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Baptized into the world of business and travel at a young age I’ve subsequently lived in multiple countries, traveled to many more and built myself a small fortune investing in businesses and markets that I spend an extraordinary amount of time doing due diligence on. People sometimes ask me... More
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  • How Putin Just Saved Europe, And Other Geopolitical Tales

    By: Chris Tell at

    Picture this scenario. A brother and sister squabbling with one another. Something's gone wrong, they're blaming each other, fighting, and generally at each other's throats. Along comes the boy from next door who pokes fun at one of them and starts pestering them. Brother and sister rapidly put aside their differences, join forces and deal with the boy from next door.

    The saying, "The enemy of my enemy is my friend" has played itself out many times throughout history and, while geo-political relationships may not be as close as siblings, the forming of alliances and the repercussions from having joint enemies can be profound.

    During the second World War Stalin realized that he needed the Allies to defeat a Nazi invasion, and in turn the Allies realized that the Soviets were necessary for the war effort. In any other scenario the Allies would have been arch enemies of Stalin and vice versa.

    During the Cold War a similar setup occurred with the Soviets and Chinese aiding North Korea during the Korean War, and then aiding the Viet Cong during the Vietnam War.

    On a country specific basis many a dictator has been propped up and supported by Governments pretending to their citizens that they in fact abhor the acts of such people. A controlled media and messaging ensure that the vast majority of citizens don't think too much or dig too much. Government, after all, is largely in the business of marketing. Mobuto Sese Seko, Augusto Pinochet, Saddam Hussein, Pol Pot, and currently the Saudi Royal family. All strategic at some point in time.

    I'm not picking on any of these for any particular reason other than that they're choices which everybody knows about, and the relationships are well documented. Government in all instances does this. Nothing unusual. As they say in Thailand, "Same same but different."

    Well, this time it's same same but different, too. We're seeing similar alliances forming now. This time Europe and the US forming an alliance against Russia, and China together with Russia moving towards forming and solidifying existing economic alliances.

    Consider that in just the last few months I've had the following snippets cross my news-feeds:

    In Europe, Putin, the boy from next door, has distracted the Europeans from their political and economic woes, and the infighting which has been building between the Europeans has taken a backseat to more immediate problems. Taking a look at the news since Ukraine started making headlines shows me that distraction appears to be working. I'm not suggesting this was by design. I don't think that's the case. It is, however, convenient for EU policy makers who've completely screwed up the European marketplace and are looking for someone to blame. Putin is a Godsend.

    Life for Europeans will get worse… much worse. Sanctions with Russia are already destroying European agriculture, but at least Eurocrats can blame the economic decline on external factors. Watch for it. You can bet on it. In the meantime, let's look at who hurts the most from the Russian ban on US and EU food imports.

    (click to enlarge)

    Keep an eye on PKO, Bank Polski, Poland's largest lender. Earlier this year they raised $2.7 B in a bond issuance. Little did they know how lucky their timing was. No way would they be able to sell bonds at levels achieved in January of this year, now. The question is, will they survive as their loan book collapses?

    While all this is taking place I have to wonder where and what other opportunities arise from this very large and accelerating power shift. An active move away from the dollar is underway and has been for some time. What is important now is that this is being accelerated by the public sector and not the private sector. Moves such as the BRICS setting up the financial infrastructure to transact away from the dollar is bold indeed.

    Actions of this nature, or just the mere consideration of such actions, would have been previously met with threats of tariffs, curtailment of aid or even outright sanctions from the United States. That they are taking place now on a near daily basis shows just how fast the geopolitical landscape is changing. The economic decline evident in the Western, socialist world and the US in particular is evident to anyone not reading CNN. This coupled with Obama's refusal to curtail the NSA has accelerated both the desire and the fortitude of many countries around the world to proceed to change the status quo.

    Talking with my private banker in Singapore I asked what bankers thought of all of the FATCA rules. Her response was, "It won't be too long." These absurd rules exist and have to be complied with while the dollar is the reserve currency, but when, not if, alternatives exist then simply choosing not to play in that particular sandpit any longer will be more favourable than the revenues currently being earned by complying. Right now banks make too much money to walk away from the existing financial setup, which is dictated by US banks, US clearing houses and US money.

    This is changing. The amount of capital flooding into Singapore and Hong Kong is putting pressure on the banks here and pushing up already crazy real estate prices. There are other sectors we're interested in and taking advantage of. One of them is private equity, which is our particular niche. Capital flows are very important and we believe that the next big M&A activity will be in Southeast Asia and we are moving aggressively to take advantage of this.

    In the meantime, I'm curious what opportunities readers think are opening up. Drop a comment below and let me know.

    - Chris

    "The dollar monopoly in energy trade is damaging Russia's economy." - Vladimir Putin

    Aug 26 4:49 PM | Link | Comment!
  • A Bull Market In PR

    By: Chris Tell at

    The World Cup is on. I sat and watched a game on the weekend with my son. "Dad, that guy completely faked that fall. Couldn't the ref see that?"

    My son who watches precious little television noticed immediately how many of the players were pretending to be hurt at the first available opportunity. Granted, he's been exposed to Rugby, where the idea that a grown man tapped gently collapses to the floor in pretend agony would be grounds for immediate suspension of all and any social engagements in the entire country for life.

    PR has become such a part of the game of football that it's amounted to a bunch of grown men spending an inordinate amount of time pretending to be hurt in order to gain some favour. Soon they'll be recruiting from Hollywood instead of football clubs.

    In the same manner as the hollywood inspired footballers, the venture capital world is currently paying inordinate amounts of money for software companies which are making a lot of noise. It's a spectacular time to be a noisy, preferably good looking entrepreneur with some solid "social connections" under your belt.


    I'm AWESOME, do you hear!

    When I look at a private equity deal I like to think of the problem the company is solving, and in solving that particular problem how they intend to make money. I was recently pitched a deal and when questioning the founder on what problem was being solved and how the company would generate revenues he flat out said to me "No, we're going for eyeballs first. We'll figure out how to monetize it later". Awesome… no thanks.

    Wanna raise a bunch of stupid VC money? Start a tech related company, preferably build some sort of App, line up your current set of buzzwords. Social, optimization, scalable, engagement, viral and this one… thought leader. WTF is that? Most of the guys screaming to the world that they're thought leaders have neither led nor do they think. Do all the above and you're about ready to change the world… or if you get funded at least change your own world. A few million never hurt.

    It is one hell of a show. Buy a ticket and watch it unfold.

    Rdio just bought Tastemakerx for an "undisclosed" sum of money. This follows a frenetic pace of acquisitions in the tech space. Facebook's purchase of WhatsApp, like bestiality, was questionable. All reasonable valuation methods have been kicked into touch. They no longer apply.

    As the CEO of one of our portfolio companies recently expressed to me:

    Tastemakerx is the Kim Kardashian of startups… no talent, no intellect, no abilities or product just a great salesman, in the press, and nice to look at.

    He makes a valid point and he should know as his company has incredible technology, a great team, experienced operators (former Viacom and Craigslist) but they aren't in everyone's face.
Their metrics are stellar by literally every measure but they've not be out trying to win the popularity contest.

    I discussed some of this with my partner in crime Mark and he sent back the following:

    Google gobbling Songza and the slew of acquisitions this week prove it's just a popularity contest. PR and marketing. It's why Dave McClure is successful. He doesn't have a monopoly on good companies, he's just makes more noise than everyone else and is more obnoxious. Any PR is good PR.
I'm not sure startups should be worrying about their technology any longer.

    Just spend the money on marketing and flying around to industry parties. It seems to be the way to get the money and get acquired. It reminds me of the "infamous pop artist, Damian Hirst. The guy was a stockbroker and saw how much his dumb, rich friends were paying for really bad art. So, he decides he can do that! He goes and creates a bunch of talent-less crap and sells it for hundreds of thousands… now millions. Ah, but this ain't a bubble! LOL.

    A personal story

    In the late 90s I was working for a large investment bank. In order to protect the innocent we'll use a fictitious name and call it MP Jordan. We were, you may recall, smack dab in the middle of the dot com boom. I vividly remember one particular instance where two kids in their early 20s came in to pitch a deal. They wanted us to underwrite and take them public.

    Their "company" amounted to a website that would advertise and sell auto-parts to online consumers such as the local grease monkey down the road. Their "value" lay in the website and payment processing facilities. Though I found it ludicrous, they actually placed a huge amount of emphasis on their "signed contracts" with distributors. What these guys had done was to obtain contracts from the suppliers of multiple auto parts saying "yeah we'll flog our stuff on your site", and why wouldn't they? They then got contracts from a half dozen London couriers to say "yeah we'll deliver the goods from A-B", and why wouldn't they? That this was considered to have any value was just nuts but those were heady days.

    Here was a company which had never sold as much as a spark plug, had zero customers, and therefore zero revenue and best of all was looking for an IPO. We never did the deal. Were we smart?

    Not really. An equally large investment bank, which we'll call Remmil Cynch to protect the innocent, led the IPO and these two kids walked away with more money than a Middle Eastern prince gets for his monthly allowance, which is a lot!

    The bankers made a lot of money and the founders made a lot of money. Investors, on the other hand, got hosed… eventually as the company disappeared. In truth, the company didn't need to disappear as it wasn't really there in the first place. We called them vapourware companies. No assets, no collateral and no revenues.

    That story and many like it have been told many times before but clearly they need repeating. The information is readily accessible. Heck, I just lifted the below directly from Wikipedia to show you how easy it is to educate oneself about this. Yet, here we are with investors making the same mistakes again.

    • - spent $188 million in just six months in an attempt to create a global online fashion store that went bankrupt in May 2000.
    • - Acquired by Yahoo! for $5.9 billion in stock, making Mark Cuban a multi-billionaire. The site is now defunct and redirects to Yahoo!'s home page.
    • e.Digital Corporation (OTCQB:EDIG) - Long-term, unprofitable OTCBB-traded company founded in 1988 previously named Norris Communications. Changed its name to e.Digital in January 1999 when stock was at $0.06 level. The stock rose rapidly in 1999 and went from closing price of $2.91 on December 31, 1999, to intraday high of $24.50 on January 24, 2000. It quickly retraced and has traded between $0.07 and $0.165 in 2010. As of 2013, the stock continues to trade low, ranging between $0.12 and $0.19 a share.
    • - Filed for bankruptcy in October 2000, soon after canceling its initial public offering. At the time was the fifth-largest ISP in the United States, with 3.2 million users. Famous for its mascot Baby Bob, the company lost $19 million in 1999 on revenues of less than $1 million.
    • GeoCities - Purchased by Yahoo! for $3.57 billion in January 1999. Yahoo! closed GeoCities on October 26, 2009.
    • - Social networking service, that went live in April 1995 and made headlines by going public on November 1998 and posting the largest first day gain of any IPO in history up to that date. The CEO became in 1999 a visible symbol of the excesses of dot-com millionaires.
    • - Doomed dot-com featured in the documentary film
    • inktomi - Valuation of $25 billion in March 2000.
    • InfoSpace - In March 2000 this stock reached a price $1,305 per share, but by April 2001 the price had crashed down to $22 a share.
    • - offered one-hour local delivery of a number of retail items, from March 1998 to April 2001.
    • - IPO in the UK coincided with the bursting of the bubble.
    • The Learning Company, bought by Mattel in 1999 for $3.5 billion, sold for $27.3 million in 2000.
    • Lycos - Purchased by Spanish telecommunications provider Telefónica for $12.5 billion in 2000 to expand its Terra Networks online platform. It was sold in 2004 to Seoul, South Korea-based Daum Communications Corporation for $95.4 million in cash, less than 2% of Terra's initial multi-billion dollar investment.
    • MicroStrategy - Shares lost more than half their value on March 20, 2000, following their announcement of re-stated financials for the previous two years. A BusinessWeek editorial said at the time, "The company's misfortune is a wake-up call to all dot-com investors. The message: It's time, at last, to pay attention to the numbers".
    • - Was a big software security producer, reseller, and distributor, declared in bankruptcy in 2001.
    • - Former dot-com enterprise that sold pet supplies to retail customers before entering bankruptcy in 2000.
    • Pixelon - Web streaming party that hosted a $16 million launch party in 1999 hosting celebrities such as The Who and the Dixie Chicks. Failed less than a year later when it became apparent that its technologies were fraudulent or misrepresented.
    • - "Ultimate dot-com startup" that went out of business in 2002.
    • Think Tools AG - One of the most extreme symptoms of the bubble in Europe: market valuation of CHF 2.5 billion in March 2000, no prospects of having a substantial product (investor deception), followed by a collapse.
    • Tiscali - Important Italian telecommunications company whose share price grew from €46 (IPO in November 1999) to €1,197 in four months. They fell to €40 afterwards in less than two months and have continued plummeting to well under 0.2 euros.
    • VA Linux - A provider of built-to-order Intel systems based on Linux and other open source projects. They set the record for largest first-day IPO price gain; after the price was set at $30/share, it ended the first day of trading at $239.25/share, a 698% gain (9 December 1999). After that, its stock declined consistently. After several business transitions it became Geeknet. It provides the backdrop of the documentary Revolution OS.
    • Webvan, Online grocer that operated on a "credit and delivery" system; the original company went bankrupt in 2001. It was later resurrected by
    • WorldCom, a long-distance telephone and internet-services provider that became notorious for using fraudulent accounting practices to increase their stock price. The company filed for bankruptcy in 2002 and former CEO Bernard Ebbers was convicted of fraud and conspiracy.
    • - Swedish investor in start-up technology firms that was one of the "greatest one-year rise of any exchange-listed stock in the history of Wall Street".

    OK so that was then and this is now. We're smarter now right?

    I present to you: Snapchat

    Here we have some kid, Evan Spiegel to be exact, who got offered $3 billion by Facebook for a company with no revenues, no idea HOW or indeed IF it will ever make any revenue, and he turned the offer down. He was then offered $4 billion from Google and turned that down. My advice to this young extremely fortunate kid would be take the money and run. Is Snapchat even going to be around in another 10 years time?

    Now I realise that I've never been offered a billion dollars for anything except in Zimbabwe but that's another story, so maybe Mr Spiegel proves me wrong and gets $20 billion for his creation, which, as far as I can tell, changes the lives of 16 year old teenage girls all over shopping malls across the United States but only for about 30 seconds, which is about the attention span of app happy youth. Or maybe, just maybe, investors start looking at the gadgets and string of Apps on their smart phones, and they begin comparing them to things like… oh let me see, food, infrastructure, healthcare, logistics, natural resources such as zinc, copper, coconuts, or that barbarous relic gold, and they begin to wonder to themselves… just maybe the next software iteration that tweaks a text message isn't actually worth billions of dollars and maybe, just maybe it's actually worthless.

    I propose that venture capital firms are spending money in entirely the wrong places. Fully 37% of all VC funding is currently going into software deals. It has recently surpassed the figure achieved in the early 2000s. Remember when we had the last tech bubble.

    In much of the developed world we're getting smarter phones and worse infrastructure. I'm shocked at how transportation and energy infrastructure is over 50 years old in most instances, and falling apart. But don't worry. You can always take a Snapchat of the potholes in your neighborhood and tweet it to your mates before updating your Facebook status.

    - Chris

    "My friends are people who like building cool stuff. We always have this joke about people who want to just start companies without making something valuable. There's a lot of that in Silicon Valley." - Mark Zuckerberg

    Tags: FB, TWTR, Technology
    Jul 08 4:37 PM | Link | Comment!
  • It's Crazy What This Commodity Is Being Sold For!

    By: Chris Tell at

    Internally we have a running joke here. We talk of the "Yeti" deal. Like the Yeti, everyone has heard about the deal but few have seen it and the longer this persists the greater the doubt that the "Yeti" actually exists.

    The "Yeti deal" is a deal I began work on with a good friend and adviser to in the middle of last year. Our syndicate members have heard a lot about the deal but as I said, for a number of reasons it's not come to the stage of being investable… yet. The deal involves coconuts, coconut water to be precise.

    We began due diligence nearly a year ago on a particular company which shall remain anonymous, landed up restructuring their existing corporate structures, shareholders, company domicile, rebuilt their financials, and a host of other things required, in order to both fully understand the deal, as well as ensure it was suitable for both ourselves and our syndicates' capital. Suffice to say, it has been a long, though very interesting journey.

    During the course of this due diligence process, we've learned a heck of a lot about coconuts and our strategy to participate in this exciting space has changed materially as a result.

    Coconuts are truly fascinating for a number of reasons, not least of which is the ability to price taxis in most any Southeast Asian country by asking the taxi driver what price a coconut sells for in the wet markets. There is a pretty consistent ratio between the price of a taxi trip in downtown Bangkok and that of a coconut in a Bangkok wet market. The same is true of the price of a taxi in Colombo, and what a coconut sells for in a Colombo market. Ditto Jakarta and Manila all countries which produce a lot of coconuts.

    Aside from double checking if your taxi driver is screwing you by using the "coconut barometer" let's look at the products and uses for coconuts as a preliminary.

    • Water - Nutrient packed with zero fat and the same electrolyte balance as our blood plasma.
    • Oil - Here is a commodity which has been globally traded for over 50 years. Increasingly used in pharmaceutical industry, coconut oil has been used to treat Alzheimers, is anti-viral, anti-fungal, anti-bacterial, anti-microbial. It's also an incredible anti-aging supplement taken both internally, and when used topically on skin, hair, and cuticles. Studies also show that it improves metabolism significantly when taken daily. It's also been proven to be anti-inflammatory and one of nature's most potent burn creams.
    • Activated carbon - Though I religiously take activated charcoal when traveling, it was only when doing research on the industry that I found that in fact the highest quality activated charcoal comes from coconuts. The activated carbon is used in water purification. You know that black stuff in your water filtration system? Yep, that's it.
    • Lauric acid - used in cosmetics and soap manufacture.
    • Meat - Food. Plain and simple.
    • Biodiesel
    • Milk - Tom yum goong anyone?
    • Fibres - Wow, there are literally a multitude of products we've seen in this space. Everything from making mats to mattresses, to using fibres as an alternative to plastics.
    • Husks - used as fertilizers and biomass.
    • Coconut sugar - Has a low glycemic index score that is roughly half that of white sugar, and tastes amazing, so it's a positive solution for those watching sugar intake.
    • Coconut flour - Gluten free and hypo-allergenic, ideal for baking, with lower in carbs than conventional flours, with the highest amount of dietary fibre (58%) of any flour (twice that of wheat flour).

    We've long been proponents of investing in agriculture and have mentioned it many times in posts on the site and in our crash course, which provides a bit of an overview and insight into our investment thesis.

    In any event, the numbers are hard to ignore, so when I think about coconuts the one thing that stands out is that with a coconut palm you're literally growing water, food, and other resources together. In a world where water is such a scarce and valuable commodity this is particularly intriguing. Investing in water is problematic not least of which because parasites… ughh. I mean, governments can and will so easily commandeer it in times of crisis. I struggle to see them doing that with coconut plantations though nothing would surprise me anymore.

    Coconuts enjoy a hot humid climate and grow in the tropics and sub tropics, which often means that many of the countries where coconuts are grown, water in fact demands a premium - clean drinking water, that is. In most of Southeast Asia, central America, South America and the Caribbean you can't drink the water from the tap without getting violently ill. When you're drinking the water from a coconut you never have to worry about whether its going to make you sick or not as the tree strips all impurities out.

    In fact, further to the above point, while its not necessarily a marketable point, we've spoken with agriculture professionals, including a professor of agriculture, who claim that there exists no discernible difference between organic coconut water and non-organic. This is because the tree is so efficient in extracting impurities that the water found in the nut is identical. The soil which the palm trees are grown in shows a difference between organic and non organic but not the coconut water found in the nut.

    Let's take a look at some of the numbers involved in getting you that lovely refreshing bottle of coconut water, fresh of the shelf of your favourite supermarket:

    You'll get approximately 22 trees per rai (there are 2.5 rai to an acre). A good tree will produce 120-150 nuts a year so let's be super conservative and work on 100 nuts a year. Each nut holds roughly 300ml. (bearing in mind the younger the nut the sweeter, and larger nuts hold more but are more sour in comparison). So each rai will produce 30,000ml x 22 or 660 litres a year. Bear in mind it'll take about 3-4 years for a tree to reach full capacity. They grow very quickly.

    Now consider that Harmless Harvest, a US based company who source their coconut water from Thailand, sell their coconut water for between US$6.49 and US$7.99 per 500ml bottle, at Whole Foods in the US, and one nut in the Bangkok wet markets goes for between 8 and 20 baht (depending on time of year). At roughly 30 baht to the USD this means 300ml sells for between US$0.26c and US$0.66c. Now their exists bottling, logistics and HPP involved so it's not all profit but the rough cost is under US$1. Nice, huh?

    With demand continuing to grow as the overall coconut water market expands, while US cities continue to experience drinking water price increases due to droughts that threaten cities like Las Vegas, it's not difficult to imagine moving 50,000 or even 100,000 bottles of coconut each week.

    Let's put the two together now, shall we? Assuming 660 litres per rai and an end consumer price of US$13 per litre ($6,49/ 500ml bottle) we're looking at $8,580 gross from just 22 trees on one rai of land. Now I'm not going to delve into the price/rai of agricultural land in Thailand, simply because it varies greatly depending on location, quality, etc. I will say though that if Thai farmers were receiving anywhere near this for their coconut water, let alone all the other products from a coconut, they would all be driving Maserati's not Toyotas.

    The money comes from commoditizing it and moving product from grove to grocer - the biggest spread isn't growing the underlying nuts, but controlling the nuts from co-op onward (in our opinion). There is SIZABLE profit in coconuts - but the farmers don't make it.

    Attentive readers will understand quickly what we're investing in, and why we've taken so much time to delve into this market and understand it from the inside out.

    Looking beyond the coconut water, let's take a nosy at activated carbon.

    When first looking at activated carbon I was stunned!

    Take a look at the prices of activated carbon being sold on Alibaba. You'll notice it's selling for up to US$2,000 a metric ton. Now I've lived in Southeast Asia for years and one thing that is extremely common is a sight such as this:

    Yeah, they're burnt simply to get rid of them.

    For the most part coconut husks are treated as a liability. In fact, the company we began due diligence on actually pays someone to come and take their husks away for them.

    Now consider that activated carbon sells for up to $2,000 a ton.

    This is nuts (pun intended)! My guess is that the average coconut farmer has no idea about such things as activated charcoal.

    Let's take a commodity such as zinc, for example, which requires a complicated process to bring to market. Unlike coconuts, it doesn't just grow on trees on the side of the road. First, an ore body needs to be identified, geological surveys conducted, a mine built and then the zinc needs to be crushed to powder, treated by froth flotation which is a process involving about 50% zinc and the remainder being sulphur, iron and silicon dioxide. Then with roasting the zinc in this concentrate it becomes zinc oxide. This crude zinc oxide is then turned into a metal using thermal smelting or eloctrolytic refining.

    I haven't even mentioned the costs associated with building the infrastructure so often required to extract zinc, as its not typical for ore bodies to be found conveniently next to railroad tracks, barges, or highways. Then there are the environmental impact assessment reports and the like involved in ultimately getting to our US$2,180 per tonne, price point which is what it is what it currently sells for on the LME.

    The one thing that I absolutely love about my work is that what I inevitably start investigating so often involves opening up doors of opportunity and knowledge I had yet to identify existed. It's enough to make anyone feel alive and like a child again.

    At our upcoming Seraph Aspen Meet Up we'll be covering the company we, together with our members, will be investing in very shortly targeting the coconut water market. The management team, together with many of our portfolio companies, will be meeting with us for a private and intimate meet in a stunning Aspen resort.

    If you've ever wanted to build your own private equity hedge fund this private meet up provides an excellent opportunity to look into what we're all about.

    - Chris

    "Eat coconuts while you have teeth." - Singhalese proverb

    Jul 01 4:21 PM | Link | Comment!
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