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A failure of stock markets or innovation?

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In the past the Silicon Valley stock market dream was relatively simple. Hard graft with a possibility of a reward in terms of a stock market listing or a buyout by a larger technology company eager for the new, new thing.

Now things are different, businesses like Google, Uber and Facebook held out for as long as possible to go public. Technology companies from Apple to Zynga have been punished repeatedly in the market for real and perceived mis-steps. Activist investors charge around Silicon Valley in a similar manner to the way they bullied the S&P index in the 1980s.
160704 - private equity & the tech sector
Now technology companies are making up almost half of private equity LBOs. An LBO is a leveraged buy out; its where a prospective owner uses a mix of loans and their own money to purchase a company. The company usually has a steady cash flow that is used to pay down the loans and associated interest. These businesses are generally discounted because they are no longer perceived as being high growth companies.

The private equity owner looks to either flip the company to another purchaser, or flip parts of the company to pay down the loan. Either flipping or piecemeal sales are designed to raise more value than the original price paid.

Since these businesses are servicing large amounts of debt, they are vulnerable to fluctuations in their business conditions or interest rate rises. For example, Irish telecoms network Eircom defaulted on corporate bonds in 2012, having been through a couple of LBOs in the previous decade.

There always has been some LBOs in the Valley, Computer Associates bought up rivals and ran them as part of a conglomerate, with a focus on maximising the business cash flow rather than market share growth. General Atlantic Partners and Cerebus Capital Management had specialised for a long time in LBOs of mature ‘also ran’ business software companies with regular support customer support contracts. But the recent growth in LBOs is unprecedented for the technology sector. More on Silicon Valley here.

*January, 1 2016 – July 1, 2016.

More information
Private Equity Has a Crush on Tech | WSJ – paywall
What are the major reasons behind Yahoo’s drastic downfall?
Barbarians in the valley

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Links of the day | 在网上找到

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BREXIT – Letter to MPs from a Remain voter: a plea for realism, tolerance and honesty – this gives a great background read on how the UK chose to go Brexit. It’s also a blueprint of how project fear is likely to turn into project understating the full calamity

Osborne abandons 2020 budget surplus target – BBC News – he wasn’t likely to meet it anyway but this emphasises how bad it is

Juncker on EU critics: Nobody says what they want – POLITICO – no one in Brussels could have stopped the Brexit train

How Britain stays in the EU – POLITICO – err no it probably won’t. The most interesting thing for me was leavers saying, I won’t benefit but I want others to suffer too

The New Furby Definitely Will Not Kill You In Your Sleep | Refinery 29 – it was only a matter of time for an app enabled Furby

We broadcast from TV to Facebook Live for 24 hours. Here’s what we learned. — Medium – In addition to not getting a push notification, we believe that Continuous Live Videos are not distributed in the News Feed in a similar way to their non-Continuous counterparts. When we started our first stream on Thursday, we wondered how Facebook’s News Feed algorithm would deal with a 24-hour video. The answer, it seems, was simple: it doesn’t – some great insights via the Aljazeera labs team

News Feed FYI: Helping Make Sure You Don’t Miss Stories from Friends | Facebook Newsroom – pages downgraded again in audience feeds

Huawei MateBook review: this tablet wants to be a PC, but misses the basics | The Verge – triumph of design over usefulness, poor battery life.

Group M sues Ebiquity over ‘misuse’ of confidential documents | Campaign – interesting case, if I was a client of WPP I would be asking why

Line Files to Go Public | CCS Insight – really nice history of LINE messenger

Pro-‘Brexit’ City of Sunderland Glad to Poke Establishment in the Eye – The New York Times – “We’re segregated from the south, and the north is a barren wasteland,” he said, wearing a heavy black leather jacket with metal studs despite the summer heat. “It’s us against them.” “The E.U. is a mystery to us,” he added. “We’ve never heard about it up here.”

Mobile app shops: Diversify or die | VentureBeat – because downloads are declining

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Five for Friday | 五日(星期五)

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Honda S660 – Honda pranks one of its own sales people by sending young racing driver Miki Koyama in for a test drive in a Honda S660. The kei car looks like immense fun!

On a related note, Honda showcased a gorgeous looking concept based on the S660 called the ‘neo classic’ which harks back to the original S600 from the 1960s. The S600 in turn was based on technology that underpinned Honda’s formula one cars and racing bike engines.

Staying in Japan, the police have created this advert to try and persuade members of the Kudo-kai yakuza family to go straight. Its an interesting approach.

Porsche was surprisingly magnanimous in its video celebrating its 17th overall victory at Le Mans.

I don’t mean that I think Porsche would normally have been unsportsmanlike, but it has helped elevate the Toyota brand by acknowledging them as worthy opponents of the Stuttgart sportscar manufacturer.

Probably the best explanation I’ve seen of the first week after the Brexit vote via my friend Ian.

My soundtrack has been the Mafia Kiss remix of Deekline & Hardy Hard’s Can’t Hide It from a few years ago