08 July 2004

Yukos and the Banks

Politics are not my normal terrain, and to be clear both Yukos and the Banks are about politics.

For ever and a day the Investment Banking analysts have been telling us that the Yukos affair is about humbling Khordokhovsky and not about taking Yukos to bankruptcy. Well its effectively bankrupt and the only way that it's not going to be bankrupt is politics. That way the portfolio investors can maintain their navel gazing shortsightedness and pretend they did not lose too badly.

The banking crisis is an oxymoron - to have a crisis you need a banking sector. Anyhow it too has been driven by politics. I have on my desk (somewhere) the banking blacklist. It comprises 38 banks including 2 of the 4 leading non-state owned banks. That I can get my hands on it somewhat goes to prove that its meant to be seen. And causing a run on the banks who you can't control is a pretty good way to get them to come in to line.

It might amuse you to know that there was a queue outside Citibank's branch yesterday. So strong is the public's faith in private banks.

The Russian menatlity is stronly zero-sum-game; and it is now being played out in front of our eyes for all to see. I am afraid to say that Putin's government has gone from partial reform to failed authoritarianism.
Valuation

Two good posts on valuing an early stage deal. First from Fred Wilson which is philospohical here. The second from Brad Feld on deal algebra here Feld Thoughts: Venture Capital Deal Algebra.

What the second post does not go on to say is that by the time you factor in a. liquidation preferences (VC's get there money out first and sometimes in a multiple of what they invested) b. potentially a coupon on the preferred stock c. penny warrants etc. that the implied pre / post-money valuation is a lot different from the headline number. To borrow some algebra from Brad Feld:

Implied post-money = (invested amount)/(return to investors / total return). For the implied pre-money subtract the amount initially invested.

Thus if you invested $2mn at $3mn pre-money (assuming no further dilution) you would expect the investor to receive 40% of the proceeds of a sale. Actually the % of the return that an investor gets after liquidation preference et al can be a lot higher.

As Brad Feld points out many serial entrepreneurs don't always follow the math - try this on a whole nation of first time entrepreneurs. Add to it the national characteristic that lawyers don't matter its the handshake agreement and you are open for all sorts of interesting discussions.

02 July 2004

Skype Under Attack

A much more cogently argued piece from The Register on what is wrong with Skype via David Isen than my rant yesterday. Isen argues that David Mahy is demonstrating "bellheadedness" and goes on to say "the "industry" that will bring VoIP to most of us is the Internet Industry."

I am not entirely sure that the two are disagreeing. The article's introduction says "and focused on the difference between the instantaneous gratification of Skype for private individuals and the safe and efficient enterprise wide VoIP implementations, reliant mostly on the SIP protocol." We are all very happy to pay nothing for personal or small-business calls. Can't see IBM doing the same.

Skype's business model is based on selling VAS. As Mahy points out that is very unlikely "That's missing the point, don't you think? Say a Skype user in India wants to communicate with me in California on a SIP network. He can make a basic call through 2 gateways with international toll charges. Its unlikely that I will see his correct caller ID, and dead certain that we can't exchange IM, video, presence status, or do file transfers. A pair of implementations using SIP could do this for free over the public Internet."

And then we return to the security issue - which has some legs but may be as much about the easy line for journalists as any real concern.

I have seen a number of recent firewall implementations that ban cross-firewall p2p sessions - I think it will be a standard feature in 2005 enterprise releases.
Ridiculous
ITunes has finally launched in the UK - hurrah. If you don't have a US registered credit card you can't buy ITunes from the US website.

However, my wife tells me that a song in the UK costs 75 pence. At the current exchange rate that's $1.42. Which is just plain ridiculous. Did the Apple execs think that we would not notice?
The Bizarre

I rarely blog the bizarre Russian happenings but here's one. From about 5a.m. this morning a car alarm from what could only be a very small car went off incessantly. It was still going when I headed off to work. Only it (it being a badly-parked Nissan Micra) was now surrounded by 6 Militsia (policemen.) Who had succeeded in opening its passenger door - but clearly not in turning the alarm off.

Usually you only see 6 policemen together when there are some Azerbaijani, Armenian, Georgian etc., market traders to be beaten up.

Q. Why do the Militsia travel in threes. One who can read, one who can write and one to guard the two dangerous intellectuals.

08 July 2004

Yukos and the Banks

Politics are not my normal terrain, and to be clear both Yukos and the Banks are about politics.

For ever and a day the Investment Banking analysts have been telling us that the Yukos affair is about humbling Khordokhovsky and not about taking Yukos to bankruptcy. Well its effectively bankrupt and the only way that it's not going to be bankrupt is politics. That way the portfolio investors can maintain their navel gazing shortsightedness and pretend they did not lose too badly.

The banking crisis is an oxymoron - to have a crisis you need a banking sector. Anyhow it too has been driven by politics. I have on my desk (somewhere) the banking blacklist. It comprises 38 banks including 2 of the 4 leading non-state owned banks. That I can get my hands on it somewhat goes to prove that its meant to be seen. And causing a run on the banks who you can't control is a pretty good way to get them to come in to line.

It might amuse you to know that there was a queue outside Citibank's branch yesterday. So strong is the public's faith in private banks.

The Russian menatlity is stronly zero-sum-game; and it is now being played out in front of our eyes for all to see. I am afraid to say that Putin's government has gone from partial reform to failed authoritarianism.

Valuation

Two good posts on valuing an early stage deal. First from Fred Wilson which is philospohical here. The second from Brad Feld on deal algebra here Feld Thoughts: Venture Capital Deal Algebra.

What the second post does not go on to say is that by the time you factor in a. liquidation preferences (VC's get there money out first and sometimes in a multiple of what they invested) b. potentially a coupon on the preferred stock c. penny warrants etc. that the implied pre / post-money valuation is a lot different from the headline number. To borrow some algebra from Brad Feld:

Implied post-money = (invested amount)/(return to investors / total return). For the implied pre-money subtract the amount initially invested.

Thus if you invested $2mn at $3mn pre-money (assuming no further dilution) you would expect the investor to receive 40% of the proceeds of a sale. Actually the % of the return that an investor gets after liquidation preference et al can be a lot higher.

As Brad Feld points out many serial entrepreneurs don't always follow the math - try this on a whole nation of first time entrepreneurs. Add to it the national characteristic that lawyers don't matter its the handshake agreement and you are open for all sorts of interesting discussions.

02 July 2004

Skype Under Attack

A much more cogently argued piece from The Register on what is wrong with Skype via David Isen than my rant yesterday. Isen argues that David Mahy is demonstrating "bellheadedness" and goes on to say "the "industry" that will bring VoIP to most of us is the Internet Industry."

I am not entirely sure that the two are disagreeing. The article's introduction says "and focused on the difference between the instantaneous gratification of Skype for private individuals and the safe and efficient enterprise wide VoIP implementations, reliant mostly on the SIP protocol." We are all very happy to pay nothing for personal or small-business calls. Can't see IBM doing the same.

Skype's business model is based on selling VAS. As Mahy points out that is very unlikely "That's missing the point, don't you think? Say a Skype user in India wants to communicate with me in California on a SIP network. He can make a basic call through 2 gateways with international toll charges. Its unlikely that I will see his correct caller ID, and dead certain that we can't exchange IM, video, presence status, or do file transfers. A pair of implementations using SIP could do this for free over the public Internet."

And then we return to the security issue - which has some legs but may be as much about the easy line for journalists as any real concern.

I have seen a number of recent firewall implementations that ban cross-firewall p2p sessions - I think it will be a standard feature in 2005 enterprise releases.

Ridiculous
ITunes has finally launched in the UK - hurrah. If you don't have a US registered credit card you can't buy ITunes from the US website.

However, my wife tells me that a song in the UK costs 75 pence. At the current exchange rate that's $1.42. Which is just plain ridiculous. Did the Apple execs think that we would not notice?

The Bizarre

I rarely blog the bizarre Russian happenings but here's one. From about 5a.m. this morning a car alarm from what could only be a very small car went off incessantly. It was still going when I headed off to work. Only it (it being a badly-parked Nissan Micra) was now surrounded by 6 Militsia (policemen.) Who had succeeded in opening its passenger door - but clearly not in turning the alarm off.

Usually you only see 6 policemen together when there are some Azerbaijani, Armenian, Georgian etc., market traders to be beaten up.

Q. Why do the Militsia travel in threes. One who can read, one who can write and one to guard the two dangerous intellectuals.