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U.S. Tech Funding – What’s Going On?

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Re: U.S. Tech Funding – What’s Going On?

#91

Post by bd_at_rivenhill »

nostromo wrote: post #66
thorfish wrote: post #3

"And the tech IPO is basically dead. The tech IPO market is at early 1980's volumes. For most of the 90's the majority of tech funding was public. This has reversed. It used to be routine to hit $20 million in revenues and go public. Not anymore." It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley. Before an engineer might vest after four or five years, just as the company is…

It's another case of the cure (Sarbanes-Oxley) being worse than the disease (another Enron).

Frankly, we ended up with the cure AND the disease. Special purpose entities were used by Enron to muddy up its accounting so nobody could tell that it was doing stupid deals to hit its quarterly numbers and wasn't really making any money, and then they were used again during the real estate bubble on an even wider scale to mask the risks of the mortgage origination machine (with convenient help from the bone-headedness of the ratings agencies). So the "cure" really didn't seem to help the disease very much.

Instead of dumping a bunch of new reporting requirements on everybody, it should be pretty simple: increase the amount of equity capital that needs to be held against debt (i.e. force a decrease in leverage) and change the accounting rules so shit that could blow up the company by some mechanism has to show up on the balance sheet. However, the current system creates a lot more work for lawyers, accountants and bureaucrats so it seems unlikely to be simplified anytime soon.

Re: U.S. Tech Funding – What’s Going On?

#92

Post by Moshe_Silnorin »

javert wrote: post #88
Moshe_Silnorin wrote: post #69

Earlier quoted context omitted.

>Sarbanes-Oxley We'll never be rid of it. Like copyright law, It's crystallized into a self-perpetuating incentive structure. Everyone knows it's stupid, no individual has much incentive to try and change things. The ability to restore to a previous state is essential in the design of institutions, one lacking in our current governments. This is a very hard problem, but I'm hopeful prediction markets may be able to h…

Yeah, but prediction markets are basically illegal, because---again---government regulation. Prediction markets are so vastly powerful, both as a financial tool (hedging) and an information tool, that people would be screaming bloody murder if we already had them and then they were taken away.

I agree, the way American government is now, I don't think there is much hope for the legalization of prediction markets. But new governments are formed from time to time and there are quite a few nations in the world so hopefully someone else legalizes them.

Re: U.S. Tech Funding – What’s Going On?

#93

Post by will_brown »

thorfish wrote: post #3

"And the tech IPO is basically dead. The tech IPO market is at early 1980's volumes. For most of the 90's the majority of tech funding was public. This has reversed. It used to be routine to hit $20 million in revenues and go public. Not anymore." It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley. Before an engineer might vest after four or five years, just as the company is…

The playing field in the private market should be leveled with the JOBS Act that will allow equity crowdfunding. Though I think the rules were supposed to be created a year after the law went into effect, and it's about 3 years later.

While in theory such a system should bring a little democracy/meritocracy to these future unicorns of tech (no longer shall VC money/equity dictate winners) in practice I think we will see snake oil salesmen and big marketing firms ruin the trust for everyone.

Re: U.S. Tech Funding – What’s Going On?

#94

Post by GuiA »

bane wrote: post #90
thorfish wrote: post #3

"And the tech IPO is basically dead. The tech IPO market is at early 1980's volumes. For most of the 90's the majority of tech funding was public. This has reversed. It used to be routine to hit $20 million in revenues and go public. Not anymore." It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley. Before an engineer might vest after four or five years, just as the company is…

I'd also add that until the public validation of an IPO and some time trading on the markets, tech companies have just become investment "tokens" that hold arbitrary amounts of wealth as "valuations" that make no meaningful sense. M&A efforts are simply capturing this fanciful valuation and hoping they can sell this token off in some way for more to somebody else. It's like putting $1 in a sock and under your mattres…

Yes, but you can sell info about people who have worn the sock to advertisers.

Re: U.S. Tech Funding – What’s Going On?

#95

Post by bsbechtel »

will_brown wrote: post #93
thorfish wrote: post #3

"And the tech IPO is basically dead. The tech IPO market is at early 1980's volumes. For most of the 90's the majority of tech funding was public. This has reversed. It used to be routine to hit $20 million in revenues and go public. Not anymore." It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley. Before an engineer might vest after four or five years, just as the company is…

The playing field in the private market should be leveled with the JOBS Act that will allow equity crowdfunding. Though I think the rules were supposed to be created a year after the law went into effect, and it's about 3 years later. While in theory such a system should bring a little democracy/meritocracy to these future unicorns of tech (no longer shall VC money/equity dictate winners) in practice I think we will…

Keep in mind that putting money into a company is only half the equation. Getting it back out is the other half. The JOBS Act is saying anyone can invest, but those small time investors will now face the same risks employees at start ups that don't IPO face right now - their stock is worth essentially nothing.

This is also the same problem facing 2/3rds of our economy that are small businesses. They can't get access to financing for R&D because R&D doesn't produce immediate cash flow to service debt, and equity investors will never get their money out of a small business.

Re: U.S. Tech Funding – What’s Going On?

#96

Post by untog »

mkagenius wrote: post #74
chetanahuja wrote: post #42

Earlier quoted context omitted.

Bingo. A very large part of recent "tech" startup scene is just the good old "doing X but now with a smartphone" pattern. Or even worse "Sending a person with a smartphone to do X for you when you call them using your smartphone". I simply don't know how these businesses are supposed to be profitable at the scale they're supposed to grow to. Will Uber still be cool when it has a million quasi-employees? Will the gove…

> Will the governments around the world still allow the "quasi" part to stay intact at that scale - highly unlikely. By the time that happens, Uber will be as big as google. They will find a way - when lot of smart people work together, they generally do.

As big as Microsoft when the EU handed an antitrust judgement down to them?

Re: U.S. Tech Funding – What’s Going On?

#97

Post by AndrewKemendo »

graycat wrote: post #89
AndrewKemendo wrote: post #85

Earlier quoted context omitted.

In fact as a founder I don't think there is anything cheap or easy about it. Especially if you are trying to do anything with significant technical challenges like with computer vision, deep learning, VR etc...

> Especially if you are trying to do anything with significant technical challenges like with computer vision, deep learning, VR etc... My view is that those are not very promising "technical" directions, exploitations, or "challenges". My view: Take in data, manipulate it, put out results of the manipulations. Want the results to be valuable in some important sense. For that value, want more powerful manipulations.…

I can't really parse what you are stating.

You don't think CV, ML/DL, VR are worth pursuing? Or are you saying that those are not "mathematically" technical? If the latter then you are decidedly wrong as proven by any number of research teams at MSFT/FB/GOOG etc...

>Not really expensive.

So applied math researchers aren't expensive? Tell that to every PhD Mathematician at Google/FB.

Re: U.S. Tech Funding – What’s Going On?

#98

Post by bane »

GuiA wrote: post #94
bane wrote: post #90

Earlier quoted context omitted.

I'd also add that until the public validation of an IPO and some time trading on the markets, tech companies have just become investment "tokens" that hold arbitrary amounts of wealth as "valuations" that make no meaningful sense. M&A efforts are simply capturing this fanciful valuation and hoping they can sell this token off in some way for more to somebody else. It's like putting $1 in a sock and under your mattres…

Yes, but you can sell info about people who have worn the sock to advertisers.

If you're not paying to wear the socks, you may be the product.

Re: U.S. Tech Funding – What’s Going On?

#99

Post by fsk »

hipcactus wrote: post #39
fsk wrote: post #30

Earlier quoted context omitted.

The problem is that banks are leveraged to the hilt. If you have 30x leverage in 5 year duration bonds, and interest rates go up 1%, you lose 150%! ZIRP (0% interest rates) is a wealth transfer to big banks, a backdoor bailout.

Can you elaborate on this last statement?

A bank borrows at the Fed Funds Rate (say 0.1%) and buys one year Treasuries (currently 0.26%). On Treasury trades, banks can do leverage of 100x or more. So the bank's profit is 0.16 times 100 or 16%.

If the Federal Reserve raised the Fed Funds Rate to 1%, then the bank would be borrowing at 1% and lending at .26%, and they'd be .74% in the hole per bond, 74% accounting for 100x leverage. Big banks are comfortable doing this trade right now, because they know the Federal Reserve isn't going to raise interest rates. (It is more accurate to say that the Federal Reserve is owned by the big banks, rather than acting independently.)

Instead of buying Treasuries, they could invest in stocks, futures, corporate bonds, mortgages, houses, whatever. The bank borrows at zero and buys stuff that yields (on average) greater than zero. The bank can lend money to hedge funds who in turn invest in VC funds or startups. (ZIRP indirectly causes a startup valuation bubble.)

Most of the time, the banks make huge profits (borrowing low and lending high).

Every 20 years, there's a severe recession, and the big banks get a bailout.

When interest rates are lowered, that's an indirect bank bailout. Suppose the bank owns a 5 year duration bond, uses 10x leverage, and interest rates go down 1%. The bond prices go up 5*1 = 5%. With 10x leverage, that's 50% profit.

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