Capital markets 2.0

OK, first let me be clear, I was not a finance major.
Much to my later regret, I also skipped accounting altogether. When I completed my MA in public policy at the University of Chicago, I was sent over to the business school where I concentrated in statistics. Thanks to Dr. Miki Gaskow-Green and her patience I ultimately had the opportunity to study with the late Hillel Einhorn.  The little finance I did learn was from Harry Watson in the multiple economics courses he taught within the committee on Public Policy.

A few years later, the mid-80s, I gained a new appreciation for finance when tasked to to creating a relationship profitability model for Citibank in the mid 1980s gave me a whole new appreciation for Finance.  

Fast forward 25 years, and now I can generally follow the complexity of the financial meltdown, grasp derivatives and other secondary market related activity.  

A little tweet I tripped across today, however made me feel a little like Alice chasing the white rabbit down the rabbit hole into Wonderland.  It seems that Sarah Lacy has done a very good job of leading me and other more astute financial market observers to a new reality.  

In this short series Tech Crunch published in March and April of this year, Sarah articulates several new realities. I started with the third article in the series entitled How we all missed Web2.0s Netscape moment. and wasn't quite sure what and where the real story was but ended up with a whole new understanding of the wider financial markets.  For hyperbole I suggest may be we are now in a period of capital markets 2.0. 


Several things fascinate me about these articles and since I don't have the answers I'm reaching out to you. 

What Sarah Lacy noticed and several more astute investment analysts have acknowledged in posted comments, are several macro moves with some interesting, if not serious repercussions.
Image via Wikipedia
I scribbled the following observations from reading the third post in her series.

1.  If you are going to build a new company, that disrupts an industry use new rules as in metrics to communicate value, don't let the traditional ones define you and your value proposition. This was what Netscape's IPO did and simultaneously changed the laws of gravity around start-ups, particularly when it came to new technologies for which there was no precedent for value. The Market responded learning that in order to go public a startup no longer needed to first be profitable or even have a profit model fully baked.  The buzz and promise of the technology to change the status quo was sufficient to attract significant capital.

2. The emergent lessons from the capitalization of Facebook is again game changing. It's current late stage funding is proving that start-ups no longer need to go public in order to:

1. Get liquidity for their earlier stage investors;
2. Stage a huge marketing event; and 
3. Have extra cash to acquire competitors and keep growing. 

The resulting transformation in the wider public market from Netscape's IPO  democratized investments (author's words, not mine).  But the capitalization of Facebook represents a complete 180, and a conscious avoidance of standards governing public companies i.e. Sarbanes Oxley and Reg Fair Disclosure--REG FD.

Part Two, really part one 
Hooked, by the this analysis,  I went back to read the initial start of Sarah's series,  Is late stage the new early .



Jason Jones , Founder of High Step capital, commented on Sarah's first post and suggested another avenue for her investigation. 

In the 4th quarter of 2010 approximately 40% of private market sales were completed by venture capital. But here is the interesting thing, about 30% of the private market sales were completed by public market investors (asset managers, mutual funds, and hedge funds).

New questions arose for me. With all the money from both Venture capital and public market investors all being sucked into the private market, what does this mean for normal liquidity?  what are the repercussions for the bulk of the public companies whose shares are being traded daily?

The second article in the series, Benchmark Capital's Stand didn't measure up to the depth of analysis in the 1st and 3rd. I couldn't help but wonder if the bar for returns set by the tech boom  raised the appetite for Venture capital when it spilled over to the street. After all, a rule of thumb for venture style returns are Ten times its invested capital...at least that was Benchmark's expectation.  Public companies are beholden to their shareholders and returns are the primary form of accountability, and so it's logical for executive leadership to drive hard to meet near term earnings and focus less on developing longer term value.  In contrast it is precisely the focus on long term and investment in time and resources around innovation that private firms are freer to indulge.  I mean the obsession with short term performance may have as much to do with fear as it does with a complete misunderstanding of what defines value.  Hey if Netscape changed the rules initially and Google also made it clear that it wasn't going to play by the usual standards dictated by the street, Facebook is denying the system the very intell and metrics that move the needles of economic growth.  Or does it do something else?   

Please help me understand, or speculate along with me the implications of these new investment trends.  I had been a pretty firm believer in the financial markets ability to  recognize and reward value and equally strong believer in the need for banking reform. Then I read these short articles  and realize how much of the picture I had missed in my analysis. 

I'm hoping for a clearer followup to appear soon, or counting on others like you to point me to one that I may have missed.   

Will you let me be a super hero?

Defense intelligence agency and the U.S. central command in Iraq during its military campaign "iraqi freedom" in April 2003 issued  a standard card deck to all personnel.   Why? 

According to Navy Lt. Cmdr. Jim Brooks, a spokesman for the Defense Intelligence Agency, such playing cards have been used as far back as the Civil War and again in World War II—Army Air Corps decks printed with the silhouettes of German and Japanese fighter aircraft fetch hundreds of dollars today—and in the Korean War.  Troops' playing cards depict most wanted help pass the time; but more critically might help a soldier or Marine catch one of the figures.

If the US Defense Intelligence finds merit in games, then it should come as no surprise that others are opening up to the potential of games to help solve serious, real world problems.  Meet Jane McGonigal, a fellow at the Institute for the Future and game designer with a PhD from University of California, Berkeley. She recently published a book entitled Reality is Broken.  She was a big hit at DICE, the gaming conference, a few years ago which is how she got to TED.   If you've got 20 minutes, I encourage you to listen and learn How gaming can make a better world.

Her call to action has raised a lot of knee jerk skepticism, such as that which was published in SLATE Magazine a few days ago  by Heather Chaplin and found here: Gamification: Ditching reality for a game isn't as fun as it sounds. mag

Bottom line?  In spite of how much games and sports are deeply embedded into our culture, or for that matter globally human cultures; we have insisted on separating them from more essential past times or pursuits. They are entertainment, or escape or for those who are inclined toward leisure, right? A professional athlete may have the luxury of being able to play sports for a living, in which case it may be their day job, but most people still believe that they are lucky enough to get paid to "play."

Play is not what you are supposed to do in school, at work or when solving serious problems, right? Games however have persisted throughout human history precisely because there is some intrinsic value in them that the casual observer often misses.  It is precisely this value that McGonigal and others like Jesse Schell from Carnegie Mellon University has written about (see The Art of Game Design: A book of lenses). 

The word game and the subject of play rarely, if ever occupy the same pedestal as commerce or religion or other endeavors more central to human existence and survival. As an educator, however,  I can appreciate the value of entertainment or as Mary Poppins would say, "just a spoon full of sugar, helps the medicine go down, in a most delightful way."  Learning, working or the activities that we believe require focus and attention surprisingly can be enhanced by the use of play. 

Games come in a variety of formats and levels of complexity, and  mirror the variety of levels and formats of our daily existence. We tend to play in  environments with  rules both clearly  bounded such as the soccer field, the basketball court, the flight simulator, the Monopoly board, the chess board, the casino or increasingly a computer interactive environment.  Sure the rules in soccer don't offer any insight to those playing roulette, or basketball's defensive strategy is not very applicable to chess.  But then we do not have the same freedom on an airplane as we do in a classroom, or a corporate office boardroom.  Each environment has a set of rules dictated by the culture or norm of interaction, just like a game.  What makes it more interesting is how often we relish the freedom that comes from changing environments, or even the coccassion in which having experienced a taste we want to try it again.  In game play, practice is a given and the more frequently we play or perform the better we get.  This is the idea behind homework isn't it?  practice for improvement?  It's why int he workplace generally speaking, those with more experience are considered more valuable? 

The point is that if you've never rehearsed something, or practiced in order to improve than I could more readily accept the distinction being drawn between reality and fiction, or game constructed realities. Inherent in human development is natural curiosity mixed with natural caution. When a baby begins to make the transition between crawling and toddling, naturally adults want to bound the environment and let them test but with great safety in the form of supportive hands, removal of sharp barriers etc.

When we draw lines to separate play from reality we are merely reinforcing a norm or set of values that are conducive to social society's needs for less intrinsically valued activity.  The activity we may value is actually playful, but someone needs to help the children cross with safety or work the register at the Walmart or build the cars, the roads etc.  But are the bond traders playing or working?  Some work environments are clearly playful or allow us to be the super hero on occassion, like the firefighter who saves the kitty in the tree or rescues the child caught in the burning building.  

I don't htink it's crazy to imagine changing the world to make it be the future that we want, rather than the legacy of some outmoded idea of the future?  Why for example, if there are patches of vacant land, do we insist the parcels of property and zoning rules remain static to a 19th century notion of the future population density of a city?  We need to be more proactive in changing our environments, taking them back.  Rebuilding urban farms, that were cleared for a wave of population that has long moved away leaving abandoned properties in their wake.  Let's leverage the increasing ease with which we can escape our reality and retreat to game environments to practice and prototype a different world.  At the same time help us imagine it and work out the kinks before building the wrong thing.  

Scenario planning, and game theory has done a great deal to help insure a brighter future.  So, I'm with Jane and Jesse too.  I don't want to merely believe, but get the chance to get in a  little more practice being super heroes, and then make progress to refashion our real environments to emulate what we find exhilarating in our play spaces.  I think we can realize a vastly improved world much faster.

At the state of the Union, the spirit of cooperation resulted in a new seating arrangement.  So I'm in favor of sending in some good game designers to help the current elected officials do some game playing together and see whether we might get a little progress on some dead lock issues.  

I close with a link to Jesse's 30 minute talk at DICE from two years ago.  If you think you can escape the game world? well think again, it's here and it's only going to become more obvious shortly. 

Jesse Schell's DICE-2010-design-outside-the-box-presentation

Comments?  Reactions?

Reframing Social policy approaches through a Systems lens

Today I heard someone talk about evidence based decision making in the context of solving social problems. More frequently we hear this term with respect to medicine, in fact Dr. Atul Gawande has widened the understanding of this approach to medical care through his writings. The idea is simple, and uses randomized, controlled studies to evaluate the validity and reliability of clinical research. The best medicine to practice leans heavily on repeatable research that demonstrates its effectiveness. In short, treatment decisions are determined by results proven in multiple settings. Unlike best practices, evidence based decisions should deliver the same results in different settings and establish clearer paths to success. But how can it work on a social problem where it's almost impossible to undertake randomized controlled studies?

Social capital may be the critical ingredient. This vogue term and associated ideas are interspersed with attempts to value social networks and social media's impact. No matter which end of society we occupy, we tend to share a common conception that fundamentally things need fixing. The evidence of what doesn't work in the social sector is often more significant than the public can bear. The Tea Party is not the only one drawing lines in the sand and exclaiming that it's time to stop spending money for things that don't work. We lack clear repeatable evidence to support continuing various entitlement programs will solve the problems they were created to address, then again not funding them may make things that much worse. The growing pressure on public schools and anger about the pensions of public employees is in part a reaction to the fact that not a single school urban school system is a shining success.

Is it because we have set the bar too high? Or best practices don't seem to scale? Or worse, clear repeatable evidence has not been found? Though we know that those who finish school and continue through a post secondary education earn higher wages, that's not the metric for school success being used. The measures often in place are often as transitory as our annual budget commitments . Sure, teachers should be held accountable for the time and materials they share with their students.  But if you want schooling to have impact, the Cradle to College Evidence Based Research demonstrated by Geoffrey Canada in the Harlem Children's Zone  suggests it takes far more to help the child be ready and able to learn from the teacher. The heavy use of evaluation outcomes by most non-profits and increasingly demanded by funders may be similar in rigor but lack the randomized control aspects  of evidence based practices.  Both further the commitment to build on what  really works. Sadly, it's a difficult model to transport and costly to scale, because it addresses a host of factors that are ancillary but entwined with the system of care that helps a child reap the benefits delivered by quality instruction. Using social capital to create the interconnections and cast the net of evidence capture the effects across a wider support system of services appears to literally lift those born into poverty out and offer them a better future.

Promise neighborhoods hopes to extend the success of the Harlem Children's zone and  is part of another growing movement, perhaps less visible and probably less vocal than the Tea Party. It shares some of the features of open source systems, where individuals contribute what they can, when they can and the benefits are shared by everyone. If you have not yet heard or sampled Wikipedia I suggest you take a moment to experience what collective intelligence looks like, what its capable of producing. Is there a clear metric of success? No, rather it's an evolving work. the success is its sustainability and the anchor it has established to support a generation who never experienced an encyclopedia created by "experts." and scholars.

The movement is literally a convergence of cross-sector partners whose individual strengths focus on a shared objective to create collective impact. This is not a zero-sum game but rather an effort to leverage the government's ability to bring together all the system players. Collective Impact borrows from collaboration to create large scale, long term systemic change. Using a common frame and vocabulary individual organizations from academic, business, and philanthropy sectors align their strengths to make a system run better not merely help an individual organization or element within the community succeed.

Today, I tuned into a webcast conference organized by FSG and Stanford Center for Social Innovation Review. The conference entitled Creating Large Scale change examined the phenomenon of Collective Impact and encouraged funders and nonprofits who attended to change their thinking and consider a new paradigm for effecting social change. In my own community of Chicago I'm familiar with the public private partnerships that have long operated in our region to address various issues such as transportation or growth as envisioned by the Burnham Plan. The longstanding recognition of the role of social capital to both sustain and support projects that improve the city reflects the values shared by philanthropy, city government and business.

The efforts of Mayor Daley to extend the planning and visions to make Chicago a green city, promote and build tourism and the city's diverse cultural heritage shyould not be overlooked. But I'm wondering about the possibilities and potential that a different configuration and investment commitment might be able to deliver.

Chicago is the recipient of one of 13 Social Innovation grants that are supporting the commitment to a more system organized approach to community development in 12 community areas that are supported by LISC, the Low Income Support Coalition. What system opportunities might be able to address the issue of crime in certain neighborhoods with disproportionate population of ex-offenders , joblessness, addiction and poor graduation rates. The array of support program and services that trickle down from the federal government into different nonprofit organizations are often compromised rather than providing synergy to change the system. Mounting evidence from academic research, yes the evidence based decision making exists. With leadership and long term commitment perhaps some willing partners will commit to the long term. LISC is a good model and the investment by MacArthur and other partners are now beginning to show promise, furthering the capabilities and building capacity of lead community organizations in these communities to have high quality impact on the residents. There are other signs and other funders who are encouraged to also enter into these long standing commitments and together they may be able to not only change the paradigm but also begin to change the system.

FSG and Stanford hope to make the conference available as a pod cast; but a good place to start might be with Mark Kramer's paper posted here:

Collective Impact (February 15, 2011) | Stanford Social Innovation Review

Balancing on the Edge: Preview "Reframing Social policy approaches through a Systems lens"

Collective Impact, is it the new paradigm, that will help move us past program and organizational investments? Will it help us tackle the wider social issues inherent in the interconnected systems where these problems reside?  After listing in on a conference sponsored by Standford Social Science Innovation Review and FSG, I share my thoughts in Balancing on the Edge: "Reframing Social policy approaches through a Systems lens"

Abstraction not Distraction

What I love about Apple and Steve Jobs  is their ongoing ability to tease out subtlety in our affections to reap enormous rewards.  This difference between merely  exploiting new technical improvements to make an electronics gadget better and leveraging the emotional connections and experiences that the electronic gadget makes simple and possible is how Apple continues to  drive demand for its products. Yup, I used the word experience because the easier and faster I get that experience, the happier I am. 

Upon reading the comments following a recent Mashable post on  yesterday's announcement at Apple's World wide Web Developer's conference,  I noticed how neatly they fall into this divide.
Apple Introduces iAds: “Mobile Ads with Emotion”

Yes, no one likes  pop-up ads but I interpreted the complaints more as limitations, manifest in  their inability to grasp abstraction. Pop-ups are distracting and that's why we tend to get annoyed and ultimately go out of our way to ignore them or change our browser settings to block them.  I believe, please correct me if I'm wrong, that the iAds are not serving up pop-ups...instead they are intended to evoke a memory, an emotion or conjure up an experience.  Not a distraction, rather an abstraction--defined as:

1. an abstract or general idea or term.
2. the act of considering something as a general quality or characteristic, apart from concrete realities, specific objects, or actual instances.
3. an impractical idea; something visionary and unrealistic.


As MIT Technology review expressed  "Ephemeral info-nuggets are the Web's new currency."  Apple will once again show us the way. 

Share the meaning not just the message

If you are like me, you are probably not shopping for life insurance. But that's not why I'm sharing the following interactive PR sample. Of late, I've been looking for examples that really evoke an experience. Ones that exemplify tangibly using various medium (print, video, audio, text etc) to connect the receiver(s) to the experience described. In other words, how can I share the meaning of my experience in a manner that evokes similar sentiments and possibly elicits similar reactions?

This morning, I decided the adjective that best expressed this affect was "sticky."
I realized that the metaphor of a fly hitting flypaper was precisely the image that might communicate what I'm feebly describing in words. I also hoped it might help me further tease out, convey my message and shared meaning. My Google search terms were animated flypaper; and to my surprise, I found a firm called flypaper that literally creates these type of interactive, experiential resonant, online materials. I checked out their samples and fell in love with the one below. No I wasn't impressed until I played a little. So I suggest you move your mouse to Our products on the left side menu, click, and then click again on the now open Life insurance link. If the video in the center of the frame doesn't begin, then there should be a button..but I believe it should open automatically.



At the very least, I hope you laugh.
At best? Share back. Tell me whether this example expresses the kind of evocative experience I'm trying to describe.

Thinking, sadly, is often under-rated

"Just like a fish doesn't know he's wet," David Kelley, founder of IDEO says, "we didn't realize that our real contribution was that the companies we worked for didn't think like us. And when they did, it really had a lot of advantages for them."

Fast Company's profile of David Kelley published in February of 2009, is the classic profile piece of a CEO overcoming adversity. What is odd to me, is how standard an approach Linda Tischler, the author, used to describe a guy whose thinking differently is synonymous with the value both Kelley and his firm IDEO consistently delivers.

Don't misunderstand, Linda writes well. She tells the story with authenticity, and though I'm in no position to judge, accurately. The emotional notes she strikes are appropriately toned, not too sharp and not too dramatic. There is enough variation in her prose that the composition, if written with musical notations, would sound lovely. I imagine it as a melody more memorable than easy listening but not very original or memorable.

Its the absence of originality that hit me as I began to think about the larger context and the essence of who is being profiled. David Kelley, the how and what he does is strikingly memorable. Linda's piece has made that clear. Still in spite of the time she spent with this icon of design--yes, I believe people can be icons though their thinking is probably iconic--Her style and process appears to have been unaffected.

How striking can Kelley then be if there is no enthusiasm or overt evidence in the piece? Is Kelley's essence and really just another CEO profile?  What thinking, which for me is the gist of the purpose and legacy of Kelley, is at work in her writing? Was it merely enough to synthesize a workable narrative, use her established thought processes to reinforce her existing competencies as a reporter, story teller and/or writer? But wait, this article appears in Fast Company. In spite of the originality of its conception, and the topics of content which I certainly appreciate, the magazine rarely models the very objects and findings that appear between the front and back covers. Since its founding, my own readership has varied from loyal, regular to now occasional. At present, I can't recall a single piece that demonstrated, escorted or personified the Fast or envelope pushing philosophies or ideas that they write about.

Is it any wonder that the world doesn't seem to think or understand innovation enough to actually be innovative? I'm not trying to be cranky, I'm just noticing that the mechanisms and institutions that are failing fail because they continue to apply their thinking in very limited domains. A different approach  offers a chance to capture opportunities and gain new advantages--ones that David Kelley's thinking notices and politely states is lost by many organizations who become clients.  The benefits are clear.  It may be work, but expanding our thinking activities can't hurt and David Kelley is eager to teach.