About Me 0109: Making Money Without

Bump Technologies makes an app that lets people bump their phones together to exchange things like business cards, photos and even money.

On Tuesday, Bump will announce that it has raised $16.5 million in venture capital. The firm Andreessen Horowitz is Bump’s newest investor, and its previous investors, including Sequoia Capital and Ron Conway, also contributed.

Bump started in 2008 as a way for people to exchange contact information without trading old-fashioned paper business cards. But in its newest incarnation, the start-up wants to become a mobile social network for exchanging photos and messages with family and friends.

Now, in addition to contact information, people with iPhones or Android phones can share photos, music, calendar appointments and location, and can also become friends on social networks and send messages to one another. Other apps also use the technology. PayPal, for instance, lets people exchange money by bumping their phones, and two apps trade sexual compatibility information.

The company is changing direction because people started using Bump more for social interactions than business ones, said two of its founders, David Lieb and Jake Mintz. For example, each day people now share about 40,000 contacts but almost a million photos.

“Bump just opens up a whole new landscape of social interactions and interpersonal functions and uses and photo-sharing and transactions, all based on physical proximity,” said Marc Andreessen, the Andreessen Horowitz partner who will join Bump’s board.

There are many other social networks that people already use on their phones to share photos, location and status updates, like Facebook, Foursquare and Instagram.

Bump is different, the founders said, because it enables private exchanges between two people, unlike others that are for publishing messages or photos to wider groups or the public.

“It’s a proximity-based social network, for people and things you’re actually physically interacting with,” Mr. Lieb said.

Bump is one of a group of mobile apps that give people a way to use Internet-connected cellphones to bridge the virtual and physical worlds.

That could become a way to make money, the founders said. For example, people could someday bump their phones to get information or coupons from businesses or brands. “That could be valuable to merchants,” Mr. Mintz said.

Other apps, like Shopkick, offer similar ways for businesses to reach customers. Bump is not making money yet, beyond a bit from other companies that license its technology.

Bump works by gathering several signals from phones, including location and motion detection. Those signals are sent to Bump’s servers, where Bump figures out if another phone in the same place just experienced a bump, then matches the two phones. It all takes place immediately.

Andreessen Horowitz has been busy. On Monday, the firm also announced that it invested in Groupon’s $950 million round of fund-raising. The firm invests in very small Web companies and very big ones, and the Bump and Groupon investments exemplify both ends of the spectrum.

Banks increased fees for initial share sales by 62 percent to 5.63 percent
from the lowest level on record, even as the amount that U.S.
companies raised from IPOs decreased by almost half to $16.4 billion
this year, according to Bloomberg data. While the biggest surge
in stocks since the Great Depression revived the IPO market and helped
enrich bankers, almost 40 percent of offerings sold by underwriters in
the second half of 2009 have left buyers with losses, the data show.

… Crunch the numbers: at a $50
billion valuation, with Goldman in the box seat as lead banker to an
IPO and at the rates quoted in 2009, then it could pocket $2.8 billion
gross in fees. And that’s on top of whatever it creams off the $1.5
billion fund it is creating as part of the deal that sees it currently
investing $450 million. Assuming an IPO in the next 12 months then by
my reckoning, Goldman’s ‘investment’ nets a 6x return.

If Goldman is successful (and
remember that the Special Purpose Vehicle covering the $1.5 billion has
to get past the SEC first but honestly – do they care?) then what
happens to the Twitter’s of this world? Does its investors start
clamoring for an exit? You bet.

That can only spell one thing: bubble times are here again.

Ya Damn skippy, sailor. Howlett hit it right on the head. What type
of revenues, profits and growth justify a $50 billion valuation for a
very young, private company with sparse net cash flows? The type that
are marketed by those who are doing God’s work! now, let’s build on Mr.
Howlett’s and Dignan’s ideas the BoomBustBlog way. We shall begin with
the $1.5 billion dollar fund that Mr. Howlett alleges GS is creating
around the Facebook cash injection. Yesterday’s BoomBustBlog rticle, Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
clearly detailed why and how many of these private equity and client
funds routinely gut investors (we’re talking up to 92% in losses!) while
Goldman (and other GPs) still walk away with profits (see Even With Clawbacks, the House Always Wins in Private Equity Funds). I have posted the model that illustrates this bank wins, investor loses phenomenon as a live spreadsheet online for all paying BoomBustBlog subscribers
to use at will. It’s quite the comprehensive model and allows for the
user to run a myriad of their own assumptions using any inputs they
please. As subscribers will see, it is nearly impossible for Goldman to
lose money on their Facebook private fund, no matter how badly Facebook
shares perform. Please beware that is unlocked and fairly complex, so
please do not make any formulae changes to it for it corrupts the
experience for other users. Here is an excerpt for those who do
subscribe to our research and services, YET!

Even with the fund taking 45%+ losses and the LP (limited partners,
ex. Goldman’s clients) losing every last single dime, Goldman easily
pulls a 33% return. God forbid Facebook share actually do well,
Goldman’s numbers look… Well… Damn near illegal! Almost as if they can
pump up a price without any fundamental justification or public
disclosure of financials and still sell it retail to the public. Of
course, such a thing could and would never occur – not with the every
vigilant SEC to take our backs. Excuse me while a cough a up a lung from
laughter…

You see, this is the dirty little secret of private equity funds.
They are not in the business of investing money for client’s maximum
risk adjusted return. They are in the business of collecting fees. Those
poor innocent (or not so, particularly when they are investing their
clients monies, hence are in the same business) souls that actually
believe as the commenter above quoted “Wow!!! If Goldman is putting their money in this, it must be serious!”simply
the lamb being led to the private equity/IPO slaughterhouse. You see,
there is no loss to GS – no matter how high they bid up the valuation
nor how hard it comes crashing down. This gives them the incentive to
shoot for the sky with the private equity deal, because when the IPO
breaks, its bonuses bigger than nearly any have ever seen. Facebook
makes and excellent marketing story as well. Boy Wunderkind CEO, a
product nearly everyone uses and loves, and a mysterious dearth of
business model to give it a mystical effect. Don’t forget the
involvement of the “cream of the crop” of Wall Street banks, whose
bankers, traders and analysts are all so much smarter than us guys from
Brooklyn. Add this up, and you get “Wow!!! If Goldman is putting their money in this, it must be serious!”.

I will continue this in a few hours via my next article that
illustrates an actual Facebook offering, complete with valuations –
which should be a doozy, Wait until we get to add up all of those
Goldman fees – Facebook investors win or lose. Just to be clear, this is
not hate for Goldman, but elucidation and clarification regarding
exactly what business Goldman, et. al. are actually in and how they are
able to generate the profits that they do. Many think that Goldman is
the best and brightest on the Street. Those guys went to the same
schools, studied under the same teachers, graduated and employed using
the same strategies trading the same products as everybody else. Get
over the mysticism marketing bullshit and you just have a politically
connect, very well marketed investment bank that was just bailed out by
the government. The same as every major IB in this country. I have no
hate (nor love, for that matter) for Goldman but I am about setting the
record straight. If you really think Goldman is really that good at
anything outside of raking profits off the back of their clients, I
suggest you take a long, strong look at their track record versus mine - Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

About Me 0109

Tuesday, January 18, 2011

Making Money Without

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