Marketplace - American Public Media

Mellody Hobson on making money secondary in decisions

Wed, 2015-03-25 10:56

I was 22 years old, starting my first job out of college and at lunch with my boss, John W. Rogers Jr., the founder and chief executive of Ariel Investments. I hung on John’s every word, filing away his every utterance.

And then he told me this: “Don’t make decisions based on money.”

Come again? This was peculiar advice for an investment manager to bestow — wasn't every investment decision he made based on his research into which companies would thrive and make money?

On a personal level, his words contradicted my entire life’s mission to date. As one of six children born to a single mother, financial security was an elusive and fleeting dream that our family rarely held with a firm grasp. Attaining it was my sole purpose; it was what propelled me to work hard and pursue my dreams, and it was the reason I got out of bed each morning.

Eleven years my senior, John was successful and financially secure. He couldn't possibly understand that money was the most critical deciding factor in life’s big decisions. Clearly, he was out of touch.

But I had completely missed his point. He wasn't suggesting that I be careless about money or unrealistic about living within my means. His counsel was not about trivial matters like what shoes to buy. He also didn't mean that money shouldn't be a factor in my decisions.

What he meant is that it shouldn't be the only factor in my choices.

From my older and wiser perspective, the warning is so legitimate that it is deceptively simplistic. Yet, I see people making major life decisions for the wrong reason nearly every day. So I question the young person who wants to take the job that pays more over the one that inspires her, the graduate who pursues the field he thinks will be more lucrative instead of the one in which he will thrive, the bride or groom who marries the financially secure mate over the one who offers true compatibility, partnership and love. They ought to anchor personal life choices with long-term consequences in something more meaningful than money.

My younger self might judge me now and say, “Sure, it’s easy to say money doesn't matter when you have plenty of it.” But John’s words echoed in my head when I was just 30. A Fortune 500 company offered me a higher-paying, more prestigious position, but it would have meant abandoning a job I not only loved, but that also provided a platform for me to promote financial literacy, which had become my life’s calling. Weighing the relative importance of money instead of making it my singular consideration, I chose to stay at Ariel and have never regretted it.

Today, I consider the advice in my business decisions too: When making a new hire, I want the best person for the job, not the most economical one. Money is without a doubt a practical element that we should carefully measure in our decisions —we need to be pragmatic about paying the bills — but it should never be the solitary driving force behind them.

Money matters, but the question should always be: At what cost?


A Chinese cabby's query leads to Mary Pilon's epiphany

Wed, 2015-03-25 10:55

With the Mandarin language skills of a buffalo, I began chatting with my taxi driver in Shanghai, a polite man with plenty of questions about the United States. It was early 2007, and sitting in a back seat that reeked of stale cigarettes and body odor, I certainly didn’t see a financial epiphany coming. Then, the driver went straight for the jugular.
“How much money do you make?”

Like many Americans, I was happy to talk about macroeconomics, such as the dazzling growth of China’s G.D.P. at the time, the increasing cost of living in Shanghai or how his country’s trade relations were knotted with those of mine. But when it came to the more micro, as in the very digits in my bank account, I felt an urge to jump out of the moving cab. (I was a student at the time, so an honest answer was easily at hand: “None.”)

Since then, a recession has come and gone, and I think of this cab ride often. Many of my 20- and 30-something peers struggle with student-loan debt and high rent, and more than once I’ve erupted in laughter at the idea that I will collect any Social Security in my Betty White years.

Yet when it comes to talking about money as in, our money, there’s a risk that we’re carrying the bad financial discussion habits of our parents with us. If I ask any of my friends their “number,” I’m more likely to receive an estimate of the number of people they’ve slept with than anything related to their credit scores or net worth.

Money can be a reflection of our perceptions of power, self-esteem, personal history, fears and happiness. Or, as a friend recently put it to me, your personal finances can feel like “your grown-up report card.” But whatever its source, this reluctance to talk money hurts us. The topic matters if you want there to be gender equity in pay or economic diversity on college campuses. I’ve often wondered what would happen if an Edward Snowden of human resources sprinkled salary spreadsheets around workplaces.

The app Venmo may be our best shot at transparency. Like PayPal, it offers a handy way to exchange money with friends. But people can also display their transactions Twitter-style as a stream of digital money changing hands — a bizarre and sometimes revealing window into the wallets of those you know.

In a recent episode of the engaging podcast Reply All, a guest spoke of knowing via Venmo that a couple was splitting up, by noticing charges for things like “half a couch” or “half a chandelier.” My own feed recently had transactions for “shenanigans,” “your mistake,” “Girl Scout cookies” and “therapy,” the latter two having a certain poetic similarity. So it’s not salary Snowden, but a start, with emoji for emphasis.

After that cab ride with the driver who popped the money question, a Chinese friend explained to me that, in spite of systemic issues with corruption, some transparency around personal finances remained. Under Communism, it was common for people to know what their peers were making. Some Americans, like those working in government or nonprofits, know the consequences of having their salaries public. Last I checked, the planet hadn’t imploded. And I’m sure if I had thought at the time to ask the cabdriver what he made, he wouldn’t have flinched at responding.

While I’m not calling for every American to pick up a copy of “The Communist Manifesto,” I do find it ironic that a country that for decades has enjoyed more personal wealth than most places in the world is more reluctant to talk about it. For the equivalent of a couple of bucks, I received a window into China’s lesser-discussed pockets of openness. As the personal fortunes of many in China continue to swell, I wonder if their willingness to discuss it will as well. Or if, just as it has adopted KFC and “Friends,” China will import America’s money taboos as well.

Meet the pen Obama uses to sign bills

Wed, 2015-03-25 10:45

President Obama signed his — ahem — signature piece of legislation, the Affordable Care Act, five years ago this week. And he had a fancy pen to do it, too. 

More like 11 pens, actually, one for each letter of his name. Note the box to his left. 

Like Bill Clinton and George W. Bush before him, President Obama uses a Townsend pen for signings. That said, Obama hasn't affirmed much legislation lately — no word on whether he uses the Townsend for vetoes. 

Its manufacturer, A.T. Cross, supplies lots of pens to the White House

"The second thing is, the White House gives out mementos to people who come and visit — important people — and we participate in both those categories," says Cross CEO Chad Mellen.

While Mellen says it's a privilege to be the Presidential pen provider, Cross does sell the custom pens to the White House. Not so to the general public, if you want to get Obama's pen, you can find a Townsend like it for about $150 retail. Otherwise, your best bet is Ebay

American Presidents aren't the only notables wielding Cross Pens. Queen Elizabeth signed a bill with one, and former Indian Prime Minister Manmohan Singh was a big fan, often photographed with the silver Century pen glinting from a pocket.

And the Cross pen isn't a recent phenomenon.

"We've got a letter in our archives ... John Steinbeck sent a note back to his editor saying that he's going to have stop writing unless he can get some new Cross pens and refills," Mellen says. 

Looking to the future, is Cross worried by the explosion of tablets, stylus and keyboard? 

"The idea that handwriting is going the way of the buggy whip is not accurate," he says.

Instead, Mellen thinks digital handwriting — stylus or finger on screen — could soon merge with old-school writing on paper. 

"That's where we really see writing instruments and handwriting going."

Nielsen answers Netflix data mystery

Wed, 2015-03-25 10:20

The head of Nielsen, the company behind ratings, told Bloomberg that by the middle of the year they're going to start providing audience data for Netflix and Amazon Prime.

Netflix, for one, has been notoriously vague about exactly how many people watch, such as "House of Cards."

The numbers won't matter much for Netflix and Amazon, other than prestige, because they don't sell ads to support programming — but it's gonna shake things up a whole bunch broadcast-wise.

Quiz: Making a name for themselves

Wed, 2015-03-25 09:29

ICANN’s new internet domain names include several academic extensions.

BBC drops "Top Gear" host, risking losses

Wed, 2015-03-25 08:45

The BBC has fired one of its most popular stars, Jeremy Clarkson, host of the "Top Gear" motoring show.

The BBC sells "Top Gear" to more than 200 countries around the world and it commands an audience of 350 million viewers. The BBC said it had no choice but to let Clarkson go after the star punched one of his co-workers. The host had been given many final warnings following a series of allegedly racist, homophobic and sexist comments on and off the show.

But the BBC’s decision to dump him could prove costly. Top Gear earns the corporation $75 million a year and that could be in jeopardy without the volatile but popular Clarkson. 

The sequester's not-so-stringent budget cap

Wed, 2015-03-25 08:45

The Budget Control Act of 2011, also known as the "sequester," is supposed to cap government spending at set levels. But Congress has repeatedly found ways around that, and one main source of the over-limit spending has been the Overseas Contingency Operations fund. 

The OCO fund is for wars, but it's also being used so Congress can pass new spending without running afoul of the sequester, since the OCO fund is exempt from the Budget Control Act.

That doesn't mean the budget deficit hasn't come under control, though. Since 2011, when the Tea Party was at its peak of power and the economy was in the dumps, increased tax revenue from an improving economy has helped push the budget deficit from roughly $1 trillion to $500 billion.

The investors behind the Kraft-Heinz merger

Wed, 2015-03-25 08:43

Kraft and Heinz announced Wednesday they would merge to form the fifth-largest food and beverage company in North America. But the future of the Kraft Heinz Company depends on the pair of investors, Warren Buffett's Berkshire Hathaway and Brazilian private-equity firm 3G, who made the deal happen. 

In general, there's a fairly simple formula for when mergers are a good idea.

"Whenever you're going to be able to create more value than the companies could do on their own," says Donna Hitscherich, director of the private-equity program at the Columbia Business School. "I mean, that's the essence of it. But the devil is always in the details." 

In this case, the details are about cutting costs, as Berkshire Hathaway and 3G have done at Heinz, which they purchased in 2013. In order to reach their declared cost reduction target for Kraft of $1.5 billion by 2017, Anil Shivdasani, professor of finance at the Kenan-Flagler Business School at UNC-Chapel Hill, says there's "no question" this will mean lay-offs.

But Erin Lash, senior analyst at Morningstar, says it won't all be about firing people and spinning off brands.

"You know they're potentially more important to some of their suppliers, so they might be able to negotiate better terms," Lash says.

The fight over America's rails

Wed, 2015-03-25 08:28

There’s something romantic about a train whistle. It makes you think about far-away places. Adventure. Lawsuits.

Yep, lawsuits. The jostling for rail space has actually made it all the way to the Supreme Court

Part of the problem is the way rail traffic is split up in this country. Privately-held freight railways are thriving. Amtrak gets government subsidies, and it mostly runs on track owned by the freight lines. 

Delays peaked over the past few years for both passenger and freight rail.

“Our biggest concern was our customers,” says Ed Hamberger, president and CEO of the Association of American Railroads, a trade group for freight rail companies. “We move what Americans consume, what American manufacturers make, what American farmers grow,” he says.

Meanwhile, over at Amtrak, passengers were frustrated by all the delays.

“We watched on-time performance plummet,” says Jim Mathews, president and CEO of the National Association of Railroad Passengers.  He says, on some trains, there were: “Five, six, seven hour delays.”

Federal law says passenger trains  get priority on the rails. Amtrak says that means freight trains should pull over for passenger trains. But Mathews says that doesn’t always happen. He says at one point, Amtrak’s Capitol Limited train, from Washington to Chicago, was late more than 90 percent of the time.

“It had on-time performance in the single digits last summer,” he says.

The freight railways say they’re often blamed for delays that weren't their fault — delays caused by weather, or accidents. They say they actually subsidize Amtrak, because it uses their tracks. Which they pay to maintain. 

“Last year they spent $26 billion – private money," Hamberger says. "This year they've announced plans to spend $29 billion.”

And that lawsuit, the one that ended up in the Supreme Court? Amtrak scored a partial victory. But the case was kicked down to a lower court, and the legal fight continues. But court battles aside, here’s the deal. Freight and passenger lines  need to figure out how to share the rails.

“The primary issue between the freight and the passenger railroads is both have growing business,” says Steven Ditmeyer, adjunct professor of railway management at Michigan State University. 

You could build more track, Ditmeyer says. The passenger association certainly wants the government to spend more money on rail infrastructure. The freight railways would welcome more government cash, but not if it came with more regulation. 

Ditmeyer says: Let’s think about what we can do, now.

“There can be ways to make sure that both get the time and space they need on the track,” he explains.

Freight trains could run on more set schedules, Ditmeyer says, making it easier to coordinate them with strictly scheduled passenger trains. There’s also a sort of air traffic control system in the works for our railways, designed to eliminate bottlenecks and improve safety. 

It was supposed to be finished by the end of this year, but it's behind schedule.

PODCAST: What do you do with a liberal arts education?

Wed, 2015-03-25 03:00

Kraft and Heinz announced today they are merging. It's a $40 billion plus deal that unites some of the biggest names in processed foods. There's even a Brazilian angle here. More on that. And a hedge fund called American General has increased its bid for what remains of bankrupt Radio Shack, up $20 million to $165 million according to Reuters. We talk about how the store seemed to have become less about electronics and more about bugging you to buy batteries and extended warranties. And It is the season for colleges and universities to announce what they're charging for the coming academic year. In the face of this, students and parents around the country want to know that all this money will lead to a job sometime. This is the argument to make higher ed more vocational, and tailor the courses to jobs. But where does this leave liberal arts education? 

State pension checkup: Better, still not great

Wed, 2015-03-25 02:01

States' pension funds are better off today than they were during the Great Recession, but that doesn't mean they're healthy.

Russell Walker, Vice President of Wilshire Consulting, said "in the depths of the financial crisis ... the funding ratio dropped down to 64 percent. That funding ratio is what's known as the asset to liability ratio. That means for every $100 governments promised beneficiaries, they only held $64."

But today that ratio is at around $80. The economy isn't entirely to blame for that down-in-the-dumps number from 2009. Keith Brainard, research director for the National Association of State Retirement Administrators, said some states, like Illinois, Connecticut, and Kentucky, "have chronically shorted their pension contributions both when the economy was strong and when the economy was not so strong." 

A pre post-mortem for RadioShack

Wed, 2015-03-25 02:00

RadioShack is bankrupt and on the auction block. Sources tell Reuters that a hedge fund called Standard General has just increased its bid for some 1,740 stores to about $165 million dollars. It's bidding against liquidators that would sell off the remaining inventory, store fixtures and real estate.

If Standard General wins, the idea is a partnership with Sprint to sell phones and phone plans. It's worth it at this juncture to ask ourselves: how did it come to this?

Heather Landy is the global news editor for Quartz and has been digging deep into the sad demise of the Shack. 

Click the media player above to hear Heather Landy in conversation with Marketplace Morning Report host David Brancaccio.

University of Phoenix faces new competition for online students

Wed, 2015-03-25 02:00

Apollo Education Group is expected to announce its second quarter earnings before the market opens Wednesday. Apollo, the parent company of the University of Phoenix, has been regrouping after years of declining enrollment.

For-profit colleges are attracting fewer students, as the economy has improved. Companies have also scaled back to head off new regulations aimed at shutting down failing programs. As interest in online education grows, Apollo is also facing more competition, says Wells Fargo analyst Trace Urdan.

"They’re losing share primarily to traditional colleges that have moved online over the past couple of years," he says.

Universities like Arizona State and Southern New Hampshire have bet heavily on online education.

U. of Phoenix faces new competition for online students

Wed, 2015-03-25 02:00

Apollo Education Group is expected to announce its second quarter earnings before the market opens Wednesday. Apollo, the parent company of the University of Phoenix, has been regrouping after years of declining enrollment.

For-profit colleges are attracting fewer students, as the economy has improved. Companies have also scaled back to head off new regulations aimed at shutting down failing programs. As interest in online education grows, Apollo is also facing more competition, says Wells Fargo analyst Trace Urdan.

"They’re losing share primarily to traditional colleges that have moved online over the past couple of years," he says.

Universities like Arizona State and Southern New Hampshire have bet heavily on online education. 

Using technology to empower women in Saudi Arabia

Wed, 2015-03-25 02:00

Princess Reema Bint Bandar Al-saud, an entrepreneur and member of the Saudi Royal Family, recently traveled to SXSW Interactive in Austin to talk about how technology is empowering Saudi women. 

Born in Riyadh, Princess Reema grew up in Washington DC while her father was Saudi Arabia’s ambassador to the United States. She is now the CEO of Alfa International, a Saudi Arabia-based luxury retailer, and she’s also a major advocate for breast cancer awareness in her country.

We sat down with her to talk about training women to work in Saudi Arabia and what role technology plays in society.

Tell me about educating women about navigating the complexities of the workplace in a country where women's rights are still quite restricted?

What we’re doing is training the frontline of employees to be able to have the skillsets to learn to work. Because if you train someone how to use the cash register but you don’t actually train her how to use HR or train her how how to engage in dialogue with her coworkers, she's not actually going to be a very successful salesperson. But it’s not a skillset that’s given. You have to learn it. Just to give you a heads up. I might have been the CEO of the company but it took me two years to ask for a salary.

So you weren’t being paid?

No. But I also didn’t ask. And you should have seen the horrified faces on the board when they realised. They were like, "what do you mean you haven’t been paid?" I was like, "well, who am I supposed to talk to?" Now take that down to a woman that has no exposure and no experience. So I want to make sure nobody goes through that.

Do you think new technology plays a role at all in helping to make that happen?

Yes. Because everybody is talking to everybody and everyone is listening to everybody right now. It’s not second hand. It’s not tomorrow. It’s not next week. If you said it today, I can read it today. And so you can actually action change very fast these days. I think.

You know, you’re referencing social media in some ways right?   


Are there complexities to that when it comes to how it happens in your country?

Yes, because you're not talking to one group of people. We’re talking to five different generations simultaneously. And when you’re talking to five different generations, who are you looking out for in the change that you’re making?

Do you think people are fully comfortable being totally honest on social media?

I think it depends on what subject and what topic and what environment. I mean, I can tell you: religion? Don’t touch it. And it’s just about my right to say it. Somebody has to hear it so be more conscientious in the words that you use.

But at the same time I feel like you’re hinting that there's a lot of positive coming out of this?

Amazing positivity. Because half the people that I have connected to that are making 10 KSA  happen are people that are engaging with us on social media. I can tell you one thing that blew my mind.  

Yeah, please.

WhatsApp. When we were launching our social media, I sent out 500 WhatsApp messages and then I went on to Twitter, Facebook and Instagram and I am like "oh, my god!" 70 people, 120, 45...I am like, "oh, my god, it is now already a global message."

What’s your favorite iPhone app?

Instagram! I love Instagram. I am like the queen of Instagram.

What do you Instagram?

I travel a lot for work. And I find it so much easier to post a picture than to send 50 emails, send a 100 text messages or write something on Facebook. I really don’t want to say too much. I just want you to know where I am and what I have seen and that I have seen something great.

It's the cheesiest...and now the ketchup-iest, too

Wed, 2015-03-25 01:59
$28 billion

Kraft Heinz Co., which will form as the result of the newly announced merger between Kraft Foods Group Inc. and H.J. Heinz Co., will become the fifth largest food and beverage company, with an estimated $28 billion in revenue. As reported by the WSJ, combining the companies will save the two a predicted $1.5 billion in operating costs by 2017. That's a lot of ketchup on a lot of mac and cheese.


The price for a one-way ride on Leap, one of a couple transit start-ups that have appeared in Silicon Valley recently, and nearly three times the cost of San Francisco city bus. The Leap buses are luxurious, with premium interiors, wi-fi and cold press juices available for purchase, the Verge reported, and they offer a complement to the area's notoriously slow and crowded public transit – for those who can afford to ride. 

65 million

The number of names and addresses, along with 13 million emails, that are up for sale along with RadioShack's other assets as it emerges from bankruptcy, Bloomberg reported. It's not yet clear what the customer data is even worth or if it can even be included in the sale, pending a bankruptcy court ruling.

$1.025 trillion

The total annual cost of urban sprawl in the U.S., according to a report from LSE Cities and the Victoria Transport Policy Institute as reported by CityLab. Those costs come from reduced natural and farm land, as well as increases in transportation and infrastructure needs.

101 hours

That's how long Mike Miller of Jackson, NJ will sing karaoke in order to break the Guiness World Record for longest karaoke marathon. Miller, a safari warden at Six Flags Great Adventure, started at noon on Tuesday, and is expected to finish Saturday at 6 PM. The stunt is meant to help raise funds for the Wounded Warrior Project.

‘Corporate sponsored art’ isn’t as bad as it sounds

Tue, 2015-03-24 13:51

There is a trend in the corporate world right now that’s a little more culturally enriching than say, buying another jet for executives or paying out another CEO bonus.

Some big companies, instead of sponsoring a race team or a football club, are sponsoring artists.

"Now Facebook has a residency, it’s just kind of taken over,” says Elizabeth Segran, who wrote about the phenomenon for Fast Company.

Take Amtrak for example. After a writer noted on Twitter how much writing he gets done on trains, Amtrak gave him a writing residency.

“This was kind of like a large-scale publicity stunt,” Segran says.

Segran points out how Facebook’s artist sponsorship is a little different though. “With Facebook, it’s more of a commissioning process… It’s more of an opportunity to support artists by buying their work.”

But how do the CFOs of these big companies justify the money they’re spending on art programs? Segran says there’s usually a payoff for the corporations too. In the case of software maker Autodesk, “…it allows them to see these very creative people pushing technology to the very limits of what it can do,” Segran says.

In Somalia, wire transfers go underground

Tue, 2015-03-24 13:33

Four years ago, famine in Somalia took an estimated 260,000 lives. It would have been worse without a key source of financial support: money transfers from relatives abroad. Family members "could send money in five minutes from Minneapolis to Baidoa," says East Africa scholar Laura Hammond of the University of London School of Oriental and African Studies.

Now, though, commercial banks that process remittances have pulled out of the sector. Banks fear extremist groups may be abusing the system to fund terror operations, and that they'll be punished by U.S. regulators for allowing risky transactions.

"Banks have decided to exit relationships in high-risk jurisdictions," says bank consultant Dennis Lormel of DML Associates. He trains banks to reduce money laundering and terror finance risk. "It's just not worth it to them. The benefit certainly doesn't meet the risk."

Will more Somalis starve? Perhaps not. Many transfers have gone underground. It's an open secret that couriers are hand-carrying wads of cash across borders, and sending money via non-armored vehicles. Lormel says the risk of so much money moving this way is that it's not tracked and becomes a channel for potential money laundering.

"If I'm a bad guy, I'm going to be more inclined to want to move money though those guys," he says. The suggestion: well-intentioned bank oversight may be backfiring and aiding terror finance.

To Hammond, it's also worrying for Somalis. Remittance make up as much as 40 percent of Somalia's GDP, and money transfer groups say less money is going in. If this financial safety net is fraying, the question is whether it will still be there when the next drought inevitably comes.

There's more than money in the Army's handgun contract

Tue, 2015-03-24 13:22

Today, the official handgun of the U.S. Army is the Beretta M9. But it may not be that way for long.

The Pentagon is searching for a new handgun for its soldiers. The request for proposals envisions a modular handgun system. Sounds simple, but the Army has only been in the market for its official gun twice before, so gun manufacturers have a lot riding on the contract. And it’s not just about the money.

Beretta learned that lesson when it won the Army's gun contract back in 1985. It was something of a coup for the Italian company — until then, the company was best-known for making boutique-type hunting rifles.

Beretta has made the Army's M9s in its Accokeek, Maryland headquarters since 1987. At the height of the Army contract, it employed about 500 people, but today it’s around 300. Gabriele De Plano, Beretta’s vice president of military marketing and sales, says that when Beretta won the contract, the impact was immediate.

"Law-enforcement agencies started to adopt the Beretta M9 or the equivalent commercial version, a lot of state-police agencies adopted the M9, the civilian market all of a sudden took greater note of our products," he says. 

But the Army’s new request for proposals for a modular handgun system is a sign that the military isn’t satisfied with the M9. There are some well-known complaints: its magazines get stuck in hot, sandy environments like Iraq and its grip is too big for those with small hands, like female soldiers. De Plano says Beretta tried to address some of those complaints with an updated version called the M9A3.

"The pistol itself operates exactly the same way, which is one of the great advantages," he says. "If you know how to shoot the old pistol, you know how to shoot the new pistol."

Beretta submitted this updated version as an “Engineering Change Proposal” to the existing contract, but the Army didn't bite. 

Brian Friel, a government-contracts analyst with Bloomberg Intelligence, says that's because the government wants a wide-open competition for its new modular system. And it's no wonder Beretta submitted the M9A3 to try to keep its contract. 

"The value of a government contract is beyond its nominal dollar amount because there's something of a good housekeeping stamp of approval that comes with the Army or an agency picking your gun to put in soldiers' hands," Friel says. 

That nominal dollar amount is actually low, in the grand scheme of Pentagon acquisitions. The Department of Defense only spent about $400 million over the life of the 30-year Beretta contract. Contrast that with the overall civilian gun market in America, which is worth around $7 billion per year, or the hundreds of billions spent on the yet-to-be-delivered F-35 fighter jet.

Mike Greene, an analyst with defense consulting firm Avascent, says gun manufacturers want this contract so they can be "The Army Gun."

"There are six, seven, eight million concealed carry holders in the U.S., which is a lot larger number than most people realize," Greene says. "Those people are carrying a firearm, those are regular civilians who are carrying a firearm every day."

Because the consumer-handgun market has grown so exponentially since the last Army gun contract in the 1980s, "in this case, the consumer market may drive what the military chooses," Greene says. "The research and development is all on the consumer side."

Even if Beretta doesn’t win this contract, its relationship with the Army will continue to have cachet. Its predecessor, the Colt M1911, was the army’s gun for 70 years. And to this day, it still has a devoted following.

An inside view from Y Combinator's exclusive Demo Days

Tue, 2015-03-24 12:39

Investor Erik Moore has spent the past two days watching dozens of pitches from tech companies covering a wide range of services, causes and vowel-dropping names. But these aren't the dime-a-dozen startups that are saturating Silicon Valley.

Moore has been at Y Combinator's "Demo Day," where a select group of startup companies supported by the Silicon Valley accelerator can pitch their ideas to an exclusive group of investors.

The big demonstrations just wrapped up Tuesday and we emailed Moore, an original investor in Zappos and head of Base Ventures, to get his perspective from the ground. The interview has been lightly edited for clarity.

How many times have you been to YC’s Demo Day?  Even just reading through all these names and concepts, things start to blend together. How do you sift through all the hype and boilerplate?

I’ve been going to YC for four years now. It was hard the first several years, but you get better at it, like anything else. You come to realize that as great as YC is (and it is great), that not each startup will win. So you ultimately go back to the same filter that you impose on non-YC companies. There's so much fanfare and noise and chatter and excitement around YC in general, and certain companies in particular, that newbies – investors not used to the bustling marketplace atmosphere – can get caught up and overwhelmed and want to invest in companies without regard to their normal evaluation and diligence process.

What’s the thread running through YC this year?

Lots and lots of biotech, healthcare and medical companies, a handful of food companies. There are a handful of non-profits, but noticeably fewer than previous batches.

How do you assess a startup coming out of YC that already has a fair amount of hype behind it, like Magic’s “ask for anything” service?
The top two or three companies that are hot, like Magic, are "done"; meaning their funding round is fully (or even over) subscribed before Demo Day. To a certain extent, the best of the best companies get handpicked, and only "club members" – the special, well-known, or highest profile of the investors – get to invest. But as I mentioned earlier, you absolutely must do some modicum of diligence and not get bitten by the hype bug.

There’s ongoing speculation about whether Silicon Valley is in a “bubble” moment, with inflated valuations and lots of money being thrown at young companies. How does this play out at events like Demo Day?

It's fun for people to talk about, "Demo Day valuations are creeping up." You should invest during all cycles. If an investor believes that she is smart enough to predict when the top of the market has arrived and sell, or when the bottom has arrived and buy/invest, they are fooling themselves. I invested in Zappos during the first bubble in 1999 and 2000, and it sold in 2009 - the worst time possible - for 50 times my investment.  

That said, I believe that a bubble is brewing. There's tons and tons of money, often from non-tech or new-tech investors, startup valuations are getting even higher, and there's a proliferation of ideas being funded because they "sound" good. And because it's so cheap to start a company these days, it's become the thing to do: "I'm starting a tech company."

Our companies are producing enough revenue that we hope will keep them solvent through any downturn.
By the way, at YC Demo Day, deals get done on the spot, with firm commitments. They have what's called the "handshake protocol," and YC also makes it easy to connect with start-ups by "liking" a company as they pitch via their web app, then they follow up with an email. During breaks and before or after pitches, there's time to meet all the startups who standout by wearing hoodies, or pink pants as a team.

Anything else we should know about Demo Day? 

There was a very distinct absence of Bitcoin startups, and non-profits.

It's hard to make an investment decision after a two-minute pitch that usually does not include much about the founders and why they are the right founders for this startup.
Finally, there is a very definite hierarchy of investors and if you're part of the in-crowd, you see the very best deals early. Pays to be an insider!