Friday, February 25, 2005

Well vacation has cum and gone. What an amazing 2 weeks, and I'm still alive ;-) A big shout out to my peeps that made it out for some parts of the tour, and a special thanks to my travelling companion that made it so special.

Back to work. TONS of stuff to post and e-mails to anwer which I've already started and will get to the rest of them this weekend. It's so weird when you're news scanning time drops from 2-3 hours a day to next to nothing for over a week, seems like I'm totally out of touch with everything. Anyways I'm sure EuroRoss will be back to full speed as soon as the sleep tank's been filled this weekend.

It was also weird to be sitting in a classroom again after such a hietus. Thankfully both classes were not only extremely interested but ended a little earlier than usual. In "Creating an Investment Firm" class we had Eric Buatois (a VC from one of the oldest VC firms in Silicon Valley - Sofinova Ventures) fly in from Cali. He had tons of good stories to tell and handeled our tough questions with an ease and flare that defied belief and shamed what I thought was decent stage presence that I had been building. Some of the things he stressed:

- He became a VC after numerous years of experience at increasing levels of sinority, firm size and success. The main reason he believes people become VC's is the independence and the desire to be removed from the day to day politics and day-to-day operation of business. He later mentioned how now that the bubble is over that companies do not have any leverage on investors, including the fact that they cannot play one investor off the other since they are all networked and such a close community. Finally he mentioned about how a VC's time is spent "staying on the pulse" of the market. I hope some of this information ties into my thesis work.

- Don't only focus on a portfolio's "home run" companies, strong portfolio returns to the investor also depend heavily on the "mid-range" performers (5-10 times money returned)

- Companies need strong management. This is 50% of the battle for funding in his view. His determinants for a companies ultimate success are 50% management, 25% the mesh of the technology to market needs, 10+% the strength of the syndicate and the rest basic luck (which he stated with one of those "I'm joking but not really" smiles). His most important view of success is that the company has to have good timing to market, to catch "the wave".

- He talked about the dangers of over-investment in interesting spaces killing potentially great markets.

- As an entrepreneur who's searching for funding, make sure you do follow ups with VC firms that DON'T fund you as he pertains they will be pretty honest and blunt about the reasons they didn't which can only be of benefit for your company.

- A typical portfolio consists of 15-25 companies and takes 2-3 years to create typically. As such the stage of the portfolio can have a dramatic impact on your chances to get funding with that particular VC. For example, the first companies in a portfolio are typically less risk adverse while by the time the fund is searching for one or two more companies to complete their portfolio it's already been 2-3 years since the first companies were funding so the bad/good (but mostly bad since good news usually takes a couple more years to develop and the bad seeds tend to start showing after a year) are starting to affect the portfolio. So if you're a company looking for investment, you need to know what stage the investment porfolio is at. He also stressed the importance of knowing the VC people you are meeting, get background information which is usually readily available on the internet. He says this because he's seen countless times a company in a particular space pitch a VC that has just recently lost a multi-million dollar investment in a similar company, those guys will ask alot more detailed and tough questions as you can imagine.

I'd like to enphasize how open, friendly and informative Mr. Buatois was. He was one of our best speakers to date and we could have monopolized another two full classes of his precious time.

Later last night I had "Building an Entrepreneurial Venture" class which is always awsome since it's taught by no-nonsence Jim Solomon who's been there and back several times. We talked about how to sell your business, the different valuation techniques:

1 - Asset Base (easy to use but rarely reflects real value, either high or low)
2 - Market Comparibles (logical but hard to compare since most businesses are not the same)
3 - Earnings Cap (most widely used but multiple determination and mistated earnings make this method less than a perfect science)
4 - Present Value of Future Earnings (also widely used although again the problem with unsubstantiated projections)

He also talked about the "Boom, Bust, Squeeze and Sneeze" since our guest lecturer couldn't make it. This stuff talked about how in the US all the 80 million baby boomers are going to be 65 (retirement age) around 2010 and the opportunities, threats and market shifts that it will bring. The most interesting part of the class is when he talked about his experiences with stock fraud. Because of lax laws in the past, Utah has the distinction of being the stock fraud capital of the US. This is mainly due to "box jobs" which occur with reverse public company takeovers where private companies who want liquidity buy a shell public company for a drastically reduced price (as opposed to all the fees and regulations involved with going with an IPO yourself) to be able to sell shares on the public markets. The mechanics of a box job are interesting but it was amazing how he was in the middle of being conned by one of these guys when his friend at the regulatory board showed him how he was about to be totally screwed. A fucking great story that's too long to recite here so it'll have to wait till I see you guys over a beer for those that are interested.

Well it's freeking 10 degrees (celcius for my American friends) in the middle of a scorching winter in Salt Lake City so I'm off to hit some new trails I dicovered last week:



Like I said before, links, e-mails and posts a cuming, hang in there. It's good to be back, I hope you feel the same :-)
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