Stealthmode Partners - Francine Hardaway's Blog

Stowe Boyd says it Best

Stealthmode operates in mysterious ways: we don't get paid for a lot of the stuff we do, we don't take (much) money and/or equity from the companies in our portfolio, and we largely appear to be cruising around enjoying ourselves without appearing to work. Even my best friends don't know what I "do."

I define myself mainly as an angel investor, and from time to time I invest real money in companies. But more often I invest time and talent. In other words, I don't have the money to invest in all the companies I see that I wish would be successful, so I invest in some and counsel some. Ed does something similar. Sometimes we are involved in the same companies, sometimes not.

We have been partners for nine years under this arrangement without being able to articulate it beyond aspiring to be in the middle of the activity in the entrepreneurial community and helping to build an interconnected ecosystem for Arizona startups. Yeah, people say when I tell them that, "but how do you make money?"

Today I saw a post by Stowe Boyd that expresses pretty clearly the model by which we (or, at least, I) operate. It's called How I Roll, and it explains how he chooses companies to be involved with, why he takes (or does not take) equity, and why he doesn't look like he works many hours.

Basically, we are in R&D mode more than half the time we are working during any given month. And that R&D, or expertise, is passed on to the companies we advise. Stowe calls his work advisory capital, as do we.

So great to see someone who knows what we do! It's about time we knew it ourselves:-)

Major Real Estate Developer Talks History

It's lunch in a Scottsdale restaurant. The attendees are mainly retired scions of industry, professionals, and business. I came because the group is having a presentation by one of the largest real estate developers in Arizona, and I've come to hear the story of a "typical" Arizona entrepreneur.

Mark Sklar, one of the three original (and still intact) partners at DMB was originally from Wisconsin and studied history. He has the midwesterners' value system and sense of engagement.

He and his wife moved to Arizona to strike out on their own in 1971. For seven years he was in the travel business before becoming partners with Bennett Dorrance and Drew Brown to form DMB, a company known for its excellence in real estate development and community engagement. As he runs down the list of boards he is on, from arts advocacy to Alzheimer's centers to camps for special needs children, he tells us the company credo: profitability, legacy, partnership and fun.

DMB was formed in 1982 out of some land syndications. Drew Brown was Mark's lawyer, and Bennett was Drew's client. They spent a long time getting to know each other, trying to understand if an enterprise among the three of them would make sense. Mark, Drew and Bennett are entrepreneurs who started off by buying and selling land, using money they raised from syndications.

In 1989, the Resolution Trust Company afforded them an opportunity to buy a bunch of stuff from defunct savings and loans. No one else would invest, because no one knew where the bottom of the market was. Sound familiar? So they bought a lot of property, including the famous blue building on Alma School Road in Mesa, Arizona. Of course they had the means to do it. It's not a strategy for everyone.

About fifteen years ago, the company took a philosophical jump into the planned community business. They view themselves as developers, planners, and zoners and marketers of planning communities: large communities (like Verrado and DC Ranch) with lots of different product, and recreational communities for people who want vacation homes (Forest Highlands).

DMB also has a significant amount of investment in California: in Orange County at Madera Ranch. They also have a property in San Francisco Bay that is currently under water; it was formerly a salt mine owned by Cargill.

DMB prefers to do joint ventures with landowners rather than buy property. They're a project-centric company that pushes authority down into the field into each project's General Manager.

They have done quite a bit of succession planning, including diversifying their capital base outside Bennett Dorrance's personal capabilities. They now have two financial partners from the Bay Area, a board of directors, and a real plan to allow the company to succeed them without a sale or liquidation.

And now...about the market. Mark's guess is that it won't turn around before Q3 of '09 or have righted itself until 2010.

We have an oversupply of single family residential, which will create a longer time to recover this time around. It was fueled by easy money, and the idea that single family residential could be an investment. Two and a half years ago, DMB was so concerned about this that they hired a team to knock on every door in Verrado and see if someone was living in the home. They found that about 25% of the homes were investor-owned.

Arizona has a worse oversupply of single family housing than California, because it has strong employment, a right to work state, and it is easier to bring a product to market here than in California, so that encourages inmigration.

167,000 homes were built in 2004-2006 in Arizona, where there is a need for 35-40k a year based on inmigration. The oversupply will be with us for a while. Here's why:

1)We have had a dislocation in the financial markets that has been unprecedented. Sklar is seeing a lot of institutional lenders do really stupid things; they are handcuffed because they don't know what their portfolios are worth, and they are walking away from sound, underwritten transactions. They just don't know when the regulators will come in.

Bill Gross's newsletter for the past two years has been talking about the shadow economy -- large scale transactions that have been securitized and sold to people who didn't understand the underlying value of the assets. The result of this continues to affect the real estate markets.

2)Huge increase in commodities costs.
3)Recession
4)Interdependence with everything that happens in the national economy.

How does he feel? Negative for the short short term. The economy is one problem for Arizona. Employee sanctions laws are another. The inability of people to sell homes elsewhere slows the state's inmigration. (2006 102,000, 2007, 67,000 people.) DMB has taken their land of the market to discourage more building for right now. They have no wish to contribute to the oversupply. They are also tightening budgets, lengthening timelines, and have laid off twenty people. But DMB is optimistic for the long term. With the business and political leadership we have now, he thinks Arizona has a rosy future.

Donated Screen Printing Equipment Goes to Work

Paul shows one of the screens used to print T-shirts
Originally uploaded by Blackerby Associates

The Tumbleweed program is so phenomenal; I'm not sure they really needed us to make their businesses successful. They are most entrepreneurial not-for-profit I've ever worked with.

Tumbleweed T-shirt printing business takes off

Francine Hardaway displays the finished T-shirt; Cameron looks on
Originally uploaded by Blackerby Associates

We've (my Foundation and my partners) been helping Tumbleweed Youth Development Services launch a" start up" --a Drop In Gallery to sell the art of runaway youth that also houses a t-shirt design and print business. Both businesses have taken off!

This is probably the most rewarding thing I do every day(and everything is rewarding); helping disadvantaged youth learn entrepreneurship skills. It's so empowering for them.

The Arizona Entrepreneurship Conferences raise money for the Opportunity Through Entrepreneurship Foundation to fund the programs. Money raised from entrepreneurs goes to other entrepreneurs. So thanks, all the peeps who help me by speaking and volunteering at the conferences...this is the net-net. Otherwise known as the win-win.

A formerly homeless youth looks on in the background. He's on the business team.

Photo credits go to Phillip Blackerby, who facilitates this program. The entire set of photos is here

Seesmic, Twhirl, and The Gillmor Gang (with Love, Grandma)

The rant that follows is offered with incredible love and respect, though some irony. We were big on irony in the Sixties.

I am a faithful listener to The Gillmor Gang, which I use as a motivator and source of comedy while getting my heart rate up in the gym. It's an amalgam of my favorite tech egos yelling over one another. (But I've already said that).

This week, they had a guest, Loic LeMeur, founder of Seesmic, which just bought Twhirl. Twhirl is a desktop Twitter client.

There. I've just given you all the links, but I've constructed a sentence of which --after the word "founder" -- no one with whom I will be spending the afternoon (at a ritzy Derby Day party at the Arizona Biltmore) could understand one word, even AFTER they click on all the links. Or care.

And this is what the guys on the call (yes, all guys) called the "Grandma Tax" with great disdain. Despite the fact that I am as big an early adopter as Robert Scoble (and I always have to uninstall shit to make my laptop work again, just as he does). Despite the fact that Steve Gillmor always lets me call in to his other show, "Newsgang Live." When I hear the electronic voice say "Mute off," I always get a little feeling of excitement and acceptance. But I know I am not on THE CALL. THE REAL CALL. The one where they discuss the TRULY important things, like whether Mesh is real, and whether Twitter is the gateway to the network.

Gentlemen, it is. Twitter is the gateway to the network. Any grandma can tell you that. That's why a million or more people are already using it. And when Loic gets finished doing what he is doing to Twhirl, which IMHO is all the right things, it will be an even better gateway. Could be replaced by Friendfeed, as Scoble says, but it's the same concept. Simple and useful.

Simple little Twitter can let people who still don't know what RSS is experience blogs. Simple little Twitter, with its single attribute, the ability to let you choose and listen to your friends, could be the way people share photos and other media in the future/ (Yes, Dave Winer, payloads).

My jury's still out on how quickly people will integrate video into their Twitters or blog comments, although I know that many grandmas are on MS Messenger and Yahoo Messenger with video chat and webcams given to them so they can see their grandchildren.

By the way, during the first hour of the call, they hardly let Loic speak, even though he was the invited guest. And because he's French and a gentleman, he sat silent until his moment came. If had been any of the others, he would have just leapt in.

SO: it's even more important than keep it simple, guys. To make social media mainstream, you have to make it useful. When something is perceived immediately to be useful, and it is not daunting, even Grandma will learn it.

Take a sweater. It might be cold later. Keep in touch. Love, Grandma

Breaking the Bank

I've been involved (and invested) in the formation of a new bank holding
company for a while now. It's time for a new bank, because the existing
banks are up to their ears in bad loans and no one who needs a loan can
get one. The concept of the bank was interesting to me from the get-go,
because it is a holding company for a bank that will operate in four
states: California, Nevada, Arizona, and Texas. This regional concept is
one of the new ideas that attracted me. As an angel investor, I like to
have a portfolio, rather than a single investment. Four banks sounded
good. We have named the overall entity Ventana National Bank, and the
siblings Ventana Bank Arizona, Ventana Bank Nevada--you can figure it
out from there. Ventana means "window" in Spanish.

The California bank (in San Diego) is the furthest along, and we expect
our California Charter approval in the next three weeks, which will take
us to our public fundraising. Right now, we have our seed funding --
from nearly 100 founders and organizers of the three banks already in
formation.

By becoming a founder and accepting a board position on Ventana Bank of
Arizona (in formation)'s board, I have become able to influence the
direction this bank goes in -- not only in Arizona, but to some extent
across the franchise. I thought I would never have this opportunity in
my life, so I'm totally stoked.

Here's what I'm thinkin', and what the bankers have so far agreed with.
These are activities that I hope will be part of the core fabric of the
bank.

On the community relations side:
1)Classes in financial literacy and consumer financial education
2)Workshops in entrepreneurship
3)strong commitment to minorities, diversity, and microlending
4)involvement by and for women
5)partnerships with schools to teach financial literacy

On the "real" (financial side):
1)strong commitment to entrepreneurship
2)strong commitment to smaller businesses
3)raising money to open the bank by allowing a broader base of smaller
investors
4)having women and minorities as shareholders
5)having the people who invest in the bank be customers of the bank
6)creating a TRUE community

Most of the banks in formation that I've known about recently have been
backed by a small group of guys (just a word) who threw in their
personal capital to open the bank. That makes most new banks "private"
banks, often concentrating on concentrating to a speciice niche (in
Arizona often real estate). The units of investment are so big that
"ordinary" people can be shareholders in the bank. So when the bank is
sold to a bigger bank (this is the "exit" strategy most often), a small
number of people make money.

But my travels around the world have taught me that true community
lending can make lots of money and still be a service to a larger
community. We don't really have an entrepreneur's bank in Arizona right
now, or even a bank that understands the unique needs of small business.
I do.

Fortunately, banking is tightly regulated, so I can't get too dreamy.
But stay tuned. If I don't participate in the formation of a bank that
is trully different and inclusive, I'll feel like a real failure.

Are We in a Depression? Or is it Just Spring?

I know what a Depression is. It's when things look bad even when they may be good. I'm going to try to capture some of my mood on paper today, to ask you whether you share it, or whether I am personally grieving and projecting it on to my environment. Usually at this time of year I am very upbeat, because it's spring. This year, even though I'm a Pollyanna, my feelings are very mixed. The flowers are beautiful, and the weather is glorious, but there are clouds on the horizon as well.

Let's start with the small things. We put my daughter's dog Kodie down last week. He got cancer and died in a week, and he was only four.

Buppy the Puppy has been down with an infection that wears him out to the point where, to make him eat, I have to feed him cans of sardines and tuna. He got scratched by a cat and it became cellulitis. He sleeps under the bed or under the table all day, and he hasn't stolen my bra

and carried it into the yard since he got sick.

I've had a flu myself for more than a week, walking around at 50% energy level and feeling like Buppy.

My foster son has been laid off from his construction job because they ran out of work and he can't find another one. His fiancee is upset because they are trying to save to get married. There are so many jobs he cannot get if he admits he was in prison, so I suggested he go to school full time, but he won't do that because he wants to contribute to their household.

Now let's branch out from my family to the world.

Yesterday Barack Obama threw his spiritual advisor under the bus after Rev. Wright's 60's style anger, still harbored after all these years, threatened to ruin the campaign of one of the truly inspirational leaders of the contemporary world. Obama might not be experienced, but he has the ability to inspire, strategize, and THINK. We need that. We need to get on the same page as a nation (without disregarding diversity, of course) and all row in the same direction before the boat sinks. And he has put himself out there, a black man, to test how far we've come in the last fifty years with regard to true diversity.

There are widespread food shortages around the world, too. This is making people contentious. Haiti is already having riots against the government.

President Bush is asking for the building of more oil refineries. And for drilling off Anwar. I'm hoping that before that happens, the price of alternative energy will equal the price of gas, and the entire issue of oil will be moot. Wouldn't that be great? The problem solves itself.

How are you feeling about your life? About our nation's life? If I get enough interesting comments, I will compile them into a totally unscientific poll and share them with you :-)

Update: Just came back from Starbucks and found out that with my registered Starbucks card I get all my syrups free! This lowers my weekly Starbucks number by about $3.00. Things are looking up.

No More Moving for Good School Districts

For the last ten years, Ted Kraver and I and a small group of others have been talking about the game-changing effect on education that will be brought about by the Internet. Now, in an interview with Disney's virtual worlds team, Shel Israel gives me the evidence I need. I truly think social media will replace school, and virtual worlds will be the medium through which kids learn

You must watch this if you are thinking about how bad our school system is. Pretty soon we can just discard it like an outgrown shell.

Which Candidate Can Get Us Out of This Mess? None of Them

'm up here in the Bay Area this week, having (or is it "taking") some
meetings, attending Web 2.0 Expo, and doing some other business.
Unfortunately, I missed NewComm Forum, the other conference I was
supposed to attend today, because when I came home from Moscone West
last night, I had a fever and barfed. Flu. Not going anywhere today.

Which gave me unexpected free time, with practically my only option
being to think.

What is there to think about up here? Innovation, of course. While in
Arizona everything revolves around real estate, even in a down market,
in the Bay Area, everything seems to revolve around innovation. I'm
watching the local News, and there are three segments in a row about
innovation:

--there's a new CO2 laser that cuts down the recovery time in laser
resurfacing. It's called the "dot" technique, and it leaves unbroken
skin between patches of re-surfaced skin, which allows skin to heal more
easily

--there's a new technology that helps non-verbal autism sufferers to
make themselves understood. It's like a little Leappad, and if the child
presses on a picture, it tells the caregiver what he or she wants. It
cuts down the tremendous frustration autistic children feel about not
being able to make themselves understood

--there's a new Lasik technique that apparently gives better surgical
results, and a new longitudinal study to determine what the true risks
are of the surgery.

The local NBC station even has an ecological reporter, who is talking
about the carbon footprint of what and how we eat. In a real restaurant,
where we eat off china and use flatware, we're being sustainable. But
paper plates and disposable packaging? Not sustainable. Most of the
paper goods used by fast food companies are not recyclable because they
are coated.

The local news in San Francisco has a lot of the "WOW" factor. It's not
just a re-telling of the latest shootings, pool drownings, and bank
robberies in town.

California has a crummy housing market, too. In fact, foreclosures here
are up 300%. On my block alone, there have been two short sales, which
will of course bring down the value of my own home.
But people don't sit around talking about the real estate market all the
time. It resides (bad pun) in the background, rather than the
foreground, as it does in Arizona.

Conversation in Phoenix is all about the bottom. Are we there yet? When
will it happen? When will things turn around? You would think people had
nothing else to think about. It will turn around when we stop talking
about it and feeding the fear.

Actually, there's plenty else to think about. Rice is being rationed in
Costco and Sam's Clubs, and Brazil and VietNam and Korea have chosen to
quit exporting. The price of rice has gone up 140% since January. Food
rationing in the United States -- unheard of but happening. More to
come.

The price of food has gone up about 13% in the past year.

And in preparation for tomorrow's price rise of 22 cents a gallon of gas
on the New Jersey Turnpike , there were long gas lines tonight as
drivers tried to save $3.00.

That's true in California, too. It's one of the most expensive states in
which to live. Gas here is easily $4.15 a gallon.

But the emphasis on innovation continues. And I think that's what I like
about it here. I believe, as I always have, that innovation is the key
to getting us out of the recession/depression we are now in. Not
government. Not stimulus packages. Not handwringing. Not corporate jobs.

There's pain in America now, and when there's pain, there's a market
opportunity for solutions. Think of this pain as an opportunity. Go out
and do something new.

__._,_.___

@SamLawrence's Sponsored Wheelchair

photo.jpg
Originally uploaded by hardaway

Just came out of the panel on "Short Attention Spans," i.e. microblogging, at Web 2.0 Expo and ran into a fascinating guy in a wheelchair. Turns out @SamLawrence broke his foot a couple of weeks ago and realized he would be coming to Moscone in a wheelchair.

So he Twittered the opportunity to sponsor his wheelchair,and within minutes he had a porn site, wanting to sponsor him. He wouldn't sell (good move for an early stage venture) and soon he had Cap Gemini and two others.

His sponsored wheelchair is called The Corporate Octopus, and you can see it in the halls outside the conference room, where all the REAL action is.