Monday, September 29, 2008

VC = Visions of Collapse?

Some people use complex math models, others a method they call “common sense.” But no one has a foolproof method for predicting the financial future. Least of all the risk calculators whirring to a halt at major banking houses that will soon cease to exist, including Lehman Brothers and Wachovia.

(Of course, with a 777-point Dow Jones freefall today following House rejection of the proposed $700 billion economic-recovery bill, the market offers its own self-fulfilling prophecy. Think we’re all going to hell in a hand-basket? Then, by golly, it’s already getting hot in here.)

So perhaps that’s why it was hard to pin down a precise answer on what will happen to
venture-capital investing in the wake of the current market turmoil.

It’ll be fine, an industry representative told me.
In fact, market downturn could even spur innovation, according to Emily Mendell, the vice president of strategic affairs for the National Venture Capital Association.
Heck, laid-off tech workers could turn around and invent the Next Big Thing with newfound free time, she said.
"There's no recession of good ideas. There's always opportunity here. It could set off a whole slew of entrepreneurs who get laid off from their jobs and decide to take a risk and start their own business."
Yet blogs were less upbeat. A VentureBeat posting warns of bank-backed VC firms taking a serious head shot when they can no longer count on formerly guaranteed capital. As institutional lenders topple at a rate even faster than trendy yogurt stores opening in downtown Palo Alto, whither venture capital? Dean Takahashi asked in another posting.
“VC firms, for example, rely on large banks, endowments and pension funds for their cash. If enough of a VC firm’s so-called ‘limited investors’ default, or get scared and run, the VC firm may be forced to close,” he warns.
And Mendell admitted that VC firms may hold onto startups longer, fearful of downright murderous conditions for initial public offerings (IPOs)– meaning diminishing returns on investments as firms are forced to pump startups with more cash.

It’s cash that may be scarce elsewhere, angel investor Gadi Behar told me. Angels know the market isn’t ripe for going public and may hold back with their pots of gold and magic wands for a bit, he said.

And the whisper on the street out here is that VC is already feeling skittish – although no VCs told me so, point blank, today.
Hence the question mark at the end of the headline I eventually wrote: “Local venture capital 'insulated' from crisis?”

Of course, there will be nay-sayers who’ll say we’ll float through, no matter what.
I learned as much at the start of all this trouble.

Last year, right when the mortgage crisis hit – before it became a massive credit crunch, widespread banking failure and looming depression – I spent an afternoon calling folks to ask how local, affluent readers would be affected.
Jumbo mortgage loans will be tougher for the rich to get, realtors told me – a story the New York Times also ran the next day.

And one lawyer speculated the venture capital industry would get hurt. Money comes to Sand Hill Road from plenty of places – and some are likely to hurt from the mortgage meltdown, said Julia Wei, a real estate and mortgage lawyer in Palo Alto.
I put together the material I’d gathered and posted it online.

Boy, did our paper get heat for that posting. No, it wasn’t groundbreaking investigative journalism. It was a mix of local perspectives thrown together late on a Friday afternoon. But the suggestion that venture capital could be affected rubbed people the wrong way. Commentors called the article “horribly naïve” and told our paper to stick to covering City Council.
Well, then the chickens came home to roost and the industry has had its worst year for IPOs since 1978.

So, um, economic predictions. Sure, they’re often wrong. But when people predict that venture capital is not immune to negative market conditions, they seem to be onto something.
So here’s crossing my fingers for the economy this week. Not just for venture capitalists. For anyone needing a loan, anywhere; for bright young people –and bright older people – getting laid off in droves on Wall Street and elsewhere; for everyone who earns money and wants to keep doing so – here’s hoping things won’t be so bad.

Image of trading floor from New York Times. Money image Creative Commons licensed.

Monday, September 1, 2008

Steve Jobs: not dead. Unlike, perhaps, newspapers.

Legendary Apple co-founder Steve Jobs is definitely not dead. Print journalism, on the other hand, has a pretty weak pulse. The jury’s out on the newspaper’s life expectancy, as advertising and listings revenues that traditionally funded media move online – and readers follow en masse.

But the web revolution doesn’t take place without drawbacks.
Last Friday showcased the trade-offs of old and new media all too clearly. Bloomberg news service accidentally sent out Jobs’ obituary on its online wire at 4:27 p.m. Eastern.
Steve Jobs, the man who revolutionized computing and other stuff, too, is dead, the article said:

"A college dropout who co-founded Apple Inc., Jobs won ardent support by ushering 'cool' gadgets to market. He delivered the Macintosh, the first user-friendly computer, and conquered the online music industry with the iPod, making white ear buds fashionable."

Clearly unfinished, it had slots to fill in with the date and circumstance of death, as well as editors’ notes on who to contact for comment. Jobs’ friends and colleagues -- even California’s Attorney General Jerry Brown – were listed.

Someone at Bloomberg caught the error and removed the article, but not before news of the fake news spread with the superfast cyber-speed of which online marketers dream.

In the old, pre-Internet days, the Bloomberg faux pas would have merited maybe a mere mention in papers the next day, I speculate. But the Gawker posting that announced the gaffe garnered a quarter million hits in a couple hours. It now clocks in at about 358,000.

(Lucky Gawker writer. They’re paid per page view. While someone at Bloomberg is now majorly regretting the error, someone else is celebrating. One journalist’s screw-up is another’s meal ticket, it seems.)

The Jobs obituary incident showed the public what many already knew: major news sources prepare obituaries in advance of the deaths of prominent figures. They want to be ready with a well-researched roundup when famous, influential folks pass on.

As a reporter in our newsroom said, “The New York Times has whole file cabinets of these written and ready to go.” (Well, more like digital databases. But point well-taken.) And Jobs' health rumors likely triggered an update to his obit.

The incident illustrates the arguable drawbacks of instantaneous web news. To my knowledge, no one published the story before it was retracted. And they would have likely done some journalistic double-checking, anyway, before running it, especially since it was so clearly missing details such as time and place.

But what if the story ran? The instantly-known news wouldn’t have merely disoriented and upset Jobs and those close to him –argument enough that it has a clear negative effect -- it could have had other undesirable outcomes too. A sudden and needless drop in Apple stock comes to mind, but more importantly, the credibility of a major news source would have been damaged, perhaps deeply. Now, Bloomberg is just likely very embarrassed.

The faster news arrives, the more error-prone it is. Steve Jobs’ fake death reminded me of Heath Ledger’s real one. When he was found dead in a New York City apartment, our newsroom was surprised and suddenly engaged in following the story as reported by other outlets. It didn’t fall under our Palo Alto purview, so we didn’t cover it, but we did stay glued to our computer screen, Googling about for updates. As is often the case with breaking news, different sources had different chunks of information.
In the rush to get it out there, sometimes it was inaccurate.

For example, many sources reported Ledger was found dead in his apartment. But about an hour after the story broke, the New York Times reported that he was found in an apartment belonging to Mary-Kate Olsen. Hmmm....but then the Times later retracted that information, saying it was erroneously provided by police. In a show of just how much elbow grease is needed to get all the details, the ultimately final article, published in print the following day, listed 14 contributing writers.

We do the same thing at Palo Alto Online. We hurry to get news up on the site and sometimes make errors or misassumptions. More often, we post a story without key information, then go back and add to it as more comes in, in the case of major crimes, disasters or other unfolding events.

Sometimes speed has small consequences. I happened to visit the New York Times home page two minutes after they posted the story on Barack Obama being chosen as the Democratic nominee for president. The story had two errors in the first roughly 100 words. One word had an extra “s” and the word “of” was conspicuously missing from a sentence.
I mentioned the errors to a co-worker, who went to the story in her browser. She only found one. An editor or writer had already found the error and removed it. It was only a matter of time, I thought, before that second error also vanished.

The story went up perhaps sprinkled with small errors in a jubilant rush to announce what’s going on, but editors were reading it over again, performing what arguably should have been done before posting directly thereafter. The Times, like our paper, is convinced that getting the news up there twenty minutes earlier really matters.

Try it yourself. Check breaking stories on the Times or other websites, then refresh the pages and watch news mutate. Note whether or not the content actually changes. Often, particularly in breaking stories, it will.

In the pre-digital era, a news story would be vetted by an editor and copy editor before printing. Reporters often had more time to gather facts, analyze them and proofread stories. Papers had fact-checkers. This structure is still intact but it operates in a more fragmented and less thorough way in the effort to get news online. And that allows for slip-ups. Or, in the Bloomberg case, the mere existence of instant-news structures carries with it the Achilles’ heel of accidental proliferation. So much inaccuracy, spreading so quickly.

Not that there was a plodding, hum-drum pace circa 1990: plenty of dailies churned out detailed, thoughtful stories with remarkable speed. The industry itself set up awards for reporting done quickly but well. The pace of what we now refer to as “next-day news” didn’t seem so slow back then. And there was always television for a quicker, shorter scoop.

But now we can do things faster. So we do.

The assumption driving the current rush to get the news out is twofold: a) it is best to be the first news outlet to report a story because then folks know you’re working hard to keep them informed and are more likely to turn to you for news
and b) it’s best to report things quickly, so people know, and then update stories continually.

I’m not convinced speed is better. Isn’t it preferable to have in-depth pieces with more information and context in which to interpret the news, even if they go up online an hour later? I ask myself.

But it’s hard not to feel the pressure when you’re writing a story for the web. “Look,” you want to tell readers, “you can come to me. I’ve got the info. Read me.”
Just, please, cut me some slack. If the grammar is sometimes off, if the details are sloppy – hey, that’s the trade-off to get news at the speed of, well, reality.
Image Creative Commons licensed.

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