Tuesday, September 30, 2014

The Haiku of Finance for 09/30/14

Cloud competitor
Race to bottom in pricing
Deepest pocket wins

Monday, September 29, 2014

The Haiku of Finance for 09/29/14

Buying bankrupt tech
On sale in court for bargain
Rock bottom startup

Financial Sarcasm Roundup for 09/29/14

Do you remember the last time I published something sarcastic?  If not, go back through my most recent blog articles.

Iron ore prices are heading down harder than ever as the leading low-cost producers force smaller competitors out.  Anyone who still buys the endless China bull story in the face of rising iron stockpiles is welcome to head down the tubes along with shuttered mining companies.  The remaining big producers will have no problems staying in business as market leaders.  Their pricing power should enable them to grab failed mines and grow their reserves.

Bill Gross' departure from the bond firm he founded caught major players by surprise.  I am not at all surprised.  He exited his firm on a high note as the US bond market remains at nosebleed valuations.  Seeking contrarian opportunities at a smaller firm enables him to build a new reputation after the bond market begins its inevitable slide.  Other company founders should remember that a firm they create is no longer theirs once larger investors steer it away from its roots.

I do track the "fin-tech" culture where financial startups launch.  A lot of them are focused on payments processing but there's only so much blood to squeeze from that stone.  These same startups will be among the many that vaporize (borrowing a word from one very prominent VC) because they can't reduce their burn rates.  I'll be in the market for some very cheap IP when these fin-tech darlings are on the street begging for spare change.  I'm certain I can figure out how to deploy their leftover tech after a bankruptcy court chops them up.

Catch me at Oracle OpenWorld this week if you want my sarcasm in person.  I have little time to spare while attractive women pursue me on the expo floor but I always have something cool to say.

First Experience with Larry Ellison's Opening Keynote at Oracle OpenWorld 2014

I am attending Oracle OpenWorld for the first time this year.  Tonight I heard the opening keynotes, where the cloud was everywhere.  The big show both inside and outside Moscone North was loud and bright.  Big Data, big video screens, big stunts, and big personalities are all over this big convention.  Go big or go home.

The Intel big cheese on stage was a familiar face from another conference I attended last year.  She knows her data strategies pretty well.  It is obvious that Big Data is taking over the known universe with its shear mass, though I'm not sure what metric Intel used to tabulate the number of data iterations our civilization creates.  The Intel people sometimes referred to Oracle as if their two companies were one and the same.  The love-fest aspect of these big conventions is always cute.  

The Intel talk reinforced for me once again that data centers are a pick-and-shovel play in the rush to create value in the data sector.  I want someone on a major stage to mention the following concepts:  Cloudonomics, data supply chain, and the DIKW pyramid.  Those should be factors in assembling an enterprise IT architecture.  The coming of software defined infrastructure (SDI) and the software-defined data center (SDDC) mean humans must design some very human considerations into these new IT architectures before they push the virtualization button.

Intel thinks hybrid clouds matter based on the combination of data centers built out for public clouds and the expectations for workload traffic in private clouds.  I've been watching the hybrid cloud evolution since 2011 and some data sets simply belong in private clouds for security reasons.  Public cloud providers have fallen down on their promises of security and this month's numerous high-profile data breaches are the data sector's indictment.

Intel's enthusiasm for new modalities in data transfer and virtualization gave me an insight.  Data centers that add virtualization into their cloud services should see higher ROIs as their costs come down.  Cloudonomics metrics should prove my theory.  The enhanced ROI relationship should also hold for the addition of remote resources and non-volatile memory.  

Larry Ellison pushed the cloud every time he mentioned Oracle's market position and new products.  He also pushed security as the fulfillment of his company's ethos.  It's no secret that Oracle battles it out for CRM and ERP market leadership with Salesforce and a few other contenders.  Cloud security is going to be in every vendor's sales pitch thanks to a year's worth of revelations and debacles.

Larry's Coke bottle on stage looked like it had an import sticker on the side.  I have only seen those square white stickers on bottles imported from Mexico.  Die-hard Coca-Cola aficionados prefer Mexican Coke because its use of cane sugar makes the taste more palatable compared to US-bottled coke, which uses beet sugar.  This has nothing to do with enterprise computing but I notice all kinds of little details wherever I go.  Knowing a key leader's biography down to minute personal preferences helps illuminate their leadership style.

Oracle is entering a price war with Apple, Amazon, and Google over cloud services at the same time it is moving its entire app family into its own cloud.  The other players either already had their cloud capability before they built their app product lines or built both capabilities out simultaneously.  They could build apps with no concern for legacy integration with on-premise products that had not yet migrated to their clouds.  Oracle has the more difficult road to pave as it must preserve support for on-premise legacy products while it builds out its cloud.  The competitor with the deepest pockets always wins a price war.  Let's compare the cash positions of these four giants to see who starts off ahead.

Cash positions, from Yahoo Finance . . .
Oracle (ORCL):  $24.2B (August 31, 2014)
Apple (AAPL):  $13B (June 28, 2014)
Amazon (AMZN):  $5B  (June 30, 2014)
Google (GOOG):  $19.6B (June 30, 2014)

Please note that these figures do not necessarily include the huge amount of cash Apple has sequestered in a separate entity named Braeburn Capital.  I don't have time tonight to dig through Apple's financials to see how they distinguish their various cash management programs.  Apple's massive cash hoard probably places it in the leading position to win a cloud service price war, assuming nothing else changes.

I noticed that I was the only audience member in sight who was taking notes.  I was nowhere near the section reserved for press, analysts, and bloggers so I can't tell which among them took notes or blogged live.  A few news outlets published their stories ahead of mine, but I caught a couple of interesting quotes.  I'm pretty sure Larry said "think different" (a Steve Jobs quote from his resurrection of Apple) and "at the speed of thought" (a Bill Gates quote).  Larry obviously admires his competitors.  I admit that I admire this guy too after seeing him on stage.

Sunday, September 28, 2014

The Limerick of Finance for 09/28/14

Minsky moment approaching with speed
Investors have failed to take heed
Some pending margin call
Could trigger the fall
So many will pay for their greed

Saturday, September 27, 2014

Momentum VC Offers Chats with Kairos Society and Ruckus Wireless Notables

The Momentum VC folks pulled off another good fireside chat last week at DG717.  I'm getting attached to these events for the peeks into how mobile startups make it happen from scratch.  I will try not to merely repeat the thought leaders' wisdom.

The entrepreneur dude who founded the Kairos Society explained his fascination with solving the world's problems.  He nailed Silicon Valley's insular tendency to build products for its own elites while ignoring the developing world's mobile market.  I'm pretty sure the average African will choose M-Pesa over Uber any day.  I am not as convinced that mobile devices have minimized their data security risks.  The celebrity photo hacking scandal of recent weeks shows that user-level security needs major work before mobile can truly be the front end of cloud storage.

If I were marketing some mobile solution in emerging markets, I would ensure it had a non-affluent, non-literate appeal.  It would have a non-text UI, allow for payments in small increments, and support an app ecosystem that targets verticals in the natural resource sector.  I also think M-Pesa would work in the US if the normal banking system were unable to transfer money in a crisis.  Apple Pay and Google Wallet are preparing the way for just such an approach.  Americans will have payment options in hyperinflation if those services can add digits up to a hundred trillion.

Mobile developers should also remember the Kairos guy's revelation that mobile use cases are not identical to desktop usage.  Smartphones bootup faster and are thus more responsive with functions like email that can't wait for bootup.  I await whatever developments the Kairos people can produce in synthetic biology, orbital space APIs, and platinum mining on the moon.  I guess tech people really do sit around thinking about going into space, based on what I heard at Momentum VC.

The Ruckus Wireless guy was up next.  I agree with his philosophy that money matters if it allows one to do great things.  His insight that the defense sector operates on a process orientation for Peter Principle managers is correct in my experience.  I will definitely follow his advice to always seek an unfair advantage in business.  I don't have as many academic contacts as I need but that is solvable with networking.  I may have aspects of the attention deficit disorder and laser focus that he endorsed.

I will repeat a couple of his best points verbatim.  He said to get a team of divergent minds who think differently from the founder.  Once they're assembled, get the smartest person in the room to ask the smartest question, then think of the simplest possible solution.  Well, I'm usually the smartest person in the room, so I will have to convene a panel of Nobel laureates for that level of input.  Extreme geniuses such as yours truly don't like organization charts or enterprise politics.  Thinkers live in the realm of pure ideas.  I much prefer that antiseptic approach.

I cannot name very many examples of a startup copying a market leader, aside from Google taking on Yahoo last decade.  It works if the leader chooses not to pull out all the stops on resources to fight back.  A market leader that does not fight back commits suicide.  Silicon Valley corporate development departments scan for emergent rivals they can buy or suppress.

Ruckus' guy also shared insights on how culture steers execution after management has stated its vision.  The US military is supposed to operate like that in theory but my experience revealed how culture often hindered execution.  Meetings that end in action items for specific staff members are IMHO the least evil type of meeting to hold.  I would like to see PayPal's anti-meeting culture in operation.  The good news I've been absorbing at many tech conferences is that automated workflows can direct tasks to the right action center with little in-person coordination.

I left DG717 thinking about how some Kairos reality hacker would write an API on the moon while a Ruckus Wireless techie was chasing some random, predatory disruption back on earth.  That's what they said they like doing.  I'll have to check in with Momentum VC again in a few months to see their progress.  

The Haiku of Finance for 09/27/14

Do not waste money
Scams and trinkets don't build wealth
Save instead of spend

Masses Congregate for a Study in Contrasts

I witnessed the masses behaving normally today.  I chose to attend a technology conference in Santa Clara where entrepreneurs and serious investors pursued wealth.  The same locale played host to other events targeting a more downscale audience.  I did not attend the Herbalife or sports autograph events because the arriving attendees told me all I needed to know.  The differences were noticeable.

The tech conference people were dressed for business, at least by Silicon Valley standards.  The people at the other conferences were disgusting.  The Herbalife event attracted a large number of folks who looked like they brought their friends up from south of the border for a quinceanera.  I don't know whether they were documented appropriately but in California's current political climate it doesn't matter.  The sports memorabilia people were uniformly obese and dressed in sports team attire that made their lack of physical fitness all the more disgusting.

The Herbalife people looked like they were holding evangelical revivals in between their formal events.  They were loud enough to distract me as I made my way between the tech conference's seminars.  I don't have time to deconstruct Herbalife's marketing model right now, so go read what the Salty Droid and others have to say about their practices.  I saw enough faith-based nonsense from these people today to permanently distance myself from any Herbalife operative.

The sports memorabilia people were everywhere, flocking to meet their highly paid idols and generally getting in my way.  I could not avoid the posters for their event, and the prices they paid for a touch of greatness were LOL-worthy.  Former NFL players were signing autographs for up to $150 with a photo session.  The slobs come away with memories that will last a lifetime.  The real athletes come away with five figures of income for a few hours of "work" sitting and smiling.

Herbalife's cult followers and the Bay Area's fat sports fans have much in common.  They both strive for fleeting glory bestowed by an authority figure, just for showing up.  Their paths to the convention center led to the only extrinsic validation they may ever have in their sad lives.  I try very hard not to feel sorry for people in the left tail of the IQ bell curve.  They exist so the rest of us have a consumption base for our marketable solutions.

Our associations tell the world what we value in other humans.  I will never spend time with the clueless dupes buying into Herbalife and the fat losers overpaying for a minor celebrity's signature.  I am so proud of myself for picking the right crowd to join.  

Friday, September 26, 2014

The Haiku of Finance for 09/26/14

Meet product milestone
Sales increase with more clients
Investors line up

Monday, September 22, 2014

The Haiku of Finance for 09/22/14

Quiet in market
Lull in volatility
Hardly a worry

Updating the Alpha-D for 09/22/14

I experienced an involuntary change in my portfolio holdings last week.  The cash-covered put position I had sold under GDX in my IRA was exercised against me when the market price declined past the strike price.  My holdings of GDX are now slightly larger than before, at a purchase price that is very low for this ETF's historical price.  This is no problem for me.  I knew the risk and I don't mind owning a little more of a cheap partial hard asset hedge against inflation.

My other option positions on FXA, FXC, and FXF expired unxercised.  I am still long those ETFs.  I have decided not to write any new covered option positions this month on any of my securities.  I may have pushed my luck enough already given the macroeconomic headwinds building against this very calm market.

I am still long a put position against FXE, as I believe the euro is doomed.  The G20 is getting increasingly concerned about Europe's potential for renewed growth.  I believe they know more than what they reveal in public.

I sit mostly in cash, awaiting something that breaks with a loud noise.  The list of other potential hard asset hedges I have considered for my own portfolio will have to wait until their prices are low enough for me to revisit them.

Nota bene:  I am seriously considering getting a lot more cryptic with these discussions of my own portfolio.  Talking about my money might be more fun for me if I take extra steps to discourage people from copying my actions.

Sunday, September 21, 2014

Wasting Time at the Small Business Expo San Francisco 2014

I can't resist business conclaves.  I ought to resist that impulse once in a while.  I attended last week's Small Business Expo San Francisco thinking I could learn something from subject matter experts on the scene.  The people I met there have a lot to learn themselves.  They will probably learn it the hard way.

I walked into the Fort Mason Pavilion to the very green-lit sight you see above.  The first harbinger of woe was the general cluelessness of the vendor representatives on the expo floor.  The booth people I encountered mostly gave poor explanations of their services.  I asked one booth babe with a VOIP provider what her company offered, and she pointed to a flat screen TV while mumbling "Uh, five free phones."  Her babe pal tried to save her with a lame assist:  "Uh, it's security.  You can talk to this guy."  They were both blondes.  Whenever I get two lame handoffs at a vendor booth, I get the heck out of there.

I sat in several workshops that were nothing but regurgitated pep talks and asinine product pitches.  The first scheduled main stage speaker was a no-show, so a "business coach" filled in.  Maybe ten people attended in a seating arrangement set for a couple of hundred.  I don't know what the guy's qualifications were to be a business coach because he displayed pictures of his family instead of describing his credentials or professional history.  That told me he was aiming for a low-information audience that could relate to his storytelling ability.  Folks, that's not how I interact with tech startups run by educated professionals.  Wait, it gets more entertaining.  The coach dude asked me about my ideal client, and I said, "Myself!  I'm sick of Wall Street and Silicon Valley, and I enjoy making the world angry because I'm sick of humans."  He did not get the message and asked me twice about my biggest challenge (hint:  it's to get web traffic); he forgot what I told him the first time even though he wrote it on his white board!

The coach dude continued to amuse me with non sequiturs quoted from such business luminaries as . . . Michael Jackson, the freakish pop star.   The whole train wreck reminded me of other free teaser seminars I attended that were sales pitches for very expensive "coaching" programs.  I have never ever paid for coaching because I'm the best coach I've ever known.  He asked the tiny crowd to name a leader's single biggest mistake; I thought my biggest mistake was attending this talk.   His reasons for leadership failure were kindergarten level gibberish, not the results of peer-reviewed scholarship.  He cited a "Law of the Lid" that came out of nowhere, with no data or references.  I walked out of that talk after about twenty minutes of nonsense (it started about seven minutes late).  I could not take any more amateurish "business coaching" that was nothing more than a motivational pep talk for the vulnerable fools in the audience.

I ate a nine dollar sandwich at the very limited concession stand in the Pavilion.  An event of this size should have at least had some food trucks outside.  Alas, it was not meant to be.  Picking a spot in the Pavilion's upper corner where I could view the Golden Gate Bridge was the highlight of my day.  Staying far above the nonsense below was the best decision I made at the expo.

I had to venture back down to the workshops just to gauge the general intelligence of the attendees.  If the content was lame and the people ate it up, they were morons.  Sure enough, other presenters allowed me to lower my expectations by the minute.  One presenter discussing Web optimization said WordPress wasn't a robust enough platform for a business website.  Say what?!  Does he even know how thoroughly WordPress has penetrated the Web?!  Wow, such stunning ignorance.

Another presenter's slide show didn't work so she read from her printed slides verbatim.  She obviously had not prepared to do anything other than rattle off stats without context.  Her talk was supposed to be about the power of integrating social media with mobile tech.  None of her points came across well or made sense.  I have heard about social and mobile at countless events from true experts, and her effort did not even come close to clearing the first step on a stairway to competence.  She was at least a hot babe, so she was fun to look at even though she wasn't showing cleavage or bare legs.  I imagined her stripping off because it would have made my time in her workshop worthwhile.  Her best line?  "The last time you left home without your smartphone, you felt naked."  I sure wish she had felt naked right there and then.

I thought the talk on venture funding would at least be recognizable, since that's the space I inhabit.  I was wrong.  The speaker had a couple of prepared bullet points about how VCs invest in the "leader and plan" of a business.  Huh?  That's it?  Really?  He did mention the goal of a 10x return, but nowhere did I hear the distinction between scaling up a tech startup into a billion dollar segment and the challenges of something more prosaic (like a restaurant).  He also revealed his inexperience by stating he liked to invest in a business plan with (I kid you not) . . . "ups and downs . . . the outsourcing team . . . the unemployable experts on the advisory board."  Folks, none of that makes any sense to experienced venture investors.  The dude was talking out of his hindquarters.  I was really amused at this circus.

Much of what the "venture funding" guy said was really another disguised sales pitch for business coaching.  I hope my intelligent readers see a pattern emerging.  The offers for special discounted fees and vast co-investing networks were all over the place.  The name-dropping of famous "friends and partners" came fast and furious.  Blink and you'll miss a celebrity.  I asked him what he thought of crowdfunding, and he galled me by saying it was illegal!  Say what, bro?!  If he had actually read the JOBS Act and the SEC's latest rules he would know about the legal protections in place.  I was right in the front row and clearly stated that he was incorrect, loud enough for him to hear me.  He did not even break his stride.  I was amazed at how many imbeciles stayed through his entire talk, lapping up everything.  P.T. Barnum was right about suckers, and a lot of them are now being born in San Francisco.

The only useful information I picked up was a rehash of bank loan tips I've seen before at much better conferences.  I still cannot believe I wasted half of a perfectly good day attending this expo.  I could have spent that time productively blogging.  Instead I ended up as the only real thought leader in a pavilion full of aspirational ding-dongs.  You won't catch me at this thing next year.  Buh-bye.  

The Limerick of Finance for 09/21/14

G20 says growth is ahead
While Europe's stagnation they dread
A black swan awaits
That collection of states
Contagion can easily spread

Data Supply Chains at DataWeek and API World 2014

I attended DataWeek and API World this year at the Hotel Kabuki in San Francisco.  The "data sector" is an emerging subset of the enterprise computing sector.  I first noticed it when I attended this conference last year.  The term "digital supply chain" already describes content creation in the media sector, so the data sector needs a special term for its own value-added process.  The best fit so far is "data supply chain."  Accenture defines the data supply chain and InfoWorld describes how to build one.  My best insights from this conference are in bold text.

Coding for apps, APIs, and SDKs is a new form of literacy that requires knowledge of interactive tools, formats, and standards.  It also requires knowledge of visualization concepts for the final presentation of data.  Poor use of visualization inhibits the progression of data up the DIKW pyramid to ultimate wisdom.  Mastering these skill sets is probably beyond the capabilities of those on the left-hand side of the IQ bell curve.  Data visualization is still relevant to less literate audiences as elites use it to channel their behavior.  One DataWeek speaker on visualization mentioned that "data trumps opinion" at Google and other highly literate enterprises.  Most humans don't think at that level.  Visualization does not have to enable critical thinking to be useful.  It is valuable as an elite tool for social management.  Control systems in a post-literate society will be very pretty to behold.

The keynote on graphing reiterated the importance of link density in assessing the value of data points and networks nodes.  Links form valuable patterns and fraud detection relies upon identifying links to outlier data.  Gartner's five graphs of the consumer web help visualize the value of linked data.  Some verticals are good early adopters of graph solutions.  SaaS providers should seek use cases in segments that must link several master data sets.  Pain points in visualization applications are connected to an enterprise's need to manage workflows that handle critical data volumes.

Money transfer could use more robust data supply chains.  Your local bank still has physical branches yet smartphones enable payment and money transfer independent of banks.  Your transaction history should be tied to your personal identity first and your banks' identity second.  I have attended enough fin-tech meetings in San Francisco to see the innovation coming out of unregulated startups, and regulated financial institutions are taking note.

Visualization best practices exist primarily in the works of Edward Tufte and Stephen Few.  Designers of enterprise dashboards, UIs, knowledge management pages, and data visualization products should read those geniuses.  They should also read my DataWeek 2013 write-up where I mentioned some really good sources for chart display factors.  There must be a market for cheap and simple business intelligence tools priced for SMBs.

John Musser from API Science presented ten reasons why developers hate your API.  Read the ten reasons yourself so I don't have to repeat them here.  These are the kinds of best practices that make attending the conference well worth my time.  Programmable Web is a huge API directory for developers.  Developers should pay attention to these factors because at some point their APIs will get traction if they get these things right.  Heavily-adopted APIs must then migrate from small freemium hosts to major cloud hosts and they will face all of the growing pains of an SMB that becomes a large enterprise.  Check out the developer pages of Facebook, GitHub, Google, Twitter, Apple, and Microsoft to see how industry leaders manage their API platforms.

My biggest discovery at DataWeek / API World is that multiple freemium platforms enable the creation of an entire data supply chain . . . free of charge.  That's right, folks.  Do some Google searches yourself to find the providers.  I have not seen a standard definition of an API life cycle but some common stages are emerging around development, deployment, management, and retirement.  All of this can be done at no cost to developers, at least until the data supply chain gains traction with other developers and users.  Converting a Google Doc or Microsoft Office file into an app or API establishes a minimum viable product.  Freemium translation platforms can also automatically build an API into an SDK.  They can even add speech recognition.  This opens up transformational possibilities for business domain experts who are not proficient in coding.  I am tempted to create a data supply chain for Alfidi Capital.  A valuable data supply chain reflects unique domain knowledge and deep master data sets.  Remember that Data.gov is a free source, ready for the taking.

Anya Stettler from Avalara had one of the best talks I've ever seen at a tech conference, hands down.  Her tips on documenting APIs walked through examples of technical references, code snippets, tutorials, and live interactive formats that keep developers excited about an API.  Check out her presentation on SlideShare, because it's too good to miss.  More speakers need to focus on action items with just enough of a soft sell to let us know their brand is a go-to source for expert services.  "Do this to be successful" is the kind of talk I like to hear.

Open data from governments is a free input to data supply chains.  Bay Area government agencies have held "datathons" encouraging citizens to construct visualization products from government data.  It's understandable that they have to farm out product development to the public if government agencies don't have the bench strength in data science to do it themselves.  The philosophy behind the Science Exchange's reproducibility initiative needs to make its way to government research.  Aspiring data analysts don't have to wait for the creation of a GitHub or Bitbucket for the analytics community; they can get right to work on DataSF.

I learned a new term during an excellent talk on API lifecycle management.  That term is "data scraping," the harvesting of proprietary data from a popular API.  Platform managers who implement protective measures against scraping will also deter legitimate developers from using an API.  There's always a tradeoff between usability and security.

The IoT talks were not as informative as I had expected because they were mostly disguised product pitches.  The platforms with the largest API ecosystems - Google and a few others - will be the defaults for IoT integration when devices are ready to connect to ERP systems.  That's why Google bought Nest.  Data scientist job descriptions in the future will include a lot more emphasis on machine learning and BRMS than they do today.  Mark my words.

Privacy thought leaders are on board with the Privacy by Design approach that allows tailoring for different regulatory regimes.  It won't be enough in an era of persistent surveillance but it's the thought that counts.  SaaS vendors know they need a new industry-wide seal of approval to reassure consumers that someone has their privacy in mind.  The new C-suite position of Chief Privacy Officer is the likely final resting place of a Peter Principle manager who can't perch anywhere else.  Any cloud-based strategy to protect privacy should start with strict internal controls on access to personal data, which would make profitability impossible because customer service reps would never get access.  Masking metadata is another technically feasible solution that will unravel when enterprises need to share opt-in data with third parties.  The US-EU Safe Harbor privacy principles predate any surveillance revelations, which is why they need strengthening.  Forget any illusions about monetizing an open source privacy policy generator; those are already free online.

IBM had a lot to say about analytics at this conference.  Their offerings at IBM Watson Analytics and IBM InfoSphere BigInsights look cool.  Big Data requires iterative and exploratory analytics in a whole new layer between the Hadoop back-ends and data processing front-ends.  This sounds like the old term "middleware" made new again to incorporate compilers and optimizers.  Analytic language must graduate from running on small systems because Big Data is so big.  Business domain experts can learn more about this at Big Data University because they need to close their language gaps with data scientists.

The potential end of Moore's Law has implications for data storage.  If data flow volume grows faster than data storage density, SaaS and PaaS cloud providers will have to spend major capex building out data centers.  I am doing some research on data center providers organized as REITs.  I first noticed them as potential hard assets in a hyperinflation-resistant portfolio, because they are really just inputs into a supply chain.  I now think they may be a growth opportunity by themselves as a pick-and-shovel play on the data sector.  Keep watching my blog for future discussions of data centers.

The final panel I attended was appropriately the venture investors' discussion of funding and acquisition for data and infrastructure startups.  If the emerging term "Infrastructure 2.0" for the data / API sector catches on, it must encompass apps, SDKs, and tools for visualization and analytics.  The VCs think they can make money at all levels of the tech stack but I have blogged many times that unaddressed needs in ERP links are probably the most lucrative markets.  I do not share their pessimism that open source business models are too hard to monetize.  After all, IBM seems to be doing just fine selling Hadoop-based solutions because they can address multiple vertical segments as a "horizontal" provider.  I did pay close attention to the mention of several parts of a data science pipeline:  data cleansing, feature engineering, collaboration, and modeling.  I now have some new buzzwords to throw around at the next data sector conference.

I had a blast exploring new developments in the data supply chain.  Rest assured that any Alfidi Capital effort to construct data manipulation products will not in any way collect any user information at all.  I never have to publish a privacy policy if I never ask anyone to hand over anything private.  Hot women are always welcome to send me their hot photos but those won't be going into any hypothetical data products either.  It is safe to say that any Alfidi Capital apps, APIs, or SDKs will be a big hit in the data sector thanks to my extreme genius.  I can't wait until next year's DataWeek / API World to see how the sector reacts to what I plan to launch.  

Saturday, September 20, 2014

Phony Experts Must Wake Up to Water Pricing

I have the distinct privilege of hearing self-styled sustainability experts claim it is impossible to price water.  These people are all over public forums and business events pushing their nonexistent thought leadership.  They say this stuff with a straight face.  The claim is nonsense.

Water pricing methods are different all over the world and have much to do with the health of local watersheds.  Waterfund's Global Composite Water Cost Index may be the first true attempt to establish a comprehensive global water price.  The OECD Observer has some good background information on how public water services and subsidies affect water availability.

Major commercial water users like Coca-Cola know exactly how much they pay for water inputs at all of their facilities worldwide.  The US Bureau of Reclamation knows exactly how much revenue it can earn by releasing an acre-foot of water through hydroelectric turbines at any of its dams.  It really is that easy to put a dollar figure on water.

Self-serving claims that ignore facts are easily disproved.  Anyone who claims water cannot be priced without some magical intervention needs to study basic economics or they will quickly lose credibility.  They should especially study the efficiency tradeoffs underpinning water trading regimes.  Water is a supply chain component all over the globe.  It has a very visible cost.  

The Haiku of Finance for 09/20/14

Indebted nation
Cannot pay bills or invest
Worthless currency

Climate on the Brain is Powering Innovation to Create Climate Wealth

Three recent Commonwealth Club events on how our brains understand climate change, how to promote sustainable innovation in the energy sector, and how to create wealth from climate change prompted me to think about how they all tie together.  Notice how I strung the titles of those talks together to make the title of my own blog article.  Good artists borrow, and great artists steal, so yeah I'm taking a page out of old William Shakespeare's playbook.

George Marshall's Don't Even Think About It is heir to a long tradition in psychology that describes how the human brain has difficulty comprehending abstractions.  Emotion-based arguments usually overcome cognitive barriers in the majority of humans.  Appeals to authority also help.  This is why faith-based organizations like Alliance of Religions and Conservation and Catholic Climate Covenant will play a key role in winning conservatives over for the climate change argument.  Bernays' techniques matter in selling climate change to low-information, high-emotion masses with large cognitive deficiencies.  A "master narratives" study of how tribes communicate in the climate change debate would reveal much.  The human evolutionary bias to underappreciate risks for abstract things like climate change probably has much in common with behavioral finance's understanding of poor investor behavior.

Climate change is like any innovative concept, where early adopters form a beachhead that proves a viable market exists.  Social psychology and persuasive technology can produce enough compelling stories to reach the late adopter market in climate change.  The Citizens Climate Lobby should be an excellent channel for storytelling targeting late adopters.  Human interest stories matter more than narratives using facts or fear.  Talented national politicians have dropped names of average schmucks into their major speeches during the Internet Age.  Average people can see themselves in those average stories.

Once the narrative frames consumers for adoption, industry must have a minimum viable product ready for purchase.  Industry's problem is that it has offered few tangible moneymaking products addressing climate change.  Utilities invest in carbon capture because raw carbon is a viable feedstock in automobile tires, advanced fuels, and construction materials.  Scaling problems have hindered the promise of carbon capture.  Commercializing carbon ideas from government laboratories would be more successful if the tech developers follow the NSF I-Corps model.

Government research is more effective in powering energy innovation than government loans, as we all saw with the Solyndra debacle.  Some in government and the energy sector learned nothing from that failure.  BrightSource Energy got a $1.6B DOE loan guarantee for a solar thermal project that lowers the cost of capital for NRG Energy and Google.  What a sweet deal.  NRG also benefits from this $1.2B DOE loan guarantee for a solar PV project.  These loan guarantees are a central-planning approach to funding energy innovation.  The capital markets now have a better way to fund energy with the "yield co" publicly traded structures.

Large projects do not suffer from lack of funding with Google, Warren Buffett, and George Soros throwing money around.  Smaller projects still need a push from entrepreneurs seeking wealth.  Too much conflicting information on the risks and rewards of sustainable business models poses a problem for entrepreneurs.  Advocates of social entrepreneurship ignore the higher costs of capital and higher risks inherent in many community-based business models that will never scale up to address large markets.  NREL published several guides to community solar as good foundation references, available by searching DOE's OSTI archives.

Cleantech entrepreneurs need many baseline references because too many self-serving pontificators on both sides of the climate change debate have muddied the water.  I have heard "experts" claim at the Commonwealth Club that China and India value US carbon capture technology because they are still building coal plants.  I have also heard the Club's invited experts claim that China's prospects of "Peal Coal" and India's poor quality coal mean they will need expensive coal imports.  These positions are reconcilable if developing countries' energy plans balance increased generation capacity with increased resource exploration.  Give engineers and economists in those countries the credit they deserve.

The key to wisdom is understanding where each side in a debate gets their basic data.  Utilities constantly iterate their supply adjustments to meet demand, using real-time data and decades of modeling experience.  If coal and gas power plants cannot spin up turbines individually in sufficient time to smooth out "duck curve" evening demand in the US, then it makes sense for utilities to invest in transmission lines across time zones.  A true national grid would not allow gaps between the eastern and western parts of the US to limit supply flexibility.  Closing the gap is a matter of time, and in the meantime utilities buy energy futures contracts to hedge their demand forecasts.  Utilities also have a strong interest in grid storage, smart grids, and predictive analytics that together make smoothing the duck curve more efficient.  Anyone who shorts utility stocks in the face of the sector's incoming tidal wave of innovation has been reading too much gloom and doom literature.

I have argued before that hedging civilization's bets on climate change is much like Pascal's Wager.  The worst outcome of preparation is a more efficient use of limited natural resources, even if climate change proves to be groundless.  The best outcome is the preservation of the only known biosphere in this corner of the galaxy.  I trust our elites to get the programming correct so Spaceship Earth stays on the right course.

Friday, September 19, 2014

The Haiku of Finance for 09/19/14

Alibaba risk
Many Chinese red flags here
Investors don't care

The US Mental Health Care Market is Big Enough for Disruption

The Commonwealth Club's recent talk on reforming our national mental health system got me thinking about this niche market in health care.  Advocates for metal health reform want better preventive care and more research funding.  The Mental Health Parity and Addiction Equity Act (MHPAEA) ensures that insurance plan reimbursements will sustain mental health spending.   Money will flow and providers will profit.

The National Institute of Mental Health (NIMH) funds basic research in neuroscience, behavioral health, and other mental health areas.  The NIMH's total budget for FY 2014 was almost US$1.5B.  The HHS's Substance Abuse and Mental Health Services Administration (SAMHSA) total budget request for FY 2015 is US$3.6B.  These are by no means the totality of the federal government's mental health spending, as the VA's mental health programs and other efforts can attest.  State and local governments also spend significant sums.

The ACA makes the policy jungle in health care more confusing than ever, but I believe entrepreneurs have room to maneuver.  Suffice it to say that disruptive enterprises have a clear path to determining the market opportunities for innovative mental health solutions.  The NIMH Statistics page reveals the size of this market by disorder, but not by dollars spent.  IBISWorld estimates the total size of the mental health market at $16B with no dominant players.  Compare that to the two dollar amounts I quoted above and see that the federal government accounts for at least one third of this market.  The SAMHSA Financing and Research page describes the federal government's multiple financing methods for mental health programs.  Selling into those programs and mastering their data sets represents the low-hanging fruit for early adoption.

Safeguarding information matters.  Entrepreneurs must incorporate FERPA and HIPAA compliant safeguards into their data management systems.  Data privacy violations open the door to an unforgiving legal environment.  I fully expect Big Pharma to use lawfare against startups that offer non-drug treatment modalities for mental health problems.  Startups using strong PaaS services can avoid the worst expenses.  An ounce of prevention will be worth a pound of cure, to borrow a health care phrase.

The health care sector is not a typical Alfidi Capital focus area.  It is more heavily regulated now than ever, which makes it harder than ever for smaller companies to grow market share.  Big companies that want to control costs under the insurance exchange regime may look to acquire smaller companies that can offer savings.  Startups have room to make money in mental health.  They'd be crazy not to try . . . pun intended.

Monday, September 15, 2014

Sunday, September 14, 2014

NioCorp Developments Bleeds Cash for Niobium

NioCorp Developments used to be called Quantum Rare Earth Development.  The name change from March 2013 has not changed the nature of the company.  They still plan to extract niobium in Nebraska.  Rare earth elements are crucial to the defense and high-tech sectors.  It is crucial that competent miners extract these elements for processing.

Their current CEO is the former CEO of Molycorp, the largest rare earths producer in the US.  It is usually good for a junior resource company to have experienced mining executives, but they need to have the right kind of experience.  Mineweb's reporting on this CEO's tenure at Molycorp mentions losses and legal problems.  Bloomberg's reporting on that period at Molycorp highlights operational problems.  Junior mining companies need a management team that won't bring drama.  Capital markets dislike drama and reward competence.

NioCorp's minor projects in Saskatchewan and Australia are too immature to deserve an economic estimate.  The main NioCorp project at Elk Creek has a 43-101 estimate of MII resources from April 2012.  The grades aren't exactly stellar but the size of the deposit matters.  The 43-101 report acknowledges the logistics trifecta that a mining project needs: roads, power, and water.  I could not locate any photos of this property on NioCorp's website but the 43-101 report indicates the land is mostly flat with some rolling hills.  Flat relief areas are good for the eventual construction of tailing areas.  The report's bottom line recommends an exploration budget of CAD$4.89M to further refine an estimate of the niobium deposit.

I checked SEDAR for their latest financial report dated March 31, 2014.  They had CAD$3.9M in cash on hand but lost about CAD$378K for the quarter.  That gives them quite a few months from that date before they will have to close another capital raise.  The problem I noted from that financial statement is that much of the expenses generating those losses are for administrative matters like management fees.  NioCorp needs to spend towards exploration plan as recommended in the 43-101 report.

I remember first noticing this company back in 2011 when junior rare earth companies were riding the media's fascination with the Molycorp story.  The share price of Quantum/NioCorp has always been in the pennies but crashed during September 2011 and did not really recover until April 2014.  It is still a high-risk prospect.  NioCorp must obviously raise more capital and dilute shareholders further just to prove its Elk Creek project is viable.  Creating a functional mine is a consideration far in the future.

Full disclosure:  No position in NioCorp at this time; no position in its predecessor tickers at any time in the past.

Editorial note:  I made a minor correction on 09/15/14 to the number of months their cash reserve will last based on their burn rate; the cash will last longer than I had first anticipated.  It does not materially change my assessment of this company's prospects.

Saturday, September 13, 2014

The Haiku of Finance for 09/13/14

Innovate that tech
Just make sure it fits a need
Don't look like a fool

Alfidi Capital at KPMG Technology Innovation Executive Summit 2014

KPMG held its periodic Technology Innovation Executive Summit this week in Silicon Valley.  I scored an invitation because, hey, let's face it, I'm all about innovation and I'm totally executive material.  The photo I took of my badge came out looking lame, so forget about seeing proof.  My genius is all the proof anyone needs.  I'll share my own observations instead of blindly recapping the summit.  

The firm's newest Global Survey on emerging tech trends is due out very soon and we got a preview of the results.  I won't repeat any specifics here, so read the full report when it's available.  I didn't see any consensus on which tech would drive consumer spending.  I got the impression that big enterprise clients in non-tech sectors are not super-savvy on spotting tech trends.  I did not see any real consensus on challenges facing enterprise IT integration.  The diversity of sectors canvassed in these types of surveys means different sized corporate clients have different IT needs.  

Any enterprises that thinks digital currencies (aka Bitcoin and others) will significantly disrupt banking and payment systems needs to wake up.  US-based enterprises have seen the most media exposure to Bitcoin and are aware of the IRS' regulatory response.  Other countries are clueless about Bitcoin's uselessness as a currency.  Maybe the rest of the world anticipates something better coming down the pike after Bitcoin, or maybe they're just ignorant.  

I do not expect serious IoT monetization to come from verticals closest to the consumer.  The next financial crisis will destroy consumer spending for years.  That places me at odds with some enterprise thought leaders.  They should look for IoT driving security and surveillance spending instead.  

The KPMG panelists following the survey results were definitely thought leaders in mobile, cloud, and enterprise IT.  The power budget limitations in IoT are obvious, which brings me back to my point above about IoT's limitations in an era where the consumer can't drive spending.  I look forward to IoT devices that scavenge energy from their ambient environment.  

Converging DevOps and the cloud drives a continuous process where every developer's code upload triggers a deployment of new enterprise tech.  Security still gets lip service but no one is making the connection with this DevOps capability.  CIOs must make it a continuous deployment priority.

I need to revisit Bitcoin enthusiasts in light of the panel's mention of cloud and document sharing.  There is zero analogy between digitally signed documents and cryptocurrencies.  The docs aren't governed by a blockchain that multiplies the computing resources needed for processing every time a new document is created.  It is crucial that IT professionals make this distinction before they look like fools by claiming block ledgers add transparency or security.  

I'll close with a quote from one panelist that really stood out:  "Computer science students don't learn coding anymore; they just move objects around."  There's a wake-up notification for all of the fad-chasers jumping on the coding literacy bandwagon.  Moving objects around means symbolic logic and systems analysis take educational precedence over programming languages.  Future CIOs should take note.  I have no intention of restarting an entire educational cycle just to learn code.  I'd rather keep coming to these thought leader summits, where I learn more anyway.  

Friday, September 12, 2014

The Haiku of Finance for 09/12/14

Sharing all content
Innovation springs anew
Across enterprise

Alfidi Capital Observes BoxWorks 2014

BoxWorks 2014 was the latest display of how Box builds its ecosystem.  I attended for insights into the secret sauce of how an upstart gets other firms to adopt its collaborative tech.  I have never used Box but I should probably give it a shot.  Find my original genius in bold text, as always.

The kickoff chat between Box CEO Aaron Levie and media mogul Jeffrey Katzenberg was cool.  They must have played some Disney film score when he came out but I didn't recognize it because I don't have kids to raise.  The big lesson was that a strong mission statement, a powerful brand, and great tech make a successful business model.  Okay, Jeff, but what about human talent?  The gene pool of talented writers and animators is only so deep, so the great tech among media giants will have to develop AIs that mimic those human abilities.  Jeff did confirm that the size of the movie going market and the talent pool of animators are limits on the number of movies that studios can produce.  I was stunned to hear Jeff say that the digital volume of a typical DreamWorks movie is so dense that they have to use collaborative software to track the edits.  I look forward to the rich video and user-driven animation that tech is supposed to unleash, but we get what we pay for.  Many of the amateur mashups on YouTube are so derivative and uninspired that they're not worth watching.  Jeff's best lesson from the start of his career is that exceeding expectations in any job or mission assignment lead to winning.  Okay, Jeff, but I tried that in large financial service firms and it only got me fired because no one would tolerate it.  Jeff got lucky and I did not.

Aaron and his top Box people had more announcements to share.  Their new Box.org platform offers content management to non-profits.  That follows the latest trend in Silicon Valley enterprises.  Enterprises want to do well by doing good.  Box has been in mobile file sharing since before smartphones and cloud servers made it easy and cheap.  It's only fair that non-profits now get in on the action.  The big product announcements were Box configurations for individuals using MS Office, cloud multi-users, and an upcoming annotation feature in 2015.  I have seen other purveyors push routinized workflow products and now Box Workflow is coming in 2015 for rule-based routinized operations.  I was quite impressed with the look of these products; the MS Office compatible Box display looked better than SharePoint as a knowledge management solution and the workflow looked like a wise use of BRMS.

The special surprise guest at the keynote was Oscar-winning dude Jared Leto.  I had never heard of the guy.  He brought his Oscar to pass around in the audience, as if a bunch of tech middle managers had something to add to his artistic ability.  Aaron compared the Oscar favorably to Box's Crunchy award and said it must be the height of Jared's career to appear at a software conference.  Jared stayed in character as himself throughout this cameo at BoxWorks, and endorsed Box's ability to share artists' content.  One audience member asked an excellent question about how the cloud can impact older art forms that are not digitized.  Aaron and Jared think it will help older art find new audiences.  I had a mental image of a bunch of artists around the nation collaborating on a sculpture in real time, directing some robotic arm in a studio by uploading diagrams into a Box workflow engine.

I spent some time at the 1st Annual Box Partner Summit that ran concurrently with the first day of the main conference.  The main theme of "commitment" was everywhere in the quotes from senior Box people.  I expect banality at most conferences but I did not know enterprise software managers were deep enough to quote Sartre.  Box leverages its partners' domain knowledge to identify pain points of prospective enterprise clients.  Properly incentivized partners of all sizes are willing to refer enterprise clients to box for SaaS solutions.  Partner rebates are great if they grow earnings first and revenue second.  That may be hard for some growing cloud companies to swallow because they need to impress Wall Street with pro-forma EBITDA if they want to go public.  I wonder how CMOs and CEOs calculate the effectiveness of such incentives.  Good programs should have upsell options with measurable ROIs.  Kudos to Box for positioning its offerings partly as KM solutions for knowledge workers.

I had to explore the finance and legal workshop because I know startups that need to collaborate in those areas.  Permissions management in box sounds a lot like SharePoint, which is really more a policy issue than a tech issue.  I am not clear on how Box is different from SharePoint or Google Drive.  It obviously does document management, file synchronization and sharing, and workflows.  I suspect the Box advantage is its API allowing custom-developed apps that do what competitors cannot do.

The keynote and fireside chat with Jim Collins was phenomenal.  He thinks senior corporate leaders will increasingly come from CIO and IT ranks because enterprise computing has become so important.  I only agree with him if he means the software sector; I'm pretty sure CEOs in manufacturing and energy need to know how to make physical things work.  He organized his talk around ten major questions, which I won't repeat here because the background he presented on each one is in his body of work in Good to Great and the works on his "Tools" page.  His bonus question was inspired by advice Peter Drucker gave him to think about being useful to the world.  Jim's answer was to give moments of kindness and encouragement to others.  Changing others' lives and making people better mattered to Jim.  That may be why the audience gave him a standing ovation.  I have never seen a standing ovation for a guest speaker at a business event.  Wow.

Aaron Levie's chat with Jim explored more of this work.  Jim thinks Information Age management science means different applications of the same principles he studies.  Selecting people matters more and leading a network has a less formal power dynamic.  Jim talked a lot about how enterprises must always adhere to their values.  That's great but I've always known that a company's stated values are less real than the values top executives model in their daily behavior.  Aaron Levie comes across as engaging, irreverent, and intelligent.  If he and his top team exhibit those values when they're not in the public eye then Box is on the right track.

The CIO panel reminded me of the work I avoid by being in finance.  They all thought that business process transformation opens a huge market for unmet needs in enterprise collaboration.  I have never worked on a waterfall chart-driven process but that's okay, because these folks say requirements-driven planning moving from waterfall iterations to collaborative iterations.  I need to see evidence that corporate boards demand more tech-savvy directors who can evaluate enterprise risks.  I think that may be just psychological projection coming from CIOs who aspire to board memberships.  All of the anecdotal reviews I've read on board performance is that they are mostly lap dogs asleep at the wheel, selected specifically because they won't challenge management.

The VC panel on innovations was my next stop.  Professional board membership must be lucrative for VCs and others, but it comes with the caveats I mentioned immediately above.  The VCs mentioned traits like effective communication ability and other successful things that mark good leaders.  They did not mention honesty and personal integrity as desirable executive traits, but they did admit the necessity of firing any key executive who does not embody a firm's core values.  One key insight for tech startups is that lead scoring algorithms now generate significantly higher yields from marketing spending.  I was stunned when someone said tech megacorps (i.e., Google, Facebook) spend $10B on a buyout just to defend their $100B market cap.  That blew my mind.  This amazing insight implies headline deals are driven partly by celebrity billionaires defending their net worth with mergers and acquisitions.  Their parting thought was that investors should favor startups where the cost of capital and other macroeconomic conditions won't affect a business model.

The health care sector still has an innovation curve even after the ACA, according to the next panel.  I do not understand how the ACA's payment reforms will work unless they are intended as a stalking horse for a single-payer system.  I learned that the government pays hospitals to adopt digitized record systems, which is probably more costly than a simple regulatory mandate for any provider who wants to access the Medicare or VA payment networks.  Like I said, I just don't get this kind of reform.  The biggest insurance plan underwriters are able to drive demand for optimal payment networks.  They can identify high quality, low cost providers and eliminate variance from their PPO networks.  Data on these pricing variances in treatments allows buyers to eliminate sub-optimal choices.  The private sector makes that efficiency work because competition for services remains strong in a free market with many choices.  It will be less efficient in a market dominated by government-backed exchanges.  This is one reason why providers can't prove whether they save money by using Medicare's Accountable Care Organizations (ACOs).  This may have been the only panel where none of the panelists mentioned Box, knowledge management, shareable content, or collaboration.  The experts were so contentious because the ACA has politicized health care and skewed the sector's natural tech evolution toward choices that favor top-down intervention.

The retail panel sounded interesting because it's a sector I rarely explore.  The panelists said they want real-time data from all channels on all platforms, and that's a big market opportunity for SaaS.  It was depressing to hear someone admit that most retailers still live in a company-driven data model (internal focus) and not a customer-focused data model optimized for mobile (external focus).  Retail or any sector reacting to real-time data must have a fast DevOps cycle.  Predictive analytics adds value in DevOps by showing where proactive IT fixes should focus.  The weakest link in any retail business model is the high-turnover, low-wage workforce.  The best IT innovations must reduce the cognitive load on those low-skill workers so they make fewer mistakes.  That's why automation will eliminate many fast-food jobs.  Bring on the social CRM and get rid of the minimum-wage workforce before unions can organize them.

My favorite panel was on government innovation, and not just because hot Box.org babe Karen Appleton was the moderator.  The federal government's approach to data management and innovation varies by agency.  The FCC wrestles with over 200 legacy systems while it maps broadband capability for the public.  DOD's high-cost early adoption of tech still makes waves when program expenses draw scrutiny, so other agencies should jump on board that gravy train while it's still on the tracks and ask to share in DOD's tech bounty.  Federal law hobbles innovation by classifying an agency spending money on another agency as a felony if said spending does not benefit the original agency.  Wow, that's depressing.  No wonder every agency has internal counsel.  The FCC panelist was extremely thought-provoking by wondering whether public scrutiny in a democracy combined with social media can harm risk-takers who might otherwise have productive government careers.  He said it's also worth wondering whether authoritarian governments can capitalize on high tech faster than democracies because they are under less scrutiny without checks and balances.  Wow, heady stuff.

I sat front and center for that government panel because I had to ask them my only question of the conference.  I asked the panel for their thoughts on two government programs with the word "innovation" in them:  the NSF's Innovation Corps and the use of the Presidential Innovation Fellows (PIFs) in GSA's 18F incubator.  Aneesh Chopra, the former White House CTO on the panel, loved both programs.  The I-Corps trains people in Steve Blank's methods to commercialize the vast research produced in the Federal Lab Consortium.  The PIFs in 18F have built some interesting tools for other agencies and anticipates the creation of the US Digital Service.  The panel experts had done tons of thinking on driving government innovation; now the world gets to hear my ideas for Uncle Sam to use.  I want to see these innovators push more agencies to advertise their needs on Challenge.gov.  DOD should use it to farm out simpler fighter aircraft concepts that won't violate Augustine's Law #16 on astronomical costs.  It would also be great if FedRAMP used Cloudonomics metrics.  Oh yeah, let's get veteran-owned tech startups into I-Corps' pipeline so they get the inside track on tech transfer to the marketplace.

I caught the tail end of Aaron Levie's chat with Vinod Khosla before everything ended.  Vinod thinks Jim Collins' work is bull-stuff.  Funny!  He advises people not to try to predict the future.  Just go out and build something.  I hope he means "fail fast" and move on.

I was pleased to notice that the Box employees working as show floor guides included some very attractive women in tight jeans and purple Box t-shirts.  I was hoping to see some more of that kind of box but did not get the chance, if you know what I mean.  I also prowled the show floor and asked several booth sponsors whether they thought the iCloud celebrity photo hack was a wake-up call for cloud security.  The collective shoulder shrug I got in response told me that I may have been talking to salespeople instead of DevOps people who fix security holes.

Box did very well with BoxWorks.  I did not have time for the Jimmy Eats World concert but that's okay.  Plenty of youngsters got to have fun.  I'll have more fun at BoxWorks next year.  

Thursday, September 11, 2014

The Haiku of Finance for 09/11/14

Work on startup pitch
Show path to capital raise
Key market milestones

Startup Pitch Coaching Lessons Learned in September 2014

I had a fun day down in sunny Palo Alto today, coaching tech startups through their Cleantech Open pitches.  I learn as much from these sessions as the startups learn from me, if not more.  I am morally obliged to share my incredible genius with the masses.  This stuff is totally random and chaotic, just like running a startup.

The opening slide is the ideal time for the pitcher to state their name and title.  It's usually the founding CEO, and there needs to be a really good reason if it's someone else, like if the founding CEO is off pitching top-tier VCs at a major pitchfest and the COO has to give this other pitch to a second-tier angel club.  The intro of a long pitch is also a good time to reiterate the 30-second elevator pitch.  The elevator pitch ought to be on every employee's desk, repeated like a mantra whenever someone at the startup meets the general public.

Technical specs on competing products are less compelling than describing competing enterprises' market positions.  Knowing the big competitors' market size, solvency, and ability to defend their market positions shows a mature understanding of competitive reactions to a disruptive entrant.

Describing the team's composition is very important.  I am not swayed by headshots unless they depict really hot babes, with cleavage and pouty come-hither looks.  Okay, seriously, the team slide must describe what each team member brings to the game:  the scaling / serial entrepreneur, the scientific co-founder's patents, the super-salesperson who grew a product from zero revenue to eight figures or more annually.  Venture investors like visual stimulation and VCs in Silicon Valley are often focused on brand-name pedigrees.  VC partners with tech backgrounds have lots of Berkeley and Stanford degrees, and the ones with business domain experience have lots of Harvard and Wharton MBAs.  Logos for prominent schools and corporations are easy ways to make statements about the quality of the team's experience.

Never ignore Big Data as a cost center, revenue stream, and source of liability.  It's all the rage anyway and competently addressing its many facets shows maturity.  Big Data has storage costs in the cloud and they will grow with app downloads.  It can be a revenue source if its predictive analytics offer enterprise clients some ways to optimize whatever they do on their own.  The absence of privacy policies and other regulatory compliance standards opens the door to lawsuits.

Founders who are fully invested in their startups impress the heck out of sophisticated investors.  This is one bullet point that is best mentioned in passing while briefing the team slide.  It shows do-or-die commitment.  Some VC is eventually going to ask about it.

Look at my wonderful picture just above.  I drew this simple milestone slide as a sample of how startups can portray their growth expectations.  I believe it links projected revenue over time to product achievements and capital raising needs.  It also displays some kind of exit event.  Later investors want to know what the founders plan to do once the startup is successful.  The startup's strategies for finance, marketing, and capital raising are adjacent lanes on a highway, and the startup will change lanes at high speed.  Pushing back a milestone in one lane also pushes the others back the same distance.  Just link them all.  Each inflection point on the S-curve to adoption is theoretically driven by some success that justifies more capital.

I will never understand why some founders want their pitch decks to look like works of abstract art.  Diagrams showing lots of internal references between business units invite confusion.  Successful enterprises have an external orientation facing customers and results, not internal orientations facing their own processes.

The "secret sauce" of some magic technology means nothing if it does not generate a product with better / faster / cheaper characteristics.  Patents are nice but the consensus I've seen from VCs is that IP protection is worthless for a company that can't sell a viable product.  Stating price points and market positioning helps investors understand whether some startup can truly reach its target market.

The overused term "partnering" begs questions about what these partners bring to the table.  I want founders to tell me which of those corporate logos are in the supply chain because they're affordable, which are effective distribution channels, and which of the non-profits are helping ease the regulatory burden.  If they're just on the slide because someone in their purchasing department thought the startup had a neat idea, well, then they're not really a partner.

Everyone makes mistakes.  Founders should tell me how great they are at problem-solving and not belabor their mistakes.  My biggest mistake was attaining a degree from the University of Notre Dame that later proved worthless.  I recovered from that error by cutting off all contact with Notre Dame snobs who want me to fail.  Founders are free to describe how they triumphed over adversity, just like any good college football team that defeats the Fighting Irish.

Someone who is very proficient in the English language must proofread the pitch slides before the founding CEO makes them public.  This is more than just slapping in a Safe Harbor statement now that the JOBS Act puts pitches to non-accredited audiences (including those on crowdfunding portals) under SEC scrutiny.  Fix the typos and make the fonts readable.

Venture capitalists are renowned for their pattern recognition abilities.  They compare unknown enterprises to known business models.  Self-identifying as the "Uber of something" makes sense if they deploy a free app that programs an affordable service.  Self-identifying as the "eBay / PayPal of something" makes sense if they control an online marketplace that reduces several friction sources.  Cleantech startups have existing markets as reference points.  Renewable energy feed-in tariffs, solar  panel rebates, biofuel RINs, and carbon credits are all valid aids in pattern recognition.  Use them wisely if they resemble something brand new.

I told you this stuff is random.  Alfidi Capital is your source for truth.  Entrepreneurs are responsible for figuring out how to display their own genius in Guy Kawasaki's 10-20-30 structure or whatever format they must send to some pitchfest.  I'm outta here.  See you all tomorrow, or whenever.

Wednesday, September 10, 2014

The Haiku of Finance for 09/10/14

Bull market going
Pumpers living the good life
Ignoring the end

The Tired Stories of Bull Market Pumpers

The US financial markets are on overdrive thanks to the Federal Reserve's magic ZIRP juice.  Blowing up the Fed's balance sheet works wonders for hedge funds, mutual funds, penny stock pumpers, and anyone else with more pedigree than brains who's willing to ride this gravy train right over a cliff.  The bull pumper stories are everywhere and I'm tired of hearing them.

Want an overpriced hedge fund?  There's plenty of those on the loose.  Rocket scientists with no rockets to launch are paid millions to write algorithms that churn the market.  Net neutrality doesn't slow their servers down but a super-slow exchange routing their orders can eliminate their unfair advantage.  The typical hedge fund bull story is full of swagger about exclusivity and leverage.  It's still just bull.

Up for an underperforming mutual fund?  They're everywhere.  The anomalies from American Funds, Dodge and Cox, and a few others will eventually find their alpha arbitraged away.  They're squeezed from one end by HFTs seeking order flow speed and ETFs at the other end that lower costs.  The typical mutual fund bull story is full of assurances about buying dips and staying with brand names.  It's really just bull.

The penny stock universe is always on my radar.  Tiny companies with no recent successes trundle through town raising PIPE money while their share prices are in the basement.  Going public even with no assets or revenues is a crafty way for founders to cash out of a losing proposition.  The typical penny stock bull story is all about explosive growth just around the corner.  It's pretty much just bull.

The expiration date for this circus is anyone's guess.  I guessed incorrectly that the bull market would have ended over two years ago.  Anyone guessing it will continue indefinitely is probably even more incorrect than I could ever be. 

Tuesday, September 09, 2014

The Haiku of Finance for 09/09/14

Hourly trading
Stupid technical voodoo
No indication

First And Last Hour Trading Is a Stupid Gimmick

Stupid ideas frequently pop up on my radar whenever I troll the depths of the Internet for investment knowledge.  Some ideas just don't belong in the realm of sensible investing.  Trading for advantage in either the first or last hour of an equity market's trading day is one such bad idea.  

Quickly perusing the top articles in a web search of "last hour trading" reveals that the concept relies heavily on folk wisdom, technical analysis, and gut feeling.  None of those forces incorporate any fundamental analysis of a stock's underlying value.  All of them play to emotions that get investors in trouble.  The ETF revolution isn't helping here because day traders just use them as more random playthings.  

Here's an illustration of just how dumb traders can be with hourly trading stats.  The so-called smart money index gained popularity in the 1990s because it supposedly compares morning trades to evening trades.  The index proceeds from a basic construction flaw.  It is impossible to set a normal baseline value for the index because it begins with a previous day's close.  That one flaw is enough to invalidate any claims to validity.  It gets even dumber by assuming evening trades are more rational, as if intraday news doesn't move prices and large institutions with internal crossing networks aren't jamming the close.  Sheesh.  

NASDAQ's Extended Hours Trading data display does the investing public a disservice by feeding traders' appetites for this nonsense.  It formalizes the baseline construction flaw I identified above.  The exchange's Pre-Market Indicator (PMI) and After-Hours Indicator (AHI) offer little proof that they are reliable sentiment estimates.  What's the baseline value for these numbers?  Where's the historical data for each indicator, so we can compare sentiment changes to the NASDAQ's turning points?  What's the date where they start at zero?  This data is absent.  These indicators are just voodoo.  

Advocates of short-term trading in first hours, last hours, after hours, or any other hours bear a burden of proof that their concepts add value.  Day traders should produce an audited portfolio that consistently outperforms market benchmarks over time using these hourly strategies.  Hedge funds running HFT use nanosecond trading strategies and even they can't outperform the market over time, net of fees.  The myth that traders can gain pricing advantages by focusing on hourly trading flows persists with no peer-reviewed data in its favor.  First and last hour traders are losers.  

Monday, September 08, 2014

Biofuel Startups Need Attention

Biofuel gets a bad rap for being more costly than petroleum and less efficient.  The science behind biofuel is inconclusive only if it doesn't account for costly inputs like fertilizer.  Ammonium nitrate in fertilizer adds energy inputs to biofuel feedstock crops that make the biofuel a net energy sink.  Exchanging those inputs for smart agriculture makes biofuel more competitive.  Startups in this space have options worth pursuing before they go to market with an inefficient solution.

Energi's insurance products are designed for the energy sector.  I do not know whether their policies offer discounts for brokers or producers who incorporate biofuel into fuel cycles.  It's worth a look if insuring a biofuel feedstock takes some risk out of crop failures.  Project finance for biofuel might be more difficult.  Joule Assets finances efficiency projects, and I believe a comparable model could cover biofuel projects tied to facilities like grid sector fuel cells (yes, such things are more than just drawing board dreams).

The Joint BioEnergy Institute (JBEI) underwrites some tech development with help from major labs.  The whole DOE Bioenergy Research Center effort touts the numerical output of patents filed but I don't readily see numbers for commercialized success stories.  If biofuel incubation is another process-oriented bureaucratic runaround it will turn off results-oriented entrepreneurs.  I hope these centers implement the NSF Innovation Corps standards or they'll have a hard time getting respect from VCs.  Meanwhile, someone with less patience could take a biofuel idea from the US DOE Algae Testbed Public-Private Partnership (ATP3) and run it through the Carbon War Room to see if anyone in the ecosystem endorses it.

The phrase "attention capital" is not so new.  It dates to design articles from the last decade and beyond.  The important thing is that startups draw attention to themselves early enough to gather buzz.  Leveraging the biofuel ecosystem is one way for startups to get that buzz.  

The Haiku of Finance for 09/08/14

Home Depot hacking
Someone broke through all those locks
With a handy tool

Smart Startups Exhaust Free Resources Before Paying Anything

I periodically meet entrepreneurs in and around San Francisco.  I share important lessons with them from my years of attending free seminars and conferences.  I might as well share my genius with the world, free of charge.  Entrepreneurs grow into more complex business needs as they expand.  Leverage the free resources first, and pay for more complex services later.

Outsourcing some basic administrative housekeeping is possible in the middle stages of a startup's growth, but I don't see the sense in hiring a benefits consulting firm in the earliest stage when the headcount can be numbered on one hand.  Browsing a few HR websites provides all the free help a cash-strapped startup needs.  The Society for Human Resource Management (SHRM) has free how-to guides and forms ready for a multi-hat CEO to download.  The CEO can handle such duties until corporate growth drives structural expansion past one managerial level.  I personally know an HR chief at a major VC-backed startup.  She did not come on board until their HR needs expanded past a few functional silos and one level of supervision.

Free legal help is plentiful.  Nolo has free basic legal guidelines and free forms for routine actions.  I looked for a form where one could disown their nosy mother-in-law but found nothing.  Royse Law Incorporator is a fast alternative to DIY documents; yes, I know the owner, and no, he does not pay me anything at all to mention it.  A Google search for "free term sheet generator" brings up several law firm sites where entrepreneurs can automatically generate customized term sheets for their first investors.  No startup should pay a penny for term sheet services, until of course they've secured their first round of investment and need an attorney to track their cap table.

Good lawyers like to share handy tips on managing a contracted legal relationship.  Defining exactly who in a startup can contact a lawyer reduces both confusion and billable hours.  I totally agree with anyone, lawyer or otherwise, who advocates parsimony in handing out startup equity.  Attorneys will work for sweat equity but giving away such a big chunk too early limits the founders' upside at the exit event.

I've always considered funding, financing, and marketing to be like three lanes on a highway where the milestones all have to match.  Startups must be nimble enough to switch back and forth between these lanes at high speeds.  Moving back any milestone for one lane - a delayed product rollout, a late payment from a customer, a dithering decision from an investor - pushes back progress in the other lanes.

The due diligence on funding techniques here at Alfidi Capital is rapidly becoming legendary in the San Francisco Bay Area.  Check out what I found.  The Angel Capital Association (ACA) and National Venture Capital Association (NVCA) created free due diligence checklists for their respective investor groups to use.   Startups can use them to de-risk their own operations before they make contact with investors.  Just go to town with the "resources" on the ACA and NVCA sites.

Setting milestones for progress ultimately means delivering a product to market.  Startups that make things must measure their technology readiness levels (TRLs).  They are free to go the extra mile and use Uncle Sam's manufacturing readiness levels (MRLs) to further define their maturation.  Uncle Sam comes through for us again with more MRL reference material than you can shake a stick at, if you have access to a stick.  A Google search for "TRL and MRL Maturity Planning Worksheet" brings up several links to this free DOD planning tool and its references.

Using free services and resources means saving cash for important spending, like a marketing ramp-up after securing a beachhead among early adopters.  Reducing cash burn grants more time for things to go right.  Entrepreneurs increase their chance of success by lengthening their startups' lives.  I am a big fan of free stuff, so entrepreneurs who like my knowledge should tell me where I can get free food, booze, and babes.

Nota bene:  None of this discussion constitutes legal or financial advice.  It is impossible for me to have fiduciary relationships with my readers because I don't know who you people are, nor do I desire to know you.  Nyah-nyah-nyah.