Best Laid Plans of Mice and Men
Raise $300 million to roll up the industry
Everyone has a plan until they get punched in the mouth.
Mike Tyson (1966-)
Anyone have $300 million?
Money often costs too much.
Ralph Waldo Emerson (1803-1882)
On the plane ride back from the Domain conference, I had this idea. Why not add to the flywheel of business by buying the best domain portfolios? Not only would they be very valuable assets in and of themselves, but they could be monetized and garner even more revenues at scale. This would be like buying up more waterfront real estate.
I could pitch the top domainers, who had become great friends, Frank Schilling, Scott Day, Garry Chernoff and others. Webdesign.com, recipes.com, prayer.com, performance.com (the one I thought I had for $100 when I first started).
But where would I get the money? Again, I didn’t have the cash on hand to do this.
Then I had an idea. I could invite all the top investment bankers from Wall Street and see if I could either raise or borrow $300 million.
The Players of Wall Street
The stock market is filled with individuals who know the price of everything, but the value of nothing.
Philip Fisher (1907-2004)
I asked my network to introduce me to anyone who could help me. Bob Seeman, one of my innovative business friends, connected me to some along with my lawyer, Steve Lukas, who would connect me with Scott Earthy, who came from this world of finance.
I was planning to move into our newly acquired Yaletown building, but the renovations would take too long so instead we upgraded our offices to an 11,000 square foot sub penthouse office in our existing building, with 270 degrees of city, water and mountain view. Much too large for our team of 16 but we would grow our team to 60 as we built the infrastructure to scale our business.
Pretty soon, we were hosting all the big Wall Street banks. I really wanted Goldman Sachs, but they were the only ones I could not connect with.
I would even be invited by big private equity (PE) companies like Cerberus and Blackstone. Cerberus offered the $300 million right away on our first meeting but at a higher interest rate. They were the PE that had acquired Chrysler.
And just like that, I was on my way to do the deals I had already lined up with my domainer friends.
The cover story coincided with the meetings and validated the story of our business and I was viewed as an entrepreneur who could deliver the goods.
I presented to S & P and Moody’s to get investor ratings and that was the ticket into this world of Wall Street. In the elevator before the pitch I saw a guy staring at me. When I looked up, it was John Travolta! Hi John. Hi. He seemed normal, but also mystical at the same time. Wow, a whole new world.
The Subprime Crash of Real Estate
The four most expensive words in the English language are, ‘This time it’s different.’
Sir John Templeton (1912-2008)
Out of the 7 investment banks, I was impressed by Bear Stearns and Bank of America. I liked their team. Maybe it was my first amazing meal at Nobu that BOA treated me that won not only my stomach but my heart.
There I was sitting in the Manhattan tower that housed Bank of America, overlooking beautiful Central Park. The head of leveraged finance was popping in and out of the meeting. But what I noticed was his very stressed and concerned demeanour. He seemed very distracted with bad news. At the break, I asked him, “What’s wrong?”
He simply replied, “Subprime.”
What is that?
Subprime loans are real estate loans to home buyers with low credit scores that were then bundled together to reduce the risk of default of any one borrower.
Hmmm, not sure I quite understand. What’s the potential fallout?
Hundreds of billions of dollars. Likely more.
Sounds big!
Yes, it’s very concerning.
Will this affect what I am doing?
Possibly.
Fear of Impending Doom
He who is not everyday conquering some fear has not learned the secret of life.
Ralph Waldo Emerson (1803-1882)
I went away from this deep in thought. If this fallout happened, what would happen if the economy crashed?
As I looked into this more, it looked like potential impending financial doom, the collapse of the banking system.
I started to tell my home builder to build faster so I could sell my current house at the top of the market before the financial crash occurred. They said I must be wrong because real estate was only growing and couldn’t suddenly crash like I was saying.
But my intuition said I was right.
I was telling many people about this coming crash, but it fell on deaf ears.
Bear Stearns, one of my joint arrangers, would go bankrupt and sell for under $300 million, less than the amount I was raising. I decided not to go ahead with the $300 million acquisitions. I apologized to my friends, saying my intuition said to not go ahead. They are still my friends, so true friends. Instead I got a credit line of $60 million and acquired a much smaller portfolio for $20 million and promptly paid it off.
Then in September 2008, while I was attending Harvard, living in the dorms, the financial crisis took full effect. The Director of Goldman Sachs would speak to us and say how subprime nearly collapsed every financial institution.
Lehman Brothers would fall and sell to Bank of America. The CEO of Bank of America and most of the team there would be swapped out. So many would lose their homes, home prices would fall across America and ripple to other markets around the world.
My Life Questions:
By failing to prepare, you are preparing to fail.
Benjamin Franklin (1706-1790)
1. What is your life plan?
Dreams are important but a plan to make it real is just as important. The plan will change. But you must have a plan to start. Map out your life to 100 years and work backwards by decades. What do you hope to accomplish by 100, by 80, by 50, by 40, by 30, by 20? Line up the dominoes in your mind (and on paper).
Physically I wish to be able to do 10 pullups daily, do the splits (ouch) and ride 100 km on my bike at 100 years old (century ride at my century mark). I am working backwards. I am 53 and worked my way up to 20 pull ups, can do 100 km easily on my bike up mountains. My big challenge is the splits so every morning I am trying to move my hands to my feet from a pushup position.
My Life Lessons Then (from my 29 year old self):
The best way to find yourself is to lose yourself in the service of others.
Mahatma Gandhi (1869-1948)
1. Is growth by acquisition the best way or optimizing what you already have?
Walmart has 8.6% market share in the US. Do they need to acquire and expand globally? Southwest Airlines expands in the US 99% of the time. In-n-Out Burger is slowly expanding out of California. Brand density. Market density. Expand in your niche market and once you have things ironed out, expand into adjacent markets.
2. Listen to your intuition and ask questions.
Intuition is your gut sense of something right or something wrong. You feel it right there. Your gut. Listen to your intuition. You are a prophet. You just haven’t learned how to use this super power fully yet.
3. Don’t be dazzled by numbers. Be focused on purpose.
The allure of big numbers blinds one from one’s path and purpose. Don’t lose sight of what really matters to you.
Life Advice Now (from my present 53 year old self):
Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering.
Yoda
1. Keep listening to your intuition, gain insight, deep on introspection.
The “in” deep inside of you are delving to know yourself much deeper and in more dimensions. Focus on “in*”.
2. When a secret is revealed, ponder on how you can leverage it.
I didn’t know how to leverage the secret knowledge of subprime. The Big Short revealed how Michael Burry shorted the market and made $4 billion. I realized afterwards it would be beneficial to know how the markets worked and did commodity (oil, gold and natural gas) leverage trading daily for a year. The education was interesting and somewhat invaluable. I 100x my money in stocks as a result. Bought NVIDIA in 2018 at $60 a share after 12x my Google buy in 2006. It slingshot to $1,180 a share (20x) [now $118 after a 10:1 split]. I will explain my thoughts on my decision to buy NVIDIA at that time in another newsletter.
3. Don’t let fear dictate, have courage and faith in yourself and your dreams.
I’ve noticed that the periods in my life when crises hit, it’s natural to have fear. But to act and make decisions in fear has mostly not garnished any good results. Some like bowing out of my big $300 million deal. But for the most part, fear resulted in bad decisions mostly. Don’t ignore the fear. Be prudent, yet act with courage and faith.
Next week:
The Entrepreneur of the Year
Awards leads to Glory and Hubris
Our greatest glory is not in never falling, but in rising every time we fall.
Confucius (551-479 BC)
See you next Thursday!
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