Archive for March, 2010

Here is an article from Venture Capital Dispatch.

“The latest sign of a shakeout in the clean-technology sector is news that battery company Firefly Energy Inc. is shutting down after failing to raise a $20 million round of fresh capital. VentureWire has the story. The company, whose backers include cleantech powerhouse Khosla Ventures, developed a technology for replacing conventional lead plates in batteries with carbon-based foam. Expect more such stories as companies that raised capital when VC enthusiasm for cleantech was boundless find that the bar is now much higher.

Venture capitalists can keep breathing easy on the regulatory front as the latest effort to rein in the financial industry largely exempts them. Revised legislation submitted by Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat, requires hedge funds with more than $100 million of assets under management to register with regulators, but still exempts private equity and venture funds, VentureWire reports. Of course the game isn’t over yet, but Dodd’s bill is easier on private equity than the House and Obama administration versions and, as anyone following the health-care debate knows, crafting a bill that can pass muster in the Senate is the hardest battle.

Across the Atlantic, similar regulatory matters continue to provoke controversy, as European finance ministers delay plans to vote on a directive regulating hedge funds, private equity and venture capital investment. The proposal has the potential to decimate the venture capital industry in the European Union, critics say.”

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Here is an article from The Big Money.

“That’s not the frame of this insightful Wall Street Journal story, but it could be. Journal reporter Ben Worthen flags the widening gap between cash-rich tech companies—Cisco (CSCO), Microsoft (MSFT), Apple (AAPL), Google (GOOG), and Oracle (ORCL)—and everybody else. By keeping tens of billions of cash on their balance sheets, Worthen writes, “these companies can afford to take risks that smaller companies can’t at a time when the economy remains fragile.”

This notion is so far outside of conventional wisdom that it can’t even get in the same room. For decades we’ve been told that the nimble startup would run circles around the corporate dinosaur. But Worthen’s piece is a great reminder that a crucial way for companies to obtain and maintain their advantage in rapidly developing fields is through acquisition. And in order to make the right acquisitions, you need currency (cash is best, but stock is also a valid currency under the right conditions).

This issue is too often ignored in discussions of a Facebook IPO, which the company’s investors have publicly ruled out for 2010. There is a line of thinking that says that Facebook is already flush with cash, and since it is now cash-flow positive, it ought to be able to stay that way. Other tech startups, too, argue that open-source technology and cloud computing keep their costs substantially lower than those of their ‘90s counterparts and therefore they don’t need to go public.”

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Here is an article from Bloomberg.

“The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”

The pound fell against the dollar and the euro for the first time in three days, depreciating 0.8 percent to $1.5090, while the dollar index snapped a four-day drop, adding 0.3 percent to 90.075.

The U.S. government will spend about 7 percent of its revenue servicing debt in 2010 and almost 11 percent in 2013, according to the baseline scenario of moderate economic recovery, fiscal adjustments in line with government plans and a gradual increase in interest rates, Moody’s said.

Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said.

U.K. Debt Service

The U.K. is likely to spend 7 percent of revenue servicing debt this year and 9 percent in 2013, rising to almost 12 percent under the adverse scenario, Moody’s said.

Financing costs above 10 percent put countries outside of the AAA category into a so-called debt reversibility band, the size of which depends on the ability and willingness of nations to reduce their debt burden by raising taxes or reducing spending. The U.S. has a 4 percentage-point band, while the U.K. has a 3 percentage-point band.

“Those economies have been caught in a crisis while they are highly leveraged,” Cailleteau said, referring to the level of private and public debt as a percentage of gross domestic product. “They have to make the required adjustment to stabilize markets without choking off growth.”

The U.S. would be the “most affected” under the adverse scenario, as the only country that would face a downgrade, Cailleteau said. The company’s baseline scenario assumes that all current AAA sovereigns will keep their ratings over the next three years, he said.

‘Warning Shot’

“On balance, we believe that the ratings of all large Aaa governments remain well positioned, although their ‘distance-to- downgrade’ has in all cases substantially diminished,” Moody’s said in the report.

None of the current Aaa rated countries are likely to lose their ratings, said Peter Chatwell, a fixed-income strategist at Credit Agricole CIB in London.

“This report is a warning shot to governments, setting out the line that they can’t cross with their budgets,” he said.

While the U.S. is likely to benefit from economic growth more than other AAA nations, weak public consumption is likely to weigh on GDP this year, the ratings company said.

“The pattern of growth and the high rate of unemployment raise the question of how strong the recovery will be going forward,” Moody’s said. “The ability of the U.S. economy to grow more rapidly and, therefore, for government revenues to contribute to fiscal consolidation, will have to depend on a revival in the growth of consumption.”

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Here is an article from SF Gate.

Intel invested an undisclosed amount in social media incubator Betaworks to gain insight into real-time user behavior on social networks, the chip maker said on Thursday.

The investment could help Intel develop better hardware for mobile devices or servers that either access or provide real-time social media services, said Mike Buckley, managing director of Intel Capital. Buckley declined to comment on how much Intel invested in Betaworks.

Intel joined other companies, including Aol, that invested in Betaworks on Thursday. An Aol spokeswoman confirmed the investment in Betaworks but declined to comment on the amount.

Betaworks is best known as an investor in social media companies that include Twitter, Tumblr, Bit.ly and TweetDeck.

Betaworks received a total of US$20 million in investments from companies that included The New York Times and SoftBank, said Josh Auerbach, senior vice president at Betaworks. The company will use that money to continue investing in social media networks, Auerbach said.

Intel is known primarily as a hardware company, but the investment in Betaworks isn’t directly tied to its hardware operations, Buckley said. But real-time Web services where users exchange messages instantly are gaining popularity and offer the potential to create additional demand for products ranging from mobile phones to servers, Buckley said.

“Twitter is the one that jumps out, and a lot of companies Betaworks is involved with are in the Twitter ecosystem,” Buckley said. “This is more of an eyes-and-ears investment to gain more and deeper insights into how this segment evolves.”

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Here is an article from The Wallstreet Pit.

“Paul Kedrosky made a wish for the new year: “Remember IPOs? Way back when your parents were messing about with technology stocks in the late 1990s, pretty much every company that could went public, mostly via Nasdaq IPOs…. I’m wagering we’re about to enter a similar period in 2010.”

He was hoping for a Walter Sobchak moment:

Has the whole world gone crazy? Am I the only one around here who gives a shit about the rules? Mark it zero!
– The Big Lebowski (1998)

The Next Netscape

The dot-com boom was sparked by Netscape’s IPO, just as Apple’s IPO launched the PC Bubble in the early ’80s (complete with companies with goofy names like Kentucky Fried Computers).

Will we have our Netscape Moment this year? It is now looking less likely.

Today’s Netscapes are companies like Skype, Twitter, Facebook, Zynga and (maybe) Yelp – winners in social media. TechCrunch’s Erick Schonfeld gives his top 10 IPO candidates. Yet it seems rather than rush for glory in the public markets, these companies are inclined instead to take in private equity and stay private. Facebook for example took a big slug from a Russian PE firm, and took itself out of the IPO sweepstakes for now.

Instead of the hot new companies, we are seeing a lot of ’90s retreads finally getting their chance to exit, such as the indomitable Force 10, which has more than $200M VC financing in it, and no buyers. Their only exit left is the unsuspecting public! We are also seeing cleantech names, like Tesla, line up to go out – companies which need tons of capital to grow. (Disclosure – I have an indirect VC interest in Tesla.)

Companies with hot growth prospects in a new sector can be a Netscape. Google got out, and at the time a lot of VCs thought it would be the new Netscape. No dice. Filings ratcheted up from 47 by Aug 2003 to 236 by Aug 2004, but few got out. Google was really a second generation search firm, a category hot in the prior IPO period, not the start of a new trend.

Retreads will not make an IPO craze. Cleantech may have the allure and cache to do so, but so many of them are long-term science projects which require huge capital to get going (think – solar farms in the desert). A bunch of solar firms went public in 2006, and a lithium-ion nanotech battery maker, A123, went public on late 2009 (cleantech and nanotech in one company!), but no huge wave of cleantech IPOs has emerged, yet.”

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