Funds of Fun

Ok this is just for me, because I don't want to forget it.

Today we discussed the LBO of Ducati. Ducati, today a high end bike producer, was bought in 1996, when it was on the edge of the bankrupcy, by Texas Pacific Group, a private euiqty fund based in the US. The fun part is that the partner in charge of the transaction from the buyer side was in class and told us some funny story. The idea was explaining how in 1996 was to deal with italian entrepeneurs, which i think is not much more different than today, although today the PE market is more developed and people is used to that. Here are some stories

• There is one thing italian entrepeneurs care of, after football: avoiding taxes... and mistresses.
• The former owener of Ducati was used to have a private with a bed at the top flor of the headquarters. I took it away. What to do you think was his relation with me? Did he like me? Obviously not, i took away his sex room!
• He (always talking about the previous owner) was still on the board of the company, so he had to sign the financial statements. I gave it to him and he said "i'm not signing it" and i said "why?"... after some seconds of silent he said "give me three millions"
• Talking about ducati: of course this company has no profits. Profits meant taxes. So better tunnel the cash in Montecarlo or to some cute lady.

While he was telling this stories, our professor was embarassed and was hiding behind some paper! :)

Pontius Pilot

In a vane attempt to clean my soul i went to the mass tonight. If you are used to hear the mass in Italian is really wierd to recite it in English. It looses part of its weight. Not because of English itself, but because you perrceive it in a more detached way. Really wierd. The most funny thing is how they translated the name of Ponzio Pilato. Pontius Pilate. Why do you have to transalte names? And the way it is pronounced in english always makes me think that he was a pilot flying on a plane like this... The priest was mentioning three tempations for the men... temptations we have to be able to escape and resits. The world, the flesh and the... well.. i forgot. However, I would have raised my hand to ask "and the fourth one:

THE MULTICULTI!!!!!!!!!!

Anders and Evgeny: Denmark vs Russia

Mark, the big man in a fast forward move

At our stand, Italy was providing Wine (25 liters), Limoncello (5 liters) and the mighty Negroni (7 liters). No explanation is needed for the first two but few words must be spent for the latter. Negroni is a very typical long drink in Italy. Is made of 1/3 of Martini Red, 1/3 of Gin and 1/3 of Campari. Served with a slice of orange. It's very strong, but the taste is really good.
I decided to use the multiculti to spread the Negroni culture. I thought it would have been really painful. And seriously many people tried it and said "wow.. this is really strong!". I thought there would have been many victims of Negroni. Piles of dead bodies around the italian stand. And indeed they were. But not for the negroni.. for the cold Risotto with mushrooms that matteo did.
Basically we brought some pasta and risotto to serve as our flag dishes. And we brought a microwave oven as well, since these are dishes that have to be served warm. And that's the way we started to serve them. But after a while we noticed that people didn't care about warm or cold. They just tasted it and said "oh.. this is good". Mmm... ok let's stop this hassle of warming up everything. Let's serve it cold. Unfortunately the cold risotto is like cement. Two spoons, and your stomach is sealed.

Mexican Rafa trying to cross the border with California

Huy warms up for his spanish afterparty

Part of the italian team establishing connections with foreigners

One of my personal achievements for the multiculti was the replica of the world cup, that we proudly carried around singing and dancing and toughly defended from multiple attempts to steal it by brazilians and germans (envy is an ugly beast!).

We are the champions..

The multi culti was a great success. Competitions, good music, tons of food and billion liters of alcohol made the whole fair a real mess. The most common question the day after, however, was : "what is this white stuff on my shoes and pants?". Apparently the floor was covered with a white dust, a kind of dried water paint, that melted with alchool and whitetened shoes and trousers of everybody!

Dirty shoes

Tales from another century

As an italian, very often you are identified abroad as Pizza, Mafia and Mandolino. Given the fact that i never saw a mandolino in my life, i am very proud of the pizza I always had some doubt in identifying myself with the Mafia.

Mainly because i come from Milan, a city in the north where probably the Mafia has planted its seeds as well but for sure is not as visible and rooted as it is in the Sicily. One of the historical reasons why mafia and other crime organization were born in the south is the lack of institutions mixed by centuries of foreigners' dominance of those regions during the XIX century. Local bandits started to supply the need for protection and for somebody above the others able to impose some rules on the society. In sicily they had strong traditions that needed to be preserved, and the Mafia was the grantor of these rules. Rules that survived for centuries and that people wanted them to survive forever. Then Italy was unified and new institutions and bureaucratic figures came into place trying to substitute the old ones. But was not a great success. People still belive in the rule of man rather than the rule of law that came from Rome. People still saw in the Mafia the ideal grantor of what they believe are their values and traditions, even though the price to pay was a burden of terror, intimidations and cospiracy of silence.

Among these old traditions that needed to be carried on forever, was the role of the woman and, most important, the behavioural rules among man and woman.
So, for example, if you smile at a girl, basically you are proposing yourself for marriage.
If you look at a girl without previous consensus from her brothers, you are in trouble.
If you have sex with a girl before marriage, you are dead.

But how was all this enforced? Easily. Suppose on a sunny day you are walking downtown with your daughter and you notice somebody is looking at her. So, you go to the local mafia CEO and you kindly make him aware of this. The next day, two big guys go to the poor boy and propose him a deal: his life in exchange of not looking at her anymore. However, even if the Mafia is till well rooted in Sicily, these rules cased to exists anymore.

Now that you know everything about how Mafia ruled in south Italy, i tell you a story.
Yesterday I was in Sutton. I was commenting on a girl with Valerio when a guy came to me and said "hey you motherfucker stop looking at my girlfriend". We didn't even reply. We laughed and continued talking with the other people who were with us. After two hours, we were dancing at 4 meters distance from the same couples even though i didn't even notice that. At a certain point, two brave guards of the club came and thrown me and Valerio out of the club. The reason: we were annoying those ladies. Whaaaaat???

Welcome to catalunya 2007. Welcome in the XIX century of Italy.

Sunny Thursday

bip

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bip bip

bip bip bip

bibibibibibibibibibibibibibibibibibibibibibibibibibibi

clack

Alarm stopped. Oh my god. What an headache. Who am I? Where am I? What day is today? Ah yes.. it's thursday. Memories start to come back to my mind. Clearer.

I was at an anti-valentine party yesterday. I remember I entered the club and they gave me a red tape, so people can see that i'm free. But soon i've been stopped by three super ugly girls which made me think that maybe is bettere to hide that tape and come back to the old fashion habit of being the hunter and not the hunted. At least you can choose.

And.. well yes there was that girl I like. And that other one that likes me. And the wierd german one. And lots of italians, and marco and and and. Well. Whatever. Another night spent with friends drinking a lot and laughing even more.

Then you wake up after five hours of sleep and you remember why you set the alarm. Because you have DIPLO! The only class of the day. And you fight with your coscience that wants you to wake up and attend the class, while your rational side tells you that is going to be another useless class. But ok, let's go. As soon as i stand up i recognize the typical floating movement that is a straight sign that some alcohol is still in your veins. Then you see the clothes left somewhere in the room that still carry the horrible smell of smoke and sweat (not mine, which is even worse).

I jump on the moto leaving the helmet open on the front to refresh the face. I meet some people in IESE who tell me "hei george.. tough night yesterday.. isn't it?".
Mmm..
I'm sittin in class now. And in front of me there is Brian Leggett, the teacher. I look at him and I immediately recognize that he is even more hungover than I am. Program of the day: to watch "Scent of a Woman".

And I ask myself.. what the f**k am I doing here?!

Lost in Grace

This evening i've been in charge of getting the whisky for our "whisky and cigars" night organize by the omonimous club. Yes, in IESE we take drinking and smoking very seriously.

So I went with my moto in Gracia to get the whisky and i've been driving for half an hour completely lost in these small streets of this area of Barcelona. It was quite an hassle because of the traffic jam, the non sense one-way streets of Barcelona and this cage between my legs that force me in a very not-natural position on the seat.

But then... whoooo... finally at home

NO! Suprise! I don't have my keys. Just a few calls to realize that none of my flatmates will be home in less than an hour. So i'm sitting here in front of the door of my flat, sitting on my cage of whisky and the laptop on the legs. Having nothing to do, because i cannot study anything with the automatic light of the stairs that turns off every two minutes, I decided to share with you, my reader, this quite boring experience.

If you feel like passing by the street I will be please to receive some humble food like caviar and salmon on crispy bread.

Old memories

I just find out on youtube this video of Nirvana performing in a very dodgy place close to my house. The hall is located in a small town (some 3000 inhabitants) 30 Km out of Milan, in Italy. It was 1989, Nevermind was not out yet and Cobain and his band were not famous. They came to Italy. They came to this small town. They came in that small club. And Everybody still remembers them..

Warning: very technical article ahead

Several similarities couple together entrepeneurs starting a new business and men establishing relationships with women.

First of all, you need a target market and money. Once you have them, you can start. Selection and due diligence are most of the times (wrongly) skipped to exploit the benefits of an early execution. This leads most men to enter really lousy ventures with very bad girls. But let's look at the bootstrap.

Financing takes a fundamental role in this. You can go from the self financing girl to the multiple round financing and again up to the never profitable girl.

The self financing girl is the one you meet at Sutton at 5 am. She is already drunk because either she has been drinking by herself or she has been offered drinks by other club pretenders (trade financing). You don't have to do anything more than milk the results as much as you can. In a BCG matrix, this is the cash cow business. If you are lucky, she come home with you the same night, if you are not, she is still in bed with you when you wake up. Suddenly you realize how drunk you must have been the night before. ROA is quite high especially if you consider that the cover charge of sutton has been a sunk cost even before you entered the venture with the girl. However, this kind of situaions can be common in Barcelona but not that common in developed countries like Italy, where, to achive this high returns, you really need a competitive advantage backed by some disruptive technology (the last one was in the seventies: the Casio watch with embedded calculator!)

Some girls bring you in very common but tough situation of multiple financing. You pay the first night, but results don't materialize. So you think of a second round financing and still, results struggle to come and you keep carrying forward the NOL (net operating losses). You are torn, because you have already invested a lot of money (let's say two dinners and drinks) and you don't know if to risk another investment (the third might be the lucky one) but can also turn you down lower than when you already are. Usually in these tough moments, other stakeholders rise their voice. Typically, the one who's most pissed of and claims something, is the manager in the middle, the bold one.

One criteria to analyze business opportunities is always the scalability of the business. Unfortunately, girls are rarely scalable even if a recent study showed that bisexuality and threesomes are at 2% CAGR. Usually scalability can be achieved on a geographical level but synergies are hard to achieve and I would even hypotize that there are some disconomies of scale in that. Globalization and imports from cheap-labor countries can, in the long rutn, increase supply and consequently lower prices, at least when you adjust them over inflation.
Some entrepeneurs, especially the ones that spend lot of time abroad, adopt a business model based on a flahship store at home coupled with a franchise network in the other main cities.

However, we shouldn't forget that knowledge of the market is crucial. It's much easier to operate in a local market than to expand internationally. A network of friends and resorts is also a nice to have that might improve your reputation and easiness to conduct business. But always keep an eye on the operative level, because steal of assets and equity is still common practice especially in emerging markets.

In the long run, returns and profits tend to decrease and capital invested tends to follow the rule of "decreasing marginal returns" which is quite common in business. Product lifecycle is always that one. Rapid growth followed by plateau that then turns to rapid decline. The lenght of the cycle depends on the base timing in which you enter the market and the CAPEX that the girl is willing to invest on herself. Some of them can finince maintenance on internally generated cash flows, other ones just ask you the credit card.

Depreciation is usually higher than CAPEX, which inevitably makes you think that you rather invest in a new plant than maintain the old one. Unfortunately, after five years or so, the woman is able to leverage on your commitment to trigger a lock-in mechanism called marriage. This immediately rise a huge barrier to exit that might be impossible to overcome. Strategic buyers are quite rare in the industry and IPOs opportunities are limited. Spin-offs are common but costly. Most of the time you need to drop your manufacturing plant, your company car, fringe benefits and sign some earnaout clause on your future cash flows. Not necessary to say that all this, decrease your potential to expand into new ventures (investments in disruptive technologies).

There are several kind of investments. From early stage financing (which is illegal in almost all the countries) passing through seed financing to later stage and up to banckrupcy and turnaround situations. Turnaround, however, is still considered a niche market for the ones who really want to put their hands in the dirt.

Some entrepeneurs lose their grip on the business over a certain period of time. It's not uncommon to see situations in which the entrepeneurs decides to put himself aside and let somebody else to manage the business.