FOMO Is Leading To Cramming Of Startups According To One Capitalist

Posted on February 23, 2015 by admin

Brokerdealer.com blog update courtesy of the Wall Street Journal.

Venture capitalist and Benchmark partner, Bill Gurley, advised people against “cramming” too much money into startups, such as Uber, Snapchat, and WeWork, at last week’s Goldman Sachs technology conference. Following his speech, Gurley gave even further insight to investing in startups and how the slang word, FOMO, plays into investing.

After speaking about the risks of “cramming” too much money in startups at the Goldman Sachs technology conference last week, venture capitalist Bill Gurley exited the stage.

More than a dozen investors swarmed the lanky partner of Benchmark, eager to speak with him— but few were planning to heed the venture capitalist’s advice. According to Gurley, one man, who represented a large mutual fund, asked, “You don’t want us to invest in this but the big tech stocks are not delivering enough growth and my competitors are getting into these startups, so what are we supposed to do?”

Gurley says he didn’t have a good answer but he wasn’t surprised by the sentiment, which he describes as FOMO, a slang popular among millennials that stands for “fear of missing out.”

It is this infectious FOMO, according to Gurley and other venture capitalists, that has created a flotilla of billion-dollar startups with ever-soaring valuations and mixed financials.

According to The Wall Street Journal’s Billion Dollar Startup Club, there are now at least 73 private technology companies worth more than $1 billion dollars, versus 41 a year ago. Some, such as Uber, the $41.2 billion car hailing app backed by Gurley’s Benchmark, are worth enormous sums. At least 48 companies were valued at $1 billion or more for the first time, and another 23 members moved up the ranking after raising more money.

Many investors are treating these 73 companies as if they were publicly traded, says Gurley. They are investing sums of money usually reserved for IPO offerings and, sometimes, giving away those dollars with the kind of confidence usually associated with investors who’ve perused regulatory filings for detailed financial information. The investors themselves are a blend of traditional venture-capital players and typically public-market investors: hedge funds, mutual funds and banks. They are sort of meeting in the middle, with the venture capitalists investing in later-stage companies than they have historically done, through new growth funds, and the institutional investors getting in before the IPO.

“We’ve been calling this the private-IPO slice,” said David York, managing director of Top Tier Capital Partners, a fund of funds. “The valuation of risk is a public-market thought process versus a private-market thought process.”

Gurley, who has become a vocal critic of irrational behavior in the industry, says he’s also very worried about the pile-up in the “private IPO” market.

He’s worried that venture capitalists’ new bedfellows, such as mutual funds, are too new to venture capital to properly weigh the risks and realize that these billion-dollar companies are not guaranteed home runs.

“This replaces the IPO — but not all these companies are IPO level candidates,” he said. “Would you hand a teenager $200,000?”

According to data collected by The Journal, of the 29 firms that have invested in five or more current billion-dollar startups, only about half are traditional venture-capital firms. The rest are a mix of institutional investors, such as the Dragoneer Investment Group and Tiger Global Management, and strategic investors, such as Intel and Google. Near the top of the list is Tiger with 12 investments in private billion-dollar companies, and T. Rowe Price Group with 11. In this group, Tiger also raised the most money last year, keying up $4 billion, or 12% of all venture capital raised in 2014.

With such financial heavyweights jumping in, many of their peers are wondering: Can I afford to sit out?

It’s difficult to quantify exactly how much money is sloshing around at this level. Several top venture capital firms have raised large growth funds in the past few years, but total contributions from hedge funds, mutual funds and banks is practically immeasurable without knowing how much each invested in particular funding rounds. Whatever the amount, this layer of growth capital could warp prices, venture capitalists say.

“It’s like traffic on the highway, you add just 5% more cars and it slows down traffic considerably,” said Glenn Solomon, a managing partner at GGV Capital. His firm is an investor in four companies in The Billion Dollar Startup Club.

In some ways, Gurley’s firm has benefited from this influx of pre-IPO capital. His firm is an early investor in four companies in the Billion Dollar Startup Club: Uber, Snapchat, WeWork and Jasper Technologies. All four have since raised money from a big public-market investor.

For the entire article from the Wall Street Journal, click here

Cyber Security Breaches Lead To Slowed Hiring For J.P. Morgan

Posted on February 20, 2015 by admin

J.P. Morgan Brokerdealer.com blog update courtesy efinacialcareers’ “Morning Coffee”.

Brokerdealer.com profiled earlier in February the uptick in PE firms hiring younger bankers however, other Wall Street businesses are easing up on hiring bankers and looking for more cybersecurity employees after recent breaches.

Much of the hiring that takes place on Wall Street is, unfortunately, reactive. Junior bankers are replacing pricey seniors while sell-side firms are backfilling seats left vacant by staffers who are jumping to the buy-side. And then of course there is headline chasing, when banks load up on compliance, risk and cyber security pros after news of a big scandal breaks.

And that’s not to say it’s a PR move. When J.P. Morgan discovered a massive breach to its internal network last June, one that reportedly had ties to Russia, it pulled out all the stops to improve its defenses to mitigate against a repeat occurrence. Apparently grown frustrated with a lack of help from the U.S. government, the bank has reportedly been recruiting defense contractors and people with military backgrounds, according to Bloomberg.

J.P. Morgan has already grown headcount within its digital security staff to 1,000, more than double the size of Google’s security group, according to the report. The bank has even built a security services facility in the backyard of the National Security Agency, making it easier to recruit talented defense pros. From the sounds of it, J.P. Morgan has essentially built itself a mini defense agency.

Meanwhile, hiring continues to slow in the front office. Headcount at the 10 biggest investment banks on Wall Street fell for the fourth year in a row in 2014, down 4% to 51,600,according to a new report. Fixed income units took the brunt of the punishment, with banks cutting nearly 10% of front office FICC employees during the year.

Despite a revival in dealmaking, investment banking divisions cut their staff by 1% year-over-year. And that’s with revenue up 6% compared to 2013. With greater needs in the back and middle offices, banks are trying to do more with less when it comes to revenue generators.

For the original article, click here.

BrokerDealers Want To Ride With Uber

Posted on February 19, 2015February 20, 2015 by admin

Shanghai, China. February 13th 2014. Driver images for UBER marketing content.

Brokerdealer.com blog update is courtesy of the New York Times’ Deal Book’s Mike Isaac.

Uber is an app-based transportation network and taxi company based out of San Francisco, California. It began in 2009 and has slowly been making its way across the United States and the world. Customers use the app to request rides and track their reserved vehicle’s location. Uber vehicles range from black luxury SUVs and town cars, to taxis, drivers’ personal vehicles. Although Uber hasn’t gone public yet, they have recently expanded their venture round to a total capacity of $2.8 billion due to high demand. Now, it is only a matter of time before the company decides to go public and the brokerdealers can’t wait.

Uber, the ride-hailing service, likes to trumpet its popularity with consumers. Their fervor is surpassed, perhaps, only by investors’.

Facing overwhelming demand from institutional investors, Uber has expanded its Series E round of venture financing by $1 billion, according to documents filed Wednesday with the Delaware secretary of state, bringing the total capacity for the round up to $2.8 billion.

The move, which was confirmed by Uber, occurred just weeks after the company closed a $1.2 billion round of financing. At the time, Uber said it had left capacity for about $600 million in additional strategic investments, according to a Delaware filing. The company is incorporated in Delaware and based in San Francisco.

But the appetite for a piece of Uber has proved to be greater than the company had imagined. The $600 million was quickly oversubscribed, and Uber decided to raise the amount. Baidu, the Chinese Internet giant, accounts for part of the additional investment beyond the $1.2 billion round.

The most recent expansion is on top of some $4 billion Uber raised, including a recent $1.6 billion round of convertible debt financing from the clients of the private wealth arm of Goldman Sachs, the investment bank previously confirmed.

Uber’s $40 billion valuation, extraordinary by any private technology company’s standards, remains unchanged since the company announced the first part of the round in December. Uber is one of the most richly valued private technology start-ups, second only to Xiaomi, the Chinese smartphone manufacturer.

“The participation we have seen in Uber’s Series E underscores the confidence investors have in Uber’s growth,” Nairi Hourdajian, the head of global communications at Uber, said in a statement.

Even in Silicon Valley’s recent venture capital environment, where hundreds of millions of dollars and high valuations seem much easier to come by, Uber remains an anomaly. The company has raised close to $5 billion in private financing since it was founded in 2009, and it appears in no hurry to introduce itself to the public markets.

Uber is likely to need full pockets to continue its rapid growth.

The company is working to expand UberPool, its ride-sharing initiative that links multiple passengers heading toward the same destination and lets them split the cost.

Uber has also said it intends to bolster its European operations and push into the Asia-Pacific region.

It can expect to meet opposition. Uber faces stiff resistance from taxi and limousine interests in countries like Spain, Germany and Belgium, among others, and will probably need to spend heavily to market itself to win favor with locals.

To do well in China, the world’s most populous country, Uber will probably have to spend heavily to take on services like Kuaidi Dache and Didi Dache, China’s two largest taxi-hailing services, which recently announced plans to merge. That deal, if completed, would give the two services more than 90 percent of the market.

Meanwhile, Uber’s largest United States competitor is also raising money. Lyft, identified by its signature pink mustache logo, is trying to raise at least $250 million in private capital, with participation from at least one previous investor, the Alibaba Group of China.

For the original article, click here.

Shake Shack IPO Could Leave Bad Taste

Posted on February 18, 2015 by admin

Brokerdealer.com blog udpate courtesy of Forbes’ contributor Jeff Golman.

In late December, brokerdealer.com blogged about the exciting news regarding Shake Shack applying for an IPO. Shake Shack, a New York burger chain burger chain created by famous restaurateur Danny Meyer, is known for its fresh cut fires, 100% all beef burgers and hot dogs, and most of all its delicious shakes. The chain has been growing ever since its opening in New York City in 2000 and now has 63 locations open worldwide. Forbes’ contributor Jeff Golman believes that the burger chain’s IPO is too good to be true and is overdone.

By now, I’m sure you know all about Shake Shack’s recent IPO. The burger chain’s nearly $2 billion valuation and 130% pop on day-one of trading was nothing short of impressive, albeit slightly anticipated.

Shake Shack is just the most recent in a string of “fast-casual” restaurants to go public in the past 10 years, and investors are eating them up. However, it’s important to note that Shake Shack’s unit economics and demographic positioning made this a particularly interesting investment opportunity, which will be incredibly difficult to duplicate. And while the IPO may be a positive sign for similarly-placed restaurant concepts, it cannot be applied across the board.

The public offering has always been a credible and attractive exit opportunity for the right concept, but it has boomed in the past year with some 1,205 issuers raising nearly $249 billion globally, according to data from Thomson Reuters. Increased confidence in the U.S. economy, low interest rates and positive IPO performance have combined to encourage businesses to make offerings and investors to take greater risks.

However, just because a company can go public, doesn’t mean it should. Successful IPOs require a very impressive growth profile, and even the most well-positioned company still runs the risk of failure. Therefore, for many, a merger or acquisition may be a safer, smarter and preferred method of growing and funding a business.

One of the major challenges of going public is the overwhelming emphasis on short-term financial performance. For example, the moment Shake Shack comes out with a disappointing quarter, its stock will likely drop, and possibly sharply. Since shareholders and analysts tend to concentrate on short-term earnings rather than long-term return on capital, public companies must often shift focus to meeting quarterly targets rather than bolstering strategic opportunities and innovation. In short, it’s hard to invest in long-term growth when you’re battling the markets.

Another significant roadblock in the IPO route is that they don’t generate immediate liquidity. The ability to cash out completely on day one is unique to M&A exits, and in today’s robust M&A market the more quickly this money can be put to work, the better.

2014 was the strongest year for deal-making since before the recession with a 47% increase in the total value of worldwide M&A since 2013. There’s a lot of money in the private market right now, and anyone looking to exit should consider taking advantage. The lower costs, corporate stability, decreased risk, greater flexibility for management, and more stable valuations provided by a merger or acquisition far outweigh the benefits of being listed on the public market. Yes, IPOs are hot right now, but the problem with heat is that it always dies down. It may be easy to label Shake Shack’s offering as a success today, but time will tell if they can live up to the hype.

It’s in our nature to look out for “the next big thing,” and once we find it there’s no turning back. But there is something to be said for stability and consistency. One of the reasons Americans love burgers isn’t just the delicious taste, but the sense of nostalgia we feel when we eat them. They bring us back to the good old days when life was just a little bit simpler. Just like a good burger, M&A is a slow cook aiming to provide the best flavor.

For the original article, click here

New York City Considering Accepting Bitcoins For Fines

Posted on February 17, 2015 by admin

New York City Councilman, and Bitcoin Supporter, Mark Levine

Brokerdealer.com blog update courtesy of Pete Rizzo from CoinDesk.

Over the past few months, brokerdealer.com has covered the growing trend and interest in the mystery that is the electronic currency, bitcoin. With the anticipation of the Winklevoss twins’ launch of a bitcoin ETF and brokerdealers studying the trade of bitcoins, it is inevitable they will soon become widely accepted in all parts of life. Now a New York City Councilman is proposing that the city accepts bitcoins as a form of payment for fines and fees as a way to save the city more money.

Last Thursday New York City councilman Mark Levine introduced a bill petitioning for the city to accept bitcoin as payment for fines and fees.

Levine opened up about the bill, which he says could be passed as early as June, in a new interview with CoinDesk, indicating that he believes New York City has a pressing incentive to begin accepting the payment method due to its cost advantages when compared to credit cards.

The democrat from the 7th District in northern Manhattan recalls that it was this benefit that led him to introduce the bill, one that will now go through a process of gathering co-sponsors, before heading to a vote with the city’s technology committee and finally a full vote in the city council.

Levine told CoinDesk:

“It started with realizing how much money the city of New York is losing on transaction fees on credit cards, ultimately it’s several million a year because of all sorts of fees and fines.”

Levine added that if the city were to partner with an intermediary in accepting bitcoin, it would bear some costs, but that these would still be less than those charged by payment card providers.

While Levine is optimistic about an expedited timeline for the bill, he indicated that the end-of-June estimate is far from concrete.

“There’s a lot of uncertainty in the process,” he said.

Message to entrepreneurs

Yet another benefit to accepting bitcoin, Levin said, is the message that New York City is an innovator that deserves the attention of entrepreneurs considering Silicon Valley as the hub for their endeavors.

Levine framed New York City as “in competition” with areas like Silicon Valley and Boston when seeking to attract top tech talent, and framed bitcoin as a key differentiator that could provide value to city.

“I think that being the first major city in the US to make this move sends a clear signal that we’re innovators here,” Levine said.

New York has already positioned itself as at the forefront of developments in the bitcoin space, with its introduction of the proposed ‘BitLicense’, the first state-specific bitcoin regulation in the US.

Further, the city was home to the first physical bitcoin center, Bitcoin Center NYC, opened at the start of 2014.

Negative reactions

Though excited and optimistic about his proposal, Levine indicated that some of his peers in the New York City council have taken issue with the bill and the idea of accepting bitcoin.

“Some of the reactions I’ve gotten in the last few days are concerns that bitcoin is the ‘Wild West’ of currencies,” he said.

The councilman indicated that he countered such claims as ill-informed, arguing to his colleagues that the city accepts cash, the “ultimate untraceable financial instrument”.

Levine, however, framed the ongoing discussion by the New York State Financial Services Department (NYDFS) over its BitLicense proposal as one that would likely help “calm the nerves” of those in the state government, though he indicated it would not directly affect the outcome of the bill.

For bitcoin community members, he also clarified a provision of the bill that would enable the city to accept fees for bitcoin transactions, arguing that, while the city would be looking to pass on the cost of the transaction to payees, the fee would likely be less than 1%.

Issue of legal tender

Given the uncertain status of bitcoin in the eyes of US courts, there are also questions about whether the city could accept the payment method, given that bitcoin the currency is not considered legal tender in New York state.

Levine indicated, however, that the bill was fully vetted by the city council’s legal team, and that he believes having a financial intermediary accept bitcoin, thereby providing the city with US dollars, would help the city circumvent potential legal issues.

The issue is one that remains murky for the number of proposals introduced in US governments over the last few weeks.

Levine’s bill in New York City notably follows others recently introduced to state legislatures inUtah and New Hampshire.

For the original article, click here.