quid.pro

Avoiding the 2009 prediction game

I've been blogging on Quid Pro for less than a month, so I'm not allowing myself to write a year end wrap up piece. And I'm too lazy in my vacation mode to have any original ideas about what 2009 might have in store. So I can't help but do a meta predictions story and take the shortest path between here and the bottle of Champagne waiting for me tonight.

I'll start by drawing a line through one point: today's stockmarket ended up! Beyond that, 2008 wiped out all the gains of the last six years and everyone still is convinced 2009 will be bleak. I'm going to wishfully think that regardless of the economy, 2009 will be an interesting one for the tech (and in particular social media) world. Here's what others think:

• The tech IPO market will be dry for the whole year : I mostly agree with VentureBeat on this (pretty hard not to) but I think you will see a filing or two towards the end of 2009.
• Amazon acquires Dopplr and Brightkite as part of a new push into social travel and geolocation: I agree with Stowe's main point here, which is geolocation is both interesting and valuable. GPS functionality on phones today feels like where cameras on phones were in 2002.
• Old Media will acquire a record number of blogs: From Duncan at Inquisitr. Did I mention I work for a blogging company?
• Online-first releases will become the norm: It's hard for me to disagree with this prediction from CNET's music blog as some of my favorite albums of 2007 (In Rainbows) and 2008 (Everything That Happens Will Happen Today) were both released online first.
• The tech industry will be the first to recover: This prediction from PC Magazine may be one that we all have to will into existence, I promise to do my part.
• Gathering clouds: The Telegraph (and many of the others) predict big things for cloud computing in 2009. Did I mention I work for a cloud computing company?
• The usual suspects will remain unacquired in '09: Agreeing with ReadWriteWeb, I don't think 2009 will be a particularly good year for high profile M&A deals.
• More blogs! Did I mention...

Kind of a random list, but I had fun reading everyone else's predictions and trying to be optimistic about what 2009 may bring. I don't know if next year will be any worse than this year economically, but here's to hoping it'll be less surprising in the wrong ways and more delighting in the right!

Of bankers and cats

Reading a few news articles this morning, I was reminded of how investment bankers are much like cats — they've got many lives and always land on their feet. IndyMac, one of the early 2008 banking system failures, was a long time Lehman Brothers client. It's been managed by the FDIC since it failed in July of this year and is now about to be sold off to a private investor group.

Who is doing the sale? According to the New York Times it's "a team of former Lehman Brothers bankers who are now with Deutsche Bank and Barclays Capital." Lehman Brothers and Bear Stearns may both be gone and I certainly wouldn't want to make light of the many people who are still out of work as a result. But don't be surprised to see large numbers of refugees from those firms landing squarely on their feet over the next year or so. Banking firms disappear, but ultimately most of the bankers just move on to the next one.

This has been as true for the west coast tech investment banks as it has been for the big Wall Street firms. Anyone remember the leaders of the 1990's tech IPO wave? I'll remind you: Robertson Stephens, Hambrecht & Quist and Montgomery Securities. In one form or another, they're all gone as banks but now we have Savvian, ThinkEquity and a few others that have emerged to take their place.

Herding bankers isn't that much easier than cats: they stay in one place for a little while, but ultimately go their own way. We should expect much interestingness to come out of the industry over the next few years as a result of all of the turmoil of 2008.

Newspapers sux2bu jk

The dog-bites-man of internet journalism is internet-kills-newspapers. From the Tribune Company's bankruptcy to the New York Times doing everything to raise cash, December's been an apparent blood bath out there and all my favorite online news sites just love to cover it. Don't believe me?  Here's some link porn for you:  Detroit, Colorado, Iowa, Baltimore/Washington, Sacramento/Miami, Philadelphia (and I could go on). 

David Byrne recently joined the discussion, complaining about what a two or three newspaper United States might look like:

"What will happen when most of the country has nothing but entertainment, gossip and sports as sources of information? It’s a country ripe for takeover, if you ask me. A place where public opinion can be easily manipulated, as long as the consumers keep buying. Blogs and Internet news sites can’t fill the gap, as they don’t have the resources to sustain a team of reporters working and digging into a story — sometimes for months before anything sees the light of day."

Needless to say, I have to disagree on a number of fronts (much as I might imagine what a world of nothing but entertainment, gossip and sports might be like). Newspapers aren't going anywhere, we all know that no media ever dies. Sure, the newspaper industry will get smaller as online journalism gets bigger. Television has fragmented, (satellite) radio has consolidated, record companies and magazines are dying. The media industry has been changing since the day it started and dogs continue to bite men.

Let's all call bullshit on this story as a joint new years resolution, it's been a tired meme for an awfully long time. Ian Rogers recently gave a brilliant talk distinguishing the death of the CD industry from the very alive music business. Similarly, the newsprint distribution industry may be hurting, but the news business is doing just fine.

Especially the entertainment, gossip and sports coverage. So nothing to worry about.

"What do you want it to be?"

In the earliest part of my career as an investment banker, I helped the more senior bankers (ie., everyone else) pull together research data from online resources. This was the olden days of the mid 1980's when a high speed connection meant your modem was connecting at 1200 baud instead of the normal 300. We dialed into various proprietary systems and downloaded whatever we could into our Lotus 123 spreadsheets.

And then we asked the most fundamental question of our jobs: "What do you want it to be?" Our role was not to analyze but to prove a point. All statistics are lies, we just had to make sure we were lying to our own benefit.

So I had to laugh when I saw this story in The New York Times. An excerpt:

"...(W)e thought we would present the traditional M&A league tables with a bit of extra information, to show just how many of these deals still haven’t closed yet. Deal rankings are based on a financial adviser’s role in announced deals, and, especially these days, an announcement is no guarantee that a transaction will get consummated."

Traditional M&A league tables? No such thing. I guarantee you that floating around in pitch books right now are so many versions of these league tables that you don't have enough fingers and toes to count them. And everyone is first in at least one of them.

Nuclear winter solstice

Today is the winter solstice, first day of winter and longest night of the year. Here in Half Moon Bay, it's a rainy, cold Sunday: the perfect time to remember fondly the joys of 2008 and look optimistically forward to the new beginnings of 2009!

Not so fast. This weekend's reading material is kind of depressing:

• Venture Capitalists Look Ahead to a Bleak Year: "The National Venture Capital Association released a survey on Tuesday of venture capitalists’ predictions for 2009, and 92 percent of those polled said that the amount of venture capital invested in start-up companies would slow next year, down from the $29 billion that is expected to be invested in 2008."
• A Wrench in Silicon Valley's Wealth Machine: "The valuations of tech startups are apt to keep falling, say some investors and lawyers. In September 18% of the financing rounds for venture-backed startups were for a lower value than the previous round, according to a survey from law firm Fenwick & West. In the fourth quarter that figure "could easily double," says Fenwick & West attorney Barry Kramer."
• Tech M&A down 40 percent in 2008: "Technology companies seeking a white-night buyer had a long wait this year, according to a study released Thursday by research firm The 451 Group. And 2009 isn't looking any more promising." 

For the next six months, we'll see more daylight each day (thank you laws of planetary motion!). Wouldn't it be nice if today were also the solstice of Marc Andreessen's nuclear winter? 

Bankers eating dog food

Tech companies are well known for eating their own dog food — that is, using their own products to learn what works and what doesn't. Now it turns out my former employer is instituting the same practice within the investment banking business:

"Credit Suisse will pay a portion of bonuses for thousands of its senior investment bankers using shares of troubled assets left over from before the financial crisis.

The assets — mostly leveraged loans and commercial mortgage bonds — are selling at distressed levels, if at all, and continue to cause devastating losses across Wall Street." (from the New York Times)

It's certainly one way to both shrink the balance sheet of bad assets and keep paying bankers' bonuses. Want to bet that, unlike the tech industry, there'll be no more dog food when times get good again?

Happily dysfunctional

A short piece on Portfolio.com points out that sometimes — in fact, often — being a good seller is far more about timing than skill. With the benefit of hindsight (and a very deep recession), the Bancroft family's sale of Dow Jones to News Corp. looks extremely well timed. Given where the newspaper business seems to be going (cf. The New York Times, Chicago Tribune), history may annoint this transaction as the last great newspaper sale.

The irony of this is that the Bancrofts almost didn't sell (from the Portfolio.com story):

"[M]ore dysfunctional than the house of Windsor" was how the Guardian described the Bancrofts. "It's dysfunctional as Paris Hilton's family is," quipped Ken Auletta on Charlie Rose. The New York Times reported that "some advisers to Dow Jones and the family privately suggest that the family was so dysfunctional that it was almost impossible to have gained an edge on Mr. Murdoch."

I can think of at least one other transaction with similar levels of dysfunction that didn't go as well for the selling shareholders.

The negotiating strategies of CC Sabathia

Baseball fans mark each season by a few big events — Opening Day, the All-Star game and of course the playoffs. Baseball fanatics are just as interested in the off season and all of the horse trading that goes on after the World Series. Although baseball players are traded like cards all year, November and December are the busiest months for general managers as each team pursues free agents (the older players no longer under contract) and trades for whatever else they need for the upcoming year.

This year has been mostly quiet, not too many huge name players are available and the economy is supposedly keeping baseball’s owners from being overly aggressive. Yeah, maybe. One of the biggest names, pitcher CC Sabathia , finally signed with the Yankees for $161m last week almost a month after getting an offer from the Yankees that was closer to $140m. By many accounts, Sabathia had the Yankees bidding against themselves.

How did he do it?

• Deny he’s even negotiating: “Contrary to wide-spread opinion, it isn’t a lock that CC Sabathia will be wearing a uniform other than the Milwaukee Brewers’ next season. At least, that’s the opinion of Scott Parker and he should know. After all, Parker is one of Sabathia’s agents.”
• Find other bidders:  “In the Bellagio Hotel Sunday night, free-agent pitcher CC Sabathia ran into general manager Ned Colletti and told him he wants to be a Dodger, Colletti said Monday.”
• Act like it’s not about money: “So Sabathia called the GM of the Yankees late Tuesday afternoon and invited him for another chat -- their third face-to-face visit in the past three days. Except this one included Amber Sabathia, the wife of CC and a woman who clearly has questions of her own about whether New York is right for both of them.”
• Play to the buyer’s worst fears: “Although indications are strong that the Red Sox are not invested in a serious pursuit of free agent CC Sabathia, it was learned the team met with the left-hander yesterday at another casino.”
• Give other bidders a perceived unfair advantage: “If the Giants make an offer, a mere $100 million-plus may be enough for him to allow his heart to rule his head.”

Brilliant. And he should end up more than $20 million richer because of it.

Slow exit

One of the things that inspired me to start this blog was what I perceived to be a disconnect between perception and reality in start-up exits over the past few years. In the post-dotcom bust period there were a few very high profile acquisitions — YouTube, Last.fm, Photobucket — and a couple more IPOs. But generally it wasn't a great period for exits. Much was funded but it really seems like a disproportionate share still hasn't seen any liquidity.

Silicon Valley Bank's analytics arm just released a report that supports this thesis, and it's apparently a longer-term trend than I realized.

Since 1992, there's been a steady march upwards in time to liquidity for start-ups. The chart I pulled out represents software companies but the SVB report shows it to be true across other categories of start-ups. Obviously there's a lot of background noise on this chart with both the late 90's bubble flattening the curve and then the post-crash recession steepening it. But the trend is clearly there.

I wouldn't be surprised if the larger size of venture funds has resulted in less triaging of losers than might have happened in the early 90's. And given the relatively low burn of web start-ups, there's a lot more potential to putter along trying to find your market. None of this is necessarily bad, of course. But it does seem to be the current reality and in this economic environment, probably will only get worse for the next few years.

Vodafone picks up Wayfinder

TechCrunch reports on the acquisition of Wayfinder by Vodafone.  Price is €24 million and follows its €31.5 million purchase of Zyb last spring.

It's not uncommon to see a large company get religion about the under $50m (or €50m) acquisition, especially a company like Vodafone which was built through the consolidation of a number of large companies. Yahoo and Google have both had periods where they snapped up everything in sight, as long as it fit under the $50m hurdle. Delicious, Flickr, Dodgeball, JotSpot and many other start-ups were folded into those two internet giants during their frothy acquisition streaks of 2005 to 2007.

Typically, these bursts of acquisitions run their course. At a certain point, the company stops buying and starts consolidating. Often, there's a general realization that it's easier to build than to buy and it's actually difficult to retain the entrepreneurial smarts that made the acquisition so interesting in the first place. If Vodafone is a possible buyer of your company, strike now!