussbaum , the "Innovation Guru" from Businessweek comment about the relationship of innovation with the actual financial crisis, when he said:
"the innovation process was flawed"
i began to think:
Does he blame the lack of correct implementation of Innovation process in the financial systems?
Who are the institutions that incorrectly implemented those processes?
Is he right with his statement?
What is a correct innovation process?
how to commercialize innovation in financial market?

As we know, Bruce background is in design, he has been awarded from the Industrial Designers association of America and is a writer that present key questions in the Innovation area,
his question for this topic was: "Have the Numerati caused the crisis on Wall Street by innovating new financial products based on bad models and poor process?"

We are going to get in deep into this statement and try to offer a better understanding of the reallity:

The Numerati, as Stephen Baker describes are a group of Mathematician, scientist and engineers capable of understand, filter and analyze all the info generated in internet for marketing purpose.
These people do this by looking for patterns in human behaviour and then they can quantify the information.

Reading "The Numerati" i found 2 great examples of companies generated by Numerati, one the globally known "GOOGLE" and the other, also known in the financial sector, "Fair Isaac Corporation".

These companies have several similarities:
+His founders are engineers /mathematicians
+His founders are from Standford
+They take advantage of the information an convert in a profitable business.

im going to focus in FAIR ISAAC CORPORATION(FIC):
They developed the widely used credit score model call "FICO SCORE": This is used for the 90% of all the institutions in United States, and offer to the banks an statistical tool for take their credit decisions.

I have seen that Equifax, TransUnion ans Experian (largest credit bureaus in U.S), even if they have their own scheme for calculating the credit they use the FICO.

So, returning to the question of Bruce , lets see the performance of FIC in the past 2 years:


As we see here, there is a big drop in December of 2007, so i looked to the news of the company in that time and i found this:

In October 31 of 2007, the stocks gain their maximum to $37.46 this was attributed to the increase of usage of their Myfico.com service. By other side, their business havent received any decline from the Mortgage markets, these markets represents the 10% of their revenue.

Then, in december 10 of 2007, the company added 2 sits on their board because they began to feel the consequences of the Mortgage market meltdown, and they were preparing for problems in the future.

Then the company decided to make some changes to the FICO system for suit the incoming crisis. This was an strategy to mantain the monopoly because 3 lender companies created a system similar to FICO in 2006 call VantagePoint.

In January of 2008 they anounce that their earnings will fall because of the Mortgage crisis.

All these combined made FIC to drop his stock value more than 25% in 2 months.

But, all this analysis give us an approach to answer the question to Nussbaum?
i dont think so,  we have to continue to research what really happen...

but remembering the commentaries of Alabama senator, Richard Shelby about the "Mother of all the Bailouts " 
He appoints that this bailout is a reward for WallStreet, because they were:

-Weakly regulated
-They made Bad mistakes
-They were Greedy

so, we have to ask a new question: Does the american regulatory system is capable of managing and controlling the innovations at Wall Street an Main Street ?

Sep 18, 2008

Confidence on Stock Investments

We are in a very volatile market, and the people are very concern about their investments,

Some people have said that when the Index’s gain some points, the market is good, but we have seen that one day the market get up and the other immediately get down, , one day the NIKKEI is gaining 4, 2% and the analyst said that the S&P 500 will recover, but in this year we have seen the major “systematical failure of all the history” after the great Depression.

I remember when Warren Buffet tried to help to maneuver the “Recession”, by offering to reinsure $800 billion of MBIA, Ambac and FGIC (companies managing municipal bonds). And now the biggest Mortgage insurance AIG has been saved by a Government Bailout.

So, listening to some experts as Suze Orman we can identify 3 factors we have always should pay attention to when the Market analysis comes.

1) UNEMPLOYMENT (UP)

2) ECONOMY GROWTH (EG)

3) REAL STATE (RS)

If we put great attention to these factors the “Market confidence equation” will be:

+(EG) -(UP)+ (RS) = Bull Market

 +(EG) +(UP)+ (RS) = Bear Market

-(EG) +(UP) - (RS) = Bear Market

-(EG) +(UP)+ (RS) = Bear Market

So, even if you don’t have great knowledge about brokerage or investments, you can analyze by yourself what is going on in the market.

And depending of that, here are some recommendations, which are “Vox Populi” on investments:

When is a Bear Market:

A)     A)Maintain your money exactly were you have. Don’t enter in Panic by taking out the money of the banks.

B)     B)If you have some money that you will require immediately, take out of your investments.

C)     C)Maintain a percentage of your money for Long TERM investment

D)    D)Pay attention to other kind of investments: as Commodities and right now some people are investing in GOLD

When is a Bull Market:

A)     A) Diversify your investments; invest in many stocks of different sectors, invest in Mutual Funds

B)     B)Establish  your long term strategy

That’s all for today, and we have to pay attention to the new Bailouts, remember that the U.S government has invested $500 billions of dollars to save many institutions (Freddie Mae, Fanny Mac, AIG and proximately …, we have to see what happen  in 2008.

Sep 17, 2008

Lets see if rocks!

Welcome to the Blog,
here are the topics we are going to treat:

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Read this document on Scribd: Innovation Basics