tag:blogger.com,1999:blog-20766977299402082072024-03-19T12:17:35.890+01:00Investment Banker CyclistRethinking Investment Banking from a bicycleMike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.comBlogger348125tag:blogger.com,1999:blog-2076697729940208207.post-35509095439858454312021-02-15T01:20:00.000+01:002021-02-15T01:20:25.204+01:00<p style="text-align: justify;"><span style="font-family: arial;">I <span style="font-size: 14.666666984558105px;">watched</span><span style="font-size: 11pt;"> a BBC video on great white sharks in South Africa that </span><span style="font-size: 14.666666984558105px;">reminded</span><span style="font-size: 11pt;"> me about a few important </span><span style="font-size: 11pt;">management consulting points:</span></span></p><p class="MsoNormal" style="line-height: 15.693333625793457px;"><o:p></o:p></p><div class="separator" style="clear: both; text-align: center;"><iframe allowfullscreen="" class="BLOG_video_class" height="286" src="https://www.youtube.com/embed/z_SyFyddw9U" width="344" youtube-src-id="z_SyFyddw9U"></iframe></div><div style="text-align: justify;"><br /></div><p></p><p class="MsoListParagraphCxSpFirst" style="text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><b>1.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span><!--[endif]-->Competitive environments don’t only evolve; they can jump</b><o:p></o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;">Too often, businesses discount a new competitor; after all, if you’re at the apex of the system, you’ve probably lost your fear of competition. By the time businesses have recognised the change, they often have already been marginalised. They desperately want answers that justify their management of the situation, rather than advice on how they can change.</p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><b>2.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span><!--[endif]-->Management ignores Occam’s razor at its own risk</b><o:p></o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;">Complicated or technical changes are like a suit of armour to a management team. No Board will pass judgment harshly if they can’t explain what happened. Obscurification is denial; as soon as you see it, you know you’re on the right path. Sometimes logic lines are blurred to justify certain prejudices within the management team.</p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="text-align: justify; text-indent: -18pt;"><b>3. Staff will protect their jobs and risk the business when push comes to shove</b><o:p></o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;">It’s always something or someone else’s fault. As a consultant you have to assume the basics, no one wants to be fired, and no one wants to retrain, or re-skill when they’re already being paid well to do what they are doing now. I take the tack that unless you have a clear green light from an agent for change within the Board or upper management, you cannot do your job as a consultant. It’s not my job to fire staff; it is my job to point out the benefits of change or maintain a business plan. <o:p></o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><b>4.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span><!--[endif]-->No one wants to change; no one wants to move</b><o:p></o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;">The first time a consultant sees the phrase ”for the last ten years”, or something similar, is when you know that a Company and its management team don’t want to change. Additionally, when staff use the phrase “I’ve never seen anything like this before”, they are pleading with you for sympathy; and they may or may not deserve such a response. </p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><b>5.<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span><!--[endif]-->Suppliers are the last one’s who will help you</b><o:p></o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><o:p> </o:p></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;">Suppliers will always tell you that they have enormous amounts of capital tied up in plant and equipment; they will happily walk you around huge factories and vast logistics hubs to make their point. It doesn’t matter what industry you’re serviced by; it’s the same story. If you’re an asset management company looking to strip costs out of execution or banking services, you’ll get what I call the “walk and shake” treatment. I visited an investment bank’s Tokyo office, and it was set-up to intimidate; the lifts were at one end of the floor, and management glass offices were at the opposite end. The host for the day walked me up the centre aisle like a prize calf at an agricultural show; we were stopped at least a dozen times before entering the big glass room. It was all a show to say; “see that, that’s where your brokerage fees go”; newbies can’t resist the walk and shake. </p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;"><br /></p><p class="MsoListParagraphCxSpMiddle" style="line-height: 15.693333625793457px; text-align: justify;">Contact me via Linkedin ---> <a href="https://www.linkedin.com/in/mifagan" target="_blank">Mike Fagan</a></p><p class="MsoListParagraph" style="line-height: 15.693333625793457px;"> <o:p></o:p></p><style class="WebKit-mso-list-quirks-style">
<!--
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-parent:"";
margin-top:0cm;
margin-right:0cm;
margin-bottom:8.0pt;
margin-left:0cm;
line-height:107%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Calibri",sans-serif;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
a:link, span.MsoHyperlink
{mso-style-priority:99;
color:#0563C1;
mso-themecolor:hyperlink;
text-decoration:underline;
text-underline:single;}
a:visited, span.MsoHyperlinkFollowed
{mso-style-noshow:yes;
mso-style-priority:99;
color:#954F72;
mso-themecolor:followedhyperlink;
text-decoration:underline;
text-underline:single;}
p.MsoListParagraph, li.MsoListParagraph, div.MsoListParagraph
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
margin-top:0cm;
margin-right:0cm;
margin-bottom:8.0pt;
margin-left:36.0pt;
mso-add-space:auto;
line-height:107%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Calibri",sans-serif;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpFirst, li.MsoListParagraphCxSpFirst, div.MsoListParagraphCxSpFirst
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0cm;
margin-right:0cm;
margin-bottom:0cm;
margin-left:36.0pt;
mso-add-space:auto;
line-height:107%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Calibri",sans-serif;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpMiddle, li.MsoListParagraphCxSpMiddle, div.MsoListParagraphCxSpMiddle
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0cm;
margin-right:0cm;
margin-bottom:0cm;
margin-left:36.0pt;
mso-add-space:auto;
line-height:107%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Calibri",sans-serif;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
p.MsoListParagraphCxSpLast, li.MsoListParagraphCxSpLast, div.MsoListParagraphCxSpLast
{mso-style-priority:34;
mso-style-unhide:no;
mso-style-qformat:yes;
mso-style-type:export-only;
margin-top:0cm;
margin-right:0cm;
margin-bottom:8.0pt;
margin-left:36.0pt;
mso-add-space:auto;
line-height:107%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Calibri",sans-serif;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoChpDefault
{mso-style-type:export-only;
mso-default-props:yes;
font-size:11.0pt;
mso-ansi-font-size:11.0pt;
mso-bidi-font-size:11.0pt;
font-family:"Calibri",sans-serif;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:Calibri;
mso-fareast-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
.MsoPapDefault
{mso-style-type:export-only;
margin-bottom:8.0pt;
line-height:107%;}
@page WordSection1
{size:595.3pt 841.9pt;
margin:72.0pt 72.0pt 72.0pt 72.0pt;
mso-header-margin:35.4pt;
mso-footer-margin:35.4pt;
mso-paper-source:0;}
div.WordSection1
{page:WordSection1;}
/* List Definitions */
@list l0
{mso-list-id:454254655;
mso-list-type:hybrid;
mso-list-template-ids:299121918 201916431 201916441 201916443 201916431 201916441 201916443 201916431 201916441 201916443;}
@list l0:level1
{mso-level-tab-stop:none;
mso-level-number-position:left;
text-indent:-18.0pt;}
@list l0:level2
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
text-indent:-18.0pt;}
@list l0:level3
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
text-indent:-9.0pt;}
@list l0:level4
{mso-level-tab-stop:none;
mso-level-number-position:left;
text-indent:-18.0pt;}
@list l0:level5
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
text-indent:-18.0pt;}
@list l0:level6
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
text-indent:-9.0pt;}
@list l0:level7
{mso-level-tab-stop:none;
mso-level-number-position:left;
text-indent:-18.0pt;}
@list l0:level8
{mso-level-number-format:alpha-lower;
mso-level-tab-stop:none;
mso-level-number-position:left;
text-indent:-18.0pt;}
@list l0:level9
{mso-level-number-format:roman-lower;
mso-level-tab-stop:none;
mso-level-number-position:right;
text-indent:-9.0pt;}
-->
</style>Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-86128070190564735892015-06-09T05:30:00.001+02:002015-06-09T07:02:42.276+02:00Zen and the art of survival. How to keep your head at Deutsche Bank when the axe falls.How do you survive a revolution? Keep your head down and say nothing? Make yourself the center of things and be indispensable to the incoming regime? Perhaps pile in with the mob and storm the Bastille in the hope that you're going to end up on the right side of things? Essentially when the first shot gets fired, it's like Darwin's theory of evolution on speed, acid and whatever else you can loot from the pharmacy. There's only one thing for sure; Mr. Kipling said it best:<br />
<br />
<div style="text-align: left;">
<i>"If you can keep your head when all about you </i></div>
<div style="text-align: left;">
<i> Are losing theirs and blaming it on you, </i></div>
<div style="text-align: left;">
<i>If you can trust yourself when all men doubt you,</i></div>
<div style="text-align: left;">
<i> But make allowance for their doubting too; </i></div>
<div style="text-align: left;">
<i>If you can wait and not be tired by waiting,</i></div>
<div style="text-align: left;">
<i> Or being lied about, don’t deal in lies,</i></div>
<div style="text-align: left;">
<i>Or being hated, don’t give way to hating,</i></div>
<div style="text-align: left;">
<i> And yet don’t look too good, nor talk too wise:"</i></div>
<div style="text-align: left;">
<span style="text-align: right;"> <span style="font-size: x-small;">(If— Rudyard Kipling)</span></span></div>
<br />
If you woke up as a senior manager at Deutsche Bank on Monday morning, you were disconcertedly thrust into the maelstrom that was Anshu Jain and his Co-CEO Jürgen Fitschen's decisions to fall on their respective swords. It was like Sepp Blatter's decision to resign after carrying the vote at the FIFA AGM. Sometimes battles are won while wars are being lost. Jain and Fitschen's failure to get the full backing of the shareholders at the DB AGM was a battle won (61% to 39%) that was at the same time a war lost. So what now?<br />
<br />
Assuming you're an MD at DB you probably spent Monday morning being bombarded by insecure underlings asking questions you can't possibly answer. I'd say a fair proportion of senior managers at DB didn't even know that incoming CEO John Cryan was already on the board, let alone that he stepped up at UBS when others were failing and brought down the axe on the notion of universal banking at the Swiss giant. I don't know Cryan personally, but I've been on the end of the phone to him a couple of times. My only memory was of someone in a hurry who expected me to have the numbers. He wasn't rude, just a bit brusque.<br />
<br />
With all this in mind, I wanted to pen a few words on what to expect and how to possibly survive and prosper the brave new world.<br />
<br />
<b>1. Know everything about your business</b><br />
<br />
<i> "Know then thyself, presume not God to scan;</i><br />
<i>The proper study of mankind is man."</i><br />
<span style="font-size: x-small;">(An Essay on Man: Epistle II - Alexander Pope)</span><br />
<br />
It may sound simplistic, but within the investment banking world you'd be surprised how some managers are in perpetual crisis mode; managing from one mandate to another. Revolutions are dangerous because the bullets start coming from all directions. You're not going to get time to solve each problem or take advantage of each opportunity individually. The only survival plan is to know your business inside out and how it fits within the bank.<br />
<br />
Firstly you have to know about Cryan and what he'll be looking for from his team. Unfortunately, he's been on the board of DB, meaning he's all over the business. He has probably already had a plan pre-approved. That's how he got the job; it wasn't because no one else put up their hand. The board expects the plan to go into action on day one. Therefore, time is not on your side.<br />
<br />
a) Understand the metrics of you business.<br />
<br />
It's more than just net profit. Do you know your cost/income ratio? Read through the recent annual reports of your bank and it's competitors. What are the hot metrics? Could you produce the numbers at a moments notice? If the bank tried to sell your business area what would it be worth?<br />
<br />
Even if your business is underperforming a fresh look at the numbers might throw up obvious opportunities. Too many managers just go for the straight 10% cut in headcount and hope the consultants will see them as constructive and proactive. Think more radically and be prepared to shrink your business to grow. Ask yourself what would your business looks like with 50% less headcount and capacity cuts across the board. Would you prefer to run a business with $500m in revenue and a RoE of 4% or one that brings in $200m with a 20% return? Either way you need to know the numbers to be able to come up with an achievable set of goals when examined.<br />
<br />
b) Chose your team wisely and early.<br />
<br />
A plan is only so good as the execution. The team needs to be small and focused. The bigger you make the core, the harder it will be to make the changes needed to survive and hopefully prosper. The underachievers need to go. Just because X or Y has attached themselves to a huge line of revenue does not mean that they are untouchable. I once heard a broker tell the head of sales at a bank that he knew the client didn't want to do the deal because he was the fund manager's child's godfather. That is not a reason in investment banking. In fact, that's a reason for summary execution, as it shows that the member of staff in question would be forever unable to find out the real reason for the failure to close.<br />
<br />
Draw up a plan and have specific tasks allocated to each headcount. Do not be afraid to be the most radical person in the room. Take to your client or product lists with a guillotine. The only thing you have to watch is where your team is acting in support of another. For example, the biggest fixed income client for the bank may be proportionally one of the least profitable from an equities point of view. In that case, you have to see if you can improve your returns on this revenue without increasing costs or have the existing costs you incur "up streamed" to the business head unit. This is hard to do and will mark you as being a non-team player. The way around this is to make the numbers very clear and allocate either lower cost resources to the client or have someone higher up take it out of your hands. The cheaper up and coming AD might be a better solution rather than sticking with a more senior headcount. Be prepared to defend your analysis and plan every step of the way.<br />
<br />
c) Attend every meeting no matter when, where or whatever time.<br />
<br />
Absence is an excuse for others to fill in the blanks. If you've followed my advice and knew your business inside and out you don't want others speaking for you. Any shifts regarding the requirements of the CEO and his chosen team will not be sent around in emails for all and sundry to leak and eviscerate. There are going to be times when a nuanced nod or turn of phrase will be better than hours spent going over plans with the inevitable McKinsey type strapped to your shoulder. At these times, you'll also get the chance to change the debate or do some land grabbing. The constructive use of such gems as "why don't we just cover that product with the London/NY/Tokyo team, instead of duplicating the headcount" can often be the start of something more positive. The defender of the status quo better know what they're saying because ipso facto that approach probably hasn't worked up until now.<br />
<br />
<b>2. The Big Picture</b><br />
<br />
<i>Do not go gentle into that good night,</i><br />
<i>Old age should burn and rave at close of day;</i><br />
<i>Rage, rage against the dying of the light.</i><br />
<span style="font-size: x-small;">(Do Not Go Gentle Into That Good Night - Dylan Thomas)</span><br />
<br />
It's not all doom and gloom. The bank doesn't want to close down; it just wants better returns. No institution with the revenues of a Deutsche Bank is going to go down without a fight. The new CEO has certain levers to pull, and you need to know the order of action.<br />
<br />
a) Keep your friends close and your enemies closer.<br />
<br />
Read everything you can on the CEO and his team. In Mr. Cryan's case, you'll want to know how he succeeded in turning UBS around. Your first hint is that he was the CFO. That means he wasn't dealing with soft issues, such as culture, marketing or work-life balance. He was dealing with the tangible numbers that impact the business such as capitalization and risk. Everything you do and say has to have cold hard numbers at the forefront.<br />
<br />
b) Valuation, valuation, valuation . . . know the focus.<br />
<br />
<i>"The economy, stupid." </i><br />
<span style="font-size: x-small;">(James Carville to Bill Clinton)</span><br />
<br />
Currently, DB trades at roughly half of its net asset value. This is a joke and an indictment of the outgoing management. This one metric says that the shareholders don't trust management to realize the value the bank has assigned to assets. There's going to be assets or businesses divested or written down in value. This is without a doubt the biggest opportunity in the restructure. Know what is on the block and contribute accordingly. When others shy, away from the toxic be prepared to take on the impossible. The only caution to this is to have an unambiguous mandate to take action. Remember that the mere fact that some of these assets are trading at a steep discount probably means the odds are on your side that you can turn things around and release value. This might be a one-off situation, but every time you report a revaluation you'll be thanked and set yourself up for success in the future.<br />
<br />
c) Risk and the art of survival<br />
<br />
<i>"Risk comes from not knowing what you're doing."</i><br />
<span style="font-size: xx-small;"> (Warren Buffett)</span><br />
<br />
I'm almost never surprised by bankers who don't understand the way risk capital is allocated. DB and its peers spend lots of time and money producing exquisite risk reports. These reports are available to one and all online . . . gratis.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQ9NePImwxsy8eEMuqo1rfxDzmIffdLCW9HWSdWy5rhQ-Altw1Rz5pKeFwtjuvNHCHPrJbB2qDJesX4GhYe9fP8vqBnohQ_nezLrwKlLYS0mjQh8PDj-3jVwA7MKk-STRDTLSK2nGjDYY/s1600/DB+VaR.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="306" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQ9NePImwxsy8eEMuqo1rfxDzmIffdLCW9HWSdWy5rhQ-Altw1Rz5pKeFwtjuvNHCHPrJbB2qDJesX4GhYe9fP8vqBnohQ_nezLrwKlLYS0mjQh8PDj-3jVwA7MKk-STRDTLSK2nGjDYY/s400/DB+VaR.tiff" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="https://annualreport.deutsche-bank.com/2014/ar/management-report/risk-report/market-risk/value-at-risk-of-the-trading-units.html">Ever seen this?</a></td></tr>
</tbody></table>
It's your fault if you haven't read them.<br />
<br />
A broker tried to tell me over a coffee last week that the equity derivatives market in Australia was being dominated by UBS because they were warehousing the risk. When I challenged him as to where he got this fact, he came back with the usual "gossipy" hearsay quotes. When I pointed to the VaR numbers that the bank published he admitted he'd never seen them. I didn't stomp on him too hard, but if you're at DB and you start making these type of statements to the new management team you'll be in trouble. Here's what to do:<br />
<br />
i) Go through the VaR numbers and note the changes over time<br />
ii) Understand the capital allocation process required to support those numbers<br />
iii) Read the Basel committee reports regarding risk as it pertains to DB and the other global banks<br />
iv) What is your current capital adequacy position<br />
<br />
Once you have these facts, you can participate in high-level meetings with something more than generalisations.<br />
<br />
<b>3. Plan B</b><br />
<br />
It's very likely that things will move quicker than you expected, and you need to know when to stand your ground or retreat.<br />
<br />
<i>"It's a very sobering feeling to be up in space and realize that one's safety factor was determined by the lowest bidder on a government contract."</i><br />
<span style="font-size: x-small;"> (Alan Shepard, Astronaut)</span><br />
<br />
Around the time of the GFC, a friend of mine was headhunted to Barclays. Happy days, big salary package, a department to run on his terms. Sweet. The bar was low because the Barclays business had been underperforming in his sector. Unfortunately, his feet hardly had a chance to touch the ground. First of all his bank got into a dispute with a headhunter who said he'd facilitated the deal. His salary details got leaked as the dispute escalated. Next Barclays bought a chunk of the old Lehman Bros. business and with it a whole team of managers looking to stamp their authority on the business. No one at Lehman's ever lacked hubris and humility even in the face of total abject defeat was in short supply. Given my friend was probably earning more than his new ex-Lehman's boss he didn't stand a chance. He was a big target, and the Lehman gang didn't like outsiders. He got metaphorically shot.<br />
<br />
All this leads me to the sobering fact that you need a "Plan B". It might not be an outsider who causes your demise, but it could be anyone. Even the best brokers, traders or corporate financiers will not be indispensable in a revolution. Look for opportunities to exit with "an edge." A good example might be with an underperforming asset or business. If you can see the sinking ship to port (or in this case asset), it might just be possible to salvage something tangible. Always consider jumping for longevity. Take a smaller pay packet and survive in a sector you know and enjoy rather than being set adrift at the last moment into the unknown.<br />
<br />
-----------------------------------<br />
<br />
The main thing is to remain positive. Constant gloom will kill your profile and your plans in the eyes of the new management. Don't be afraid to engage. Being a small target might seem like the best tactic, but insignificance is a sure way to oblivion.<br />
<br />
Ciao<br />
<div>
<br /></div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com3tag:blogger.com,1999:blog-2076697729940208207.post-26976154412263290342015-05-19T02:29:00.004+02:002015-05-19T02:50:41.111+02:00A month of disruptive tech companies . . . Disruptive Lunches, TURF Sports Entrepreneur Night, Maru-D and follow-upsThis edition of the blog has been a long time coming. As an apology I've summarised all the tech orientated events I've been to over the last month.<br />
<br />
<b>14 May:</b><br />
<br />
I got an invite to the <b><a href="http://www.meetup.com/TURF-Sports-Fitness-Entrepreneurs-Network/events/221801474/">TURF sports entrepreneur</a></b> meeting held in Sydney's hipster ground zero Surry Hills.<br />
<br />
<b><a href="http://www.disruptsurfing.com/">Disrupt Surfing</a></b> is likeable but not disruptive to my mind in the purest sense. Essentially they're doing the bespoke design thing on sports equipment. Gary Elphick (CEO) was presenting the business on the night. Their primary product is surfboards though they will offer snowboards and eventually move into equipment categories. It's one of those ideas that will have good appeal to Gen Y / Millenial market where everyone wants to be an individual, even if they all seem to have the same dodgy tattoos and fashion sense (apologies, that's the cranky old man in me coming out).<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgy6kXrlCAfqKo3aKQr1mfDklN8e2TFQ58G5pOzNcphZYkGSPZQZBTFV4IyehH9JfxayXjBveKpCYb5XueDxkXCHcbZOpoYkb0tB3A_tWtl7btBzQd-JvUHc-cIxG1dWjkrxPzLwbADBU4/s1600/Disrupt+Sports.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="224" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgy6kXrlCAfqKo3aKQr1mfDklN8e2TFQ58G5pOzNcphZYkGSPZQZBTFV4IyehH9JfxayXjBveKpCYb5XueDxkXCHcbZOpoYkb0tB3A_tWtl7btBzQd-JvUHc-cIxG1dWjkrxPzLwbADBU4/s320/Disrupt+Sports.tiff" width="320" /></a></div>
<br />
<br />
Disrupt is also part of <a href="https://muru-d.com/"><b>Telstra Corp's Muru-D accelerator</b></a> (see below). So I'd already seen the presentation at the demonstration night earlier in the month. I liked the fact that they were very honest about mistakes they'd made in getting their product(s) into production. I'm not sure where this one will go, but I got the feeling that the guys need someone to take them in and shake it up a bit.<br />
<br />
The presentation of the <a href="http://www.ripcurl.com/searchgps-1.html"><b>Rip Curl Wave watch</b></a> development process was fantastic for the sports science geek in me. Excellent. We got taken through the development from the start when it was just a waterproof bag of sensors carried down the back of a wetsuit, right through to the social media data sharing website.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQc1PP9Mx-JEs55ZllSxSOFiG5H3odgLccTIneaGj-zGWw8X28fwuVrEuKSVUFt35C6SiXoIVIeYceC9RXKpwo4WV-Nz4KXii93WRnJ1_eoKyTIz0YjinRg5clVKW-ZXj4PbD84cI3Jts/s1600/Rip+Curl+Watch.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="184" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQc1PP9Mx-JEs55ZllSxSOFiG5H3odgLccTIneaGj-zGWw8X28fwuVrEuKSVUFt35C6SiXoIVIeYceC9RXKpwo4WV-Nz4KXii93WRnJ1_eoKyTIz0YjinRg5clVKW-ZXj4PbD84cI3Jts/s320/Rip+Curl+Watch.tiff" width="320" /></a></div>
<br />
<br />
At first I though it was just a waterproof Garmin GPS watch, but with the addition of accelerometers it suddenly transformed itself. Think about it this way. A site like Strava cross relies on the cross-checking of GPS with known earth mapping. That is why when you're on abike or a run the meters climbed or ran changes when you get home and upload into your computer. For surfing the problem is that waves are somewhat random, so a standard GPS data dump can't tell you how big or frequent waves were. Add the accelerometer and that changes. The size and frequency of waves can be measured. Now think about the big data aspect and sharing this information correlated with weather conditions and I bet that all sorts of useful information becomes available. The team said they're already observing some unknown surfing spots. The only possible blockage is the secretive culture that surrounds surfers favourite spots. Get them to share as a community and things start to happen.<br />
<br />
I don't surf anymore, but would love one of these watches. Surely they can rev it up and make it a triathlon device as well. I'll bet Rip Curl doesn't leverage this. If I were Strava, I'd hire the developers and put them to work. If I were an investor, I'd follow these guys.<br />
<div>
<br /></div>
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/YgnTsf_z0G0" width="560"></iframe></center>
<br />
<br />
<b>12 May:</b><br />
<br />
A two company presentation at a Disruptive Lunch. I went into this without much enthusiasm as prima facie the companies presenting had a bit of a "been there seen that flavour to them". In reality though this was a lot more interesting and once again proves the point that you have to see these companies in the flesh before making a judgment.<br />
<br />
More Peer to Peer lending . . . <b><a href="https://www.ratesetter.com.au/">Rate Setter</a>.</b><br />
<br />
Daniel Foggo is the CEO of Rate Setter Australia; he is ex-Barclays Capital. Like many investment bankers, Daniel saw a business he liked and took the leap of faith to establish it in Australia. Rate Setter is the third peer to peer lender we've had present at a Disruptive Lunch, so the audience is familiar with the basic business case.<br />
<br />
I would argue that the only differences between the three P2P businesses we've seen is their approach to risk management. Rate Setter is the only one that has introduced a Provision Fund. The idea is that the borrowers place funds into the fund that can offset default list. Instinctively if you are a lender, that sounds good, but as a banker I don't get it in terms of having a transparent market. Furthermore, I don't understand how it will operate, mainly because we haven't been in a credit environment of escalating defaults. Foggo refers to Rate Setter Europe as his guide statistically but acknowledges that the Australian experience, being devoid of a recent serious recession is skewed away from Europe or the US's experience.<br />
<br />
So far, the company only has AUD 3m of loans outstanding. Market leader Society One has just north of 20m according to reports.<br />
<br />
I asked a number of questions regarding margin, and while Foggo didn't go into hard numbers he suggested that the margin wasn't a flat line, but rather varied according to credit quality. This suggests yet another level of sophistication in the modelling of the loan book and a nod to the fact that as interest rates have fallen the absolute margin has to have some "curve".<br />
<br />
It's still relatively early in the life of the P2P sector to formulate a hard judgement. Readers know I liked the Society One "dashboard" app for lenders. I'll add to this now Foggo's "second level" of risk management implementation. Investors may be best advised to think about a portfolio approach to this sector rather than putting it all on "Red".<br />
<br />
<b><a href="http://www.bulletproof.net.au/">Bullet Proof</a> </b>- Cloud Computing (ASX Code: BPF). Great name.<br />
<br />
Amongst my generation cloud computing still invokes a certain trepedation. Millenials are less inhibited when it comes to storing data or relying on the "technical hand of god." Either way software and associated data is becoming more cloud-based and for businesses there's certainly value and flexibility in shifting from hard data and application ownership to the cloud.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmv6fIx52Jyz4KfeXYEIL34WzkOs6LlT4oyQwV8sic6-54d07p1kcA4XVBSoTIhw20A0Qnu56myakyTVMLibNofDmpp2zAnGQETkheQBhHbwdzqpAYNSh8FDoWdXmqxTEaAuWw56hDCh8/s1600/Bullet+Proof.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="92" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmv6fIx52Jyz4KfeXYEIL34WzkOs6LlT4oyQwV8sic6-54d07p1kcA4XVBSoTIhw20A0Qnu56myakyTVMLibNofDmpp2zAnGQETkheQBhHbwdzqpAYNSh8FDoWdXmqxTEaAuWw56hDCh8/s320/Bullet+Proof.tiff" width="320" /></a></div>
<br />
I'm always skeptical when it comes to companies that are listed on the stock exchange via a backdoor. In the case of Bulletproof, the management used the shell of Spencer Resources. I'll leave that cynicism to one side for the purposes of this blog. The positive side to this is that if you want to look at the hard numbers a quick search of any of the <a href="http://www.bulletproof.net.au/investors/asx-announcements/">financial specialist websites</a> will get you what you need.<br />
<br />
I want to go on record as being a little confused about Bulletproof as a company. Reading back over my notes I thought that the CEO Anthony Woodward was going to hand me the game plan from Louis Gerstner, the brain behind the radical overhaul of IBM that changed it from a hardware company to a fully-fledged consultancy. Maybe that's where bulletproof wants to go, but for the moment Woodward was at pains to emphasise that they're currently 85% a "managed services" group.<br />
<br />
So what does Bulletproof do exactly? They provide you with technical assistance for deploying and migrating your environment to the cloud. In short they want all your staff and customers the access, flexibility and speed of interacting through the scalable cloud. Assume you're a company that has lots of variable traffic across your business. Convention says you plan for the peaks because if you fail when business is running hot, you're failing at a time of maximum visibility. To avoid this, you deploy capital inefficiently into racks of servers and capacity that idles for much of its life. With the cloud, you can turn on a tap without the physical restrictions of running a server farm.<br />
<br />
Bulletproof doesn't do the hardware side itself. Instead, it relies on Amazon Web Services (http://aws.amazon.com) for this and takes a cost +30% approach to billing. The results are clear for all to see with revenues for FY 14 up 29% to 18.3m and are already running at 11.9m for 1H15. I worry though that the barriers to entry might not be high enough. How hard would be for a dozen middle-level staff (of the current 110) to walk out and replicate what Bulletproof is doing. I don't have an answer to that, but I'd suggest that the management would like to go down the consultancy road, which given revenue growth is not out of the question.<br />
<br />
Investors might want to follow Bulletproof as a proxy for business management trends in Australia or better still just as a growth business offering exposure not often found on the boards of the ASX.<br />
<br />
<b> 7 May:</b><br />
<br />
<b>Muru- D demonstration night at Telstra Sydney.</b> 4 hours, multiple businesses.<br />
<br />
Muru-d is Telstra Corp's accelerator for tech. Start-ups that jump through the various hoops get six-month intensive support, including a workspace. Telstra gives these young companies 40k for 6% of their company in a filtered shotgun-style approach to finding unicorns. It's a great idea for a once monopoly telco to inject some new avenues for revenue into their business.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizptNZ6gqZ75UdY0AEvEbLI3A9Lm9TFo76n64UWCFVfZpDQw6TmYdTRk7tk46OX06kXYHNZZkCf4Vc0Pwbath52D6-rPCwC-5YHRiRVtayuK09eXzqVZfI_d3DWG2vQ71ikS90tt-XZRA/s1600/muru-d.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="247" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizptNZ6gqZ75UdY0AEvEbLI3A9Lm9TFo76n64UWCFVfZpDQw6TmYdTRk7tk46OX06kXYHNZZkCf4Vc0Pwbath52D6-rPCwC-5YHRiRVtayuK09eXzqVZfI_d3DWG2vQ71ikS90tt-XZRA/s320/muru-d.tiff" width="320" /></a></div>
<br />
I got to wander the auditorium and speak to eight of the companies that appealed to me most. I gravitated towards the infrastructure and education offerings and left the social media hipsters to do their own thing. It was an impressive evening. My pick on the night was <a href="https://www.freightexchange.com.au/"><b>Freight Exchange</b></a> led by CEO Cate Hull.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.blogger.com/video.g?token=AD6v5dw71o6xtWVu4uu9hkrE2UFkmec3G_cigFfyApRT-1u91lHfh4rnjkRwe13bGQ_oiSi5QnHSmg7F9InD7bkr9g' class='b-hbp-video b-uploaded' frameborder='0'></iframe></div>
<br />
Freight Exchange is one of those ideas that truly could be disruptive. I was telling Cate about the time the hedge fund I was working for in Singapore found out that Komatsu had installed black boxes in their heavy equipment than did more than track GPS. The "brain" could tell Komatsu engineers everything from engine run time to workload. In many ways, it was the first big data I'd seen applied in the real world. I'm not sure Komatsu used it as I would have to bet on economic activity (currencies and bonds), but they could definitely make production line changes to reflect demands in the supply chain.<br />
<br />
Hull's idea was to avail fleet owners (at the moment is mostly ground transport orientated) with the ability to source contracts outside of their normal footprint. If 20% of the fleet is idle (or in transit without a load), there's certainly a gap to be filled. The Clever algorithmic analysis we are seeing more of is starting to gain traction in logistics, but there's still a gap. Hull told me at a follow-up meeting that the inefficiencies are especially prevalent in China where the market is highly fractured and in need of a central clearing house function. Normally I try and advise start-ups away from diving into China because of the problems with the intellectual property and cash flows. In Freight Expresses case I'm sure trying the Singapore / Malaysia road transport axis would be successful. Having said that who am I to hold back truly ambitious companies?<br />
<br />
<b>6 May:</b><br />
<br />
Investor presentation <b><a href="http://mokosocialmedia.com/">Moko Social Media</a></b> (ASX code: MKB)<br />
<br />
Moko Social Media on both NASDAQ and the ASX. To be frank, I wonder why they don't axe the ASX listing as it would probably save some money and allow management to skip the flight from the Washington DC area back to Australia. Just to be clear, yes I know their investor base is dominated by Australians, but as this is the twenty-first century I'm sure they'd cope with a single listing in exchange for saving a nice chunk of change. Enough said.<br />
<br />
The revenues of Moko business can be divided into three units. Of the three I thought the most interesting was the REC*IT offering. REC*IT is a facilitator of intramural sports and offers a schedule / social app for college and high school students in the US. Essentially they go to schools and offer the app for free and in exchange get an audience to tap for various streams of revenues.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeqz0pU1eaC3q6KxdwwS37zamDYKege8Dv6NCN8x5wbRE9DlTnUay8yVvjUfESwPh-0NS3buFlqeY8CCukZoSs1u-MlzL4T6fEOH7G7x00Wb1BZFVn1BAUC8qMVVqEcjUezarETX_R0qw/s1600/REC*IT.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeqz0pU1eaC3q6KxdwwS37zamDYKege8Dv6NCN8x5wbRE9DlTnUay8yVvjUfESwPh-0NS3buFlqeY8CCukZoSs1u-MlzL4T6fEOH7G7x00Wb1BZFVn1BAUC8qMVVqEcjUezarETX_R0qw/s320/REC*IT.tiff" width="320" /></a></div>
<br />
Moko claim to have access to 900 colleges and through a recent deal into 4,000 high schools. That's significant firepower. They currently have had over 200k app launches, and the users are all in that 18 - 22 group. Though as the high school side gets traction the age average will come down. This part of the business is currently dominated by males, but overall across all of their platforms they skew more to women.<br />
<br />
The companion app (for want of a better phrase) to REC*IT is "Speakiesy." This is designed as a kind of antidote to Facebook as it excludes non-students from signing up. They're rolling it out in 120 selected schools this year and aiming for 200k users. This one is not sports orientated, so should have a more immediately better male to female balance.<br />
<br />
Other than the school orientated apps they have:<br />
<ul>
<li>Blue Nation Review - a left-leaning politics focused social site</li>
<li>Tagroom - which to me looks like a mommy-blogger hybrid (sorry but I couldn't think of a better description)</li>
<li>Run Haven - Strava / Garmin Connect with a social side that skews female</li>
</ul>
Overall they have 5 million actively monthly users comprised of 3.5m for BNR, 1.1m Tagroom, 450k RunHaven and 150k REC*IT. In 2015, they target to double that. Last year revenue declined, but they say this should stabilise and reverse this year on the back of the schools segment.<br />
<br />
What do I make of Moko? I like the schools segment for the same reason that the management is investing so much time and energy. I know BNR has their highest "touch", which makes me wonder why they don't launch Red Nation Review and gobble up some conservatives as well. Then again why would I get active on BNR rather than the Huffington Post? RunHaven aside from the strong female skew is in a crowded segment, and yes I'm a Strava bull. Moreover, I haven't had a good look at Tagroom.<br />
<br />
The more I look through the Moko presentation, the more I wish they'd just choose one space and focus. This obviously has potential, but I'm not quite there yet.<br />
<br />
<b>27 April</b><br />
<br />
A Disruptive Lunch headlined by Black Pearl, an email enhancement app and Aussie commerce, a conglomerate e-business group.<br />
<br />
<a href="http://www.blackpearlmail.com/"><b>Black Pearl - email</b></a> how it should have always been<br />
<br />
Black Pearl is about email branding. In its simplest form, you have to think about email presented on a professional letterhead with interactive elements. I can't describe it another way.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCmM-d1QTPRj5OUpjuPZaH16DhFDSsdqePFScdpkqxI4W4mU22Tbua_uhPMPsEbD4rQ1filBx0nGi1iST6rs9y5mQ4lZQOWZi5DBNKy-KSPrYpQ8XBPWwJkzUmEGKaqsq9j3DpMCNjJJM/s1600/black+pearl.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCmM-d1QTPRj5OUpjuPZaH16DhFDSsdqePFScdpkqxI4W4mU22Tbua_uhPMPsEbD4rQ1filBx0nGi1iST6rs9y5mQ4lZQOWZi5DBNKy-KSPrYpQ8XBPWwJkzUmEGKaqsq9j3DpMCNjJJM/s400/black+pearl.tiff" width="400" /></a></div>
<br />
<br />
Pricing starts at US$14.99 per month for first 1-15 users, then US$0.99 per each additional user. You can upload unlimited signature designs, and there is no cap on total users and subgroups. If you're the IT manager you can utilise their Central Management Console and follow, track and trace (analytics) how email is being used. Black Pearl has exactly what I want in any business and I can understand the price.<br />
<br />
Nick Lissette is the highly caffeinated CEO, who's already managed to get Black Pearl mail into companies from advertising agencies to banks. The only thing stopping Lissette will be other tech groups adding this feature. I suspect that Black Pearl might get swallowed up sooner rather than later.<br />
<br />
<a href="http://www.aussiecommerce.com.au/"><b>Aussie Commerce</b></a> - Revenge of the bankers<br />
<br />
No group at a Disruptive lunch has caused me to procrastinate so much over my blog than Aussie Commerce. If I were to write merely about the 15 e-commerce portals that comprise Aussie Commerce's offering readers would be hitting the "quit" button on their browsers within the opening sentence.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvG7BZmRPPYlbiFk5-vmvsXEUP7VAcoLniOL7rkdl2tx0uEXZpGHHtI6ebj4hjV2So-IKI1zUlITV0I2s6N5KezGWl2k2KpILahBmxgoDPr4Ewpq5qFlekgBHVi0Yu23Id8011zQOhMnU/s1600/aussie+commerce.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvG7BZmRPPYlbiFk5-vmvsXEUP7VAcoLniOL7rkdl2tx0uEXZpGHHtI6ebj4hjV2So-IKI1zUlITV0I2s6N5KezGWl2k2KpILahBmxgoDPr4Ewpq5qFlekgBHVi0Yu23Id8011zQOhMnU/s320/aussie+commerce.tiff" width="248" /></a></div>
Aussie Commerce is not as much about the business they run as it is about how they acquire them. There's an adage that says you make most of your money in business when you buy a company, not when you sell it. In other words, if you buy an asset cheaply enough you don't have to worry too much about the rest. That's called value investing and without saying it Adam Schwab and Josh Borenstein were leaving it out there for the audience to connect the dots.<br />
<br />
The Aussie Commerce team has built a business with 9.4m members, 3.7m of which are active. Their crown jewel is their Luxury Escape portal that partners with providers to offer vacations to members. Gross turnover per buyer is $344 at the moment, and 84% of buyers are repeat purchasers. Their offerings are desktop-centric at the moment, but they'll have apps by the end of the year.<br />
<br />
I wrote in my notes: "these guys are traders". I meant that as a compliment. They say they're not afraid to pay a reasonable price for a business. I'm guessing the management team worked out what they'll pay per user and what synergies they can derive from bringing a business on board. This is far more sophisticated than what I've seen from a couple of Australian based groups recently. They always seem to fall in love with the business rather than the metrics. It surprises me that how few businesses I've seen have been able to value customers in this way. I remember in London, in 2000 at the height of the dotcom/telco bubble attending some of the bankers briefings on Vodafone's acquisition of Mannesmann in Germany. The dominant driver in many of the valuation models was the cost per user. I was always a bit skeptical, but it does make sense. Just consider marketing spend per 100k users versus just buying a customer base.<br />
<br />
If you are an investor, who likes trading you could do worse than follow Aussie Commerce. This team at the very least could be a decent guide on valuing a business. Sometimes it's better to be smart than creative.<br />
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
----------------------------</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: left;">
Many thanks to all those people who invited me to events this month. Apologies again its taken so long to get a post out. I look forward to following-up with as many groups as possible and as always I can be contacted through the <a href="http://www.ibcyclist.com/">IBCyclist Consulting</a> website.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Ciao!</div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com2tag:blogger.com,1999:blog-2076697729940208207.post-76607618816388910532015-04-20T09:04:00.002+02:002015-04-20T13:02:15.872+02:00Five things I've been looking at since the last blog<b>1. Hedge Funds</b><br />
<br />
<a href="webkit-fake-url://3fb8805d-c994-4b2d-8320-50c12f146764/application.pdf" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="webkit-fake-url://7dd3a004-be21-4c08-880f-5546b80f4a62/application.pdf" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a>I've been doing some work on some new hedge funds in the last two weeks. I usually like to concentrate on volatility or "quant" style funds because these seem to be the most under-represented here in Australia. Having said that I was contacted last week by a Japanese long/short fund based in Singapore. Normally I wouldn't have spent much time on them, but a couple of things caught my eye:<br />
<ul>
<li>They have a track record going back to March 2006. This means they've come through the GFC and survived. That's good, and it also gives me enough data to look safely at their correlation to various indices and events. </li>
<li>The returns are good and show positive asymmetry. Their worst month was down just under 6% while their best month was up over 20%. A US investor once said to me: "Mike, I prefer not to invest in people who eat like birds and shit like elephants."</li>
<li>The team has been stable. That means no major blow-ups and no significant style drift. I hate it when a fund reinvents itself and doesn't make it clear on their track record.</li>
</ul>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkQo7Spj-yiYdC9Xflp5ZD9EZgm275Ot_rx64k2q4t2oh_2iam2M1Qaw3UqOfcADrCErirs4b8sd3-_HAdxsYOEK_UHnLv4baxOLhZXHBZWHXjcp2XsnnFUcnnx4b66Ookz9SHwcU2FHk/s1600/JLS.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkQo7Spj-yiYdC9Xflp5ZD9EZgm275Ot_rx64k2q4t2oh_2iam2M1Qaw3UqOfcADrCErirs4b8sd3-_HAdxsYOEK_UHnLv4baxOLhZXHBZWHXjcp2XsnnFUcnnx4b66Ookz9SHwcU2FHk/s1600/JLS.tiff" height="308" width="400" /></a></div>
<br />
<a href="webkit-fake-url://3fb8805d-c994-4b2d-8320-50c12f146764/application.pdf" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="webkit-fake-url://7dd3a004-be21-4c08-880f-5546b80f4a62/application.pdf" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><br />
Elsewhere I'm still trying to help a volatility fund and a start-up fund of ethical investments.<br />
<br />
<b>2. Start-ups and Investing in Businesses</b><br />
<br />
Last week I met up with what I'm calling a modified incubator. Essentially they take large equity stakes in businesses or ideas very early in the process. Their main hook is the management wrapper. I'm not sure what to make of it though I'll give them A+ for openness. They invited me to spend some time working out of their office so I could get a feel for the place.<br />
<br />
This week I have a BBY Disruptive Lunch and a slightly off-piste function looking at the sporting goods space.<br />
<br />
<b>3. Cycling</b><br />
<br />
The battle continues to stay fit. When you're not a 65kg jockey sized cycling god, you're going to be putting a lot of stress on your equipment. Lots of high-end stuff comes with a rider plus bike weight limit. I heard of a chap much larger than me who suffered a carbon wheel brake failure and got busted up quite badly last week. If you and your bike weigh more than 110kgs, you need to check your equipment limits.<br />
<br />
My equipment is starting to see signs of needing replacement. I've rebuilt the front wheel of my Fulcrum Racing Zero wheels due to the brake track getting worn down. The original rebuild didn't last long, and I swapped wheel builders to get a different result.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhj2g8HcMKxYrYX3vpufW552pvtWOoPl7jbMokjijNFy0sdwbAVZnhNc0vQoDyAqooYBpcCtoFaNShoYsCzrXYivK0fa4V17zPRgyvQTXEA1EqppQOzprrPld-OFYK0nDS4IyFoiSZnVkE/s1600/IMG_2184_2.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhj2g8HcMKxYrYX3vpufW552pvtWOoPl7jbMokjijNFy0sdwbAVZnhNc0vQoDyAqooYBpcCtoFaNShoYsCzrXYivK0fa4V17zPRgyvQTXEA1EqppQOzprrPld-OFYK0nDS4IyFoiSZnVkE/s1600/IMG_2184_2.JPG" height="320" width="240" /></a></div>
<br />
<br />
My Mavic Cosmic Carbone SLR's have also seen better days. Followers of the blog know I rebuilt the freehub because of the wear I'd exerted on the main wheel hub over the last three years. The "exalith" brake track is also wearing down and rather than flirt with death I'll be replacing the wheels in the coming weeks with the new Mavic Cosmic Carbone 40's.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOEXRWVAjVcX7fZoYkQFlML1hUNUP_OjjDb2RqRFkDKhArIxgbSDyHq4dClkbHwUH6QwzR5uwubFO0p8zrQZ0Ul8smS5JgDFzBMEgFWW-qvVeNlBXnyvm0LcFLJrapgSc2oiuATKfoV7k/s1600/IMG_2195.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOEXRWVAjVcX7fZoYkQFlML1hUNUP_OjjDb2RqRFkDKhArIxgbSDyHq4dClkbHwUH6QwzR5uwubFO0p8zrQZ0Ul8smS5JgDFzBMEgFWW-qvVeNlBXnyvm0LcFLJrapgSc2oiuATKfoV7k/s1600/IMG_2195.JPG" height="320" width="240" /></a></div>
<br />
<br />
If all that wasn't bad enough I suffered my first flat on by Campagnolo Bora tubulars since leaving Switzerland. I rode these quite a bit over the summer when I was rebuilding my green Cannondale and was riding the Pinarello Dogma 60.1.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3e4GABtP6wF-DsrvgS8U65HZck8LEkkuzTaG7N0WZfxQK24V4-7vvykvd94bm0L4gzYJN-VyJ4wuC0Zo466tQSTrXHl40OBKO6QmtcdVX60x5EzQeXcUTwYCvOw3HeOSTaNJ8Z2jVoyg/s1600/IMG_2193.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3e4GABtP6wF-DsrvgS8U65HZck8LEkkuzTaG7N0WZfxQK24V4-7vvykvd94bm0L4gzYJN-VyJ4wuC0Zo466tQSTrXHl40OBKO6QmtcdVX60x5EzQeXcUTwYCvOw3HeOSTaNJ8Z2jVoyg/s1600/IMG_2193.JPG" height="320" width="240" /></a></div>
<div class="" style="clear: both; text-align: left;">
<a href="webkit-fake-url://3fb8805d-c994-4b2d-8320-50c12f146764/application.pdf" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="webkit-fake-url://7dd3a004-be21-4c08-880f-5546b80f4a62/application.pdf" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a>I knew they were going, and usually I'm good at having new tyres glued on before incurring the wrath of the cycling gods. All I can say is that Vittoria Pitstop "latex goop" and a CO2 cartridge got me home without the indignity of having to ask for a lift. </div>
<br />
<b>4. Rugby</b><br />
<br />
People close to me know that for many years I was a rugby tragic. I lost touch with the sport after returning from the UK and moved to Singapore in 2006. Somehow watching rugby in a tropical environment didn't feel right. Also, a health scare got me into the gym and for many years I avoided any events that required sitting, eating and drinking alcohol for hours at a time. Just lately, I've gone to a couple of Super XV games here in Sydney thanks to some tickets from a friend. <br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9EUME8PgkLBcjDTkUn-B8LopiFiy14_2BLI8JKiUk9AYlDcgqG1OfMXu_pNdsgPB-qdUT_ivNu0w9hDvcMO0SKvh6g5ZA7M56mRXGGN3r7o9T2wwKiqnz_C5TgAPTfh118WRZTOQyN-E/s1600/IMG_2176.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9EUME8PgkLBcjDTkUn-B8LopiFiy14_2BLI8JKiUk9AYlDcgqG1OfMXu_pNdsgPB-qdUT_ivNu0w9hDvcMO0SKvh6g5ZA7M56mRXGGN3r7o9T2wwKiqnz_C5TgAPTfh118WRZTOQyN-E/s1600/IMG_2176.JPG" height="320" width="240" /></a></div>
<br />
I have this feeling that the game has lost its way though I'm not sure if that's because the local team seem somewhat unlovable, or whether the atmosphere their half full stadium is somewhat lifeless. I used to hate being an Aussie at Twickenham, but the crowd at least had some spirit in them.<br />
<br />
<b>5. Europe</b><br />
<br />
Readers know that I've lately been advising a higher weight in Southern European investments. My thesis has been simple. Low growth and budget balancing would see interest rates lower for longer in the region. As the over-hand of real estate looks to sort itself out, I'd expect better returns in the region. The more I look at things, the more it reminds me of Japan post the real estate crash in the early 90's. It took forever for the banks to work themselves out of their property portfolios, and Europe is following a similar trajectory. Investors should never underestimate the value of Chapter 11 bankruptcy in the US. The ability to go through a cleansing process in an orderly fashion is good for investors and debtors. Take for example GE.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEht4BQlmnBntLdjjvnf1ppiw2YTMq6rePSorbzEWaiDOojrW8iwU-jnoaox4Ps9ZCxsvwqaQ9NNFBhkk1TupKK91n22IyynDHseg8_HcFGn_boC1vPeFPrlEuGw1RN6LWoRzgda7lgTVrk/s1600/IMG_2192.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEht4BQlmnBntLdjjvnf1ppiw2YTMq6rePSorbzEWaiDOojrW8iwU-jnoaox4Ps9ZCxsvwqaQ9NNFBhkk1TupKK91n22IyynDHseg8_HcFGn_boC1vPeFPrlEuGw1RN6LWoRzgda7lgTVrk/s1600/IMG_2192.JPG" height="320" width="240" /></a></div>
<br />
Last week GE announced that they were going to exit the last of their finance businesses. Remember this business began when Jack Welch and the team started financing capital equipment leases. First it was aircraft engines and later it was MBS's. I don't blame GE; the returns were sensational, and the regulatory requirement was minimal. The trouble is when you wake up one day, and you're the seventh largest bank in America someone is going to notice. It also helps if the market doesn't collapse. Well, soon they'll be back to being a capital goods company. If you're lucky enough not to be a bank saddled with the title of "too big to fail", it's more than likely that you'll be able to buy a piece of what GE is selling, apply less equity to it and immediately show an accretion in both your EBIT and your RoE. Happy days are here again.<br />
<br />
Ciao!<br />
<br />
<br />Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-77600078581370219562015-04-07T04:14:00.003+02:002015-04-07T04:14:49.423+02:00Nexus Notes, Free is Better and Money Place: BBY's Disruptive Lunch series continues.At Sydney University, the first course in the Faculty of Law that I was required to complete was entitled "Legal Institutions". It was a bit of misnomer because it was a combination of Constitutional Law, legal philosophy, and Australian court structures. It was an absolute pig of a course. To get through it, you needed a map, a compass, and a sherpa guide. The few who had a lawyer in the family might have been lucky enough to get some help that shed light onto its sprawling curriculum. If you didn't, it took every ounce of student diligence and cunning you could muster to get through to year two.<br />
<br />
At last Wednesday's BBY Disruptive Lunch, one company gave hope to students everywhere.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjXRW0HpewAnqjj5a9Qyd2H2v8bzShgiO0btoRAFM9qq9Ca5uqeHWOvv4tcpYMxVsMZrw2occnOmP9z1TiilSL5yCDZ-TBaD8W5ynIGKGh44d6Eno9DJyItQueA0eAJWUiM7v-3Rp33jk/s1600/Nexus+2.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjXRW0HpewAnqjj5a9Qyd2H2v8bzShgiO0btoRAFM9qq9Ca5uqeHWOvv4tcpYMxVsMZrw2occnOmP9z1TiilSL5yCDZ-TBaD8W5ynIGKGh44d6Eno9DJyItQueA0eAJWUiM7v-3Rp33jk/s1600/Nexus+2.tiff" height="227" width="400" /></a></div>
<br />
<a href="http://www.nexusnotes.com/">Nexus Notes</a> allows the confused, the time poor, or (yes) the plain lazy the chance to acquire the course notes of top quartile students for a mere $US35. For that, you get anything from a complete years worth of notes to a pre-exam outline. If nothing else you get the chance to see what's required to get through what at times might seem impossible. You can browse the available library and get a free 10% sample of each of the available offerings before you buy. <br />
<br />
Some of the notes I've looked at are amazing. If I knew a 2015 freshman, I'd give them a set of notes from a successful student to show them just what it takes to get those elusive "A's". For example, if someone had given me <a href="http://www.nexusnotes.com/downloads/administrative-law-notes-if-you-miss-it-you-will-never-find-such-beautiful-notes-ever/">"masonzhang1221's" Administrative Law notes</a> I'm pretty sure that the second year of law would not have been such a grind.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtO_WYJryikr6eYci5l-9lpbu1zLglUP7VKQ5XcEathXprdn7-cYkQIopqOmd_yLETyOylhoWNFVixI8jOa_7L33daCyawD__R9eHaH6Pj18CX-FdrKkLZm7w6zwgWFK9pSGS96MwgkqI/s1600/Nexus+1.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtO_WYJryikr6eYci5l-9lpbu1zLglUP7VKQ5XcEathXprdn7-cYkQIopqOmd_yLETyOylhoWNFVixI8jOa_7L33daCyawD__R9eHaH6Pj18CX-FdrKkLZm7w6zwgWFK9pSGS96MwgkqI/s1600/Nexus+1.tiff" height="287" width="400" /></a></div>
<br />
The 1000 page case book, the lethargically paced textbook; the memories are still with me. I passed this course, so I know what I'm talking about when looking at these notes.<br />
<br />
So what does the author get? 50% of all the fees that they generate. It's that simple. Maybe they get the altruistic sense of helping others? I doubt that's why students and graduates put their notes up for sale. No, it's 99% about the money. Their top author is up about $3000 so far.<br />
<br />
Co-Founder's Hugh Minson (CEO) and Richard Hordern-Gibbings (COO) presented as upbeat, energetic and relentlessly logical. Their <a href="http://www.nexusnotes.com/about/">Advisory Board</a> has plenty of familiar names and reeks with success.<br />
<br />
I got a quick five minutes with the guys before the presentations started, and they immediately batted back my questions on plagiarism, etc. They rightly pointed out that students can't plagiarise notes because universities don't mark notes. In fact, universities are supporting Nexus Notes. The team has been smart enough to hire "promoters' or "brand managers" at a number of universities to get the word out.<br />
<br />
Nexus Notes are already getting some love internationally. They have a foothold in New Zealand and are starting to roll-out their offerings at The University of Texas (Austin). It makes sense, as the university experience is almost universal.<br />
<br />
It would be easy to get too far ahead of yourself on this one because the model does have some problems, the most glaring of which is scalability. At present, the approval process is 90%+ manual. You sign up and submit your course notes for approval. You can choose to submit your academic record with your notes. They say:<br />
<br />
"The file you attach is hidden from the public but your notes will become verified - represented by a visible blue shield. A digital version, scanned copy, or screenshot of your academic transcript will do."<br />
<br />
Then the team goes through the approval process manually. I should have asked more about this because I assume Nexus isn't checking the notes for the content, but rather is looking at the format. It sounds somewhat laborious and will need work. Imagine if this takes off at the University Texas with its 17 colleges and schools, and more than 50,000 students? The guys hinted at some automation based not only on academic transcripts but also social media type algorithms, but that is still to come. I'm positive this could be a great add-on to a social media site. Remember Facebook started as an attempt to link students at Harvard. It's not hard but will cost money and time.<br />
<br />
As I've been a portfolio manager, I'm used to ranking companies. Tech start-ups are no different. It's a numbers game as much as anything else. The more you see, the more you can pick the quality ideas or people from the fakers. Education is a key theme in the "disruptive" world at the moment. Nexus Notes has a solid chance to be a winner in a growing segment. Investors could do worse than spend some time tracking this company's progress.<br />
<br />
If $35 seemed like a bargain for quality course notes, then Free is Better has even greater resonance. Take some marketing and advertising energy and stick it onto a basic product like a bottle of water. Give it away for nothing. "Thirsty? Want a free bottle of water? Did you know about the new Mini Cooper S?"<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXHOnUfP4dUvx2EBcL8-SzzE3MqmaMnr8mnNiSnahQAZ1YOPH5xIs-_1-eaJ84kZ5sphWCfxtwHIwsW-LlNrRHbSnABN5Cd6zz7SLPYzxweQ-d-QawR880jfyJyNJIJtGGbFXV_86SMds/s1600/Free+is+Better.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXHOnUfP4dUvx2EBcL8-SzzE3MqmaMnr8mnNiSnahQAZ1YOPH5xIs-_1-eaJ84kZ5sphWCfxtwHIwsW-LlNrRHbSnABN5Cd6zz7SLPYzxweQ-d-QawR880jfyJyNJIJtGGbFXV_86SMds/s1600/Free+is+Better.tiff" height="170" width="320" /></a></div>
<br />
<a href="http://www.freeisbetter.com.au/">Free is Better</a> is the brainchild of Melbourne based marketing tyro Alex Chen. The idea is that you connect your product to consumers by linking your marketing campaign with free water. They don't just hire a team of kids and drop them off anywhere to hand out the bottles; instead they target districts, and precincts they determine have a high concentration of demographically compatible consumers.<br />
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/qek8dxXAsNs" width="560"></iframe></center>
<br />
Why water? Chen rightly suggests that the bottled water market is only differentiated by fashion. It could be the colour or shape of the bottle, or it might be the name itself. The Free is Better bottle goes for that clean "google-like" look. The austerity neutralises any social cache down to the statement itself. That makes it firstly inoffensive and secondly a statement that you're smarter than someone paying $2 for something that you can get for free at a public water fountain. There's smugness factor at work here. The price you pay is that on the other side of the label you have some advertising.<br />
<br />
The company has gone through a two year gestation period. Now they aim at running limited edition campaigns of one month duration. Each effort sees 20,000 bottle of water handed out and so far they've had mini cars and Levis jeans amongst their product placements. The cost is about $1 per bottle delivered to distribution points, and they essentially charge another dollar for the distribution and marketing know-how to their clients.<br />
<br />
Free is Better is only in Melbourne currently. The key is the product placement, and we didn't get a good look at the modelling process behind identifying geographies. I hope it's more scientific then just saying this space looks hot right now. In fact, that's a bit disingenuous because the team hinted at social media analysis as being core to this process. Obviously to roll this out elsewhere and make it worthwhile to investors you'll need to make sure that the underlying processes are robust, quantifiable and somewhat proprietary. If the science isn't right, I can't see the investment case for the product. The wall around the business just won't be high enough.<br />
<br />
The team has plans to roll-out vending machines that can be unlocked from a smartphone app. While I'm not sure that this adds to or subtracts from the "fashion factor", it at least shows that Chen and the crew are looking for more data on who is getting the bottles. That is key for them selling the idea to clients.<br />
<br />
As an investor, I'm somewhat unsure whether this has legs. The business model seems niche and undefendable without some "secret sauce". At this stage, I think I'd be more an observer than equity buyer. I like the enrgy and thought involved, I just need to see the engine in action.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkadKRYHYb-01KX7WFhOuqmlHjmHt6pw0IoXtEi42GFq3dG1g71NbdsWsqyhf2wd6fRj_68X0Y4Vo3wM8AMsePERopTvmHIV3-RiLPF5jF2z3FpGFKfiVJd6FWUwh4qHjBffL2j1NhXYk/s1600/Money+Place.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkadKRYHYb-01KX7WFhOuqmlHjmHt6pw0IoXtEi42GFq3dG1g71NbdsWsqyhf2wd6fRj_68X0Y4Vo3wM8AMsePERopTvmHIV3-RiLPF5jF2z3FpGFKfiVJd6FWUwh4qHjBffL2j1NhXYk/s1600/Money+Place.tiff" height="124" width="320" /></a></div>
<br />
The last business to cover from the lunch is another peer to peer lender: Money Place. I think Stuart Stoyan (CEO) got unnerved by the presence in the room of some of his competitors. That gave me the feeling he shut up shop in regard to presenting what differentiated his business model from others. Instead, we got the usual arguments as to why peer to peer lending was going to be big in Australia. We didn't get why Money Place was likely to be one of the winners.<br />
<br />
I'm fast becoming a peer to peer sceptic. Readers of the blog know that I liked the offering of Society One when it was first presented because of the well thought out smartphone portfolio monitoring tool for lenders. That to me differentiated the business. Others agreed because they've been the market darling, raising capital from the big players in town. Having said that my sources indicate that even with the support that they've garnered the growth of the loan book has been disappointing. That also suggests to me that the marketing campaign needed for the industry to take off may cost more and require a greater gestation period than originally suggested.<br />
<br />
How does Money Place compete? Well, the answer is we don't know from this presentation. Given Society One's loan book is still less than $30m, after the support they've had, then Money Place will need to have something special up its collective sleeves.<br />
<br />
Stoyan was asked about peer to peer competing with banks in the long run. If you look around the room and make a statement that Australia hasn't seen a downturn for a long time, and "I doubt anyone here has seen one" you want to stop and look at your audience a little more closely. I know I looked around and saw quite a few people who'd had to put up with double digit mortgage rates, bankruptcies and a finance minister who said we (Australia) were in danger of becoming a banana republic. The super liquid monetary conditions we've had recently are not the norm in economic history, so you better have a better set of answers or thoughts when challenged about the industry's sensitivity to interest rates.<br />
<br />
When Society One presented at BBY last year, they suggested that average rates of return to lenders was in double figures. Money Place is now saying it's closer to 8%. What happened? Well, the chase for yield in smaller packages is part of the answer. To me, 8% is closer to investing in a second mortgage, not in a fully unsecured personal loan. The problem, of course, is that second mortgages require more funds and longer duration thinking. But this is unsecured and unlike Society One we got no behind the scenes look at recovery processes.<br />
<br />
So as an investor what would I do in peer to peer lending in Australia? I want to say that Society One is going to be the big winner, but remain somewhat concerned at their loan book growth. Money Place and others in the field are being given an opportunity to bridge the gap. If it were me, I'd try and get a one on one with Stoyan to see what he and the team have to offer. On the evidence of this presentation, the jury is out and needs to ask the judge for further directions<br />
<br />
Ciao!<br />
<div>
<br /></div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com1tag:blogger.com,1999:blog-2076697729940208207.post-14946085777218319342015-03-26T00:33:00.004+01:002015-03-26T00:39:21.586+01:00Of entrepreneurs and capital raising . . . free advice from the IBCyclistI don't care what type of entrepreneur you are, whether it's tech, mining, pharmaceutical, mechanical or financial I just need you to answer some very straight forward questions in our first meeting.<br />
<br />
<b>1. Opportunity: What market are you attempting to satisfy? </b><br />
<br />
It's an easy question, but you'd be surprised how many fledgling companies don't state it right up front. I've seen some great presentations, and they usually start with a clear value proposition:<br />
<br />
<i>Did you know that the average amount spent on a taxi fare in New York is X? Total income for the industry, last year was X.</i><br />
<i><br /></i>
<i>Did you know that the average automobile has X meters of copper wire in it? And if every third Chinese or Indian household owned a car we'd require X amount of new copper production . . .</i><br />
<i><br /></i>
<i>Obesity is the single biggest killer of adults under the age of retirement. Spending on related solutions is likely to grow at X% over the coming decade?</i><br />
<br />
<b>2. Concept: What are you offering that satisfies the opportunity you identified? </b><br />
<br />
Show me your solution. Don't use words when pictures, maps and numbers will best highlight things.<br />
<br />
<i>Our app is a unique solution that enables the user to connect with the nearest taxi directly and offers passengers a rebate for frequent use.</i><br />
<i><br /></i>
<i>The "Big Deposit" copper mine can be operating within 18 months and produce ore at a rate of . . . </i><br />
<i><br /></i>
<i>"Nofatsilose" is currently in stage 2 of clinical trials and we hope to confirm that it reduces cholesterol by X% in the first year of use.</i><br />
<br />
<b>3. Demonstrate: Walk me through the process.</b><br />
<br />
How do we get the solution working. Give me a timeline and state various hurdles, be they regulatory, physical construction or software testing. <br />
<br />
<i>Here's a mock-up version of our app. It's taken 12 months to get to the beta phase and $100k. As you can see the user's location is automatically identified, and all they need to do is select a destination either from their address book or by inputting it in the address bar like this . . . </i><br />
<i><br /></i>
<i>This map shows the mine location. You'll notice the proximity to transport, both road and rail. The pit depth for stage one needs to be . . . </i><br />
<i><br /></i>
<i>If we pass stage 2 the drug goes to final FDA approval which should take 12 - 18 months. In that time, we'll need to conduct some additional studies . . .</i><br />
<br />
<b>4. Funding: How much do you already have? How much do you need? How much cash are you burning per month?</b><br />
<br />
Entrepreneurs need to demonstrate they have a grasp on their business costs. Don't ask me for a million dollars today if you need to come back in 3 months for more because you didn't understand the risks of cost blow-out, etc.<br />
<br />
<i>The app needs 300k users to breakeven. We estimate total operational costs (developers, testing, etc.) in the first 18 months to be $850k. In addition using recent data from X, Y or Z, we're estimating those first 300k users to cost us $4.50 each. That will be attributable to marketing and database maintenance. All in we're raising $1.5m, allowing us a contingency . . . </i><br />
<i><br /></i>
<i>The basic mine infrastructure is likely to cost $40m, but that excludes a rail track extension for the last 9km. That costs $3m, but the weather means we need to double that contingency if the rains fall early. We have $10m in cash, which will last us nine months . . . </i><br />
<i><br /></i>
<i>We have $30m in cash on hand. The final trials will cost $38m, but if the regulator needs extra evidence we don't want to be coming back to the market in the middle of the process. We think it makes sense to raise an additional . . . </i><br />
<br />
<b>5. What's in it for the investor?</b><br />
<br />
What is the current capital structure (who owns the business)? How long before you breakeven? What is the dilution effect of the capital raising you're conducting? If you have to raise money again do I get first right of refusal on new shares?<br />
<br />
<i>Post breakeven we estimate that each new users will generate around $2.50 of income. Of that roughly 30% will be needed for operational costs and 20% for ongoing marketing. In terms of valuation comparables . . . </i><br />
<i><br /></i>
<i>Total cost per ton of Ore will be XXX. That means we'll be the lowest cost producer in the market. Stage 1 is likely to be exhausted in 3 years at which time we will have shipped XXX . . . .</i><br />
<i><br /></i>
<i>Once FDA approval is granted, we estimate marketing costs (via conferences, literature, etc.) to be approximately $26m when implying the same model Fizer used for it's inferior product that launched in 2008. That means that once we're on the approved list we'd expected take-up in the EU and the US of around 50m patients at a cost of . . . </i><br />
<br />
<div style="text-align: center;">
--------------------------</div>
<br />
Obviously the more facts and figures you have, the better it is and the better your credibility. Some entrepreneurs have an advantage in that they come from a very numeric background. If you're more about style, then you need to have a good CFO that you can toss to in case deep divers (like myself) start throwing out detailed questions. It's not the end of the world if you can't answer the questions, but you do need to show that you understand what's being asked.<br />
<br />
Finally some words on your presentation.<br />
<br />
If you're a hedge fund and I'm an institutional investor I don't want to come to your office and see six traders dressed in shorts playing air hockey because nothing is happening in the market today.<br />
<br />
If you're a miner and you've just entered the car park in a $300k Ferrari I'm going to wonder why you need my money.<br />
<br />
If you're tech looking for $1.5m it's probably best if you're not wearing a $75k Patek Philippe and $1500 John Lobbs, Christian Louboutin's or Jimmy Choo's. I'm going to ask why you're not funding this yourself.<br />
<br />
If you're a pharmaceutical . . . . don't get me started.<br />
<br />
Ciao!<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-57426669420527317922015-03-24T05:27:00.001+01:002015-03-24T07:39:12.342+01:00BBY Disruptive Lunch: CBA's Kelly Bayer Rosmarin It's sometimes easier to write about the "less" polished presentations we get at the BBY Disruptive Lunches then those that are focused and tested. Commonwealth Bank's (CBA) Kelly Bayer Rosmarin presented a cogent and polished summary of that institution's approach to disruptive technology generally and specifically to the digital client interface.<br />
<br />
Bayer Rosmarin's engineering background was to the fore as she set limits on the subjects she was going to discuss and stuck to those parameters. Part of the charm of these lunches is the way that some of the start-ups meander through their business cases almost rethinking what they're saying as they go. I don't expect young companies to have laser sharp focus. When they do, as was the case with someone like Catapult Sports it can be riveting, but it's not always necessary. Take Pocket Book's (19 Feb 15) offering last month, that to me was notable because I got the sense the team was still discovering their capabilities and a best avenue of action.<br />
<br />
Bayer Rosmarin sought to deal with disruptive technology and CBA through the lens of three distinct examples: Crypto Currencies, Cognitive Computing and Cyber Crime.<br />
<br />
<b>1. Crypto Currencies</b><br />
<br />
Would crypto currencies exist without the 2008 financial crisis? Security, trust, convenience and efficiency, all areas severely tested by the crisis. The collapse of major banks severely tested the faith of people during the GFC. Historic examples from past economic adventures (think Weimar Germany, South American banana republics, African hyperinflation) provided fertile ground for Bitcoin (and other crypto currencies) in recent years.<br />
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/jrbbxnBneeI" width="560"></iframe></center>
<br />
Bayer Rosmarin's Bitcoin case study was a gentle debunking of the currency.<br />
<br />
Firstly, coming from the angle of a large bank the security aspect of Bitcoin seemed to CBA somewhat counter-intuitive. Approximately 10% of Bitcoins would never be used because the security system functioned on the basis of a one-time passcode. Lose that, and you lose your ability to redeem your "money". Imagine (she suggested) if CBA froze your account permanently if you lose a passcode. The bank would likely to suffer an outflow of customers. How then could Bitcoin pass a convenience test?<br />
<br />
Secondly there are a limited number of Bitcoins. I was somewhat confused by the CBA argument here because as we know Bitcoins can be split into fractions down to (I believe) nine decimal places. Additionally the raison d'etre for most Bitcoin believers is that the cap on the eventual size of the Bitcoin pool serves as a hedge against their concerns about central bank incompetency and associated currency debasement.<br />
<br />
Thirdly, and more convincingly Bayer Rosmarin pointed to concerns as to the security of Bitcoin exchanges given various scandals that have erupted in the last two years. It's hard even for ardent Bitcoin enthusiasts to rebut this because the evidence is strong that this has been the weakest facet of the currency.<br />
<br />
Lastly, Bitcoin according to CBA lacks differentiation. In fact, anyone can start a crypto currency. I think the suggest here was that these currencies might sink or swim as a group. If one currency was exposed as having certain vulnerabilities, then the group was likely to suffer because the flight to safety element of say out of Euro and into Swiss Francs wasn't available.<br />
<br />
Not everything about crypto currencies is negative. Various protocols for payments were worth exploring. <a href="http://www.theaustralian.com.au/business/financial-services/cba-flags-more-tech-acquisitions/story-fn91wd6x-1227216547855">CBA have recently paid $A40 million for South African-based Take Your Money Everywhere</a>. "TYME" is one of those bridging technologies that gives lower end or under-serviced users access to regulated bank accounts. The protocols and tech derived from this business is likely to add growth for CBA across not only Africa, but also in Asia. Bayer Rosmarin's analysis is clearly concluding that crypto-currencies are likely to stay as niche speculative ventures if banks can link their services in a way to make their day to day use unnecessary.<br />
<br />
<b>2. Cognitive Computing</b><br />
<br />
The roots of today's Cognitive Computing can be traced back to the work done by IBM's lab in the mid 90's. That research culminated in the famous series of chess matches between supercomputer Deep Blue and Garry Kasparov.<br />
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/NJarxpYyoFI" width="420"></iframe></center>
<br />
Fast forward to today and think self-driving cars and algorithmic securities trading. The key to each step in these developments was the ability to handle ever-increasing amounts of data. "Big Data" as readers will know is an ever present theme at these lunches. For institutions such as a big bank, the question becomes one of sourcing and distributing access to that data, and what to charge or pay.<br />
<br />
If you're a CBA SME customer, you can access some of that data through their Daily IQ application.<br />
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/_67-gzgQr-c" width="560"></iframe></center>
<br />
As a further add-on, CBA offers an open interface called Pi. The front-end of Pi is "Albert" and that gives you the opportunity to develop your own ways of interacting with clients.<br />
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/oaWHgl4984E" width="560"></iframe></center>
<br />
Interestingly I allowed my mind to stray to some of the many presentations we saw last year which purported to provide just this type of add-on to users. As a friend of mine who runs a restaurant said when I showed him Posse (https://posse.com): "Why should I pay for that? I think my bank already offers the same thing?" What it says to me as an investor is that many of the businesses I look at are predicated on a single business plan. Attract a buyer such as CBA before they put their mind to developing their offering in your chosen sector. I know that sounds obvious. I've lost count of the number of times I've walked out of presentations thinking I've just seen the next unicorn only to change my mind after a cooling off period.<br />
<br />
<b>3. Cyber Crime</b><br />
<br />
Readers will know I'm a long time fan of predictive algorithmics. We saw these methods first adopted by the Israelis in order to be able to deploy their limited security forces to the maximum effect. Financial institutions are already using these same techniques to track fraud and security infractions within their businesses. Cybercrime remains a huge challenge. Biometrics is often put forward as a solution, but Bayer Rosmarin doesn't see this as a standalone answer to tech-crime.<br />
<br />
If you can find a business with a unique slant on cyber crime, I'd grip on tight. The very fact that there is no current industry standard solution suggests to me that this is an area that investors have a chance to make serious returns. Maybe part "<a href="http://www.getlocalmeasure.com/features">Local Measure</a>", part biometrics is what I'm looking for to fill the gap?<br />
<br />
<b>Summary</b><br />
<br />
I view Kelly Bayer Rosmarin's presentation as a nice counterpoint to much of what we've been privileged to see and hear over the last year of BBY Disruptive Lunches. Call it the "Empire Strikes Back" if you will. It was at its core a well reasoned and somewhat sobering reminder that big institutions are well able to fill niches that smaller more nimble entrepreneurs are claiming as their own. One question during the Q&A best summed this up. Bayer Rosmarin was asked about the challenge being made to CBA's business by peer to peer lenders. While not dismissing the sector out of hand, she did suggest that operators (e.g. <a href="http://www.societyone.com.au/">Society One</a>) might find their businesses struggling if interest rates started rising. If you think about it, that makes sense. P2P's model is based on occupying the spread between lenders and borrowers. As rates rise that spread is likely to narrow and with it squeeze P2P business. Ultimately I got the sense that Bayer Rosmarin modus operandi is not to jump at shadows. Like all good engineers, it would seem she prefers to analyze first and act after carefully weighing up the possible responses and solutions.<br />
<br />
Ciao!Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-15557339049844597142015-03-09T05:08:00.002+01:002015-03-09T05:08:31.040+01:00CAIA / Deutsche Bank Volatility Breakfast. Check your ego, you're a passenger on this bus.The hardest thing you can do as a professional in finance is to listen to others who are experts in your chosen field. It requires a certain modesty and the ability to close your mouth. For me, it was very strange to be sitting in the CAIA / DB Volatility breakfast listening to a panel discussion with David Dredge (Fortress Convex Strategies Group), Jerry Howarth (36 South), Michael Armitage (Milliman Financial Risk Management) and Michael Winchester (State Super, Australia). The panel was moderated by David Walter (PAAMCO).<br />
<br />
For starters I worked briefly with Dredge at Artradis, in fact; he interviewed me, and I really enjoyed the process for once. Dredge (ex-BT) was on the team that developed the NDF (non-deliverable forward) market for currencies in Asia during the early 90's. That was a seminal product for emerging markets, and he told me some great stories about the early days of that market. The good thing about David is that he's willing to look at a lot of left field ideas. I remember getting a good hearing on some research I had done in the Australian mortgage insurance market that was initially dismissed by the team, but got some encouragement from David that was appreciated.<br />
<br />
I wrote briefly about Jerry Howarth in my last blog, and so had a good idea of what he was likely to say. Michael Armitage is new to me, and to be frank it took me a while to understand where he was coming from as I hadn't researched the firm before the event.<br />
<br />
Michael Winchester was meant to represent the ideal investor for these funds. My guess is that he may or may not be invested in any or all them. It at least seems that he has done his due diligence on each of the funds. If I missed a disclaimer about this, I apologize, but I'd respectively suggest some disclosure. So be it.<br />
<br />
Moderator David Walter (PAAMCO) is an investor with whom I'm familiar. I had the discomfort of once having to front him in his offices in Singapore to explain some returns that were somewhat unexpected. At the time, he was with ABN Asset Management, and they were being sold to PAAMCO. I only saw him one time after that during a Goldman Sachs conference in Tokyo, where he was kind enough to not dwell on the past too much.<br />
<br />
Given that the breakfast theme was volatility and tail risk hedging, it was unsurprising that two of the three represented funds (Fortress and 36 South) focused on producing best cheapest convexity. Milliman as an offering was a different beast. Milliman state that they aim "to stabilize the volatility of an investment portfolio". In the context of this panel that effectively means, give us your portfolio, and we'll try and provide cheap hedges that will help protect or enhance your returns.<br />
<br />
The discussion followed the usual path of each fund stating their raison d'etre. Dredge's opening statement was very familiar to me. Fortress Convex are going to go out into the market and try and buy the cheapest convexity. That means that you'll never know whether the hedge has a direct correlation to your portfolio as the purpose is to provide exceptional returns in extreme circumstances (3 standard deviation movements). If you're a long-only equity portfolio, you should get negatively correlated returns during "crash type" events. Fortress choose the best bets, whether that is (say) KRW/Euro or Canadian interest rates, and then that's what they'll own. So long as its positive convexity. The difference between Fortress and 36 South is that Fortress look for catalysts as part of their analysis. Howarth and 36 South are not concerned with specific events; rather they're looking at situations where volatility is cheap versus historical norms. It's a subtle difference, and I'm not sure the audience picked up on the fact. Both want to deliver a product that offers cheap convexity, but Fortress partly produce their "cheapness" by mitigating the cost through scenario analysis. 36 South do the same thing by a relative "cheapness"; the expectation being that the position itself has an innate value likely to offset some of the theta costs of holding the derivative position.<br />
<br />
Milliman's direct hedge model is difficult for an independent consultant like me to assess. So much of what they do seems to rely on getting under the hood of a particular fund. How can I go to an investor and say that this company is likely to be successful in dampening the volatility in your portfolio and ipso facto improving your Sharpe Ratio if I can't do the math independently?<br />
<br />
David Walter I felt hard a hard job getting Michael Winchester involved. It seemed to me that the panel was leaning heavily in the direction of a consensus that volatility as a whole was cheap, and the dangers in markets were growing. Consensus is never as interesting as conflict and I would have liked Winchester to reflect on what his preferences were rather than to be in sync with the panel. He did allude to the difficulties he as a strategist confronted when trying to hedge volatility in a portfolio so concentrated on its exposure to the Australian banks. His conclusion seemed to be that historically as correlation went to one in disasters, then the basis risk was acceptable.<br />
<br />
One other thing struck me as missing, and that was some discussion on the costs of the three offerings. I know 36 South is a conventional "2 & 20" fund, and I guess Fortress is similar. I have no idea what Milliman charges. Let's assume from the literature that the theta costs of 36 South and Fortress are in the region of 50bps per month. That means that if nothing happened in a year the likelihood is that you'd be down 8% (12 x 0.5% + 2%). That means that either you, as a fund manager have to produce enough excess alpha to pay for this, or you have to rely on the convexity provider to reduce this cost through clever positioning. I know with 36 South I get a reasonably long track record, and thus can weigh the propensity of the managers to achieve this. In the case of Fortress, the track record is shorter, and I'd have to add on to it David Dredge's previous track record to illicit the same conclusion.<br />
<br />
After the breakfast, I was asked by an old associate what I thought. He liked 36 South and knowing him to be reasonably quantitative in his approach I could see the attraction. I'm somewhat conflicted on the argument that 36 South's model of outright cheap volatility is better than the Fortress catalyst enhanced model. If I'm 36 South, do I take profits too quickly if I didn't factor in a particular scenario? If I'm Fortress do I overplay my hand and get too stubborn regarding a situation not playing out, always increasing my bet in the hope it triggers?<br />
<br />
Milliman is a different animal entirely. It seems I'm being asked to time the market more. Why would I take on their overlay if that's what the offering is if I'm bullish on the market? How much better is their offering than buying zero cost collars in index options? If a client asked me to investigate Milliman with them, I'd be very interested. It's hard not have an open mind about a company that has been around so long and is thriving.<br />
<br />
After the main panel discussion had concluded, we got 30 minutes from DB derivatives strategist Alex Staab. A quick look at four particular trades and an overview of what DB thinks is likely in the volatility markets. I thought it was particularly interesting that Staab pointed out the unusual correlation between the advancing Nikkei, QE and an upturn in volatility. The assumption in the "Anglo" markets has been that low rates, QE, and a rising market has dampened volatility. DB is suggesting that the Japanese pattern is repeating itself in Europe. I wonder if that means that Europe will have the same economic growth patterns as Japan had after its real estate market crashed in the early nineties. Let's hope not. Having said that It is true that Japanese volatility was extreme especially during the recapitalisation of the banking sector around the turn of the century.<br />
<br />
Staab didn't get me with every point he made. I have to say a wry smile came to my face as he explained the positive return drift in daily v. weekly variance swaps. The trouble with that trade has been always to find someone to take the other side at near the theoretical value. I know at UBS we did our first trades in this in 1999 for the Japan book. What Staab didn't point out was that the seller over the swap makes a chunk of their margin in the hedge by trying to beat the end of day or week marks. On top of that there's a compliance problem because the bigger you are, the more likely it is that you can influence the close of the futures market. Regulators don't like that as it looks like market manipulation. This means that after a while compliance probably taps you on the shoulder and puts volume limits on trading around the close so as to avoid influencing things. My bet is that if I went to DB and said sell me the swap I'd pay a bigger premium than I wanted and be restricted in size. I'm fine with that, but others in the room who were more actuarial and less market experienced might be disappointed.<br />
<br />
Overall I enjoyed the morning and will do some follow-up in the coming weeks. If you're interested in my conclusions and wish to discuss please contact me through the website at <a href="http://www.ibcyclist.com/">www.ibcyclist.com</a>.<br />
<br />
Ciao!Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-73996264809912361022015-03-05T08:16:00.002+01:002015-03-05T08:46:43.410+01:00Five things I've been doing this week<b>1. Hedge fund due diligence</b><br>
<br>
I was lucky enough to get a lunch meeting with UK based volatility fund <a href="http://www.36south.com/">36 South Capital Advisors</a> on Tuesday. Fund CIO Jerry Howarth was in town and gave me 90mins or so over lunch at <a href="http://www.tattersallsclub.org/">Tattersalls Club</a> in Sydney. I have to be honest and say that 36 South was not on my radar until a client of IBCyclist Consulting mentioned them to me. It's strange given Jerry's history in the volatility space in New Zealand and Australia that we never crossed in the early 90's when I was a market maker on the floor of the Australian options market (92 - 97). Perhaps he was on the other side of some of the positions I had in New Zealand conglomerate Flecther Challenge when it demerged into smaller units at that time? That was a lot of fun and I have a great story about one particular fund manager who thought he was a genius and instead got that one very wrong.<br>
<br>
36 South are presenting at the <a href="https://caia.org/members/events/7th-volatility-and-tail-risk-hedging-educational-breakfast-sydney?utm_source=CAIA+Association&utm_campaign=f49fbd2dde-2015+Feb+Newsletter+-+Member&utm_medium=email&utm_term=0_8b38ee3a84-f49fbd2dde-279762069">Volatility and Tail Risk Hedging Educational Breakfast</a> being held at Deutsche Bank's HQ in Sydney on Friday. It should be interesting given the difficult environment that the last few years have been for long biased volatility players. There seems to be a bit of light at the end of the tunnel, and I'd expect tail risk and volatility, in general, to throw up some interesting opportunities this year. Chief catalysts for volatility events that I see are:<br>
<br>
<ul>
<li>The US Federal Reserve Bank returning to a more normal monetary policy in Q3 - 4</li>
<li>The Eurozone reaching a long-term resolution of the Greek crisis, good or bad (end of summer)</li>
<li>A solution in respect of the current Ukrainian problems</li>
</ul>
<br>
I expect most of these topics to be covered at the breakfast along with various strategies aimed at either protecting or enhancing portfolio performance.<br>
<br>
My write up of 36 South will be available to clients next Wednesday. Prima facie it looked to me that they passed the eye test of delivering what they say they will. If any investors would like me to provide a complete DDQ, please contact me directly to discuss the format and terms. Obviously I always suggest an onsite visit before investing in any hedge fund.<br>
<br>
<b>2. Bike Wheels</b><br>
<br>
Believe it or not it is possible to wear out the rims on your bike's wheels. My Fulcrum Racing Zeroes have seen their fair share of kilometers over the last two and half years, and the brake track on the front rim was "cactus". The result was reduced stopping power and a nasty squealing noise when under medium braking conditions.<br>
<br>
The answer is either new wheels or a new rim. Luckily for me Fulcrum does offer replacement rims. My local bike shop cheeky monkey is unfortunately at the end of the usual anti-Aussie supply chain economics. That means I had to go to eBay or wait for the Aussie distributor to come up with the goods.<br>
<br>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzIuoiJ0Hjo6Cke3U5pLLmmT0gOgx_fMtMFJyJgsSBce4D6dw_M8dTd3QXbs1z4gJucYyfiYn8wiz3ZKLcGiGo6W06xZFxitTpOCOn-I1onG7ZoyEGvPiHge9ZKfTG18rmDCyD7VjC4oI/s1600/Fulcrum+Rim.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzIuoiJ0Hjo6Cke3U5pLLmmT0gOgx_fMtMFJyJgsSBce4D6dw_M8dTd3QXbs1z4gJucYyfiYn8wiz3ZKLcGiGo6W06xZFxitTpOCOn-I1onG7ZoyEGvPiHge9ZKfTG18rmDCyD7VjC4oI/s1600/Fulcrum+Rim.tiff" height="320" width="317"></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">What happened to the spokes?</td></tr>
</tbody></table>
Seven days later I had the rim from a US bike shop and had delivered it to Cheeky for change over. I pick up the wheel tomorrow. Total cost about AUD400. A new set would have been AUD1100 locally. I think that's a good deal given the hubs (both front and back) are still buttery smooth.<br>
<br>
<b>3. Leaky central banks </b><br>
<br>
The Reserve Bank of Australia is asking local regulator ASIC to look into irregularities in the currency and rates markets ahead of recent policy decisions.<br>
<br>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUmj5k6PyGiKKzc-WYadnFB-z6LI33W3qli0zeP20pZttZ3DFxppbKdlH1mnSXCHDfOUoi44YOPxHyWB2_SJ-9OpRsxJDwfNbo0YsX_O9uRgCrfRpu7Myggmkb_XiDdL83aLjRiPp1kaI/s1600/Australian+Leaks.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUmj5k6PyGiKKzc-WYadnFB-z6LI33W3qli0zeP20pZttZ3DFxppbKdlH1mnSXCHDfOUoi44YOPxHyWB2_SJ-9OpRsxJDwfNbo0YsX_O9uRgCrfRpu7Myggmkb_XiDdL83aLjRiPp1kaI/s1600/Australian+Leaks.tiff" height="320" width="301"></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="http://www.theaustralian.com.au/news/latest-news/rba-refers-a-move-to-asic/story-fn3dxity-1227247478160">Leaky ship or central bank?</a></td></tr>
</tbody></table>
Most of the questions being asked are in respect of the way the AUD traded in its various pairs this week when the RBA chose to keep rates on hold. That is only the tip of the iceberg. Last month the RBA chose to alter a well-inked policy of steady policy and lower rates. At the time, there were concerns <a href="http://www.afr.com/f/free/blogs/christopher_joye/money_term_deposits_party_annuities_opZAQHoS68vn5mykSLuFBI">that insiders were leaking the change ahead to experienced local commentator Terry McCrann</a>. I don't know the truth of it, just that for years my favourite brokers in Sydney, when asked about policy at the RBA, used to say (I kid you not), just read Terry McCrann's column. Whatever the truth I'd say good luck to ASIC in trying to piece together the why's and why nots of what happened. The winners will be at the bar sipping Krug, and the losers will be whining to whoever will listen.<br>
<br>
<b>4. Residential property</b><br>
<br>
Do people who invest in residential property really know what they're doing? Honestly, when was the last time you sat down at a dinner party and heard someone who's just bought an investment property tell you how great the rent yield was? In Sydney, I'd say 65% of them don't even know that they have to pay annual state property tax. So what? Well, if you've ever had to analyze property companies or REITs you'd know that the serious end of town takes cap rate calculations very seriously. A tiny move in gross rent or maintenance costs can put companies in play.<br>
<br>
That's why when I met Josh Masters of Sydney based buying agent <a href="http://buyside.com.au/">Buy/Side</a> that I realised I'd finally meet someone who was trying to put investment banking type models into the hands of retail investors. Buy/Side's Suburb Investor app will be available soon in the iTunes and Android shops, and I bet when the dinner party Donald Trump's get a look they might go a little quiet.<br>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6H9VYltfBrB-ViMOXLBOC5R_CnDelTMoX0Pd40IwdqF5nHYytaoD3w_QVvaZxx-Zmz_IVr3r-w2q0zOEoKuMy3InQ_XiGE6fEUY8elBXYhZaydLjd1fK9FaKjeG6rLxmlwiiRwLQnHPw/s1600/Suburb+investor.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6H9VYltfBrB-ViMOXLBOC5R_CnDelTMoX0Pd40IwdqF5nHYytaoD3w_QVvaZxx-Zmz_IVr3r-w2q0zOEoKuMy3InQ_XiGE6fEUY8elBXYhZaydLjd1fK9FaKjeG6rLxmlwiiRwLQnHPw/s1600/Suburb+investor.tiff" height="254" width="320"></a></div>
<b><br>
</b> <b>5. You know you're a cycling nerd when . . . </b><br>
<br>
I was accused of being a nerd for tweeting out my latest bike maintenance achievement. For my birthday, I was given the uber-expense Campagnolo chain tool.<br>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNbzQsdc7gXBmfgjYoeTXZw-bPxgNHgk9MIexfZsi8vUjqr1q4-7cqt1OQldsNVSppofdfdk-baQSRq3664GprSHy7oaY1oJ79YUNeboW-38TUaOTzUNgfvmWrfHj5D3vmolzLInAE4-E/s1600/Chain+Tool.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNbzQsdc7gXBmfgjYoeTXZw-bPxgNHgk9MIexfZsi8vUjqr1q4-7cqt1OQldsNVSppofdfdk-baQSRq3664GprSHy7oaY1oJ79YUNeboW-38TUaOTzUNgfvmWrfHj5D3vmolzLInAE4-E/s1600/Chain+Tool.tiff" height="166" width="320"></a></div>
<br>
<br>
That gave me the ability to change my bike chain as per this video:<br>
<br>
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/YMO2xhM6z3Q" width="560"></iframe><br>
<br>
<div style="text-align: left;">
What a nerd. Guilty. Just to add to this level of nerdiness I've also become a black-belt in headset maintenance. None of this is rocket-science, and my go-to bike mechanic, Mark at Cheeky Monkey, admits there's a lot of trials, errors and broken parts in reaching my level of "nerdiness".</div>
<br>
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/crhWNbIYz_k" width="420"></iframe><br>
<br><div style="text-align: left;">
It makes me happy to strip down and rebuild parts of my bikes. Clients of IBCyclist should know I feel the same way about producing appropriate spreadsheet models. When you get the right tools and have clear instructions and some quiet time anything is possible. </div>
</center>
</center>
<div style="text-align: left;">
<br></div>
<div style="text-align: left;">
Ciao!</div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-92176568042915863832015-02-19T03:45:00.002+01:002015-02-19T07:59:30.900+01:00Under promise and over deliver. #BBYltd Disruptive Tech Lunch: PocketBook & Singtel Innov8There wasn't much hype surrounding the first BBY Disruptive Technology Lunch of 2015. I took along the CEO of a real estate buying agency as he's about to launch an app aimed at residential buyers. I thought it might give him an idea of some of the tweaks other innovators had taken with their tech offerings. These lunches also toss-up a nice cross section of investor questions that entrepreneurs are going to face as they get their message out to the capital markets. Forewarned is forearmed.<br />
<br />
Long time readers of this blog will know that normally I like to come to these lunches with at least a modicum of background on the businesses presenting. On this occasion, I hadn't adhered to my routine. I had no idea what PocketBook was, save for the function implied by the name. Co-Founder Bosco Tan immediately came off as self-effacing by apologising for not wearing a suit. Nice touch from a man who's parlayed his position as a security engineer at BAE Systems Australia into a highly touted financial organiser app with 130,000 downloads.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiC9rdegwEsrP7bLexpSj8_8kv5OETKNHvbE25e7ax2uAVqpE3QAB-N5R29Ynj60XMZArV4hDwQJyLym5HNZWa4FeGEKWJR6eDWqqi84hLp_iudgYVPX0TgRHsd9o3Tw3cv_zF0YVmx3RI/s1600/PocketBook+1.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiC9rdegwEsrP7bLexpSj8_8kv5OETKNHvbE25e7ax2uAVqpE3QAB-N5R29Ynj60XMZArV4hDwQJyLym5HNZWa4FeGEKWJR6eDWqqi84hLp_iudgYVPX0TgRHsd9o3Tw3cv_zF0YVmx3RI/s1600/PocketBook+1.tiff" height="169" width="320" /></a></div>
<br />
<br />
So what is PocketBook? <a href="https://getpocketbook.com/">Pocketbook</a> automatically organises your spending into categories like clothes, groceries and fuel, based on your transaction history.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPJ4ZORfpN_xWJdKZU6W2Gf3nHjZ267_GB0o-WQLFCCfBWZz9N2aGEEHNpk8TG9vMWnMKQxoTmIp49fVnswzMmSFWnb8YLb9PPLeUdr8IKn_rLAWgf0utf4z8c5LSes2z-l0JlNNcIldQ/s1600/POcketBook+2.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPJ4ZORfpN_xWJdKZU6W2Gf3nHjZ267_GB0o-WQLFCCfBWZz9N2aGEEHNpk8TG9vMWnMKQxoTmIp49fVnswzMmSFWnb8YLb9PPLeUdr8IKn_rLAWgf0utf4z8c5LSes2z-l0JlNNcIldQ/s1600/POcketBook+2.tiff" height="64" width="320" /></a></div>
<br />
<br />
It does this by you taking the "leap of faith" and linking it to your bank account. The algorithms go to work looking for patterns in your history. The result is that it quickly enables you to see incoming and outgoing cash, enabling you to take appropriate action. In addition, you'll get messages through various portals (email, pop-ups, etc.) prompting you of the fact. I think my guest had downloaded it before Bosco got to mid-presentation. Personally I'm a little slower at doing anything that entails me giving my bank account information to a smart app, but that's just me. Bosco himself said that the security aspect of the business is a game of trust. When they first launched, the active user numbers were closer to 30% than the 60% they have today. That's the trust capital being built up, but it also shows how important it is for this business to stay focused on security. One slip-up and users would just shut down their participation, and with it any potential revenue stream.<br />
<br />
This blog is a fan of big data, and PocketBook is a great entree into that sphere. As part of their algorithmic scrapings, PocketBook has been doing case studies on various businesses and events in Australia. Bosco presented 4 of these, just to give us an idea of what's possible:<br />
<br />
1. Uber<br />
<br />
A fairly obvious study into the growth of Uber's market share in Australia. I say obvious because Uber users are smart device-centric and, therefore, the cash flow from electronic transactions is a very accurate measure of Uber's market penetration.<br />
<br />
2. Sephora<br />
<br />
Geographically based study of the impact of cosmetics retailer Sephora's impact on the main retail shopping strip when it opened pre-Christmas last year. The presentation showed the impact versus a number of retail categories, including the big department stores and smaller discounters of cosmetic products.<br />
<br />
3. Apple sales cycle<br />
<br />
This case study confirmed what we all know, that the hardware cycle drives Apples Australian earnings and significantly impacts non-Apple sellers in the smart device space. Apple doesn't split out it's Australian earnings for the group, but this presentation study showed what was possible with PocketBook's data scraping. <br />
<br />
4. Netflix<br />
<br />
If you're an Aussie "tech-head", you've been playing with VPN's and geographical masking for years in order to get the latest media. The time lag between US or European release of a book, movie or TV show and it's Australian release used to be infuriating. One media mogul used to buy up all the best police themed shows in the 60's and 70's and lock them down for years, only broadcasting them when reruns of previous shows had exhausted themselves. That's, not the case now thanks to tech. Netflix is an obvious example. PocketBook was able to extract the actual spend on Netflix and interpolate it to a number that that showed just how big the business was without a "real" offering in the country. The reaction to the recently announced roll-out of Netflix in Australia and the PocketBook study has seen multiple new offerings in the download space spring up virtually overnight. The panic is palpable.<br />
<br />
So what do these studies tell us about PocketBook? Well, primarily PocketBook may be a chameleon. On one hand, it's a nifty tool for the budget concerned though it's unclear how that translates to revenue from this presentation. On the other hand the business, as it exists, might change radically in line with its use of data scraping. Additionally I wonder if ultimately the data side might create so much value that PocketBook should pay users to take the app? Whatever the long term eventuality PocketBook's future looks assured in some form and investors looking for multi-faceted opportunity could do worse than read through the current offering documents if they're lucky enough to be invited to participate. Of course, if you're concerned with privacy you might be more likely to get upset than to invest.<br />
<br />
Singtel is the owner of local telco number two Optus. As part of this they've rolled out some capacity of their VC fund Innov8 (not a spelling error or typo). Alfred Lo is the "Lead Principal" here in Australia responsible for implementing the broader strategy that comes out of Singapore, San Francisco and Tel Aviv. The usual themes in terms of investment targets were all there:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5x0bvloXFLIxckq0W1oMjh1PKJFam7dSVfKFl7UHowacEXx-n9EQzcfQjNzvOJn7l62GHeT0YHIIZ7-TkDgiamxExL4KZKtkE9iCLACryZ5CFxrcd7cWSwGkoiZbFrqpqTQ_ebasmGe0/s1600/Innov8+2.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5x0bvloXFLIxckq0W1oMjh1PKJFam7dSVfKFl7UHowacEXx-n9EQzcfQjNzvOJn7l62GHeT0YHIIZ7-TkDgiamxExL4KZKtkE9iCLACryZ5CFxrcd7cWSwGkoiZbFrqpqTQ_ebasmGe0/s1600/Innov8+2.tiff" height="237" width="320" /></a></div>
<br />
<br />
Innov8 partners with the <a href="http://fishburners.org/">Fishburners</a> project, I detailed at the end of last year. They also have spaces at <a href="http://inspire9.com/">Inspire9</a> in Melbourne. I got the sense that Innov8 was focusing on the rapid growth of connected devices beyond the usual smartphone / tablet sector. A good example of this is smart home controller <a href="https://ninjablocks.com/">Ninjablocks</a>.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjratOnA2zlf-wwY0dsOpxo65QfTtubqFMgWwRYmGY9AtmRfJ0KWP6WDwCC7uH7PR9ekAUKmo7EEayrt1hTjWG0oob_KrPXxLxzRgifpqlpIxy87cd3zpnDQGsLSZLifYVE49q896fabhM/s1600/Innov8+3.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjratOnA2zlf-wwY0dsOpxo65QfTtubqFMgWwRYmGY9AtmRfJ0KWP6WDwCC7uH7PR9ekAUKmo7EEayrt1hTjWG0oob_KrPXxLxzRgifpqlpIxy87cd3zpnDQGsLSZLifYVE49q896fabhM/s1600/Innov8+3.tiff" height="242" width="320" /></a></div>
<br />
<br />
If I understand it correctly, Ninjablocks is a communications facilitator that allows developers to connect devices within home or work environment without having to worry about embedded programming, electronics, & networking protocols. I love this type of thing in the same way I've always gravitated to the picks and shovels suppliers in every boom. Levi Strauss might not have discovered gold in California, but he did clothe generations in his denim trousers.<br />
<br />
On wider business themes, Alfred offered some pithy insights into the current state of the VC space in Australia. I wasn't surprised when he said that Australia in general was underweight. It seems onshore investment in the local tech is about 38%, compared with 64% in Berlin and 59% in London. That's a none too subtle plea to the government to support the sector. This blog is never a big fan of tax-incentivised industries. Solar cells, wind turbines and alike are all very well when they meet real ongoing demand. Where's the value in providing tax breaks to offshore companies unless you get something more than a couple of thousand installation and maintenance jobs?. If you disagree, I've got a friend who can sell you a solar farm in Spain or better still a bond that enhances its coupon through stripped German solar tax credits.<br />
<br />
Finally for readers wondering why VC funds have doubled since 2009 just think about this: There are 80 pre-IPO billion dollar companies just waiting to come to market. Entrepreneurs no longer look to exit publically in the short term; rather they're content to feed out small amounts of equity to diligent investors. If that's you please contact me through my web page <a href="http://www.ibcyclist.com/">IBCyclist Consulting</a>.<br />
<br />
Ciao!<br />
<br />
<br />
<br />Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-15699223983182892612015-01-12T02:41:00.003+01:002015-01-12T20:56:37.253+01:00New beginnings and old stories . . . .During 2010, I was trying hard to get a new hedge fund off the ground which was set up to invest in commodities linked listed instruments. It wasn't a radical idea, but we felt that a lot of investment vehicles were either too single commodity orientated or too much like existing CTA's. While we were bullish, especially on oil markets, we used always to have a slide in our presentation about possible threats to our view. One of those threats was USD strength. You see we saw oil like Paulson sees gold, as a hedge against currency debasement. The lower the USD went, the more pronounced the spike in oil. Mind you, we always noted that the Keystone pipeline, natural gas, and fracking in making predictions on price targets within the petroleum complex.<br />
<br />
The USD is the key. Consider that countries like Saudi Arabia are almost exclusively reliant on USD's to support their economy. Their local currency is almost an economic mirage. All the Saudi's, Iranians, Nigerians, et al. care about is how many dollars they receive for a barrel of black sludge. They may as well carry around little vials of oil to exchange for their groceries. If the USD goes down it usually means fewer oil barrels per dollar. If it goes up it means the opposite. In an economic sense, you may even be better off looking at the "Big Mac Index" to get a true sense of what that means.<br />
<br />
Right now oil is dropping faster than the dollar is rising. That differential is because the capacity takes time to slow down or shut off completely. Something has to give. This blog has long held the view that USD was the way to play the recovery in the world's economy, and this will continue. As such oil will bottom when capacity cuts start to come into force. The Saudi Ambassador to the USA said only last week that they had no plans to implement such cuts.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJB4QtgjhWRiJUyOarJ9-dBAYrQ4HZ4-45ITcZnT8olZisNvJlCvfa_aS-ceqxhWYgZWLl31NY2ygO3nbttTq7_QXBCuzgqyaePBM3xT9WSL2RLE43jFaSs-EFKVmBskwkDTCJt-_oLiU/s1600/world-oil-production-june-2014.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJB4QtgjhWRiJUyOarJ9-dBAYrQ4HZ4-45ITcZnT8olZisNvJlCvfa_aS-ceqxhWYgZWLl31NY2ygO3nbttTq7_QXBCuzgqyaePBM3xT9WSL2RLE43jFaSs-EFKVmBskwkDTCJt-_oLiU/s1600/world-oil-production-june-2014.jpg" height="160" width="320" /></a></div>
<br />
<br />
Why does that matter when the Russians and the Americans produce similar amounts of petroleum? Well, mainly because the Saudis have the advantage in the lowest cost and lightest crude. That means they have the flexibility to control the supply. It comes down to them looking at how many USD's of income against a "trade-weighted index". Obviously if oil falls too quickly the Saudis will have a deficit until USD buying power catches up. That's why we're still some ways off from an equilibrium being reached. In the meantime, look for further USD strength and slowing of the rate at which oil is falling. You'll know we're at the bottom when you start to see the Saudis cutting production.<br />
<br />
I get perverse pleasure in watching the failures of newspaper stock pickers. One of the few reasons I buy the Sunday newspaper published by underperforming media group Fairfax is to watch the performance of their stock-pickers. Last year the dart board and astrologer seemed to be forever in their top ten, which gives you idea of what type of market we were seeing. This year I'm following a "dirty dozen" assembled by News Corps flagship paper The Australian (The Weekend Australian January 3-4, 2015, page 25). The twelve "pickers" have come up with 100 stocks, so there's some overlap. As usual I get a chuckle at those participants throwing in the odd "penny dreadful" in the hope of a big percentage return. Then there's the "dogs of the Dow" type picks, where they pick "bluish chips" that are bombed out in the hope of a bounce back. Don't get me wrong, there's a place for everything, but without weights and cap parameters the average punter would be best to treat this as entertainment.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJgZaoLIeyi2NLtrJe7cYRMx7u__tn-UeMTt2MVOOU-pmUPlU9Sb65bN0PT7ZHQpcwXg9jwVFTggGTkIRiTfhWP1vbJVkB27HbucqmOg2Vtp6-8oYG3bKKnHA5RGLxysAgiuKXEChzU2E/s1600/2015+The+Aust.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJgZaoLIeyi2NLtrJe7cYRMx7u__tn-UeMTt2MVOOU-pmUPlU9Sb65bN0PT7ZHQpcwXg9jwVFTggGTkIRiTfhWP1vbJVkB27HbucqmOg2Vtp6-8oYG3bKKnHA5RGLxysAgiuKXEChzU2E/s1600/2015+The+Aust.tiff" height="257" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Sample from the excel I'm building to track the stock pickers in The Australian. If you want a copy contact me at <a href="http://www.ibcyclist.com/">IBCyclist Consulting</a>.</td></tr>
</tbody></table>
So far the combined portfolios are predictably flat for the year, perhaps slightly positive. There's a few end of 2014 marks I need to investigate before publishing. The best performer looks to be Angus Geddes (Fat Prophets, +3%). Geddes looks to have picked the bounce in gold via his Newcrest (NCM.AX) pick. In addition, it gets the secondary benefit of receiving USD's against an Aussie Dollar share listing, so the more the US dollar and gold goes up, the more AUD earnings the company has.<br />
<br />
At first I thought the worst performer was Peter Wright (Bizzell Capital Markets), but because he's chosen some speculative plays my data looks corrupt and needs modification. Thus my earlier comment about 2014 marks. One of the stocks Mr. Wright has chosen is Laneway Resources (LNY.AX), a gold play whose market cap is less than AUD 10m. In his synopsis, he said the company "boats a gold resource of more than 400k ounces". That sounds attractive, but as I have no idea of the cost to produce those ounces it's hard to make a judgement. If you're like me, you'll go straight to the company website and the associated announcements made to the ASX. As I always say: Investors need to stop research and think before buying or selling. I'll be following this "competition" all year and providing some analysis of the mathematics of the performance we see at various intervals.<br />
<br />
Finally on to cycling. In 2014, I didn't quite reach the same mileage as I had in 2013. Strava, the sports tracking website, produces a nifty video summary of all your activities for 2014. It's very cool and another reason I prefer using Strava over other similar websites.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.blogger.com/video.g?token=AD6v5dxzy9H3LBcp00mv5zMPyq8ENdME6X5Z9n-wEg2DEmfQDH5R8jMGANyegOBzqExqjtK2G6GVFCz71QoYpVmPiQ' class='b-hbp-video b-uploaded' frameborder='0'></iframe></div>
<br />
Funnily enough I think Strava failed to upload one ride. Garmin has me at 8817km for the year. For the record, here's my Garmin numbers:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhnoQMP_LHvRrAUqkwpBLMHeOc5oRGWIylxk6Z_o7xaUvMQ3eapyE5NwCsF2qg_qlII4mthyphenhyphenD9OlW87gQq6onf_-Zzo8bWnqOtiwuiieykzrkR1GbfszDr9lWwbOeI4FlIcRLGggEPuwk/s1600/Cycling+all+time.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhnoQMP_LHvRrAUqkwpBLMHeOc5oRGWIylxk6Z_o7xaUvMQ3eapyE5NwCsF2qg_qlII4mthyphenhyphenD9OlW87gQq6onf_-Zzo8bWnqOtiwuiieykzrkR1GbfszDr9lWwbOeI4FlIcRLGggEPuwk/s1600/Cycling+all+time.tiff" height="120" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEie-9Q1Q-XBdDTramlIAsy0UsI0jlPi1hPoHgBUiCqc6NS6Z-sUKLKTASuVsd7Euj7-BHxFgqgKIZA4vrzikZgR6mN_QvoWP3hg4FHiUKi2szBYtGjbZULQ2EU1YUqRRK7mGmFPPCErApI/s1600/running+all+time.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEie-9Q1Q-XBdDTramlIAsy0UsI0jlPi1hPoHgBUiCqc6NS6Z-sUKLKTASuVsd7Euj7-BHxFgqgKIZA4vrzikZgR6mN_QvoWP3hg4FHiUKi2szBYtGjbZULQ2EU1YUqRRK7mGmFPPCErApI/s1600/running+all+time.tiff" height="101" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
For the record, I cycled nearly twice as many kilometres that I drove my car. Which I think is a good thing, right?</div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
Ciao!</div>
<br />Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-37381024800053333792014-12-18T06:54:00.001+01:002014-12-18T11:06:08.107+01:00Disruptive Lunch Series 2014 ends. Happy holidays to one and all.Last Thursday was the final BBY Disruptive Lunch for the year. Three entrepreneurs were presenting their ideas to the usual crowd of curious investors. <a href="https://expert360.com/">Expert360</a>, <a href="http://www.chimpchange.me/">ChimpChange</a> and <a href="http://www.zeetings.com/">Zeetings</a> represent many of the existing themes we've seen developing over the last year in the tech sector. Just as preliminary disclaimer I should say that the <a href="http://www.ibcyclist.com/">IBCyclist Consultancy</a> is already contactable through Expert360. Therefore unlike others in the room I probably bring certain prejudices to my analysis of the business model presented by co-founder Bridget Louden.<br />
<br />
Expert360 is the ultimate trickle-down of the high-end consultancy world. I don't know whether it's Linkedin on steroids or clearing house of professionals wanting to cut out some of the social media aspects of other similar marketplaces. The company's goal is to offer SME's access to the same expert business advice normally reserved for established blue chip corporates. You may want Mckinsey's to sprinkle some of their magic on your business but without writing cheques for multiple millions it's back to the mid-sized accountancy firm you've always engaged. With Expert360, you get access to individual and smaller firms with specific skills. These skills often were honed at those larger consultancies. Take, for instance, my profile page:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTLNyXF_pgDW50PRtzIyTrk4f2vib5Z6bwuUDqGL9p2YWXwMYyzyf3ThSfVWhf8lW1Z6T68Jzl4pVIMrTpZqYRQ1LS2AVzWJNgu4G-isNndd8zi-1kX6T7mEHMA1T_Y1eNS-2-qYRrPp8/s1600/Expert+360.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTLNyXF_pgDW50PRtzIyTrk4f2vib5Z6bwuUDqGL9p2YWXwMYyzyf3ThSfVWhf8lW1Z6T68Jzl4pVIMrTpZqYRQ1LS2AVzWJNgu4G-isNndd8zi-1kX6T7mEHMA1T_Y1eNS-2-qYRrPp8/s1600/Expert+360.tiff" height="325" width="400" /></a></div>
<br />
If you hire me or any other consultant through Expert360, you can manage contracts, invoices and payments through the platform. That's why it's a kind of clearing house. That means cutting down on admin. It's a good solution if time is of the essence. Expert360 adds a transaction fee to consultations. The fee will depend on Expert360′s contract with that particular Customer. A consultant such as myself doesn't pay to belong to Expert360.<br />
<br />
The big question is: Does Expert360 work? My experience is minimal as I think the model favours refugees from existing consultancies. Certainly if my established client base were more extensive within Australia I could see the advantages more clearly. The portability of my name is important, and Expert360 offers me the chance to be mobile. Bridget and her team are betting on the trend for independence amongst advisors. In a way, they not only disrupt the normal advice lines, but they also disrupt the need for me to spend capital on little used infrastructure. It's an interesting way of enabling fragmentation of the business world. I know many in the room were utterly convinced of this trend, but how many of those are living the model? I remain somewhat sceptical as I haven't had one referral through Expert360 since I joined. That probably says more about me than Expert360. The idea is good and prima facie the market is deep. My problem since being back in Australia is that SME's and high net worth individuals are very sticky to existing advisors, even if that advice is somewhat outdated.<br />
<br />
Expert360 makes sense. Linkedin is unfiltered, but to get on Expert360 you have to apply. How rigorous that vetting is I cannot say. I know HR managers at large listed corporation can implement an algorithm search of Linkedin. SME's don't have that facility. Therefore, Expert360 is an easier to navigate alternative to than the admittedly larger database that is Linkedin.<br />
<br />
Expert360 is an interesting opportunity for investors looking to play the post "great recession" employment market. The company is currently in another round of capital raising. I am able to facilitate the introduction of anyone interested to the bankers in question, and will not receive a commission. Readers will know that this blog doesn't post specifics in such cases, but if you feel like a chat, I will be happy to take calls.<br />
<br />
I don't like the name ChimpChange, but then again I'm not the GenY demographic that Ash Shilkin and the team is chasing. ChimpChange is a low-cost, instant money transfer facilitator that uses a combination of smartphone app and Mastercard to get around existing banks. It's what I wished existed when robbed in Germany in 1987. One phone call and within seconds I could have been on my way with cash in my pocket. Here's the video we got shown:<br />
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/7yCqDBfyBJ0" width="560"></iframe></center>
<br />
It's not difficult to understand. They have a clearing agreement with a US bank. ChimpChange makes money from the associated MasterCard fees and spread on any FX. The app is currently available to US customers only. They need about 25,000 users to breakeven. The marketing campaign focuses on US college campuses, which I think is smart. The US banking system is still cheque orientated, while GenY college students are tech-focused. The synergy is clear. The problem is how high the barriers to entry are? That's not a question I can answer.<br />
<br />
ChimpChange could be a remittance monster. We know that huge swathes of diasporic third world populations currently have very few options to return wealth to their homelands. Given the growth of smartphones, it's logically for the Western Union's of this world to be ripe for competition.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCvdApWprFfwSbYsyVBEX3bA2oxwkDDLkSTysiptLXeJjk3kY1EH0uGj3imTIJjKyXNHpXPYyKnlQ4cgioIRm7EazpxSk2w4p5BwStK97afotiroQHLxxRT4K9_cyiEVzyXSdu6QlLg2w/s1600/remittance.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCvdApWprFfwSbYsyVBEX3bA2oxwkDDLkSTysiptLXeJjk3kY1EH0uGj3imTIJjKyXNHpXPYyKnlQ4cgioIRm7EazpxSk2w4p5BwStK97afotiroQHLxxRT4K9_cyiEVzyXSdu6QlLg2w/s1600/remittance.tiff" height="286" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="http://www.ifad.org/remittances/maps/">Remittance flows 2012</a></td></tr>
</tbody></table>
Consider that Americans send $2 billion a year to Cuba, even though there are significant barriers to commerce between the two countries. Add to that (say) the Philippines where remittances constituted about 8.6% of the total Philippino GDP in 2012, and you'll understand the global significance of cheap and fast money movement.<br />
<br />
Originally I'd intend to invest in ChimpChange the moment I left the BBY offices as the team disclosed to me they were already in capital raising mode. Due to deadlines I was squeezed for time to do my due diligence. I strongly advise investors to forgo investments that might cause them to circumvent their normal procedures. If your DD involves contacting referees and doing company searches, then work to your timetable and be willing occasionally to forgo the odd opportunity. In ChimpChange's case I'm watching it very carefully and strongly advise readers to do the same. It just smells like a potential winner to me.<br />
<br />
The presentation by Tony Surtees of Zeetings was more theatrical than I've become used to at these events. Mind you it was theatre with a purpose. Zeetings provides presentations enhancements that allow audiences to participate in various data surveys. That sounds dry, but after you log in and start checking boxes you do get a sense of engagement. The presentation itself was about big data; the Zeetings piece was just an add-on to demonstrate a new tool.<br />
<br />
Zeetings in a way was a good full stop to the series for 2014. If any one theme resonated loudest, it was a progression of data mining amongst even the most passive tech offerings. First came the Monte Carlo simulation in an effort to win games of chance. The casino by nature of the repetitive execution of an action within tight parameters was easy to data mine. Man counted cards and loaded the dice long before they crossed to the New World. When Alan Turing produced the first electronic computer the ability to crunch numbers began an arms race that passed through the military, aerospace and on to finance.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpkOYp0QO56_RIAhT8X_e3ut-w1biZhvhHoC6jhA3zNu79YYwpwKTVCOR8Vmwefy9dEtIzC1Rrq9Rd4Ot2eJFlSvC3mFMNXbcZbjXJO6mNMIxM4eq_dExNjVn1lS3n2m-nAgPMcD60lE0/s1600/Turing.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpkOYp0QO56_RIAhT8X_e3ut-w1biZhvhHoC6jhA3zNu79YYwpwKTVCOR8Vmwefy9dEtIzC1Rrq9Rd4Ot2eJFlSvC3mFMNXbcZbjXJO6mNMIxM4eq_dExNjVn1lS3n2m-nAgPMcD60lE0/s1600/Turing.tiff" height="265" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
When I sat at SBC Warburg in London in 1998 and met two Ph.D. astrophysicists tasked with building the first algorithmic trading model I had ever seen, things started to change. From the very moment, they described to me how they used predictive models to define atomic particles it was addictive. Next came Google with their uncanny (for the time) ability to target search results. It goes on and on, until today when two entrepreneurs with a spreadsheet and the money to buy a data series can predict by shopping habits if a woman is pregnant.<br />
<br />
The ultimate question for an investor is can the entrepreneur make data actionable in some way? Secondly how high can they build patent walls to protect their discovery? Finally, what role do governments, and for that matter people play in the success or failure of these ventures? 2015 will surely bring more challenges.<br />
<br />
Many thanks to all the companies I was privileged to see this year. Thanks also to the BBY corporate finance team for inviting me to these presentations.<br />
<br />
Happy Holidays. Merry Christmas.<br />
<br />
Ciao!Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-24562255324829495842014-12-09T02:39:00.004+01:002014-12-09T02:50:46.740+01:00What is Fishburner's? Are 500 Startups better than 5?Lately, I've taken the view with tech companies and for that matter startups in general that you need to see a lot of them. That means when I get an invite to an invent I rarely say no. Last Thursday I have to admit that I went along to Sydney incubator "<a href="http://fishburners.org/">Fishburners</a>" with little more than the title of the event to describe what was on offer. Having said that I was glad I did.<br />
<br />
Fishburners describes itself as the "largest tech co-working space in Australia." There's over 100 startups paying up to $300 a month, less if they're hot desking, for space within the facility. For that, you're encouraged to share ideas and connections with other entities. Fishburners is a not for profit, but that doesn't mean there isn't a benefit to having so many potential sources of innovation under one roof. If just a handful prove successful then they will have fulfilled their mission of fostering Australian based tech talent.<br />
<br />
Thursday's event was a special offering for investors interested, but not yet fully embedded in the world of angel investing and venture capital funds.<br />
<br />
<a href="http://500.co/davemcclure">Dave McClure</a> is a founding partner of "<a href="http://500.co/">500 Startups</a>" a silicon valley based tech accelerator that offers to:<br />
<br />
<div style="text-align: center;">
<i> "... invest $100k in exchange for 7%, and charge a $25K program fee for a net $75K investment."</i></div>
<br />
They have four funds. The first is the flagship fund; the second is a follow-on fund. The other two have a geographical bias (LatAm and SE Asia). McClure wasn't presenting the funds per se; rather he was there to talk about how 500 Startups approaches building a portfolio of possible winners. Eerily for me at least there was no secret sauce, no magic formula for picking winners, nor any new trend to follow. His presentation reminded me of one of those lectures on portfolio construction. It was blunt and to the point. If Dave had been talking to potential retirees his laid back, up-front style would have been a winner; with a room full of investors of various experience levels it was a good wake up call. Quite simply when you're dealing with companies in their infancy volume of investing becomes a valid approach. If 80% of startups don't make it, then how can an old hedge fund manager like me bring the mentality of 3 - 5 core portfolio ideas to investing at this level?<br />
<br />
According to 500 Startups you have to approach the opportunity as being extremely asymmetric. To give you an idea of how this differs from a hedge fund investor approach, you immediately draw a red line through investments that present as asymmetric. If you see a fund that has losing months much bigger than their best winning months, you walk away. As one investor said to me in 2006:<br />
<br />
<div style="text-align: center;">
<i>"If it shits like an elephant and eats like a bird, you're in trouble."</i></div>
<br />
That guy is just not going to cope with a fund that has 80% of it's picks go under, another 5 - 15% barely pay you back and a few success stories in the end. Maybe if you bag the proverbial "unicorn" the asymmetry might be acceptable, as in:<br />
<br />
<div style="text-align: center;">
<i>"I invested in Google when Larry and Sergei were still at Stanford, and I doubled up at every subsequent offering."</i></div>
<br />
I hate hearing from "Google-guy" at events. I do get it that if you make a billion dollars you can afford to leak out 50 million or so in tiny 100k bets in an effort to add to your unicorn stable. And that essentially is the proposition.<br />
<br />
500 Startups is in the business of buying cheap options. Build a portfolio of tiny $25k bets across a multitude of plausible businesses and ideas, and then look for that inflection point where they're getting traction. Typically this is when you start to see validation through revenue or audience. At that stage, your 25k has bought you the right to make a decision as whether to double (triple, quadruple, etc.) up.<br />
<br />
When Dave McClure says that these options used to be cheap, I believe him. In fact he says they are still. It reminds me of trading equity options in the early nineties. Before the '87 crash options, especially put options were insanely cheap. Afterward, options in general became extremely expensive as investors started to calibrate second level inputs into their models (skew and kurtosis as examples). You have to add to this the propensity of cyclical crashes. It's easier to understand the attractiveness of making a large number of high leverage, small cost events in the hope of another '87, '00 (dot com), '08 (housing) type event. In '93, my boss wanted me betting against this as the cost was far greater than the opportunity. We wanted to be like a casino that knows that occasionally someone on the roulette table gets lucky. 500 Startups sees it more like pre- '87. Things are still cheap, and the portfolio of long ideas properly structured looks likely to show an outperformance. Take the roulette example. Right now portfolio investing in startups is like playing roulette, except that occasionally instead of paying out 35-1 on a 37-1 event, you get a jackpot that pays out several million to one for the 37-1 event. That's why these options are still cheap.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKHdmLUqDyJoHq5wVPFMdt7sW7jM91POnezsy9yZECFrGDbMHxRvcfqX2S3QqwVI73DQWs1KY8Xf1dA3Ag3fyMuNid-mCNTrS0gCSwUiWhhH2Q_fW0vdd5lvgn56zrm6DFyQMKaOfKDTg/s1600/patterns-of-successful-angel-investing-by-simeon-simeonov-20-728.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKHdmLUqDyJoHq5wVPFMdt7sW7jM91POnezsy9yZECFrGDbMHxRvcfqX2S3QqwVI73DQWs1KY8Xf1dA3Ag3fyMuNid-mCNTrS0gCSwUiWhhH2Q_fW0vdd5lvgn56zrm6DFyQMKaOfKDTg/s1600/patterns-of-successful-angel-investing-by-simeon-simeonov-20-728.jpg" height="308" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">And just to prove the point about option pricing, here's a Monte Carlo from <a href="http://www.slideshare.net/simeons/patterns-of-successful-angel-investing-8306787">Patterns of Successful Angel Investing by Simeon Simeonov</a></td></tr>
</tbody></table>
It's interesting to an equity guy like me that the optionality in the startup world didn't get more expensive. If crashes lead to liquidity events, that in turn make options more expensive because the risk reward ratio has changed, why hasn't this happened in the case of the tech world? Part of the answer according to McClure is the downward spiral in business costs associated with tech startups. In 1999 $25k wouldn't have got you much computer power. Now $25k gets multiple computers, some office space, and some server capacity, for a good chunk of that crucial first year. The founders biggest cost is time and sunk costs before being in a position to market the idea to an accelerator or angel. The leverage available has increased to compensate for the failure rate. Meaning the portfolio theory is still valid.<br />
<br />
I hope none of the above sounds too disingenuous because it's not as simple as throwing darts at a list. Say, 500 Startups hears from 1,000 businesses each year and interviews 10%. Then they offer a small fraction of these some cash. That task is enormous in itself. And think about it this way; if you believe that the opportunity is in the portfolio and not trying to find unicorns then this is what you have to do. That's why as an investor you may be better off putting your cash into a fund rather than trying to build your own portfolio of options. I haven't looked at the returns from 500 Startup's various funds because that wasn't the idea of the presentation. Don't get me wrong, I wanted to ask Dave about his Sharpe Ratio, but somehow that seemed a bit rude given that he'd just sold me a very cheap option on investing in his world. Fishburners kindly brokered that transaction.<br />
<br />
Thanks to Dave McClure of 500 Startups and Murray Hurps of Fishburners for allowing me to attend the event. Please don't hesitate to contact me directly through my website <a href="http://www.ibcyclist.com/">http://www.ibcyclist.com</a> if you'd like to hear more about what I thought of this and other events I've written about in the blog.<br />
<br />
Ciao!<br />
<div>
<br /></div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com2tag:blogger.com,1999:blog-2076697729940208207.post-83039809848578918342014-12-01T03:29:00.002+01:002014-12-01T18:06:33.440+01:00Another @BBYltd Disruptive Lunch . . . Smart
engineering. #Maestrano, #Palantir, and #PowerbyProxi<a href="https://maestrano.com/">Maestrano</a>, <a href="https://www.palantir.com/">Palantir</a>, and <a href="http://powerbyproxi.com/">Proxi</a> are all examples of smart engineering companies. Only Proxi makes hardware; Maestrano and Palantir are software companies. Each company is disruptive of an existing platform, and each had a good story to tell last Thursday at BBY's offices in Sydney.<br>
<br>
A partner at one of the largest investment firms in the world once said to me:<br>
<br>
"Mike, your business structure is too smart. You've outsourced everything. I know these guys and this firm. We even recommend this firm to some of our investment managers. No one has ever come into this office and presented me a structure like this one. It's all too clever. If you want us to invest, you've got to bring some of this in-house."<br>
<br>
We never moved the staff in-house because the cost in Switzerland would have killed us on day one. I'm not sure what that investor would have thought if Maestrano had existed in Geneva in 2010. Maestrano is for want of a better phrase a networking platform for outsourcing software. Stephane Ibos is the CEO, and a Frenchman, who swapped the northern winters for southern sun and settled in Australia after working for defense giant Thales. He was "grandes écoles" to the core. That's a good thing in case you're wondering. Ibos' Maestrano presentation had all the hallmarks of a sound engineering background.<br>
<br>
The Maestrano offering targets SME's. You subscribe to gain access to your personal platform that integrates various software providers on one coherent dashboard. One platform is controlling everything from CRM to Ops. From this dashboard Maestrano claim that you'll be able to forget about the old days of outputting excel data files from (say) your client management system and then trying to upload it into your accounts system. No more upload errors from mismatched field names, in fact, no more "CSV" files clogging up your hard drive.<br>
<br>
As is my usual practice, and as I class myself as an SME, I took the time to sign-up for a free trial of Maestrano. The first thing I did was take a look at what apps I could "purchase". Thirty-six apps currently are available to users. As an example, I went straight to the accounting section, as currently I, like many SME owners run my business on a spreadsheet.<br>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgylQiIil2TGQKrS85CVi9AMR5Sb8FqPSz2STe0lDxcSdXEQ4g0yRZuPJRxouqusj9i784j7g0ahyphenhyphengKBVypQdZP5LUlWHKNeeJqEb2ofV6VbbghewqEQRk0d4ytP3U70FqueSyrmwd6IAg/s1600/Maestrano+3.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgylQiIil2TGQKrS85CVi9AMR5Sb8FqPSz2STe0lDxcSdXEQ4g0yRZuPJRxouqusj9i784j7g0ahyphenhyphengKBVypQdZP5LUlWHKNeeJqEb2ofV6VbbghewqEQRk0d4ytP3U70FqueSyrmwd6IAg/s1600/Maestrano+3.tiff" height="152" width="320"></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br></div>
There are six apps in accounting to choose from, so I selected "QuickBooks" and checked out the basics.<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWNkA9yGe_R2jElzqocHS4xvqm7nqoRCtKpwTQMbT3LctivrPxvesM-SizLuy1l7a2oggXhHuShHu4hPm4gvEKuLmPaIsSC7YTfCKeaSVWaUl7EoMEZOXfDuv0FOwBWo8QXeOWzD8P8L4/s1600/Maestrano+2.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWNkA9yGe_R2jElzqocHS4xvqm7nqoRCtKpwTQMbT3LctivrPxvesM-SizLuy1l7a2oggXhHuShHu4hPm4gvEKuLmPaIsSC7YTfCKeaSVWaUl7EoMEZOXfDuv0FOwBWo8QXeOWzD8P8L4/s1600/Maestrano+2.tiff" height="137" width="320"></a></div>
<br>
You get a nice introductory page with some screenshots and a summary. Once you select the app it will appear on your dashboard.<br>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTV0SplBPUz_ItMAV9E4HkKUbvBHsmJcw3K4khSBeZyXxO_WWz0arca1S_OEfjslCTOkZJGGei-CWo00PNI2lcUhj4TEMzOQdzSu9GlQiCLcMgTBFUc5T0NZWiiXSyZ4PPYnvZu3Bp2vo/s1600/Maestrano+1.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTV0SplBPUz_ItMAV9E4HkKUbvBHsmJcw3K4khSBeZyXxO_WWz0arca1S_OEfjslCTOkZJGGei-CWo00PNI2lcUhj4TEMzOQdzSu9GlQiCLcMgTBFUc5T0NZWiiXSyZ4PPYnvZu3Bp2vo/s1600/Maestrano+1.tiff" height="154" width="320"></a></div>
<br>
In order to get things started you use the data upload wizard. Although the wizard is somewhat manual compared to what you'll be doing once you're up and running, it's straight forward in terms of process. Just hand over the "keys", or in my case the excel and you'll be populating apps before you know it. The only problem I see is the personal embarrassment of showing people how unorganized you currently are.<br>
<br>
So what's it cost and how do they make money? You buy a license for a specified number of users. In my case, that would be 1-5 simultaneous users. You then select your apps and pay USD 29 per month, per app. Plans cover 6 - 10 ($89.70) and 11 - 20 (179.40) users. After that, you just call them up and ask for a deal. It's simple, and efficient. No more managing individual pieces of software, it's all on your dash and you get one convenient invoice.<br>
<br>
I liked Maestrano and see it as an easy "go-to" for start-ups keen to keep costs down and stay on top of their business. Their revenue is roughly 50 / 50 Australia / USA. There's a new JV project in the Dubai that will cut into that geographical revenue split by adding $17m into the business. Right now there's 2,200 businesses signed up, and CEO Ibos said they were looking to float the company in the second half of next year.<br>
<br>
Palantir is hard to talk about, not because of their presentation, but rather because this is about metadata engineering on the edge of everything the public knows. One of Palantir's first investors was In-Q-Tel, a venture capital firm that invests in high-tech companies for the Central Intelligence Agency. That probably explains why I felt the presentation was somewhat obtuse.<br>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrHa1PebfzW3jVADBfx5Fr4Wx6CRhk6WaIfY8Pv_2i8tFL4bAYXm-XTal1ewykfnVJEVRyjXEsc7CslJem7XJxI3H2rtuklj_SRmRkwZgPgTsWvrCbL38ztOufcQGBB61ClAH_Uoh4h9s/s1600/Palantir+1.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrHa1PebfzW3jVADBfx5Fr4Wx6CRhk6WaIfY8Pv_2i8tFL4bAYXm-XTal1ewykfnVJEVRyjXEsc7CslJem7XJxI3H2rtuklj_SRmRkwZgPgTsWvrCbL38ztOufcQGBB61ClAH_Uoh4h9s/s1600/Palantir+1.tiff" height="170" width="320"></a></div>
<br>
<br>
The core clientele for Palantir is unsurprisingly governments. They also count major industrials as contributors to their revenue line. They don't have a sales force, just 1500 staff, mostly engineers. It felt like you don't choose to do business with Palantir; rather they choose you. To quote the presenter: "We don't want to deal in the mundane." It's a unique approach to business and had most in the room smiling enviously.<br>
<br>
The Palantir business is about risk management and mitigation. They build systems that help entities defend against cyber threats, fraud, and internal threats. This means if you're able to engage Palantir they can help you understand everything from customer churn, client lifetime value, retention analysis and even provide predictive metrics across a whole range of fields.<br>
<br>
Their main competitor is <a href="http://www.autonomy.com/">Autonomy</a>. Palantir would characterize themselves as more a bespoke consultant, rather than off the shelf software house. Palantir staff get embedded in the client's problems. But what does Palantir offer? My understanding is that they trade in unstructured data and give it form via various types of algorithmic analysis. I didn't get that from the presentation. I had to do some data mining. Palantir product is employed by counter-terrorism analysts at the U.S. Department of Defense and fraud investigators at the Recovery Accountability and Transparency Board. Cyber analysts at the U.S. Information Warfare Monitor (responsible for the GhostNet and the Shadow Network investigation) also employ them. In fact, watch "Zero Dark Thirty" and you'll get the picture. If you're a bank looking for certain characteristics amongst your staff that might see them skirting compliance or racking up a series of "false" trades, then Palantir can help.<br>
<br>
One interesting aspect was the emphasis on dealing with potential rights violations from their activities. The presenter was at pains to make it clear that Palantir seeks to engineer protections within its software. These protections mean if you're not authorized to see a particular stream of data and (I assume) the statistical analysis associated with it, then you can't see it. I don't know about the other members of the audience but after Wikileaks and Snowdon I am somewhat skeptical of this claims.<br>
<br>
As an investor, it's very unlikely you'll ever be invited to become a shareholder, unless the company lists on a stock exchange somewhere. The best thing you can say as an investor about Palantir is that it shines a ray of light on what is possible in metadata. If Palantir is uninterested in the mundane, then there are probably companies out there happy to deal in the dull in exchange for good returns. Investors should be looking companies who not only collate big data, but are expert in its analysis.<br>
<br>
I didn't envy Proxi CEO Greg Cross when he stepped up to the lectern. If Meastrano was logical and Palantir was fascinating, then Proxi was easy to understand.<br>
<br>
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/RWDBPFQQJno" width="560"></iframe></center>
<br>
Proxi engineers wireless power solutions. You've probably seen examples of charging pads that you just place your smart phone on to charge. These are "resonant induction chargers". The chips that control the process are the result of 20 years of hard work by Professor John Boys and his engineering department at Auckland University. They have produced 252 patents and applications for patents. The University remains a core shareholder, and the company comprises 70+ employees. They've already raised $25m and licensed their technology to some big players such as Texas Instruments and Samsung.<br>
<br>
The market for this type of charger is likely to grow to $15bn by 2020. CEO Cross says this is conservative. I thought the most interesting statement Cross made was the industry is all about standards. I'm not sure many people in the room understood exactly how important this was. This was acknowledgment that better products don't always win. Sony's Betamax failed to build a business case for a technology that was better in nearly every way than its main competitor VHS. If Proxi wants to get value for its patents, it needs them integrated into accepted engineering standards. That is why Proxi still has some execution risks, and why they need to spend so much of their time courting chip companies as partners.<br>
<br>
I suspect Proxi would like to be a standalone entity, preferably with a public listing. Cashflow should start to be less of an issue with some new chips coming on line in the next 18 months. It's an interesting business, much in the way that several smart hardware companies have been at these lunches in the last nine months or so.<br>
<br>
Finally, investors who follow the blog might want to look back at my notes on Sydney smart power meter company <a href="http://ibankcyclist.blogspot.com.au/2014/06/disrupt-this-and-ride-up-that.html">Wattcost</a> as they won the first-ever SingTel Group-Samsung Regional Mobile App Challenge last week.<br>
<br>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEimUk2wxYL9SJ4UaDKfFkrPDmkRxCbhI449rDKJwea3vMU2Nj2iH8TjDcIja7ur3pBdF5QigOsfZJacIuLvS8A0NTnIAu7-0kq5S4Yf3lSF5qXFGbU6PRCO-5T70Q3u6m6i_WXnwReixcQ/s1600/Wattcost+2.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEimUk2wxYL9SJ4UaDKfFkrPDmkRxCbhI449rDKJwea3vMU2Nj2iH8TjDcIja7ur3pBdF5QigOsfZJacIuLvS8A0NTnIAu7-0kq5S4Yf3lSF5qXFGbU6PRCO-5T70Q3u6m6i_WXnwReixcQ/s1600/Wattcost+2.tiff" height="400" width="290"></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Back on June 10, 2014 . . . remember this one?</td></tr>
</tbody></table>
<br>
The contest attracted more than 500 submissions from across the region. I picked it as a "no-brainer" earlier in the year and suspect that after a recent street meeting with co-founder David Soutar that things are progressing nicely. Have this one on your favorite news ticker and be ready with a cheque if given the opportunity to invest.<br>
<br>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgov9Cx4HOPrpdXg-feesfDt0SUTP5z1AgjuxBCQSKunFleOswolxq7xhy80x_fklXmt6Lrm2L90Fo-CQ_UVOhprdf15YjgXpdeqn_LhkfOVlELdgaQa0QJWNKLUmtZtaoxmkC9EY8RhG0/s1600/Wattcost.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgov9Cx4HOPrpdXg-feesfDt0SUTP5z1AgjuxBCQSKunFleOswolxq7xhy80x_fklXmt6Lrm2L90Fo-CQ_UVOhprdf15YjgXpdeqn_LhkfOVlELdgaQa0QJWNKLUmtZtaoxmkC9EY8RhG0/s1600/Wattcost.tiff" height="207" title="President and Head of Samsung Media Solution Center, Dr Won-Pyo Hong; Minister of Communications and Information, Dr Yaacob Ibrahim; SingTel Group CEO, Ms Chua Sock Koong and Optus CEO, Mr Allen Lew present prizes to the winning team, Wattcost. " width="320"></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="color: #152227; font-family: HelveticaNeueW01-55Roma, 'Helvetica Neue', Helvetica, Verdana, Arial, 'Liberation Sans', FreeSans, sans-serif; line-height: 19.600000381469727px; text-align: start;"><span style="font-size: xx-small;">President and Head of Samsung Media Solution Center, Dr Won-Pyo Hong; Minister of Communications and Information, Dr Yaacob Ibrahim; SingTel Group CEO, Ms Chua Sock Koong and Optus CEO, Mr Allen Lew present prizes to the winning team, Wattcost. </span></span></td></tr>
</tbody></table>
As always contact me for further information or introductions to the companies mentioned here via my website www.ibcyclist.com.<br>
<br>
Ciao!<br>
<div class="separator" style="clear: both; text-align: center;">
</div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-61627652276261733752014-11-11T03:35:00.002+01:002014-11-12T23:39:15.612+01:00Updates and follow-ups . . . . #Disruptive / #Cycling / #InvestorAs promised, I finally managed to catch-up with a few of the companies I've recently seen presenting at BBY's Disruptive lunches. My promise to readers, companies and investors is to try and follow-up before making definitive judgements. Shooting from the hip always gets me in trouble, I've lost count the number of times I wished I slowed down and took a deep breath before gunning-up the revs on the IBCyclist analytical engine.<br />
<br />
<b>1. <a href="http://www.mainlinepower.com/?gclid=CjwKEAiA4YGjBRDOxa3XvfTnvSASJACC3bLBozBQvN9zbX_sqEews-NHKNLoFSUh29sXbIXKGyBVmhoC8QPw_wcB">Mainline Power</a></b><br />
<br />
M.D. Jonathan Clark kindly hosted me for coffee and a Q&A session at Mainline's office in Sydney. My practice is to save metrics for clients of <a href="http://www.ibcyclist.com/">IB Cyclist Consultancy</a>, but having said that the following broad points apply:<br />
<br />
Production logistics look likely to be a focus in the months ahead. Current lead times for the type of bulky orders that Mainline wins are challenging for them. The company is committed to reducing this time in the short term by about a third and Jonathan Clark seems optimistic on this coming down further over time.<br />
<br />
Mainline reminds me of the Japanese and Korean engineering and heavy industry companies I used to look at in my role as a hedge fund portfolio manager. As a public company with a long track record, you're able to set terms for order flow that suit your balance sheet and financing facilities. Mainline as a relatively young company is closer to a sub-contractor that is required to be a "just-in-time" supplier. Typically if you're at that end of the supply chain you want to be able to weather time management changes further up the chain. Therefore, while having a relatively clean balance sheet they lack sufficient buffer to take advantage of opportunities that require extra business dexterity. This is not an unsurmountable problem, but something that needs attention and commitment on by the board.<br />
<br />
I should also mention that the meeting gave me a chance to get a close-up look at the power track and the associated plug options. It was pleasantly surprising how well engineered the fitting between the plug and track was, almost reminiscent of that satisfying "door clunk" you get on better-engineered luxury cars. On an aesthetic note, the basic black or white track is fairly industrial in feel and appearance. The company has been trialling some of the 3-M adhesive wraps that we're seeing used to give car interiors and exteriors finishes that mimic anything from carbon fibre to wood grain. If this comes through I can see the architecture community being more supportive of the product.<br />
<br />
Finally, a quick word on product cost. The power track is clearly more expensive than fixed power points. The like-for-like comparisons fail to take into account the flexibility that I wrote about in my previous blog. This flexibility is the key to the product. Strategically placed tracks should help fit-out companies and landlords alike in cutting down costs associated with tennant turnover.<br />
<br />
I remain positive on Mainline's product offering and am available to discuss the various metrics I was able to glean with IBCyclist clients.<br />
<br />
<b>2. <a href="http://limerocket.com/">Lime Rocket</a></b><br />
<br />
The feedback I got regarding my blog comments on Lime Rocket's crowd based games model were mostly concerned with how I'd failed to grasp the engagement aspect of the core app. Last night I went to the Toxteth Hotel in Glebe to check it out for myself. The Toxteth is a fairly typical inner-ring pub in a young-skewing area close to Sydney University. It's a neighbourhood that should be fertile ground for Gen X & Y types looking for good food and an entertaining night out.<br />
<br />
BuzzyTV is the app you'll need to participate. The idea is that the various venue screens project the games onto them, presenting various possibilities. Choose the right answer quickly, and you get max points. Take too long and instead of 12 points (that was max for the games I was playing) you might only get two points. The points accumulate, and the venue owner has a feed of everything that's going on, and therefore can award prizes, etc., for the best players. Last night I counted three games on a loop, not ideal, but it's still early in development. I didn't see any rankings appear on the screens, so you didn't know how you were doing relatively to other players. Was it a glitch? Maybe, but it needs highlighting, as I gave up a bit when I missed a couple of answers due to technical problems.<br />
<br />
On the technical side; the version I downloaded from the Apple App store is apparently older than that you can get on Android right now. The CEO Mark Gardiner leant my wife his own Samsung Galaxy 4 to try a new app, and it had a much sleeker, and dare I say more adult interface. The Toxteth didn't offer a WiFi link, so I was at the mercy of telco provider Optus. Mike's phone was on Telstra, and he got a 4G signal that allowed for quicker and faster syncing with the action on the TV screen. Optus had me on a 3G and kept dropping out. That is and isn't Lime Rocket's problem. As I said to Mike, the short attention spans of the crowd he's trying to capture doesn't give them much wiggle room for technical glitches. Ideally WiFi is the solution, and venues who want to make the most out of this need to fit it out as soon as BuzzyTV is available. If you're not convinced perhaps they could restrict the use of the WiFi link to BuzzyTV users by asking Lime Rocket to generate a password at venues that users can use when playing the game?<br />
<br />
The app update for Apple should be available soon. I understand the team's frustrations with the Apple ecosystem, but they are not alone in complaining about the pipeline problems with the Cupertino mothership in respect of apps.<br />
<br />
I remain sceptical of all the parts working in the short term. Mike told me of some of the new games and functions they are experimenting with, so let's just call what I saw version 1.0. I'm happy to waive my usual fees in exchange for a glass of wine and light snack for any client wanting a competitor for the evening at the Toxteth. BuzzyTV is available Monday and Tuesday nights.<br />
<br />
<b>3. <a href="https://www.institchu.com/">InStitchu</a></b><br />
<br />
Of all the companies and products I've looked at in the last 12 months, I get more questions about my InStitchu suit than anything else. My guess is the low (sub-$500) price point, promise of personal tailoring, and quick delivery time (4 weeks), has many readers wanting to try out the product.<br />
<br />
I chose a fairly plain navy blue InStitchu suit, single breasted, two buttons with double vent. In addition, I opted for notched lapels, working cuff buttons and flat fronted trousers. The cloth is supposed to be Zegna, and to be fair seems to be of a high quality. I've worn the suit a half a dozen times in the last two months. From business meetings (I had it on during my visit to Mainline), to upmarket artists exhibitions I've had a few compliments. I don't advertise the fact that it's an InStitchu, so maybe I'm a clothes snob?<br />
<br />
Noticeably the fit of the suit is what I'd call "Italian". Meaning it's fairly slim in the limbs as well as having a slightly pinched jacket torso. My first impressions two months ago was that the sizing was close to what I was used to at my regular tailor, and that remains the case after recent use. I know of another wearer who was a little disappointed with the fit. I'm not sure he'd bought many tailored suits, so probably wasn't as demanding as I've become when it comes to measurements. Of course, the whole idea of the InStitchu business model was to transition from standard fitting sessions towards body scanning. As readers know, the body scanner link to InStitchu didn't work properly in my case. As I've decided I like the product, I'm thinking of venturing back to the scanner booth and trying again. After all If you're looking at investing in this business because it's a disruptor, then you want to be confident what the team says works, does work.<br />
<br />
So, the bottom-line grade on the InStitchu experience is a solid B. If the body scanner link can be shown to work I'd mark that up to an A-. If you're wondering what it would take for me to give an A+, think 3 week production time, product tracking and an option to go super premium on materials to some cashmere blends (with associated cost implications).<br />
<br />
<b>4. Other meetings of interest this week</b><br />
<br />
On Friday, I'm seeing Alex Martell, a former fellow investment banker who's come up with an interesting app for we wine "tragics". This is yet another version of the crowdsourcing tilt we've seen of late. In the case of "<a href="https://angel.co/vinus">Vinus</a>", you photograph the label of a wine, and it identifies it and hooks you into others who may have had the same bottle. You then get to see people's opinions and ratings. It doesn't currently hook into a pro-database like some similar apps as it wants to make use of the wisdom of the crowd theory. I like the idea, but as a former wine snob, I am still somewhat reluctant to take the advice of a man or woman in the street view of my favourite beverage. To me, crowdsourcing the subjective is always a bit fraught with danger due the vagaries of fashion. Look, for example, at the "ABC" drinkers (Anything but Chardonnay). Offer half of them a good village cru Puligny-Montrachet and they'd find it hard to guess it's a 100% chardonnay. The same goes for Chablis with it's flinty minerals being a long way removed from the over-oaked $12 offerings that a lot of drinkers may be familiar.<br />
<br />
I'll report back after I see Alex, and hear what he wants to accomplish with the app. Prima facie I'm positive on most of these shoot, identify and action apps.<br />
<br />
<div style="text-align: center;">
--------------------------------------------</div>
<br />
A reader sent me a mail recently asking me about my cycling. I've been so pre-occupied getting the consultancy up and running that I've spared blog followers the trials and tribulations of my recent cycling adventures. I can report though that eight days ago I, along with 9,999 other Sydney cyclists did the annual ride to Wollongong, some 90km's south of where I am now. It's a great day out, and even with a 30km headwind most people seem to have survived the ordeal well.<br />
<div style="text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgA8w3yphSVrmI5ovEhBnbOy7Zj3qM8Pakzd0MFzQ9Rt_4x-AdYLp-Qicd288HJWBs0c7Xmr9e0N5jzuI2OlK9gfAJc1PCr1bHP9LhI9NUohjDGBnwJbsBGsa0FL7KAB3aywoNlR8v9Pls/s1600/Gong+Actual+Ride.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgA8w3yphSVrmI5ovEhBnbOy7Zj3qM8Pakzd0MFzQ9Rt_4x-AdYLp-Qicd288HJWBs0c7Xmr9e0N5jzuI2OlK9gfAJc1PCr1bHP9LhI9NUohjDGBnwJbsBGsa0FL7KAB3aywoNlR8v9Pls/s1600/Gong+Actual+Ride.tiff" height="392" width="400" /></a></div>
<div style="text-align: left;">
<br /></div>
I rode the Cannondale Evo, though I was sorely tempted to add on the Campagnolo Bora's. The guys at Cheeky Monkey dared me to tempt the puncture gods and ride the tubulars, but I wimped out.<br />
<br />
While on the subject of my favourite bike shop, it won't be long until my green repaired Evo goes off to Mark for the mechanical rebuild. Apologies to all those I've bored to death with tales from the dark side of eBay as I've attempted to equip my reborn steed with the finest Italian components at the lowest possible price. The last of said components is now on its way from Starbike in Germany. Overall I've estimated a 40% saving versus the equivalent regularly available components. Some of that, of course, is because I've been buying Campagnolo, which is not well supported by retail in Australia. There is, of course, the fact I'm rebuilding at the end of the European peak season, so many components are on sale as shops look towards the 2015 spec equivalents. Most of the time there's only minor changes. In my case, the hunt for Campagnolo's Super Record group components has been helped by an unusually high number, but aesthetically minor changes leading to heavy discounting of 2014 stock. I intend to have this done before Christmas, and would like to publish a blog and associated photos of the build.<br />
<br />
Finally, as a treat, I thought those of you looking for a challenge next summer in Europe might be interested in the footage of a particularly interesting ride.<br />
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/eV5K4BICr6w" width="560"></iframe></center>
<br />
This is Mike Cotty, probably my favourite endurance rider at the moment. He's a long time Cannondale fan and now Mavic sponsored super-rider. That's 1,000km's non-stop over some of the most famous climbs in Europe. Before I saw this I wanted to ride the Stelvio, now I'm not sure. Dust off those air miles and feel free to contact me if you'd like to try some of that terrain. I can't promise to join you, but I'm happy to connect you to some good bike mechanics and excellent stopping points.<br />
<br />
Ciao!<br />
<br />Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-71631759570480705992014-11-03T01:49:00.005+01:002014-11-03T02:48:05.429+01:00Disruptive Lunch: Mainline Power, Lime Rocket and Farmbot. Some sexy and some practical.Too often when we think of disruptive business models our collective minds conjure up visions of computer screens, smart phones, personal sensors and scrolling lines of computer code. The Disruptive Lunch at BBY last Thursday reminded this blogger that although the use of software is at the forefront of many developments, there's still a place for some cleverly engineered hardware. Three businesses presented their disruptive models, and of the three <a href="http://www.mainlinepower.com/">Mainline Power</a> was the most accessible, <a href="http://farmbot.com.au/">Farmbot</a> the most Australian and, <a href="http://farmbot.com.au/">Lime Rocket</a> the most Gen Y / Millennial.<br />
<br />
Mainline Power offered a view of their power track system. The power track offers a flexible alternative to traditional power points, as it allows users to tap into fixed power at any point along the track. Additionally, the "plug" can be placed at a myriad of angles allowing the user to avoid the anguish of awkward plug/transformer situations where you're unable to use a socket because of restricted space. We were also shown their data module that uses power track to access conventional electric systems for the transfer of data.<br />
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div style="text-align: center;">
<iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.blogger.com/video.g?token=AD6v5dyjHtQtyfY99dSQCd7aE9Thw-JrDu9_svMCYFr6EsGtuYVgRWxSbHu5rL5sYn7Bda1qnn1kGXe_rcTRuZuSUA' class='b-hbp-video b-uploaded' frameborder='0'></iframe></div>
<br />
Jonathan Clark, the Mainline Managing Director, gave a comprehensive and honest assessment of the product and business. I always enjoy it when management is honest regarding missteps they've taken. In the case of Mainline the business, according to Clark was somewhat unfocused in targeting its ideal consumer of the product. The problem with the power track system is that you could apply it anywhere a traditional power point is located. In reality, it's more an industrial, semi-industrial product because the main selling point is its scalability. Therefore, the Mainline team has refocused on the educational niche winning business in universities and schools where staff and students require facilities to recharge the now ubiquitous laptops and tablets they take from location to location. The above video shows the system. As much as I'd like to have this in my kitchen or ideal room, I prefer to think about the possibilities in situations where crowds gather.<br />
<br />
In terms of the actual revenue numbers and details regarding current cashflow, Clark didn't elaborate, which probably is the fault of those of us not asking him about it during the question period. There were some examples of mandates, including a middle eastern high school. That school is the first of 35, with the inference being that if you get the first one right the likelihood is that further mandates will follow. The only competitor Clark mentioned was Singapore based and was a higher cost and complexity supplier. Mainline was quite open in saying they are looking for investors, preferably those with some insight into the building sector in general. I'll be following up with Jonathan Clark this week with a view to getting further information about installation cost comparisons, current order book and the size and type of financing they are seeking. Mainline Power might lack the sex appeal of some of the offerings we've seen recently, but investors shouldn't ignore the amount of infrastructure investment currently taking place across the globe.<br />
<br />
Farmbot just felt very Australian to me. The emphasis on rural water supply management in the continent of such vast distances and limited rainfall seemed like something that should have come about a while ago. Having said that I know at least one blog reader in the agri-engineering sector who'll know doubt send me a mail with several examples of midwestern US companies doing a similar thing. Given that Farmbot says they have a number of very specific patents on various pieces of the technology involved in their offering I'll just deal with what was presented.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjq854EV2GHVfAB-_1pdKgcCXtxeJvk7WyGdVI7NbB-fvyapLN21OQJAzMTS1_fZAzh_T6Wa2g7wiIw5HTolnMR2SIfMnSWAXLZMzNaCTA_3RHJVNxYV3L7CEnhrYEnLl9VirghDAxv9so/s1600/Farmbot.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjq854EV2GHVfAB-_1pdKgcCXtxeJvk7WyGdVI7NbB-fvyapLN21OQJAzMTS1_fZAzh_T6Wa2g7wiIw5HTolnMR2SIfMnSWAXLZMzNaCTA_3RHJVNxYV3L7CEnhrYEnLl9VirghDAxv9so/s1600/Farmbot.tiff" height="192" width="400" /></a></div>
<br />
<br />
The Farmbot system uses fixed receiver stations that can pick up signals from sensors anywhere within 35kms. That's a lot of square kilometres and a good start for a system that costs about $150 per sensor and a subscription of $416 per year. I'm not sure whether that price of $416 is per user or per receiver station, but in any case it is cheap given the requirements of running a rural property in Australia. I didn't catch the receiver station installation costs, but I sensed that the business being reasonably new was still finding its feet regarding pricing. Apparently stations are up and running in the Hunter Valley area of New South Wales. I also didn't catch the number of sensors you could have per station. Right now Farmbot is concentrating on water management, but other sensors such as soil moisture and gate status are imminent. In the future, the list of sensor types is only limited by your imagination, but Farmbot lists:<br />
<ul>
<li>intrusion alert sensors</li>
<li>traffic sensors (including number plate recognition)</li>
<li>river level sensors (flood resistant)</li>
<li>weather station (simple and advanced)</li>
<li>electric fence monitoring with fence power level / health measurement</li>
<li>electric power usage</li>
<li>general machine sensing</li>
<li>fuel tank levels</li>
<li>custom sensor platform for user specified or supplied sensors</li>
</ul>
I'd like to see some automation sensors added that activate systems, such as heating, cooling, etc. These would permit greater distance management possibilities for small farm owners.<br />
<br />
So what else do get with your Farmbot subscription? The data is cloud based. Anytime a sensor triggers a warning the property manager gets an SMS with details. That message will provide a link to the owners account via a browser that provides the current status and historical data regarding the water source being measured by the sensor in question. All this should according to the company save $1800 per year for a property based on four water inspections per week, 30 minutes of travel and a 4 km round trip per inspection. It should cover its set-up costs by the end of the first year, making this a great system for industrial scale projects and management intensive semi-hobby properties. Personally I see this as an interesting solution for small communities of properties that lack scale normally to run commercially viable operations. Surely a single caretaker, manager could cover several small farms simply and quicker than what is now possible? Farmbot seems to be in Version 1.x right now, meaning investors might want to take a closer look at this one sooner, rather than later.<br />
<br />
I'm going to try and see Lime Rocket's offering of venue based games this week in Sydney. As an early Gen X investor (over 40 years old) I need to see and preferably "touch" some of these social media type offerings. As the long time readers know, I usually join (Posse), subscribe or buy something (InStitchu suit) from companies that I see at this type of corporate event. I take the view that if you're going to give an opinion or provide an investment case to someone that you need to have some experience of the offerings.<br />
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/7le-vSJWB9s" width="560"></iframe></center>
<br />
Lime Rocket is difficult for me as it's predicated on the idea that venue crowds are more smart-device focused. This means you need to grab the attention of individuals if you're going to maximise their revenue per head in your venue. Simply put you want people to stay longer and spend more if you own or manage one of Australia's 60,000 pubs or clubs. I can understand that impulse, but electronic trivia games with prizes? I don't understand much of what Gen Y does, but are they going to embrace a night out spent hunched over a smartphone trying to remember the names of the Mutant Ninja Turtles? Perhaps that's unfair, and exactly the reason I'm donning the jeans and Pink Floyd T-shirt and heading to Glebe in Sydney this week to check-out what Lime Rocket is doing?<br />
<br />
I don't think it's any coincidence that Lime Rocket CEO, Mike Gardiner is ex-Tabcorp Australia. Tabcorp provides various gambling platforms for users in Australia. As someone who's spent time looking at the pub sector in Australia during the early part of the century, I was very concerned about the reliance these venues had on video poker machines to drive revenue. That gaming machine model fell apart when regulators and governments put a limit on the exponential growth rates we had seen in poker machine numbers. Lime Rocket looks to me to be taking up the gap between poker machine acceptability and the need for something that engages venue "goers". This, of course, is not a bad thing if you believe that it works and unlike many of the listeners at BBY on Thursday I wasn't as enthusiastic about this as some. Gardnier's team also hopes to provide their offerings to arena type venues on the "jumbo-trons" that we're seeing more often. I'm still of the view that at arena venues crowds gravitate to apps that allow them to pre-order food, upgrade seating or win prizes without the game add-ons. This blogger is not going to pretend that Lime Rocket is going to succeed or fail on the strength of one presentation. I am pledging to be at the Toxteth Hotel this week to see why I should be more positive. If you're a reader with a thirst for trivia or just a good beer, then contact me, and I'll happily compete to see who's got the juice when it comes to Lime Rocket.<br />
<br />
Ciao!Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com1tag:blogger.com,1999:blog-2076697729940208207.post-8494325569645543682014-10-22T03:09:00.001+02:002014-10-22T03:09:48.718+02:00Google's Alan Noble is happy. Another BBY Disruptive Lunch.Maybe I'm wrong, maybe Alan Noble, Google's Chief Engineer in Australia is more than just happy, maybe he'd describe himself as feeling awesome, or fantastic, or something equally as hyperbolic? To me confidence and happiness have a very positive correlation, and usually if a person is happy they have a clear idea or confidence in what they're doing. Alan Noble exudes positiveness in spades, enough to have those attending BBY's Disruptive Lunch last Thursday leaning forward in their seats, intent on hearing the latest from the heart of the starship Google.<br />
<br />
In many ways, it was a deceptively simple conversation. Noble gave us four or five themes, depending on how you grouped some of the subtler sub-themes.<br />
<br />
<b>Cloud Computing</b> allows the flexibility and mobility to escape being shackled to a device or environment. The old paradigm of licensing installed software to a single computer is changing fast. The ability to deliver applications across multiple devices cheaply is well established, but yet to take hold completely. Noble used the example of Adobe Illustrator, an expensive and unwieldy graphics package that may suit high-end users, but is difficult and restrictive to the retail level enthusiast. The disruptive counter is Canva (https://www.canva.com), which allows you the flexibility of accessing the programme from any of your devices and pay for what you use.<br />
<br />
<b>Omnipresent Computing</b> (my terminology) is the v2.0 of the cloud where devices are continually assembling and formulating situational solutions. If the cloud was about connectivity, then omnipresent computing is about making better use of your cloud based data. Take, for instance, the current trend in wearables. I record all my exercise activity by wearing a number of sensors (heart rate monitor, cadence pod, etc.) and then export the data to a 3rd party to assemble in a usable form. The new wave seeks to collate the data and push through advice or actions. The algorithms will start to learn, rather than just be a set of field based conditional actions.<br />
<br />
An example of this is what if the device you used to book a taxi started to learn when you're most likely to want to call for one. Maybe it's a result of knowing not only the weather or time of day, but also your physical state? The device might then proactively "push" a solution. Google's self-driving car is another example. Imagine a car that not only learns to drive the speed limit, but also knows your driving characteristics, such as when you prefer to slow-down or speed-up. Might it also predict routes and climatic control settings?<br />
<br />
The interesting thing about Google is that they don't expect all the devices, software and platforms to succeed. Some of them are just about testing the limits of the theme. The car is a great example because of the staggering number of possibilities. Noble mentioned that Google Maps came from the Australian engineers, and he seemed to suggest that there was no particular outcome envisaged when they started the project. The result, of course, was an open API that let others capitalise on the data to produce various outcomes. I had a chance meeting with a Sydney based firm that was leveraging Google Maps to produce interactive solutions for university campuses. That firm had just won a mandate in California. If their solution starts to go from learning your timetable to know how you interact with your environment the possibilities for efficiencies and of course revenue start to add-up.<br />
<br />
<b>Software</b>. . . For blog readers, you'll know that one of the most consistent themes of these lunches was the advantage of software solutions over hardware. Alan Noble and Google are about software. He called the software "the beast let lose". We've known for a while now that if you're a business the quickest way to low margins and extinction is to tie yourself to hardware. Apple might sell a lot of devices, but it also sells a lot of software through its app store. A smartphone without apps is not a smartphone, and a smartphone that is not merging the data in the cloud will get left behind.<br />
<br />
At a previous lunch, we got to see Ollo Wearables and their solutions to aged care via mobile monitoring and voice control. The team there are focusing on software, not hardware. The data is the king, and the way you can leverage the data through the software will drive hardware manufacture.<br />
<br />
This all leads to <b>Big Data</b>. If the software is the solution, then its only as good as the data it gets. This is where it helps to be open in your use of applications. Noble characterised it as the individual trading data for higher levels of service. The smart use of data leads us to the algorithmic targeting of ourselves.<br />
<br />
If those were the big trends, then the delivery of all this seems to have coalesced around the philosophy of building the product first and getting the revenue later. The comparatively low cost in plant and equipment is allowing for wider experimentation with solutions to various problems. You get the sense that even if Google's biggest cost is the engineers they need to implement their various philosophies, they're still a comparatively cheap commodity given the outcomes they've already achieved. Google in Sydney has 500 engineers. If you said that to the man on the street in Sydney I bet they'd be surprised, but shouldn't be. Consider instead that if all this scalability is coming down the pipeline that perhaps we are understocked in engineers and overstocked with lawyers, bankers and maybe even teachers and doctors? <br />
<br />
Finally, a note on Google as a business. Alan Noble raised a few eyebrows in a room of bankers when he said that Google wanted to remove the stigma of failure from their team. I even heard a few nervous stifled laughs when he said this. I can imagine as an engineer at Google going to Noble and saying: "well it didn't work, but we got some interesting data." I bet those nervous laughs were thinking: "are you kidding. That's a great way to get cut." Google calls their skunkworks "Moonshot X". There's a reason for that. You set a goal that seems as impossible as Kennedy's statement in 1960 that the US was going to put a man on the moon, and you see how far you get. Along the way, you throw off all sorts of data and products, some of which might justify the end goal without ever getting there.<br />
<br />
If Google as a business is maturing when it says it's trying to focus on fewer things, then you shouldn't be fooled into thinking that those core projects aren't being leveraged into other areas. Giving away, your API might seem strange to the monopolistic instincts of a room full of bankers. To a room full of software engineers they see it as a chance to mine more data and to use that data for further crazy projects.<br />
<br />
This was a great lunch to attend. Anyone who got an invite and didn't show-up is just plain crazy. If BBY through Nick Dacres-Mannings had opened this to the public, I reckon he could have filled a pretty big auditorium with profitable, paying tech acolytes. And thanks to Alan Noble for sharing his insights.<br />
<br />
Ciao!<br />
<br />
<br />
<div>
<br /></div>
<div>
<div>
<div>
<br /></div>
<div>
<br /></div>
</div>
</div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com1tag:blogger.com,1999:blog-2076697729940208207.post-46691523013262069612014-10-15T01:11:00.001+02:002014-10-15T01:11:09.626+02:00IBCyclist Consultancy the website, some events and the spring cycling season opens in Sydney . . . It's taken some time, but the Investment Banker Cyclist Blog is going to morph into the <a href="http://www.ibcyclist.com/index.html">IBCyclist Consultancy</a>. For long time readers there won't be any change to the way the blog is published. The idea is that for a new generation of followers interested in actively pursuing my services I've created a website that gives a basic outline of what I offer. <div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOSH7NughrVcS-OUaQloc-ZQFRoskg9WYfsbVYEyxH086nnRiOBitevZO7vEEiFDS1iFJF40V3-G_IefnZgbCuwrY9PgKBIdlhw6eKsRRZJ_I138S0pl-AQ2VvQS4Jjrp9h_S-_If4T40/s1600/website+ibcyclist+v+1.0.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOSH7NughrVcS-OUaQloc-ZQFRoskg9WYfsbVYEyxH086nnRiOBitevZO7vEEiFDS1iFJF40V3-G_IefnZgbCuwrY9PgKBIdlhw6eKsRRZJ_I138S0pl-AQ2VvQS4Jjrp9h_S-_If4T40/s1600/website+ibcyclist+v+1.0.jpg" height="255" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
The site is v1.0, and I'm asking people for feedback before upgrading using the professional design group that worked on the Beca Asset Management site for me in Switzerland. </div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
As this entry is more a short news piece until a longer piece tomorrow readers might wish to know my movements in the coming days. On Thursday I'll be at a lunch being hosted by the team at BBY in Sydney for a presentation and hopefully Q&A session with Alan Noble of Google. I'll be writing about the lunch for the blog in the coming days. </div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
On Sunday you can find me at the <a href="http://springcycle.com.au/ride-info/ride-options/#classic-ride">Sydney Spring Cycle</a>. I'll be doing the 55km ride from North Sydney to Sydney's Olympic Park, and riding back to the eastern suburbs after a short break. Look out for green bib number "1770". </div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPPOlOJTTFOqz6uxiptrc7aP9tLb5O6SbnvSefzQWN43QUu5dQjf6UFrxXyPJHiL5NrFXhqv0hel5pWSfwWCr5H2gKwv75xWQGQPiqZEm_n2U0clWSuYokuRrcz_z5JoRw34NujENAQxw/s1600/SSC.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPPOlOJTTFOqz6uxiptrc7aP9tLb5O6SbnvSefzQWN43QUu5dQjf6UFrxXyPJHiL5NrFXhqv0hel5pWSfwWCr5H2gKwv75xWQGQPiqZEm_n2U0clWSuYokuRrcz_z5JoRw34NujENAQxw/s1600/SSC.tiff" height="178" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
There's a 100km option, but that's a bit boring as you make up the additional 45kms by doing laps around the Olympic Park. The ride home is about 25kms for me, and I'd be happy to share all or part of the journey with any of my readers. Look out for my one of kind Cannondale SuperSix Evo in red, white and blue.</div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqPnU1pmgm94tjyScQMfYp-ZxgzDgcAakBoSerW-8pCjHUrF36fYkGTJsSpiKEoWgWVpF1Z5KMphL7O7RmZvGAJgW2Gkm1_X46Xwsvf-7idUJxm5hvzS6IJLypl6_wDHj7Oiq7moTVtjU/s1600/IMG_1678.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqPnU1pmgm94tjyScQMfYp-ZxgzDgcAakBoSerW-8pCjHUrF36fYkGTJsSpiKEoWgWVpF1Z5KMphL7O7RmZvGAJgW2Gkm1_X46Xwsvf-7idUJxm5hvzS6IJLypl6_wDHj7Oiq7moTVtjU/s1600/IMG_1678.JPG" height="320" width="240" /></a></div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
After that I'll be riding from <a href="http://www.msgongride.org.au/about/the-course.asp">Sydney to Wollongong on November 2nd</a> wearing bib number "4215". That one is a 90km ride for Multiple Sclerosis. I'll be setting up a donations page soon, for those interested in sponsoring me for a great cause.</div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsF6o9dTPFOuVbXK8fRYEWLXjfhQzhfQ6d7sNJZkQU41ruCmsWEn9_DejsHrkhCTYo0ImlQWOE5WGJRxL3jZrCGaCdCvr-XQ6u_MubbmvN1Ebs2Vup-IpPqi4_2qanEP1NbQ4cMg-HVIs/s1600/gong+ride.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsF6o9dTPFOuVbXK8fRYEWLXjfhQzhfQ6d7sNJZkQU41ruCmsWEn9_DejsHrkhCTYo0ImlQWOE5WGJRxL3jZrCGaCdCvr-XQ6u_MubbmvN1Ebs2Vup-IpPqi4_2qanEP1NbQ4cMg-HVIs/s1600/gong+ride.tiff" height="320" width="266" /></a></div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
Ciao!</div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div>
<br /></div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com2tag:blogger.com,1999:blog-2076697729940208207.post-59639879384893423262014-10-09T01:48:00.003+02:002014-10-09T06:01:17.535+02:00The "I'm going to need a bigger brain" BBY Disruptive LunchI defy anyone sitting in last Thursday's Disruptive Lunch at BBY in Sydney to correctly outline to me how the proposed computer chip from Brain Chip (http://brainchipinc.com) actually differs from current technology. Probably like me, if you were taking notes, you wrote down something like:<br />
<ul>
<li>5000 times faster than a normal chip</li>
<li>Mimics biological brain architecture</li>
<li>Learns tasks, rather than relying on software</li>
<li>"Spiking neuron platform"</li>
</ul>
It all adds up to my personal conclusion that I'm going to need a bigger brain. Brain Chip is offering a technology that for 99.99% of the population only exists in science fiction. Robert Mitro (CEO) claims that the technology developed by Chief Technology Officer Peter Van Der Made (see his new book: http://higherintelligencebook.com) is perhaps 25 years ahead of anything else currently available to industry. The chip will have the capacity of 10,000 neurons. That means little until you understand that the human brain has 86 million neurons. A fruit fly has about 3,000 neurons, which means if you're interested in the sounds that this fly species makes it should be possible for you to have the chip learn all the characteristics you need to build a detector. It's difficult to explain because Brain Chip is proposing something that is such a revolutionary leap that it comes under the heading of "if you build it they will come". I thought the best question of the day was "what are the limits of the chips learning potential? Say you had the chip learn how to hear like a human. Wouldn't it just keep learning until it had some type of superman like capability?" The answer was slightly ambiguous in that Mr. Mitro said that BrainChip sold the kit, but didn't set the boundaries of what the user could do with it. <br />
<br />
According to the time-line, there's two years and $6m dollars between now and producing a chip. In between now and then it seems we'll see an example of the chip in action via the form of a car racing game that learns to drive itself. Apparently Google has taken an interest, as have various neuro-science bodies in the US. I asked Mr Mitro after the presentation whether that $6m figure was correct given just how revolutionary this was likely to be, and he stood by his statements. As an investor, I think it's right to be sceptical. To me, what Brain Chip is proposing is so big picture that it tests my limits of understanding. If you've spent too many hours reading Asimov then welcome to a new reality. This is the proverbial game-changer if they pull it off. <br />
<br />
I felt far more comfortable when Hugh Geiger from Ollo Wearables (http://ollowearables.com) stepped up to the mic. The company's focus is on tech solutions for the aging population. It's a familiar theme at these lunches. I first encountered the business opportunities of a demographic shift in the late 90's when the Japanese equity market started to throw up vague ideas of baby-boomers retiring to the country to fish, play golf and ride bikes. What we didn't think of then was the tremendous drain this would have on government and social support structures. Ollo Wearables is looking to fill the gap in the market that exists between conventional communications solutions and fully managed aged care. <br />
<br />
Ollo is focused on voice-centric solutions. Geiger comes at this from a familiar angle; he had an aging relative hurt in a home accident and was unable to get to a phone to alert the family. I've also had experience with this as one of my aunties slipped in the bathroom and died because she was unable to get help. Therefore, I can appreciate the Ollo's wearable communications focus. The technology focuses on voice-controlled dialling, but includes other software controlled sensors such as an accelerometer that tracks the wearer's movement and physical activity so that family members know immediately if the wearer has fallen. They'll also be other biometric sensors that will help build a picture of the state of your loved one. The device uses a conventional GSM transmitter. The key is the software's ability to put it all together. Ollo don't want to join the race to the bottom in hardware manufacture, but rather license their software. Mr. Geiger was sporting a star trek inspired necklace (produced by LG of Korea) that is similar to a device that was used recently for trials of seniors in Missouri.<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeI_JOKqJ-vBbr-6UF4F9PgEn9E7PXDXlnhXF9jLLJ4pDoTc1W7QGmPioFwMnMpPxUuQrIzgQnD562rcg4cfJKFuIo2E0eFz5H-fMJw4z260POvxMaHRtjiHlnWRE-GEpayAnIE6R-W5I/s1600/Ollo+Wearables+Pro.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeI_JOKqJ-vBbr-6UF4F9PgEn9E7PXDXlnhXF9jLLJ4pDoTc1W7QGmPioFwMnMpPxUuQrIzgQnD562rcg4cfJKFuIo2E0eFz5H-fMJw4z260POvxMaHRtjiHlnWRE-GEpayAnIE6R-W5I/s1600/Ollo+Wearables+Pro.png" height="103" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Similar to the LG model seen at the lunch</td></tr>
</tbody></table>
<br />
Apparently the necklace provides the optimum compromise in terms of sensor and voice control. It's also an ergonomic issue, whereas a watch has problems both for use as a phone or as a sensor to measure falls, the neck has access to your voice centre, pulse (via carotid artery) and provides a better indicator for accelerometer measurements. Additionally the voice control functionality doesn't require the synthetic learning process that I've encountered with voice control in several cars I've owned. That's a difference maker when you are dealing with a senior citizen who may lack patience with technology. Put it on and use it immediately. <br />
<br />
The revenue for Ollo comes from licensing agreements. The team has relocated to San Francisco. Ollo is a serious company and investors if given the opportunity should seriously consider any equity offering.<br />
<br />
The first two companies were so hi-tech focused I think I'd burnt myself out by the time the joint CEO's for Posse (https://posse.com) / eCoffecard (http://www.ecoffeecard.com.au) / Beat-the-Q (https://www.beattheq.com) started their pitch. This one is a great example of something we're going to see a lot more of in the social media sector. This is a rationalization that is supposed to end, as so often happens with these things with a big winner. The land grab here is for 55,000 shops and about 500k users. When Rebekah Campbell (Founder and CEO of Posse) showed, a short video of what the new entity is all about my first thought was that I'm too old to embrace what I'm seeing. I don't have a copy of the video, but let me set it out for you:<br />
<br />
<ol>
<li>Business hipsters find café / restaurant on the app</li>
<li>Enter establishment and activate app, which shows establishment's menu</li>
<li>Place order via app</li>
<li>Establishment accepts order and notes you have been geolocated to a specific table</li>
<li>Food arrives, eat, and then you're prompted if you'd like anything else</li>
<li>Pay via app and exit café / restaurant</li>
</ol>
<br />
All I could think was that Gen Y is going to kill the atmosphere at my favourite places. I'm already a little annoyed by people on smart phones. There's nothing more annoying than people on "ph-ablets" in low lighting environments "SMS'ing", etc. away. That, of course, is my problem, not Posse's. The problem for me is that the revenue model is based on up-selling establishments into the highest of three levels of analytical offering. If you own a café and have an MBA, you'll want to Posse to rationalize you're massive student loans and the 16 hours a day you spend working on your business. If you don't have the skills to use the stat packs, then Posse may make sense in a cost sense whereby you might save a headcount because of the self-service nature of the app. I remain sceptical on this particular segment. I have used eCoffeeCard and have recently signed up and reviewed a couple of local haunts on Posse (search: The IBCyclist Collection).<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1-xQcdrfaTdKvx39HnLyKWvjwmKzvXd3EL4_vaVmSRz8b7F-TRsdfy_Rtd5PGTFGmoULqI6oNL1QSZSRpUe-ql836cCAx1Q1vZSbBYS2Zxt4bE6I9O3KTkcJFR2E1gEzgXDwqfsVBDcI/s1600/Posse.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1-xQcdrfaTdKvx39HnLyKWvjwmKzvXd3EL4_vaVmSRz8b7F-TRsdfy_Rtd5PGTFGmoULqI6oNL1QSZSRpUe-ql836cCAx1Q1vZSbBYS2Zxt4bE6I9O3KTkcJFR2E1gEzgXDwqfsVBDcI/s1600/Posse.tiff" height="266" width="400" /></a></div>
<br />
As an investor, I recommend not trying to pick winners in this market sector. Instead if you are committed to this segment you need to take a portfolio approach. I remain engaged, but not committed. <br />
<br />
For those who've been wondering, I've finally taken delivery of my $450 Institchu suit. My plan is to review it after a couple of more outings. First impressions have been good. I went into the Institchu pop-up office in central Sydney to take delivery. I was surprised by how busy the space was, but the staff was friendly, although a little surprised when I said I wanted to try it on. The suit was delivered as specified by me except for the coloured felt I asked for under the collar. I'm not a particular fan of that particularly English affectation, but ordered it to test Institchu. It's not a deal breaker, but if you're fussy, it might be annoying. I did get working sleeve buttons and everything else I had specified. The suit came to me on wire hangers and the staff member needed to be asked for some type of covering for transportation, which was duly supplied. An acquaintance who took delivery via mail told me he was a little miffed that his suit was tightly folded in a box and needed pressing before wear. Look, you get what you pay for, and given the price I wouldn't quibble about the wire hangers or perfunctory packing. Please look-out for the full review soon.<br />
<br />
Ciao!<br />
<br />
<br />
<br />
<br />Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-67784110600033694642014-09-29T05:15:00.001+02:002014-10-01T06:16:57.378+02:00A not so #disruptive lunch? Disintermediation, integration and
maintaining a cadre of thinkers in a changing world.Sometimes a disruption comes in different forms and a lot of times as I've said previously it can take the form of a slight tweak on conventional thinking. Thursday's disruptive lunch at BBY (twitter: @BBYltd) in Sydney was rather dichotomous in that it presented us with a truly radical disruption in the form of a Bitcoin pioneer and an old world firm that was looking to transform itself by acquiring disruption by acquisition.<br>
<br>
When Ted Pretty stepped up to the podium at last Thursdays Disruptive Lunch at BBY, he looked like anything but a disruptive force in Australian business. In fact, Mr. Pretty looked like your favourite uncle taking a break from tinkering with machinery in the garden shed just long enough to lecture you on some esoteric subject. Instead of 30mins on the virtues of a good torque wrench and lawn mower maintenance we got an insider look at the reshaping of Hills Ltd. (ASX: HIL).<br>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkZSg6FU1zAW8cpGf282XUQcQeTHA_rbH2s3d6aQuNl5bHO3AsXQLCmonykTdfQLF9JHOgpKdLohYcPWzqD6qK1pFOImZdYEgACrY-l7GWSKIP_FMQKaAFpGyq2bKqaUMvzKFWzueEYwQ/s1600/Hills+Ltd.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkZSg6FU1zAW8cpGf282XUQcQeTHA_rbH2s3d6aQuNl5bHO3AsXQLCmonykTdfQLF9JHOgpKdLohYcPWzqD6qK1pFOImZdYEgACrY-l7GWSKIP_FMQKaAFpGyq2bKqaUMvzKFWzueEYwQ/s1600/Hills+Ltd.tiff" height="228" width="400"></a></div>
<br>
For my non-Australian readers Hills came to prominence in Australia on the back of the post-war housing boom with its ubiquitous Hills Hoist clothes line. Every house seemed to have one and this enabled Hills to prosper and grow into a conglomerate centred around various products that leveraged the metal fabrication core that drove the company. Today Hills is a much different beast and Mr. Pretty went through his management team's current thought process:<br>
<ul>
<li>Economic numbers in Australia are of concern and likely to point to a downturn in the next 18months. Given this the challenge for Hills is to decide whether to buy bolt-on businesses now or wait for the economic cycle to reduce the entry cost of such acquisitions</li>
<li>Focus on security and health as these sectors are growing at 6 - 8% per annum. The investment case is compelling with the demographics of an ageing society being the main driver. Security leverages similar metrics with some extra twists (see below)</li>
<li>On the "hardware" side margin compression remains the one constant. Race to the bottom requires a shift to value-add via back-end software enhancements and a move into smart overlays to connect the on the ground sensors</li>
<li>Security is the ultimate disruption concern for the world. This divides up into the now well-documented areas of terror, global crime, social behaviour and economic terror </li>
<li>The challenge for Hills is to leverage their existing "foot in the door" and increase the revolving revenue stream possibilities</li>
<li>The business is already in a better position to track product trajectory by knowing more than what and when they sold a product, but also to know where in the cycle their customers are and therefore offer appropriate upgrades and replacements</li>
</ul>
The central logic of all this seems hard to argue with within the Australian context. It helps to know that Mr. Pretty spent a significant period at Telstra Australia during the transformative 1997 - 2005, so has the advantage of being involved in a business that had to change from hardware to software if it was going to grow. At the moment I got the sense that Hills is still struggling to lift what I'll call "add-on" revenues, though I haven't dug into the numbers and the full scope of the businesses they've been buying. If I understood correctly (and I'm happy to get feedback on this) "services" revenue is at about 10%. While Mr. Pretty didn't give us a target number on where he wants this portion of revenue to go I got the sense his ultimate goal with Hills is to turn the business into a consultancy of sorts. Looking at my notes, I wrote down: Does Ted Pretty want to be Louis Gerstner? Of course, Gerstner is famously credited with saving IBM by turning it into a consultancy based business during his period as CEO. Given that Pretty was at Telstra when Gerstner took an axe to IBM the chances are he's well-versed with the play book. The trouble is its an easy strategy to understand, but a hard one to pull off as it relies on buying the right businesses at the right time and cutting old product lines to finance the transformation. IBM got rid of the PC business to Lenovo because of margin compression, Hills probably still has a few businesses that could go out the door in a similar fashion. Ted Pretty and the team have some challenges and look determined to execute. I have no view on the stock price, but I like the idea as an investor that Hills is of a size that makes it easier to monitor the various acquisitions, divestments and the effect on the balance sheet. Think about it this way, if Google buys a $5bn business it's a bit like throwing a stone in the ocean, the effect is minimal and hard to see. If Hills buys a $10m business, it's likely to have an effect that is far more observable.<br>
<br>
Zhenya Tsvetnenko is the Executive Chairman of Digital CC Ltd (ASX: DCC) which styles itself as a Bitcoin-centric business offering various services to companies and individuals who want to participate in the Bitcoin currency. I think this was one of those rare occasions at events such as this where I gave up taking notes as I struggled to get my head around the Bitcoin world. Essentially I'm still running to catch-up with the likes of Mr. Tsvetnenko, but here's where I am.<br>
<br>
Bitcoin is a digital currency invented (if that's the right word) to dis-intermediate various financial institutions from transactions involving two parties. Consider this; you contract to buy a product from a producer, but in order to complete the contract you pay a fee to at least one other third party to facilitate the movement of the agreed consideration between the two of you. That fee may be in the form of the banking charges on your accounts, a credit card fee or some other charge added by a wire transfer service. The value-add by these groups is minimal to the contract itself and therefore in the world of Bitcoin is a cost that could be reduced at a minimum, or better still eliminated. To accomplish this the inventor(s) created a cryptographic protocol that essentially awards Bitcoins to those working to administer the system. This is called mining. The protocol throws off about 25 Bitcoins per hour and is bounded by an upper limit of 21m Bitcoins. Now this is where it gets fuzzy for me because I think as Bitcoins are produced is gets harder to solve the encryption and it costs more and more to be a successful miner because the amount of computing power you need to participate expands continuously. It's kind of like an arms race. In the meantime part of the mining process is the administration of the public ledger. Every Bitcoin transaction is available on the ledger. That means you can trace the exact owner of each bit coin (or fraction thereof). Having said that, the transactions themselves are anonymous, so prima facie you can see where central banks and governments might have a problem with this. The upside, of course, is complete control of the money supply making it inflation proof (given the upper boundary), because unlike fiat currencies issued by Fed, ECB, BoE, etc. Bitcoins can't be produced ad infinitum. For mine, it's like being back on the gold standard when it was at its strictest.<br>
<br>
Readers of this blog will know my concerns regarding the current fashion for QE amongst central bankers, and this is in essence what Bitcoin is trying to solve. Bitcoin in a way is the ultimate answer to an ageing world where the biggest risk the individual has is that he or she wakes up one morning to find the cash they have in their bank accounts is worth progressively less. It's not as though we haven't seen this phenomenon before. It's only a few years back that Zimbabwe's central bank decided to keep the printing presses rolling until the currency was worthless. For me, Bitcoin is the synthesis of all my own and many other investors most neurotic concerns about the global monetary system. That doesn't make it a bad thing, rather it shows once again that man is extremely adaptable to his environment when challenged by even the most disruptive events. The key is hopping on at the right time.<br>
<br>
When Zhenya Tsvetnenko finished his presentation, I looked over at Ted Pretty to see his reaction. I think like me he was still trying to take it in. I know at least one of his team was there and is very pro Bitcoin, so I'll guess he had the basics already, but answers, well that might be a bit more difficult. It's hard when you've got a business and business plan that you see as transformative to consider that there's even bigger forces at play that might even scupper your best ideas before the ink is dry on the contract to complete a transaction. It's happened to me, and I'm betting it's happened to most of my readers. Buying a copy of "Bitcoins for Dummies" probably isn't going to be enough given the various vectors that could influence the course your investments might take. You can't get a bigger brain overnight, but as always you can choose to confront the change rather than ignore it.<br>
<br>
Generally CEO's have a pretty high opinion of themselves. Why shouldn't they, especially where the profits and growth match the hype? I saw this on my twitter feed over the weekend, and I responded as follows:<br>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjigO1AXB23Hif8QE7bb1cLBRjVJtsFHiuGyAr7-ppjVXe9rCYhogTmx9MabkL0Kwrvo0Iwls_JO6_MFq0fTKkQz-8CCAS3QiedwNdZctF060AIJYQnZY84ajtbgcs2UR-IwUFeArFtwa0/s1600/Future+Leaders.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjigO1AXB23Hif8QE7bb1cLBRjVJtsFHiuGyAr7-ppjVXe9rCYhogTmx9MabkL0Kwrvo0Iwls_JO6_MFq0fTKkQz-8CCAS3QiedwNdZctF060AIJYQnZY84ajtbgcs2UR-IwUFeArFtwa0/s1600/Future+Leaders.tiff" height="178" width="400"></a></div>
<br>
It seems somewhat nonsensical to worry about future growth when your most successful tactic has been to cut deepest fastest since the crisis. I've always been a fanboy of Caterpillar, a company who responded swiftly and effectively to the downturn, but even they reached the limit of what's possible under this plan. Consider this, if your company is being driven by a top-down strategy of "shrink to grow" should you be surprised when those executing the shrink part have lost the ability to respond when and if the J-curve comes?<br>
<br>
The surprising thing to me is how often I've heard that whole departments at banks no longer exist, mainly because they're deemed as unprofitable because of the volume or regulatory capital required to operate them. It reminds me of armies post-WW1. The defence establishments caught most on the back foot by 1939 were those that essentially eliminated their cadre of further leaders. I'm already seeing the first signs that the investment banking world is fighting back against its own establishment. Take last week I had several meetings and teleconferences with individuals displaced from financial institutions looking at a way of reconstructing business lines at a lower cost. I wasn't surprised to hear that in my favourite financial sector of Peer-to-Peer lending that investment bank Jefferies had successfully <a href="http://www.ft.com/intl/cms/s/0/d6903c54-4447-11e4-8abd-00144feabdc0.html?siteedition=intl">securitised part of a company's loan book</a>. It seems funny, but also logical to me that even though P2P was supposed to dis-intermediate banks that what it may have, in fact, created was an opening for the potential losers to become winners again. I don't know the securitisation team at Jefferies, who did this deal, but I'm sure that they understand the lifeline that they've been thrown. Recently I looked at a similar type of use for the loan book cash flows of a P2P lender and came to the conclusion, that someone would have to step-in to scale the returns to facilitate the growth of the business.<br>
<br>
Finally, I've spent a lot of time in the last week considering the CalPers decision to axe hedge funds from its portfolio. On the face of it, I bet whoever it was at CalPers who finally pulled the plug would say it was the easiest decision they ever made. That to me seems very short term thinking and is designed to hide their own underperformance. Consider the current environment. We have ultra-low volatility in nearly any market you care to contemplate. Add to that a huge limitless put option sold by central banks via QE. How then does a hedge fund manager differentiate him or herself and produce alpha?<br>
<br>
It's interesting to consider the correlation between HF performance and volatility. On one hand volatility is often seen as a "dilutor" of performance while on the other hand it opens up the ability for funds to express themselves through situational developments. If an index such as the S&P 500 experienced mild volatility (+/- 1% per day) for an extended period I would bet on Alpha returning. Therefore if like me you're watching as the Fed and the BoE turn from doves to hawks you'll no doubt be considering the return of volatility, and the likelihood for renewed differentiation amongst investment alternatives.<br>
<br>
As to the question of HF fees, it seems that funds will need to adapt to the new environment by openly auctioning their capacity to investors. They should drive fees and salaries down, but produce more efficient and sustainable winners.<br>
<br>
CalPers may have surrendered to the "shrink to grow" strategy at the very moment the cycle was turning and in doing so may have released the cadre of professionals they'll most likely need in the coming years. Those let go will be free to create their businesses that will ultimately disrupt the behemoths that once were their employers. I think Mao may have put it best in considering his own problems running a nation as vast and complex as China:<br>
<br>
<i>Letting a hundred flowers blossom and a hundred schools of thought contend is the policy for promoting the progress of the arts and the sciences and a flourishing socialist culture in our land. Different forms and styles in art should develop freely and different schools in science should contend freely. We think that it is harmful to the growth of art and science if administrative measures are used to impose one particular style of art or school of thought and to ban another. Questions of right and wrong in the arts and sciences should be settled through free discussion in artistic and scientific circles and through practical work in these fields. They should not be settled in summary fashion. </i><br>
<div style="text-align: right;">
<span style="font-size: x-small;">(On the Correct Handling of Contradictions Among the People, February 27, 1957)</span></div>
<br>
Ciao!<br>
<br>
<br>Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-68511177208967698722014-09-15T04:51:00.002+02:002014-09-15T04:51:19.749+02:00Another disruptive lunch: @BBYltd @lawpath @gocatch @safesitetech and Soliton MusicLast weeks latest edition of the BBY Disruptive Lunch series had me pondering the following question:<br />
<br />
<div style="text-align: center;">
<i>Exactly how radical does a business plan have to be in order to be seen as disruptive?</i></div>
<br />
For some reason investors I've spoken to somehow regard disruptive businesses as being inherently revolutionary, but that's not always the case. Sure, a business can come along with a completely new technology that challenges the way a service or product is delivered, produced, maintained, enhanced or challenged, but more often than not it's a incremental shift in thinking that can be successfully disruptive. In fact it's probably the biggest, most traditional industries that find it hardest to defend themselves in the face of the smallest shifts. The reason for this is often the mindset that says . . . "its worked like this for many years and is providing a stable and even growing return for our investors. This is something we've seen coming and we feel we can adequately deal with it." The companies that I was lucky enough to see presenting at BBY last Thursday are in my way of thinking representative of small shifts with larger consequences, rather than radical challenges in themselves. For investors that can mean a safer, more easily understood investment case, but also one likely to, if rightly combated by the entrenched leaders more easily repelled if directly challenged while still in their infancy.<br />
<br />
Safe Site (http://safesiteapp.com) CEO Peter Grant presented his work site safety app that was easy to understand and immediately accessible to anyone who's ever picked up a smart phone type device. In fact if like me you've used the "Snap, Send, Solve" app to report anything from dumped garbage to fallen trees to your local council you'll immediately understand the simplicity and flexibility of the Safe Site offering.<br />
<br />
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/E_3ZRcTDQuw" width="560"></iframe></center>
<br />
For those new to this type of workflow manager it works by identifying a problem and automating the reporting process. Take for instance an exposed cable on a building site. On a huge construction site it's obviously not enough to start wrapping electrical tape around it etc., the fault is a) likely to be far more dangerous in an industrial setting, b) perhaps emblematic of a larger fault in systems of construction, supply or manufacture, or c) applicable across multiple worksites in terms of solution. All of this requires a complicated and somewhat time consuming production of documents and reports. Safe Site simply streamlines this process and automatically produces these reports at first contact and ensures their delivery to appropriate managers, services and regulators in a timely, logical and traceable manner. Furthermore it allows for the systemised collation of safety data useable by everyone from practitioners, insurers and I predict investors in a project so as to best provide a safe and minimally disruptive worksite.<br />
<br />
Safe Site as a business is at it's core a subscription based service charging on a per user basis, though single tradesmen can use it for free. It currently is already being trialled in Australia and impressively in my view the US where it is already in use in California. My only question given my own use of Snap, Send Solve was just how do they propose to protect their idea from like minded disruptors or current stakeholders (surely a smart Union could do this)? Well Peter is very logical in his defence and clearly emphasises his own engineering background and the experience of members of his advisory board. For mine there's still somewhat of a "land-grab"element inherent in the business plan. The company is taking a softly-softly approach with the construction unions and trying to work both the top-down and bottom-up line. There's no guarantee of success, but I know that with the current Royal Commission into Unions and various investigations into the construction industry in Australia there is at least some fertile ground and first mover advantage for the team. The fine balancing act that Safe Site will have to execute is not simple, but is at least understandable and investors and practitioners alike gravitate to industry wide standards in this field and therefore should keep a close eye on the adoption rate of the app.<br />
<br />
I use "App Annie" (http://www.appannie.com) to track app download charts and stats. The site has various tools for estimating metrics associated with an app. It's not free to get the higher end stats, but it does provide a basis for understanding the iOS and Android marketplace. Note this down.<br />
<br />
There was at least one existing investor in GoCatch (http://www.gocatch.com) in the boardroom on Thursday. I had been told about this Taxi booking app a few times over the last 6 months, but hadn't got around to taking a close look at it due to the fact that I rarely catch taxis anymore thanks to my trusty bikes and my proximately to reliable public transport.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifzk47GdUwIIx3IuUi4N0fzwsAxkG0Awz5Y0ZuBxixHeyPk5bY7MePCtXl5mRo9rsNyhNL89hWe705G17KLbmnOxhiciGqoSae9wWIvCgeSzA-AHBrjKy5bO5Qz9BgOp1hubqO5bm-I3A/s1600/GoCatch.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifzk47GdUwIIx3IuUi4N0fzwsAxkG0Awz5Y0ZuBxixHeyPk5bY7MePCtXl5mRo9rsNyhNL89hWe705G17KLbmnOxhiciGqoSae9wWIvCgeSzA-AHBrjKy5bO5Qz9BgOp1hubqO5bm-I3A/s1600/GoCatch.tiff" height="131" width="400" /></a></div>
<br />
GoCatch caught me (pardon the pun) in a about 3 minutes of CEO Ned Moorfield taking the microphone. For international readers of the blog who are early adopters of Uber you'll need to understand that regulators and users of regulated car services in some countries have been less than enthused about the laissez faire nature of Uber. In Paris and Berlin the existing industry has fought back fiercely against the private market place by playing heavily on safety concerns and reliability issues. GoCatch is that safe halfway house for users and drivers in that it challenges not the notion of regulated taxis per see, but rather the entrenched infrastructure associated with them.<br />
<br />
The disruptive nature of the company, here in Australia at least is a challenge to the cost structure and service delivered by dominant credit service Cabcharge. Right now drivers pay a commission to cab charge and users of taxis also pay a premium to use the service. Right now the charge is about 11%. Go Catch brings that down to 5% and nets out about 1.5% of the journey charge. They get a commission from drivers as well because they in effect skirt around the existing Co-ops and their booking service which charges drives a regular fee no matter how reliant they are on the service itself. In fact drivers by regulation have had to be associated with such a Co-op, but this is changing and the State of Victoria is introducing legislation that allows drivers to be 100% independent, yet regulated and therefore they can adopt the user pays model that GoCatch essentially is. So far they've got 4,000 drivers using the service and in August managed 45,000 trips in the months and are on track for 800,000 in their 2014 year. Current average fare per journey is $29. They predict this to ramp up to 2 million in 2015 and 4 million in 2016. This will still only represent 1 to 2% of all journeys in Australia, so they would say they're being very conservative.<br />
<br />
Whats in it for passengers? Well first up the system instantly gives you a map with all GoCatch taxis in your vicinity, it even gives you idea on how busy they are. You book by entering your location and I believe a responding driver can see you on their app and accept the business as they see fit. You link your account to a credit card or Paypal and you can add a tip and even rate a driver at the end of your journey. For business users the app allows you to collate your expenses without the usual paper receipts that really are the bane of business travellers . . . I really don't know how many times I've lost a little piece of paper for a $50 cab fare to the airport and have been told by a company accountant "too bad". I asked two taxis drivers on the day of the presentation that I had caught the old fashioned way whether they'd heard of or currently use GoCatch? The first driver said he's heard of it and the owner of his taxi was going to get it. The other driver just said "why would I want that?" I went through the cost structure and got his interest, but I think he thought I was going to try and pay him with Bitcoin or some other exotic method. I told both drivers about the Victorian legislation change and how NSW was likely to adopt the same policy and the fact they weren't going to be locked into a network with its cost. GoCatch was for them a viable alternative and it got them both listening to different degrees. I'm positive that the deregulation of the Co-ops and some further direct marketing to the drivers will pay dividends for GoCatch. The fact that GoCatch is offering benefits to both the drivers and the passengers seem to me a big advantage and investors only then have to assess whether the existing players are determined enough to fight back on both cost and ease of use. Current evidence is that GoCatch may succeed in establish a bridgehead that can at least be fortified and defended in the short term.<br />
<br />
Law Path (www.lawpath.com.au) to me was a bit of a cut and paste of US success story Legal Zoom. I'm sorry if that's somewhat dismissive of the effort going into the company, especially given the advisory board has on it a member from the Legal Zoom team. Basically Law Path offers quick and cheap access to standard legal documents that you might require in setting-up and maintaining SME's of various varieties.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOoq_juaoafrl2xMv26e2udnq809inyPjSKPDq8QzLfGsRwQ9Uu-T0kafmJ735ExTpwIylJ2vzlpu8ELF1DADS_dX4cXcddYYxhbdsCiZBRt-B4ESt2VTMBA92cCL_8WOcYLE6zXlj21c/s1600/Law+Path.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOoq_juaoafrl2xMv26e2udnq809inyPjSKPDq8QzLfGsRwQ9Uu-T0kafmJ735ExTpwIylJ2vzlpu8ELF1DADS_dX4cXcddYYxhbdsCiZBRt-B4ESt2VTMBA92cCL_8WOcYLE6zXlj21c/s1600/Law+Path.tiff" height="296" width="320" /></a></div>
<br />
Obviously that encompasses the usual partnership agreements and company formations. The key to Law Path is building a supporting network of lawyers who are willing and able to act as the second level support for documentation that needs to be customised to the client. This also means that they can also act as referral system for what they say is an over-supplied market place. CEO Damien Andreasen is not a lawyer himself and is more like you typical serial entrepreneur. That's not a bad thing if you're trying to disrupt an industry that has a pretty big wall around built around it both in terms of jargon and licensing. He says they have 510 lawyers have already signed up, but because of time I never got a chance to ask him whether that meant 510 individuals or firms?<br />
<br />
Law Path is both subscriber (the lawyers) and obviously user (the client pays). I didn't catch the charges for practitioners. The scalability is also something I'm wondering about, as is the size of the Australian market and its entrepreneurial impetus. As an investor I like the story, but wonder if I wouldn't be better placed if I invested in Law Path UK or Law Path Germany. The positives are that the team Law Path has assembled seems to have enough debt and they have some first mover advantages and there's margin and excess capacity. Is that enough? We will see.<br />
<br />
Just as an aside wouldn't it be great as an investor if you could see the usage stats for Law Path or in the US, for Legal Zoom. The correlation to economic activity in the economy must be very strong. I know you could just track the financials, but that in itself might tell the whole story.<br />
<br />
Finally I got my second chance to here from the team at Soliton Music (www.soliton-music.com). I was luck enough to have a one on one with them back in June and wrote up a business summary for an investor I thought might be interested. I said at the time I wasn't really "Mr. Entertainment Industry" so needed to take a crash course in their space.<br />
<br />
Soliton Music is an Asia Centric business currently centered on music streaming in Hong Kong, they have the rights to 1.7m+ songs currently. These are delivered via partnerships with various HK telcos. They have approximately 20,000 subscribers. The company intends to reposition itself towards live streaming of concert and associated events for which it will charge a variable fee. Delivery is via web / app. The current app will be replaced around the time of the company going public. At this time they will seek to port across their Telco based subscribers to form the core of the new customer base.<br />
The company aims to list on the Australian Stock Exchange in November.<br />
<br />
Soliton’s plan is highly dependent on acquiring the rights to concerts and live events. The intention is to do this via the acquisition of individual promoters. They say that typically these promoters have a 12 – 18 month stream of events in their books and can be acquired for USD 1- 2m per promoter. None of the management team to my knowledge have ever executed the buy out of such an agency and as such are by their own acknowledgement dependent on their biggest non-executive shareholder to be mentor in the targeting process of said promoters. After the acquisition of a promoter Soliton will acquire the rights to the concert books and associated live broadcast rights. Promoters usually take 10 – 15% of the gross. Soliton says they can offset between 30 – 60% of an event’s cost by co-producing with record labels. Soliton’s main value-add will be the on-sale of the events via live streaming for up to USD 10 per event. This amount will vary widely depending on the artist involved. It may also vary depending on whether the subscriber decides to accept advertisements during the show, though this feature will not be active during the building of critical mass. It is envisaged that associated events will be added to various concerts such as “meet the artist” broadcasts where the performer will share pre-concert talks and fan “greets” via streaming. These will attract a fee. Other opportunities will include direct merchandising involved with the event.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyrePVQz-G9XRFk-MiIawZWd0wGQR41-acoAYxx-KTSVPJy052MwZXgmdFWomfk08xKIhNCdYP4ys2F8sLBjntmcz2jVKOXmDQ-KOoAoArof-5pXcGVIg6o6c3RHkr9RA5G-KnhvJ5SB0/s1600/MUsic+Industry.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyrePVQz-G9XRFk-MiIawZWd0wGQR41-acoAYxx-KTSVPJy052MwZXgmdFWomfk08xKIhNCdYP4ys2F8sLBjntmcz2jVKOXmDQ-KOoAoArof-5pXcGVIg6o6c3RHkr9RA5G-KnhvJ5SB0/s1600/MUsic+Industry.tiff" height="238" width="320" /></a></div>
<br />
Any investor will ultimately have to be convinced that the management team is capable of building a larger database of subscribers in a limited time period. It would be comforting to see an example of a recent transaction where a promoter had sold out to a larger entertainment entity in Hong Kong. Perhaps I'm too old and vanilla for this one, but for the hipper, more Asia aware it's probably worth investigating the segment further.<br />
<br />
Ciao!<br />
<div>
<br /></div>
<br />
<br />
<br />
<br />Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-89515555598092901422014-09-11T01:13:00.001+02:002014-09-11T08:27:50.691+02:00Scotland, Branding and the unbearable pressure of details I'm all-in for Scottish independence. I've always thought that Scotland was up for something a little more "socialist" than the UK elections have ever tossed up. Essentially the country wants to go down the road of a massive increase in public sector employment. The problem with this is that unless income increases to support this rebalancing of their economy they'll leave themselves exposed to greater volatility. And thats where I come in. We're already seeing a big increase in the volatility of Sterling which recently fell 5% as the poll numbers became more obvious and looks to be in my view more an opportunity than a trap.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiaRo29EC_sXC4ZA7yVmhIFiFDOvlzxv8impXBXkmlkDuhP1ohC_g8pwNHgLV8XqW3sIwyO6LqKpudoPrVGfW320JX1MEVOc02oajOlnZvz8jbFsMLAR5Ecw7FBn6D041oWk77sfA4mpA8/s1600/GBP+Indep.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiaRo29EC_sXC4ZA7yVmhIFiFDOvlzxv8impXBXkmlkDuhP1ohC_g8pwNHgLV8XqW3sIwyO6LqKpudoPrVGfW320JX1MEVOc02oajOlnZvz8jbFsMLAR5Ecw7FBn6D041oWk77sfA4mpA8/s1600/GBP+Indep.tiff" height="207" width="320" /></a></div>
<br />
Currency volatility almost inevitably leads to equity market volatility . . .you just can't have the basic pricing unit of your economy "winging around" and not see it flow through into all asset classes. The This is the value trap for investors, because it infects the basic valuation of your investments by virtue of the relationship defined by the sharpe ratio:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJ1isSAmGYF_gZdHZ9FBbxhr-8znGjY_CsGpC7Y1SSOhqQTHFR_dFViKKdVXJHSuMvKhA0SdFueCmpwV8ceCA357_ch14QhZsSrZJ2IE9UDvAjbEAKwukhMCN0ruaNvOSQRoLRzU9d0oE/s1600/sharp+ratio.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJ1isSAmGYF_gZdHZ9FBbxhr-8znGjY_CsGpC7Y1SSOhqQTHFR_dFViKKdVXJHSuMvKhA0SdFueCmpwV8ceCA357_ch14QhZsSrZJ2IE9UDvAjbEAKwukhMCN0ruaNvOSQRoLRzU9d0oE/s1600/sharp+ratio.tiff" height="77" width="320" /></a></div>
<br />
The steadiness of the stock market has "bored" investors into believing that they have a better Sharpe ratio than history might otherwise indicate. As such a change in the denominator will come as a shock that should open opportunities.<br />
<br />
The UK economy has generally been growing and readers of this blog know that I was a published bull on the economy there as far back as 2012. In fact I had suggested to several Australian investors that they should have taken advantage of the AUD's over-valuation against Sterling in early 2013 to switch into hard assets in the SE of England. In the last six months I've suggested investors should have been switching into Southern European exposures as it was likely that monetary policy in the EU would favour these countries for extended period. Now with Scotland causing consternation amongst UK investors this blog sees further weakness as a buying opportunity. If anything I'd expect London's financial industry to have a field day in the face of asset trading in the any post "Yes" vote and at least a bounce in the face pot a "No" vote. Whatever the case I'd expect an increase in volatility for all UK assets and trading opportunities beyond what we've seen in the past year. Look for the BoE to delay a rate rise in the face of volatility even though we know from recent minutes of the MPC that some see inflation starting to build.<br />
<br />
Scotland has a few brands going for it that if fostered correctly should remain the core of their economy for years to come. I know whiskey and smoke salmon seem somewhat at odds with the high-tech 21st century, but as we've seen luxury can be leveraged. Australia on the other hand doesn't really have a lot of iconic brands. France, Italy are the leaders in luxury, but even the US has their own versions. Whatever the reason the brands that do have significant profile here as being Australian classics (think Qantas or R.M.Williams) have all at times been through the proverbial wringer of neglect and mismanagement. When local conglomerate Pacific Brands announced it's intention to sell local "workwear" staples King Gee and Hard Yakka it got me thinking about the nature of branding and the value or lack there of that this notion brings to the value of a company.<br />
<br />
The trend in recent years has been to revive, streaming and build brands. The chief proponents in rebranding have been as diverse as LVHM, Richemont, IBM and Apple. Even a mining giant like BHP is doing it after it announced that it was refocusing away from minerals and into energy. It would seem to this blogger that the most successful companies in executing this type of restructuring usually have the following characteristics:<br />
<br />
<b>Strong visionary leadership:</b><br />
<br />
Bernard Arnault and Steve Jobs superficially at least would seem to have little in common when it comes to running businesses, but look a little deeper and you'll see similarities. In my mind the most common of these is having an eye for design and an understanding of how this one concept produces value for the consumer and the producer of a product.<br />
<br />
When Arnault bought the bankrupt owner of fashion house Christian Dior in the mid-80's he started a chain of events that would lead to formation of uber-luxury group LVMH. The pattern was simple; strip out the low end value eroding product lines and limit expenses on the "highest-end", but media attention grabbing area of haut couture. Then focus on cash generating products that leveraged the core values and name of the company without denigrating the ultimately aspirational and margin enhancing aspect that is the concept of "luxury". He launched the perfume Poison, which although it smelt like bug repellent to me somehow was modern and different enough in itself to relaunch the Dior brand as something for the modern consumer and not just the maker of dresses for an older set of clientele. Arnault, like Gucci bought the brand back under control and stopped licensing out its name for cheap and nasty low end products. When he gained control of Louis Vuitton he adopted a similar strategy only this time recognising that the strength of the signature monogram canvas was being eroded by counterfeiting. Since that time LVHM has been a leading litigant in the war against knock-offs and brand protection.<br />
<br />
<div style="text-align: center;">
____________________</div>
<br />
<b>An understanding of the core strengths of it's brands</b><br />
<br />
IBM seems to be a strange company to associate with luxury, but it was indeed the epitome of tech luxury from the first golf ball type typewriter right through to room filling main frames. If you had the IBM badge on your business machine, you had the best. What happened though was that IBM, like a fashion house licensed out it's name for clone PC's during the 80's and diluted its brand value. Unlike Gucci, IBM never bought back the real estate it sold and ended up exiting consumer products (with help from Lenovo). Management chose to focus on what IBM had been best at for years and that was business systems. IBM became a consulting powerhouse by keeping only the highest end businesses and with that bought back the margin and management focus that ad almost slipped out of it's grasp.<br />
<br />
Steve Jobs understood branding in the same way as IBM. For Jobs, the omnipresent control-freak the Apple brand had lost its cache under John Scully who had begun to investigate licensing out the core operating system to clone manufacturers. When Jobs got back in charge of Apple he killed off the clones and introduced a design "ethic" that has survived his death. That first iMac with the ""bondi blue" translucent case may not have been the fastest computer on the market, but it was the best looking and it was something you didn't have to hide in a nook.<br />
<br />
<b>Fiscal targeting </b><br />
<br />
All the design in the world can't help you unless you have some kind of fiscal target. In luxury that usually means margin. Margin is what protects a business and gives it flexibility in bad times. It requires a careful balancing of manufacturing, logistics and supply. Ferrari famously limits production in the knowledge that you might pay more for a "thing" if you know you're not going to see 100 others pass you by on your commute to work. Apple has Tim Cook, logistics genius, because it knows that in consumer electronics the race to the bottom can kill you. As far manufacturing goes, the audacious raid by LVMH on Hermes at the height of the global economic meltdown was as much about acquiring the skilled craftsmen of houses leather works as it was about brand ownership in itself.<br />
<br />
Coca-Cola my have been the most egalitarian brand the world had ever seen, but that didn't stop them trying to reinvent themselves with the disaster that became "New Coke". Younger readers may not remember the decision from the Atlanta based behemoth to almost overnight throw out a product that was a brand leader without any real long term fiscal goals. One could understand the move if the company had credible future plans beyond what become little more than the equivalent of a crazy use car salesmen blowing up cars in his lot in an effort to create new "buzz" about his business.<br />
<br />
<b>Significant "edge" or "leadership" in at least one area of design or skill</b><br />
<br />
Coke tells us once you have leadership you need to wall it off and protect it, much like LVMH protect Louis Vuitton and it's other brands by prosecuting counterfeiters everywhere. If you can't protect your product you need to make it very expensive for others to jump on into your market. This is where I return to Australia and in particular the current CEO and board of Qantas.<br />
<br />
The one thing the world knows about Qantas is that its aircraft didn't used to have malfunctions. That seen in the Tom Cruise, Dustin Hoffman film "Rainman" where Hoffman's charter refuses to fly on anything other than a Qantas plane said it all. The problem of course was that expansion means you can't control the product in the same way. Take Starbucks . . . the quality suffered as the product expanded. New machines replaced the old espresso machines because they were quicker, rather than better. That was expensive and those "auto" cappuccino generators eventually got tossed away when the company started to look shaky. Qantas had a virtual "Coke-like" monopoly of the Australian domestic market after its main rival collapsed. Internationally the airline was being challenged by Asian flag carriers who offered newer fleets and a better service ethos . . . but Qantas had safety and in reality was small enough even in the 90's to nimbly move to upgrade and expand it's fleet to at least match the Asian carriers; so what changed? Well the Qantas domestic margins were too much of a draw to other carriers and logistics businesses. The choice was easy, protect the income line (market share) or the bottom line (Margin). The CEO and the board decided it was better to maintain market share domestically as they belied that this would protect their under siege international operations. The line in the sand of 60-odd% domestically became a race to the bottom. Insanely (to some) to cover up the race Qantas started Jet Star in an effort to have its cake and eat it too. The theory was that Qantas would be the premium business airline and Jet Star would, like a souther hemisphere Ryanair hoover up the tourist dollars. The problem was that the competition was equal to the task and margins became so thin that the profit line became almost like punting jet fuel futures. It didn't help that the cost cutting that the company put in place saw the fleet age and encounter several embarrassing mishaps that undercut the long cultivated record for reliability.<br />
<br />
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
<br /></div>
Qantas is the anti-LVHM or Apple currently. I'm not sure the competition is worth the risk for investors unless you see a Bernard Arnault or Steve Jobs waiting in the wings. Returning to the Sharpe Ratio, in the case of Qantas the volatility is too high to justify the returns without a significant restructuring of the current failing business plan.<br />
<br />
<div style="text-align: center;">
________________</div>
<br />
Last week I heard about the death of another design genius Giovanni 'Nanni" Pinarello. Readers of this blog will know my fond memories of rediscovering bike riding after being presented with my Pinarello Dogma 60.1 at the Pinarello family HQ in Treviso Italy.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoRGrXEAuvhMCsqhZY5pJuRRVENnMgVd1cExMRi0pypg2DsYNTPcHoEfsk_zsW1yQP2qyF6s8g79mZ-oHhvdydCkQ5UiJAUAwVUw5AqZfJhTalQELTkncfl-r1pCa5U8epSzhZFkemdoc/s1600/IMG_1886.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoRGrXEAuvhMCsqhZY5pJuRRVENnMgVd1cExMRi0pypg2DsYNTPcHoEfsk_zsW1yQP2qyF6s8g79mZ-oHhvdydCkQ5UiJAUAwVUw5AqZfJhTalQELTkncfl-r1pCa5U8epSzhZFkemdoc/s1600/IMG_1886.jpg" height="400" width="300" /></a></div>
<br />
Nanni was 88 at the time, but his daughter told me he still came to the retail outlet inside the walls of the city everyday. He liked to supervise his staff and especially liked to assist in fitting the bikes. I'm not sure what the dimunitive Nanni thought of my 95kg's perched on top of the carbon fibre racing frame, but he smiled and seemed happy and engaged even if the mechanic doing most of the work begged him to leave it to him. The attention to detail that day in Treviso still impresses me and makes me understand the dedication needed to run a brand successfully. Nanni was 92 when he passed away and I'll bet a Qantas flight to Melbourne he still would have been shuffling into the shop and lecturing the staff on the presentation of the products right up until the day he died.<br />
<br />
Ciao!Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-39064326025946763712014-08-26T07:00:00.000+02:002014-08-27T07:19:51.827+02:00BBY Disruptive Lunch . . . Get cash back, watch your business and hurt
some peopleThree companies presented at the latest of BBY's Disruptive Lunch series last Thursday. Aa a bonus we also got to hear from Jennifer McFarlane, a long time adviser to new technology start-ups (natural resources, pharma) who provided a nice narrative of her latest project.<br>
<br>
Arriving early as usual I got to meet David Pysden the CEO of start-up Chiron, which is the holding company for the latest entry into the booming combat sports arena (think UFC, boxing, etc.) Unified Weapons Masters (UWM). It's kind of hard to describe, essentially it's a synthesis of some traditional weapons based martial arts, such as Japanese Kendo and medieval armour. The armour in this case is currently a 27kg suit studded with 59 sensors allowing the combatants to avoid significant injuries. The suit seems to be a cross between a Star Wars Imperial Storm Trooper and one of those weird cyborgs with the single LED scoping eye of Battle Star Gallatica. Here's a promotional video of what I'm talking about:<br>
<br>
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/ngATRlR3UuU" width="560"></iframe></center>
<br>
As male investor the first thing you have to do when presented with something like this is try and contain your testosterone. It's all too easy to get into the video game like nature of what you're seeing. That's a trap, so firstly let's look at the technology.<br>
<br>
The suit's 59 sensors measure more than just body strikes, they also purport to measure the force of the blow and even though we didn't get into it there seems to be some algorithmic analysis of the likely injury caused by these blows. The suits currently are a polycarbonate type material and David tells me that the production version should shed about 9kgs bringing them down to 18kgs thanks to some help from carbon fibre boffins in the UK who specialise in Formula One car building. Overlaid on this will be various web and app based portals that allow a simulcast of data directly to your chosen device such that you're able to see the effect, status and likely location for the next "killing blow". Additionally you don't have to be Warren Buffett to see the possibilities for spin-off products such as video games . . .<br>
<br>
<center>
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/RMUvp6Fta5A" width="560"></iframe></center>
<br>
If they could ever produce a suit for $300 that was safe you can imagine where this could go in the mass market, but at this stage the suits are not intended to be sold to the general public, rather UWM, like UFC, WWE and boxing before them is trying to create a closed system that allows them to match professionals against each other in sanctioned bouts. Right now the plan is to produce 24 such suits and rollout tournament style events in carefully chosen geographies. There seems to be a preference for version 1.0 to start in Asia where weapons based fighting has very deep roots in the sporting psyche.<br>
<br>
As a business model you can track the growth in the sector by looking at WWE stock price and reports from UFC's privately held owner Zuffa LLC. Both leaders in the space, as well as boxing are very media-centric and have been keenly pursued by various content hungry media conglomerates. As I said to David before his presentation, if the L.A. Clippers are worth $2bn to Steve Ballmer without even owning their own stadium and then baseball teams are earning $200m plus a year from their own TV channels, then I can fully understand the market they're aiming for. News Corp. is reportedly already paying UFC at least $100 million per year for UFC programming.<br>
<br>
Chiron / UWM will need to raise more money soon in order to build 24 production suits. I liked the fact that management had a very detailed plan helped by previous management and board experience. The questions that I still have are:<br>
<br>
<ol>
<li>How viewer friendly is it? Are bouts like fencing at the Olympics short and sharp over multiple rounds?</li>
<li>What liability does the company have for injuries? We know from the NFL that a helmet alone doesn't stop participants being concussed.</li>
<li>In UFC fighters salaries are fast becoming an issue. What do you think you'll have to pay participants to attract the right types to the "sport"?</li>
<li>How durable are the suits? </li>
</ol>
<div>
The question for investors in this sector is are the viewers as likely to respond to a sport with limited visuals when it comes to the actual blows as they are in (say) UFC where literally real blood is flowing from the octagon? Then again would a Roman gladiator fan have liked watching medieval tournaments? I guess they probably would? And if enthusiasm is worth anything then following David Pysden and his team of happy martial arts enthusiasts is likely to be a rewarding trip. </div>
<div>
<br></div>
<div>
I guess for me it was much easier to understand and have some connection with the other two presentations of the day. Even though both <a href="http://www.getlocalmeasure.com/">Local Measur</a>e and <a href="https://starthere.com.au/account/home">Starthere</a> go over some old ground both offer some new disruptive qualities that should appeal to investors are users alike. </div>
<div>
<br></div>
<div>
While listening to Jonathan Barouch the CEO of Local Measure I couldn't help thinking of it as part <a href="http://digivizer.com/">Digivizer</a>, part crowd control software being used by various police forces around the world. Essentially Local Measure is a venue management system come instant customer feedback system rolled into one. Here's how it works. A company asks local measure to monitor social media output associated with a particular venue. The first example given was an airline lounge. The management of the lounge wants feedback on everything from the overall experience to whether a customer thought the choice of cereals or wines was up to the standard they expect. Algorithms filter some of the noise and focus on ranking the feedback and even associating it with particular high value customers. Think about it this way, if there's a very important frequent flyer in a lounge making a point positive or negative about the venue staff are able to respond to that promptly rather than waiting for the delayed feedback. </div>
<div>
<br></div>
<div>
Local Measure also has a policing function. It's amazing what people say and record on social media. Local Measure recently won a contract to monitor a particular casino, apparently during a presentation to the management board someone actually put up on social media that they'd stolen a security guard's walkie-talkie. Obviously the meeting was interrupted, but the bigger point was that the software effectively filtered the "noise" and prioritised the message, without this you'd be hoping for someone to hashtag their activity and for one of your staff to manually pick that up. And just laughs Jonathan showed us that stealing communications equipment is not the end of such stupidity . . . surface to say, don't take illegal drugs and post pictures of it from even the most expensive of hotel venues. </div>
<div>
<br></div>
<div>
As far as business model for Local Measure it's the usual subscription service based on size and number of potential sources. Jonathan didn't get into the numbers, but his clientele seems to be fairly tier 1 at the moment and I'm going to guess that if they're not already cash-flow positive they can't be too far away. I'd like to see them look into some more predictive algorithms as per the police work I mentioned earlier as I don't believe their first mover advantage is sufficient enough to be a wall around their revenue sources. </div>
<div>
<br></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzD8cLq1pNMhu5wJfQlpNgP15UkCvrAtPwotTnnm7_K-NZRatEZV8CC5ZBug-BLEsF2I3wd8tfLJbqyQ01zYF_BfXEZcJDVyCnJTnK-l16TDr_ZzGDDbDeHNAm_Lz5qYeTcIUz960PG5M/s1600/crowd+behaviour.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzD8cLq1pNMhu5wJfQlpNgP15UkCvrAtPwotTnnm7_K-NZRatEZV8CC5ZBug-BLEsF2I3wd8tfLJbqyQ01zYF_BfXEZcJDVyCnJTnK-l16TDr_ZzGDDbDeHNAm_Lz5qYeTcIUz960PG5M/s1600/crowd+behaviour.tiff" height="192" width="400"></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="http://arxiv.org/pdf/1402.2308.pdf">Perhaps take Local Measure the next step?</a></td></tr>
</tbody></table>
I like Local Measure just a little bit less than Digivizer, though they're not exactly in the same place they certainly are closely related. And thats the problem, because if Emma Lo Russo and the team at Digivizer leveraged their customer base and offered something similar it may hurt Jonathan Barouch's progress to the next step. Investors need to start pocketing-up information on this sector and watch it closely. There will be a winner, but also a fair amount of carnage along the way, making this not as big a "gimme" as I'm sure many at the lunch thought at they mulled over who may be watching their own tweets, postings and feedback in the darker corners of the data mining cosmos.<br>
<br>
I'm not sure any of the esteemed investors or bankers in the boardroom last Tuesday have ever given much thought to the various low-level rewards schemes offered by retailers aside from that most aspirational incentive of all, frequent flyer points.<br>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMQyrCIk3f_TwR7hVkPcqu7qyCMCaES-E7MfxL4tjm5G4GQ2ieQJonAziu01U5gs8CV1hqxsbBhLMddPUrVuTdfUDIbHKuYLIz0RGPPpz4hBdD6j790Rx4MHQOWFVhEQocML-OinUwN9o/s1600/starthere.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMQyrCIk3f_TwR7hVkPcqu7qyCMCaES-E7MfxL4tjm5G4GQ2ieQJonAziu01U5gs8CV1hqxsbBhLMddPUrVuTdfUDIbHKuYLIz0RGPPpz4hBdD6j790Rx4MHQOWFVhEQocML-OinUwN9o/s1600/starthere.tiff" height="117" width="320"></a></div>
<br>
It takes a second or two to adjust the radar and come down out of the clouds to where Chris Barton CEO of Starthere (under the guidance of Chairman Adir Shiffman - see my blog on Catapult Sports) is starting to get traction by offering shoppers cash back instead of nebulous points and alike. Yes thats CASH . . . in fact it's about $5 in every $100 for the shopper and $5 safely into the coffers of Starthere. There's a tool bar overlay for your chosen desk top browsers that automatically detects you shopping on an accredited site and quickly scoops up the rebate ready for your periodic payout. All very simple and even if Chris was a bit nervous during the presentation he still came across as positive and likeable.<br>
<br>
Here's the value proposition for the shopper. Currently for every $100 you spend with your frequent flyer accredited card etc. you earn basically $1.80 worth of points. If you're getting back $5 from Starthere you're ahead of the game. And just to top it off you still get the frequent flyer points because you used the same card you always have. Thats the good news. The not so good news is it's not everywhere yet, but it's starting to be in places where at least this blogger is likely to make a purchase a couple of times a year.<br>
<br>
What I have trouble with in respect of businesses such as Starthere is where is the value for the actual retailer? Someone I asked said to me: "Mike, what do you think they're already doing in Australia with docket shopping? Whether they do it through a product discount, a coupon, frequent flyer miles or cash back they don't care." Thats a good point, in which case it just comes down to their ability to administer the scheme and drive new shoppers towards participating companies. Personally I think the barrier to entry is Starthere's ability to "land grab" enough that their critical mass makes it uneconomical for another player(s) to jump into the space.<br>
<br>
The rain continues here in Sydney and the low skies and wet conditions are keeping me off the bike and pushing me into the gym. I wanted to mention that I snapped a shifter cable on Saturday while on a rare ride and will have to rely on the Cheeky Monkey team to get it back on the road. It was strange, on Saturday I was riding along and it started to rain. One thing I've learnt is that a lot of things work differently when the wet stuff comes down, so the resistance I was getting from the rear derailleur didn't surprise me. It was especially difficult to get a positive click into my lowest gears and though maybe a bit of cable stretch and the water were the culprits? Luckily I made it home and as usually while wiping my bike down I cleaned off the chin with a cleanish rag and lubed it with my usual oil. When I tested the shifting the derailleur stopped moving. I lifted the shifter covers and noticed that the cable was connect with 2 or three strands only and a couple of more shifts broke it entirely. I pulled the cable through and contemplated fixing it myself but probably luckily for me didn't have the specific cabling kit I needed, which in my case Campagnolo specific.<br>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyg8tZT2S9vHzgIHepc9sbCOrJjmmf-wHhQkwMjvyoLmJgDW7czdRDDLFJTD5mJc0oVBKIJA3oj1lcfju8i0pd7_HdpCSA7ZqZg9GdhFrLqG7jW2edDKMNEvm_LpJodvam2wixdkFvj1U/s1600/Cabling+Kit.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyg8tZT2S9vHzgIHepc9sbCOrJjmmf-wHhQkwMjvyoLmJgDW7czdRDDLFJTD5mJc0oVBKIJA3oj1lcfju8i0pd7_HdpCSA7ZqZg9GdhFrLqG7jW2edDKMNEvm_LpJodvam2wixdkFvj1U/s1600/Cabling+Kit.tiff" height="320" width="252"></a></div>
<br>
One interesting question I have for the guys is whether I should just re-cable the whole bike? Given I'll have to pay for the cabling kit ($60), surely you just change everything? I'll find out on Thursday. Another thing . . . since coming back from Switzerland I've realised the number of what I'll call Campagnolo component selling shops is limited. You have to order most things Campagnolo, even brake pads are not always in stock when you want them. I think it comes down to the fact that Australia is at the end of a long supply chain and traditionally people here usually buy standard spec bikes, meaning that Shimanois their "go-to" component companies. It's a first world problem I guess, though I had to laugh recently when a better and more experienced rider than me was helping me change a flat on a steep hill didn't know that Campgnolo uses triggers to shift down the cassette or from the big ring to the small at the front. Not his fault, it's just that Campagnolo is rare here.<br>
<br>
Ciao!Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com1tag:blogger.com,1999:blog-2076697729940208207.post-65614917055068528482014-08-20T02:42:00.003+02:002014-08-20T05:39:38.011+02:00When the tide goes out make are you still have your swimwear on . . . Sometimes being an investment banker cyclist there's a little moment of schadenfreude that gets me through the day. Today it was the results from US sporting goods retailer Dick's Sporting Goods (Ticker: DKS).<br />
<br />
I never did get golf. I tried hard, but I never did understand the culture. To be frank I was also hopeless and didn't have the patience to spend the hours necessary to progress my game. By the time I moved to Singapore in 2006 I also needed to get fit and so without even knowing it at the time I had played my last game of golf. I noticed a nice piece on <a href="http://www.marketwatch.com/story/dicks-sporting-goods-golf-handicap-2014-08-19?mod=mw_share_twitter">Market Watch</a> today looking at the results from Dicks Sporting Goods. Highlighted in the piece was the company’s Golf Galaxy stores which suffered a 9.3% decrease in same store sales. Now some call this the "Tiger effect", but retailers would do well to understand that the baby-boomer bubble is fast peaking and the tide has already gone out with generation X. Lets look at an example. Here's a chart of the Giant Manufacturing Company of Taiwan (9921.TW) v. Callaway Golf (ELY):<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhthv6b_8geBjXHu1EFc3dqlOMeIhyXAyPCqI-AC9gp_mvURYACl0993QBOmrISuiBwjKZ8pUQv8FChECXWRcZM-lWi54UBe1kqcKV7udFSFfKvIGaBFC9KkB-2dp1VK1mULE3M75f_FyY/s1600/Giant+v+Callaway.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhthv6b_8geBjXHu1EFc3dqlOMeIhyXAyPCqI-AC9gp_mvURYACl0993QBOmrISuiBwjKZ8pUQv8FChECXWRcZM-lWi54UBe1kqcKV7udFSFfKvIGaBFC9KkB-2dp1VK1mULE3M75f_FyY/s1600/Giant+v+Callaway.tiff" height="215" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
I took Callaway because it's a pure golf company, others like TaylorMade are owned by bigger companies (in that case Adidas). Giant is one of the biggest bicycle manufacturers in the world. The outperformance of cycling is obvious, it's clearly been a better investment choice. Now that doesn't mean that bicycle growth will continue because at some stage the market will become saturated. Think about it this way; the limits of golf participation started to become obvious as clubs jacked up membership fees to basically exclude people from participation. In other words it became an "exclusive" sport in a world that is embracing "inclusivity". Gen X onward no longer sees golf as an aspirational sport in the way that the baby boomers have. The world changed. We no longer see smoking as a relaxing indulgence, nor drinking alcohol at work (think Mad Men) as acceptable. There's a whole world now seeing health costs spiral and they want to mitigate that in a way that golf just can't. Golf is still going to be a sport people play, it's just that it won't grow at the same rate and as an investment banker I call this a mature industry. Golf as a sport or investment now will pay dividends like a bond pays coupons, but it won't provide capital growth that it has in the past. As an investor you need to recognise these moments and embrace them for what they are, not what they were. </div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
This brings me to some disturbing news from the gambling industry. The trend of casino closures in Atlantic City New Jersey continues with doors shutting at the Show Boat. Atlantic City was once the venue of choice for the north east US gambler, the casinos have tried to transform to resorts, but the weather, the falling cost of air travel and a surge in competition especially at the lower end started to eat away at the business model. Four of Atlantic City's 12 casinos have closed, meanwhile the State of New Jersey looks likely to approve more competition in the form of a new venue at the Meadowlands, a complex which is a limo drive from Manhattan. </div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
Atlantic City isn't the only place where the Casino industry is showing signs of weakness. Macau’s casino revenue fell 3.6% in July, following a 3.7% decline in June. Interestingly VIP play was estimated down by about 20% as in June, while mass market play continued to expand around 30%, and July produced similar results. </div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiux1hHFqrzKQ-0GnIhhyphenhyphenmoDwggRfDynSst1vvoJwnlT7oinlSVObFzRJRCqZY52f-3r8RGyN-eMuElEv2H2fK3Zp9a_MyzACVMKMuD1kLXX9uvSUgRvMRASE026Te-T9dmsMwa4lQQwHo/s1600/Macau+Gamming.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiux1hHFqrzKQ-0GnIhhyphenhyphenmoDwggRfDynSst1vvoJwnlT7oinlSVObFzRJRCqZY52f-3r8RGyN-eMuElEv2H2fK3Zp9a_MyzACVMKMuD1kLXX9uvSUgRvMRASE026Te-T9dmsMwa4lQQwHo/s1600/Macau+Gamming.tiff" height="213" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Macau gambling . . . the best behind us?</td></tr>
</tbody></table>
<div class="separator" style="clear: both; text-align: left;">
That to me is indicating that the high rollers go where they get the newest toys and the mass market goes where they can. That's dangerous for a location, because in terms of the lower end it means other localities can change the paradigm quickly because of nothing more than geography. I know my HK broker friends will tell me that China isn't about to open multiple resorts on the mainland anytime soon and that's true enough. Right now Macau has the location advantage, but as with what happened with Atlantic City, so to can the same thing happen to Macau. If cycling is the new golf, and Meadowlands is the new Atlantic City, then just fill in the blanks for the next Casino mecca in Asia. Investors in casinos should note that the sky is not falling, but the growth is slowing. </div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
I'll be at another BBY Disruptive Lunch tomorrow and I'm looking forward to it. I've really enjoyed looking at some of these new businesses over the last few months and am somewhat buoyed by the extent of the enterprise I'm seeing in Australia. There's still a solid core of "mining is the only game in town" investment banking here, but you get the sense that the tide has gone out on that sector for the moment. BHP's de-merger plan this week could be the last great party of the decade for the mining teams of the big banks. If you're at a bank that misses out on a mandate associated with this you better be looking for a new arrow in your quiver. </div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
Ciao!</div>
<div class="separator" style="clear: both;">
<br /></div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com0tag:blogger.com,1999:blog-2076697729940208207.post-56816411792864111352014-08-13T09:21:00.002+02:002014-08-14T00:12:50.647+02:00InStitchu . . . BBY disruptive lunch follow-up . . . a new suitEver purchased an off the rack suit at a department store and got home to find there's something just not right? We've all done it, male, female, tall, short, fat, thin, athletic, etc. When I moved to London in 1997 I was 30kgs heavier and had some fairly cheap and nasty suits in my wardrobe. The first time I walked into to Selfridges department store in Oxford Street and tried to buy a suit it took so long in the alterations room that even the sales guy suggested I'd be better off going to Saville Row and having one (or preferably three) tailor made for me. After a reasonable bonus under the belt I never bought a suit at a department store again. The only downside was making the time for proper measurements, fittings and final adjustments.<div>
<br></div>
<div>
<a href="https://www.institchu.com/">InStitchu</a> is a company that is trying to combine technology with old world tailoring. Bespoke without the price tag? For somewhere between $300 - 600 they'll deliver you a suit in 4 weeks that they say will fit you perfectly. I'd be lying if I said that I approached the business with 100% confidence as I'm quite skeptical in general of retail businesses and and the clothing space particularly. </div>
<div>
<br></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsVaV_hYTyUXG4n9Kr7TJelhAzC7U_Sj1nel7uHiS2h7dD_-kHk5YGwQjfIPS993fLX5L8rhHUCXtXSdQf2Y5ge8oEcoaX60WIbRfsTDh84EOJEK4VT-n5xK3W0DMQ6MI8qj65C1DLJhM/s1600/Institchu.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsVaV_hYTyUXG4n9Kr7TJelhAzC7U_Sj1nel7uHiS2h7dD_-kHk5YGwQjfIPS993fLX5L8rhHUCXtXSdQf2Y5ge8oEcoaX60WIbRfsTDh84EOJEK4VT-n5xK3W0DMQ6MI8qj65C1DLJhM/s1600/Institchu.tiff" height="246" width="400"></a></div>
<div>
<br></div>
<div>
<br></div>
<div>
Over the years I can't remember ever getting a decent return from an investment in a stock who's business is based on selling clothes to the general public. I liked what I heard from Robin McGowan and James Wakefield at the most recent of the BBY Disruptive Lunches, so instead of trying to go into all sorts of detail about the metrics behind their business plan I decided to just test them out by buying a suit. I got the idea after remembering the way I missed an absolute "gimme" of a trade by failing to buy into Japanese retailer Fast Retailing (9983) (owner of UNIQLO). One broker practically begged me to go into one of their storers and just buy a white T-shirt and guaranteed me that afterwards I'd understand why this stock was going up. Eventually I did buy a that T-shirt, but not before seeing the stock more than double in the meantime. </div>
<div>
<br></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjGm8EUxTJene1wou7qvpAdg-8uPegFIXWmeJQ54p_xy_Uhz_1BKMrp9M07nWsU8XSrCi8_px33AU50pC4pt9JYEAeMwONKuBrvJxfB9HOtM3k3zl1uV4KaNtagFK7F56OWaPDEm57bwAg/s1600/9983.tiff" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjGm8EUxTJene1wou7qvpAdg-8uPegFIXWmeJQ54p_xy_Uhz_1BKMrp9M07nWsU8XSrCi8_px33AU50pC4pt9JYEAeMwONKuBrvJxfB9HOtM3k3zl1uV4KaNtagFK7F56OWaPDEm57bwAg/s1600/9983.tiff" height="182" width="400"></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Fast Retailing (9983) v. N225</td></tr>
</tbody></table>
<div>
InStitchu appealed to me because I had a chance to be a very low touch buyer. I wanted to try and never meet an employee face to face. Here's how it went:</div>
<div>
<br></div>
<div>
1. Get an account(s)</div>
<div>
<br></div>
<div>
I was going to get measured using the <a href="https://mport.com.au/">mPort</a> body scanner that links to Institchu. That meant I needed two accounts, one for InStitchu and one for mPort. I suggest you get your mPort account before going to a body scanner as it will save time once you're in the booth . . . . Oh, and personally I prefer not to be typing personal information into a terminal in a booth in a public place. </div>
<div>
<br></div>
<div>
2. Get measured</div>
<div>
<br></div>
<div>
I went to a body scanner in the centre of Sydney. You enter the booth and log in via a touch screen. The computer voice will guide you through what to do and point out where to hang you clothes and importantly where to stand. </div>
<br>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmtlfS7he0uA1NX_-6FcEfHHPEcanWHYY2qeutHMKoCDgwHOoU20BCx1NE60qibg_mtc25yi94vijcLXQKebl8v24jFjlOMqVATTsRv_3d1HBAdSq6d1QeMJx3znacbWZjXcgueqblXtA/s1600/IMG_1845.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: left;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmtlfS7he0uA1NX_-6FcEfHHPEcanWHYY2qeutHMKoCDgwHOoU20BCx1NE60qibg_mtc25yi94vijcLXQKebl8v24jFjlOMqVATTsRv_3d1HBAdSq6d1QeMJx3znacbWZjXcgueqblXtA/s1600/IMG_1845.jpg" height="320" width="240"></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
It takes a couple of minutes to do the scan and you'll be asked to wait (in your underwear) while the computer confirms that they have a stable scan. It's probably less that 5 minutes and there's a lock on the booth, so no need to worry about unwelcome guests. </div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgM6tfYJi3ZLrJUX4fS0mofeYjIa8ITfmdCySs7veWTrHw6iA6FoZtQJxUahP8I7Y2Sr9Ky6GyGA_HIicSZKGL0-31H8T-d2b6xBlUzMfzkNS4N_Rbseuk1q_Ecy9AFopm-N8_jJIdtY08/s1600/mport2.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgM6tfYJi3ZLrJUX4fS0mofeYjIa8ITfmdCySs7veWTrHw6iA6FoZtQJxUahP8I7Y2Sr9Ky6GyGA_HIicSZKGL0-31H8T-d2b6xBlUzMfzkNS4N_Rbseuk1q_Ecy9AFopm-N8_jJIdtY08/s1600/mport2.tiff" height="198" width="320"></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
Once you have this you need to link it to your InStitchu account. As an aside your body scan can be used to calculate various health metrics, but you need to pay to unlock those functions. The first basic scan is free. </div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiL0jZOh92Z-dbDOERHIMpnmEreg9pywB2be7niJIQJ8glv0QfOqTePJ2V_aTTKVi4UWDMedfufht7Dr02SeBtCi50tCDrGxewWQ5PL17qffgDWtJja9uMmNtzVmOrTKPa0mk81px8VaeU/s1600/mport3.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiL0jZOh92Z-dbDOERHIMpnmEreg9pywB2be7niJIQJ8glv0QfOqTePJ2V_aTTKVi4UWDMedfufht7Dr02SeBtCi50tCDrGxewWQ5PL17qffgDWtJja9uMmNtzVmOrTKPa0mk81px8VaeU/s1600/mport3.tiff" height="320" width="210"></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
3. Choose a suit, style and . . . you get the picture</div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
It's very straight forward. Choose a suit style, colour, fabric and add details. You can have different coloured lining, workable cuffs as well as the usual array of lapel styles and venting. While you're going through the process an instant messenger appears and an InStitchu advisor can help you through the process. I like this both from a design point of view, but also from a business angle because it gives InStitchu the chance to avoid the "won or done" nature of internet selling . . . if it doesn't work first time people tend not to give you a second chance.</div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgy1q7NcGJHF9nO0AwEe8kUKGH8PTXmBduQiy3RZxS1sT9frOjWk7FXcycm-uzbxpQEK2iIKU88Fe2TmEwsUpObCpZx5c4Np259KJNgUDb75nhk9-D0vVds914eUvlxFj4mscTpH3_CBnc/s1600/instiitchu2.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgy1q7NcGJHF9nO0AwEe8kUKGH8PTXmBduQiy3RZxS1sT9frOjWk7FXcycm-uzbxpQEK2iIKU88Fe2TmEwsUpObCpZx5c4Np259KJNgUDb75nhk9-D0vVds914eUvlxFj4mscTpH3_CBnc/s1600/instiitchu2.tiff" height="226" width="400"></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
It should be said that InStitchu doesn't just make standard lounge suits, you're offered dinner suits, jackets, shirts and various accessories. They also have some advice regarding mix n' matching various pieces.</div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
4. Problems?</div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
I ran into a problem because for some reason my body scan wasn't downloading my measurements to InStitchu. I'll be honest and say without the instant messenger I would have given up and said no sale. But "Monica" offered me a free measurement service at their Sydney location and promised me that this could all be solved. I went to the office and got measured (normally $30). Even though this all went smoothly and I had the added bonus of getting to see and touch the fabrics I think InStitchu needs to solve whatever the problem there is with the link between mPort and themselves. I've asked the company to send me a comparison between the measurements taken by their "live" staff and mPort so I can see the tolerances involved and therefore the likelihood of post delivery adjustment being needed.</div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
5. Payment and delivery</div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
I paid $467 for my suit, but need to subtract from that $50 discount offered to investors who attended the BBY lunch. I also provided references for 3 friends that earned me a $35 credit for future purposes. My usual spend on a suit is closer to $2000 from a tailor here in Sydney. I'll be reporting back after I see the results. My expectations are fairly low as I always think the mantra "you get what you pay for" is both true and wise. If I get a suit that fits and lasts a once a week wear over a working year I'll be happy given the price. </div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
The suits are manufactured in China. I assume they're using computer cutting for the patterns. The team told the lunch that they've gone through a few suppliers to help cut down on the error rates and to increase the overall quality of the garment. Margins are roughly 50%, but as I'm not a retail analyst I couldn't tell you how that compares with boutique tailors or department stores. The business is growing, with a surprising up-take from wedding related shoppers which makes up about 20% of revenue. That makes sense to me, what with this trend toward bigger weddings where the bridal party size can be pretty ridiculous in my experience. This means that you need to get matching suits, shirts and ties for all those involved and getting that at a department store or hire place just doesn't always work. </div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
I'm not going to recommend you buy a suit or a shirt just yet from InStitchu, but if you're an investor I think it's worth checking out their business. In my mind I see this as just another reason to avoid owning shares in department stores. </div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
Ciao!</div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: left;">
<br></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhILcdFiKrCZgMkFHxw82HJFwwJhUHWtj8aD1nuxLrs-jfL4grMJHVsIlhOXXNYVlYm93Q1fwnKUZMk_QaqQSK8EGNe6ytUTKLdMOYTRrFWe6LMlkYsr4c8HTAUuhbUhCDw_NcOwhrpmw8/s1600/IMG_1843.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><br></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjhz80B_qkokk8oWWUFSCH-E3MJ4pzqorS6xLekzsNbH4m2te1UyL7Ey3PM1Sye0lAoqupeHkyPUIlVxepXPV52mWG5C0x0d8kaRPApzkxCq3qn6pa84wl86MYqwfnrYYWqlMRoWBWDG0/s1600/IMG_1842.jpg" imageanchor="1" style="clear: right; display: inline !important; float: right; margin-bottom: 1em; margin-left: 1em;"><br></a></div>
Mike Faganhttp://www.blogger.com/profile/03902089770890740612noreply@blogger.com2