Michael Knopf

We’re hearing more and more about the brain drain, and how it’s such a drain on American innovation and productivity. Our best and brightest from the most prestigious universities are not going to build rockets or invent new eco-efficient energies after graduation; they’re shuffling around money or doing leveraged buyouts as Excel monkeys. I personally do not blame them, and I think in this job market to chastise smart grads for pursuing lucrative opportunities instead of some higher calling is downright ridiculous. It’s simply a matter of incentives; high tech firms that add real value couldn’t compete with finance. But I think that’s starting to change, and a new brain drain is upon us.

This morning Obama released a proposed budget for 2013. In there was a clause to treat carried interest as ordinary income, not capital gains. There is a government assault taking place on high finance and those who run it, and Dodd Frank and other regulations are already starting to neuter finance. Bonuses are being cut left and right from prestigious front office i-banking and trading positions, analysts and associates are getting axed left and right, and few hedge funds are seeing returns the way they did in the pre 2008 era. In other words, there’s a very real sense starting to kick in amongst young people, and especially amongst those like myself just graduating, that the glory days are over. 

Many smart students and recent grads are seeing this trend, and are breaking into tech and starting their own firms. When you take away the incentive of a lifetime of six figure bonuses, finance starts to look a lot less appealing. Students from MIT, Stanford, Carnegie Mellon, and increasingly top less non-technical schools like the Ivies and “new Ivies” want to get into tech. And not tech 1.0 microchip producers in Silicon Valley, but 2.0 social web tech firms. Some are even turning down lucrative finance offers to make this move (make sure to check out this piece by Penn student Patrick Leahy). This morning I spoke on the phone with Steve Cheney, who runs business development at GroupMe and is a noted tech blogger. Steve started in 1.0 tech and lateralled into banking, joining the famous tech coverage group at Morgan Stanley, before getting involved in social and mobile web at GroupMe. One of the things Steve told me that stuck out is that he is getting a high volume of calls from people from the finance, legal, and consulting professions looking to move into tech, sometimes as many as five or six people per week. Many of these people have MBAs or JDs and years of experience. 

There is a major shift of brainpower happening here. To see why, follow the incentives; people will follow the incentives, which are in many case money and prestige. However, I think people, especially Gen-Y and those a few years older, want to work in a more creative environment with a flatter structure. I wrote more about this in my last post, and concluded that the ideal of Gen-Y is not to make it to the top of a pre-existing structure, but to build your own and watch it grow. While the last brain drain, and the one that is still happening to an extent, was hailed as “bad” and “unproductive,” I feel this newer one that is emerging is neither. I think we should be excited, and encourage young people to build products of value that make people’s lives better.

However, there’s still much skepticism over the value of a lot of social tech, and whether or not it creates lasting value. Jeff Hammerbacher, an early employee at Facebook and Harvard grad who left the company to pursue things he felt were more noble, said that: “the best minds of my generation are thinking how to make people click ads, and that sucks.” To an extent, this can be true. Social media and tech firms looking to quickly monetize have made ads an integral and possibly overly central part of their business models. While many of the services provided by social tech are trite, there are a growing number that provide significant value in our daily lives. City dwellers are using AirBNB to help pay their rent while providing affordable hotel alternatives to lean travelers, companies are using analytic and metric services to maximize their web spending, artists are using Instagram to promote their work to a wider audience, traders are using StockTwits to leverage their knowledge and share ideas in real time. All of these things are good, and driving innovation and job growth. There are of course the “facebook for cats” and other loopy ideas that are creating talk of a major bubble about to burst. But the market naturally allows the good stuff to rise to the top, and sifts out the crap. I don’t think we need to be afraid of this new brain drain.

I read a piece in the New York Times recently about Millenials. I enjoyed it; instead of the usual rants about how we all have ADD, we’re all lazy, and we’re all sociology majors who feel entitled to jobs we’re not qualified for, it focused on our entrepreneurial impulse. It focused on our ideals. We want the financial success and social acceptance our parents strived for, but we want to achieve it on our own terms. Many no longer aspire to get that coveted entry level position and work our way up to Managing Director; instead, they want to start our own companies, form their own teams. Much of this has come out of a desire for increased autonomy, but much of it has also formed out of necessity; Gen-Yers see that the path to the top is no longer as illustrious as it once was. Professions like law, banking, and healthcare, which were once seen as a stable path to prosperity, are no longer regarded as such, and many young people feel they have just as good a shot trying to make it on their own. 

The article was written by William Deseriewicz, a self proclaimed “bobo living in a hipster neighborhood” in Portland. It is obvious that the article is very Portland-centric. Portland is a city that shares a lot of natural overlaps with New York. It is a largely mobile, educated, young, and tolerant city with bouts of crappy weather and lots of food carts. However, the author mentions that in Portland the main drive was to start a socially conscious enterprise, make a ton of money, and give the money away. My experience at a fintech startup here in New York meeting young entrepreneurs has been different. Here, we are unabashed capitalists. We talk openly about valuations, buyouts, monetization, “exits.”. Social consciousness is important, but it is not at the center of the New York ecosystem. Selling your business to a corporation, taking VC money, advertising on your site, etc. is not looked down on. In fact, it is the goal. An opportunity to do any of these things is respected, envied even. What matters is getting there on your own terms, creating a unique vision and having the guts to take risks to bring it to life. Taking your own lane, being yourself, and sticking to it is what gets you respect in an entrepreneurial culture. Blending in, agreeing with everyone, that is the mark of someone looking to work up a structure that is seen as irrelevant and dead.

This is what Deseriewicz gets wrong. He writes that we are a generation that is all accommodating, hoping to please everyone so that they will buy our products, which is many cases is ourselves. Because we have “branded” ourselves, he feels we are all salesmen. This may be the ethos some adapt, but to be successful as an entrepreneur this will not get you very far. The goal of the boomers was to conquer the system; gen-x wanted to defy the system. Gen-Y’s intention is neither; it is to build our own system, and bring others on board. Deseriewicz writes: “we’re all in showbiz now, walking on eggshells, relentlessly tending our customer base.” There is absolutely some truth in this; our generation is certainly not non-conformist. Nowadays it’s more daring to flirt with conservatism than liberalism, and there’s definitely a “hip-to-be-square” thing going on in all aspects of the culture. But I think Deseriewicz underestimates what he calls our customer base, or our audience. Our observers are highly adaptive, and can smell bullshit from a mile away. The goal of the millenial is not to create a slick persona that is highly appealing; the true goal is to be accepted, and praised. for being yourself. The “selling” of ourselves is that exact thing millenials are running from. Millenials don’t want to have to sell anything.  To achieve success and self-actualization without compromising who one truly is, that is the goal.

When you do startups, one of things that you get used to is giving your pitch. It weaves its way into conversations with people you’re meeting for the first time, family, classmates, and friends. One of the things I’ve been doing at Estimize is going out to meet people from the industry at sponsored events, cocktail hours, one on one at coffee shops, anywhere really. I’ve given “the pitch” hundreds, maybe thousands of times. I watch as people’s faces light up, and the following conversation usually leads to the question: “But why do people make estimates? Why do they want to share?”

One of the first things we learn in life is to not show your opponent your cards. It’s ingrained in us in school and on the athletic fields, don’t give away your strategy. Don’t show your classmate the notes you’ve been taking all semester before the final, don’t tell your opponent your strategy for how you’ll expend your energy over the course of the race (I’m a former long distance swimmer). For a long time, the same mentality was applied to finance; don’t let the other trader see your position, don’t give away your research, because you may lose your edge. The rapid ascent of StockTwits and the social finance community at large, from the early infamous Yahoo! message boards to Chart.ly, Stock.ly, Covestor and others, has proved that traders and firms are not opponents. By exchanging our thoughts, we gain much more than we could have alone. By sharing your position or analysis on a stock, you are not giving up any edge, because it’s all about execution. Your analysis is not what really matters, it’s the what you do with that analysis. In the community we have built, like many others, you get back what you give.

Making an estimate forces you to take a stance, do your research, and track your performance and accuracy as an analyst. I spoke with an active community member, Prince Bhojwani, a private investor in the Santa Barbara area, about why he shares his estimates. He has racked up an impressive 89.46% accuracy score, sharing analysis on about 50 assets. He told me: “Estimates force me to look deeper into a company’s fundamentals and understand their business model and how macro-economic factors can hurt or help their business. Say I own shares of GM, but because they report after AA and AXL I can look into their (AA & AXL) earnings and get a feel of what I can expect from GM when they report their earnings.” Understanding the factors surrounding a release is surely a reason to log in to Estimize and look around at the data, but why would you share?

By contributing, you are not only becoming more accountable, you are becoming more accurate and informed. Estimize, as well as a handful of other fintech companies, are leveling the playing field and turning finance into a true meritocracy where knowledge and value-added is more important than pedigree or title. The platform allows analysts to gain a reputation in certain sectors or overall, giving a voice to people who had none before. For example, @techinsidr and @techstockradar have shown high accuracy and provided meaningful insights into the technology sector, and have leveraged their knowledge on the platform. As equity research continues to be a loss leader, the sell side is losing its edge. We hope that traders and investors can use this platform to build a reputation and grow their business, as well as absorb info the way they already do on StockTwits and Twitter. As iron sharpens iron, so one man sharpens another, and we feel this teach and learn dynamic is what has made these communities so strong.

When Twitter comes up in conversations with friends, the most common thing I hear is that people don’t see the value and don’t understand why they are using it. I think this is partially the company’s fault, because they haven’t guided people to use the product in a productive way. When you log in the first suggested people to follow are usually overhyped celebrities talking about their day, mood, or promoting their latest show or book. Because of this, many people think that Twitter is a place to randomly dump thoughts, similar to a never ending stream of Facebook updates. This is fine, because the beauty of the product is that no two users approach it exactly the same. I joined around October 2010, and spent a lot of time confused and frustrated, not knowing why I was tweeting or why I wasn’t gaining any traction. However, for me I have found value in Twitter by following some steps that were explained to me a few months ago, as well as by learning as I go. It really depends what you’re looking to do with the product; for me, as a student looking to learn, network, and explore job/career opportunities, these are steps I found useful.

First off, I’d recommend using your real name and a real picture of yourself. Include an accurate, up to date bio that honestly explains a bit about who you are; what you’re interested in, what kind of work you do, where you went to school, etc. People are more likely to respond to questions or comments you make when you present yourself as a “real person.” On the flip side, this makes you more accountable for everything you say, so you need to be a bit careful. Also, if you can, include a link to a personal website, blog, linkedin page, or something that tells a bit more about yourself. It doesn’t have to be anything fancy, but having some sort of link on there helps.

Secondly, take a lane. For me, being in New York and with my background I’ve naturally gravitated towards people who discuss finance and business. But there are awesome communities out there about cooking, music, tech, law, and just about anything else. Taking a lane doesn’t mean limiting what you talk about, but it does help people identify a reason to follow you. It also doesn’t mean you strictly have to talk about finance, food, gadgets, etc. I by no means am a strictly finance guy on Twitter.  There are students my age and younger that do use Twitter predominantly to share and receive financial data and do a damn good job, guys like Zach Moose and Jerry Khachoyan. This is an awesome way to build a following and show that you actually know what you’re talking about. Really, people have no incentive to follow someone who is going to give random updates and anecdotes from their life unless they know that person in real life, or unless that person is famous.

Lastly, reach out to people. People have made themselves accessible, and you may as well take advantage of it. Cold “@-ing” someone can be like the 2012 version of cold calling or emailing them. I read somewhere that “cold @-ing is the new intro.” If you have a realistic bio and picture, people are more likely to answer.  Generally, I’ve found that chatting with people publicly on Twitter is a good start, and then moving to DM or email helps you discuss things at length. Over time, you’ll find the right people to follow by seeing who your stream RTs and interacts with. I discovered and reached out to my boss through Twitter, which is how I got involved at Estimize. I’ve also met a bunch of awesome people, especially in New York, who I can chat with, bounce ideas off, or grab a beer with. I think Twitter is an awesome product and there’s no reason college students and recent grads shouldn’t be using it. This has been my experience, but see what works for you. Good luck.

He is right. And so the thing we must fear most now, is not just the collapse of banks and investment funds, or of the international financial architecture, but of a ‘sharecropper society, angry at its downfall

-Ann Pettifor