With the prospect of interest rate hikes still dubious, it’s no surprise that many investors have turned to the stock market in pursuit of higher yields. The market’s larger returns is met with larger risks, and individual investors often have a hard time of reaching index returns.

One Silicon Valley startup called Motif Investing is determined to even the odds for small investors, or at least provide more convenience for individuals looking to take a position in the market. By creating an online account with Motif, individuals can buy into specialized index funds comprised of thirty electronically traded funds (ETFs). This is the equivalent of buying index funds from other similar online stock brokering services, with the added catch that each index fund is especially bundled to be by a particular market trend. In other words, Motif’s funds are purposefully designed to be undiversified, making them more risky but also increasing their potential yields. Furthermore, in order to help facilitate investment, Motif charges a flat ten-dollar commission for each fund, no matter how much of the index fund an investor buys, thereby significantly reducing transaction costs.

Each Motif, or index fund, comes with a unique label and assortment of stocks. For example, the stocks in Social Networking and Shale Oil are created by Motif’s own employees, and are comprised of exactly what their names suggest. With these stocks already prepackaged, individuals no longer have to worry about researching the specific companies they want to invest in – they can invest solely based on market trends.

Furthermore, Motif goes beyond what an average investor might do by offering highly specific positions and hedges. With such names such as Rest in Peace (comprised of hospice funeral-service stocks) and Caffeine Fix (made up of coffee company stocks), there are numerous niche Motifs offered by the company. Also, users can create their own Motifs for other users to invest in and receive a one dollar commission for every other user that invests in it. What this means is that the company can offer hundreds of motifs to suit almost any desired market position or hedge even the most specific risk. This also provides a unique advantage to investors who have knowledge in a specific field.

While Motif puts a shiny new face on trend trading, many skeptics still question whether it’s a beneficial service.  The concern boils down to this: average individual investors have little specialized market knowledge and will likely lose money to institutional investors with superior information. There’s also the matter of basis risk – there’s no way every stock can move in perfect unison in response to market shocks. Furthermore, Motif’s crowdsourcing of market insights may not result in any informational advantage unless the service gains many users with specialized market knowledge.

While these are all relevant issues, Motif’s target user base is active investors who are ready to take on these risks. Unlike other highly diversified index funds, Motif does not offer a safe and steady return. Rather, they offer investment opportunities and greater convenience for people who wish to take bets on the market and control their own portfolio returns. It’s made for those with an appetite for risk and specialized knowledge about market trends. With $126 million in venture capital funding, it’s clear that Motif has discovered a market niche for informed investors. The convenience and reduced transaction costs that Motif offers could bring thousands of individuals one step closer to being competitive in the stock market.

 

 

In August, Uber, the on demand taxi service, reached a valuation of over $50 billion, as first reported in the Wall Street Journal. To put it in perspective, according to a report by PricewaterhouseCoopers, Sabmiller PLC, a British company ranked 100th on PwC’s list of the largest companies globally, only has a market capitalization of $85 billion. This rise in valuation is not limited to Uber, or even Unicorns, companies that are valued at over $1 billion. For example, according to CB Insights the amount of startups that raised rounds of money over $100 million has gone from 50 to 100 companies. There has been a systematic rise in the valuations of startups.

Many observers see this rise in valuations as a bubble. They argue that a combination of low interest rates, aggressive strategies by venture capitalists, and our obsession with finding the next Facebook, have produced an environment where companies can receive extraordinarily high valuations with little justification.

The theory that there is a bubble in startup valuations, misses a few key points. While it certainly is true that low interest rates have led to higher valuation, and that certain startups have artificially high valuations because venture capitalists wanted to be included in their round, these aren’t the only reasons for the high valuations. These companies are not like the notorious online grocery stores of the dot com era, rather there are other factors at play that justify the increased valuations. Maybe not to the extent being seen now, but still high enough where it is hard to call the current climate a bubble.

The causes of the rise in investments in private companies are partially explained by more companies staying private for longer periods of time. An article in the New York Times, states that the median amount of time it took for a tech company to go public from 1980 to the present was seven years. Yet, tech companies that went public in 2014 waited, a median of eleven years before going public.

This push towards more privatization has been caused by a number of factors. Changes in certain financial regulation, specifically Sarbanes Oxley Section 404, which increased the degree of financial transparency a company must have, prompts startups to stay private for longer, as they wouldn’t have to file cumbersome earnings reports, and can instead focus on increasing productivity. With increased focus on financial transparency, it’s now in a company’s best interest to avoid the scrutiny of going public. Also by not going public, firms don’t have to worry about investors who are likely to sell of their stock if they don’t meet earnings. Finally, startup founders now have the ability to sell some of the shares of their startups on alternative markets, yet another reason to remain private. Companies like Equidate and SecondMarket, allow people to sell their shares in a startup, effectively enabling them to cash out of a private company. These secondary markets have made it increasingly more tolerable for founders to keep their companies private, as both they and their employees can make significant amounts of money without doing an IPO.

Companies have also been going public later because of empirical evidence that shows investors prefer larger tech companies. According to Barron’s, the median returns for tech companies on their first day of going public are significantly larger for bigger companies. Companies valued between zero and $500 million returned only seven percent, whereas companies valued over $1 billion which returned 32.2 percent. This difference is even more pronounced after the first year of being public. After the first year of being public companies valued between zero and $500 million dollars returned a median of -25.9 percent, as opposed to those initially valued at over $1 billion returned 30.1 percent. There is a clear incentive for companies to wait before going public and first mature in the private sector.

The increase in privatization has led to the increase in valuations. More mature companies that generate substantial revenues are holding funding rounds. This trend allowed companies to raise more money as investors are more trusting of companies that lead multiple rounds of funding. For example, Uber, which was valued at $50 billion, expects, two billion dollars in revenue next year. In the cases of late round funding, many of their high valuations are justified by established revenue streams. Three partners at Andreessen Horowitz, Scott Kupor, Morgan Bender and Benedict Evans, made this argument in a presentation, where they showed that P/E multiples for tech companies were actually quite low, (about 15 times earnings) similar to where they were in the early 1990’s. In contrast, multiples hit 50 at the height of the dotcom bubble. These companies would probably receive similar valuations on the public market, yet for reasons mentioned earlier have decided to stay private.

Another reason that the high valuations are justified is because these markets are significantly larger than they were during the dotcom bubble. For example, according to Time, in 2000 only 738 million people were online as opposed to 3.2 billion people in 2015. Scott Kupor, in a Forbes article, argues that part of the reason for the dotcom bubble was that there weren’t enough users to justify such high stock prices. Now, however, with the advent of mobile devices, and the overall increase global access to the internet, tech companies have enough users to account for these valuations.

Finally, even though the market for tech products is already huge, there is still legitimate room for growth in the technology sector. According to an Andreessen Horowitz presentation, over the next five years an additional billion people will be on the internet and 2 billion people will get smartphones. Ecommerce also has a lot of room to grow. While, according to the presentation, ecommerce is just six percent US spending on retail, this number should grow dramatically over the next few years as more companies, shift to online stores, and more people gain access to the internet and smartphones internationally. One of the reasons valuations are so high is because, according to even conservative estimates, there should be an explosion in online activity over the next few years.

The tech industry is not experiencing a bubble. While the dotcom era has produced a lot of hypersensitive investors, this time the pricing of private tech companies is actually justified. If interest rates rise, funding for tech companies will certainly come down a little, but they are not the main force driving this growth.

A two-year stint in investment banking or consulting has long been considered the first step on the post-graduate career path for many a business-minded graduate from a top university. But the global recession and the contraction of the financial industry have made Wall Street jobs harder to get and even harder to keep, and backlash to the financial turmoil, stoked by the Occupy Movement, has some students rethinking their views on the best place to gain experience before heading back to grad school or entering the business world. More and more recent graduates are choosing to bypass the traditional track and jump into their own entrepreneurial endeavors.

Dave Mainiero ’11, is one such entrepreneur. During his senior year at Dartmouth, Mainiero was contemplating what to do in the year or two before he attended law school. He considered more traditional avenues, but by the summer after graduation, he had decided to start his own business: a fast-casual burger joint in Santa Monica, California. Starting his own restaurant seemed like the ideal way to pursue his talent in and passion for the food business, while providing a source of income to finance his future law degree.

A fourth generation restaurateur, Mainiero drew on his years of exposure to all aspects of the restaurant business, to become his own boss at 22. Although Mainiero considered working for his uncle, a successful restaurateur in California, “I want to make a name for myself in the industry independent of my family. Given the choice between working for someone and owning my own business, it seemed like the logical decision,” he said. Mainiero has “been able to do most of it on [his] own” he said, of carrying out his project, “my family lives on the East Coast, but if I have questions on things, I always verify with my family…I have them advising me.” He also utilized his time at Dartmouth praising the “networking opportunities that naturally present themselves to a Dartmouth student. You’ll have a lot of friends who go on to be very successful, and many who have a lot of money in their first few years after college that they are looking to invest somewhere. That’s a good inroad to some startup money.”

Mainiero recently completed a business deal with his father’s company BurgerFi, a Florida based franchiser with two current burger spots and two more opening up in the near future. Now, Mainiero’s project will become the first west coast outpost of BurgerFi, with certain features unique to the Santa Monica locale. Although Mainiero did not originally plan to open a BurgerFi, he describes the deal as “mutually beneficial” given that he has access to an already established brand network, and BurgerFi will benefit from the prime positioning in Santa Monica, and provide brand visibility to attract potential franchisees on the West Coast. BurgerFi prides itself on sustainable building and products and all natural, locally sourced ingredients and menu offerings like natural, antibiotic and hormone free beef, and sugar cane sodas.

In the summer of 2011, while visiting his uncle in California, Mainiero drove by a deserted KFC in a prime location in Santa Monica. He researched the property, and a week later saw an eviction notice on the door. He called them the next day and acquired the property. He then embarked on the long journey of building the business. Mainiero says he’s “been fortunate not to run into any major obstacles so far” and has mainly been dealing with the back and forth of various approval steps, “going through city zoning and design review and permitting, is necessary for any business. It’s frustrating, you feel like you’re getting started right off the bat but then you run into a lot of bureaucratic red tape.” Government zoning and permitting has been a particular challenge in Laguna, where stringent laws exist to try and prohibit fast food restaurants like the former KFC from setting up shop. The town is resistant to franchisees and chains, which means Mainiero will be creating a unique restaurant, exclusive to the Laguna beach area, but still under the BurgerFi banner. Currently in a holding pattern, waiting for responses and approval on construction, building and electricity plans, Mainiero has been working on crafting the menu, developing interior design ideas, and establishing agreements for local food sourcing. After the official announcement of the BurgerFi partnership, Mainiero will begin a major press push to advertise the deal.

Mainiero anticipated his age might be a challenge in the process of building his own business. Instead, he said “I’ve had a generally positive experience, you have to have no tolerance for people trying to pull wool over your eyes for price gauging and things like that…then they respect you as a business person” His restaurant background has served as a deterrent for people trying to take advantage of him, he says, and “in this economy people are really hungry for work” which makes them less inclined to jeopardize possible job opportunities.

For Mainiero, his depth of experience, knowledge, and connection to the restaurant business “was something that I felt I had a lot of talent and advantage in” he said, which gave him the confidence and the skills to dive in head first. Particularly in the restaurant and food business, according to Mainiero, having as much experience as possible is crucial for starting off on your own. His decision to take time off before law school allowed him the freedom to pursue his own venture, saying “taking a year off isn’t a bad idea, even for those that have always thought, like I did, that taking a year off would be a complete waste of time.”

Mainiero encourages potential entrepreneurs “not to feel compelled to jump into a job you’re not passionate about through corporate recruiting or other opportunities that may arise out of convenience.” He cautions, however, that starting your own business early on is dependent on one’s “background, needs, and desires.” He also noted that there are still numerous benefits of the more traditional track for someone interested in starting their own business, saying “the opportunities that present themselves to Dartmouth students in terms of high-paying entry- level jobs are not something to be overlooked” because you can accumulate money to finance your own endeavors and “gain more access to people who might be willing to invest in your business idea at that juncture or later in your life.”

As for what the future holds, Mainiero still plans on attending law school in the next year, and has put a plan into place that will allow him to manage the business from afar. He found potential managing partners through Craigslist postings and relationships with other Laguna Beach food purveyors. He has also partnered with his uncle and his network of restaurants. After the restaurant opens in May, Mainiero plan to spend four or five months training the staff, and hopefully install a good network of people who can run the business while he’s in school. While he “definitely has an eye towards expansion” he’s waiting to see what happens with the opening of his first BurgerFi and says his post- law school career plans are as yet to be determined.

In August 2011 FarmPlate.com launched in Hanover, NH with the goal of creating an online sustainable foods community. Founder Kim Werner tells the Dartmouth Business Journal about the challenges and successes of starting a business to connect small town farmers, big city foodies, and everyone in between, across the US.  

Dartmouth Business Journal (DBJ): First, could you briefly explain what FarmPlate does?

Kim Werner (KW): FarmPlate.com is an online community and resource targeting consumers, businesses and organizations who want to find and support sustainable foods businesses. Our mission, ultimately, is to spur the growth of the sustainable foods marketplace by making it fun and easy for consumers to find and enjoy real foods. We launched on August 31, 2011, with the most comprehensive database of real food enterprises nationwide. We have more than 30,000 listings of farmers, fishermen, food artisans, restaurants, markets and organizations from Maine to Pennsylvania as well as California, the Pacific Northwest and the Midwest. There are two primary components of the first release of the website: 1) Find real food producers as well as restaurants and markets that source sustainably— for example local cheesemakers and breweries, a sustainable fisherman who can ship line-caught products to your door, a restaurant that is committed to serving only foods with traceable sources, CSA options near you, a market where you can buy your favorite baker’s bread, and much more. 2) Explore a business’s food web to see where to buy and eat a particular producer’s products, and to see where a restaurant or market sources from.

DBJ: Why did you decide to found FarmPlate?

KM: Food has been more than a necessity throughout my life. My family traveled extensively when I was young, and our trips inevitably were focused around the foods of the cultures we were immersed in. From this, I developed a lifelong love of cooking, and in my previous professional incarnation was a cookbook editor. (I “retired” on the Joy of Cooking in the late ’90s.) When our first daughter was born, I wanted more than ever to have easy access to wholesome food fresh from the source. I spent hours googling nearby farmers’ markets, farms where we could purchase a side of beef and winter CSAs. What I found were pieces of the larger puzzle I was trying to put together. From this I decided to find a way to bring together all of this information into a single source and use technology to build a powerful and efficient community platform for sustainable foods.

DBJ: What have the biggest obstacles been in starting a sustainable foods business?

KM: There are many obstacles to starting a business in general! And if I had to choose a “space” to be in, it would be the sustainable/green business sector because one of the end-goals is to have a positive impact on society. But I would say perhaps the biggest potential obstacle, and one that can halt a start-up in its tracks, is that there is an absolute requirement to be able to do more than anyone thinks is possible with fewer human capital and financial resources than imaginable. It also requires that you are 100% prepared to give up your life as you know it. I love challenges so I have been fueled by this over the years, but it is certainly just that, challenging!

DBJ: How do you think the environment for a green business, or a sustainable food business in particular, has changed since the idea for FarmPlate was first conceived?

KW: It has vastly improved. It is an underestimate to say green businesses are a trending topic, as this is a sector that is here for the long-run. Sustainable food businesses in particular are positioned to thrive, thanks in part to the press as well as the growing environmental movement, which is spurred by a real and immediate need to re-examine how we are co-existing within our world today.

DBJ: Why did you decide to base FarmPlate in Hanover?

KM: Purely a lifestyle decision. We have deep roots in Vermont, but selected Hanover as a great place to raise a family and be surrounded by great arts, great educational opportunities and the great outdoors!

DBJ: You mentioned that FarmPlate features over 30,000 businesses    – how have you found most of the businesses listed on your site? What kind of standards must businesses meet in order to be listed in FarmPlates’s database?

KW: We have a wonderful crew across the country that screens and loads businesses into the FarmPlate database. They find the businesses by researching both online and in the field, and we collect the information from original sources, whether it’s a business’s database, Facebook page or the result of an in-person visit. We have a handbook detailing suggested criteria a business should meet in order to be listed on FarmPlate. Criteria ranges from “sources locally” to “sells direct to the consumer” to “farms the land in a sustainable manner” and so on. We err on the side of inclusion, however, as we want to help businesses expand their commitment to sustainable products, and not screen them out because they are not doing enough along these lines to warrant a listing. We’re here to help!

DBJ: How popular has the profile upgrade option been? (In which business owners pay $195/year to manage their own FarmPlate profile.) How viable is the profile upgrade option for small businesses?

KW: We have had a tremendously positive response to the upgrade option. We are offering a cost-effective way for businesses to build a website if they do not currently have a web presence (less than $4/week), and for the many businesses that do, FarmPlate is an easy, effective way to reinforce their online presence and current marketing efforts, as well as to reach a highly targeted customer base.

DBJ: How have people responded so far to what FarmPlate is doing?

KW: Frankly, we have not actively promoted our launch yet. ,We are focusing now on the great feedback we are getting from our early adopters, but we are thrilled by the organic search traffic we have begun to generate. We also have been very excited about the number of listing suggestions submitted by both businesses and consumers who want to be sure their favorite businesses are listed on FarmPlate. We look forward to 2012 when we will be more actively promoting the website.

DBJ: How do you compete with other sites offering reviews for local restaurants or sustainable food sources?

KW: Our community is highly targeted, and we see it as a destination site for foodies and sustainable food businesses trying to connect with like-minded consumers and businesses.

DBJ: What do you see as the next steps for FarmPlate?

KW: We are going to continue to build our database aggressively to deliver on our promise of a comprehensive nationwide resource. We will also be integrating more communication and social tools to further develop the community features. And we are looking forward to learning more from our audience so we can continue to grow the website according to the needs and wants of the very community we are here to serve.