From a (second) email which Whitney Tilson just sent to investors.

Catching up on articles I read and archived over the holidays…

Whitney Tilson on Xiaomi

1) This is completely insane (and it’s getting worse – Snapchat just did a round valuing it at $20B!):

Chinese smartphone maker Xiaomi Corp. is now officially the world’s most valuable tech startup, worth $46 billion—the exclamation point on a year of extraordinary valuations.

Valuations placed on tech startups world-wide stretched to record heights in 2014 and accelerated at an exceptional pace, even when compared with the late 1990s dot-com boom.

Xiaomi is just the latest example. On Monday it raised more than $1 billion from investors, giving it the $46 billion overall valuation. Only Facebook Inc. raised capital at a higher value from private investors, at $50 billion in 2011.

This year, venture capitalists, mutual funds and big banks bestowed valuations of $1 billion or more on about 40 startups world-wide, doubling the number of such companies at the start of the year, according to research firm Dow Jones VentureSource.

Adjusted for inflation, the current roster of 70 “billion dollar” startups globally is nearly twice as large as the number during the boom years 1999 and 2000.

A “startup,” in this case, is loosely defined as a young, private company backed by venture capital, with overall valuations derived from the price that pre-IPO investors pay for a fraction of the equity.

Surveying the unprecedented valuations in the private market, “I have trouble drawing a parallel,” said Ted Schlein, a general partner at venture-capital firm Kleiner Perkins Caufield & Byers, adding that his firm is trying to exercise “aggressive restraint” as it looks for new investments.

Whitney Tilson on Athenahealth CEO Jonathan Bush

2) Speaking of completely insane, here’s Fortune with a profile of Athenahealth CEO Jonathan Bush:

Jonathan Bush is having a lot of fun for a guy under attack. As he barrels around his 387-acre Maine resort at night in an all-terrain vehicle, weaving through trees and bumping over curbs, the co-founder and CEO of health care technology company Athenahealth doesn’t appear to be worried at all about a short-selling assault by hedge fund manager David Einhorn, who is very publicly betting against Athena’s highflying stock. Moments earlier, Bush—nephew of President No. 41 and cousin to No. 43—was regaling his guests with tales of the time he nearly had sex at Camp David. Now it’s past midnight, and he should really be getting to bed, because at 7 a.m. he’ll be leading a group on a jog to a serene but bone-chillingly cold pond for a swim. Then the ATV rumbles up to the “afterparty cabin,” where a few dozen venture capitalists, investors, health care startup CEOs, and Athena execs are playing drinking games, and Bush can’t stand to miss out. The night before he had ended up shirtless while playing something called flip cup. And when a Morgan Stanley portfolio manager, Athena’s largest shareholder, joked that he was selling his stock because Bush was buying everyone beer, Bush threw his hands in the air and yelled, “Yayyyy!!!”

Whitney Tilson: Byron Trott, Buffett’s banker

3) Another interesting Fortune profile – this one of Byron Trott, Buffett’s banker:

Byron Trott vividly recalls the day he became Warren Buffett’s investment banker.

It was February 2002, and he’d recently received a call from Hank Paulson, then CEO of Goldman Sachs and Trott’s predecessor as head of the firm’s Chicago office. Tom Murphy Jr., son of the veteran media executive and longtime Buffett pal, was retiring from Goldman. Paulson had just left Buffett’s office in Omaha after informing him that Trott would now be, in banker parlance, “covering” him. “Go see him,” Paulson barked to Trott.

“Not a lot usually shakes me, but I was scared to death when I walked in,” says Trott, who prepared for the meeting by reading all of Berkshire Hathaway’s annual reports. The two hit it off, and the get-to-know-each-other session, scheduled for an hour, ran to three. Before it was over, Trott had a fee-generating assignment from Buffett, who is notoriously stingy about paying investment bankers. “I did what I do with most clients for the first time,” says Trott. “I say, ‘Give me your toughest problem. What have you not been able to accomplish?’?”

As it happened, Buffett had a pet project, a task that other bankers had failed to embrace. He wanted to create a security that paid Berkshire to borrow money, the opposite of how a loan typically works, with the catch being that investors also would get the right to buy Berkshire stock in the future at a lower premium than in a standard convertible debt offering. The concept was called a negative coupon convertible, and Trott cajoled a former Harvard finance professor working on the capital markets desk at Goldman to design it.

The sale of $400 million worth of the security—unglamorously labeled “Negative .75% SQUARZ”—proved a modest success for Goldman, but it didn’t exactly work out for Buffett. “The risk was that it’d convert,” says Trott, sharing the anecdote publicly for the first time. Buffett’s partner, Charlie Munger, hated the idea of diluting Berkshire’s equity by converting the notes into stock. The notes eventually did convert, as Munger had feared, and Goldman never sold them to another client. “I thought it would be entertaining to put out a deal that would have a negative coupon,” reflects Buffett. “In retrospect, it was not that smart.”

Smart or not, the arcane transaction transformed Trott’s career. By immediately rising to the challenge of his famous client, Trott earned Buffett’s trust, so much so that in 2004 Buffett mentioned Trott by name in his headline-making annual letter to shareholders. “He understands Berkshire far better than any investment banker with whom we have talked and—it hurts me to say this—earns his fee,” he wrote.

4) I’m occasionally asked (and more than occasionally ask myself) why I write these emails and articles and speak at conferences. Here’s my friend Chris DeMuth with some good answers (though I can’t recall the last time I got paid for writing anything!):


  • Organize and ship your thoughts, connect, make your catalysts, reach your audience, and get paid.
  • I write if I can say “yes” to the following: Is it true? Useful to readers? Strategic to Rangeley Capital?
  • Be a small part of crowdsourcing as it supplants a reliance on expert authorities.

Whitney Tilson Not Worried About Getting Kidnapped In Kenya

5) The narrative that our government – regardless of which party is in power – can do no right is so pervasive…and so wrong. I got back a week ago from holidays with my family in Kenya (where my parents have retired and where my sister and her son live) – and every time I’m there, I’m reminded of how good our government is. When I flip the light switch, the light comes on, always; when I turn on the faucet, clean, safe water comes out; when I call the police, someone answers/comes (and doesn’t expect a bribe); if I have a business dispute, there’s a legal system I have confidence in to resolve it; and if I ever get kidnapped, I know there’s a decent chance some badass Navy SEALs will risk their lives to try to rescue me. You

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