Facebook joined Twitter after taking a nosedive following the posting of its earnings that, for the most part, beat the street, but offered guidance that gave investors pause. This will rekindle talk of a tech bubble, however, it would have to be a social media tech-bubble, and even that would be a stretch. These are good companies that get the short end of the stick as valuations demand quarter- to-quarter perfection. I am not alarmed, but get ready to hear the noise all day.
Friends in High Places
The midterm elections are less than a week away. I want to focus on the power of “influence buying” and what it means to Main Street.
After the midterm elections, political favors and campaign donations will tell us more about the winners and the losers. Look at how special interest groups and industries are spreading their cash around, first focused on Democrats, and then Friday, on Republicans.
Unions are not a surprise. If you wonder why lawyers get away with murder, and why college tuition have outpaced inflation by three hundred percent and are never criticized, this table should remove the mystery.
| Political Donations /Democrats Election Cycle | 2010 | 2012 | 2014 |
| Unions | 93% | 90% | 89% |
| Lawyers | 76% | 70% | 70% |
| College | 75% | 76% | 72% |
| Venture Capitalists | 58% | 43% | 53% |
| Computer Software | 63% | 59% | 61% |
What about venture capitalists and computer software donations? They tend to more liberal, but this is not the case. Up to 1998, the computer software industry donated more money to the GOP than Democrats did. Both groups have upped the ante this election cycle; and maybe it is because the White House, with the aid of key members of Congress, pushed through the JOBS Act.
The bill that made crowd-funding exempt from broker dealer rules and provisions backed by Google, Steve Case, (also, a member of President Obama’s Jobs Council), Mitch Kapor, and others in Silicon Valley is another example of a poorly named piece of legislation.
Nevertheless, the biggest windfall was the ability to fast track initial public offerings (IPOs) at hyper-speed and with fewer due diligence requirements. Critics warned against gutting regulations designed to keep small investors safe. Instead, companies with less than $1.0 billion in sales could offer stock to the public with less scrutiny.
The JOBS Act has been a home run for all those venture capitalists and incubators in Silicon Valley and overseas. IPOs have skyrocketed, but the quality has been suspect, and there have been a lot of failures out the gate.
As mentioned earlier, there are signs that tech stocks are ready to pullback. In addition to disappointing earnings, and guidance from Twitter and Facebook, Venture Capitalists’ confidence dipped for the first time in more than two years; it is part anecdotal and part reality. I think Silicon Valley has had an amazing run and they might want to be a little more cautious. In the meantime, these guys are going to ride the wave until it runs dry. Therefore, a little humility for the smartest guys in the room is par for the course.
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