Obama's Views About Business

Translation on Obama's Views About Business

Prop up all big crappy businesses (ie. Auto Industry & AIG) to protect middle-class jobs that will crush all disruptive and innovative start-ups. Bigger businesses are better than free market innovation and smaller more volatile companies. Free market capitalism does not work so let the Government call all the shots about what businesses succeed.

Obama's business plan for the USA might as well have been written by a 5th grader.  His vision is incredibly short term, thinking that roads, bridges, and now runways (ooooh) will somehow create sustainable jobs?  This is ridiculous since that was our business plan from the 1930s and has nothing do with wealth creation or capitalism.  How does this help the United State create jobs and new companies that compete with China, Brazil, and Russia in a global economy?  It does not and has nothing to do with technology, education, healthcare, or environmental innovation.

There is a huge disconnect and this is why IPO's, venture capital, start-up acquisitions are at its lowest levels in decades.  The Democratic National convention should be a rude awakening for all start-ups and investors.  Put your money and checkbooks away if Obama gets elected because it will be a market of big businesses getting bigger.  Protecting middle-class jobs will be more important than letting start-ups innovate that create sustainable jobs and long-lasting companies.

The problem is capitalism is happening 100x faster than ever before and many Democrats are too stupid to get out of the way.  What would the auto industry look like today if we let GM go bankrupt?  We might have fewer jobs but better & cheaper cars?  Companies like Tesla might actually be an industry leader.  Think about all the companies that wanted GM to fail?  That's capitalism and preventing capitalism goes against American ideals.  Democrats call it a "zero-sum" game.  But no . . . the Government decided that GM is better.

Failure is good for business so they can be restructured.  GM was a huge shareholder cram down without restructuring by a shareholder (aka Gov't) with unlimited money. Some call this a Ponzi scheme because the cram down shareholder (Gov't) can print unlimited money and prop up the stock in the free market. GM has the same union problems and will ultimately fail soon as smaller companies slowly catch up to compete.  Obama just delayed innovation in another decade. Slower change is better? F that.

This goes without mentioning that the capital cycle needed to start new companies is broken because of faulty taxation assumptions.  Millionaires and billionaires (limited partners in VC, Private Equity, and Hedge Funds) need to be incentivized more to invest more.  Raising taxes on capital gains will kill the capital cycle flow back into companies drastically.  Making the pie bigger is a far better solution than redistributing money through higher taxes.  Mediocrity will soon become the middle name of the USA. 

Our Government is too big and needs to be restructured as well.

Are Groupon Coupons Getting Spammy?

The latest Groupon coupon fad reminds me of the mailing list spam days back in 1999.  Back in the day companies like Yahoo couldn't get their hands on enough lists of emails and would use these lists to pump out advertising offers left and right.  Eventually consumers got smart and had to use spam blockers and finally the Government required companies to offer opt-in email programs.  Groupon is not much different, however, this time they give you a sense of urgency by saying that inventory is limited.  Not only do most offers claim to limit the inventory but they often give you 50% off for a limited time.  Yes, it seems like a good short term promotional tool but how long will it last and what will it do for customer loyalty?

Will Groupon become a victim of their own success always chasing the next deal and lose customer support?  I think coupons should be scare commodity and not available to everyone.  If everyone has a coupon it defeats the purpose of pricing anything and creates a sense of dishonesty amongst your loyal customer base.  I think at the end of the day when this local coupon bubble pops the winners will simply be just good at local display advertising.  I think Google gets this as well and will will likely start see display ads targeted on mobile phones that show offers like this.

Groupon turned down an offer from Google to buy them for $6 billion dollars apparently and it looks like they are headed for an IPO.  I think this is a blessing in disguise for Google and they should be thankful that this did not work out.  The competition in the coupon space is furious and there are literary thousands of Groupon clones that do the same thing.   When Groupon first received funding and their valuation was north of $100M I said it was a great investor ponzi scheme and still think this.  Its a big house of hards that is only held up by the huge pile of cash they have been able to raise.  Its also not surprising to see them acquiring several companies in order to try and consolidate their competition.  I also wouldn't be surprise to see some more controversy surrounding this company get publicized before it tries to go public.  Groupon has lots of "skeletons in the closet" that will come out and at the end of the day the winners will ultimately be small niche local companies like Boomstreet who will be successful.   

How About Some QE for Venture Capital?

"Quantitative Easing" from the Federal Reserve just sounds like another theoretical way to pump up the markets and the economy when they can't drop interest rates any further than 0%. $2 Trillion dollars of Qualitative Easing has already gone into the banking system and what has it done for you and me?  What is another $600B going to do? Absolutely nothing.

It really makes me sick to hear that $600 billion dollars is going to be pumped into the banking system when these are the same "bone heads" along with the Hedge Funds that got us into the mess.  What is the last time you heard a story about a Bank giving money to a company that really needs it?  All bankers do is lend money to companies who don't need it because they are risk averse.  All these morons do take your money and the Feds at 0% and "try" and lend it at 5-15%.

Venture Capital and small business is what drives the US economy and this sector of the economy is still being overlooked.  Organic growth is the ONLY thing that will get the US out of this recession and create jobs. Why not give $100B dollars to some VC Fund Managers or Private Equity Groups at no cost and require them to invest it in the next 12 months?  I guarantee you they will get a return on this investment.  The Venture Capital industry has shrunk drastically in the last decade and I think this is the sole reason why we are still in a recession and will be until politicians recognize this. VC fund managers cannot raise money from LP (Limited Partners) because the returns have been horrible as a result of the IPO market being virtually closed.  Sometimes I think the Federal reserve spends too much time listening to politicians and not enough time in Silicon Valley, Boston, New York, Chicago and Los Angeles where new ideas are created and organic growth is created.

Angel & Venture Capital Shareholder Liquidity

What Was Holding IPO Bull Back?

It has been a long 10 year drought of no IPOs and sub par M&A activity that has stifled the startup, venture capital and angel investment community throughout the US.  Finally it appears that the public markets are starting to look for new investment opportunities and are welcoming fresh new companies into the public stock trading world.  Skype, Green Dot (Tech Coast Angels get 110X return), Tesla Motors, Demand Media, Linked In, Zynga, Glam Media, Gilt Groupe and Yelp all have very disruptive business models.  All of these companies have been courted for  M&A opportunities by existing public companies like Google, Microsoft, Yahoo, Apple, Research in Motion, Nokia to be purchased.  However, smart and patient investors realized that they could achieve greater shareholder value by holding out and going public. 

Startup Investment Cycle 

One huge government obstacle that stifled startup investing over the last 10 years was Sarbanes Oxley.  This new financial regulation created a decade of virtually no IPO's and caused thousands of private companies to think twice about going public due to the high costs.  Has Sarbanes Oxley done anything to protect shareholders in public markets?  No, but accounting firms like PWC and Deloitte have sure benefited.  

Another obstacle that prevented many companies from going public was the lack of interest from the large investment banks to take companies public.  This was largely due to distraction and focus as proprietary trading and packaging mortgages like securities (CDOs) became a fad to make lots of money.  Investment banks make most of their money off of commissions and spreads.  When spreads are large the buyer and seller both lose.  It will be interesting to see if companies truly will follow the old school "road show" to do an IPO or if they will take the route that Google did many years ago and have a blind auction.  The blind auction is in the best interest of the company if there is enough investor demand for the IPO as it creates a fair market price for the stock and you get fewer pump and dump investors. 

So what does the renewed interest in IPOs and liquidity for investors mean?  The early stage startup and venture capital industry thrives off of a healthy and short investment cycle which depends on a final outcome (M&A or IPO).  The startup investment cycle can take only a few years during boom times and as long as 10+ years during slow business cycles.  When investors get their money back plus a multiple return on their investment they are incentivized to put this money back to work in new startups.  There are many tax incentives that encourage this but I believe their should be more.  I expect to see the increased IPO activity and liquidity have many long term positive effects on new startups for years to come as the stock market is begging for new currency.  Use the products of these companies and buy some some shares at a minimum (especially Skype).  Here is my list of Skype IPO 10 reasons to buy. 

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