IPOs made of sand

Merchant banks do apparently gamble vast sums on hunches.

Watching the Facebook IPO launch on Friday struck me as a typical example of Emperors New Clothes syndrome. Mainly because I’ve lived through it before.

In March 1999 my agency picked up the global ad account for a new dotcom that was going to revolutionise the world of clothes retailing. It was called boo.com. Started by three twenty something Swedish entrepreneurs operating out of glamorous offices on Carnaby Street (which were soon replaced by bigger and even more glamorous offices on Regent Street), we stood on the sidelines and watched as investors in the company were swept along on a tidal wave of enthusiasm, lavish spending and unbridled and unquenchable ambition.

Throughout the process we kept asking ourselves questions about the company. Why was all this funding, delivered from the some of the world’s wealthiest individuals and large merchant banks, arriving in a seemingly never ending supply, when there seemed so many flaws in the business model. There was no clear positioning for the company, indeed no clearly definition of what the company was going to sell, the technological ambitions for the site far outstripped what was apparently feasible back then, systems seemed flawed and everything appeared very hand to mouth.

Yet, we reasoned, these big merchant banks weren’t stupid. No one would pile all this money into a start up without a clear vision for how they were going to get their money back. Would they? We concluded over and over again, that it must be us – we simply didn’t understand the machinations of high finance.

Well, we quickly found out differently (as has been well documented) and a valuable lesson was learnt. Things can be too good to be true, merchant banks do apparently gamble vast sums on hunches, and our Finance Director, who said from the word go that it was all built on sand and would end in tears, really did know what she was talking about (hats off, Shirley).

And of course, what was true of the dotcom bubble was true for many other areas which the merchant banks were, ahem, investing in - with no one brave enough to shout ‘look, they’ve got no clothes on’.

Which is why I shudder when, despite all that has happened in the last 5 years, with the worlds wealth apparently built upon a mountain of doubt like some giant ponzi scheme, the banks – yes, the banks again – can decide that an 8 year old company with negligible assets is worth 200 times its annual profits, in a sector that saw its predecessor collapse from market leader to junk in a matter of months. And while there a few people shouting ‘Emperors New Clothes’, the banks carry on propping up their investment – because they can’t be seen to be gambling again…..

But until we all start acknowledging that perhaps investments should be based on things like assets, guaranteed income, historical precedent and sensible(rather than high risk) growth, then nothing in the global economy is going to sort itself out.

Meantime, if you run into a banker today who has invested in Facebook, just say one thing to them. Boo.

Photograph: Getty Images

Richard Morris blogs at A View From Ham Common, which was named Best New Blog at the 2011 Lib Dem Conference

Felipe Araujo
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Hull revisited: What happens when a Brexit stronghold becomes City of Culture?

We report from Hull, to find out if you can replace the kind of nostalgia that led to a Leave vote with cultural investment.

At 75 metres long, the offshore wind turbine blade erected across Queen Victoria Square, in the heart of Hull, is a sculpture intended to mark a new chapter in the city’s history. For the next 12 months, Hull, a city of more than a quarter of a million people in the northeast of England, will be the UK’s City of Culture.

The 28-tonne blade hails from the local Siemens plant. The German technology company employs around 1,000 people in the area, making it Hull’s biggest single employer.

Seen up close in this context – laid dormant in the middle of a town square instead of spinning up in the air generating energy – the structure is meant to remind passersby of a giant sea creature. It is also, I’m told, an allusion to Hull’s rich maritime history.


All photos: Felipe Araujo

Nostalgia is a big thing in this part of the country. At one point, Hull was the UK’s third largest port but technology and privatisation drastically changed that. The battle over cod fishing with Iceland in the waters of the North Sea 40 years ago has also dealt a major blow to a region with a long and proud trawling tradition.

People here still talk about a bygone era when the fishing industry provided jobs for everyone and there was enough money to go around.

Fast forward to 2017, and the country’s new capital of culture is the same city that voted 67 per cent in favour of leaving the EU last June. Its new-found prestige, it seems, is not enough to erase years of neglect by a political class “too busy for commoners like us”, as one resident puts it.

“More than a message to Brussels, it [the Brexit vote] was a message to Westminster,” Paul Leeson-Taylor, a filmmaker born and bred in Hull, tells me. “For the first time in a long time people in Hull felt like they had the chance to change something, and they took it.”

But while speaking to people on the high street and hanging out with locals at the Community Boxing Club in Orchard Park, one of the city’s most deprived areas, there is one word that consistently popped up in conversation – more than any specific policy from Westminster or the much-hated rules “dictated” by Brussels. Foreigners.

According to official figures, Hull’s population is 89.1 per cent white British. Still, immigration is big on people’s minds here.

During my two-day stay in the city, I find myself being the only black person in most places I visit – I’m certainly the only black guy at the boxing club. So when someone begins a sentence with “I’m not racist but…”, I know a tirade on immigrants is about to ensue.

“There are just too many of them,” Nick Beach, an estate agent whose Polish clientele is a big part of his business, tells me as he is about to teach a boxing class to local children. Beach was born in Shepherd’s Bush, in West London, but has been living in Hull for the last 20 years.

“When I go down there these days and go into Westfield shopping centre, it is very rare you get an English person serving you now,” he says. “I just find it disappointing that you go into your capital city and you are a minority there.”

These are the much-discussed “left behind”, a white working-class community that has gained particular prominence in a time of Brexit and Donald Trump. Under economic pressure and facing social change, they want to have their say in running a country they claim to no longer recognise.

For Professor Simon Lee, a senior politics lecturer at the University of Hull, immigration is only a superficial layer when it comes to explaining the resentment I witness here. For him, the loss of the empire 70 years ago is still something that as a country Britain hasn’t come to terms with.

“The reason for us to be together as a United Kingdom has gone, so what is the project?”

As destiny would have it, a foreign company will now play a major role on Hull’s economic future, at least in the short term. In the wake of the Brexit vote, there were widespread fears Siemens would pull out of the region and take its factory elsewhere. With the massive blade looming large in the background, Jason Speedy, director of the blade factory in Hull, assures me that isn’t the case.

“The Brexit decision has made no difference. We have made our investment decision, so Siemens, together with the Association of British Ports, has put in £310m. It’s all full steam ahead.”

As Hull becomes the country’s cultural hub for the next few months, the hope is that its residents stop looking back and start looking forward.

For Professor Lee, though, until there is a complete change in the power structures that run the country, the north-south divide will remain – with or without the EU. “The way you kill nostalgia is to have something new,” he said. “The reason why people here are nostalgic is because there is nothing to replace it with.”

Felipe Araujo is a freelance journalist based in London. He writes about race, culture and sports. He covered the Rio Olympics and Paralympics on the ground for the New Statesman. He tweets @felipethejourno.