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VCs Slammed in Poll

Venture capital companies are most to blame for the boom and bust that’s befallen the telecom industry, according to Light Reading’s June research poll: Who's to Blame? Where's the Hope?

In the poll, respondents are asked to pick the folk they hold most responsible for the current, sorry state of affairs.

So far, 22 percent of votes have been cast for "venture capitalists, for over-inflating the bubble" -- way out ahead of the next category of possible culprits, "top executives, for feathering their own nests at the expense of workers," which has got 14 percent of the votes at present.

Other groups that get it in the neck include "telecom regulators, for failing to curb anti-competitive behavior" (13 percent) and "analysts, for not telling the truth" (11 percent). (Somehow, we forgot to include journalists in our list.)

At the other end of the scale, there are some real surprises. Nobody so far has blamed "governments, for charging too much for 3G wireless licenses," even though this appears to be one of the main reasons some European incumbent carriers are weighed down with huge debts (see British Telecom on the Mend).

Likewise, only 4 percent of respondents blame "financial regulators, for failing to blow the whistle on corrupt behavior." Also getting off lightly are "traditional systems manufacturers, for offering vendor finance," which get a mere 3 percent of votes. (The scale of this issue is laid out in Vendor Financing.)

Respondents were also asked to name the current development that gives them most hope for recovery.

The biggest surprise here is that "less competition" is currently tying for top place with "advances in access technologies," both of which garner 23 percent. Less competition probably equates to carriers being able to charge higher prices for their services -- the hope being that this will lead to more infrastructure investment. (Dream on.)

The next biggest hope is that "new sources of traffic such as 3G wireless" will encourage carriers to resume investment in infrastructure. That gets 11 percent, just ahead of "advances in metro technologies," which gets 10 percent.

"Bargain-basement acquisitions" and "bargain-basement telecom infrastructure from bankrupt/distressed carriers" get 7 percent and 8 percent of votes, respectively -- a reflection of the belief that if someone can't make money out of an asset, then the likelihood is that no one else can either.

To take the poll yourself, and get the latest results in detail, click here.

— Peter Heywood, Founding Editor, Light Reading
http://www.lightreading.com
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willywilson 12/4/2012 | 10:14:08 PM
re: VCs Slammed in Poll Even though they were caught red handed. At first it made me mad. But, unlike many others, I don't identify myself as a 'victim'. So I took some classes on self-defense and moved to a more secure community.

Nowadays, a wiser and older fellow, I kick the living shit out of people who think they can take from me what isn't theirs. I do it because I know the government won't. Hey, nobody said this was utopia, you know?

I just figure that if I've got something then other people will try to take it away from me. That doesn't necessarily make them evil - just opportunistic. I don't let people take stuff from me any more. Doesn't matter if they're street thugs or VC's or Wall Street suits or smarmy entrepreneurs for that matter. I keep my eyes open and don't let people take advantage of me.

=============

Well, I guess there are two ways to look at things, one being to find the wrongs and wrongdoers, and the other to become an amoral, uncivilized, California cynic.

Enjoy that BMW. I'm sure you stole it fair 'n square. What's next for you, a career in politics?
rjmcmahon 12/4/2012 | 10:13:55 PM
re: VCs Slammed in Poll I agree with Willy here.

In today's world where nuclear nonproliferation and world peace face the toughest challenges in world history and many teenagers in the wealthy societies carry guns to school, its hard to see how a "wild west", anti-government, John Wayne-type will protect himself via a some Tai-kwon-do classes and some open eyes.

A strong affirmative government that prosectues and punishes white collar criminals is necessary. Our individual security requires a law abiding society which can trust their government, a government which enforces the laws it legislates. When the enforcement of thes laws breaks down so does the societal structure.
dave77777 12/4/2012 | 10:13:55 PM
re: VCs Slammed in Poll When I finished my B.S. as an accounting major, I interviewed with 4 of the Big 6 (there were still six then). This was just about the time of the Asian equity/currency collapse brought on in part by massive accounting irregularities. In one interview, I mentioned that philosophically, I saw accountants as "the thin black line" that preserved investor confidence, similar to the "thin blue line" of the police. My interviewer actually seemed offended by the idea, saying "we're not police." I didn't get an offer, and went on to get an M.S. in Information Tech and work in that field instead.

The interviewing company? Arthur Andersen.

I wonder what my interviewer thinks about that now that he's out of a job.

smoking_craters 12/4/2012 | 10:13:54 PM
re: VCs Slammed in Poll Willy and RJ:

Re-read my original post. I totally agree that we need a strong, responsible government to play traffic cop and to enforce the rules.

But we don't have that and probably won't for some time. Senator Boxer's 'antics' during the Enron hearings were ludicrous. They fixed nothing and only served to help her get re-elected. God, people are stupid and gullible. Capitalism works on trust and confidence and Senator Boxer knows that. Go after the people, Senator, not the companies!

We've managed to kill Enron and Anderson, throwing tens of thousands of decent, hard working Americans onto the street. Go after the people, Barbara, you idiot, and stop all the damn grandstanding - you're killing us!

Should we have taken some of the top people at both firms and prosecuted them to the fullest extent our laws provide? Absolutely! I said so in my original post.

So why didn't we?

Because our government is corrupt. All governments are corrupt to some extent. Money and power do that to people. Should we fix it? Of course.

I'm an old man. I've dealt with VC's and executives and entrepreneurs and bureaucrats for decades. I'll take the VC's and the entrepreneurs any day. At least they're trying to get something done.

I didn't take self-defense so I could go out and beat people up. I rely on the government to protect me. But they don't travel with me. And before they can come to my aid, a lot of bad things can happen. I don't like being a victim.

Maybe this idea of self-reliance is a lot like the John Wayne image. So what? Our culture is ruled today by victims and lawyers. Am I a bad person for choosing not to be the one and not relying on the other? I don't break the rules. I remain an optimist. I try to be as honest and ethical as I can. People routinely tell me that I'm a decent, hard working guy. But no one forces me to be that way. I choose to be that way. And I'm old enough and smart enough to recognize that most people are like me, but some aren't.

Again, people didn't have to come to California. They didn't have to start companies. It would be great if we all played fair and everybody was a winner. But the world isn't like that. Again, the 'victims' are about to have their way. Forget the hundreds of thousands of new jobs that were created or the tens of thousands of middle class folks who were able to make some money and send their kids to college. Let's just kill the goose that lays the golden eggs. What the hell.

Please, please, please don't ask the government to come to California and 'fix' the problem. Should some people be thrown in jail? Sure. Should we enforce the rules we already have on the books to protect people? You bet! But the idiots in Washington will only come out here and screw the golden goose up.

I'm with you, RJ. There are much, much larger problems in the world to be working on. Senator Boxer grabs headlines with Enron while women and children are blown to bits in the middle east. The world is on the brink of World War III and the Democrats are playing to the cameras for the next election (just like the Republicans did with the Lewinsky scandal). i want a strong, affirmative government just like you do. But we're not there yet. Let's fix these problems one at a time and in the right order.

It just drives me nuts that we've got this entrepreneurial system which, for all of its flaws, is still the best in the world. And all people want to do is 'fix' it. Tweak it? Sure. Fix it? Spare me. Fix the government first. Then come out here to our coast and work with us to improve things. We'll be ready.

When they write the history of this meltdown in 20 years, they won't point fingers at the VC's or the entrepreneurs. They'll point the finger at the Telecom act of '96 and the corruption of our government who failed to enforce it as they should have. Shameful.

Follow the money, boys, follow the money.
willywilson 12/4/2012 | 10:13:48 PM
re: VCs Slammed in Poll 1. I totally agree that we need a strong, responsible government to play traffic cop and to enforce the rules. But we don't have that and probably won't for some time. ... All governments are corrupt to some extent. Money and power do that to people. Should we fix it? Of course. ...

Please, please, please don't ask the government to come to California and 'fix' the problem. ... It just drives me nuts that we've got this entrepreneurial system which, for all of its flaws, is still the best in the world. And all people want to do is 'fix' it. Tweak it? Sure. Fix it? Spare me.

2. Capitalism works on trust and confidence ... I've dealt with VC's and executives and entrepreneurs and bureaucrats for decades. I'll take the VC's and the entrepreneurs any day. At least they're trying to get something done.

3. We've managed to kill Enron and Anderson, throwing tens of thousands of decent, hard working Americans onto the street. Go after the people, Barbara, you idiot, and stop all the damn grandstanding - you're killing us!

4. I rely on the government to protect me. But they don't travel with me. And before they can come to my aid, a lot of bad things can happen. I don't like being a victim.

Maybe this idea of self-reliance is a lot like the John Wayne image. So what? Our culture is ruled today by victims and lawyers. Am I a bad person for choosing not to be the one and not relying on the other?

5. Again, people didn't have to come to California. They didn't have to start companies.

6. It would be great if we all played fair and everybody was a winner. But the world isn't like that. Again, the 'victims' are about to have their way. ... Let's just kill the goose that lays the golden eggs. What the hell.

7. Senator Boxer grabs headlines with Enron while women and children are blown to bits in the middle east. The world is on the brink of World War III and the Democrats are playing to the cameras for the next election. I want a strong, affirmative government just like you do. But we're not there yet. Let's fix these problems one at a time and in the right order.

8. When they write the history of this meltdown in 20 years, they won't point fingers at the VC's or the entrepreneurs. They'll point the finger at the Telecom act of '96 and the corruption of our government who failed to enforce it as they should have.

================

1. What an incoherent jumble of crap. (And it's not because I consolidated your comments into one place. You repeatedly contradict yourself throughout that rambling apology for rich crooks.) You say enforce the law and fix things, and then rail against fixing anything.

2. You say that capitalism works on trust and confidence, but absolutely refuse to point out who broke that trust and confidence. I'll bet this is because the VCs and "entrepreneurs" are your golfing buddies. Ethical discussions are very much out of style within this group, much less ethical behavior. I know what I'm talking about, because I've hung out with them, too.

3 & 4. You hate being a victim but manage to play the violin for the hardworking people of Andersen and Enron, while somehow alleging that the government victimized them. In fact, it was their own corporate corruption that did the companies in and victimized the employees. I feel bad for the thousands of Andersen employees, too. Their leaders screwed them royally.

4 & 6. You say the culture is ruled by victims and lawyers, but in fact there isn't a single VC, Wall Street shyster or technology executive who has been even accused let alone indicted or prosecuted. Trust me, if "victims ruled," this would not be the case. It's clear that you couldn't care less, because you've got yours and those who were defrauded were chumps.

Families in California who had to choose between medicine and electricity because Enron, Dynegy and Ross Perot Systems rigged the market? You and your corporate friends regard anyone who was screwed to be losers and fools, especially if they work for a living. Of course, if the screwing was done by a poor burglar operating in a rich neighborhood, then you'll be the first to DEMAND more police protection for the fine people of the upper class.

5. And California startup companies, executives and venture capitalists didn't have to commit fraud, manipulate stocks and trade bribes, either.

7. There are statutes of limitations and barriers to lawsuits regarding securities fraud. They were erected by the victimizer's lobby: lawyers hired by Silicon Valley and bagmen who bribed members of Congress. If those crimes aren't prosecuted now, these statues will expire. If, as you so dishonestly suggest, we wait until we've guaranteed world peace before going after the crimes, then the criminals will get off scot free. What, with 280 million people America can't do more than one thing at a time? Don't insult our intelligence. Your justifications for letting corporate criminals off the hook convince no one.

8. So, as with so many other idiots and rogues here, you zero in on one cause, yours being the Telecom Act. This illustrates a serious problem in America: A combination of over-simplicity and over-complexity, i.e., we either find one scapegoat or we say it's so complicated that no one's to blame.

Imagine if the people who cleaned up the mess at the World Trade Center approached the job that way. "Oh, it's so complicated! We can't do this!" Well then the corrupt rich would call them lazy, stupid, ungrateful and unpatriotic.

No, the way to unravel the fraudulent bubble is to freeze the site (put all suspects on notice immediately and freeze the statute of limitations), get the legal cranes in there and sift through the rubble.
The fact is this: American prosecutors know how to go after white collar crime if they want to. There is no high-blown philosophy necessary, and no dodging of accountability, culpability or criminality should be permitted. Just as we don't allow the guy who sticks up the 7-Eleven to say his childhood made him do it, we shouldn't allow corporate criminals to deflect justice by saying the government is flawed. Lock them up, throw away the key, and seize all the stolen money and whatever of value was purchased with that money.
rjmcmahon 12/4/2012 | 10:13:47 PM
re: VCs Slammed in Poll Senator Biden's panels addressing white collar crime is worth streaming (even at fraudband rates ;-) Justice requires prosecuting white collar criminals and deterrence requires those convicted to serve prison time.

http://video.c-span.org:8080/ramgen/ldrive/e061902_crime.rm

http://judiciary.senate.gov/he...

An excerpt from Frank Bowman's testimony:

"As for blameworthiness, it bears emphasis that economic crime of the truly Gǣwhite collarGǥ variety G that is, frauds and swindles of substantial sums by educated members of the business and professional classes G are particularly reprehensible. Such crimes are customarily crimes of greed rather than need. They are committed by persons with significant personal advantages, usually with substantial careful planning.

In my own view, significant white-collar offenders often deserve lengthier sentences than virtually any other category of offender, even including some defendants who resort to unpremeditated violence. Who, after all, is more deserving of punishment, a fellow who gets in a bar fight and concusses his opponent with a bottle in the heat of the moment, or a corporate executive who over a period of months coolly swindles his shareholders out of several million dollars?

Unfortunately, while the foregoing considerations may solidify the conclusion that white-collar crimes should be punished with some stringency, neither singly nor together do they answer the question of whether present sentencing levels are tough enough.

Crime control: We punish people not only, and perhaps not even primarily, because they deserve punishment, but also, and perhaps more importantly, in order control criminal behavior. Punishment is thought to reduce crime by deterring the punished defendant from offending again, by frightening and thus deterring other prospective criminals who witness the punishment, by incapacitating offenders disposed to recidivate, and also by reinforcing with public examples the general moral code of the community. In the pre-Guidelines period, federal white-collar penalties may have achieved very few of these objectives. When most white-collar criminals, even if caught, receive probation, the disincentives to crime are low and respect for the law is diminished.

It was frequently argued in former days that actual imprisonment of white-collar offenders was superfluous because the collateral consequences of a felony conviction to a person in business or professional life are so uniquely devastating G destruction of a career, disqualification from a profession, destruction of family relationships, collapse of standard of living and social standing, etc. Indeed, such arguments remain a staple of defense sentencing arguments in the Guidelines era. As a matter of equity and social justice, I generally find such arguments both elitist and distasteful. The inability to secure a position in the building trades because of a felony record is certainly no less a hardship for a poor man than disbarment for a felony is for a rich one. Likewise, the shame of visiting with oneGs family through Plexiglas is no less acute for a blue-collar than for a white-collar criminal. That said, it is doubtless true that the collateral consequences of a felony conviction are a substantial deterrent to white-collar crime."
smoking_craters 12/4/2012 | 10:13:46 PM
re: VCs Slammed in Poll Willy:

Wow! Great response!

Believe it or not, I agree with about 95% of what you said.

The first point I was trying to make was to find and punish individuals, not institutions. The government isn't doing their job when they take Andersen, as an institution, out, but fail to punish any of the top people. Attacking institutions makes for great press, but punishing individuals fixes the problem. The only people who got punished were the poor working stiffs.

The other point I was trying to make was the Las Vegas one. You go there to gamble. You lose your money, it's your fault. A casino rigs the game? Find the guilty person and put them in prison.

Most of the people who came to California during the boom were coming to gamble. And I believe most of them were playing in a game that was risky, but fair. They lost their money and now they complain. Too bad! There were times when the game was rigged and we should find who rigged it and punish them.

But we already have lots of laws to do that, don't we? Again, I'll ask for the final time, why hasn't the government done anything? And again, I'll answer. Because it's corrupt. I'm not a cynic and I'm not pro-business. I'm just stating a basic fact. The last thing we need is a corrupted government going after abuses in the Silicon Valley on a witch hunt. They'll break a hell of a lot more than they'll fix. We need to enforce the laws we have now. Stop holding hearings, turn off the cameras and start arresting and prosecuting the guilty, white collar criminals, be they VC's, bankers, entrepreneurs, or government officials. It'll never happen.

By the way, you don't know me and you don't need to attack me personally. I'm not an apologist for anyone - every group involved deserves a share of the blame. I'm just an old man who's been around the block a few times and knows a witch hunt when he sees one. So stop the witch hunt and start arresting people already.
rjmcmahon 12/4/2012 | 10:13:46 PM
re: VCs Slammed in Poll I'll ask for the final time, why hasn't the government done anything?
________________

This is a question that many are asking. One possible answer from Glen B. Gainer, III,
State Auditor of West Virginia, implies the complexity, costs and short statue of limitations drives prosecutors to select easier cases.

Today's swindlers realize this, and that it is easier to steal and cover their tracks from the inside. Since their thievery have been "inside jobs" and the government has been slow too react, the public opinion, similar to your own, has concluded that the corruption has metastasized and nobody can be trusted.

None of this helps businesses or job creation. That sooner this cancer is removed, the better.

http://judiciary.senate.gov/te...

"The difficulties of investigating and prosecuting securities and investment frauds are a result of the increased globalization of fraud, the complexity of the cases, and the limited resources of regulators and law enforcement officials. Prosecutors are often unwilling to bring forward economic crime cases that involve complex legal issues and extensive paper trails; following such trails becomes much more difficult because of the time that often elapses between criminal offending and discovery and subsequent investigation efforts. This is a problem inherent in many types of financial crime. For example, interviews with identity theft victims have found that several years may pass before the crime is discovered. Because the statute of limitations is often based on the date of the criminal occurrence rather than date of discovery, many criminals never face a judge because of the overwhelming task of gathering extensive evidence. The gap between the criminal act and its discovery also allows offenders to effectively cover tracks and destroy information that may otherwise prove invaluable to the investigative efforts.

In addition to a lack of resources as it relates to unraveling the complex underpinnings of an investment or securities fraud, criminal cases are not being brought because state and local law enforcement and prosecutorial agencies lack the technology and training to effectively investigate and prosecute them. In economic crimes, the attribution of responsibility, the development of facts, the tracing of funds, the establishment of the criminal fraud elements and the presentation of evidence are much more difficult to achieve than conventional crimes."
willywilson 12/4/2012 | 10:13:44 PM
re: VCs Slammed in Poll 1. The first point I was trying to make was to find and punish individuals, not institutions. The government isn't doing their job when they take Andersen, as an institution, out, but fail to punish any of the top people. Attacking institutions makes for great press, but punishing individuals fixes the problem. The only people who got punished were the poor working stiffs.

2. The other point I was trying to make was the Las Vegas one. You go there to gamble. You lose your money, it's your fault. A casino rigs the game? Find the guilty person and put them in prison.

3. Most of the people who came to California during the boom were coming to gamble. And I believe most of them were playing in a game that was risky, but fair. They lost their money and now they complain. Too bad! There were times when the game was rigged and we should find who rigged it and punish them.

4. The last thing we need is a corrupted government going after abuses in the Silicon Valley on a witch hunt. They'll break a hell of a lot more than they'll fix. We need to enforce the laws we have now. Stop holding hearings, turn off the cameras and start arresting and prosecuting the guilty, white collar criminals, be they VC's, bankers, entrepreneurs, or government officials. It'll never happen.

============

1. What the government needs to do is create fear, which is what a "deterrent effect" is really about. Punish institutions, people, whatever they can get their hands on. Swing a flaming torch at whatever is there. This will make the next set of would-be criminals think twice before doing it. White-collar crimes are like any other crimes, i.e., they are crimes of opportunity. The costs need to be demonstrated to be ruinous. The destruction of Arthur Andersen will set this kind of example; I agree that the government should also pursue individuals there.

2. Investments are not supposed to be games of chance. Risk, yes, but random occurrences, no. Outcomes determined by fraud, no. The fact that this happens makes it no more acceptable than the fact that other crimes occur. We don't blame the victims of murder, nor do I blame the person who invested his or her 401(k) in a mutual fund only to lose 40% because the rampant fraud in technology and telecommunications.

They are not chumps to be scorned. These investors ARE victims, whether or not you like the term. Those who commit fraud are criminals and should be brought to justice. And no, I am not going to be philosophical or tolerant of allowing thieves to prey on investors.

3. People didn't have to "come to California" to lose their money. We had California executives, venture capitalists and investmebt bankers commit fraud against people all over the U.S. and indeed the world. The fallout from this rampant criminality is going to be incredibly severe.

4. You contradict yourself again by saying we don't need a "corrupted government" to go after abuses in Silicon Valley, while immediately turning around and saying that the guitly should be arrested and prosecuted. So which do you favor, or are you doing the classic two-faced act here? Tell me, which institution do you hail from, the executive suite, Wall Street or politics? If the answer is none of the above, all I can say is you sure missed your calling.
zipple 12/4/2012 | 10:13:42 PM
re: VCs Slammed in Poll The article asks abouts who to blame. But here's another question: What is the effect?

I argue that one effect is that perfectly healthy startup companies that are executing flawlessly will never see the monetary fruits of their labor.

Term sheets in the past few months are now so onerous that companies might as well quit and start over after the freefall is done (2 years?). Investors think that they are making up for lost investment by imposing large dilution, preferences, rachets, etc. But when calculating the return, remember to include the near-complete demotivation of the company. Lack of hard work + the return of 9-5 hours = no competitive advantage. Imagine what it will be like in the next round.

The only termsheets out there are lowballs. So if you are a company and don't have VCs bidding against each other to get the company terms to something reasonable, do yourself a favor and close down now. Otherwise, you are just throwing good time&effort after bad. Inside rounds are just silly today. If you find yourself rationalizing about "small piece of the pie is better than no pie", you're just fooling yourself. That small piece will turn out to be zero later.

Scenarios today are what "cutting losses" is all about. It takes big cahones to take the best long term path.

Z
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