Is The Seed Stage Market Being Neglected?

Fred Wilson shared some research that shed some light on some changes in the private markets. The gist:

2018 saw the venture capital business moving to larger and larger deals. There were roughly 200 deals around the globe in 2018 where $100mm or more was raised.

And yet the number of total transactions declined slightly from 2017.

This trend is much more obvious if you look at the six years from 2013 to 2018. Total deal activity has increased less than 10% while total capital investment has almost tripled.

These trends are unsustainable. It is certainly attractive to de-risk by moving upstream to invest in more mature companies, larger rounds, etc. But if we don’t reseed our fields there won’t be as many of those mature companies in the future.

At the moment, it is not fashionable to do what we do at Social Leverage, but like Fred says, I am certain that it will continue to be profitable.

What If We Bottomed?

Last month in the heat of the crash/decline I shared a chart in a post titled ‘What Could Go Right‘.

The markets bottomed 10 days later and we have had a great rally.

Ryan pointed out something rare technically:

The last time the McClellan Oscillator went from -80 (super oversold) to +80 (super overbought) within two weeks?

March 2009.

It just happened yesterday.

I remember exactly where I was March 2009 (buying stocks on the beach). We were coming to the end of a brutal bear market and it was the beginning of a great run for stocks.

In yesterday’s ‘Momentum Monday’ a lot of software names were at or near all-time highs.

Today some new names popped up on my list in biotech and consumer tech.

The December ‘glitch’ in stocks is becoming the January ‘itch’ for stocks.

Fine with me.

Momentum Monday – Did We Bottom in December?

Today was a much better day to panic!

Here is today’s Momentum Monday episode where Ivanhoff and I walk through the markets and the new leadership emerging. Ivanhoff is in Bulgaria with the blinds drawn as usual. His hot hand continues, nailing swings from the long and short side. Hope you enjoy.

As always, I make the show but inevitably have extra thoughts from the discussion.

Here goes…

If you are reading this you survived the crash of December 2018. If you like reading this, you still actually like to invest. That’s a good thing. That was a brutal spell.

Even with all the excitement of this sharp rally, we are just back to November 2017 prices for the Dow and S&P.

What do we know now that we did not know in November 2017?

1. Democrats rule the House.
2. Fat Nixon is still fat.
3. Apple and Facebook are relatively weaker than the Dow and the S&P.
4. Juul is a tobacco company.
5. Parts of the federal government are shut down.
6. Tariffs on the rise
7. Trade wars in progress
8. ISIS may or may not be defeated and we may or may not be leaving Syria
9. Indictments galore at the White house
10. Goldman Sachs is a criminal organization…ok well we knew that in 2010, 2011, etc…

If you knew all that in November 2017, you might have happily sold and chilled out in cash in 2018. An incredible 93 percent of assets had negative returns in 2018.

So what is next?

As I said to open this post, today was a much better day to panic if you hate stocks and the correction could easily return tomorrow.

The markets are fast approaching downward sloping moving averages…

I am enjoying this melt-up while it lasts and am thrilled to see some stocks hit all-time highs (Twilio and ETSY are my strongest), but earnings season starts next week. We will know a lot more when we see how the markets react to all the misses, excuses and complaining that Fedex and Apple have set the tone for.

Have a great week.

As a reminder, Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.

Happy 21st Rachel!

It’s hard to believe Rachel turned 21 today.

In 1998 the Dow closed the year at 9,181, the Federal Reserve interest rates were 8.5 percent and Google was incorporated.

I had no idea what I was doing when she was born and pretty frightened the whole first year. Now I mostly stay out of the way.

What a gift she has been.

What Can’t Software Eat?

My hair had a terrible 2018.

I spent December at home working and resting and decided to wear a hat all the time to make life easier.

Now that I am back in work/travel mode a baseball cap won’t work.

I passed a hat store in San Francisco today and thought about wearing a top hat all of 2019:

That was quickly cut short by Ryan with this response:

While time is killing my hair, time is on technologies side.

All the software in the world will not fix my hair, but a lot of software is coming to fix almost everything else.

Marc Andreesen was asked what software won’t be able to eat and he replied:

Interactions of small amount of people under extreme pressure.

He is so right. Startups are coming in wave after wave.

Have a listen to the whole podcast with his partner Ben Horowwitz for some great insights on Talent, Tech Trends and Culture.

Have a great Sunday.

A Day In San Francsico

Before I get into it…Thursday was a bearish opera. I have no idea if it marked a real bottom, but the combination of Apple bears and Gold bulls was literally at all-time highs. I can’t prove it with anything other than my eyeballs that have watched Stocktwits streams and Twitter for 10 years.

What followed today was a massive rally in tech stocks and a pullback in Gold.

I am so glad I do not short stocks for a living.

Onwards…

I am in San Francisco with my son Max and my nephew Jeremy. Jeremy applied for a product internship position this summer at Cloudflare (Austin office) and when he mentioned that to me I thought I would be the cool uncle and set up a tour of Cloudflare SF. The founders – Matthew Prince and Michelle Zatlyn – are friends. Sure enough they made the time very last minute to do the tour and tell him all about the their incredible company. I think Jeremy did well.

The rest of the day they shadowed me at meetings. Here they are at AngelList HQ (the bar of course):

The highlight of my day was getting to spend some time at the office of Adam Bain (ex COO of Twitter) and Dick Costolo (ex CEO of Twitter). Adam and I have been working on a couple companies together. Adam presented me with this hilarious gift when I arrived:

Adam is one of the best salesmen I know and has a fantastic sense of humor.

As we left we snapped this group picture:

A busy day and a great day.

New Years Resolution

The one resolution I made with myself this year is to read more books.

I am off to a good start with ‘The Fixer‘ by Bradley Tusk who has had an amazing career in politics and startups.

In his own words, ‘The point of the book to help startups think intelligently about politics so they can counterpunch or, ideally, avoid getting hit in the first place’.

Thanks Brad Feld for sending it to me.

2019 – The Year of The Glitch and Apple is a Luxury

The year 2019 is starting the way 2018 ended…bone spurs in the oval office and glitches in the stock market.

We got a new twist quickly tonight thanks to Apple and Tim Cook (Tim Cook will never want to check Twitter again) blaming Apple revenue problems on the trade war.

Before Tim Cook stole the microphone tonight, Fat Nixon called the December stock market meltdown a ‘glitch’.

Eddy begs to differ. He says December was the worst month for the S&P 500 in ten years. October wasn’t a barrel of laughs either. . Have a look:

In Fat Nixon’s honor I hope Stocktwits creates an orange #STFG hoodie (Sell The F*@king Glitch).

Tonight, my prized Apple is being slaughtered. I have no place to hide on this.

Apple itself is obviously too big to hide from ‘Tariff man’. They will miss 4th quarter revenue (citing Chinese demand) by $7 billion or about ONE Border Wall.

Apple is a luxury brand and in this new correction/glitch/recession people will stay with Apple just not upgrade with more Apple. I wonder what it would take for Apple to flinch (and come down market) if this continues.

Kudos to Ben Thompson who called the Apple ‘China Problem’ back in May 2017. Tomorrow the stock will open below May 2017 prices. Here are the money quotes from Ben’s research at the time:

There is nothing in any other country that is comparable, particularly the Facebook properties (Facebook, Messenger, and WhatsApp) to which WeChat is commonly compared. All of those are about communication or wasting time: WeChat is that, but it is also for reading news, for hailing taxis, for paying for lunch (try and pay with cash for lunch, and you’ll look like a luddite), for accessing government resources, for business. For all intents and purposes WeChat is your phone, and to a far greater extent in China than anywhere else, your phone is everything.

Naturally, WeChat works the same on iOS as it does on Android. That, by extension, means that for the day-to-day lives of Chinese there is no penalty to switching away from an iPhone. Unsurprisingly, in stark contrast to the rest of the world, according to a report earlier this year only 50% of iPhone users who bought another phone in 2016 stayed with Apple.

and

That, though, is a long-term problem for Apple: what makes the iPhone franchise so valuable — and, I’d add, the fundamental factor that was missed by so many for so long — is that monopoly on iOS. For most of the world it is unimaginable for an iPhone user to upgrade to anything but another iPhone: there is too much of the user experience, too many of the apps, and, in some countries like the U.S., too many contacts on iMessage to even countenance another phone.

None of that lock-in exists in China: Apple may be a de facto monopolist for most of the world, but in China the company is simply another smartphone vendor, and being simply another smartphone vendor is a hazardous place to be. To be clear, it’s not all bad: in China Apple still trades on status and luxury; unlike the rest of the world, though, the company has to earn it with every release, and that’s a bar both difficult to clear in the abstract and, given the last two iPhones, difficult to clear in reality.

Hedging Apple by owning Tencent (WeChat) is not a good strategy either! Tencent has dropped almost 50 percent from it’s highs over the last year.

Turns out that it is not just Tencent killing Apple’s growth in China, but Huawei too.

While everyone argues about trend lines and what defines a bear market, I think Apple pre-announcing is just further confirmation that the S&P will have a very tough 2019.

I was reading today that 40 percent of the S&P’s 2019 profits are/were expected to come from overseas.

My friend JC who switched from being bullish very quickly to bearish a few months ago keeps harping on the following:

I’m watching US Treasury Bonds, precious metals and Japanese Yen ripping every day while stocks lollygag near 52-week lows. Volume in stocks has been non-existent the past week or so as the big boys are on vacation and these sorry excuses for trading sessions are just here just to keep journalists busy.

It does not feel like people are appreciating the risk in the markets right now.

Cash is your friend.

Happy 2019 and More Predictions – Everyone Wants To Be A Planet

I am out of the gates fast in 2019 breaking 7 of 8 (self made) resolutions by noon, but I did get out for 30 miles on my bike bright and early in 40 degree weather.

I start out every year and pretty much every day with very strong opinions loosely held. I keep an open mind and try a lot of products.

In 2019 the theme in technology will be ‘Be Your Own Planet’.

The most UNDER covered story and company of the last year is MICROSOFT which ended 2018 as the largest company on the planet.

Amazon, Tencent, Microsoft, Alibaba, Apple, Google, Facebook and Nike are planets. They roam the galaxy with cash flow, cash and data to pick their prey.

The next level of companies like Salesforce, Disney, Netflix and Adobe are in orbit. With time and further execution they could be planets, but they are in play at some level (by the planets). I do not see them selling or being acquired.

Everyone other company in technology is in play.

In that vein I asked my Twitter stream what they thought the biggest acquisitions of 2019 would be. Take a scroll through the answers.

My one big prediction is that $LULU or $NKE buys Peloton. The fitness space is massive . The only fitness app I use is Strava, but there are so many popular ones and there will be continued consolidation. Nike really needs to solidify their planetary status and take some risk.

Another more obvious prediction is the enterprise software space will see an incredible amount of acquisitions. Microsoft is the only one true enterprise planet at the moment and also the biggest company in the world right now. Microsoft envy is real.

Facebook seems to be the most vulnerable planet of my ‘planets group‘.

Disclosure – Long Planets.

Happy New Year And a Fresh Momentum Monday

Happy New Year everyone. I hope it is a happy and healthy one for everyone here.

My only resolution this year is to keep blogging here everyday and to do Momentum Monday with Ivanhoff each Monday.

Ivanhoff is still off galavanting around Europe but found some time with me today today for our last Momentum Monday episode of the year.

I am keeping it simple because all the major indexes are below their 200 day moving averages.

Ivanhoff has had a hot hand swinging long and short so I let him walk through the new range lower for the markets and lead the momentum tour. It is rather thin.

As a reminder, Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.