Silicon Valley backlash?

I think we may be at a watershed moment in terms of the acceptability of the corporate behavior of tech/internet-related companies.

Up until now, it has been enough for investors that Silicon Valley produce increasing profits.  Institutionalized poor behavior on the part of the firms’ managements–whether that be violation of some employees’ civil rights or less-than-ethical treatment of customers or shareholders–has made little difference to their stocks’ performance.

Uber is perhaps the poster child for this phenomenon, which has also been, aptly, I think, characterized as “fratboy” behavior.  But now Uber appears to be losing its license to operate in London, which holds 5% of the worldwide active users of the taxi service, because of its not being a “fit and proper” operator.

The case of Facebook (FB) is just as interesting.  Founder Mark Zuckerberg announced plans last year to give a large amount of his stock in FB to a charitable trust that he and his wife would run.  In order to preserve his majority control of FB despite divesting a large chunk of his shares, he proposed that each A share, the ones with super voting power that insiders like him hold, be “split” into one A + two C shares, the ones with no voting rights.  Zuckerberg could then give away the C shares, representing about 2/3 of his wealth, without any decrease in his 53% voting control of FB.

The board of FB appointed one of its members, Marc Andreessen, a developer of the Mosaic and Netscape browsers, to represent third-party shareholders in this matter–to ensure that this restructuring would be fair to them.

Institutional investors sued.  During discovery, they found among other things, emails between Andreessen and Zuckerberg in which, far from defending third-party holders,  Andreessen appears to be coaching Zuckerberg on how to present his proposal to the board in the most favorable light for him.

Today, FB announced it’s dropping the restructuring plan.


If I’m correct about a fundamental change in investor sentiment, what does this mean for us as investors?

At the very least, I think it means that the business-is-what-you-can-get-away-with attitude (borrowing from Andy Warhol) of many tech companies will be penalized with a discount valuation.  It may also prevent some early stage firms from being able to list–preventing employees from cashing in on what they’ve built.  On tech/internet’s notorious anti-woman bias, I’m not sure.  After all, the investment business isn’t that far ahead of tech in eliminating this form of prejudice.



investing in tech (ii)

other tech characteristics

–unlike areas like, say, fossil fuels, tech will likely continue to experience strong growth for a long period of time

–tech is also an area where the US has a comparative advantage, due to the presence of  strong tech-oriented universities, the large size of the existing tech community and the easy availability of capital to finance new tech ventures

a French scholar as tech banker

Early in my career, I had an acquaintance who had spent her life to that point studying for a PhD in French literature, intending to teach at a university somewhere.  She should have studied at least some economics in addition, because, like me, she finished here degree just as the Baby Boom finished college and universities stopped hiring new faculty.  I’d become an equity securities analyst; she’d become a banker to tech companies.  Initially, she was worried that her lack of a science background would be a severe negative.  She found, however–as I did–that electrical engineering was far less important than being able to figure out whether there was any demand for the stuff a given tech company made, at what price, and whether there was any competition.

I think this is still true today–meaning that most people can be successful tech investors, provided they’re willing to put in time and effort.  While a technical background (or access to a friend or relative who has one) is a plus, common sense and a little supply/demand economics is much more crucial.

active or passive/individual stock or fund

The simplest, and lowest risk, way for any of us to increase the tech component of our equity exposure is to replace an S&P 500 index fund/ETF with a tech sector index fund/ETF .

There are also subsector funds/ETFs that allow a narrower focus on, to name a few popular subsectors, internet or cypersecurity or semiconductor stocks.  There are even a few actively managed tech ETFs, although it’s not clear that these outperform passive vehicles.

The largest rewards, and the greatest risks, come with buying individual stocks.  My approach to holding an individual tech stock is pretty much the same as for holding any other type of individual stock.

More tomorrow.