Kikabink News

The United States Securities and Exchange Commission (SEC) has charged billionaire web entrepreneur (and Dallas Mavericks owner) Mark Cuban with insider trading.

Mark Cuban, who co-founded Broadcast.com, a leading provider of multimedia and streaming on the Internet which was later sold to Yahoo, is accused of using inside information back in June 2004 to dump his 6.3 percent stake in meta search engine Mamma.com. Cuban sold his stock just hours before the company announced a round of fund raising that caused the value of stock in the company to plummet.

Evidently, the CEO of Mamma.com called Mr Cuban on June 28, 2004 to let him know about the capital raising. Cuban was, according to the SEC, unhappy with the plan and subsequently sold his stock before the new fund raising was announced to the public. The SEC alleges that by selling when he did, Mark Cuban avoided losses in excess of $750,000.

For his part, Mark Cuban says the SEC’s case has no merit and is “a product of gross abuse of prosecutorial discretion.” He plans to contest the allegations and demonstrate that the SEC’s claims are “infected by the misconduct of the staff of its Enforcement Division.”

Said Mr Cuban in response to the charges:

“I am disappointed that the Commission chose to bring this case based upon its Enforcement staff’s win-at-any-cost ambitions. The staff’s process was result-oriented, facts be damned. The government’s claims are false and they will be proven to be so.”

Sources: Marshall Kirkpatrick, “Mark Cuban Charged With Insider Trading of Search Engine Mamma.com”, ReadWriteWeb, November 17, 2008, Mark Cuban, “The SEC”, Blog Maverick, November 17, 2008

Let this be a lesson to all of you who make millions online and then decide to start a hedge fund. Don’t take on too much debt!

Just ask PayPal founder Peter Thiel, whose hedge fund firm Clarium Capital Management LLC, has seen its Clarium LP fund incurring a 40 percent loss in the three months to October 2008.

Clarium’s approach has essentially been to borrow money in order to invest it. This can give investors huge returns when times are good… but when times aren’t so good, it can be disastrous. As at October 31, Clarium had $4.40 in borrowings for every $1 in equity capital. Apparently, the fund is still in good health, but investors are understandably becoming nervous…

Peter Thiel started Clarium after selling PayPal to EBay Inc. for $1.5 billion in 2002.

Source: Henry Blodget, “PayPal Founder Peter Thiel’s Hedge Fund Blows Up,” Silicon Alley Insider, November 6, 2008

Legendary Silicon Valley venture capitalist John Doerr, polled executives from the companies his firm, Kleiner Perkins, has funded, and came up with 10 tips for new and struggling tech startups in the current economic environment:

1. Act now and act fast, including, if possible, raising more capital.
2. Whatever tough decisions you make, be careful to preserve the vital core of the business.
3. Save or raise 18 months or more of cash.
4. Defer capital expenditures. For example, instead of buying more PCs or more software, use web-based applications.
5. Negotiate with suppliers and vendors to get more favorable (longer) payment terms.
6. Get everyone in the company selling - not just your products and services, but your ideas and the company itself. Focus on increasing revenues.
7. Replace cash-based bonuses with equity-based bonuses. Consider a voluntary salary deduction program to keep staff on.
8. Invest cash in a safe place e.g. Treasury bonds.
9. Monitor indicators of whether and the extent to which revenues are coming in. Ideally, you’ll want indicators that tell you whether you’ll be getting revenues or not 90 days in advance.
10. Regularly communicate with staff, investors, and customers.

Source: Jason Kincaid, “VCs Speak On The Economic Downturn: Batten Down the Hatches”, TechCrunch, October 29, 2008

According to TechCrunch, Facebook may become a victim of its own success. With a 118 percent in growth in unique million visitors - from 74 million unique visitors per month a year ago to 161 million uniques per month now (according to comScore) - the company is still not profitable. Which means it may need a substantial cash injection sooner rather than later to continue.

TechCrunch reports that with 750 employees and an estimated $10 million monthly payroll, along with $1 million per month for electricity, $500,000 per month for bandwidth, up to $2 million for each NetApp 3070 storage system it’s buying on a weekly basis, $15 million per year in office and data center rent payments, and $100 million earmarked for 50,000 servers… it all adds up to annual expenses of $200 million or more.

And while Facebook’s 2008 estimated revenue is $265 million, the company is still losing money at current revenues, with no assurance that revenue growth will meet or exceed the growth in costs.

Writes Michael Arrington:

“If revenues don’t grow substantially, the company’s runway of cash gets much shorter. 2008 revenues are likely $100 million less than the company anticipated a year ago. If the economic train really derails, Facebook could be in big trouble.”

If Facebook has spent most of the $500 million it has raised to date… and revenues don’t substantially increase… the company will need further funding. Which, according to Michael Arrington, it should grab as soon as possible.

Source: Michael Arrington, “Facebook May Be Growing Too Fast. And Hitting The Capital Markets Again”, TechCrunch, October 31, 2008

Silicon Alley Insider has announced the ‘Silicon Alley 100′, its “annual list of the entrepreneurs, investors, executives, and technologists who are making waves in the New York digital business community.”

The top five (5) are:

1. Fred Wilson, Co-founder, Union Square Ventures

Fred Wilson’s venture capital firm has backed “flourishing companies such as Twitter, Feedburner, and Etsy, and raised $158 million this year for a second USV fund.”

2. Quincy Smith, President, CBS-CNET Interactive

“As head of CBS’s digital operations and now CNET, Quincy stands out as one of the sharpest Internet strategists among major TV network execs.”

3. Nick Denton, Founder, Gawker Media

“Nick has assembled a blog empire that helped define the online media industry. His 12-site network, Gawker Media, has shown how blogging sites can turn a profit by being nimbler than their entrenched old media counterparts.”

4. Barry Diller, Chairman and CEO, InterActiveCorp

“A former CEO at Paramount and Fox, Barry proved that traditional media titans can profitably segue onto the Internet.”

5. Alan Patricof, Founder and Managing Director, Greycroft Partners

“A former titan of global private equity, Alan helped reignite the New York tech startup scene when he launched VC firm Greycroft Partners in 2001.”

Source: Silicon Alley Insider, “The 2008 Silicon Alley 100″, Silicon Alley Insider, Silicon Alley Insider, “The List: 1-100″, Silicon Alley Insider, October 31, 2008