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June 19, 2006

TieCON East: Trends in Investment Research and Due Diligence.

My colleague Scott Lichtman took some detailed notes on the TieCONEast panel last week on “Trends in Investment Research and Due Diligence”.

Podcast is here.


Graham Field, Managing Director, AQ Research (Moderator)
Graham is the Managing Director of AQ Research, which provides quantitative global analysis of the accuracy of sell-side research. Graham established AQ Research in 1998, having worked as a financial journalist since 1987. He was editor of Asiamoney and of the International Tax Review, as well as presenting business programmes on BBC radio and television. Graham’s books include Economic Growth and Political Change in Asia (1995), Japan’s Financial System: Restoration and Reform (1998) and Euroland: The Future of Europe’s Capital Markets (2000). He is a graduate of Cambridge and London Universities in the UK

Susan Oh, Director & Senior Analyst, Merrill Lynch
Susan’s responsibilities include manager research and the analysis of hedge funds. She is also the portfolio manager of the Merrill Lynch Event Driven Fund. Her focus is on invested managers as well as identifying new funds. Prior to joining MLIM, Susan was a Senior Analyst at Tremont Capital Management. At Tremont, she conducted due diligence on hedge funds and strategies to make strategic recommendations to the Investment Committee. Her other experience includes Citco Group Ltd. and Smith Barney, Inc. Susan was a hedge fund analyst for Citco and an Institutional Sales Assistant at Smith Barney in the hedge fund group.

Dave Furneaux, Founder & Managing General Partner, Kodiak Venture Partners
Prior to Kodiak, in 1996, he co-founded Furneaux & Company, LLC, a seed stage high technology venture investment company. He was the founding investor and active Chairman of the Board of Extreme Packet Devices (acquired by PMC-Sierra) and Philsar (acquired by Conexant). He also was a founding investor, Vice President of Business Development, and member of the board of Skystone Systems (acquired by Cisco Systems), a founding investor in Solidum Systems (acquired by IDT) and an early investor in Telica Systems (acquired by Lucent). At Kodiak, he was an active early investor in AuroraNetics (acquired by Cisco Systems), Watchfire and Raza Microelectronics.

Gregory Locraft, Vice President, MFS Investment Management
Gregory Locraft is the Vice President of MFS Investment Management and a Portfolio Manager of the $2billion MFS Capital Opportunities Fund and related portfolios. Mr. Locraft joined MFS in 1998 as a research analyst. He became a member of the Large Cap Growth Portfolio Management team in October 2003 and was named Portfolio Manager of MFS Capital Opportunities Fund in December 2005. Previously, he was a Senior Consultant for Kaiser Associates, Inc. Prior to that, he was a Financial Consultant for Smith, Barney, Inc. He received a Bachelor of Arts degree in Political Science and History from Williams College and an M.B.A. from Harvard University.

David Teten, CEO, Nitron Advisors


Scott Lichtman’s notes:

Furneaux: $700M under management. 8 partners. investing throughout the northeast, and also some emerging markets. 50% of investments are with people we invested in before.

As a Private Equity firm, we are constantly communicating to our managers to find depth in companies. The average time from startup to IPO is 8 years, from IPO to acquisition is 6 years. To pick the right companies, combine analyst inteligence (awareness and insight) with due diligence.

Locraft: Good researchers are leaving sell-side and traditional buy-side & going where there’s a piece of the action.

Teten: Gave overview of Nitron Advisors’ business model. Quoted prominent industry CEO, who said, “If you’ve been in research > 5 years, you’re not a good stock picker.”

Locraft has 45 analysts. Average hold on a stock in the market is 11 months. 40% of trading volume is from proprietary desks. They compensate staff to think long-term, which they define as 3 years. They usually only invest in companies with >$500M in assets. MFS is a $170B firm with $2B in Greg’s fund. “The level of scrutiny we’ve undergone at MFS has made us take a whiteboard approach to the P&L.” MFS is concerned about raw trading costs.

Susan Oh: Our area invests in all major strategies: long-short equity, relative value driven, CTAs, global macro. She focuses on event-driven. Due diligence starts with an on-site visit. We look at management, firm, infrastructure, risk management, operations. red flag: concentrated investor base. Such investors may have preferential rights…which could hurt smaller investors.

What is the quality of sellside analysis information? Do you compare internal analysts with sell-side?

Locraft: Yes – analyst compensation is based on stock picking results vs. sell-side recommendations. We use AQ’s competitor, Starmine.

Field: What if your analysts aren’t that good?

Locraft says there are certainly cases where some analysts are better than others, and therefore some of our analysts by definition aren’t top of field. MFS will pay accordingly for specific sell-side analysis in these cases. But we recognize the disadvantage of information being disseminated to all parties at the same time via FD.

David Teten: How do you measure ROI of research?

Oh: One hedge trader I knowwill only buy research when it’s contrarian to the general street consensus.

Locraft: ROI on a good analyst’s picks is enormous – so massive it’s not worth measuring.

Dave Furneaux: the early stage challenge for PE/VC investors these days is that there is more money than opportunities. This means for any evident investing opportunity the returns are lower due to increased competition for investment dollars. So the key is to find an investment idea others don’t know about or appreciate.

TieCON East: Trends in Online Networks and Social Software

Posted in General, Social Software
by David Teten @ 11:43 am —

My colleague Scott Lichtman took some detailed notes on the TieCONEast panel last week on Trends in Online Networks and Social Software.


Angela Biever

Angela Biever is Managing Director for the Consumer Internet sector within Intel Capital, Intel’s corporate venturing organization. She assumed this role in early 2006. Angela’s team recently invested in online blogging company SixApart and is interested in new computing models being generated by Web2.0. Prior to this, Angela was General Manager of Intel’s New Business Initiatives (NBI), a center for new business creation that also resides within Intel Capital.

Prior to joining Intel in 1999, Angela was a senior executive at First Data Corporation. She was President of one of its operating subsidiaries and also served on the Company’s Senior Management Committee, a group providing policy and direction for the then $2 billion information and transaction processor. During her tenure at First Data Corporation, Angela held positions as the Chief Administrative Officer of the Company, played a key role in its IPO, and was SVP of Finance and Business Development.

Angela has also held senior management positions at American Express Company and Time Inc, and was a consultant at McKinsey & Co.

Angela has been a member of the Board of Directors of Raymond James Financial since 1997 and is currently Chairman of its Audit Committee. She has an MBA from the Harvard Business School and a degree in business from Queen’s University in Kingston, Canada.

Tim DeMello

Tim is founder, Chairman and CEO of Ziggs, Inc., his fourth start-up venture. In addition, Tim is the founder and creator of iGuess Games LLC. iGuess Games has created the first board game powered by Internet. The game, Favorite 4, will be introduced for Christmas 2006.

Prior to founding Ziggs, Tim founded, one of the pioneering companies in ecommerce in 1993, and took the company public in June of 1999. Prior to Streamline, Tim founded his first start-up company, Replica Corporation, an interactive educational and entertainment company. Tim sold his interest in Replica in 1993.

Tim began his career as a stockbroker in 1981 and was employed by Kidder, Peabody & Co., becoming a Vice President in 1984, and then he joined the investment firm L.F. Rothschild, Unterberg, Towbin as a Vice President in 1985. He received his bachelor of science degree in Finance from Babson College where he also lettered in baseball and hockey. In addition, Tim started the Babson College rugby team. He has served on Babson’s Board of Trustees.

Tim has made numerous speaking appearances at the MIT Enterprise Forum, Fast Company Magazine and Inc. Magazine conferences, as well as regular speeches on entrepreneurship at Harvard Business School, Boston University, MIT Sloan School, FW Olin Graduate School of Business, Bentley College and his alma mata, Babson College. He has also been featured in stories in Business Week, Forbes, Fortune, USA TODAY and The Wall Street Journal. Tim has been a finalist for the Ernst & Young Entrepreneur of the Year awards and was recognized as one of Boston Business Journal’s Top 40 Under 40. Tim was selected by Inc. Magazine as a top entrepreneur in their “Birthing of Giants” program and his first company was honored with a cover story in the magazine and listed as one of the Inc. 500 Fastest Growing Companies.

He is an active competitor in the sport of triathlon and is an Ironman finisher. He is the father of two children and lives in Boston…where his dream about the day when the Red Sox finally win the World Series came true!

Torsten Jacobi
Torsten Jacobi or ‘TJ’ is a serial entrepreneur and investor with experience in software and media. Torsten currently serves Creative Weblogging Ltd as its CEO and director. Prior to Creative Weblogging, Torsten started SRM company newtron and the local chapter of First Tuesday in Saxony, Germany. TJ also co-founded Euro Venture Partners, a network of pan-European network of business angels.

John Younger

John is President, CEO and Founder, Accolo. For over 16 years, John has successfully identified and incorporated major trends and technologies affecting the recruitment landscape.

In January 2000 John founded Accolo, an innovator in networking-based Recruitment Process Outsourcing (RPO). John’s passion to dramatically improve how people and jobs find each other is rooted in his deep understanding of technology, the recruitment process, and a core belief that everyone deserves courtesy and respect. This idea is central to Accolo’s vision, methods, and communications.

John’s vision for a completely outsourced staffing solution led him to found y/net in January 1996. After a successful launch of y/net, TriNet acquired John and his company in November 1996 where he remained until December 1999. TriNet was one of Inc. Magazine’s 500 fastest growing companies in 1996, 1997, 1998 and 1999.

From 1987 to 1994, John was the Vice President of Human Resources for Bank of America where he led technical recruitment for an organization of 16,000 people.

John has successfully identified, incorporated and advanced recruitment solutions for over 16 years. He was Resumix user #2 in 1988 and established the first Vendor on Premises for both Bank of America and Olsten Corporation in 1992. He was an early adopter of Internet recruiting with the On-Line Career Center (to later become Monster) in 1993, and was user #4 while running his Venture Talent recruitment Agency in 1998.

John earned a degree from Notre Dame in Mathematics and Computer Science and is a former member of the United States National (Olympic) Rowing Team.

David Teten


Scott Lichtman’s Notes

Biever: Intel Capital largest investor in IT startups in the worldup. 100 investment professionals. Portfolio of 300 companies. Recently decided to focus on consumer internet, but have touched on it in the past. Invested in Six-Apart.

Even Web 1.0, e.g eBay, was community-based, based on common interests or objectives. Now, you’re seeing changing social customs. People spend more time on the internet than on broadcast TV.

Wonders about: looking on MySpace and see people with “800,000 friends.” What business model will allow them to sustain themselves. Ads, transactions are possible, subscription/premium type services. These will be increasingly targeted.

John Younger:
First, i’m happy to announce the acquisition by Accolo of Teten Executive Recruiting. (Editor: Details coming shortly on that topic.)

Recruitment Process Outsourcer – become your company’s internal recruiting function.
Working the same problem for 19 years – finding the perfect person for a job, eliminating all obstacles between hirer and the best candidate.

Four trends:
Social networking. Accolo’s Career Network is over 300,000 people.
Business Process Outsourcing – reruiting is the fastest growing segment
Software as a service
Candidate Scarcity – over 9,000 documented personal referrals

The productive of a recruiter’s pace of placing someone hasn’t changed since 1963.

Top 3 reasons candidates and members love accolo:
Real jobs verified directly with the hiring manager
Respect, confidentiality and follow-up
Easy for the two people who matter

94% of people who apply for jobs never hear back from anyone, ever.

Uses Google paradigm for ease of use. Any firm that can put only two buttons on the interface – ’search’ and ‘I’m feeling lucky’ – is a genius.

Their cost comes in routinely under 9% of first year compensation, sometimes under 4-5%, vs. 20-30% for the average recruiter.

Social Networking implies public visibility. If Metcalfe’s law means the value of a network is proprtional to the square of the number of users of the system, what does that do to your personal and corporate risk equation?


There will be a separation of personal and business social networks online. Some people are attempting to post multiple personalities, but they are all searchable.

Younger people don’t realize the consequences of posting semi-scandalous information and images about themselves on personal sites.
Story: they had interns working last summer for them. DeMello heard one intern hadn’t been working as hard. He was referred to MySpace/Facebook. Intern actually posted on MySpace where he said he spends the day screwing around at work. Intern said “I guess this is the part where I leave.” => Young people can be screened via FaceBook.

Ziggs allows people to post their own identity for free. Your professional identity on the web can be consciously framed. This is a “flight to quality.” Where you post your identify affects people’s perception of you.

57m times a day proper names will be searched on the internet.

Growing a business like this is about the first 1,000 profiles. The firms need to vet the first 1,000 profiles, which sets the guideposts for what other people post.

Torsten Jacobi– Creative Weblogging:

They hire some of the most influential and well-read bloggers on specialty topics.
They also work with more than 1500 citizen reporters. They contribute additional stories while building their reputation.

Teten: number one reason people come to TIECon East is for networking. Do online networks make face to face networking less important?

Tim doesn’t think online networks doesn’t weaken the need for in-person. It’s an “add” rather than a replacement.

John – has anyone read Bowling Alone? Bowling fills a social need. Online connectivity is replacing the lack of in-person connectivity.

Angela – complexity of the world we live in requires more tools. More cross-border deals, multi-party solutions. Online tools help manage this complexity.

Teten: Torsten is getting a lot of content from citizen reporters. How do you screen their content for validity/liability (eg stock recommendations, spam)?

Torsten – Our filtering mechanism is based on keywords, clicks and track record. Finds out what are the most interesting stories for the community. We also use this filters on spam and useless, mundane contributions.

Teten: Story: A friend “John” sent in for a job, the letter said check out my web site. Some readers thought this was self-aggrandizing to have your own web site.

Tim: People are getting smarter about this trend. People will think about how they want to be represented online. Years ago, people would buy the website and build their own. Now people want a template to populate content but not worry about layout or hosting. There will still be a creative flair but the effort and extremes will be tailed back.

Teten: John, how do you overcome barriers to sale in an outsourced business?
John – not easily. Any disruptive outsourcing play has to be sold at high enough level in the business to overcome the lower-level managers (HR) who want things to remain the same. They encounter
-Ignorance at manager level
-Complacency - at sourcing manager who things an applicant tracking system bandaid will solve the whole problem.
-Fear – recruiter will blanch at the metrics that Accolo can produce.

They focus on companies from 300 to 1,000 employees. The problem Accolo solves includes eliminating time to hire multiple recruiting agencies. The business process gets better after the first hiring – this is better than just getting one good hire.

Teten – How can people best use your service?

Torsten – people find good blogs by entering a normal keyword in google and add the word “blog”. There are some blog search engines like Technorati, AskJeeves has come up with a good one, Google and Yahoo have come up with their own. They are “good enough.” His best tool is to evaluate how many google backlinks go into a blog. He checks and (check spelling).

DeMello: Ziggs vs. LinkedIn – both free. LinkedIn is closed, Ziggs is open, we don’t gate around you. Ziggs is Pagerank 6-7 in google. Search engines come to Ziggs looking for profiles on people. If you can post a profile that makes sense for free, it makes sense. They have 3-4m profiles. All words in a profile are saved because they may be relevant by search engines. He believes there will be 3-4 major professional networks online.

Younger: Accolo treats your informationally as confidentially as a credit card company if not better. They want to build career-long relationships. Some people take a fulltime job and stay four years, or a contract job and also stay for four years. It’s simple to get started – 90 seconds – then Accolo will reach out to you 1-2x per year about jobs


What are trends for consumer Internet and convergence with education?

Biever: recalls interest in this space 5 years ago. Hasn’t focused on this recently but hears there are things going on.

Julian Borne from (PoxPro). Good article on internet/social networks going mobile. With wireless/proximity social networking, it brings people face to face when they’re nearby each other. What’s progress in this space?

Torsten – are people with online social networks really looking for face to face interaction? Online allows for quick, informal interactions. You only go forward if you really want to. Torsten is already delivering their content on cell phone screens. Bandwidth issues (including typing on phones) makes rich interaction hard. He expects 50% of relevant content on the Internet to be on mobile phones in a few years.

Teten: The future is here, it’s just not evenly distributed. Look at countries that are heavily wireless. And kids in high school today will take their tools to the corporate world.

Younger – personal view on the mobile side. The form factor is too small for many things. But as a business person, it can solve many problems. What if Plaxo could (link with the database of people at this event) and tell me who I should be meeting.