Ken’s Blog

It seems everyone’s on the wagon for this one. From the PBS’s NewsHour to the WSJ, there are reports and news tidbits about commercial property ventures on the verge of collapse.

I just saw this little bit on the WSJ about a large apartment complex in NY that has a year of money left to pay a huge debt that was used to finance its purchase not too long ago. Just this time around it’s less about bad loans and more about bad forecasts and judgment in general.

This quote from the NewsHour piece says it all: “the market was full of such optimism that rents would keep increasing and office buildings would stay fully leased.” Of course, because all markets go up all the time…

Granted the deal was done in early 2007 so everyone was on the same bandwagon seeing dollar signs and thinking the economy would keep going up. But, at the same time, you had others already looking at the overinflated residential market with worry. I can’t remember the guy but Jon Stewart interviewed someone who was quoted (there was a video so we’ve got proof!) as saying the market is going to tank. Meanwhile, the guy interviewing him scoffed at the idea. Great job.

The big problem with commercial real estate is the relative size of the transactions. There may be fewer buildings versus single-family homes out there but your typical home doesn’t sell for a hundred million dollars.

Time will tell of course but I’d hate to see another dip in the emotional economy–dictated by fears and whims–bring the current progress, however shaky, crashing down.

kn

So, you’d have to be under a rock to not have heard that Disney bought Marvel Entertainment for $4 billion dollars. It’s everywhere.

The best part is just how rocky the road was for Marvel over the last decade. Back in 1996, a power play by Ronald Perelman and Carl Icahn tossed the company into bankruptcy and even after it emerged from Chapter 11, it was still unsure what the company would do to stay alive.

Then around 2000 Avi Arad comes along and pushes to get X-Men (2000) and Spiderman (2002) made into movies. Okay, technically Blade (1998) was first but while it did well, it wasn’t the blockbuster that Spider man was. Millions of dollars are made (mostly for the studios) and Marvel was suddenly on the map again.

Mr. Arad pushed even further in recent years to create a film division in Marvel that self-produced the films so Marvel could retain more of the revenue. Iron Man and the Incredible Hulk (not the Ang Lee one) were the first of those to come out in 2008.

Lo and behold, 10 years after emerging from Chapter 11 into the blinding light of a world that wrote them off for naught, Marvel just got sold for billions. Not millions, billions.

The potential was there but it took a handful of people to see the potential and make it happen (like they couldn’t have made those same blockbusters before they went bankrupt…someone was blind back then).

Now, the question is, will Disney ruin it? So far Disney’s run with Pixar post-acquisition produced Up which has done well (2nd only to Finding Nemo)…but that’s largely due to (I’m sure) the fact that John Lassiter is the Chief Creative Officer at Disney (you gotta think despite the politics within Disney it’s something of a vindication that he’s such a high ranking player in an organization that fired him for wanting to make the types of movies that made Pixar such a success).

Time will tell. Mr. Arad has moved on from Marvel but had retained ties. If he’s not around, will Marvel (or rather Disney) drop the ball? They’ve got some momentum (if they screw up the Avengers series or some of the coming sequels, they’re idiots and deserve to wither within the Disney organization).

kn

Ahh, my love-hate relationship with Whale Wars begins anew. Instead of flooding the main blog thread, I’m moving it here.

kn

It was inevitable. As the economy went down in flames and dragged down all sorts of industries, the layoffs started in the game industry. And, with the layoffs and closings comes the acquisitions. Bargain basement prices for game studios technology, IP, you name it.

Gamasutra’s reporting on Free Radicals’ acquisition by Crytek. Good news, as some commenters said, but only for those 40 people that remained (140 were laid off).

In addition, Ubisoft grabbed Action Pants to give itself a West Coast studio. Thing is, Action Pants (with their lovely site that doesn’t seem to work with Flash 10) hasn’t finished anything (they set up shop in 2006). You have to assume Ubisoft isn’t about to waste money on a dev studio they don’t believe in but there aren’t any more experienced studios? And, before anyone argues, “But, but, they were formed by game devs from other studios,” remember, it’s not just the experience but how the team works together. Without seeing a finished product, how do you know the team will be able to deliver?

Anyhoo, it’ll be interesting to see the lay of the land a year from now when the dust settles from the economic “meltdown” (I see it more as a correction for all the bullshit everyone’s been smoking for the last half decade). Stay tuned!

UPDATE: Warner Brothers has jumped into the fray, acquiring Snow Blind. Nothing crazy but it definitely looks like consolidation time in the industry. The plus side? As we bottom out in this economy, people will start spilling out and creating new studios, assuming the funding still exists, so we can start all over again.

kn

I read an article in Inc about YouNoodle.com and their Startup Predictor app. It’s an app that basically Match.com’s you and your startup to spit out a value for your startup in three years and a FICO-like score ranging from 1 to 1000.

The Inc. magazine article had an example of a company that was pulling in around $75k in revenue that was valued at $11 million (remember, this is in 3 years, not today). Some VC’s chimed in with some paper napkin valuations in the $1-5 million range. Someone commented that it’s a publicity stunt.

Honestly, though, can a survey tell you the value of your company in three years? Sure it’s hard to value a company at times but then again, if you’ve done some research, can it be that hard? And why would you want to stick to a “standard” valuation. You think Google, Facebook, and even Twitter used some sliding scale to determine their valuations before they went public or were otherwise valued?

Supply and demand…as often as it’s quoted, it’s still very true in a general way. Twitter got $15 million earlier this year (nowhere near profitability) valuing it at $95 million. Sure it’s got a lot of people using it and it’s a part of the culture now but no one still knows how to make money off of it (except the shareholders).

Plus, there’s always the negotiation factor. The number you come up with is always going to be higher than what the investor’s going to want to pay (in terms of equity). But, you also don’t want to value it unrealistically and stick to that number.

So, what is the problem with the Startup Predictor? There are actually two: first, it doesn’t account for that random factor (9/11, the housing bubble, your main competition going out of business, whatever) and second, assuming the valuation is unrealistic it sets an unrealistic expectation.

The above example gives the startup’s founder an $11 million dollar figure that will affect him when he talks to a number of VCs who feel he’s work $1-3 million. How’s he going to feel? Could the numbers blind him to other factors that might improve the value of his company in the long run (like the resources the VCs might be able to bring, the advisors that might be more likely to join knowing that some well-known/respected VC funded them, etc.)? It’s like the problem of “beta” companies that toss out their product for free to get people hooked then discover the need for cash flow and slap a monthly/yearly fee onto those people and watch half of them leave.

If the valuations get fine tuned, it might be a good tool to help startups going into VC negotiations. At this point, I worry that some overeager–and less experienced–founders might let the valuation go to their heads and burn a few bridges before they learn how to get funding. I guess eventually evolution will kick in at some point but a solid valuation tool could go a long way in the end.