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March 21, 2007Always question the source!
This is a pathetic example of journalism! This "article" sites the likes of anitwar.com, kitco.com and (my favorite) goldenjackass.com. The last two are brokerage houses for gold, the perceived "hedge" against any market bubbles. (note: the total return on gold has been about 75% - over the last 20 years, consistent with the rate of inflation). The article bashes mortgage brokers with which I can understand. Their ethics in the past few years are most certainly circumspect. However, I have even less respect for commodity brokers. They are the used car salesmen of the financial industry (no disrespect to used car salesmen) and are in the business of sensationalizing the impending bear market, even in the most prosperous times. And regarding Jimmy Rodgers, I have heard him speak. As a global investor in third world countries, he is a strong proponent of commodity investing. Yes, he is a smart guy, but he too is in the business of raising capital for his fund. The impartial journalist takes us to his true feelings with;"Bernanke--could care less about the public welfare. All their energy is devoted to building a lifeboat for themselves and their fat-cat buddies. Once, they've robbed the last farthing from the public till they'll be gone, and we'll still be marching along the path to national calamity."
March 20, 2007Six Degrees of Separation
The concept that all people are connected by six degrees of separation seems like something of Hollywood fiction. However, in the business world the theory seems to ring true. In a recent Wall Street Journal article discussing the ramifications of a former Silicon Valley company, it seems clear that the business world may be smaller than we think. A firm called myCFO was founded in 1999 by some of the biggest names in Silicon Valley, who also sat on the board, with the sole purpose of providing wealthy individuals a wide variety of financial services, from wealth management to estate planning. An idea that seemed simple enough, especially at a time when the technology boom resulted in a number of new millionaires looking to minimize taxes. myCFO's main tax shelter was a Custom Adjustable Rate Debt Structure ("Cards"). Each involved an ostensible 30-year bank loan to a foreign party for $50.0 million to $100.0 million. myCFO's client then assumed the loan and after some complex swapping of collateral, claimed a loss for tax purposes of almost the entire amount of the loan. At the time, myCFO was not the only firm to offer such a product, and a product such as Cards was not deemed inappropriate.
March 12, 2007Bottle of Red - What's In A Label?
Recently, the US Department of Justice and the FBI launched an inquiry into the sale of counterfeit wines at prominent auction houses in New York and London. According to the Wall Street Journal, the investigation is focusing on whether auction houses and importers knowingly sold counterfeit high-end wines despite doubts of authenticity. The high-end wine industry, $1,000 or more per bottle, as a whole has boomed recently. In fact, several auction houses have reported double and triple digit year-over-year revenue growth related to wine sales. However, Wine Spectator magazine recently reported that as high as 5.0 percent of rare vintages sold at auction may be frauds.
March 07, 2007Do you know what your future holds?
Understanding your company's future capital requirements is crucial in determining shareholder value. Quist has done numerous 409A valuations for emerging companies that are in need of additional equity financing. When going into a valuation there are several questions you should ask yourself to better understand the future financial needs of your business.
When will additional financing be needed? How much cash should be raised? What significant milestones is my company looking to achieve in the short and long-term? Will we need additional cash to support these milestones and growth?
Most companies receive several rounds of equity financing before an exit is realized. Each additional round of financing is accounted for in the valuation, which ultimately reduces existing shareholder ownership and the value of the company's common shares through dilution. To determine the impact of additional funding to existing shareholders a pre-money and post-money valuation of the company is completed.
The pre-money valuation is simply the estimated value of the company as it stands prior to any investment. Determining the pre-money valuation of the company, combined with the amount of capital secured, determines the amount of equity ownership sold in exchange for capital. The resulting valuation after the investment is called "post-money" valuation. From this, the impact of the funding to existing shareholders is determined.
March 07, 2007A touch of Grey?
What does it mean to be independent? Independent of what? The lines of
independence appear to be getting real blurry in the world of
valuation. While the major audit firms have drawn some hard lines, we
still find grey in the rest of the market. Recently, we heard of a
west coast investment bank including a 409A valuation as part of a
debt financing. In other words, they threw in the valuation for
"free". Well, at least they positioned it that way. The mortgage
industry does something similar, "no money down, no closing costs, the
biggest no brainer in the history of earth", of course no one really
talks about how the rate might compare. Sounds like a new floor in
valuation. Yet, maybe the valuation is really worth the explicit price
being paid. Claiming to be an "independent" third party valuation
provider and actually being one are two different things. Of course,
the first and obvious test of independence is whether you actually own
an interest in the company you are valuing. Beyond that a simple
litmus test seems to work quite well, I put myself on the stand in
U.S. Tax court with my client's financial position on the line. Will I
be discredited? Do I have the credentials to defend both my position
and my independence? Could my valuation be colored by other interests
I have in the company? I think we are only beginning to uncover and
define what "independence" really means in the world of finance. Stock
recommendations dependent on investment banking relationships,
auditors dependent on consulting services, valuations dependent on ___?
Might there be a shakeout??? Only time will tell...
March 04, 2007Going With The Flow
In the business of asset management services, the name of the game is flows. That is of course, the amount of money coming in the door and conversely the amount going out. This is important because, asset management firms generate revenues primarily through fees on assets currently under management and to a lesser extent, fees on gains earned by the company's investments.
March 04, 2007VC vs. PE vs. Hedge Fund vs. ???
This morning I listened to a slightly dated VentureCast (2/21/07) titled "But Seriously..." with David Hornik and Craig Syverson. At times the content is a little light but they are entertaining. The title of this session makes it a good listen for those interested in learning more about how the venture, private equity and hedge fund communities really work.
March 02, 2007West Coast Growth Capital Conference
Yesterday I attended the West Coast Growth Capital Conference aka San
Francisco ACG held at the infamous Fairmont Hotel, which by the way is a
great hotel. The conference was a traditional ACG annual event with a few
light content sessions and several hours of power networking. In fact, I
believe there was more time set aside for networking than for actual
conference sessions. Even with a heavy allotment, most people spent the day
in the hall ways working on deals and relationships.
