The Graduate

I’m going to say one word to you. Just one word.  Plastics.
— Mr. McGuire, in The Graduate

All the World’s a stage.
— William Shakespeare

In what is one of the happiest moments of my life, my daughter Maggie graduated from Ithaca College this weekend.

College graduation is an important moment for most families but it might seem a bit overstated for me to say this… After-all, people who are from the professional community have certain expectations for their children and a college degree is one of them.

Why this is such a big moment for Maggie and our family is that for much of the past twelve years, Maggie has been sick with Lyme Disease and wasn’t even able to finish high-school, having to drop out after her Sophomore year. While many of Maggie’s friends, in what would have been her Junior and Senior years, were focused on what colleges they were going to get in to, Maggie was in bed too weak to even walk around the block.

Hot Wheels

The radio is gone… That means — the car is gone!  Oh God, not the car! Anything, but not the car!
— Terry Fields, in American Graffiti

It was just over 100 years ago when Henry Ford introduced the World to the Model T, the first car that was affordable to the masses. Detroit in 1913 was like Silicon Valley today — the place where people came to participate in the future, and automobiles were the disruptive technology of the day. There were over 240 independent car companies operating in Detroit in the heyday.

Ford’s first two automobile companies failed but his third started in 1903, proved a charm and was immediately profitable. By 1905, profits were $300K, which would be equivalent to $30 million today, amazing for a two year old Company.

The breakthrough, of course, came with the introduction of the Model T in 1908, and with it, the assembly line and mass production. Ford famously said “Any customer can have a car painted any color he wants…as long as it’s black.”

Project Runway

I think there is a world market for maybe five computers.
— IBM Chairman Thomas Watson, 1943

The Verdict is in: Nobody likes Glass
— Business Insider, May 4th, 2013

People have trouble imagining a World different than the one they come from and tend to dismiss transformational technology as a “toy” or a “fad”.

When Alexander Graham Bell invented the telephone, people thought it might be helpful for telegraph operators to speak with each other to clear up confusion on transmitted messages.

When automobiles were introduced in the late 1800s, there were “Red Flag Laws” passed in the United Kingdom and the United States that required a pedestrian to walk in front of the “horseless carriage” with a red flag to warn others it was coming.  A toy for the rich, you were required to have three passengers in the car: the driver, the owner and the mechanic.

Book of Mormon

Ten days ago, we completed a fabulous education innovation summit where we brought together nearly 1,500 leaders in the learning ecosystem. Innovators, educators, social entrepreneurs, institutions, policy makers, and investors were all mixed together in a potent cocktail to focus on how to have scaled impact in this $4.5 trillion industry.

We had participants from disruptive edtech companies like Chegg, Coursera, Kno, 2U, Grockit and Knewton; keynotes from captains of industry such as Bill Campbell and Steve Case; investors like Bill Gurley and Roger Novak; politicians and policy people such as Jim Shelton, George Mitchell, Bob Kerrey and Beverly Perdue, and academic leaders such as Michael Crow, Benno Schmidt and Michael Feinberg. Five years ago, you couldn’t have gotten 1,500 people from these diverse backgrounds to discuss education innovation if you would have given away $1,000 to each participant, now we had to stop taking registrations three weeks before the event with a ticket price of $1,500. (Disclosure: GSV owns shares of Chegg, Kno, 2U, and Grockit.)

The Summit culminated with GSV, ASU and the Clayton Christensen Institute‘s inaugural ROE AWARDS (Return on Education) highlighting education companies that have had the greatest impact in showing positive learner outcomes while decreasing cost, increasing access and leveraging learning leaders. We had over 150 nominations and the finalists and winners were…

New England Patriots

The Boston Marathon started in 1897 with 18 participants and has become the oldest annual marathon in the World, and the best known with over 20,000 participants and 500,000 spectators.

Held on Patriots’ Day, the race has become intertwined in the fabric of Boston and a part of Americana. Patriots’ Day starts with an 11am Boston Red Sox game and finishes with the celebration of the Boston Marathon.

Given its symbolism, it shouldn’t be a surprise that terrorist would view the Boston Marathon as a prime target to terrorize even though it’s the last thing people expect to happen. Accordingly, the Tsarnaev brothers’ heinous and cowardly bombing of innocent bystanders at the 107th Annual Boston Marathon on Monday sent shock waves in Boston and around the World.

While the evilness of the acts enrages us all, it was impressive to see how quickly the law enforcement officers were able to identify who was responsible, and thrilling to see the Tsarnaevs apprehended. Most inspiring was the bravery of the Boston people who when the bombs went off ran to the explosions to help the injured as opposed to running away. Moreover, the New England Patriots’ resilience and, really, defiance in the face of terror made us proud as Americans. When Neil Diamond, the Boston Red Sox fans and the New York Yankees saying together “Sweet Caroline” at Saturday’s game, “good times never seemed so good.”

Remarkable, when contrasted with 9/11, is how advanced our capabilities are to handle acts of terror AND how much innovation has happened in twelve years.

Bold Change

There are “old” pilots and there are “bold” pilots. But there are no “old bold” pilots.
— Anonymous

My friend Dave Pottruck teaches a course at Wharton on “Bold Change” which is focused on the actions needed for a large organization to transform itself in the face of dynamic competition. Dave, the former CEO of Charles Schwab, speaks from what he’s done as Schwab, which under his leadership transformed itself from a traditional discount broker to an online powerhouse with $45 billion market cap in 2000.

Dave also had the painful experience of not moving his Company fast enough after the dot.com bubble burst, and after a 20-year career at Charles Schwab, he was fired in a 20 minute conversation by his mentor and Company namesake. Given Dave’s real life experience, it’s no surprise that his class was voted the most popular one at Wharton.

Last week, another friend of mine Ron Johnson was terminated after a tumultuous 17 month reign as CEO of JC Penney. It would probably be wise of me to be quiet and allow the piling on to continue until the media finds another story it wants to jump on.

University 2.0 — MOOCs

Massive Open Online Courses, a.k.a. MOOCs, are leading a wave of change to radically democratize access to high-quality, college-level courses for people anywhere in the world who can connect to the Internet…generally for free.

In the Global Economy and Knowledge-based Economy — it’s about what you know, not where you go…knowledge, not necessarily college. MOOCs have the opportunity to dramatically increase access and create more opportunities for people to participate in the future.

The MOOCs concept originated in 2008 via the Open Educational Resources movement that had begun in 2001-2002 through MIT’s OpenCourseWare project but it really hit its strides in late 2011 and 2012.

The modern wave of MOOCs started through what might be considered a lucky accident. Stanford University, in the fall of 2011, launched three online courses, each with over 100,000 students enrolled, a breathtaking number when you consider that most university courses have a difficult time teaching a hundred students.

Middle of Nowhere

Cyprus is located in the Eastern Aegean area of the Mediterranean Sea just below Turkey and to the West of Syria. It’s the third largest island in the Mediterranean behind Sardinia and Sicily and ahead of Crete. Cyprus’ strategic location and historic neutrality has made it the crossroad between East, West and the Middle East.

In 1191 King Richard I of England conquered Cyprus almost by accident as part of the Third Crusade. Three of England’s boats were shipwrecked in a storm with the Island’s occupants taking the survivors as prisoners. When a fourth boat carrying King Richard’s sister and bride were denied their request to come ashore to get water, King Richard learned of the insult and had a “Popeye Moment” unleashing his military on the heretofore irrelevant Cypriots.

Most of the next seven hundred years resulted in British Administrative Control of Cyprus with the introduction of the Norman Feudal System. From 1925 to 1960 it was a British Colony.

Today, Cyprus is divided in two with its Northern half under Turkish control. It’s called “The Turkish Republic of Northern Cyprus” by Turkey and called “Occupied Cyprus” by everyone else.

Bubblin Bosphorus

If the Earth was a single state, Istanbul would be its capital.
— Napoléon Bonaparte

It’s one of the most dynamic places on Earth, right at the intersection of Europe, Asia and Africa, it connects the Western with the Arabic world, and it’s an up-and-coming power place.

Istanbul, which spreads across seven hills (like San Francisco) and lies on the Bosphorus strait, will be one of the most interesting places for growth and innovation in the years to come. With 14 million people, it ranks #21 among the World’s metropolis — but #2 if accounting for density, and it is the fastest growing large city in Europe, with a 3.5% annual population growth. Istanbul is also one of the six applicants for the 2020 Summer Olympics — which will be decided this summer.

This week, I spent a few days in this vibrant place and met with local entrepreneurs, investors, startups, and some of Turkey’s emerging companies. The last time I was there was more than 10 years ago, and the city has definitely transformed from being just a cultural and historic capital to a dynamic and booming global city.

Theory of Relevancy

Earlier this week I was in Austin for the initial stages of SXSW (a.k.a. South by Southwest).

Austin is a great city with abundant Sun, the Colorado River running through downtown, the state Capital, and the campus for the University of Texas (usually) Mighty Longhorns.

While the State of Texas is the “reddest of red states,” Austin prides itself on being counter culture and has as its motto “Keep Austin Weird.” A definitely weird and a bit creepy fact about Austin is it has the largest bat population of any urban city in the United States.

SXSW began as a music festival in 1987 where 172 bands showed up and played to 700 people listening, dancing, eating and drinking. Now SXSW has become an annual destination on the innovation tour. Added to the music festival’s menu over the years are film, interactive media, the environment and education (I was Co-chairman of this years SXSW Education Launch).

Converging Worlds

It’s ten years ago this month when the “Shock and Awe” military campaign began in Baghdad. 2003 was also the year when the Space Shuttle Columbia disintegrated when entering the atmosphere over Texas and the iPod began to kill MP3s. It’s been 11 years since the Salt Lake City Olympics and Enron CFO Andrew Fastow was convicted of 78 felony counts of fraud and WorldCom filed for bankruptcy.

Do these events seem like they happened just yesterday? My point is: while 2003 wasn’t that long ago, the world has changed in almost incomprehensible ways. Sure, Blackberry had just entered the market with its “smartphone”, but in hindsight it was basically a bad phone and even worse way to get your emails. Nobody could imagine one device that could act as a phone, computer, camera, TV, gaming “console”, wallet, newspaper, book, etc.

In 2007, Apple’s iPhone changed the way we live by putting our life in our pocket. In 2004, Facebook first connected everyone at Harvard, then the Ivy Leagues, then U.S. college students, then all students around the World, and then expanded to capture 1.1 billion people. In 2005, YouTube became THE platform allowing everyone to be a video “producer”, allowing a song about Seoul’s Gangnam district to attract 1.4 billion views in less than a year.

Celebrity

‘Cause when you are a celebrity, it’s adios reality.
You can act like a fool, people think you’re cool.
Just cause you are on TV…
—Brad Paisley

People love the movies and they worship their stars. Over $10 billion was spent at movie theaters in the U.S. last year and an estimated 1 billion people will watch the 85th Oscars tonight.

Will Lincoln win Best Picture? Or will it be the sentimental favorite Argo? Maybe Silver Linings? (My movie crazy daughter Maggie is rooting hard for that one but I think her interest in Bradley Cooper may have colored her judgement).

The convergence between real life and fiction is blurring the World in confusing ways. Oscar host Seth MacFarlane’s character “Stewie” who seeks World domination could be mistaken for North Korea’s evil leader Kim Jong-un.

Pioneers’ Path

“Stay hungry. Stay foolish.”
—Steve Jobs

Growing Sustainable, Part 2

Since 1990, global population growth has been ~29%. During the same period, average energy use per person has increased by 10%. So net-net, energy consumption has actually gone up 42%… What’s worrying is that the rise of the Internet and our computer-driven lifestyle are also kicking in globally and will add aggressively to the trend in the next decades.

The need for better, faster, and cheaper energy, and the associated problems and opportunities in cleantech is what we are focused on… and wrote about in our last issue on January 13th. In Growing Sustainable, Part Two, we are looking at Wind, Storage, Alternative Power, Pollution, Light and Lifestyle.

Wind energy accounted for 6% of US’s total energy in 2012, with 13.2GW installed — 5.5GW in December alone. Globally, wind accounts for even less but it is projected to go to 15-20% by 2030. Similar to solar, wind is an abundant resource and it’s ~100% clean. On the flip side, it’s not easy to install, wind farms have large footprints and need to be built away from rural areas. What’s critical for wind in order to gain broader adoption is a better cost structure and simpler installation methods.

But we are beginning to see ground braking technologies that are potentially very disruptive. Kleiner Perkins-backed FloDesign Wind, which is a spinoff of aerospace company FloDesign, is impressive and promising… Its turbines are quite different compared to traditional ones, as they are much smaller, lighter, more efficient and easier to transport and install. And they can be placed much closer to rural areas. Its jet engine-like turbine has two sets of blades — the first one is fixed and redirects the wind onto a second set of blades that are moving. The wind spins the rotor and as it comes out on the other side, it meets with slower moving wind from the outside and creates a rapid mixing vortex… The end result is 3-4x more efficient output compared to traditional wind turbines. See the visual description — it’s impressive.

Growing Sustainable

The end of the human race will be that it will eventually die of civilization.
— Ralph Waldo Emerson

I remember like yesterday coming to LA in 2003 and being somewhat shocked about the extremely aggressive use of energy in this country. It struck me that UCLA’s sports fields were fully lit late at night when no one had stepped on them for hours. Or going to Las Vegas the first time and thinking that “Sin City” was probably using as much energy as my home country Bulgaria… (I checked, and it’s not quite the same, but still worth the thought).

I’m not trying to say aggressive consumerism is bad, and I do understand the principles of capitalism and economics well. But it does make me think that we are running into a growing problem. A powerful country like the U.S. also pays a price for its growth, and energy and sustainability are on the very top of that list.

History 101

If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience.
— George Bernard Shaw 

I like the dreams of the future better than the history of the past. 
— Thomas Jefferson 

It would be convenient if to pick tomorrow’s winners you just had to look at past results. Unfortunately, that plan doesn’t work because the world is constantly changing.

If you were to look at the leading industries in 1925, you would have found that 23 of the 100 largest capitalization companies in the US market were in the railroad industry. Ten were automobile companies, and four were in metals and mining. Zero of the 100 largest companies were in information technology, healthcare, or financial services.

Fast forward the clock to 2013. Only two companies were in automobiles or railroads, one in metals & mining and zero in railroad amongst the largest 100 companies. Conversely, 25 information technology companies were amongst the 100 largest, 20 financial services companies, and 17 healthcare companies.

The Only Show in Town…

While the networks tried to create drama around the looming “Fiscal Cliff,” including political analyst giving a play by play on the negotiations and a countdown clock, politicians seemed mostly anxious that they were going to miss the event that REALLY mattered…Sunday’s 8:30PM kickoff between the hometown Redskins and America’s TEAM, the Dallas Cowboys.

Taxes going up for everyone and a likely recession causing massive unemployment is trivial compared to whether RG III could run and pass the Redskins into the playoffs. To give context to how big this matchup was, thirty second TV spots for Sunday Night Football were going for over $550K versus $340K for American Idol’s new season.

With Washington’s 28-18 Victory, Owner Dan Snyder has gone from being less popular than Richard Nixon to replacing Ben Franklin on the C note, and Mike Shanahan is the Nation’s Capital Commander-in-Chief. RG III is going straight to have DC’s fourth memorial along with Washington, Jefferson and Lincoln.

While Baseball is America’s Pastime, Football is its Present. Apple and Google are AMAZING companies but the NFL might be the World’s greatest business. The 32 NFL Franchises are worth approximately $40 billion. (Disclosure: GSV owns shares of Apple and Google.)

Ho Ho Ho

It’s almost a wrap on 2012 and while some are counting the days to the “Fiscal Cliff” or to “Bowl Games,” we’re getting excited about Christmas and what might be under the tree.

While we’d love to give all of our loyal readers a new iPad Mini, we can’t because they are perpetually sold out. We then thought giving everybody a premium gift subscription to Spotify would be cool, but then our research showed us that basically everybody has become a member of Spotify in the past couple of years.

For those that don’t already have Dropbox, certainly giving an invitation to open an account would be appreciated as the service works like magic. We then came to our senses and realized that Dropbox basically creates dependency and we don’t need to be accused of creating addicts (although we love businesses that are additive without causing cancer). Disclosure: GSV owns (long) Apple, Spotify and Dropbox.

Alas, as much as we’d love to be original, the process of elimination forces us to go back to tradition. Accordingly, our gift to A 2 Apple readers is our annual “Stock Stocking Stuffers” and also a few “shorts” to provide some “coal” for the naughty ones.

All I want for Christmas…

Apple CEO Tim Cook did his first major TV interview last week with NBC’s Brian Williams.

The gist of Mr. Williams questioning was that Apple is a dynasty and all dynasties come to an end, often when the magnetic leader goes. ”Nobody remembers who replaced Thomas Edison.” So why is Apple any different?

Given AAPL shares are off 24% since September and 9% last week alone, it would seem that’s a fair concern. Not to mention ferocious competition from the likes of Samsung and Google, and even concern about manufacturing in China.

In his first at bat on the big league media stage, Mr. Cook hit it out of the park. He came across as focused, humble, intense, thoughtful and likable. His comment, when challenged on why Apple would succeed where others before had failed, was “Don’t bet against us, Brian. Don’t bet against us.”

School of Fools

In the “you can’t make this stuff up” category, last week Edward Archbold of Deerfield, Florida choked to death after “winning” a cockroach eating contest.

The “prize” the late Mr. Archbold was coveting was a python valued at $850. Showing he wasn’t completely out of his mind, Archbold called 911 himself when he realized eating dozens of roaches was in retrospect not such a good idea and giving him an upset stomach.

Given that I know of at least one private equity firm that has a prohibition of investing in any Company headquartered in Florida, some might say that type of craziness can happen in a Banana Republic like Gator Country but not in civilized society.

The Sunshine State doesn’t have a monopoly on fools, and in fact, it is pretty minor league compared to the Politicians on the Potomac. I personally was hoping that with the election behind us, we could forget about Washington for a while and focus on the Real America.

Twinkie Nation

Ingredients: Nonstick cooking spray or vegetable oil, 60 grams (1/2 cup) cake flour, 30 grams (1/4 cup) all-purpose flour, 1 teaspoon baking powder, 1/4 teaspoon salt, 2 tablespoons milk, 4 tablespoons unsalted butter, 1/2 teaspoon vanilla extract, 5 large eggs at room temperature separated, 12 tablespoons sugar, 1/4 teaspoon cream of tartar, 6 tablespoons unsalted butter at room temperature, 165 grams (1 1/2 cups) confectioners’ sugar, 3/4 cup Marshmallow Fluff, 2 tablespoons heavy cream.

For those of us who grew up with Twinkies and Ho Ho’s as a staple in our diet, it came as both shocking and sad to hear the news that Hostess, the purveyor of the aforementioned super foods, was shutting its doors.

Social Darwinism

Throughout much of history, one’s future was determined by who you were born to and where you were born.

Princes became Kings. Farmers’ sons became farmers. 99% of the people lived and died within 10 miles of where they were born.

Social status was predetermined by your family, your sex or your skin color. Nobles remained nobles.  Women enjoyed elevated stature if they had a large family. Being black or brown meant limited options for opportunity.

Access to education changed the model of predetermined destiny as one’s education now is the primary determinant to one’s future. The correlation between income and education is direct as is unfortunately, unemployment. The “Woman Power” wave has corresponded with the surge of women in college and graduate programs. It’s no accident that our first African-American President got his undergraduate degree from Columbia and his law degree from Harvard.

Storms and Landslides

The Weather Channel exists because people are fascinated by watching things out of their control, and especially natural disasters. Storms, floods, hurricanes, earthquakes, fires, tsunamis, tornadoes… all with potentially horrific consequences, draw people’s attention like honey to a bear.  

The media realizes this and rush to opportunities where they can wear the storm gear and appear to be in harms way. Politicians having no upside in presenting a balanced approach, appropriately error on the side of the worst case scenarios and warn loudly and often about the potential disaster on its way.

Accordingly, when hearing about the impending “Frankenstorm,” my reaction was it was going to be a great way to “sell tickets to the show” but unlikely to be a history changing event. Seeing the windswept anchors reporting Monday morning from Point Pleasant, New Jersey, and Battery Park in Manhattan, I said to myself “come on.”

Truth be told, I was mildly annoyed the Market was closed as there were some trades I wanted to make, and also, I was supposed to be in NYC midweek for some “important” meetings and I was getting concerned my flights might be a mess and I would be inconvenienced.

You’ve Got Mail

“I turn on my computer. I wait patiently as it connects. I go online. My breath catches my chest until I hear three little worlds, ‘you’ve got mail.’”
— You’ve Got Mail, Warner Brothers, 1998

Remember when email was cool? Almost sexy? It was so clean. So quick. So efficient. It almost seemed like magic.  

Your email address replaced your phone number as your most important coordinates and like “snail mail” before it, voicemail became a relic for the dinosaurs.

The fact that a popular RomCom could have as the foundation for its plot the virtual couples email connection as plausible speaks volumes of our not so distant past.

Cloudy Future

“In 2011 we created more data than since the beginning of mankind to the end of 2010. Competing in business will take more than being good at collecting and processing Big Data.”
— Andreas Weigend, Director, Stanford Social Data Labs & former Chief Scientist at Amazon

Global data traffic is expected to hit 1.3 zettabytes per year by 2016, growing annually at 29%. Currently, mobile data is skyrocketing. Last year, mobile data traffic was 8x the size of the entire Internet in 2000, and by 2016, it is expected to be more than 0.12 zettabytes, up from 0.015 zettabytes in 2012. (For reference, 1.3 zettabytes equals to 20.3 billion iPhone 5s.)

The magnitude of data we consume calls for rapid changes in its infrastructure. In the past 20 years, using services and storing data has moved from physical to digital, and the trend has been accelerating more so in most recent years. Before, we used to read books, listen to CDs, store files on floppy disks, etc. Today, all these tasks have transformed to be part of a digital network, all driven by the Internet, and all connected in the Cloud…the term Cloud Computing arrives from the use of a cloud-shaped symbol as an abstraction for the complex infrastructure of the system diagram.

Changes in Latitudes, Changes in Attitudes…

At the invitation of King Abdullah’s commission on Innovation and Entrepreneurism, last week I was in Riyadh speaking at a conference on the aforementioned subject.

Saudi Arabia is a fascinating place of approximately 28.1 million people located between the Red Sea and Persian Gulf. The Country of Saudi Arabia was formed in 1932 and oil was discovered in 1938 — and now has one fifth of the World’s proven oil reserves

Saudi has a young population with the median age at 25 years old and nearly 30% of the population being below 14. Oil is 45% of GDP but some analyst have predicted that Saudi will be a net importer of oil in 20 years.

Winning

“There are ‘Old’ Pilots and there are ‘Bold’ Pilots, but there are no ‘Old Bold’ Pilots.”
— Anonymous

It was a particularly spectacular weekend to be in the Bay Area with a cornucopia of events and activities to enjoy.

It was “Fleet Week” with the amazing Blue Angels zipping around San Francisco to the delight of all (accept the travelers trying to land at SFO who were subject to endless holding patterns).

If watching Top Gun pilots wasn’t thrilling enough, people on the Bay could also view America’s Cup races.

Fresh Air

Since the bottom on March 9, 2009, NASDAQ is up 146%. Year-to-date, NASDAQ is up 19.6% and the S&P 500 has advanced 14.6%.

While our optimistic nature would like to convince ourself that this is a predictor of great things to come, our rational side realizes that this is more a function of: 1) a snap back from the 2008 cliff, 2) the near zero interest rate environment being no competition for capital, and 3) the Feds flooding money into the system.

Nothing Ventured…

“All the forces in the world are not so powerful as an idea whose time has come.”
— Victor Hugo

Part of what has made Silicon Valley a magnet for entrepreneurial talent and innovation is the embracing of bold new ideas and marrying those with risk capital. Unlike any other place on the Planet, Silicon Valley has this unique ecosystem where abundant resources are focused on people who are driven to reinvent the World.

On much of the East Coast and Midwest, when somebody has a new idea, the chorus has a hundred reasons why it won’t work; “If it was such a good idea, why hasn’t anybody done it?,” “talk to me after it’s proven without a shadow of a doubt that it works,” or “the existing industry giant will squash this before it’s out of the box.” In Palo Alto, a new idea is greeted with a flurry of angels who want to write a check.

In most of Europe, new ideas are viewed with even greater skepticism which has resulted in virtually non-existent venture capital community and an IPO Market that makes the U.S. look robust. In fact, there have been more IPOs that have come out of Silicon Valley in the past thirty years than there has been in Europe since the time of Charlemagne.

Zero to Hero

“What would I do? I’d shut it down and give the money back to the shareholders.”
— Michael Dell, on October 6, 1997, when asked what he would do with Apple if he were Steve Jobs

As Apple continues to make new all-time highs, up another 2% last week and 71% for the year, Dell’s quote looks destined to surpass “dumb quotes by smart guys” Hall of Famers Ken Olsen, founder of Digital Equipment, who said, “there is no reason for any individual to have a computer in his home” and Tom Watson, founder of IBM, who proclaimed, “I think there is a World market for maybe five computers.”  

When Dell made his remark in 1997, the Company with his name on it had a market value of around $29 billion versus Apple’s market cap of $3 billion. One way to look at it, at the time, is that it would take nearly 10 “Apples” to equal 1 “Dell.”  

On Friday, Apple’s market value touched $650 billion and Dell‘s market cap is now $19 billion. Using stock as a currency, it would take more than 34 “Dells” to BUY 1 “Apple.”

You Are What You Tweet

On March 21, 2006, Jack Dorsey sent the first “Tweet“ and forever changed global communication…and the World. 

Who would have thought that a 140 character text message could help topple governments, routinely beat major news organizations to breaking stories and be the backbone for major trading systems?

Far from the snarky cynics who view Twitter as the way you find out what people are eating for breakfast, it’s become THE global realtime information network. (Disclosure: GSV Capital owns Twitter stock). Celebrities, athletes and politicians use it as an unfiltered, direct to consumer channel…consumers use it as their hyper-personalized news, information and knowledge channel.

Highway 80 Ride

“ So when you drive
And the years go flying by
I hope you smile
If I ever cross your mind
It was the pleasure of my life
And I cherished every time
And my whole world
It begins and ends with you
On that Highway 80 ride…”
— Zac Brown Band (slightly modified)

Last week, I got to drive cross country with my oldest daughter Maggie for her senior year at Ithaca College. Basically, you get on Interstate 80 at the Bay Bridge and drive 3,000 miles until just before it dumps you into Manhattan from the George Washington Bridge.

I’ve done this once before but it’s always hard to comprehend how vast the United States is. For those of us who’ve become accustomed to fly Coast-to-Coast, it feels like New York City and San Francisco are practically neighbors — all that separates them is a quick snooze, lunch and going over emails thru the magic of WiFi.

Golden Girls

The Olympics have always been part sport, part social, part political and part spectacle. Adolf Hitler infamously used the 1936 Berlin Olympics to show the World the superiority of the Arian Nation only to be slightly thwarted by Jesse Owens track triumphs.

The 1972 Munich Olympics were tragically used by the Palestine Liberation Army as a way to shock the World into understanding its plight. The 1980 Moscow Summer Games were a political pawn as President Carter boycotted participating in protest to the Soviet Union’s war with Afghanistan. The 1980 Winter Olympics in Lake Placid and “the Miracle Team” gave America hope it could win again.

The 2008 Beijing Games were meticulously scripted to promote host China’s arrival as the emerging leader on the Global Stage. While the USA won the most medals, China won the most golds and successfully made its case that it was planning on being the lead actor for the future.

Two Sides to a Coin

I spent the weekend in Santa Barbara celebrating my youngest daughter’s 20th birthday and her return to playing soccer after a year of rehab from a knee injury.

Santa Barbara is one of the most spectacular places on earth — incredible beaches, mountains surrounding the harbor, hip classy town and Southern California weather.   

I love to run along the ocean in the morning and to take it all in. What’s funny is how different a place can look depending on which way you are heading and what you are looking for. 

Heading one way down the beach, you see a collage of surfers, yachts, real beach volleyballers and the Santa Ynez mountains.  In a word, “Heaven.”

Reversing course but on the same track, I now see the bums littering the beach, the left over garbage being devoured by the scavenger birds, and the people who should know not to expose too much of their body as it’s gross and covered with tattoos everywhere. In a word, “Hell.”

American Revolution 2.0

“Education is the most powerful weapon which you can use to change the World.”
— Nelson Mandela

On Friday, The New York Daily News reported that the planet’s most famous rising kindergartner, Suri Cruise, is going to attend AVENUES — The World School this Fall. AVENUES, the most recent creation from media and education entrepreneur Chris Whittle, opens its doors in NYC in September with over 700 students paying a $40,000 tuition. (Disclosure: GSV Capital is an investor in AVENUES.)

AVENUES has a spectacular facility on “the High Line” in Chelsea, a world class faculty with the former President of Yale, the Former Head of Philips Exeter, the Former Head of Hotchkiss, and most impressively to New York residents, the former Head of the pre-school program at the 92nd Street Y on staff, and an international orientated curriculum.

AVENUES is building a global network of top tier private schools and will be opening sites in Beijing, London, Sao Paulo and Mexico City in the next several years.  

Social Psychology

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
— Charles Mackay, Popular Delusions and the Madness of Crowds, 1841

It seems just like months ago when Facebook was thought to be the Second Coming and investors were fighting over themselves for whatever shares they could get their hands on at any price.

Or maybe it was just months ago. Amazing how fast the tide can change…

Now, the Company puts out its first quarterly earnings report since its May 18th IPO which were exactly what had been forecast but the headlines are all negative… “only” 955 million monthly active users (there are “only” 7 billion people on the planet!), Revenue growth was “only” up 32% year over year and 12% from the 1st quarter (which was actually slightly better than what had been projected), the 67% growth of monthly mobile users was fine but where was the monetization? Payments were up 61% but that was slower than the 90% in the first quarter, yada, yada, yada.

Learning From Legends

Oh, I get by with a little help from my friends
Mm, I get high with a little help from my friends
Mm, gonna try with a little help from my friends
— The Beatles

President Obama got thrashed by the business community last week when he made the comment that “if you’ve been successful, you didn’t get there by yourself.” (Read Larry Kudlow and Peggy Noonan)

While the tone was probably deaf to the already skeptical capitalist crowd, the words are pretty non-controversial. Describing oneself as “self-made” is both delusional and arrogant.  As tough as one’s background might have been, and as hard as one may have worked, if you made it to this Country, you’ve benefitted from a lot of things including a free market, democracy, the most robust capital markets in the World and rule of law.

Many of us have also been beneficiaries of mentors who have helped “show us the ropes” and been role models.  One of my mentors, Coach Holtz, used to say, “you were who you were by the people you spent time with and books you read.”

A Global World

Silicon Valley is no longer just a physical place but a mindset that has gone viral. Entrepreneurism and innovation are flourishing from Austin to Boston; from Chicago to Sao Paolo; to Mumbai, Shanghai and even Dubai. This is what we call the Global Silicon Valley.

Language, which used to be a barrier to entry, is disappearing as the World/Internet is going English. In the next five years, China will have more English speaking people than America. What we also see — the three emerging languages the next generation will need to know are English, Mandarin and Coding (Codecademy)…some would argue Twitterish too.

The Sound of Music…
Ka-Ching!

Sony bought EMI Music Publishing on Friday for $2.2 billion creating the #1 music label with 31% global market share.

The Big Four Tech Companies — Apple, Google, Amazon and Facebook — all have music madness and social music leader Spotify is rumored to have raised $220 million at a $4 billion valuation. (Disclosure: our GSV X Fund is long Apple, Google, Amazon and Facebook; GSV Capital owns Facebook shares.)

Socially Relevant

“All the forces in the World can’t stop an idea whose time has come.” — Victor Hugo

In what could only be categorized as conspicuous timing, GM Marketing Chief announced to The Wall Street Journal a few days before Facebook‘s IPO that it was pulling $10 million of ads because they didn’t work. Sure, Facebook was good for creating awareness around GM cars and for creating “fans” but that didn’t sell cars. (Disclosure: GSV Capital and GSV X Fund own 351,000 shares of Facebook.) Since GM’s revolutionary cars, like the expensive and non-practical Chevy Volt, weren’t selling themselves, somebody needed to be able to get consumers to BUY and Facebook wasn’t doing the trick.

Far from being alone in its cool embrace of social media, consumer product leader and marketing powerhouse Proctor & Gamble only allocates approximately 10% of its marketing spend on digital advertising. It’s ironic that former P&G CEO Ed Artzt was talking how interactive media was going to be everything in advertising 20 years ago. Unilever and L’Oreal` spend about the same as P&G in relative percentages. Apparently social doesn’t sell soap.

Buckle Up

With New Democracy leader Antonis Samaras winning the Greek election Sunday, a bullet was dodged for now and tragedy was averted.

The obsession by global leaders and financial markets about a Country with a GDP the size of the State of Washington is a bit funny but it is what it is.  

Scott Walker’s victory in Wisconsin was a more significant win in my view but I would put both elections in the bucket of moving in the right direction.

Could the aforementioned elections be the catalyst we need to get the Market out of the funk it’s been in over the past couple months?

Perhaps. Unfortunately, nobody rings a bell to let investors know stocks are ready to go up again.

The Power of Growth

First time you feel it, it might make you sad
Next time you feel it it might make you mad
But you’ll be glad baby when you’ve found
That’s the power makes the world go’round

— Huey Lewis & the News

Reading Barron’s Midyear Roundtable with Market gurus was both confusing and depressing.

There is no shortage of things to be worried about…Greece, China, Spain, the U.S. Deficit, the November Elections, etc. etc. etc., and seemingly nowhere to hide.

A Few Good Men (or Women)

Jessup (Jack Nicholson): You want answers?
Kaffee (Tom Cruise): I think I’m entitled to them.
Jessup: You want answers?
Kaffee: I want the truth!
Jessup: You can’t handle the truth!
(from A Few Good Men)

Spain reported nearly a 10% decline in revenue in April and has a 25% unemployment rate. Greece has looming elections on June 17th, which will determine the fate of its future participation in the European Union. In the United Kingdom, manufacturing plunged and India experienced the slowest growth in five years. Brazil’s growth has stalled and China is tapped out.

Back home in the U.S.A., the Economy has experienced the most tepid recovery since World War II with last week’s paltry job creation of 69,000 for May and first quarter GDP of 1.9%. This marks the third Spring slowdown in a row with rumors of QE III running rampant.

No surprise then, stocks plunged, gold soared, oil dropped and Treasury Bonds climbed to new heights as fear consumed the Market. When investors are more concerned with the return of their money than the return on their money, it’s pretty difficult for growth stocks to perform well. Accordingly, NASDAQ is off 12% since it started its correction on March 26th, and Facebook is off nearly 30% from its IPO price just two weeks ago.  

Faceoff

It was a day to remember.

I arrived at Facebook’s offices Friday in Menlo Park around 6.15 AM to do an interview for CNBC. On a normal day, the parking lot would be basically empty before 10 AM but not Friday…the biggest tech IPO ever brought people from far and wide to watch the spectacle. (Disclosure: GSV Capital owns 350,000 shares of Facebook at an average price of $29.92)

Helicopters were hovering, camera crews were sprawled throughout the campus, and the paparazzi lurked everywhere. The anticipation of what was going to happen to Facebook stock when it began trading became an office pool event…would it price at $40 and trade to $60? $75? $100?

Alas, the most anticipated IPO ever, came out of the gates a dud, pricing at $38 ($104 billion market value), trading to as high as $45 but closing at $38.23—just 0.6% above the offering price.  When it was over, 581 million Facebook shares had traded spinning the entire 441 million share offering 1.3x in its first day with the largest likely new shareholder being Morgan Stanley…the lead underwriter.

Social Issue

We’ll always have Paris.
— Rick (Humphrey Bogart) in Casablanca

Or so we thought… Choosing insanity over austerity, the French people elected François Hollande as its second Socialist President in modern history last Sunday.

Someone forgot to tell the French people that despite the conceptual appeal of reducing the hours you work, increasing your vacation time and lowering your retirement age, somebody actually has to pay for it as the Government doesn’t actually “make” money (although I’m sure they will create it). As one of my German friends told me, Switzerland is a lovely place to be for six months and one day, and the likely talent and corresponding tax drain from France is destined to be staggering.

With Greece taking a hard left in its elections last week and Spain taking over one of its largest banks, the “Social” theme is going viral in Europe. What investors don’t “Like” about this movement starts with philosophy and ends with uncertainty.

Rational Reality

Insanity is doing the same thing over and over again but expecting different results.
- Albert Einstein

Stocks of most flavors had the worst week of 2012 spooked by anemic job data. The headlines which incumbents wanted us to see were that unemployment fell from 8.2% to 8.1%.   

Scratching just a little bit below the surface, the picture becomes much more disturbing and inconvenient for the commencement of Campaign Season. Job growth was a paltry 115,000 for April…45,000 short of what was the forecast.  

This was the good news. The bad news was that civilian employment shrank 342,000 in one month and the labor participation rate fell to 63.6%, the lowest level since the 1981 recession (when far fewer woman worked already). If we had the same labor participation rate we had in June 2009, the unemployment rate would actually be approximately 11%.

Seeing is Believing

Bears continued to be baffled as negative data keeps outweighing positive news (at least in their minds) but stocks want to, obliviously, move higher.

The United Kingdom has fallen back into a “double dip” recession?  Oh well.

Housing starts in the U.S. fell 7% in March. No big deal.

GDP growth for the first quarter was a paltry 2.3%.  Maybe that will keep Bernanke active keeping rates down.

Nearly one in four adults is unemployed in Spain.  Well at least they are great in soccer, tennis, and bicycling.

Individual investors are very negative with only 27.6% counting themselves as “BULLS” and over 80% saying we are still in a recession. Not surprisingly, they pulled $8.6 billion of cash out of equity mutual funds in the first quarter.

You Say You Want A Revolution…

We hosted the Third Annual ASU Education Innovation Summit in Scottsdale this week with sold out attendance of 800 people, 100 leading innovative companies, and notable keynotes from luminaries such as Michael Milken, Governor Jeb Bush, Chris Whittle, Michael Crow, and Reed Hastings.

It’s an important time to hold the Summit. All’s not well on the home front. Unemployment is 8.2% and when you count the “underemployed,” it’s over 17%.  For minorities, it’s much worse.

Of the students that enter 9th grade in America, 30% don’t finish. In large, urban school districts it typically is over 50%. In fact, 2000 of the 15,000 High Schools in America account for over 50% of the dropouts…effectively “dropout factories.”

The likelihood that a high school dropout is unemployed is 2X the normal population.  It’s 8X more likely they will be in prison.

The correlation between levels of education completed and compensation is direct…as is the level of unemployment.

Bond Voyage

What we have been told by the wise market sages is that “over time, stocks outperform bonds.” Looking at the data since 1926, that is unambiguously correct. Over the past 85 years, U.S. Equities have a real return over inflation of 24,673% and U.S. Bonds have a real return of 651%.

This makes some sense for anybody with a vague familiarity of risk and return—the “riskier” the asset category, the greater the return that would be required to reach investors’ equilibrium. Broadening the asset classes to venture capital, private equity, small cap stocks, and real estate, and the historical returns correspond with risk measured mostly by volatility.

Contrary to the above history lesson, looking at a more modern analysis of asset category returns and we see that it reveals how U.S. Bonds have smoked U.S. Stocks in the past 30 years, 10 years, 5 years, and 1 year.

Innovate or Imitate?

I was lucky to have stumbled upon Starbucks in its early days.  It was the fourth meeting I had on a rainy Thursday in Seattle and I almost blew it off to go straight to airport and fly home.   

The concept of a national chain of coffee bars sounded ridiculous to me and I didn’t even know what a Latte was. I figured I’d make it quick just so I could say that I had at least stopped to see what all the buzz was about.

Upon walking into Starbucks’ offices, you could tell something special was going on. The energy in the air was electric. After I met then 36-year-old CEO Howard Schultz, I became a believer and a MEGA Starbucks BULL.  

The Muppet Movie

The Dogs seemed to like the Dog Food with Apple fanatics—a.k.a., everybody—lined up for the latest iPad. While critics seemed to be mixed on how big a hit the “New iPad” would be, customers were unambiguous.

Responding in kind, Apple’s shares surged 7% for the week and are up 45% YTD. Since the first iPad was introduced in January 2010, Apple shares have appreciated 182%. Since the iPhone was announced in January 2007, Apple is up 519%. And from when the iPod came on the scene in October 2001, AAPL shares have appreciated 6,356%.

Reflecting how insanely cheap AAPL shares are and how strong the numbers have been, Apple still only sells at roughly 12.1x earnings forecast. Given that’s below the forward P/E multiple for the S&P 500, we think Apple shares are still remarkably inexpensive. Add the $100 billion or so in cash the Company has in a checking account and we are hard pressed to think of a better stock to own.

March Madness

This weekend, “Selection Sunday” will be the start of the NCAA Basketball Tourney where ordinary citizens lose their senses and go crazy rooting for whichever teams they’ve selected in their $10 dollar office pool. Coined “March Madness” in 1939 by an Illinois writer, it was broadcaster Brent Musburger who made in popular during the 1982 tournament.

While the sour pusses point to the estimated $200 million of lost productivity from employees during the Tournament from watching the games instead of working, spending time bantering online, missing work due to hangovers and depression, most human capitalist think the Tournament is positive for Companies as it boost morale and improves camaraderie.

For sure, people are engaged. In Las Vegas, about $100 million is wagered annually on the Tournament, but this is nothing compared to an estimated $3 billion illegally tossed into office pools and the $10 billion bet.