The Tech Unicorn Ploy
August 28, 2017
This should not come as much of a surprise— Business Insider reports, “Nearly Half of Tech ‘Unicorns’ Rely on Tricky Math to Land Imaginary Valuations.” So dubbed because they were once rare, “unicorn” startups are ones that have achieved valuations of at least a billion dollars. That is “billion” with a “b.” According to a pair of business professors (from the UBC Sauder School of Business and the Stanford Graduate School of Business), there are now more than 200 such “rare” prospects globally. Why the apparent boom in unicorn birth rates? Citing a recent study put out by the above-mentioned professors, reporter Alex Morrell writes:
Many of [these startups] are using creative financing maneuvers to conjure imaginary valuation figures that don’t hold up to scrutiny, according to the UBC/GSB study, which examined 116 unicorns. It turns out, when you adjust the valuations to account for guarantees provided to preferred shareholders that dilute the value of common shares, nearly half of unicorns lose their coveted $1 billion status.
The article links to an interview with Will Gornall, the professor from UBC Sauder, that explains how he and co-researcher Ilya Strebulaev re-evaluated purported unicorns to discount the influence of such preferred-shareholder guarantees. They found nearly half sported fake horns, with 11% having been valued at more than twice their fair values. The article continues:
Here’s how it works: In later funding rounds, startups will negotiate a higher share price, but as part of the bargain they guarantee their investors certain protections — such as earning a minimum return on their money or guaranteeing they’ll be paid out in full before all other shareholders. ‘Specifically, we found that 53 per cent of unicorns gave their most recent investors either a return guarantee in IPO (14%), the ability to block IPOs that did not return most of their investment (20%), seniority over all other investors (31%), or other important terms,’ Gornall said. Even though this sort of thing has become normal, valuations haven’t caught up to the fact that providing additional protections to senior shareholders lessens the value of common shareholders. Treating the shares equally can significantly inflate the overall value of the company.
Overvaluation can, of course, help a startup attract funding, talent, and customers. For employees, however, such tactics can end up devaluing their compensation packages. Both workers and investors should be wary of over-valuation trickery.
Cynthia Murrell, August 28, 2017
Banks Learn Sentiment Analysis Equals Money
July 26, 2017
The International Business Times reported on the Unicorn conference “AI, Machine Learning and Sentiment Analysis Applied To Finance” that discussed how sentiment analysis and other data are changing the financing industry in the article: “AI And Machine Learning On Social Media Data Is Giving Hedge Funds A Competitive Edge.” The article discusses the new approach to understanding social media and other Internet data.
The old and popular method of extracting data relies on a “bag of words” approach. Basically, this means that an algorithm matches up a word with its intended meaning in a lexicon. However, machine learning and artificial intelligence are adding more brains to the data extraction. AI and machine learning algorithms are actually able to understand the context of the data.
An example of this in action could be the sentence: “IBM surpasses Microsoft”. A simple bag of words approach would give IBM and Microsoft the same sentiment score. DePalma’s news analytics engine recognises “IBM” is the subject, “Microsoft” is the object and “surpasses” as the verb and the positive/negative relationships between subject and the object, which the sentiment scores reflect: IBM positive, Microsoft, negative.
This technology is used for sentiment analytics to understand how consumers feel about brands. In turn, that data can determine a brand’s worth and even volatility of stocks. This translates to that sentiment analytics will shape financial leanings in the future and it is an industry to invest in
Whitney Grace, July 26, 2017
Forrester Research Loses Ground with Customer Management Emphasis
May 3, 2017
Yikes, the Wave people may be swamped by red ink. The investor-targeted news site Seeking Alpha asks, “Forrester Research: Is Irony Profitable?” Posted by hedge fund manager Terrier Investing, the article observes that Forrester has been moving away from studies on business technology and toward customer-management research. The write-up reports:
The definition of irony, for $500 please? Forrester’s customers… don’t like what they’re selling. This is unfortunate, because as I explain in my Gartner write-up, selling technology research is actually a great business model in general – the value proposition to clients is strong […] and the recurring annual contracts with strong cash flow characteristics make it a hard business to kill even if you really try. To wit, while Forrester’s revenue growth and margins haven’t been anywhere near their targets for quite some time, the business hasn’t imploded and still throws off strong cash flow despite sales force issues and the ongoing product transition.
Perhaps that strong cash flow will ease the way as Forrester either pivots back toward business technology or convinces their customers to want what they’re now selling. The venerable research firm was founded back in 1983 and is based in Cambridge, Massachusetts.
Cynthia Murrell, May 3, 2017
Yahoo Pay Inequity
April 19, 2017
Former Yahoo CEO Marissa Mayer made a considerable salary, especially considering she came to power during an economic downturn. Her replacement Thomas McInerney, however, will be making double her salary. Fortune reports on the income differences in: “Yahoo’s New Male CEO Will Make Double Marissa Mayer’s Salary.” Pay inequity remains a big topic in today’s job market and this rises to the top as another example of a professional male receiving more money than a woman who held the same position.
Since Yahoo has sold its technology and advertising business to Verizon, it only consists of Alibaba stock, Yahoo Japan, and other miscellaneous investments. One can assume that McInerney will have a much easier job than Mayer did. McInerney is the former IAC CEO and his base salary will be $2 million, over Mayer’s $1 million. He will also be getting more income from Yahoo:
What’s more, Yahoo actually expects to pay McInerney $4 million in his first year working at the company, assuming he earns his target bonus, which is equal to his base salary, according to the new disclosures. That’s 25% more than the $3 million the company is paying Mayer for a salary and cash bonus this year. On top of that, McInerney will also be eligible for grants of long-term incentive rewards of up to $24 million, depending on achievement of performance goals. If he were to receive the maximum amount, it would also be twice as much as Mayer’s long-term incentive grant in 2015, the last full year before the Verizon deal was announced.
McInerney will be paid to run the Yahoo equivalent of a mutual fund. Yahoo will also not be buying new stock, instead, they will focus on managing their Alibaba stock and Yahoo Japan. Those two investments basically run themselves.
If you ask me, it sounds like once again a woman cleans up a mess, makes it manageable, and a man comes in to take the credit and more pay.
Whitney Grace, April 19, 2017
Bitcoin Alternative Monero Accepted by AlphaBay
March 17, 2017
As institutions like banks and law enforcement come to grips with the flow of Bitcoin, another cyber currency is suddenly gaining ground. Bloomberg Technology reveals, “New Digital Currency Spikes as Drug Dealers Get More Secrecy.” The coin in question, Monero, has been around for a couple of years, but was recently given a boost by the marketplace AlphaBay, one of the most popular destinations for buyers of illicit drugs on the Dark Web. In the two weeks after the site announced it would soon accept Monero, the total worth of that currency in circulation jumped to over $100 million (from about $25 million the previous month). Writer Yuji Nakamura explains why a shift may be underway:
Bitcoin, the most popular digital currency in the world with a total value of $9.1 billion, also allows users to move funds discreetly and uses a network of miners to verify the authenticity of each trade. But its privacy has come under threat as governments and private investigators increase their ability to track transactions across the bitcoin network and trace funds to bank accounts ultimately used to convert digital assets to and from traditional currencies like U.S. dollars.
Monero similarly uses a network of miners to verify its trades, but mixes multiple transactions together to make it harder to trace the genesis of the funds. It also adopts ‘dual-key stealth’ addresses, which make it difficult for third-parties to pinpoint who received the funds.
For any two outputs, from the same or different transactions, you cannot prove they were sent to the same person,’ Riccardo Spagni, a lead developer of Monero, wrote by e-mail. Jumbling trades together makes it ‘impossible to tell which transaction, of a set of transactions, a particular input comes from. It appears to come from all of them.
Though Monero has yet to withstand the trials of AlphaBay-level volumes for long, its security features received praise from investor and prominent digital-currency-advocate Roger Ver. As of this writing, Monero is ranked fifth among digital currencies in overall market value. Click here for a list of digital currencies ranked, in real time, by market cap.
Cynthia Murrell, March 17, 2017
Oracle Pays Big Premium for NetSuite and Larry Ellison Benefits
February 6, 2017
The article on Reuters titled Oracle-NetSuite Deal May Be Sweetest for Ellison emphasizes the perks of being an executive chairman like Larry Ellison, of Oracle. Ellison ranks as the third richest person in America and fifth in the world. The article suggests that his fortune of over $50B is often considered as mingling with Oracle’s $160B in a way that makes, if no one else, at least Reuters, very uncomfortable. The article does offer some context to the most recent acquisition of NetSuite, for which Oracle paid a 44% premium on a company of which Ellison owns a 45% stake.
NetSuite was founded by an ex-Oracle employee, bankrolled by Ellison. While Oracle concentrated on selling enterprise software to giant corporations, the upstart focused on servicing small and medium-sized companies using the cloud. The two companies’ businesses have increasingly overlapped as larger customers have become comfortable using web-based software.
As a result, it makes strategic sense to combine the two firms. And the process seems to have been handled right, with a committee of independent Oracle directors calling the shots.
The article also points out that such high surcharges aren’t all that unusual. Salesforce.com recently paid a 56% premium for Demandware. But in this case, things are complicated by Ellison’s potential conflict of interest. If Oracle had done more to invest in cloud business or NetSuite earlier, say four or five years ago, they would not find themselves forking over just under $10B now.
Chelsea Kerwin, February 6, 2017
On-Demand Business Model Not Sure Cash Flow
December 23, 2016
The on-demand car service Uber established a business model that startups in Silicon Valley and other cities are trying to replicate. These startups are encountering more overhead costs than they expected and are learning that the on-demand economy does not generate instant cash flow. The LA Times reports that, “On-Demand Business Models Have Put Some Startups On Life Support.”
Uber uses a business model revolving around independent contractors who use their own vehicles as a taxi service that responds to individual requests. Other startups have sprung up around the same on-demand idea, but with a variety of services. These include flower delivery service BloomThat, on-demand valet parking Zirx, on-demand meals Spoonrocket, and housecleaning with Homejoy. The problem these on-demand startups are learning is that they have to deal with overhead costs, such as renting storage spaces, parking spaces, paying for products, delivery vehicles, etc.
Unlike Uber, which relies on the independent contractor to cover the costs of vehicles, other services cannot rely on the on-demand business model due to the other expenses. The result is that cash is gushing out of their companies:
It’s not just companies that are waking up to the fact being “on-demand” doesn’t guarantee success — the investor tide has also turned. As the downturn leads to more cautious investment, on-demand businesses are among the hardest-hit; funding for such companies fell in the first quarter of this year to $1.3 billion, down from $7.3 billion six months ago. ‘If you look in venture capital markets, the on-demand sector is definitely out of favor,’ said Ajay Chopra, a partner at Trinity Ventures who is an investor in both Gobble and Zirx.
These new on-demand startups have had to change their business models in order to remain in business and that requires dismantling the on-demand service model. On-demand has had its moment in the sun and will remain a lucrative model for some services, but until we invent instant teleportation most companies cannot run on that model.
Whitney Grace, December 23, 2016
Google Stretches Its AI Wings
December 19, 2016
Google has been very busy launching AI solutions. For example, ReCode tells us, “Pow! Bang! Google Uses Its AI to Bring Visual Punch to Digital Comic Books,” while the New Atlas reports, “DeepMind AI Slashes Cooling Costs at Google’s Data Centers.” Making comic books easier to read is nice, and reducing electric consumption is even better. We would be happy, though, to finally see more relevant search results; perhaps Google will tackle that side project soon.
Recode’s Mark Bergen describes Google’s comic-book enhancement tool, called Bubble Zoom:
The latest [AI] insertion is a neat visual trick to make it easier to read comic books within the Google Play Books app. Unfurled at Comic-Con International, it’s called Bubble Zoom and does just that — zooms in on text bubbles in comics with one touch. Last fall, Google introduced new mobile formats for digital comics, an attempt to get more comics readers, a devotee-heavy group, spending time and money within Google’s digital media store.
That could work. Meanwhile, Google is certainly seeing financial benefits from its AI-enhanced data center cooling project. Michael Irving at the New Atlas explains:
Now, Google has set its DeepMind system loose on its massive data centers, and drastically cut the cost of cooling these facilities in the process. Running Gmail, YouTube, and the all-knowing Google Search guzzles a tremendous amount of power, and while Google has invested heavily in making its servers, cooling systems and energy sources as efficient and green as possible, there’s always room for improvement. Especially when the industrial-scale cooling systems are difficult to run efficiently, given the complex interactions that occur between equipment, environment and staff in a data center. To account for all those factors that a human operator or traditional formula-based engineering might miss, the team put DeepMind to work on the problem, and the result was a drastic reduction in power consumption for the center’s cooling systems.
The article goes on to describe how the difference was measured, using the PUE metric and the record-breaking results they achieved. Naturally, Google expects to apply this successful tool throughout their buildings. We’re told they also plan to share the methodology with other organizations, so they can reduce their energy consumption, too. No word yet on how they plan to monetize that initiative.
Cynthia Murrell, December 19, 2016
A Crisis of Confidence
December 14, 2016
I remember a time, long ago, when my family was confident that newspapers and TV reporters were telling us most of the objective facts most of the time. We also had faith that, though flawed human beings, most representatives in Congress were honestly working hard for (what they saw as) positive change. Such confidence, it seems, has gone the way of pet rocks and parachute pants. The Washington Examiner reports, “Fishwrap: Confidence in Newspapers, TV News Hits Bottom.” The brief write-up gives the highlights of a recent Gallup survey. Writer Paul Bedard tells us:
Gallup found that just 20 percent have confidence in newspapers, a 10-point drop in 10 years. TV news saw an identical 10-point drop, from 31 percent to 21 percent. But it could be worse. Of all the institutions Gallup surveyed on, Congress is at the bottom, with just 9 percent having confidence in America’s elected leaders, a finding that is clearly impacting the direction and tone of the 2016 elections. And Americans aren’t putting their faith in religion. Gallup found that confidence in organized religion dropped below 50 percent, to an all-time low of 41 percent.
Last decade’s financial crisis, the brunt of which many are still feeling, has prompted us to also lose faith in our banks (confidence dropped from 49 percent in 2006 to just 27 percent this year). There is one institution in which Americans still place our confidence—the military. Some 73 percent of are confident of that institution, a level that has been constant over the last decade. Could that have anything to do with the outsized share of tax revenue that segment consistently rakes in? Nah, that can’t be it.
Cynthia Murrell, December 14, 2016
A Blurred In-Q-Tel X-Ray: Real Journalists Uncover Old News
September 4, 2016
I noted this write up by the Rupert Murdoch outfit, the Wall Street Journal: “The CIA’s Venture-Capital Firm, Like Its Sponsor, Operates in the Shadows.” You may have to buy a dead tree version of the Wall Street Journal, go to your public library, or subscribe to read the source itself. (Don’t hassle me if the link begs for dollars. Buzz Mr. Murdoch and express your views.)
The point of the article is that the US government’s intelligence outfit operates a venture capital firm. That investment entity does business as In-Q-Tel. The goal, in my opinion, is to identify promising technologies which may have application at the Central Intelligence Agency. Please, note that much of the work at the CIA is not public. That’s because it mostly operates in secrecy. The fact that a government has secret activities is not exactly news.
Furthermore, whom do you think advises the Central Intelligence Agency and its various units? Choose from the following list:
- Immigrants without US entry authorizations
- Felons recently released from prison to a half way house
- Individuals working for governments antithetical to the posture of the United States
- Investigative journalists looking for a gig
- Individuals with clearances or a track record of serving the US.
Okay, you picked one to three. You may qualify for work at a large, “real news” outfit. If you selected item four, you now understand why the news about the individuals and the companies exposed to In-Q-Tel is stale.
Obviously those in the spy game want folks who are in the same fox hole.
The write up reveals this stunning factoid: In-Q-Tel provides only limited information about its investments, and some of its trustees have ties to funded companies.
No kidding.
With considerable assiduity, the write up lists the companies in which In-Q-Tel has invested and notes:
Of about 325 investments In-Q-Tel says it has made since its founding, more than 100 weren’t announced, although the identities of some of those companies have leaked out. The absence of disclosure can be due to national-security concerns or simply because a startup company doesn’t want its financial ties to intelligence publicized, people familiar with the arrangements said. While moneymaking isn’t In-Q-Tel’s goal, when that happens, such as when a startup it funded goes public, In-Q-Tel can keep the profit and roll it into new projects. It doesn’t obtain rights to technology or inventions.
There you go. Why not let another nation’s intelligence services invest in high potential but little known innovators? The US government is trying to bring more business discipline to some of its activities. Therefore, is it not logical that an intelligence agency seeking high value products and services can use the proceeds from its investments to further the work of the intelligence agency?
I guess that’s a thought foreign to some real journalists.
What does one expect the CIA and In-Q-Tel to do? Publish a daily newspaper detailing the companies, people, and technologies the CIA is interested in? What about going on Fox News and explaining what’s hot and what’s not in advanced technology? Oh, right. Technology is not as much fun as pundits who over talk one another.
I know that an outfit owned by Rupert Murdoch is in the news business. I know that gathering information from the In-Q-Tel Web site is really difficult. For me, information about In-Q-Tel is a bit of a yawner.
I would much rather read about some of the management methods used in some major media entities. Government efforts to identify cutting edge technologies is just not that interesting to me. Where’s the beef? Why not consider why certain categories of investments have not yielded products and services which can be used across missions? Why not explore why Purple Yogi was a dead end and why Palantir is not? Oh, right. That’s harder than realizing that in certain types of work one wants to deal with individuals from that fox hole.
Stephen E Arnold, September 4, 2016
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