Posts from July 2006

Transparency, Markets, and the Internet

  Pregão da BM&F 
  Originally uploaded by digitalgangsta.

One of the benefits of looking at the Internet from an office in Manhattan versus Sand Hill Road, Route 128, Beijing, or somewhere else is that the Wall Street mentality is pervasive in Manhattan. And so my lens is colored by the ways of Wall Street. I am not suggesting that is good or bad, just that it is.

And so one of the things that I have been fascinated by is the power of the Internet to create transparency and facilitate the creation of more efficient markets.

When I first met Jim Cramer blogging like a mad man from his trading desk, putting short bursts of wall street rumors and facts (not much a difference between the two) out into the ether, I was stunned. Jim was basically saying that he was going to share all that he knew, all that he was hearing, and all that he was doing with the world at large. We invested in Jim’s vision but I believe we made a big mistake charging a subscription for that blog which was and still is called What we should have done was make it free and encourage every other person crazy enough to do the same thing to join Jim and blog the hell out of Wall Street. Create a Weblogs Inc for Wall Street. In 1997.  would a could a should a

In 1999, I came across Gian Fulgoni and Magid Abraham who wanted to create a panel of Internet users large enough to devine what the entire Internet user base was doing. Not just where they were going, but what they were doing, what they were spending, etc. That was the genesis of Comscore which is now the leading Internet measurement firm. A year or two after they started Comscore, they were able to predict the quarterly revenues of Amazon within a tiny margin of error. Again I was stunned. Talk about transparency.

Around the same time that Comscore pulled the Amazon numbers out of their hat, I sat down and had lunch with Seth Goldstein who had been an entrepreneur in residence and then a principal at Flatiron Partners and was looking to start a new company. He wanted to do something in the area of hedge funds which he saw were becoming a huge force on Wall Street.

I suggested he think about taking data from companies like Comscore and others and use them to create transparency for wall street investors. He liked the idea and took it and ran with it. He and his partner Tony Berkman created Majestic Research which uses data culled directly from the Internet and provided by third party firms like Comscore and others to deliver primary actionable data to Wall Street. Majestic took off and is now a major provider of third party research to the hedge fund community.

Also in 1999, I invested in and joined the board of Alacra. They have built a huge data warehouse on the web and filled it with pretty much every premium database of interest to wall street. And just last month, they released company specific RSS feeds that alerts you when much of this premium information is updated.

In 2003, as Brad and I were getting ready to start Union Square Ventures, I got a call from Isaak Karaev who had founded and built Multex into one of the leading information providers on Wall Street. Isaak had sold Multex to Reuters and was starting a new firm. He was looking at blogging, RSS, web services, tagging, and a host of other “web 2.0” developments (this was 2003, Isaak always was ahead of the curve) and saw that they could be combined into a web service that would allow wall street professionals to see more, understand more, and share those insights quickly with their co-workers and trading partners. And that was the genesis of Instant Information which is now marketing their service to the buy side and sell side on Wall Street.

Early last year, I met Roger Ehrenberg who was leaving the world of proprietary trading after almost 20 years on wall street and looking to do something in the startup/venture world. Roger teamed up with Jeff Stewart to form Monitor 110, which is crawling the deep web to surface actionable trading ideas before they surface through traditional channels. And Roger has recently started a blog called Information Arbitrage which I have just added to my blogroll.

So that’s a quick trip through my journey toward the land of transparency in financial markets. The days of schmoozing the CFO so you can get the call before the other analysts is over. Put to its grave by the cleanup of wall street in the aftermath of the last bubble. So you have to get the facts some other way. It’s good that we have this thing called the Internet that is ideally suited to out every secret, fast forward every rumor, and route it to the very people who need that information to trade on it.

Schmoozing is out. Crawling is in. MBAs with a spreadsheet are a dime a dozen. But the kid who knows how to mashup 1000 rss feeds, tag them on the fly, and cross index them with the crawler he hacked the other night at three in the morning is in high demand.

And if that kid wants to give up his fat hedge fund paycheck and build a company around those skills, I am all ears.

We are currently going through the planning stages for our next Union Square Sessions event. Transparency, Markets, and the Internet is one of the topics under consideration. If you have an interest in this area or know of people who are leading thinkers in this arena, please let me know in the comments or via email.

#stocks#VC & Technology


I posted on both these stocks last week. I bought YHOO and I am shaking my head on GOOG.

Today Saul Hansell weighs in on both in a front page business section story in the NY Times. I pulled this graphic from the story. Click on the grapic to get a popup that is easier to read.


This graphic shows that Yahoo! has a much bigger audience for the primary web services that both offer. But clearly Google’s lead in search means more when it comes to revenues, earnings, and valuation.

But it still makes me feel good about my YHOO purchase last week.

#stocks#VC & Technology

MP3 of the Week

Golden Smog is a "supergroup" like The Travelling Willbury’s and CSNY. Golden Smog is Gary Louris and Marc Perlman from The Jayhawks, Jeff Tweedy from Wilco, Dan Murphy from Soul Asylum, and Kraig Johnson.

They’ve got a new record out called Another Fine Day and they are doing a live show this wednesday night in NYC at The Bowery Ballroom. I saw them (minus Tweedy) at The Bowery Ballroom a couple summers ago and they were great. I am really looking forward to seeing them.

There are a ton of great songs on Another Fine Day but my personal favorite is called Frying Pan Eyes.

Frying Pan Eyes – Golden Smog

#My Music

MacBook Pro Update - Entourage

Ever since the screen on my ThinkPad cracked, I’ve been using my MacBook Pro as my primary computer.

So far, so good. Except that it gets so damn hot that I have to use a blanket to comfortably use it on my lap. I am going to look for some kind of heat pad for the thing.

I particularly like Entourage. In a number of ways, it’s a better email/calendar/contact solution than Outlook. The search works a lot better and the interface is much simpler. And it’s faster which of course could be because the MacBook is faster than my old ThinkPad. I thought I might have to run XP on the MacBook using Parallels to run Outlook. But there’s no chance I am going to do that. Entourage works fine for me.

#VC & Technology

Scars From The Last Bubble

  Originally uploaded by thesyncbox.

In general, I think entrepreneurs and VCs who lived through the last bubble and its burst are better off because of it. We’ve seen what can go wrong and what happens when it does go wrong. I think it has made us all better at what we do.

But there are some scars that may not be all healthy. For example, in 1999 we stepped on the gas and made something like 20 investments at Flatiron. Many of them worked out well and we booked a bunch of profits in 1999 and 2000 from those deals. Of course a good number of the 1999 investments we didn’t get out of before the bubble burst went bust or went through painful recaps which are actually now paying huge dividends.

Fast forward to 2006 and Union Square Ventures is going to make maybe 5 investments this year.  We made 4 last year. We are taking a cautious measured approach to our investment pace. That was one of the lessons we learned from the last bubble. Stepping on the gas before the crash is a good way to get hurt.

But there are VCs who are stepping on the gas right now and are getting rewarded for it. Are we being too cautious because of the scars we carry on our back from the last bubble? It’s impossible to know. But hindsight will tell us the answer in a few years.

I was in a board meeting recently and the founder, who ran a different company during the bubble, was talking about his team. He said the team was getting a bit uneasy about all the new hires that the company is making. It reminds them of the time they bulked up in the last bubble.  And that bulking up caused a lot of pain when the market broke.

Pattern recognition is human nature. When you’ve seen the movie before, you know how it ends. And so all of us who carry the scars from the last bubble are going to think twice before we make the same moves again.

But what if the same moves we made last time are the right moves to make this time? Then we are going to sub-optimize this current market opportunity. We are going to be too defensive. And someone else is going to step on the gas and pass us at the next turn.

It’s a challenge that we have to face. We cannot forget the lessons from that last bubble. But we cannot fight the last war either. As much as things look similar to the last time, they are not identical. This will play out differently. I am not sure how differently but I know that it won’t be the same.

So carrying those scars is both good and bad. Probably more good than bad, but not all good either. And it’s important to recognize that.

#VC & Technology

Pondering GOOG

The quarter that Google (GOOG) just announced was very impressive. This is starting to become a quarterly occurence. I read the numbers, shake my head, and wonder how long they can keep this up.

Last quarter, I saw the numbers and wrote the Oh My post, which included:

We are witnessing a business that is approaching $10bn in annualized revenues growing at 80% year over year. And we are looking at a business with operating margins of almost 50%.

Well it just gets better. This quarter, revenues were up 20% quarter over quarter to almost $2.5bn. Operating profits were close to $1bn and net income was almost $750mm. Here’s the transcript of the earnings call at Seeking Alpha.

So Google is generating about $4bn per year in pre-tax cash flow. If you call that EBITDA, and it’s close enough for a back of the envelope number, you’d say that GOOG trades at about 30x this year’s EBITDA. That’s almost twice the multiple that Yahoo! (YHOO) trades at currently.

I bought some YHOO earlier this week. I am not so sure about GOOG. Because I don’t know how much longer GOOG can put up these kinds of numbers.

I hear that many search keywords are getting bid up to the point where the CPAs they generate are approaching the marketers allowables. Does that mean that keyword prices can’t go up much more?

And I hear that searches are growing at about the same rate as the Internet as a whole meaning search still has nice growth but not 25% quarter over quarter.

And I hear that marketers are frustrated that they can’t effectively buy any more search.

And I hear that new forms of banner ad targeting are giving marketers a way to generate CPAs from banners that are approaching and at times exceeding search CPAs.

So I wonder how much longer this search driven revenue wave will last. And as great as Google is, they are completely and totally dependent on search and contextual advertising revenues. According to the transcript, was $1.4bn and I assume Adsense was at least $600mm, so that means that at least $2bn of the $2.4bn of revenue comes from their two big juggernauts. If that slows, Google slows.  At least until some of their other iniatives start producing big numbers, if they ever do.

This post is not really about me making a point. It’s about me asking these questions. If you have any answers, please post them in the comments. I am sure I am not the only one who wants to know.

#stocks#VC & Technology

New Category: stocks

I am not big on categories, I only have a few and they aren’t too granular.

But I added one today.

Whenever I blog a stock, I will tag it with the stocks category.

I think everyone who blogs stocks should do this and someone should crawl all these tags and aggregate stock related posts.


The Boss

  The Boss & The Big Man – 1978 
  Originally uploaded by KBlood.

Bob Lefsetz had this to say about Bruce Springsteen in his Less Than Sold Out post which in its entirety made for some very entertaining reading:

Bruce Springsteen with the Seeger Sessions Band
DTE Energy Music Center, Clarkston, MI-Saturday 6/17
Gross: $582,374
Sold/Capacity: 8,035/15,274

me put this in perspective.  Four days later, at the exact same venue,
the GIN BLOSSOMS outsold Bruce.  Sure, tickets were a fraction of the
price, but what should Bruce be charging anyway, isn’t he a man of the
people, doesn’t he have ENOUGH money?

Then, a night after the Gin Blossoms, PAT BENATAR outsold the Boss.

Hate to tell you this, but Bruce Springsteen is a B-level artist.

he’s TALENTED, has made some great records, but he’s no Bob Dylan.
And, he hasn’t put out a good record since "The Streets Of

And now, even the fans have had enough.  Oh,
they came back to see the E Street Band, but that’s all they’re
interested in, nostalgia, and the grosses for those original band shows
were declining too.

Sure, this is a hefty number.  I just want to state that the ink the Boss gets IS NOT COMMENSURATE with the size of his fanbase.

People under the age of twenty five, THIRTY, truly don’t give a shit.

I love that he takes a stand against Bush.  I loved seeing him do
"Jungleland" at the Bottom Line.  I have such fond memories of "Candy’s
Room".  But after he sold out and made a commercial album with "Born In
The U.S.A." I had my suspicions.  And he’s never done much to dissuade
me that he’s lost his way.

Now was the time for originals, not covers.

People believe in Neil Young.  Somehow, fans adore Bruce, but they just don’t believe in him the same way anymore.

we see the alienated fuck again?  The loner with something to prove as
opposed to the cheerleader for baby boomer contentment?

And to Bob’s credit he published a bunch of email he got on the Less Than Sold Out post, including this one from Harlan Frey:

You are an IDIOT to say that springsteen is B level.  He is a career  artist. One that does not depend on selling out on any level to achieve success. One that does not depend on commercial airplay or video each  record in order to do platinum business.

And record wise…’The Rising’ was one of THE BEST Bruce records to date.  Your taste is FUCKED if you can’t appreciate this record.  Might I add that  Bruce is  by far one of the most riveting, compelling LIVE entertainers in  the biz. Please take that west coast head of yours out of your ass.

I didn’t grow up a Bruce fanatic like so many of my generation, but I love The Boss; for Rosita, for Darkness, for Born to Run, for Nebraska, for The Rising when we needed it, and for his love of American music and performing. He is not anywhere near a “B level artist”.

I was driving down El Camino Real tuesday night listening to KFOG and Manfred Mann’s cover of Blinded By The Lights came on. Wow. What a great song that is. And behind all that psychedelia, you hear Bruce’s words and they are in his voice. That’s what makes Bruce every bit as much of a legend in my mind at Dylan, Woodie Guthrie, and the other greats of American music.

And it may be true that people under the age of 25, 30 “don’t give a shit” about The Boss, but I was witness to one ten year old boy, my son Josh, who was up on his toes with his hands over his head clapping to the beat for two hours at the Seeger Sessions show last month.

And I will remember for a long long time his look up at my eyes and his saying, “this is a great show Dad”.

That’s because Bruce is one of the greatest performers ever. He brings it every night and never lets the crowd down. I don’t want “the loner with something to prove” again Bob. I just want The Boss in whatever form he comes in. That’s plenty good for me.

#My Music