DÉJÀ VU – NEW YORK CITY
DÉJÀ VU – NEW YORK CITY
Over 80 years and almost to the day in September, an explosion rocked the nation’s financial center, downtown New York City. A horse drawn wagon stopped in front of J.P. Morgan & Co. and its bank the Morgan Bank on the corner of Wall and Broad. Just before noon it exploded violently sending chunks of shrapnel in every direction. There were numerous victims, yet some like Joseph P. Kennedy and Seward Prosser – President of Bankers Trust narrowly escaped death. Others, such as a young runner who begged passers by to take and deliver his securities and Edward Sweet, owner of the popular Sweet’s Restaurant, were not as lucky. Trading at the New York Stock Exchange, hundreds of feet from "Ground Zero" was stopped less than a minute after the explosion. Had the bomb exploded several moments later during the busy lunch hour, instead of 40 dead and hundreds wounded perhaps thousands would have been adversely affected.
Although one of the most thorough police investigations in the nation’s young history was undertaken, the origin of the explosives, metal fragments and even the horse’s horseshoes (all that was left of the wretched animal) were never found. A confusing and odd note was later received signed by the "American Anarchist Fighters." No arrest was ever made nor was anyone ever held accountable for this atrocity. The next day, with buildings showing the signs of the carnage, the "Street" reopened for business. Even today the gouges made to JP Morgan’s building remain a symbol of the company, the bank and the city’s courage in the wake of terrorism.
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The Last Wall Street Bombing
John Steele Gordon Business of America Walker & Company |
The historic importance of catastrophes often become clear only years later. As the above bombing on Wall Street, Pearl Harbor, President Kennedy’s assassination and now the events of September 11th illustrate, such traumatic events can be the prelude of a great and triumphant beginning (World War II and the liberation of Europe) or of a long and difficult period (the stock market crash of 1929, subsequent depression and the tumultuous 60’s). The planes that struck the World Trade Center destroyed, in addition to close to 4,000 lives, our belief of America’s invincibility. The Skyscraper was the signature of American dominance architecturally and of its technological superiority. This patriotism was and is a big part of our romantic idea of what it means to be an American. A stones throw from Lady Liberty herself, we have banded together, even at a terrible cost and considerable risk, to protect our way of life. Just as the City and financial district recovered in the1920’s, so has ours today.
John Kenneth Galbraith
"All of the great Leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time."
In light of the horrific incidents of September 11th, our nation, individual states and cities and businesses across the world have taken stock of our leaders. The double threat of war and recession has many employees worried about their lives and livelihoods. While President Bush and Mayor Giuliani have certainly risen to the occasion, others however have not. Across the already battle scared venture capital landscape, certain CEO’s have taken advantage of the times. Microsoft’s Bill Gates acted proactively and settled the law suit with the government and many states that obfuscated the company’s future; Warren Buffet, in another sign of leadership, quickly publicized the enormous hit Berkshire Hathaway would take due to its insurance subsidiaries. Yet he assured his managers, shareholders, employees and the financial community that the loss, albeit huge, would "nevertheless be one that Berkshire can easily bear." Leadership is something we are all starved for and its need, during war or even during our current recession, has never been more welcome. With financial service companies such as Fidelity Investments, Merrill Lynch, Charles Schwab, Goldman Saks and others laying off thousands of workers weekly, the stock market and economic downturn will be weathered with great pain and anxiety as we usher in the new year.
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A good friend once asked Michael Jordan, arguably the greatest basketball player ever, a simple question: Michael, are you ever afraid of missing a shot at the end of a game?" The answer was pure Jordan: "Why should I worry about a shot I haven’t taken yet?"
How To Be Like Mike |
The hardest hit area in the financial service community has been the entrepreneur seeking seed capital. Capital, when available, has gone to existing businesses. As Venture capitalists continue to focus on shoring up troubled portfolio companies, many potential users of tomorrow’s technology have stopped ordering or delayed spending. Given such a sentiment and environment, and the extended chilling effect of the September 11th attacks, its’ little wonder why investment bankers are struggling through one of the harshest period in decades.
As we get close to ending 2001, the markets have experienced a "one step forward, two steps back" motif (Mario Gabelli). Rallies, based upon the numerous Federal Reserve cuts, were met with the harsh realities of a recession: layoffs, companies missing their numbers, bankruptcies (e.g. Vlasic Foods, Polaroid, Burlington…). Investors became increasingly emotionally fragile, many took enormous losses and are sitting on funds in money market accounts drawing marginal interest. Companies like Enron, a previous new age blue chip of the energy sector, who in the course of a mere 6 months lost 99% of their market value and recently announced a pending bankruptcy, do little to improve or sustain investor confidence. Although the Fed’s constant intervention will help revive the economy, bear markets have a mind of their own. As always, investors that take a long-term view that focus on fundamental businesses trading in depressed markets at bargain prices will out perform the general investment community.
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"In my opinion, America is hated not because of our ideology but because of our freedom, lifestyle and our products. The more people around the world can not have those things, the more they hate us. So the solution is to make our things available around the world."
Michael Eisner, CEO |
As many of you are aware, the State of Israel has been a significant player in the venture capital arena. They have not been spared the painful slowdown of the industry at large. Recently, in order to spark and rejuvenate international funding, the government scrapped regulations that left oversees investors vulnerable to dual taxation (Israel and their home market). As a result, IDG Ventures Europe, a UK based venture capital firm with $100M under management announced in late November that it would begin making investments in Israeli technology companies. Perhaps in order to encourage venture capital investments more countries might want to follow suite (Sources – Red Herring Magazine, and Venturewire, November, 2001).
In addition to the aforementioned international efforts, American states are also taking bold steps to encourage venture capital related investments for their homegrown startups. As an example, several states have instituted "capcos" which offer dollar-for-dollar tax credits for local investments, grants to VCs to be used as
leverage for the investments and tax breaks to guarantee rates of returns for investors who capitalize their local funds. Job hungry states need startups and sincerely want to encourage the entrepreneurial spirit even as VC investments have receded precipitously. As an example in Colorado and New Hampshire, VC investments have fallen in excess of 90% (Source Money Tree Survey, Economic Development). Thus, the proactive steps to revitalize the industry.
This past quarter, for obvious reasons, we spent most of our time and efforts working with our current portfolio of consulting clients. We want to welcome into Wellfleet’s family of consulting clientele Nu Wave Technologies, Inc. ("WAVE"), eResearch Technologies, Inc. ("ERES"), National Preplanning, Inc., Beyond Books.com, a subsidiary of New Forum Publishers and the United Kingdom based Simply Hub, PLC. These companies are all seeking different services from WPs: A "PIPE" (see last newsletter), introductions to strategic partners and/or potential clientele, a reverse merger into a public shell, better financing terms opportunities for its large contracts from our US and internationally based banking contacts and/or a merger with a US based entity. Indeed, an eclectic group of new corporate consulting clientele and desired services that illustrates Wellfleet’s diversified talents. In addition, at the time of this writing we expect to shortly be engaged by companies in London and Israel both seeking strategic partnerships with US based entities. Several of our Spider Financial Bridge Loans will also shortly come due as well thus we are actively looking for viable bridge loan candidates that fit our unique model such as the aforementioned Beyond Books.com.
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"Forgive your enemies, but never forget their names."
John F. Kennedy |
As a prologue to last quarter’s newsletter supplement, "Attack on America", we have been overwhelmed with your compliments. We sincerely appreciate your sentiments but it is quite easy to reflect on your own sentiments when the topic is as emotionally charged as this is. The searing images on television and mind numbing cascade of pictures leaves an indelible impression on all of us. Yet life in New York City, as it did in 1920, goes on. Besides the carnage and terror, we also saw the best of our country, city and in ourselves. Firefighters, policemen, EMT personnel rushing to the rescue with little regard for their own personal safety; strangers offering help and support to each other; and thousands, if not millions pledging financial aid to the victim’s families. Around the world countries and governments showed their solidarity with moments of silence, showering their countryside’s with flowers, photos and tributes to our fallen heroes and the tragic victims. Although many of us suffered the loss of a loved one or friend, or knew someone who did, ALL of us personally bore the attack on humanity, decency and the freedom we so treasure. We all share in this war against hope, but it’s a battle we, by our very actions to date, have already won. G-d bless America.
Sincerely,
WELLFLEET PARTNERS, Inc.
NOTE: This report was produced by Wellfleet Partners, Inc. ("WPs") from various public research sources, for the sole purpose of general information. WPs makes no warranties to its factual content and is not a brokerage firm, registered Investment Advisor nor securities dealer; therefore, nothing contained in this report shall constitute an offer to sell, solicit or buy any securities or investment advice. Investment in these securities mentioned here involves risk and should not be considered without first reading the target Company’s most recent financial statements, 10Q and 10K, its Private Placement, Offering Memorandum or Business Plan, if applicable, and discussing the investment with your registered representative or professional financial advisor. Venture capital is inherently extremely risky. Mark I. Lev, Managing Director of WPs and the author of this newsletter, is a registered representative of KSH Investment Group, Inc. a NASD member broker-dealer.