Lehman Brothers was one of the investors who put $12 million into MyShape, an online clothing store. Lehman Brothers, the bankrupt investment bank? Yes; its VC arm, Lehman Brothers Venture Partners, had committed to the investment in August, before its parent company collapsed. The venture group, which had raised $1.1 billion and invested $717 million of that, is negotiating to spin out of Lehman as an independent firm.
In 1989, real estate developer Seymour Durst installed an electronic billboard near Times Square that tracks both America's national debt and your family's share, back before San Francisco destroyed the family. The clock has been modified by replacing the "$" with a "1" to display the current $10 trillion-plus debt level. The Durst Organization reportedly plans to replace the clock with a 15-digit version. Why not a giant TV screen with an animation of my money going down the drain? That seems easier.(Photo by AP/Bebeto Matthews)
It's official! Lots and lots and lots of economists now think we're in a recession which started in July. Which reminds us of the old economist joke: What's the difference between a recession and a depression? In a recession, you lose your job. In a depression, an economist loses his job. Hahaha it's funnier if you're an economist. Like my dad. Who taught me that joke. A bit of perspective: At nine months, the predicted recession would be the longest in half a century. But the same forecasts also say it will be over by April. Chin up! [WSJ]
The last time YHOO traded below $13 was after 9/11 and before the U.S. invaded Iraq. (I live in San Francisco, where even Republicans obsess over these connections.) Henry Blodget, the disgraced stock analyst everyone trusts now, says Yahoo is scrambling to update its layoff plans after watching eBay go first:
The good times are over, the partners of Sequoia Capital are telling the entrepreneurs they fund. Quite literally: They sent a summons to a summit meeting with a picture of a gravestone with the writing "R.I.P. Good Times," rival venture capitalist Om Malik reports. There, partners including Michael Moritz and Doug Leone told CEOs of companies in their portfolio that they should steel themselves for a prolonged downturn, make their businesses self-sustainable, and cut all unnecessary costs.I would be more impressed if Sequoia hadn't pulled this act before when the last bubble burst. True, they called the movement of the market. But it's conventional wisdom today that the economy is tanking. But what does the economy have to do with the startups Sequoia funds? The whole point of venture capital is to nurture companies that need capital. Part of the art of investing in startups is knowing when to push them out of the nest. Templated cost-cutting advice, applied across Sequoia's portfolio, is hardly a value-add. And it's not clear how this was bad advice a year ago. Sequoia's portfolio should have been keeping a close eye on costs then as now. The IPO market is definitely ailing now, but it's hardly been healthy over the last few years. Large acquisitions have been scant since MySpace and YouTube got bought. The chaos on Wall Street doesn't change the bleak outlook for exiting startup investments profitably that existed beforehand. So what's really going on here? Consider two of the companies that heard Sequoia's speeches last time around: PayPal and Google. They both spent and grew aggressively in the face of a local recession. They both managed to IPO when few tech companies were going public. And they both delivered handsome profits to Sequoia. I'm just guessing at Moritz's game, but here's what I suspect is going through his head: He could have delivered a cost-cutting sermon a year ago, true. But his entrepreneurs are far more likely to listen to it now. And the rest of Silicon Valley is listening, too. He's made his bit of noise, knowing full well word would leak out, and put a scare in all his competitors. How convenient that this scare-tactics summit was held just a month after Sequoia raised $1.7 billion in new funds. While everyone else is hunkering down, Sequoia will cull the weaklings from its portfolio, double down on the winners — and profit before anyone realizes the good times are back. Well played, Michael, well played.
Nearly one in four high school students surveyed by Piper Jaffray "plan on buying an iPhone in the next six months." It's not clear if the 22% who want one include the 8% who already have one, or if the survey was conducted before their once-splurgy parents began raving about The Worst Financial Crisis Ever — why, six months from now there'll be nothing left to sync with! Me, I took a hint from the kids: My shiny new Blackberry Curve 8330 will be a valuable job-hunting tool after Denton fires us all.
I had such high hopes for Neel Kashkari, the wonky rocket scientist turned investment banker turned Treasury official who's now in charge of spending the $700 billion blank check taxpayers just wrote to Wall Street. But in watching a speech Kashkari delivered, as a mere senior policy advisor, last month at the American Enterprise Institute, I'm less encouraged. He's a bit too much of a classic geek. Watch the clip to see why:
Every coder in the Valley was thinking that somewhere, somehow, we'd get called upon to fix the market meltdown. And sure enough, one of our own has been called to the job: Neel Kashkari, a 35-year-old finance whiz kid, has been tapped to spend the Treasury's $700 billion splurge on busted debt derivatives. Who is this guy?He worked at Goldman Sachs, in San Francisco, before joining the government, advising security-software companies on mergers and acquisitions — and he still has a house here. Prior to getting his MBA — Wharton, not Stanford, alas — he worked as an aerospace engineer at TRW on Nasa missions, and got a bachelor's and master's at the University of Illinois at Urbana-Champaign — Netscape founder Marc Andreessen's alma mater.
Shares of Google dipped as low as $348 today, down from a high of $747 last November. Investors have taken a bath — but so have employees. Google makes up for so-so salaries with generous grants of stock options and restricted shares — but those no longer look so generous. Henry Blodget, the disgraced yet insightful former stock analyst, says both restive groups will conspire to crush Google's profit margins. Shareholders will demand more accountability for Google's spending — expect further cutbacks in perks like Google's lavish cafes, in other words — and employees will demand more cash.
Conventional Valley wisdom: The chaos in the public stock markets won't affect private companies, right? Wrong. In August, LinkedIn had set plans to let employees sell some of their shares to investors. Interest in the company had been keen, given its stated plans to wait to IPO rather than sell out. But the stock-sale plan was conditioned on the Nasdaq index staying above a certain level. It has since fallen through that floor, meaning employees will no longer be able to sell their shares. And we hear Bain Capital, a major LinkedIn investor who's backing the stock-sales plan, has the right to walk away if the Nasdaq doesn't recover by mid-October.
Matching advertisement to the contents of a website is financial nirvana, right? Wrong. Computers keep getting the ads wrong, with results that would be hilarious were they not so offensive. Yes, an article about foreclosures might be read eagerly by people who want to refinance their mortgage. But a mortgage ad next to a story about a woman who shot herself while being dragged out of her foreclosed home by sheriffs' deputies? Click the image to see the full screenshot.
Peter Thiel, the billionaire hedge-fund manager, Facebook board member, and ex-CEO of PayPal, hopes that Wall Street's crisis will prompt "more talented people going into things like real engineering, as opposed to financial engineering." Thiel should be careful what he wishes for: His fund lost $1 billion in August, thanks to wrongheaded financial engineering. [Fortune]
If you planned to have your startup switch gears to sell to big business instead of strapped consumers, hold that thought. Chief information officers, the tech executives who serve as gatekeepers to most tech spending at large corporations, are rapidly turning bearish. The CIO Executive Board reports that 61 percent of its members are "reevaluating" 2009 budgets. A similar percentage are pausing nonessential projects, and a quarter have put a hiring freeze on.
Funnier if it were true: Guy King, the founder of RetailMeNot, a site which lists online coupons for discounts on e-commerce sites, is mocking the effort to rescue Wall Street with a 25-percent-off offer when taxpayers spend $700 billion or more. Seriously, though: Getting 25 percent off the price at which the banks want to offload their mortgage-backed securities on the government sounds like a great deal — as long as it doesn't wreck their balance sheets further.
Jeremy Philips, News Corp.'s Internet-savvy executive wunderkind, has been going around telling anyone who will listen, "Buy food and guns." Some people can't tell if Philips (shown here, right), is kidding; those who take him seriously interpret it as a wry shorthand for hunkering down and bracing for a long economic downturn. It's naive to think that the meltdown of the investment-banking sector won't have an effect on Silicon Valley. But not in the way most people think.Wall Street is currently in a bubble of panic. The Valley is currently in a bubble of denial. Neither zone approaches reality. Members of the National Bureau of Economic Research — the only official arbiter of such matters — can't even agree if we're in a recession yet. "It's really hard to say if we're in a recession, because different indicators point in different directions," said Jeffrey Frankel, a Harvard professor and a member of the NBER's recession-calling commitee. That technical measure of recession ignores the reality on the ground: Home prices continue to slump, gas prices are pinching consumers' pocketbook, and advertisers are aggressively cutting back budgets, even online. Layoffs are grabbing headlines. But does this really affect the Web startups which so enchant the blogosphere's imagination? Schadenfreude demands that these tiny companies shutter their doors — or if they don't have the decency to close up shop, they should act suitably chastened by the cold economic winds blowing. There's a lot of contradictory advice being handed out: Rely on angel investors! Don't rely on angel investors! My advice: Don't rely on journalists and bloggers for advice on how to run your business. One might think Valleywag, which eagerly chronicles the mishaps of misconceived startups, would cheer on the notion of a lot of startups starving to death because of an economic downturn. Far from it! Better that they choke on their own vomit — that excess and lack of self-discipline kill them, rather than factors outside their control. Serious entrepreneurs should be tightly controlling their spending. But that is as true now as it was a year ago, and a decade ago. Retaining pricey PR firms, throwing lavish parties, hiring executives from Fortune 500 companies at mid-six-figure salaries — that can wait until the company turns a profit. If your startup is dependent on a bubbly economic cycle, then it's not being run like a startup. By all means, those who were never meant to be entrepreneurs in the first place, who lack any real ideas of their own, or any interest in making money rather than spending someone else's, should take this occasion to make a graceful exit from the scene. Six months ago, closing your startup would have seemed cowardly if not insane; now, everyone will nod at your wisdom. That brings me to the opportunists — the likes of Marc Andreessen, who has been preaching the notion of a coming "nuclear winter" for some time, and Jason Calacanis, who recently wrote about a looming "startup depression." Were I more impressed with their current startups, I'd nod alongside. But Andreessen's Ning is an unimpressive social-network builder; Mahalo, a gussied-up replica of Yahoo's 1994-era Web directory. Frustratingly for some observers, they have raised enough money that neither company will run out of funds for at least a year. (No one sincerely believes Calacanis when he says he has enough money to run the company for four years, do they?) If their flimsy business models remain unchallenged, their survival is all the more likely. So when Andreessen and Calacanis talk doom and gloom, what I'm really hearing is: "Please don't raise money for a better idea than mine — I can't take the competition." What history tells us, actually, is that the best companies are started in times like this. The last wave of truly innovative Web 2.0 companies — Flickr, Del.icio.us, Last.fm, Facebook — started at a time when no one particularly believed in their potential. Many people would benefit from a climate of fear: Venture capitalists, who might get larger pieces of startups; employers, who might hire talent more cheaply; and corporate dealmakers, like Jeremy Philips of News Corp., who might acquire companies less expensively. But the biggest reason to ignore Philips' fearmongering, in particular? He's not taking his own advice. Rumor has it that, instead of food and guns, he is acquiring a piece of Manhattan real estate. And from what we hear, it is rather too glossy a place to serve as a warehouse for rations and ammo. (Photo by Gawker Media)
Why is Dave Cote telling Honeywell's 122,000 employees to call Congress and ask them to vote for the $700 billion Wall Street bailout? The high-tech manufacturing giant makes its money far from Wall Street, on building electronics and airplane parts. But where the credit crisis hits the heartland the hardest is a market for what's called commercial paper — short-term loans made to large corporations to fund their daily operations. It provides the cash that smoothes over the gaps between when supplies get bought and employees get paid and when customers pony up. Mentioning Honeywell's self-interest in this regard would have done much to bolster Cote's otherwise-strong argument:
Okay, now I have no idea what to believe when it comes to Google's share price. Note in the above picture that both Yahoo Finance and Google Finance are reporting Google down to a 52-week low — after a sudden, forty-point drop right at the end of the day. But in after-hours trading, Google is back up over $400. Initially, Yahoo even had the stock all the way down to $200. Even MarketWatch got taken in by the wild swing. What's going on?
"Financial issues are going to affect both business spending and consumer spending, and particularly ... spending by the financial services industry," Microsoft CEO Steve Ballmer told reporters at a news conference in Oslo earlier today. That's a reversal from his claim last week that tech sector worriers were probably watching too much CNBC. On the last day of the sales quarter, the always-bouncy Ballmer was refreshingly blunt: "Whatever happens economically will certainly effect itself on Microsoft." (Photo by AP/Erlend Aas)
