Venture capital watch

KEEP YOUR EYES ON THE PRIZE.

Friday, April 17, 2009

Each week The Chronicle tracks the latest investments, fundraising, mergers and IPOs involving Bay Area venture capitalists and startups. Here are some highlights for the week of April 13:

Luxim in Sunnyvale raised $12 million in Series C funding from existing investors and added Sequoia Capital’s Michael Moritz to its board. The company makes solid-state plasma lighting.

TRUSTe in San Francisco acquired Haute Secure, which scans Web sites for malicious code. TRUSTe certifies corporate Web sites for privacy and says that 75 percent of Web sites that carry malicious code are legitimate corporate brands.

Accel Partners in Palo Alto invested $20 million, along with iNovia Capital, in Collective Media, which helps Fortune 1000 companies execute online advertising strategies.

Allegis Capital in San Francisco led a $7 million round of additional Series B financing in Solera Networks, which captures and analyzes data that moves around a network to prevent data leaks.

FastScale Technology in Santa Clara raised $5.5 million in a Series B round led by ATA Ventures for technology that dynamically manages software requirements in data centers.

Sources: Dow Jones VentureWire, Chronicle research
Compiled by Deborah Gage, dgage@sfchronicle.com
This article appeared on page C – 2 of the San Francisco Chronicle

STRAIGHT FROM THE HORSE’S MOUTH…

Key achievements ahead of the London Summit

The objective of the London Summit is to bring the world’s biggest economies together to help restore global economic growth through enhanced international coordination. To achieve this requires three commitments by world leaders:

• First, to take whatever action is necessary to stabilise financial markets and enable families and businesses to get through the recession.
• Second, to reform and strengthen the global financial and economic system in order to restore confidence and trust.  
• Third, to put the global economy on track for sustainable growth, high levels of employment and poverty reduction.

In the four months since the Washington Summit, international events such as the World Economic Forum in Davos have provided forums for discussion of possible solutions to the global economic crisis. Countries and regional groups from around the world have also been working closely together to find practical policies to meet all three commitments. Several governments – including Spain and Russia – have set out their own agendas following publication by the UK of its plan for recovery – The Road to the London Summit.

In the run-up to the London Summit, several preparatory meetings have made considerable progress in reaching agreement on some of the key issues. At the recent meeting of G20 Finance Ministers and Central Bank Governors, the following were agreed:

• A commitment to fight all forms of protectionism and maintain open trade
• A pledge to deliver the scale of sustained effort necessary to restore growth
• A promise that central banks will maintain expansionary policies as long as is needed
• A recognition of the urgent need to increase the resources of the International Monetary Fund
• Action to restore bank lending through measures such as liquidity support, recapitalisation and dealing with impaired assets
• Appropriate regulation and oversight of all systemically important financial institutions, markets and instruments – and registration of hedge funds or their managers
• Stronger regulation reinforced by macro-prudential oversight to prevent the build-up of systemic risk
• Changes to international banking regulations to ensure they dampen rather than amplify economic cycles
• Supervisory colleges, with strengthened international cooperation to prevent and resolve crises
• Regulatory oversight of all credit rating agencies whose ratings are used for regulatory purposes
• Identification of non-cooperative jurisdictions – and a tool-box of effective counter-measures
• Sound practice principles for compensation
• Enhancement of the governance of international financial institutions to strengthen their effectiveness and legitimacy – including open, merit-based selection processes for their heads.

Ahead of the G20 preparatory meeting, the Financial Stability Forum agreed to increase its membership to include all the G20 countries, in order to enhance its ability to contribute to improving the international financial system.  At the same meeting in London, the FSF also agreed on action to improve banking regulation, get rid of bankers’ bonuses that encourage excessive risk-taking and strengthen cross-border crisis management.

A number of countries have also taken independent policy that helps to deliver London Summit aims. These actions include:

• banking recapitalisation – for example the US has injected $236bn into banks
• fiscal stimulus policies - among many others, China has implemented discretionary measures which the IMF estimates amount to 2 per cent of GDP this year
  expansionary monetary policy – for example, the ECB has significantly lowered the benchmark interest rate to 1.5 per cent, a record low.  

Japan has agreed to lend the IMF $100bn, even before agreement is reached on a figure for the increase in its resources. Europe’s leaders agreed to provide an extra €75bn to the IMF at the meeting of the European Council on 19th and 20th March. The IMF has approved an overhaul of its lending framework that should make it easier and more attractive for emerging market economies to seek the Fund’s support during the global crisis. Switzerland, Austria and Luxembourg have followed Hong Kong, Singapore, Andorra and Liechtenstein in taking steps to improve the exchange of tax information with other countries in line with international standards drawn up by the Organisation for Economic Cooperation and Development.

Others will follow suit in the days ahead, as the final measures needed to complete the global deal to be reached in London on 2nd April are agreed.

Source: London Summit progress
URL: http://www.londonsummit.gov.uk/en/summit-aims/summit-progress/

Advantages of Trading Options vs. Trading Stocks

ü	Options	Stocks
Costs	↓ ▼	↑ ▲
Risks	↓ ▼	↑ ▲
Can Match Market Scenarios To Strategies	Yes	No

 

To become a successful trader, you have to know:

• How Stocks work
• How to LEVERAGE Your Capital
• How MARGIN works
• How SHORTING A STOCK works
• How to Read a RISK GRAPH
• How OPTIONS Can Be Traded

 

When it comes to options, you’re gonna have:

BUYERS

and

SELLERS

 

CALL OPTIONS	PUT OPTIONS
Buyer Has the RIGHT TO BUY Wants stock price to go up Seller Has OBLIGATION TO SELL Wants stock price to go down OR sideways (due to time decay)	Buyer Has the RIGHT TO SELL Wants stock price to go down Seller Has OBLIGATION TO BUY Wants stock price to go up OR sideways

 

OPTIONS DECAY THE MOST DURING THE LAST 30 DAYS BEFORE EXPIRATION

 

YOU DO NOT HAVE TO HOLD OPTIONS UNTIL THE EXPIRATION DATE

 

VOLATILITY (example):

• A market just broke down.
• XYZ Stock

~~ What happens to its volatility?

Answer: IT GOES UP.

~~ What happens to its options’ premium (cost)?

Answer: IT ALSO GOES UP.

 

Once you purchase an option, you have THREE CHOICES:

1. You can OFFSET it by SELLING THE EXACT SAME OPTION
2. You can let it expire worthless
3. You can EXERCISE your option
   • If you exercise a CALL OPTION, you then own 100 shares of the stock
     • Cost for owning stock = (strike price of the option)  x  (100)
   • If you exercise a PUT OPTION, you are SHORT 100 shares of the stock

 

If you sell an option & it has NO VALUE on the day of expiration, then you don’t have to do anything at all

• The option will just expire & you can keep the premium for selling it

 

If you buy an option, time decay is your enemy

• The only way to beat time decay is if the stock has intrinsic value

 

LEAP Options = long-term options that have an expiration date that is at least one year or more out

 

Volatility = a measure of change in a market

• very important when trading
• this contributes to an options’ premium
• As fear & greed in a market increases, so does volatility

 

1 – Markets & Regulations

Sunday, March 29, 2009

 

MARKET: process by which people buy & sell securities

 

Regulation is extremely important to the way markets function in the securities industry

 

*** REMEMBER: IT IS A DUAL SYSTEM OF REGULATION ***

• Both states & the federal govt. regulate market activity
• State regulations = aka Blue Sky Laws

On the Series 7, more focus is given to federal regulation

 

All federal regulations start with Congress

• Once they are passed, there are several agencies that come into play to enforce these laws on a day-to-day basis:
  1. IRS: Taxes
  2. FRB: Credit (margin accounts)
  3. SEC: Main enforcer of securities laws
     1. Whom are they dealing with?
        1. Issuers: corporations that are selling stocks & bonds to the public
        2. Investors: activities of those buying & selling securities in the market thru, for example, insider trading rules
        3. Brokerage Firms & Registered Representatives
     1. Problem: SEC doesn’t have enough man power to enforce regulations
        1. SEC has setup an agreement with brokerage industry to create Self-Regulatory Organizations (SROs)
           1. NYSE: New York Stock Exchange
           2. NASD: National Association of Securities Dealers
              • Regulates the over-the-counter (OTC) market
           1. MSRB: Municipal Securities Rulemaking Board
           2. CBOE: Chicago Board Options Exchange

 

 

REGULATION: ISSUING SECURITIES (How do securities get into the market in the first place?)

Securities are used by corporations to:

1. Raise capital
   • Corporations then use this capital for a wide variety of reasons:
     1. Build/construct a plant, factory, etc.
     2. Purchase new equipment
     3. Research & Development (R&D)
     4. Take over or merge with another company
     5. Internal financial restructuring to improve the status of its balance sheet
   • Corporations may acquire capital in different ways:
     1. Go to a bank & get a business loan
        • Many of these loans are short-term, & many corporations need capital to invest over a long-term period
          • Therefore, corporations would obtain capital by selling new securities to the public

 

 

ISSUER SELLS SECURITIES TO PUBLIC

Public provides capital needed  by issuer

• In exchange, public receives security in hopes to earn an investment return over a long period of time
  • Federal, state, & local govt.s use this method of obtaining securities as well

Before 1933, there was no specific regulation of this process

• This created certain problems for investors
  • Investors would buy securities that were riskier than originally led to believe
  • They didn’t have enough info to know that there was a problem

Congress decided to protect investors by passing the Securities Act of 1933

• Philosophy of Securities Act of 1933 = FULL DISCLOSURE
  • Issuer is required to provide to the investor all relevant information about the security
  • Before issuer can sell securities to the public, it must file a Registration Statement with the SEC
    • Registration Statement contains all relevant info that a reasonable investor might want to know about the certain security
    • From the info provided, the investor can make an intelligent decision about whether to invest in the security or not

Although an issuer can sell to the public itself (after registering with the SEC), instead most corporations hire brokerage firms to facilitate the sale of securities

• Most don’t have the time or expertise to sell securities to the public; most concentrate & use their manpower on growing the business
• Brokerage Firms act as an Underwriter (aka middle man) in the transaction
  1. FIRM COMMITMENT UNDERWRITING

Traditionally, brokerage buys entire issue of securities from the issuing firm, paying the issuer a set amount, & then resells them to the public

1. Difference between the sale price to the public & the purchase price from the issuer = the profit to the brokerage firm (aka broker-dealer)
2. This does involve some risk
   • There is a chance that when the broker-dealer tries to turn around & sell securities to the public, the public may not want to pay the amount that will earn a profit for the syndicate (underwriter)
   • The broker-dealer may lose money in that case

1. Broker-dealer may not want to do Firm Commitment Underwriting because:
   1. Company is a new start-up
   2. Company has no track record
   3. Not sure if public will be receptive to the issue or not
   4. Company may already be in financial trouble
   5. It would be harder to sell securities

Microsoft to shed 5,000 jobs

So, I thought I might switch things up today & decided to check up on the Financial Times this morning & my, my, my —it’s the same ol’ Bill Withers song playin’ there, too: “Ain’t no sunshine when sheeeee’s gone.” I mean, Lady Luck has gotta be on strike or just busy helping out some other universe in some other dimension our 3D minds can’t even fathom. Because this right here:

The software giant embarked on the first company-wide job cuts in its 34-year history as second-quarter results revealed the damage from a slump in PC sales and lower revenues from low-cost laptops - 15:53

Sony forecasts $2.9bn operating loss

Set to end production at Japanese TV factory

Details of alleged Satyam fraud emerge

Claims founder lied about size of workforce

Fiat shares plunge as dividend is scrapped

Italian carmaker dismisses talk of Peugeot tie-up

AIG starts $20bn auction of Asian unit

Disposal to help repay $60bn emergency loan

Merrill delivered bonuses before BofA deal

Accelerated payments paid out

Parsons takes over as Citi chairman

Calls for a ‘bad bank’

Nokia reports sharp fall in profits

Outlook offers few signs of pressure easing

Lockheed Martin slashes forecast

Fourth quarter results beat expectations - 15:43

KBC receives €2bn cash injection

New aid required after further writedowns   

Now, that above set of headlines right there just ain’t the type of set that sheds a silver light on things.

(mehhh…) I guess, there’s always gotta be a upstart after you ride thru the downfalls, right?

PEAKS & VALLEYS BABY. PEAKS & VALLEYS.