The private equity market is showing great promise for 2015 and beyond. The choices for new ideas and business concepts are seemingly endless, the entrepreneurs are eager to get their start-ups running and the loan rates are relatively low. Investors have the potential to make huge profits from smart new tech companies that aim to make life easier for consumers. By focusing on a select group of start-ups, venture capitalists can expect to spend more money on fewer investments, but they can also expect a bigger return for their money. Read the rest of this entry
Entrepreneurs such as Efraim Landa may build very successful companies seemingly out of nothing but a good idea. To many it may seem as if they are simply great risk takers, but in reality there wasn’t one of them that ever said they set out to see if they could find the riskiest financial venture out there. Actually, for the most part most entrepreneurs are more likely to lack funds than to have plenty of resources. Every single one of them is different but in general they see an opportunity and do not feel like they are kept from pursuing it simply because they do not have an abundance of resources. Instead they have some common characteristics which help propel them into entrepreneurship in spite of the obstacles and come out with a successful business venture. Read the rest of this entry
There were many public successes in the venture capital industry as the 70s came to a close and the decade of the 80s began. During the 80s there was a huge increase in the activities and growth of VC investment firms. In the early 80s there were only a few dozen of these firms but by the end of the decade there were over 650. Each of these VC firms was all looking for the next “big deal.” However, even though the firms increased greatly numerically, the capital that was actually managed by the firms only increased by 11%. Over the entire decade, the capital managed by these firms only rose from around $28 billion to $31 billion. Read the rest of this entry
Many people depend on the stability of the stock market from day to day. It is understood of course that there are times when it can have greater fluctuations than others. And there are times when the market becomes volatile which can be advantageous to some and a detriment to others depending on the types of trades occurring at the time. But for regular investors such as Effi Enterprises a glitch in the system can be disastrous. Efraim Landa helps business owners organize and maintain investments, offer IPOs, learn about brokers and dealers, and use many other aspects of financial resources to increase the value of their business or company. A glitch can mean real trouble for a business which is trying to achieve valuation. But we must remember that the market is primarily computer based and occasionally there are those times when a glitch will occur. Such was the case on May 6, 2010 when the Flash Crash occurred.
On this date the crisis occurred in a very short time frame of about 5 minutes just before 3 p.m. In this short amount of time the Dow Jones Industrial Average suddenly dropped almost 600 points. It was nick named the “flash crash.” Most blame it on a computer glitch of some sort while others tried to look at several trades which occurred shortly before the crash happened.
This year in May Facebook anticipated very good first day trades but on May 18 their jump into the market with their IPO ended up in chaos. A NASDAQ computer glitch delayed the opening by about 30 minutes which meant that investors were unable to purchase shares in the morning and then sell them later that day. They couldn’t even tell if their orders had gone through. NASDAQ is looking to pay nearly $62 million to different firms who suffered financial harm due to the glitch.
March of this year there was a glitch of some sort which affected at least one market which was trying to offer an IPO. Kansas City based BATS Global Markets, Inc. ended up canceling the IPO because a series of glitches never allowed the stock to open for trade. Later the CEO, Joe Ratterman, resigned as the chairman and offered a public apology.
Even though the specific details of what happened are sketchy, most of them seem to come from issues with the algorithms which keep high frequency trading afloat. These types of trades are conducted at a rate of millions in just nanoseconds. The large volume of stock trading is all computerized this means that the chance of malfunction is relatively high with the biggest problem being that a human cannot stop them before it’s too late and the damage is usually already done.
For investors such as Efraim Landa these glitches can be very detrimental. They rely on the constant working of the market and place automatic orders expecting that their brokers will sell the stocks when they hit a particular price. Kevin Callahan, the spokesman for the Securities and Exchange Commission (SEC) made a statement in which he said that they “are closely monitoring the situation.” He also stated that they were in constant contact with the New York Stock Exchange and various other market participants. Many leading businessmen are asking for better oversight of some of the practices such as high frequency trading which seems to be the culprit leading to these types of glitches.
The most interesting thing about this recent glitch is that it occurred on the same day that the SEC published a rule which was set up to prevent glitches such as the “flash crash” of 2010. The goal of the rule was to establish one consolidated record of all the day’s trades. Many are calling for tighter regulations and closer monitoring to help prevent these glitches from occurring.
Efraim Landa is president of Effi Enterprises which assists entrepreneurs and emerging companies create value. The company offers growing companies hands-on executive management and leadership and helps them discover various ways of securing finances. They offer options such as introducing businesses to angel money, marketing strategies and divestures among many other options. Effi Enterprises works with emerging companies to help find the best solution for their particular situation. This may include stock options for employees, future contracts or any number of other strategies. Future contracts, options, and warrants are all common derivatives.
What is a derivative?
A derivative’s value is based on a contract between parties who are agreeing on an underlying financial asset, security or index. Some of the most common underlying instruments are bonds, currencies, market indexes, stocks interest rates and commodities. Some common derivatives are warrants, swaps, options, forward contracts and futures contracts. Basically, a derivative is an instrument which derives its price from another variable or financial asset. A stock option derives its value from that of a stock; and a swap gets its value from the interest rate index. A derivative obtains its value form an underlying asset and the derivative’s price will rise or fall along with the underlying asset’s value. The derivative’s value is based off of the price of the instrument and the payoff will mirror that of the instrument that they are based on.
A derivative is a contract on an underlying asset. There are many different derivatives but options are the most common type. When an owner purchases an options contract they have the right to purchase or sell the asset at a certain price prior to a pre-set date. The most common underlying assets for which contracts are purchase are stocks, commodities, bonds, currencies, market indexes and interest rates.
Basically, a derivative is a contract between a buyer and a seller. Unlike traditional investments, there is a pre-set expiration date. This time is established at the time the contract is purchased. Payoff is typically determined at the expiry most of the time. Occasionally there is no exchange of money when the contract is made.
Some very well established exchanges trade derivatives. The New York stock Exchange, the Chicago Board of Trade and the French CAC are three. Trades such as these are called exchange-traded derivatives which mean that the terms and features are highly standardized. The advantage to these is that they are regulated which is just an extra safeguard for investors.
Other types of derivative instruments like swaps, forwards and other exotic derivatives are traded over-the-counter. These have very flexible terms and a large number of underlying assets and combinations which can be purchased. These types of financial dealers can customize the derivatives for specific clients and their needs.
The largest thing that makes derivatives appealing to businesses is that they allow a certain amount of leverage. This is a financial term which refers to the increase that occurs when a small quantity of money is all that is used to control another item which is of a larger value. An example is a mortgage. A person can gain control of a highly priced piece of property for a smaller amount of money. Derivatives can give this same type of leverage, or multiplication as a mortgage can. An investor can actually control company stock which has a large value by using a small amount of money. An investor has the opportunity to make more money than the company who is reaping the benefit of the investment.
However, if derivatives take a turn for the worse they can be very costly for a business. In 1995, trader Nick Leeson traded derivatives but the trades were not profitable and because of the leverage the losses were so huge for the Barings Bank of England that they ended up in bankruptcy. Warren Buffet, who is a very successful investor, is against using derivatives and he sees them in a very negative light. However, just like any investment there are always risks involved. Derivatives are a form of investing which have been part of business finance for many years and will likely remain an integral part for many years to come.
Efraim Landa and investment firms like Effi Enterprises are well acquainted with the workings of the stock market. They work with emerging businesses and help them gain value. One of the greatest steps for a company or a business is when they have become profitable enough to go public and make an Initial Public Offering (IPO) of their stocks. Typically a business idea begins with an entrepreneur who gets started and then outgrows their sources. This is when they look for a venture capitalist such as Efraim Landato help get them with funding options with the hope that there will be a day where they can make an IPO. This is when stocks in the company are available to the public through the stock market.
The stock market can be very confusing and those who are unsure about how it works can stand to lose a lot of money when they first start out. However, it is not as complex as it appears to be. Basically, you have the option of purchasing stocks in a company. Companies make these shares available as a way of funding their business. When someone purchases a company’s stock they do not own part of the company but are providing funds by which the company can grow. The more the company is worth, the more value their stocks become. Stocks are frequently traded back and forth on the “stock market.” There can be a few things that affect the price of stocks.
In one way it is as simple as the law of supply and demand. Stocks are available in a limited number and when there are a lot of people who want to buy stocks in a particular company the price will increase on their stocks. But when there is a decline in the number of buyers who want them, or there are a large number of people who want to sell the ones they have then the price on the stocks decreases. Theoretically the demand for stocks for a particular company will depend on how profitable the company is. However, what the company is expected to do in the future will also factor in to the value of the company’s stocks.
When a company goes public with their stock it is generally a way of increasing revenue. This is generally to be used for some form of expansion. Perhaps the business needs to add a new product or offer more services to their clientele. An IPO can be a way of raising those funds. The public can then invest in the company by purchasing the stocks.
The main goal of an investor is to make money on the stocks that are purchased. They will need to buy stock at a lower price and then when the price on the stocks goes up they will sell it off before it takes a downward turn. This will mean that stock holders will need to pay particular attention to the company’s value and the projected value of the company later on. Many times stock prices will go up before an earnings announcement but then decline if these earnings were much higher than what was generally expected.
A lot of novice investors think that when they purchase stocks they are going to receive from the company’s profits but this is not so. Some very large companies may pay a dividend and this is done a per share basis. But most companies hold on to their profits in order to pay for future growth. There are two schools of thought on this, some investors are interested in the company growing so that the stocks are worth more and others are more interested in investing in companies who are profitable enough to pay dividends. The type of stocks purchased will depend largely on a person’s investment goals.
Hedge Funds are types of partnership investment opportunities. Sometimes these are formed as a limited partnership or a limited liability company just in case the company goes under or bankrupt, creditors will not be able to try to get more money from the investors than the amounts they contributed to the hedge fund. These are a very risky type of investment which many shy away from while others flock to it. Some feel that the greater the risk the higher the return can be in the end. A hedge fund manager will use money that has been deposited with his company by investor and use it to invest in another company looking for a profitable return on the funds.
The main purpose of a hedge fund is to capitalize on the market and be able to make money whether the market is increasing or decreasing. This type of private investing is a way to sort of outperform the market. This type of private investing is not like mutual funds which are run by large public corporations; therefore they are not regulated by entities such as the Securities and Exchange Commission (SEC). This lack of regulations is what makes them be so risky, but is also one thing that makes them more attractive to investors. This is just one type of private investing opportunities which companies such as Effi Enterprises helps locate for start up businesses or struggling companies.
What does a manager do?
Managers of a hedge fund get compensated by earning a percentage of the returns. This is more appealing to many investors since they do not get just a “fee” as a return on their investment. The managers stand to make a lot more profit since the compensation structure can yield a return that is above market value. Without the standard types of regulations, hedge funds can yield a very high return; even though much of the investment is based on speculative results initially. Managers are excellent at using derivatives, like futures contracts or options. These allow a manager to bring in a profit whether or not the stock market goes up or down. Many times they have the option of selling the stocks short which basically means they can use a small amount of money as leverage and remain in control of large quantities of commodities or stocks. And they can select a particular time frame in which they will pay out. This means that they can use timing along with leverage to make a huge return if they correctly predict if the market is going to rise or fall.
New Regulations on Hedge Funds
Recently, there were some new regulations put into place regarding hedge funds. If the hedge fund is valued over $150 million it must be registered with the SEC. The Dodd-Frank Wall Street Reform Act which was enacted in 2010 set up a Financial Stability Oversight Council which watches for this type of private investing that begins to grow too large. Once it is deemed that they are “too large to fail” the Council may recommend the regulating of these funds by the Federal Reserve. The Dodd-Frank Act also set limits for how much a bank can invest in a hedge fund. Hedge funds can only be used by banks on behalf of customers and not simply to boost the corporate profits of the bank.
What happens if the investment is lost?
The hedge fund is very risky for investors. If the investment pays off everyone gets paid, but what happens if the fund loses money? Does the manager still get paid? Absolutely not; they will not get paid if there is a loss. The manager is somewhat protected while it is the investor that stands to lose. However this type of investment is protected from fraudulent activity but many feel that there are not enough regulations in place that can help protect the private investor.
There was a day when any kind of IPO investment in the technological world was all but guaranteed a huge profit. Some investors grabbed up public stock in companies like VA Linux and had some great first day gains. Those who invested and then sold did very well and made investing look like a very easy process. But investors were disappointed in the long run as they watched values plummet.
It is important to realize that there is no investment that is a guaranteed, sure thing. There will always be risks associated with investing. Companies like Effi Enterprises are aware of the risk factors and carefully consider the high tech companies that they offer venture capital or private investing options to. The biggest lesson many investors have learned is that the IPO market leveled out and there are not the same extreme gains to be had simply from flipping stocks. IPO’s have a huge set of very unique risks which makes them different from trading in average stock. A good example right now is the Facebook IPO. Many people grabbed up public shares and invested in the top social networking company. Stocks have risen somewhat from their initial drop but they are still about 13 percent down from where they were a short time ago. That’s not actually a bad drop compared to many companies such as Zeltiq Aesthetics who is sitting on a 65 percent decline from its initial IPO price.
People thought they could buy up some Facebook shares and watch the prices soar immediately. Basically, they took a risk and lost. IPO’s are not the best option for most investors. When a company goes public one of the main risk factors is that there has not been a trading history and so there are no analytical reports to examine. Trying to obtain information on a company that is going public is going to be difficult. Most of the time companies have traded publically and so there are lots of analysts which have done their homework. These reports can at least reveal some of the problems they have encountered.
Purpose of an Underwriter
Many times a company which is going public does not have a strong underwriter. This of course, does not mean that investment banks never produce a dud, but generally quality brokerages will be bringing only quality companies public. It is very risky to choose companies who are represented by smaller brokerages because they are many times willing to underwrite any company at all. A larger investment firm can be more selective about which companies it underwrites than a small underwriter can. However, the smaller broker can make it a lot easier for private investing since it’s much easier to purchase IPO shares.
Read the Prospectus
It is important to read a company’s prospectus. But keep in mind that this is not done by an outside party, it is written from within the company so it is not necessarily as reliable as a third party analysis. You will need to note the risks and opportunities as they are presented by the company. You will want to know why they are going IPO. If the money raised by IPO is going to repay loans or to buy equity from private investing, stay clear. However, if it is going toward marketing, expansions or research it is usually a good sign.
This does not mean that IPOs are all bad. There have been many success stories over the years. There are some very successful companies that go public every single month, however, it can be very difficult to sift through it all and find the investment opportunities with the most potential. Efraim Landa works with companies who are going public to help ensure each party’s success.
Warren Buffett is a household name because of his great wealth. But many of us forget that he amassed this wealth through different forms of private investing and hedge funds. He learned valuable lessons at a young age through investing in the stock market. As he matured he ventured out into various practices in private investing. For many, it seems that having lunch with this very wealthy man would be out of the question. However, each year Warren Buffett sponsors a luncheon that is a fund raiser for his favorite charity.
The GLIDE Foundation
Normally, eating lunch at a higher end steakhouse in Manhattan with nine people would run somewhere around $1000. But this year it cost on investor nearly $3.5 million. That was the final bid on this year’s charity auction in which the winner gets to enjoy lunch with Warren Buffett and the proceeds go to a charity based in San Francisco, the GLIDE Foundation. The charity provides meals, housing and funding for community based clinics. Over the last 13 years the auctions have raised more than $11 million for the group.
The charity auction is conducted online and the winner gets to take seven friends for lunch with Warren Buffett at the Smith & Wollensky steakhouse located in Manhattan. In 2011 a fund manager, Ted Weschler paid $2.63 million to share lunch with Warren Buffett. But after the lunch Weschler was hired by Buffett’s Berskshire Hathaway as an investment manager. He only beat out one other person in last year’s auction in which only 8 bids were offered by just 2 people. Weschler won both the 2010 and 2011 auctions which yielded almost $5.3 million for the charity.
In 2012, there were 10 bidders in all and over 106 bids were made during the 5 days the online auction was open. When it ended, the winner had bid $3,456,789 exactly. This amount will be given to Buffett’s favorite charity and the winner will enjoy lunch with Buffett. Smith & Wollensky also contribute a minimum of $10,000 to the charity to host the lunch.
The goal is not for Warren Buffett to find future employees through the luncheon; it is simply to raise money for his favored charity. While Buffett isn’t looking for new hires through the auction, Weschler did end up getting hired by Buffett last year to help in managing Berkshire’s investment portfolio. Most of the time, the winner of the auction just gets the opportunity to sit and converse with Warren Buffett, known throughout the world as a profitable investor and a leader in entrepreneurship.
Discussions with Warren Buffett
But talk over lunch is not always only about money with this multi-millionaire. Although the big draw for many bidders is Buffett’s amazing business sense and outstanding success in investing, the lunchtime conversation does not center around potential investments. Since Warren Buffett has made such a mark on philanthropy, many past winners have wanted to discuss giving. Since 2006, Buffett has continued to slowly give a portion of his fortune. He wants to eventually divide his Berkshire stock up between five charitable foundations. He intends for the largest portion to go to the Bill & Melinda Gates Foundation.
Warren Buffett and Bill Gates have been trying to encourage extremely wealthy people to give away at least half of the fortunes they have amassed. Almost 80 of the United State’s wealthiest have joined in with this effort.
Auction winners have expressed that the time spent having lunch with the well respected Warren Buffett is well worth the price they have paid. The lunch usually spans several hours and Buffett answers questions as they are posed. Usually, according to Buffett, many of the questions are about non-business topics like family and philanthropy.