DISQUS

Hi Basil

I think hedge funds have gone through three phases and are rapidly heading into a fourth.
The first phase was the gung-ho, balls of steel hedge fund up to the mid 80s/90s, where hedge funds were extremely private and took advantage of markets which were essentially less transparent then ours are now. Yes--weak structures allowed rich investors to lose their shirts.

The second phase was when hedge funds became part of the asset class mix of institutional investors who demanded great disclosure. This brought with it hedge fund analytics as an industry in itself (TASS, Tremont, etc) and an increasingly rigorous studies of hedge funds, their strategies and risk management. At this point, hedge fund managers would and did willingly disclose their returns and their strategies to a point.

The third phase of hedge funds--it's inglorious phase--is the one we have just come through. Here people who weren't entrepreneurial but liked the business model stepped out of their cosy life, loaded themselves up with debt and used leverage to bring in returns. And so we have seen the wipeouts of the past few months. This third phase of hedge fundery is what looks like VC returns--a few start performer, a big variance and some wipeouts.

But at the same time there are still some incredibly rigorous funds out there doing a great job. Peter Thiel's Clarium, down only 5.6%; Amplitude up 60% last year; Paulson up some 20-odd %, I believe, and others.

As you say disclosure is key. Hedge funds disclose an awful lot to you--and I've never understood this notion that they are somehow secretive. Compared to mutual funds or ETFs, I find hedge funds provide pretty comparable disclosure--monthly returns and details of strategy. The difference is a mutual fund manager won't talk to you, while a hedge fund manager will.

You are absolutely right: disclosure would help a great deal. We are starting to see a little bit more transparency. Fred Destin, a partner at Atlas Ventures (one of whose funds is invested in by Calpers and disclosed above) recently wrote two frank pieces on the market:
http://www.freddestin.com/blog/2009/01/open-for...
and
http://www.freddestin.com/blog/2009/01/the-afte...

Steve Bird of Focus Ventures did an analysis of VC returns over two periods cover the PC IPO boom and the Internet IPO boom. The essay Personal Equity or Private Equity is mirrored here http://cli.gs/2sVhma

His numbers sugested that the top 50 firms (13% of firms) created 44% of IPO value in the PC boom, shifting to 4% of firms creating 66% of value in the Internet boom. There were many more VC firms second time around. More interestingly it was the same 36 of the 50 were essentially the same firms. Built to last, as they say.

So what would be interesting would be to do a second layer of research and see which partners generated the returns; and the extent to which the success is actually attributable to individual partners rather than firms.

Having analysed every venture fund return in the Thomson database (up until 2006), I got a horrible number. The mean is positive over some time horizons, but the distribution is about as far from normal as you can imagine, with a significant number of firms returning nothing to their investors.

Tie that with Bird's analysis, there is a simple certainty: you will make a terrible return in VC (or far worse be wiped out) unless you can get into one of the handful of really really good funds, which ultimately you won't be able to unless (here is the catch 22) you already can. Unfortunately, these certainty is denied by the hordes of investors who pore into new funds and with alarming frequency are horrified by the returns.

For some sober reading, the best public source of honest VC returns I can find is the biannually-updated returns of the California Emerging Ventures Program run by Grove Street Advisors on behalf of Calpers. It is available here http://cli.gs/zvZ51E

Basil thanks for this superb blog which has helped me avoid many many mistakes and sharpen up my act.

so the obvious company to mention here is Spinvox, which is the market leader and has, I believe, more than 10m end users as well as multiple carrier relationships.

Stan

interesting development, great that Ask is innovating so hard. Have you checked out what the True Knowledge play here as well? Usual disclosures apply but you can check out a brief description here: http://azeemazhar.wordpress.com/2008/10/06/answ...

Nick

Spot on. The cost of downloading, visiting tvrss.net, clicking through twice to get to the mininova torrent url, pasting into Tranmission, waiting 50 minutes for the download (or a day), then cleaning up the file system and playing the video is actually a pain in the arse of arses.

When I was using Hulu the adverts were remarkably bearable.

As I understand SMS is pretty much uncharged between operators and aggregators in India allowing for this sort of model. As an aggregator you can pay an operator a flat fee for unlimited SMS, therefore margin cost = zero. A unique market.
Corrections, clarifications, anyone?

As is http://www.zygotweet.com/ Zygo, which has the advantage of already having a group SMS/web service up and running

Nic,

The guys at Zygo (who you know) are launching http://www.zygotweet.com/ which will route tweets to SMS and beyond for you. It'll be available in a few weeks. Will work in UK and most other countries.
a

That is so cool.

Nic

There is also always room for an alternative way to solve the IR problem, which is what True Knowledge is doing.

I think it is tough to pretend to be a Google-killer because there is such depth to their offering and it is dumb to attempt to attack them on exactly the same or similar enough value axes that they excel at.Sometimes sidestepping the competition is also a sensible move (to be played out...)
aa

Thanks Chris. Great write up. There are a couple of points I'd add:
the first is that there are times when the onebox gets it wrong because it is extracting sentences without understanding the meaning. This is where True Knowledge can help existing search engines.
The second is that there are queries which involve some common sense and quite a lot of inference, but are perfectly reasonable queries. Examples include: Who was US president when John Lennon died? I put these and a couple of other queries up as screenshots: http://www.flickr.com/photos/azeem/tags/true/

So this is your April fools joke, right?

'Somone shd rescue blog friends' -- i understood blogfriends died (as many things do) due to lack of capital. Do you know anyone who invests in early stage internet businesses??? MMm... I can't think ;)

april fools?

Hi Nic,

The economics of BT Vision are interesting--I wonder how it will play out if BT achieves a meaningful level of penetration off any individual DSLAM. Is this a business predicated on low penetration? It would be interested to see how VideoNet is doing under Tiscali right now.

On model 2, p2p, there is the challenge from the ISPs. A bigger challenge with Joost is that they are also trying to change behaviour, and I am not sure how that will play out compared to the availability of video content on YouTube, et al. Am sure Joost will create hooks into the establish clickstream, but they'll need to.

On the niche channels, I question the economics as well. (Look at Aggregator.tv!) In particular, the platform one builds is solely an increasingly affordable Web streaming platform, but every niche you create has the same unattractive economics (develop content expertise, recruit users, sell niche advertising). It becomes ugly and unscalable.

To this you can add what I would describe as 'zeroconf' IPTV distribution platforms. Inuk Networks is one which I am involved in. Protocol agnostic, standard, understandable content (Multichannel package) and then rolling out more niche content across the platform. You shd take a look,
aa

Hey Nic

I'm surprised about the 25-30% IRR. I surveyed lifetime returns for 1004 US VC funds in early-stage or balanced funds; and 664 European VC funds.

Only 5.6% of European funds returned 25% or more over their lifetime; in the US that number was 16% or so, fewer than 1 in 6. Only 39% of venture funds did better than the S&P 500 performance during 1996-2005 (IRR 9.1%).

According to Thomson, balance Euro VCs returned an cap weighted average of 7.3% and an upper quartile fund (if you could get in one) returned 7.4%. Early stage funds did even worse.

There are of course exceptions--the top performing Euro fund did 262%. Very very nice indeed, if you can get in. (Messrs Rimer, I'm sure ;) )

Want to chat with you. Ping me a mail.
aa

Nick

Follows on nicely from the point's we discussed around disaggregation--it's implicit in disaggregation that new types of management discipline are required. Not least

Good negotiators, good diplomats and great persuaders know the importance of using the right words and right language to achieve their ends. This is particularly valuable when you or I agree with those ends and we think those ends are good.
But your vernacular, in common with so much of the rhetoric, flowing from the US sounds jingoistic.

The US is the most powerful nation on earth. And considering its power and its ability to create havoc and destroy, it has behaved very well over the past 40 years. Compare the US to an al-Qaeda leader: generations of US presidents could have rained nuclear terror on the planet and they chose not to (supported by a generally good system of checks an balances). The first thing a TinPot dictator does with his new batch of second hand strike aircraft is to drop chemicals on his own people.


But it is the richest most powerful nation on earth. And that puts it in a tough position, because to those who have been granted much... and unforutunately, it appears that for all the wealth (and for every smart, considered thinker), it lacks acute analysis or geopolitical sensitivity.


For example, read Geoffrey Robertson's piece on law vs war. Regardless of GRs views, he provides an interesting mechanism to get broader European--in particular German--support for a war. http://www.observer.co.uk/focus/story/0,6903,78...>
I want frothing, battle crazed lunatics. In battle, during combat, taking an enemy command post. I'm not sure how valuable it is during the political process, policy making or strategy building.


It's time for the US to shed its image as a gungho naive nation tempered by its more well-considered and thoughtful European neighbours. The last time it did (in Suez) things went remarkably well for most of us, except the Brits.
azeem