What I Learned in Business School » Finance

What to look for in term sheets

MBA — Fri, 10 Apr 2009 13:53:47 +0000

From a conversation with one of the top East Coast VCs, these are the things you must receive in a term sheet if you’re on the VC side:

Liquidation preference
A board seat
Right of first refusal for subsequent funding rounds.

The absence of any one of those terms should be a deal-breaker, but if you have those, you should be able to get close the deal.

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Download Barbarians at the Gate

MBA — Wed, 18 Mar 2009 02:16:08 +0000

One of my professors recently called Barbarians at the Gate (about KKR’s LBO of RJR Nabisco) the best business book ever written. I haven’t read enough good business books to make such a claim, but I did start reading Barbarians recently, and it’s a page-turner. So, at least it has that going. The prose is not great, but it’s good for the poor standards set by other business books. If the number of acronyms in that parenthetical didn’t scare you off, you can download a PDF copy of Barbarians at the Gate because some idiot, who doesn’t understand the concept or law of copyright, uploaded it to a file sharing site.

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Why bankers will always beat consultants

MBA — Fri, 20 Feb 2009 17:06:23 +0000

By far, the YouTube video I watched the most last year was the hilarious Wall Street showdown between bankers and consultants starring Amit Chatwani of Leveraged Sell-Out and produced by Portal A. Like most satires, it works because it has some truth to it: most overwhelmingly that bankers beat consultants, always. Always.

Banking and consulting are probably the two most common industries that MBAs enter upon graduation. However, people treat them quite differently. To get at the core of this argument, I’ll use an analogy. Bankers are like Barry Bonds and consultants are like Alex Rodriguez. Yes, that’s right, the $250 million player is a consultant. The other day, I was having a conversation with a friend about those players and we both agreed that we liked Bonds and can’t stand Rodriguez. And the reason is that Bonds is consistent. He won’t talk to the press, he’s not going to be nice to you, and he doesn’t apologize for it or try to mollify the fans or the press in any way. It’s his intense focus on being the best hitter in the game that drove him to spurn everyone else. The man needs to focus, damnit. He presents himself fully, he is who he is and if you don’t like that, well then, piss off.

Rodriguez, the heir to Bonds as the game’s greatest player, is the complete opposite. He wanted so desperately to be liked, to live up to his contract that he took performance enhancing drugs. And then again, he wanted so much to be liked that he scripted his apologies when a Sports Illustrated reporter found him out. Rodriguez is insincere. Bonds, while you may not like him, is entirely sincere and consistent. You think he’s a liar? That’s fine, he’ll go on being a liar.

And so, A-Rod is a consultant. He’s the guy who says that he’s going to do good, that he really wants to make businesses run better. That he wants to learn from the brightest. That he wants to help people.

Consultants know how many post offices there are in the United States. Or, rather, they know how to come up with the answer to the question, “How many post offices are there in the United States?” Well, there were three post offices in my hometown, which had a population of 80,000 people. That means there’s one post office for every 26,666 people in the country. There are 300 million people living in the United States. So, there are 11,250 post offices in the country. The only problem here is that the answer is wrong. Consultants know how to get wrong answers. That’s what they know.

And then what happens? You pay some McKinsey or BCG guy $250 million because you think he’s going to fix your business and bring in a championship, and he completely messes up your chemistry, leaves you out of the post season, and, oh yeah, did I mention that you’re paying him millions for this. For what? For some PowerPoint slides and Excel charts and some re-branding and re-organization and frameworks. But, you know, he really tried to help the team; he’s just not a member of it. Louis Menand recently called the management consultant “the personification of the sellout” in the New Yorker.

Bankers, on the other hand, have nothing to sell out. They make no pretenses about saving the world. Their whole business is about making money—there’s no way around that fact. They’ll go down with an economic crisis (or a steroid scandal). And they don’t try to hide it between superficial business speak because bankers are Barry Bonds.

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Things today’s MBAs will never have

MBA — Thu, 19 Feb 2009 04:07:41 +0000

We’ve known since October that we won’t have Wall Street jobs, but the really crushing blow hit today: We’ll never have Swiss bank accounts in which to stash those paychecks from Goldman Sachs. UBS agreed to turn over a partial list of its American account holders to the Justice Department and pay a penalty of $780 million for defrauding the IRS. I never thought I would be nostalgic for Swiss bank accounts, but now I am. When I was a kid, I had this idea that you went to Switzerland for ski vacations with a suitcase full of cash that you dropped off at the bank once a year. The things that might have been are rough, real rough.

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A primer on calculating adjusted present value

MBA — Tue, 17 Feb 2009 18:10:37 +0000

Aswath Damodaran is the man when it comes to this stuff, and he’s posted a primer on his website.

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