Venture Capital for the Masses?

  • Whatever happened to “makers” and Kickstarter and the Pebble watch?
  • How the feds throttled “the new industrial revolution” — and what’s next
  • Mainstream discovers the threat from leveraged loans
  • Would the last federal budget hawk please turn out the lights?
  • China’s in-your-face gold stacking… more social media ban hammers… the time your editor met Mike Tyson… and more!

The maker movement is dead. Long live the maker movement? Maybe?

Last weekend, Maker Media shut down and let go its staff of 22. Make magazine and the Maker Faire festivals are no more. Founder and CEO Dale Dougherty might try to revive operations as a nonprofit — but no guarantees. “It works for people but it doesn’t necessarily work as a business,” he tells TechCrunch.

The maker movement’s promise was that anyone with a good idea and an internet connection could become a manufacturer.

The phenomenon caught our attention in 2013 with the advent of affordable 3D printers. “The technology to create and design new products is available to anyone today,” wrote author Chris Anderson — who put his money where his mouth was.

In 2012, he gave up a comfortable gig as editor-in-chief of Wired magazine to work full time on a company he’d founded a few years earlier on his dining room table — 3D Robotics, a maker of drone aircraft. Within months he was employing 70 people in San Diego and Tijuana.

“His story can be anyone’s story now,” we wrote after interviewing him: “Using 3D printers, laser cutters and computer numerical control (CNC) machines, you need only a little imagination and an internet connection to become an entrepreneur. If your awesome new idea is too complex for a crude 3D home printer, you can outsource the job to someone across town or across the globe who has the right tools. And you can get ready access to capital through ‘crowdfunding’ websites like Kickstarter.”

Anderson became an apostle of the maker movement with a book called, appropriately enough, Makers.

Perhaps the iconic success story of the maker movement — and its iconic cautionary tale — was Oculus.

Oculus was the name of a plucky startup that in 2012 made a pitch on Kickstarter for a virtual-reality gaming headset. Some people stumped up $25 and got a thank-you T-shirt. Thousands of others forked over $300 to receive an early “developer kit” with a prototype headset and access to software development tools to build games. The effort raised $2.4 million in seed money.

The Oculus Rift proved a smash hit. In March 2014, Oculus agreed to be taken over by Facebook for $2 billion — 833 times the initial money raised.

Oculus Headset

The Oculus headset: A crowdfunding success, but not for the people who funded it

And none of those early “investors” — 9,522 of them — would see a dime. We imagine more than one said, “I invested in an awesome startup and all I got was this lousy T-shirt.”

The JOBS Act of 2012 was supposed to fix that sort of injustice… but by and large, it failed.

The promise of the law — the acronym stood for “Jumpstart Our Business Startups” — was that you could “be your own venture capitalist,” as our executive publisher Addison Wiggin put it in 2013.

You could invest in a new coffee shop around the block. Or you could invest in that neighbor kid’s garage startup — the kid you always suspected might be the next Bill Gates or Steve Jobs. No longer would such opportunities be limited to “accredited investors” with a net worth of at least $1 million or a family income of at least $300,000.

Unfortunately, it took the SEC 3½ years to draw up the regulations implementing the law — 685 pagesworth. Onerous? You bet. By the SEC’s own estimate, a startup looking to raise between $500,000 and $1 million would have to fork over as much as $94,000 upfront for lawyers and accountants… and up to $13,000 each year after.

In late 2016 we said, “It’s enough to make your neighbor kid give up his entrepreneurial dreams and go back to chasing girls and playing video games.”

At least the Oculus Rift is a product still on the market — which is more than you can say for the Pebble smartwatch.

The Pebble project set a record on Kickstarter at the time of its fundraising campaign in 2012. In the early race to bring a smartwatch to market, Pebble delivered a superior product at lower cost than a legacy electronics player — Sony.

Anderson was an early backer and sang the Pebble’s praises in Makers: “It’s not hard to see in Pebble a superior model: a small team using crowdfunding to move more quickly in all ways — R&D, finance and marketing — than a lumbering electronics giant.”

But other lumbering electronics giants managed to adjust to market conditions as they introduced their own smartwatches — Apple, Samsung, Fitbit, Garmin.

Pebble retained a cult following, but it wasn’t enough to keep the doors open. The company shut down at the end of 2016, its intellectual property sold off to Fitbit.

As for Anderson, we’ve lost touch with him, but 3D Robotics is still in business — rebranded as 3DR.

Looking at his company’s website and its Wikipedia page, we get the impression the do-it-yourself drone project he envisioned on his dining room table in 2006 has morphed into a company specializing in software for drone operation.

That’s a rather different animal than the vision he set out in Makers. It sounds like typical corporate Silicon Valley-Bay Area stuff. Fittingly, it appears at some point he moved the company’s headquarters from San Diego… to Berkeley.

But all’s not lost if the idea of “being your own venture capitalist” sounds appealing. Under those aforementioned SEC rules, you can invest up to $2,000 or 5% of your annual income or net worth — whichever is greater — into a company that’s not yet gone public.

The rules have also given rise to a class of middlemen who link up interested investors (maybe you?) with entrepreneurs who need seed money. The middlemen take care of the SEC’s vast paperwork requirements so the entrepreneurs can focus on what they do best. That means product comes to market quicker and the return on investment also speeds up.

Our team is working on a way to make the process even smoother and easier. Watch this space and we’ll tell you more later in 2019…

To the markets, where stocks are drifting lower for a second day — not surprising given the force of the rally last week.

At last check, the major U.S. stock indexes were down between a third and a half percent. The Dow has slipped back below 26,000.

But Treasuries and gold have regained their recent mojo — the 10-year T-note yielding 2.12% and the bid on gold back to $1,335.

Crude, however, has been crushed again after the Energy Department’s weekly inventory numbers. U.S. crude stockpiles are now 12.3% higher than they were a year ago. With that, a barrel of West Texas Intermediate is down more than 2.5% at $51.84.

The big economic number of the day is the consumer price index — up 0.1% in May, as expected. The official year-over-year inflation rate works out to 1.8%. As always, we caution any resemblance to your own cost of living is purely coincidental.

But it’s the overall trend that matters most and in that regard inflation is decelerating; a year ago at this time the official inflation rate was running 2.7%.

The real-world inflation rate from Shadow Government Statistics is 9.5%, compared with 10.6% a year ago.

For the record: China is getting more in-your-face about its gold accumulation.

From the autumn of 2016 through late 2018, the People’s Bank of China officially added nothing to its gold reserve. Nobody believed it, but it was the official story.

Last December, the PBOC started reporting steady monthly increases. The most recent disclosure, for the month of May, was the biggest monthly increase in more than three years.

It’s another step on the road to “de-dollarization” — or in the more measured language of an analyst talking to Bloomberg, it’s Beijing’s “determined diversification” out of dollar assets.

The worry over “leveraged loans” is reaching mainstream awareness.

We first warned you about these debt instruments late last year — loans issued by banks to companies that already have a heavy debt load or a lousy credit rating. That’s bad enough, but this is worse: After the banks issue these loans, the loans are sold off to investors like pension funds and university endowments.

Bloomberg is sounding the alarm now: “Precisely because roughly 85% of leveraged loans are held by nonbanks, regulators are largely in the dark when it comes to pinpointing where the risks lie and how they’ll ripple through the financial system when the economy turns. More and more, critics are questioning whether regulators like the Fed have a handle on the problem or the right tools to contain the fallout.”

Here’s a hint: They don’t. We’ll stay on top of the story for you…

One by one, the old-time budget hawks are flying to the Great Beyond.

Last month, Alice Rivlin died at age 88. As Bill Clinton’s budget director she helped put Uncle Sam back on the road to fiscal responsibility, however briefly. (She was interviewed for Agora Financial’s 2008 documentary I.O.U.S.A.)

Now it’s Martin Feldstein, who died yesterday at 79. He was chairman of Reagan’s Council of Economic Advisers. Of course, the national debt grew like Topsy on Reagan’s watch, but Feldstein tried his best to stanch the flood of federal spending during his two years on the job.

He wrote regularly for The Wall Street Journal’s Op-Ed page. His final column from March was true to form: “The most dangerous domestic problem facing America’s federal government is the rapid growth of its budget deficit and national debt…

“To avoid economic distress, the government either has to impose higher taxes or reduce future spending. Since raising taxes weakens incentives and further slows economic growth — worsening the debt-to-GDP ratio — the better approach is to slow government spending growth.”

A touching sentiment in a century when the “deficits don’t matter” mindset has taken over both major political parties. Feldstein was literally one of a dying breed…

“Have to say, this article was a clincher!” a reader enthuses after our examination of Big Social Media’s arbitrary content standards Monday.

“Been enjoying your freewheeling style half a year now, but loved how you wove this one together! News from the noise, indeed! Now a total fan.

“Keep those 5s ticking!”

The 5: Thanks.

Every day seems to bring a new outrage. The conservative Daily Caller website has obtained a Google blacklist that reveals how search results are manipulated to suppress alternative media.

The “fringe domains list” runs all over the ideological map. There’s the right-wing Breitbart. There’s the venerable Consortium News, a left-leaning and often groundbreaking site that’s been around since the web’s earliest days. And there’s the libertarian Free Thought Project, which exhaustively chronicles the abuses of law enforcement.

As we said when Alex Jones was “de-platformed” last summer, any opinion outside the slender 40-yard lines defined by Hillary Clinton on the left and Jeb Bush on the right is at risk of the ban hammer…

Since Emily brought it up yesterday in her item about Mike Tyson’s cannabis ventures… it’s true. I met a young Mike Tyson. Shook hands with him and everything.

And for a long time I was a little embarrassed to tell the story.

It was the summer of 1986 and I was doing a newsroom internship at the NBC affiliate in Wilkes-Barre, Pennsylvania. Tyson was already a national sensation and months later would become the youngest-ever heavyweight champion at the age of 20 years and 4 months.

He was training that summer somewhere in the Poconos. I was sent with a videographer to ask questions for both the sports team and the news team. The sports questions and Tyson’s answers were routine and forgettable.

The news question I couldn’t bring myself to ask.

A few days earlier, a college basketball phenom named Len Bias died of a cocaine overdose — barely 48 hours after he’d been drafted by the Boston Celtics. It was huge news, well beyond the realm of sports, and the assignment desk wanted me to ask Tyson what he had done in his life to avoid trouble with drugs and alcohol.

There are times when the old saying about how “there’s no such thing as a dumb question” absolutely applies in the news business.

In her memoir And So It Goes, the TV journalist Linda Ellerbee describes a White House press conference held by first lady Betty Ford. “What needed to be asked was asked and answered. No news was made. Everyone there was ready for the thing to end. But there was one reporter who kept asking useless questions, the final useless question being, ‘Mrs. Ford, have your children used marijuana?’”

Now remember, this was the mid-1970s. “Jeez, what a dumb, dumb question,” Ellerbee recalled. “You could hear the murmurs all over the room. Everybody exchanged looks. They were right. It would have been a dumb question — if the president’s wife had not answered, ‘Yes.’”

Alas, I didn’t read Ellerbee’s book until several weeks after I was assigned in 1986 to ask a young Mike Tyson about how he stayed clean and sober.

So I didn’t have the Betty Ford anecdote to steel my resolve. And I couldn’t bring myself to ask. If it didn’t strike me as a dumb question, it struck me as somehow unseemly.

And given everything that’s happened in Tyson’s life since then… well, my hesitation was well founded, right? It’s as though I intuited something about his future.

But hell yes, I should have asked the question. Who knows, the answer might have turned up in Tyson documentaries and TV specials for decades to come. It could have been an icebreaker for every job interview I had in the news biz. “You’re the guy who asked Tyson about Len Bias? Wow — that’s epic.”

Woulda, coulda, shoulda…

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Well, we knew it would stoke controversy and now I’ve just gotten word: We’re closing the doors to Jim Rickards’ newest project tonight.

It’s been online for barely a week. It prompted some people to ask whether Jim has lost his mind. You can watch here and decide for yourself… but only if you do so before midnight tonight.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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