NYTimes: Public Pension Funds Are Adding Risk to Raise Returns

No one can get 8% return in todays market without taking on additional
risk. There is the mythical risk adjusted rate of return. On one end
is the zero risk represented by a T bill. On the other is high risk
high return of vc and hedge funds. If an instrument's return gets too
high vis a vis the risk, then the price will rise and the return will
drop.

Market conditions have reduced the advantage that some pension plans
used to enjoy. Now everyone is fighting for the same return. No such
thing as a free lunch. With enough invesments in highly risky deals
some will go to zero. The successes need to pay for all those mistakes
and still have a high enough return to keep investors interested.

From The New York Times:

Public Pension Funds Are Adding Risk to Raise Returns

Even as big companies are moving their pension funds out of stocks,
state governments are chasing higher returns for their plans by making
riskier investments.

http://www.nytimes.com/2010/03/09/business/09pension.html

Get The New York Times on your iPhone for free by visiting http://itunes.com/apps/nytimes

Jean-Luc Park

New way of angel investing

http://www.mobilecrunch.com/2010/02/21/rightside-capital-announces-new-seed-fund-will-make-100-200-investments-per-year/

 

A friend sent me this link about RightSide Capitals' spray and pray approach to early stage VC.

 

The entrepreneur who sent me this has gone through a lot over the years we have known each other, and his risk tolerence and risk appetite have changed markedly during that time. 

 

The spray and pray is a simple numbers game.  1 or 2 deals have to go right, in order for this to work.  In doing this via calculator and math equations, the benefit will be lowered transaction costs for doing deals.  And the hope will be to get a return that's better than risk adjusted market rate.

 

Will this work in traditional VC?  Not sure.

 

Everything will face challenges on the margin, and the thinking is some expert investor in an industry sector can pay a higher valuation, because that investor has more specific knowledge on a particular deal than RightSide will, given 100-200 portfolio companies each year.  So the best of the best deals probably won't end up in this portfolio.

 

Transaction costs/legal fees have to be at rock bottom, for this to make sense (like insurance). And how stale will be the portfolio be before the first returns start to come in?  It depends on the types of companies they focus on.  It might be that short-term investment horizons are encouraged with this type of investing.  Longer term investments may not be as attractive, because of future cramdowns and the inability of the fund to do the follow on rounds and protect their own interests.

 

I do like this approach for the PRI/MRI investments from foundations.  There, a market rate return might not be the driving factor for investment.  And it could be that some foundations would see the advantage of being able to get 80% or 90% of the invsested money back, to deploy again and recirculate, instead of continually giving grants every year.

 

 

 

 

Long term unemployment

http://www.nytimes.com/2010/02/21/business/economy/21unemployed.html

 

NY Times article on the long term unemployed.

 

I've no solution for this situation.

 

Education/training hasn't helped this situation.  too many of the "new" jobs were in industries that have already gone, or will soon be shipped away.  How many html programmers are left in this country?

 

What new jobs have emerged from all the training money that was spent?

And when this same population votes against their own interests at the polls, it is impossible to find intelligent government support.

 

This is a population that is willing to work with viable solutions. However, the desperation also makes this a classic prey population. 

 

Not sure what the final solution will be, but the status quo will not survive the strains currently being put upon it.

Successful MITEF event at Canadian Embassy

Last night was a fantastic event for the MITEF Winter Gala at the Canadian Embassy.

 

There was a great crowd of entrepreneurs and other folks in the entrepreneurial ecosystem.

 

I wanted to thank Ruth Currier and Benjamin Eliasoph of the Canadian Embassy for their efforts in pulling off the event.  I've known Benjamin for a couple of years, and he's been a fantastic contact at the Embassy.

 

The speakers were Phil Auserwald and Jean-Rene Halde.

 

Really the only stumbling block was when I failed to give Phil's full bio in my introduction.

 

The sponsors of the forum:

Mike Verga and the IP Engineering Group of Connolly, Bove, Hurtz and Lodge.

Amy Chian and Lawrence Kast of Honeywell.

ProVDN

 

And the entertainment by DJ Arnoldo

 

The team did a great job, the audience was very happy with the event, and it was a success.

Remembering what I don't know

It is the season for business plan competitions.  The MIT Enterprise forum of DC and Balitmore will be holding their competition in a couple of months.  However, I've been working with some schools on the VCIC, venture capital investment competition, where the teams of students act as investors, not entreprenerus, and go about judging/grading the companies based upon criteria that VC investors would use.

 

I enjoy these events, because it puts me in contact with great students, amazing companies, and it helps me remember what I didn't know about the industry when I first started.  Every once in a while, one of the questions get brought up that I still can't answer. and highlights how much I still need to develop my own tool kit.

 

In the past month, I've been at Wharton, and at Georgetown to act as a judge for their events.

 

The students were good in their thinking, but many teams stopped at the first level of analysis.  What the company does, how the company does it, and what the financial projections say the company will be worth.

Few investigated WHY the company should do what it does, and fewer probed deeper into the answers that were given by the entrepreneur.

 

A similar instance happened at each school, the entrepreneur was asked what the cap-table was.  Essentially who owns what?  One entrepreneur said that all 3 partners share equally 1/3-1/3-1/3 of the company.  I would have flipped upon hearing that.  Who runs the company?  I've already said no Co-CEOs, having 3 people is the death knell from my perspective.

 

Another entrepreneur didn't even answer the question.  The answer given was that different people purchased stock at different times, so each had a different ownership.  That's a problem.  If the entrepreneur doesn't know the answer, that's an issue, if the entrepreneur isn't willing to answer the question, that's a different issue.

 

One time a team was able to find an error in the finances that were distributed.  The CEO said, "well I don't know, I'll have to ask my CFO about that"  If the CEO doesn't know the company cold, you have a problem.  At the end of the day, one person is responsible, and if the CEO can't answer questions on the basic operations of the company, you probably need to find or develop a better CEO.

Photysyntheis and quantum coherence

http://www.wired.com/wiredscience/2010/02/quantum-photosynthesis/

 

Does this mean than every blade of grass out there is a quantum computer? Probably.  It also means that biomimicry, and understanding how nature has already solved many of the challenges we're trying to face is more important than we've been giving it credit for.  If you've had the age of the universe to try and solve puzzles, what you're left with might not be perfect, but it at least works, and has been throught a lot of testing.  The biggest problem humans seem to have is the mutiple repurposing of chemicals/compounds, and building upon building.  No one gene seems to do only one thing.  A compound might seem to primarily cause an effect, but there are secondary scenarios that happen with every disruption to the system.

VC can't hide any more

http://bits.blogs.nytimes.com/2010/02/02/dot-com-crash-catch-up-with-venture-capitalists/?pagemode=print&scp=3&sq=venture%20capital&st=Search

 

so the numbers that were propping up great returns are now out of the 10 year timeframe. And while returns for the industry are OK at 8%, this includes Google, and quite a few deals that skew the numbers.  And if you weren't in one of those funds that made those huge home runs, you're probably not looking at an 8% IRR.

 

I'll disagree with Heesen, that it didn't 10 years to fully realize what happened, and clear the impact.  We've been seeing the impact with funds that were raised during that time, not able to raise another fund.  Partners who won't be running a fund in the next decade.  While it is "easy" to double a $25 mil fund, to $50 mil.  trying to double a $1 bil fund to $2 bil is impossible.

 

Silcon valley will still be a huge influence in the returns and the type of investments that will be made in the coming years.  But the lock that used to exist of innovation and investment within the USA may have been lost.

 

The numbers were bad, they're gonig to stay low for a while, but in the end, even VC has a role to play in the economy.

MIT Enteprise Forum of Washington DC and Baltimore Gala 2010

Date:	Thursday, February 18, 2010
Time:	6:00pm - 9:00pm
Location:	Canadian Embassy 501 Pennsylvania Avenue Northwest, Washington, DC

Description

Drinks, Entrepreneurs and the Host Country of the Winter Olympics!

This year's theme is"Growing Opportunity for Technology Entrepreneurship in Domestic & Emerging Markets: The Role of Innovation in Economic Development". Featuring Phil Auerswald and Jean-Rene' Halde. Phil Auerswald is a professor, author, tech policy expert and co-editor of Innovations: Technology | Governance | Globalization, a quarterly journal from MIT Press about people using technology to address global challenges. Jean-Rene' Halde is the President and Chief Executive Officer, Business Development Bank of Canada (BDC). BDC is one of the most important players in Canada's innovation ecosystem; it is one of the largest venture capital investors in Canada, with 115 companies in its portfolio and investments in 20 funds.

There is FREE PARKING in the Embassy garage. Tickets must be bought in advance due to Embassy security online at http://www.mitef.org/content.aspx?page_id=87&club_id=582681&item_id=98791

NYTimes: Sites to Refuel Electric Cars Gain a Big Dose of Funds

From The New York Times:

Sites to Refuel Electric Cars Gain a Big Dose of Funds

The infusion of cash is a vote of confidence for Better Place, the
closely watched start-up that hopes to create vast networks of charge
spots for electric vehicles.

http://www.nytimes.com/2010/01/25/business/energy-environment/25electric.html

Better Place has taken on a big role in the industry. I appreciate
the analysis they've done on where to locate the initial sites which
countries are most receptive to electric vehicles.

The key weakness I still see is having a big enough fleet set up from
day one. I still say that a postoffice or taxi fleet would be the best
way to get to scale quickly.

But each report I read focuses on the consumer market. It doesn't mean
that they can't or won't shift focus in the coming years. But until or
unless I start to see the address the entire transportation situation,
I have the fear that they've fallen in love with the one vision and
have no room for flexibility.