Distilling Venture Capital

Introduction

• Welcome to Distilling Venture Capital. I am your host, Bill Griesinger
• Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world. My mission is to cut through and go beyond the hype that tends to dominate the tech landscape. And provide you with information you can use.

Episode Introduction:

• Welcome back everyone. Well, today I have the pleasure of welcoming back to the program JP Baric, CEO and Founder at Aurum Capital Ventures, which is engaged in the crypto-mining business. JP thank you for coming back to join me on the show.
• So, the last time we did a program was in mid-May, about 5 months ago, and I introduced Aurum Capital Ventures then as a technology/energy company directly involved in multiple aspects of the crypto-mining industry – and we delved into the many interesting aspects of your business model. I have received a lot of positive feedback to that show – so glad you're here to do this again…
• Crypto-currency Mining involves sourcing and utilizing the most advanced equipment, for sure, which you guys provide, but also one of the key components that has a huge impact on the cost and viability of crypto-mining itself – is the cost and amount of energy consumed – and, therefore, the energy component and its costs have a huge impact on the industry and its success
• Aurum has developed a truly innovative vision and approach to this aspect (Energy) of the business. And I wanted to provide a platform here today for you to explore in-depth how you think about and approach the idea of generating, producing and sourcing energy at the core of
• Please introduce and present this in the way you think would be most helpful and useful for our listeners to appreciate the impact of this vision

Energy Utilization & Economics of Crypto-Mining:

• JP provides a deep-dive into the interrelated metrics and dynamics of Energy and Crypto-mining. Here is what you will learn:
• • Terahash Rate – core measure of energy usage in crypto-mining
  • Can predict and model the Terahash rate for mining equipment. USD per terahash – how much we make on a USD basis - the speed of how fast a mining machine runs.
  • Price per terahash dropped to 7.5 cents – when BTC crashed (March). Was 13 cents per terahash. Today, sitting at 8 cents per terahash with BTC at roughly $12,000 today.
  • Amount of new machines on the network has grown – at 8 cents per TH – betting that price of BTC will continue to rise…
  • Miners all over the world are thus, searching for most cost-effective energy costs. Cost/Mwh Rates in crypto-mining
  • Old machines vs. New machines and economics
  • Revisit the halving event from May 12, 2020 – when reward for mining was, by design, the reward went from 12.5 BTC to 6.25 BTC – Impact?
  • Inflation Rate of BTC (1.8% infl. Rate) compared to USD inflation…digital currency has a lower effective inflation rate than the fiat currency!
  • BTC price may be volatile but depends on what you compare it to
  • New equip. is coming online line as fast as the manufactures can produce them. Most are made in Taiwan and China
  • Coming into facilities that have power in the 4cent to 5 cent range
  • Mining Machines: The S-9s are the older; Newer are the Ant Miner S19 Pros are 30 Juuls per terahash.

Square Announces Purchase of $50MM BTC for its Balance Sheet

• Here's a perhaps diversion from our main topic related to mining & energy, but it's related to Bitcoin and the larger ecosystem. So, here's some industry news I wanted to get your opinion on re Square – We all know them as the POS payment company.
• not only does Square have the retail app and footprint now, but they've also got a lot of very granular, small business merchant data.
• They've turned that into Square Capital and the small business lending business. And the data on the consumer side, the spending side, the merchant acquiring side, and visibility into SMB finances to drive the business forward, creates a pretty tight loop, closed ecosystem.
• Square just recently announced – put out a press release actually – that they had purchased around $50MM of Bitcoin…Now other major financial services companies have bought substantial sums of BTC too, but didn't necessarily announce it by press release – What's going on here in your view?

This from another podcast I listen to called ReBank. Their comments regarding Square purchase of BTC

• Will Beeson (ReBank): "It's like investing in treasury assets, and you use them to run your business. It's about 1% of Square's assets. And I think the bigger question is, is this Square, or is this a representation of broader investment theory? Like is Bitcoin now something of an asset class that institutional investors and traditional institutional investors are taking more seriously and are viewing either as an inflation hedge or an option on potential future upside."
• Lex Sokolin (ReBank/Consensys): "All you have to do is look at venture investments and Andreessen Horowitz with hundreds of millions of dollars in dedicated crypto funds and that being true for the long tail of Silicon Valley players as well. And so when people who want to be like Square and want to have that same outcome, or like Twitter or venture funds that want to be like Andreessen, which is by the way, 100% of anyone who is an entrepreneurship, when they see these actions being taken, they're both symbolic, but they're also inspirational."
• Then, if that weren't innovative enough, Aurum Capital Ventures is also focused on leading efforts to bring much needed liquidity and financing to the mining and cryptocurrency markets themselves…Can you elaborate on why this is important and what you are doing to facilitate attracting mainstream forms of capital to the industry?

Other Learnings from Today's Episode:

• Define Cryptocurrency-Mining & How it Works
• The Future of Crypto-Mining
• Crypto-Currency and Crypto-Mining are Fully Transparent Markets, by Design
• The Search for the Best Equipment and Cheapest Source of Energy
• How Aurum Capital Ventures is Changing the Game and Mindset Regarding Crypto-Mining and the Production of Energy
• Aurum is Both a Buyer and Seller of Energy
• Aurum is Redefining How Energy is Consumed and Transmitted
• Aurum is Creating Unique Investment Vehicles to bring needed liquidity – both debt and equity capital – to the Crypto-Mining and Crypto-Currency
• How Crypto-Miners are Rewarded
• What is a Halving Event and What does it Mean for Cryptocurrency Mining?
• And Much More…

Business Model Characteristics

• Your Bus. Model has Multiple Revenue Sources:

1. Turnkey Mining Equip Deployments & hosting services;

• Speed & Efficiency through repeatable process of Power procurement, infrastructure deployment, and remote management

1. Running your own Mining servers
2. Managed Services
3. Selling used equipment to established network

Competitive Advantages

• Modular, mobile equipment deployment – more efficient
• Rapid Payback/Utilization of "Stranded Energy" - Aurum's mobile mining deployments profitably monetize any type of stranded energy anywhere in the world
• Situation where the value of the underlying collateral (mining equipment) can increase in value during life of the equip. and related financing, due to a halving event of Bitcoin
• Allows you to build inventory of equipment for deployment now, in advance of halving event that you know occurs approx. every four years
• JP Baric explains Aurum's business model advantages relative to competitors such as Genesis Mining

Closing RemarksContact Information for Aurum Capital Ventures

• Those seeking additional information and wishing to learn more about Aurum Capital Ventures:
• • JP's Twitter Account – @JPBaric
  • Email: [email protected]
  • Sign up for Investor Newsletter at: Aurumcapitalventures.com
  • Launching new podcast called "Digital Gold"

Thank you for joining me for this edition of DVC. I hope you found our discussion today with JP Baric and Aurum Capital Ventures interesting and useful.

Stay tuned for my next Episode, where I will have a very special guest of a high-profile company getting lots of buzz, that just went public via a SPAC in just the last few weeks. Think electric truck technology – like big, 18-wheeler truck – industry. That's all I'm giving you for now. Stay tuned… Thank you again and I look forward to joining you for my next Episode of Distilling VC.

Introduction

• Welcome to Distilling Venture Capital. I am your host, Bill Griesinger
• Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world. My mission is to cut through and go beyond the hype that tends to dominate the tech and VC landscape. And provide you with information you can use.

Episode Introduction:

• Welcome back everyone. Today's Episode is another in my Focus-on-Fintech Series where I bring you a close-up look into the companies in the Fintech Sector and the innovations they are bringing to financial services markets;
• And, based on the intro theme music for today's Episode, (Aquarela do Brasil by Gal Costa) you may have guessed we are headed again to the land of Samba, Carnaval, Futebol and now, FINTECH - Brasil. We'll revisit why Brasil has become one of the hottest Fintech markets globally, attracting massive investor and consumer interest.
• Today I highlight one of the fastest growing Fintech companies in Brasil, São Paulo-based REBEL, a leading consumer lending fintech I've been following for around a year or so now…(That's REBEL.com.br)

The REBEL Story

• To help me do all of that, I am super-excited and pleased to be joined today by André Bastos, a Co-Founder of REBEL and currently its COO, among other things;
• André, thank you very much for joining me today.
• There are a lot of interesting and important characteristics of the REBEL bus. model I want to get into today but;
• To start things off, please give us some background, history on the formation of the company and what REBEL offers; when and how you got started, and the motivations behind the creation the company. What was the impetus, motivation?

The REBEL Business Model & Business Model Characteristics

• REBEL services offering; Starting with a true Lending offering as opposed to credit card or payment services like many other fintech models
• Importance of developing your proprietary Credit Scoring Technology; as a competitive advantage
• Talk about how REBEL drives client engagement and loyalty; REBEL is taking a unique, dedicated approach when it comes to cust. Engagement – right? With a hands-on, Human touch;
• What is the role and strategy of the Financial Wellness offering?
• Is there a consumer finance education component to this initiative? Why is that important?
• Discuss how blockchain and Machine Learning plays a critical role in REBEL's offering and strategy…How do you utilize the capabilities of blockchain technology?
• Will REBEL consider secured lending in the future?
• Will you expand to other geographies in LatAm, elsewhere, in the future?
• Licensing opportunity for the credit score tech. in other geographies?
• Is there any unique or special story around the company name REBEL and your branding strategies?

Other Brasil Fintech Companies that Have Raised Capital Recently:

• NuBank has raised over $800MM, starting with just a credit card offering, now valued at over $10B;
• Neon Pagamentos just raised a $300MM Series C round earlier this month and has raised over $420MM;
• Klarna raised $650MM at a $10.6B valuation, double its prior; Offers a buy-now-pay-later in 4 installments bus. model – Mach. Learning approach

Growth Prospects for REBEL?

• REBEL has had impressive growth:
• • Loan Originations nearly tripled 2H 2019 vs 1H 2019
  • How did 1H 2020 track?
  • What's growth expectation for 2020?
  • When do you predict reaching breakeven and CF positive results?

• What is your addressable market? $100B USD for unsecured consumer loans – huge!

Brasil Credit Markets – Historical Perspective

• I wanted to discuss credit markets in Brasil historically and why the current environment is so much more Fintech-friendly than in the past – as regulators have become somewhat accommodative embracing digital solutions and competition in financial services.
• Provide a short historical perspective of the role of credit and equity in Brasil…Brasil has not historically had "deep" credit markets – and very expensived; Condition of historically high interest rates…
• If you weren't a large corporation with access to the public stock market, you really couldn't raise capital or get credit/debt – you had to grow your business with cash – which means limiting and constraining your growth.
• Banco Central – Central Bank created a new class of financial services company in mid-2018 (sociedade de crédito direto – SCD OR Society of Direct Credit). What does it mean for consumers, businesses and new digital offerings?
• CVM – Comissão de Valores Mobiliários; Brazilian equivalent of the SEC
• Then, in May 2020, The Brazilian Central Bank and the National Monetary Council set out open banking regulations. The data-sharing framework aims to foster financial inclusion, drive competition in financial services and increase security.
• Finally, O Banco Central is launching its own digital payment platform - PIX
• Regulatory Initiative Supported by Central Bank: "The premise is that the personal data held by banks and other financial institutions do not belong to them, but to the respective holders, customers," according to Marcelo Chiavassa, professor of digital law at Universidade Presbiteriana Mackenzie Campinas
• Financial institutions must begin adhering to new rules stipulating that data belongs to individuals, says Maristela Martins, country manager for Brazil at Backbase.
• How important are these regulations for Brasil credit and financial services markets, in your view?

Plans for Capital to Grow – discuss only what you care to disclose here;

• Capital you've raised in the past and who your investor partners are;
• REBEL just raised a substantial securitization facility end of 2019 representing a validation of your business model, technology and customer engagement;
• Importance of access to other liquidity facilities to grow loan portfolio with favorable cost of capital and generate profitability;
• Importance of Diversity of capital sources;
• Capital needs to grow and scale the business;
• Are there any plans to take your business model and credit tech to markets outside of Brasil?

Closing Remarks:

• André, thank you very much for joining me today… I would love to do a follow up sometime as you make progress, to get an update on how things are going.

Contact Information - REBEL

• André, how can those seeking additional information and wishing to learn more about REBEL contact you or the firm?
• Website: www.rebel.com.br

Thank you for joining me for this edition of DVC. I hope you found today's discussion with André Bastos and REBEL interesting and it gave you some things to think about regarding rapidly advancing growth and trends of Fintech services in Brasil.

Thank you again and I look forward to joining you for my next Episode of Distilling VC.

Show Introduction –

• Welcome to Distilling Venture Capital. I am your host, Bill Griesinger
• Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world, including Fintech. My mission is to cut through and go beyond the hype that tends to dominate the tech and VC landscape. And provide you with information you can use.

Episode Introduction:

• Today's Episode is another in my Focus-on-Fintech Series where I provide you with a close-up look into the top companies in the Fintech sector that are bringing new innovations to the financial services market
• In today's Episode, I delve into and distill down new Fintech Company, Alviere, just launched earlier this month.
• Alviere has created and launched a plug-and-play, single-integration SW platform that streamlines and automates delivery of a broad array of financial products and services.
• It is headquartered in Cleveland, OH and Lisbon, Portugal – we'll get into that aspect of the business a bit more, as well.
• To help me do that, I am pleased to be joined today by Yuval Brisker who is the Co-Founder and CEO of Alviere. Yuval, thank you very much for taking the time to join me today.

Today, You Will Learn the Following About Alviere:

• Background behind company's genesis, development and launch;
• The many "learnings" from Mezu payment app. operations; highlight experience and pains of taking a payments fintech to market and how it laide the groundwork for Alviere;
• Yuval's extensive experience/background as a pioneer in the development of B2B SaaS platform tech companies – your first having been acquire by Oracle
• Story behind the Alviere name…?

• Business Model Features & Characteristics
• • Yuval provides details on the HIVE solution and its components;
  • Selected use-case applications, as noted in Press Release info and other stories – examples of business users;
  • Importance of Alviere Financial Institution Partners and related network in delivering the offering;
  • Fact that this product is fully developed, tested and ready for market, as scale;
  • Discuss Revenue Model - Services, subscription-based revenue model
  • Addressable Market – Your ready for US and Canada; Mexico by end of 2020; Other international expansion?
  • Go-to-Market Strategies…
  • Goal is to be the Amazon Web Services offering of the Financial Services sector

• We also highlight Yuval's background as a pioneer in the development of B2B SaaS tech companies; Acquisition of TOA by Oracle (2014), Mezu payment app., now Alivere;
• Plans for Capital to Grow – Yuval discusses his thoughts on capital needs to grow the business;
• Yuval is no stranger to raising capital from Venture and other investors. Yuval discusses some of the key objectives in that regard with respect to Alviere?
• Roll-out Plan for International Expansion

Competitive Advantages

• Description of the competitive landscape, relative cost/pricing structure and how Alviere leverages its expertise to bring a compelling value proposition to clients
• Other competitive advantages, differentiation – Beyond traditional Banking-as-a-Service offerings;

Closing Remarks:Yuval, thank you very much for joining me today

Contact Information, Alviere

• Yuval, how can those seeking additional information and wishing to learn more about Alviere contact you or the firm?
• Website: www.alviere.com
• Email: [email protected]
• Alviere on Linkedin

Thank you for joining me for this edition of DVC. I hope you found today's discussion with Yuval Brisker and Alviere interesting and it gave you some things to think about regarding rapidly advancing trends in Fintech services.

I look forward to joining on my next episode of Distilling Venture Capital

Introduction

• Welcome to Distilling Venture Capital. I am your host, Bill Griesinger
• Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world. My mission is to cut through and go beyond the hype that tends to dominate the tech landscape. And provide you with information you can use

Opening Observations:

• Hello everyone, and welcome back. I promised you in the prior Episode that I would devote this Episode to distilling down one of the most famous poster-kids for Unicorns-aren't-real; WeWork
• Today, I am going to provide you the insights and analysis that the technology and financial press, investors and others have failed to deliver to you over the last few years regarding this tarnished unicorn.
• To set the stage though, let's do a quick timeline review of WeWork leading up to and then after its failed IPO of Sept. of 2019:
• • WeWork valued itself at a cool $47B by early 2019 and, that in fact would be its valuation leading up to its announced IPO
  • WeWork filed its S-1 and IPO paperwork in mid-Aug. 2019
  • After more than a few I-Banks and others scrutinized its financial condition and bus. model and "questioned" the proposed go-public valuation the Co. made some, shall we say, "adjustments" to its valuation
  • After some consideration, WeWork suggested it would now go public at, uh, $10B-$16B
  • Bam! A greater than 65% vaporization of its valuation in a matter days - amazing
  • Cancelled its IPO in Sept. 2019 when support waned
  • By Oct. 2019, Adam Nuemann asked to step down after discovering a few "corporate governance" problems. He received a total $1.7B golden parachute to go away.
  • Bloomberg opinion writer, Matt Levine, put it this way in a late Oct. 2019 piece, writing tongue-in-cheek suggested how the news was communicated to employees at the time: It was explained, "We had to give him a billion dollars to go away because we couldn't afford to have him stick around," So, his value to the Company was negative a billion dollars.
  • Levine continues, in other words, "We can't pay you for your good work because it was more urgent to pay your boss a billion dollars to stop doing his bad work." Sounds about right.
  • By Oct. 2019, life support was needed. The Co. accepted (as if it had a choice) a Softbank rescue pkg. where SB took control of the Co., valuing it at $8B (about $19/share, which, as it turns out, was still too high)
  • More recently (April 2020), SoftBank pulled the plug on and backed out of a planned tender offer of an addl $3B to bail out, er, I mean plan to shore up, WeWorks shareholders.
  • To a lawsuit; Following the termination of that agreement, WeWork Board voted to sue the only thing that was keeping it alive…SoftBank's money. Great strategy
  • Then came the question; Who should lead the Co. post-A. Nuemann?
  • After being led by such an irreplaceable visionary as Adam Nuemann (according to the S-1), surely a similarly disruptive, forward thinking genius would be required. Or, you could hire this guy: in Feb. 2020 WeWork announced it had named Sandeep Mathrani, a senior executive with RE Company Brookfield Properties, as its new CEO.
  • Wait, what? An experienced RE executive from one of the top companies in the field?

A sordid mess, I know…but this is what passes for reality now when you are dealing in the land of unicorns, right? Things get a little distorted

Let's get back to reality and restore some meaning to this mess:

• I told you my main objective is to cut through the hype that tends to dominate…
• With a bit of cursory, basic diligence, I'll point out and highlight a few of the basic risks of the WeWork bus. model. Something one would have expected from the analysts, I-Banks, INVESTORS, lenders and, oh yeah, the tech and financial press, to have done – but they didn't.
• It's not really that complicated to determine what WeWork is and understand its key business model characteristics.
• The First thing to point out is this; WeWork is not a tech company! News Flash. I know this may come as a rude surprise to many...and despite the narrative and musings of a truly voluminous S-1 to the contrary (> 350 pages), the WeWork vision and version of the co-working ofc. space business is not transforming our consciousness and vision on how we all work…
• What Adam Neumann and WeWork wanted you to believe, however, was that he and his firm were transforming the very way we all work and we're "building community" fostering some new form of "collaboration," and so on
• In other words, if you accept WeWork's view of the world, it's basically like saying your bus. model is the equivalent of "boiling the ocean." Doable? How does that sound as an investment opportunity?
• In the real world, renters of commercial ofc. space desire functionality, convenience and flexibility at a reasonable price – All before this nebulous creating community nonsense. It's common sense and bottom line thinking in which any business must engage. Again, not a new phenomenon or metric of the commercial ofc. space market, correct?

The WeWork Business Model in About Two and a Half Minutes:

• What is the WeWork business model at its core? How does the company actually derive/earn revenue? Let's examine the fundamentals.
• In short, WeWork creates a marketplace for commercial property that seeks to match the supply of commercial office space (from landlords, comm. Bldg. owners, prop. mgt. companies) with space users (those renting) in one place. You know, like Regus, w/o the "cool factor" and Kambuca on tap – and, oh yeah, billions from SoftBank
• So, WeWork signs long term leases on properties and also purchased some properties outright, sometimes just a floor or two in an office building—and transformed it into smaller offices and workstations with common areas, other amenities and offered a basket of shared services.
• Avg. initial lease term is 15 years, according to the S-1 Filing.
• It then rents offices and desks to individuals or groups on relatively short-term agreements, who want the benefits of a fully stocked office with some functional common areas, but without the expense of operating a full office. Sounds reasonable.
• • WeWork calls it clients "Members" and sells Memberships
  • Memberships can be On-Demand; provide access to shared workstations or private spaces as needed, by the minute, by the hour or by the day. "Space-as-a-Service platform.
  • Enterprise Memberships are signed with organizations with 500 or more employees – As of June 2019, WeWork's Enterprise Memberships accounted for 40% of all Memberships
  • Capital expenditures relates to creating Workstation Capacity + other improvements

• WeWork also has utilized the services of a few major third-party Com. RE management firms like JLL and CBRE to facilitate leasing of the space it owns or leases itself.

Risk Assessment:

• So, let's step back for a moment and summarize: WeWork incurs rent liabilities and payment liabilities for its properties that are fixed pmts. and long term. Its revenue, on the other hand, is generated from the short-term contracts it signs with clients, many month-to-month.
• Let's stop here and identify one of the major risks that becomes very obvious in the WeWork business model, has always existed, and is potentially huge? The possibility for a significant C.F. timing mismatch between the long term, fixed payment liabilities WeWork carries on its balance sheet vs the short-term agreements with clients that represent its primary source of revenue and cash flow. (to pay those property liabilities and cover bus. expenses)
• More specifically, the risk I have identified is renewal risk and/or non-payment risk. I don't know the avg. term that clients have signed up for; i.e. renting monthly, for 6 months or a year (to obtain the flexibility they desire)?
• SO, renewal rates are directly dependent upon a firm's ability to provid great service, Completely independent of the mission of "transforming the way we all work, collaborate, etc.
• Presents the classic CF squeeze that can occur if things do not go as planned
• The rent or loan payments are due every month, fixed, for many years. (Avg. 15 years)

• My diligence questions upon reviewing this business risk would include the following:
• • What is the avg term of your rental agreements? i.e. – how long are clients signing up for space on avg? (allows one to see a schedule of lease renewal dates)
  • What is the historical renewal rate experience? (After all, WeWork has been operating under this model since 2014 – it's not new – should be readily available data)
  • Alternatively, What's the churn or non-renewal rate?
  • This analysis, with the historical experience, provides one with a semblance of margins generated and whether there is EVER a path to profitability – and ability to service the lease/debt payment obligations.

• So, that is the WeWork business model in a nutshell – Providing flexible ofc space with some common area, amenities and services...
• How should such a company be valued? Well, like most any company – by the cash flows that it generates from operations…right?

• A basic "smell test," that should have been a reality check, a wake-up call evident to anyone analyzing WeWork was presented by Professor Ilya Strebulav's (Stanford valuation model creator and author) from his June 2016 presentation to the SVOD.
• • Again, please refer to the Show Notes for a link to the video. I highly recommended you watch it.

• Link to Video:

Presentation at SVOD (Sil. Valley Open Doors Conf.), June 19, 2016 by Ilya Strebulav, author of the Study and Professor, Stanford Univ. Grad. School of Business: https://youtu.be/k4OtGWZ3iYI

• Link to Stanford University Study:

Squaring Venture Capital Valuations with Reality - Downloadable pdf found here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455

(Social Science Research Network – SSRN)

• Here is what Professor Strebulav points out in his presentation regarding WeWork:
• • On March 1, (2016) WeWork closed a $430MM round of capital at a post-money valuation of $16B. That is the valuation that the WSJ and others printed and reported the next day as the "value" of the Company
  • He notes that, At this valuation, WeWork would have represented the 3rd most valuable publicly traded ofc landlord (if it were publicly traded). Even though it controlled only small fraction of the sq. footage compared to the leading companies in the sector.
  • Remember, by the time WeWork filed for its IPO, it represented that it was nearly triple that ($47B)
  • Such a valuation makes no financial or intuitive sense…based on what we know of the business model, as practiced by its "peers" in the sector (Regus) – And, set against the sq. footage it operated.

• This valuation it obviously what investors and some I-banks thought they could get leading up to Sept. 2019 when WeWork was indicating a $47B valuation go-public offering.
• A reading of WeWork's S-1 filing, if you could stomach it, is mostly an exercise in fantasy-land thinking.

• What are some of those "other" public firms that WeWork's valuation mirrored or exceeded at the time of its S1?
• • Brookfield Asset Management - CAN (> 152M retail s.f.; 300M s.f. ofc, hotel, apt.; Mtk Cap - $51B; highly profitable)
  • As of June 1, 2019, WeWork's location pipeline included approximately 40 million "usable" square feet, which it estimates could accommodate approximately 724,000 workstations. Again, this is "Pipeline" of "Useable" s.f. not actual rented and under management square footage.

How VCs Make Final Investment Decisions:

• Ask any associate or partner at a VC firm to divulge one of the key criteria they evaluate before making a decision to invest in a tech company – The answer you will receive most often, if not unanimously, is; Quality of the Management Team. Can this team move this co. forward to success?
• I know this b/c I've been asking VCs this question as part of my investor diligence for more than 15 yrs – it's required understanding before our venture debt group would approve making a loan to the companies we considered…VCs bet on management teams in the end…
• It seems this key tenet of the VC decision process was thrown to the wind in the case of WeWork…and many other unicorns.
• Perhaps it was the lure of all the SoftBank dollars pouring in through a firehose? Either way, the process was tainted and distorted.

• Thus, we cannot lose sight of the unmistakable role of SoftBank in fueling this craziness – and the related poor VC decision making – in light of the bankrolling on steroids in which SB engaged – driving up the "on-paper-only" valuations of the companies in its portfolio.
• While examining SoftBank's Vision Fund activities is worthy of an episode of its own… one can certainly read all the commentary and articles on your own…

Failure of the Tech Media:

• Yet, in May of 2019 only a few months before WeWork pulled its IPO, here was PitchBook, with another fawning piece expressing total amazement at the killer valuation growth of some of the most bad-ass unicorns, including WeWork. They were so giddy they could hardly contain themselves..
• In another Weekend Pitch edition, "When your valuation is growing by nearly $1 billion a month, you must be doing something right." [They were referring to DoorDash]
• "It calls to mind a stretch experienced a few years ago by WeWork. Today, WeWork is reportedly worth $47 billion, making it the most valuable VC-backed company in the US."

Amazing, isn't it? Again, no supporting analysis, no bus. model assessment, no risk assessment – just sheer amazement at valuation growth based upon a faulty measure of Value – the post-money valuation!

• And from my last Episode, this is worth repeating - PitchBook Weekend Pitch from Nov. 3, 2019:

"For a long while in and around Silicon Valley, unprofitability was what every startup hoped to achieve. And if losing hundreds of millions of VC dollars was cool, then Adam Neumann was Miles Davis."

• Really? Are you kidding me? This is post-IPO cancellation, post Andy Neumann is toast and post-SoftBank rescue package!
• This is your expert analysis that PitchBook is charging for?
• PitchBook continues, "But these days, in the wake of WeWork's sudden fall from grace, investors are feeling differently. All those years of red ink are finally adding up."

• Again, the only redeeming thing I could take from such a ridiculous statement is that the writer even knows who Miles Davis is. But then I realize, the whole thing is an insult to Miles Davis and our intelligence. Miles Davis was a musical/jazz genius, a master artist. Adam Neumann was a fraud. And the VCs in the WeWork deal should have known this through their diligence.

• Hey, I've got another survey question or two for the VC community that I would ask; 1) is losing 100's of millions of VC dollars a cool thing? 2) Do you agree that every startup hopes to achieve this "unprofitability" status?
• That's what PitchBook suggests…as recently at Q4 2019

• e.g. - CB Insights CEO, Anand Sanwal, opined in an August 2019 piece that it (unicorn status) is often used as a scheme to attract top talent in a very tight hiring market for key tech talent…
• Of course, Sanwal also said this in a June 25, 2019 presentation he gave to partners, investors, supporters: "Blockchain is a buzzword looking for a problem…" Another example of the disconnect…

My Takeaways/Conclusions:

• What can we deduce and learn from all of this?
• This is a bubble in private co. tech stocks – it's an artificial inflation of valuations due primarily to a non-standard, faulty method of applying valuations – the Post Money valuation -
• Bubbles can only be created and progress toward a bursting point if they are embellished and fueled by those perpetuating the non-market, non-fundamentals approach to value. There is no more disconnected phenomenon today in private tech than the post-money valuation.
• Enter SoftBank Vision Fund: They provided the fuel necessary
• Disappointments to share value after tech unicorns go public will be the norm, not the exception.
• Luckily for investors in public companies – we don't have to suffer through trail of tears on WeWork – they didn't make it that far and with good reason…as outlined in this Episdoe.
• Not so lucky, however, for WeWork employees with worthless stock options…

• My Recommendation/proposal: All private tech company valuations should be run through the Stanford Univ. Valuation Model prior to any kind of exit – I believe it should be made an integral part of the S-1 filing process. Or any time the value of a private tech company needs to be certified for audit or other purposes. These companies owe it to their employees who are provided, in many cases, with near worthless Common stock or options for common.

Thank you for joining me for this edition of DVC. I hope you found the topic interesting and useful. I am currently working on the DVC website. In the meantime, Please send questions and your comments regarding today's episode to: [email protected]

Again, check the links in the Show Notes for the Stanford Valuation Model Study and the video of Prof. Strebulav's 2016 presentation to SVOD…

Stanford University Study - Summary of the Findings – From Study Abstract:

• Developed a valuation model for venture capital-backed companies and applied it to 135 US unicorns - private tech companies with reported valuations above $1 billion.
• Valued unicorns using financial terms from legal filings, finding that reported unicorn post--money valuations average 48% above fair value, with 14 being more than 100% above.
• Every Company reviewed and valued, (100% of the Sample) was overvalued to some degree – that means not one company came in at the post-money valuation utilized by the VC industry
• Values were calculated for each share class, which yields lower valuations because most unicorns gave recent investors major protections such as initial public offering (IPO) return guarantees (15%), vetoes over down-IPOs (24%), or seniority to all other investors (30%).
• According to the authors, "Overvaluation arises b/c the reported valuations assume all of a company's shares have the same price as the most recently issued shares." Even though each new round of funding effectively sucks the value out of prior rounds through seniority and superior rights, among other preferences.

Introduction

• Welcome to Distilling Venture Capital. I am your host, Bill Griesinger
• Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world. My mission is to cut through and go beyond the hype that tends to dominate the tech landscape. And provide you with information you can use

Opening Observations:

• In Today's Episode I return to what I have termed Unicorn-mania, building on the subject of my first episode in March. So, it will be a Unicorn-mania Redux.
• I'm returning to this topic b/c, well, we need to revisit it primarily b/c things seem to be sliding further toward the insane, literally with each passing week.
• And, I will talk about the continuation of this insanity in the context of some real-life examples: The true poster-kids for "Unicorns are not real"… Specifically, I'll provide insights into WeWork and Uber, and the unmistakable role played by Softbank's Vision Fund in helping to fuel the craziness.
• And, let me say from the outset, how disappointing it is to see the technology press and the data analytics firms like CB Insights and Pitchbook (a Morningstar Co.), continue to engage in this ridiculous charade. I am going to get into some examples of that in a moment. Suffice it to say, that if you have a subscription to one of these firms, my analysis may leave you questioning what value are getting for the money…
• To begin, let's quickly review what I covered and highlight a few take-aways from Episode 1 of Unicorn-mania;
• • I outlined and highlighted the hype that characterizes VC and techland today with respect to overvalued, so-called Unicorns – companies alleged to be worth $1B+
  • I also highlighted the Stanford Univ. Study, Squaring Venture Capital Valuations with Reality, that reveals and proves that so-called Unicorn tech companies are substantially overvalued – and offers a valuation model that really works in valuing theses companies
  • The Study dissects and debunks the use of post-money valuation as nothing short of an illegitimate method for valuing any company, let alone VC-backed private tech companies.

Before I go further into the topic, I am going to strongly encourage you to please refer to the Show Notes for this Episode to access links to the following:

• Link to Stanford University Study:

Squaring Venture Capital Valuations with Reality - Downloadable pdf found here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455

(Social Science Research Network – SSRN)

• Link to Video:

Presentation at SVOD (Sil. Valley Open Doors Conf.), June 2016 by Ilya Strebulav, author of the Study and Professor, Stanford Univ. Grad. School of Business: https://youtu.be/k4OtGWZ3iYI

• Original Version of the Study was submitted and published April 19, 2017; However, the findings were presented about a year earlier in June 2016 at SVOD Conf. (Silicon Valley Open Doors) Where Prof. Strebulav was the Keynote Speaker (I encourage you to got to the link and watch it. It's

Summary of the Findings – From the Study Abstract:

• We develop a valuation model for venture capital--backed companies and apply it to 135 US unicorns, that is, private tech companies with reported valuations above $1 billion.
• We value unicorns using financial terms from legal filings and find that reported unicorn post--money valuations average 48% above fair value, with 14 being more than 100% above.
• Every Company reviewed and valued, (100% of the Sample) was overvalued to some degree – that means not one company came in at the post-money valuation utilized by the VC industry
• Values were calculated for each share class, which yields lower valuations because most unicorns gave recent investors major protections such as initial public offering (IPO) return guarantees (15%), vetoes over down-IPOs (24%), or seniority to all other investors (30%).
• According to the authors, "Overvaluation arises b/c the reported valuations assume all of a company's shares have the same price as the most recently issued shares." Even though each new round of funding effectively sucks the value out of prior rounds through seniority and superior rights, among other preferences.
• Common shares lack all such protections and are 56% overvalued. After adjusting for these valuation-inflating terms of the Preferred rounds, at the time of the Study, almost one-half (65 out of 135) of unicorns lose their unicorn status.

• Stanford Study Pre-work: In 2016, prior to publishing the Stanford Univ. Study, Strebulav and his team of researchers surveyed, as part of their work, more than 1,000 VCs regarding valuations. It was the first survey of its kind: Result; 92% of respondents of the VCs surveyed agreed unicorns are over-valued; A whopping 75% believe unicorns are significantly over-valued
• AND, as I noted in Episode I, did you ever notice that the PE industry doesn't have an equivalent designation (Unicorns) for its $1B+ value companies, even those that are in the tech category?
• Why this study's findings are not a wake-up call to the industry is currently a mystery to me.

Who Cares?

• To demonstrate that my concerns and the opinions I've expressed, that Unicorn-mania is a total distraction, a waste of time, as I stated in Episode I, are not just some overly-dramatic soap-box issue I am on…
• Turns out, I am in some pretty impressive company, actually – with respect to my criticisms of the mania. Let's take a look:
• All of the examples are from the 4th Quarter of 2015, when some rather prominent and accomplished investors and tech company leaders had begun calling BS on Unicorn valuations, even before the real Mania commenced in earnest over the last several years:
• • Marc Benioff, Chmn and CEO of Salesforce, Dec. 2015 on Bloomberg TV stated, "The unicorn mania that's going on, that's dangerous for our Silicon Valley economy," "this is just, you know, unheard of... It's become a self-esteem issue for these entrepreneurs." Benioff states to the SF Bus. Times, also Dec. 2015: "I'm not buying the unicorn theory…" There's no reason [for] these companies who claim to be worth billions of dollars and making billions of dollars to stay in the private markets."
  • Benioff asserted that some billion-dollar valuations are the result of "manipulation" of private tech markets and again called on founders to go public to "rationalize" their worth.
  • Suggesting, by implication, that these values are not rational!
  • Legendary VC John Doerr, who joined Kleiner, Perkins, Caufield in 1980 – [did they even call it venture capital back then?] – In the same 12/7/2015 SF Bus. Times article Doerr pointed out, "Google has acquired one company per week since 2010 but has only five times paid more than a billion dollars for a company," Doerr said. "There are 150 companies considered unicorns, 93 are in the United States. How does that math work?" Great Q indeed! I suggest it doesn't, b/c it's not about the math but rather about the hype.
  • Bill Gurley, another highly respected and accomplished VC veteran from the Valley and Founding partner of Benchmark Capital. In Oct. 2015 at the WSJ Laguna Beach Tech Conf. stated, "All these private valuations are fake. ... It's all on paper, it's all a myth," "Anyone that's raised $400 million is probably spending $100 million a year," he said. "Until you get liquid, you haven't really accomplished anything."
  • And finally, Mark Suster, a voice I respect a lot in the industry. He has been a Managing Partner at Upfront Ventures since 2007. Suster puts out one of the better blogs in venture called "Both Sides of The Table" in which he dispenses and provides excellent, valuable, how-to and other advice for start-up entrepreneurs on a whole range of topics – you should check it out.
  • Well, back in a Sept. 2015 piece that he published on his blog, Mark does not hold back with his sentiments regarding Unicorns stating, "There's no one sane I know any more who doesn't privately say that things have gotten out of hand. Few like to say so publicly. And I blame unicorns.
  • Mark is very clear that he's not referring to what he identifies as "successful" companies themselves but "the entire bullshit culture of swashbuckling startups who define themselves by hitting some magical $1 billion valuation number and the financiers who back them irrespective of metrics that justify it. Unicorn has become part of our lexicon in a sickening way and will no doubt become part of the history we tell about how things got so out of control again. 10 years from now people will be embarrassed to say unicorn."

• Well, we are about 5 years out from those highly critical assessments from some really smart people in the industry. Unfortunately, the sane voices of these reputable tech titans from late 2015 have gone under-reported or unreported in recent years. Which, I guess, is a primary symptom or characteristic of a "Mania" itself – delusional thinking…prone to exaggeration, denial and so on, but I'm no doctor…so I'll leave that diagnosis for others to ascertain.
• I stated in Episode I in March, It Is a big distraction from what's really important in evaluating and valuing venture-backed tech companies. We've been completely DISTRACTED for nearly 5 consecutive years since the warnings and criticisms of this mania in 2015 by key, reputable industry players in VC and tech.
• And, that's despite the publication and dissemination of the most conclusive, comprehensive accurate study ever regarding what the valuations of these companies really are.
• Here's the central problem – The $1B+ valuations ascribed to so-called unicorn companies are not true market valuations at all. They all utilize a metric called "post-money valuation" that inflates their value. As stated, the Stanford Univ. Study found 100% of all unicorns are actually over-valued to some degree when applying proper market valuation metrics based upon the terms and conditions found in the Preferred Stock rounds
• The Post-money valuation methodology is like an alternative universe, or worse, when it comes to valuing private tech companies. This should not be the case.
• The multitude of preferences, IPO kickers, and other terms and conditions attached to these preferred rounds have no relationship to company fundamentals and performance.
• Again, I understand why many are being negotiated…b/c of the high risk and probability of failure in the VC model.
• So what Strebulav and Gornall had to do in building their model was to be able to identify and value all of the disparate Ts & Cs underlying all the different Preferred rounds, each with differing economics, rights and conditions by round. This was a rigorous and complicated undertaking. They have done the industry a great service the development of this model.
• One of The Study's major conclusions: "Our results show that equating post-money valuations and fair values is inappropriate."
• AND, "Marking unicorns to their most recent round's price leads some venture capitalists to overstate their funds unrealized value. Unrealized asset values are an important determinant of future fund-raising." Most LPs revealed to the Study's authors that most VC funds mark all of their investments to the most recent round's price.
• It might be understandable why an unsuspecting public might not get the full risk impact of this, one wonders why major, sophisticated LPs put up with this nonsense…
• Mutual Fund filings show that almost all of the major mutual funds tend to hold their private VC-backed assets at the post-money valuation.

Where are the Real Journalists?

• On the Media side - There exists an almost a schizophrenic-like behavior exhibited by the technology press in its years-long coverage of unicorns;
• To be sure, at the beginning there were some real attempts by a handful of outlets to highlight the findings of the Stanford Study, which were astounding;
• • e.g. - CB Insights CEO, Anand Sanwal, opined in an August 2019 piece that it (unicorn status) is often used as a scheme to attract top talent in a very tight hiring market for key tech talent…

• PitchBook Weekend Pitch from Nov. 3, 2019:

"For a long while in and around Silicon Valley, unprofitability was what every startup hoped to achieve. And if losing hundreds of millions of VC dollars was cool, then Adam Neumann was Miles Davis."

• Really? Are you kidding me? This is your expert analysis that PitchBook is charging for?
• PitchBook continues, "But these days, in the wake of WeWork's sudden fall from grace, investors are feeling differently. All those years of red ink are finally adding up."

The only redeeming thing I could take from such a ridiculous statement is that the writer even knows who Miles Davis is. But then I realize, the whole thing is an insult to Miles Davis and our intelligence. Miles Davis was a musical/jazz genius, a master artist. Adam Neumann was a fraud. And the VCs in the WeWork deal should have known this through their diligence.

So, my criticism is reserved for the adults that allow this nonsense to continue, followed closely by some of the more youthful folks who are in senior roles at the data analytics companies (CB Insights, PitchBook) and write the articles for TechCrunch, Wired, Crunchbase, et. al.

Whether you realize it or not, you are on a path to making yourselves irrelevant, in my opinion. Your so-called analysis is not widely recognized as providing rigorous, meaningful, and dependable insights and analytics regarding what's really going on in tech. It's more like click-bait tactics to get noticed and get "likes" than demonstrating some actual skill and expertise as to how firms should be evaluated and valued by those making the investment or managerial decisions…What are your subscribers actually paying for anyway?

Further, as stated in Episode 1, It's a Consumer Protection Issue: Definitely NOT a soap box issue!

• A number of the largest US mutual fund companies (Fidelity, JH, T. Rowe Price and Vanguard) have invested directly in private co. unicorns
• In 2015, Fidelity > $1.3B into unicorns! That's more than any single US-based VC fund invested, in total, that year. Including $235M in WeWork, $129M in Zenefits – A company that hired too many people, grew too fast, and the company culture spiraled out of control, and $118M in Blue Apron, the food delivery startup that IPO'd in June 2017 and is now looking for a buyer…
• The common thread on all these investments by major mutual fund companies? Use of the meaningless post-money valuation to value these private tech company assets in their portfolios. It's Mind-boggling to think that this is the valuation methodology used…
• Incredibly, they have accepted and used these meaningless valuations to mark their holdings of these private tech companies w/o further analysis – a completely irresponsible methodology. It surely doesn't inspire confidence in their ability to perform proper valuation analytics
• Where's the adherence to the fiduciary responsibility of these investment firms to their clients?
• There are real financial implications for any retail investor in a mutual fund (401k or directly) related to this high-risk category. How about institutions? Univ. endowments, public pension funds, etc.?
• Are mutual fund companies fully disclosing real risk of this asset class to their retail investors? Accurately? How so, if at all? (e.g. – Fidelity had to recently write down its WeWork holdings to reflect the difficulties the company has "reported" after the cancelation of its IPO.)
• Where are the Regulators? The SEC…

Sagas of WeWork and Uber

• They represent some of the many Poster-Kids for, Unicorns aren't real
• I want to take a look at Uber first then we'll talk about WeWork.
• Uber went public in May of 2019, so a little over a year ago.
• It priced its shares at $45 upon IPO
• The IPO was billed as the largest of 2019 as Uber sought to go out at greater than $100B with $120B even suggested by some of the I-Banks underwriting the deal.
• However, what's intriguing is to evaluate, are the Uber valuations in the years leading up to its IPO –
• In fact, Strebulav Stanford Study authors, posted to Linkedin in early 2018 that they extended their analysis to re-value Uber after a deal it closed at the time with SoftBank – we are in Jan. of 2018, more than a year before Uber's IPO.
• Basically, a consortium led by SoftBank and prior investors, they were purchasing about $8B worth of Uber Common and some early preferred shares in a tender offer for about $34/share AND;
• An additional $1.25B consideration for some Series G-1 shares for $49/share.
• Based on the deal terms and details analyzed, it was determined that the Series G-1 shares I just mentioned, being purchased at $49/share, had no special features or terms making them worth more than Common shares. So, why the 42% mark-up as part of this transaction?

Conclusion:

• My Recommendation/proposal: All private tech company valuations should be run through the Stanford Univ. Study Model prior to any kind of exit or any time the value of a private tech company needs to be certified for audit or other purposes. These companies owe it to their employees who are provided, in many cases, with near worthless Common stock or options for common.

In the interest of time and also to provide a proper analysis, I prefer to save WeWork's story and saga for my next Episode.

Thank you for joining me for this edition of DVC. I hope you found the topic interesting and useful. I am currently working on the DVC website. In the meantime, Please send questions and your comments regarding today's episode to: [email protected]

Stay tuned for my next Episode, in a few days, where I will pick back up with discussing and analyzing WeWork's saga, …

Thank you for joining me for this episode of DVC…

Introduction

• Welcome to Distilling Venture Capital. I am your host, Bill Griesinger
• Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world, including Fintech. My mission is to cut through and go beyond the hype that tends to dominate the tech and VC landscape. And provide you with information you can use.

Episode Introduction:

• Today's Episode is another in my Focus-on-Fintech Series where I bring you a close-up look into companies in the sector and the innovations they are bringing to the market
• Given that Fintech is global movement and phenomenon that is changing, for the better, the way we participate in and get finance done around the world, one of the hottest places on the globe for Fintech investment today is Brazil. In today's Episode, I delve into and distill down why Fintech is attracting such interest and investment in Brasil

Fintech in Brasil: The Basement.io Story

• To help me do that, I am pleased to be joined today by Frederico Rizzo, Founder and CEO of Brazilian Fintech company, Basement, based in São Paulo, Brasil. Basement is a fintech company leading the way in Brasil related to innovation in the investment sector, providing a platform for individuals to invest in SME private companies and other services.

Frederico, thank you very much for joining me today.

• Please tell us a bit about what Basement does, when and how you got started, and the reasons that motivated you to create the company. What was the impetus, motivation for the formation of Basement?
• What is the story around the company name Basement?
• What is the opportunity or need for Basement to collaborate or partner with other major financial or investment institutions? Is it necessary for success in your business model?
• Can you Provide a short history of the role of credit and equity in Brasil…Brasil has not historically had "deep" credit markets. This access to financing is simply not available to well-managed SMEs. You must be a big corporation and listed publicly to get access to credit at reasonable interest rates…
• Meaning, if you weren't a large corporation with access to the public stock market, you really couldn't raise capital – you had to grow your business with cash – which means limiting and constraining your growth.

Fintech in Brasil, é Muito Quente (is super-hot)

• What is driving this? One reason is a result of concerted effort by the key financial governmental regulatory bodies in Brasil over the last 1-2 years to move toward open, digital banking through open data sharing mandates…
• What does this mean?
• CVM – Comissão de Valores Mobiliários; Brazilian equivalent of the SEC
• The Brazilian Central Bank and the National Monetary Council set out open banking regulations earlier (May 2020). The data-sharing framework aims to foster financial inclusion, drive competition in financial services and increase security.
• "The premise is that the personal data held by banks and other financial institutions do not belong to them, but to the respective holders, customers," according to Marcelo Chiavassa, professor of digital law at Universidade Presbiteriana Mackenzie Campinas
• Financial institutions must begin adhering to new rules stipulating that data belongs to individuals, says Maristela Martins, country manager for Brazil at Backbase. That means that clients' journeys will need to include explicit, simple, quick and secure consent agreements.

Other Comments on Brasil Credit Markets:

• In recent posts you written, you have noted some delays in certain key regulatory initiatives on the private investment front. Can you describe what those are and what, in your view, needs to be done to move forward?
• How important are these regulations for Brasil, in your view?

The Basement Business Model & Business Model Characteristics

• You offer several services, please elaborate on the services offerings of Basement
• Cap table management and valuation services
• Ultimately an alternative exchange, but it's the early days and that will take time

Growth Prospects for the Basement Business?

• Huge addressable market;
• Two main things:
• • 1st, Regulation changes that are already in motion have to move forward. We work closely with the regulators in this regard.
  • 2nd big challenge is the go-to-market. Learning a lot along with the market. Education, product-market fit, channels. We are testing all of this
  • After 6 years in the market we know a lot of intermediaries – funds, angel groups, accelerators, lawyers – so we are trying to build the channels and go-to-market.
  • We knew early we couldn't have the type of venture model where we scale fast so we've spent 6 years developing. That's been the best approach – almost boot-strapping model
• We've raised about 4 rounds; have over 300 investors, the huge majority with no control. A very healthy cap table in our perspective. It's all about execution now.
• Now for us, the next 12-18 months, we have what we need to execute and develop a great go-to-market strategy.

Competitive Advantages

• Describe the competitive landscape, relative cost/pricing structure and how you leverage your expertise to bring a compelling value proposition to clients
• Other competitive advantages, differentiation…

Closing Remarks:

Frederico, thank you very much for joining me today. I would love to do a follow up sometime as you progress and things are going.

• We will ultimately become a Delaware co. eventually to get closer to a bigger market – in terms of capital structure.

Contact Information, Basement

• Frederico, How can those seeking additional information and wishing to learn more about Basement contact the firm?
• Website: www. basement.io
• Frederico Twitter: @Frederico.rizzo
• Linkend also as Frederico Rizzo

Thank you for joining me for this edition of DVC. I hope you found the topic interesting and it gave you some things to think about regarding how to implement successful Fintech services. I am currently working on the DVC website. In the meantime, Please send questions and your comments regarding today's Episode to: [email protected]

Stay tuned for my upcoming Episodes in which I am going to provide a follow-up to Episode 001, Unicorn-Mania. We'll do a Unicorn-mania-II Redux where I will dig into and discuss the sagas of WeWork and Uber in the context of Unicorn-mania. And, I'll be bringing more episodes highlighting the Fintech sector in Brasil with other innovative companies that are changing the financial services landscape in Brasil. Thank you again and I look forward to joining you for my next Episode of Distilling VC.

Introduction

• Welcome to Distilling Venture Capital. I am your host, Bill Griesinger
• Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world, including Fintech. My mission is to cut through and go beyond the hype that tends to dominate the tech and VC landscape. And provide you with information you can use.

Episode Introduction:

• Today's Episode is part of my Focus-on-Fintech Series
• As background, When we talk about Fintech, Financial Technology, many in the sector think of technologies being deployed by startups in the areas of payment solutions (Transferwise, Square, many international players), peer-to-peer lenders (Lending Club, FundingCircle, Prosper, SoFi), digital banking – neobanks (many by non-banks), wealth management – robo advisors (Robinhood), AND also insurance-tech and real estate-tech, where the processes in those industries are being automated with technology, blockchain, smart contracts, AI, etc. There are many examples…
• I have the pleasure today to be joined by Federico Baradello, the Founder and CEO of Finalis. Finalis is a visionary company that is revolutionizing the way private deal making and M&A gets done. Thank you Federico for joining me today…
• One of the things that intrigued me about your business model was when I read a post you published near the end of March I happened to see on Linkedin. You brought into focus and pointed out statistics regarding the private M&A industry that I had not really paid attention to before as a huge Fintech opportunity…
• You drew the comparison and contrast of how there has been very little VC investment to bring technology and innovation to the enormous broker-dealer/M&A deal process, unlike what has occurred in Real Estate Tech and Insurance Tech, which are similar in size to private M&A from a commission/fee revenue perspective
• US Totals Invested in Fintech:
• • 2019 US Fintech investment - $59.8B; 2018 was $58B
  • 2019 Real Estate Tech ~ $15B
  • 2019 InsureTech ~ $12.1B
• Federico explains and discusses the reasons why the Investment Banking-private M&A business has attracted so little investment dollars (
• You've pointed out that private deal-making is broken, noting that $4T+ of M&A and private placements are transacted operating on 1990s technology
• I thought it would be useful for listeners, [in the context of this dearth of tech/innovation spending in priv. deal M&A,] to take a few minutes to talk about the idea for and creation of Finalis.

The Finalis Business Model & Business Model Characteristics

• You've described the Finalis model as a "broker-in-a-box" solution… and, the first scalable BD that automates and brings together streamlined, efficient processes for Compliance (FINRA, SEC) as well as deal-flow technology solutions…
• Solution – "Lease a broker-dealer-instead" model
• Create technology to automate the process rails for priv. M&A transaction from beginning to end – Federico Explains…
• How did your prior experience as a Deal Attorney and your understanding of the existing incentives native to I-banking business provide you with the vision for creating Finalis?
• • It's an execution-driven business
  • Paper the process – law firms get paid by the process
  • I-Banks are in it for the commission %, so incentivized to reduce costs and get to the close
  • Thus, not inclined, incentivized to leverage technology; there is a resistance to change that gets in way of the closing processes…

• In a prior conversation, you described Finalis' Mission as, to "Empower Deal Makers" and your Vision as, to be the "world's largest distributed I-bank."
• Also, to become the "first scalable broker-dealer" in the private M&A industry. Can you elaborate on what this vision/mission means and how you arrived at it based on your direct experience doing and documenting deals?

Growth Prospects for the Finalis Business?

• Huge addressable market; How do you define the addressable portion you go after initially and strategies for executing?
• Private market deal-making was booming pre-pandemic and you've described the enormous size of the private deal M&A industry ($4T+). Do you have a view or prediction regarding what is in store for this industry post-COVID19?

Competitive Advantages

• Describe the competitive landscape, relative cost/pricing structure and how you leverage your expertise to bring a compelling value proposition to client firms
• Other competitive advantages, differentiation…

Closing Remarks:

• Company Name, Finalis; Federico provides an interesting account and story around where the name Finalis originated.

Contact Information, Finalis

• Those seeking additional information and wishing to learn more about Finalis can visit the firm's website at, finalis.com
• Other ways to reach out and engage…

Thank you for joining me for this edition of DVC. I hope you found the topic interesting and it gave you things to think about. I am currently working on the DVC website. In the meantime, Please send questions and your comments regarding today's Episode to: [email protected]

Stay tuned for my next Episode in the Focus-on-Fintech Series where I am going to provide insights and real examples of the extremely hot Fintech market in Brazil; I'll explore why it has been attracting record venture investment at a rapid pace. I'll be interviewing a São Paulo, Brasil-based Fintech company that is at the forefront of this rapid growth – that also happens to be focused on the private investment market. Stay tuned. Thank you again and I look forward to joining you for my next Episode of Distilling VC.

Introduction

• Welcome to Distilling Venture Capital. I am your host, Bill Griesinger
• Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world. My mission is to cut through and go beyond the hype that tends to dominate the tech landscape. And provide you with information you can use.

Episode Introduction:

• I would like to introduce Today's Episode topic as follows; We hear a great deal about cryptocurrencies, mostly Bitcoin, and the impact they are having on the financial services and investing landscape, with respect to how we define money, e-commerce, make investments, and even what Central Banks are doing to authorize/issue their own digital currency or stable currency, etc.
• On the other hand, we don't hear much or may understand very little about the derivation and creation of cryptocurrencies themselves. Where do they come from? What is their intrinsic value and utility? How is all of this accomplished?
• So, today We're going to get into what I consider a very interesting segment of the crypto-currency world – Crypto-Mining - that we don't often hear that much about but yet is vitally important to our ability to be able to utilize these digital currencies, digital assets to conduct financial transactions: Crypto-currency Mining
• To answer these questions and distill down our understanding of the crypto-mining industry, I am joined by JP Baric who is the Founder and CEO of an technology/energy company directly involved in multiple aspects of the crypto-mining industry, operating as Aurum Capital Ventures

• Aurum Capital Ventures is leading the way not only in the development and deployment of turnkey crypto-mining technology in the field…but also efforts to bring much needed liquidity and financing to the mining and cryptocurrency markets themselves…
• So, we'll dig into those topics…

• Welcome JP and thanks for joining me today. To kick off today's conversation, JP, perhaps you can provide a little background about the origins around the formation of your Company and identify its core goals and objectives.

What you Will Learn in Today's Episode:

• Define Cryptocurrency-Mining & How it Works
• The Future of Crypto-Mining
• Crypto-Currency and Crypto-Mining are Fully Transparent Markets, by Design
• The Search for the Best Equipment and Cheapest Source of Energy
• How Aurum Capital Ventures is Changing the Game and Mindset Regarding Crypto-Mining and the Production of Energy
• Aurum is Both a Buyer and Seller of Energy
• Aurum is Redefining How Energy is Consumed and Transmitted
• Aurum is Creating Unique Investment Vehicles to bring needed liquidity – both debt and equity capital – to the Crypto-Mining and Crypto-Currency
• How Crypto-Miners are Rewarded
• What is a Halving Event and What does it Mean for Cryptocurrency Mining?
• And Much More…

Cryptocurrency Mining Explained

• Miners are, in effect, getting paid for their work as auditors. They are doing the work of verifying previous bitcoin transactions.
• It is said that, miners are, in effect, "minting" digital currency…
• By verifying transactions, miners are helping to prevent the "double-spending problem," a scenario in which a bitcoin owner illicitly spends the same bitcoin twice
• In addition to rewarding miners and supporting the bitcoin ecosystem, mining serves another vital purpose: It is the only way to release new cryptocurrency into circulation. In other words, miners are basically "minting" digital currency
• The primary draw for most Bitcoin miners is the prospect of being rewarded with valuable bitcoin tokens
• To earn bitcoins through mining, you need to meet two conditions. One is a matter of effort; one is a matter of luck:
• • 1) You have to verify ~1MB worth of transactions. This is the easy part.
  • 2) You have to be the first miner to arrive at the right answer to a numeric problem. This process is also known as, proof of work

• The integrity and value of crypto is predicated upon the ability of miners to confirm, validate a 1MB block

• We just had a pre-designed reduction in the reward that miners can earn when mining, referred to as a Halving Event:
• • On May 12, 2020, Yesterday, the reward for mining Bitcoin just dropped from 12.5 BTC to 6.25 BTC, for validating a 1MB Block - This is what crypto- miners face all over the world. Block-halving is hardcoded into how Bitcoin operates. Its business as usual and it means that Bitcoin is doing exactly what it is supposed to do according to the original design of Satoshi Nakamoto.

• Halving Event - So, when we talk about miners being motivated and incentivized by being rewarded with Bitcoin for successfully delivering a proof of work, Describe what a "halving" event is and what it means – how it affects crypto-mining activity

Why is There a Halving Event?

• There can only ever exist a maximum of 21 million bitcoins. Therefore, the reward for making new ones needs to be reduced periodically in order to bring sustainability to its value. That's exactly what blockhalving accomplishes once every 210,000 blocks (roughly every four years).
• The creation of "mining pools"

Business Problem that Aurum Capital Ventures is Solving

• Mining is a very capital and energy intensive business and is presently "oversupplied" globally
• Description of the main Business Problem Aurum solves – Its value proposition
• • Where geographically are your major deployments?
  • Discussion of Iowa, NY and other major installations
  • Unique concept and approach to the energy component of operations

Business Model Characteristics

• Your Bus. Model has Multiple Revenue Sources:

1. Turnkey Mining Equip Deployments & hosting services;

• Speed & Efficiency through repeatable process of Power procurement, infrastructure deployment, and remote management

1. Running your own Mining servers
2. Managed Services
3. Selling used equipment to established network

Defining and Solving the Capital Procurement Obstacles of the Crypto-Mining Industry:

• One of your firm's stated GOALS: There exists a lack of liquidity in the space. JP explains how Aurum is creating unique investment vehicles to enable institutional capital to enter the space to provide liquidity
• • Launch Global Bitcoin Mining Fund to allow for better market liquidity and transparency in the sector; JP Baric Explains
  • Securitization of mining hash rate (hash rate tokens); JP Baric Explains
  • Launching vehicles like investment trusts and funds that offer investors exposure

Goal:

• Enables Liquidity Unique Financing Approach:
• • Issuance of secured, insured bond to finance equipment and projects
  • Attractive risk-adjusted return characteristics for investors
  • Opportunities for arbitrage in power contracts
  • Providing increase in credit and capital to Aurum and the entire market
  • Providing investment banks
  • Mining, b/c it's an infrastructure investment is easier for institutions to get into to than Bitcoin purchasing
  • Not currently in the prospectus of the major Energy Funds to invest in energy consumption products – they are only focused on energy generation - Bitcoin is not part of their investment thesis.
  • Allows exposure to underlying Bitcoin asset and mine Bitcoins at a discount relative to the volatile Bitcoin market price itself. JP Explains

Competitive Advantages

• Modular, mobile equipment deployment – more efficient
• Rapid Payback/Utilization of "Stranded Energy" - Aurum's mobile mining deployments profitably monetize any type of stranded energy anywhere in the world
• Situation where the value of the underlying collateral (mining equipment) can increase in value during life of the equip. and related financing, due to a halving event of Bitcoin
• Allows you to build inventory of equipment for deployment now, in advance of halving event that you know occurs approx. every four years
• JP Baric explains Aurum's business model advantages relative to competitors such as Genesis Mining

Closing Remarks

• JP provides an overview of where he sees things headed for crypto-mining industry in general…
• We've just had this Halving Event – what are some key things that happen next as it relates to Crypto-Mining?
• JP explains Aurum's leverage, differentiation and its expertise to bring to market top equipment and energy sources required by Miners and the financial liquidity mechanism to make it happen – keeping with Aurum's core mission

Contact Information for Aurum Capital Ventures

• Those seeking additional information and wishing to learn more about Aurum Capital Ventures:
• • JP's Twitter Account – @JPBaric
  • Sign up for Investor Newsletter at: Aurumcapitalventures.com

Thank you for joining me for this edition of DVC. I hope you found the topic interesting and useful. I am currently working on the DVC website. In the meantime, Please send questions and your comments regarding today's episode to: [email protected]

Stay tuned for my next Episode, coming very soon, where I will I am going to provide a follow-up to Episode 001, Unicorn-Mania, where I will dig into and discuss the sagas of WeWork and Uber in the context of Unicorn-mania. Thank you again and I look forward to joining you for my next Episode of Distilling VC.

Introduction

• Welcome to Distilling Venture Capital. I am your host, Bill Griesinger
• Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world. My mission is to cut through and go beyond the hype and Silicon Valley pop-jargon that tends to dominate the tech landscape. I seek to provide transparency and

Opening Observations:

• Given that this is my inaugural episode under the Distilling VC label, I thought it would be appropriate and useful to provide you with some brief background regarding the podcast and the type of content you can expect in the future and a little about me…
• First, the podcast; The vast majority of episodes I will bring will take you inside the insights, challenges, successes and the journeys revealed and shared directly through the words and experiences of tech company entrepreneurs, sometimes from the VCs who back them and others in the tech and VC community…So, I'll usually have very interesting guests.

• Some brief background on me, your host: I have spent a large part of my professional life (last 20 years) working in the Venture Finance business assisting VC-backed tech companies in procuring the capital they need to grow
• Over the years, I have had the opportunity and good fortune to meet and work with incredible, visionary management teams, many savvy investors and have had the privilege of underwriting and financing ground-breaking technology companies, many of which continue to have an impact on the technology landscape today (like Google; a $10M deal in 2001, for example).

• With that as backdrop, today I want to focus on a topic that I believe signals something has gone awry in tech startup and VC land over the last 4-5 years. And it concerns me greatly.
• Have you noticed, Everyone seems to be fascinated with "unicorns?" Venture capitalists, tech company founders and management teams, the tech press and the financial press and many others,
• So, today's episode will delve into and distill down, "Unicorn-mania" so we can make sense of what's really going on.
• Let me state for the record, It Is a big distraction from what's really important in evaluating and valuing venture-backed tech companies. Furthermore, it really touches upon the issues of transparency and accuracy, and ultimately the credibility of the industry itself, in my view
• The longer this mania continues, I believe it presents dangerous consequences for multiple players inside and outside the VC industry.

• So, what am I talking about? Let's unpack this…
• First, some definitional context: What is a Unicorn company that we hear so much hype about today? In tech and VC parlance, it is a private startup tech company that is valued at $1B or more, in theory, referred to as its "Post-money Valuation." Great, what does that mean? Not what you may think it does, as I will explain…
• And for historical context, The term unicorn, in VC, originated…in late 2013 when Cowboy Ventures Partner, Aileen Lee, coined the term for what she described as a tech company with a $1B valuation – and noted it was a pretty rare thing, as she pointed out then – which was correct. There were 39 companies identified then in the 'Unicorn Club.' 27 of those were in the Bay Area! So, it really was just a Silicon Valley phenomenon in the beginning…

• Lee admitted the term probably wasn't the best or most well-thought-out description but went with it nonetheless.

"Yes we know the term "unicorn" is not perfect – unicorns apparently don't exist, and these companies do – but we like the term because to us, it means something extremely rare, and magical"

Aileen Lee, Cowboy Ventures, Nov. 2013

• The term was reinforced further in a 2015 interview with Crunchbase, and it has unfortunately, been with us ever since, to the detriment of the industry, in my view.
• The Cowboy Ventures' website, even contains, to this day, a link to what it calls its "Unicorn Handling Guide" or protocol insisting that anyone using the term give proper attribution to the firm. No one actually adheres to this "guideline" today, of course – but there it is.
• This is not to malign or denigrate Cowboy Ventures as a reputable VC firm in any way. It is, by most measures, a successful venture firm boasting a number of impressive investments and it has had a substantial number of notable exits, which you can find on their website. So, I'm sure their LPs and their portfolio companies alike are pleased…
• The real issue is not about Cowboy Ventures at all…but rather a group-think mentality that has gripped and permeated venture capital…with no discernable benefit…

How Many Unicorns Are There? It depends on who you ask & upon whose data you rely:

• (Q2 2019), there were around 450 companies globally designated as 'Unicorns'
• Fast fwd to Feb. 2020 and it's alleged to be 580! Valued at ~ $2T (From Recent Crunchbase Unicorn Leaderboard)
• Q4 2019 CB Insights states there are about 390 (CB Insights)
• Roughly 48% to 50% are in the US
• About 24%-25% are in China
• UK and India come in 3rd and 4th with roughly 5% each

• Here's the central problem – The $1B+ valuations ascribed to so-called unicorn companies are not true market valuations at all. They all utilize a metric called "post-money valuation" that inflates their value. In fact, based on a Stanford Univ. Study, which I will dig into in a moment, 100% of all unicorns are actually over-valued to some degree when applying proper market valuation metrics based upon the terms and conditions found in the Preferred Stock rounds.

• There is both Good News and Bad News to report with respect to this phenomenon:
• • The Good News: There is a solution, a remedy, if you will, for this self-inflicted malady of unicorn-mania. It is The Stanford Graduate School of Business Study - And it has been readily available for several years. Stanford GSB (By Prof. Ilya Strebulaev and his colleague, Will Gornall) – which I'll dig into in a moment
  • Now, The Bad News: Few are paying attention, and some are deliberately ignoring the solution that's been made available. Why?

The Study: Squaring Venture Capital Valuations with Reality

Downloadable pdf found here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455

• So, let's dig into the study. The results are astounding and vitally important to EVERYONE connected to Venture Capital, tech startups, capital markets and even consumers – I'll explain.
• Released in April 2017 by the Stanford Univ. Graduate School of Business

The Authors:

• Prof. Ilya Strebulaev, Prof. of Private Equity & Prof. of Finance, Graduate School of Bus., Stanford University
• Will Gornall, Sauder School of Bus., University of British Columbia, (Gornall earned his PhD from the Stanford Graduate School of Bus.)

• Summary of Findings – From the Study Abstract:
• • We develop a valuation model for venture capital--backed companies and apply it to 135 US unicorns, that is, private companies with reported valuations above $1 billion.
  • We value unicorns using financial terms from legal filings and find that reported unicorn post--money valuations average 48% above fair value, with 14 being more than 100% above.
  • Reported valuations assume that all shares are as valuable as the most recently issued preferred shares.
  • We calculate values for each share class, which yields lower valuations because most unicorns gave recent investors major protections such as initial public offering (IPO) return guarantees (15%), vetoes over down-IPOs (24%), or seniority to all other investors (30%).
  • Common shares lack all such protections and are 56% overvalued. After adjusting for these valuation-inflating terms, almost one-half (65 out of 135) of unicorns lose their unicorn status.

• Important takeaway regarding the findings of the Stanford Study: The results and findings are not predicated upon some intricate mathematical or econometric model requiring reliance on multiple assumptions and conditions to arrive at its conclusions. On the contrary, the Stanford Study valuations are derived directly from the legal, contractual terms and conditions negotiated between the venture investors and the companies. Therefore, the study utilizes the actual economic terms of each Preferred round as it was negotiated – No assumptions or conjecture about the values in the Study are necessary. This is a critical point.

It's a Consumer Protection Issue:

• A number of the largest US mutual fund companies (Fidelity, JH, T. Rowe Price and Vanguard) have invested directly in private co. unicorns
• In 2015, Fidelity > $1.3B into unicorns! That's more than any US-based VC fund invested that year. Including $235M in WeWork, $129M in Zenefits – A company that hired too many people, grew too fast, and the company culture spiraled out of control, and $118M in Blue Apron, the food delivery startup that IPOd in June 2017 and is now looking for a buyer…
• What is the common thread on all these investments by major mutual fund companies? They all used the meaningless post-money valuation to value these private tech company assets in their portfolios. Let that sink in for a moment. It's Mind-boggling
• Incredibly, they have accepted and used these meaningless valuations to mark their holdings of these private tech companies w/o further analysis – a completely irresponsible methodology. It surely doesn't inspire confidence in their ability to perform proper valuation analytics
• Where's the adherence to the fiduciary responsibility of these investment firms to their clients?
• There are real financial implications for any retail investor in a mutual fund (401k or directly) related to this high-risk category. How about institutions? Univ. endowments, public pension funds, etc.?
• Are mutual fund companies fully disclosing real risk of this asset class to their retail investors? Accurately? How so, if at all? (e.g. – Fidelity had to recently write down its WeWork holdings to reflect the difficulties the company has "reported" after the cancelation of its IPO.)

• In addition, 3rd party equity market platforms, such as EquityZen, are providing average retail investors exposure to this class of priv. company unicorns…never before available.

Where are the Real Journalists?

• On the Media side - There exists an almost a schizophrenic-like behavior exhibited by the technology press in its years-long coverage of unicorns;
• To be sure, at the beginning there were some real attempts by a handful of outlets to highlight the findings of the Stanford Study, which were astounding;
• • On the one hand, tech & financial media and the data analytics groups (CB Insights, Pitchbook) seem to recognize the lack of rigor and reality associated with over-valued unicorn companies. They openly refer to it at times in their reporting
  • e.g. - CB Insights CEO, Anand Sanwal, recently opined in an August 2019 piece that it (unicorn status) is often used as a scheme to attract top talent in a very tight hiring market for key tech talent…
  • At the same time, however, they ALL seem to vacillate between this recognition that something isn't quite right about the valuations, yet still breathlessly, gleefully and even feeling duty-bound to report on the next stable, class, pack, leaderboard or club of unicorn companies, which have allegedly "achieved" unicorn status as a result of their last preferred stock financing round;
  • • Some of which are even "born," as has been reported! Who knew? Just a matter of being born into the unicorn aristocracy, I guess.
    • From my experience, a $1B tech company isn't 'born.' They are built, nurtured and grown with talent, hard work and execution with a value proposition geared to solving real, identifiable needs and wants of customers.

• Did you ever notice that the PE industry doesn't have an equivalent designation (Unicorns) for its $1B+ value companies, even those that are in the tech category?

Let's Summarize Where We Are:

• So, The widely touted tech unicorn is a myth…So, why are so many tech and business news outlets breathlessly reporting about it as if there is some meaningful significance behind these widely hyped values?
• We surely know that unicorns are mythical and not real – just like the post-money valuations touted and hyped by Silicon Valley and many others…
• How do we know that? The Stanford Study proves it! Again, we've had the empirical evidence showing exactly that since the Study was first published in 2017.

• Keep in mind, that I don't care or decry that Pref. equity investors desire, negotiate and receive such terms. It's a matter of proper disclosure…not economics. The market will make its own determination of value associated with such economics. However, the economics must be disclosed…before an IPO or other exit.
• Every claim that a tech firm has allegedly achieved what is fondly referred to in the Silicon Valley bubble of "Unicorn" status, a valuation of $1B+, should be required to apply an asterisk * next to that proclamation.
• A footnote detailing and clearly explaining that "post-money valuation" is not market value nor market capitalization and explain how it's derived. However, there is no such reporting requirement for these private companies. Should there be? You know, in the interest of transparency and accuracy; In other words, some real "truth-in-advertising"
• I believe it says a lot about the state of reality in tech-land today; A loss of focus on business fundamentals, a willingness to kid ourselves, our LPs and the public about true value…
• In the long run, history will reflect upon this episode in tech history, as nothing more than a silly aberration…and hopefully a forgotten footnote

Conclusion:

• It's been fun and, and I will admit, even entertaining at times, but we need to put a stop to this game before it all gets out of hand…and someone gets hurt.
• The WeWork debacle, among other examples, indicates some have already been harmed…And major mutual funds are in on the game and failing to uphold their fiduciary responsibility to retail investors.
• Caveat: While unicorns are definitely mythical characters, there is an identifiable, measurable valuation of priv. tech companies – it just isn't what has been used to arrive at the purported $1B+ valuations promulgated today that are masquerading as unicorns…
• What I am really hoping we can do is just move on, refocus on the important and relevant metrics in building and growing successful companies, and dismiss the unicorn-mania phase as nothing more than an idyllic aberration and distraction, to be forgotten, for good…because it has served no useful purpose in understanding VC and technology. NONE!

[Also See: Silicon Valley has a Media Problem and it's Getting Worse – Yahoo Finance] [Note: It's not a media problem. It is a credibility and transparency problem, which is creating negative coverage, that SV finds uncomfortable.]

For detailed show notes and links go to MarkWKing.com/6

In this episode, I distill some positive and negative lessons about why a startup might need multiple attorneys. The short answer…lawyers are like doctors, they specialize. One size does not fit all situations. Equally important, entrepreneurs need to be careful about who an attorney has a duty of loyalty to. A lawyer that represents a company's best interest does not by default represent the founder.

Also in this episode, I reintroduce the Venture Capital Coroner's Report. Previously, I did an entire podcast focused on lessons from failed, VC backed companies. The show failed (I know, ironic, right?). I just couldn't get enough interviews. However, there's more than enough material for an occasional segment of this show. The autopsy of VATLER provides an important lesson about disrupting entrenched players (and a resurrection story in the founding of SpotAngels).

Lawyers or Insurance Salesmen?

Naval Ravikant - Angel List

In a very short post Naval lays out six important lessons he learned about hiring lawyers. He learned these the hard, expensive way.

A Startup Lawyer is Not a Founder's Lawyer

Jose Ancer - Miller, Egan, Molter & Nelson

Often lawyers are like that coach in the corner of a boxing ring. They're an experienced, voice of reason in a life or death struggle. Jose Ancer points out, however, that you need to be sure the lawyer in your corner owes his highest allegiance to you. It's not always obvious. Jose does a great job explaining how attorney loyalty works.

Inside Story of VATLER's Shut Down

Hamza Ouazzani Chahdi - Now at SpotAngels.com

Founders ran head first into a wall called entrenched city government. Follow @HamzaOuazzaniC to track the story of SpotAngels, Hamza's new attempt to disrupt urban parking by helping you avoid parking tickets.

Bonus Material – More About Naval Ravikant

Naval says this about himself: "I am the CEO and co-founder of AngelList. I previously co-founded Epinions (which went public as part of Shopping.com) and Vast.com. I'm an active Angel investor, and have invested in dozens of companies, including Twitter, Uber, Docverse and Jambool (both sold to Google), and Mixer Labs and Fluther (both sold to Twitter)."

Background article from PE Hub on why Naval feels so strongly about lawyers: His Brand Burnished, Naval Ravikant Plans New Fund with Babak Nivi

I'd love to connect at any of the following:

Twitter: @TheMarkWKing

LinkedIn: Mark W King

Facebook: The Mark W King

Old School Email: MarkWKing.com/social