I wanted to take some time today to run through my Airbnb model and lay out my thesis.

This is already an extremely important company to the surging collaborative consumption ecosystem. It’s a company that will in many ways transform how we look at access to “space”, whether we own it, rent it, or just want to use it for a short amount of time. From a macro economic point of view, the most important aspect of Airbnb is that it helps to increase the rate of capacity utilization of hugely valuable and expensive assets, your homes.

Way back in March of 2011 I wrote a post here titled “NYC Rent Arbitrage” in which I first introduced Airbnb to readers of this blog. I also laid out a rent arbitrage scheme which I actually ended up executing on, to a small extent, after moving apartments and retaining my old one. I made $500 a month off my old apartment and basically had to do nothing, it was glorious. I recently gave up the apartment when the lease ran out.

But it was obvious at the time that Airbnb was going to be a massive company. Quoting myself here from the post:

“I will say right now, this company is going to be huge, I mean monstrous.  If you want to talk about disruptive technologies that impact real world things, this is ground zero.”

I don’t get em all right, but I nailed this one. Too bad they never opened up an investment round to schmucks like me.

So now it’s more than two years later and Airbnb has become a monster company. It’s now time to start thinking about how they are impacting their competitors which trade publicly, as well as what this company looks like when it comes public, eventually. There’s no way it’s getting bought out now, it’s too big, and they are on a war path to change the hospitality industry, for the better.

So let’s start with what we do know about the fundamentals of Airbnb. About a year ago the company release the infographic below which outlines how many nights Airbnb users have booked on the site cumulatively, as well as the yearly rate at which they booked them .

More important than the hockeystick growth curve of nights booked to our purposes here, is the accounting for the total number of nights booked per year from 2008 through 2012. 2012 is obviously a projection by them here, or a run rate so to speak, since they were only half way through at the time. I expect that number was probably even higher than they projected at the time given their growth curve was parabolic.

We also know that Airbnb makes about 11.25% of the listing price on each night booked. That comes from fees charged to both the renter and the guest. We’re not quite certain, but projections of the average cost of a night booked on Airbnb is around $100.

So the math here is pretty easy. Since Airbnb doesn’t generate any other substantial revenue, we can say that # of nights booked times average cost per night times 11.25% equals gross revs.

I’ve done the math here on the table below. This table also has my assumptions for nights booked and revenue growth in 2013 – 2015.

On Estimize I’ve posted my quarterly revenue projections below against the Estimize consensus compiled by the rest of the community. You can enter yours by clicking through on the charts.

So let’s say I’m right about Airbnb’s growth. Let’s say that in 2014 they do $1.35B in revenue. What’s the company worth in an IPO?

Well, we have a pretty good comp from a public company that operates in a very similar manner, though it’s growing at a far slower rate. HomeAway (AWAY) is growing revenues at about 25% YOY, and is getting shelacked by Airbnb. What I want to point out is the price to sales multiple that HomeAway is trading at.

HomeAway trades at about 9X TTM revenus. Let’s say that at the end of 2014 Airbnb comes public at 9X revenues, that would put the market cap at about $12.2B. And in my opinion this is a conservative estimate regarding the multiple that Airbnb will trade at given its projected growth rate. There are many other avenues that they can monetize from. At 9X revenues I’m a buyer of an IPO.

Understanding what the expectations are for Airbnb is extremely important if you are trading HomeAway or any of the other lodging names like Marriott (MAR), Starwood (HOT), or Hyatt (H).

It’s going to be interesting to see the estimates for these private companies up on Estimize pre IPO and what it does to their valuations.

I’m bullish on Airbnb.

]]> http://www.leighdrogen.com/airbnb-set-to-crush-home-away-eat-marriotts-lunch-and-come-public-at-10b-valuation/feed/ 0 http://www.leighdrogen.com/why-i-joined-wordsentry-as-an-advisor/ http://www.leighdrogen.com/why-i-joined-wordsentry-as-an-advisor/#comments Tue, 11 Jun 2013 21:37:28 +0000 Leigh Drogen http://www.leighdrogen.com/?p=4395 You may remember a few months back I tweeted about a company called WordSentry. That was about 3 minutes after I found out what they even did.

Now, I’ve never made an angel investment in a startup, I’m certainly not a VC, and I’ve never taken a real advisory role.

But….

It’s pretty dead on obvious when you come across a company, idea, and team that you believe in. If you need to be seriously sold on any of those three, the investment or the advisory relationship probably isn’t for you. Good investors/advisors pattern match naturally, just like traders. You know a good trade when you see it.

I won’t go through the background on how I came to join WordSentry as an advisor, I’ll just skip to why.

Digital communications is basically a free for all. Every single company has employees that communicate with each other electronically, and most have employees that communicate with clients, or socially. And when those employees communicate, the company runs a huge risk of them saying some really bad things that could get them into trouble later, things that should not be said.

Remember the two Goldman Sachs traders that exchanged an email in which one of them uttered the famed words “shitty deal”, yea thought so.

Why do you think the banks won’t let their financial advisors tweet? It’s because it only takes one of them to say something profoundly stupid for the whole firm to lose face.

How about sexual harassment via email at work, how much trouble does that cause? Or just general misuse of company time for personal communication?

Right now, large companies spend stupid amounts of time manually reviewing electronic communications from its employees to try and catch? them doing things they shouldn’t be doing. This is just a ridiculous way of operating.

WordSentry is basically an API that hooks into all different types of digital communications platforms, from email clients to twitter clients, and acts as a compliance tool. In short, this company is going to transform digital communications compliance. Here’s the description below from their site:

WordSentry is software that helps authors of digital communications compose clear messages. As the message is written, WordSentry dynamically monitors the composition, highlighting problem areas and suggesting corrections for the author’s consideration in real-time. WordSentry Text analysis algorithms measure ambiguity by comparing patterns and regularities in natural language to features the software dynamically extracts from web-scale text databases. WordSentry detects the use of words and expressions that are algorithmically determined to violate industry-specific standards or cultural norms. WordSentry uses advanced computer algorithms to detect emotions in natural language that, combined with the syntactical and lexical features of the text, provide a comprehensive assessment of its tone, e.g. anger, frustration, elation, and over-confidence.

I don’t think I have to go any further on why the technology is going to change everything, that about says it in a nutshell.

So where do I come in? I’m not a machine learning expert, and frankly I know very little about communications compliance, nor have I ever really cared In fact, Estimize is completely at odds with the compliance departments of many of the hedge funds and asset management firm analysts who contribute to the platform.

I joined WordSentry as an advisor because I believe financial institutions can hugely benefit from this technology, and I add that knowledge and those connections to build that business. I can see one day where every IM sent through a Bloomberg terminal has to go through their algorithms first. Every email sent from one Goldman Sachs trader to another must clear their system. Every tweet sent by a Merill Lynch advisor must be approved before hand by their algos, not after the fact by some compliance officer. I think there’s a moster opportunity for them to change the way some of these organizations communicate, and hopefully I can help them get there.

They have a great team at WordSentry with a serial entrepreneur founder, and some crazy smart Phds who have shown the ability to execute. Watch this company as it grows, you’ll probably have to comply with its algorithms pretty soon, and you’ll be thankful for it.

But before I get into the meat of this, let’s step back for a moment. Over the past decade a huge shift has taken place in our markets. High growth companies, most in the technology sector, are delaying floating their shares on public exchanges until much further in their growth cycle.

This is the result of many different factors. Like never before young technology companies are generating massive amounts of revenue and huge user bases well before they have really figured out a steady profitable business model. This has lead to certain companies coming public and seeing their earnings and revenue multiples slashed significantly (ZNGA, GRPN, FB). Because the public markets demand that companies have it a bit more figured out than the private markets, these companies are choosing to stay private longer. Private funding markets have also become extremely robust. Companies no longer need to come public in order to access funding needed for growth, they can raise $100M late stage venture rounds. These companies are only coming public in order to provide liquidity for early investors and satisfy SEC rules around the number of stockholders of a private company. And more generally, young high growth companies do not want the hassle and scrutiny of being a public company.

This has all lead to some very adverse effects. For starters, the mass majority of the investing public no longer has access to investing in the majority of companies contributing growth to the market. Companies used to come public around a $300M market cap, now we are lucky to see one under $5B. That’s a lot of returns captured by private investors, and none by the general index investing public. Second, we have very little transparency as to the metrics for these very important high growth companies. There is very little regulatory scrutiny. And like never before, high growth private companies are having a tremendous impact on the valuations of public companies. In some cases, the private companies are bigger than the public ones as is the case with HomeAway (AWAY) and its private counterpart Airbnb.

This is the reality of the situation, and on the margin it is bad for the vast majority of people. Some of this can be changed via regulatory action, and the JOBS Act does some good there. But some of it can not.

We’re launching Private Companies on Estimize today because we feel there is a need for a data set of future expectations for the fundamental metrics of these important private companies. We believe that more transparency is better, and maybe, just maybe, it forces these companies to open up more. Companies do not like estimate data sets like ours to diverge too greatly from their true financials for several reasons. If the estimates are too low, the company may not be getting the valuation it deserves. If the expectations are too high, when they do report their numbers, well, you know what happens.

By allowing our community of extremely insightful analysts to publish their expectations for the future growth, or decline, of these companies the market will have at least some semblance of a consensus to manage risk around. And it is my belief that these companies will be more open with their numbers. There are a ton of senior management and investor relations professionals who view the expectations for their companies on Estimize because they know it better represents the true expectation of the market, not the sell side consensus which is basically a mirror of their own guidance numbers.

Now to the meat.

We’re starting with the 7 companies listed below. More will be added over time as they are requested.

Twitter, Inc. (TWIT)

Hulu, Inc. (HULU)

Square, Inc. (SQAR)

Airbnb, Inc. (AIRB)

Pinterest, Inc. (PINT)

Palantir Technologies, Inc. (PALN)

Etsy, Inc. (ETSY)

You will notice that we have filled in some historical data for each of these companies. This data comes from the sources that we’ve been able to cobble together. This data is obviously an estimate of the company’s Revenue, it has not been reported yet. In some cases these numbers come directly from company management blog posts or media appearances. They are there as a guide and not a true representation of the company metrics. We obviously invite these companies to correct us if we are wrong

You will also notice we have not filled in any EPS historicals, just revenue numbers.

When these companies eventually do go public and file their S-1, we will backfill the actual metrics and score analysts on their estimates.

As you can guess, this is just the first step in our move into private company metrics at Estimize. As with public companies down the road, this will be expanded into other key metrics such as active users, units sold, or gross margins.

This is definitely an experiment for us, let’s see where it goes…..

I had breakfast with a friend last week who is a senior sell side tech analyst. We talked a lot about how large tech companies need to be picking off young startups before they are either too expensive and have begun to monetize or they become a serious threat to their incumbents or the whole ecosystem for that matter. But he gets to see how these things really go down in the board room, and it’s not pretty and straight forward. Spending a billion dollars on a company making next to no revenue because you believe it’s a major threat or a major opportunity is not an easy sell to your board as a CEO. After the disaster that was the aftermath of the Facebook IPO for those shareholders, it’s amazing that Zuckerberg was able to push through the Instagram acquisition in the freefall. I guess Waze was the bridge too far.

Where would Facebook be today without having bought Instagram, which is basically all of Facbeook’s growth at this point given that my whole Facebook feed is pictures. Their own picture app failed miserably.

Like never before, mature tech companies, and frankly even non mature tech companies with large valuations, need to be buying young startups, because they are serious threats.

Apple took their own shot at maps, and we all know how that turned out. Apple now has a serious inferiority complex when it comes to building software, save for their great OS.

Google is wiping the floor with everyone when it comes to building and integrating new software acquisitions. They have run the table as Fred Wilson says on everyone else. I basically live on Google software, all day, every day. I live on Apple hardware. That’s not the way Jobs pictured it, is it.

Google has long recognized the importance of maps. Just for a second, sit back and realize how important Google Maps is to the world, and the fact that it is free, completely 100% free. I can’t even get around my own city without Google Maps let alone the back roads of Barbados last winter.

On the media had a great podcast about how important Google Maps has become to politics. Maps used to be controlled by the State, and that role played heavily into drawing borders and resolving international disputes. Now the State basically has to go to Google and lobby them for a change. Fuck the UN, Google is now the arbiter of who owns what land. Listen to the podcast below.

But the most important part of that podcast is where they talk about the fact that Google has a community layer.

Google has a history of using what we call “lean” principals to build things. They build a lot of things, they take a lot of chances, and when things fail, they just shut em down. This happens all the time. A lot of the hugely important features and products that Google owns started as experiments. Google Plus certainly was. Up until now Google’s community layer on top of their maps, as well as their social tracking layer, have been experiments.

The acquisition of Waze is a loud proclamation that this is a serious endeavor for them. It also signals their desire to keep this whole realm out of the hands of Facebook, Apple, Amazon, or whoever else might want to give it a go.

It signals that Google believes people are willing to volunteer their real time location and other associated meta data to a social network in order to create a smart layer of data accessible by everyone. FourSquare is child’s play compared to what Google is about to do. FourSquare is dead.

Privacy as well, is dead. In order to build these collaborative location based systems, people will provide a deep level of access to their personal information. And our government is beginning to think that it is a corporation which can behave like Google, something which is extremely dangerous. Just because I’m willing to give my information over to a system Google runs does not mean that I’m willing to give it over to my government. Unfortunately it seems these two things have become one and the same. The 4th amendment is dead.

Waze represents an extremely important idea, that people are willing to selflessly give their information, or opinions, to an open system, without any direct compensation in return. This is the ethos of Wikipedia, of Quora, of StackOverflow, of Hacker News. There is no quid pro quo in this world, and there are a lot of free riders. There is no zero sum game either.

The very first question anyone asks me about Estimize is, what incentive do analysts have to contribute, isn’t their data important? Yes, it is important, but they contribute because it builds a better data set for them and everyone else. The fact that at least 80% of people in any system will free ride does not mitigate the value that you receive. The financial world is still coming to grips with this new philosophy of social data and collaboration. When people find value in a system, a portion of them will give back to that system. Waze is a perfect example of this, and these systems are EXTREMELY powerful. Collective intelligence using the crowd is an innovation not many respect the power of right now.

And remember, you can’t do mobile real time commerce without maps. The map underpins it all.

Remember when Google bought a nacent and cash hemorrhaging YouTube for $1.6B? That looks like the deal of the century right now.

This acquisition by Google and what it signals should not be taken lightly. Don’t sleep on this.

The 4th Amendment to the Constitution of the United States of America is clear on this issue. It was enacted for a very specific purpose. While we do elect our representatives in this country, we need protection from them too. Throughout history our elected representatives at all levels have failed us. This is natural as those who rise to power will do just about anything to keep it, and often lose their moral compas. Our founders knew this well and specifically put in place checks to try and mitigate their ability to do damage.

Unfortunately the 4th Amendment has been completely gutted, to the point where it no longer exists in practice. The NSA and who knows how many other agencies are sucking up massive amounts of data and piecing together patters of activity connected to a UID (unique identifier number) for each individual. No, the algorithms may not know your name, but they know exactly where you live, where you work, who you call, and what you say online. Does it matter that your specific name doesn’t show up? No. Because in 10 seconds someone can access that, easily, if they wanted to.

Our President says that our Congress has been briefed the whole way along these programs. That they have voted for them over and over again, in secret. He says that we can not have 100% safety and 100% privacy.

I am generally a fan of Obama’s legislative policies, though I am not a fan of his leadership style. For me, this all crosses the line. It crosses the line because it is a blatant smack in the face to the rule of law, with the excuse that it is taking place under the auspices of democracy.

What many of our politicians have in the past 20 years failed to remember is that it is not “democracy” that makes our system work, it is “the rule of law”. The Iranians have democracy, technically, the Turks have democracy, technically, Egypt is now a democracy, hell the Afghanis have democracy. But none have the rule of law that we do, or are supposed to have. A democratic republic gives the ability to elect representatives on regular schedule, it does not necessarily ensure the rule of law. This country is what it is because we have an amazing set of laws that our elected representatives are not supposed to touch, no matter what.

Obama and the whole Congress have ripped that rule of law to shreds, making us no different from those other countries I just listed. We are starting to investigate journalists who are just relaying information, cracking down on our free press.

Of course the NSA’s spying programs work, and have most likely stopped several attacks. Supporters of these programs will note the lives they have saved and ask the question, “how many lives is our privacy worth?” Obama himself today said that we can not expect 100% safety if we are not willing to give up some privacy. And this is the primary issue, our elected representatives have decided to make this decision for us, one that is in direct opposition to our constitution, our rule of law. If we want to have a national discussion over whether to remove the 4th amendment, then let’s have that conversation. I’m not sure where I fall out on that issue, but let’s have it out, instead of having our representatives gut the constitution via secret legislation that we can’t see.

While I am under no delusion that we can reverse the course of history and reinstall any kind of privacy, we can make sure that it is the rule of law that is paramount to everything else. We can not rely on the fact that we elected these officials to watch over people who break the law, and at the same time keep these programs secret from us so that we can not vote out the officials who allowed this to happen. This is the paradox of shoving the rule of law aside and saying that we are being protected by democracy.

We are nothing without our laws, democracy on the other hand is not a protection against abuse of power, especially when that abuse is intentionally obfuscated.

So when Estimize was featured in Barron’s this weekend, it was kind of a trip for me.

A few weeks back Mike Hogan from Barron’s gave me a ring, basically unannounced, and wanted to chat about what we were building. It ended up being one of if not the most thoughtful and far reaching conversations I’ve had about Estimize with anyone outside of my team and investors. I’ve met some good journalists who understood deeply what we are doing, and some pretty bad journalists who have botched stories about us pretty good. It’s not a surprise that Mike was amongst the most knowledgeable and open minded of them.

I’m sure in the coming weeks and months he’ll be able to print more of our pretty long winded philosophical conversation around the state of the industry and how Estimize fits into and is shaping its future. But for now I want to say thanks to Mike for the great piece.

I also want to say thank you to our amazing community of over 2,800 contributing analysts. You’ve built a pretty amazing data set. Bloomberg doesn’t look to put crappy stuff in front of their users, and since I didn’t have any dirt on anyone over there to force their hands otherwise, our deal with them is a pretty big thumbs up for the platform you’ve helped to build.

We’re working on some awesome stuff that will be ready for next quarter (no pressure devs). I can’t wait to show everyone.

Onward.

And like normal, the financial media and associate peanut gallery have used a far less than nuanced approach to their trolling. No, let me put that differently, they’ve once again made themselves look like idiot dogs chasing after cars in the street.

Yes, many hedge funds are not worth investing in.

Yes, only 5% of hedge funds lead the S&P 500 this year.

Yes, the 2 & 20 fee structure is wrong for most people.

But let’s just start out with the fact that the point of a hedge fund is not to beat some arbitrary index of stocks called the S&P 500. If you are investing in a hedge fund with this goal in mind, a relative return, you deserve to have your investment stash pillaged by high fees and corrupt managers. So let’s just put to rest right now that measuring a hedge fund or group of hedge funds against the S&P 500 is in any way a rational determination of the value of investing in said hedge fund.

Second, why the hell are you lumping all hedge fund strategies into one bucket and saying that they are underperforming said irrelevant index? It’s like saying that a heart surgeon and a brain surgeon both did a horrible job at removing the bunion on your foot. Different strategies are meant to achieve different things, and whoever put together the HFRI index didn’t do it because it offered any real value to anyone, it was a marketing ploy. Now, if you want to lump all the stat arb guys together, all the merger arb guys together, all the long/short equity guys together…awesome, that’s helpful as a benchmark. So please, stop quoting at insanely stupid index.

Third, most hedge funds suck, just like most mutual funds suck, just like most individual investors suck. Referencing any statistic that is an aggregate of each of these three groups is gonna blow. That’s because on average, everyone sucks. Why? Because money management, unlike any other discipline on earth, seems to be the one place where people think that anyone can just do it. You wouldn’t walk into an operating room and perform brain surgery would you? But of course anyone can trade can’t they, and they do, every day, as if it’s just that easy.

Investing at any level is fucking hard, and unlike performing brain surgery anyone can and does try. That means hedge funds too, most of them suck because most of them shouldn’t exist.

And as for the fees, please. The point of the fees is that a good hedge fund manager is supposed to generate absolute return of a certain level, with high water marks. A good manager who actually manages risk and performs his job well deserves every penny he gets in those performance fees and you are lucky to have him take your money. Good managers who were managing risk didn’t fuck it up in 2008, and they saved you a ton of money. My former boss, David Geller, may he rest in peace, was one of them. I know many others who got out of the way because they followed their plan, which was to manage risk, which is what a hedge fund is supposed to do.

Now, the normal retort to my line of thinking is that it’s hard to find the good managers, and you’ll end up chasing performance as an indicator of future performance as investors normally do, and it’s hard to get into the good funds. All good points, but certainly not an excuse to label hedge funds across the board bad investments if they suit your financial goals and situation.

If you do your homework, get to know the managers, understand their strategies, where they are in the life cycle of their career and the growth of their fund, they can be excellent investments. If you are a moron and don’t do your homework, you’re going to end up wasting your money on one of the 80-90% of funds that are not worth investing in.

ChartIQ is a stock charting company run by my friend Dan Schleifer which is focused on visualizing new sets of data (like ours) in the context of a price chart. With this new approach, fundamental investors have a whole new set of visualization tools at their disposal, and technical traders have access to a rich new set of data on their charts. Their software works on the web, iPads, iPhones, Android tablets, etc. As a trader who relies heavily on charts to visualize supply and demand along with derivative measures there of, as well as other data, I’m not being hyperbolic when I say that ChartIQ is the best pure charting technology that I’ve used.

The partnership brings together Estimize data and the innovative charting technology of ChartIQ. Understanding how price has historically reacted to changes in the fundamental metrics of a company is extremely important to many investment and trading strategies. The ability to project the implied price of a stock based on its estimated fundamental metrics from the Estimize community is an amazing resource.

You can sign up for a free trial of ChartIQ Price Horizon by clicking the link below.

https://www.chartiq.com/estimize/

The most revolutionary aspect of this partnership is the Price Horizon calculation. This feature projects the expect price of a given stock at the time of the next several earnings releases by multiplying the current 12 month EPS and Revenue Estimize Consensus numbers by the P/E or P/S on day after the last reported earnings. You can also see how the consensus estimates from Estimize and Wall Street differ, and project different prices.

And obviously a company’s P/E and P/S ratios are not static throughout a quarter. The really interesting aspect of this product is the ability to visualize the implied price right on the chart, and then augment your own price target based on whether you believe those ratios will rise or fall over the following quarters.

We think the ChartIQ platform is an amazing way to consume and manipulate Estimize data. We’re lucky to have an awesome partner in ChartIQ, and we expect to be doing other great things with them in the future.

Head over to ChartIQ and get your hands on this awesome new tool now.

https://www.chartiq.com/estimize/

I meet a lot of people my age these days. I’m a 27 year old single guy living in NYC, there is no lack of access to that world. And I’m beginning to piece together someone about a lot of the people I meet, young, old, and inbetween.

Most people don’t have a passion.

Most people are basically just doing what they are told, or what they think they are supposed to do. And no, this is not one of those “they don’t have the ability to follow their passion because of their economic situation” issues. I’m really inquisitive with people, I like to understand what makes them tick. More often than not they really don’t have a passion.

This in no way makes them a bad or lesser person. Not at all. But I think there is this huge myth that people should just follow their passion and they will end up in a good place. My whole generation was told this, that we could do anything we wanted and to just go with what we were passionate about.

My ex-girlfriend who is an amazing brilliant girl certainly didn’t have one. She works a job that is a job, one that is extremely interesting to me, but which she has no love for in any way. She has no calling to really do or change anything big. Her hobbies are scattershot and varied but with no focus, no passion, no drive.

I meet a lot of people like her, in that respect.

I like to wonder when and how people develop a passion for something. I look at my friends who are passionate about the environment or politics or community service and it all basically stems from something their parents indoctrinated them with as children. Not many of their ideals are really their own, there wasn’t much individual thought put into it, it was basically given to them.

Other people are passionate about what they are good at. People like to feel valued, so it makes sense that they would be passionate about something where they stood out. I see a lot of that.

Some people find their passion at college, which to some degree is the point of a liberal arts education. Let’s just put aside all of the other issues around the function of a liberal arts education these days.

But really, most people I meet aren’t that passionate about anything. They were never really given the ability to go figure out for themselves what their connection to this universe was and what they really believe in. A lot of people really have no clue what they are actually good at either.

I think my sample set is pretty decent, and in light of what I’m experiencing I just don’t believe it’s smart to be telling kids that they should just follow their passion. A lot of people are so confused by that. They get out of college and have no clue what to do next. They have no passion to follow, no specific drive in one direction or another. They don’t even have a hobby to optimize their life against.

We should be teaching kids to optimize for either income generation or whatever their hobby is. If they want to travel a lot, then become a teacher. If they want to have a big family and a lot of things, optimize for income. These are things you can plan around, and still have the opportunity to develop a passion against. Telling someone to just follow their passion and they will find their way is ridiculous.

The debate over women leaning into or leaning out of the workforce is being driven by this question of how much they value themselves and their ability to ask for that promotion. I think that’s bunk. I think it’s more a question of whether they are really passionate about their jobs, or would they rather just start a family. Everything being equal the family option sounds pretty good to me. How could you blame them if their job is not their passion or they really don’t have a hobby that takes up a lot of time and resources.

Most people don’t have a passion, and I don’t think you should be listening to all of the commencement speakers over the next few weeks who will tell you to follow yours and you’ll be fine.

Most people don’t have one.

I say “was” in that last sentence because things have changed.

Smart driven kids don’t want to work for the banks anymore. I get several unsolicited resumes a week from guys who want out, badly, and into a technology startup. The luster and a lot of the money is gone.

Regulations are changing. If the SEC ever gets its act together and writes the rules mandated by the JOBS Act it will further accelerate a shift in the regulatory environment that will open the door to a ton of innovation within the financial technology space.

Some incumbents are now dying while others are starting to get their act together which is opening up the field for fintech startups of all kinds. While the payments space has been hot for the past few years, passive and active investing startups are beginning to find traction as well as funding. The brokerages are starved for growth, the buy side is starved for new data and tools to generate alpha, everyone is trying to figure out how to manage risk, and big players like Bloomberg are willing to take more risks.

And along with this buding fintech ecosystem in NYC, there are the hackathons.

Hackathons are an important part of the technology ecosystem. They bring people who are interested in a common vertical together. It’s a check up on who’s in the community, and it’s much more fun than a stupid meetup where  a bunch of panels take place.

But to be really honest, despite some really great people who have put together some of these hackathons, they’ve been….well….a waste, sorry someone had to say it.

Why?

It’s not that the hacks coming out of these events haven’t been quality, because that’s not even the point. And it’s not there aren’t talented motivated interesting people there, because there are.

It’s that the ideas that people are focusing on are basically useless. In the two big hackathons I’ve been to I’ve seen maybe a handful of interesting and useful ideas, let alone well executed interesting useful ideas. It’s a lot of wasted time.

What explains this?

A lot of the developers and designers showing up to these hacks don’t come from fintech backgrounds. Financial technology is about solving problems for people first and foremost. And because of the domain knowledge needed to understand those problems, you don’t find many of these hackers coming to events with that understanding.

One of the other problems is that those developers who do have the domain experience don’t code in web languages. A lot of them come from the banks or hedge funds where most stuff is still done in Java or C++. You can’t build an app in two days using these languages. There aren’t enough developers who know Ruby, Python, or even PHP for that matter who have financial domain knowledge.

So here’s my proposal for whoever organizes the next fintech hackathon. You need to go recruit a whole bunch of business and product people from among the banks and funds who want specific problems solved. Bring people with real ideas and real understanding of what the pain points are. Let them battle it out in front of all the devs for which of their ideas gets executed on, then have the 10-12 winning ideas built.

I have all the respect in the world for developers, but they are mostly problem solvers within the confines of a larger vision being executed on. There are some who come to the table with their own holistic vision, but in fintech especially that’s often not the case. Give them the problem that needs to be solved and have input as they solve it.

I guarantee this setup will result in far more cool stuff being created, far more relationships being built, and everyone having a lot more fun instead of people wasting their weekends building useless crap.

These events are an extremely important part of the startup ecosystem, so let’s innovate on what they look like for our vertical, this isn’t the social-mobile-local hackathon, these are real problems that need to be solved.