Saw a talk by the investor John Frankel recently and while he is an impressive guy he made at least one odd statement.
“Startups are pure alpha”, he says, not correlated to each other and certainly not to Greek debt or the euro or so on.
What?
I remember a friend remarking in 2008 how closely all his hedge fund investments were correlated to the market. Where was the hedge?
Well it is not in startups.
Peek is definitely correlated. When we launched on September 12, 2008…Lehman failed that day and the RIP Good Times memo went around. Our retailer Target freaked out, our network T-Mobile tightened payment policies, our suppliers in China scrambled their inventory and factory requirements. Consumers were panicky. And most importantly VCs started drying up and have continued to dry up, which means less money to do stuff. Even Facebook had to do a down round in early 2009 (after the higher priced MSFT deal).
An today’s Peek software sales are very linked to global mobile phone markets, which are in turn linked to growth in India and China.
If ads are your thing there is that market’s spend growth. If ecommerce, consumer spending.
Great companies go nuclear and defy odds all the time. But the macro is odds and it makes the odds longer when the markets are blowing up.
And of course the stock market is where IPOs happen and that is a major feeder of liquidity for venture.
So I think venture is obviously pretty correlated to the Dow Jones Industrial Average. Which makes it beta.
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