Bronte Media

.. The more they stay the same:

“Citadel is developing several new, low-price funds that will eschew the industry’s “2 and 20” structure, whereby funds collect annual management fees of 2 percent and, on top of that, take a 20 percent cut of any profits. Some of the funds will bet only on investments and will not use short sales to hedge, effectively taking the “hedge” out of hedge fund.”

Reading about bailing out illiquid mortgage backed securities tiring you out? What the fuck does all of this have to do with startups? Here is what I think the most direct connection will be:

- Leverage has frozen

- The next shakeout will be hedge funds who have highly levered positions

- The carnage in that respect is already under way.

- Still doesn’t matter? Well Apple and Google are two stocks who are owned wide and far by most hedge funds. These hedge funds will soon be forced to liquidate their positions. That’s why that even though AAPL is falling like a rock, there will be more pain as more funds are forced to sell.

- This has nothing to do with the quality of Google and Apple but rather the dynamics of supply and demand in AAPL and GOOG. The first wave of selling is driven by the ‘deleveraging’ of the overall financial system. That means that firms that could borrow money cheap, can’t any more.

- The second wave of selling will be hedge funds who will be forced to close down due to investor redemptions.

- That will leave the leaders in the tech industry, Google and Apple, with sharply lower valuations. This will cause a systematic reevaluation downwards of all Internet companies like Yahoo.

- This will cause all public Internet firms to rethink their M&A strategy now that their valuation is sharply lower.

- This will cause an even bigger logjam of VC liquidity, with companies now unwillingly to give Youtube like exits to any startups.

- This will freeze VC investments.

This is likely to take at least 12-18 months from now. In the meantime, VCs will continue to tout the fact that their funding sources are secure and that they thrive during down times (true, but they thrive on the upswing from the bottom, not the downswing to the bottom). And then the pin will drop once the sequence above is satisfied.

All that too negative? Another external force that I believe will be a positive to startups will be the remaking of the private equity industry.

The industry thrived on leverage and was able to increase its power and influence to something like that of the early 80s renaissance period (when they were called leveraged buyouts).

Because of said logjam of startup exits, I believe these firms will now refocus on recapitalizations of mature startups that have an alphabet soup of financing rounds behind them and no M&A or IPO on the horizon. They can hold them for 2-3 years and then sell them to strategic players or the public investment markets once they have inevitably recovered.

Just my $0.02.

Michael Lewis is truly one of the great writers of our time.

Will Hank Paulsen change the federal reserve web-site and place tombstones of deals they have completed this year to mimic other investment banks? Will he and the ex-Goldman crew make the leaderboards for M&A activity after this year has been completed?

Semi-seriously, now that Morgan Stanley and Goldman Sachs are banks and are in desperate need of stable deposit bases rather than short term loans that can be stopped and started each day, will one of them acquire Paypal? eBay’s stock is miserable and Paypal is perhaps on track to become the single most important business line of the company. And it doesn’t have dodgy mortgages on the balance sheet.

Will private equity workers still complain about getting taxed on their fees now that the government has shown such willingness to bailout bad bets? Or will the delicious taste of hypocrisy reign supreme once more?

Now that there are no investment banks and wall street is dead, will the industry’s best migrate to the safer confines of hedge funds/asset management? If so, will the name Wall St die and be replaced by the town of Greenwich?

Forget the graveyard of other distributed identity services and other things like OpenID:

“CBS’s celebrity gossip site TheInsider is the first to do so. Anyone can log in using their Facebook ID, and then can choose to have any comments, article votes, or poll responses show up in their Facebook feed.”

This is the perfect incentive for site owners to adopt Facebook credentials rather than build their own for the millionth time. Publishing to the News Feed is huge.

In my mind, ‘optimizing’ for the news feed is like polite version of email marketing and I am sure there will be whole firms setup around ‘Newsfeed optimization’ soon.

First a brief introduction:

• In November of last year, I registered 100 real estate-related domains that I found by looking into Census data and growth in smaller US cities.
• People showed up, but the solutions from parking companies Trafficz and Sedo were yielding roughly $5 RPM.
• So I changed strategy, hosted the domains locally and created a new template with affiliate links I previously had.
• Around 362 people showed up in June and roughly 183 clicked on one of the links. Some on links that I get paid on a CPC and some on a CPA.

With the domains up for renewal on November 2nd, I decided to go into Google analytics and see which domains were generating the most traffic. Not surprisingly, 25 domains of the 101 were accounting for around 90% of the traffic.

So I made the decision to keep the 25 and will let the rest lapse. This now gives me a happy feeling of profitability. Traffic is down from June. There are roughly 250-300 people a month going to the domains. And the click through rate of 50% is holding. So just say 125 clicks. With the blend of CPA and CPC clicks, the value is roughly 15c a click say. So that is $18.75 a month in revenue. The domains cost around $13.37 per month to register.

Absolutely fuck all in the scheme of things but for an experiment, it’s worked out quite well. I can now sit on the domains for a long time profitably and maybe someone will try to buy one of the domains (no one has inquired in the past year).

Valuing my time at $0, the experiment cost roughly $700 for the domains, $100 for the programmer to hack together an intepreter that ran the name possibilities through a whois service and update my spreadsheet, and one freebie design from my regular designer for the new template. That was offset by roughly $100 in revenue. So if we assume the upfront investment is $700, and that the domains are ‘profitable’ now, then I am sitting on a rough 9% annuity ($60 profit / $700 ‘investment’) if nothing happens further. Of course the traffic is likely to either keep growing steadily or be banished from Google’s indexes and people will stop typing in domain names.

Either way, this is likely the conclusion post in this series. I might do a one year ‘how did it go in 2009′ post but I hope you enjoyed the experiment as much as I did.

For the curious among you, here are the list of domains I ended up with:

Anadarko Real Estate
Beardstown Real Estate
Big Stone Gap Real Estate
Brewton Real Estate
Carrizo Springs Real Estate
Caruthersville Real Estate
Centerton Real Estate
Dequeen Real Estate
Dormont Real Estate
Duquoin Real Estate
Euharlee Real Estate
Everman Real Estate
Gun Barrel City Real Estate
Hoopeston Real Estate
Laferia Real Estate
Manorhaven Real Estate
Meadows Place Real Estate
Moosic Real Estate
Morgans Point Resort Real Estate
New Martinsville Real Estate
Pahokee Real Estate
Stewartville Real Estate
Wadesboro RealEstate
Washington Court House Real Estate
Watonga Real Estate
Winterset Real Estate

There’s always next year:

“Security at the resort near New York where the event took place found Arthur and Chalmers in a room with two women, and the scent of marijuana was detected. No drugs or drug paraphernalia were found, but having guests in the room violated NBA policy, and the two rookies were sent home.

Arthur and Chalmers apologized but denied using marijuana. Next year they’ll have to again attend the symposium, which addresses the challenges of making the transition to pro ball.”

One theme of last year for this blog was ‘dead companies doing well’. Friendster, I posited, was the ultimate example of a ‘dead company’ doing extremely well. Insider Pages is another.

Peter Krasilovsky recently interviewed their GM and found much of the same positivity. Interestingly, Citysearch considered the acquisition as a corner tenant of their partner network and helping them set it up.

The company is profitable on a 10 person headcount + corporate support from IAC. Which is probably quite easy but a sign of what may become of Yelp: A nice business that turns over $30m a year, is profitable but the dollars don’t begin to approach the size of the social cachet and effects it has.

In chair news on the Titanic, comes this: Yahoo has hired Joanne Bradford from Spotrunner and formerly of roughly the same position at MSN. Bradford was at Spotrunner for less than 6 months. When the company hired her, I thought net-net it was a bad sign. The layoffs that were to come shortly after were even worse signs. I have nothing against her personally (she is even an Australian!) just that everything she has presided over has turned to pewter, while her ‘reputation’ remains gold.

Two people, her and Terry Semel, I have never been positive of. When Terry became CEO of Yahoo, for instance, he promised the company would have at least 50% of its revenue from non-advertising related revenue (including the dubious decision to count classified advertising as fees). Bradford similarly missed search, dismissing it often years ago before it was popular and then more recently and more unforgivingly she missed the boat on remnant display inventory while at MSN.

The latter doesn’t auger well for Yahoo, which owns some of the best assets around remnant display (the best an ad network can be that is).

While I was on vacation, Simon Baker, the main investor at Homethinking.com, was unceremoniously removed from his post as CEO of the REA Group by his board (mainly News Corp cronies). It is hard to put into words just how much respect Simon had among REA Group employees. If there ever was a model of a CEO, Simon has been it from my narrowed view of the world. News Corp made a stupendously bad blunder but they did get 7 good years from him. As evidence of the goodwill, Simon visited the European offices of the companies on his own dime to say goodbye to all his former cohorts.

He’s maintining his personal blog with more frequency and also started a global property analysis blog. For the best, here is his take on Rightmove (leading site in the UK) and all the bad news that has been priced into the stock. I completely agree: There is such a number 1 premium in classifieds markets (Simon spent the best part of his time trying to bridge the gap between propertyfinder.com and Rightmove in the last few years) that at some point there will be an excellent buying opportunity in Rightmove. Probably not now while England drowns in bad housing news and overreacts to it, but likely soon.

Indeed, the same theory and logic can be said for eBay.