I have a huge suspicion through out the years that VC’s tends to invest in entrepreneurs with big personalities. Those that can withstand the glare of partner meetings and talk non-stop on the phone for hours with a VC they barely know.

Buried in a great profile of Michael Moritz by The Guardian is this priceless paragraph.

Backing start-ups is high risk and Sequoia has had its failures, the most famous being Webvan, which hoped to create a business offering delivery services to retailers, and eToys, the internet toy retailer; both collapsed. While Moritz blames the demise of the former on trying to expand too quickly, he puts other mistakes down to backing the wrong entrepreneur: executives with guns in their drawers, drug habits or a tendency to try to mow down co-founders in their car.

WOW . . . I actually only know one or two person in my whole life that I would consider capable of such a behavior. To have that many (atleast 3?) in the portfolio must mean that his selection criteria might bias his group toward that kinda of behavior.

In many cases, people with big personalities can become somewhat bi-polar. They angry easily and obsess endlessly. They are often emotionally unstable, and filled with self doubt. On the other side of the coin, their tirelessness and paranoia is perfect for the improbable world of startups.

I guess in the end, if you are looking for homeruns, you go with a home run hitter who hits 50 HR a year but has a .230 batting average than go with a 5′ 7″ shortstop who slap singles all day. The strike outs on a slider in the dirt are built into the business model . . .

Marc Andreessen’s blog is surprisingly great for non-tech related topics.  Its already raised to the top 10 feed in my feed reader in short couple of months.  Anyways, with the Blackstone IPO all over CNBC this morning, it got me thinking about how LBO funds differ from traditional investments.  I have tons of useless and never applied finance/asset management education . . . so this post by Marc really resonated with me. The most important part is:

What part of the excess return over the S&P 500 index that you are expecting to generate is due to your use of leverage (debt)? Does this indicate that the public companies that you plan to buy are underleveraged? The finance theory of leverage is that a company should take on debt until its cost of that debt is greater than the returns it can generate from that debt — what happens to your model and projected investment returns if public company shareholders and CEOs figure this out and add more debt before you are able to buy them? Further, if what you are really doing is leverage arbitrage versus the S&P 500, why can’t I just buy an S&P 500 index position myself and leverage it up by purchasing call options and get the same result for a fraction of the fees?

Here is the thing, the returns for LBO funds (like Blackstone) looks great compared to the S&P500, but its actually (somewhat of) an illusion.  A large percentage of LBO fund return is from borrowing money to purchase equity which creates an amplified return on a smaller base of actual cash investment.  (think getting a mortgage to buy a house and the price of the house goes up).  Thus you and I can actually mimic blackstone by simply borrowing money to buy the SP500 without having to pay the 30-40% "carry" on the investment profit that LBO funds ask for.  Average joes, regularly borrow money to buy houses,  the same can be done for the index. The only problem is that its (very much unrationally) much much easier to borrow against real estate than it is equity. (that is also why we have a real estate bubble right now).

So the harder question to ask is that what ever fund you buy into (including the Blackstone IPO) are they 30-40% better than what you would get through a simple margin purchase of the index? My guess is that only the top 10% of LBO funds will be worth it (including Blackstone) but most of the other funds are just juicing return by taking on more risk . . which you and I can do pretty easily without paying someone to wear

$3,000 Zegna suit, $400 Turnbull & Asser shirt, $80 Pantherella cashmere socks, $900 A Testoni alligator loafers, $5,000 Omega watch, $500 Gucci cufflinks, and $150 Hermes tie

I love wall street humor

This is a big weekend for the eBay seller community because of eBay Live in Boston. Its a huge bash . . . and generally lots of good feelings all around (sprinkled with some encouraged honest venting as well). Well, it looked like Google planned to crash the party and got the heisman . . .

I remember in 2005 Alibaba pulled the same stunt and gave away mp3 players at a hotel suite next door to the convention center. (sad to say I didnt get one but not because I didnt try! . . . ) Not sure if it was effective at all except it helped expose the poor quality of no name chinese made mp3 players.

I believe eBay and Google still have a detante as far as open warfare, but this is still a crack in the facade. We now know what are the first few cards each side will use when open warfare starts . . . Perhaps Google gently provoked eBay just to see what eBay’s first move might be (brilliant!).

I certainly hope that eBay has all the scenerios planned out (actually I’m pretty sure they have given how meticulous the whole place it) cause the first card they showed Google is certainly a face card and you have to save your better cards for the end. If open hostility does happen, it wont be pretty for everyone. Google probably knows exactly how much revenue they would loose which not only includes direct spendings but also the incremental bids eBay’s ubiqitous adword program generates. eBay on the other hand probably knows all the transactions Google helps drive from NATURAL as well as PAID search as Google will likely blacklist the entire eBay site from its index as the last resort.

If they do so (wipe ebay.com from its index), the act will no doubt be labled and considered “EVIL.” For quite a long time, Google has pointed to the integrity of its organic search results as something they will not compromise for its own interests. (eh. . . ex China ). As bad as this action will be for eBay, long term, it might be even worse for Google as it will forever have to throw away its “do no evil” mantra and come to the self-realization that they too are willing compromise the user’s experience and interests to win at all cost . . . MSFT lost its ways in the early 90’s when it started down this road . . . and it is still trying to rehab that image despite almost a decade worth of PR and hard work.

Hubris . . . this need to “win” against the competition despite all else. . . has and will continue to be the downfall of the mighty.

Another random thought, I took a college class a long long time ago on nuclear warefare/politics and the principles of MAD - Mutually Assured Distruction during the cold war. Using game theory, the logical Nash equilibrium would predict both parties will not provoke eachother ONLY IF both sides remain equally likely to destroy each other if conflict breaks out. So ironically the best course of action for BOTH eBay and Google would be to not only continue to maintain the status quo but also to INCREASE the mutual dependency of both companies - raising the stakes if you will. And thus, coopetition is not only a product of the wierd dynamics of the technology industry but the LOGICAL and RATIONAL thing to do!

Graham R. Joyce over at Pragmatic Marketing (a product mangement consultancy) shot over to me a link to their latest e-book The Secrets of Market-Driven Leaders a few weeks back. Didn’t have a chance to look at it until this weekend (sorry Graham!). Take a quick scan, it has some funny anectdotes as well important lessons for product managers.

Here is the main nugget of the pdf (if you are too lazy to read).

I rarely embed pictures into my posts eventhough I should (more readers). . .but usually I’m too lazy and posting is an impulsive activity I do randomly throughout the day. But this time, I thought it was important enough to get into my flickr account and make sure this graph is in the post.

Now, ofcourse its important to be at the upper right hand side, but even more important is to realize that the green arrow ALSO represent a time axis for a startup. IE. . . startups are often first founded on (1) a technical idea or breakthrough. The MBA then comes on the team and helps put together a business plan by (2) analysis of competitors and how to position in the market in respond to those pressues.

Now here is the hard part . . . once a company is launched (already hard enough to get to the second step) , a sucessful company will move toward either of the 3 quandrants left. Most start ups, if they are lucky enough, become sales or customer driven. Being customer/sales driven (ie focusing on your CURRENT/EXISTING/ALMOST customers) is not a bad thing to do. I can only wish more companies are like that.

But, sometime in the near future for a startup to scale (or another word, to cross the chasm) it needs to focus on solving the need of its entire target market. The sales and customer driven quandrants offer Calypso-like bounties but entraps the startup in a state where it is narrowly focused on a niche and thus caught in a detour from its true mission.

Perhaps a little counter intuitive, the startup needs to be a little more selfish & strategic in its priorities. It needs to understand that Market Driven vs. Customer/Sales Driven is the difference between $50M and $500 in revenue. Of course, its hard to do, thats why most startups fail and even less become an industry changing company.

Back in my days , as a 23 year old founder of a dot-com, I did everything I could to appear older. I lied and told everyone I was 25. (yes, I truly believed 2 years made a lot of difference.) I wore glasses. I tried eating fried food so I would gain some girth (did not work). One of our board members was so concerned that I was the youngest member of the executive staff that they asked our bankers how we can obfuscate my age in the S-1. (putting the cart before the horse aint we?)

Well, a bust, business school, some time trying to gain some “name brand business experience” later . . . . I’m all of a sudden too old. So today, to celebrate getting TOO old, I’m listing the

Top ten signs you are too old for sillicon valley.

10. You are too old to work for facebook

9. The 49ers have retiring players that are younger than you

8. Continuing the sports theme, you call your favorite Warrior player, “a kid” (your last favorite Warrior last wore a suit on TNT)

7. You don’t own a Penguin (but you have pets.com puppet)

6. You think glitter graphics give you headaches (dont know what that is? you dont even deserve to read my blog ! . . . )

5. You got teary eyed watching the Jobs-Gates love fest on you tube

4. You are still waiting for the web 2.0 bubble to bust

3. You have more friends on your friendster profile than facebook profile

2. You believe Jennifer Aniston is hotter than Olivia Munn

1. You have more free schwag T-shirts than laptop stickers

0. You dont know what to wear when you go to “90’s” parties those guys at Digg throw

(ok I snuck in an extra one, so what!)