Bonner & Partners, which is yet another publisher subsidiary of Bill Bonner’s Agora empire, has a new teaser pitch out for Jeff Brown’s Exponential Tech Investor — and what caught the eye of Gumshoe readers was the headline, in the ad from Bonner’s Managing Director Amber Lee Mason, that promises huge gains from a “$39 computer” that will be as transformative as television or the internet.
So that’s what we’re looking into today… Mason signs the ad, but it’s about Jeff Brown’s idea and newsletter (which will cost you $2,500 at the “special price” offered today — the “charter member” price was $1,750 back when we covered his first teaser pitch in February, perhaps someday they’ll charge the $3,000 list price)… so what’s Brown selling?
“It’s not a laptop, PC, tablet or any computer you’ve ever seen or used. But it’s now being used by more than 38 of the world’s largest corporations, the Canadian Government, the British Government, and over 1,000 small businesses. Its next stop could unleash billions of dollars – and transform one tiny U.S. company into a juggernaut.”
Well that sounds lovely. We all want to find that “tiny firm becomes juggernaut” stock, right?
Well, apparently this is urgent! We have to subscribe now! More from Amber’s letter:
“Recently, I received an unusual ‘tip’ from an American contact of mine living in Tokyo.
“This guy is a real insider in high tech. He has been directly involved in some of the biggest technological trends of the last 20 years …
“He’s an angel investor in almost 50 companies… And he’s been recruited by several high tech firms…
“He told me about an urgent situation our readers should be aware of.
“… several key events could easily turn this secretive Florida business into a company 10 to 20 times its current size.”
If there’s one thing we should learn as investors it’s that almost nothing is ever as urgent as the folks trying to sell you a subscription want you to believe. The real urgency is that they’re salesmen, no different from car salesmen or suit salesmen or whatever: They know that if you leave the showroom, you’re not going to buy. They know that if you don’t click on the “buy” button the first time you read the email, the chance that they’ll get your attention again is slim, they have to make you feel like you must commit immediately, or they’ll lose the sale. That’s why almost every newsletter pitch has a “limited time” deal, or a “special deadline” or an “imminent catalyst” that you JUST CAN’T MISS OR ALL WILL BE LOST.
But really, if a stock is going to become a dominant leader and rise in value for decades, as most of these ads promise is the potential, there will be plenty of opportunities to buy it. Taking the time to think is almost never a mistake.
Maybe that’s why my articles almost always turn out to be way too long… I’m thinking with my typing fingers.
More hype from the ad:
“According to my contact, industry insiders are pegging it as ‘the next Apple.’
“You see, a ‘new computer’ is getting ready to transform the world.
“Some tech insiders dub it the ‘$39 Computer’ because it has many of the capabilities of an expensive $1,000+ PC unit… but it’s capable of being manufactured and distributed for as little as thirty nine bucks…”
Well, I guess that’s not outside the realm of possibility — heck, my phone is several orders of magnitude more powerful and capable than my desktop computer was 20 years ago. But what does brown mean by a “$39 computer?”
Here’s a bit more from the ad to give you that flavor… after this bit, it will be clear what he’s talking about:
“New and superior innovations are always coming around, upgrading and oftentimes displacing older models.
“But every once in a while, a new technology comes along that’s so advanced, it creates a quantum leap.
“Enter the ‘$39 Computer’…Are you getting our free Daily Update
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“Tom Mainelli, a tech analyst at International Data Corporation (IDC) said, ‘This is the next generation of computing.’
‘[“The $39 Computer”] is going to have as big an impact on businesses as the PC had…. It’s going to change the way we interact with technology. It’s going to happen across many businesses over time.’
“Jay Borenstein, a computer science professor at Stanford University, says:
“I am a real believer that [“the $39 computer”] will be as transformative as television was, as the Internet was…. it is a profound leap ahead….’
“It’s no wonder companies like Google and Facebook have already placed orders.
“As Bloomberg writes, this technology may one day replace your PC.
“And Daniel Lemire, a Canadian computer science professor and software writer in Quebec, says:
“The PC is dying. Even Microsoft has accepted that. Tablets and smartphones are nice, but they can’t fully replace PCs. What will? [The $39 computer] is the answer.'”
So, if you chase down those quotes, it slowly becomes clear that the “big picture” idea being talked up by Jeff Brown is, in fact, augmented reality (often smushed in with virtual reality as a concept).
The Bloomberg article he’s referring to is “Will This Augmented Reality Machine Replace Your PC?” — that’ appeared in May, and it’s mostly about a California augmented reality company called Meta.
And Brown doesn’t hide that — another quote from his ad is, “a 100-person, California-based company called Meta is planning on ditching its PCs and replacing them with this new technology,” which refers to this same Bloomberg story.
The Daniel Lemire quote is from one of his blog posts here.
And the Jay Borenstein quote is from an article in the Stanford Alumni magazine here. That one is more about immersive virtual reality, the others are primarily focused on augmented reality.
What’s the difference? Virtual reality is immersive — you wear an opaque headset and enter a virtual world without being able to see or hear the real world. That’s great for gaming, or for things like pain control or perhaps for having a virtual presence in another location for tourism, or for social reasons. Augmented reality is projecting something on top of the real world — in the most basic case, something like Google Glass that projects a little image in the top of your glasses to give you walking directions, or show you video of something, or alert you to a text… in more extreme cases, with tools like Microsoft Hololens, it’s a real headset that can put virtual characters or graphics into the real world or overlay something over your vision — giving the impression that there’s a holograph of a jet engine’s innards floating in space in front of you for the mechanic who’s working on fixing an engine in the shop, for example, or pointing a warehouse worker toward the location of the item they need to locate as they walk through the shelves.
So yes, the “$39 computer” concept is basically “virtual and augmented reality devices” — which are available in some forms now, from the Oculus Rift headset or other competing higher-end gaming headsets to the Google Cardboard “fancy viewmaster” virtual reality that uses a smartphone or even the “sort of” augmented reality of the Pokemon Go game that’s sweeping the world right now (if you haven’t enjoyed that, it basically uses your phone’s camera and GPS to move you around the physical world, and it makes Pokemon critters appear on your screen on top of the “real world” for you to capture when you reach specific physical locations. Many folks (including Daniel Lemire) seem to think Pokemon Go is the first salvo of “augmented reality goes mainstream,” the first thing that’s wildly popular enough to help spur heavy development and adoption of next-generation devices. We’ll see.
More from the ad:
“Amazon.com, America’s largest online retailer, has officially begun carrying versions of the $39 computer, right alongside Apple’s iPad’s, Samsung’s personal computers, and Dell’s laptops.”
Yes, of course Amazon sells virtual reality and augmented reality stuff. They sell everything. And they’ve presumably been selling whatever consumer electronics have been available in the virtual reality space for years, though those offerings wax and wane — they probably weren’t selling the first commercial virtual reality headsets when they came out back in 1995, but that’s just because Amazon.com didn’t launch until 1995 and they were still almost exclusively a bookstore back then.
And then we get the projections about VR/AR… there are wildly disparate guesses about how big the market for these products will be, and when the market will reach the heights that so many folks envision, but here’s one that Brown’s ad pulls out:
“Digi-Capital, a highly regarded Silicon Valley think tank, estimates this new market will reach $120 billion by 2020.
“That’s 40% greater than the entire global PC market today!”
I would feel free to sprinkle that liberally with skepticism. There are lots of predictions — there’s a report from Deloitte here as well and from CCS Insight here, for example. $4 billion market by 2018? $120 billion by 2020? Those are forecasts about something that has not yet generated any real revenue from real consumers — other than the excitement about Oculus Rift for hardcore gamers, and the overnight mass adoption of the (free) Pokemon Go mobile phone app.
No one’s really buying virtual reality or augmented reality yet, not on any real commercial scale — we don’t even know if it will be a big part of the console video game market, though that seems to be the safest bet for “early adopters.” And that assumes that we’re talking about real, high speed and high quality virtual reality that’s fully immersive and has high video refresh rates and low latency, not the relatively low-tech augmented reality like Pokemon Go, which requires only a relatively modern smartphone or tablet and won’t make money for any hardware or tech component supplier companies. What if the low tech stuff is more than enough for most people?
(That’s just a devil’s advocate question — I expect virtual reality does really have a chance to become a large business… though I don’t think it will approach the size of the mobile phone or PC businesses, and I doubt the PC business is really dead unless we’re really entering a post-text world where all is video and image and words cease to be in demand… text is awful in a headset, and awful to compose without a real keyboard… maybe I’m just being a fuddy-duddy, but I think this will be a slow evolution)
There are still lots of issues with immersive virtual reality, for sure, including the fact that it makes a lot of people seasick and folks don’t want to wear a headset for hours every day, and I suppose the likelihood is that those problems dissipate as technology improves… but that doesn’t necessarily mean that the guesses about market size or speed of adoption are anything but guesses.
Then the ad throws in a bunch of stuff about China, for some reason:
“China desperately wants computers for the entire country.
“And it would appear they’re prepping for a massive movement toward ‘$39 computers.’
“Already, we’ve seen it happen in three cities—Shenzhen, Beijing, and Qingdao.
“And 2.5 million units will be shipped throughout China this year.
“Word is… Chinese officials are backing an effort to bring the ‘$39 computer’ to as many as 200 other Chinese cities as well.
“China has over 1.3 Billion people. And, according to one study, as little as 155 million Chinese homes have a computer!
“The market is primed: In a recent survey in China, 84.9% of people said they’re ready to embrace this technology…
“The most exciting part of this story is that just one company owns 223 patents and patent applications on the tech behind the ‘$39 Computer’… and my source believes it’s just about to go public.”
That China stuff is a reference to this poll that was taken, which doesn’t sound particularly compelling to me. Nor does the 2.5 million units shipped number — it certainly wouldn’t be surprising if there were a couple million VR headsets sold in both the US and China this year, but that doesn’t mean they will necessarily ramp up to compete with smartphones (1.5 billion sold a year globally, roughly) or even PCs (250-300 million/year) or game consoles (last year there were roughly 25 million combined of the top-end Xbox and Playstation units sold). 2.5 million is still an early adopter “what’s it going to be like, will it take off?” sales volume number if you’re talking about a product that’s hopefully going to have mass appeal and be relatively inexpensive… maybe more promising and faster-growing than the last consumer electronic hype cycle target, 3D printing, which is still at just roughly a 500 million unit/year pace several years after we were promised that there would be a 3D printer in every home, but we’re still in a world with lots of different potential outcomes for the virtual reality and augmented reality hopefuls.
So what is that “one company” that “owns 223 patents and patent applications” for virtual reality or augmented reality and, according to Jeff Brown, is “just about to go public?” A few more clues:
“This company is tiny.
“And they reportedly received a $200 million cash injection from China’s largest Internet company. Very soon my contact believes it will make a small handful of investors very wealthy.”
OK, so yes, Thinkolator confirms that this is Magic Leap, which is one of those secretive companies that keeps everything close to the vest — no one knows much about what they’re doing, when they’ll have a product, or what their hardware might look like when they get to the hardware stage… but they still have a venture-funded valuation of something like $5 billion, and boast high-impact investors like Google and Alibaba. As a TechCrunch article noted a couple months ago…
“Whatever ‘magic’ it involves, it must be good because it seems that everyone who tries it ends up dumping more money or time into it.”
And no, I have no idea whether they’ll go public anytime soon, though it gets rumored from time to time. And buying shares of Google or Alibaba to get exposure to Magic Leap would be pretty pointless, those companies are too big for even a huge gain in the value of their investments in Magic Leap to have a big impact on the bottom line. There is no “back door” into Magic Leap, and you’re very unlikely to find shares available on any of those secondary share marketplaces for private companies — not when every VC firm, big and small, is lusting for a bigger piece of the firm and they’re able to get huge investments in one-off deals from major strategic investors. They don’t need you.
Will they really develop a “$39 computer?” That seems to be blending the store of Meta with the idea that you can replace a huge computer setup with a virtual reality headset that navigates computer files or applications for you… but it’s still navigating in the files and applications of a computer, which has to exist somewhere. If an augmented reality headset has the computational power of a desktop built into the headset, then it’s going to cost a lot more than $39 for at least the next five years… and if the headset itself has costs that can be driven down to $39, then it’s going to be hooked up (like the Oculus Rift headset is) to a computer with unusually powerful graphics processing capability, and such a computer is likely to be at least $500-$1,000. What’s possible five or ten years from now and what’s possible now are obviously quite different, but that’s how it looks to me at the moment — no one is quite sure what Magic Leap’s headset will look like, or, honestly, even if their product will take the form of headset in the end, or when it might come out… but if and when it comes out, I suspect it’s not going to cost $39 and it’s not going to replace all the desktop computers in an average company’s cubicle farm in any foreseeable timeframe.
The pitch gets into some of the more interesting stuff about Magic Leap, too, and what they’re probably doing that’s much more interesting than “just another augmented reality headset” — Microsoft will almost certainly beat them to market when they start selling their Hololens, and almost as certainly Microsoft won’t make any money selling the Hololens for at least a few years… but the ad talks about a different technology inside Magic Leap:
“Harnessing the Fastest Force in the Universe….
“I would like to briefly show you where this machine came from and what makes it tick… so you can see for yourself what makes it so valuable.
“Then, we’ll get right into the money—-and show you why we believe you could multiply a small stake in this company by 10 to 20-times or more.
“For the past 45 years, the microchip has been the backbone of all technological growth.
“The personal computer, MRIs, space rockets, laser-guided missiles, smartphones…live streaming on the Internet…
“You name it, and if it has anything to do with electronics, the microchip has been an integral part….
“Now, what if there were a chip that came along that didn’t just double or triple processing power…
“But rather, increased it by a factor of 25 to 50?
“If today’s fastest chips are enabling driverless cars and drones….
“What would a chip that’s 50 times faster than the fastest chip make possible?
“What doors to the universe would it open?
“That type of chip now exists… and it’s the technology that’s at the forefront of this “$39 Computer” revolution….
“… traditional microchips have always worked by controlling the flow of “electrons,” which, as you probably know, is the basis of electricity…
“But this chip doesn’t control the flow of electrons. It controls photons, the basic components of light.”
That Science article about photonic chips is available here if you want a little background. Here’s the end of that article:
“Photonic memories still have a long way to go if they ever hope to catch up to their electronic counterparts. At a minimum, their storage density will have to climb orders of magnitude to be competitive. Ultimately, Bhaskaran says, if a more advanced photonic memory can be integrated with photonic logic and interconnections, the resulting chips have the potential to run at 50 to 100 times the speed of today’s computer processors.”
And no, Magic Leap doesn’t own the “photonic processor” or optical computing space as far as I can tell. There are at least hundreds of researchers at university and chip firms who are developing optical processing power that’s faster than standard chips, you can see just a sampling of stories about some of those projects: here for a recent breakthrough; here for a 2010 milestone from Intel to give some perspective; and here for a little sobriety about timeframe and challenges.
Brown goes on to admit what many other past virtual reality pitchmen have implied: That he’s effectively making up the specific idea of this “$39 computer” device to illustrate the idea of the potential of virtual reality and augmented reality in general.
“The technology that I’ve been referring to as the ‘$39 computer’ is not a singular device controlled by any one company. It’s much more than that.
“There are different versions and models. Some sell for $39. Some for more. The company that wins this new tech race will be the one that patents and commercializes the single best version.
“As I write, companies are scrambling to stamp their name on some part of this new computer.
“For instance, Apple—the world’s 5th largest computer manufacturer – just received a patent on their own version of the $39 computer.
“As did electronics giant Samsung.
“The purse is so large, that companies – big and small – are fighting to develop their own versions of the ‘$39 computer’….
“But because this technology is up for grabs…
“And because the company we’ve found is so small…
“And because they have such a dominant position…
“(They own or have applied for a total of 223 patents on their technology… including a photonic chip many suspect is light years ahead of anyone else in the industry…)
“You have the potential to make an absolute fortune.”
There has been a lot of speculation about that “Photonic Chip” that Magic Leap is working on to dramatically improve their augmented reality product, including this somewhat skeptical piece from MIT Technology Review last year.
And yes, there’s plenty more hinting in the ad to confirm that he’s talking about Magic Leap…
“Size-wise, it’s just a fraction of Google (.8%). And a small speck of Facebook (1.2%).You see, mainstream financial news sources like Barron’s and the Wall Street Journal don’t pick up tiny speculations like the one we’ve found.”
OK, those may sound like tiny fractions — but still, even at those small percentages compared to the giants this is a $5 billion company. Barron’s and the Wall Street Journal write about companies of that size all the time, and that’s a pretty high market cap for a “tiny speculation” that is still shrouded in secrecy and might still be years away from a commercial product. But yes, it’s true that most of the writing about Magic Leap is in the tech press these days, since there’s no investment case to be made for the company outside of the fact that we know Alibaba, Kleiner Perkins, Google/Alphabet and others have invested hundreds of millions of dollars into the company.
And yes, more promise from the ad about how rich you could become…
“If the little stock I’m about to tell you about were to rise 10,000%…
“It would still be smaller than Microsoft…
“If you want to protect your wealth, buy an insurance policy.
“But if you want to generate an astonishing amount of money, then you should make a smart and calculated speculation in the right small stock.”
And more excitement about the technology:
“‘This new opportunity signals what I have long believed to be the ultimate stage in the evolution of computing.’
~Bing Gordon, early backer of Twitter, Snapchat, and Amazon
That’s from a 2014 blog post in which Gordon explains why he invested in Magic Leap (Gordon is at KPCB, often referred to as Kleiner Perkins, one of the premiere venture capital firms — he’s a product-focused guy who was at Electronic Arts before becoming a VC partner).
Want more? It’s a long ad, we can keep going…
“The company we’ve been tracking has developed a version of the “$39 Computer” with what you might call the ultimate interface…
“A means of allowing a user to turn their high-powered computer into a device capable of displaying the most complex and compelling visual images.
“Anyway, I can’t get into all the details here…
“But the buzz surrounding it is unlike anything I’ve ever witnessed.
“Wired magazine said the quality of their interface ‘exceeds all others. Because of this lead, money is pouring into this Florida office park.'”
You can see that Wired article here, it’s an interesting read. And an interesting company that knows how to play the “I’ve got a secret” game even better than your average six-year-old. Though they also love showing a little bit of what’s coming from time to time, like the little video clip of an augmented reality experience they worked up with Disney that includes R2-D2 and C-3PO and must have Star Wars fanboys peeing their pants in excitement. I can see why people who experience whatever their prototype is throw lots of money at them. Of course, it doesn’t hurt that Disney and Google and Alibaba have money to burn.
More from Amber reporting on Jeff Brown’s excitement…
“They have tons of cash,” he told me. And said that, based on how much has been invested and the people who are investing, their tech seems like it’s going to “change the world.”
“Okay, so how much money could a small stake in this company return?
“Well, considering that…
“This company is absurdly small
“They’ve cornered a niche of a $120 billion industry that practically no one has heard about.
“And their competitive advantage – their patented technology – is protected by the U.S. legal system
“I wouldn’t be surprised to see this company’s stock rise by many multiples.”
Dude, why do you keep implying that a small investment could grow huge IF WE CAN’T MAKE A SMALL INVESTMENT? It’s still a private company!
“Alibaba, China’s largest Internet business, has reportedly invested $200 million in this tiny company. They sell more product in a year than eBay and Amazon combined.
And they would give our tiny company built-in access to a market of 407 million customers in China. That’s more buyers than there are people in the United States!
Another Chinese business, Zhejiang Huace, has raised $303 million to invest in American small businesses… and plans to invest a portion of that in the tiny company we’ve been tracking.
And Leyard, an Asian tech manufacturer with big connections in China, has also taken a small stake. “
Jeez, we’re convinced, fine, we LOVE Magic Leap! We Must Buy it! How do we do so?
“Jeff, however, has found a way for you to grab your share of that big upside. It’s an approach almost no one in America follows… and certainly one no tech insider publically talks about.
“In short, what Jeff has done is he’s figured out a way to predict precisely when private companies are going public.”
Are you kidding me? The big hook for this teaser ad is that we’re asked to invest in this newsletter because they’ll tell us that we should buy Magic Leap when it goes public?
You aren’t going to need a newsletter to alert you to the fact that Magic Leap is planning an IPO, if and when that happens — the news could easily be on the front page of the Wall Street Journal on the day they file their S-1 (that’s the first filing a company makes to indicate to the SEC that it’s going to go public and sell shares, and the IPO can’t happen until at least a month or two has passed from the first S-1 filing. We don’t hear about these filings that often because the companies often aren’t very newsworthy, but the filings are not secret).
Of course, Brown’s argument is that he’s got his finger on the pulse, and will be able to point you to all the best IPOs so you can get in early on them. And the IPO market has loosened up a bit this year, with the market soaring to new heights, so there are actually some new companies getting listed after some very slow years.
“… there is an enormous backlog of private companies ready to go public, or make their initial public offering (“IPO”).
“It’s almost the financial equivalent of water behind the Hoover Dam.
“Right now, that dam is beginning to crack… and over the next 12-18 months, you’re going to see a flood of amazing opportunities to make 10, 20… even in some cases 50 to 100 times your money (over time).”
And we get some boasts about the stocks Jeff has already recommended:
“Already, one of the names from Jeff’s list went public this year. It’s risen as much as 175% in a month.
“Over time, Jeff believes this company still has the real potential to turn a $10,000 stake into $100,000—or more.
“And he believes the $39 computer company has the most potential of them all.
“He told me, over time, this company has the potential to multiply in size 100-fold. ‘It could be the next Apple,’ he said.”
That one that has risen “as much as 175%” is presumably Twilio (TWLO), which went public last month at an IPO price of $15, but never really traded below $24 that first day and has lately been over $40. $15 to $41 is 175%, but regular investors would almost certainly not have gotten any shares in the IPO so they would have had to buy after the offering at something in the $20s or $30s, depending on whether or not they jumped on it on that first day.
The ad says that Brown has “a handpicked list of 21 companies Jeff believes are likely to go public within the next 12-18 months,” and that report and the recommendations that he’ll be making as these IPOs happen are apparently the major selling point for Exponential Tech Investor. And, of course, this sounds more appealing if we’re convinced that Jeff is unusually good at separating the good from the bad in the land of potential IPOs… this is what they say in the ad:
“Jeff has amassed a flawless personal track record and removes much of the guesswork by evaluating a handful of key factors:
“How long these companies have been in business
“The number of “rounds” of private financing they’ve been through
“The kinds of investors participating
“How much they’re investing in each round
“Revenues, if available
“Their underlying technology”
Everyone who watches CNBC or reads the Wall Street Journal will know before Magic Leap goes public — it’s a secretive company, but they still have to get banks lined up and file with the SEC. And, frankly, there’s no reason for them to go public… so don’t buy Jeff Brown’s newsletter just to get an alert about Magic Leap. If you want to follow IPOs and get into the details about what’s coming, perhaps he’ll be more interesting than just scouring the tech press and the tech articles in the Wall Street Journal, I don’t know.
The ad does note some other picks Brown has made in this inaugural year of his service, including the two teased picks of his that we’ve looked at since February:
“Editas is just the beginning…
“Two more of Jeff’s Venture Elite companies also IPO’d this year, handing savvy investors the chance at big gains…
“Intellia, another breakthrough biotech company, soared as high as 38% in just 25 days!
“Then, communications company Twilio, shot up a staggering 90% the day it hit the market!
“So you see why it can be so profitable (and exciting) if you’re able to buy these little dynamos on ‘day one’…
“But remember, though you may have missed your chance with these three companies, there are many more Venture Elite companies yet to go public…
“Like the $39 computer company I mentioned…
“Which has the potential to hand you a 1,000% gain (or more)!”
Back to Editas, and another clue…
“Jeff was following the company’s gene editing breakthrough almost one year before the business formed.
“He was following its development in late 2012—when it was just a small group of bright minds assembled in one lab.
“Later, when he learned all of these key scientists split up and went their separate ways, he tracked where they ended up.”
One of the businesses was Editas. Another I can’t name, because it’s on Jeff’s Venture Elite list—and reserved for subscribers only.
Presumably that’s not Intellia Therapeutics (NTLA), then, since they already named it. That went public shortly after Editas and was also teased by Brown as a buy in previous ads. Most likely it’s the third oft-mentioned competitor in the CRISPr space, Caribou Biosciences, that he’s referring to — that just had a big series B venture financing round a few months ago, so they probably won’t be going public particularly soon… but you never know.
This world is more than a little bit challenging, partly because Silicon Valley is so awash in cash right now that almost everything’s getting generously funded, and even pretty big venture capital firms sometimes can’t get into the deals they want. The money’s easy on Wall Street with zero interest rates, but it’s even easier in Silicon Valley — that’s why you’ve got companies with $25-50 billion valuations like Airbnb or Uber that are still private, they can get all the capital they need, and a lot more, without having to deal with public shareholders… at least until they get so big that they really have to go public to appease their venture funders and/or employees, since employees are largely compensated with stock options that become far more liquid, and often more valuable, after an IPO.
So we’ve got not just unicorns, but mega-unicorns (“unicorn” is the name given to billion-dollar startups that haven’t gone public, which used to be incredibly rare — so maybe we should call them Javan Rhinos, which are extremely rare but not fictional. There are about 50 Javan Rhinos left in the wild, there are roughly 50 “unicorns” in billion dollar+ startup land.) There’s more money than sense in venture capital land, most likely — though that’s probably been the case plenty of times in history, and it sometimes works out fine because venture capital investors are using shotguns, not rifles, in their hunting, and they bring a lot of extra ammo. They don’t have to hit something every time, nor do they have to hit it right in the middle. They count on getting a huge hit one time in a dozen, and a few middling performers, to go along with the few companies that will blow their money on foosball tables, company chefs and dumb ideas (or, of course, get unlucky or just fail to beat their competitors).
So what is it that Jeff Brown does for his readers after he’s narrowed down the technology of the stocks he’s interested in, and tracked the ones that have the best venture funding partners? This is how they put it:
“Jeff constantly monitors the company until it releases a special government filing called the S1/A form. This form indicates the company could go public in as little as 3 weeks.
“By this point, Jeff has done all of his due diligence. He knows he wants to recommend the company. He’s just waiting for the precise date it’ll be available on the stock market.
“For example, by the time Editas filed its S1/A form, Jeff had been following it for more than 3 years!
“Jeff has a unique way of scanning the Government files for these forms. The moment it’s filed, Jeff knows about it… and that’s when he sends out an urgent alert to subscribers.”
I don’t know that you have to urgently alert people to an S-1/A filing the moment it comes out, though S-1/A filings do generally mean that you’re getting closer to an IPO.
The first filing is the S-1, and then the SEC responds to the filing and the company responds to the SEC with an amended S-1, often called an S-1/A. That can go back and forth several times before the company actually is ready to go public, gets the SEC approval, and moves on to the roadshow and actively starts “selling” the idea of the company to big investors and institutions, then gets into setting a date for the actual IPO and pricing the shares.
Altogether, the time from the first S-1 filing (which is public and can be seen by everyone but often is missing a lot of information) to the actual IPO is typically at least a couple months and often five or six months or longer, depending in part on when the company and its investment bankers think the timing is right to actually price and offer the shares… so these don’t sneak up on people.
If you want to look for possible future IPOs yourself, you can scan the SEC database for recent S-1 filings, though there can be a lot to skim through (right now it’s running at about a half dozen a day… I don’t know what the average is).
There are also commercial ventures that provide free or cheap access to SEC filings and also do value-added things like emailing you when new S-1 filings are made (SECfilings.com is one, though I’m sure there are others — I can’t vouch for them, but there are plenty of free options you could try if this is important to you… or you can even just use Google Search Alerts to get notification when “S-1/A filing” or some similar variation generates a new hit on the web). This kind of information is not hard to find, but it is hard to commit to spending the time to look for it or monitor it if that’s not a big part of your job, or a fun hobby for you.
More from the ad:
“Remember, there are three ways to make a ton of money from the best of these newly public companies.
“First, when they first go public…
“Just a few years ago, there were 6 IPOs that doubled in value on their very first day on the stock market….
“Next, as the stock begins to gather steam and make a longer run.
“Stryker Corporation, for example, has risen 133-times in value since its IPO—and is still climbing.”
[Dude. Stryker’s IPO was in 1979. I don’t think you can count on that being a great idea because it was a startup or because you caught a hot IPO… though yes, I suppose it did gather steam and make a long run (it’s up more than 100,000% since the IPO if you include dividends, versus about 2,000% gains for the S&P 500).]
“Finally, sometimes bigger companies acquire these stocks… giving you a nice little “pop” at the end.
“For example, a company called Altera climbed as much as 2,193% after going public. Last year, when news broke that rival chipmaker Intel was buying the company… shares “popped” an additional 56%. A nice cherry on top.”
Altera’s IPO was in 1988, just FYI, and yes, they were bought by Intel last year. Though you could have sold your ALTR shares for about the same amount in 2000 as you would have gotten in the Intel buyout, timing and historical prices are often funny for those stocks that really enjoyed a bubble along the way.
And they do, thankfully, include the standard disclaimer — hopefully people read this far:
“These Venture Elite plays are NOT meant for your rent or grocery money.
“If you’re living on fixed income and counting pennies, this is NOT for you.
“If you are just starting out as an investor, same thing–these Venture Elite plays are NOT for you.
“Companies like the $39 computer firm and the others I’ve mentioned could certainly return 10 to 20 times your money….
“And even 100 times your money or more—over time.
“But some of these businesses will fail. In fact, the laws of the markets dictate that some absolutely will.”
To say nothing, of course, of the fact that you often can’t even buy the companies they spend a few dozen pages hinting at just yet, since the sexiest stories are the IPOs that haven’t happened yet, particularly those of secretive companies like Magic Leap or Palantir that like to play coy with the public.
So that seems to be the basic promise here — Jeff Brown has a “hotlist” of stocks that he thinks will go public in the next two years, and he thinks a half dozen of them will IPO in the next six months, so you should pony up $2,500 for his newsletter so you can get alerted right away when one of his faves goes public, and get his buying advice. We know he’s made two picks this year that were teased in ads for his newsletter, and we know he now claims to have recommended Twilio as well (that wasn’t teased in an ad that I saw, but I’ll take his word for it that he suggested buying the shares on IPO day). I don’t know about his track record of success in picking one IPO over another beyond that.
So far, of the two picks of his that we’ve seen teased, if you bought EDIT on the first day you’d be up about 40%, and if you bought NTLA on the first day you’d be down about 20%… and if you add TWLO, you’d be up about 75% on that one. So that’s an average across the three of about 30%. That’s a short time period and very little data to go on, of course, but we can at least say that perhaps his performance for the three picks he says he’s made is better than but in the same ballpark as the Renaissance IPO Index ETF (IPO), which is up about 18% since the EDIT IPO in February.
That’s not really fair, but at least he’s picked one loser and two winners in a short time period — personally, my preference would be to look at IPOs after they’ve been around for a while, and particularly once they start to have insider sales after the six month (usually) lockup period expires, there’s often a sag around then in the stock chart and you also get a little opportunity to see how management communicates with investors and how a quarter or two of numbers look before committing capital. I’ve never bought a stock on the day of the IPO, though I’ve occasionally bought stocks that were considered “busted” IPOs a little while after the initial offering, like Google was for a while in that first few months after their IPO, or Coresite back in 2010.
So… will Magic Leap go public? Should you buy it if it does?
That’s probably the wrong question. The question is, if they do decide to go public, what will the value be, and will you find their business plan and their strategy and early performance, as reported in the S-1 and the amended S-1/A filings and their roadshow presentations that will probably precede the IPO, to be compelling and reasonable and befitting investment by a rational investor?
The story can be hot and exciting, but this is money you’re talking about, and the price you pay for a stock has a lot to do with the eventual return that is possible — some things grow to the sky and have a clear path to incredible returns and make you willing to hold your nose and pay a ridiculous price, but if you’re sober there aren’t very many companies like that, especially little secretive augmented reality companies about which we know very, very little other than “everyone in Silicon Valley is dying to invest in the company because it’s so cool” and “they might need a lot of money to build a $5 billion photonic semiconductor fab.” Just about every stock should look great at one price and stupid at another.
This is the very definition of “stuff novice investors shouldn’t screw around with,” because it’s far too easy to get visions of sugarplums in your head and start ignoring risks — especially with IPOs, which are so often flashy and sexy and fun. But who am I to tell you not to have fun? Magic Leap seems really, really cool… I’d love to learn more about them. Whether or not I want to buy the shares, of course, depends on what their business is actually going to be, how they’re going to make money, and what they want me to pay to buy a piece of that potential… and we don’t really have any idea about any of that yet. I’m inclined to think that Magic Leap is going to stay private for an extended period, given the readily available funding that they can get now without revealing much about their plans, but I won’t kill myself trying to invest in them before they’re public and open about what the business is.
And as a final P.S. in the ad, which implies that there is actually something you can maybe buy soon even if Magic Leap isn’t available as a direct investment, they tease us thusly:
“Last night (well, it was morning for him in Tokyo), Jeff described a new opportunity he’s looking into. It’s a backdoor way to own shares of some of these private companies before they hit the public stock market. Just think about owning companies like Google and PayPal before they went public.
“Jeff is going to investigate further. If this ‘backdoor’ is as safe and lucrative and he suspects it is… expect a special report from him soon.”
There are a handful of these publicly-traded venture capital investments, with the most prominent probably being the two that I’ve dabbled with and currently have small exposure to, GSV Capital (GSVC) and the SharesPost 100 Fund (PRIVX), though there are others (including Harris and Harris (TINY)). None that I’m aware of have exposure to Magic Leap specifically, but they do have exposure to some other appealing private companies like Spotify and Palantir… and there are even regular mutual funds from folks like Fidelity and T. Rowe Price that invest tiny portions into venture funded companies, both Fidelity and T. Rowe have participated in Magic Leap’s funding rounds in the past so perhaps Fidelity Contrafund has something like a 0.05% allocation to Magic Leap, I haven’t checked the individual funds but their allocations are always extremely small.
I like having a small allocation to both GSVC and the SharesPost 100 Fund as a way to have a little toehold in the venture market, just in case the animal spirits pick up and things go bonkers — the most likely driver of good returns in GSVC, as I noted a few months ago, would be a high-profile IPO by Palantir that gets the fund trading at a premium instead of the current steep discount, and the PRIVX investment is really more of a long term investment in the notion that companies become more valuable in the two or three years leading up to their IPOS… which has historically been true, I gather, but may not be true in the future given the free flow of money in Silicon Valley these days. I wouldn’t be the farm on either, but I find both interesting.
And in the world of that “$39 computer” and virtual/augmented reality, I still think we’re probably quite a ways from understanding which component makers, software companies, or hardware sellers, if any, are going to have a chance to achieve profitable volume in this space that has an impact on their share price. The most-teased and arguably most compelling investment in virtual reality is NVIDIA (NVDA) because of their best-in-class graphics processing chips, and I held options on that for a while (and the stock has continued to rise since I sold them), and we’ve also seen a half-dozen other stocks teased with at least some connection to virtual reality, including Facebook (FB), Activision Blizzard (ATVI), Universal Display (PANL), Invensense (INVN), Lam Research (LRXC), HiMax (HIMX) and Kopin (KOPN). I do like and own Facebook, though their ownership of Oculus Rift is way down at the bottom of the list of my reasons for owning the stock, I haven’t found the VR connection compelling enough to convince me to buy any of the others so far.
Disclosure: as noted above, I own shares of both GSVC and PRIVX. I also own shares and/or call options on Google and Apple and Facebook, mentioned in passing above. I won’t trade in any covered stock for at least three days following publication, per Stock Gumshoe’s trading rules.