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Business, Technology

Which Accelerator Should You Choose?

March 30, 2023 tremendousblog 1 Comment

If your startup has a couple of customers, you’re at a crucial point. Your product is beginning to catch on, but fundraising is still tough.

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Your best path may be an accelerator. But which one?

Let’s run through a few great options:

Y Combinator

This is the granddaddy of accelerators.

Founded in 2005, it’s been around longer than anyone. Its track record is amazing, having produced companies like Airbnb, Stripe, DoorDash and Instacart.

YC invests $500,000, more than most accelerators except perhaps LAUNCH (more on that below).

YC’s only real downside can be a lack of individual attention.

There are 268 companies in the current YC batch. That’s way more than many other accelerators, who often have fewer than 10.

There’s a big difference between being one of 7 companies and one of nearly 300.

That said, YC produces amazing startups regularly. My last two investments have been YC companies.

LAUNCH Accelerator

This is my personal favorite. I’ve invested in 6 LAUNCH Accelerator companies, by far the most of any accelerator.

LAUNCH invests $100,000 for 6% of your company. It usually puts another $500,000 or so in when you raise your seed round.

In all, LAUNCH likely provides the most money of any accelerator.

It also provides individual attention. There are just 7 companies per batch and the LAUNCH team works intensively with them.

Founders I know who have gone through the program met everyone — Sequoia, Craft Ventures, you name it.

The only downside is it’s not as big of a name as YC. It’s much newer, but it already has 1 unicorn in GRIN.

In all, LAUNCH is an excellent choice.

Entrepreneur’s Roundtable Accelerator

I started paying attention to these guys when I invested in an ERA company, Rilla. It quickly became one of my top performers.

ERA invests $150,000 for 6% of your company. Like LAUNCH, the batch size is small — just 15 companies.

Although ERA is newer than YC, it already boasts 4 unicorns.

The people who work there are serious and focused. That’s who I’d want on my side.

I’m looking forward to investing in more of ERA’s awesome companies!

Techstars

Techstars is another longstanding accelerator with a great track record. Founded the year after YC, it has produced 11 unicorns so far.

Techstars is in person, but it has programs all over the world.

I’ve invested in one Techstars company so far, with more sure to come.

Wrap-Up

I think accelerators are the best path for most pre-seed companies. Top accelerators provide a built in network, great mentorship, and a brand name that can help with fundraising and recruiting.

But don’t go just anywhere.

Avoid accelerators with no name recognition. Also avoid any accelerator that doesn’t actually invest.

The right program can take you to the next level. But the wrong program can waste your time and space on your cap table.

Best of luck building the great companies of the future!

What has your experience been with accelerators? Leave a comment and let us know!

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Scare the Sh-t Out of VC’s

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Business, Technology

Scare the Sh-t Out of VC’s

March 28, 2023 tremendousblog 2 Comments

Pitching investors can be nerve-wracking. But what if you flip the script and scare the sh-t out of them?

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Last week, I sat down to coffee with an aspiring entrepreneur. As we brainstormed together, he came up with a great concept for a startup.

What about a platform to make finding wellness providers like acupuncturists easy?

I liked it — but encouraged him to go further. He could start with a few wellness providers, but what about taking on medicine as a whole?

We all hate doctors’ high costs and opaque pricing. What about a marketplace where you always knew up front what you’d pay?

In time, rather than supplementing insurance companies, he could replace them.

This could be an awesome business. And there’s another cool benefit…

It’s a big idea. And if there’s anything that scares the hell out of venture capitalists, it’s missing the next “big thing.”

VC’s always want to identify and ride a trend before everyone else.

It’s how they make money. But perhaps even more importantly, it’s how they say “I told you so!”

And what if they miss that next big thing?

Their fund languishes and they become irrelevant. And more than anything, angels and VC’s fear being irrelevant.

Otherwise, why would they constantly promote themselves on Twitter, podcasts, and blogs like mine?

Back to our young entrepreneur.

He could present investors with a nice platform for booking acupuncture. They’d smile politely and thank him for his time.

And he probably wouldn’t get a check.

But what if he shows them the exact same thing with a very different vision? Today acupuncture, tomorrow Prenuvo scans, and eventually all of medicine?

That’s a trillion dollar company. And that’s what VC’s want to invest in.

If this business fails, the VC’s downside is minimal. But what if they miss another Google?

The biggest opportunity in that investor’s professional life goes up in smoke.

Paint a compelling vision of how your company can be another Google, Uber, or Airbnb. It is never a straight line and you won’t get there tomorrow.

But show up with a big idea. And make that investor terrified he’s going to miss it.

That’s how you get a big check. It’s also how you change the world.

How do you pitch investors? Leave a comment and let me know!

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Business

Deutsche Bank Under Fire

March 24, 2023 tremendousblog Leave a comment

Is Deutsche Bank the next Credit Suisse? Traders think so today as they dump the stock and rush to protect bond holdings.

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From a new report in Bloomberg:

Deutsche Bank AG became the latest focus of the banking turmoil in Europe as ongoing concern about the industry amid a slowing economy sent its shares slumping the most in three years and the cost of insuring against default rising.

The bank, which has staged a recovery in recent years after a series of crises, was the biggest loser among large European bank stocks Friday after announcing a plan to repurchase debt, a move normally seen as a sign of strength. Analysts struggled to explain the selloff, which prompted German Chancellor Olaf Scholz to publicly back the lender.

The cost of insuring against a bank’s default is a key stat. Called a Credit Default Swap (CDS), this protection often soars in price when a bank is close to failing.

Old Lehman Lesson from 2008:

Watch the price action on the next “weakest bank” for a lead on “what’s next.”

-Deutsche stock down 13%, CDS at the highs and they are back to reporting on daily moves in credit.

That’s not bullish. pic.twitter.com/XeZ7k3FLFK
— Alexander Campbell (@abcampbell) March 24, 2023

One thing in Deutsche Bank’s favor: a big pile of cash. It’s sitting on $179 billion of cash and deposits at central banks, according to its latest annual report.

That means it could pay back 28% of its deposits almost immediately. But the thing is, Credit Suisse had a ton of cash too.

It failed anyway. In the end, no bank can pay back all its depositors right away.

Even US regulators seem concerned. Treasury Secretary Janet Yellen convened a group of top officials this morning in an unscheduled, closed door meeting.

In the end, Germany won’t let Deutsche Bank fail. Neither will the ECB.

Deutsche Bank is the largest bank in Germany by far. It ranks #8 in the entire EU.

Olaf Scholz is not going to let old Granny Durchdenwald lose her life savings.

But that doesn’t mean Deutsche Bank shareholders are safe. Once mighty Credit Suisse is now a penny stock.

I hate bank stocks. Banks often pick up pennies in front of a steamroller, turning in decent profits until they suddenly get crushed.

Perhaps Deutsche Bank will survive as an independent company. Either way, shareholders won’t be sleeping well tonight.

What do you think will happen to Deutsche Bank? Leave a comment and let us know!

Have a great weekend everyone!

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Don’t Wanna Pay 216%? How About a Naked Short?

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Executives Dumped Shares Shortly Before First Republic Rescue

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Business

Don’t Wanna Pay 216%? How About a Naked Short?

March 23, 2023 tremendousblog 2 Comments

Cost to borrow shares of AMC Entertainment holdings went through the roof today. From a report out just this afternoon on InvestorPlace:

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The cost to borrow (CTB) fee for AMC Entertainment (NYSE:AMC) has skyrocketed to 215.80% today, up by more than 100% from the reading of 101.76% on March 10. Yesterday’s closing CTB fee reading clocked in at 211.41%. Meanwhile, between March 10 and today, AMC stock has fallen more than 10%. What’s going on?

The CTB represents the yearly fee that short sellers must pay to borrow shares. A higher fee could represent increased short seller demand while a lower fee could represent lower demand. A higher fee could also signal a scarcity of available short shares. Still, AMC’s exorbitant CTB fee could actually be seen as a positive for AMC stock shareholders.

Let’s say you want to short AMC. But you don’t want to pay 216% a year interest because…uh…no one does.

But don’t worry! There’s a dandy alternative.

How about a naked short?

With a naked short, you don’t even have to borrow the shares at all! Instead of 216% interest, how about 0%!

Pretty sweet, right?

One small problem. It’s against the law.

There is strong evidence of massive naked shorting in AMC stock. Fails to deliver hit nearly 12 million shares in the latest SEC report.

That’s absolutely staggering, even for AMC. And keep in mind, most stocks have few if any fails to deliver.

Why are tons of trades failing?

To close a short sale, you need to borrow some shares. But it’s kinda hard to do that right now, at 216% interest.

So why not just cut some corners and naked short? It’ll just wind up a fail to deliver and get swept under the rug.

There’s likely a crime here in plain sight. But for it to matter, the SEC needs to act.

But before shorts laugh at the SEC and pop a bottle of Dom, they should think about the risks.

Half of Wall Street is betting that AMC will crash if APE shares convert. This share conversion dilutes AMC stock holders.

But conversion isn’t certain. And even if it happens, AMC shares have jumped after prior dilutions.

In a way, that makes sense.

Yes, you own a smaller piece of the company after dilution. But this heavily indebted company now has far more capital.

That makes the risk of bankruptcy increasingly remote.

I have no idea where AMC or any other stock is going.

But I do know that people don’t like paying 216% interest. And to avoid it, they just might break the law.

After all, what could happen?

Do you think the SEC will act? Leave a comment and let us know!

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AMC Shorts Lose $180 Million So Far This Year

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Executives Dumped Shares Shortly Before First Republic Rescue

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AMC Shorts Lose $180 Million So Far This Year

March 22, 2023 tremendousblog 1 Comment

This is not investment advice.

Like moths to a flame, short sellers love to bet against AMC Entertainment Holdings. Those bets have cost them a cool $180 million so far this year.

And it’s only March.

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From a new report in TheStreet:

This year alone, thanks to quick rallies in the stock, AMC short sellers have already lost about $180 million.

One of the main reasons why there has been such high demand for short positions in AMC in recent months is the fact that many investors have entered into an arbitrage trade. They’ve shorted AMC and gone long APE due to the share price discrepancy.

Short sellers need to borrow AMC shares. The borrow fees have soared to 160% currently, a staggering rate.

AMC and APE are an obvious pairs trade. The two may converge if APE shares convert into AMC shares, as expected.

So if you short AMC and buy APE, you should make money on both trades. The AMC shares decline due to dilution, while the APE shares rise in value to match the AMC shares.

Sounds great right? Small problem…

AMC has a passionate fan base of retail investors. Those investors are attempting to orchestrate a short squeeze.

And that’s a whole lot easier to do when 25% of the shares are sold short and it costs 160% a year to do it.

The pain has no end in sight.

Retail investors are buying stocks like crazy. They bought at a pace of $1.5 billion a day in the first two months of the year, a record.

Hedge funds shorting AMC, pairs trade or no, are making a big mistake.

Every day, more cash is coming in to squeeze them. And you can’t hold a position forever at 160% interest.

Worst of all, their potential for loss is unlimited.

Any responsible investor would close this trade immediately. But never forget, they’re playing with other people’s money.

What do you think the future holds for AMC and APE shares?

Leave a comment and let me know!

More on markets:

Interest Rate Time Bomb May Kill Hedge Funds

Executives Dumped Shares Shortly Before First Republic Rescue

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Business, Technology

AI: Capital Bonfire?

March 21, 2023 tremendousblog 1 Comment

AI is the biggest opportunity in 20 years. It could also kill countless VC funds.

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I took a sip of some yummy espresso last Thursday and plopped down at the laptop. Time to dig into a deal memo from a VC I really respect.

He laid out a clear view of AI’s future. And if you’re an investor, it’s scary. 😲

Tons of startups are all racing to become the next hot thing in AI. They’re all doing the same things with the same tools.

Most will fight each other to the death. With differentiation nonexistent, margins are headed to zero.

Now, what if we add VC’s with billions and a bad case of FOMO?

A bunch of massively overfunded companies will fight to the death. No one will make money.

And many AI-heavy funds will be destroyed. Or as this investor put it, we are headed for a “capital bonfire.”

I tried to poke holes in his argument. But I couldn’t.

It’s not that hard to integrate AI tools into software. A founder I know did it in just 6 hours using OpenAI.

If you’re not something more than a wrapper for OpenAI, you’re not going to make it.

Geez Francis, you really hate AI, don’t you?

Not at all! I think ChatGPT and similar technologies are an incredible revolution.

But just because a new technology is incredibly useful doesn’t make it profitable. Toasters are very useful, but making them isn’t a great business.

There are too many other companies making the same thing.

Aggravating the defensibility problem are massive valuations.

I’ve seen AI companies with no revenue raise “seed” rounds at $150 million or more. I even saw an AI hardware company recently raising “seed” at over $400 million!

These valuations don’t make sense for companies that are barely off the ground. As Fred Wilson of Union Square Ventures has proven, investors can’t make money with $100 million seed rounds.

So who wins in AI?

Big tech will be huge winners. Microsoft practically owns OpenAI.

It has also integrated AI into all its Office products. You can even ask your calendar to prepare you for an upcoming meeting!

Microsoft owns the platform many people already use. Then they serve this captive audience some great AI features.

That’s a winning model.

Another winning model is focusing on data. I’m looking for companies focusing on unique data sets, data cleaning, and better data processing.

Data fuels every AI model. Better data means better outputs.

Even if many AI companies go bust, selling data services can still be a great business. Airlines have a way of going bankrupt, but Saudi Arabia’s doing pretty well selling them fuel.

Let other investors drop money onto every AI startup from a helicopter. I’ll be taking careful kill shots at big game.

After all, we only have so many bullets.

Where do you think AI is headed?

Leave a comment and let me know!

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Business

Interest Rate Time Bomb May Kill Hedge Funds

March 20, 2023 tremendousblog 3 Comments

As March began, hedge funds placed one of their biggest bets of all time. It may be their undoing.

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Traders placed the largest bet in history on increasing short term interest rates. But as a banking crisis spreads, rates may fall, exposing them to huge losses.

From a report out this morning in Reuters:

Hedge funds face huge losses on their record bet that the Fed will go full steam ahead with its aggressive interest rate-raising campaign, after some of the most abrupt and violent swings in U.S. rates and bond market pricing in living memory.

Commodity Futures Trading Commission (CFTC) data shows that speculators held the largest ever net short position in three-month SOFR rate futures in the week ending March 7, only a few weeks after amassing a record short position in two-year Treasuries futures.

Now, their trade is deeply underwater:

Implied rates then plunged as much as 200 basis points in a week as traders drastically redrew their Fed outlook. The two-year Treasury yield posted its biggest fall since the Black Monday crash of 1987, and U.S. bond market volatility surged the most since Lehman’s collapse.

Many funds have already lost 10% of their assets or more so far this month. And as bank after bank fails, the bleeding may get even worse.

A month ago, most of us thought the Federal Reserve would keep raising rates. Inflation was the priority.

Now, with a cascade of bank failures, the Fed may cut rates to stop the crisis. Markets are predicting the Fed will lower rates this summer.

The question for the Fed this morning isn't whether to hike 25bp or 50bp this week. It's when do they start cutting rates, at least according to fed funds futures, which have priced out rate cuts and priced in rate cuts as soon as June. pic.twitter.com/ROHatlStkx
— Lisa Abramowicz (@lisaabramowicz1) March 20, 2023

Already, hedge funds are going bust.

Adam Levinson’s Graticule Asia lost 25% this year, most of it in a few days after the SVB collapse. The fund has closed its doors.

As an investor, sometimes I think I know where markets are heading. But I never put too many eggs in one basket.

I’m playing with my own money. But most hedge funds aren’t.

And it’s not hard to tell.

What do you think will happen to these funds?

Leave a comment and let me know!

More on markets:

Executives Dumped Shares Shortly Before First Republic Rescue

Goldman Sachs Under Federal Investigation

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Business, Technology

“How Can I Be Helpful?” Gets Put to the Test

March 17, 2023 tremendousblog 4 Comments

VC’s ask “How can I be helpful?” so often it’s become a cliche. But as SVB collapsed, some investors did everything to save their companies as others stood pat.

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From a report out today in Forbes:

Over that frantic weekend, venture capital firms scrambled to respond to the crisis. Some found creative ways to ensure their founders would have access to cash on Monday, at times offering up their partners’ personal funds. More set up contingencies to make loans if necessary, then hoped it would never come to that. Still others chose not to make such an offer, or failed to reach a consensus at all.

Conversations with about 20 investors and founders suggested that non-traditional investors like [Sam] Altman, or smaller, individual-driven firms like Jason Lemkin’s SaaStr Fund, appeared to move the fastest, alongside several bigger firms that got creative in their problem-solving, including First Round and Redpoint. Most established firms, however, didn’t impress.

A few brave investors wired their founders money from their own checking accounts. This could’ve cost them millions, depending on company size.

Fortunately, deposits remained safe, and those investors have likely already been made whole. But in the moment, they had no way of knowing that.

We are not using LP money and trying to help our companies. Trying to do it as pass thru loans. Sadly getting requests from companies we have very minor positions in who aren’t getting help from their major investors. Other investors being predatory. Not a time to make money. https://t.co/KVBOW62OMC
— Vinod Khosla (@vkhosla) March 12, 2023

But most investors just wanted to know if they were at risk:

When Alex Lorestani, CEO of startup Geltor, which provides vegan proteins for beauty-product makers, started receiving emails from his investors last Thursday, most of them were one-liners. “They just asked, ‘Hey, are you exposed?’”

When Lorestani informed employees, then his 100-plus investors, however, help came from unexpected places: a fellow founder with some cash to spare, and newer firm Fifty Years, smaller than many with a $90 million fund.

As an individual angel investor, I’m not in a position to bridge a whole company. So, like many smaller investors, I tried to help in a different way.

I did my best to give founders the most reliable info I could find, fast.

I also made sure not to annoy them in a tough time! If they get an email from every single person on their cap table all at once, they won’t be able to do anything else!

Turns out, only one company so far had SVB exposure. They got some of their money out on Friday, and the rest this week.

Like so many startups, they’re headed to Chase.

I couldn’t save companies all by myself. But if I could even provide just a tiny bit of help in that tough time, I was very happy to do so.

When it was all over Sunday night, I bought myself flowers to celebrate.

Founders should make a list of these great investors like Jason Lemkin at SaaStr and Ela Madej at Fifty Years. Give them preference in getting on your cap table.

You won’t regret it.

How did you see investors respond to SVB?

Leave a comment and let me know!

Have a great and more restful weekend, everyone! 🙂

More on tech:

Executives Dumped Shares Shortly Before First Republic Rescue

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Business, Technology

Executives Dumped Shares Shortly Before First Republic Rescue

March 16, 2023 tremendousblog 5 Comments

Top executives dumped shares in First Republic bank this year, shortly before its near collapse and rescue. These sales were not part of pre-announced plans.

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From The Wall Street Journal:

Top executives of First Republic Bank sold millions of dollars of company stock in the two months before the bank’s shares plummeted during the panic over the health of regional lenders.

Executives had been selling for months, the documents show. Executive Chairman James Herbert II has sold $4.5 million worth of shares since the start of the year. In all, insiders have sold $11.8 million worth of stock so far this year at prices averaging just below $130 a share. The bank’s chief credit officer, its president of private wealth management and chief executive together sold $7 million worth of stock.

None of the filings for the executives’ sales indicate that they were executed under 10b5-1 plans, which are pre-scheduled sales designed to insulate insiders from accusations of trading on nonpublic information.

Their timing was great! The stock is down 72% this year, with most losses coming in the last week.

If authorities can find evidence that they knew the bank was teetering and didn’t warn investors, these men belong in prison.

Today, some of the country’s largest banks are working on a rescue for First Republic. From Bloomberg:

The nation’s biggest banks are close to agreeing upon a plan to deposit as much as $30 billion with First Republic Bank in an effort supported by the US government to stabilize the battered California lender, according to people with knowledge of the matter.

Customers have been pulling billions from First Republic since the failure of Silicon Valley Bank. This appears to have put First Republic on the brink of being unable to redeem deposits.

First Republic does not appear to be insolvent. But no bank can redeem a huge portion of its deposits at once.

And given these large, well-timed insider sales, the bank seems to have considerable internal dysfunction.

I’ve said it before, and I’ll say it again: diversify your deposits.

You can split 50/50 or into even smaller chunks. But be sure to include one or more of the Big 4 banks (JPM, Citi, BoA, Wells).

They can be a pain in the neck to deal with. But they’re the most Too Big to Fail-y banks out there.

What do you think an investigation of First Republic will find?

Leave a comment and let me know!

More on markets:

Time to Bail on Credit Suisse

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