House of Paine

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 new house blue plate special
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masticated bizz reportage
 pre-clawed and  beak ripped
 by this here  red eyed 
                 amerikan bald  eagle  


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"The business of financing start-ups, 
it turns out, may not be as easy as it seems."

 "There are Darwinian characteristics
 to venture capital," 

 "Below the surface there's a huge amount of turnover."


"We can't really have people learning on the job anymore,"

 
 at one biggo VC  firm 
Two-thirds of the partners CIRCA  1997 
are no longer around 

 he said, and then cited

 an internal study showed why : 
the surviving third 
accounted for 85 percent 
of the firm's profit.

. 


take mitch  Kapor
he  had enormous success 
investing for himself
 in barely-formed start-ups
 like RealNetworks and UUNet Technologies,
 both of which provided 
him with staggering payouts. 

Yet he did not prove
 to be a star 
the years he worked 
as a professional venture capitalist. 

"The fact that it's someone else's money 
you're investing, 
and that you're investing
 as part of a partnership, 
that was more different 
than I thought it would be," sez Mr. Kapor,

 
Mr. Kapor failed to choose 
a single company 
that made him,
 his partners and their investors
 any money.

 He confesses he was 0-for-5 

 "Most of us entrepreneur types
  learned the hard way 
that venture investing 
is best left to the professionals," 



  
  
like a Moth to a Flame he went 

Shortly after America Online 
paid $4 billion to buy his company  Netscape,
 entrepreneur 
   Andreessen helped bankroll
 a venture firm called 12 Entrepreneuring,
 a short-lived partnership 
forged in early 2000 
 12 Entrepreneuring ceased operations 
only 18 months after it started
 Mr. Andreessen
, lost nearly two-thirds
 of the money he invested.

"I think 
what a lot of these guys learned
, some the hard way,
 is that you're a natural athlete 
or you're not," 

 "Some can do it, and some can't, 
and like with athletes 
there's no way of telling 
until they take the field."

At the end of the 90's, 
it seemed everyone in Silicon Valley 
wanted to become a venture capitalist
 (except those who wanted 
to be entrepreneurs
 funded by venture capitalists).

 As the ranks 
of venture capitalists 
more than doubled,
 from less than 5,000 in 1995
 to nearly 10,000 by 2001, 
firms started hiring people
 from outside traditional fields 
like finance or operations. 

Suddenly many lawyers,
 entrepreneurs,
 journalists and executive recruiters
 were trying their hand 
at playing venture capitalist

IT'S easy to understand why so many joined the swelling ranks of venture capitalists. 

A general partner at a top-tier firm 
typically earns at least $1 million in salary.
 But the real payoff 
is what venture capitalists 
call "the carry" -
 the 20 to 30 percent of the profits 
they share among themselves 
before disbursing the rest to investors. 

An informal survey of venture capitalists 
suggested that a partner working
 at a top-tier firm in the 90's
 could pocket roughly $50 million 
over the life of a single fund 
- with venture firms typically raising 
a new fund every few years.

Beyond the vast financial rewards, 
there are the thrills.
 A venture capitalist 
is not unlike a movie producer
 auditioning tomorrow's stars.

 "Being a venture capitalist was viewed as a very exciting,

"a top of the feeding chain sort of thing," 

. 


"But what I think a lot of people learned 
is that it's not as much fun
 or as easy as it might have looked
 from the outside."

Certainly, the early years are often painful.


training a new venture capitalist
is not unlike 
preparing a fighter pilot for battle:
 it takes "probably six to eight years 
and you should be prepared
 for losses of about $20 million.

"Of course, while we take risk,
 we work like hell to avoid crashes," 


"a venture god as someone
 who has made $100 million to $500 million
 on a single investment. 

a  list of  silicon valley VC Deities 
includes

Doerr,Kramlich and  Moritz 

=====================================
ALMOST a decade ago, 
Tampa Electric
 opened an innovative power plant
 that turned coal,
 the most abundant
 but the dirtiest fossil fuel,
 into a relatively clean gas,
 which it burns to generate electricity.

 Not only did the plant emit 
significantly less pollution 
than a conventional coal-fired power plant,
 but it was also 10 percent more efficient.

 
  


Since that plant opened, however,
 not a single similar plant
 has been built in the United States
. Abundant supplies of natural gas
 - a bit cleaner and, until recently,
 a lot cheaper - stood in the way. 

But even now, 
with gas prices following oil prices 
into the stratosphere
 and power companies turning back to coal,
 most new plants - 
about nine out of 10 
on the drawing board - 
will not use integrated 
gasification combined-cycle technology.

The reason is fairly simple. 
A plant with the low-pollution,
 high-efficiency technology
 demonstrated at the Tampa Electric plant 
is about 20 percent more expensiv
e to build than a conventional plant 
that burns pulverized coal.

 This complicates financing,
 
The technology's main long-term advantage
 - the ability to control 
greenhouse gas emissions - 
is not winning over many utilities
 because the country
 does not yet regulate those gases.

That could be a problem 
for future national policy,
 because the plants being planned today
 will have a lifetime 
of a half-century or more. 

"It's a very frightening specter 
that we are going to essentially lock down
 our carbon emissions 
for the next 50 years 
before we have another chance
 to think about it again," 






 "the future of coal 
and the success 
of greenhouse gas mitigation policies 
may well hinge
 to a large extent 
on whether this technology 
can be successfully commercialized 
and deployed over the next 20 years."



the process, is as close to a silver bullet
 as you're ever going to see,  

Until Congress regulates carbon emissions 
- a move that many in the industry 
consider inevitable,
 but unlikely soon 
- gasification technology 
will catch on only 
as its costs gradually come down. 

 

that would happen as more plants were built.
 The premium should disappear
 entirely after the first dozen 
or so are completed,

Even now
the technology offers 
operational cost savings 
that offset
 some of the higher construction costs
 And if Congress 
eventually does limit carbon emissions,
 as many utility executives say
 they expect it to do, 
the technology's operational advantages 
could make it a bargain.


The operating savings 
of such plants start with more efficient combustion:
 they make use of at least 15 percent
 more of the energy released
 by burning coal 
than conventional plants do,
 so less fuel is needed. 

The plants also need
 about 40 percent less water
 than conventional coal plants,


 the primary virtue 
of integrated gasification combined-cycle plants 
is their ability to chemically strip 
pollutants from gasified coal
 more efficiently and cost-effectively,
 before it is burned, 
rather than trying 
to filter it out of exhaust.

  
  
 

half of coal's pollutants 
- including sulfur dioxide
 and nitrogen oxides,
 which contribute to acid rain and smog 
- can be chemically stripped out 
before combustion. 
So can about 95 percent 
of the mercury in coal,
 at about a tenth the cost
 of trying to scrub it from exhaust gases
 racing up a smokestack.

The biggest long-term draw 
for gasification technology
 is its ability to capture 
carbon before combustion.

 If greenhouse-gas limits are enacted,
 that job will be much harder 
and more expensive to do 
with conventional coal-fired plants. 



 capturing carbon would add about
 25 percent to the cost 
of electricity 
from a combined-cycle plant 
burning gasified coal,
 but that it would add 70 percent 
to the price of power 
from conventional plants.

.

Disposing of the carbon dioxide gas 
stripped out in the process,
 however, is another matter.

 Government laboratories 
have experimented 
with dissolving the gas 
in saline aquifers 
or pumping it into geologic formations
 under the sea. 

The petroleum industry 
has long injected carbon dioxide 
into oil fields 
to help push more crude to the surface. 


REGARDLESS of the politics of carbon caps, the Energy Department has made it clear that it intends to push the development of integrated gasification combined-cycle technology. Last month, for example, Mark Maddox, a deputy assistant secretary, said at an industry gathering that the technology "is needed in the mix - needed now."


.
 "Coal-fired plants are big targets," 
and if we do get serious about climate change
,They are going to be on the list of things
 to do quite early." 

===============================


HEDGE fund managers once had nerves of steel.

 In the 1980's and 1990's,
 men like George Soros, 
Julian H. Robertson Jr. 
and Michael H. Steinhardt
 made huge, daring bets
 on foreign currencies 
and on interest rate spreads. 

Secretive, and unsupervised 
by the Securities and Exchange Commission,
 hedge fund managers 
were figures of awe. 

 a "widely feared Wall Street subculture." 

For years, this feared subculture 
made millions for its investors.
 For example, between its inception in 1967 
and its dissolution in 1995, 

Mr. Steinhardt's hedge fund grew 
at a compound rate of 24 percent a year,
 after fees 

- more than twice 
the compound annual growth rate
 of the Standard & Poor's 500-stock index 
(with dividends reinvested). 

In other words, $10,000 invested 
with Mr. Steinhardt
 over that span would have swelled
 to almost $5 million. 

Hedge funds didn't always grow 
in a straight line, of course.

 In 1992, Mr. Soros made $1 billion
 by betting against the British pound.
 Two years later, trading in Japan,
 he lost $600 million -
 in a single day. 

Then there was Long-Term Capital Management:
 in August 1998,
 using $30 of leverage for every $1 of capital, 
it lost $1.9 billion
 and nearly brought down
 the world's financial markets. 

Back then, hedge fund territory 
was the Wild West of international finance.

 "In a certain sense, 
it was the last bastion 
of nearly pure capitalism," 
SEZ
Mr. Steinhardt  "It was a gunslingers' world 
and we were the gunslingers."

These days, though,
 you won't find many gunslingers 
in the industry.
 Instead, hedge fund managers 
are now content 
to beat the S.& P. 500 
by a mere percentage point or two

. Last month, 
the Hennessee Hedge Fund Index,
 which tracks about 900 hedge funds,
 was down 1.8 percent after fees;
 the figure is more or less in line 
with the 1.9 percent drop 
in the S.& P. 500.
 In 2004, the average hedge fund
 actually underperformed 
the market:
 with the S.& P. 500 up 10.9 percent, 
the Hennessee Hedge Fund Index
 gained only 8.3 percent. 

Historically, the whole point of a hedge fund 
was to outsmart the market.

 Because their clients were rich 
and sophisticated, 
hedge funds were allowed 
to gamble with investors' money.
 Unlike mutual funds,
 which are strictly regulated
 under the Investment Company Act of 1940, 
hedge funds could take risks:
 they could buy stock options,
 use leverage and bet against stocks
 by selling short. 

As conceived in 1949 
by Alfred Winslow Jones,
 then an editor at Fortune magazine,
 a hedge fund 
hedged its bets by taking "long" positions
 on undervalued stock
 and "short" positions on overvalued stocks.

 The idea was to be smart
 and nimble and bold,
 and to make oversized returns.

 As Mr. Steinhardt sEZ
 "I only had one objective: 
to have the best performance in America."

In the last decade, however,
 hedge fund companies
 have started to resemble
 mutual fund companies: big, 
plodding institutions 
for pensioners. 
Fewer and fewer hedge funds
 are now making impressive returns 
for their investors. 
In the 10 years through April 2005,
 according to the HFRI Fund Weighted Composite Index, 
the typical hedge fund 
has only just managed to beat the S.& P. 500 Index,
 with an average annual return of 11.97 percent
 compared with 10.26 percent for the S.& P. 500.

 In other words,
 the Wild West has become
 a suburban community,
 where managers ride golf carts 
instead of bucking broncos. 

What happened? 

For one thing, the amount of money invested
 in hedge funds has doubled
 in the last five years, to $1 trillion.

 It's hard to find creative places
 to park that much money. 
Besides, no special skills
 are needed to create a hedge fund 
- that's why everyone and his uncle
 know somebody who's starting one.

 Investors are partly to blame. 
They love the glamour of investing
 in hedge funds, but, 
at the same time, t
hey can't tolerate risk. 

Most investors can't tolerate 
even a month of losses. 

The real problem with hedge funds
 may be the managers themselves: 
they're earning too much money. 

It's almost vulgar.
 In the past, hedge funds 
were paid 1 percent of assets 
under management,
 plus 20 percent of that year's return.

 Recently, even as their performance has sagged, 
more and more hedge funds 
have increased their fees to 2 percent of assets
 under management -
 plus 20 percent of returns. 

To make big money for themselves,
 hedge fund managers
 don't have to make big returns; 
they just need to hold on to
 their pool of clients.

Rumor has it that chief executives
 are overpaid in America. 
Compared with the hedge fund managers,
 the C.E.O.'s may have a bad deal.

ON average, according to Institutional Investor's
 most recent survey,
 the 25 best-paid hedge fund managers
 each took home $207 million in 2003,
 about double what they made a year earlier.
 That's $207 million in cash 
- not in equity or stock options.

 Meanwhile, the nation's 25 highest-paid chief executives
 each made an average of $37 million 
in total compensation last year, 
including options granted 
(but not those exercised), 
according to Business Week.

Most hedge fund managers
 do make money for their investors.
 But even if a hedge fund manager
 doesn't make a cent for his investors, 
the manager invariably
 makes a fortune for himself.
 Think about it: 
just for showing up to work,
 the manager of a hedge fund 
with $1 billion in assets 
is guaranteed to earn $20 million a year 
in management fees alone. 
Why should he take any risks?
 Why should he alienate 
his cautious investors?
 If we add in his 20 percent 
cut of the gains, 
and assume that his returns 
last year were just average
 (in line with the S.& P. 500)
 he would have grossed 
a total of $41.8 million. 

Let's say that our hedge fund manager's office
 costs him $15 million a year
. Bottom line: 
having done nothing exceptional,
 he would have pocketed
 a cool $26.8 million after expenses.
 Can you think of another business
 that works like that? 

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