Tuesday, May 09, 2006

hedging the pump

Feeling the pain of rising fuel costs? Oil is around $70 a barrel and with instability in the vast majority of large oil producing regions (Iraq, Iran, Saudi, Nigeria, Venezuala, Russia) causing supply shortfalls I think we're all painfully aware that oil is very unlikely to decline to the $15 - $20 per barrel with equivalently low gas prices we've seen over the last few years.

So what can you do? How about locking in the price of gas at something reasonable? This is essentially what energy companies do today. They will buy gasoline in the futures market as a hedge to lock in a particular price point. I'm not familiar with the details of how the big guys do it but have at least the beginnings of an idea about how you and I can do it.

Let's say oil producing regions stabilize and production goes back up, enough to make gas fall to $2.00/gallon. Also, in our sample scenario assume our hedger (H) has a car that gets 20mpg and drives 15,000 miles per year. With a little 3rd grade math that comes to 750 gallons of fuel and at the current price would be a spend of $1500/year. Let's also assume our protaganist can find a stock in the equities market that moves in a highly correlated fashion to either oil or gasoline (company A). H purchases $1500 in company A's stock. Now if gas prices rise by 10 or 20 or 50 percent, H's stock will also rise in lockstep. The critical point now lies in profit taking and averaging down. I haven't got all of this worked out yet, but am thinking that if H were to take profits around 5% intervals over the initial purchase price and average down by buying more stock when the stock falls on 5% increments from the purchase price, discounting transaction fees and taxes, H's total fuel costs - stock profits + stock losses would end up with an average cost per gallon near the locked in price.

Anyone out there have more ideas on this?

Saturday, May 06, 2006

No Quarter

It's Saturday afternoon. My son is sleeping upstairs, my daughter is at a birthday party, my wife's working out. What do I do? I work. I feel compelled, almost relieved to work. There is a huge tension that comes with the exhiliration of the startup. That is a certain implied willingness to get the job done, at any cost. Long hours, travel, your friends become your friends at work. Your family lives with your obsession of pursuit of a dream.

We just had our second child a few weeks ago. I feel guilty for not putting in the requisite 80-100 hours per week. Not from my co-workers however. They've been more than supportive and I've been proud of the way the entire team has stepped up over these last several weeks to deliver an initial version of our html product to market.

In a startup, there is no quarter, no place to hide. You are always on and the company depends upon every individual contributor to deliver their best every day, night, and weekend. I wouldn't have it any other way most of the time. My wife knows that I go absolutely nuts if I'm not running 100mph (kinda like I drive). But it would be nice to pause and recharge once in a while.

Maybe in the fall, after we've got the next product pushed out, sales starting to ramp, strategic relationships firmly in place, and next round of funding nearly secure. LOL. Maybe in the fall. ;)

"Walking side by side with death
The devil mocks their every step
The snow drives back the foot that’s slow
The dogs of doom are howling more
They carry news that must get through
To build a dream for me and you
They choose the path where no-one goes.
They hold no quarter, they ask no quarter."

-- Led Zeppelin

Friday, May 05, 2006

Landing Venture Capital

There was a recent article posted on TheStreet.com entitled Landing Venture Capital. This is a fairly good article outlining the state of Venture Capital funding. 2005 was the first year in three years that venture capital funding has increased, yet the odds of getting funding remain bleak for early stage companies. It goes on to describe how the VC's essentially moved into triage mode after the dot com crash in 2000 and even though the money has started flowing it is still primarily focused on either later stage companies or early revenue companies, i.e. you won't get funding for a couple guys in a garage with a business idea. It does outline the re-emergence of angel investing. Because VC's are not focused on as many early stage deals, there are more of these deals available to angels. A great example of a new sort of VC firm taking advantage of this trend is Paul Graham's Y-Combinator.

While I agree with the state of VC funding, the article contains an underlying assumption that your primary goal is to achieve funding. Your primary goal is to deliver a product to an identified market that will find value and pay you more for it than it costs to produce. There are a number of companies today, especially in the Software as a Service space (Web 2.0) that are growing their business organically and bypassing VC funding altogether. One of the poster children in this area is 37 Signals, the creators of Ruby on Rails and authors of several popular web hosted products such as Basecamp, Backpack, etc.

So while the article isn't exactly bullish on venture funding prospects, don't lose heart. Focus on the primary goals of driving value and getting paid for it, network heavily in the funding communities (both angel and VC) and the rest will take care of itself.

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