Felix Salmon

How Kickstarter facilitates financial investments

Felix Salmon
May 31, 2012 22:44 UTC

Remember Flint and Tinder, the Kickstarter underwear project I wrote about last month? Well, it ended up raising $291,493 in all — almost ten times its initial $30,000 goal. In that sense, it’s like a mini-Pebble, the watch which raised $10,266,845 on Kickstarter and exceeded its goal by a factor of 102. Pebble was quite open about the fact that they were going to Kickstarter after having been rejected by more conventional sources of funding: a lot of VCs turned them down before the Kickstarter campaign went viral. And now, with $10 million in the bank, it’s not clear whether Pebble wants or needs any VC money at all.

Flint and Tinder, by contrast, does want more money, despite raising much more than it asked for. I got an email from Jake Bronstein, the man behind it, today: “I am currently trying to raise money from investors for this project,” he wrote, “to finance CapX improvements to the factory to make our product truly competitive”.

Actually, I should be a bit more accurate: I was copied on an email from Jake Bronstein, which was actually addressed to Reuters’s editor-in-chief, Steve Adler. The subject line? “I think one of your reporters is harassing me / can someone have a look”.

Bronstein’s request was that I remove a link to a YouTube video which I included in an update to my post. It seems that now he’s asking real investors for money, rather than just people who think it’s a good idea to buy underwear on Kickstarter, those investors will want to do things like check out Flint and Tinder’s website. After all, the Kickstarter page says that the main way the company can be competitive is by selling directly from its website. But if you try to find Flint and Tinder’s website, by Googling it, you’ll find that no such site exists. Instead, my post is the top search result.

Bronstein doesn’t want potential investors following that particular link, for much the same reason as he has now taken down his highly NSFW website, jakebronstein.com. That URL now redirects to his about.me page; that, in turn, links to his Wikipedia entry, which features an incomplete list of his publicity stunts, and describes his occupation as “Ex-Road Ruler, current-prankster and blogger Zoomdoggle”. But Bronstein has erased Zoomdoggle, too, from the internet.

Kickstarter is quite clear that it doesn’t vet projects, or their founders. And no one expects Flint and Tinder’s 5,578 funders to have done some kind of due diligence on the company. But this project is very far from Kickstarter’s core mission of providing funding for one-off creative projects. Kickstarter’s very first rule is unambiguous on this front:

1. Funding for projects only.
A project has a clear goal, like making an album, a book, or a work of art. A project will eventually be completed, and something will be produced by it. A project is not open-ended. Starting a business, for example, does not qualify as a project.

Flouting this restriction, Bronstein talks on his Kickstarter page about how “for every 1000 pair we sell per month, 1 full-time job has to be added back to the assembly line”. That seems pretty open-ended to me. And if he’s now looking for investors, that sounds like he’s starting a business, too. Not to mention the fact that in a follow-up email today, Bronstein said that my ego was getting in the way of his “earnest attempts at job creation”.

In a comment he left on my original post, Bronstein accused me of not being diligent in researching his background on the internet — which is kinda funny, given that he seems to be trying as hard as possible for people to do just that, both by taking down his own websites and by asking sites like Reuters to remove content about him.

Still, Flint and Tinder is clearly more than just another instance of Kickstarter looking like the Home Shopping Network. It’s also something rarer: an instance of Kickstarter being used as a way of making a company much more attractive to potential investors.

This happens in two ways. One is that a successful Kickstarter project acts as proof-of-demand: potential investors in Flint and Tinder, for instance, now know that there are thousands of people out there who, quite literally, buy into its project. And on top of that, Kickstarter funds constitute a source of unbelievably cheap unsecured debt, with a zero interest rate and no set maturity date; in the case of Flint and Tinder, moreover, that financing is repayable entirely in underwear.

Once a company has the best part of $300,000 in interest-free financing repayable at a time of its choosing in underwear, the famous underpants gnome business model starts looking actually rather attractive. I’m not entirely sure where or how Kickstarter funds would feature in an investment banker’s model of a company’s capital structure. They’re basically equity, without any kind of ownership or voting rights, which is offset against a set of future deliverables. In any case, Kickstarter funds will nearly always make any company’s balance sheet look a good deal healthier.

And so Kickstarter becomes more than just a way of funding projects, and more than just a way of demonstrating demand for as-yet-nonexistent products. It can also be a way of making your company a lot more attractive to potential investors. Kickstarter has made the decision that it’s not getting into the crowdfunding business as envsiaged in the JOBS Act. But in a way, it’s being dragged into investment markets whether it likes it or not. Unless, of course, it starts cracking down on the likes of Flint and Tinder.


“Once a company has the best part of $300,000 in interest-free financing repayable at a time of its choosing in underwear, the famous underpants gnome business model starts looking actually rather attractive.”
Haha, that’s awesome…

Posted by MattyD | Report as abusive

Counterparties: The BRICs miracle may be ending

Ben Walsh
May 31, 2012 21:35 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com

The economic miracle of the BRICs, which are estimated to account for more than half of global growth in the last three years, could be coming to an end.

Today we learned that India’s economy grew at a rate of 5.3% in the first quarter, down from 9.2% over the same period last year and the slowest pace of expansion in nearly a decade. Walter Russell Mead sees the causes for the falloff as internal and  self-inflicted: “Parliament is paralyzed, economic reforms stall before takeoff, and the government is plagued by corruption scandals”.

India is, of course, the vowel that anchors the BRICs, and expectations are high. As Sober Look highlights: “one could argue that 5% is still respectable when it comes to GDP growth. Not for India.” And certainly not for China, where there are not just concerns over the validity of economic data but also the fear that the economy may have been knocked off its 8% growth trajectory and into a recession. Chinese Premier Wen Jiabao has called for the government to increase its focus on “stabilizing growth”, but it’s uncertain whether or not that means stimulus is on the way.

And as the US economy continues its tepid recovery and European growth concerns intensify, Matt Yglesias is dire and direct on the potential effects of slowing growth in the BRICs: “This time around, if the rich countries can’t get our act together, the whole world will spiral into recession”. – Ben Walsh

On to today’s links:

Facebook’s SecondMarket muppets – Felix

Gold is just another commodity until it trades like a government bond – Sober Look

Meet the Missouri woman who blew the whistle on Citi’s mortgage department and won $31 million – Bloomberg

Rental yields in US cities are climbing above 10% – Modeled Behavior

JPMorgan divisions had different ideas of how to value money-losing credit default swaps – Bloomberg

Bloomberg plans to make it mildly inconvenient for New Yorkers to drink large amounts of soda – NYT

Welcome to the era of the secret IPO, thanks to the JOBS Act – WSJ
Kayak reportedly delaying its IPO after Facebook’s messy debut – Bloomberg

EU Mess
The IMF is maybe, possibly preparing contingency plans for a bailout of Spain – WSJ
To lure young depositors, Bankia is giving away Spiderman towels – Reuters

Drudge Report financial headlines as contrary indicators – Bespoke Invest
What to make of the massive collapse of US interest rates – Business Insider
Tomorrow’s jobs report is even more crucial than normal – NYT
A new unit of media attention: The Kardashian – Ethan Zuckerman

Reagan’s gone. You’re old. Get over it – Mark Dow

Today’s market fear as a “massive failure of our economic institutions” – Brad DeLong





Hey, you sass that hoopy Bankia? There’s a frood that really knows where its towel is.

Posted by ottorock | Report as abusive

European dysfunction chart of the day, Greece vs Germany edition

Felix Salmon
May 31, 2012 14:32 UTC

Mark Dow has found an astonishing set of results from a February opinion poll in Greece; it’s hard to imagine that Greek attitudes to Germany have improved since then. Here’s just one of the 13 slides:


The final question, in particular, renders rather unfunny the joke about the German Chancellor flying to Athens for some meetings, and being stopped at immigration. “Name?” she’s asked. “Angela Merkel.” “Occupation?” “No, I’m just here for a couple of days.”

For his part, Dow seizes on a different question — one which shows that 51% of Greeks attribute Germany’s strong economy to corruption, and only 18% attribute it to competitiveness. Greek public opinion, it seems, is decidedly of the view that the only way Greece can compete with Germany is to become a lot more corrupt.

Stephan Faris, in his profile of Alexis Tsipras’s far-left Syriza party, writes:

Tsipras possesses not just a deep knowledge of the Greek electorate but a populist’s knack for channeling mass emotion…

Polls show Greeks are pulled by two seemingly contradictory desires. Roughly two-thirds of the country opposes the bailout conditions. Yet almost 80 percent say they want to stay in the euro…

Tsipras’s demand that other EU countries — namely Germany — renegotiate the bailout deal on Athens’s terms reflects a seeming indifference to the very real failures in Greece’s economy.

Looking at the poll, I see something different. The overwhelming majority of the Greek electorate believes that Germany, quite literally, owes Greece money. In the decades since World War II, Greece has been waiting patiently for its rightful reparations — and instead it’s finding itself in the midst of another attempted takeover by Germany, a Fourth Reich. Looked at through this lens, the Syriza position doesn’t seem contradictory or indifferent to the realities of the Greek economy. Instead, it’s noble resistance to a dangerous hegemon.

All of which is to say that the relationship between Germany and Greece is irredeemably oppositional, at this point. The Germans think of Greeks as corrupt scroungers, who just want to live on the fruits of Germany’s productive labor; the Greeks think of Germany as, well Nazis. (Check out page 2 of the opinion poll: when asked “What is the first word that comes in your mind when you hear the word Germany?”, and given one spontaneous reply, 32% of Greeks said something about Hitler, Nazism, or the Third Reich. And in general, again, the overwhelming majority of answers were highly negative.

This is not, in any real sense, a European Union: if two people with these feelings for each other were married, everybody would agree that they should get divorced.

Looked at from the US, it’s easy to see Tsipras as playing a deeply tactical game: he’s advocating that Greece call Germany’s bluff, and thereby continue to get EU financing while reducing the amount of austerity that Greece has to impose on itself in return. But looking at this poll, I don’t see tactics: I think that Tsipras is simply reflecting very real Greek attitudes to Germany — attitudes which consider Germany to be not only fascist, but also deeply corrupt. If you think you’re owed money by such a country, you’re not going to be particularly willing to accept onerous bailout conditions in order to receive it.

All of which says to me that Grexit is inevitable, sooner or later. These two countries have pretty much nothing in common, bar their current currency. And now the tensions caused by that common currency are surfacing in particularly ugly ways. Before things get much worse, it would surely be better for both of them if Greece decided to go its own way.

And yet, there’s a silver lining, here. As far as I know, these attitudes to Germany are not shared by most people in Spain, or Portugal, or Italy. It makes sense for the EU to allow Greece to leave the euro, and then to put a big and credible firewall up around Iberia. Greece really is a special case. And the other 14 members of the euro, if they join together, still have the ability to remain together.


LOL! German propaganda of extreme nonsense.

Dean Plassaras

Posted by DeanPlassaras | Report as abusive

Facebook’s SecondMarket muppets

Felix Salmon
May 30, 2012 21:57 UTC


Remember how excited SecondMarket was about the Facebook IPO? I’ll bet they’re not nearly as excited any more. Because if anything demonstrates that there’s a venture-capital bubble in Silicon Valley right now, it’s Facebook.

The chart above shows the valuation of Facebook on SecondMarket, every month from January 2011 through April 2012; the red bar shows the valuation of Facebook at the close of trade today.

Now it’s true that if you bought Facebook shares on SecondMarket before 2011, then you’re in the money right now. But the chances are, you didn’t:


This chart, from SecondMarket, shows that fully 78% of all transactions in Facebook took place in 2011 or 2012. What’s more, pretty much everybody who bought Facebook shares on SecondMarket is still locked up. They never got the opportunity to exit at the IPO price of $38; indeed, they’re going to have to wait long painful months before they can sell at all. (They can of course now short the stock, or buy puts, to try to protect their downside from here on out; that in turn is only going to further depress the price of the stock.)

Mary Meeker explained the consequences, today:

Valuations in the private market are going to make it “difficult to go public.” The valuations make it “difficult to justify the goals.” The prices are going up and up. And the businesses are not keeping up.

So, when these companies start to look for public market exits, there’s a good chance the “private market will lose money.”

When Meeker’s talking about the private market, she means investors like her own firm, Kleiner Perkins, rather than the kind of people who buy shares on SecondMarket. But the principle is the same. An IPO can be looked at as another fundraising round, and no one likes a down round. In the case of Facebook, it seems as though Facebook’s share price is still just higher than its last official capital-raising round, when it raised $1.5 billion at a $50 billion valuation. But that’s going to come as little solace to anybody who bought Facebook shares in the past 16 months.

What’s more, I can easily see how the frothy Facebook valuations being seen on SecondMarket contributed to the debacle that was the Facebook IPO. Facebook executives with vested equity had the opportunity to sell their Facebook stock in early 2012 at valuations north of $80 billion; at the peak of Facebook fever, just before the IPO, the shares traded as high as $44 each. Given that Facebook was by far the most liquid stock on SecondMarket, and had weekly auctions from November 2010 onwards, it was pretty reasonable to consider SecondMarket to be a reliable price discovery mechanism.

What’s more, basic economic theory suggests that if a stock has buyers at $44 privately, then its public value will be higher than that, since the universe of potential buyers expands enormously. Given that theory, it would have been really hard, I think, for Morgan Stanley to price the IPO below the levels seen on SecondMarket for most of the previous year — a valuation of $80 billion or so.

In reality, however, it’s increasingly looking as though shares in private tech-companies are a bit like fine art prices: a place for the rich to spend lots of money and feel great about owning something very few other people can have. The minute they become public and democratic, they lose their cachet. And a lot of their value.


Amazingly, today, after such a long time has passed since the FB IPO, I read an article on Reuters in which the author said that FB was used by 900 million people, and Rob Cox, from Reuters, said a similar thing in a video…
Get real, please, and take the time to learn the difference between ‘users’ in the sense that facebook and other social media companies use the term, which just means ‘online entity’, and real people, who can each create hundreds of such (immortal) user entities for every site they use.
Over the years, I’ve created numerous ‘user’ accounts on Reuters, but I’m still one guy.
I know people who use facebook who’ve created hundreds of ‘users’ over the years.
has anyone ever audited facebook in order to find the actual number of people (persons) who use it?
My guesstimate, based on 10 years of using social media and advertising on it, is that the end figure would fall between 1 and 2 orders of magnitude below the 900 million figure.

Posted by reality-again | Report as abusive

Counterparties: The debt crisis we’re wasting

May 30, 2012 21:10 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com

US and German government debt, the WSJ reports, is now “trumping gold as a safe haven”. (Please update the contents of your Doomsday Bunker.)

In fact, today a host of government bond yields around the world approached new lows. Yields for 10-year Treasuries hit 1.625%, a new record. As Joe Weisenthal notes, German, British, Finish, Swedish, Australian and Canadian borrowing costs have never been lower. German two-year bond yields even hit zero.

As one analyst said:”This is fear.” Edward Harrison, for his part, warns that low rates could force the US into a Japanese-style state of “permanent zero” that punishes savers and hamstrings banks. And Matt Yglesias wonders: If inflation-adjusted interest rates on US debt are actually negative, why bother collecting taxes at all?

While the world is willing to lend to the US for next to nothing, it’s worth revisiting the last time 10-year Treasury yields hit 60-year lows. In September, as America was fresh off the debt ceiling debacle, Martin Wolf reminded us that the market was not particularly worried about deficits, at least not in the US, UK and Germany. (Ezra Klein had similar things to say in August.) The bond market, Wolf wrote, is “loudly saying” we should

use cheap funds to raise future wealth and so improve the fiscal position in the long run. It is inconceivable that creditworthy governments would be unable to earn a return well above their negligible costs of borrowing, by investing in physical and human assets, on their own or together with the private sector.

Translation: Never let another country’s debt crisis go to waste.

And on to today’s links:

New Normal
Americans are increasingly spending their “prime working years” not working – WashPost

EU Mess
Europe “effectively lending Greece money so Greece can repay the money it borrowed from them” – NYT
Greece’s energy options: Iran, Glencore or blackouts – FT Alphaville
European leaders propose a “banking union” – WSJ

Federal lines of credit: Improving fiscal stimulus by extending credit directly to citizens – Miles Kimball

Taleb: A breakup of the euro is “not a big deal,” will create “a lot of fun currencies” – Bloomberg
Taleb “massively angry” at Bloomberg for quoting him out of context – Business Insider

Facebook and the sad case of ethical bankers – Bronte Capital
Investment banks’ function in an IPO is to equally satisfy or equally dissatisfy issues and investors – The Epicurean Dealmaker

A better way to restrict leverage and make banks pay for their own resolution – Deus Ex Macchiato

American Decline
When biking to school is against school rules – Bicycling

Data Points
Kleiner Perkins’ 112-page report on the Internet trends of 2012 – KPCB

Interstellar Domination
The Rockefellers and the Rothschilds have formed a strategic partnership – FT

Bit.ly isn’t really a link shortener anymore – The Atlantic Wire


johnhhaskell – I like reading TED, and think he is largely honest about his profession and highly entertaining. It helps me learn about fields of which I would otherwise know nothing.

I interpreted the last bit of snark in his post as saying that “We’re the middleman in an IPO and will take our fee. If you would prefer not to mess with an IPO, we can help you get acquired. Oh, and we’ll take our fee for that too.” That’s where my ‘heads we win, tails you lose’ remark comes from.

Posted by Curmudgeon | Report as abusive

Addressing Europe’s risks

Felix Salmon
May 30, 2012 14:55 UTC

What exactly does the EU’s José Manuel Barroso mean, when he says today that the EU should move towards “a full economic union”, which would include “a banking union with integrated financial supervision and single deposit guarantee scheme”? In a simultaneous EC report, there was also talk of “direct recapitalization by the ESM (European Stability Mechanism)” when banks run into solvency issues.

The big idea here is simple, and relatively easy to understand. Banks in Europe’s peripheral countries, most importantly Spain, are understandably seeing their deposits move to countries like Germany, where there’s no risk of devaluation. But that kind of a slow bank run — Mohamed El-Erian calls it a “bank jog” — inevitably weakens those banks’ balance sheets, and the straitened PIIGS governments are in no position to shore up their banking systems with billions of euros in bailout money.

Here’s Mohamed’s suggestion, which seems to be extremely close to what the EC is now signing on to:

An incredibly disruptive situation could be avoided if Greek depositors were given quick access to a region-wide (as opposed to just national) deposit insurance scheme that is unambiguously supported by the fiscal authorities in the strongest eurozone countries. This would need to be coupled with even larger liquidity support from the European Central Bank, along with direct capital injection into the Greek banks from regional funds (e.g., the European Stability Mechanism, or ESM) and multilateral institutions (namely the International Monetary Fund).

I have a funny feeling that this is exactly what’s going to happen, but that implementation is going to be carefully timed so that it happens after Grexit, and not before. First you wait for Lehman Brothers to go bankrupt, then you give investment banks full access to the Fed discount window.

The problem is that deposit-guarantee schemes need to be tested before they’re trusted. Even with an EU-wide guarantee in place, at the margin German banks are always going to be safer places to put your money than Irish banks — and of course a guarantee would only cover relatively small six-figure retail deposits, it wouldn’t cover the huge corporate cash balances which only the most foolish of corporate treasurers would still consider leaving on deposit at, say, Bankia.

All of which is to say that although the degree of risk and uncertainty in Europe is high and can come down, there’s also a limit to how far it can come down. As Walter Russell Mead masterfully explains, Europe’s politics — much of which are playing out at the national level within multi-nation states — will inevitably and fatally trump whatever theoretical economic union the Eurocrats attempt to put in place. And because that risk is now so clear, the one thing that no one has to worry about is the kind of complacency where enormous systemic risks build up quietly without anybody noticing or worrying about them.

That’s the point that Nassim Taleb was trying to make in his Montreal speech yesterday — a speech which got reported by Bloomberg as simple investment advice. I know Nassim reasonably well, and I can promise you that he would never say that he “favors investing in Europe over the US” — he has nothing but disdain for anybody who makes such grand and stupid pronouncements. He would be happy, however, to reprise the theme of of his Foreign Affairs article last year, on the subject of “How Suppressing Volatility Makes the World Less Predictable and More Dangerous”. Clearly, the US is much better at suppressing volatility than Europe is, right now.

That essay has disappeared behind a paywall now, but I excerpted a bit of it here:

A robust economic system is one that encourages early failures (the concepts of “fail small” and “fail fast”)…

Consider that Italy, with its much-maligned “cabinet instability,” is economically and politically stable despite having had more than 60 governments since World War II (indeed, one may say Italy’s stability is because of these switches of government).

During the global economic crisis, the US was happy to see many more domestic bank failures than Europe was — and on top of that was happy to put its big automakers into bankruptcy. Those decisions served America well. Now, Taleb’s saying, the tables are turned: the volatility in Europe has become unavoidable, while the US appears to be a beacon and a safe haven. And whenever you achieve safe-haven status, the short-term benefits (the 10-year Treasury bond now yields just 1.65%, which more or less amounts to the markets begging the US government to borrow more) are always offset by hidden tail risks which tend to bite very hard indeed when they finally materialize.

None of which, of course, is or should be taken as investment advice. A long-Europe, short-US trade would be highly risky right now, with a greater-than-even probability of losing money. Now back in his trading days, Taleb specialized in putting on trades with a greater-than-even probability of losing money: he reckoned those trades were generally underpriced, and that the amount you made in the minority of cases where the bet paid off could more than cover the amount you lost in the majority of cases where it didn’t. But Taleb’s not a trader any more, and in any case none of that kind of sophistication made it into the Bloomberg article.

If you want a safe place to put your money, the conventional wisdom remains correct: Germany and the US are definitely safer than Spain and Greece. Nassim’s new book isn’t going to help you find a new, undiscovered safe haven. But it might serve to remind you that the stronger you think a political economy is, the more violently it tends to break.


@umeshgeeta; Greetings from Sparta,

All those words just to describe a EU Ponzi Scheme Fiasco. Be warned, all 300 of us are marching north.

Posted by GMavros | Report as abusive

Leadership lessons from a Wall Street consultant

Felix Salmon
May 30, 2012 06:22 UTC

I’ve been spending much more time than usual on Facebook, over the past week — you’d think the company has been in the news, or something like that. And so I found myself this evening clicking on a classic clickbait headline — “Two Lists You Should Look at Every Morning” — which had been shared approvingly by my ex-boss, and which came with the somewhat respectable logo of the Harvard Business Review.

The article in question isn’t long, but it is pretty much everything you hate about the HBR. It’s written by some consultant who loves to talk about “leadership” a lot, and who loves to use phrases like “platform for talent”. What’s more, he’s ever so keen on focus, and eliminating distractions. Apparently, when you’ve got some dead time while standing in an elevator, the wrong thing to do is to use that time for something productive, like dashing off a quick email. Email, you see, is a distraction from more important things, like, um, working out who else might be in the elevator. Or, single-mindedly trying to win some pointless gong:

After the CEO busted me in the elevator, he told me about the meeting he had just come from. It was a gathering of all the finalists, of which he was one, for the title of Entrepreneur of the Year. This was an important meeting for him — as it was for everyone who aspired to the title (the judges were all in attendance) — and before he entered he had made two explicit decisions: 1. To focus on the meeting itself and 2. Not to check his BlackBerry.

What amazed him was that he was the only one not glued to a mobile device. Were all the other CEOs not interested in the title? Were their businesses so dependent on them that they couldn’t be away for one hour? Is either of those a smart thing to communicate to the judges?

There was only one thing that was most important in that hour and there was only one CEO whose behavior reflected that importance, who knew where to focus and what to ignore. Whether or not he eventually wins the title, he’s already winning the game.

This one story is reasonably impressive in that it inadvertently tells you everything you need to know about the leadership industry. For one thing, the people who are most successful, in this industry, tend to be obscene flatterers: whatever your client does, he does it better than any of his competitors, and he’s “winning the game”. When CEOs ask for advice, what they really want is flattery: they want to be told how brilliant their decisions are, and that the only thing which would make those decisions even more brilliant would be if they were made even more decisively.

And secondly, CEOs will go to extraordinary lengths to be flattered: not only by paying consultants enormous sums of money to tell them how brilliant they are, but also by putting enormous effort into maneuvering to be awarded a profoundly meaningless title like Entrepreneur of the Year. Our CEO, here, could have tried to get something vaguely useful out of the meeting, by trying to learn from the various other entrepreneurs and judges who were there; instead, he treated it as a zero-sum competition, where there could be only one winner.

Such a person laps up stuff like this:

The speed with which information hurtles towards us is unavoidable (and it’s getting worse). But trying to catch it all is counterproductive…

A study of car accidents by the Virginia Tech Transportation Institute put cameras in cars to see what happens right before an accident. They found that in 80% of crashes the driver was distracted during the three seconds preceding the incident. In other words, they lost focus — dialed their cell phones, changed the station on the radio, took a bite of a sandwich, maybe checked a text — and didn’t notice that something changed in the world around them. Then they crashed.

The world is changing fast and if we don’t stay focused on the road ahead, resisting the distractions that, while tempting, are, well, distracting, then we increase the chances of a crash.

This being an HBR blog post, and therefore more of a book excerpt than an actual blog post, there’s no link to the study in question. But it comes up pretty easily with a Google search. And guess what:


It turns out, if you look at all of the crashes in the survey, just one third of them were associated solely with the “secondary tasks” being talked about here, and only about 40% had secondary tasks as a contributory factor at all. The only way you can get anywhere near 80% is in the fact that 78% of crashes were associated with secondary tasks or non-specific eye glances, or driving-related inattention to the forward driveway (for instance, looking to the side when changing lanes), or drowsiness.

Evidently, what happens when you really focus on your work, when you start every day by making “good time to pause, prioritize, and focus”, what you end up with is stupid exaggerations and errors like saying 80% when the true number, freely available online, is only 40%.

Or maybe what you end up with is a life lived in a bubble of self-affirmation, where the glorious serendipity of Twitter or Facebook — even the occasional link emailed to you by a well-meaning friend — is ruthlessly pruned from your life, so that you can digest only information pre-chewed for you by subordinates and consultants, all of whom are extremely well versed in the art of telling you exactly what you want to hear.

So what does it mean that this self-evidently ignominious blog post, two three years after it was written, is still being passed around the upper echelons of the consultant-sphere, complete with its 270 comments? (“Wow this is incredible story for me . I will do my best to apply this in my everyday life.”) Part of it is that the post seems to have turned into something of an HBR evergreen, a bit like “Six-pack abs! See results in just 9 days!” over at Men’s Health. And that fact, in itself, is telling. HBR’s readers, it seems, are perennially starved for little blog posts telling them that they’re not self-centered enough, and that they should try to cut down on annoying things like paying attention to unexpected things the outside world might send their way.

If you want to be a leadership guru, pay attention. Don’t say anything which requires actual thought: just give your clients permission to do as little as possible, while remaining magnificently untroubled by self-doubt. Then you, too, might end up with lucrative consulting contracts for “Allianz, American Express, Brunswick Group, Goldman Sachs, Morgan Stanley, Deutsche Bank, JPMorgan Chase, FEI, GE Capital, Merck, Clear Channel, Nike, UNICEF, and many others.” Yeah, I noticed how finance-heavy that list was, too.


I don’t know about anyone else, but whether it was in school or in the workplace, I’ve always encountered people who I’ve thought “are terrible at leading”. Some people just naturally know how to be successful and who can lead others in the same direction. But then there are some who are awful at both. I never wanted to be the latter so I’m always looking for ways to grow personally, professionally, and as a leader to be as successful as I can. A friend lent me a book she just read called “How to Avoid the Common Failure” by Michael Horton. You can find out more on his website http://www.hortonadvantedge.com and you can pick up the book at http://www.gettothepointbooks.com. She highly recommends doing both. It’s a great reference and motivational book to really give you a push in the right direction!

Posted by lsmith0192 | Report as abusive

Chart of the day: Do IPOs create jobs?

Felix Salmon
May 29, 2012 21:37 UTC

In the wake of its fabulous report about how investors in VC funds are stupid, the Kauffman foundation has released another report, this time about IPOs. This one comes with a very bad press release, which says in breathless fashion that “nearly 1.9 million new jobs forfeited in the past decade as fewer entrepreneurial firms join ranks of public companies”. In fact, the report itself is much less alarmist, and a single chart does a very good job of debunking the idea that if we had more IPOs, we’d automagically have much more employment.


What this chart shows is that during the dot-com bubble, companies like Amazon and eBay would go public and promptly reinvest the proceeds, using them to grow as fast as they could. Both of them were just three years old at IPO, and used their equity capital to carve out dominant positions in their respective corners of the internet. As the report says, the market’s mantra during the dot-com bubble was “grow rapidly or fail”, and so all companies which went to market adopted pretty much that strategy.

With hindsight, many of those companies would have been better off conserving their capital, preserving a bunch of liquidity for a rainy day, and going for sustainability over growth. But that didn’t happen, and what you can see in the chart is a spectacular failure of public companies to create jobs after the dot-com bubble burst. The older companies certainly didn’t: total employment in companies which went public in 1996, for instance, actually fell significantly between 2000 and 2003. And even newly-public companies, if they went public in 2001 onwards, basically gained no jobs at all; the only exception was 2004, the year Google and Salesforce went public.

So yes, the number of companies going public after the dot-com bubble burst was lower than the number of companies which went public during the bubble, when equity capital was dirt cheap. That doesn’t mean that jobs were forfeited as a result: if more companies had gone public, there’s no way they would have grown their payrolls at the rate that the cohorts of 1996 and 1997 did.

Indeed, the report itself explains very clearly that the 1.9 million number is not remotely something to be taken literally:

Since the number of years in which to grow would have been shorter than for the firms that went public in the late 1990s, the jobs created through 2010 probably would be lower. Second, there is an assumption that the average quality of firms going public would remain the same as those that actually did go public. In other words, that there would have been additional eBays, Amazon.coms, and Googles if there had just been more IPOs. Third, that the people that would have been hired would not have been doing something else. In other words, there is an implicit assumption that a mass army of would-be engineers, scientists, and marketing experts is sitting at home watching television. And fourth, that the capital invested when a company raises funds in an IPO would not otherwise have been invested in job-creating activities. The average company that conducted an IPO during our sample period raised $162 million in inflation-adjusted dollars, and if there were 2,288 more IPOs of the same average size, $370 billion of capital would have been pulled from other uses.

Instead, the point of the 1.9 million jobs number is that it’s low, not high: it’s being presented in order to contrast with insanely overinflated figures elsewhere, such as Grant Thornton report which says (slide 15) that the decrease in IPOs “may have cost the United States 22 million jobs over the last decade”.

In fact, what has happened over the past decade or so is that companies have been getting older and older at IPO, and have been able to raise, in some cases, billions of dollars in venture capital before going public. As such, IPOs have not been a way of raising growth capital, so much as a way of creating an exit for VC funders. Or, to put it another way, there are still lots of hot 3-year-old technology companies raising huge amounts of equity and using it to hire loads of people. They’re just doing it in the private markets rather than the public markets.

What’s more, the fast-growing technology companies which are going public now, or which have gone public in recent years, are hiring precisely the one group of people where there’s no unemployment problem at all: computer engineers in general, and Silicon Valley computer engineers in particular.

Once upon a time, when IPOs were primarily ways for young, fast-growing companies to raise the capital they needed to continue to grow, there was a strong case to be made that they helped create jobs. Today, however, IPOs are something else entirely. If there were more IPOs, that might be a good thing, but it’s silly to believe that we’d have more jobs that way. IPOs, like leveraged buyouts, are financial tools used by financial professionals to make money. Those financial professionals surely like to think of themselves as job creators. But their real job is to make money, not jobs. And so while there are reasons to bemoan the lack of IPOs in recent years, this idea — that we’d have many more jobs right now if there had only been more IPOs — isn’t one of them.


This data appears to make passing of the JOBS act even worse. Companies, broadly, are not having any trouble raising funds in the private market and fail to create many jobs once going public. Now VCs can more easily cash out in the public market and accounting controls are even more lax.

Posted by Woj | Report as abusive

Counterparties: Measuring the shadow banking industry

May 29, 2012 21:11 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com

In a new report, Deloitte cites no fewer than eight different definitions of a sector that’s anywhere between $10 trillion and $60 trillion in size. Welcome to the amorphous world of “shadow banking.”

The Deloitte Shadow Banking Index attempts to estimate the size of an assortment of financial activities that happen, at least in part, outside the normal world of  regulated banking. Shadow banking, as Ben Bernanke put it, is how your car loan – or, before the crisis, your mortgage – gets chopped up, sold to investors and might even end up in your neighbor’s mutual fund. It includes the kind of securities-lending operations which helped to blow up AIG, and it’s vulnerable to a relatively new and dangerous kind of run.

Under Deloitte’s own definition, the US shadow banking system has essentially been cut in half since 2008, to roughly $10 trillion at the end of 2011. This figure is significantly smaller than previous estimates, including one by New York Fed staffers, which put the size of the US shadow banking system at $15 trillion.

So is it good news that the ominous-sounding shadow banking system has shrunk? Mostly, yes. But this is a notoriously hard market to define. Deloitte’s definition of shadow banking excludes some “financial intermediaries” (read: the next AIG), agency mortgage-backed securities (owned by taxpayers through the government’s takeover of Fannie and Freddie) and money market mutual funds. It also, of course, doesn’t account assets at real banks, like the derivatives that recently lost JPMorgan billions.

What’s more, it’s hard to be consoled about the shadow banking system’s $10 trillion size when marquee regulators likeAdair Turner andDaniel Tarullo are still calling for more reforms.

And on to today’s links:

Must Read
“Spain is an unhappy federal structure held together by subsidies and crooked accounting” – Walter Russell Mead

One of the most complex cyber threats in history is infecting Iranian computers – Wired

Last year’s congressional debt ceiling debacle hurt consumer confidence more than Lehman’s collapse – Bloomberg

The hedge fund manager who outsmarted JPMorgan – NYT
JPMorgan’s move to cover its hedging losses begins with a $25 billion sale – Reuters

Tax Arcana
Christine Lagarde, who recently chided Greek tax evaders, pays no taxes on her $551,700 annual compensation – The Guardian

EU Mess
A frightening guide to the increasingly likely end of the euro zone – The Baseline Scenario
Eurobonds would be a “noble expression of European solidarity,” if anyone knew how they’d actually work – NYT
The European repo curve has gone inverted – FT Alphaville

We’re “witnessing a significant shift in power from shareholders to entrepreneurs and managers” – New Yorker
“The stock market is no longer the common ownership of the means of production” – Felix

New Normal
US manufacturing is recovering – thanks, in large part, to stagnant wages – WSJ

Old Habits
New Yorkers’ love of coffee, quantified – Massive Health

Dewey & LeBoeuf files the largest law firm bankruptcy in history – DealBook

Revisiting a “making a living from blogging” post 10 years later – Blogads

Bold Moves
Chicago’s ambitious plan for zero traffic fatalities – The Atlantic Cities

Stuff We’re Not Linking To
The plight of Harvard graduates includes telling people they went to Harvard – Boston Globe
Henry Blodget wants to know why people hate Jews – Business Insider


“This figure is significantly smaller than previous estimates, including one by New York Fed staffers, which put the size of the US shadow banking system at $15 billion.”

I think you may have meant 15 TRILLION…?! Please let me know if I am mistaken?

Thank you for all of your good work!!

Posted by humanity101haha | Report as abusive