Last month, I wrote about the government. I asserted that we need to get business interests out of government or we’ll keep making decisions based on next quarter’s profits instead of the health of the next decade. This month, I want to talk about a whole industry that seems to be falling victim to short-term thinking, at least in America and Europe.
Most of my day-to-day life is good to great. A little too much stress, a few challenges with weight and sleeplessness, but I’m living my dreams about writing and I’ve got a job that pays the bills and leaves a bit extra behind for electronics. I’m usually optimistic. At the core, I suppose I still am, even though today, I am also convinced many of our choices are simply awful. Continue reading The Grand Lie
So, Goldman Sachs is investing in Facebook. Lots of furore in the media: Facebook’s worth US$50billion, you know! Well, given recent events, I’m not sure I’d trust Goldman Sachs to accurately value anything other than their own scaly skin, but there you go. My cynicism is largely uninformed and instinctive, but smarter folk than I are looking beyond the gloss:
… you can look at the economics and note that Goldmans is buying under 1% of an illiquid stock, thus valuing the whole 100% at $50bn, and that to justify such a valuation at maturity (at say c 5x revenue valuation, like Google) would imply revenues of $10billion. Given that it already claims c 500m users (1/8th of the world’s online population, because as we know, there are no false accounts on Facebook) it is hard to believe much more than a doubling of users, so say 1 billion users. So, $10 bn over 1 bn users is $10 per user per annum (vs c $4 today), or say $1 / month. Sounds possible, except you have to remember that many users hardly use the system, and social media ads tend to have CPM in the fractions of pennies, so you are having to believe they can ship hundreds of thousands of Ads to each person each month, or can sell online goods – ie demi-freemium funding – but that typically only attracts c 5% of users, so you are looking at $20 per month per paying instead.
My take – Don is right, the good assets are expensive, but $50bn is a valuation based on a microstake. Goldman Sachs are not fools, but this is basic bubblenomics – and bubbles are built on the Bigger Fool Theory, ie there will be bigger fools who will buy these shares from Goldman. When you see private Facebook shares being sold to the “Man on the Street” its time to run for the hills.
Here’s the kicker:
The one sure thing you can tell from this is that Facebook clearly can’t self fund itself enough for what it needs, even on $2bn turnover a year.
And here rephrased by Ian Betteridge:
A web site which has 500 million users, 1/8th of the entire population of the Internet, doesn’t have a business model capable of supporting itself.
Ouch. More interesting still is that Goldman are inventing some brand new voodoo finance stunts specifically for this gig:
What Goldman Sachs is proposing to do is create a $1.5 billion, so-called “special-purpose vehicle” — a term that could only have been conjured on Wall Street — that would allow its high-net-worth clients to invest in Facebook.
The participants in Goldman’s Facebook “special-purpose vehicle” would not be considered Facebook owners “of record,” but rather “beneficial” owners. In other words, for the purposes of the Securities Exchange Act, Goldman’s Facebook “special-purpose vehicle” would constitute one owner “of record,” no matter how many Goldman clients participate.
Thus, it would appear that Goldman Sachs and Facebook are attempting to avoid SEC disclosure rules and allow Facebook to remain private for as long as possible, but still make it easy for Goldman’s rich clients to invest in the company.
The SEC is apparently keeping an eye on things, but you’ll forgive me, I hope, for not taking that as an assurance that some seriously shady shit won’t go down anyway. Are our memories really so short? Ooooh, look – shiny!
Via NextBigFuture, the UK’s foremost conservative middle-class broadsheet hopes President Obama can leapfrog red tape and stop the momentum of the fossil fuel industry dead in its tracks (without any explosive dissipation of said momentum, one assumes) by rushing through research on thorium-based nuclear reactors:
There is no certain bet in nuclear physics but work by Nobel laureate Carlo Rubbia at CERN (European Organization for Nuclear Research) on the use of thorium as a cheap, clean and safe alternative to uranium in reactors may be the magic bullet we have all been hoping for, though we have barely begun to crack the potential of solar power.
Dr Rubbia says a tonne of the silvery metal – named after the Norse god of thunder, who also gave us Thor’s day or Thursday – produces as much energy as 200 tonnes of uranium, or 3,500,000 tonnes of coal. A mere fistful would light London for a week.
“There are (obviously!) no magic bullets, but this might just be a magic bullet.” Riiiight. Nonetheless, onwards:
Thorium eats its own hazardous waste. It can even scavenge the plutonium left by uranium reactors, acting as an eco-cleaner. “It’s the Big One,” said Kirk Sorensen, a former NASA rocket engineer and now chief nuclear technologist at Teledyne Brown Engineering.
“Once you start looking more closely, it blows your mind away. You can run civilisation on thorium for hundreds of thousands of years, and it’s essentially free. You don’t have to deal with uranium cartels,” he said.
Thorium is so common that miners treat it as a nuisance, a radioactive by-product if they try to dig up rare earth metals. The US and Australia are full of the stuff. So are the granite rocks of Cornwall. You do not need much: all is potentially usable as fuel, compared to just 0.7pc for uranium.
OK, sounding reassuring so far. So why haven’t we been doing anything with this before?
You might have thought that thorium reactors were the answer to every dream but when CERN went to the European Commission for development funds in 1999-2000, they were rebuffed.
Brussels turned to its technical experts, who happened to be French because the French dominate the EU’s nuclear industry. “They didn’t want competition because they had made a huge investment in the old technology,” he said.
Those dastardly French! I might have known! Where’s Churchill now we need him most blahblahblahlingeringcryptoracismandEuropanic…
And now, having revved up the patriotic emotions and ecological consumer-guilt of the reader, here’s the venture capital pitch:
The Norwegian group Aker Solutions has bought Dr Rubbia’s patent for the thorium fuel-cycle, and is working on his design for a proton accelerator at its UK operation.
Victoria Ashley, the project manager, said it could lead to a network of pint-sized 600MW reactors that are lodged underground, can supply small grids, and do not require a safety citadel. It will take £2bn to build the first one, and Aker needs £100mn for the next test phase.
Yeah, I know, I’m being snarky… reading The Telegraph just has that effect on me, I’m afraid. But beneath the coded writing is a story we’ve covered before: thorium really is (at least in theory) cheaper and safer than all the other nuclear fission options, and much less sci-fi-pie-sky than fusion. But as pointed out above, someone needs to invest big money (and/or big political backing) to get it working and viable.
So, The Telegraph gamely suggests Mr Obama kick-start a modern-day Manhattan Project to that end… forgetting, perhaps, that the impetus for the Manhattan Project was somewhat more pressing and politically expedient than the abstract and contentious doom du jour of Peak Hydrocarbon, that there weren’t massive entrenched business interests lobbying and obfuscating against it, and that America as a nation actually had a few cents to rub together at the time.
Though, to their credit, they do invite the US to team up with China to get the job done. The Telegraph staff and readership will doubtless cheer on from the sidelines; if that’s not enough to get things moving, well, I don’t know what is.
If investment bankers can gamble on the success of big-money projects, why can’t the rest of us? Well, of course, we can – but those sort of big-money projects aren’t the sort of thing that get us normal folk excited, nor the sort of thing we understand (or think we understand) sufficiently to throw our money after.
But if you scratch a film buff, underneath you’ll find someone who thinks they can predict how well a movie will do once it gets released… and Hollywood reckons that’s an as-yet untapped source of funding for big-budget blockbusters. Hence HSX, the Hollywood Stock Exchange, is set to re-launch in April of this year as a real-money commodity exchange [via SlashDot]:
Since 1998, HSX has allowed just-for-fun traders to buy and sell valueless shares in Hollywood films based on forecasts of what the pics will ring up. Once launched, a new HSX site will list current and imminent movie releases with their projected four-week domestic grosses and allow exchange users to take long or short positions on the films.
A formal announcement about rules and guidelines for HSX users is expected closer to the launch. The exchange hopes to lure hobbyist investors as well as industry professionals, though the latter will be prohibited from improper insider activity.
For instance, distribution execs with access to early boxoffice data will be barred from making trades on the exchange after a film has opened. But film financiers will be allowed to invest in HSX an amount equal to a minority percentage of their total investment in a movie.
(Oh, man, you just know there’s gonna be some spectacular gaming of this system at some point, assuming it lasts long enough for gaming it to be worthwhile. It’s just too tempting, especially for such a historically desperate and greedy industry.)
Investors wishing to participate in the exchange will buy “contracts” priced at one one-millionth of a film’s projected boxoffice, with films to be listed on the exchange from the time productions are announced in the industry trade papers. Trading will begin six months before a movie’s anticipated wide release.
I make no claims to financial expertise of any kind, but I think I’d still assume that the safest way to gamble on the future of Hollywood properties would be to invest in something else entirely…
But a thought occurred to me while reading about HSX, namely that something like a stock purchasing model might act as a sort of bolt-on or extension to the crowdfunding models for creatives that we were discussing the other week. Say you’re in a band, you’ve done a few national tours, self-released an album, got some buzz going. How do you take things to the next step?
Systems like the newly-in-administration SellaBand are all well and good, but there’s still an intermediary middle-man involved, and the investment is conditional as well as project-specific; so why not just float your band (or your two-person animation studio, or yourself as a writer, or your guerrilla puppetry theatre mob or whatever) like a public company, offering shares to potential investors who tend to buy oil shares in exchange for their influence and input on what the band does? Product replaces dividends, tours and appearances are booked according to geographical distribution of fans, etc etc… it’s a bit like Kevin Kelly’s 1,000 True Fans idea, I guess, but much more formalised, with legally-binding obligations in both directions.
I’m pretty sure someone could knock up a software suite for managing all the paperwork necessary in order to make this happen, though I’ll confess that my knowledge of buisness law is sufficiently lacking that I have no idea whether or not it is legal (let alone practical, given the lack of a trusted and reliable micropayments platform and the morass if international business law). Can anyone in the audience shed a light on some of the details?
And more to the point, would anyone like to buy shares in Futurismic? We may not be profitable, but we’ve got a warehouse full of kudos… 😉