Explaining Southern California's economy

3 completely different views on the JOBS act

Senate Democrats Announce New Legislation To Counter "Citizens United" Decision

Win McNamee/Getty Images

U.S. Sen. Chuck Schumer (D-NY) has been a proponent of the JOBS act.

The Jump-start Our Business Start-ups (JOBS) act just passed the Senate. The House passed a measure with the same objectives, so now it's up to the that body to revise the legislation and move a bill closer to becoming law. You can read a summary here.

This is not legislation that has failed to inspire both support and dismay. 

Venture capitalist Fred Wilson loves it:

I'd like to thank our elected officials for coming together in a non-partisan way to address an important set of issues and deal with them sensibly and correctly. This doesn't happen enough in Washington and we need more of this. I know that the majority leadership in the Senate, particularly Harry Reid and Chuck Schumer, fought back a mini revolt among the left wing of its party to get this bill passed. I applaud them for doing that and standing up for something that was not popular in their caucus. That is leadership and I appreciate it and I am sure the readers of this blog do too.

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Do venture capitalists care about more than money?

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I don't really want to do this $10 billion IPO. Really, I don't.

I'm officially arguing with Felix Salmon about venture capitalists. You can read the previous installments here and here. We've got even more fodder for debate now, based on Felix's excellent piece in the latest issue of Wired.

First off, I think he's talking about two things at the same time: 

1. Why IPOs suck for tech companies (Duh, it's the title of the piece!) — and why the IPO model, once so useful, is now broken

2. Why venture capitalists are doing all kinds of things that are borderline despicable when it comes to funding companies and maximizing their greed

I don't entirely disagree with point number one. It's taking companies longer to get to the IPO stage, and it's debatable whether companies that are already quite successful really need to go public. Also, as William Cohan has argued, investment banking has become a Wall Street cartel, with the same big firms — Goldman Sachs, Morgan Stanley, JPMorgan et al. — getting to run all the IPOs. The model that Bill Hambrecht developed — the so-called "OpenIPO" model — and used to take Google public in 2004 has fallen by the wayside.

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Do venture capitalists invest in people or ideas?

CFF VC Panel

Venture Capital in Southern California panel. From right, KPCC's Matthew DeBord, Rustic Canyon Partner's Nate Redmond, Idealab's Alex Maleki, and Ben Kuo from socalTECH.

Felix Salmon has an interesting post today about investing in people rather than companies. He introduces what he calls a "mysterious website" for company (or something) called Upstart that will provide individuals with funding in exchange for "future income." 

I don't know anything about Upstart, but once Felix covers the whole "people equity" concept, he gets into some points about venture capital. For whatever reason, I find myself disagreeing with him when he talks about VC, whereas I usually agree with him about many other things. I thought he mischaracterized the VC mindset in a recent post about the Matter and Kickstarter. And I'm not sure how I feel about this argument, either:

In a world where venture capitalists increasingly invest in a startup’s management team rather than in its business model or underlying idea, [the Upstart model] makes sense. Find the entrepreneur and invest in the individual directly, thereby guaranteeing that you’ll have a stake in their success if and when they finally hit it rich on their fifth or sixth attempt.

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For Matter, Kickstarter is advertising plus money

There's been a lot of discussion recently about Matter and its swift fundraising on Kickstarter, bringing in over $100,000 in just over a week (I've embedded the pitch video above). Felix Salmon thinks Matter has merit. Stephen Morse thinks it doesn't. You can watch them debate their positions here.

During the course of their he-said/he-said, the question of whether it's a good or bad thing for Matter to be avoiding venture capital funding came up. Felix summarizes:

In our debate, Morse snarked that no one down below us, in Times Square, had heard of Jim Giles or Bobbie Johnson, the co-founders of Matter. And in saying that he revealed his broader mindset: that of a would-be internet entrepreneur who raises venture funding by using the words “platform” and “scale” a lot while promising things like “explosive growth”. It’s no great secret that Giles and Johnson have talked to VCs, many of whom have been very supportive. But what they’re building doesn’t lend itself to the VC business model, where you either have monster, multi-million-dollar success, or else you die trying.

Morse uses the fact that Matter doesn’t have VC funding as a count against them, when in fact it’s a great count in their favor. VCs provide two things: money and advice. And Matter’s getting the advice; it’s just doing so without having to sell its soul to people wanting a monster return on their investment. All it needs to do, at least in the first instance, is pay for itself. And at the end of our debate, Morse finally came up with a number: if Matter can get 20,000 paying customers each week, he said, then he sees a sustainable model there.

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Ivy League-Wall Street connection opens space for California entrepreneurs

Mary Altaffer/AP

Recent surveys show that a large percentage of graduates from the nation's top schools are taking jobs in consulting or financial sector.

UPDATE: The time is now, California grads! This is from Gabe Sherman's big New York Magazine piece on the end of Wall Street's bonus bonanza: "'If you’re a smart Ph.D. from MIT, you’d never go to Wall Street now,' says a hedge-fund executive. 'You’d go to Silicon Valley. There’s at least a prospect for a huge gain. You’d have the potential to be the next Mark Zuckerberg. It looks like he has a lot more fun.'"

NPR ran a piece today about how too many graduates of the nation's elite universities are going to work in either finance or consulting. At some prestigious schools, such as Harvard, Yale, and Princeton, the percentages are alarming. The story cites a survey of 2010 Harvard grads that found close to half of graduates were planning on heading for the green meadows of big money. 

California's top schools aren't immune to this trend. Far from it. Stanford sends plenty of students into finance, as does Cal-Tech. However, they aren't yet at quite the same levels as their East Coast brethren. 

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