March 15th, 2009

The End of Wall Street’s Bloom


Stuck with day-to-day fire fighting, I finally got around to read the excellent article by Michael Lewis.

It is a wonderful article of how the whole financial sector breakdown, to the world we have today, in simple terms of how CDO and CDS adds to the mess we are in. (I understand CDO, but I never fully grasp the implication of CDS until I read this article)

Actually, I was made aware of something called “sub-prime problem” in US in late 2006 by a very smart investor I worked with. He told it is going to be the biggest problem the world going to face and for the life of me, I couldn’t figure out how a lending problem in US could lead to a worldwide breakdown. I also remember sitting down with some analysts over lunch in mid 2007 trying to make sense of this subprime thing, and we never got it except to get out of the market.

I remember asking “If something going to crash, then someone somewhere going to made money”. I don’t know how back then and wasn’t smart enough to figure it out. I didn’t bother to dig further either (not my field anyway).

But it all make sense now and I wish I did ask a lot more questions then.

[I wrote the following and then deleted it, and then wth, I am not giving out anything that is important anyway]

While I lost money in the crisis, I am a little proud I wrote the following in 15th Aug 2007 for an investment report I made for my investor.

“The other risk is timing of the IPO. Many market analysts believe that the US market has being growing for too long and the housing loans problem will bring a major correction to the US market within this year. We must be prepared that the (COMPANY) may not be able to go IPO in 2008 as planned.”

May 21st, 2008

Deal Flow Is Dead, Long Live Thesis Driven Investing


This flow-centric business model made a tremendous amount of sense when the venture industry was relatively small and immature.  Back then, there were only a handful of competitors and funds were relatively modest in size.  For example, in 1980 there were only 183 venture capital firms and each firm had an average of only $41.6M under management.  Given this, as well as the immaturity of venture capital as an asset class in 1980, it’s probably safe to say that venture capital in 1980 was a true “buyer’s market” with more demand for capital than supply.   Perhaps more importantly, the investable landscape for venture capital, particularly technology venture capital, was both “thin” and “shallow”.  It was “thin” in that there were only a few sectors one could invest in.  It was “shallow” in that each sector was quite small and often only composed of a few companies. link »

For the rest of the industry, deal-flow based business models are now unsustainable thanks to two simple facts: 1. The venture industry simply is too big and too competitive for any firm to sit back wait for deals to come to them.  2. There is so much money in the industry now that any firm that is waiting for “hot” deal flow will likely find itself in the midst of a ruinous bidding war. link »

– from Burnham’s Beat: Deal Flow Is Dead, Long Live Thesis Driven Investing via

March 24th, 2008

The law is whatever the Chinese government say it is

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Gen Kanai left a comment for me to read this entry by Paul Denlinger. Paul who spent the last 20 years in China said:
“For many Chinese, “the law” is whatever the Chinese government says it is.”

The law in China is complex. They are subjected to interpretations by officers, at state, at provincials and at local levels. Most Chinese businessman just follow the norm. For example, there are declarations/tax in China on employment for healthcare and accounting. By law, you have to declare “四钱一金” but most business (esp in F&B) outright ignore it.

The law in China is non-existence, vague or worst, conflict with each another. I spent the last week with lawyers and officials in Beijing talking about LP/GP fund structure. The answer I got includes “No way”, “No but …”, “yes but …”, “Yes”, “never done before so no one knows your tax liability”.

The law in China is constantly changing. The story on Regulation 56 is an example, where one day the government decided that all IP/Mobile TV needs to be state-owned or controlled and a week later, the decision was “clarified”. Just a few days ago, they shutdown a few more IPTV sites and reprimanded others.

The law is whatever the Chinese government says it is. We invested in one of the largest and oldest e-Payment company in Beijing 2 years ago. One of the bright spot is the online lottery site they were about to launch with the government lottery (a US$20b/year monopoly business). The site was launch last year and the revenue start rolling in until suddenly the government declared all online lottery to be halt 2 months back. Ouch.

It is no wonder Chinese businessman don’t bother with lawyers. Whereas most lawyers will tell you the most important part of the contract is what happen when things go wrong, Chinese focus on what happen when things go right. If it go wrong, no contract will save the deal anyway.

For the same reasons above, these are also why American business don’t do well competing with the Chinese business in China. Look at ebay, yahoo, google vs their local competitors alibaba, sina and baidu. The latter is still the number 1 search engine China that provide mp3 search that google will not do and thus not likely to overtake baidu anytime soon.

“But baidu is breaking the law!”, you say. Okay, they break law in which country?

Several years ago, when I was doing internationalized domain names, we meet up many officials trying to figure out how we can conduct our business legally. They are always polite but we never got our answer until one of them was kind enough to say “Just go do it and stop asking us. If you ask, we have to say no”.

But thats not good enough for our shareholders. Or any non-Chinese shareholders for that matter. I can understand why David don’t feel like investing in China.

Thats why American companies will keep asking, working with the lawyers to do the “right thing” and get no where. On the other hand, Chinese companies will just go on and do it anyway until they are told not to.

January 24th, 2008

The $1.4 Trillion Question


</p> <blockquote><p> <span class="content comments_count_1 withoutphoto" ><span class="text" > </p> <blockquote class="comment_body comment_body1" ><p>Americans sometimes debate (though not often) whether in principle it is good to rely so heavily on money controlled by a foreign government. The debate has never been more relevant, because America has never before been so deeply in debt to one country. Meanwhile, the Chinese are having a debate of their own-about whether the deal makes sense for them. Certainly China&#8217;s officials are aware that their stock purchases prop up 401(k) values, their money-market holdings keep down American interest rates, and their bond purchases do the same thing-plus allow our government to spend money without raising taxes.<a href="" > <sup>link &raquo;</sup></a></p></blockquote> <p> </span></span> &#8211; from <a href="">The $1.4 Trillion Question</a> via <a href=""></a></p></blockquote> <p>

Very long article but worth reading it from beginning to end!

September 27th, 2007

VC meets Reality TV


You Be The VC contest

Damnit, we were just brainstorming about this same idea a few weeks ago!

September 19th, 2007


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Techcrunch already has a great coverage of the Techcrunch40 event so it is pointless for me to repeat here. Beside, I was busy running around, speaking to people, catching up with old friends and making a lot of new ones and not really paying attention.

So instead, I will cover a few companies I saw which I really like.

maxroam.jpg1. First on my list is Cubic Telecom. Okay, I like them (no sorry, I love them) not only because Pat Phelan reads my blog but they have a killer idea. Imagine having a sim card that gives you numbers up to 50 countries; no more carrying multiple sims and phones for different country; Then imagine anyone can call you on any of those numbers (paying local or international calls charges as appropriate) but more important, you, the recipient pays only local charges. NO MORE ROAMING CHARGES!

How many of us who travel around often get hit with a $1,000 roaming bill? Imaging all of that all gone, with all the multiple sim cards! I love them so much that I got 5 simcards from Pat. I can sending this sim to someone :-) And don’t get me started with what they going to do with their own branded phones and wifi.

It is pretty sad that most people in the audience don’t really get them since they aren’t web 2.0. But if there is an billion dollar idea from the event, this is it! Simple technology (little technology risks), high-entry barrier (this cannot by two guys in a garage, not with at least 20 years of telco experience between them), great business proposition and a clear path to profitability.

2. MusicShake has the killer presentation on day one. I was dozing off due to jetlag and their showy presentation puts me off initially. Then I hear the music, I open my eye and my jaw dropped.

When they say that they have a tool that allows anyone, even without music background, to create music, they really meant it. The demo blew the audience totally away.

Nevertheless, I am a bit skeptical that they will be big. Although it does not requires any music background to create music, there is a lot of trial and error so it is extremely time consuming. It is a cool tool of cos, but like Comic Life, I probably use it once or twice and forget about it.

3. XTR3D makes me wonder why they aren’t at Wired Nextfest. Using a camera to capture hand gestures, it translate the hand gestures into inputs. It is difficult to explain it (already failed the elevator pitch) without seeing it in action so here is the demo

I missed a few presentations as I was running around but I was told Powerset and Mint are really good. The feedback is that Powerset seem to have a very smart team of people who knows what they are doing, considering they are taking on Google with a nature language search, sound like a good thing to have. And Mint, well, won the US$50,000 award. Congratulations!

Incidentally, I am crushing in at Andreas Weigend house the last few days. I have a lot of fun with all the conversations we have the last few days. Thank you!

ps: I finally managed to shake hand with Marc Andreessen! After all these years!

September 5th, 2007

Interactive credit crunch


Bought to you by FT


Who say subprime credit woes cannot be fun :-)

September 4th, 2007

How to value a startup

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With just an idea and no track record to speak of, it is not easy to value a startup at the idea stage.

In early stage company that is still losing money, a common method is to use discount cash flow. Briefly, project how much the company is going to worth 5 years later assuming it is established and stable, then calculate the net presence value with a huge discount.

How big is the discount? 20 to 50 times.

Why so high? Well, if you invest in 100 startup companies, how many do you think will succeed? 1 in 50? 1 in 100? 1 in 1000? The answer is closer to 1 in 1000 but if you are good, say 1 in 50, that means 49 of your 50 startups will die. The one that made it must be able to cover for all your investments including the 49 dead ones. Thus, minimum 50 times returns. Thats just how the investing business works at this stage.*

But even so, using this method won’t work for a brand new startup at the idea stage because there is no track record to do any projections. At best, it is a guess of what might happen – and chances are that what you expect is going to be very different from what you get when you finally get to executing your idea. So even though it looks nice in excel, it is just that – an excel spreadsheet, nothing more.

So we are still back to the problem how to value a startup with no track record. There is no right answer and your guess is as good as mine.

But for me, I place emphasis a lot on the team and their track record. If you are a serial entrepreneur (even if you failed before), you can expect a lot better valuation than a fresh graduate with a passion. Not to downplay the passion, but with no experience the chances you would succeed is smaller than someone else who has done it before.

At the end of the day, investing is like any business. Buying and selling, risk and reward. We want to make money for our investors and ourselves. If the numbers don’t make sense, then we cannot do the deal no matter how much we like you.

I feel quite sad because we have to pass on a few startups because of the unrealistic valuation the founders have**.

* For those who are uncomfortable with this huge discount, you might want to get investors later. The general rule of thumb is that the latter it is, the less returns the investors expect. For example, a pre-IPO round investor might only expect 50-100% return on their money.

** This problem isn’t limited to just startups. There was one particular 20+M deal that we couldn’t close because of just merely 1M gap after 6 months of negotiation.

November 21st, 2006

Buy and Forget strategy

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3 years ago, I learnt a small lesson on the investment principle of Buy and Forget. One of things I learnt from Warren Buffet is to consider every stocks you buy or sell as if it is the last transaction you do in the next 10 years. (Go sailing for 10 years before you return, or something like that).

Of course, I dont have that kind of patient. In fact, I used to twiddle my portfolio every few weeks (if not every day). But then I keep remember this lesson and decided to do a little experiment a year ago. On 19th Nov 2005, I made a few adjustment to my portfolio and I didnt login to my E*Trade account for exactly one year.

Here is how I did:

Read the rest of this entry »

October 12th, 2006

Industrial and Commerical Bank of China

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A friend just pointed me to this article: ICBC’s indicative price range offers discount versus peers

Price range indicates pre-greenshoe deal size of $15.9 billion to $19.1 billion for combined H and A share offering. The offering has the potential to become the world’s largest IPO.

Industrial and Commercial Bank of China has set a price range for its mega-size initial public offering. The range will value the stock at a discount of 10-22% to China Construction Bank – which is widely viewed as the bank’s closest comparable, sources familiar with the offering said yesterday. Based on current market prices it will also offer a discount to Bank of China, albeit a smaller one.

This was brewing for a while while touted as the largest IPO in the world. Now the figure is out, it looks like it may indeed be the largest one.

Read the rest of the article too as it contains very useful stats. If the report is true, the assets are extremely attractive.

Oh yea, I burst out laughing in the Krisflyer lounge when I read this (I got a few werid stares right now *glump*)

At the end of June, the bank had over 150 million personal customers – equal to the entire population of Hong Kong, Taiwan, Singapore, Malaysia and the Philippines combined – and 2.5 million corporate customers. The number of domestic branches totalled more than 18,000.


Oh yea, I am on my way to Beijing right now and perhaps over to Shanghai over the weekend.