Chinese Investment: Some Good Points, Some Important Points Left Out
October 15, 2020
China is probably not on the minds of most US LinkedIn users. Based on my scanning of the “Home” page, there are TikTok style videos for consultants, job seekers, and start ups flogging a range of Gen X, Gen Y, and Millennial services.
Nevertheless, I want to highlight “The Shadow War Between Alibaba and Tencent: Conducting Warfare Through Startups.”
The essay begins with this assertion:
In the West, corporate VCs are often labeled with ‘dumb money’ or being the M&A department in disguise. In China, at least for Alibaba and Tencent, they are kingmakers that can outcompete most financial VCs. They have longer time horizons and deeper pockets than institutional VCs, and bring actual value-adds like consumer traffic and supporting product ecosystems such as payment infrastructure. The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation. In the West, startups can buy consumer distribution as social networks all monetize through advertising. In China, since Alibaba nor Tencent rely on advertising revenue, distribution can’t be brought as easily, it has to be earned. It’s not a surprise that among the waves of startup contenders, Alibaba and Tencent’s picks (and for a time, Baidu) are always among the favorites to win.
We noted two important points tucked deep in the essay.’
The first makes this observation:
For starters, the user-centric approach of Chinese tech means that every battle for consumer’s attention is a relevant one. For both, strategic investments allow increased usage of their respective product ecosystems.
The second offers:
The shadow war has become global, as both Alibaba and Tencent have their sights set increasingly on South East Asia and India. We are probably going to see a similar pattern play out in these regions too…
Several points seemed irrelevant to the author; for example:
- The linkages between certain successful Chinese companies and the Chinese government
- The “competition” between and among high profile, government-allied Chinese firms is a less-than-subtle way to explain the “competition” that exists in the quasi-market driven country. Who is fooled?
- The data generated by these systems can be available to the Chinese government. Data can act like virtual puppet strings, just more difficult to see and disengage.
Nevertheless, the write up reminds me about a belief about the US investment set up: “Dumb money.” Gentle, but evidence about the author’s attitude.
Stephen E Arnold, October 15, 2020
Be an Entrepreneur: The Venture Outfits Need You
October 2, 2020
Institutional Investor ran an interesting story. No, that is not an oxymoron. Really. “The Pervasive, Head-Scratching, Risk-Exploding Problem With Venture Capital.”
I noted this passage:
Two-thirds of venture deals fail, researchers have found. With such a high mortality rate, a VC fund’s actual ending portfolio size is merely one-third of its invested companies’. So to arrive at an exposure with 20 to 70 companies, a fund needs a starting portfolio of 60 to 210 startup investments. Very few funds meet this size.
Without wrestling with the assumptions or the math, I thought this statement was fascinating:
Significant portions of the average come from very few outlier deals.
Now the assertion:
The golden rule for investors into the venture asset class must therefore be: Build a portfolio of 500 startups, with 100 companies being the absolute minimum.
Okay, how many venture firms do you know that have a portfolio of 500 start ups?
Then the question, “Why not buy a fund of VC funds?” Answer:
Based on industry studies, funds of funds frequently lack diversification across gender and race.
Nervous? Not to worry. Here’s why:
Is venture capital a risky asset class? No. Most VC funds choose to act in a risky manner by not diversifying, but that does not make the asset class risky. To de-risk venture capital, CIOs simply need to acknowledge that VC math is different from public markets math. The importance of low-probability, excess-return-generating investments means that proper diversification requires a portfolio of at least 500 startups.
But most VC firms don’t have 500 or more start ups in their portfolio? That’s what the write up said.
Does this seem to be reassuring?
Stephen E Arnold, October 2, 2020
Palantir Technologies: Minor Questions Remain
October 1, 2020
DarkCyber noted “Techie Software Soldier Spy: Palantir, Big Data’s Scariest, Most Secretive Unicorn, Is Going Public. But Is Its Crystal Ball Just Smoke and Mirrors?” The write up joins the caravan of publications digging into the ins and outs of the intelware business.
There are precedents for a vendor of specialized services becoming a public company. One example is Verint, and there are others. Sometimes the lineage of an intelware company can be difficult to figure out. There are start ups in Cypress; there are partnerships in Herzliya; and there are Byzantine limited liability operations in midtown Manhattan.
What’s striking about Palantir is that the coverage has been content with the jazzy bits. DarkCyber understands the need to create buzz and capture eyeballs. The write up uses an interesting quotation from Admiral Poindexter, an interesting person who may be qualified to explain intelware:
“When I talked to Peter Thiel early on, I was impressed with the design and the ideas they had for the user interface,” Poindexter told me recently. “But I could see they didn’t have — well, as you call it, the back end, to automatically sort through the data and eliminate that tedious task for the users. And my feedback from the people who used it at the time, they were not happy with it at all. It was just much too manual.”
DarkCyber wondered:
- Why the write up did not explore the i2 Analyst’s Notebook vs.. Palantir legal matter. That activity suggested that Palantir may have had some interest in a proprietary file format and allegedly worked in interesting ways to obtain closely guarded information. A related question is, “Why would bright start up engineers resort to allegedly questionable methods to figure out a file format?” Too bad the write up ignores a legal matter which illuminates Palantir’s methods.
- Why is Palantir running into the revenue ceiling which other vendors of search and content processing systems for government entities hit? Are there too few customers? Did Autonomy, another search and content processing company, bumped into the revenue ceiling too? Is there a elephant standing in a pool of red ink in the accounting departments of some search and content processing companies?
- Why are intelware vendors offering their products and services under generous free trials programs to the known customers with allocated funds for such systems? And in parallel, the vendors are working overtime to find someone with deep pockets to buy these start ups?
- How similar are the products and services of intelware vendors? Why is innovation confined to graphics and innovation confined to recycling ideas in circulation for decades? One of the DarkCyber team observed, “Isn’t Palantir Gotham Titan the old Analyst’s Notebook with a pop up wheel on the right mouse button?” (I hire skeptical and maybe slightly cynical engineers I think.)
- Could it be that in the “real world” of fast-moving events the intelware vendors’ products don’t work all that well? Is it time for deeper analysis of comparable products and services? How does Palantir stack up against Voyager Labs’ offerings or the the LookingGlass system.
- Why doesn’t smart software do a better job of importing data? What has Datawalk figured out that eludes the Palantirians?
- Why do some Palantir Gotham installations remain idle? Is it because even the simpler interface is too quirky to use when real-time events generate pressure? Is it difficult for some licensees to allocate staff to use the system in order to become masters of the dataverse?
- Why haven’t Wall Street pushes generated more revenue? What happened to the Thomson Reuters’ deal?
- How long did it take Palantir to stand up its first version of its system after the core team decided the move forward with Gotham? (If you know the answer, write benkent2020 @ yahoo dot com. We know the answer and the winner will receive a copy of CyberOSINT: Next Generation Information Access. Free too. Almost like a trial of the products and services from an intelware start up.)
There are other questions the DarkCyber team considers important as well. Perhaps a “real news” outfit will dig into the intelware market, track the technologies, the inter-company tie ups, and the use cases or in some cases the dis-use cases for these products and services?
DarkCyber, however, finds the idea of Palantir’s going public interesting. Was the point of the exercise financial escape for increasingly concerned investors and grousing employees? Too many questions and too few answers still I think.
Stephen E Arnold, October 1, 2020
FinTech to TechFin: What Is With the Word Position Swap
September 29, 2020
I read an interesting essay called “A Look At The Power Shift From FinTech To TechFin.” I think the main idea is that banks are in the danger zone just as newspapers were and Main Street retail stores are.
I circled this passage:
With millennials becoming more and more comfortable using smartphones to pay for Uber, AirBnB, Amazon etc, the need for customer disintermediation arose and was well addressed by the FinTechs who had no overheads of physical distribution and were sitting on a lot of data. The ability to use non-traditional financial data, utilize SMS, utility bill payments and shopping history to build more accurate credit scoring helped the FinTech prove to be a credible challenge to the traditional lenders.
Okay. Thumbtypers on the march.
We also noted:
There is a need for an urgency to reposition and reinvent the traditional FinTech models as both, the customer expectation, as well as the landscape, is changing at lightning speed. There definitely would be tremendous action in the entire financial services space, including FinTech startups, within the next 2 years.
Several observations:
- Big shoulder financial outfits may such oxygen out of the space; for example, Goldman and Apple
- Regulators could — although it seems unlikely — might curtail monopolistic behavior in both banks and the rarified world of the FAANGs
- Consumers like those who pay a penalty for being 99 percenters might propel social pushback with more momentum.
Yes, there is a need for adaptation. I am not sure a marketing pitch is going to get the result the author views as necessary.
Stephen E Arnold, September 29, 2020
China: A Digital Currency Forecast
September 27, 2020
DarkCyber noted “‘One Day Everyone Will Use China’s Digital Currency.” If you have read Beyond Search/Dark Cyber before, you may know that words like “all,” “every,” and similar categorical affirmatives are irritants. We live in an era of “black swans” and words like “never” are tough to accept as characterizing the present datasphere. Nevertheless, we have an “everyone” from the Beeb.
The main idea is that Chinese digital currency will become the big dog. Hasta la vista dollares en efectivo. The Delphic statement comes from Chandler Guo, a “pioneer in cryuptocurrency.” The Chinese DCEP is coming. DCEP is the digital currency electronic payment, and it seems destined to become the way to pay.
The write up notes:
But many question whether it will succeed and there are concerns that it will be used by Beijing to spy on citizens.
And there is the Chinese spy thing.
The article includes an anonymous source, a now standard journalistic convention:
“The Chinese government believes that if some other countries can also use the Chinese currency it can break the United States’ monetary sovereignty. The United States has built the current global financial system and the instruments,” says an anonymous Chinese crypto currency observer known as Bitfool.
Are Guo and Bitfool correct? Sure, why not. It is 2020, the Year of the Black Swan.
Stephen E Arnold, September 27, 2020
DarkTrace: Details about the Company Floated
September 24, 2020
DarkCyber noted “Goldman Snubs £2bn Darktrace Float Amid Lynch Extradition Battle.” The Sky News article presented some information which struck the DarkCyber research team as interesting. The story reported:
Legal issues surrounding the British technology star have led to Goldman Sachs deciding not to seek an IPO role…
The question is, “Why?” Goldman Sachs, like other high profile financial institutions, has been embroiled in interesting deals in the past. Wikipedia offers a list which warrants consideration if only to weed out the realities from the allegations.
SkyNews includes these data in its story:
- The sale of Autonomy to Hewlett Packard allegedly influenced the decision
- Invoke Capital (founded by Michael Lynch) was the first investor in the cyber-centric firm Darktrace
- Darktrace employs more than 1200 people and has more than 40 offices
- The company has “more than $200 million in revenue”
- “Mr Lynch stepped down from the Darktrace board in 2018, Invoke remains the company’s largest shareholder.”
- “KKR had increased its stake in Darktrace as part of a reorganization of the company’s shareholder structure.”
- “Darktrace might quickly be valued at well over £2bn.”
- Poppy Gustafsson, a former Autonomy professional, is the CEO
- Darktrace has $1bn in “cumulative bookings.”
- Customers include AIG, BT Group, Jimmy Choo, the Science Museum Group and William Hill.
According to The Register, Autonomy’s auditor Deloitte was fined about $20 million US for “misconduct.”
Stephen E Arnold, September 24, 2020
Palantir Technologies: A Problem for Intelware Competitors?
September 24, 2020
The Palantir Technologies initial public offering is looming. Pundits are excited; for example, “Palantir Has A Long Uphill Battle Towards Customer Acquisition, But Benefits From Stickiness And Contract Expansion” makes clear that the journey to profitability may be like the Beatles observed: A long and winding road. Others are focused on churn; for example, “5 things to Know about Palantir’s Upcoming IPO.” DarkCyber’s response: “Just five?”
The issue is intelware. Many companies have tried to convert selling to law enforcement, intelligence agencies, and regulators into a billion dollar software and services business. There are some success stories; for example, Booz Allen fits the bill. The company sells time. The company has its own software, not much, but it exists. The company cheerleads, which is a nice way to say that for money “experts” will talk about promising products from the competitive marketplace.
Palantir is more like Autonomy than a blue-chip consulting firm. Autonomy played the “secret black box” chip with its neuro-linguistic programming. It worked until it did not. The firm licensed its black box to BAE Systems in the 1990s. The Autonomy marketing machine then generated revenue slowly and steadily. Then Autonomy acquired companies and cranked up its sales machine. At “peak Autonomy,” the well managed outfit Hewlett Packard, grabbed a brass ring with Autonomy engraved on it. The cost was north of $10 billion and years of legal bills. Autonomy was a publicly traded company, and it had a revenue track record dating from 1996. The HP deal was completed in October 2011. That means that the FY2010 data give us an idea about how much secret black box software can generate with “advanced” software, great marketing, and demanding management. The revenue for Autonomy after 15 years was in the neighborhood of $870 million.
One of Palantir Gotham’s innovations: A right mouse click displays a wheel of choices. The interface is definitely jazzier than that of Analyst’s Notebook, now owned by IBM.
Palantir Technologies opened for business in 2003. The company has been in business for 17 years. Yep, that’s two years longer than Autonomy. And what is Palantir’s alleged revenue for the last fiscal year? $742 million. The company’s advantages were the support of Peter Thiel (a Silicon Valley Thor), secrecy, a method for importing ANB files (if you don’t know what this is, well, what can I tell you in a free blog post?), and okay sales and so-so marketing. (One of Palantir’s innovations was a wheel of choices, not Bayesian methods wrapped in mystery.)
If my math is correct, Autonomy generated $128 million more revenue that Autonomy. If one uses 2011 dollars, not the Rona roiled 2020 dollars, the difference is more like $400 million, give or take $20 million or so. Yep, Autonomy appears to have outperformed Palantir: Less time, more revenue.
What?
Why?
Who?
How?
Let’s take each question.
First, what? The lackluster performance of Palantir Technologies illustrates the difficulty intelware companies, even ones with great advantages like the aforementioned ANB filter, have making really big money quickly. Remember. To generate less revenue than Autonomy, Palantir required $2.6 billion in funding. DarkCyber thinks that patient investors may be nervous about their investment which could melt away like a real snowflake. You can work out the math. Take 17 years of losses, subtract the revenue generated over 17 years, add in some interest just for spice, and mix into a pressurized container containing the fumes of burning a big cash pile. Read more
Cybersecurity: A Booming Business
September 23, 2020
The United Kingdom has seen record growth for cyber security startups. The record growth in the cybersecurity field is due to the COVID-19 pandemic and the heavy demand on Internet and digital services. Internet and digital services must be protected from potential bad actors stealing individuals’ information or be mischievous during Zoom meetings. Tech Round explains more about cybersecurity’s growth in: “Cybersecurity: The Fastest Growing UK Startup Sector During COVID-19.”
Before the pandemic struck, cybersecurity focused on financial and regulatory risks. Cyber risk management is now a hot ticket for investors. COVID-19 also points to a future where more people will be working remotely, organizations will host their data offsite, and more services will be online:
“Ajay Hayre, Senior Consultant Technology at Robert Walters comments: “Historically IT security has represented only 5% of a company’s IT budget but due to remote working and transition to online or cloud-based solutions, cybersecurity has been thrust to the centre of business continuity plans, having proved its worth in enabling business objectives during lockdown. Not only will every company see the benefit of having this expertise in-house, but they will be looking externally for tools, services and advisors to help guarantee the future-proofing of their business by way of solid and robust cybersecurity provisions.”
What is even more interesting are the venture capitalists behind the investing. The PHA Group breaks down who the “5 Key VCs Backing Cybersecurity Startups” are. According to the LORCA Report 2020, a half billion pounds were fundraised in the first half of 2020 for cybersecurity startups. This is a 940% increase compared to 2019. Venture capitalists also want to invest their money in newer technologies, such as AI, encryption, secure containers, and cloud security. The five companies that invested the most in UK cybersecurity are Ten Eleven Ventures, Energy Impact Partners, Index Ventures, and Crosslink Capital.
Whitney Grace, September 23, 2020
Financial Crime: Business As Usual?
September 22, 2020
DarkCyber noted “HSBC Moved Vast Sums of Dirty Money after Paying Record Laundering Fine.” The article makes clear that banks do what banks do: Move money. Why? To make money, earn bonuses, and become a master of the banking universe.
Is anyone surprised? The authors of the write up seem to be. We noted this passage:
The FinCEN Files investigation found that HSBC’s highly profitable branch in Hong Kong played a key role in keeping the dirty money flowing. Although providing only a partial view of HSBC’s suspicious activity reports, the records show that between 2013 and 2017, HSBC’s U.S. compliance staff, who are charged with monitoring customer activity, filed reports lacking crucial customer information on 16 shell companies that had processed nearly $1.5 billion in more than 6,800 transactions through the bank’s Hong Kong operations alone. More than $900 million of that total involved shell companies linked to alleged criminal networks…
Institutions have processes. Once processes kick in, the paper pushing and the employees keep the wheels turning. The “work” is following the “rules” in order to complete tasks. Changing work processes in a large organization is difficult, often impossible. Quibi makes videos few watch. Facebook sells targeted ads across borders based on free flowing data. Successful organizations are successful because individuals find ways to generate profit from tasks others find giant money losers.
The write up hits the problem right between the eyes, stating:
Compliance officers said that the bank did not give them enough time to meaningfully investigate suspicious transactions and that branches outside the U.S. often ignored requests for crucial customer information. They said they were treated as a second-class workforce within the bank, with little power to shut down problematic accounts.
The exposition about the HSBC big bank is a reminder that institutions are, supercharged with online systems, smart software, and people who follow prescribed work procedures. In these efficient organizations, making money is the driver.
Regulators, compliance officers, and employees are unable to take meaningful action. Is it a surprise that “The Risk Makers: Viral Hate, Election Interference, and Hacked Accounts: Inside the Tech Industry’s Decades-Long Failure to Reckon with Risk” reaches an obvious conclusion: Money is the driver.
Consider the question, “What’s gone wrong?”
The answer is, “Nothing.” The system is what regulators, employees, and people want it seems.
Observations:
- A new definition of “crime” may be needed to embrace the reality of institutional behavior
- Regulatory authorities struggle to deal with corporate entities which are more impactful than governments
- Individuals appear willing to skirt social norms in order to feather their nest and craft a life outside of certain institutions.
Intriguing challenges for the institutions, their employees, and the governments charged with enforcing rules, laws, and mandated behaviors.
Stephen E Arnold, September 23, 2020
Efficiency: Modern Analytic Techniques Are Logical
September 21, 2020
I don’t pay much attention to writing about motion pictures. The title “Why Christopher Nolan Actually Blew Up A Real Plane For Tenet” was a bit of a baffler. I did not recognize the name “Christopher Nolan.” I knew the meaning of the word “tenet” but I had zero clue it was entertainment. When I looked him up, I did not recognize his cinematic masterpieces. Nevertheless, the premise of the essay was interesting:
Skip using a computer to fake blowing up a large airplane. But a 747 and just blow it up.
Interesting. Were there environmental costs? Were their additional safety related costs? Were there clean up costs? Were there additional legal costs associated with making sure that someone would have to pay if the whole deal went south? Maybe a post explosion maintenance worker catching on fire or just getting sick from breathing fumes?
Hey, breathing. What’s the big deal?
The write up does not address these questions, and my hunch is that expert cinema professionals think much about these problems even if some bright young sprout asked, “What happens if we screw up, kill a bunch of people, and maybe pollute the creek running next to the shoot?”
Hey, ducks and fish. Who cares? These folks are creating art for real people. Ducks? Or, “Hey, don’t rain on my parade” could well have been the response.
Thinking and acting efficiently is the way of the world among a certain cohort of professionals. If movie makers cannot ask, “How much will it cost if we screw this up?”, what other intellectual shortcuts have been taking place.
My hunch is a lot. Efficiency? Love it. Do large technology companies think in the manner of an esteemed, powerful creator of motion pictures? Yeah, good question.
Stephen E Arnold, September 21, 2020
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