My Blog

I’m writing my first CPA exam tomorrow (FAR in case you’re wondering) and despite what I’ve been hearing from everyone about it being one of the hardest (REG being “the one”), I feel pretty good about it. Looking back at what I’ve learned from work and reading my exam books, I can see how the US GAAP functions differently than in Canada. Everything is always referenced back to a rule (like FAS123R for stock options, which I am now fluent in, although far from being an expert). Take for example, Canadian GAAP doesn’t have much literature on software revenue recognition, whereas US GAAP has SOP 97-2 clearly outlining when revenue takes place and how much (VSOE anyone?). If you look at Canadian software companies, it mentions in cases where there is ambiguity over revenue, they refer to US GAAP.

I won’t go into details about the intricacies of revenue recognition in Silicon Valley, but let’s just say if you know the ins and outs, you can make a killing here as an expert. Take for example a company that sells both hardware and software. Booking hardware is the easy part: mostly if the unit is delivered and collection is reasonably assured, but how about software? When the license key is sent? Or what if the contract has “future features” agreed upon, what then? Or what if the company sold the hardware and software to customer #1 for $100 and $50 respectively, but to customer #2 at $10 and $140? It happens all the time because companies are eager to book revenue early (or later for a cookie jar reserve) so they attempt to shift it to the hardware but there are certain rules (I don’t know which ones exactly, but it is covered under VSOE) that prevent this. Auditing topics like these are the more interesting and noteworthy part of my job, which I’m really eager to delve into. As I become more proficient, I’ll post more info, until then, wish me luck tomorrow!

Worked my butt off today doing the 10-Q tie out. Urgh.. I’ve devised a new strategy to quickly, but not effectively, tie everything out. But it sure beats staying up until 3 am doing the tie out

On to the question why I have the California Condor as my starter pic. While doing the usual browsing over at digg.com, I found this funny submission. What exactly is Chacha you ask? Well, they are essentially a service that provides free answers to your questions! You can text or call in your question and they will respond, usually within 30 mins, with an answer. Here’s a bunch of questions I asked with Chacha’s response (I’m too tired to verify their answers, but would appreciate if someone did the work for me):

1. What is the largest bird native to North America? California Candor
2. I called in and used their voice to text service. Basically a human being listens to a recording of your question and transcribes it in to text then sends it to a guide who researches an answer. I also sent a text to see how the answers would vary. Phone answer first, then text follows: What is the population of Hong Kong? 6.96 million, 0.8% growth rate, consisting of 95% Chinese vs. 6.94 million in 2005.
3. What is the weight of an Audi R8, in both lbs and kgs (my dream car)? 3434 lbs or 1558 kgs
4. What is Barack Obama’s birthday and how old is he in days as of Oct 29, 2008? August 4, 1961. He is 17254 days old.

More to come soon..

PS: I converted my boy, Rocher into a Mac user. He bought a sweet looking Macbook Pro (if only I had the $$).

I’ve been purposely shying away from posting anything relating to the market since I don’t know what the next day will bring. At present, the market is driven by fear and emotions in place of fundementals so it’s been pretty hard to gauge what’s a good buy and what’s not. But one thing is certain: I wouldn’t touch financials with a 10ft pole. When you have government entering into private affairs, there’s no way in predicting what could happen next. Which brings me to the interesting tidbit that “I-Banks” are dead. Putting politics aside, after all, this is a business blog, the question that’s in the back of my mind is: “What does this mean to GS and MS?” Sure, these newly established bank holding companies can now tap the Fed for cash when needed, but it also forces them to report to the Fed vs. the SEC, which means tighter regulations and increased scrutiny of their financial statements (namely the debt-to-equity ratio).

According to this blog, GS and MS has a ratio of 22:1 and 30:1, respectively (note: LEH had 30:1 before it’s collapse). While the big banks’ ratio was between 11:1 to 15:1 (for more reading on capital reserves, check out Basel II). The beauty of ibanks was the fact that they could engineer creative financial products while the banks had their hands tied. But given that the last of the ibanks have formally stated their intentions to roll into commercial banks, could this signal the demise of Wall St.? Perhaps Private Equity and Venture Capital will step into to fill in the void.

So what does this mean to GS and MS? In my opinion, and this coming from a guy with a background in accounting and economics, is to avoid GS/MS until things settle down. You see, companies like these are built on intangibles, you can’t buy a GS product and bring it home and show to your friends. It’s built upon the same principles as accounting firms. They all sell a service. Now that GS and MS must adhere to strict rules set by the Fed and other international bodies (not to mention the accounting requirements), this changes the playing field and consequently, their strategy. If you were a Managing Director who’s spent the last 20 years of his life using the same investment strategy, and all of a sudden you’re forced to change your game plan and relearn all the tips and tricks, how do you think that’ll play out? It’s like Michael Jordan playing baseball.

GS and MS will comeback, just not in the way we’ve remembered them as.

Enough Wall St talk, let’s turn our attention to Sandhill Rd (it doesn’t have the same ring to it, eh?). I came across a really useful website by none other than PwC. PwC’s Money Tree is an excellent source for VC trends and probably a good tool to compare and contrast the effects this credit crisis has on Silicon Valley.

Taking a look at Q vs Q results,

We can see that both in terms of number of deals and amount of capital raised, is quite consistent with prior quarters as far back as 2006 (before the credit crisis went apeshit). Now let’s take a look at the number of IPOs year to date:

Unsurprisingly, only 3 IPOs this year (and all were in Q1′08). So let’s sum it all up: the funds are flowing like before and even a little better than 2 years ago (so the VCs still have $$$ *AND* are willing to invest it) but the firms aren’t going IPO (which is a smart move). The question I can’t seem to answer with confidence is: Why is it that Wall St. is all banged up, while Silicon Valley has nothing more than a scratch?