Private Equity - the year that was

It was a year of huge records for Private equity, that is if you sidestep over the pothole in the road called the credit crunch.

First the great news:

1. Deal volume reached a record $1.5 trillion in mid December of 2007, up from $1.4 trillion in the same time last year.

2. Money raised by Private equity funds was also at an all time high with $199.4 billion raised by the end of the third quarter, up from $154.1 billion raised in that time period in 2006. 3. Good to know that

3. 2007 saw some obscenely huge deals - such as the $38.9 billion dollar acquisition of Equity Office Properties trust by Blackstone.

Then the, well, not so great news:

image Deal volume, in dollars, was down in the second half of the year, although the number of deals did not lose too much ground (graph at left). Deals at below the 1 billion dollar level chugged on through the drought.

True, some funds went under but not too many people were mourning the loss. With the top deals getting overbid a lot, some were looking forward to the possibility of the market finally settling out.

Meanwhile people are bullish on the fact that 2008 will turn around and the PE market will gain back the lost ground. After all, they argue, the private equity firms are still sitting on large piles of cash, and they have to find someplace to put all of the money!



IncrediMail, Google, Adsense and Powerful Entities (Natural Monoplies)

ImageIncredibleMail is an e-mail client, which produces multimedia emails, screensavers and wall papers. I do remember giving it a try when it initially came out in 1999. It allowed for beautiful “stationary” in the emails, when the the stationary concept was somewhat new.

IncrediMail was in the news yesterday because Google disabled their Adsense account, and since adsense revenues are a significant portion of their total revenue, the market reacted negatively to the news and the stock dived by 41%.

It seems that Google didn’t like IncrediMail’s “opt-in” policy of how the search results were being served to the IncrediMail’s clients. In fact, I see that one of their products, Magnetic, claims “The product offering includes pages generating keyword searches, resulting in revenue for the company.” I can see how this might violate Google’s TOS. IncrediMail doesn’t know exactly why their account was disabled.

And when Google turns off the Adsense account, you not only not get any future revenue, but all the “earned” money gets frozen too, and you permanently lose it.

There is a whole mob complaining about why IncrediMail didn’t prepare for the loss of Google and that they shouldn’t have put all their eggs in the Google basket.

To me it seems that IncrediMail didn’t rely on just one source of revenue- they had three sources:(i) subscription service, (ii) licensing revenues and (iii) Adsense.

I think this is more of an issue with Google. It has become so much more powerful and so much ahead of it’s competitor, that one has no choice but to use them. Google has become defacto monopoly or natural monopoly.

I am not suggesting that Google unfairly cancelled IncrediMail’s account; IncrediMail probably pushed the envelope on serving search engine results without getting full consent of the consumer.

In the current state of Internet web 2.0 environment, one does not have any choice but to rely on Google. You can go with Yahoo or use some other widget, but the results won’t be as good as Google without spending incredible amount of time - so why bother? In fact, till recently, if you used Google Adsense, its TOS prohibited you from having any other ads that provide contextual ad content on the same page.

I agree with an unknown senior executive at Time Warner:

Sometimes I don’t know what to think of Google. We have the best relationship of anyone with Google. On the other hand, you always have to worry when someone gets so much more powerful than all the competition out there. This is why I come down to this: I hope the government starts understanding this power sooner rather than later.

GoogopolyI admit that I have multiple Google/Gmail account. I am sure it is against their TOS and I worry that one day I will turn on my laptop and try to check my mail, and I will get a message “your gmail account has been disabled”. I wouldn’t know for sure as to why it was disabled and I would have no place to turn to get my data. Google doesn’t tell you why it is punishing you - and that scares me!

The one company that I love the most is Google and one company that scares me the most is Google!

We all need to understand the power that Google has.



Tesla motors- growing pains, transitions & stealth bloodbath

tesla_motor_roadster

A little background on Tesla: Tesla Motors is a silicon valley automobile startup company, and has promised an electric car that goes 0-60 in 4 seconds, gets 135 mpg equivalent, has a range of 200+Miles and has the top speed of 125 mph.

Total investment so far - about $105M. A prototype was unveiled in 2006 and production is expected start in the first part of 2008. The company has about 250 employees. As of August, there were 500+ roadster reserved, each paying anywhere from $5k to $100k to reserve the car.

The company was started by engineer Martin Eberhard and others in 2003, and Eberhard served as the CEO till very recently. Amid production delays, Eberhard was given a new title and in December 2007, Ze’ev Drori took over as the new CEO.

ImageTesla also announced that they were seeking $40M of additional funding and are experiencing transmission problems. A one speed transmission system, that will deliver max speed of 80 mph is available but since the expectation is to have the top speed of 125 mph, they are looking to get a two speed transmission. The company claims that it is a “logistical” problem and not a technology problem.

It is no secret that Eberhard was less then pleased with the way he was treated during the transition to the new CEO.

In his blog, Eberhard claims that there is a stealth bloodbath going on at Tesla and that 27 people that he knows of, have been let go, including some people in the transmission team, a few very knowledgeable engineers and several vice president.

Ze’ev Drori (CEO) and Elon Musk (Chairman of the board) sent an email to customers saying:

Tesla is a company of many extraordinary individuals. To succeed, we must continuously develop a top performing team. Since resources are very precious, this also means that we must make hard decisions where need be and part ways with those whose performance has not matched expectations. These actions were taken after careful analysis by the leadership team, and not by a shotgun approach.

At the same time, we continue to look for extraordinary people, with or without automotive experience, to join our team. If you know such people please send them our way.

I have no information about the inner workings of the Tesla Motors; but I do know that at times, you want to go in and you are so angry at the state of affairs at a company, you want to fire everybody who had any hand in getting to that stage.

When I moved to NoCalifornia during the tail end of the Internet boom, and join a business incubator, one of my first tasks was to close down two of the companies. Some of it was related to the general state of the investment and some of it had to do with the people involved. Sometimes, you need to let the whole team go, so that the new team is not contaminated with the old way of thinking that did not work and precipitated the need to get a new team! Yes, I have been there.

In 2006, when the prototype of Tesla motor was unveiled, the company was ahead by at least 2 years compared to other competitors in the field of electric vehicles. To lose that precious time and not having a car on the road even in the early part of 2008, is something that probably troubled the investors and possibly called for drastic measures.

The company is not in the start-up phase any more; right now the focus of the comp may is in getting the production effectuated and increased. The needs are different, the skill set required is different, and I am not surprised that the new CEO wants to start with a new team.

Tesla says that these are not layoffs, they are ‘firings’; the whole team was probably in some sort of funk and certain mode of thinking that was holding them back in getting the car on the road and having “logistical” transmission issues.

The new CEO has even taken the bold step of suggesting that in order to get the car on the road, he might consider putting in an “interim transmission” in the car that will be swapped out after a few months when the production for new transmission is moving at the full throttle.

Transitions are always difficult, this one seems even harder. But I do not see anything other than a “transition” here; for ex-CEO who was forced out, to suggest that there is a “blood bath”, and obliquely suggest that the project might not survive, is not in the best interest of the company.

Tesla motors has great plans, they want to produce an electric car that is further enhanced by solar power, they want to produce a sport sedan and they are ahead in terms of technology. Let us give the new CEO time and lee way to get the system in place to focus on production.

True, the layoff or the transition has not been handled in the best way, but at times, when the participants are reluctant, there is no good way to handle transitions.



Black gold and Yellow gold hit highs

oil hits $100 a barrel gold reaches $900

He said it would happen - that the price of oil would hit $100 a barrel - and it has! Back in 2000 Michael Economides, author of "The Color of Oil", had predicted that oil would hit $100 a barrel - probably to great deal of good natured ribbing. The price of oil at the time was hovering around $30 and had not really gone too much above that mark in the previous decade, and even $50 was looking a bit far fetched.

It would have been a good time to buy into oil stocks as prices have risen higher year by year since 2002, to finally reach the $100 level in the first trading day of 2008.

Following a similar trend, gold has hit a record $900 per oz as of January 11th, 2008.

So what do you think the price of oil will be in 6 months? Is demand going to continue to outpace supply?

Take our poll (current poll is on the side bar; see here for past polls).

We will ask Michael Economides for his prediction for July 1st, 2008!



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