8 posts categorized "October 2009"

Venture Capital Firms to be Exempt from Regulation . . . Maybe

Earlier this week, the House Financial Services Committee approved the Private Fund Investment Advisers Registration Act by a bipartisan vote of 67-1. The bill, if ultimately passed into law in its current form, would require advisers to hedge funds, private equity firms, and other private pools of capital of a certain size to register with the SEC under the Investment Advisers Act of 1940.

Four months ago the Treasury Department proposed that investment adviser registration should extend to advisers to private funds, including venture capital funds. The bill approved by the House committee, however, would exempt advisers to venture capital funds — at least from the new registration requirements. The House bill yet contemplates reporting obligations for advisers regarding venture capital funds. Also, the bill says that the SEC should determine what "venture capital fund" means, for purposes of determining who qualifies for the exemption from the registration requirement.

Here's how the House bill, if passed, would amend key sections of the current law (new language proposed by the bill is highlight in blue):

§ 80b–3 Registration of investment advisers

(a) Necessity of registration

Except as provided in subsection (b) of this section and section 80b–3a of this title, it shall be unlawful for any investment adviser, unless registered under this section, to make use of the mails or any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser.

(b) Investment advisers who need not be registered

The provisions of subsection (a) of this section shall not apply to—

(1) any investment adviser, except an investment adviser who acts as an investment adviser to any private fund, all of whose clients are residents of the State within which such investment adviser maintains his or its principal office and place of business, and who does not furnish advice or issue analyses or reports with respect to securities listed or admitted to unlisted trading privileges on any national securities exchange;

. . .

(7) any investment adviser who solely advises (A) small business investment companies licensed under the Small Business Investment Act of 1958; (B) have received from the Small Business Administration notice to proceed to qualify for a license, which notice or license has not been revoked; or (C) applicants, related to one or more small business investment companies covered in subparagraph (A), that have applied for another license, which application remains pending.

. . .

(l) Exemption of and reporting by venture capital fund advisers

The Commission shall identify and define the term 'venture capital fund' and shall provide an adviser to such fund an exemption from the registration requirements under this section (excluding any such fund whose adviser is exempt from registration pursuant to paragraph (7) of subsection (b)). The Commission shall require such advisers to maintain such records and provide to the Commission such annual or other reports as the Commission determines necessary or appropriate in the public interest or for the protection of investors.

(m) Exemption of and reporting by certain private fund advisers

(1) In general

The Commission shall provide an exemption from the registration requirements under this section to any investment adviser of private funds, if each of such private funds has assets under management in the United States of less than $150,000,000. The Commission shall require such advisers to maintain such records and provide to the Commission such annual or other reports as the Commission determines necessary or appropriate in the public interest or for the protection of investors.

(2) Reporting

The Commission shall require investment advisers exempted by reason of this subsection to maintain such records and provide to the Commission such annual or other reports as the Commission determines necessary or appropriate in the public interest or for the protection of investors.

(n) Registration and examination of mid-sized private fund advisers

In prescribing regulations to carry out the requirements of this section with respect to investment advisers acting as investment advisers to mid-sized private funds, the Commission shall take into account the size, governance and investment strategy of such funds to determine whether they pose systemic risk, and shall provide for registration and examination procedures with respect to the investment advisers of such funds which reflect the level of systemic risk posed by such funds.

Note that the proposed language at subparagraph (l) above states that the SEC "shall require such [venture capital fund] advisers to maintain such records and provide to the Commission such annual or other reports as the Commission determines necessary or appropriate in the public interest or for the protection of investors." Whole other sections of the bill speak to what kinds of records and reports will be required of private funds, as well as what disclosures the SEC may require advisers make "to investors, prospective investors, counterparties, and creditors, of any private fund advised by the investment adviser . . . as necessary or appropriate in the public interest and for the protection of investors or for the assessment of systemic risk." (Emphasis added to point out that the systemic risk rationale does not seem to be a limiting factor, at least as to reporting obligations that may be oriented toward disclosure to investors.)

Many thanks to Doug Cornelius for pointing out in his Compliance Building blog yesterday that eight amendments to the bill were made by House committee the day after it approved the bill. Doug Cornelius' copy of the bill, tracking the various amendments, can be accessed here.

Mapping What's Out There

Bruce Robert's guest post on my blog yesterday morning about a recent King County Metro transit data workshop, and his follow up post yesterday afternoon on BigStartups, "Buses and Businesses," keep me in a crowdsourcing frame of mind. Once data about how many people get on and off buses becomes available, and you couple that with real time data on bus locations, shouldn't it be possible, not only to time when you set out (from your house, from your office) to catch the next ride, but even whether or not you're likely to get a seat? 

In the process, bus schedules will become aspirational timetables for Metro, its drivers and crew; riders will look only at real time reporting from tires on the road (and perhaps timetable variance reports).

Transit planning could become a function accessible through FourSquare, BrightKite, or any number of commercial apps that try to build community activity around places and events. It need not be restricted to Google Maps, the new mapping Apple is working on, or whatever apps the government puts out. (Currently King County Metro has a trip planner, which I've used and is cool to have, but which is not up to iPhone standards of usability.) In fact, if the government simply serves up or facilitates the serving up of good data, as Bruce's post on my blog yesterday articulated, government need not publish an app at all.

Shifting gears: last night the On the Media radio program devoted an hour to changes in the music industry. One segment was about how "top 100" charts might lose relevance in the next few years. Mark Phillips, a producer of the show and a member of a band, interviewed the founder of Band Metrics, which apparently is in private beta testing. Here's Phillips speaking of what that founder, Duncan Freeman, showed could be done for Phillips' band:

In one section, a Google map popped up that showed where we’re getting radio plays. Another section located the cities where we are getting the most buzz. And that’s a potential tour route for us. And then, using natural language processing, Freeman hopes to track Facebook, Twitter, and other social networking sites, so bands can effectively identify their biggest fans. You know, the ones who buy things from them.

The [Band Metrics beta] website looks less like a music chart, and more like the tools of a web savvy political campaign. And maybe that’s what the chart of the future needs to be: a tool for organizing communities. If it works, it would transform and replace the whole idea of charts. Instead of being a list for the record execs of the top selling artists, it would be a list, for the musicians themselves, of their most devoted fans.

In other words - following the theme I am seeing here - data comes from the field and can be used to show what is happening; this not only makes intermediaries less important, it shifts what is relevant to measure.  

Transit Data, Open Government, and Vision

Today, we have a guest post from Bruce Roberts on a recent transit data workshop hosted by King County Metro.

Last Thursday evening (October 22nd), King County Metro (KCM) held a workshop about its transit data APIs aimed at the technical community. Approximately 50 people attended, with about 30 members of the technical community and the rest primarily technical staff from King County Metro, Sound Transit, and Portland TriMet. The workshop consisted of a brief introduction, a panel discussion, a breakout session for brainstorming, and a summary report of the brainstorming sessions. There was additionally ample time during breaks for discussion with individual representatives from the government agencies.

KCM currently provides schedule, route, and real-time bus location information. The real-time data on its buses is done through an automatic vehicle location (AVL) signal-based system. The buses essentially signal where they are in a route based on how far they have come. This doesn't work well if the bus is rerouted for construction, or the route changes due to emergency conditions. In addition, approximately ten percent of KCM's buses are equipped with automated passenger counting systems, and these buses are currently rotated through different routes to collect sampled passenger data. I don't think this passenger data is easily available to the developer community yet.

Two changes to the KCM system are going to be rolled out soon - KCM is planning on deploying a GPS-based system in their buses next year which will allow for tracking actual locations of buses, rather than inferred locations. They also plan to begin providing the schedule and route data using an emerging standard based on the Google Transit Feed Specification. It wasn't clear to me whether there is an emerging data standard for vehicle location data, or when passenger count data might be made openly available.

KC Metro is clearly very open to working with the developer community. The staffers repeatedly represented that they wanted honest feedback about their efforts to date, and guidance for short-term and long-term updates to the program. One staff member said "it's the public's data." I found this pretty refreshing from a government agency. It was very clear that they wanted an open exchange, and I believe they got a lot of very useful feedback from the community. The technical community had a lot of feedback - this fell into a number of general areas:

1. Continue to support the development community, though further workshops, online tools, whatever they can. If this means finding an existing transit data forum or group that can be used for the Puget Sound community, that's fine, particularly if that community can be set up faster than one supported directly through KCM resources.

2. Focus on getting the community as much data as possible, including historical data. Don't assume that only schedule and real-time data are useful - let developers, entrepreneurs, and researches figure out ways to use whatever raw data you have. The technical community is happy to drink from the firehose.

3. Spend time making sure the data you do provide are correct and the raw data APIs are well thought out.

4. Don't spend time worrying about supporting the old legacy AVL APIs - move as quickly as possible to the GPS-based data. This one seemed to come as a pleasant surprise to some of the technical staffers, who I think are used to working in a different environment with different constraints than much of the technical community in attendance.

5. Work to simplify the legal requirements for using this data. Portland TriMet has had great success with this, but admitted that it was a learning curve for their lawyers to accept providing data with limited (if any) restrictions on its use. KCM will likely need to go through this process as well.

6. Work to get us data from other systems as well - ferries, light-rail, whatever is available.

One of the developers at the workshop painted a great vision, and I think it was a vision generally shared by all of the participating parties at the meeting. He wanted to be able to step off an airplane anywhere in the world, access transit information from his mobile device for all the appropriate transportation options in that city, and use that information to get him to his ultimate destination. I believe this is a wonderful long-term vision, and I believe that we'll continue to make significant progress towards that goal. It will take time and effort (but what worthwhile thing doesn't?). This workshop demonstrated that there is interest both within government and and within the technical community to work towards that vision.

The Upcoming Privacy Backlash (and Why that's Good for Advertising)

Google Voice transcripts showing up in Google search results? That was nothing. The real privacy brouhaha will come as search engines start to crawl and index user status updates on Facebook.

Having muscled-up on the steroid of (the illusion of) privacy, Facebook would appear to be thinking of positioning to move onto the open Web. But Facebook can't flip a switch and make all updates of all users accessible. (If it does, it will violate its privacy policy, spark suits, draw ire from consumer protection authorities.) No, there will have to be some sort of opt-in, or maybe a scheme that over time effectively requires users to opt out from exposing their updates to indexing.

In the process, Facebook will end up relatively more open than it is now. Ultimately, however, Facebook cannot fully participate in the open web because it will remain committed to advertising. And why not? Facebook has the potential to profit from advertising the way Google now does. Acceding to its users' squeamishness will also be the right choice, because Facebook has promised its users that "we give you control of your information." Those users already accept, without irony, the intruders who pay to get in. By protesting against erosion of their perception of control, Facebook users will in effect be saying, "keep the ads coming."

A real-time Web, fully indexed to facilitate access to the breaking posts and communication of hundreds of millions of Twitterers, Foursquare travelers, and other social networkers will, over time, devastate advertising.

It's not just about mapping traffic, "snow conditions at your favorite ski resort," or news cycles; real-time, fully accessible reporting from hundreds of millions of consumers means elimination of the information inefficiencies that made advertising of modest social utility in the first place. People will have access to candid information, actual experience, and trusted opinion concerning every product or service for sale. Once advertising no longer relates to sales, it will end.

This crowdsourced destruction of advertising will make what Craig's list did to newspaper classifieds look, not like the warm up act, but like the crew setting up the drum kit, the amps and the mikes an hour before the sound check for the warm up act.

Should Web Entrepreneurs Hang on to Their Companies?

Chris Matthews said something on his Hardball TV show last night that I found disarming. The set up is what makes the payoff satisfying, so I’ll quote his entire lead-in to a particular segment of the show:

"We all studied in school, those of us who took economics, the Marxist theory. It‘s called the labor theory of value. You get paid for your labor, and there shouldn‘t be any extra money made. Now, of course, we have all gone beyond that with neoclassical economics. And we say, no, there ought to be some money for entrepreneurial — entrepreneurialism. If a guy or a woman starts a company, they risk money, they risk most of their lives to get a company going, whether it‘s a laundry or it‘s a big bank, whatever it is. They deserve to make a big profit and live better than anybody else. That‘s the way the system works. But these guys who make money off money...is that necessary? I mean, I have got [to] like anybody you can think of, whether it‘s Iacocca, Spielberg, anybody who makes something, whether it‘s a movie or it‘s a car, you say, great, he ought to make money. But this money that is being made just off of money, is it necessary for our system to have people that make [money off of money] — and, by the way, are the entrepreneurs losing the money that they should be getting from this money?" 

This resonated with something a friend, a veteran venture investor, told me a couple months ago. I won’t convey what he said nearly as precisely as I nailed the Chris Matthews’ quote (thanks to the show’s transcript), but my friend said something like this:

“Wall Street’s pitch to the entrepreneur for the last fifty years has been: you go build your business and operate it and make it valuable. Once you’ve done that, sell it, liquidate it, and turn the cash over to us; we will diversify your wealth, spread it around, extend it, because we know how to do that really well and you don’t. Your money is not only safe with us, it’s safer with us than it would be if you stayed in the game running a business somewhere out there in the middle of America.”

And the Great Recession has put the lie to that pitch, my friend said. From here on out, I’m re-constructing more than paraphrasing:

"Those who bought the Wall Street pitch have lost forty to sixty percent of their wealth. And so it will become clear once again that the way to gain wealth, keep it and expand it is to do it the way the robber barons of the 19th Century did it — by owning and controlling operating businesses. It’s fine to hire others to come in and manage them, but if you want to keep your wealth, you have to own businesses that turn on the lights (real or virtual) every day. Diversification doesn’t mean stocks and bonds, it means owning and operating several or many different businesses. This is also the best hedge against inflation, because you will always be paid in the current currency; and you won’t be having Wall Street taking its cut, coming and going, up years and down."

This is well and good for tycoons and would-be tycoons, but most entrepreneurs I work with still need liquidity because, first and foremost, they are restless; having succeeded, or failed, or succeeded-and-failed-at-the-same-time with a given venture, they will invariably, at some point, need to move on to the next thing.

Can you pull some liquidity from your venture, keep running it, and hire management into it while you go focus on the next one? This is a model that I think we may see play out here in the next few years:  the serial entrepreneur who stays a shareholder, and perhaps a board member, as he hands off the day to day operational responsibility, and draws cash from one business to seed the next one. This may be a model that is unique to software, social networking and other Internet-oriented ventures, however. This may be a byproduct, a benefit, of those who’ve learned to bootstrap during the Great Recession.

The Reconstruction of American Journalism

Tuesday at the New York Public Library, the Columbia School of Journalism will release a report entitled, "The Reconstruction of American Journalism." It's a hundred pages long, double spaced, but it is written well and easier to read than most reports of this sort. It takes the trouble to survey what is happening now with "curated" hyperlocal news sites in various US metropolitan markets, and acknowledges that some traditional journalists are thrilled to be re-inventing themselves.

Mixed in with the acceptance of the new and the nascent and the yet to come, however, is a fondness for a kind of large-scale, institutional reporting that it calls "accountability journalism." The report admits that "accountability journalism" has been around only for forty years, and was itself the result of earlier, disruptive market forces (as the report acknowledges, for most of US history, newspapers were highly partisan). I found the following stretch of text beginning on the bottom of page 11 to be particularly telling:

Something is gained when news reporting, analysis and investigation are pursued collaboratively by stable organizations that can facilitate regular reporting by experienced journalists, support them with money, logistics, and legal services, and present their work to a large public. Institutional authority or weight often guarantees that the work of newsrooms won't easily be ignored.

Is that so? The stories of innovation surveyed in the report might lead others to different conclusions, such as, a better kind of legitimacy and authority may arise from newer, more transparent media models which do not require the muzzling of their own journalists. (Did the Washington Post reinforce its "institutional authority or weight" when it censured its managing editor for tweeting?)

Some of the recommendations in the report are sensible enough; others are novel (e.g., universities should regard "accountability journalism" as part of their educational missions). The fifth and last recommendation in the report is appalling; it reads as follows:

A national Fund for Local News should be created with money the Federal Communications Commission now collects from or could impose on telecom users, television and radio broadcast licenses, or Internet service providers and administered in open competition through state Local News Fund Councils.

If the federal government has a role in supporting hyperlocal communities, shouldn't it be through promoting end-user access to broadband or other initiatives having to do with infrastructure, transparency and neutrality?

Pumping the Crowdsourcing

I'm obsessed with Twitter, though no one would confuse me with the most nimble of social media users. This morning I loaded the Gist iPhone app to try it out . . . and couldn't remember the user name and password to the Gist account I created only weeks ago. That's just one example. Even when I negotiate such roadblocks, it takes me time to learn the conventions. I'm generous when new Twitterers ask me things like, "what does RT mean," because I'm conscious of my own, deliberate learning curve. I still don't know what significance putting a period before a hashtag has (maybe that one will die out before I ever get it).

I love Twitter, and I hate advertising. Advertising on the iPhone and on the web bothers me far more than spam in email. Maybe that's a consequence of years acclimating to garbage in the inbox; I'm good at ignoring it, just as I filter out the noise of the interstate across the street from where I live. With Tweetie, FourSquare, news apps, travel apps, however, I must devote all mental processing power to unpacking the learning in front of me, and I don't seem to have subconscious filtering power to spare; I'm all open ears, and the spammer's ping on the iPhone reverberates like a jackhammer.

Advertising is from a backward looking world. My social media clients who bootstrap with ad dollars feel similarly; they know the future is an era where the Mad Men will finally surrender. But ad revenue mitigates the burn, and users of well run online communities, by and large, accept the trade off, by and large.

I don't.

I don't like ads, so I don't like Facebook. Facebook takes targeting to a new level of insidiousness. (Don Draper lives!) I visit Facebook infrequently and reluctantly, however, because some people I care about will only network socially that way (they've stopped emailing or phoning on the weekends; Facebook is a way to send the annual holiday form letter, only in increments).

For that matter, my Facebook-only friends don't like me, and I think I'm losing them even as I forge new relationships on Twitter. Twice, on the street in front of Herkimer, where I am drafting this post, heretofore friendly acquaintances have stopped me, looked me in the eye, and implored me to stop spamming their Facebook pages with my updates. "It's all Bill all the time and it makes me want to un-friend you," one of them said. Contrast this with an encounter I had at the registration table at an art event a couple weeks ago: I gave my name as William Carleton, and the administrator for the event swooped in from the back and shouted out, "are you @wac6?" Immensely pleased, I said, "yes, yes I am!" She said, "I admire the way you are using Twitter," and I thought, well, that is the same compliment I bestow upon the Twitterers I look up to the most! And there you have it. That's the connection to un-earth. Nostalgia crumbles under the stress of dealing with ideas; asymmetrical social networking can help you find the non-circumstantial.

Facebook is backward looking. A way to keep up "with your b-list friends," a friend of mine put it over dinner and a glass of wine. With Facebook, the past is a structural imperative. Nostalgia is not built into Twitter as a network, even though you can go down rat holes there, too (by following celebrities, say, or using it to procrastinate; those behaviors are allowed if not required). Twitter will permit the patient user to construct an intellectual universe she'd like to live in.

Did you know that you can't use the iPhone cut and paste functionality to grab and copy posts within the Facebook iPhone app? My brother posted something funny on Facebook and I wanted to share it, on my terms, via other apps within the iPhone. But I've had to go to the web to get it:

I'm a Mac. My command keys are unspeakable occult symbols laid out backwards to piss off people who use normal keyboards that don't cost 50 dollars. When a Windows user hits Alt instead of the "Praise Satan" symbol I kill a puppy!

Even the notoriously backward NYTimes has an iPhone app that lets you cut and paste from their stories! Prediction: Facebook will go the way of "you've got mail." Somebody will make a cloying movie about it and everyone will leave the metaphorical multiplex and forget to come back. The public commons will reassemble elsewhere.

Antithetical to condescending advertising are straightforward schemes to engage the user. The Google crowdsourcing for traffic reports is amazing (and, yes, I acknowledge that it is brought to us by a company that funds all of its myriad amazements still solely through the revenue from old-world advertising). My client Matt Heaton is one of the masters of the emerging art of using point systems, rewards, and other techniques to drive user generated content and activity, to the betterment and vitality of the community. I was pleased to see a post from Matt about user engagement techniques on the new BigStartups site he recently co-founded. 

This morning I received mail from Foursquare informing me that I had become a superuser:

What does this mean? Well for now, you gain the ability to edit our venue database (fixing incorrect addresses, suggesting duplicate venues, marking places as "closed", matching venues with their Twitter accounts). In the future, you may unlock additional Superuser powers that let you merge venues and (ah, someday!) create new badges.

Anyway, for now, the next time you log in you'll see that when you visit venue pages, you'll see a little pencil icon for editing venues (address, crossstreet, etc) as well as marking places as "closed". Small steps, but we're getting there! :)
This delights me. Someone at Foursquare has noticed that I have taken the trouble to enter into their database the restaurant at the Disney Concert Hall in LA and the Jack Straw mens' clothing store in Seattle, and that I gave them accurate info. They are recruiting me (and others, obviously) to help build out their database for them, and they are (presumably) trying to be judicious about who they recruit and how much they let those persons do. It may well improve the service, and can only engage me further. I can't wait to get my virtual hands on that pencil icon. And of course I am going to pass this mail on to Matt and other online community entrepreneurs as a cool iteration on a user engagement tactic.

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