Tides Momentum conference

http://fora.tv/2009/09/08/CAPITAL_David_Chen_on_Capital_Markets_for_Social_Good

hiring the prison inmates to guard the jail

harpersmagazine-2009-04-00824501 

http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print

2 great reads.

they dovetails to the other recent blog postings:  (1)  re-finding the “way”; (2) and after this economic shock, will we see a change in behavior both as consumers and as investors?

re-finding the “way”…

i grew up in cupertino in the mid 70’s.  down the road from our home , on bubb road, was the birth place of apple.   

 

in that era, the most respected culture was HP and the HP  ”way“…a great place to work, grow your people, a duty to community, and build great products.  apple’s “way” was about changing the world, giving every day folks the tools to make a difference, to change their lives and do it by making insanely cool products.

 

in that era, hi tech was about creating unbounded tools to do the impossible.  it wasn’t about building enterprises that made people rich. 

 

hi tech was about building insanely powerful tools that made a difference,  that created successful enterprises, that ultimately were successful companies, that did in fact create alot of wealth.

 

some where along the road to hi-tech riches, we lost the way.  by the 90’s, the HP “way” seemed quaint in a “on golden pond” kind of way.   by the 90’s, VC’s and entrepreneurs were all about the “exit.”  we weren’t that different from wall street. 

 

in these last couple years, i see a shift taking place…in some ways driven by a set of un-related confluences:

• the increasing awareness of the impact we have on our environment: climate change, sustainability / constrained resources and developing nations/peoples needs 
• the treadmill of energy use, increasing cost, supply, and dependence
• an increasing awareness that there needs to be more than just the “big payoff”…we’re starting to probe the notion of impact & significance.
• baby boomers getting to a phase in their professional and personal lives where they seek meaning…and seeking ways to be involved and even committed.  i know i fell into that category.
• an increasing feeling in hi-tech areas that we’re now polishing already shiny rocks…do we need that extra feature or extra cycle optimized?  all that brain power is channeled into making data centers safe and web sites that serve up that ultra personalized offer; surely that IIT+MIT+stanford degree can be used for something more powerful and impactful?
• big problems requiring big brains and big commitment 

this economic downturn combined with the obama hope only accentuate these factors. i can feel a new vocabulary starting to emerge…words like duty, calling, vision, compelled, create, making a difference…

 

24-36 months ago, the plans that i saw were from hi-tech alumni seeking to apply hi-tech approaches to this class of problem…sometimes naively; as if technology was the key barrier to the solution to these problems.  in many ways they saw the gold rush… ”energy 2 dot oh.“  they wanted to save the planet because it was a big damn market.

 

today, i see folks starting on a very personal basis…and starting on a journey.  hi-tech in the 70’s was a big un-known.  there were no big damn markets.  to jump off and start a company was an act of courage.  in those days, the journey was the reward.  

 

the folks today, are talking about the 100’s of ways they can make a difference. they are applying their intellect, not just technology.  they are questioning old assumptions.  they are spending time thinking about about culture and authenticity. they are sincerely thinking about the “problems”, not simply about the technology.  as they plan their companies, they are purposefully blurring the lines of culture, community, values, commerce and creating their own version of the “way”.

 

i can’t tell you how thrilling it is to interact with this phase of entrepreneurship.   this is a thrilling time for entrepreneurship…the problems are so big…and the rewards are so meaningful.

 

“because we can, we must”.

the green bank

 

Industry Coalition Hails U.S. Congress Green Bank Act WASHINGTON, March 24, 2009 /PRNewswire via COMTEX

The Coalition for Green Bank applauds the introduction today by Congressman Chris Van Hollen of a bill that establishes the Green Bank to catalyze the financing of clean energy projects and energy efficiency projects. The Coalition for Green Bank (CGB) is a consortium of energy industry leaders including renewable resource developers, original equipment manufacturers, investors, financial advisors and consultants dedicated to unleashing a new era of private investment in the green energy for clean and sustainable energy and jobs, and economic development… The GBC comprises co-chairs Todd Filsinger (PA Consulting Group) and Reed Hundt, steering committee members …Dave Chen (Equilibrium Capital Group)…

http://www.cnbc.com/id/29865763/

the oregon way – “give to get”

http://www.portlandmonthlymag.com/issues/current-issue/articles/0409-green-machine/1/#

the oregon way, created about 3 months ago, is oregon’s strategy to use the ARRA (stimulus) dollars to deliver the obama promise and vision of using the stimulus to deliver and build something for the future:  a greebn version of apollo meets the new deal.

we are not “clean-tech”; charting a different path

http://www.linktv.org/video/3668 

just found this interview from SoCap 08.  this gives a great overview on eq cap’s approach.

after the shock, is there change?

the world economy and it’s growth seem to be supported by two very weak pillars: (1) the american consumer’s spending and debt (consumption) and (2)  the many layers of synthetic creative financial instruments that account for the “velocity” of capital this last decade and that represent very questionable “assets” on institutional balance sheets.  

much in the way that the depression “scarred” the thinking & behavior of an entire generation, what if we are going through something similar today?  how will we be affected by the chages and events around us?  we are watching the most trusted foundational components of our finances slip away (banks, instruments, investments, names).  we are watching over-consumption consequences in defaults. we are watching both conservative and aggressive investment strategies equally hit with 50% drops in value  – watching and feeling years of savings & wealth evaporate. 

 

what if two things happen simultaneously: (1)  american consumers are shocked into consuming less excessively, 2 cars instead of 3, smaller homes, saving more, trying forms of entertainment other than shopping?  (2) investors are shocked into looking for investments that are more understandable, directly tied to assets, and distribute cash flow returns (granted that may be what they thought they were buying with MBS tranches and market rate bonds).  what happens in a prolonged period of 5% optimal returns?

very few of our economic forecasters contemplate these scenarios.  what if the GDP reaches a steady state below “normal levels” reflecting a lowered level of consumption?   what if investors don’t come back to synthetics? 

what if the gross global economy shrinks to a new level? What if the driver for sustainability is economics?

who made off with madoff

i have a couple of stray thoughts on the madoff situation.

(1) we talk alot about the velocity of money and trickle down impact of money in the economy.

we saw that in action in the madoff collapse. the impact rippled through the complete stratas of society: losses for the professional institutional investor, & the high net worth individual investor, but also dramatically impacting the not-for-profit world and underclass individuals as foundations & endowments, over-night, saw their on paper assets burn up or in some cases completely bankrupt the institution. ie, how the poor lost money with madoff.

(2) the degree of co-dependency (some would call it co-conspirators) between madoff and his constellation of “gatekeepers”, wealth managers, and fund-of-funds.

what is actually appalling is how madoff used pricing (his fee structures) to create distribution channel loyalty (how the intermediaries made their fees). not to mix metaphors, but the old ray croc (McD’s) belief that “if my franchisee are becoming wealthy, we will, too”. and indeed they did. $1B invested and “managed” by the intermediary into madoff generated 1% = $10M/year and often up to 5% of the profit share which could be as much as another $5-10M/year. so much attention has been directed at madoff; in many ways, i tend to think the greater crime was the co-dependency of the intermediaries. who made off madoff? one of the reforms we’ll  likely see is  in the area of fees.

reflecting on today

woven throughout his speech were challenges to us all:

(1) the r.warren’s writing of a purpose driven life (a purpose driven society);

(2) developing the next models for a triple bottom line;

(3) re-investing in the ”brand values” of america;

(4) compelling our nation through this period of adversity with vision

on the eve of the inaugural

 

watching the inaugural concert on sunday, i couldn’t help but feel a sense of an america for all americans…and that omni-present obama inspired sense of hope. 

in our generation and recent history, hope seems to immediately translate into exuberance. there are those that hope & believe our nations deep systemic issues will start to recede tomorrow.

whether it is the mind numbing numbers (millions are now so passe…everything is in $trillions, bailouts in the $billions to xyz bank, toxic assets of $billions in writeoffs, 10% un-employment…), the use of buzz laden references (the worse ___ since the great depression…), or the use of hyperbole by the experts on the news programs…or the fact that the signs of suffering and loss are just now becoming a visible part of our daily realities…we have a deep need and tendency to want to hope for the best or maybe a tiny bit ignore the worse.

on this eve of the inauguration, there is such great hope.

obama won’t return our nation to it’s past glories, but he can do something even greater, and that is lead us to our next greatness.

 

as he has already said many times…and we may not be hearing him…we need to translate that hope into the true grit that gives us the resolve to tackle these very real, deep changes in big parts of our culture, society, and economy…all in the backdrop of a very much changed new world order and physical environment. 

 

will he lead us into a “new” contract with americans…and the world.  maybe to steal a concept from rick warren: will he lead us to build a purpose driven society

a new years eve note to the eq cap team: good-by to 2008, hello to a tummy-churning 2009

i wrote this to our team on new years eve…good-by to 2008, hello to a tummy-churning 2009

—————-

in 2008 equilibrium capital went out into the market, formed its personality, worked through its strategy, and established its market position.   i wanted to celebrate 2008 and the team’s great work. 

 

looking ahead, we are about to jump from the frying pan into the fire below…there is no question that 2009 will be a challenge in so many visceral respects.  we will see the impact in our families, our friends, our businesses and our nerves. 

 

unlike 2002, this will be a long recovery.  we do not have the fuel of appreciating home prices ballooning consumer wealth-effects and driving GDP growth.  this time around, recovery is hampered by both system changes and a re-building of inter-institutional trust. 

 

the credit crunch is as much about:

(1)  structural changes in the financial services system

-   i-banks becoming banks, leverage ratios cut by an order of magnitude, entire portions of the global capital base no longer in existence

-   more than merely a re-pricing…ie, the global economy is smaller. this is not re-valuation; this is destruction and evaporation.) 

(2) entities not trusting each other

-  bank-to-bank

-  bank-to-company

-  company-to-company

-  each layering in their respective risk management & fudge factor.

 

pop culture, hi-tech, and the media often throw around the term paradigm.  paradigm is about how you view the world.  the “framework or rules deep in your “reasoning” that you use to view and interpret the world.  i’m still pondering if there is a “rule” change taking place.  i think there is. 

 

this all translates to time…decisions get elongated…don’t bet on it getting done quickly.  throughout 2009, time only favors the buyer.  decisions that are simple (involving as few moving parts as needed) will get done.  control and trust is everything.  simple benefits get understood and bought.  simple ideas win. 

 

i think tangible “things” become the hot value. 

 

sorry to sound like a friggin’ fortune cookie.

 

2009 is the year where clarity of objectives will drive everything…the system noise is going to be intense.  the resulting distraction will be huge…confidence in your clarity is the only tactic. 

 

great fortunes will be made & there is huge oppty to lead in the “re-rule making” (defining the paradigm) —> defining a way-of-operating wherein conscience and commerce link to consequence.

 

in good times, many people and many teams are able to create great results. 

 

in bad times, only the good teams can get you through. 

 

all the more reason that i cannot imagine a better team to go into that fire than with you 4. 

 

your homework is to think about how we apply these thoughts to us.  are we willing to trust our analysis and bet based on them?  what rules would we right?  which bets would we make?

 

a human behavior question (?)

one of the greatest challenges is the courage and or confidence to act on your analysis or insight.

i’ve been mulling this for a while. in 2006 & 2007, while sitting in the federal reserve board (SF FRB, portland branch), i had a chance to participate in discussions with fed economist and fellow board members on the impending collision in the sub prime mortgage syndication markets, the un-covered market making in credit default swaps, and their ripple impacts through the economy. none of this data was fed proprietary – all public data and understood issues. insight was available. the indicators predicted crisis. granted, none of the these discussions envisioned the magnitude by a long shot.

nonetheless, my key observation was that the “insight” did not drive pre-emptive action…why? even on a personal level, i’ve mulled over how i did not integrate this insight into my personal actions. why? left brain/right brain disconnect? lack of confidence in the analysis?

today, we’re looking out towards 2009…what do our insights say & what are the actions if we indeed had the courage to act on our insight?

More on carbon & economics

·         RGGI carbon emissions auction raised $107 million from permits for the right to emit CO2 from power plants in the U.S. Northeast.  The clearing price of $3.38 per ton in the second U.S. GHG emissions auction, was 31 cents more than the first quarterly auction held in September. (reuters 12/19/08).  Also attached is an eenews report on RGGI that also summarizes general US Carbon Market developments. 

·         EUA Price Forecasts through 2020 were released by Reuters, following revised estimates of industrial emissions.  The global recession is expected to lead to falling emissions in 2009 and beyond (reuters 12/18/08)

·         CF Partners ($70 million) Carbon Hedge Fund will be launched in early 2009 as the first fund taking long and short positions both in EUAs and CERs (reuters 12/18/08)

·         The growth in CCO’s (Chief Climate Officers) in corporations has stimulated a new association – the Association of Corporate Climate Change Officers – which will hold it’s first meeting in January in an attempt to define what a CCO’s position entails.  

·         Cleantech investment boomed with a record $4.6 billion in the 1^st 3 quarters of 2008, but faces challenges in 2009, according to new data released by Ernst & Young (eenews 12/18/08 – attached)

·         The Climate Summit ended on a sour note as a number of nations spoke about their disappointment on the decision to delay a decision on the adaptation fund until next year.  This acrimony highlights the continued challenge in uniting rich and poor countries to address this global issue (WAPost 12/14/08). Also discussed in reuters; AP, IPS.

Sustainability: frame globally, act locally, change fundamentally

a good friend of mine, roland vandermeer, sent me this email a few days ago regarding sustainability…it speaks to how we can take individual action in the context of the broader greater change.

————–

From: Roland Van der Meer

 

http://web.mit.edu/newsoffice/2008/oxygen-0731.html

This is very cool. Need this for my house.  As I am now working to make my house self sufficient.

Water (got a well and a filter system on order. Gray water Laws not permissible

Energy: Got the solar grid figured out for power. Night time biggest issue Batteries don’t really solve the environmental issue. Need to work on this.

Pool: heater goes solar this is easy, But looking at combo units..

Recyclables; Working now on reuse of all house hold games, electronics, furniture, batteries***

Food, and yard refuge; Looking at my own biomass generator (compost) Need low cost solution.

 

…But really the goal is bigger. How do we as people relearn to live sustainable. Even Robert Riche [is] now on to this path. See the text below. This is from his blog. RobertReich.blogspot.com .

“The second assumption is that, even if Americans had the money to keep spending as before, they could do so forever. Yet only the most myopic adherent of free-market capitalism could believe this to be true. The social and environmental costs would soon overwhelm us. Even if climate change were not an imminent threat to the planet, the rest of the world will not allow American consumers to continue to use up a quarter of the planet’s natural resources and generate an even larger share of its toxic wastes and pollutants.

This would be a problem if most of what we consumed during our big-spending years were bare necessities. But much was just stuff. And surely there are limits to how many furnishings and appliances can be crammed into a home, how many hours can be filled manipulating digital devices, and how much happiness can be wrung out of commercial entertainment.

The current recession is a nightmare for people who have lost their jobs, homes, and savings; and it’s part of a continuing nightmare for the poor. That’s why we have to do all we can to get the economy back on track. But most other Americans are now discovering they can exist surprisingly well buying fewer of the things they never really needed to begin with.

What we most lack, or are in danger of losing, are the things we use in common – clean air, clean water, public parks, good schools, and public transportation, as well as social safety nets to catch those of us who fall. Common goods like these don’t necessarily use up scarce resources; often, they conserve and protect them.”

A glimpse into eq-cap

when we formed equilibrium capital, the culture was uppermost on our minds. 

in some ways my beliefs about “team” were formed at mckinsey&co.  critical within eq-cap is an intense belief in team interdependency, bringing together skills and learning to use them in concert to deliver results.  small teams are about commaraderie.   given the intensity of the work, it’s about genuinely liking and respecting those you work with…can you see yourself going into a tough situation or crisis with the person next to you…can you see yourself having fun with that person?…all that makes the accomplishments all the more gratifying.   team is about respecting and liking each other enough to debate, sometimes intensely, and then walk out as team mates.  

culture is more than writing down values, it’s authenticity is measured and assessed as it is acted out.

in a funny way,the yearly holiday party is a benchmark of a team. what does that party represent?  how do folks think about the event?  do these team attributes get expressed…even as we play?

this was the blog posting of howie smith, the husband of one of the eq-cap team members…it made me smile and taught me a few things:

friday was my wife’s holiday party for work. i had been looking forward to going for weeks, mostly because i didn’t know many of her co-workers. i didn’t expect it to be a learning experience. my wife’s employer is small (5 employees), but all world-class in what they do. there is an astonishing success rate from their previous experiences. i learned a number of things on friday that the church could apply to church leadership. i’m not usually a proponent of the church following business models (i think it is more prone to misdirection, but that’s a different post), but the values that i saw should be utilized in the church.

first, it is good for people to eat together at a table that is shared. there is something to be said for dining in a family style setting. we went to a spanish tapas restaurant, and shared a meal. there was a definite community feel to the evening because of the environment set up by the restaurant. it wasn’t pretentious or too casual, but enhanced an already warm feeling. dishes came out, we passed things around, went back for seconds, and shared the meal. we could talk about the food as a shared experience, rather than an individual meal that no one else tried.

second, there was a lot of talk about respect at the table. the talk was also lived out. i realized quickly that the 5 people that worked together really respected one another. the most interesting thing about this respect was that it wasn’t about accomplishments and it wasn’t about position. the respect was based on someone’s willingness and ability to take the other one to task. it was about being encouraged to become better. employee a appreciated employee b because he cared enough to tell him that he was slacking or mediocre. employee b respected this comment and put more of himself into the project the next time. there was also positive affirmation involved, but the respect was based upon critique.

third, i felt that all the employees were valued. i know that some are being temporarily underpaid to work at this company. i also know that their contribution is appreciated – because i was told. i heard the ceo and managing director talk about how one of the other guys, a young guy, did not realize how good he was. they weren’t saying it under their breath. they were saying it to the whole table. he must have felt affirmed, valued, appreciated and proud to be a part of that team.

fourth, there was an enormous value placed on the role of the spouses. as a spouse, i felt appreciated and thanked. from past church experience, i have felt my spouse denegrated and underappreciated. i felt nothing but love from this team. i would be willing to sacrifice for this company.

fifth, i can’t say enough about good wine. enjoying something luxurious, that allows you to linger, is a topic of conversation, and allows some barriers to fall, is a valuable asset. i was able to have heart-to-heart conversations with folks over several fantastic bottles of wine. i don’t know that these conversations would have happened in a dry party.

 

 

 

my eagerness was rewarded with a wonderful time. i did some things that i didn’t think i would do, like eat octopus and mussels (octopus was awesome – mussels not so much). i also enjoyed numerous different wines, sherry and desserts. it was a glorious evening.”