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Archive for November, 2011

Article from SFGate.

“If Facebook is like hanging out at a banquet with a large buffet to feast on, then social network Path is an intimate dinner with close friends. Path is now getting new silverware and table decorations, so to speak, with the release of updated software.

CEO Dave Morin, a Facebook alum, says the dinner-party philosophy remains but users can now share their comings and goings with up to 150 friends, up from the original 50.

With the new version available this week, a year after its debut, Path aims to be more than a sharing application. It wants to be a digital journal that documents your days with a push of a button.

Morin describes it as “a slightly social experience.” You’re not just updating it to share your day with others; you’re recording your life for yourself.

“The idea has always been to give you a trusted place to share with your close friends and family,” Morin said. “Now that the (mobile phone) is the accessory you have in your hand all the time, it’s become a journal.”

Path began as an iPhone application for sharing photos and videos. Users later got the ability to add one of five emoticons to their friends’ photos.

The new version lets users post music and tell everyone where they are, with whom and whether they are awake or asleep. It’s also compatible with Android-running phones for the first time. And, it includes technology that allows the application to make updates on its own, as long as the user agrees to it, or opts in.

For example, if you fly to Minneapolis, the application can track you with GPS and post this when you land: “Arrived in Minneapolis, it’s 6:06 p.m. Mostly cloudy and 50 degrees.” The location updates are neighborhood and city specific but will not pin an actual location.

Morin says the auto-updates make it easier for users to share richer content without much effort. And, while the details may seem personal, your network is only of close friends and family.

The update retains strict privacy controls, which Morin says is key to making people comfortable with sharing, especially in the wake of high-profile debates over privacy issues at Facebook.

On Tuesday, the government announced a proposed settlement with Facebook over “unfair and deceptive” business practices. The pact requires the company to get people’s approval before changing how it shares their data.

The new version of Path integrates larger social networks Facebook, Twitter and Foursquare, allowing status updates to those sites from the Path application.

Morin says the San Francisco-based startup has enough funding for its next stage and just hired its 20th employee. Path has more than 1 million users.”

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Article from SFGate.

“Just a few weeks after “Mafia Wars 2″ went live on Facebook, Din Shlomi got tired of playing the game.

A self-described hard-core gamer from northern Israel, he spent years playing the original “Mafia Wars,” building a virtual criminal empire and fighting online gang wars. But Shlomi says the sequel – launched to great fanfare – has too many bugs (some missions couldn’t be completed) and he ran out of challenges at a certain point.

“Like every Zynga game, it can be very addicting,” Shlomi says, “but once you hit level 50 there was nothing to do. It was literally like hitting a ceiling.”

Two years after Zynga’s “FarmVille” enticed millions of Facebook users to plant fields of digital crops, social gaming has mushroomed into a multibillion-dollar industry. The San Francisco startup is weeks away from an initial public offering in which it hopes to raise $1 billion.

While expectations for the social game market remain robust – it will generate $14.2 billion in revenue in 2015, up from $6.1 billion this year, estimates Lazard Capital Markets – the business is experiencing its first growing pains. Hundreds of developers now compete for the clicks of online gamers who are spending shorter periods of time immersed in each game.

To stand out, Zynga and others spend several million dollars developing titles and millions more marketing them, which increasingly puts a squeeze on profit margins. And hits are harder to come by.

“The economics just aren’t what they used to be,” says Josh Williams, president and chief science officer at Kontagent, a consultant on social games.

“The cost of customer acquisition is going up, and that means there is going to be pressure on margins,” says Atul Bagga, an analyst with Lazard.

Slipping profits

Although Zynga continues to enjoy high-speed growth – revenue was up 80 percent in the third quarter, to $306.8 million – profit fell 54 percent, to $12.5 million, from the same period a year earlier.

“Mafia Wars 2″ had all the makings of a blockbuster. Its development team, which grew to 80 people, worked for nearly a year on the game, heralded in an October media launch at the company’s new Townsend Street headquarters. (The lobby contains a 1970s Winnebago and a tunnel lit with color-pulsing LED tubes.) The game peaked at more than 2.5 million daily active users in October. Since early November, the virtual organized crime adventure has shed more than 900,000 players, according to research firm AppData.

Sales of “Mafia Wars 2″ have not met the company’s own expectations, according to people inside the company who were not authorized to speak on the record. Executives are second-guessing one another about what went wrong. Zynga declined to make Chief Executive Officer Mark Pincus or other senior executives available for comment, citing the company’s quiet period before the IPO.

“I think they are learning that the sequel doesn’t work,” says Michael Pachter, a research analyst at Wedbush Securities.

The number of daily active users in a game is a critical metric of its profitability, according to Pachter, because daily users are more likely to spend on virtual items such as machine guns and shields. “The more frequently they come back, the more likely they are to pay.”

Less than 10 percent of “Mafia Wars 2″ players are playing every day, far below Zynga’s 20 percent average for most games, Pachter says. The drop-off may stem from players becoming bored with the same old thing.

“All the old ‘Mafia Wars’ guys who finished everything you could do came over here and said, ‘This is the same game with different missions.’ They are already tired of it, so they are dropping off,” Pachter says. “I think it’s a good case study for what can go wrong.”

Keeping the numbers up means more marketing, and the expenditures don’t always pay immediate dividends. A prime example is Redwood City game developer Electronic Arts, which has pushed to become Zynga’s closest rival. EA found its first major social gaming success with “Sims Social,” a Facebook version of the company’s popular real-world simulator.

Pushing for daily users

Since the title’s release in August, it has attracted 33 million users, with 19 percent of players returning each day. “Sims Social” has become the second most popular game on Facebook after “CityVille.” Yet EA has spent so much money aggressively marketing the game to millions of Facebook users that it is not yet profitable, according to a person close to the company.

Typically, software makers get about 40 percent to 70 percent of their players through ads, and spend between 25 cents to $1.50 for each of those users, according to Kontagent’s Williams. For a game like “Sims Social,” which has reached more than 10 million daily users, EA may have spent at least $10 million on marketing, he says.

Saturating the market with ads is crucial to attracting a wide audience, says Kontagent’s Williams. The strategy, however, squeezes margins and makes it harder to profit from the game over the long term.

“I would estimate that only about 30 percent of social games whose developers are spending money on advertising are hitting a positive return on investment,” says Hussein Fazal, CEO of AdParlor, a consultant on Facebook advertising campaigns.”

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Article from NYTimes.

“Unable to break a three-day slide, shares of Groupon tumbled again on Wednesday, as more investors dumped shares.

For the first time since it went public earlier this month, Groupon broke below its offering price of $20 per share. Shares of Groupon fell 16 percent on Wednesday to close at $16.96.

The popular daily deals site had wrestled with intense scrutiny and volatile equity markets in the weeks leading up to its offering, but its debut was widely heralded as a strong performance. On its first day of trading, Groupon rose as much as 50 percent, before settling at $26.11 per share.

Wednesday’s drop is a disturbing signal for technology investors and other start-ups waiting to go public.

“Selling begets selling,” said Paul Bard, a director of research at Renaissance Capital, an I.P.O. advisory firm. “In the environment we’re in right now, investors are wary of risk, and so these less-seasoned companies will naturally face more selling pressure.”

Technology companies have largely outperformed other sectors in their debuts this year.  Shares of LinkedIn, for instance, doubled on their first day of trading, while Yandex, the Russian search engine, surged more than 55 percent on its debut.

But for many, the glitter has come off just as fast. Pandora, which went public in June, has dropped nearly a third from its offering price. Renren, often described as the Facebook of China, is about 74 percent below its offering price. Both Pandora and Renren tumbled again on Wednesday, with Pandora off roughly 11 percent and Renren down 6 percent.

According to data from Renaissance Capital, the technology sector has seen 41 I.P.O.’s this year, with an average first-day pop of 20.3 percent. Year-to-date, however, the group has lost about 13.1 percent in value.

The widespread pullback seems to suggest that investors, while eager to capitalize on first-day gains, do not have the confidence, or stomach, to hold on to the Web’s latest offerings. That apprehension is likely to be a major concern for high profile start-ups, like Zynga and Facebook, both of which are expected to go public in the coming months.

“When returns turn negative, that creates a problem for the I.P.O. market,” Mr. Bard said. “Because what’s the incentive to buy into the next I.P.O.? Bankers are now probably revisiting how many and which deals they will launch.”

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Article from NYTimes.

“Hedge funds, the golden children of finance, are having a very rough year.

For one, they are not making money the way they used to. Returns for a number of funds, including those of star managers like John A. Paulson, have fallen by as much as half this year. And that poor performance comes just as these investment partnerships are coming under increased regulatory scrutiny.

Yet the money keeps pouring in, even for Mr. Paulson.

This year alone, more than $70 billion in new money has gone to hedge funds, mostly from pensions and endowments. A recent study by the industry tracker Preqin found that 80 percent of investors were mulling new allocations to hedge funds, and 38 percent of investors were planning to add to existing ones.

One bad year for hedge funds can be written off. But most investors rarely enjoy a bounty of returns even over the long run. The average hedge fund investor earned about 6 percent annually from 1980 to 2008 — a hair above the 5.6 percent return they would have made just holding Treasury securities, according to a study published this year in The Journal of Financial Economics.

So why would large investors pay hedge funds billions of dollars in fees over the years for poor returns? The answer highlights the financial problems at the country’s largest pensions.

As waves of workers prepare to retire, pensions find themselves in a race against time. Short of what they need by an estimated $1 trillion, according to the Pew Center on the States, public pensions are seeking outsize returns for their investments to make up the gap. And with interest rates hovering near zero and stock markets gyrating, the pensions and others are increasingly convinced that hedge funds are the only avenue to pursue.

“Even with the short-term ups and downs, at the moment there is not a credible alternative with the same risk profile for pensions,” said Robert F. De Rito, head of financial risk management at APG Asset Management US, one of the largest hedge fund investors in the world.

 

 

 

 

Hedge funds, once on the investing fringes, have become a mainstay for big investors, amassing huge amounts of capital and accumulating more of the risk in the financial system. The impact of this latest gold rush into hedge funds is unclear. Some argue that the hedge fund industry’s exponential growth — it has quadrupled in size over the last 10 years — has depressed returns. Others, meanwhile, wonder whether the bonanza in one of the most lightly regulated corners of the investment universe will have broader, less clear implications.

“I worry that institutions are betting on an asset class that is not well understood,” said William N. Goetzmann, a professor of finance at the Yale School of Management. “We know that the real long-term source of performance is not picking someone good at beating the market, it’s taking risks on meat and potato assets like stocks and bonds.”

The growth has been fueled in part by more sophisticated marketing — most funds now have employees whose job is to manage relationships with investors and to seek out new ones, jobs that were uncommon a decade ago. And there is still a mystique: funds that have had at least one spectacular year have excelled at raising and keeping money.

Despite the appeal of a blowout year, however, performance tends to peter out after investors jump into a hot new fund. Yet even with the lackluster returns of late, many investors have resigned themselves to sticking with hedge funds. The financial crisis taught them that even more important than making money was not losing the money you had.

Reflecting that perspective, hedge funds have started to change how they sell themselves. For decades, funds have marketed themselves as “absolute return” vehicles, meaning that they make money no matter the market conditions. But as more and more money crowds into them, the terminology has started to change. Now, managers and marketers increasingly speak of “relative returns,” or performance that simply beats the market.

“In general, they’re probably not going to have the blowout returns of the ‘80s and ‘90s,” said Francis Frecentese, who oversees hedge fund investments for the private bank at Citigroup. “But hedge funds are still a good relative return for investors and worth having in the portfolio.”

Gauging by the inflows, pensions seem to agree.

This year, major pensions in New Jersey and Texas lifted the cap on hedge fund investing by billions of dollars. The head of New York City’s pension recently said its hedge fund investments could go as high as $4 billion, a roughly tenfold increase from current levels. Illinois added another $450 million to its portfolio last month, which already managed about $1.5 billion in hedge fund investments.

About 60 percent of hedge funds’ total $2 trillion in assets comes from institutions like pensions, a big shift from the early days when hedge funds were the province of ultra-wealthy individuals.

As the investor base has changed, hedge funds themselves have grown into more institutional businesses. The biggest firms have vast marketing, compliance and legal teams. They hire top-notch accounting firms to run audits, and their technology infrastructure rivals that of major banks.

They make money even off mediocre returns. A manager overseeing $10 billion, for instance, earns $200 million in management fees simply for promising to invest the assets. Investment returns of 15 percent, or $1.5 billion, would translate into another $300 million in earnings for the hedge fund.

By contrast, a mutual fund that invests in the shares of large companies charges less than half a percent in management fees, or less than $50 million.

Psychology plays a meaningful role in hedge fund investing. Investors often pile into the hottest funds, even well after their best years are behind them.

This year’s must-have manager is John A. Thaler — despite having closed his fund to new investors last year in the face of a flood of money. While little known outside Wall Street, Mr. Thaler and his stock-picking prowess have been the talk of the hedge fund world. A former star portfolio manager at Shumway Capital Partners, Mr. Thaler developed a reputation early on as an astute analyst of media and technology companies.

His hedge fund, JAT Capital, had done well since its founding in 2007, and this year, as returns climbed to 40 percent amid the market upheaval, investors clamored to gain entry.

Then, last month, two of his biggest holdings, Netflix and Green Mountain Coffee Roasters, took a bath. His fund fell by nearly 15 percent in a few short weeks, a reminder that even high-flying managers can quickly fall back to earth.

But few hedge fund managers have risen and fallen so quickly and so publicly as Mr. Paulson, the billionaire founder of the industry giant Paulson & Company.

He made his name after earning billions of dollars in 2007 and 2008 with a prescient bet against the subprime mortgage market. Afterward, investors clamored to get money into the fund, and by the start of 2011 assets had swelled to $38 billion.

This year, Mr. Paulson has lost gobs of money on an incorrect call that the United States economy would recover. One of his major funds was down nearly 50 percent, while others fell more than 30 percent. Investors who poured money into Mr. Paulson’s hedge fund after his subprime bet have given back gains from 2009 and 2010, according to an investor analysis.

But last month, when investors had the opportunity to flee the fund that had suffered the worst losses, most instead chose to stick around. Some even put more money into Mr. Paulson’s funds, despite losing almost half of their holdings this year.”

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Article from Fenwick & West LLP.

Background —We analyzed the terms of venture financings for 113 companies headquartered in Silicon Valley that reported raising money in the third quarter of 2011.

Overview of Fenwick & West Results

  • Up rounds exceeded down rounds in 3Q11 70% to 15%, with 15% of rounds flat.  This was an increase from 2Q11 when up rounds exceeded down rounds 61% to 25%, with 14% of rounds flat.  Series B rounds were exceptionally strong, comprising 38% of the relevant rounds (Series A rounds aren’t included as there is no prior round for comparison purposes), and 89% of the Series B rounds were up rounds.  This was the ninth quarter in a row in which up rounds exceeded down rounds.
  • The Fenwick & West Venture Capital Barometer™ showed an average price increase of 69% in 3Q11, a slight decrease from the 71% increase registered in 2Q11.  However, we note that one internet/digital media company had a 1,500% up round, and that if such round was excluded the Barometer would have been 54%.  This was also the ninth quarter in a row in which the Barometer was positive.
  • Interpretive Comment regarding the Barometer. When interpreting the Barometer results please bear in mind that the results reflect the average price increase of companies raising money this quarter compared to their prior round of financing, which was in general 12‑18 months prior.  Given that venture capitalists (and their investors) generally look for at least a 20% IRR to justify the risk that they are taking, and that by definition we are not taking into account those companies that were unable to raise a new financing (and that likely resulted in a loss to investors), a Barometer increase in the 30-40% range should be considered normal.
  • The results by industry are set forth below.  In general internet/digital media was the clear valuation leader, followed by software, cleantech and hardware, with life science continuing to lag.
Overview of Other Industry Data
  • After 2Q11 there was reason to believe that the venture environment was improving, but the results were more mixed in 3Q11.  While the amount invested by venture capitalists in 3Q11 was healthy, the amount raised by venture capitalists was significantly off the pace set in the first half of the year.  As a result, venture capitalists are continuing to invest significantly more than they raise, an unsustainable situation (and one that perhaps provides increased opportunities for angels and corporate investors).  IPOs also decreased significantly in 3Q11, although M&A activity was up.  The internet/digital media industry continued to lead, while life science continued to lag.

    However there are some clouds on the horizon, as the Silicon Valley Venture Capital Confidence Index declined for only the second time in 11 quarters, there are reports of a number of IPOs being recently postponed and the world financial environment is undergoing substantial turbulence.

    Detailed results from third-party publications are as follows:

    • Venture Capital Investment. Venture capitalists (including corporation-affiliated venture groups) invested $8.4 billion in 765 deals in the U.S. in 3Q11, a 5% increase in dollars over the $8.0 billion invested in 776 deals reported for 2Q11 in July 2011, according to Dow Jones Venture Source (“VentureSource”).  The largest Silicon Valley investments in 3Q11 were Twitter and Bloom Energy, which were also two of the three largest nationwide.  Northern California received 38% of all U.S. venture investment in 3Q11.

      The PwC/NVCA MoneyTree™ Report based on data from Thomson Reuters (the “MoneyTree Report”) reported slightly different results – that venture capitalists invested $7.0 billion in 876 deals in 3Q11, a 7% decrease in dollars over the $7.5 billion invested in 966 deals reported in July 2011 for 2Q11.  Investments in software companies were at their highest quarterly level since 4Q01, at $2.0 billion; investments in internet companies fell to $1.6 billion after the ten year high of $2.4 billion reported in 2Q11, and life science and cleantech investments fell 18% and 13% respectively from 2Q11.

      Overall, venture capital investment in 2011 is on track to exceed the amount invested in 2010 according to both VentureSource and the MoneyTree Report.

    • Merger and Acquisition Activity. Acquisitions (including buyouts) of U.S. venture-backed companies in 3Q11 totaled $13 billion in 122 deals, a 33% increase in dollar terms from the $9.8 billion paid in 100 deals reported in July 2011 for 2Q11, according to Dow Jones.  The information and enterprise technology sectors had the most acquisitions, and the acquisition of PopCap Games by Electronic Arts for $750 million was the largest acquisition of the quarter.

      Thomson Reuters and the National Venture Capital Association (“Thomson/NVCA”) also reported an increase in M&A transactions, from 79 in 2Q11 (as reported in July 2011) to 101 in 3Q11.

    • Initial Public Offerings.  Dow Jones reported that 10 U.S. venture-backed companies went public in 3Q11, raising $0.5 billion, a significant decrease from the 14 IPOs raising $1.7 billion in 2Q11.  Perhaps of greater concern is that six of the IPOs occurred in July, with only four in the latter two months of the quarter, and half of the 10 companies went public on non-U.S. exchanges (one each on AIM, Australia and Tokyo, two on Taiwan).  By comparison, all 25 companies going public in the first half of 2011 went public on U.S. exchanges.

      Similarly, Thomson/NVCA reported that only five U.S. venture-backed companies went public in the U.S. in 3Q11 (they do not include offerings on foreign exchanges), raising $0.4 billion, a substantial decrease from the 22 IPOs raising $5.5 billion reported in 2Q11.  This was the lowest IPO level in seven quarters.  Of the five IPOs, four of the companies were based in the U.S. and one in China, and four were IT-focused and one was life science-focused.  The largest of the IPOs was China-based Tudou, raising $0.2 billion.

      At the end of 3Q11, 64 U.S. venture-backed companies were in registration to go public, an increase from 46 in registration at the end of 2Q11.

    • Venture Capital Fundraising. Dow Jones reported that U.S. venture capital funds raised $2.2 billion in 3Q11, a significant decline from the $8.1 billion raised in the first half of 2011.  2011 is on track to be the fourth year in a row in which venture capital fundraising will be less than investments made by venture capitalists, and by over $30 billion in the aggregate.

      Similarly, Thomson/NVCA reported that U.S. venture capital funds raised $1.7 billion in 3Q11, a substantial dollar decrease from the $2.7 billion reported raised by 37 funds in 2Q11.

    • Venture Capital Returns. According to the Cambridge Associates U.S. Venture Capital Index®, U.S. venture capital funds achieved a 26% return for the 12-month period ending 2Q11, less than the Nasdaq return of 31% (not including any dividends) during that period.  Note that this information is reported with a one quarter lag.
    • Sentiment. The Silicon Valley Venture Capitalist Confidence Index® produced by Professor Mark Cannice at the University of San Francisco reported that the confidence level of Silicon Valley venture capitalists was 3.41 on a 5 point scale, a decrease from the 3.66 result reported for 2Q11, and the second quarter of decrease in a row.  Venture capitalists expressed concerns due to the macro economic environment, the uncertain exit environment, high company valuations and regulatory burdens.  The divergence between the internet/digital media industry, which has performed well, and the lagging life science industry, was also noted.
    • Nasdaq. Nasdaq decreased 13% in 3Q11, but has increased 10% in 4Q11 through November 14, 2011.

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Article from BusinessInsider

“You’re walking around blind without a cane, pal. A fool and his money are lucky enough to get together in the first place.” – Gordon Gekko in “Wall Street”

A week before Groupon’s initial public offering, Henry Blodget was telling readers he wouldn’t touch it with a 50-foot pole for reasons that amounted to, “It’s an insider’s game.”

As Blodget expected, insiders were indeed the big winners. Investors who bought at the peak that opening day are now down about 20 percent since then. The only good news for investors: at least they’re not in the territory of Demand Media, which now trades about 70 percent below its first day of trading back in January.

Investing in IPOs today screams “caveat emptor.” But do we listen? The prospect of investing in something that all our friends are using seems to be as irresistible as super-sizing a fast-food meal — and can be equally bad for our (fiscal) health.

There’s also the view that if people are buying things they don’t understand, they should lose their money. It’s called capitalism, redeploying money to smarter people so it can be invested more intelligently.

Better Ways To Invest?

I agree that capitalism should not reward stupidity but we also should make it a little safer for non-insiders to invest. Why not increase transparency and let outsiders see what’s really going on in a company?

Perhaps it’s time for the equivalent of nutritional content labels on investments that outline, in plain language, just how much risk we’re taking. And maybe it’s time we also start asking if there are better ways to invest, not just for us but the health of our planet. That’s happening now with a growing trend called “impact investing,” defined as for-profit investment made to solve social and environment problems.

TonyGreenbergImg“Impact investing will need to scale to an enormous level for these solutions to be achievable,” said Eric Kessler, founder and principal at Arabella Philanthropic Investment Advisors, which advises philanthropies like Gates Foundation and Rockefeller Foundation and touches nearly $1 billion in grant and impact investment portfolios a year for. “Profitable, socially-driven businesses are the only sustainable solution. Philanthropists are awakening to that now and transforming themselves into impact investors.”

As things currently stand, it’s turned into a bit of the Wild West for investors. In an era of Occupy Wall Street and too many investing scandals, the impulse is to blame fraud or at least insiders who take liberties at the expense of the rest of us.

True, neither Groupon nor its underwriters held a gun to anyone’s head to buy a single share. Key information, from insiders taking money out to decelerating revenue growth, was thoroughly and publicly documented, as per all SEC regulations and rules.

But months before Groupon went public, breathless news stories were estimating a $25 billion valuation for the site. By the time the IPO put real numbers on those estimates, Groupon was valued at $13 billion instead, but even that seems optimistic for an unprofitable company founded three years ago.

Sky-High Valuations

Groupon is not the only example of misplaced “IPO-ptimism.” Zynga, the online game company, was reportedly seeking a $20 billion valuation. It now expects to go public with an estimated value of about $14 billion, though some seasoned analysts think $5 billion is more realistic. Facebook valuations currently range from $60 billion to $80 billion, up from $500 million just four years ago, though the social media behemoth has yet to announce when in 2012 it may actually go public.

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Ask a venture capitalist about these sky-high valuations and their response ranges from a shrug of their shoulders to a gleam in their eye. The bottom line, though, is they don’t know what to think. This is uncharted territory, with companies only a few years old riding huge valuations to ridiculous riches, at least for a few.

“The biggest risk I see in today’s extraordinary Internet company valuations is the short length of time these companies have been in business,” said William Edward Quigley, co-founder and managing director of Clearstone Venture Partners.  “The longer a company has been operating, the more secure its competitive position in the market and the more predictable its revenues.  Predictability is a core ingredient in successful public companies.”

Quigley points to LinkedIn, which went public after a full decade of operations, with a seasoned executive team, strong internal and financial systems and a proven business model. Groupon, by contrast, has had none of those advantages.

“A pubic investor should be more cautious when investing in companies that are still figuring out their business.” Quigley says.

IPOs Hit The Skids

This brings us back to what we are investing in and whether those investments are wise. One recent report looked at the dismal performance of new companies in the IPO market. During the past 15 years, the number of young companies entering capital markets through IPOs has plummeted relative to historic patterns, hobbling job creation.

The report, “Rebuilding the IPO On-Ramp,” also had a number of recommendations, including the need “to improve the availability and flow of information for investors.”

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Regulations have driven up costs for young companies looking to go public, the report says. At the same time, institutional investors are leery of buying stock in startups because their risk levels are much higher.

“Right now, there is very little capital available to these emerging companies,” said Wall Street investor Terren Peizer, chairman of Socius Capital Group. Peizer said more than 4,000 publicly traded companies have market capitalizations of less than $300 million each. Companies that small just aren’t attractive to choosy institutional investors.

“These companies are unable to attract capital on viable terms, if at all,” said Peizer. “Increased regulatory pressure has had the unintended consequence of choking off capital access for the small companies.”

“In today’s regulatory environment, it’s virtually impossible to violate rules … and this is something that the public really doesn’t understand. It’s impossible for a violation to go undetected.” – Bernard Madoff

All of this leads me to hope there will be a greater emphasis on impact investing, which may be help resolve these problems.

The Rockefeller Foundation started looking at these issues in 2008 when it developed a set of guidelines for “Impact Investing and Investment Standards,” or IRIS. As part of the process, the foundation developed a common reporting language for impact-related terms and metrics.

Out of IRIS came the Global Impact Investing Network Investors’ Council. GIIN was set up to identify how investor funds define, track, and report the social and environmental performance of their capital, in a way that’s transparent and credible.

In my company, which deals with similar issues of managing risk in an opaque environment, I’ve learned that it’s not about making a single right decision. Instead, it’s about hedging, diversifying, and understanding your risk vs. reward. It’s also about doing what’s right.

So much of what’s wrong with the investing picture today stems from the basic human impulses of fear and greed. People are afraid they will miss out on something big, which is the attitude that helped puff up the housing bubble. And that fear leads to greed, as people pay big bucks now, hoping to reap huge returns later.

Perhaps it’s time we put fear and greed back into the bottle and focus on how to invest for a better tomorrow that makes all of us winners.”

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By David L. Dotlich and Peter C. Cairo

If any of the following behaviors sound like you or someone you work with, beware! In Why CEOs Fail, David L. Dotlich and Peter C. Cairo describe the most common characteristics of derailed top executives and how you can avoid them:

  • Arrogance—you think that you’re right, and everyone else is wrong.
  • Melodrama—you need to be the center of attention
  • Volatility—you’re subject to mood swings.
  • Excessive Caution — you’re afraid to make decisions.
  • Habitual Distrust — you focus on the negatives.
  • Aloofness — you’re disengaged and disconnected.
  • Mischievousness — you believe that rules are made to be broken.
  • Eccentricity — you try to be different just for the sake of it.
  • Passive Resistance — what you say is not what you really believe.
  • Perfectionism — you get the little things right and the big things wrong.
  • Eagerness to Please — you try to win the popularity contest.

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