Saturday, July 12, 2008

Finance work aggregation portal

I met Khanan Grauer, promoter of financial portal during a guest speaking event in New York in May.

Despite so many financial portals in the market, he is trying something unique - though still at an early stage.

His pitch:
"Benjamin Graham, the father of value investing took five years to identify the talent and offer a job to Warren Buffet - the next greatest value investor. Most investment professionals are hired on wall street in less than 5 hours.
Fingad will aggregate the work of people doing investment to find top talent in the marketplace"

Besides aggregation and collaboration among his users for financial strategies, he will be working on providing tools on his portal which the financial Industry insiders use for analysis.

With so many scandals and bubbles bursting on wall street, there should be some new demand to utilize this website.

Domino's of Indian Food

I came across a unique and stylish Food Pack in Ahmedabad, India. It is delivered by a popular local restaurant chain. The Food Pack is in Domino's style Cardboard box. It is a pack of 2 Paratha breads, Rice, 3 Side dishes, One lentil, dessert (warm Gulab Jamun) and pickles packed nicely in a silver foil.

There was also a plastic spoon and some after-food 'mukhwas'.

The Food was very tasty and remained warm nearly 2 hours after it was packed.

The food was delivered within 30 minutes after I called the restaurant. The price was extremely reasonable (less than $2 per box).

This pack solved the major issue of finding quality Indian food, in right quantity, prepared and packed in a hygenic way, supported by a known brand, delivered to your doorstep in 30 minutes and another alternative to Pizza on Friday nights.

The concept looks very attractive - with right execution and management - it could be used for the making of a Domino's of Indian Cuisine.

PE or VC: What's in the name ?

Before working at a venture capital company, I tried for years to figure out how to quickly determine if something is a venture capital investment or a private equity investment.

Some suggested that private equity is a super-umbrella term that is called venture capital when the investment is at an early stage. However, some companies have operated for 6-10 years before they come for venture funding.

Others conveyed that Venture capital is the original term which became popular after the 2nd world war and private equity is the term coined in the 80’s after famous people like Henry Kravis invested in bigger companies.

Determining by size of the company also gets tricky, as revenue of $2 million might be considered small in a developed country but large in a developing country.

The size of the investment doesn’t work either if you base it on country. An investment of $10 million in a US based company would be considered a venture investment, but might be considered a private equity investment in the developing world.

Some professionals strictly define private equity as an LBO activity. But in developing countries like India, there is almost no LBO activity due to banking regulations, and yet billions of dollars are invested in large corporations by private equity players as equity or convertible debt. This sure looks like private equity investment, but does not fall under the LBO or MBO category.

There is also a conventional wisdom that says if a company is not yet successful but the promoter is very confident, it is a venture capital investment. Vice-versa, If a company is successful but the promoter is not that confident and wants to cash out or exit with restructuring or LBO, it is for sure a private equity investment.

Though there may be some truth in that, it’s not quite scientific enough and does not cover all investment scenarios.

So here’s my own litmus test: if a company has no additional debt (bank-debt) carrying capacity due to its current financial state, an investment in it should be considered a venture capital investment. Otherwise, it should be considered a private equity investment. This should work for companies of all size, stage and in any country.

Thursday, July 10, 2008

Is Reducing Principal a good principle ?

Ben Bernanke announced on 5th of May in New York ( that in order to reduce the number of foreclosures, he would encourage banks to reduce the principal amount from the under-performing mortgages or which are behind payments.

In a way this was already happening in two ways:

Hedge Funds are buying under-performing notes from banks at 40-50 cents on a dollar. They then negotiate with the homeowners and reduce their principal if they start making payments on time.

Also, Banks are allowing homeowners to do short-sale of their properties. In this case, a homeowner who is falling behind in his mortgage payments is allowed to sell his property at a very low price, with the bank agreeing not to go after the balance amount of the mortgage.

With the Fed also stepping in and with so many options to take advantage, it seems that homeowners who are falling behind their payments have not only a secure financial future, but a bright financial future.

The brightest among them are those who maxed out their home equity lines buying cars and other capital goods.