Monday, May 09, 2005

Hackathon!

Hackathon!

A very interesting post by Joe Kraus over at JotSpot. JotSpot recently held their first Hackathon.

"What the heck is a hackathon?

It’s a day-long event where our engineers each crank on something:

* valuable to the company
* but not what they’re “supposed” to be working on and
* that can be taken from idea to working prototype in one day"

After coding from 9 AM to 8 PM, the group gathered for pizza and each hacker presented what they had created.

The results are pretty inspirational. But why limit a hackathon to engineers? Can you apply a hackathon to your company?

P.S. The reason that a hackathon works is twofold. First, the requirement to produce a working prototype in a day naturally forces people to work in a lean, iterative fashion. Second, working by yourself maximizes individual creativity and responsibility--for all the props brainstorming gets, studies have shown that people working individually generate more ideas per capita. Also, since you alone are responsible for your output, and you're going to show it to everyone, you are truly invested in your work.

The Talented Tenth

The Talented Tenth

According to the the National Venture Capital Association, 1 in 10 Americans works for a company that was once venture-backed.

Is that high or low?

One More Bubble Thought

One More Bubble Thought

Grace Wang, professor of Real Estate at Wharton recently published an article entitled "The Anatomy of a Housing Bubble."

"Wong's research explores the Hong Kong housing market, which saw a "real increase" in prices of 50% from 1995 to 1997, followed by a "real decrease" of 57% from 1997 to 2002. (Real increases and decreases refer to changes adjusted for inflation.) Transaction volumes, too, rose dramatically from 68,000 in 1995 to more than 172,000 in 1997, but fell to 85,000 the following year."

"There is likely to be some speculative demand in the market at all times, but bubbles form only when there is substantial speculation. What we can do is to keep track of changes in turnover volume, separate increases in turnover due to speculation and those due to other factors, and therefore get a sense of how much speculation there is. When there is a frenzy of trading, a red flag should be raised and we should take a careful look at the fundamentals (which are difficult to measure) and housing prices."

So in other words, when rapidly rising prices are accompanied by rapidly rising transaction rates, watch out. Alas, this condition almost precisely describes the current market in the Bay Area.

But Bubbles Can Do Some Good

To be fair, Tom Evslin points out that bubbles do have a good side.

"Irrational exuberance is back! To me that’s good news. Nothing great is achieved without irrational exuberance.

George Bernard Shaw wrote: “The reasonable man adapts himself to the world; the unreasonable man persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

Reasonable rational people don’t make breakthroughs; they do me-to products. Reasonable rational people don’t fund breakthroughs; they fund proven technologies and yesterday’s winners. I have nothing against reasonable rational people. They are absolutely needed to take over at the point where entrepreneurs lose interest and run past the limits of their competence. If the world were left just to entrepreneurs and intrepid early stage investors, all their breakthroughs would be wasted for want of competent management to bring their innovations to scale and commercial viability."

The Housing Bubble, Part 284

Okay, so maybe I've been a bit obsessed with this topic, but I just find the entire business so frightening.

Today, Dan Gillmor provided links to two more articles on the bubble, one in the Washington Post, and the other in MarketWatch. Here are some of the highlights:

MarketWatch discusses the various new types of loans that have made borrowing easier (and riskier than before). For example, loans to borrower with poor credit are increasing:

"The percentage of new loans to borrowers with less-than-perfect credit, or non-prime loans, leapt to 28% in the second half of 2004, from 15% in the first half, according to Mortgage Bankers Association, a trade group."

There are also the interest-only loans discussed in my previous post:

"Interest-only loans formed 23% of new mortgages nationwide in 2004, up from 10% in 2003, according to Loan Performance, a San Francisco-based research firm.

That percentage was much higher in some metropolitan areas: 46% of new loans in Atlanta in 2004 were interest-only, up from 32% a year earlier; other snapshots:

20% in Tampa-St. Petersburg, Fla. vs. 9%
31% in the Washington metropolitan area, up from 11%
44% in Denver, up from 17%
46% in San Francisco, up from 25%"

And now there are also teaser-rate loans:

"Then there are the teaser-rate loans, heavily advertised in the hottest home markets, where loans at, say, 2% are proffered.

These loans make more homes available to more people, but they also lead to negative amortization, with the difference between the current market interest rate and your teaser rate tacked on to your loan's principal amount."

In other words, you keep borrowing more every month!

Then there's the Washington Post article. Homeowner Gabe Klein talks about how he has used rising home values to renovate several times, and how he is now considering using his home equity to finance purchases of investment properties:

"I'm thinking I need to buy a house a year for the next 10 years and then retire," he said."

One of his neighbors quit her job to get into the real estate business:

"Jackpot" is how Ileann Jimenez-Sepulveda describes it. Like Klein, she bought a house in Columbia Heights when the neighborhood was still known more for its crime and lack of amenities than for its gentrification. But the $300,000 house she and her husband bought four years ago was recently appraised at $850,000, and that equity has changed their lives.

They used their growing equity to buy another house three blocks away and renovate it to sell it. Then they bought a house in South America, and soon they'll close on a large single-family home in the upscale Crestwood neighborhood off 16th Street NW. In the meantime, Jimenez-Sepulveda, who had worked in the high-tech industry, quit her job to join her husband in the real estate business; he's a loan broker, she became an agent. Now they encourage their clients to use the equity in their homes to buy investment properties.

Jimenez-Sepulveda dismisses the analogy she sometimes hears likening this kind of leveraged real estate investing to the frenzied investing in technology stocks of the late 1990s. She argues that real estate assets are bound to increase in value over the years, even if it's at a far slower rate than in the past few years. "

Finally, if these quotes haven't scared you yet, I've saved the best for last:

"Nick Koufos, an attorney for the Securities and Exchange Commission, is 36 and has three children. He recently did a cash-out refinance on his Silver Spring home to build a house in Pennsylvania -- to which he plans to retire someday.

"I think it's better to get it done sooner rather than later," he said. "I don't see how I could lose money."

Mark my words. Throughout history, there have been four statements that marked every bubble.

1. This time it's different.
2. The rules have changed.
3. Prices can only go up.
4. Everyone is doing it.

We have now fulfilled all four of those statements. If only I had a way to short this market....