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OEN Blog

March 31, 2009
Dave Chen

There is a lot of assesing going on in the VC community about what constitutes a good return on investment. In a recent post entitled  Venture Capital - Thoughts on Asset Class by Fred Wilson, VC and principal of Union Square Ventures he shares some valuable insights about the value of Venture Capital as an asset class, what the fall out might be and how it might be bad news for entrepreneurs but could potentially be good for innovation in the high tech industry sector.

 

Read the article below. Love to hear what you think.

 

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An exerpt from Fred Wilson's blog, Musings of a VC in NYC

Venture Capital - Thoughts On The Asset Class

I wrote a post a week or so ago thinking outloud about what a good "venture return' is.   Yesterday, one of our investors, Lindel Eakman of UTIMCO, stopped by this blog and left a very interesting comment on that post.

Lindel pointed out that UTIMCO's portfolio return on all VC funds over the past 10 years was in the range of 9pcnt and that he thought that wasn't very good. He did point out that VC is well ahead of the public equity markets in their portfolio and so to the extent they have their equity dollars in VC (or other private equity), that is better than public equity right now.

The punch line to Lindel's comment is important. He wonders if VC can't do better than 9pcnt across a diversified portfolio, would UTIMCO simply be better in bonds given the illiquidity and greater risk of the VC asset class?

 

And sadly, it may well come to that. VC has not proven that it can scale as an asset class since the mid 90s. The vast amount of money that has come into the sector from public pension funds in the past fifteen to twenty years has not been put to work very well and returns for the asset class as a whole have come down. It may well be the case that the public pension money (and other money) may leave the asset class as CIOs and the investment committees ask the hard questions that Lindel is asking.

 

Read the rest of the article Venture Capital - Thoughts on Asset Class

1 Comments Permalink Tags: entrepreneurs, innovation, venture_captital, return_on_investment
Dave Chen
i ran across this a while back, seem to ring very true to the hi-tech experience and seems equally applicable to private companies and start ups:
Top 10 Investing Rules for Technology Stocks
http://www.iimagazine.com/Article.aspx?ArticleID=2117316&LS=EMS251261
02 Mar 2009
Christopher Danely

From buying or selling stocks based on valuation to investing in tech companies with hot-selling products, J.P. Morgan's technology research analsyst Christopher Danely offers his ten rules for smart investing in technology/semiconductor stocks.

Christopher Danely is the Managing Director of Global Semiconductor Research Coordinator at J.P. Morgan.

March 4, 2009 — Although widely held technology-sector stocks are suffering these days, there are some exceptions and bright spots for the savvy investor who knows how to pick technology stocks that show signs of endurance.

From buying or selling stocks based on valuation to investing in tech companies with hot-selling products, J.P. Morgan technology analyst Christopher Danely offers his ten rules for smart investing in technology/semiconductor stocks.

1. Don’t ever Buy or Sell a tech stock based on valuation. Tech stocks are still largely momentum investments.  They go up if the estimates are going to go higher and go down if the estimates are going lower and seem “cheap” prior to a blow up, and “expensive” prior to a run up.

2. Exchanging higher revenue growth for lower margins never works. The reason many tech companies have such high multiples is the high margins and high cash flow they generate.  When margins go down, multiples go down, ergo, stock goes down.

3. Lead times going out is good.  Lead times coming in is bad. These are two occurrences tech companies will deny, deny, and deny ’til the cows come home.  They will insist that there is no double ordering when lead times stretch out, even though their customers will openly admit it.  They will also try to say their customers will not cancel orders when lead times come in.

4. Very rarely is “it’s different this time” a good rationale for investing in tech stocks. I can’t count how many times I’ve heard:  “Inventory is better managed” or “Our biggest customer just blew up, but we’re fine.”  In over a decade of covering tech stocks, VERY RARELY is it different this time.  The reason?  Human nature is difficult to change.

5. Technology company management is ALWAYS bullish. Tech company managements are often founders; they work very hard, and have a huge amount of skin in the game.  The company is their “baby.” Case in point, my mom still loves me after I put her through hell and beyond for the first 25 years of my life.

6. “Looking through a tough quarter or two” never works. When a tech company blows up, the negative estimate revisions are usually much greater than anticipated.

7. Intel stock usually follows its gross margins. I have charted this axiom of semi investing back almost 20 years, and it still works.

8. When a tech company says, “Our revenue growth will come from the Medical or Healthcare end markets,” what they’re really trying to say is, “We have no revenue growth.” While electronic content is increasing in both applications, the number of units are tiny compared to cell phones or PCs.

9. Its never “just a one-quarter problem.” When a tech company blows up sometimes you hear, “its just a one-quarter problem.  Business will be back to normal soon.”  Technology stock corrections are at least two, if not three quarters of sequential declines, even worse when share loss is involved.

10.  If a tech company either has or supplies into a hot-selling product, consensus estimates are usually way too low. Product cycles never cease to amaze me at how strong they are and how many people will buy the truly revolutionary products such as iPods, cell phones, BlackBerrys and digital TVs.

Copyright 2009 JPMorgan Chase & Co. All rights reserved.

0 Comments Permalink
Sarena Regazzoni

I saw this inspiring video called Did you know? on You Tube. It was produced with research done by Karl Fisch, Scott McLeod, and Jeff Bronman  and contains myriad data points world wide on population, competion and the progression of information technology.

 

This video, through a series of questions and data points shed some light on some current and upcoming stats that will be hurdles for some and  a boon for others. Knowing entrepreneurs always have a unique vision on challenges, I thought I'd share this video with you. Enjoy!...Who knows, it just might inspire your next great venture.

 

 

0 Comments Permalink Tags: entrepreneur, innovation, inspiration

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