Category Archives: Uncategorized

Bay Area Startups Raise $334 Million in First Two Weeks of 2012

The year has gotten off to a good start for San Francisco Bay Area startups looking to raise venture capital. Bay Area startups have secured at least $334 million in funding thus far according to data published by SecondMarket ( Below is a list of the venture capital offerings for companies in the Bay Area so far in 2012. The list of startups is led by the social media companies Lithium Technologies in Emeryville and Klout in San Francisco, the online payments company Jumio in Mountain View, and the biotech companies Aria Diagnostics in San Jose and Avinger in Redwood City.

The Emeryville based social media company Lithium Technologies is the leader in vc funding thus far with a Series D round led by New Enterprise Associates and SAP Ventures of $53 million. Lithium helps top brands find online and mobile social customers, understand their influence, and build lasting relationships. The Lithium Social Customer Suite offers comprehensive social monitoring, creative customer experiences, and actionable analytics across millions of blogs, forums, and social networking sites.

The San Jose based biotech firm Aria Diagnostics is a close second with its Series C round coming in at $52 million and led my Venrock, Domain Associates, Meritech Capital Partners.
Aria Diagnostics has novel blood tests that equip pregnant women with the right information to make decisions regarding the health of their baby and their own body.

The SF SOMA based Klout comes in third with a Series C round of $30 million with Kleiner Perkins, Venrock, Institutional Venture Partners, and Paige Craig as leaders of Klout’s latest fundraiser. Klout has a system that allows users to track the impact of their opinions, links and recommendations across their social graph. Data is collected about the content users create, how people interact with that content and the size and composition of their networks. Klout identifies influencers and provides tools for influencers to monitor their influence.

Poor Refinery Capacity in Latin America is Good for the USA for Now

This is a response to an article by Keith Schafer which appeared in SeekingAlpha on December 23, 2011.
U.S. Poised To Retake Status As Net Oil Exporter
This is a great review and great news. However, I agree with ryanclarke that we are a net exporter of refined products. The primary driver of this has been Latin America’s rapid GDP growth and growing middle class combined with its overall poor refining infrastructure. Many of the smaller latin countries don’t have a single active refinery, and even those that do have a refinery network, namely, Brazil and Mexico, do not have sufficient refining capacity to meet their own demands let alone the demands of the entire LatAm region, and some of the smaller latin countries remain highly dependent on diesel for power generation. As a result, they are paying us to refine crude into gasoline for their cars and diesel that they burn to run their air conditioning which is needed year-round in the tropical regions.

Have you investigated plans to improve refining infrastructure in the region? For example, do you know if and when Pemex and Petrobras plan to build new refineries?

Thoughts on Steve Jobs’ impact on Apple and the long term future of the company

I do not disagree with your thesis over the long run. However, over the shorter term of the next 2 years or so, I do expect the company to continue to do well. In the short term his death will do nothing more than to give the company more publicity which should be good for Apple’s products. The pipeline is pretty clear for the next couple of years also.

But the big question is where will the next grand slam come from? Apple’s stock has risen about 6000% in the last 10 years because of a series of not only homeruns, but grand slams:

1) iPod
2) iTunes
3) iPhone
4) iPad

Most technology execs fail to replicate that kind of success. They do one thing really well when they are young, make a ton of money from it, and then their real careers are over. They then go into philanthropy or venture capital. Mr. Jobs was different and the thing that sets him apart is that his greatest string of success came at the end of his life during a period when he spent much of his time battling with cancer.

It is interesting to note that in 2001 the market cap of Apple was about $6 billion, and today it is north of $350 billion and just passed Exxon (XOM) to become the most vauable company in America shortly before his death, and it is arguably the most valuable company in the world when you consider that the only companies with a larger market cap are partially state owned companies. If that does not demonstrate the genius of the man, then I don’t know what does.

Nostalgiac for the 50s and 60s: The Era of High Taxes in America and High Economic Growth

I have just finished reviewing the slides of a presentation on the history of taxation in America and I am going to note some of my thoughts and observations on the high marginal tax rates that existed during the 1950’s and 60s. You can view the presentation at the link below.

The authors of this presentation seem to claim that high taxes can be good for economic growth and they point to the 50s and 60s as evidence to prove their claim. While I recognize that the US economy grew rapidly during the 50s and 60s in spite of the high marginal tax rates of 91% and 70% for the top earners, I don’t think we can expect that such high marginal rates would produce the same type of economic growth now as they did during that period.

First, by 1950 the US had racked up an enormous debt compared to its GDP, which was used to fund primarily three things: 1) the large infrastructure projects of the New Deal during the Great Depression, 2) the second world war effort, and 3) the reconstruction efforts in Japan and Western Europe immediately after the war. The nation had taken on huge amounts of debt, but unlike today, most of that debt was held by individuals and firms inside of the United States and not by foreigners. The high tax rates were used to pay back the debt, but the payments on the debt went right back into the US economy as most of the debt was held within the United States. If the US were to implement high tax rates today in order to pay down the debt, it’s hard to see how those higher tax rates would benefit the US economy internally as such a large portion of that money would be leaving the country to pay foreign creditors.

As the debt was paid down, the tax rates remained high, but the economy continued growing rapidly. The federal government remained a large part of US GDP, but as the 50s and 60s roared on, the government embarked on a spending campaign driven by the cold war. The government spent billions (trillions if we adjust for inflation) on infrastructure and research and development projects. The interstate highway system was built, water works were constructed, nuclear power plants were erected, airports were built, etc.

The technology that evolved from this era was nothing short of revolutionary: civilian nuclear energy, advanced jet engines that enabled civilian aviation, intercontinental ballistic missiles (ICBMs), the transistor and semiconductor technology, computer languages, satellites, advanced radar, and ultimately space exploration, which culminated with one of America’s proudest moments with the moon landing in 1969. I don’t believe that the private sector could have successfully funded these kinds of R&D projects that require decades of work without the federal government’s assistance and the motivation and fear of communism created by the cold war.

If the US were to embark on this kind of R&D spending campaign today, I do believe that more revolutionary technology could result from such spending, but unfortunately, I don’t see that in the cards at this point given the cognress’ focus on cutting spending. The deep cuts to our space program (NASA), which was once the technological envy of the solar system, confirm my view.

The demographic difference between the baby boom era and now cannot be ignored. The population growth rate of the USA peaked in 1963 at about 2.2% and has now fallen to about 0.9%. People were having lots of children in the 50s and 60s and we cannot forget about the constant in flow of immigrants that our country has seen throughout most of its history. The median age was about 27 and has now risen to 37 and is on pace to continue rising as the population ages. The result will be that any excess federal spending is more likely to go to pay for entitlement programs including social security and medicare than it is likely to fund infrastructure and R&D spending.

If America were to implement higher marginal tax rates such as those that were in place during the 1950s and 60s, it is hard to see how that would lead to rapid economic growth given the differences between the two periods. Perhaps, it could lead to something of a renaissance in health and medical sciences as the demand for improved medicine would rise as the population got older, but I am still unsure how it would lead to rapid economic growth given the demographic change that is underway.

Look at the Private Sector for US Energy Plans

While I agree that sustained $100+ oil is likely to become reality due to growing global demand and the low likelihood that supply will be able to keep up with demand, comments like “the US has no real energy plan.” are becoming incredibly trite. The USA is not a centrally planned economy and the transition from petroleum based fuels to other sources will be dictated by the economics, so we really need to stop looking to our politicians for the answer because they are always behind the curve and we don’t elect them to solve these types of problems, but rather to make policy that facilitates the private sector’s solutions to these problems. While policy has a way to go, I don’t think this means that the private sector does not have a plan. For example, Chesapeake (CHK) and Devon (DVN) are hard at work in developing our nation’s shale gas reserves and their results so far are very encouraging. With natural gas presently trading at less than one fifth the cost of gasoline on a per unit energy basis, they are opening many CNG stations in Oklahoma it won’t be long before this moves into other states.

I think that those who continue saying how behind the USA is in energy development really need to take a look around at all of the projects that are planned or in development stages. We are not the leader in electricity from renewables because we are still #1, #2 and #3 in coal, natural gas, and oil production, respectively, so we have not needed to move to renewables for electricity production like smaller countries with fewer reserves, but in spite of this there are 2 large solar projects planned in California and numerous wind projects across the midwest, so I don’t think we are so far behind like many people seem to suggest.

The Cost of Gasoline vs. Natural Gas

I just wanted to share a quick back of the envelope calculation. I did not realize the price difference was this large, but it turns out that gasoline is about 5 to 6 times as expensive as natural gas on a per unit energy basis.

In November, Boone Pickens told CNBC that gasoline was about 4 times as expensive as natural gas, but it appears that he either underestimated the true difference in price or the price has diverged even further since his testimony. Those of you in the energy industry can just ignore this blog post, as I imagine you monitor this price differential on a daily basis and I won’t be saying anything you don’t already know, but I would appreciate any commentary you might have to offer.

Here in California I paid $4.80 last month for each block of 1,000 cubic feet of nat gas that I consumed from my local utility company. 1,000 cubic feet of natural gas has about 1 million BTUs of energy although it can vary slightly depending on where the gas came from. From this logic I paid $4.80 for each 1 million BTUs of energy that I consumed from natural gas.

Refined gasoline has about 120,000 BTUs per gallon, but again it depends on where the oil came from, the precise refining process, and how much ethanol and other additives the gasoline contains. Thus, it takes about 8 gallons of gasoline to produce 1,000,000 BTUs of energy. According to the average price today in the USA for a gallon of gasoline is $3.35. Thus, it costs about $27.92 to produce 1 million BTUs of energy from refined gasoline.

Thus, gasoline is almost 6 times as expensive as natural gas on a per unit energy basis.

Ethanol is even more expensive than gasoline. Wholesale ethanol is currently trading at $2.59 per gallon. Ethanol has about 80,000 BTUs per gallon, which means it presently costs about $32.38 to produce 1 million BTUs from ethanol. This is the wholesale trading price and does not consider any mark up or taxes passed on to consumers at the pump.

I thought some of you who don’t pay attention to this type of thing might find this interesting. I think it shows that we really need to begin switching to natural gas automobiles soon. Ethanol is a complete waste of time in my opinion because it causes the price of corn and sugar to rise since it is made from those agricultural commodities.

PE Ratio of the Wisdom Tree India Earnings ETF (EPI)

There seems to be a fair amout of disagreement regarding the PE ratio of the WisdomTree India Earnings (EPI) ETF. It never ceases to amaze me how often people can disagree over something as simple as a PE ratio, but if people do not share their precise method for arriving at their computation of a PE ratio, then you can understand why there can be disagreement. Some people like to use 12-month trailing earnings, while others like to use estimates. I much prefer to just stick to the 12-month trailing figure because forward looking projections often turn out to be wrong.

The most accurate way to compute the PE ratio of an index ETF like WisdomTree India Earnings (EPI) is to first obtain the PE ratios of the component stocks and then compute a weighted sum of the PE ratios based on the index weight of each component to arrive at the overall PE of the ETF. In the case of WisdomTree India Earnings (EPI) most 3rd party sources will not have the correct PE ratio listed in their system because the ETF holds foreign listed stocks. Moreover, most US based financial sites like Yahoo! and MarketWatch have very poor data for non-US listed securities. Fortunately, Bloomberg’s data is pretty good for foreign listed stocks. I pulled the PE ratios of the top 10 components of EPI from Bloomberg and then computed the weighted PE ratio of the ETF using a spreadsheet. The results are listed in the table below.

From my computation, the weighted average PE ratio of the top 10 components is 17.88 according to the Bloomberg PE data. However, the top 10 components only comprise about 43% of the total assets in the ETF. Therefore, the actual PE ratio of the ETF depends on the PE ratios of the other 133 stocks held in the ETF. The complete listing of holdings is at the link below. I did not have time to go through and get the PE ratios for the other components, and I am not sure if Bloomberg would have data for all 133 stocks.

While I tend to believe that the WisdomTree PE calculation of 15.40 as of 12/31/10 is probably correct, if my PE estimate of about 18 is more accurate, I still think that is a great value for an Emerging Markets ETF.