Ready, Fire, Aim! - Mihail's Public Blog

The lack of transparency at VC firms continues to be a problem as is apparent now in the issue of valuations according to this Wall Street Journal story (subscription required) which describes in detail Santera, a telecommunications startup:

Therein lies one of the little secrets of venture capital these days: Different VC firms value companies in their funds in startlingly divergent ways. The effect is that some funds, by not marking down valuations sufficiently, may be making their funds' performances look better than they are. Investors worry that it also means that the value of the hundreds of billions of dollars invested in venture funds in the late 1990s may be overestimated, long after the tech bubble burst and knocked down the value of many public stocks by 90% or more.

In the case of Santera, which has received more than $200 million in private equity financing and has 250 employees, one investor who has backed Santera through two venture funds, says its series A preferred stock is valued at 46 cents on the books of Sequoia Capital and $4.42 in the most recent second-quarter report of Austin Ventures.

...The pricing difference is far from unusual, according to a study by the Tuck School of Business at Dartmouth. In part, it also explains the push by investors for more openness from VC firms on the real rates of return for venture investments and the value of these holdings. As one investor, worried about overly optimistic estimates, puts it: "Does this mean [VC firms] are telling me the value of our portfolio is $100 million when it's really worth only $10 million?"

A San Francisco-based company is breaking new ground when it comes to expanding the reach of WiFi networks according to this New York Times story (registration required):

A start-up company plans to announce new antenna technology on Monday that it says can expand the limits of a popular wireless Internet format, providing access to hundreds or even thousands of portable computer users at distances of more than 2,000 feet within buildings and about four miles outdoors.

...The Vivato technology, which stems from 1950's research for so-called phased-array antennas for military applications, makes it possible to electronically steer numerous radio beams from a single point. Focusing the beams increases their signal strength, and using large numbers of them greatly increases the antenna's traffic capacity.

"Most people don't understand it, but the antenna is the most important part of any radio," said Craig Mathias, president of the Farpoint Group, a wireless industry technical consultant.

My favorite talk show host, David Letterman (who wins regular Emmy's but is always second in popularity according to the numbers -- what are people thinking?) is moving to radio according to this New York Times story (registration required):

In the latest example of a synergistic crossover of two units of the same company — in this case, the Infinity radio stations and the CBS television network of Viacom — Mr. Letterman's show will be simulcast in most of the nation's biggest cities, including New York, Chicago, Los Angeles and San Francisco. In New York, Mr. Letterman's show will play on WNEW-FM.

"Late Show" will become the second CBS broadcast to be simulcast on radio. For six years, a group of CBS stations has carried "60 Minutes" on radio on Sunday nights.

...Nor did the Letterman show demand a fee for the simulcast. Instead, the Infinity stations that carry the show have agreed to expand greatly the total of promotional announcements about Mr. Letterman's show they will broadcast every day. Mr. Letterman has complained about the dearth of promotion his show gets elsewhere in the Viacom empire, and CBS promised earlier this year to fix that situation as part of its deal to keep him from moving to ABC.

"We're in this for the promotion," said Mr. Burnett, who estimated the value of the promotion at several million dollars.

Infinity owns 183 stations and reaches more than 70 million listeners, with most of its stations concentrated in the largest cities. In New York, for example, Infinity has six stations.

Internet marketers for major companies are finally embracing users of peer-to-peer free software, music, and film swapping sites as they try to convert them into customers willing to pay for certain software or entertainment according to this New York Times story (registration required):

Lions Gate, an independent studio, wanted to reach KaZaA's large audience of college students because it thought that many would be interested in the film. Microsoft wanted to showcase its Windows Media software, which lets entertainment companies distribute material securely over the Internet with high-quality sound and video. When users download the trailer video, they are prompted to upgrade to the new version of the Microsoft software.

"We'll never spend as much as Sony, but this is one way we can compete with the big boys," said Tom Deluca, vice president for new media at Lions Gate, who added that after his trailer promotion, he had received several expressions of support, tinged with envy, from counterparts at Hollywood studios.

Microsoft also paid Altnet $12,500 last month for a 60-day promotion of a video for Tony Hawk's "Boom Boom HuckJam," a multimedia punk-rock tour. By Hollywood standards, the promotions were small, and Microsoft executives maintained that there was nothing inherently wrong with peer-to-peer technology like KaZaA's.

"Microsoft clearly does not promote or support piracy of any kind," said Erin Cullen, product manager for Microsoft's digital media division. "But in terms of looking at new ways to reach an audience in a secure way, this may be an avenue that will become useful."

Satellite radio is having severe growing pains as additional financing looks harder than when the two major companies started with some $1 billion each in funding according to this New York Times story (registration required):

"EchoStar launched its satellite television service in 1996 and didn't become profitable until this year," Mr. Stone said. "It's made a lot of money for shareholders, but there was a lot of pain first. The question for satellite radio is, `How long will investors be willing to endure the pain?' "

Mr. Jennings and his colleagues appear willing to wait at least another two years. Sirius's recapitalization plan provides enough cash for it to continue operating through the second quarter of 2004. Yet technical delays, like problems developing the special circuits needed for radios to pick up its signal, have put it far behind analysts' earlier estimates of 150,000 subscribers by the end of this year. The company finally started its national service in July, but it is only expected to have about 30,000 subscribers by Dec. 31. That is about half of what its executives predicted just a month ago.

For its part, XM has already signed up more than 200,000 subscribers and expects to nearly double that by year-end. But it has spent money even faster than Sirius. And without added financing, the company says it has only enough cash to operate into the first quarter of next year. XM's chief executive, Hugh Panero, said his company is in talks "with a number of private and strategic investors to raise additional capital."

The company that was synonymous with denim jeans, is looking to branch out by selling Levi jeans at a wide range of prices according to this Wall Street Journal story (subscription required). I ran into a Levi executive this weekend over brunch and was surprised to hear that Levi doesn't have a huge number of brands in its corporate family, so this seems like a good strategy.

But Levi also wants the cachet of selling to high-end stores like Neiman Marcus and Barneys New York, where it recently began offering styles priced from $85 to $220. One of these lines, Levi Strauss Vintage, features unusual finishes and replica styles from the Levi archives....How does a less-than-$30 pair of Levi's differ from a pair selling for more than $200? Levi says: fit, fabric and branding.

...Last year, the San Francisco company's profit plunged 32% to $151 million on sales of $4.25 billion [from a high of $7.1 billion in 1996]. To fuel its turnaround, Levi needs the huge volume of mass chains, where a pair of denim pants sells for under $25. Levi also says that although more than 160 million people in the U.S. shop in mass-merchandise stores, fewer than one in 10 who shop in such stores for apparel also shop in higher-end stores, creating a huge growth opportunity.

Last night was pretty crazy in San Francisco -- it seemed like the whole city was there in the Castro for its annual Halloween night street party. Market Street was packed from Church Street all the way past Castro Street, and Castro Street itself was under a sea of people as far as the eye could see. The crowds last night are no surprise as Halloween becomes more and more important to marketers and revelers according to this Wall Street Journal story (subscription required):

Here's a scary thought: Halloween is slowly becoming the new Christmas.

...Sales of Halloween merchandise have soared to an estimated $6.9 billion this year, according to the National Retail Federation, compared with about $2.5 billion in 1996, putting it firmly in second place as a spending occasion. (Halloween spending still has a ways to go before it catches up to Christmas, an annual $200 billion bonanza.)

Blockbusters 5400 stores continue to be revamped. First the emphasis was changed to DVD rentals. Now agressive sales of those DVDs will also be added to the mix. But the shift won't be an easy one for Blockbuster and could force their gross margins down significantly since rentals and late fees are much more lucrative than price wars over sales according to this Wall Street Journal story (subscription required):

Blockbuster has close to 40% of the roughly $9 billion U.S. video-rental market, while Wal-Mart is estimated to have about 28% of the $14 billion video retail market -- making Wal-Mart a bigger customer of the Hollywood studios than Blockbuster, an analyst estimated last year. Blockbuster, on the other hand, has only 3% of the retail market, but wants to triple that share by 2006...

"Our customers spend about $12 a year buying movies from Blockbuster," Mr. Antioco said. "The average U.S. consumer spends $130 a year on movies. The difference is what our upside opportunity is." He played down suggestions that the new strategy pits Blockbuster more directly against Wal-Mart, noting that the mass merchant has been in the video-sales area for a long time. Referring to Blockbuster as an "ankle pecker" in the movie retailing business, he called Wal-Mart a "goliath."

..."A huge part of DVD sales is new releases, but they're used not as profit drivers but traffic builders," says Brian Gildenberg, vice president of Management Ventures, a consulting firm in Cambridge, Mass. "Wal-Mart's advantage, though, is that they have a lot more to sell you once you're in the door."

Another incidence of PR and marketing gone awry, following in the footsteps of the fake Microsoft "Switch" ads doctored by its ad agency, according to this Wall Street Journal story (subscription required):

Sometimes big companies do silly things. Kmart, which has filed for bankruptcy-court protection, has set up a Web site, Kmart Forever (www.kmartforever.com), that shamelessly begs its employees and customers to give it compliments. As far as I can tell, it's the first Web site of its kind created by a major corporation.

The site's Share Your Stories message board offers 40 virtual pages packed with happy Kmart news. Some postings include pithy cheers, "Long live Kmart." Others recount specific happy Kmart memories.

...That's just what Dave Karraker wants to hear -- or wants us to hear. The 34-year-old director of corporate communications at Kmart has created the Disneyland of corporate Web sites. He has taken history's most freewheeling marketplace of ideas -- the Internet message board -- and turned it into a totally antiseptic environment. He zaps all negative comments and workplace rumors before they see the light of day. "For employees, it's a morale booster to see people caring about Kmart," he insists.

I could have used such help! According to this Wall Street Journal story (subscription required) more and more people are turning to daily money managers to keep them on top of their finances including bill paying etc.

Once the province of the wealthy, "money management" is taking on a whole new meaning these days. While traditional money managers invest assets, so-called daily money managers are now popping up to tackle the scut work for people who either can't or won't do it themselves. These individuals pay bills, organize records for tax returns and even help consumers straighten out problems with banks and creditors. Their clients range from debt-addled newlyweds to retirees with health problems.

...[I]ncreasingly, younger clients want that help as well, though for different reasons. Instead of fretting over health-care paperwork, they're more concerned with corralling debt and living within a budget. Jody Rorick, a daily money manager in Lincroft, N.J., finds she must act like a surrogate mom or a disciplinarian, putting young clients "on a cash diet. I pay their bills and tell what they can spend."

No one has any real fix on the number of daily money managers, though people in the field agree their ranks are growing. The biggest organization representing them was founded just seven years ago with six members in Maryland. Today, the American Association of Daily Money Managers lists 127 members in 31 states on its Web site: www.aadmm.com. The association believes it represents just a small fraction of the people in the business.

Although San Francisco has been immune, foreclosure filings around the Bay Area have risen by 21% in the third quarter compared to the third quarter last year according to this San Francisco Chronicle story. The story also points out that this was the fourth consecutive double-digit increase although they are nowhere near the historic highs in the mid-1990s.

And foreclosure filings are not the same as foreclosures -- they only convey that homeowners are behind on their payments by about 90 days and are being warned. Many (75%, in the Bay Area that number is closer to 90%) will be able to scramble to get back on top of their payments.

Santa Clara and Alameda counties recorded the largest percentage increases in foreclosures -- 36.4 percent and 32.1 percent respectively. Foreclosures fell in both San Francisco and Marin counties.

...Nowhere has the bipolar economy been more apparent than in the Bay Area where existing, single family home sales are expected to top 547,000 this year, up from 504,430 in 2001, according to the California Association of Realtors. The median home price in the Bay Area hit a record high $417,000 in July and August, though it slipped slightly to $414,000 in September, according to DataQuick....

"It takes a while for financial stress to show up in the mortgage defaults, because lenders and borrowers alike will make every effort to work things out, " said Tom Lieser, senior economist at the UCLA Anderson Forecast. "It could be that we're beginning to see the impact of people who have been unemployed for a long time."

...Traditionally, housing payments -- which include principal and interest on the mortgage as well as property taxes and homeowner insurance -- could not exceed 28 percent of gross, or pretax, income. Housing payments plus other debts -- the so-called back-end ratio -- couldn't be more than 36 percent.

But in recent years, lenders have put less emphasis on those figures. For instance, in the Bay Area, home buyers with good credit ratings can qualify for loans that will require them to devote a whopping 40 to 50 percent of their gross income -- and more -- to housing and other debt payments.

After already starting to wire Starbucks and Borders book stores, T-Mobile (part of Deutsche Telekom) is now partnering with American Airlines, United and Delta to let people get high-speed wireless Internet access in most of their domestic frequent flier clubs in 2003, according to this Wall Street Journal story (subscription required):

While analysts are skeptical that many people at an urban coffee shop will pay for Wi-Fi, airport lounges, hotels and convention centers are popular destinations for people who will. Every year, Delta's Crown Room Clubs, for example, gets seven million passenger visits. That could provide T-Mobile, the sixth-largest carrier in the U.S., with a new revenue stream at a time when the industry is ailing. It could also give the company an edge over competitors who haven't yet rolled out Wi-Fi, and are still relying on high-speed wireless networks that can actually be painfully slow.

...Over the past few years, lots of people have set up these networks at home. With a couple of small components, costing a total of about $200, people can access the Internet from their couches or backyards, and share files among several computers in a household. Sales of home Wi-Fi equipment around the world increased fivefold last year to 2.6 million pieces, according to In-Stat/MDR. That number is expected to double again this year, as prices plunge.

The increasing use of autodialing and email in political campaigns is providing cover in a very grey area when it comes to enforcing federal laws such as those that limit political activity by federal employees according to this Wall Street Journal story (subscription required):

"Your donation ... will make a big difference to my agenda to make America safer, stronger, and better," Mr. Bush wrote in the campaign solicitation sent from his RNC.org e-mail address. "So please help me today by sending the Republican National Committee as much as you can afford."

...A few months ago, many California voters received a prerecorded message from Mr. Bush urging them to "support our great Republican candidates." The message said it was paid for by Team California and the California Republican Party, but failed to leave an address or phone number for either, in apparent violation of the FCC regulations. California GOP officials said they were looking into the matter, but had no further comment.

The technology also allows parties to cut their communications costs. For example, the DNC has run a pilot program to check the accuracy of the addresses on file for Democrats in the U.S. so their state affiliates won't waste money mailing letters to the wrong places. The party estimates it has saved more than $15 million this year.

In comparison to the continuing success of the leading Asian car companies, there's not much good news from the domestic car industry according to this Wall Street Journal story (subscription required) and the continuing 0% financing deals are just making things worse in the longer run even if they do increase immediate sales:

As 0% financing deals lose their allure for consumers, General Motors Corp. is aggressively prodding salesmen and dealers with cash and bonuses as a way to rekindle cooling U.S. sales.

Early indications from dealers suggest GM will maintain the current level of consumer rebates and financing offers when the company outlines new incentives Friday. GM has been offering loans of 0% for 60 months on most of its passenger cars, and also on its 2003 Chevrolet TrailBlazer sport-utility vehicles in some parts of the country. GM officials said Wednesday they will extend until Jan. 2 the current "Zero, Zero, Zero" plan that offers consumers no payments and no money down for 90 days. That program had been set to expire Thursday. GM and other auto makers report U.S. sales results Friday.

...Rivals, which have been forced to match many of GM's programs since last fall, are sharpening their criticisms of GM's sales strategy. Ford spokesman Jim Cain said GM is moving from "acts of quiet desperation" to "acts of public desperation" to sustain sales. "I don't think there's anyone in the industry who believes these types of incentives are good for the industry on a long-term basis."

More details come out as Jack Welch and Jane Beasley Welch's acrimonious divorce proceedings continue in public according to this Wall Street Journal story (subscription required):

Mr. Welch, who headed GE for 20 years before his retirement in September 2001, outwardly avoided an ostentatious public image and insisted that he didn't revel in his wealth. The affidavit totted up his personal assets at $456.2 million and revealed that his current total monthly income -- as a self-employed retiree -- is $1.41 million, after taxes. It placed his total monthly living expenses at $366,114, based on his actual expenses last year.

Though skeletal, the numbers paint a vivid picture of life at the pinnacle of American wealth. Mr. Welch spends $5,480 a month on country-club memberships. Total "personal expenses" come to $13,258 a month. That includes the clothes, the food and drink, and $425 on "personal care" and $1,482 on vacations and rental cars.

...The document reports that he paid an estimated $614 a month to charitable and political causes, but a footnote adds that Mr. Welch's foundation made charitable contributions of $3.1 million in 2001.

The majority of Mr. Welch's assets, meanwhile, are tied up in his securities, including GE stock, which are valued at about $249 million in the affidavit. His bank accounts are valued at only $274,000.

Toyota's net surged 90% in fiscal first-half according to this Wall Street Journal story (subscription required):

Toyota, the world's third-largest car maker behind General Motors Corp. and Ford Motor Co., sold one million vehicles in the six months ended Sept. 30, up 17% from a year earlier. The auto maker expects strong sales to continue in the U.S., and it slightly raised its forecast for sales in North America to 1.97 million vehicles for the fiscal year ending in March, an increase of 30,000 vehicles from its previous forecast.

"Although the [U.S.] stock market is declining, housing prices and demand are strong. And since consumption moves in tandem, auto demand has also been very strong. Right now, we see no signs of that changing," said Toyota Executive Vice President Ryuji Araki.

Toyota, Honda Motor Co. and Nissan Motor Co., Japan's top three car makers, all are picking up market share in the U.S., thanks to a string of hot-selling models. Toyota is the top-selling foreign brand in America, with a market share of more than 10%. The Japanese makers are posting sales gains even though they haven't offered as many of the 0%-financing deals and other sales incentives on new cars as have their big U.S. rivals.

Who are these people? And why do their boards leave them in charge for this long? Another horrifying corporate scandal story about Vivendi and its reckless former CEO Jean-Marie Messier in this Wall Street Journal story (subscription required):

Mr. Messier, a former top investment banker with Lazard LLC, was famously fond of deal making. But now it turns out he pursued many more deals than has been publicly known. More important, he spent billions of dollars buying back Vivendi stock on the market last year without consulting his CFO or the board, according to people familiar with the situation. Trying to prop up the stock price, he instead only sent Vivendi's debt soaring.

...Mr. Messier arrived at the water utility Cie. Generale des Eaux in 1994 and after becoming CEO two years later, changed its name to Vivendi SA. In late 2000, he engineered its merger with Seagram and French pay-TV firm Canal Plus SA. In just 18 months, beginning in December of that year, Mr. Messier took Vivendi Universal from a company that had only $3 billion in debt to one with debt of $21 billion.

...Now living on New York's Park Avenue with his family and planning to start his own private-equity firm, Mr. Messier is a defendant in at least 16 shareholder lawsuits in the U.S. and one in France. The suits allege, among other things, that the 45-year-old businessman concealed the company's cash problems while talking up its prospects. Last month, Vivendi's board denied him a severance package he was seeking of more than $18 million.

...At a French parliamentary hearing last month, Jean-Rene Fourtou, Vivendi's new chairman, was asked about Vivendi's finances when he took the company's reins July 3. "Well, if Mr. Messier had stayed, the company would have gone bankrupt within 10 days," he said.

While other companies break off relationships with Dell as it begins to enter various new markets and compete directly with its former partners, Apple Computer has negotiated a unique deal according to this Wall Street Journal story (subscription required):

Dell Computer Wednesday began to offer Apple's iPod device through its phone ordering system. Dell is reselling Apple's 10-gigabyte and 20-gigabyte iPods, which are designed to work with Microsoft Corp.'s Windows operating system. Dell may also sell other models of iPods.

Historically, the two companies have had a frosty relationship. Apple Chief Executive Steve Jobs has in the past criticized Dell as a maker of non-innovative beige-box computers, spurring a war of words with Dell CEO Michael Dell, who has predicted Apple's demise in a tough technology environment.

Changes are coming to the real estate market according to this Wall Street Journal story (subscription required):

Last spring, the National Association of Realtors, which operates like a medieval guild to protect its members, proposed rules that would have crippled a couple of upstarts that are using the Internet to undercut the 6% or 7% commission that agents traditionally collect on each home sale. Last week, after noisy objections from the newcomers and signs that the Federal Trade Commission was watching, the NAR retreated.

...The battlefields are the multiple listing services (MLS) operated by local associations of NAR members, called Realtors, in which brokers share data on houses for sale. These lists date to the late 19th century, when brokers traded 3-by-5 cards, and were computerized in the 1970s.

...In 1999, two online brokers, eRealty Inc. (erealty.com) of Houston and zipRealty Inc. (www.ziprealty.com) of Emeryville, Calif., arrived. Each firm employs full-fledged Realtors with access to the MLS, but doesn't have storefronts. After requiring customers to register on its Web site by surrendering an e-mail address, each treats Web users as customers entitled to the same information available to a customer who walks into a Century 21 storefront. Each posts everything on the MLS no matter what the listing broker's wishes.

The upstarts also took another step. They undercut the traditional 6% or 7% commission, generally paid by the seller and split between the buyer's agent and the seller's. To the seller, eRealty and zipRealty offer commissions as low as 4.5%. To buyers, they offer a rebate of as much as 1% of the purchase price, a $1,600 value on a typical house these days.

With the rise of the Internet software available as shareware or freeware has contineued to grow rapidly, according tot his Wall Street Journal story (subscription required), thanks to people like Bob Wallace, one of Microsoft's early employees and the inventor of shareware:

Shareware is 20 years old this month, give or take a week or two, and its durability is a reminder that underneath all the faddishness of technology there are enduring currents that keep the revolution going. In the early 1980s very few folk had a computer, and even if they did, there wasn't much they could do with it -- a bit like buying a sports car with only your backyard to race around in.

...Shareware was all very homespun in those days, and still is for many of the thousands of folk who write and sell software this way. But for many it's also been a lucrative business: Mr. Wallace's company, QuickSoft, was employing 30 people and turning over $2 million a year at its height; 45,000 people had registered to use the software. Jim Knopf quickly found his editing software was making him 10 times what he was earning at International Business Machines Corp. so he quit his day job: His software had 700,000 users at its peak. At shareware's heart was a simple concept: Try the product first and if you like it, pay for it. That payment will also ensure you get upgrades of the product.

...Shareware is an engine of the PC revolution as writers come up with new ideas -- that sometimes get taken up by the industry big boys. Spam blockers? Virus checkers? MP3 players? All of them started out as shareware (or freeware). Indeed, with the exception of the likes of Microsoft, or of programs that are too big to download, most software is now available on a try-before-you-buy basis. There's no better testament to the gentle Bob Wallace.