Starting a Company? Let’s Do A Priced Round

I am amazed every day by the resilience of people.

Life is difficult almost always, but 2020 is bananas.

I can’t complain because in some most important ways, my life got better. My kids are healthy and working from home. Ellen is building a career in real estate and is crazy busy because lunatics are buying homes this summer in Phoenix as if global cooling is about to be announced. I wake up at 5 AM each day just like I woke up before COVID-19. It just happens to be in my own bed and the same timezone an extra 10-15 days a month. I make my calls every day and work with my partners at Social Leverage and do my walks and runs and rides. I talk to my neighbors and the sun is shining. But I digress…

Despite 2020 being ridiculously difficult for most, companies are being started at a breakneck pace. I totally expect my mom to send me a pitch deck in the next week and she is still on a flip phone. Nobody knows Toronto obituaries better than Sandy!

For too long now, many founders want to do ‘SAFE note’ financings for their early rounds. I won’t go into all the gory details, but at Social Leverage we stopped doing SAFE notes a long time ago and when we talk to founders we mention early on that we only do ‘priced rounds’.

Fred Wilson points out on his blog today that…

There is this narrative that equity rounds are expensive and take a long time and that SAFE notes are quick and inexpensive. That is not right. We can do priced rounds as quickly and inexpensively as SAFE notes. And we do that regularly.

If you want to get your company going, take Fred’s advice which is the same we tell founders when they talk to us…’lets do a priced round’.

If you are a founder or an angel investor bookmark Fred’s post on financing document forms.

Momentum Monday – The Simulation Is Making Me Nervous

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 Monday.

As always, Ivanhoff and I do our weekly video and you can watch/listen right here.

Ivanhoff has a great synopsis of the market action and themes defining the price action in the US Markets:

1. Asset inflation and the U.S. Dollar. It is simple, if the U.S. Dollar continues to lose ground, people will attempt to protect of purchasing power of their capital and the price of many assets is likely to go up – stocks, real estate, crypto, precious metals.
2. So many breakdowns in software stocks after they reported earnings illustrating that the COVID-related restrictions and spending cuts are not favorable for all tech stocks. This has been an ongoing theme for a second week in a row.
3. Small caps finally woke up ($IWM). I don’t know if it is because of the expectations of another stimulus, a working vaccine, or just catching up with the rest of the market. A potential rotation into small-caps will only prolong the current rally in stocks.
4. More strength in solar ($TAN). Every single earnings report in solar has led to a gap and go this quarter. None of those reports showed spectacular growth. The market is forward-looking and buying in anticipation of a major new clean energy bill.
5. The dips in mega-cap tech stocks like $AAPL, $FB, $AMZN, and $GOOGL are still scooped up. Obviously, no company is completely invincible and politicians like to attack the big and successful.
6. We saw some epic melt-ups in highly shorted stocks – $CVNA, $W, $OSTK, $CELH, etc.. While fun while they last, typically those tend to happen towards the end of a bullish cycle. They are not the perfect timing indicator but it is something to be aware of.

Ivanhoff is a swing trader so he will attack the market from all sides.

I’m an old trend follower so at one level it’s easy…the big names (FAANG, $MSFT, $TSLA and the $QQQ) continue to be in good trends.

But…

The digital war with China, the Friday night executive orders, the sloppiness/negligence of the White House (Kodak), the relentless money printing, the get the market higher at any cost on every day, combined with what looks like a broken street level economy is making me uncomfortable holding stocks just because prices are going up. You have to throw in that nobody seems fully prepared for what happens when school starts at scale across the country.

I won’t be shocked to be stopped out of long term trends in the next 30 days or have a rotation surface some strong new trends outside technology.

There is something for every type of trader in these markets, so I will let this week play without too much overthinking and I hope to have some better clarity next week.

Have a great week.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures, click here.  

Appreciation… and JC Parets Founder Of All Star Charts Joins Me On ‘Panic With Friends

Here is a nice reminder how sharing helps people. I got this from a Stocktwits user I do not know reaching out to thank me and Stocktwits for helping him with his investing the last year:

Speaking of sharing, my friend JC loves to share his market work every day. JC Parets is a great friend and the founder of AllStarCharts. JC is a first generation Cuban. He recently became a father so I imagine she will have a YouTube Channel talking charts very soon. There ere are few people in the markets that have more passion and energy for charts!

Over the past few years he has built a great business and community. He joined me to talk about life, the markets and the current bull market in stocks. It is a fast paced conversation that I think everyone will enjoy.

You can listen on Spotify here or on Apple podcasts. I now do these TWO times a week so best to hit the subscribe button over on the podcast services so you get alerts.

PS – I also go to JC for his food recommendations. He had me download the Goldbelly app and now alerts me when he orders from his favorite places around the country. He also sent me his ‘go to’ list with the following advice…’place the orders but space out the deliveries over time so you get 1 or 2 of these each week’:

Frankies Pizza Miami, FL – if you have the freezer space order a bunch of these. takes 10 min to heat up and better than any delivery or digiorno

Cherry Pie from Michigan – I didn’t even know I liked Cherry Pie! Get the apple pie too

Cuban Dinner from Miami – I grew up playing baseball with the kids of the family who owns this. Order the pastry platter (trust me) and also get the whole family dinner. the 42 pack of ham croquetas is worth it

Fresh Tuna, Yellow Tail & Salmon from Hawaii – I order from here regularly and make sashimi. Ping me when you order this and I’ll give you my ponzu recipe

Chocolate Chip Cookies from New York – definitely one of my goldbelly faves. microwave for 30 seconds before eating. vanilla ice cream works perfectly.

Wagyu Beef from Australia – it’s a little pricey but definitely do it. Will cost you less than a regular steak at a restaurant. easy to make

Prince Street Pizza – I like Frankies better b/c it’s thinner. But this is fantastic pizza as well. They’re sold out a lot so just keep checking. Like frankies, order as much as you can if you have the freezer space. Also takes a lot longer to cook than frankies

Jumbalaya from Louisiana – this was fantastic

Gumbo from New Orleans – incredible. pour over white rice

The Rare Asset Bubble….You Say Satoshi’s And I Say Shillings

Before I get going, this YouTube video of a couple of kids experiencing Phil Collins song ‘Something In The Air’ was so great.

YouTube is a rare asset.

In 2020, I keep reminding people that certain digital/software assets have become ‘as good as gold’.

The markets finally care about all the money printing and, the unemployment, the tariffs, the Friday White House dumps and Fat Nixon front running his ‘yelling’ Socialism with Socialism.

The S&P is going up as well because of Facebook, Apple, Microsoft, Amazon and Netflix which are themselves now rare assets. Now that Tesla is profitable, they are a rare asset too.

The last time I mentioned Bitcoin on the blog was way way way way back in May. I thought it was primed to go higher (I own it). Since then, Bitcoin has risen a lot.

I still barely understand anything about stocks and markets and venture capital and software so you should definitely take Bitcoin advice from me (sarcasm). I got this one right from instinct watching bazillions of hours of markets and charts over the years.

People continue to run away from Bitcoin because they do not understand it. I won’t argue with that.

I will say that following people smarter than me about money and software combined with a little intuition keeps working for me and so I will keep sharing the most interesting thoughts around how to better understand the crypto bull market that seems to be coming back.

For example…

I love this riff from Matt Levine as it relates to the Bitcoin as a future currency:

A 19th-century Englishman would be perfectly comfortable with having four farthings in a penny and 12 pence in a shilling and 20 shillings in a pound and 21 shillings in a guinea and two shillings sixpence in a half-crown, but would be freaked out by the idea of 100 million satoshis in a Bitcoin; how would you make change? But we lived in a computerized world now, we have gotten used to the idea that everything is just numbers on a screen, and the roundness of the numbers doesn’t matter that much. Sure, hundred-millionths, whatever.

You can keep your Shillings …i’ll keep an open mind and hold my Bitcoins and Satoshi’s.

Have a great Saturday.

Apple – Thanks For The Trillions

Apple is one good Nasdaq up day away from 2 trillion (about $475 for the stock). I think the stock has gone from 1 trillion to 2 trillion faster than it went from 1 billion to 2 billion.

It has been my largest stock holding for a very long time (Spotify has been back and forth with it lately), but I think I can find other investments that will double quicker than Apple going to $4 trillion and in a bet on myself will sell a bunch of my stock today and go to work on that.

I loved this chart today from Michael Santoli:

His snarky comment made me laugh – ‘People out there must think a 4-for-1 split means you buy one share and they give you three for free‘.

Here is an Apple monthly chart going back 20 years to the iPod and the first retail store:

A no brainer 400 bagger!

That trend looks pretty smooth zoomed out 20 years but there have been many 50 percent declines along the way.

Remind me to buy the next 30 percent drop please.

Do Public Markets Matter Like They Used To?

The new hip mantra is ‘public markets DON’T matter as much anymore‘ and a lot of the smart money has moved to the private markets- see Matt Levine’s great post.

The people that say this loudest are journalists, fintwit opinionados , underperforming hedge funds and billionaires.

The truth is OF COURSE public markets matter depending on where you sit.

My friend Barry’s Bloomberg piece went viral titled – why the markets don’t seem to care if the economy stinks is also excellent because he outlines just how bad certain parts of the economy are:

2020’s worst-performing industries YTD:

Dept stores -63%
Airlines -55%
Travel -51.%
Oil&Gas -51%
Resorts & Casinos -45%

These don’t matter to S&P500;

De-list the 30 weakest industries & it would barely shave 2% off the S&P 500.

We have massive GlobalMacro headwinds, and more importantly for those of us getting on with our daily lives, major MICRO tailwinds that have capital inflows, exciting careers and opportunities in both the public and private markets.

So yes, the public markets matter as much as ever. If you can’t participate, you should still learn how to read them so you can position yourself for the right careers.

The Apple, Nikola and Tik-Tok Show…

Apple is closing in on $2 trillion in market cap and now has the largest single S&P weight over last 40-years…

Nikola manufactures (I use this term loosely) electric vehicles in the Phoenix desert, did $36,000 in sales last quarter and has a $13 billion valuation.

In 45 days we will find out what TikTok is worth if Microsoft is allowed to buy it (and pays a finders fee to Fat Nixon of course). Based on Nikola’s valuation it is worth more than Apple!

Of the three companies dominating discussion on Stocktwits, TikTok is the most interesting to me because it is not even a public company. Microsoft has added nearly $50 billion in market cap since the idea was floated by Microsoft CEO Satya this weekend.

Eugene Wei has a FANTASTIC post on the coming of TikTok and it is worth a read to help you understand the battle for it.

Disruption Is Good! …Nasdaq 20,000…The Seeds Are Being Planted At An Accelerating Pace.

If I woke up from a 2020 Coma today and you showed me a chart of the Nasdaq I would have guessed that Apple cured cancer. It turns out Eastman Kodak was hired to cure COVID.

If I woke up from a Coma today and you showed me the headlines of 2020 and asked where the Nasdaq would be I would guess 4,000.

Here are the indexes this year (I substituted Nasdaq 100 for the Nasdaq which is 90 percent of what interests me day to day and now up 27 percent year to date):

This is why I love investing. You have to go beyond the headlines and noise and position for the future.

I was very confident we would see Nasdaq 10,000 the last 5 years, but the road to get here was not smooth.

The seeds for Nasdaq 20,000 and beyond are being planted at an accelerating pace post the COVID-19 outbreak. March was horrifying and the news does not seem to be getting any better. But, the bad news does not show up in the pitch decks I am getting the last few months.

The difficulties to be faced in hiring, training, motivating and executing in a COVID-19 world are now being thought through more clearly and there is data that is encouraging some incredible people to begin again.

I mentioned a couple weeks ago on this blog that the decks and pitches I was receiving were amazingly good the last couple of months and the quality is still improving.

It makes sense to me.

Great people with great careers at great companies that have great visions would rather start fresh than work inside even the best organizations that have to deal with the hiring, training, motivating and executing (at scale) of hundreds and thousands of people.

A great salesperson, recruiter, marketer etc will look much different in a zoom world than a face to face world. People are moving and the money is now moving quickly as well.

In 1987 the adage we traders and investors thought was cool was ‘Greed Is Good’.

I believe 2008 killed the coolness of ‘Greed Is Good’.

You may not like it, but 2009 was the beginning of ‘Disruption Is Good’.

COVID-19 only accelerated the importance of this new mantra to great founders, employees and investors.

Momentum Monday – Digital Dominance…This Week Semiconductors and 5G

Good Monday morning everyone.

As always here is this weeks Momentum Monday from Ivanhoff and I.

I walk through the Apple explosion to new highs and what that means for my stops and area where I would get defensive.

Google is the weakest of the FAANG stocks.

I shared some fresh ideas with Ivanhoff in the software and 5G sector which include $ESTC $SWKS $QRVO and $QCOM.

I hope you enjoy it.

I also wanted to enclose this longer, but excellent video on the semiconductor sector of an interview between Gavin Baker (ex Fidelity portfolio manager) and Rob Koyfman of Koyfin. Gavin does a historical look at the industry to put into context the explosion underway in the AI industry and how it will help the sector. It is worth a watch – here.

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.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures, click here.  

SPAC SPAC SPAC SPAC SPAC

I think I have tipped you off that this post is about SPAC’s.

I have mentioned SPAC’s over the year on this blog, but it was February of this year that one finally caught my attention – the post was titled ‘A Little Froth Is Fun‘. I was referring to the Virgin Galactic SPAC ($SPCE).

Flash forward five months and there is a SPAC a day. The people wanted SPAC’s and oh boy they are about the be besieged. I read yesterday that we will soon have a SPAC ETF with the ticker $SPAK – naturally…

One person who was ahead of this curve was Chamath who orchestrated the Virgin Galactic SPAC.

Alex Danco has the backstory in his great weekly newsletter, this one titled ‘Spac Man Begins‘. The gist of the story:

Three years ago, Chamath sat us all down at a Social Capital all hands meeting and told us about this great new thing we were gonna do. It was called a SPAC.

A SPAC (“Special Purpose Acquisition Company”, or “blank check company”), he told us, was a new way we were going to help take big tech companies public. Going public is an important moment in a company’s life. It’s a transition from one state to another, it’s a stressful but monumental transition, and the current way we do it – the Initial Public Offering – stinks. Our SPAC, the thinking went, would create a new path for tech companies to go public that could compete with the IPO, and win.

It took a few years, but Chamath got this one really right. At the time, hardly anyone in Silicon Valley had ever heard of SPACs before. But now they’re having their moment, from Wall Street (Bill Ackman’s $4 billion SPAC for finding a “mature unicorn”, lol; David Ubben and Nikola stock making even Elon blush) to Sand Hill Road (Ribbit Capital just raised $600m for a fintech SPAC, and Chamath is doing two more, with more to follow I’m sure.)

SPACs aren’t new; they’ve just traditionally been a grimy, off-Broadway kind of financing. I have some fond memories of heading home to Canada and then talking to these 21 year old university students who were like, “SPACs? Oh yeah, we know what those are. I worked on one during my co-op semester, trying to take a fake mining company public.” (As an aside: did you know that Canada has a stock exchange specially for scams?)

Alex ends with this…

If Chamath can earn a reputation for pulling these things off, does he become as valuable as the investment banks’ IPO businesses? If we can repeatedly go directly to the retail public and sell these things, what happens if he lowers his 20% fee, to say, 10? Once you really have this process down, could a SPAC start to compete on cost? The conventional answer would say no: you’re still paying the blank check fee to go public, M&A fees for the deal itself, not to mention the promoter fee. But you’d be surprised where cost savings can get found in a new, hungry industry that hasn’t ossified into its Generally Accepted Margins.

SPACs today might just look like a rearrangement of banker fees into a different structure, with costs being disguised rather than saved. That’s fair. But there’s no way you can convince me that you can’t find some real economies of scale in taking the same blank check company public 20 times in a row. Get out of here. At some point, a bank will break ranks and get into the wholesale SPAC listing business. Then we’ll see what the margins actually look like.

Anyway, I can’t wait to see where this all goes, and I especially can’t wait for synthetic biology SPACs to hit the mainstream so we can have some companies that absolutely no one understands get taken public on the pure brand strength of a sponsor. We’re about to learn a whole lot about some questions no one ever thought to ask about only a few years ago! And also keep an eye out for those Canadian junior I-bankers. If you’re looking for targets, they are here to help.

I’ve asked many smart friends from the big banks, but my favorite answer is from my friend Doug Horlick who said the following:

‘Yes this is crazy fast, but it still feels early. SPAC focus will end up the same way as hedge funds. SPAC’s will get the best and brightest, and will also get the polar opposite that are hacks that want a short cut. Investors will get smoked not doing the homework necessary to differentiate.