Tag Archive | "investing"

What’s cooler than a million dollars? Changing a million lives

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Impact investingHenry Ford once said that a business takes makes nothing but money is a poor business. Impact investing takes that thought to a new level.

Impact investors look for businesses which have a positive social or environmental impact as well as a giving a financial return. These enterprises can be anything from schools to mobile carriers serving the poor. Can profit-led companies solve social problems? Impact investors think they can.

One of the pioneers in the field is the Omidyar network, created by Pierre Omidyar, the founder of eBay, and his wife Pam. Amy Klement, who leads Omidyar Network’s Access to Capital initiative (and previously headed up payments at PayPal) told me that Omidyar’s approach to philanthropy was formed by eBay. “By providing tools and a platform he saw what people could do with opportunities. Ebay created more than 1 million new entrepreneurs” Klement said.

The Omidyar’s initially created a non-profit, family foundation but quickly realised that this imposed a lot of restrictions on what they could do. It was very difficult to make for-profit investments in social enterprises. “According to the tax laws if something is a business it can’t be for good.” explained Klement. ”Through eBay the Omidyars had seen that businesses can have social impact and lasting social impact. They are sustainable, they are scalable in a way that non-profits generally aren’t.”

So the Omidyars created a new organisation which could invest. The network uses a range of tools including non-profit grants, direct equity investments, debt investments and also invests in funds like the Ignia venture capital fund (of which more later). It has made grants to, or invested in companies like Wikipedia and P2P microfinance lenders Kiva.

Profit and loss is easy to measure but how do you measure social impact? Klement explains. “We look at reach and engagement. Reach you can think of as breadth; the number of lives touched and and there we look for scale. We want to touch hundreds of thousands, if not millions, of lives. Engagement is depth. To what extent are we touching those lives. How deep is the impact?”

One of the network’s current investments is in Bridge International Acadamies, a chain of schools based in Nairobi, Kenya and founded by an ex-technology entrepreneur. “He founded this school in a box model. It’s a highly replicable franchise model where he can scale these schools quite quickly. The education system in Kenya is completely broken. Teachers show up about 50 percent of the time. Even when they do show up the average teaching time per day is about 90 minutes. The free government schools are not really free by the time people pay for uniforms and supplies and often bribes to the teachers” said Klement.

The Bridge International schools cost less than $4 per pupil per month which is in line with the costs of the government schools. There are now 25 schools making Bridge international the largest chain of schools on the African continent, and that will expand to 100 by the end of the year. Within 5 years the schools will serve a million children.

Another investment is D.light which makes solar lanterns to replace kerosene lamps. Kerosene causes millions of burns a year and serious respiratory system problems. One use is equivalent to smoking 2 packs of cigarettes. D.light has shipped more than a million lanterns to India, Africa, Haiti and is poised for exponential growth.

Klement told me that once you screen for social impact, this type of investing is similar to traditional VC investing but “We are prepared to take more risk because we are entering markets that are less developed” like India and sub-saharn Africa. The network invests in the range of 1 to 3 million per deal. The Omidyar Network is also one of the investors in the $100 million Ignia fund, a VC fund based in Mexico which invests in businesses which provide products and services to bottom of the pyramid (BOP) people, the poorest sector of society, but expects venture capital-level returns.

I asked founder Álvaro Rodríguez Arregui why he started the fund. “There is tremendous lack of access to basic, quality products and services in the base of the pyramid.” he said. The poorest people often pay over the odds for goods and services. If you don’t have a credit history you can’t get a post-paid mobile phone plan and pre-paid minutes are a lot more expensive. If you live in an area with no electricity you have to pay someone more to charge your phone.

Ignia’s definition of positive impact is the following: ”If you provide this product or service to the BOP , will it improve their quality of life? The way we define our impact is providing access to basic products and services to as many people as possible as soon as possible. The only way to grow as fast as possible is through returns. The more profitable you are you faster you grow and the faster you deliver on your mission.” Ignia invests in a range of sectors from healthcare to financial services and Telecommunications.

Rodríguez Arregui started fundraising for Ignia in November 2007. It was a challenge. There was the small matter of the financial crisis and Ignia invests in a company for up to 15 years, a longer horizon that most investors are used to. But there was a more fundamental problem. ”We are at the intersection of VC and impact investing. The biggest challenge was definitely fund-raising because not many people believe that intersection exists. Because of the way we have been educated, we believe that it is either impact or returns and that there is a conflict between those two. In that there is an embedded philosophy which is ‘profit is bad’ We don’t believe that is the case.”

“I am a huge believer that businesses with purpose end up being significantly stronger than those that don’t have a purpose. I am convinced that when you wake up in the morning every day to try to address a mission, it’s a much stronger motivator than when you walk into the office every day and just want to make a buck” asserts Rodríguez Arregui.

It’s early days for Ignia but its star investment Finestrella has grown 9-fold in the last year. Finestrella provides affordable, post-paid mobile phone plans to the BOP. 86 percent of people in Mexico have access to a mobile phone but they only take incoming calls. Outgoing calls are made on public pay phones which are much cheaper than pre-paid minutes. People still spend up to 30 percent of their income on mobile services.

Finestrella has defined a set of algorithms which are used to assess the creditworthiness of people who don’t have an official employment history, bank account or credit rating. If they meet the criteria, customers are offered a post-paid mobile phone plan at much lower rates than pre-paid.

Finestrella started in 2010 and will have 35,000 customers by the end of this year. It already has $8 million in revenue (whichis considerable in a country like Mexico) and is growing exponentially. The target is to have 800,000 customers by 2015.  A couple of Silicon Valley VC funds, one of which is  Storm Ventures, have also invested in Finestrella.

One of Ignia’s investment team Joshua Motta explained why BOP businesses can make excellent returns. “Those activities which have the highest financial returns tend to have the highest social returns. Major corporations and even entrepreneurs have overlooked the BOP segment of the population and dismissed them outright simply because of their low earning power. But aggregated (BOP is 70 percent of the population in Mexico) the BOP actually has a huge amount of disposable income” according to Motta.

Motta maintains that corporations often don’t understand the needs of the BOP and just sell their standard products more cheaply in emerging markets. This strategy is often ineffective. Procter and Gamble discovered this with their detergent. ”In Western markets the quantity sold per unit is quite large. The BOP can’t afford a gallon of detergent. What P&G discovered was that if they used smaller packet sizes, literally single use tablets, they were able to sell substantially in the BOP.” said Motta.

I asked Klement and Rodríguez Arregui what trends they see in impact investing. Both see momentum picking up and more money coming into the sector. Companies like Wells Fargo and J P Morgan are putting money into this new asset class. Rodríguez Arregui thinks that a lot of the talent in the social investing world comes from the non-profit sector rather than business and more business expertise is needed.

Finally, Rodríguez Arregui explains that people need to think hard about why they want to get into impact investing. ”Do you want to do good or do you want to feel good? You need to be extremely clear on what you want to do. It’s much easier to feel good by giving away meals to starving kids in Sudan but you are not going to solve any systemic problem in the world by doing that. The outcomes of impact investing are much more long-term. This is business and business is messy and you have to make hard decisions. When your only purpose is to feel good you are not willing to make those hard decisions” he concludes.

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Article courtesy of VentureBeat » deals

What Do Ken Griffin And Oprah Have In Common?

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Besides both being Chicago residents who give out gifts at year-end in elaborate presentations that involve screaming and crying?

They both now have their own schools (hers for girls in Africa, his in Chicago, run as part of an experiment by a University of Chicago professor).

John List, a University of Chicago economics professor, strides through the Griffin Early Childhood Center chatting with teachers, complimenting girls on their braids and hollering out the window. He acts like it’s his school, and in many ways, it is. The preschool in the low-income suburb of Chicago Heights is the centerpiece of one of the largest field experiments ever conducted in economics, and it’s List’s brainchild.

With $10 million from hedge-fund billionaire Kenneth Griffin, List will track the results of more than 600 students– including 150 at this school. His goal is to find out whether investing in teachers or, alternatively, in parents, leads to more gains in kids’ educational performance…List wants to use experiments to solve youth violence in schools and gender bias in hiring. In each case, he wants to isolate why people behave the way they do.

Squatting on a toddler’s chair in one of the classrooms in the Griffin school, List sketches out the design of the experiment with a magic marker on an easel. Local families with kids 3 to 5 years old were encouraged to enter a lottery and were randomly sorted into three groups. Students selected to attend the Griffin school are enrolled in the free, all-day preschool. Children in another group aren’t enrolled in the school, while their guardians take courses at a “parenting academy” and receive cash or scholarships valued at up to $7,000 annually as a reward.

Not everyone is thrilled by this idea and some people are even suggesting Ken Griffin’s being taken for a ride.

“That’s a crazy idea,” says Clancy Blair, who studies how young children learn. “It’s not based on any prior research. This isn’t the incremental process of science. It’s ‘I have a crazy idea and I convinced someone to give me $10 million.’”

As an experiment, just to test if Ken Griffin knows the score, give him a call at the office today and pitch him on whatever batshit idea you’ve got (finance-related or otherwise) that needs funding. If he whips out his checkbook, Citadel investors may have cause to worry.

Chicago Economist’s `Crazy’ Education Idea Wins Ken Griffin’s Backing [Bloomberg]

Article courtesy of Dealbreaker

Whitney Tilson: “Why We Covered Our Netflix Short”

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The short answer: “It’s no fun being in front of an oncoming train.”

The slightly longer answer:

At today’s closing price of $222.29, Netflix is trading at 75.0x trailing EPS of $2.96. In more than 12 years of managing money professionally, we can’t recall an instance in which we paid more than 20x our estimate of normalized, current year earnings for any stock – and this has worked very well for us – so we won’t be buying Netflix anytime soon. But just because we don’t think it’s a good long doesn’t make it a good short.

Why We Covered [Value Investing Letter]

Article courtesy of Dealbreaker

Big data draws big money as IA Ventures raises $50M fund

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Roger Ehrenberg, a former Wall Street investor,  launched IA Ventures earlier this year to invest in startups that leverage “big data”. Now that big data is attracting big cash from limited partners as the fund has raised $50M, Dan Primack of Fortune reports.

Ehrenberg has been an active New York angel investor for many years, investing in companies like Tweetdeck, Bit.ly, and Buddy Media.

IA Ventures has already made 15 investments, including daily deal aggregator Yipit and pre-launch banking startup Bank Simple. While Ehrenberg was initially raising a $25 million fund from non-traditional sources like prop-trading desks and hedge funds, interest from traditional funding sources like foundations and pension funds caused Ehrenberg to reopen the fund. The fund ended up 50 percent oversubscribed.

Entrepreneurs from IA portfolio companies burnished Roger Ehrenberg’s credentials as a data expert.

“If you’re a startup working on solving a problem with huge data sets, it is irresponsible not to talk to Roger Ehrenberg. “ said Vincius Vacanti, co-founder of daily deal aggregator Yipit.
Vacanti cited a IA Ventures portfolio event with outside data luminaries like Tim O’Reilly, Union Square Ventures partner Fred Wilson, and Bit.ly Chief Scientist Hilary Mason.

“It was amazing,” Vacanti said.

Some industry observers have wondered how seed investors raising bigger funds are going to adjust their investing strategy, Ehrenberg doesn’t believe it will have a significant effect. “Going to $50 million doesn’t change our strategy of seed and early-stage investing in big data,” Ehrenberg told Fortune, “but it does provide us additional capital to “pursue a life-cycle approach to supporting our companies.”



Article courtesy of VentureBeat » deals

Opening Bell: 12.03.10

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Trichet: Governments Need To Be Flexible (WSJ)
“If we have a problem today, it’s not a problem of the euro currency, it’s a problem of fiscal policies which haven’t been correct,” he said. He added euro-area members should go as far as EU institutions permit to reinforce budgetary cooperation. “We are in a monetary union, but without of course a complete political federation. We should conduct a dramatic strengthening of governance to have the equivalent of a quasi-budgetary federation,” Mr. Trichet said.

Jobs Up 39,000 (Reuters)
Nonfarm payrolls rose 39,000, with private hiring gaining only 50,000, the Labor Department said. However, overall employment for September and October was revised to show 38,000 more jobs than previously estimated. Economists had expected payrolls to increase 140,000 last month and the unemployment rate to be unchanged at 9.6 percent.

Domain Provider Drops WikiLeaks Name (WSJ)
In a statement on its site, EveryDNS.net said it terminated the free service it had been providing to wikileaks.org at 10 p.m. Eastern time Thursday because WikiLeaks had become the target of “multiple denial of service attacks” that “threaten the stability of the EveryDNS.net infrastructure,” which serves 500,000 websites. The move meant that Internet users couldn’t access the site as usual by typing wikileaks.org.

Crisis-Hit Banks Flooded Federal Reserve with Junk (FT)
More than 36 percent of the cumulative collateral pledged to the US central bank in return for overnight funding under the Primary Dealer Credit Facility was equities or bonds ranked below investment grade. A further 17 percent was unrated credit or loans, according to a Financial Times analysis of Fed data released this week.

Pimco’s McCulley to Retire From Investing for Think-Tank Post (Bloomberg)
McCulley will leave at year-end and take time off before becoming a public speaker, researcher and writer at the Global Interdependence Center, according to a letter sent to clients yesterday.

Portuguese Banks Face Downgrade (WSJ)
S&P said it has put Banco Santander SA’s Totta S.A., Banco Comercial Portugues SA, Banco Espirito Santo SA, Banco BPI SA and state-owned Caixa Geral de Depósitos S.A. on credit watch “with negative implications,” after it did the same with Portugal’s long-term rating earlier in the week.

Tweeting Rules May Leave Brokers With Little To Say (Bloomberg)
Finra requires companies to supervise and store all broker- client exchanges, such as e-mails and now Twitter posts and Facebook updates. Brokerages also are required to approve most postings on websites, Tom Pappas, vice president of advertising regulation at Finra, said in an interview. Finra released a regulatory notice in January with guidelines for firms using social media. “We issued these standards to help firms understand and follow the rules,” Pappas said.

Don’t Call Ackman A Hedge Fund (Dealbook)
The head of Pershing Square Capital Management, to a packed audience at Bloomberg’s 2010 Hedge Fund Conference, addressed an increasingly common question: What is a hedge fund? “I don’t think anyone wants to be a hedge fund,” said the activist investor. “Hedge funds do evil things, and Congress doesn’t like hedge funds.“ In deadpan, Mr. Ackman continued: “I’m not a hedge fund. Next year, you’ll have to name the conference something else,” he told the room to laughter. So exactly what is a hedge fund then? “Hedge funds are really a compensation structure,” said Mr. Ackman, getting serious for a moment.

Young Unemployed Are In ‘Catch-22′ Situation (CNBC)
The world faces a “huge challenge” to bring the offer from universities, from colleges, in line with the needs of the private sectors in business, Salazar said in an interview on the sidelines of the Global Youth Employment conference in London. Young people “are in a kind of Catch-22 situation, they don’t have work experience therefore employers don’t use them, don’t prefer them,” he said. “They are kind of in a vicious circle.” “Another trap is the business cycle, they are the first ones to be fired and last ones to be hired,” Salazar added.

JPMorgan, Deutsche Bank Battle for Rich as Rules Change (Bloomberg)
JPMorgan, the biggest U.S. bank by market value, plans to increase its wealth management staff in Europe, the Middle East and Africa by as much as 20 percent a year until 2013. Frankfurt-based Deutsche Bank is bulking up its Asia business after buying Sal. Oppenheim Group, Germany’s biggest independent private bank, nine months ago, said spokesman Klaus Winker.

Article courtesy of Dealbreaker

Yardsellr raises $5 million to reinvent e-commerce (and enable my dog-sweater habit)

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Yardsellr Dog SweaterI just bought a dog sweater from a stranger who lives across the country from me. And I totally blame Yardsellr, a year-old startup backed by a team of eBay veterans who may well be inventing the future of social commerce.

Yardsellr CEO and founder Danny Leffel just announced his company has raised $5 million from Accel Partners, the venture-capital firm best known for investing in Facebook, and Harrison Metal Capital, the investing vehicle of former eBay executive Michael Dearing, who’s quietly backed AdMob, Aardvark, CafePress and others. Besides Leffel, ex-eBayers on the team include Jed Clevenger, who ran paid search at eBay, and Rachel Makool, former head of eBay’s community team.

While Yardsellr has a website — Yardsellr.com — the shopping experience isn’t built around it. Take my dog sweater, for example: I found it on the Yardsellr Doggie Block, a Facebook page built for canine obsessives like myself. I saw the sweater but had my doubts: Was I one of those dog owners who dresses up their best friends in hideous outfits?

So I posted the sweater to my Facebook wall and asked my friends what they thought. I instantly got two thumbs up (orange is Ramona the Love Terrier’s signature color, after all), clicked to buy it with PayPal, and sent the sweater seller a Facebook message confirming the size.

Some call Yardsellr the “eBay of Facebook,” but I think that’s selling it short. Buying on eBay or Craigslist would have been a far more troublesome experience, from sharing the item with friends to deciding whether I could trust the seller. (In an additional twist, I paid Yardsellr’s fee, rather than the seller, so Yardsellr is making it easy for sellers used to Craigslist’s fee-free for-sale listings to make the switch.)

Yardsellr’s true potential may be redeeming the original idea behind eBay’s now sadly troubled marketplace, which was built around a reputation system that let strangers buy and sell to each other. eBay jealously guarded its reputation system, which meant that it never grew outside ebay.com. The company had a second chance with PayPal, which arguably knew a lot more about buyers and sellers through their bank accounts, credit cards, and purchasing habits on and off eBay — but it never developed PayPal as a reputation system.

Through its links to social networks, Yardsellr could be the fulfillment of the promise of social commerce. What will fuel buying and selling isn’t just cleverly targeted recommendations; it’s a sense of community and trust that transcends meaningless “A+++ WOULD BUY AGAIN” ratings. Because Yardsellr is organizing around communities of interest rather than a single destination site, it should be able to create groups where trust can thrive, backed by the validated reputation of Facebook and Twitter profiles.

And where trust exists, commerce usually follows.

Yardsellr, based in Palo Alto, has to date operated on seed funding from Dearing’s Harrison Metal Capital. The company currently has seven employees.

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Article courtesy of VentureBeat » deals

David Tepper Up 20 Percent For The Year

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The brass balls are earning their keep.

Appaloosa Investor Letter

Watching Washington And Then Investing [Dealbook]

Article courtesy of Dealbreaker

Why Warren Buffett Picked Todd Combs

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Since Berkshire Hathaway announced late Monday it was tapping Todd Combs as a successor to Warren Buffett, the most common response has been, “Why him?” By all accounts, Combs, a father of three, is said to be affable, hard-working guy who wears khakis and button-downs at the the office where he’s made money for his clients every year but 2008, and has returned a 34 percent since launching in November 2005. One investor said “it’s tough to find someone as passionate and thoughtful,” his former business school professor at Columbia says that out of “a very intense group of MBAs,” Combs “probably had the greatest desire to win” and his wife April’s maid of honor told the Journal that he’s gotten to where he is today without knowing anyone in the industry when he first started and that he’s “smart and can adapt.”

Still, though, many wonder why Berkshire didn’t go with someone who has experience managing a larger fund (Castle Point’s assets are less than half a billion) or who produced more spectacular returns. Buffett has said that beyond Combs’ “ability and intelligence,” he and Vice-Chairman Chairman Charlie Munger wanted him because they were “convinced he would fit in to Berkshire’s no-fuss culture,” an explanation that has not entirely satisfied people, some Berkshire shareholders included.

A tip from an insider and a bit of digging on our parts has revealed the REAL reason WB went with T:

Buffett told the Journal that he ultimately “arrived at the decision based on the same kind of ‘gut check’ he makes with acquisitions of companies.” And you know what his “gut” told him this time? That as a Florida State alum with fierce loyalty to the Seminoles, Combs could not only make him an intro to the the lady above, who the Berkshire Hathaway founder** has had his eye on, but probably procure her number from the alumni directory for the purposes of sending her some tasteful Brett Favre-inspired faxes, as well.

You can stop scratching your heads now.

Warren Buffett: Todd Combs “100% Fit” With Berkshire Culture [WSJ]

**Known as much for his investing prowess as his love o’ the busty babes/marrying folksy business wisdom with aberrant sex fetish.

Article courtesy of Dealbreaker

Mark Cuban bets $5 million on future of device-tracking firm BlueCava

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BlueCava, a credit bureau for devices conducting business online, has closed a $5 million first round of funding led by billionaire Mark Cuban and entrepreneur Tim Headington. The company told VentureBeat it expects to conduct a second round as soon as April.

BlueCava is used by companies doing business online to identify the individual “fingerprint” of any desktop or mobile device being used in a web transaction. This snapshot then provides businesses with the device’s IP address, cookies, browser and any credit information it can find about past historical activities, thereby lowering the risk of possible fraud during online buying or selling.

Blue Cava CEO David Norris said the firm has a clear outline for where it will put the new cash first.

“We’ll be using the funding to accelerate growth on the sales and marketing front as well as on the development side,” said Norris. “This funding will help us accelerate our growth, which is already moving so rapidly. [These] certainly are exciting times for us.”

BlueCava’s technology works with PCs, smartphones, video game consoles and set-top boxes located anywhere in the world. This lets customers such as banks, payment processors, airlines, social networks, online gambling sites and dating sites detect, identify and track devices within their own environments.

With an oversubscription rate of more than 500 percent during its first round of funding, clearly the price is right for many investors eyeing the Orange County-based firm.

Right now BlueCava charges 1/100th of a cent per device transaction and 1/10th of a cent per device reputation transaction, a reduction in pricing the company said is 500 times less than historical industry averages. It may also make it attractive to even the smallest of companies doing business online.

Norris predicted that given the amount of investors clamoring to participate in this round’s cycle, BlueCava will “probably have more opportunities going forward.” That anticipated spike in interest has the firm poised to begin a second round of open funding over the next six to nine months, he told VentureBeat.

Cuban is  a well-known fixture in both the investing and celebrity worlds as a participant in multiple reality shows and sitcoms as well as the chairman of HDTV cable network HD.net, owner of the National Basketball Association’s Dallas Mavericks and owner of Landmark Theatres.

As part of the $5 million investment, Cuban will now join BlueCava’s board of directors.

Hotelier and film producer Headington is founder and owner of privately-held oil and gas firm Headington Oil.

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Article courtesy of VentureBeat » deals

Some People Less Amped About Zoe Cruz’s New Hedge Fund Than Others

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As previously mentioned, against all odds, Zoe Cruz has officially started her own firm. They said she could no longer hustle, that people would be turned off by certain unfortunate regrettable “stuff” that occurred on her watch at Morgan Stanley but surprise! In the last nine months, the Missile raised $200 million for Voras Capital Management, which is the name of “a mountainous area near the town in Greece Cruz was born,” and is comprised of two separate funds (one, a credit opportunities fund run by former MS exec Ellen Brunsberg, the other a global macro fund run by the lady of the hour). How has the investing community taken to the news?

One might say the reactions have been a bit mixed. On the one hand, you have the group that is nothing short of psyched by the news that people aren’t so narrow-minded that they’ll hear “responsible for billions in losses” and get turned off to the notion of handing over their money to you, led by John Meriwether. On the other, there are some who are less pleased, such as the hedge fund manager we spoke to this morning who fumed that this is “outrageous” and that he has approached Morgan Stanley about purchasing a derivative security to synthetically short the performance of Cruz’s fund. He’s yet to hear back from them, but being deadly serious about the idea, if there are any enterprising prime brokerages out there who want to set this thing up, do give us a buzz and we’ll put you in touch.

Article courtesy of Dealbreaker