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Insights from dinner with Brian and Jason

Engineering compensation

  • 1% equity max for first 2 engineers.
    • 1% equity and low salary
    • 0.5% equity and medium salary
    • 0.25% equity and full salary
  • 0.5% equity max for second round of engineers
    • 0.5% equity and low salary
    • 0.25% equity and medium salary
    • 0.1% equity and full salary

Advisers compensation

  • Typically 0.5% to 0.25%

Fund raising

  • can raise money from angels before there is even a product and distribution
  • Jason Calacanis invest in people who he feels are winners
  • Frame the opportunity and let investors fill in the details with their own models

Investors

  • Really open doors to help with follow on funding rounds
  • Brad slowly stepping away from USV to pursue his investment thesis in the crypto-currency space

Building and exiting

  • seek out other operators within the space seeking to bolt on to their business model
  • hire people to fill the positions and eventually replace yourself
  • practice discipline do not step across boundaries and get in the way of specialist. Focus on framing the problem and let the specialist define the solution.
  • always focus your time on the highest leverage activity
  • company making 20K to pay their staff sufficient wage to continue working on the project
  • eventually find a new home of the team by selling off the company

Related references

  • https://medium.com/@SiliconValleyGC/how-much-is-my-startup-advisor-worth-d97d825a6742
  • JoinMassive.com
  • Begin.com
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How banks and the Federal reserve / central bank works

On US banks

  • they pay interest on deposits from customers and either borrow out the money to lenses or purchase short term US treasury . The spread between deposit interest rate paid to customers and US treasury yield/loan interest rate charged to lender is their profit
  • they charge lenders interest above long term treasury yield rate and finance the loan through either their own deposits or from borrowing
  • US Banks with deposits above USD122.3million needs to meet minimum reserve requirements of 10% imposed by the Federal reserve as of 2018

Meeting minimum reserve requirements

  • Borrow from Federal Fund Rate based on central bank interest rates
    • Used within US economy
    • rates are higher
    • hassle free
    • The federal funds rate is set in U.S. dollars and
    • charged on overnight loans.
    • The fed funds rate is the interest rate at which commercial banks in the US lend reserves to one another on an overnight basis
  • London Interbank Offered Rate (LIBOR) –
    • Used internationally
    • Borrow from other banks
    • rates are lower based on global supply and demand equilibrium
    • based on USD, EURO, Sterling, Swiss Franc, Yen
    • Quotations:
      • overnight, one week, and
      • one, two, three, six, and 12 months.

Federal reserve debt structure

  • US treasury bills:
    • short term maturity at one year or less.
    • Sold at discount
    • paid fully at maturity
  • US treasury notes:
    • 1 year to 9 years maturity
    • Sold at face value
    • pays fixed interest rates every six months.
    • Sold auction style.
  • US treasury bonds:
    • 10 years to 30 years maturity.
    • Sold at face value and
    • pays fixed interest rates every six months .
    • The original vehicle.
    • Registered to single owner and cannot be resold.

Federal Interest rate hike

  • Long term interest rate tend to react faster to hikes then short term interest rates
  • Long term Federal interest rates are used as benchmarks by banks to determine interest to charge lenders.
  • To prevent hyper inflation (price stability) after all employable people within the country have been employed into the economy.
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Trends associated with GetData.IO

Alternative Data

Robotic Process Automation

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Analysis of the Facebook Libra Token

High level

  • The launching of Libra Token will allow large swath of people access to banking
  • It will also allow corporations with a huge stock pile of cash the access to alternate forms of investment

Libra currency liquidity

Every Libra token that gets created is backed by a reserve of real assets. Close examination of partner balance sheet figures shows approximately USD148 billion dollars of cash and equivalent available for deployment right out the gates.

Libra social impact

One of Libra’s goals is to provide banking access to segments of the world’s population that don’t. Close examination of partners’ reach to this segment of the world shows 7.9million people. This is not including the 204 million African Internet Users on Facebook.

Related References

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20190619 – Federal reserve chairman Powell’s speech

Federal Reserve’s two pronged mission

  • Maximum employment
  • Price stability at 2% inflation

Indicators utilized to proxy inflation

  • Unemployment levels
  • wage levels
  • consumption levels
  • Agriculture
  • manufacturing
  • Business investments
  • trade levels

Departments overview

US treasury and Federal Reserve are non-political entities

  • Government
  • US treasury – controls exchange rates
  • Federal reserve focus on domestic concerns only

Observations

  • will not act on sentiment driven from cross currents like Trade war and China’s deleveraging
  • will wait to see more of how trends pan out before acting
  • most countries find it challenging to sustain a 2% inflation rate
  • wage level increases has remained subdued despite increase demand for labor
  • balance sheets of banks are well stress tested
  • balance sheets of non-banks like mutual funds are not well tested
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Effects of Trump administration and Federal Reserve fiscal policy on the S&P index

2018 Oct / Dec

During the period of Dec 2019, the SPY index ranged between

  • 3rd Oct 2019 – USD 291.72
  • 24th Dec 2019 – USD 234.34

The steep decline in share price can be attributed to the ongoing trade war wage by the Trump administration and the expected Federal Reserve rate hike. The decline attributions are as follows:

  • Trump administration
    • USD 291.72 – USD265.37
    • 3rd Oct 2019 – 13th Dec 2019
    • decline of 9.03% off of USD291.72
  • Federal reserve rate hike
    • USD265.37 – USD234.34
    • 13th Dec 2019 – 24th Dec 2019
    • decline of 10.63% off of USD291.72

2019 May / June

During the period of May and June 2019, the SPY index ranged between

  • 3rd May 2019 – USD 294.03
  • 3rd June 2019 – USD 274.57

The steep decline in share price can be attributed to the two front trade war wage by the Trump administration which caused a 6.61% price decline

Of the recovery that occurred after 3rd June 2019, the following parties could be attributed

  • Federal reserve
    • USD274.57 – USD 287.65
    • June 3  2019 – June 7 2019
    • 4.76% recovery off of USD274.57
  • Trump administration
    • USD 287.65 – USD 292.32
    • June 10th 2019 – June 18th 2019
    • 1.70% recovery off of USD274.57

Conclusion

While both the Government administration and the Federal reserve have observed impact on the SnP index, it is observed the Federal reserve has a slightly higher level of impact.

  • Oct/Dec 2019: 10.63% versus 9.0%
  • May/June 2019: 4.76% versus 1.70%

 

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Non-purchase of DOMO despite 10% dip

11th June 2019 DOMO 10% share price dip

Reasons for non-purchase

  • Macro economic environment is still uncertain given US/China Trade war where leaders are set to meet during the 28th-29th June 2019 G20 Osaka summit.
  • US Treasury yield curve is currently inverted signaling a forthcoming recession
  • DOMO share price has been on a steady trend for past 3 months.
  • Competition purchases
    • Google has recently purchased Looker
    • SalesForce has recently purchased Tableau
  • Financials
    • Cash and cash equivalent is down by more than 50%
    • Total assets is down by more than 10% while total liabilities is down by only 3%

Related References

  • https://www.fool.com/investing/2019/06/07/why-domo-shares-plunged-today.aspx
  • https://www.globenewswire.com/news-release/2019/06/06/1865628/0/en/Domo-Announces-Fiscal-2020-First-Quarter-Financial-Results.html
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Macro-economics negative spiral leading indicator

Overview

This post documents how we identify negative macro downtown.

Heurisitics

  • When more than 20 companies within the mega cap area experience large dip within a week, it is a good indication that macro economics trend has shift
  • Verify by cross referencing with SQP, QQQ and ^RUT
  • During this scenario, it might make sense to shift position into SRTY

Related references