forbes - january 20 2014 usa

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2 | FORBES JANUARY 20, 2014

contents — JAnUARY 20, 2014 VoLUMe 193 nUMBeR 1

88 | neXt-generation entrepreneursFour hundred and f fty faces of the future.

11 | FAct & cOmmENt by steve forbes

The lies continue.

lEAdERBOARd

14 | ScOREcARd2013: a very good year.

16 | BEiNG REEd hAStiNGS

The man running the show at Netfl ix has a story that any screenwriter would be proud of.

18 | thE YEAR’S hOttESt StARtUpSA panel of VCs and entrepreneurs selected these

businesses from more than 300 contenders.

Plus: FORBES makeover.

20 | thE mOSt OvERpAid ActORSAdam Sandler tops the list.

Plus: Up-And-Comers.

22 | ActivE cONvERSAtiONA CEO eggs on the haters.

thOUGht lEAdERS

24 | cURRENt EvENtS by paul johnson

Dealing with Iran: impossible?

26 | cApitAl FlOwSby george leef

More college does not beget more economic prosperity.

cover photograph by michael grecco for forbes

78 | the young and the recklessIs Snapchat more than Silicon Valley’s

next vanishing act?

FORBES

UnDeR 30

30

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IBM, ibm.com, Let’s Build a Smarter Planet, Smarter Planet and their logos are trademarks of IBM Corp., registered in many jurisdictions worldwide. See current list atibm.com/trademark. ©International Business Machines Corp. 2013.


contents — JAnUARY 20, 2014

28 | iNNOvAtiON RUlESby rich karlgaard

Enduring success: soft-edge excellence.

StRAtEGiES

30 | thE BiGGESt BEt EvERGeorge Soros, John Paulson and Leon

Cooperman are facing of against Sheldon Adelson over the future of gambling in America.

by nathan vardi

34 | thE BiG EASY’S

mOviE mONEY pitLouisiana politicians decided handouts

would turn the state into a Tinseltown rival. Now they’re stuck with them.

by dorothy pomerantz

tEchNOlOGY

38 | iNSidE A BEAtiNG

SilicON hEARtDesigners have used computers for years to build

elaborate machines. But what about model-ing complex experiences? Dassault Systèmes is

leading the charge.by joann muller

43 | chiNA BitES iNtO BitcOiNA speculative frenzy turned BTC China

into the world’s biggest Bitcoin exchange. Then Beijing dropped the boom.

by kashmir hill

ENtREpRENEURS

46 | SEcONd liFEReggie Aggarwal almost lost his event

platform to bad luck and overspending. Here’s how he clawed his way past $1 billion.

by karsten strauss

50 | REAdY, FiRE, AimTrackingPoint makes a $27,500 rife

so smart that it can’t miss. So why has the company been misfring?

by abram brown

iNvEStiNG

54 | tURN dOctOR BillS iNtO

REtiREmENt iNcOmECreating super-IRAs out of health

savings accounts. by william baldwin

56 | mONEY FROm NOthiNGLooking for high yields? Consider buying the funds that sell the call options on your stocks.

by john dobosz

57 | pORtFOliO StRAtEGY

by ken fisher

A big (bull) surprise for 2014.

58 | iNvEStOR chEckUp

by john buckingham

Beating back the bubble babble.

34 | it’s a flopLouisiana’s Hollywood tax-break horror show.

30 | high rollers, high stakesA bevy of billionaires battle over online gambling.

43 | the forbidden

coinChina’s Bitcoin

crackdown is dashing the dreams of a

cryptocurrency entrepreneur.

50 | under the gunProfting from a futuristic frearm is a tricky shot.

46 | saving cventIn the event of emergency,

reinvent.

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contents — JAnUARY 20, 2014

60 | iNtRiNSic vAlUE

by david pearl

Cap ex comes out of the closet.

FEAtURES

72 | REiNvENtiNG wAll StREEtTroubled UBS has been transformed into a wealth

management juggernaut.by halah touryalai

30 UNdER 30

78 | NOw YOU SEE thEm...Will Snapchat cofounders Evan Spiegel and Bobby

Murphy become the youngest self-made billionaires ever—or will Snapchat fade

into business infamy?by j.j. colao

88 | 30 UNdER 30 liStIntroducing the brightest stars under the

age of 30 in 15 diferent felds. edited by caroline howard and michael noer

liFE

104 | pARAdiSE 2.0Can Larry Ellison model the future on the

Hawaiian Island of Lana’i?by laurie werner

112 | thOUGhtSOn New Year’s diets.

ExclUSivE!

BRUNO mARS’

30 UNdER 30 plAYliStIf you really do want to be a billionaire, start with

these 22 songs, handpicked by our guest DJ, Grammy-winner (and 30 Under 30 nominee) Bruno Mars, to enjoy while reading this issue. to listen along, go to forbes.com/under30.

“Move On Up” - Curtis Mayfeld“Mirror in The Bathroom” - The English Beat

“More Than a Woman” - Bee Gees“Devil’s Pie” - D’Angelo

“Waters of Nazareth” - Justice “God Only Knows” - The Beach Boys

“Shake a Lil’ Somethin’ ” - 2 Live Crew“Little Red Rooster” - Luther Allison

“Am I High” - N.E.R.D“Butter” - A Tribe Called Quest

“Da’ Dip” - Freak Nasty“Me Name Jr. Gong” - Damian Marley

“Kung Fu Fighting” - Carl Douglas“All Me” - (feat. 2 Chainz & Big Sean)“Get On the Floor” - Michael Jackson

“Animal” - Miike Snow“Somebody to Love Me” - Mark Ronson & The

Business Intl.“Won’t Fade Away” - Lewis Taylor

“Salute To Kareem” - Red Hot Chili Peppers“Midnight Rider” - The Allman Brothers Band

“Sweat (A La La La La Long)” - Inner Circle“Young Girls” - Bruno Mars

72 | the new ubsWinning the war for the

wallets of the world’s wealthiest.

54 | it’s what the doctor didn’t orderHow to use an HSA to play the stock market triple tax free.

104 | ellison’s edenIs economic viability a

forbidden fruit for the tech honcho’s Hawaiian hideaway?

95 | super bowl mvpBruno Mars’ halftime performance could be an even bigger hit than his latest album—if the weather cooperates.

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CHIEF PRODUCT OFFICERLewis D’Vorkin

FORbEs MagazInE

EDITORRandall Lane

ExECUTIvE EDITORMichael Noer

aRT & DEsIgn DIRECTORRobert Mansfeld

FORbEs DIgITal

vP, InvEsTIng EDITORMatt Schifrin

ManagIng EDITORsDan Bigman – Business, Tom Post – Entrepreneurs, Bruce Upbin – Technology

sEnIOR vP, PRODUCT DEvElOPMEnT anD vIDEOAndrea Spiegel

ExECUTIvE DIRECTOR, DIgITal PROgRaMMIng sTRaTEgyCoates Bateman

ExECUTIvE PRODUCERFrederick E. Allen – Leadership

Tim W. Ferguson FORbEs asIa

Kerry A. Dolan, Connie Guglielmo, Kashmir Hill sIlICOn vallEy

Janet Novack WasHIngTOn

Michael K. Ozanian sPORTsMOnEy

Mark Decker, John Dobosz, Luisa Kroll, Deborah Markson-Katz DEPaRTMEnT HEaDs

John Tamny OPInIOns

Kai Falkenberg EDITORIal COUnsEl

bUsInEss

Mark Howard CHIEF REvEnUE OFFICER

Tom Davis CHIEF MaRkETIng OFFICER

Charles Yardley PUblIsHER & ManagIng DIRECTOR FORbEs EUROPE

Nina La France sEnIOR vP, COnsUMER MaRkETIng & bUsInEss DEvElOPMEnT

Miguel Forbes PREsIDEnT, WORlDWIDE DEvElOPMEnT

Jack Laschever PREsIDEnT, FORbEs COnFEREnCEs

Michael Dugan CHIEF TECHnOlOgy OFFICER

Elaine Fry sEnIOR vP, M&D, COnTInUUM

FORbEs MEDIa

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Michael Federle CHIEF OPERaTIng OFFICER

Tom Callahan CHIEF FInanCIal OFFICER

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PREsIDEnT & PUblIsHER FORbEs asIa

Rich Karlgaard PUblIsHER

Moira Forbes PREsIDEnT, FORbEsWOMan

MariaRosa Cartolano gEnERal COUnsEl

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Mia Carbonell sEnIOR vP, CORPORaTE COMMUnICaTIOns

FOUnDED In 1917B.C. Forbes, Editor-in-Chief (1917-54)

Malcolm S. Forbes, Editor-in-Chief (1954-90)James W. Michaels, Editor (1961-99)William Baldwin, Editor (1999-2010)


FORBES

IN BRIEFEDITOR-In-CHIEF

Steve Forbes

FORbEs (ISSN 0015 6914) is published biweekly, except monthly in February, April, June, July, September and December by Forbes LLC, 60 Fifth Ave., New York, NY 10011. Periodicals postage paid at New York, NY and at additional mailing ofces. Canadian Agreement No. 40036469. Return undeliverable Canadian addresses to APC Postal Logistics, LLC, 140 E. Union Ave., East Rutherford, NJ 07073. Canada GST# 12576 9513 RT. POSTMASTER: Send address changes to Forbes Subscriber Service, P.O. Box 5471, Harlan, IA 51593-0971.

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jaNuaRy 20, 2014 — volumE 193 NumBER 1

The Social Network

On Our New Appby lEWIs D’vORkIn

What’s a magazine? At FORBES we think it’s an experi-

ence, not sheets of paper. Increasingly, consumers do, too.

It’s about turning, clicking, tapping or fipping to discover,

read, learn or be entertained. These actions seem natural.

The magazine we’ve produced for 96 years has nearly

1 million subscribers. On Flipboard, only a few years old,

our stories attracted 1.8 million readers in October and

racked up 44.5 million fips. Still, magazine experiences

must evolve for new behaviors. In the age of social media

they need to be far more social.

Most magazines remain solitary experiences. A reader’s

relationship is with the brand, the editors who pick the

stories and the authors who write them. There’s never

been a way for readers to easily share, connect or be part of

a community.

We’re changing all that. Last January we launched an

iPad app that made it easy to clip and share text, photos,

charts or whatever. Pinch the screen with two fngers.

Select and frame the content. Tap a Twitter or LinkedIn

or Facebook button to share. With this issue we’re taking

a big leap forward. Now FORBES enthusiasts can be part

of a frst-of-its-kind mini social network. Clippings are

included in an image stream for all app subscribers to see.

Tap any clip in the stream and go directly to the content—

or share it again. Editors select stories for each issue. The

community curates them for others.

“Stream,” as it’s called, was developed by MAZ, our app

partner. A startup founded by ex-Apple and ex-Adobe de-

signers and engineers, MAZ understands the challenges of

building new experiences with economic efciency. Most

media companies hire large, expensive stafs to re-create

their magazines for tablets and smartphones. The MAZ

solution repurposes PDFs used in print magazine produc-

tion by layering on actionable buttons. Last March our

Billionaires issue contained 2,000 links to Forbes.com posts.

“If you think about it,” says MAZ founder Paul Canetti,

“we’ve been sharing content the same way for 20 years.

Copy text, paste text, get text—words or links. ‘Stream’ is

part of the online world’s massive shift from text-based

media to visual-based media.”

For this 30 Under 30 issue on iPads and iPhones, there’s

audio, too. Bruno Mars has curated a 22-song playlist to

accompany this special issue. Clip, share, join the stream—

and listen in. It’s a special experience. F

If you had told any fnancial observ-

er in 2008 that the Federal Reserve

would expand its balance sheet fve-

fold in fve years, you’d have encoun-

tered astonished disbelief, followed

by the assertion that if ever such a

thing unfolded a Weimar Republic-like hyper-

infation would ensue. After all, in the infation-

beset 1970s and early 1980s, when the Consumer

Price Index was roaring ahead at a 13% annual

clip and interest rates were headed for the moon—

short-term rates peaked at 21.5% and long-term

Treasurys at 15.75%—the monetary base (currency

plus bank reserves on deposit at the Fed) had in-

creased 225% from 1970 to 1981, a 12-year period.

Contrast that to the 400% surge in the mon-

etary base since 2008. While there are valid

arguments that Washington has been chang-

ing the CPI to understate the rise in the cost of

everyday products and services, there’s no gain-

saying the fact that we are, thankfully, nowhere

near the horrors of the 1970s.

What gives?

What gives is that we focused too much on

the bloat of the monetary base and not nearly

enough on the unprecedented suppression of

both short- and long-term interest rates. Never

before had our central bank knocked down the

overnight cost of money to near 0%. And never

before had it attempted to beat the longer-term

cost of money to a fraction of its real price. (In

the early 1960s the original Operation Twist—

named after the dance made famous by Chubby

JANUARY 20, 2014 FORBES | 11

FACT & COMMENT — STEVE FORBES

FORBES

thE liEScONtiNUE

BY STEVE FORBES, EDITOR-IN-CHIEF

“With all thy getting, get understanding”

changes that would have

changed the plans dramatically

and led to large price increases.

Fighting last War?

This year Democrats will soon

be wondering if ObamaCare covers

political shellackings.

Nothing is more personal than

health—for us, our children, parents,

grandchildren, friends. Messing

with people’s medical care arouses

worries and anger as no other

subject can. And this is where the

Obama Administration made a fate-

ful miscalculation. We’ll tolerate

some spin on taxes, spending, regu-

lation and scandals, but we have zero tolerance

for lying or cynically twisting the truth regard-

ing issues that afect our access to health care

and the doctors we trust.

It’s the White House’s brazen abuse of the

truth regarding ObamaCare that will lead to a

Democrat debacle in November. We’re all too

familiar with the President’s lies about our

being able to keep our policies and doctors.

But the contempt for the public continues.

Remember when millions of people and small

businesses received cancellation notices from

their insurers and the President declared that,

okay, you could keep your insurance in 2014?

Another lie.

Here’s an astonishing excerpt from a letter

sent to individual policyholders of Horizon

Blue Cross Blue Shield of New Jersey:

Horizon BCBSNJ wanted to let cus-

tomers keep their policies in 2014, based

upon President Obama’s declaration that

he would allow cancelled plans to be re-

newed. The federal government, however,

notifed the New Jersey Department of

Banking and Insurance that current poli-

cies cannot be renewed without major


FORBES

FACT & COMMENT — STEVE FORBES

F

Checker—was mercifully short-lived.

It had been undertaken in a misbegot-

ten efort to strengthen the dollar.)

Only a handful of economists,

most notably FORBES columnist

David Malpass, have pointed out

that this monetary version of price

controls is a form of credit allocation.

The federal government easily got

all the cash it wanted at ultracheap

rates, i.e., defcits without tears. Big

companies had no trouble access-

ing credit and putting their balance

sheets in pristine order. But credit to

small and new businesses dried up,

a drought magnifed enormously by

bank regulators who told their charges

to reduce risk and to document six

ways to Sunday any loans to a nonbig

borrower. Remember, small and new

businesses are the source of most

new jobs. Through its quantitative

easings the Fed efectively sucked up

much of the fnancial market’s short-

term credit that normally would have

gone to these businesses.

Malpass observes: “The U.S. pri-

vate sector has been facing one of the

tightest money/regulatory policies in

history.”

The fact that the Fed has started

to taper, albeit at a tepid pace, is good

news. It will mean the beginning of

rebuilding our warped credit markets.

There are two other, very obvious

factors that explain why there has

been no explosion in higher consum-

er prices. One is higher taxes and an

ever more convoluted and corrupt tax

code; the other is the chaotic uncer-

tainty that Obama Care has visited on

business and the American people.

The suppression of interest rates

has been mimicked by other coun-

tries, with equally distressing results.

These have been magnifed by even

stupider regulations and higher levels

of taxation than those we sufer.

(Make no mistake, the Fed’s un-

dermining of the dollar since the early

part of the last decade has wrought

immense havoc. For instance, with-

out a weak dollar there would never

have been a housing bubble.)

Of course, since virtually no cen-

tral banker today—not to mention

political leaders or economists—un-

derstands monetary policy, an infation

disaster could still eventually unfold.

For now, though, credit suppression

of a kind we’ve never seen before and

growth-crushing levels of taxation

and regulation will keep us from en-

joying vigorous, sustainable growth.

So don’t get too giddy over our

“improving” economy. We’re not

sufering pneumonia, but we’re still

being worn down by a persistent fu.

hitlercare

the practice in 2002, it was suspected

that doctors and hospital administra-

tors were occasionally killing patients

to free up hospital beds. Procedures

have (supposedly) been tightened. Bel-

gium also passed a euthanasia law in

2002, and Quebec is about to enact one.

Of course, advocates claim they only

want to end the misery of those writh-

ing in unspeakable pain. But this raises

the question: Why don’t we do more

medically to relieve such sufering?

The number of adults euthanized

in Belgium soared 25% between 2011

and 2012; the annual toll is now seven

times what it was when the law was

enacted and accounts for 2% of all

deaths. A similar percentage in the

U.S. would result in more than 50,000

killings. To put this in perspective, the

total number of people murdered each

year in the U.S. is about 16,000. In

Holland euthanasia ofcially accounts

for 3% of deaths (proportionately that

would be 75,000 in the U.S.), but in

practice, the percentage is far higher.

And now we’re on the way to killing

children in the name of compassion.

As euthanasia becomes more ac-

cepted—and we become more numb

to the horror of murdering people

like this—we’ll descend to the next

abomination: pressuring the sick to

discontinue treatment for a likely fatal

illness in the name of “saving scarce

resources” for people who have more

years ahead of them. After all, an

enormous percentage of medical costs

are wracked up by people who have

less than six months to live. Britain

already has its own version of a death

panel, which has a formula for deter-

mining who gets expensive treatment

and who doesn’t.

Let’s be clear. We’re not talking about

adults deciding they don’t want “heroic”

methods applied when they’re sufer-

ing a fatal illness; we’re talking about

the conscious taking of a life by people

who are trained to cure us of illness.

The true mark of a civilization

is in how it treats its most vulnerable

members.

Belgium is on its way to allowing

doctors, with parental consent, to kill

children deemed to be aficted with

“constant and unbearable physical

sufering.” The kids must also sign of

on this, as if a child has the capacity

to reason like an adult.

We are on the malignantly slippery

slope to becoming a society like that

envisioned by Nazi Germany, one in

which “undesirables” are disposed of

like used tissue. While the Nazis carried

this ideology of death to its ghastly logi-

cal conclusion, the belief that it would

be good for the human race to improve

itself—as breeders do with horses, dogs,

cows and other animals and plants—

was also widespread in numerous other

countries, including the U.S., before

WWII. It was called eugenics, and

under its banner countless hundreds of

thousands of people, particularly those

deemed mentally handicapped, were

forcibly sterilized to prevent them from

fathering or birthing children. Before

the war Nazi Germany killed upwards

of 8,000 children judged to be “men-

tally defcient” or incurably ill.

The Holocaust and other Nazi

atrocities sidetracked the eugenics

movement. But now it’s making a

comeback in new garb—we want to

kill only to reduce sufering.

Several countries already allow adult

euthanasia. In Holland, which legalized

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7/2013 8/2013 9/2013 10/2013 11/2013 12/2013

ROBERT PERA

RICHARD SCHULZE

ELON MUSK

WILLIAM ERBEY

MARK ZUCKERBERG

SHELDON ADELSON

JEFF BEZOS


June 28

Jon Oringer becomes

a billionaire eight

months after

Shutterstock’s IPO.

August 3

Red Sox owner

John Henry buys

the Boston Globe

for $70 million;

two days later Jef

Bezos pays $250

million for the

Washington Post.

August 15

Private equity billionaire

Josh Harris and a partner

buy the New Jersey Devils

for $320 million.

September 2

Eike Batista, the world’s seventh-richest

person in 2012, then worth $30 billion,

ceases to be a billionaire as stock in his

oil and gas company, OGX, plummets.

October 29

Michael Dell takes his

namesake computer

company private in a

$25 billion deal.

November 4

Hedge fund billionaire Steven

A. Cohen’s SAC Capital agrees

to pay $1.8 billion in fi nes and

penalties after pleading guilty

to securities fraud.

November 7

Twitter’s IPO confi rms that Evan Williams is a

billionaire and boosts Jack Dorsey’s fortune by

$450 million in one day.

November 12

Francis Bacon’s Three Studies of Lucian Freud

sells for $142 million, the most ever for an

artwork at auction. The next night Steven A.

Cohen sells art for more than $80 million,

including an Andy Warhol for $20.3 million.

November 15

E-tailer Zulily goes public,

propelling founder Mark Vadon

into the billionaire ranks.

WILLIAM ERBEY

+$1.8 BILLION

YEAR-END NET WORTH:

$3.1 BILLION

OCWEN FINANCIAL HAS

A BIG YEAR CATERING

TO UNDERWATER

HOMEOWNERS.

ELON MUSK

+$4 BILLION

YEAR-END NET WORTH:

$6.6 BILLION

TESLA MOTORS TAKES

OFF IN 2013, DESPITE

A FEW SPEED BUMPS

ALONG THE WAY.

MARK ZUCKERBERG

+$11.3 BILLION

YEAR-END NET WORTH:

$23.5 BILLION

FACEBOOK SHOOTS PAST

ITS IPO PRICE IN JULY AND

JOINS THE S&P 500 IN

DECEMBER.

JEFF BEZOS

+$12 BILLION

YEAR-END NET WORTH:

$35.6 BILLION

AMAZON CEO’S

FORTUNE HAS MORE

THAN DOUBLED IN THE

PAST TWO YEARS.

+200%

+166%

+160%

+148%

+93%

+67%

+51%

SOURCES: INTERACTIVE DATA VIA FACTSET RESEARCH SYSTEMS; FORBES. NET WORTH DATA THROUGH DEC. 10, 2013.

LEADERBOARD 655 Netfix’s highest-ever price/earnings ratio, in

March 2013, when its stock was at $192.

16 | FORBES januaRy 20, 2014

Net�ix’s subscriber base has doubled to 40 million since 2010, and its stock price quadrupled to $375 last year, making it the best-performing stock on the S&P 500. Its CEO’s long journey to that triumph has been a tale any screenwriter would be proud of.

by

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ug

lie

lm

o

Ma

rc

elo

He

rn

an

de

z /

Ge

tt

y IM

aG

es

into AfricA

Graduates from Bowdoin col-

lege in 1983. Joins the Peace

corps and teaches math in

swaziland for two years.

iPo

netfix goes public in

2002—revealing how prof-

itable the business can be.

Blockbuster starts mailing

dVds two years later.

netfix gains its millionth

subscriber in 2003.

beAting blockbuster

In 2006 netfix ships its more

than 42 million dVds to

6.3 million subscribers. Block-

buster falters and announces

in 2013 that it’s closing its last

stores and shutting down its

mail-order service.

from Apollo 13 to

netflix

cofounds netfix in 1997 to mail

out dVd rentals for a monthly

fee after getting hit with

$40 in late charges on an

Apollo 13 rental.

booby Prize

creates the netfix Prize for a

better system to predict what

people want to watch. Pays

out $1 million to the winner in

2009 but decides implement-

ing the solution wouldn’t be

proftable enough.

cAtAstroPhe

Hastings tries to split netfix

into two companies in 2011:

Qwikster for dVds and netfix

for streaming. loses 800,000

subscribers, share price plum-

mets, and three weeks later

he gives up the plan. rumors

spread that he will be fred.

internet tV

launches an original series,

House of Cards, in February

2013—a huge hit. It wins three

emmys. now netfix plans to

spend $3 billion on new content.

ceo in trAining

obtains a master’s in computer

science at stanford in 1988

and starts Pure software to

make debugging tools. loses

confdence as ceo; tries to fre

himself. company sells for

$750 million in 1997, giving him

the cash to start netfix.growing PAins

netfix settles a class-

action lawsuit in 2006 over

delayed mailings to expen-

sive heavy users. Faces a

tech crisis in 2008 when

a software glitch keeps it

from sending out dVds.

streAming

Unveils streaming service in 2007,

and within three years is sending

movies to Xbox, apple tV and

other devices. Joins the s&P 500

in 2010. Profts from domestic

streaming surpass dVds in 2013.

path to success

being ReeD HASTingS

12/31/12 6/21/13 12/18/13

90

100

150

200

250

300

350

$400

stock price

Source: InteractIve Data vIa

FactSet reSearch SyStemS.

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These funds are looking for

the companies poised to thrive.

LEADERBOARD


44% Amount by which T-Mobile’s net subscriber

growth in the third quarter of 2013 exceeded

both AT&T’s and Sprint’s.

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forbes makeover

T-MOBILE’S JOHN LEGEREOur fashion pros call up a new look for the telecom CEO.

JOsEPh AbbOuD: the award-winning designer and

entrepreneur got his start at Louis boston before serving

as director of menswear design for ralph Lauren.

he launched his namesake brand in 1987 and is currently

the chief creative director for men’s wearhouse.

KAthy iRElAnD: the supermodel turned supermogul

is the chief executive and chief designer of kathy ireland

worldwide, a design and marketing frm she launched

in 1993. Women’s Wear Daily has named her one of the

50 most infuential people in fashion.

thE VERDiCt

JA: he’s so much more put

together. he’s kind of casually

cool, not trying too hard.

Ki: he keeps his youthful attitude

while enhancing his strong pres-

ence as a passionate ceo.

Before After

shOEs

Ki: his shoelaces are too long—a

safety problem and a style deterrent.

JA: matching his laces to his shirt is

trying too hard. i’m not buying that

for a guy his age anyway.

the “after” image is a simuLated image of what John Legere wouLd Look Like if he had actuaLLy ParticiPated in the forbes makeoVer, which he did not. nor does he endorse any Products Pictured here.

eNTrePreNeUrs

A FORBES panel of venture capitalists and

entrepreneurs picked these new U.S. businesses

from more than 300 contenders, judging them

on breakthrough ideas, fast growth, solid funding

and promise for the future. For more, go to forbes

.com/hotteststartups.

THE YEAR’S

HOTTEST STARTUPS

shiRt

JA: i’m not sure when it happened

that if you’re a ceo and you want to

be cool you wear a t-shirt. that was

a black date in fashion history.

JACKEt

Ki: accenting the blazer with a

windowpane plaid shirt gives an

exciting pop of pattern.

JA: it just feels like a more expensive

jacket with a little more shape, and

he’s obviously a guy who can wear

a leaner cut.

shOEs

JA: the suede shoe with a sneaker

bottom is a cool way to do some-

thing a little casual but not feel like

he should be playing basketball.

Ki: combining the crisp trousers

with the taupe suede shoes helps

him stay fresh and hip.

bluE APROn

former venture capitalist matt

salzberg and two partners began

delivering unusual ingredients

and easy recipes to your door

for $9.99 in august 2012. with

$8 million from investors they’ve

now reached 300,000 meals a month and

can serve 80% of the u.s. population.

COinbAsE

it’s the easiest way to buy and transfer

bitcoin. with $31 million in backing, it helps

17,000 merchants, including

okcupid and reddit, use the

virtual money and has more than

600,000 users. it takes a 1% cut

per transaction on the hyper-

volatile currency.

EstiMizE

crowdsourcing comes to

stock picking. estimize’s users

estimate companies’ future

earnings, and its 18,000

forecasters have beaten wall

street’s seers 69% of the time. it has won

a deal to get its data onto bloomberg’s

300,000 terminals.

hOMEJOy

mopping your home for $20 an hour may

not sound lucrative, but brother and sister

adora and aaron cheung already have their

cleaning service operating in 31

cities after raising $40 million

in funding. they pay their

cleaners a fair $15 an hour and

plan to scale up big in 2014.

F I N D O U T W H A T C O R N E R S W E D O N O T C U T , E V E R / 8 7 7 J E T 2 8 0 6 / N E T J E T S . C O M

Tr u s t c a n n o t b e b o u g h t ,

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Relying on the integrity of

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over time – when there’s a good

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in safety and the reputable

backing of Berkshire Hathaway

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f o r b u s i n e s s , f o r f a m i l y, f o r l i f e

LEADERBOARD


14 Number of Adam Sandler’s flms

that have grossed more

than $100 million domestically.

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Je� Hyman RETROFIT

a visit to a weight-loss resort inspired hyman, 45, to start

a service that gives its users personalized programs to

lose 10% to 15% of their weight in 12 months, interacting

with coaches through skype. he says more than 90% of

his clients have shed an average of 20 pounds within a

year, and half of them are men. retroft has raised $15.7 million, and it nearly

tripled its customer base in the past year.

Eric Carreel and Cédric Hutchings

WITHINGS

Five years ago the two Frenchmen launched a wi-Fi-

enabled scale that sent weight, fat-to-lean ratio and

other data to your smartphone and coached you on

improving your results. Now 54 and 37, they’ve added

other devices, including blood pressure monitors, and they raised

$30 million in a funding round this past summer.

Michael Horvath and Mark Gainey STRAVA

horvath, 48, and gainey, 45, created their app in

2009 to let you track a run or a bike ride with your

smartphone; its biggest draw is that paying mem-

bers get to compete with other local users, as well

as set training goals. in 2013 they doubled their worldwide user base

and tripled their revenue. they’ve raised $25 million in funding.

TO YOUR HEALTH

UP-AND-COMERS

Struggling to get �t after yourholiday binges? These entrepreneurs want to help you.

How many days do you exercise each week?

ASK 50 BILLIONAIRES HOLLyWOOD

THin cATs THE mOsT OvERpAid AcTORs

Adam Sandler is one of the

few movie stars who can

still demand a paycheck

north of $15 million per

flm. But is he worth it? Not

according to our calcula-

tions, based on how much

an actor’s last three movies

earned at the box ofce per

dollar of pay. Jack and Jill,

in which he played twins,

grossed $150 million but

cost so much to make that

it lost Sony money, and

That’s My Boy was a major

bomb. A consolation: 2012’s

animated Hotel Transylva-

nia was the biggest hit of his

career.

28.9%2 or 320.0%

around 5

8.9%

11.1%

31.1%nearly

every day

respoNses to aN aNoNymous poll oF

50 members oF the Forbes world’s billioNaires list.

1. adam sandLer

returNs1 $3.40 For every $1 paid

2. KaTHerIne HeIGL $3.50 For every $1 paid 27 Dresses in 2008 made her the new queen of

romantic comedies … until fops like Killers and One

for the Money.

3. reese WITHerspoon $3.90 For every $1 paidshe’s in the middle of reinventing her career to

produce her own movies. expect her to give herself a

big pay cut.

4. nIcoLas caGe $6.00 For every $1 paidwe didn’t include animated movies; if we did, his

dreamworks hit, The Croods, would make him

look better.

5. KeVIn James $6.10 For every $1 paidhe was one of the flm industry’s most bankable

actors until he fopped in 2012 with Here Comes

the Boom.

6. denZeL WasHInGTon $8.30 For every $1 paidas one of hollywood’s most respected actors he can

demand a huge paycheck, but he doesn’t always win

at the box ofce.

7. sTeVe careLL $10.00 For every $1 paidhe had a major misfre with The Incredible

Burt Wonderstone. it grossed just $22 million

worldwide.1average proFit to the studio based oN the costs aNd reveNues oF each oF the actor’s

last three movies iN the three years eNdiNg JuNe 2013.

1

0

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Stories of Innovation


LEADERBOARD

MAKING THE EGG OBSOLETEFORBES, DECEMBER 16, 2013

37,172 VIEWS ON FORBES.COM

Josh Tetrick sees the future in mayonnaise, staf reporter

Ryan Mac reported. The CEO of the San Francisco startup

Hampton Creek is pushing an eggless version that he says is

far healthier and cheaper than the usual slop and is a frst step

to a new sustainable food industry. Investors, including Bill

Gates and Peter Thiel, have agreed to the tune of $6 million.

When commenters started weighing in on the article online,

Tetrick jumped right in. “Nothing against San Francisco

or its food, but with everybody dieting, who eats mayon-

naise anymore?” asked Bodo. Tetrick shot back, “Over $11B

in sales last year—and growing.” Gear Mentation wrote, “An

egg substitute is great, as long as it has at least as much bal-

anced protein.” Tetrick’s response: “Plants contribute over

60% of the per capita supply of protein around the world.

Closer to the Hampton Creek HQ (in North America),

animals contribute about 70% of our protein. The plants

we use have it.” Joseph Brunner: “News fash to liberals and

tree huggers: God created eggs over billions of years. It’s

the perfect protein and lutein source. We don’t want your

do-gooder plant goo substitute.” Tetrick: “God also created

plants, I think :).” Zan Shin commented, “Since the energy

input to food energy output is so much lower, and billion-

aires like Gates are helping subsidize startup costs, the

price should also be dramatically lower than real eggs. And

yet nowhere in the article is this mentioned.” Tetrick didn’t

respond to that one. Meanwhile, the Washington Post drew

an almost 400-word article out of a single sentence in the

story. Under the headline AL GORE GOES VEGAN, WITH

LITTLE FANFARE it reported, “Gore’s recent decision to

forgo animal products surfaced as an ofand reference in

a FORBES magazine piece,” and added, “Gore’s ofce did

not immediately respond to a request for comment.”

HOW SMART IS INVESTING IN ART?

@TODDNEV

Buy art that makes you

happy. That’s the return.

@WINZONLINE

Art has yielded me the high-

est return of all investment

classes. Own over 70 pieces

from three continents … lack

of liquidity, though.

@AMOURCOLETTE

It’s about the art, not invest-

ment. Whatever it may yield

is simply a bonus.

365 WAYS TO GET RICH

ZA-ZAAM FLAH

The problem is where do

you get the little money

that is required to get more

money?

KELVIN LASWAI

366: Shut down your

Facebook and get a job!

PEDRO SOUSA

Plenty of entrepreneurs use

Facebook (and other social

media) to make money. Just

saying.

LUCIEN HOOPER TURNED $1,000 INTO $42 MILLION

@BILL_SPUR

As soon as I fnish my time-

travel machine, I’ll go back

and make this investment.

NHL wOES FORBES, DECEMBER 16, 2013

11,796 VIEWS ON FORBES.COM

Pro hockey is a great busi-

ness—in Canada. In the

U.S., it’s mostly a money-

loser, staf writer Tom Van

Riper revealed. When a

reader suggested that the

U.S. is a growth market to

be carefully tended, fel-

low commenter K. Webb

pounced: “For the U.S. to

be considered [that] you

would expect there to be

a number of cities capable

of proftably sustaining an

NHL team that currently

don’t have one … . There

aren’t any.” Ronald Pudzs

added, “What I don’t un-

derstand is why the NHL

would expand … in the

southern states before

fully developing hockey

in the north. Teams in

Seattle or Portland would

create so much more ex-

citement.” Susie Crawfsh

knew just who to blame:

“NHL Commissioner

Bett man keeps blocking

NHL expansion in Can-

ada. Could you forward

him this article, please?”

fAvOrITE TwEET@RosabethKanter (on new

GM CEO Mary Barra):

It’s official. Girls

like cars. And car

companies like women

driving them.

active conversation

$349 MILLION Total amount of venture capital

invested in food tech companies like Hampton Creek

in 2012, up 37% from the year before.


thought leaders

Paul JohNsoN — CurreNt eVeNts

Whether or not the agreement

reached with Iran in Geneva last

November prevents Iran from creat-

ing a nuclear weapon, the question

still remains—why did Iran want to

make one in the frst place?

Possessing a nuclear bomb isn’t the

same thing as having a nuclear capabil-

ity. Pakistan has had nuclear weapons

for nearly 20 years but has failed to

create an efective means of delivering

them to anything beyond small local

targets. Yet a quarter of the nation’s

armed forces are permanently occu-

pied in protecting these weapons from

theft by domestic and foreign terrorists.

The chief consequence of Pakistan’s

possessing nuclear weapons is that it

has intensifed hostile relations with

India. Pakistan has the means to deliv-

er one or two horrifc blows to India—

at the cost of its own existence. Having

an A-bomb is a kind of suicide pill for

a second-rate power like Pakistan.

Germany and Japan, two of the

world’s largest and most efcient

economies, have never sought to cre-

ate nuclear weapons. Indeed, both

have made a point of not doing so,

saving them a great deal of money

and simplifying their foreign and

defense policies enormously without

signifcantly weakening their posi-

tions as major powers. The universal

political consensus in both countries

is that the veto on nuclear weapons

should remain fxed indefnitely.

Other than such active superpowers

as the U.S. and China, it’s hard to think

of any country that could be shown to

beneft from having a nuclear capabil-

ity. A possible exception would be Rus-

sia. Its 8,500 or so atomic warheads and

delivery systems serve to enforce Vladi-

mir Putin’s bullying and muscle-man

displays. Other than its wealth in natu-

ral energy Russia’s economic power is

unimpressive. The country would be

better served by investing its resources

in its defective infrastructure instead

of in the pretense of being a military

superpower. Sadly, such a revolution

in global thinking is inconceivable to

the blinkered men currently in control.

They prefer to retain the means of

destroying any country on the planet

than to create a truly modern econo-

my that would beneft their people.

Wishful thinking

Iran wants nuclear weapons for reasons

that are closer to metaphysics or theol-

ogy than strict military policy. Yet there’s

one faw in this argument: If Iran stands

to beneft so little from these weapons,

why are its two chief enemies, Israel and

Saudi Arabia, so opposed to and horri-

fed by the pact reached in Geneva?

The obvious answer is that because

of the geographic concentration of

their military, economic and demo-

graphic resources both powers (as

well as others in the region, notably

Qatar) are particularly vulnerable to

a single, devastating blow. In terms

of practical realities it’s doubtful

that Iran could manage to explode a

single nuclear weapon in Israeli or

Saudi airspace any time in the near

future. But Israeli and Saudi mili-

tary planners can’t aford to make a

mistake that could jeopardize their

nations’ survival. Iran’s going nuclear

is as much a psychological problem

as it is a military problem.

What would it take for the Israelis

and the Saudis to feel secure? Iran

would have to formally renounce

its basic foreign policy aims, which

include the destruction of the Jewish

state and the Sunni kingdom, and de-

molish all of its nuclear installations,

including those relating to purely

peaceful energy. That’s a tall order—

and one not likely to ever be met.

However, both the Israelis and the

Saudis are realists and will likely settle

for something less than 100% security.

A major issue is the Geneva agreement,

which is riddled with loopholes that

work in Iran’s favor and depends—to

an unusual degree in international

protocols—on the good faith and per-

sonal word of the signatories.

Since the mullahs took over a

generation ago, Iran has had a long

record of wild threats and bloodthirsty

menacings. It is in roughly the same

position Hitler’s Germany was in at the

end of the 1930s. Nobody trusts Iran,

and striking a deal with its leaders

depends entirely on what you have at

risk. If you are jeopardizing your entire

nation and people—as the Israelis and

the Saudis are—then, short of a mira-

cle, a deal is not going to happen.

Dealing with iran

ImpossIble?

Paul Johnson, EmiNENt BRitiSh hiStORiAN ANd AUthOR; DaviD MalPass, glOBAl EcONOmiSt, pRESidENt OF ENcimA glOBAl llc; aMity shlaes, diREctOR, thE 4% gROwth

pROJEct, gEORgE w. BUSh iNStitUtE; ANd lee Kuan yew, FORmER pRimE miNiStER OF SiNg ApORE, ROtAtE iN wRitiNg thiS cOlUmN. tO SEE pASt cURRENt EvENtS cOlUmNS,

viSit OUR wEBSitE At www.forbes.coM/currentevents.

F

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thought leaders

george leef — CaPItal floWs

In hIs fIrst address to Congress

President Obama argued that the U.S.

needs to put far more people through

college so that our economy will remain

competitive with those of other nations.

He set forth a goal of again having “the

highest proportion of college graduates

in the world.”

Failure to raise our educational at-

tainment level, on the other hand, “is a

prescription for economic decline.”

The President’s thinking is shared

by many others. Economic success,

both individually and at the national

level, tends to correlate with educa-

tion. People (and countries) with little

education are mostly poor, while people

(and countries) with very advanced ed-

ucation are mostly wealthy. Therefore,

it’s tempting to jump to the conclusion

that partaking of more education will

boost an individual’s income and that

a country can increase prosperity by

“investing” more in education.

Resist that temptation, which is

based on fallacious reasoning.

True, education correlates with

prosperity and economic growth, but

one of the crucial lessons of logic is that

correlation does not necessarily imply

causation. We must apply it here.

People who have high intelligence

and ambition often earn college and

advanced degrees. Sometimes that

formal education is important in their

later success, but many say that their

education had very little to do with it.

Conversely, some extremely successful

people dropped out of college or never

attended at all. And as those ridiculous

Occupy Wall Street protests taught us,

huge numbers of college graduates are

unemployed or employed only in jobs

that don’t call for anything more than

basic trainability.

Conclusion: Having a college educa-

tion is neither a necessary nor a suf-

fcient condition for personal success.

Many people prosper without college,

and many who have B.A. degrees or

higher nevertheless struggle in low-

paying jobs, often saddled with high

student loan debts.

What that means for nations is that

it isn’t possible to generate economic

progress just by “investing” in educa-

tion. More seat time, credits and de-

grees don’t automatically translate into

more productive people.

Don’t take my word for it. I rec-

ommend reading the book by British

education professor Alison Wolf, Does

Education Matter? (Penguin Books,

2002). The American education estab-

lishment ignores that book because it

exposes (and this is its subtitle) myths

about education and economic growth.

Wolf shows that when governments

attempt to speed up economic progress

by spending more on formal education,

they mostly squander resources.

One example Wolf gives is Egypt,

which “invested” heavily in higher edu-

cation. That did not lead to rising eco-

nomic output, however, because little of

the students’ learning at their univer-

sities coordinated with the skills and

knowledge needed for entrepreneur-

ship and improving efciency in the

Egyptian economy. Instead, it created a

mass of people with university degrees

who expected high-paying jobs that did

not and could not exist.

The key point is that formal educa-

tion doesn’t necessarily lead to knowl-

edge and skills the individual can use

productively.

That was true in Egypt and is equally

true with many American college grad-

uates. Hordes of academically

weak and disengaged kids have

been lured into college with the

idea that getting a degree—any

degree, from anywhere—means

they’ll enjoy a hefty gain in

earnings. Unfortunately, many

of them coast through without

adding anything to their human

capital. They may have a degree, but

that and $3 will get them a cofee at

Starbucks, where they’re apt to work.

People are good at fguring out

how to maximize their human capital,

but government inducements to take

certain kinds of approved education

leads many to waste time and money.

Instead of boosting the nation’s pro-

ductivity, that depresses it, just as

make-work jobs and needless govern-

ment projects like the famous “bridge

to nowhere” do.

The best education policy: Leave it

to individual choice in a free market.

More College Does Not Beget

More econoMic ProsPerity

GeorGe Leef, A FORBES cONtRiBUtOR, iS thE DiREctOR

OF RESEARch At thE JOhN W. POPE cENtER FOR highER

EDUcAtiON POlicY. F

More seat tiMe, credits and degrees don’t autoMatically translate into More Productive PeoPle

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thought leaders

rICh Karlgaard — INNoVatIoN rules

proft margins, higher stock market

multiples, more loyal customers and

more committed employees. Soft-

edge excellence is the ticket out of

Commodityville.

• Companies strong in the soft edge are

better prepared to survive a big strate-

gic mistake or cataclysmic disruption

that would sink companies without it.

Loyalty, passion and commitment are

the dividends of a strong soft edge.

• Hard-edge strength is absolutely

necessary to stay alive and compete,

but it provides a feeting advantage.

The hard edge is easier to clone

than soft-edge strength, especially

as technology and software become

cheaper and more accessible. Apple’s

great design and loyal fan base—soft-

edge advantages—are the essence of

Apple’s enduring appeal more than

its supply chain and capital ef-

ciency, great as those are. What gives

Starbucks its ultimate edge? The

best cofee? No, say people who love

cofee. Cheaper locations? Quite the

opposite. It’s Starbucks’ soft-edge ex-

cellence, which includes trust, brand

and cheerful employees, that creates

a consistently satisfying experience.

Enduring succEss

soft-EdgE ExcEllEncE

Rich KaRlgaaRd iS thE pUBliShER At FORBES. hiS NExt BOOk, the soft edge: where great companies find lasting

success, will BE OUt iN ApRil. FOR hiS pASt cOlUmNS ANd BlOgS viSit OUR wEBSitE At www.FORBES.cOm/kARlgAARd.

A common existential debate exists

within most companies and among

most managers. It’s between the hard

(fnancial rigor) and soft (sustaining

cultural values) edges. Which side—

hard or soft—should command the

CEO’s attention? There’s a right answer

for every company, and it will vary

from year to year. But from my obser-

vational perch, it’s apparent that far

too many CEOs invest too little time

in their soft edge. In the long run their

companies will pay for this mistake.

There are three main reasons for

this error.

• The hard edge is easier to quantify.

The metrics around hard-edge advan-

tages, such as speed, cost, supply chains,

logistics and capital efciency, are well

understood. The data are relatively easy

to gather, search, analyze and manage.

• Successful hard-edge investment

yields a faster return. Spending

money on technology that trims costs

or cuts time in a supply chain seems

like a no-brainer.

• CEOs, CFOs, chief operating ofcers,

boards of directors and shareholders

speak the language of fnance. These

people, the company’s hard-edgers,

are experienced and comfortable with

numbers. To these left-brain busi-

ness titans, the soft edge looks like

the realm of artists, idealists, hippies,

poets, shrinks and do-gooders. This

sets up a Mars versus Venus dynamic.

Does the hard edge, therefore,

have the more convincing case in the

fght for time and money? No, just

the easier case. Let me make the case

for investing some time and money in

your company’s soft edge.

• Soft-edge attributes, such as trust,

teamwork, taste and story, lead to

greater brand recognition, higher

f

Dell Computer (now just Dell) was

the fastest-growing American stock in

the 1990s. An investment of $1,000 on

Jan. 1, 1990 was worth nearly $1 mil-

lion by decade’s end. During the 1990s

Dell blew past its competitors Gate-

way, Compaq and Hewlett-Packard.

Dell’s hard-edge excellence was an

extension of founder Michael Dell’s

operational and supply-chain focus.

Dell was legendary for its tight con-

trol of costs, mastery of logistics and

speed of delivery, among other faw-

lessly executed skills. No personal

computer vendor could match Dell’s

oferings of choice, cheap prices, good

enough quality and fast delivery.

Dell’s spotless execution was per-

fect for an era in which IT departments

bought PCs and laptops for employees.

But Dell’s advantages were trumped

by a sudden shift toward smartphones

and tablets and by employees bring-

ing their own technology to work.

Now Dell is a private company. As

such, it has a second shot at greatness,

without shareholders second-guessing

its every wiggle. The early signs are

encouraging. Dell is paying of its loans

ahead of schedule, and employee mo-

rale is on the upswing. That’s a start.

But Dell also needs to rediscover its

soft edge. It needs to enchant us with

new products and services. It needs to

make us care about the company and

its mission and to cheer for its success,

as we once did. Steve Jobs recaptured

Apple’s soft edge. Michael Eisner

made Disney exciting again. Dell can

do the same, and I hope it does.

Dell’s comeback

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30 | FORBES JanuaRy 20, 2014

general to sign a petition against online gam-

bling. He’s hired former New York governor

George Pataki, together with former Arkansas

senator Blanche Lincoln and former Denver

mayor Wellington Webb to lead the lobbying

efort. “There is no reason to put a casino on

everybody’s kitchen table, in the bed of every

young person, whether they are underage or

of age, or on mobile phones,” says Adelson. “I

don’t want people to get addicted.”

So far the markets are betting he’ll lose.

In November George Soros, John

Paulson and Leon Cooperman, three

of the most successful hedge fund

managers ever, quietly participated

in a rights ofering and became major

shareholders in Caesars Acquisition Co., a

spinof from casino company Caesars En-

tertainment that has ownership in Caesars’

online gambling assets.

Their stakes—previously unreported—are

all part of an unprecedented bet on the future

of the $60 billion casino business in America,

as states from New Jersey to Delaware and

Nevada legalize a practice that the Depart-

ment of Justice said was illegal just two years

ago. They were joined by billionaire private

equity managers Leon Black, David Bonder-

man, Marc Rowan and Joshua Harris, whose

two respective buyout frms are the biggest

shareholders in Caesars Entertainment and

doubled down by investing a combined $484

million in Caesars’ online gambling vehicle.

Already a roster of billionaires, from

brothers Lorenzo and Frank Fertitta, who

control the Ultimate Fighting Champion-

ship, to MGM Resorts’ biggest shareholder,

billionaire Kirk Kerkorian, are betting big

on online gambling’s comeback.

There’s just one problem with all of this:

Sheldon Adelson. The very week that Cae-

sars’ online gambling play started trading

on the Nasdaq, Adelson, the nation’s ffth-

richest man—and one of the country’s biggest

political donors—thanks to his vast casino

holdings, unleashed an army of lawyers and

lobbyists on Washington and state capitals,

telling FORBES he will “spend whatever it

takes” to stop online gambling in America.

His advocacy group—the Coalition to Stop

Internet Gambling—is already up and run-

ning, and is working to get state attorneys

GAMBLING

The Biggest Bet Ever

By NathaN Vardi

George Soros, John Paulson and Leon Cooperman have secretly moved into battle mode against Sheldon Adelson. The stakes: the future of gambling in America.

STRATEGIES

St

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operations, leaving the then $1.4 billion U.S.

online poker market dominated by two of -

shore companies, PokerStars and Full Tilt

Poker, which profi ted immensely because of

the high-margin nature of the business. But

federal prosecutors and agents kept inves-

tigating the companies, seizing their funds

and eventually in 2011 shutting down the

websites of the major online poker compa-

nies that cater to the U.S. and indicting their

founders. In the weeks that followed Full Tilt

collapsed amid accusations made by the U.S.

Attorney in Manhattan that it was operat-

ing a Ponzi scheme. PokerStars settled the

civil charges the government fi led against it

by paying $731 million, but its founder, Isai

Scheinberg, who is not a U.S. citizen (he’s

Israeli-Canadian), has not come to the U.S. to

face the criminal charges fi led against him.

The government also indicted Ayre, a Cana-

dian who has also not returned to the U.S.

Not long after shutting down the of shore

operators, the Department of Justice re-

versed its long-held opinion that all forms of

online gambling are illegal, unleashing states

that wanted to regulate and tax online gam-

bling except sports betting. Sensing profi ts,

the billionaires followed.

Why the turnaround? Expensive lobbyists

and lawyers are a big part of the answer. Since

2007, for instance, former New York senator

Alfonse D’Amato has been paid to be chair-

man of the Poker Players Alliance. That Wash-

ington lobby group received funding from

the Interactive Gaming Council, a Vancouver

group backed by fi rms including Full Tilt

Poker. The American Gaming Association, the

casino industry’s powerful lobby, is now back-

ing online gambling with everything it’s got.

The stakes are huge: Private equity fi rms

Apollo Global Management and TPG are

still trying to salvage their 2006 LBO of the

company that left it saddled with $28 billion

in debt. They see online gambling as a way to

make up for Caesars’ missing out on Macau,

the biggest casino revolution in decades.

So while Adelson’s limitless money—and

his willingness to spend it—may slow the

momentum for online gambling by blocking

its spread into big states like California and

Florida, the odds of him stopping it or bully-

ing his rivals out of the game are slim. He’s

got lots of chips, but all the other players at

the table do, too.

Shares of Caesars’ online gambling spinof

are up more than 30% from their rights of-

fering price. But while Adelson’s moralistic

stance may be laughable to opponents, given

the potential long-term threat a shift to on-

line gambling poses to his industry, they still

take it seriously. His Las Vegas Sands, with a

recent stock market valuation of $60 billion,

is worth more than all the other U.S. casino

companies combined. Adelson spent some

$100 million unsuccessfully trying to get a

Republican into the White House in 2012.

“What I have heard Adelson say is, ‘I am

very rich, and I don’t like Internet gaming,’

and those things are true,” says Mitch Garber,

CEO of Caesars Acquisition Co. But “Shel-

don’s eyes are closed to the fact that all goods

and services are ultimately going to be pur-

chased on the Internet.”

For years online

gambling in America

belonged to of shore

companies willing to

take on the federal

government, which

declared all online

gambling to be il-

legal. In 2003 online

poker took of when

Christopher Money-

maker, an unknown

accountant from

Tennessee, qualifi ed

in an online tournament for the main event

at the World Series of Poker and won poker’s

top prize, together with $2.5 million. Online

poker companies became big sponsors of

poker programming on cable outlets like the

Travel Channel and ESPN. By 2005 the com-

pany that ruled the U.S. online poker market,

Gibraltar-based PartyGaming, conducted

an IPO on the London Stock Exchange that

made its American founder, Ruth Parasol,

the nation’s richest self-made woman. A year

later then billionaire Calvin Ayre, who ran a

sports-betting website from Costa Rica, was

featured on FORBES magazine’s cover with

the headline “Catch Me If You Can.”

But in the fall of 2006 Congress passed the

Unlawful Internet Gambling Enforcement

Act (UIGEA), strengthening the Justice De-

partment’s tools to go after online gambling

fi rms operating in the U.S. Some companies,

like PartyGaming, quickly ceased their U.S.

“Sheldon’s eyes are closed to the fact that all goods and services are going to be purchased on the Internet.”

EXECUTIVE

SUMMARY

NET LOSSES

The New Jersey Nets’

move to Brooklyn was a

brilliant fi nancial maneuver,

boosting the team’s value

48% to $530 million, ninth

highest in the NBA. In

Jake Appleman’s Brooklyn

Bounce: The Highs and Lows

of Nets Basketball’s Historic

First Season in the Borough

(Scribner) we see how the

Nets hoped to move away

from “the idea of New

Jersey” and toward making

“Brooklyn” more a state of

mind than a mere spot on

a map. Unfortunately, the

book doesn’t dig very deep.

Instead, Appleman of ers a

game-by-game rehash of

the season. It’s more than

just box scores; the author

weaves in quotes and stories

from his time reporting

on the team—but it adds

little to the up-and-down

narrative fans already know.

Still, for Nets faithful dealing

with the current dif cult

season, it’s at least a return

to a more optimistic time.

—Chris Smith

F

he explosion of online and cloud-based services

has propelled the data center from a back-offce

data storage and retrieval facility to always-on

critical infrastructure generating corporate revenue.

Today, data centers are massive facilities that require up

to 100 megawatts to operate on a 24/7 basis. Building

a greener data center is good for the planet, but when

done right, it’s also good for business.

Footprints in CarbonData centers are facing a number crunch. The industry

uses 2% of all electricity generated worldwide and data

centers inject 259 million metric tons of carbon into the

atmosphere. The cost of power is unpredictably rising,

accounting for 20% to 60% of operating expenses over

the life of a data center. Operators have recently been

challenged by the C-suite to get their arms around the cost

of power. To do this, many have implemented energy-effcient

servers and have started to measure power consumption.

These efforts have not gone unnoticed, but are they suffciently

reducing the cost and carbon footprint of the data center?

According to a study conducted by Nature Climate

Change, in an article entitled “Characteristics of Low-Carbon

Data Centers,” the optimal solution is a data center operating

at low energy, in a low-carbon region.

Location, Location, LocationDeciding where to establish a data center around low

energy consumption and using renewable power sounds

challenging. Verne Global has built a data center campus—

on a decommissioned NATO base in Iceland—that is

powered entirely by hydro, geothermal and onshore wind

renewable sources and is 100% cooled by outside air.

Companies across Europe and North America are start-

ing to fnd this to be an optimal location. Verne Global

CEO Jeff Monroe reports that since opening its first

data center facility module in January 2012, “capacity

doubled by September 2013, and we expect to see this

same exponential growth in 2014, with no slowdown in

sight.” Verne Global provides the facility with the mechanical

and physical security and network connectivity required

for businesses of any size that want to locate data center

servers and infrastructure on its campus.

Yet cost is perhaps the most compelling reason to look

to the North. Because of its renewable sources and unique

location, Landsvirkjun, the National Power Company of

Iceland, and Verne Global can offer 15-year visibility into

energy pricing, something that is unheard of in today’s

global energy markets. BMW recently relocated some of

its high-performance computing applications to Verne’s

campus, reducing the cost of running those applications

by 82% and eliminating 3,570 metric tons from its carbon

emissions.

The electric grid in Iceland is optimized for power-intensive

industries, and Landsvirkjun delivers around 1,400 mega-

watts on a constant basis to international industries located

there. According to Bjorgvin Sigurdsson, EVP of Marketing

and Business Development at Landsvirkjun, “As the size and

complexity of data centers increase, the long-term security

of the power supply offered in Iceland becomes even more

compelling than the environmental qualities of the renewable

power production.”

Verne Global is poised to become a central location

for hosting, disaster recovery and optimized data center

operations. With plenty of power to spare, a geologically

and physically secure location, natural outside cooling

and up to 30 terabytes in fber connectivity to Europe and

North America, the data center industry may eclipse the

Northern Lights as Iceland’s brightest star.

PROMOTION // ENERGY

Today’s Green Data CenterGood for the Bottom Line and the Planet

T

Geothermal power valve

Landsvirkjun hydropower station

By Nancee Ruzicka

The first zero-carbon footprint data center is here.

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powered by 100% renewable energy, Verne Global’s data center is the smart and sustainable

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THE MOSTINNOVATIVE DATA CENTER IN THE WORLD

Iceland is one of the world's select

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Poweringthe Future


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es

says producer Ram Bergman, who is work-

ing on his fourth movie in Louisiana in eight

years. “The only advantage of L.A. is housing.”

Intended as a way to draw industry to Loui-

siana’s foundering economy, the result is a give-

away program that’s created a gold rush for

producers and sharp locals, but probably won’t

create permanent jobs like a real tax cut might.

Just outside New Orleans producer Herbert

Gains turned part of a sprawling NASA com-

plex once used to build space shuttle fuel tanks

into a 250,000-square-foot shooting facility

where Summit Entertainment recently flmed

It’s 86 degrees out in Garyville, La.,

and the crew of the new movie Self-

less is a sweaty mess. While star

Ryan Reynolds and director Tarsem

Singh perfect a shot inside an air-

conditioned set, a small army of technicians

dawdles outside, bitching about the humidity.

Not that anyone is listening. Producers are

more than willing to trade crew discomfort

for buckets of money, and the lucrative 35%

tax credit Louisiana ofers on flm budgets is

catnip to them. “If we had flmed it in L.A., we

would have had to flm it in way fewer days,”

reinventing america

The Big Easy’s Movie Money Pit

By Dorothy Pomerantz

Louisiana politicians decided handouts would turn the state into a Tinseltown rival. Now they’re stuck with them.

trailer king: andre

Champagne worries

about the fate of the

taxpayer-fed movie

boom in his home state.

StrategieS


long line of Mardi Gras kings and queens,

built a business buying credits from f lmmak-

ers and selling them to locals. “The tax incen-

tive program is like a gill net,” says French.

“California is losing jobs. The industry is

moving away because it’s better elsewhere.”

When Louisiana simplif ed the credit in

2009, making it still easier for producers,

Hollywood arrived en masse. Here’s the way

the credits work now. A producer brings a

$35 million budget, for example, to someone

like French and shows what portion will be

spent in the state. French then buys the tax

credit for roughly 85% of the value the pro-

ducer will eventually earn when his money

is spent. French then resells the tax credit

to someone with a liability, and the produc-

er gets his money up front. Louisiana has no

cap on its tax credits, so if you’re paying Will

Smith $20 million to ap-

pear in your f lm, you get

a tax credit on that ex-

pense. (Smith then has a

Louisiana tax liability.)

It’s a juicy setup, and

locals know it. Andre

Champagne, owner of

Hollywood Trucks, is

one of the biggest boost-

ers. A local boy who

moved back to Louisi-

ana from Los Angeles in

2007 to help the produc-

ers of a small horror f lm

navigate the state, he

now has 400 trucks (in-

cluding air-conditioned

“eco-friendly” trailers for Hollywood head-

liners). It’s no surprise he has formed a trade

group that lobbied the legislature to keep the

credits in place. “This f scal session was the

hardest,” says Champagne. “Like any cou-

pon, you have to determine at what point do

you tighten it. But not now. It would have a

catastrophic ef ect.” Earlier this year Cham-

pagne convinced Governor Bobby Jindal and

the legislature to retreat from proposed cuts

to the break. Jindal declined to comment to

FORBES.

No matter. He probably knows what Berg-

man, the Selfl ess producer, will tell you about

the likely fate of Hollywood on the bayou.

“Movie people are nomads,” Bergman says.

“We go where the best deal is.”

the sci-f f ick Ender’s Game. Producers who

once would have needed to bring hundreds of

crew members out from Los Angeles can now

bring just department heads and hire the

rest of the crew locally. In 2012 f lm and TV

companies spent $717 million in the state, up

85% since 2010. Movies like Twilight: Break-

ing Dawn, Green Lantern and 21 Jump Street

have been f lmed there, as were TV shows

American Horror Story and Ravenswood.

Louisiana has been a stand-in for New York,

Texas and Pennsylvania.

According to the Louisiana Department of

Economic Development, putting on this buf et

cost the strapped state treasury $168 million

in 2012. It’s not a break-the-bank number, but

it is the kind of price tag that has led a num-

ber of states, including Arizona, Wisconsin

and Connecticut, to slice programs amid ques-

tions of whether they were

jump-starting an industry

or just fattening f lmmak-

ers, with little long-term

gain. In November a new

study called on New York

to rethink its program

after f nding that Albany

gave away $374 million in

f lm tax credits in 2013—

21.5% of all tax credits of-

fered by the state.

“In order for this to

make sense, you have to

be building an industry

that will eventually stand

on its own,” says Susan

Christopherson, a pro-

fessor of city planning at Cornell University,

who has been studying what the folks in Los

Angeles call “runaway production” since the

1980s. “Otherwise you’re just creating anoth-

er division of the public sector.”

That’s exactly what’s happening in Loui-

siana. The state’s plan to bribe moviemak-

ers dates back to 2002. The initial program

of ered up to a 35% tax credit but was rid-

dled with caveats. Ray producer Stuart Ben-

jamin whined about the program in the press

in 2003, saying he was lured to the state with

promises he could easily sell his credits to lo-

cals, which proved diffi cult under the system

(though he was eventually able to sell them).

Clever money men like Will French saw

an opportunity. French, who comes from a

reinventing americaStrategieS

WHERE THE JOBS ARETHERE’S LITTLE CORRELATION BETWEEN

TAX BREAKS AND LONG-TERM ENTERTAIN-

MENT-INDUSTRY EMPLOYMENT.

entertaInment taXState JoBS InCentIVeS

CALIFORNIA 191,100 SMALL

NEW YORK 91,600 LARGE

TEXAS 39,100 MEDIUM

FLORIDA 27,500 MEDIUM

GEORGIA 22,800 LARGE

ILLINOIS 21,000 LARGE

PENNSYLVANIA 16,400 LARGE

MICHIGAN 14,300 LARGE

VIRGINIA 13,700 SMALL

OHIO 12,900 LARGE

F

trenDing

What the 53 million

Forbes.com users are talking

about. For a deeper dive go

to ForBeS.Com/BUSIneSS

PERSON

mary Barra

The Detroit auto show

should be a memorable

coming-out party for gM’s

fi rst female Ceo, who will

have a slew of innovative

new products to showcase.

COMPANY

BeSt BUy

left for dead not long ago,

the electronics retailer got

up off the mat in surprising

fashion last year, becoming

one of the best-performing

stocks of 2013. Now to keep

the rally going.

FLASHPOINT

aDIz

China’s new east China sea

air Defense identifi cation

Zone is turning into the

world’s most combustible

hot spot, with repercussions

for economies across asia.

SOURCE: MPAA.

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Dr. Julius Guccione, a 50-year-

old cardiac researcher at the

University of California, San

Francisco, was mesmerized

the frst time he saw a virtual

image of a beating heart. He’d been using

math models to research the heart his entire

career, but now Dassault Systèmes, a French

design and simulation software company, had

created a complete, three-dimensional view

of the electrical impulses and muscle-fber

contractions that enable the human heart to

perform its magic.

If it were a model of his own heart, Guc-

cione would have seen it racing. “This is

something doctors have been trying to get to

since before the 1900s,” he said. The advent

of technologies like magnetic resonance

imaging and echocardiography, he said, have

been a “dream come true” for measuring

abnormal motion in a patient’s heart. But by

modeling a beating heart in 3-D, the hope is

that one day doctors will be able to diag-

nose and treat patients based on the unique

forces at work within each patient and even

rehearse open-heart surgery on an individual

before opening up his chest.

“The heart isn’t just made of tissue; it also

has an electrical current. I compare it to a

machine,” says Dassault Systèmes Chief Ex-

ecutive Bernard Charlès, whose company has

been creating digital mock-ups of machines

like airplanes and automobiles for more than

30 years. With $2.8 billion in revenue and

11,000 employees (3,000 in North America),

it’s the leader in the $16 billion market for

TECHNOLOGY

sOfTwarE

Inside a Beating Silicon Heart

By Joann Muller

Designers have used computers for years to build elaborate machines. But what about modeling complex experiences? Dassault Systèmes is leading the charge.

JanuaRy 20, 2014 FORBES | 39

product life-cycle management (PLM) soft-

ware, which engineers at companies such as

Boeing and Gap use to manage the develop-

ment of everything from jumbo jets to jeans,

saving both time and money.

As the Living Heart project suggests,

Charlès, 56, is steering the company in new

directions as part of a plan to double its rev-

enue in fve years. Instead of just peddling

software for designers and manufacturers,

Dassault Systèmes is recasting itself as a

“3D experience company” whose simula-

tion technology can be applied to just about

anything.

Last year it combined its nine software

brands, including Catia, Simulia and Eno-

via, into one 3D Experience Platform, which

clients can use to model and simulate not

only the way a product is designed or manu-

factured but even how it is bought, feels or

is used. Charlès’ favorite example: a woman

with an armful of groceries who swings her

leg under the bumper of her Ford SUV, caus-

ing the liftgate to open automatically. Catia

software helped realize that “experience.”

Dassault Systèmes has already branched

out beyond aerospace and automotive design

to a total of 12 sectors, including life sciences,

architecture and construction, energy and

consumer packaged goods. Even some fash-

ion designers are using Dassault Systèmes’

3-D tools to design their collections (though

they don’t like to admit it, Charlès says).

SHoP Architects and its virtual con-

struction arm, SHoP Construction, are

known for pushing the limits of technology

on projects like the new Barclays Center

in Brooklyn, which features an undulat-

ing latticework “wrapper” made of 12,000

unique prefabricated, preweathered steel

panels.

SHoP used Dassault Systèmes’ 3D Ex-

perience software to transform the way

designers and engineers worked together

on the project, streamlining the process by

creating a single model that all teams could

work from, including plumbers, electri-

cians and carpenters. The 3-D model logged

changes made by any of the construction

teams in real time, so every team, regardless

of trade, was always working from the most

current information. That helped reduce

material costs by 25%.

SHoP is now testing a cloud-based ver-

Dassault Systèmes and uCSF

collaborated on this

3-D simulation of

a beating human

heart. one day they

hope to model each

individual patient’s

heart before surgery.


patient’s own heart as detected by an MRI

or echocardiogram. If a portion of the heart

was damaged after a heart attack, for in-

stance, they would observe how the physics

had changed and simulate various treatment

options to ensure proper blood fl ow.

Dassault Systèmes was established in 1981

as a spinoff from France’s Dassault Aviation,

the privately held manufacturer of Falcon

jets founded in 1929 by Marcel Dassault.

At the time it was working on software for

wind-tunnel testing, which naturally led to

similar work for the auto industry. It sold its

software under the Catia brand, through a

distribution agreement with IBM.

Over the years Dassault Systèmes added

to its PLM software portfolio through a

series of acquisitions, including Enovia and

SolidWorks. The company went public in

1996, though 41.5% is still privately held by

Dassault Group. In 2010 it acquired IBM’s

PLM sales force, taking responsibility for its

own growth. Revenue has been growing 10%

a year, outpacing competitors like Siemens

PLM, Autodesk and PTC. And Dassault

Systèmes’ stock, like its rivals’, has been on

a tear, up 175% since 2009, as investors look

to jump on the 3-D printing bandwagon.

Dassault Systèmes is ideally positioned. As

Charlès says, “If you want to print a letter,

you have to write it f rst.”

Today almost 70% of Dassault Systèmes’

$2.8 billion in revenue is recurring from soft-

ware licenses and maintenance, providing

a cushion to explore new markets. Despite

a third-quarter slowdown attributed to a

weak economy, Charlès is expecting sales

to bounce back in the fourth quarter and in

2014. The launch of its cloud-based software,

Lighthouse, early next year should open new

markets and spur companies to speed up

their 3-D modeling eff orts, he believes.

Years ago manufacturers and their ven-

dors were all located in the same village

because they needed to be, says Charlès. But

in an age of virtual design and cloud collabo-

ration, “the world of the making” is changing

rapidly, he says. “Innovation will still come

from scientif c breakthroughs, yes, but also

from social trends and virtualization, which

have opened us to ideas we never thought

were possible before. The frontiers of indus-

try are changing because the nature of col-

laboration is changing.”

sion of Dassault Systèmes’ technology to

manage its next project—modular, prefabri-

cated houses to replace homes lost in Hur-

ricane Sandy. By sharing 3-D design data

directly with the Long Island factory that

will build the housing modules, SHoP says it

will be able to erect a f nished home in just

48 hours, instead of the customary four to

six months.

At the Museum of Fine Arts in Boston,

Harvard professor Peter Der Manuelian is

converting its impressive collection of pho-

tos, diaries, drawings and documents from

Egypt’s Giza pyramids into 3-D models so he

can take students inside the tombs for a real-

istic view of the Fourth Dynasty. Armed with

that rich data and a 3-D printer, he’s even re-

creating ancient Egyptian artifacts that had

long since vanished.

“If you can imagine it, you can simulate

it,” says Steve Levine, chief strategy offi cer

of Dassault Systèmes’ Simulia, who heads up

the Living Heart project. He admits there’s

a chicken-and-egg problem: You need to

start with good data in order to produce an

accurate simulation. In the case of the Liv-

ing Heart project, Dassault Systèmes lifted

geometric data about the electrical and

mechanical properties of the heart from

about a dozen diff erent sources—academic

researchers, cardiologists, medical device

companies and regulators—then combined it

into one massive database. “People had been

working on diff erent pieces of this in great

detail, but no one has attempted to work it

together,” Levine said.

Matching up data about the heart’s

electrical impulses with its mechanical

ones—called coupled multiphysics—was a

meticulous job. Using a standard 48-pro-

cessor workstation, Dassault Systèmes’

scientists needed about four hours to

calculate the precise biomechanical forces of

a single heartbeat, tracking how electricity

is conducted through every strand of muscle

f ber to replicate the true motion of a human

heart. Once they accurately described the

physics, the model operated on its own.

“We do nothing more than pulse it the way

nature does,” said Levine.

The next step is personalized 3-D heart

models. Doctors would start with the Das-

sault Systèmes model of a normal heartbeat,

then modify it to refl ect the behavior of the

sOfTwarETECHNOLOGY

JER

OM

E F

AV

RE

/ B

LO

OM

BE

RG

TrENDING

What the 53 million

Forbes.com users

are talking about.

For a deeper dive go to

ForBeS.CoM/TeCHnoloGy

PERSON

anDy ruBIn

The co-inventor of Android

has just been put in charge

of Google’s new robotics

division. If we’re all enslaved

by Skynet in 20 years,

blame him.

COMPANY

FaCeBooK

Big tweaks to your feed:

Video ads are now showing

up, and a new algorithm is

supposed to chase away junk

stories. Doth Zuck tweak

too much?

IDEA

WearaBleS

The gadget hype cycle is

peaking for smart watches,

bracelets and glasses.

Gartner sees the market

tripling to $7 billion by 2018;

we don’t buy the buzz.

F

IMPORTANT SAFETY INFORMATION: Do not stop taking ELIQUIS without talking to the doctor

who prescribed it for you. Stopping ELIQUIS increases your risk of having a stroke. ELIQUIS may need to be stopped, prior to surgery or a medical or dental procedure. Your doctor will tell you when you should stop taking ELIQUIS and when you may start taking it again. If you have to stop taking ELIQUIS, your doctor may prescribe another medicine to help prevent a blood clot from forming.

ELIQUIS can cause bleeding which can be serious, and rarely may lead to death.

You may have a higher risk of bleeding if you take ELIQUIS and take other medicines that increase your risk of bleeding, such as aspirin, NSAIDs, warfarin (COUMADIN®), heparin, SSRIs or SNRIs, and other blood thinners. Tell your doctor about all medicines, vitamins and supplements you take. While taking ELIQUIS, you may bruise more easily and it may take longer than usual for any bleeding to stop.

Get medical help right away if you have any of these signs or symptoms of bleeding:

- unexpected bleeding, or bleeding that lasts a long time, such as unusual bleeding from the gums; nosebleeds that happen often, or menstrual or vaginal bleeding that is heavier than normal- bleeding that is severe or you cannot control- red, pink, or brown urine; red or black stools (looks like tar)- coughing up or vomiting blood or vomit that looks like coffee grounds- unexpected pain, swelling, or joint pain; headaches, feeling dizzy or weak

ELIQUIS is not for patients with artifi cial heart valves.

Before you take ELIQUIS, tell your doctor if you have: kidney or liver problems, any other medical condition, or ever had bleeding problems.

Tell your doctor if you are pregnant or breastfeeding, or plan to become pregnant or breastfeed.

Do not take ELIQUIS if you currently have certain types of abnormal bleeding or have had a serious allergic reaction to ELIQUIS. A reaction to ELIQUIS can cause hives, rash, itching, and possibly trouble breathing. Get medical help right away if you have sudden chest pain or chest tightness, have sudden swelling of your face or tongue, have trouble breathing, wheezing, or feeling dizzy or faint.

You are encouraged to report negative side effects of prescription drugs to the FDA. Visit www.fda.gov/medwatch, or call 1-800-FDA-1088.

Please see additional Important Product Information on the adjacent page.

Individual results may vary.

Visit ELIQUIS.COM or call 1-855-ELIQUIS

ELIQUIS is a prescription medicine used to reduce the risk of stroke and blood clots in people who have atrial fi brillation, a type of irregular heartbeat, not caused by a heart valve problem.

Ask your doctor if ELIQUIS is right for you.

©2013 Bristol-Myers Squibb Company

432US13BR01723-02-01 09/13

For people with a higher risk of stroke due to Atrial Fibrillation (AFib) not caused by a heart valve problem

What is the most important information I should know about ELIQUIS (apixaban)?

Do not stop taking ELIQUIS without talking to the doctor who prescribed it for you. Stopping ELIQUIS increases your risk of having a stroke. ELIQUIS may need to be stopped, prior to surgery or a medical or dental procedure. Your doctor will tell you when you should stop taking ELIQUIS and when you may start taking it again. If you have to stop taking ELIQUIS, your doctor may prescribe another medicine to help prevent a blood clot from forming.

ELIQUIS can cause bleeding which can be serious, and rarely may lead to death. This is because ELIQUIS is a blood thinner medicine that reduces blood clotting.

You may have a higher risk of bleeding if you take ELIQUIS and take other medicines that increase your risk of bleeding, such as aspirin, nonsteroidal anti-inflammatory drugs (called NSAIDs), warfarin (COUMADIN®), heparin, selective serotonin reuptake inhibitors (SSRIs) or serotonin norepinephrine reuptake inhibitors (SNRIs), and other medicines to help prevent or treat blood clots.

Tell your doctor if you take any of these medicines. Ask your doctor or pharmacist if you are not sure if your medicine is one listed above.

While taking ELIQUIS:

• you may bruise more easily

• it may take longer than usual for any bleeding to stop

Call your doctor or get medical help right away if you have any of these signs or symptoms of bleeding when taking ELIQUIS:

• unexpected bleeding, or bleeding that lasts a long time, such as:

• unusual bleeding from the gums

• nosebleeds that happen often

• menstrual bleeding or vaginal bleeding that is heavier than normal

• bleeding that is severe or you cannot control

• red, pink, or brown urine

• red or black stools (looks like tar)

• cough up blood or blood clots

• vomit blood or your vomit looks like coffee grounds

• unexpected pain, swelling, or joint pain

• headaches, feeling dizzy or weak

ELIQUIS (apixaban) is not for patients with artificial heart valves.

What is ELIQUIS?ELIQUIS is a prescription medicine used to reduce the risk of stroke and blood clots in people who have atrial fibrillation.

It is not known if ELIQUIS is safe and effective in children.

Who should not take ELIQUIS?Do not take ELIQUIS if you:

• currently have certain types of abnormal bleeding

• have had a serious allergic reaction to ELIQUIS. Ask your doctor if you are not sure

What should I tell my doctor before taking ELIQUIS?Before you take ELIQUIS, tell your doctor if you:

• have kidney or liver problems

• have any other medical condition

• have ever had bleeding problems

• are pregnant or plan to become pregnant. It is not known if ELIQUIS will harm your unborn baby

• are breastfeeding or plan to breastfeed. It is not known if ELIQUIS passes into your breast milk. You and your doctor should decide if you will take ELIQUIS or breastfeed. You should not do both

Tell all of your doctors and dentists that you are taking ELIQUIS. They should talk to the doctor who prescribed ELIQUIS for you, before you have any surgery, medical or dental procedure.

Tell your doctor about all the medicines you take, including prescription and over-the- counter medicines, vitamins, and herbal supplements. Some of your other medicines may affect the way ELIQUIS works. Certain medicines may increase your risk of bleeding or stroke when taken with ELIQUIS.

How should I take ELIQUIS (apixaban)?Take ELIQUIS exactly as prescribed by your doctor. Take ELIQUIS twice every day with or without food, and do not change your dose or stop taking it unless your doctor tells you to. If you miss a dose of ELIQUIS, take it as soon as you remember, and do not take more than one dose at the same time. Do not run out of ELIQUIS. Refill your prescription before you run out. Stopping ELIQUIS may increase your risk of having a stroke.

What are the possible side effects of ELIQUIS?• See “What is the most important infor-

mation I should know about ELIQUIS?”• ELIQUIS can cause a skin rash or severe

allergic reaction. Call your doctor or get medical help right away if you have any of the following symptoms:

• chest pain or tightness • swelling of your face or tongue • trouble breathing or wheezing • feeling dizzy or faintTell your doctor if you have any side effect that bothers you or that does not go away.These are not all of the possible side effects of ELIQUIS. For more information, ask your doctor or pharmacist.Call your doctor for medical advice about side effects. You may report side effects to FDA at 1-800-FDA-1088.This is a brief summary of the most important information about ELIQUIS. For more information, talk with your doctor or pharmacist, call 1-855-ELIQUIS (1-855-354-7847), or go to www.ELIQUIS.com.

Manufactured by:

Bristol-Myers Squibb CompanyPrinceton, New Jersey 08543 USAMarketed by:

Bristol-Myers Squibb CompanyPrinceton, New Jersey 08543 USA and

Pfizer IncNew York, New York 10017 USA

COUMADIN® is a trademark of Bristol-Myers Squibb Pharma Company.

/ IMPORTANT

FACTSThe information below does not take the place of talking with your healthcare professional. Only your healthcare professional knows the specifics of your condition and how ELIQUIS® may fit into your overall therapy. Talk to your healthcare professional if you have any questions about ELIQUIS (pronounced ELL eh kwiss).

© 2013 Bristol-Myers Squibb Company ELIQUIS and the ELIQUIS logo are trademarks of Bristol-Myers Squibb Company.

Based on 1289808 / 1298500 / 1289807 / 1295958 December 2012

432US13CBS03602

This independent, non-profit organization provides assistance to qualifying patients with financial hardship who generally have no prescription insurance. Contact 1-800-736-0003 or visit www.bmspaf.org for more information.


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TECHNOLOGY

CrYpTOCurrENCY

China Bites Into Bitcoin

By kashmir hill

A speculative frenzy turned Bobby Lee’s BTC China into the world’s biggest Bitcoin exchange. Then Beijing dropped the boom. Easy come, easy go.

his investors hope BTC

China CEO Bobby lee

has the gravitas to make

the case for Bitcoin to

Beijing regulators.

a global, peer-to-peer network of computers.

Transactions are trackable, but the parties to

each transaction are not. Bitcoin has attracted

entrepreneurs and investors excited about its

legitimate use: cutting out the middlemen in

online payments. In December venture capital

frm Andreessen Horowitz placed the biggest

Bitcoin bet so far with a $25 million invest-

ment in San Francisco’s Coinbase, a platform

for buying, selling and storing Bitcoins in the

U.S. “As the world becomes more digital, pay-

ing physically with bills, gold or credit cards

will seem archaic. Everyone will have Bit-

coins,” says BTC China CEO Bobby Lee.

But China’s actions over the past weeks

have put BTC China’s future in doubt. After

Chinese regulators held a closed-door meet-

ing to warn fnancial companies against

working with exchanges, BTC China was

swiftly abandoned by two payment proces-

sors. “There are 300 payment processors in

China. We’re going to go down the list and

fnd one that will work with us,” says an opti-

mistic Lee. He doesn’t think the government

is trying to put him out of business but rather

put the screws on Bitcoin to cut down on the

rampant speculation. “They haven’t declared

exchanges illegal. That gives us room to ma-

Bitcoins were worth nothing in

2009, when the digital crypto-

currency was frst minted on the

computer of its mysterious cre-

ator, Satoshi Nakamoto, who

claimed to live in Japan.

Four years later the value of one Bitcoin

surpassed $1,100, thanks in large part to a

surge in speculative interest from China. A

little-known Shanghai company called BTC

China met the demand and quickly became

the world’s largest Bitcoin exchange, with

more than 100,000 of the virtual coins, or

$100 million, traded on a single day, near-

ly double the market share of its closest com-

petitor, Japan’s Mt. Gox.

BTC China attracted headlines and a

$5 million investment in the fall from Silicon

Valley’s Lightspeed Venture Partners as well

as its China arm. But its rapid growth, and

that of Bitcoin, also attracted the attention of

the Chinese government.

Unwanted attention, as it turned out. In

December the People’s Bank of China de-

creed that merchants may not accept Bitcoin

and forbade banks and payment processors

from converting Bitcoin into yuan. The price

of Bitcoin fell below $500 in response.

Bitcoin is still widely embraced by tech-

nophiles and libertarians (and porn and

pot-dealing websites) because the curren-

cy is all digital, easily transported across bor-

ders and resistant to state controls. A Bitcoin

is “mined” on privately owned, specialized

computing equipment and passed around by


landed the round from Lightspeed in Septem-

ber, they eliminated their fee. That kicked off

a bidding frenzy fueled also by the free Bit-

coin p.r. that came when the FBI took down

Bitcoin-only drug site Silk Road and Baidu an-

nounced it would accept Bitcoin for securi-

ty services, plus the positive buzz around U.S.

Senate hearings on the digital currency.

But then the People’s Bank of China, re-

sponding to what it says was a wave of con-

sumer concerns, declared in December that

Bitcoin wasn’t a recognized currency and

shouldn’t be used in the market, prompting

Baidu and other Chinese f rms to stop tak-

ing it as payment. As the extent of the real-

world ban became clear, the price of a Bitcoin

dropped to $345 on BTC China.

Lee initially saw the declaration as just a

speed bump. Chinese citizens were still free to

trade Bitcoin. BTC China stayed on the good

side of the government’s concerns about mon-

ey-laundering by asking customers for offi -

cial identif cation. BTC also reinstated trading

fees to cut down on the frenzy. But days later

the government crushed hopes of a thriving

trading business when it unoffi cially barred

payment processors from working with Bit-

coin exchanges. Suddenly BTC China and

others would no longer be able to move their

customers’ funds from yuan to Bitcoin and

back—which is what exchanges exist to do.

“We’re reading the tea leaves,” says Shanghai

Bitcoin entrepreneur Jack Wang. “But it looks

like they’re going to squeeze the exchanges

until they’re not able to operate.”

China’s move is not without precedent.

Eleven years ago Chinese Web service Tencent

created a virtual currency called Q Coin for

use in games. It became increasingly valuable

offl ine and started trading on exchanges along

with renminbi and gold. The government de-

clared such use illegal in 2007, sending its real

world value crashing to nothing.

China is still letting people play with Bit-

coin in its country, but by cutting off ways to

convert it to real money, it is turning it into

the digital Monopoly money that skeptics

have always dismissed it as being. “If neces-

sary, we’ll go into other Bitcoin services,” says

Lee. The company plans to launch a secure

online Bitcoin wallet called Picasso at the

end of December. “This is not the end. It may

be the end of a chapter, but it’s not the end of

our company.”

neuver, so there’s still hope.”

Lightspeed’s Jeremy Liew is keeping a dis-

tant focus. “Anyone investing in Bitcoin com-

panies and Bitcoin specif cally should be

doing so with the expectation that there will

be a lot of volatility driven by regulatory an-

nouncements. We invest over 5- to 10-year

horizons, not over two-week horizons,” says

Liew. “For Bitcoin to be credible, we need ex-

ecutives who have the gravitas to make its

case to regulators. That’s Bobby.”

Lee, 38, was born in the Ivory Coast to

parents who had moved there from China to

set up a fl ip-fl op factory. He was sent to an

elite boarding school in the States, graduat-

ed from Stanford and spent eight years as an

engineer at Yahoo in California. He moved

to China in 2006 to work as an engineer at

EMC. In 2011 he became Wal-Mart’s chief

technology offi cer in China, charged with

helping to build its commerce site.

Lee f rst heard about Bitcoin in the spring

of 2011 while visiting his family in Califor-

nia. Lee’s brother, Charles, was using some

of his computer equipment to mine Bitcoin

at home. Lee thought he would do the same

back in China and bought a bunch of graph-

ics cards from his brother. He started mining

in July, the same month he started at Wal-

Mart. Neither lasted long.

“It was a hot summer, and the computers

created a lot of heat,” says Lee. “My wife said

it was too noisy and hot, and so I turned it off

in October.” He mined 25 coins, which struck

him as a “waste” because they were worth

just $300 total at the time and he had spent

$1,000 on mining gear.

When Wal-Mart decided to partner with

an existing e-commerce site in 2012 rather

than build its own, Lee found himself jobless.

His mind returned to those Bitcoins gather-

ing digital dust on his computer. His broth-

er had founded a competing cryptocurren-

cy called Litecoin, but Lee wanted to focus

on bringing Bitcoin to China. BTC China had

popped up two years earlier as the country’s

f rst site for Bitcoin trading. “It was just two

guys working part-time on it,” says Lee. They

were charging a 0.3% trading fee, but seeing

just a few hundred trades per day. Lee sought

out its cofounders to convince them it could

be bigger. Lee became CEO in April.

They relaunched the site in June and went

out looking for venture capital. When they

CrYpTOCurrENCYTECHNOLOGY

GADGETS

WE LOVE

KnowRoaming (know

roaming.com), a Toronto

startup, feels the pain of

every business traveler

fumbling around with

SIMs and rented phones

while abroad. It developed

a smart sticker to apply

to your SIM card that

automatically connects

your phone to a local

network overseas, so you

pay like a local instead

of getting slammed

with roaming charges.

KnowRoaming has deals

in most countries and can

save you up to 85% on

prepaid data and voice.

Available soon for iOS and

Android. —Bruce Upbin

roaMinG eMPire

F

EDUCATION FOR LIFE


St

ep

he

n V

oS

S F

or

Fo

rb

eS

sending hundreds of individual e-mails, manag-

ing replies and organizing food preferences for

meals—while trying to practice law at Coopers

& Lybrand.

Aggarwal raised $700,000-plus in seed fund-

ing from angels and friends, his own pocket

and multiple credit cards. Linking up with

Chuck Ghoorah, David Quattrone and Dwayne

Sye—Cvent’s executive vice president of sales

and marketing, CTO and CIO, a team still in

place—he launched a simple event-registration

company to help businesses send digital invites

to conferences and meetings.

It was late 1999, and the tech boom was near-

ing its peak. Competitors like Evite.com and

Mambo.com were getting funded big-time. “We

decided to jump in,” says Aggarwal, now 44.

Cvent raised $17 million within a year, mostly

from Aggarwal’s Indian CEO contacts. He

thought he’d take the industry by storm.

Within eight months Cvent grew from 5 em-

ployees to 125. “We blew through that $17 million

and were down to $400,000 in the bank—and

His 15th high school reunion

should have been a boastfest.

Reggie Aggarwal had been

class president and had gone

on to become a lawyer and a

hotshot entrepreneur. Instead, he had to admit

to old acquaintances that his company was a

joke in the industry—and that he was broke,

owed money to investors and had moved back

in with his parents. “I was kind of the Indian

George Costanza,” he says.

Eleven years on it’s a diferent story. Cvent,

the McLean, Va. event registration and manage-

ment company Aggarwal launched in 1999, has

roared back from the dead. Last August it went

public on the NYSE, raising $117 million; its

recent market cap was nearly $1.6 billion. Over

the most recent four quarters the company lost

$1.3 million on $104 million in revenue. Custom-

ers like Wal-Mart, Siemens and WellPoint use

the cloud-based platform to search, feld bids,

book reservations and register attendees for

more than 200,000 venues in 90 countries. The

platform is free; registration costs a small fee.

Cvent’s mobile app for managing and navigating

conferences runs from $6,000 to $10,000. It also

charges venues to advertise on the platform’s

search pages.

Second chances are the stuf of Steve Jobs and

Michael Dell. But Rajeev K. Aggarwal? As an en-

trepreneur, he says, “you just don’t know how to

give up.” By all rights he probably should have.

Born in Kansas and raised in northern Vir-

ginia by parents who’d emigrated from India,

Aggarwal majored in fnance at the University

of Virginia and got a law degree from George-

town. Cvent grew out of his frustration trying

to organize gatherings for the Indian CEO High

Tech Council, his networking group. He was

digital platforms

Second Life

BY KARSTEN STRAUSS

Reggie Aggarwal almost lost his event platform to bad luck and overspending. Here’s how he clawed his way past $1 billion.

“I was kind of the Indian

George Costanza”:

Pride—and shame at

disappointing investors

—drove Aggarwal.

ENtrEprENEUrs

© 2013 Liberty Mutual Insurance. Insurance underwritten by Liberty Mutual Insurance Co., Boston, MA, or its affi liates or subsidiaries.

@LibertyB2B

You live for the ideas, the independence, the feeling of making things

happen. You have a passion for your business. Liberty Mutual Insurance has

a passion for protecting it. For more than 100 years, we’ve helped all types of

businesses thrive. With coverages like commercial auto, workers compensation,

and business owner’s policy (BOP), we can help do the same for you. Talk

to your independent agent or broker today about Liberty Mutual Insurance,

or go to libertymutualgroup.com/business.

You have a passion for your business.

We have a passion for protecting it.

digital platforms


sees sales, client services and product devel-

opment. An exchange program lets American

employees spend six weeks in Delhi and Indian

workers hang out in McLean.

Another comeback lesson was learning to

focus more on its hires. After Cvent started

turning a corner in 2003, it began recruit-

ing new college grads—kids who are hungry,

energetic, tech-savvy, cheap and relative blank

slates. “What you tell them they’ll believe and

think that’s the only way to do it,” Aggarwal ex-

plains. New employees—like the 100 brought on

last year from the likes of the University of Vir-

ginia, Virginia Tech, James Madison University,

Penn State and Duke—attend an eight-week

boot camp at Cvent University.

With the business stabilized, Aggarwal start-

ed thinking big again. He bulked up the sales

and marketing team—600 of his current 1,400

employees—and pivoted beyond the middle

market, nabbing clients like Yahoo, Marriott,

Visa and AARP. Between 2008 and 2012, Cvent

claims, its revenue compounded at an annual

rate of 34%; $5 billion in transactions took place

via its system last year. Its closest (and larger)

competitor? Active Network of San Diego,

which lost $39 million on $450 million in rev-

enue over the latest four quarters—and recently

agreed to be acquired by a private equity f rm.

In 2011 Aggarwal went to investors again,

raising $136 million mostly to pay of his long-

suf ering original backers. Insight Venture Part-

ners provided half the capital in the round and

declined to cash out in last summer’s IPO. “You

had a big category, it was early in the category,

and they were the dominant player,” says Jef

Lieberman, a managing director at Insight. “It’s

like a sales and marketing machine.”

With a lot of elbow room. “We estimate that

$103 billion is spent at hotels from meetings

and events,” says analyst Debbie Wong at Frost

& Sullivan. Cvent hopes to scoop up more busi-

ness by acquiring mobile app developers Seed

Labs and CrowdCompass, as well as ticketing

company TicketMob. It opened a London offi ce

last July; a Frankfurt location is on the way.

Expansion is certainly squeezing margins.

“This is the f rst time in a very long time that

we’re taking our prof tability down to go after

market share,” says Aggarwal. That’s okay; his

investors expect bigger things. First investor

Sanju Bansal has put in a total $2.3 million over

the years and estimates he has seen a 30 times

return. He’s letting his money ride.

then that perfect storm hit: Sept. 11, the dot-com

meltdown and reality,” says Aggarwal. “We’d

only built a $1.5 million revenue company.”

Business stalled. Clients began canceling

events, and new prospects felt solicitation in

the wake of such a tragedy was in poor taste.

The company was burning through $1.1 million

a month. Cutting 100 staf ers, along with all

nonessential spending, served as a makeshift

tourniquet. Sanju Bansal, the company’s f rst in-

vestor and a director, says the board wondered

whether Aggarwal was f t to lead. His passion

helped him keep his job. “The people that were

left, they weren’t loyal to just the idea—they

were loyal to Reggie,” Bansal recalls.

Ghoorah was constantly cold-calling, while

CFO Thomas Kramer chased down invoices.

Aggarwal took no salary and personally signed

for Cvent’s offi ce lease for a lower rent—shack-

ling his own credit rating to the survival of the

company. “It was the toughest time in my life

because I’d never been knocked of my horse

like that,” says Aggarwal, a prolif c hand-talker.

He was ashamed of

letting down his inves-

tors, most of whom

were friends and close

associates.

Worse, he says, was

having to jettison his

dream of fast growth

and market domi-

nance. Cvent had to

refocus on scoring cli-

ents in the midmarket

range, while remain-

ing cash-fl ow-positive.

“We knew we had

something here; we

just went about it the

wrong way,” says Ghoorah.

Cheap became the new religion—still widely

practiced today. All employees fl y coach and

share hotel rooms. The IT staf is skeletal. Ag-

garwal f nally got around to hiring an assistant

two years ago—about when he took on a com-

pany lawyer. The on-site cof ee barista came

aboard only after a test run in Cvent’s New Delhi

offi ce reduced employees’ going out for java by

over 80%. “It’s in our culture,” says Aggarwal.

Cvent planted a fl ag in India back in 2002,

largely to cut costs and handle support services.

It’s done much more than that, growing from

fewer than 10 employees to 800; it now over-

ENtrEprENEUrs

hA

L M

AY

Fo

rt

h

He took no salary and personally signed for the rent. “It was the toughest time in my life. I’d never been knocked off my horse like that.”

foUNdErs’

toolBoX

eXIt SIGnS

On the heels of a sizzling IPO

market, there’s more hope for

entrepreneurial paydays: a robust

M&A market for U.S. deals under

$1 billion. As of Dec. 17 there

were 2,410 deals, valued at $287

billion—fl at compared with

the same period a year earlier

but higher prices for 9% fewer

acquisitions and a larger portion

of activity worldwide. Winners:

energy and real estate. Next year

looks even better, says Thomson

Reuters analyst Matthew Toole,

who compiled the numbers.

Based on a recent survey, he

adds, “Corporate dealmakers

see an increase of 17% for M&A,

driven by fi nancials/real estate,

media/telecom and technology.”

Why? The strong stock market,

a pickup in the economy—and

record amounts of cash on

corporate balance sheets.

—Emily Inverso

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Mic

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es

the target, pull the trigger and … nothing. I’ve

fumbled and moved the weapon of-target.

One more try and the rife fres itself with-

out warning the precise moment it has calcu-

lated perfect alignment. A loud metallic clang

registers a hit. “Once you get these guns into

someone’s hands,” says Sutton, smiling wide-

ly, “they really sell themselves.”

Not always. In its frst year of operation

TrackingPoint was hit with quality snafus

that set it back—and caused a ruckus in the

C-suite. The Pfugerville, Tex. company says

it’s fxed all the problems. “Reliability and ac-

curacy are what this company stands for,”

says acting CEO John Lupher, 50, who had

to step into that role in November. As the guy

who designed the gun, it was his game to win

or lose.

Backed by $35 million in funding from

founder John McHale, his buddies and Aus-

tin Ventures, TrackingPoint started 2013 with

a bang. When it released its three versions of

the gun, priced from $22,500 to $27,500, vid-

eos went viral online—four YouTube clips

have a million or so views—pushed by rich

fanboys who wanted one (Governor Rick

Perry is a big fan) and an angry outburst from

the antigun crowd.

Customers who want to test-drive

TrackingPoint’s Precision Guid-

ed Firearm often come to an out-

door fring range in Texas Hill

Country with Chase Sutton. A

bearded, 300-pound wildlife biologist and

safari guide turned luxury-gun salesman, Sut-

ton helps average Joes become G.I. Joes with

just a 20-minute lecture and a demo. Peer

through the scope and line up a small white

dot (the center of the crosshairs) onto an or-

ange disc 1,000 yards away. Then push a red

button to lock the gun’s guidance system on

weapons

Ready, Fire, Aim

BY ABRAM BROWN

TrackingPoint makes a $27,500 rife so smart that it can’t miss. So why has the company been misfring?

Call of duty: Tech chief

John Lupher had to step

in as acting CEO.

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weapons


Pentagon procurement, TrackingPoint decid-

ed to look elsewhere—mainly to a population

of 13.7 million hunters.

Many discovered the gun through the videos,

gun blogs and the mainstream press. To show

of the line, TrackingPoint’s three salesmen

toured gun and safari clubs throughout Texas

(half of whose 10 million households have f re-

arms), as well as Las Vegas for the SHOT Show

and a charity gun event at the vineyard of Nas-

car tycoon Richard Childress. Other advertising

venues weren’t an option: Google, for example,

won’t put f rearms on its AdWords program.

An interested customer starts by f lling

out an online form. More than 2,000 have ap-

plied, the tiniest fraction of the $4 billion

commercial gun and ammo industry in the

U.S. Roughly half of all applicants get con-

sidered, once the sales guys do Google and

Trulia searches on prospective customers

and track them through public records. “If

someone has a $600,000 house and a BMW,

they’re a good bet,” says Sutton. Less affl uent

buyers get entered into a database for later

consideration, when TrackingPoint of ers

cheaper models. Once a buyer sends payment

the company runs a background check and

ships the gun to a licensed dealer for pickup.

Problems with the rif es surfaced last fall,

as customers sent in videos documenting

their complaints. Most had to do with a fail-

ure of accuracy in extreme hot and cold tem-

peratures. After just six months as CEO, Jason

Schauble, a Remington vice president hand-

picked by McHale, was out of a job, replaced

by Lupher. He revamped the clean room and

instructed designers to tweak the optical sys-

tem by adding a dif erent prism that allows

greater temperature stability. That seems to

have solved it. Now one in 20 products is test-

ed before shipping, up from one in 100.

What’s next? Vann Hasty, who oversees

product development, is debuting a smart

semiautomatic rif e at a lower price point in

the f rst quarter. The ideal customer: deer

and varmint hunters. But Hasty, plucked from

Amazon’s top-secret design labs, has anoth-

er pie-in-the-sky notion. A multiblade drone

sits in his offi ce, the basis, perhaps, of an air-

borne tool that can relay video of game on the

ground below to a hunter’s iPad.

All that futuristic stuf sounds cool. First,

though, TrackingPoint needs to get past all

those misf res.

But the launch was anything but smooth.

TrackingPoint had a tough time deciding its

target customer—the military or the affl uent

enthusiast? That, coupled with the product

f aws, caused undisclosed losses last year on

estimated revenue of $7 million.

TrackingPoint was created from a missed

opportunity—a missed shot, actually. McHale,

58, was spending time hunting, having sold

four high-speed network and cybersecuri-

ty companies to the likes of Cisco and the old

Compaq. On a trip f ve years ago to Tanzania

he had stalked a Thomson’s gazelle and got

within 350 yards of it, close enough to shoot.

“My central nervous system just couldn’t

hold the gun steady enough,” he says. He

missed and spent the rest of the safari stew-

ing about it. When he got home he looked up

a tech guy in Austin.

Lupher’s electronics-design f rm had de-

signed software for early versions of Siemens’

cordless handsets and Motorola’s DVR box.

Assuming McHale wanted a supergun just for

his own use, Lupher designed a prototype (a

Remington hunting rif e hooked into a lap-

top). But it came together so well that the two

agreed there might be a business in it. Lupher

left his shop, took 11 employees with him and

threw in with McHale, f guring it would pay

of : “John’s sold over a billion dollars’ worth

of companies he has personally founded.”

What distinguishes the gun is its scope

and trigger mechanism. TrackingPoint

doesn’t make the actual .300 Winchester

Magnum rif e; it comes from Surgeon Rif es

of Prague, Okla. The scope has a laser range-

f nder that gauges distances; gyroscopes, an

accelerometer and a magnetometer measure

how much you’re moving the gun. Zoom in

through a 14.6-megapixel camera, and once

you select a target, f xed or otherwise (there’s

a stationary mode and a mover mode), a

digital- signal processor calculates an equa-

tion 54 times a second to f nd the best time to

f re. Built-in, Linux-based Wi-Fi means you

can livestream a hunt onto your iPad.

But who would buy such a sophisticat-

ed and expensive toy? “We didn’t know

exactly where the market for this technolo-

gy was,” says Lupher. A demo for troops at

Fort Benning brought some interest. The U.S.

Army has an outstanding order for a few ri-

f es. (The military declined to comment.) But

given the endless stretch of time required for

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both individuals and big employers, claims to

have seen one balance just shy of $1 million.

To get the most out of this tax shelter you

have to run up medical bills over the next sev-

eral decades that, cumulatively, exceed your

account balance. You also have to be aware of

a peculiar rule that says you can make retro-

active claims, explains Eric Remjeske, whose

Minneapolis frm, Devenir, helps HSA provid-

ers design investment menus.

Let’s say you get a $1,000 doctor bill

you owe because you haven’t met the steep

deductible in your insurance plan. Keep

your HSA debit card in your wallet, advis-

es Remjeske. Whip out another credit card,

maybe one with reward points, whose bal-

ance you scrupulously pay in full every

month, for the doctor.

Now what? Put the doctor bill in a shoe

box until you’re retired. The $1,000 you

didn’t withdraw from the HSA has grown to,

say, $3,000. Now you take the money out, and

match it against the ancient bill plus $2,000

Would you like a triple-tax-free

form of retirement saving? By that we mean:

(1) You get a deduction when you put the

money in.

(2) It compounds tax free.

(3) It comes out tax free.

The powerful tax-saving vehicle is a

health savings account. An HSA is a kitty,

funded by you and/or your employer, that

you are supposed to use to cover deductibles

and copays in a high-deductible health insur-

ance policy.

Supposed to use, but don’t have to use.

That’s the starting point for this investment

scheme. Amounts you don’t draw down carry

over from one year to the next, and balances

can build up. You can use the account to play

the stock market.

Most HSA users fnd themselves with

plenty of medical bills to pay and spend the

money almost as fast as it comes in.

But a sliver of the 9 million Americans

with HSAs stuf their accounts and make no

withdrawals. Even though HSAs have been

around for only a decade and the ceiling on

contributions has been in the neighborhood

of $7,000 a year, some accounts have gotten

quite plump.

HSA Administrators, an account custodian

in Richmond, Va. that caters to compulsive

savers, says it has many with more than

$100,000. HSA Bank, a Wisconsin-based unit

of Connecticut’s Webster Bank that works with

TAXES

Turn Doctor Bills Into Retirement Income

by William baldWin

Some clever customers are creating super-IRAs out of their health savings accounts.

InvESTIng


$1,250 for an individual policy and $2,500 for

a family policy. HSA-compatible policies are

widely available on ObamaCare’s exchanges,

according to HSA Consulting Services.

Advice from Remjeske of Devenir and Pat-

rick Jarrett of HSA Administrators:

MaxiMiZe tHe MatCH. If you can’t af-

ford to top out both your HSA and your

401(k), arrange your dollars so that you don’t

miss an employer contribution in either place.

CoNSider tHe HSa aN eMerGeNCy

fuNd. If your shoe box is as big as the HSA,

the entire amount can be tapped without tax

or penalty. Once withdrawn, the money can’t

be put back in, however.

CoNtriBute at Work. This way both

you and your employer save on payroll taxes.

(Self-employed participants lose this benef t.)

If you don’t like the investment choices in the

employer plan, you can move the money later.

SHop for iNVeStMeNt optioNS. Your

employer plan may of er only expensive mu-

tual funds, aimed at recouping the overhead

on the $2,000 typical account balance. If you

have graduated to a higher level, consider

doing a trustee-to-trustee transfer of most of

your money.

For $36 a year you can have an account at

HSA Bank that gives you access in turn to a

zero-fee account at TD Ameritrade. TD’s $10

trading commission goes to $0 for a long list

of exchange-traded funds, including many

that rate as best buys on the FORBES ETF

scorecard. If you have a six-f gure sum you

want to put into a single open-end Vanguard

fund, HSA Administrators is not a bad choice.

Its fee ($109 a year, in this case) gets you into

Vanguard’s cheapo Admiral share class.

MayBe opeN tWo HSa’S. For 2014 the

maximum contribution for a couple with a

family policy is $6,550, plus $1,000 for each

of them over 55. To land the second $1,000

catch-up allowance, the couple must have

two accounts.

doN’t Wait too loNG to CaSH iN.

Amounts left behind in an HSA become tax-

able income on either the decedent’s f nal re-

turn or the tax return of nonspouse heirs.

But note that a surviving spouse can treat an

inherited HSA as his or her own, and that

HSAs can cover the expenses of spouses. If

you are married, you can go to your grave

clutching that shoe box, provided that your

widow(er) knows to use it quickly.

of other medical costs incurred in the mean-

time. In ef ect, you have created $3,000 of re-

tirement income with no tax on it.

That’s as good as a Roth IRA account—

no, better, because the money was deducted

on the way in, a benef t not available on your

Roth savings. HSA contributions from your

employer, and your own, if deducted from

your paycheck, never appear in your income.

If you are self-employed, the HSA contribu-

tion reduces your adjusted gross income, a

powerful form of tax deduction.

In justifying your HSA withdrawals you

can’t claim any medical expense you have al-

ready used as an itemized deduction on your

tax return. But for most people the itemized

deduction is unobtainable anyway, because

medical expenses count only to the extent

they exceed 10% of income.

What if you are so healthy, or do so well

with your investments, that your HSA tops

your lifetime medical costs? That would be

a nice problem to have. If it affl icts you, the

triple tax shelter turns into a mere double.

HSA money withdrawn after age 65 and not

matched against medical costs is taxed like a

401(k) payout, as ordinary income.

But there are a lot of unreimbursed medi-

cal bills that can go into that shoe box after

being paid with funds from outside your

HSA. The main one that can’t is the premium

to buy the high-deductible plan. Almost any-

thing else goes in, provided that the patient

was covered at the time by a high-deductible

health insurance policy: copays, deductibles,

doctor bills that you owe because the doctor

is not in your network, braces for your kids,

nursing home insurance, eyeglasses.

Once you are in Medicare, you can no lon-

ger contribute to the HSA, but you can use

the money on insurance premiums, including

Medicare and Medigap policies.

Is the look-back feature a loophole? Con-

sider it a feature, not a bug. Legislators set up

the system to reward patients for selecting

insurance that makes them cost-conscious.

If they also persuade people to save for their

old age, they will defer the day when nursing

home costs send Medicaid into bankruptcy.

To open an HSA, you have to be covered by

a high-deductible plan. That’s one that infl icts

a certain minimum level of pain on patients:

The deductible (the amount you shell out

before insurance kicks in) has to be at least

bR

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MIa

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TREnDIng

What the 53 million

Forbes.com users

are talking about.


FORbES.COm/inVESTinG

COMPANY

JPmORGan CHaSE

bank takes fDIC to

court over Washington

Mutual liabilities.

PERSON

bEn bERnanKE

In the departing

chairman’s last big

move, the federal

Reserve fi nally tapers.

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stocks that were left out

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Philip Morris, Cirrus

Logic—may emerge as

2014 winners.

F


calls gets you $400 (500 shares x $0.80) minus

transaction costs of about $10. If Intel is trading

below $25 on the third Friday in February, the

calls expire worthless; you keep the $400 plus

your shares. Intel has a 3.7% dividend yield,

with the 500 shares producing income of about

$450 a year. The $400 from selling calls boosts

your yield to 6.8%. Of course if Intel rises above

$25 before expiration, you have to sell at $25—

but you keep the $400 and any dividends al-

ready paid. A similar “expire worthless” strat-

egy can be employed selling puts, but you need

to have enough cash to make good on your

promise to buy stock at a certain price.

Too complicated? A low-hassle alternative

is to invest in “buy-write” closed-end funds,

which employ covered-call strategies on in-

dividual stocks or indexes or sectors. Ex-

penses run about 1% a year, and payouts are

typically 7% to 10% a year. Monthly cash dis-

tributions come in the form of ordinary in-

come, capital gains and return of capital, so

these funds are best kept in an IRA.

In the sort of bull market we’ve had since

2009, broad market buy-write funds will un-

derperform, since selling call options caps up-

side potential. But most of the funds sell for 9%

to 13% below their net asset value, making them

a good buy, says Alex Reiss, closed-end fund

analyst at Stifel Nicolaus. One fund he likes is

Nuveen Equity Premium Opportunity, which

trades at a 9.7% discount to NAV. It is tilted to-

ward technology, with 75% of stocks from the

S&P 500 and 25% from the Nasdaq 100. It sells

calls on those indexes that are about 2% out of

the money, giving stocks room to appreciate.

Michael Jabara, an analyst at Morgan Stanley,

likes AllianzGI NFJ Dividend Interest & Premi-

um Strategy. Its portfolio is 75% value stocks and

25% convertible bonds,

which “contribute ad-

ditional yield and ofer

upside in a rising mar-

ket while providing

downside support in

a falling market,” he

says, noting that the

fund sells at a 3.6% dis-

count to its NAV. Dis-

counts tend to get nar-

rower when market

sentiment improves,

and widen as investors

become more bearish.

ImagIne someone handing you money

for something you own in exchange for the

right to buy it at a certain price for a limited pe-

riod of time. It would be unusual to strike this

kind of deal for your car or watch, but in the

case of stocks it happens all the time. You can

sell call options on stocks you already own and

simply pocket the option premium if the option

is never called. Indeed, your goal is for the op-

tions to expire worthless and never be called.

A growing number of investors are fnd-

ing conservative options selling (or “writing”) a

great way to wring extra income out of portfolios.

“We’re boosting our returns by more than three

percentage points per year. ... Who wouldn’t want

to do that?” asks Alan Salzbank, 58, of Gargoyle

Asset Management. The RiverPark/Gargoyle

Hedged Value Fund is up 25.7% in 12 months.

To sell a “covered” call on a stock (covered,

because you already own the shares you’re

promising to deliver) you must have at least 100

shares. Say you have 500 shares of Intel trad-

ing at $25 and a February 2014 call to buy at

$25 (the strike price) is going for $0.80. Selling

funds

Money From Nothing

By john doBosz

Looking for high yields? Consider buying funds that sell the call options on your stocks.

InvestIng

OptiOns incOme At A DiscOuntthese buy-write funDs bOAst impressive perfOrmAnce AnD trADe belOw the vAlue Of whAt they Own.

ToTal naV 12-monTh reTurn2 reTurn2

Fund / Ticker discounT yield1 1-year 5-year3

first trust enhAnceD equity incOme / ffA –12.7% 6.9% 17.8% 14.2%

blAckrOck GlObAl OppOrtunities equity trust / bOe –12.5 8.7 17.9 12.1

blAckrOck enhAnceD cApitAl & incOme / cii –12.1 8.8 18.5 15.8

inG GlObAl ADvAntAGe & premium Opp / iGA –10.9 9.7 13.3 12.1

eAtOn vAnce tAx-mAnAGeD DiversifieD equity incOme / ety –10.6 9.5 18.1 12.0

eAtOn vAnce enhAnceD equity incOme / eOi –10.3 8.2 22.5 12.4

nuveen equity premium OppOrtunity / Jsn –9.7 9.2 12.4 11.9

eAtOn vAnce tAx-mAnAGeD buy-write Opp / etv –6.8 9.8 15.5 16.2

DOw 30 enhAnceD premium & incOme / DpO –5.6 7.0 24.1 18.7

AlliAnzGi nfJ DiviDenD interest & premium strAteGy / nfJ –3.6 10.1 16.1 12.7

Data as of Dec. 13. 1at market price. 2at NaV. 3aNNualizeD. SourceS: BloomBerg; lipper.

F


INVESTINg

KEN FISHER — PORTFOLIO STRATEgY

Consensus sentiment, par-

ticularly among professionals (who

as a group are almost always wrong),

tightly clusters around a 6% S&P 500

return for this year. When sentiment

clusters like that my research shows

stocks almost always do much better

or much worse. Expect better!

Yes, this bull market has moved

well past pessimism. But residual

skeptics still temper the euphoria

that classically death-knells stocks.

More standard measures of optimism

tend to hit halfway through a bull—

and that should be sometime in 2014.

Happy times, indeed! Can things go

wrong? Of course. But don’t bet on it.

My biggest 2014 positive sur-

prise? How well the world will work

when quantitative easing fnally dies.

As I’ve detailed multiple times, virtu-

ally everyone gets this wrong and

backward. QE isn’t expansive or bull-

ish—just the reverse. When it ends

the party fnally gets going good, as

yield spreads widen and bank lend-

ing, money supply and economic

growth fnally take of—the exact

U.K. experience after they ended

their dismal version of this idiocy.

America’s broad money supply has

grown slower in this expansion than

any you’ve lived through. That loos-

ens soon. Enjoy the ride.

Among my lousier 2013 picks:

CHINA MOBILE (CHL, 52) (from Jan. 21 at

$58), which missed earnings esti-

mates. Expectations are lower now. I

like that. As China’s 8% growth keeps

rippling inland, so will mobile de-

mand. Expect moderate growth and

a stock that performs almost exactly

the same because it didn’t in 2013. It

sells at 11 times my 2014 earnings es-

timate with a 3.8% dividend yield.

Glad I didn’t pick Brazil’s EMBRAER

(ERJ, 31), the world’s fourth-largest

aircraftmaker. It also lagged in 2013.

That should reverse in 2014. Inves-

tors hate it—I love that. Second, I like

Brazil. Third, it’s got a stellar CEO in

Frederico Curado. And in emerging

markets, airlines (Embraer’s custom-

ers) grow (unlike developed nations).

Fourth, Embraer is superstrong in

the corporate market and in smaller

planes. Fifth: In the long term im-

proving extractive technologies make

fossil fuels ever cheaper, lending up-

side leverage to jet usage. Finally, fact:

FORBES’ publisher, Rich Karlgaard,

would give a lot to pilot a Phenom

300, which tells me something.

Embraer sells at 90% of revenue and

17 times my 2014 earnings estimate.

Regular readers know I like drug

stocks as this bull market matures.

I prescribe PFIZER (PFE, 31). From big

brand names like Advil and Viagra to

post-patent-protected blockbusters

like Lipitor, Difucan and Zoloft, to

its new leukemia drug, Bosulif, Pfz-

er’s A-to-Z product line will generate

moderate growth from aging baby

boomers (and emerging markets). It

sells at 12 times my 2014 EPS esti-

mate with a 3.1% dividend yield.

U.K.-based GLAXOSMITHKLINE (GSK, 52)

is a similar A-to-Z druggie, which

should have a similarly good 2014

but with shorter average patent lives

and more nondrug consumer items

(like Aquafresh and Sensodyne). It’s

trading at 16 times my 2014 earnings

estimate with a 5% dividend yield.

AFFILIATED MANAGERS GROUP (AMG, 208), a

capable owner of asset-management

frms (my industry), is grossly over-

valued with overly positive investor

sentiment and a history exceeding its

future. But selling short a strong stock

in a bull market is a fool’s game—un-

less you buy equal amounts of an

even stronger one as a single stock

package. Expect LEGG MASON (LM, 43), a

slightly larger asset-manager-owner,

to best AMG. Why? It’s cheap. Inves-

tors really hate it. It’s got a new, very

focused and success-oriented CEO

(Joe Sullivan). And it owns legendary

names (like Battery march, Brandy-

wine, Permal and Royce). Amazingly,

85% of analysts have a hold or sell

rating on it—a rare display of extreme

negative consensus.

Buck that with these two, a buy

and a short sale together, giving your

2014 portfolio a parlay that should

help keep the bulls running.

A BIG (BULL) SURPRISEFOR 2014

MONEY MANAGER KEN FISHER’S LATEST BOOK IS MARKETS NEVER FORGET (BUT PEOPLE DO) (JOHN WILEY, 2011). VISIT HIS HOME PAGE AT WWW.FORBES.COM/FISHER.

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INVESTING

JohN BuckINGham — INVESTor chEckup

With stocks at or near alltime

highs, fnancial publications and

market pundits are providing plenty

of hot air as they infate a bubble by

talking about a stock market bubble.

All of that chatter is a plus from

a contrarian perspective, even as

valuations on the major U.S. equity

market averages are near the high

end of their historical ranges. The

trailing-12-month P/E ratio of 25.5 on

the S&P 600 Index (small caps) and

23.3 on the S&P 400 Index (midcaps)

are well above median end-of-year

P/E ratios dating back to 1995 of 21.9

and 20.9. Compared with the relative

richness of smaller stocks’ valua-

tions, large caps still look cheap. The

S&P 500 now trades at 16.9 times

earnings, which is actually below the

19-year median of 18.3, while the cur-

rent dividend yield of 1.93% is higher

than the 1.80% median.

Even at current prices, I’m still

fnding attractive stocks. There are

certainly many growth stocks trading

for rich valuations, but the beauty

of active portfolio management is

that you don’t need to own them. For

instance, if you look at the S&P 500

you see that one of its most popular

components is Netfix, the video sub-

scription service, which trades for

more than 300 times earnings.

Sometimes stocks do grow into

their multiples, but I fnd Netfix

hard to justify at these levels. Some-

thing much easier to digest is the

modest valuation of a world-class

franchise like APPLE (AAPL, 545), which

trades for 14 times earnings and

also rewards shareholders with a

healthy 2.1% dividend yield. Believe

it or not, if Apple were awarded the

same earnings multiple as Netfix,

the consumer electronics super-

star would change hands at nearly

$12,000 per share.

Plump multiples also abound

among the various S&P 500 travel-

booking websites. Expedia, Priceline

and TripAdvisor all trade for more

than 30 times earnings. Unlike many

tech startups that have recently gone

public, each of these companies ac-

tually makes a proft, but there are

much less expensive stocks in the

technology sector, especially among

its largest members. For example,

networking equipment company

CISCO SYSTEMS (CSCO, 21), software

king MICROSOFT (MSFT, 36), microchip

titan INTEL (INTC, 25) and IT solutions

provider IBM (IBM, 180) all trade for

about 4 times earnings while also

providing dividend payouts well

above that of the S&P 500. In the

case of Intel, you’re looking at a gen-

erous 3.6% yield.

The list of inexpensive large-cap

companies in the S&P 500 is not only

limited to the tech sector. I’m a fan of

stocks in the capital goods sector like

agricultural equipment maker DEERE

& CO. (DE, 89) and construction equip-

ment concern CATERPILLAR (CAT, 88), two

names that also ofer low earnings

multiples and rich dividend payouts.

And the commodities space has

bargain stocks, including oil driller

ENSCO (ESV, 56), which trades for less

than 11 times earnings and yields 4%,

and mining and energy conglomer-

ate FREEPORT-MCMORAN COPPER & GOLD (FCX,

35), which sports a P/E of 12 and a

dividend payout of 3.6%. Rounding

out my baker’s dozen of undervalued

stocks are retailer KOHL’S (KSS, 55), util-

ity operator ENTERGY (ETR, 62), medical

device maker BAXTER INTERNATIONAL

(BAX, 67) and banking giant WELLS FARGO

(WFC, 45), nearly all of which boast

below-average P/E ratios and above-

average dividend yields.

Keep in mind that even as the

Federal Reserve tapers its bond-

buying program, interest rates are

still near historic lows, with

money market funds yielding 0.01%

on average today, compared with

4.5% at prior market peaks in 2000

and 2007.

This fact, along with the inex-

pensive valuations of my holdings,

abates any worries that I may have

about a bubble in stocks. Don’t be

dissuaded by the strong performance

of the past year. Cheap stocks are

still out there.

Beating Back

the BuBBle BaBBle

JOHN BuCKINGHAM iS ChiEF invEStmEnt OFFiCER at al FRank invEStmEnt managEmEnt and EditOR OF the prudent speculator. FOR mORE inFORmatiOn viSit WWW.ALFRANK.COM. gO tO FORBES.COM/INVESTORCHECKuP FOR mORE yEaR-End taX adviCE.

If apple were awarded the same p/e as netflIx, It would sell for nearly $12,000

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INVESTING

DAVID PEArl — INTrINSIC VAlUE

Here’s a trend for 2014: Capital

expenditures, otherwise known as cap

ex, will come back with a vengeance.

It’s been in hibernation since the

fnancial crisis as skittish companies

either hoarded cash or paid it out in

dividends. In fact the change is already

happening but not publicized. Accord-

ing to Ned Davis Research a record

$642 billion was spent on cap ex in the

12 months ended June 30.

But don’t expect cap ex companies

to make a big deal of it just yet. Inves-

tors continue to adore dividends,

and capital-spender stocks tend to

sag. For example, from March 2011

through November 2013 the top de-

cile of S&P 500 companies ranked by

cap-ex-to-sales underperformed the

bottom decile by 15%.

Holding back on cap ex makes

sense in the short term when the

outlook for economic growth is poor.

Even if the cost of capital is low,

why build a new plant if there’s no

demand? But that’s changing, and the

purse strings are loosening. Already

we are seeing more mergers because

the market is starting to recognize

value in other uses of cash. In a slow

growth environment, if you can’t

grow organically, a well-planned

acquisition makes a ton of sense. So

does investing in your business. In

the long run most successful compa-

nies have to reinvest—spend to grow.

The market’s recent run-up has

been fueled by expanding multiples.

That game is over, especially with

interest rates poised to rise. In 2014

companies that reinvest in an efort

to increase free cash fow will thrive.

The key, of course, is fnding compa-

nies where the ROI from incremental

cap ex exceeds the cost of capital.

Here are three low-profle cap ex

companies, all based in New England

towns, that I believe will produce

double-digit growth in free cash fow

and outpace the broad market.

TERADYNE (TER, 17) of North Reading,

Mass. manufactures test equipment

for the semiconductor, wireless and

hard-disk-drive industries. With

$1.7 billion in revenues it has used

its cash fow primarily for capital

expenditures and acquisitions. Cap

ex has nearly tripled from the lows of

2009 to $111 million per year, and the

company has gained market share

in most areas while the number of

players in the semiconductor test

industry has shrunk to three.

Teradyne’s acquisitions have also

been successful. The most recent

one, LitePoint, generated an ROI of

more than 16% in the frst year of

ownership. Today the stock sells for

11 times forward earnings.

Similar in size, HEXCEL (HXL, 43),

in Stamford, Conn., is one of a few

global suppliers of aerospace-grade

composite materials. It has spent

signifcant capital to support the

production ramp-up of the Boeing

787, the Airbus A350 and the Airbus

A380. These aircraft use far more

composite materials and are lighter

and more fuel-efcient than the air-

craft they replace. Boeing and Airbus

have multiyear backlogs for the new

aircraft, and Hexcel operates under

long-term supply contracts with no

risk of substitution. The stock ran

up nearly 60% in 2013, but it’s still a

good investment—even at 20 times

forward earnings.

Just up the road from Hexcel, in

Danbury, is PRAXAIR (PX, 127), one of four

global industrial gas suppliers. The

$37 billion (market cap) company

spent signifcant capital on growth

projects worldwide, like building air

separation units for coal gasifcation

projects in China. These projects

are generally supported by favor-

able 15-year contracts that protect

Praxair from swings in raw material

prices and other input costs. If priced

correctly, these projects should real-

ize long-term returns on capital at a

healthy spread over Praxair’s cost of

capital. The expected double-digit

growth in free cash fow will come

from a combination of these invest-

ments and a cyclical recovery in

Praxair’s core businesses. Hedgies

have bid up the stock, but it’s still a

great long-term buy.

Cap ex Comes

Out Of the ClOset

DAvID PEARL iS CO-CHiEF inVESTMEnT OFFiCER aT nEW yORK’S EPOCH inVESTMEnT PaRTnERS.

the MARKet’s RuN hAs BeeN fueleD BY

eXPANDING MultIPles. thAt GAMe Is OVeR

f

JAPAN 2014The Sky Is the Limit

Japan’s economy has faced serious economic challenges in recent years, but the

emergence of “Abenomics”—the expansionist economic policies of Japanese

Prime Minister Shinzo Abe—has put Japan back in the global spotlight. Our

report on Japan highlights several leading CEOs who are eager to seize the day

and capitalize on opportunities that enable them to gain ground both at home

and abroad. These CEOs are actively engaged in growing their businesses across various

sectors around the world. Whether they are running longstanding family businesses or

conglomerates with diverse interests, they are looking for new avenues of expansion.

They are evaluating the potential of markets in both developed and emerging regions

and adapting their strategies to operate effciently and invest wisely. Most of all, they are

keeping an eye on meeting the needs of customers. From manufacturing high-quality,

innovative goods such as cameras, printers, components for industrial machinery and

food, to providing transportation services and conducting global marketing, investing and

trading activities, the sky appears to be the limit. In spite of global economic uncertainties

and ferce market competition, these companies exude a sense of confdence that they

will continue to thrive in business in Japan and beyond.

JAPAN SPECIAL ADVERTISING SECTION

Index

03 Tetsuro Tomita

East Japan Railway

Company

www.jreast.co.jp/e

04 Fujio Mitarai

Canon Inc.

www.canon.com

07 Yuzaburo Mogi

Kikkoman Corporation

www.kikkoman.com

08 Masahiro Okafuji

ITOCHU Corporation

www.itochu.co.jp/en/

10 Akihiro Teramachi

THK CO., LTD.

www.thk.com

Throughout this special section,

yen figures have been converted

to U.S. dollars at a rate of Y102/$1.

36th Annual Special

Japan Section

Writers

John Ashburne

Julian Ryall

Cecilia Ma Zecha

Photography

Takashi Mochizuki

Design

David Tan

2 // JAPAN SPECIAL ADVERTISING SECTION

Please visit the Japan Special

Advertising Section online

at www.forbescustom.com/

japan2014

JAPAN SPECIAL ADVERTISING SECTION // 3

On the Express to Success JR East Combines Homegrown

Expertise With Global Ambition

On a clear day, from the top foor of the JR East Head

Offce in Tokyo, you can see Mount Fuji, a World

Heritage Site. However, as company President

and CEO Tetsuro Tomita enthusiastically explains,

the company’s vision for the future stretches far

beyond the legendary peak.

The East Japan Railway Company—or JR East, as it is

commonly known—was founded 27 years ago when the

nationally owned Japan National Railways (JNR) was privatized.

From its original offce in the eastern part of Japan’s main island,

Honshu, the company has expanded to offces in New York,

Paris, Brussels, Singapore and will do so in London.

JR East’s primary business is developing and operating

spectacularly fast, safe trains, and its maintenance record is

unimpeachable. Outside the realm of transportation, the com-

pany also is involved in a wide range of business enterprises,

including travel agency services, shopping centers and offce

buildings, hotels and restaurants management, and more.

“We have contributed to the entire region we serve,” refects

Tomita. “Yet we believe our view must be globalized, not only out

of business necessity with the decreasing domestic population,

but also for the needs of our employees. They must learn to adopt

more open, wider views for their own personal development.”

Under the slogan “Nobiru”—the Japanese phrase for growth—

the company is tackling new business domains.

For example, it is actively participating in overseas railway

projects and developing an overseas railway consulting busi-

ness, Japan International Consultants for Transportation Co.

Ltd. (JIC). It is largely focusing on the Asia-Pacifc region, whose

railway-related market is estimated to reach around ¥6.3 trillion

in 2020. In this growing market, JR East already has signed an

agreement with Thailand to provide equipment and know-how

for Bangkok’s new “Purple Line.”

“We have far more to offer than just merely selling trains. We

have massive expertise in running railway network systems too,”

explains Tomita, whose company conveys more than 6 billion pas-

sengers per year, safely and amazingly on time. “Asian population

centers will grow, and so

will the need for intercity

and urban train systems.

We are willing to serve

those needs.”

JR East also is expand-

ing railcar manufactur-

ing. It acquired the Tokyu

Car Corporation to form the subsidiary Japan Transport Engi-

neering Company, or J-TREC, as it is commonly known. J-TREC

works in tandem with the Niitsu Rolling Stock Plant in Niigata

Prefecture to manufacture stainless-steel commuter railcars

and the state-of-the-art E7 Shinkansen high-speed trains. By

early 2015, the E7 series are scheduled to run between Tokyo

and Kanazawa in two and a half hours.

JR East is aggressively adopting new technologies from

abroad. “Our global outlook is anything but a one-way street,”

says Tomita. “We grow as a company when we bring in advanced

external technologies and expertise.” For example, he cites the

implementation of a proven European communication-based

train control (CBTC)—a wireless car-control system—on the com-

pany’s Joban Local Line, in Northeast Tokyo, and the German

high-technology brakes on the latest Shinkansen trains, including

the 320-kph (198-mph) E5 Hayabusa. “Because it is sometimes

more important to slow down than speed up,” Tomita adds.

Furthermore, JR East is determined to create attractive urban

centers by concentrating useful services and functions in and

around its stations. “Based on our current infrastructure, we will

develop one-stop Smart Stations that will go beyond transport

and retail functions,” says Tomita. “Our future stations will have

everything from kindergartens to clinics and local government

offces. It is our social mission.”

Though JR East has come a long way, for Tomita, there’s no end

of the line in sight. “We Japanese have been building and operat-

ing railroads for 140 years,” he says. “We love them. But we can’t

stand still. Innovation is essential. Globalization is essential.”

At home and abroad, JR East is on the fast track to the future.

Tetsuro Tomita

President and CEO,

East Japan Railway Company

After graduating from the University of Tokyo, Tetsuro Tomita joined the Japan National Railways (JNR) in 1974.

When JNR was privatized in 1987, he joined the largest of the new offshoots, East Japan Railway Company. He

rose to the position of Executive Vice President, successively heading two of the company’s major divisions.

In April 2012 he was named President and CEO.

www.jreast.co.jp/e


From Hollywood to the End of the Universe Thriving New Business Domains

Drive Canon Toward 2016

When we catch up with Fujio Mitarai, Chairman &

CEO of Canon Inc., one beautiful late autumn

afternoon at Canon’s Tokyo headquarters,

the CEO is in a bullish mood. “Ask me any

questions you like,” he says with a smile.

“There’s nothing to hide here.”

Mitarai has just come from chairing a meeting of the small

camera maker turned corporate giant’s “global summit.”

At this annual event, Canon welcomes members from its

global marketing and manufacturing companies. Executives

convene in Tokyo to exchange information and opinions,

see new products on display and learn the details of the

company’s midterm plan, which sets 2016 goals. Mitarai is

more than willing to give Forbes an exclusive preview.

“Looking at the three years ahead for Canon, I believe

the global economy has bottomed out,” says the CEO with

conviction. “And having hit rock bottom, the economy is now

headed toward recovery. With that expectation in mind, I

have prepared Canon’s new growth strategy.”

The thrust of Mitarai’s approach is based on developing the

company’s core strengths. “I have laid emphasis on looking at

our current business—for example, our cameras—and based

on what we currently have, we need to create new domains

using that existing technology. Then we develop those areas

into full-fedged business operations.

“To give you an example, we launched our all-new

cinematography product lineup two years ago, and in

the three years to come, we hope to achieve a very large

expansion of this business. We aim to be one of the top

players in the flmmaking industry globally.”

Movie Mecca’s Seal of ApprovalCanon is off to a good start with the frm’s Cinema EOS

System, a lineup of professional cinematography products

that includes lenses and cameras, which has been wowing

the theatrical motion picture, television programming and

television commercial production industries. Several high-

profle Hollywood directors are enthusiastically embracing

these new products.

Within a year of entering the industry, Canon won major Hol-

lywood plaudits when the National Academy of Television Arts &

Sciences honored the company with a Technology & Engineer-

ing Emmy® Award, prais-

ing “Canon’s Work on

Improvements to Large

Format CMOS Imagers

for Use in High-Defnition

Broadcast Video Cam-

eras.” But Canon’s suc-

cess in this segment is

not limited to the movie

industry. In Japan, in

August of last year, a 4K

capable high-resolution

Canon digital cinema camera was used by JAXA, the Japan

Aerospace Exploration Agency, for a mission to record the

Comet ISON aboard the H-IIB Launch Vehicle No.4 with the

H-II Transfer Vehicle “KOUNOTORI4” (HTV4) bound for the

International Space Station.

Pushing the Boundaries of Knowledge Through Astronomy

“We are very proud of how we have applied innovative

optics technology to the feld of astronomy,” says Mitarai.

The Subaru Telescope, located 4,200m (13,780 feet)

above sea level at the summit of Mauna Kea in Hawaii, is

capable of capturing light emitted from a galaxy located 13

billion light years from Earth. It couldn’t do that without

Canon technology.

Fujio Mitarai

Chairman and CEO, Canon Inc.

The Cinema EOS System is fast becoming a Hollywood directors’ favorite.


At the heart of the fagship telescope operated by the

National Astronomical Observatory of Japan (NAOJ) is the

Hyper Suprime-Cam, which sets a new standard for wide-

angle optical devices. Using a custom-designed Canon lens

system seven times wider than any built before, it can now

capture in just a year images that once would have taken

seven years. It captured the entire Andromeda galaxy in a

single shot.

Canon’s lucrative camera-based business is not all

Hollywood and astronomical observation. Some of it has a

particularly earthbound application.

“We are also developing high-image-quality, high-

performance network cameras that transmit full HD images,”

says Mitarai. “I believe there is great future potential growth

in the network camera market as it meets the recent needs of

security management, and as options for visual transmission

become more multifaceted.”

Innovation Across Multiple Fields and MarketsThe world at large thinks of cameras and offce equipment

when it thinks of Canon, but in reality the global corporation

is developing hitherto unexplored technologies and business

domains in other areas, most notably in the fields of

commercial printing, medical diagnostics and mixed reality.

“Thanks to our integration with the blue-ribbon Dutch

company Océ [acquired by Canon in 2010], we are beginning

to see exciting developments in the commercial high-speed

printing domain and with wide-format printing systems,”

says Mitarai. “In the coming three years, we hope to tap

into a large potential market in packaging, outdoor banners

and billboards.

“In the retail photo printing market, our innovative

DreamLabo commercial photo printer has allowed users to

create photo albums with high-speed, high-quality photos

and detailed text offerings via the Internet.

“In the medical diagnostics industry, Canon U.S. Life Sci-

ences has developed a genetic analysis system and equip-

ment providing a variety of new diagnostic technologies. Once

CLS products become viable, we will initiate production at

Canon in Virginia,” adds the CEO.

“Another highlight of our medical systems is near-painless,

stress-free photo-acoustic mammography that we are jointly

developing with Kyoto University. This technology visualizes the

state of angiogenesis associated with cancer using ultrasound

and light, and we hope to launch it within a few years.”

MR (mixed reality) is another cutting-edge technology,

one that seamlessly merges the real and virtual worlds in

real time, allowing users to interact with full-scale, realistic

images from any point of view.

“The potential applications for MR in the felds of design,

manufacturing, education, exhibition, entertainment and

medical care are boundless,” says Mitarai. “Some automotive

manufacturers have already adopted and installed our MR

systems, which we launched in July 2012. During the product

design phase, our head-mounted and hand-held displays

allow users to view full-scale CG images that are responsive

to their position and orientation, enabling speedy evaluation

of design and usability. Also, MR systems can contribute to

reducing development times and minimizing costs.

“Based on the very foundation of our existing business and

adding on top of that our new business growth, I hope to attain

an annual growth rate of around 7% or 8%, though of course

that depends upon the global economic situation.”

Three Regional Headquarters SystemMitarai’s enthusiasm and confidence is infectious, and

his pride in Canon’s panoply of technological excellence is

evident. Yet the CEO is only too aware that the company, with

assets measured at US$4,546 billion in 2012, must match its

technical skills with organizational innovation.

His response is the Three Regional Headquarters

management system, a vision that he developed while

president of Canon U.S.A. (1979 to 1989), in which the Japan,

U.S. and Europe HQs are given autonomous control.

“Each region has its own unique qualities and strengths,

and will naturally conduct its own research and design,” he

explains. “Océ and CLS are good examples. In this manner,

our regional headquarters will create unique products, which

they will market worldwide.”

For Canon and Fujio Mitarai, the sky’s not even the limit.

The MR system enables industrial designers to rapidly develop and

share virtual prototypes.

A native of Kyushu, Japan, Mitarai decided not to follow his father and brothers into medical school, but instead joined Canon, where his uncle served as the frst president. Five years later he was posted to the U.S., where he stayed for 23 years, eventually becoming President of Canon U.S.A. Back in Japan, he was later appointed President, CEO and then Chairman of Canon.

www.canon.com


A Taste for Success The Story of Kikkoman Corporation’s

Rise to Global Eminence

Yuzaburo Mogi strides into the boardroom

with a spring in his step and a sparkle in his

eye. At 78 years of age, the Honorary CEO

and Chairman of the Board of Kikkoman

Corporation cuts a debonair figure. Mogi is

a revered elder statesman of Japan’s business world,

and it is his personal vision that has seen Kikkoman

Corporation blossom from a rural soy sauce manufacturer

into a global corporate group of 64 separate companies,

capitalized at ¥11.6 billion (US$118.5 million), with a

presence in more than 100 nations.

K ikkoman’s h istor y of manufactur ing soy sauce

began in the Edo Period (1603-1867). Then, in 1917,

eight families merged to create Noda Shoyu Co. Ltd.,

the forerunner to Kikkoman Corporation.

“ In the mid-1950s, Japan was enter ing a per iod

of high economic growth and many industr ies were

forecasting double-digit annual growth. However, our

industry couldn’t grow at a comparable rate, since the

consumption of soy sauce, a daily necessity, could

only be expected to increase relative to population

growth,” Mogi explains.

“So, we adapted two key strategies. The f irst was

diversif ication to acquire new product categories and

increase business. We star ted our venture with Del

Monte, producing tomato ketchup and juice, and began

Manns Wine, our domestic wine business. Our second

strategy was internationalization, and we turned our

attention to the U.S., reaching out to general America,

not just the Japanese American community.”

Then came Mogi’s masterstroke. “We cannot achieve

any real global ization of our business,” the young

executive told a colleague one day in 1965, “unless we

build a factory in the U.S. to initiate local production.”

Mogi made his proposal to the company board and

the president, Keizaburo Mogi, his father. Af ter long

deliberation, they agreed. The die was cast.

Mogi was 38 when Kikkoman Foods, Inc.’s Wisconsin

plant opened on June

16, 1973, on the west-

ern shore of Lake

Geneva in the American

Midwest. The dollar

was pegged at ¥360,

so building an overseas

plant was a colossal

investment. To build a

production factory in

the U.S., they had to

invest more money than

Kikkoman’s capital at

the time.

Within months, dis-

aster struck. “The Oil

Crisis that took hold in October of 1973 was a severe

challenge,” Mogi explains. “This wreaked havoc all

over the world, and the U.S. was no exception. Our U.S.

factory was affected by an increase in production and

transportation costs.” As a result, Kikkoman Foods, Inc.

plunged into the red. Yet Mogi never wavered. “I was

young, you see, brave,” he laughs. “I knew prices would

eventually stabilize. By the end of the third year, we were

in the black. By August 1977, we had balanced out our

cumulative loss, a feat achieved within just four years

of start-up.”

The rest, as they say, is history. Last year the Wisconsin

plant celebrated its 40th anniversary. With growing

markets in Europe, Asia and Oceania, Kikkoman

Corporation is a 21st-century global success story. Yet

for Yuzaburo Mogi, it is far more than just a business

triumph. “I really believe that taking Japan’s food culture

to the world and bringing other nations’ foods to Japan

creates understanding,” he says. “When we eat the same

things, we become friends.” And with that the legendary

businessman takes his leave and strides off into the sunlit

Tokyo morning.

Yuzaburo Mogi

Honorary CEO and Chairman of

the Board, Kikkoman Corporation

Yuzaburo Mogi is a descendant of one of the founding families of Kikkoman, which is one of the oldest continually running businesses in Japan. He became company President in 1995, was named Chairman in 2004 and assumed the title of Honorary CEO and Chairman of the Board of Directors in 2011. Mogi holds an MBA from Columbia University.

www.kikkoman.com


Ambitious, Profitable ITOCHU Corporation Sets the Bar

Ever Higher

“We have turned our words into

accomplishments,” says Masahiro

Okafuji, President and CEO of

ITOCHU Corporation.

When he took up the position of

CEO in 2010, Okafuji set about rebalancing ITOCHU’s profle

to emphasize the non-resource sector, which consists of

businesses that are not dependent on natural resources. In a

move that evokes the company’s roots in the textile business,

he aggressively set about focusing on the consumer-related

arena—business lines such as textiles, food and ICT—making

it the corporation’s basic earnings platform. It was a savvy

move. ITOCHU has posted record-high net income for two

consecutive years, and CEO Okafuji is still pushing ahead,

pedal to the metal, to boost proftability.

Going back to basics also applies to ITOCHU’s new

approach to working hours.

As 2013 neared its close, Okafuji issued a company-wide

directive severely limiting late-night overtime work, a common

practice at Japanese corporations. The new system was

dubbed asagata kinmu, or “early work hours.” The aim is to

fnally end the habit of excessive overtime, allowing employees

to concentrate on self-improvement and family life. Given

ITOCHU’s size and status, Japan’s news media and business

community soon took notice. For this workaholic nation, it

was a radical move.

ITOCHU is clearly not afraid of change. “Trading companies

only exist where there are customers,” explains Okafuji,

“and we operate across so many felds. We are like water;

we change our shape according to the container. Just as it

would be fundamentally wrong for us to narrow ourselves

down to one single kind of product, our sales organization

and strategies and even our corporate personality must also

be fexible. This new system was prompted primarily by a

consideration of our customers’ needs. Early-morning calls

will no longer go unanswered.”

ITOCHU’s customer-based, worker-friendly stance should

only help strengthen the global corporation’s competitive

edge. “We have set the goal to become the number-one

trading company in non-

resource businesses,”

Okafuji boldly says. “I

believe all companies

must continually set

goals and strive toward

them in deed as well as in

word.” Coming from the

CEO who unabashedly

talks about standing

shoulder-to-shoulder

with the two top-ranking trading companies in Japan, it almost

sounds like a call to arms.

How does Okafuji plan to achieve his ambitious goals?

“The non-resource sectors include machinery, chemical

products, construction and real estate and information, in addi-

tion to lifestyle and consumer arenas,” he explains. “Now we

especially want to focus on the machinery area, and then on

information, construction and real estate, and chemical products.”

Nor is ITOCHU hesitant to take on the challenge of entering

new arenas. Automobiles and shipbuilding are among the many

areas being targeted. “The current depreciation of the yen

seems to be bringing about a huge growth of the market in areas

where we have long been cultivating technology,” he explains.

“ITOCHU’s share in many areas will dramatically increase on

the back of a weaker yen. It’s actually happening now.”

The emphasis ITOCHU puts on fully leveraging its diverse

human resources may well become key to the company’s

further growth. ITOCHU was the frst of Japan’s general

trading companies to appoint a female executive offcer, and

its current medium-term management plan clearly mandates

further development of female role models. This is yet another

example of how ITOCHU dares to challenge the conventional

Japanese corporate mind-set.

Okafuji admits that, historically, the amorphous nature of Japan’s

general trading companies has deterred investors, who fnd it

hard to grasp the workings of the so-called invisible giants. This

may soon change, given ITOCHU’s widely noted management

innovations and its forecast for dynamic growth in 2014.

Masahiro Okafuji

President and CEO,

ITOCHU Corporation

Masahiro Okafuji joined ITOCHU in 1974 after graduating from the University of Tokyo. He was appointed

Executive Offcer in 2002, Managing Executive Offcer in 2004, Director and Executive Vice President in April

2009, and President and CEO in April 2010.

www.itochu.co.jp/en/


A Linear Path to

Success THK Focuses on Forward Motion

As President and CEO of THK CO., LTD., Akihiro

Teramachi knows that Japan has faced serious

economic challenges in recent years, but he

frmly believes that trying times can bring out the

best in a company. He is confdent his frm will

continue to provide the technology, know-how and support

that will keep its customers moving forward.

“THK is a company that’s focused on creation, on making

new advances, and we will never ease off in our efforts to forge

ahead with new research and development,” says Teramachi in

an interview at the company’s Tokyo headquarters, the hub of a

global organization that spans four major territories around the

world. “We will continue to aggressively develop new felds in

order to contribute to our clients’ progress and growth.”

For all its expertise, THK is something of a behind-the-scenes

player, producing vital technology for the industrial machinery

used to manufacture a wide range of products, including

vehicles and electronics and appliances.

THK developed the world’s frst Linear Motion Guide, an

essential component that enables industrial machines to

execute smooth and highly precise movements. LM Guides

help ensure rapid, high-precision manufacturing processes,

and they also help conserve energy. In its feld, THK is the

undisputed market leader.

As Japan’s economy picks up the pace—along with

interconnected economies throughout the rest of the world—

Teramachi is confdent that THK will be able to both develop

new markets and expand operations in areas where it already

has a presence.

“We will continue to help our clients all over the world by

steadily and reliably meeting their needs, in every industrial feld

that uses linear motion,” he says. “Not only in advanced markets,

but also in developing markets, thanks to our globalization

efforts and forays into new business areas.”

China has become a vitally important market for THK, which

has 34 sales offces and fve production bases located all over

the country. Although some observers are voicing caution

about China’s future, Teramachi remains optimistic.

“The Chinese econ-

omy may have come to

the end of its period of

high growth and may

be moving into a period

of more stable, regular

growth,” he says. “There

have been predictions that China will surpass the U.S. as the

world’s preeminent economy. That may not happen, but when

you take into consideration China’s massive population and the

anticipated growth in per-capita GDP, it’s clearly reasonable to

expect more growth.

“I’m confdent that China will remain a promising and growing

market, although it may undergo short-term fuctuations,” he adds.

Teramachi emphasizes the importance of situating THK’s

manufacturing facilities in the same markets where the products

are consumed. But THK’s most important challenge is to continue

to develop high-quality, innovative but affordable products.

“We have to keep striving to provide our products at reasonable

prices,” he says. To do that, the company says it is necessary

to scrutinize its activities from the perspective of its customers.

“There are many factors that affect businesses in every market in

the world—differences in laws, cultures, customs, language and

many other areas—but these are all issues from the standpoint

of the businesses supplying the products.

“The other perspective is that of customers seeking high-

quality, reasonably priced products that are available when and

where they need them. That’s a universal need,” Teramachi

emphasizes. “THK has set out to become the number-one

company in the world at identifying with the client’s point of view

and providing products and services that meet the customer’s

needs and desires.”

The advent of “Abenomics”—the aggressively expansionist

economic policies of Japanese Prime Minister Shinzo Abe—has

put Japan back in the global economic spotlight, Teramachi

says, adding that THK intends to preserve its forward momentum

and use its pioneering spirit and commitment to excellence to

solidify and enhance its vital role in the global economy.

Akihiro Teramachi

President and CEO, THK CO., LTD.

Akihiro Teramachi attended Keio University and joined THK CO.,LTD., a company founded by his father,

in 1971. He became a Director in 1982, was made Vice President in 1994 and took over as CEO in 1997.

www.thk.com


There is an adage on Wall sTreeT: “iT’s beTTer To be lucky Than good.”

And if ever there was a banker with luck on his side it’s Sergio Ermotti, the suave, im-

peccably dressed global chief executive of Switzerland’s UBS.

Less than six months after he joined the bank to run its European, Middle East and

African businesses in April 2011, a rogue trader in UBS’ London ofce lost $2.3 billion

on a series of derivatives trades. The scandal forced the bank’s 67-year-old chief exec-

utive, Oswald Grübel, to resign. Suddenly, Ermotti was next in line to run the 152-year-

old Zurich-based bank. By November he was CEO, and by 2012 he was the highest-paid

member of the bank’s executive board. Good timing; great luck.

But Ermotti, 53, is also good—very good. Born in the Italian-speaking canton of Tici-

no in southern Switzerland, he has had a singular focus on banking since age 15 when he

took an apprenticeship at Switzerland’s Corner Banca, where young Ermotti learned to

sell stocks and trade them. Eventually he got a certifcate in Swiss banking and earned

a master’s degree in management from Oxford. In 1987 Merrill Lynch hired him, and

he spent the next 16 years climbing Merrill’s ladder in Europe and New York, eventual-

ly becoming global equities boss. Charming and likable, with movie star looks, Ermotti

parlayed the Merrill experience into the role of deputy group chief executive at Italy’s

largest private bank, UniCredit. After being passed over for chief executive he took the

job running Europe, Middle East and Africa at UBS.

Given the state of global fnancial services in 2011, one might think that landing atop

a European bank was as much a curse as a blessing. The fnancial crisis left Europe’s

banks crippled, and most of them are still busy untangling and deleveraging their bal-

ance sheets. But once again Ermotti got lucky.

As chance would have it Robert McCann, Ermotti’s former boss and mentor at Mer-

rill Lynch, was already busy revamping the Swiss bank’s U.S. operations. McCann, 55,

had spent 26 years at Merrill, frst in trading and fnally running its 18,000-advisor

reinventing wall streetThanks to some fortuitous timing Sergio Ermotti ended up with the top job at UBS, but he really hit the jackpot when he found that his former boss was already transforming the troubled bank into a wealth-management juggernaut. by halah Touryalai

Gianluca colla / BloomBerGJanuaRy 20, 2014 FORBES | 73

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FORBES

wall street

ranking third among global banks in

terms of balance sheet assets, with

$850 billion. Citigroup and Japan’s

Mizuho ranked frst and second,

with about $1 trillion in assets each.

Today UBS’ $1.2 trillion in bank assets

doesn’t even put it in the top 20. In-

dustrial & Commercial Bank of China

ranks frst with $3 trillion in assets,

and Deutsche Bank ranks eighth with

$2.4 trillion.

But in banking today, sheer size is

largely irrelevant: The real battle is

to control the world’s $135 trillion in

private wealth—a number that is set

to take of as China and other devel-

oping economies grow rich.

Of course, the former Union Bank

of Switzerland has long been a major

sure to capital-intensive and regu-

latory-heavy businesses like trading

and investment banking, and moving

quickly into less risky businesses that

provide smaller but steadier streams

of income.

The math is fairly simple: Shares

of BlackRock, the world’s larg-

est asset manager, sell at a trailing

price/earnings multiple of 20 while

the world’s preeminent investment

bank, Goldman Sachs, has a P/E of

11. BlackRock’s shares are up near-

ly 500% in the last decade, Goldman’s

are up 79%, but large, diversifed

banks like UBS and Bank of America

have seen their shares fall about 50%.

A decade ago UBS was neck and

neck with Germany’s Deutsche Bank,

brokerage arm. The two men knew

each other well. Back in 1996 it had

been McCann who plucked the

36-year-old Ermotti out of the ob-

scurity of Merrill’s European opera-

tions, brought him to New York and

promoted him to head global deriv-

atives trading. Ermotti would work

for McCann for the next six years.

“He was a good mentor to me,” re-

calls Ermotti.

By the time Ermotti took the top

job at UBS, McCann had been build-

ing up the bank’s brokerage force

for two full years. This stroke of

luck meant UBS’ American wealth

management business was turning

around, giving Ermotti an engine of

growth as his team furiously shed

risky investment-banking assets.

In the last three years UBS’ en-

tire wealth management operation

brought in $137 billion in net new cli-

ent money. It is now the largest pri-

vate banker in the world, with $1.7

trillion in assets. In 2013 the bank is

expected to earn $3.8 billion on reve-

nues of $31.6 billion. And it’s a strong

bank: In terms of Basel III’s strin-

gent capital requirements UBS has

already surpassed its target and now

has a common equity tier one ratio

of 11.9%.

At the same time McCann and

his non-U.S. counterpart Jurg Zelt-

ner were expanding the wealth man-

agement business, the bank was going

through a massive downsizing. In

2012 UBS announced it would fre

10,000 employees in investment bank-

ing, and it has already culled more

than $300 billion in risky assets from

its balance sheet.

“Many said it was impossible to

shrink the bank to greatness, but now

we have silenced our critics,” says Er-

motti, describing the bank’s strategy as

centered on wealth management, yet

“complemented by a focused and less

capital intensive investment bank.”

Ermotti the trader is executing

perhaps the smartest trade in fnan-

cial services today, reducing expo-

robert Mccann gave up golf to rescue

swiss bankers on u.s. soil.


U.S., it was a lifeline for the worka-

holic banker.

McCann’s frst move was to re-

assemble his A-team of old Merrill

Lynch buddies, including Merrill’s

key private-client execs, Robert Mul-

holland and Brian Hull; marketing

head Paula Polito; its general counsel,

Rosemary Berkery; and the former

global securities lending chief, John

Brown. To get the rank and fle to buy

in and thereby avoid “mini-Merrill”

criticism, he elevated several UBS ex-

ecutives, and retained Tom Naratil,

who was CFO of the Americas.

“All of us had nothing more to

prove in our careers and had already

accomplished a lot,” says Polito. “It

was more about reuniting as a team

under Bob one more time and doing

something that could be extraordi-

nary if we could pull it of.”

When the team arrived broker mo-

rale was terrible, partly because of the

bad press but also because the advi-

sors felt the home ofce in Switzer-

land was both ignoring them and bur-

dening them with crappy products.

One example: a UBS credit card

that was foisted on brokers and their

clients in 2005. The Visa card sport-

ed such stringent antifraud restric-

tions that it declined payment as

much as 50% of the time, according

to Berkery, who now heads up UBS

Bank USA. One of UBS’ own advisors

warned Berkery not to use the card.

“That’s a bad sign,” she says. The

credit card was so jittery that Mc-

Cann’s own wife was declined when

she used it.

Within a month of McCann’s ar-

rival he decided to fy in UBS’ top

270 advisors for a lavish dinner at

New York City’s Gotham Hall. In his

postprandial speech he pledged to

spend his frst 100 days at the bank

listening to their problems, fxing

them as quickly as possible and fg-

uring out a new strategy. And, in-

deed, for the next three months Mc-

Cann and his pals from Merrill—

known internally as the “renewal”

player in private

banking, also known

as wealth manage-

ment. In fact, today

most of the frm’s cli-

ent assets outside of

the U.S. still come

from its stronghold

in Europe, current-

ly run by Zeltner, 46.

McCann’s wealth

management unit

was acquired by UBS

when it purchased

PaineWebber in 2000.

One of Ermot-

ti’s smartest moves

after taking over in

2011 was refusing to

sell UBS’ U.S. busi-

ness—despite persis-

tent Wall Street chat-

ter that it would be

wiser for the bank to

focus on its home turf.

In fact, far from jetti-

soning it, Ermotti fur-

ther empowered Mc-

Cann to rally his as-

set-gathering troops.

Says Ermotti, “If we

call ourselves the pre-

eminent wealth man-

agement frm globally,

then it would be impossible not to be

a strong player in the biggest market

in the world, the Americas.”

When McCann arrived at UBS in

2009 as CEO of Wealth Management

Americas, UBS was bleeding advi-

sors and assets. In a three-year span

the broker head count dropped from

8,248 to 6,796, and $32 billion in cli-

ent assets fed. The division mounted

losses of nearly $900 million.

Even worse than the losses were

the constant blows to the bank’s rep-

utation, which scared away poten-

tial customers and honest employees.

In 2008 UBS had a run-in with the

feds for a tax-evasion scheme. The

bank was forced to pay $780 million

and essentially admit that its fnan-

cial advisors committed tax fraud by

helping their American clients hide

money overseas.

Like Merrill, UBS was waist-deep

in toxic subprime debt and was ul-

timately required to repurchase $22

billion in auction-rate securities

that had blown up during the cred-

it crunch. Then came the rogue-trad-

er incident that cost Grübel his job,

and in 2012 the bank was nabbed in a

global conspiracy to rig interest rates.

For that bit of malfeasance UBS paid

a record $1.5 billion fne for a single

count of wire fraud. Most recently,

UBS is facing a slew of lawsuits after

its brokers were revealed to be some

of the biggest peddlers of overlever-

aged Puerto Rican municipal bond

funds.

Former Merrill lifer McCann

knows all too well how important

reputation is in the money business.

His stellar 26-year career at Merrill

Lynch was capped by a shotgun mar-

riage to Bank of America in 2009. It

was heartbreaking for McCann, who

rose from a trainee in 1982 to star

trader to vice chairman of the com-

pany. “I had been committed to Mer-

rill Lynch, and Merrill Lynch didn’t

exist anymore,” he says, seated on an

olive microfber sofa in his corner of-

fce on the 14th foor of UBS’ mid-

town Manhattan building.

McCann took eight months of. He

did some soul searching, played golf

and took a flm class with his wife

at New York University. When Grü-

bel came calling from Switzerland to

ask him to fx UBS’ operations in the

“advisors couldn’t believe it when i responded to

their calls. some hung up on me, thinking it was

a goof.”


FORBES

wall street

gues that scale can be overcome by

quality.”

It’s working. In just the U.S. net in-

fows amounted to $36 billion in the

last two years, and in 2012 McCann’s

division posted a record pretax prof-

it of $873 million, up 40%. Results

should be even better in 2013. At-

trition has been stanched, dropping

from 15.3% in 2009 to 2.2% in 2013.

McCann’s success has been re-

warded. He’s on UBS’ global exec-

utive board and is the second-high-

est-paid executive at the bank, earn-

ing $9.4 million last year, just behind

Ermotti.

He doesn’t just run UBS’ broker-

age force in the Americas anymore;

Ermotti put him in charge of its U.S.

investment-banking and asset-man-

agement business. Still, no one thinks

a Pittsburgh native like McCann,

who is two years older than Ermotti,

has any chance of nabbing the top job

at the giant Swiss bank. And given

how much UBS has riding on wealth

management and keeping its Ameri-

can growth engine chugging, Ermot-

ti needs to keep fnding new ways to

keep his lucky charm happy.

team—spent their days on the phone

with their brokers, hearing out their

problems and immediately fxing the

ones they could easily address, so-

called “Quick Wins.”

Some 400 changes were made

under Quick Wins. The paranoid

credit card was terminated, approv-

al of marketing material was moved

down the ranks and the limit for fast

credit line approvals for high-net-

worth clients was lifted from $4 mil-

lion to $5 million.

The renewal team also created

a fnancial-advisor council that re-

layed advisor’s gripes directly to Mc-

Cann. Martin Halbfnger, an advi-

sor with $3 billion in assets, was one

of the frst to head the council. The

rule was that complaints would be

responded to within one day. “There

used to be a black hole to which we’d

funnel our complaints, but suddenly

we were all amazed how that turned

around,” Halbfnger says.

“People couldn’t believe it when

I responded to their e-mails or calls

about problems. Some of them hung

up on me, thinking it was a goof,”

McCann recalls.

Ninety-nine days after that crucial

Gotham Hall meeting McCann’s re-

newal team presented its grand strat-

egy: a strict focus on high- and ultra-

high-net-worth clients in the 25 largest

American cities. They would be client-

oriented and focused on fnancial ad-

vice. “It was incredibly important that

the message was clear,” says McCann.

Another thing would become clear.

McCann wouldn’t tolerate slackers.

Anyone generating less than $250,000

in fees and commission annually saw

his or her pay reduced. McCann recent-

ly upped the threshold to $325,000.

He also went after institutional

bloat. McCann began shutting down

some branches, consolidating oth-

ers and eliminating layers of manage-

ment, including 25 managing direc-

tors. Nonfnancial advisor employ-

ees have been reduced from 11,200 in

early 2009 to 9,191 in 2013. The unit’s

cost-to-income ratio has dropped to

87% from nearly 100% in 2009.

In an efort to jump-start asset in-

fows, McCann aggressively recruited

top advisors with big sign-on bonuses.

In 2012 alone UBS spent $679 million

bringing in new brokers. “That’s 10%

of the annual net income of McCann’s

unit. It shows you how much empha-

sis McCann is putting on the right

producers,” says Alois Pirker, an ana-

lyst at Boston-based Aite Group.

It is also starkly diferent from

the industry’s usual “amass the big-

gest army” approach. McCann em-

ploys 7,000 fnancial advisors. Bank

of America Merrill Lynch, Morgan

Stanley and Wells Fargo have be-

tween 15,000 and 18,000 each. But

McCann’s troops are higher-quality,

with the average broker generating

$1 million in annual revenue, versus

$848,000 for Morgan Stanley and

$865,000 for Wells Fargo. Only Bank

of America Merrill Lynch, McCann’s

old employer, has an average bro-

ker production rivaling that of UBS.

Says Brad Hintz, an analyst at San-

ford C. Bernstein: “UBS goes after

the best of the best advisors and ar-

risk oFF, WealTh onRisk-weighted assets deteRmine how much capital banks must hold.

eRmotti’s stRategy has shRunk Risky assets by about 45%.

2011 3Q 2012 3Q 2013 3Q0

50

100

150

200

250

300

350

400

$450 BIL

$245

$89

$88

$172

$52

$96

$65

$76

$100

INVESTMENT BANK

NONCORE &

LEGACY PORTFOLIO

WEALTH MANAGEMENT,

BANKING, CORPORATE,

ASSET MANAGEMENT

risk-WeighTed asseTs

F

Tory Burch, Tory Burch LLC

Moira Forbes, ForbesWoman

Donna Karan, Urban Zen, DKNY

Kathryn Minshew, The Muse

Gayle King, CBS News, The Oprah Magazine

Kristen Soltis Anderson, The Winston Group

Janet Napolitano, Former Secretary, U.S. Department

of Homeland Security

the ENTREPRENEURSHIP of

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78 | FOrBES january 20, 2014

ForbeS

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january 20, 2014 FOrBES | 79

Evan Spiegel, 23, and Bobby Murphy, 25, have turned Snapchat and its disappearing photos into the

hottest app in America for teenagers. Hot enough, in fact, to spurn a $3 billion ofer from Facebook. Will

they become two of the youngest billionaires ever— or fade quickly into business infamy?

by j.j. colao

photographs by michael grecco for forbes


he enjoyed it. Spiegel, who had deactivated his Facebook

account, frantically called Murphy for his review. It was,

Murphy responded glumly, a near-exact copy.

But a funny thing happened on the way to obsolescence.

The day after its launch Poke hit number one on the iPhone

app store. But within three days, on Dec. 25, Snapchat had

pulled ahead, boosted by the publicity, as the Facebook app

disappeared from the top 30. Laughs Spiegel: “It was like,

‘Merry Christmas, Snapchat!’ ”

Which helps explain what happened in the fall when

Zuckerberg reengaged Spiegel, basically ready to surrender

on terms so generous, on paper, they seemed preposterous:

$3 billion in cash, according to people familiar with the ofer,

for a two-year-old app with no revenue and no timetable for

revenue. (Facebook refused to comment for this article.)

Even more preposterous, of course: Spiegel turned Zuck

down. It was the most scrutinized business decision of the

past year, complete with head-spinning

math. FORBES estimates that Spiegel and

Murphy each still owned about 25% of

Snapchat at the time, which means they

were both forgoing a $750 million windfall.

“I can see why it’s strategically valuable,”

one leading venture capitalist tells FORBES.

“But is it worth $3 billion? Not in any uni-

verse I’m aware of.”

The roots of that decision, however, were

obvious to anyone who knew about the primer that Spiegel

and Murphy had bought for their team. Chapter 6 in the Art

of War specifcally addresses the need to attack an enemy

where and when he displays weakness. Spiegel and Murphy

sense an opening and insist that rather than selling, they’re

aiming to upend the social media hierarchy, armed with a

$50 million war chest raised in December at a lower (but

still heady) valuation of just under $2 billion. “There are very

few people in the world who get to build a business like this,”

says Spiegel. “I think trading that for some short-term gain

isn’t very interesting.”

For those keeping score, a “short-term gain” for a 23-year-

old who still lives in his dad’s house now apparently equals

three-quarters of a billion dollars. In going for the long gain,

Spiegel will either become the next great billionaire prodigy

or the ultimate cautionary tale of youthful hubris.

A lAnky 6-Foot-1, dressed in a button-down shirt,

designer jeans and plain white sneakers, Evan Spiegel hasn’t

molted the carapace of an awkward teen. Sitting at Snap-

chat’s new Venice Beach headquarters for his frst-ever

in-depth media interview, he shifts abruptly from raucous

laughter to icy glares, constantly grabbing fstfuls of gummy

bears and Goldfsh crackers. His conversation is pocked with

thirteen months Ago Facebook’s Mark Zuckerberg,

the richest twentysomething in history, reached out to Snap-

chat’s Evan Spiegel, who oversees a revenue-less app that

makes photos disappear, with an invitation, delivered to his

personal e-mail account: Come to Menlo Park and let’s get

to know each other. Spiegel, now 23 and the brashest tech

wunderkind since, well, Zuckerberg, complete with his own

legal battle against a college buddy who helped him start his

company, responded to his role model thusly: I’m happy to

meet you … if you come to me.

And so, armed with the premise of meeting with archi-

tect Frank Gehry about designs for Facebook’s headquar-

ters, Zuckerberg few to Spiegel’s hometown, Los Angeles,

arranging for a private apartment to host the secret sit-

down. When Spiegel showed up with his cofounder Bobby

Murphy, who serves as Snapchat’s chief technology ofcer,

Zuckerberg had a specifc agenda ready. He tried to draw out

the partners’ vision for Snapchat—and he described Face-

book’s new product, Poke, a mobile app for sharing photos

and making them disappear. It would debut in a matter of

days. And in case there was any nuance missed, Zuckerberg

would soon change the large sign outside its Silicon Valley

campus from its iconic thumbs-up “like” symbol to the Poke

icon. Remembers Spiegel: “It was basically like, ‘We’re going

to crush you.’ ”

Spiegel and Murphy immediately returned to their ofce

and ordered a book for each of their six employees: Sun

Tzu’s The Art of War.

Snapchat represents the greatest existential threat yet to

the Facebook juggernaut. Today’s teens have fnally learned

the lesson their older siblings failed to grasp: What you post

on social media—the good, the bad, the inappropriate—stays

there forever. And so they’ve been signing up for Snapchat,

with its Mission: Impossible-style detonation technology, in

droves. FORBES estimates that 50 million people currently

use Snapchat. Median age: 18. Facebook, meanwhile, has

admittedly has seen a decline among teenagers. Its average

user is closer to 40.

Zuckerberg understood this, which might explain the

gamesmanship. When Poke debuted, on Dec. 21, 2012,

Zuckerberg e-mailed Spiegel, telling him that he hoped

When Spiegel Met zuckerberg,

“it WaS baSically like,

‘We’re going to cruSh you.’ ”

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under

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response,” says Cook. “And Professor Wendell said, ‘Well, you

will be surprised to know he isn’t an M.B.A. student. He is an

undergraduate who is auditing this class.’ ” Cook quickly hired

Spiegel to work on an Intuit project that broadcasts Web-

based information via SMS texts in India.

Spiegel, however, was in too much of a rush to remain

content as an apprentice. In the summer of 2010 he and Mur-

phy developed Future Freshman, a suite of online software to

help parents, high schoolers and guidance counselors man-

age college admissions. “It ended up being this unbelievably

full-featured website,” Murphy recalls. One problem: “We

got, like, maybe fve people on the service,” says Spiegel.

That’s when fate, in the form of another fraternity broth-

er, Reggie Brown, stepped into Spiegel’s room to discuss a

photo he wished he hadn’t sent someone. The ensuing set of

events makes The Social Network look like C-Span2.

While oWnership of Snapchat remains hotly disputed,

all sides seem to agree on the genesis: Brown said something

to the efect of “I wish there was an app to send disappear-

ing photos.” Brown refused to speak to FORBES, citing the

pending litigation, but his side of the story comes through via

numerous court documents, including a leaked deposition.

According to Brown, Spiegel became “physically animated”

and repeatedly called Brown’s remark “a million dollar idea.”

(Spiegel acknowledges he was excited, but won’t comment

about the “million dollar idea” line.) That night they set out

to fnd a developer. Brown claims two candidates declined;

regardless, they settled on Murphy, who had just graduated.

The original roles were fairly defned: Murphy as CTO,

Brown as chief marketing ofcer, Spiegel as CEO, honing the

idea as part of a design class he was taking. The frst iteration

was a clunky website that required users to upload a photo

and set a timer before sending. The eureka moment only

came when the idea migrated to mobile. “At some point it

was like, ‘Hey, there’s a camera on your phone,’ ” Spiegel says.

“ ‘Wouldn’t that be easier?’ ”

The class culminated in a presentation to a panel of

venture capitalists. Brown came up with a name for the app,

Picaboo, and Murphy put in 18-hour days to get a working

prototype. “The feedback was basically, ‘Hmmmm. Well,

thank you for showing us your project,’ ” recalls Spiegel. One

investor suggested he partner with Best Buy. Many won-

dered why anyone would want to send a disappearing photo.

The frst version debuted in the iOS App Store on July

13, 2011 … to yawns. “The Instagram fairy tale”—the app had

25,000 downloads on the frst day—“that was not us unfor-

tunately,” Murphy laments. The team had worked around

a potentially fatal faw—the fact that recipients can take a

screenshot, rendering a disappearing image permanent—by

building in a notifcation if your picture has been captured, a

plenty of examples of “like” and “whatever.” And while Spie-

gel proves extremely opinionated on subjects like politics,

music and other techies, he’s reluctant to discuss even the

most basic CEO topics, like his ideal management team or

his long-term vision for Snapchat.

If you’re patient enough, however—one of my conversa-

tions with him lasted two and a half hours—you’ll get the full

backstory, one that shares an uncanny similarity to that of his

frenemy, Zuckerberg.

Like Zuck he was a child of relative privilege, the frst-

born child of two successful lawyers (mom Melissa went

to Harvard Law and practiced tax law before Spiegel was

born, while litigator dad John, a Yale Law grad, has repre-

sented the likes of Sergey Brin and Warner Bros.), living in

tony Pacifc Palisades, just east of Malibu. And like Zuck he

was a middle school nerd who found refuge in technology,

building his frst computer in sixth grade, experimenting

with Photoshop in his school’s computer lab and spending

weekends at a local high school’s art lab. “My best friend was

the computer teacher, Dan,” Spiegel laughs.

In high school he began to display the moxie that Zuck-

erberg would later exhibit, promoting Red Bull at clubs and

bars and using his parents’ divorce as a leverage tactic. He

frst moved in with his dad when he gave him a free hand in

outftting his room and who could come over. “I had some

notorious parties,” he smirks. But when Pop reportedly

refused to shell out for the lease on a BMW 550i, he moved in

with Mom. Days later the BMW was his. Except for college,

he’s been based in his dad’s home, a stone-faced mansion a

half-mile north of the ocean, ever since. “A lot of things have

changed very quickly, so it’s nice to have that one constant,”

he says by way of justifcation. “It’s also pretty grounding.”

He entered Stanford’s product-design program and in

2010, during his sophomore year, moved into the Kappa

Sigma fraternity house. Bobby Murphy, a senior major in

mathematics and computational science, lived across the

hall. “We weren’t cool,” Murphy says of the fraternity. “So we

tried to build things to be cool.”

While Spiegel speaks animatedly, albeit measuring what

he’s saying, Murphy, the Berkeley son of state employees

(his mother emigrated from the Philippines), sits placidly,

one leg tucked under the other. “I’d describe him almost like

a monk,” says David Kravitz, Snapchat’s frst hire. “I don’t

think I’ve ever seen him upset.” At Stanford it was Murphy

who frst hired Spiegel, recruiting him to design an online

social network inspired by Google Circles. It went nowhere.

Still, Spiegel was getting noticed. Intuit’s Scott Cook was

impressed by an answer he gave while guest lecturing at Peter

Wendell’s popular graduate level class, “Entrepreneurship

and Venture Capital.” “After class concluded, I commented

on the intelligence and reasoning in this particular student’s


Murphy added photo caption capabilities, they seemed

destined to replicate their Future Freshman experience: a

technically competent product that virtually no one wanted.

Spiegel returned to Stanford for his senior year; Murphy

took a coding job at Revel Systems, an iPad point-of-sale

company in San Francisco.

But that fall Snapchat began to exhibit a pulse. As user

numbers approached 1,000, an odd pattern emerged: App

usage peaked between 9 a.m. and 3 p.m.—school hours.

Spiegel’s mother had told her niece about the app, and the

niece’s Orange County high school had quickly embraced

Snapchat on their school-distributed iPads, since Facebook

was banned. It gave them all the ability to pass visual notes

during class—except, even better, the evidence vanished.

Usage doubled over the holidays as those students received

new, faster iPhones, and users surged that December to

2,241. By January it was at 20,000; by April, 100,000.

But with growth came server bills. While Spiegel helped

cover some of it with money from his grandfather, Murphy

had to fork over half his paycheck. As monthly expenses ap-

proached $5,000, the guys needed a bailout.

Lightspeed Venture Partners’ Jeremy Liew came to the

rescue. His partner’s daughter relayed how Snapchat had

become as popular as Instagram and Angry Birds at her Sili-

con Valley high school. But Spiegel and Murphy proved dif-

cult to track down; their website had no contact information,

and no one was listed on the company’s LinkedIn page. Liew

fnally did a “whois” lookup to fnd the owner of the Web

potent social deterrent. Still, by the end of the summer Pica-

boo had only 127 users. Pathetic. Brown toyed with position-

ing the app as a sexting tool. (“Picaboo lets you and your boy-

friend send photos for peeks and not keeps!” reads a draft of

a press release he wrote.) Murphy’s parents implored him to

get a real job. And Spiegel apparently began pushing to shake

up the team. According to Brown’s deposition, he overheard

Spiegel and Murphy plotting to replace him.

The breaking point came when equity was being fnal-

ized. On Aug. 16 Brown, back home in South Carolina, called

his two partners and laid out his case. He wanted around

30%, according to Murphy’s deposition, and listed his contri-

butions: the initial idea, the Picaboo name and the now-

famous ghost logo. Spiegel and Murphy countered that he

didn’t deserve anywhere close to that. When Brown claimed

that he had “directed [the] talents” of Spiegel and Murphy,

Murphy remembers, an enraged Spiegel hung up. Spiegel

and Murphy changed administrative passwords for the app

and cut of contact except for a few tense e-mails about a

pending patent. Brown was out, relegated to Snapchat’s ver-

sion of a cross between the Winklevoss twins and Eduardo

Saverin. (Ironically, in their battle with Brown, Snapchat

has hired the legal team that pursued the Winklevoss claim

against Facebook.)

Now a two-man operation, Picaboo changed its name

to Snapchat after receiving a cease-and-desist letter from a

photo-book company with the same name. “That was like

the biggest blessing ever,” says Spiegel. But even as he and

’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13

1

10

100

1,000

10,000

$100,000 FACEBOOK

TWITTER

SNAPCHAT

INSTAGRAM

VALUATIONS ($MIL)

Social MetricSHow does Snapchat stack up against the established darlings of social media? Let us count the ways.

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domain, linked the obscure LLC that it was registered under

to Spiegel and eventually tracked him down via Face-

book. “His profle picture was with Obama,” shrugs

Spiegel. “So I thought he seemed legit.”

In April 2012 Lightspeed put in $485,000

at a valuation of $4.25 million. “That was

the greatest feeling of all time,” says Spie-

gel. “There is nothing that will replace

that.” On the day the money went

through, he sat in a machine-shop

class busily refreshing the Wells

Fargo app on his iPhone. In a fnal

homage to Zuckerberg, when the

money appeared he walked up

to the professor and dropped out

of the class and Stanford, a few

weeks from graduation.

snApChAt hAs moVeD

three times since the initial in-

vestment, as the company has grown

to a still-lean 35 employees. The latest

ofces, in a former art studio a block

from the Venice boardwalk, are appro-

priately anonymous, with just a small ghost

logo to identify it. Most of the development that

has made it a viral sensation, however, took place in

2012, when the company was headquartered at Spiegel’s

number of usersoctober 2013

1.2 bil


230 mil

number of usersDecember 2013 (est.)

50 mil

number of usersseptember 2013

150 mil

number of usersDecember 2004

1 mil

number of usersaugust 2006

1,800

number of usersseptember 2011

127


25,000

facebooK

tWitter

snapchat

instagram

facebooK

$6.87 bil

tWitter

$534.5 mil

snapchat

0

revenue

LaSt four quarterS

tHrougH September 2013


Murphy, who have evolved Snapchat into something fun

and easy. To view a snap users hold a fnger on their phone

screens, a feature designed to make it still more difcult

for people to photograph the image with another camera.

Disappearing video is now an option. And while teens have

embraced a medium unreachable by prying parents or fu-

ture employers, grownups are catching on. All told, Snapchat

users send 400 million photos and videos each day, match-

ing the daily uploads to Facebook and Instagram combined.

“We certainly didn’t invest in this to fip it,” says Mitch

Lasky, a Snapchat board member and partner at venture

capital frm Benchmark Capital, which led Snapchat’s $13.5

million fundraising round a year ago (they also raised $60

million in June from Institutional Venture Partners)—and

invested in Twitter way back in 2009.

ALL THE ASTOUNDING GROWTH, valuations and

talk of an independent future misses one key ingredient:

revenue. Asia ofers a possible blueprint (see box, oppo-

site). There, a handful of wildly popular mobile messaging

services that upsell users with “in-app purchases.” Spie-

gel’s party line, when discussing revenue, feels as if it’s read

from a script: “In-app transactions followed by advertising,

that’s the plan we’re sticking to.”

Drilling down through some of the companies that

Spiegel cites raises more questions than answers. China’s

WeChat, a massive messaging app owned by the Chinese

Internet behemoth Tencent, encourages

users to subscribe to celebrity greetings

and purchase physical goods. But it’s

mostly a texting app, and the messages

don’t disappear. Korea’s KakaoTalk and

Japan’s Line make most of their money

via mobile games, which don’t seem a

natural ft with Snapchat. And, of course,

digital goods, like premium sticker pack-

ages, emoticons and animations, are also

moneymakers in Asia, though Spiegel seems to disapprove.

“It’ll make sense in a Snapchat way,” he says. “But it will not

be stickers.”

Advertising is similarly tricky. Snapchat’s core strengths

in gaining users (your privacy is protected and your images

disappear!) cripple the targeted advertising that most social

media companies rely on (Snapchat knows little more than

e-mail, age, phone number—plus your ads disappear!).

But it has one advantage that virtually no other digital

advertiser can claim: guaranteed engagement. Users must

keep their fngers on a photo or video to view it—and that

applies to any ads thrown their way. Snapchat can tell ad-

vertisers with absolute certainty whether their ads were

viewed, a rare data point in the metric-driven world of

dad’s house. “He convinced us to drop out of Stanford and

move down to L.A. over the course of a single conversation,”

says Daniel Smith, who was hired along with Kravitz.

The team worked around the clock, sleeping where they

worked. (Smith lived in Spiegel’s sister’s room, with enough

girlish orange and pink polka dots, Spiegel remembers, “to

give you an anxiety attack.”) “Bobby had a habit of pushing

code changes and then going to sleep,” says Spiegel, who

then found himself on debugging duty. “I’d wake up in the

morning and go, ‘Oh my God!’ ” Adds Murphy: “I still have

nightmares about him stomping down the stairs.”

The arrangement proved oddly efective. Says Light-

speed’s Liew: “They can call ‘bulls--t’ on each other, which

makes their ideas better.” What emerged was an app that,

rather than a tool for the likes of Facebook, can potentially

challenge it. By both luck and design, Snapchat addresses

three red fags for Facebook. First, it’s more intimate and ex-

clusive. Just as Facebook took the anonymous Internet and

boiled it down to real people you knew, Snapchat narrows

your world from Facebook “friends,” which range from long-

forgotten schoolmates to nagging aunts, to your network of

phone contacts. People, in other words, you actually talk to.

Second, it’s perceived as young and cool. Most teens

can probably fnd a grandparent on Facebook. Snapchat’s

mobile-frst roots give it credibility with the app generation,

which increasingly view PCs the way their parents viewed

black-and-white televisions.

And in the age of Snowden, parental Facebook moni-

toring and “revenge porn” (exes who publicly post nude

pictures of former lovers), the self-destruction feature has

become increasingly resonant. “This isn’t a silly little mes-

saging app,” insists Liew. “It allows people to revert back to a

time when they never had to worry about self-censorship.”

An entire subindustry—so-called ephemeral, or tem-

porary, social media—has emerged behind it. Besides Poke

(which has largely faded), there’s Clipchat (a Snapchat-Twit-

ter hybrid), Wickr (disappearing texts) and dozens of other

apps pushing the boundaries of digital communication back

toward what a telephone call used to be—a way to communi-

cate with little risk it will come back to bite you.

All of them, however, are stuck chasing Spiegel and

When the Money appeared,

Spiegel Walked up to hiS

proFeSSor—and dropped out.

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emerging platforms, also seem keen to not make that mistake

again. In September, for example, Snapchat debuted on the

Samsung Galaxy Gear smartwatch. “People haven’t thought

about use cases on new computing platforms,” says Thom-

as Lafont, managing director of Coatue, the hedge fund that

provided the latest $50 million infusion. “In one tap you take

a photo, one more and you can share it. Imagine [the difcul-

ty] trying to post on Instagram from a Google Glass device.”

Ah, Instagram. Zuckerberg’s Poke might be languish-

ing, but he still has the last billion-dollar app to come out

of Stanford. Kevin Systrom’s $1 billion sale last year, in fact,

is often held up as the reason Snapchat was right to turn

down Facebook’s preemptive billions. (Instagram would

digital advertising.

Like Facebook the company can also charge busi nesses

for setting up branded accounts. Acura, Taco Bell and the

New Orleans Saints already use the app to debut new prod-

ucts and show behind-the-scenes footage. The compa-

ny’s Stories feature, which lets users display a compilation

of snaps taken over the last 24 hours, is useful for brands

looking to tell a longer story. Example: Online retailer Kar-

maloop uses the feature to show clips of posing models

sprinkled with discount codes and new items. Others, like

frozen yogurt chain 16 Handles, have experimented with

“exploding coupons.”

Spiegel and Murphy, slow in their college days to adapt to

line. Social messaging platform is big on letting users share games and cute digital stickers, which to-

gether made up 80% of its $154 million revenue in the third quarter. Created in 2011 by engineers at the

Japanese arm of South Korea’s Naver Corp., it now claims 300 million registered users. monthly actives

are a mystery, but one investor in a rival app suspects 27%. LINe is reportedly planning an Ipo in 2014

at a valuation of $8 billion and recently set up ofces in the u.S. to court celebrity ambassadors.

Wechat. China’s mega holding company tencent denied reports that it blocked some of its 270

million active WeChat users, a third of whom were said to be outside China, from sending words like

“falun gong” earlier this year. It’s now targeting Italy, mexico and brazil for expansion and has experi-

mented with deposits and payments, setting up 300 WeChat vending machines in beijing’s subway,

where users could buy discounted snacks through the app.

KaKaotalK. Seven-year-old, game-focused messaging platform booked $65 million in sales in frst

half of 2013 after splitting proceeds with game developers, apple and google. ofers 250 games and

free group calls and is said to be on nearly every phone in South Korea, one of the most wired coun-

tries on earth. Claims to have 110 million registered users.

KiK messenger. founded after former blackberry intern became frustrated that the devicemaker

wouldn’t make its bbm messenger work with other phones, then left to create Waterloo, ont.-based Kik,

which did. Now has more than 100 million registered users, half of whom are in the u.S. and many of whom

are teens. unique in being a Web-based messenger with 30 “Cards,” or interactive mobile sites, like You-

tube and games; 26-year-old founder says it’s evolving into a mobile browser with messaging as its core.

With $27.5 million in VC funding, it plans to make money through ads and premium services.

Whatsapp. World’s most popular messaging app has 400 million monthly active users and was the

frst messaging service to synch with the phone’s address book; is on almost all smartphones in Spain

but largely unknown in the u.S. the proftable, subscription-based service—it costs $1 annually after

the frst free year—took $8 million from Sequoia Capital in 2011 and has since shunned funding, media

and advertising. No immediate plans to expand to games and stickers, but simply send messages,

photos and video to any mobile phone. —Parmy Olson

aSia callingevan Spiegel points to mobile-messaging apps popular in the far east as potential business models for Snapchat. Here are the leaders.

amit avner | 28Cofounder | Taykey

michael buckwald, David holz | 25, 25

Cofounders | Leap Motion

eric butler | 26Security expert

tracy chou | 26Software engineer | Pinterest

patrick collison, john collison | 25, 23

Cofounders | Stripe

adam D’angelo | 29Cofounder | Quora

greg Dufy | 27Cofounder | Dropcam

steven eidelman, ben jacobs | 28, 26

Cofounders | Whistle

Kelsey falter | 23Founder | Poptip

lisa falzone | 28Cofounder | Revel Systems

ryan farris | 29Engineering manager | Parker

Hannifn

aj forsythe | 25Cofounder | iCracked

adam ghetti | 27Founder | Ionic Security

meron gribetz | 28Founder | Meta

michael heyward | 26Cofounder | Whisper

alexa hirschfeld, james hirschfeld | 29, 27

Cofounders | Paperless Post

morgan Knutson | 29Designer | Dropbox

sahil lavingia | 21Founder | Gumroad

ted livingston | 26Founder | Kik Messenger

erie meyer, aminatou sow | 29, 28Cofounders | Tech LadyMafa

eric migicovsky | 27Founder | Pebble

sean rad | 27Cofounder | Tinder

christian reber | 27Founder | Wunderlist

David moinina sengeh | 26Biomechatronics researcher | MIT

Media Lab

evan spiegel, bobby murphy | 23, 25

Cofounders | Snapchat

robby stein | 28Director of product | Yahoo

ilya sukhar | 28Cofounder | Parse

amir taaki | 25Cofounder | Dark Wallet

David Wang | 28Hacker | Evad3rs

john Zimmer | 29Cofounder | Lyft

30 uNder 30: teCH

juDges:

miKe abbott General partner | Kleiner Perkins Caufeld & Byers

steve case CEO | Revolution

caterina faKe Founder | Findery86 | FOrBES january 20, 2014

be worth as much as ten times more

now.) Zuck is going after Snapchat

again with a tweak to Instagram—

Instagram Direct, a Snapchat knock-

of with a key diference: The imag-

es don’t vanish unless users go in and

delete them.

Spiegel and Murphy have an-

other headache. Brown’s lawsuit,

which asks for one-third of the com-

pany plus punitive damages, might

go to trial this year. “It’s defnite-

ly over a billion dollars we’re seek-

ing,” says Luan Tran, one of Brown’s

three lawyers. Insiders say Snapchat

is eager to try the case, but videos

of depositions, presumably leaked

by Brown’s team, show Spiegel and

Murphy far more equivocal and for-

getful than their opponent. “I’m just

hoping it gets resolved so it doesn’t

prove to be a distraction,” says

Benchmark’s Lasky.

The proverbial “adults” have

been brought in, including Philippe

Browning, the vice president of

monetization, nabbed from CBS, and

COO Emily White, poached from

the business division of, yes, Insta-

gram. But, tellingly, the company

prevented FORBES from interview-

ing either of them.

So for now the doubters carry the

day. “There’s an almost ritual incan-

tation when these things reach 50

million daily active users and people

say, ‘Well they’re not making any rev-

enue,’ ” says Lasky. “It’s unfair to ex-

pect these things to generate reve-

nue while growing so quickly.” To his

point, the same was said about Twit-

ter and Facebook. But it was also in-

toned by the dot-com oracles on the

eve of catastrophe 15 years ago. Will

Snapchat wilt like MySpace, get out

at a peak valuation the way Mark

Cuban sold Broadcast.com or prove

the next great social media IPO? We

should get our answer within two

years, just in time for Spiegel to turn

the ripe old age of 25.

ForbeS

under

30

30

F

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3O UND

Introducing the brightest young stars in 15 dif erent f elds. Theseenergy and innovations of the moment, much as Atari joysticks and

PHOTOGRAPHER: Jamel Toppin CREATIVE STYLE DIRECTOR: Joseph DeAcetis PRODUCER: Robyn Selman

PRODUCTION ASSISTANT: Mehrunnisa Wani HAIR AND GROOMING: Mary Reid FASHION ASSISTANT: Alexa Rizk

FROM LEFT:

Trip Adler, Nic Borg, Jamail Larkins, Meg Gill,

Lucas Duplan, Shiza Shahid, Nate Levine, Palmer Luckey,

Brian Wong, Divya Nag.

EDITED BY CAROLINE HOWARD AND MICHAEL NOER

ER 3O

unders, brand-builders and do-gooders embody thee the decade that almost all of them were born in.

REPORTERS: ART & STYLE: Susan Adams, Hannah Elliott EDUCATION: Caroline Howard ENERGY & INDUSTRY: Christopher Helman, Joann Muller, Aaron Tilley FINANCE: Nathan Vardi, Agustino Fontevecchia,

Halah Touryalai FOOD & DRINK: Randall Lane, Vanna Le GAMES: David M. Ewalt HOLLYWOOD & ENTERTAINMENT: Dorothy Pomerantz, Kate Pierce LAW & POLICY: Daniel Fisher, Miguel Morales MARKETING &

ADVERTISING: Jennifer Rooney MEDIA: Jef Bercovici, Emily Inverso MUSIC: Zack O’Malley Greenburg SCIENCE & HEALTH CARE: Matthew Herper, Andrea Navarro SOCIAL ENTREPRENEURS: Erin Carlyle, Prerna

Sinha SPORTS: Tom Van Riper, Alex Morrell TECH: Steven Bertoni, Andy Greenberg, Connie Guglielmo, Kashmir Hill, Alex Knapp, Alex Konrad, Ryan Mac, Parmy Olson, Bruce Upbin

Megan Amram | 26Writer-comedian

Oliver Bogner | 20Executive producer | Bogner

Entertainment, Relativity Television

Bing Chen | 27Global creator development & management lead | YouTube

Ryan Coogler | 27Director-writer

Lena Dunham | 27Actress-writer-producer

Megan Ellison | 27Founder | Annapurna Pictures

Dave Franco | 28Actor-writer-producer

Todrick Hall | 27Actor-writer-director-singer

Ian Hecox, Anthony Padilla | 26, 26

Founders | Smosh

Grace Helbig | 28Actress-comedian

Stephanie Herman | 29VP, casting | Twentieth Century

Fox Television

Michael B. Jordan | 26Actor

Anna Kendrick | 28Actress

Jennifer Lawrence | 23Actress

Tom Leach | 28VP, development & current

programming | One Three Media

Deborah McIntosh | 29Agent | WME Global

Mickey Meyer | 29Cofounder | JASH

Kelly Osbourne | 29TV host

Tiler Peck | 24Ballerina | New York City Ballet

Aubrey Plaza | 29Actress

Issa Rae | 28Writer-producer-director

Heather Regnier | 28Writer-comedian

Simon Rich | 29Writer

Jason Ruiz | 28Animator

Taylor Schilling | 29Actress

Nev Schulman | 29Filmmaker-producer

Quvenzhané Wallis | 10Actress

Andy Weil | 29VP, comedy development

| Universal Television

Rebel Wilson | 27Actress-writer-producer

hollywood & EntErtainmEnt

JuDGES:

MICHAEL EISNER Founder | The Tornante Company

TODD LIEBERMAN Partner | Mandeville Films

DANA WALDEN CEO | Twentieth Century Fox Television

olivia wildeActress-

sociAl entrepreneur

29

Fundraising is the bane of every do-

gooder’s existence, often requiring

going back to the same rich donors

over and over again to convince

them to keep giving. actress

olivia wilde thinks there’s a better

way. that’s why she cofounded

Conscious Commerce. the company

pairs brands with causes to help

corporations become better global

citizens. So profts from a bestselling

dress at anthropologie might go to a

girls’ school in india, while a limited-

edition bag at alternative apparel

could fund a hospital in haiti. “i’ve

always been a huge proponent of

voting with your dollars,” says wilde.

“i’m inspired by the movement of

entrepreneurs from my generation

who are encouraging people to think

about where their dollars are going.”

this year Conscious Commerce

raised $100,000 for new light, a

community-development project

serving the women and children

of a red-light district in Kolkata,

india. Conscious Commerce now

shares time with wilde’s acting, but

she’s getting raves for her recent

performance in Drinking Buddies.

OLIvIA WILDE WEARS: SKirt by toCCa; top by rodartE; JEwElS by JEnniFEr mEyEr; bootS by Jimmy Choo.

FoRBeS

under

30

30

Wilde (b. 1984) gets all wrapped

up in VHS tape, the central player

of the video-coming-of-age indie

classic Sex, Lies, and Videotape.


Muthu Alagappan | 23Consultant | Ayasdi

Jonathan Amoona | 29Associate | Winston & Strawn

Alana Blanchard | 23Surfer

Michael Bradley | 26Midfelder | AS Roma

Drew Cannon | 23Basketball operations analyst

| Boston Celtics

Sidney Crosby | 26Center | Pittsburgh Penguins

Andrew Daines | 27Cofounder | Preplay Sports

Mike Disner | 28Director of football administration

| Arizona Cardinals

Kevin Durant | 25Forward | Oklahoma City Thunder

Brittney Griner | 23Center | Phoenix Mercury

Rob Gronkowski | 24Tight end | New England Patriots

Bryce Harper | 21Outfelder | Washington Nationals

LeBron James | 29Forward | Miami Heat

Alex Kline | 19Founder | The Recruit Scoop, Rivals

Shane Kupperman | 28Director of basketball operations

| New Orleans Pelicans

Rory McIlroy | 24Golfer

Lionel Messi | 26Forward | FC Barcelona

Andy Murray | 26Tennis player

Kei Nishikori | 24Tennis player

Megha Parekh | 28Vice president | Jacksonville

Jaguars

Derrick Rose | 25Point guard | Chicago Bulls

Ronda Rousey | 26MMA fghter

Maish Simon | 27Cofounder | Pogoseat

Jonathan Toews | 25Center | Chicago Blackhawks

Mike Trout | 22Outfelder | Los Angeles Angels of

Anaheim

Lindsey Vonn | 29Skier

Darrell Wallace Jr. | 20Nascar driver

Shaun White | 27Snowboarder

Caroline Wozniacki | 23Tennis player

sports

JuDGeS:

PeTeR GuBeR Co-owner | Golden State Warriors

JoSePH A. BAILey III Managing director | RSR Partners

SHAWN MCBRIDe SVP | Ketchum Sports & Entertainment

maria sharapovatennis player

26

this winter the world’s fourth-

ranked tennis player heads back

to her hometown, the resort of

sochi, russia, to serve as an NBC

correspondent for the 2014 Winter

olympics. there’s a reason the

network wants her face on the

games: sharapova sells. she was

the world’s highest-paid female

athlete last year, earning $29 million,

of which $23 million came from

deals of the court. A four-time

grand-slam winner, she’s piled up

endorsements over the years from,

among others, porsche, Motorola,

tifany and Nike, which created

a Maria sharapova apparel line.

Last year she launched her frst

independent business, a candy line

called sugarpova, with 12 favors of

premium candies (not to mention

jewelry and accessories featuring

the sugarpova lips logo) and

estimated revenues of $6 million.

“Business has always been a passion

of mine,” she says. “And I have

always had a sweet tooth. … A tennis

career is such a small part of life.”

MARIA SHARAPoVA WeARS: ALexANder MCQueeN, pALe BLue pIQuet top, sAks FIFth AveNue; doLCe & GABBANA, BLACk skIrt, sAks FIFth AveNue; JeNNIFer Meyer, JeWeLry.

ForBEs

under

30

30

Sharapova (b. 1987) swings a vintage

racket from the era when female

champs Martina Navratilova and

Tracy Austin held court.


Luis Alvarado | 29Investment research analyst | Wells Fargo Private Bank

George Bachiashvili | 28Founder | Georgian Co-Investment Fund

Lucy Baldwin | 29Managing director | Goldman Sachs

Sam Barnett | 24Founder | SBB Research Group

Ganesh Betanabhatla | 28Managing director | Talara Capital

Tracy Britt Cool | 29Financial assistant to the chairman

| Berkshire Hathaway

Rushabh Doshi | 29Trader | DW Investment Management

Leigh Drogen | 27Founder | Estimize

Fred Ehrsam | 25Cofounder | Coinbase

Eric Eisner | 29Vice president | Bank of America Merrill

Lynch Global Banking & Markets

Stephen Ensley | 29Principal | Hellman & Friedman

Brian Feinstein | 28Partner | Bessemer Venture Partners

Eugene Gokhvat | 28Portfolio manager

| BlueCrest Capital Management

Cameron Horwitz | 29Research director | U.S. Capital Advisors

Kevin Kaiser | 26Managing director | Hedgeye Risk

Management

Katie Keenan | 29Associate | Blackstone Group

Eric Khrom | 28Founder | Khrom Capital Management

Maximilian Kuss | 27Founder | European Media Holding AG

John Locke | 29Principal | Accel Partners

Carryn McLaughlin | 29Vice president | JPMorgan Chase

Chaitanya Mehra | 28Portfolio manager | Och-Zif Capital

Management

Neil Mehta | 29Founder | Greenoaks Capital

Vivek Ramaswamy | 28Investment analyst | QVT Financial

Adam Rodman | 29Founder | Segra Capital Management

Matthew Schoenfeld | 26Associate | Morgan Stanley

Sam Shikiar | 28Vice president | Goldman Sachs

Jefrey Sun | 29Executive director | Morgan Stanley

Andrew Silverman | 28Vice president | Goldman Sachs

Chris Yetter | 29Head of Latin American Investments

| Falcon Edge Capital

finance

lucas duplanfounder, Clinkle

22

Just over a year after receiving his

undergrad computer science degree

from Stanford, Duplan is running one

of the most hyped and controversial

startups in the nation, clinkle, which

seeks to disrupt the way fnancial

transactions are done—with a digital

wallet used on mobile phones. He has

shocked Silicon Valley with his ability to

raise $30 million from the likes of Richard

Branson, Peter Thiel and andreessen

Horowitz for an unreleased secret

product and attract talent like former

netfix cfO Barry Mccarthy, who is now

clinkle’s cOO. at the same time Duplan

has been slammed by tech bloggers,

who have pointed to the large number

of departing employees—one of whom

anonymously posted a harsh criticism

of Duplan—and made fun of some of his

decisions, like the over-the-top video ad

clinkle produced. “at the end of the day

only one thing will matter: Do people

like and use our product?” says Duplan.

“Our focus is not on the press or who is

backing it. Our focus is on product.”

JuDGES:

JiM BREYER Partner | Accel Partners

ANTHoNY SCARAMuCCi Founder | SkyBridge Capital

ADAM ZoiA CEO | Glocap

LuCAS DupLAN WEARS: SweaTeR ($556), SHiRT ($280) anD PanTS ($327) By Paul anD SHaRk; PaulSHaRk.iT. SHOeS: HiS Own.


FORBEs

under

30

30

“Greed is good” and outsize mobile

phones are shorthand for 1980s-era

Wall Street for young fnanciers like

Duplan (b. 1991).

media

Judges:

AriAnnA Huffington Cofounder | Hufngton Post Media Group

Ben sHerwood President | ABC News

sHAne smitH Cofounder | Vice Media

TRIP ADLERcofounder, scribd

29

an avid surfer and sometime street-

busking saxophonist with a Harvard

degee in biophysics, adler is a man

of many interests. He thinks readers

ought to be able to indulge their own

diverse curiosities as well—and be

able to “think about what to read,

not what to buy,” as he says. Scribd,

the digital content-sharing platform

he cofounded in 2007, is betting big

on subscriptions: $8.99 a month for

unlimited e-book downloads. it has

already partnered with more than

100 publishers for a catalog of more

than 100,000 titles and has ambitions

that extend well beyond books. “We

want to be the world’s digital library,”

he says. Proftable, with revenues in

the “tens of millions” and a user base

of 80 million, Scribd no longer has to

rely on VC funding. “Our challenge

now is how to take our profts and

reinvest them to continue to grow our

revenue,” he says.

trip Adler weArs: JaCket ($595), SHirt ($295) and SlaCkS ($450) by CalVin klein COlleCtiOn; aVailable at CalVin klein madiSOn aVenue StOre. belt ($40) by nautiCa; nautiCa.COm. SHOeS ($780) by Prada; Prada.COm.

FORBES

under

30

30

Tom Wolfe’s hardcover The Bonfre

of the Vanities was fly in 1987. Now

Adler (b. 1984) is busy disrupting

the book business.


pete Cashmore | 28Founder | Mashable

Kelly evans | 28Anchor | CNBC

dan fletcher | 26Cofounder | Beacon

matt galligan | 29Cofounder | Circa

tavi gevinson | 17Cofounder | Rookie

Axel Hansen, Jonah Varon | 22, 22Cofounders | Newsle

Jake Horowitz, Chris Altchek | 26, 26Cofounders | PolicyMic

david Karp | 27Founder | Tumblr

ezra Klein | 29Columnist | Washington Post

dan Koh | 28General manager | Hu�Post Live

Chris lavergne, Alex magnin | 25, 29Founder, COO | Thought Catalog

libby lefer | 28Strategic partnerships manager | Facebook

uzoamaka maduka | 26Cofounder | The American Reader

Claire mazur | 29Cofounder | Of a Kind

Brit morin | 28Founder | Brit + Co.

matt mullenweg | 29Founder | Automattic

Carolyn penner | 28VP of communications | Twitter

tifany pham | 27Director of business development, strategic

initiatives and partnerships | CBS

olenka polak | 20Cofounder | MyLingo

sterling profer | 27Director of platform | Vice

rachel rosenfelt | 28Cofounder | The New Inquiry

melissa rosenthal | 25Director of creative services | Buzzfeed

Callie schweitzer | 25Director of digital innovation | Time

nikhil sethi, garrett ullom | 25, 24Cofounders | Adapt.ly

shane snow | 29Cofounder | Contently

Jason stein | 29Founder | Laundry Service

Brian stelter | 28Host, Reliable Sources | CNN

eric stromberg | 25Cofounder | Oyster

fernando Vila | 28VP of programming | Fusion

Peter Asbill, Elliott Breece | 29, 29Cofounders | Songza

Avicii | 24Musician

Justin Bieber | 19Musician

J. Cole | 28Musician

Miley Cyrus | 21Musician

Donnie Dinch | 29Founder | WillCall

Drake | 27Musician

Derrick Fung | 26Founder | Tunezy

Calvin Harris | 29Musician

Hunter Hayes | 22Musician

Kim Kaupe | 28Cofounder | ‘ZinePak

Lady Gaga | 27Musician

Kendrick Lamar | 26Musician

Ryan Lewis | 25Producer

Lorde | 17Musician

Miguel | 28Musician

Janelle Monáe | 28Musician

One Direction | 19, 20, 20, 20, 22Musicians

Wilson Owens | 28Cofounder | Royalty Exchange

Jordan Passman | 27Founder | ScoreAScore

Katy Perry | 29Musician

Rihanna | 25Musician

James Sider | 29Founder | BandPage

Allen Stone | 26Musician

Taylor Swift | 24Musician

Sam Tarantino, Josh Greenberg | 27, 26

Cofounders | Grooveshark

Alex White | 27Cofounder | Next Big Sound

Wiz Khalifa | 26Musician

Zedd | 24Musician

music

JuDGES:

KEvin LiLES Founder | KWL Enterprises

JOHn OATES Musician | Hall & Oates

MiCHAEL RAPinO CEO | Live Nation Entertainment

BRUNO MARSMusician

28

When halftime rolls around at super Bowl XLViii,

it’s safe to say Bruno mars won’t be worried

about the score. “Hawaii doesn’t have a team, so

i bounce around,” says the Honolulu native. “i go

for the underdog.” That term hardly describes

mars, who will play the halftime show in the

tradition of Paul mccartney, u2, michael Jackson

and other music legends. mars is the frst artist

in ten years to headline before turning 30, but

he’s already got two platinum albums and 14

past Grammy nominations (including one win),

with 4 new ones this year. His best preparation

for the upcoming performance at metLife

stadium may have been hosting Saturday Night

Live in 2012, despite having about as much

experience with sketch comedy as Hawaii has

with snow. says mars: “You gotta be fearless,

man. … if i’m ever gonna sing in a blizzard, it may

as well be at the super Bowl.” To listen to mars’

curated playlist, created exclusively for FORBEs’

30 under 30, go to forbes.com/under30.

PH

OTO

GR

aP

H B

Y K

ai Z

. F

En

G


FORBES

under

30

30

Mars (b. 1985) sports a post-Saturday NIght

Fever meets Prince look.

Elizabeth Alpern, Jefrey Yoskowitz | 29, 29Co-owners | The Geflteria

Adam Altnether | 27Co-owner | Craft Restaurants

Matt Brockman, Ross Brockman, Tyler Mosher | 27, 25, 25

Founders | Downeast Cider House

Borahm Cho | 29Cofounder | Kitchensurfng

Emily Doubilet, Jessica Holsey | 29, 29Cofounders | Susty Party

Shore Gregory | 29President | Island Creek Oysters

Eden Grinshpan | 27Host, Eden Eats | Cooking Channel

Luke Holden | 29Founder | Luke’s Lobster

Yuki Ieto | 29Chef | Pubbelly Sushi

Jesse Katz | 29Head winemaker

| Lancaster Estate and Roth Winery

Joseph “JJ” Johnson | 29Chef de cuisine | The Cecil

Vincent Kitirattragarn | 29Founder | Dang Foods

Oliver Kremer | 27Cofounder | Dos Toros Taqueria

Adam Lowy | 28Founder | Move for Hunger

Aditi Malhotra | 28Founder | Tache Artisan Chocolate

Carlton McCoy | 29Wine Director | The Little Nell Hotel

Jack McGarry | 24Co-owner | The Dead Rabbit

Leslie Pariseau | 28Deputy editor | Punch

Thomas Pastuszak | 29Wine director | The NoMad Restaurant

Alex Pemoulie | 28Founder | Thirty Acres

Jason Pfeifer | 29Chef de cuisine | Maialino

Eric Railsback | 28Cofounder | Les Marchands Wine Bar & Merchant,

Lieu Dit Winery

Ali Rosen | 28Founder | Potluck Video

Erica Shea, Stephen Valand | 29, 28Cofounders | Brooklyn Brew Shop

Rob Spiro | 29Cofounder | Good Eggs

Ben Towill, Philip Winser | 29, 29Cofounders | Silkstone Group

Christina Turley | 29Director of sales and marketing

| Turley Wine Cellars

Jason Wang | 25CEO | Xi’an Famous Foods

Catherine Zamoiski | 29Director of marketing | Pret A Manger

food & drink

JuDGES:

DAnnY MEYER CEO | Union Square Hospitality Group

LEE SCHRAGER Founder | South Beach and New York Wine & Food festivals

ALICE WATERS Founder | Chez Panisse

meg gillCofounder,

Golden road BrewinG

28

Beer, it’s clear, isn’t just for dudes.

Women are drinking more of it. And

as Meg Gill proves, they’re making

more of it, too. Amid America’s craft

beer explosion—more than 2,000 at

last count—forBES reckons that Gill,

28, is the youngest female brewery

owner in the country. And her Los

Angeles-based Golden road Brewing

is one of the fastest-growing; it

produced 15,000 barrels last year

and expects to double that output

this year. “it’s all about fnding those

relationships to help support the

story behind the beer, the beer itself

and all the love that goes into getting

the beer into the right vessel,” says

Gill, who spent her time at Yale in the

decidedly beer-unfriendly realms of

classics study and varsity swimming.

Yet she credits the former with her

unique outlook on suds: “Latin is

about putting pieces of the puzzle

together, and the same thing is true

of getting beer on the shelf.” Gill,

who sold beer from an r.V. before

cofounding Golden road with an

industry veteran, Mohawk Bend

owner Tony Yanow, reaches those

shelves by putting her high-end

brews—$7.99 for a 16 oz. four-pack—

inside aluminum cans. revenues

exceeded $10 million in 2013, and

Gill plans to expand her dozen-

plus oferings outside her southern

California base in 2014.

MEG GILL WEARS: JACkET ($950) BY STrEnESSE SS; STrEnESSE.CoM. SkirT ($371) BY EkATErinA kukhArEVA; kukhArEVA.CoM. PuMPS ($148) BY CoLE hAAn; AVAiLABLE AT diLLArd’S; diLLArdS.CoM.


FORBeS

under

30

30

Two decades before Gill (b. 1985)

was legal to drink, Cheers made

suds safe for prime-time TV.

Maria Alegre | 28Cofounder | Chartboost

Alexander Bruce | 27Owner | Demruth

Anthony Burch | 25Lead writer | Gearbox Software

Terry Cavanagh | 29Director | Distractionware Limited

Brian Cho | 28Partner | Andreessen Horowitz

Jessie Coombs | 28Senior producer | Microsoft Game Studios

Matthew Davis | 28Cofounder | Subset Games

Zach Gage | 28Game designer

Alexander Garfeld | 28CEO | Evil Geniuses

John Graham | 27Cofounder | Humble Bundle

Keith Guerrette | 28Lead FX artist | Naughty Dog

Stephanie Harvey | 27Game designer | Ubisoft Montreal

Justin Ignacio | 23Broadcast production manager | Twitch

Tom Jubert | 29Narrative designer

Ludwig Kietzmann | 29Editor-in-chief | Joystiq

Andrew Kim | 22Industrial designer | Microsoft

Jaedong Lee | 23Professional gamer

David Louche | 19Game designer

Justin Ma | 28Cofounder | Subset Games

Matthew Malone | 29Designer | Branch

Alexander Martin | 22Founder | Droqen

Matt Nava | 27Creative director | Giant Squid

John Nesky | 28Feel engineer | thatgamecompany

Sean Plott | 27CEO | Day[9]TV

Amir Rao | 29Studio director | Supergiant Games

Matt Thorson | 25Game developer | Matt Makes Games

Greg Wohlwend | 29Founder | aeiowu

Justin Wong | 28Director of partnerships | Twitch

Davey Wreden | 25Creative mistress | Galactic Cafe

GAMES

JuDGeS:

MARTIN RAe President | Academy of Interactive Arts & Sciences

JoHN RoMeRo Cofounder | Loot Drop

JuLIe uHRMAN Founder | OUYA

Palmer luckeyCEO, OCulus VR

21

Virtual reality for the masses is no

longer just science fction, thanks to this

21-year-old videogame fan. Engineering

prodigy Palmer Luckey started

developing his own head-mounted

virtual-reality displays when he was

still in high school and was in college

when he created the frst prototype of a

consumer-priced VR headset called the

Oculus Rift. “You put it on,” says Luckey,

“and you feel like you’re inside of the

game, rather than looking at it

on a screen.” Endorsements from

game industry legends such as Valve’s

Gabe Newell and id Software’s

John Carmack helped Luckey raise

$2.4 million in a 2012 Kickstarter

campaign. (Carmack was so impressed

he even left id to work for Luckey as

his CTO.) The year-old company has

raised over $91 million from venture

capitalists, employs 50 people and has

released an early version of the device

to software developers, who are already

showing of some innovative VR games

and applications. Consumers will be

able to buy their own headsets—which

will initially work only with PC and

mobile games—for a goal price of $300

sometime later this year.

PALMeR LuCKeY WeARS: JACKET ($800) bY STONE ISLANd; STONEISLANd.COM. SwEATER ($450) bY STONE ISLANd ShAdOw; STONEISLANd.COM. JEANS ($165) bY JACK Of SPAdES; JACKOfSPAdES.COM.

FOrBeS

under

30

30

Luckey (b. 1992) blasts this Atari

2600 joystick, the only way to

play Space Invaders, the runaway

hit of gaming’s “golden age.”


Eren Bali | 29Cofounder | Udemy

Katie Beck | 27COO | 4.0 Schools

Catharine Bellinger, Alexis Morin | 23, 23Cofounders | Students for Education Reform

Dan Berkowitz | 28Manager | Youth Orchestra LA

Tyler Bosmeny, Dan Carroll, Rafael Garcia | 27, 26, 26

Cofounders | Clever

Andrew Buher | 28COO | NYC Department of Education

Sam Chaudhary, Liam Don | 27, 27Cofounders | ClassDojo

Jennifer Chen, Joyce Meng | 27, 27Cofounders | Givology

Sayamindu Dasgupta | 29Ph.D. | MIT Media Lab

Katelyn Donnelly, Saad Rizvi | 27, 28SVPs | Pearson

Aaron Feuer, Xan Tanner, David Carel | 22, 22, 23

Cofounders | Panorama Education

Alejandro Gac-Artigas | 25Founder | Springboard Collaborative

Brad Hargreaves, Matt Brimer | 27, 27Cofounders | General Assembly

Jeremy Johnson | 29Cofounder | 2U

Jeremiah Kittredge | 27Founder | Families for Excellent Schools

Garrett Neiman | 25Cofounder | CollegeSpring

Greg Rosenbaum | 25Producer | SXSWedu

Alison Johnston Rue | 26Cofounder | InstaEDU

Elliot Sanchez | 27Founder | mSchool

Kane Sarhan | 26Cofounder | Enstitute

Beth Schmidt | 29Founder | Wishbone

Mandela Schumacher-Hodge | 28Director | Startup Weekend Education

Elizabeth Ratner Slavitt | 27Content scaling lead | Khan Academy

Zakiya Smith | 28Strategy director | Lumina Foundation

Evan Stone, Sydney Morris | 29, 28Cofounders | Educators 4 Excellence

Andrew Sutherland | 24Founder | Quizlet

David Tjaden | 26Chair, student program | National Education

Association

Caryn Voskuil | 27Manager, school model innovation

| Rocketship Education

Tony Wan | 28Managing editor | EdSurge News

education

JuDGES:

MiCHAEL HoRN Cofounder and executive director, education program | The Clayton Christensen Institute

M. NiGHT SHyAMALAN Oscar-nominated director and screenwriter | author of I Got Schooled

LuyEN CHou SVP, global product strategy | Pearson

nic borgcofounder,

edmodo

27

in the white-hot world of

online educational startups,

nic Borg’s edmodo is among

the hottest, raising $25 million

in 2012 to total $57 million

since it was founded in 2008.

edmodo, a.k.a. “Facebook for

the classroom,” targets K-12

kids, parents and teachers

and has nearly 30 million

users—over a million of

them teachers—in more than

210,000 schools, including

public schools in chicago

and denver. edmodo doesn’t

create “content” but rather

is a free, privacy-protected

platform where teachers,

students and administrators

can compare and share lesson

plans, homework and tests.

it is also a showcase for app

developers, and edmodo

currently ofers over 600 apps,

from which it takes a revenue

share. Says Borg, “While the

ed tech industry has evolved

rapidly over the past few

years, we have only seen

the tip of the iceberg. We’ll

start to better understand

how technology can be used

to improve student learning

outcomes at scale.”

NiC BoRG WEARS: JacKet ($795) and Shirt ($225) By todd Snyder; PantS ($260) By J Brand; all availaBle at WilKeS BaShFord; WilKeSBaShFord.com.

ForbES

under

30

30

Borg (b. 1986) puzzles over a

Rubik’s Cube, which became

a worldwide craze in the

1980s.


Christina Agapakis | 29Postdoctoral researcher | UCLA

Ludmil Alexandrov | 27Ph.D. candidate | University of Cambridge

Genevera Allen | 28Assistant professor of statistics

| Rice University

Greg Alushin | 29Early independent scientist | National Heart,

Lung, and Blood Institute

Jocelyn Brown | 25Senior program associate | Rice 360°:

Institute for Global Health Technologies

Raghu Chivukula | 29Resident physician | Massachusetts

General Hospital

Paige Cramer | 29Associate principal scientist | Merck

Sharp & Dohme

Adam de la Zerda | 29Assistant professor of structural biology | Stanford University School of Medicine

Nicholas Downing | 28Medical student | Yale University

School of Medicine

Richard Gaster | 29CEO | Gaster Hall Technologies

Mitchell Guttman | 29Assistant professor of biology

| California Institute of Technology

Daniel Paul Hashim | 27Founder | Carbon Sponge Solutions

Rachel Haurwitz | 28Cofounder | Caribou Biosciences

Elaine Hsiao | 28Senior research fellow

| California Institute of Technology

Cigall Kadoch | 28Assistant professor of pediatric oncology

| Dana-Farber Cancer Institute

Aleksandar Kostic | 29Postdoctoral fellow | Broad Institute

of MIT & Harvard

Anna F. Lau | 29Clinical microbiology fellow

| National Institutes of Health

Allison Lewko | 29Assistant professor of computer science

| Columbia University

Joshua Liu | 25Cofounder | Seamless Mobile Health

Jonathan Ostrem | 29Consultant | Wellspring Biosciences

Michael Pesko | 29Assistant professor | Weill Cornell

Medical College

Surbhi Sarna | 28Founder | nVision Medical

Josh Sommer | 26Executive director | Chordoma Foundation

Zirui Song | 29

Medical student | Harvard Medical School

Marc Succi | 25Cofounder | AugMI Labs

Livio Valenti | 28Cofounder | Vaxess

David Weinberg | 28Faculty fellow | UCSF

Daniela Witten | 29Assistant professor of biostatistics

| University of Washington

Luhan Yang | 28Cofounder | Egenesis

science & health care

JuDGES:

GEORGE M. CHuRCH Professor of genetics | Harvard Medical School

MiKAEL DOLStEN President of worldwide research and development | Pfzer

DANiEL KRAFt Executive director | FutureMed

divya nagCofounder, Stem Cell

theranoStiCS and StartX med

22

Divya nag is attacking one of medicine’s biggest problems:

the fact that most types of human cells—like those in the

heart or liver—die when you keep them in a petri dish. this

makes testing new drugs a risky, costly and time-consuming

business: 90% of medicines that start clinical trials turn

out to be too unsafe or inefective to market. But a new

technology, the induced pluripotent stem cell, may help.

nag’s company, stem cell theranostics, was created

from technology funded by a $20 million grant from

the california institute of regenerative Medicine

and is closing a venture round. it turns cells—

usually from a piece of skin—into embryonic-

like stem cells, then uses them to create heart

cells. these cells can live in petri dishes and be

used to test new drugs. someday they might

even replace heart tissue that dies during

a heart attack. three large pharmaceutical

companies are customers, though revenues

are small. nag, who was already publishing

in prestigious scientifc journals when she

was an undergraduate, dropped

out of stanford to pursue her

dream. no regrets: “Our

technology was so

promising and i was

so passionate about

it that nothing else

made sense to

me,” she says. “it

was very clear this

was what i wanted

to do.”

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FORBES

under

30

30

Nag (b. 1991) looks Back to the

Future, the hit mid-’80s fick that

separated science from fction and

put it into pop culture consciousness.

Josh Blackman | 29Assistant professor of law | South Texas College of Law

Amanda Brown | 28National political director | Rock the Vote

Adam Chandler | 29Attorney | Department of Justice

Leif Dautch | 28Deputy attorney general | California Department of Justice

David Demirbilek | 28Minority counsel | Senate Homeland Security &

Governmental Afairs Committee

Audrey Gelman | 26Vice president | SKDKnickerbocker

Jake Heller | 29Cofounder | Casetext

Solomon Hsiang | 29Assistant professor of public policy | University of California, Berkeley

Tim Hwang | 27Partner | Robot Robot & Hwang

Cristina Jimenez | 29Managing director | United We Dream

Noorain Khan | 29Associate | Wachtell, Lipton, Rosen & Katz

Derek Khanna | 25Tech-policy scholar, activist

Eric King | 24Head of research | Privacy International

Aaron Letzeiser | 24Founder | Medical Amnesty Initiative

Yihong “Julie” Mao | 27Attorney | New Orleans Workers’ Center for Racial Justice

Blake Masters | 27Cofounder | Judicata

Jonathan Mayer | 26Cybersecurity fellow | Center for International

Security & Cooperation

Teryn Norris | 25Commercialization and manufacturing specialist

| Department of Energy

Corey Owens | 29Head of public policy | Uber

Jonathan Fantini Porter | 29Chief of staf | Department of Homeland Security

Jessica Schumer | 29Chief of staf | Council of Economic Advisers,

Executive Ofce of the President

Amie Stepanovich | 28Director, domestic surveillance project

| Electronic Privacy Information Center

Nabiha Syed | 28Attorney | Levine Sullivan Koch & Schulz

Trevor Timm | 29Executive director | Freedom of the Press Foundation

Rebecca Vallas | 29Deputy director of government afairs | National

Organization of Social Security Claimants’ Representatives

Heather West | 29Policy analyst | Google

Cody R. Wilson | 25Founder | Defense Distributed

Lauren Wilson | 26Policy counsel | Free Press

Daniel Zolnikov | 26State representative | Montana House District 47

law & policy

JuDGES:

RONAN FARROW 30 Under 30 alum and news anchor | MSNBC

GRETA VAN SuSTEREN Host, On the Record | Fox News Channel

WiLLiAM ESKRiDGE JR. John A. Garver Professor of Jurisprudence | Yale Law School

nate levinefounder, opengov

22

as a Stanford sophomore Nate

levine saw opportunity where

governments have historically been

fat-footed. “Governments struggle

to access [their own] data, because

there aren’t good tools out there,”

levine says. with that in mind

he cofounded openGov in 2012

at age 20. openGov’s software

platform helps governments make

intelligent, data-driven decisions

and exchange fnancial information

with their constituents. The

startup has raised over $7 million—

$4 million in 2013 alone—and works

with more than 50 municipalities,

school districts and other local

government organizations,

involving over 7 million people

nationwide. as openGov expands—

possibly into the for-proft sector—

levine is focused on building new

tools to revolutionize how cities

share data with one another and

how they approach the budgeting

process. Says levine, “Better access

to information allows ofcials to

focus on the hard problems of

governing. it’s especially important

now that governments are being

asked to do more with less.”

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FORBeS

under

30

30

The Internet has transformed

old-school campaigning: This 1984

Reagan-Bush pin predates Levine

(b. 1991) by nearly two elections.


Ahmed Abdelrahman | 29Fashion designer | Thamanyah

Jensen Adoni | 24Shoemaker | Modern Vice

Rosie Assoulin | 28Fashion designer

Michelle Campbell | 28Jewelry designer

Ian Collings | 28Industrial designer | Fort Standard

Asher Dunn | 27Furniture designer | Studio Dunn

Alan Eckstein | 28Design director | Timo Weiland

Crystal Ellis, Stephanie Beamer | 29, 29

Furniture designers | Egg Collective

Sarah Flint | 25Shoe designer

Alex Gartenfeld | 27Interim director | MOCA North

Miami

Wes Gordon | 27Fashion designer

Nikolai “Niki” Haas, Simon Haas | 29, 29

Furniture designers | Haas Brothers

Colin P. Kelly | 29Industrial designer | Redscout

Aimee Kestenberg | 27Handbag designer

Jemima Kirke | 28Painter-actress

Becca McCharen | 29Fashion designer | Chromat

Leandra Medine | 25Fashion blogger | The Man Repeller

Shauna Miller | 27Fashion blogger | Penny Chic

Oscar Murillo | 27Artist

Victo Ngai | 25Illustrator

Lotta Nieminen | 27Graphic designer

Aaron Poritz | 29Furniture designer

Eric Singer | 27Eyewear designer | Shwood

Travess Smalley | 27Digital artist

Lucien Smith | 24Artist

Danielle Snyder | 28Jewelry designer | Dannijo

Tanya Taylor | 28Fashion designer

Torey Thornton | 23Artist

Jacob Willis | 27Fashion designer | Second/Layer

art & style

JuDGES:

JEFFREy DEITCH Art advisor

PETER BRANT Art collector

ISAAC MIzRAHI Fashion designer

carter clevelandfounder, artsy

27

When Carter Cleveland was a

Princeton computer science

student back in 2008, he

went online searching for

a picture to decorate his

dorm room. “I assumed there

would be a website with

all the world’s art on it,” he

recalls. there wasn’t. so he

set out to build one, with

a Pandora-like feature that

recommends artists to users.

His company, artsy, displays

more than 85,000 pieces of

art from 400 foundations

and museums (including

the National Gallery of art

and the Getty) and 1,400

galleries. though his frst

impulse was simply to create

a repository of images, he

quickly realized the site could

make a lot of money from

commissions (60% of the

art on the site is for sale).

Investors such as twitter’s

Jack Dorsey, Google’s eric

schmidt and mega-art

dealer larry Gagosian have

pumped $14.5 million into

the company. Cleveland says

Jef Bezos is his inspiration:

“We’re going to become

amazon for the art world.”

CARTER CLEVELAND WEARS: suIt ($2,150) By DuNHIll; DuNHIll.Com. sHIrt ($195) By tHomas PINk; us.tHomasPINk.Com. Belt ($130) By torINo leatHer; torINoleatHer.Com. sHoes ($350) By Paul evaNs; PaulevaNs.Com.

PRODuCTION ASSISTANT: aNastasIIa mIsHyNa

GROOMING: suzaNa HallIlI for make uP for ever

FOrBeS

under

30

30

Cleveland (b. 1986) hearts

Keith Haring, the iconic 1980s

grafti artist and social activist

who died of AIDS in 1990.

Katrina Bekessy | 29Director of technology & design | R/GA

Mallory Blair | 25Cofounder | Small Girls PR

Derek Blais | 29Senior art director | BBDO Canada

Raymond Braun | 23LGBT marketing lead | Google/YouTube

Victor Cheng, Roger Lee | 27, 27Cofounders | PaperG

Katrina Craigwell | 28Global manager of digital marketing | GE

David Dinetz, Dylan Trussell, Colt Seman | 26, 26, 28

Founders | Culprit Creative

Andrew Dumont | 26Director of business development | Moz

Whitney Fishman | 29Tech and consumer insights director | MEC

Teddy Gof | 28Cofounder | Precision Strategies

Rich Greco | 28Head of design | Droga5

Jack Hanlon | 29Cofounder | Kinetic Social

Amy Karr | 26Experience designer | Starcom MediaVest

Group

Joanna Kennedy | 24Senior social media specialist | RPA

Greg Kimball | 26Manager of digital strategy and

communications | L’Oréal

Jack Krawczyk | 29Director of product management | Pandora

Media

Michael Kuzmich | 28Associate director of motion graphics

| Firstborn

Douglas Lusted | 21Cofounder | WestonExpressions

Jef MacDonald | 26Creative technologist | The Martin Agency

Charles Merritt | 28Partner | 80amps

Mitch Orkis | 27Director of client development | Vizeum US

Khoa Phan | 23Freelance Vine animator

Matthew Rubinger | 25Director of luxury accessories | Heritage

Auctions

Maude Standish | 29Cofounder | Tarot

Rachel Tipograph | 26Global director of digital and social media

| Gap

Elliott Wiener | 28Director of consumer insights | Razorfsh

Farryn Weiner | 28Global director of digital and social

communications | Michael Kors Worldwide

Elyse Winer | 28Marketing and communications manager

| MC10 Inc.

Pranav Yadav | 28CEO | Neuro-Insight

marketing & advertising

JuDGES:

ADAM BAin President of global revenue | Twitter

JAMES D. FARLEY JR. Executive VP of global marketing, sales and service | Lincoln, Ford Motor Co.

HELAYnE SPiVAK Director | VCU Brandcenter

brian wongCofounder, Kiip

22

imagine you just posted a 5-mile run

to the runkeeper app when an ad on

your iPhone pops up ofering you a

free liter of Propel Water. Or you just

fnished a particularly fendish level

of Candy Crush and you are ofered

free sour Patch kids as a reward.

these “moments of achievement” and

“serendipitous rewards” are a big part

of the future of advertising, at least

according to Wong, who cofounded

kiip in 2010, a year after graduating

from the University of British Columbia

at age 17. “We track almost half a

billion of these achievement moments

every month,” he says. “these are

moments that brands can be a part

of and own.” in three years kiip has

raised $15.4 million and is now used by

more than 500 major brands to reach

70 million users through 1,500 games

and apps. Procter & gamble, Pepsi and

disney are clients. He expects to be

proftable next year.

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ForbES

under

30

30

Wong (b. 1991)

sees the light

behind Apple’s

1984 Super Bowl

commercial,

advertising’s frst

full-on cultural

phenom.


Bay and The Lodge at Koele, with a third

luxury hotel under consideration.

And that’s just the beginning. Also on the

to-do list: Expand compact, 1930s-era Lana’i

City with its brightly colored, plantation-

style cottages and develop a university cam-

pus. Following Ellison’s purchase of Lana’i’s

main air carrier, Island Air, a new runway

and airport facilities are in the works to allow

the frst direct fights from the mainland. Oh,

yes—and plans call for developing industrial

areas, expanding solar power facilities, intro-

ducing electric cars and ultimately doubling

the population to around 6,000.

Not surprisingly, residents regard the

planned rollouts warily. Many worry about

preserving the character of the island. Says

one resident, “A friend recently told me that

whenever she goes to the sacred places her

family showed her, she wonders how will

she feel when there are signs pointing them

out. The branding people have already been

here asking how they should ‘sell’ the island.

That’s a very uncomfortable feeling for us.”

Still, the islanders knew something had to

change. In the last few years of the Murdock

regime the island’s economy was crumbling.

In the early 1990s Murdock had moved the

pineapple plantations overseas and shifted

When Oracle CEO Larry

Ellison bought 98% of

the Hawaiian island

of Lana’i in June 2012

(for a price estimated at

$300 million to $500 million), shock waves

rippled through the sleepy, picturesque

backwater. The island’s 3,100 residents were

long inured to the semifeudal ownership

structure—since the 1860s there had been a

succession of lords of the manor, including

pineapple king James Dole and, in 1985, after

taking over Dole’s then foundering parent

company, billionaire David Murdock. But El-

lison came in with even deeper pockets and

bigger plans, guaranteed to change the face

of the island, a place that proudly has no traf-

fc lights, very few paved roads in 141 square

miles and, as one resident describes it, “not

just a slow pace—no pace at all.”

What a visitor will see now on Lana’i,

8 miles of the coast of Maui, is an old Hawaii

that exists today only in patches on the larger

islands. Locals still gather in the small, unas-

suming cafes such as Blue Ginger that ring

Dole Park in the main town, Lana’i City, to

gossip or “talk story” in the mornings. The

scenery is so lush that golfers often take

breaks between shots to simply soak in the

views. The powdery beaches, bordering wa-

ters dotted with sea turtles, are often com-

pletely deserted.

That will undoubtedly change if the proj-

ects now in discussion go forward. Ellison

has researchers working on a desalination

plant intended to increase the pumping ca-

pacity of fresh water to 10 million gallons a

day from its present 2.5 million, and there are

ongoing renovations at the two Four Seasons-

managed hotels, the Resort Lana’i at Manele

Travel

Paradise 2.0

by Laurie Werner

Can Larry Ellison model the future on the Hawaiian Island of Lana’i?

FOrBeS lIFe


the economic focus to tourism, opening

the beachfront Manele Bay and the English

hunting-style The Lodge at Koele in the cool-

er, higher elevations of the island. A modest

third hotel, the 11-room Hotel Lana’i, had

been built for Dole managers in 1923. But all

of the properties were foundering and with

them the livelihood of the island.

“In the beginning Murdock had incredible

vision,” says Mary Charles, who leases the

Hotel Lana’i. “But in 2008 the world blew

up; he was losing tons of money [reportedly

$20 million to $30 million a year], and he lost

interest. The population was dwindling, busi-

nesses were closing, maintenance in the hotels

and the community was deferred. Many of

us were ready to throw in the towel.”

Murdock, who declined to be in-

terviewed for this article, had a plan

to generate income for the island:

a windmill farm that could sell power to the

main island of Oahu. The resistance from

many in the community was thunderous, evi-

dent in the “No Windmills on Lana’i” signs

still lingering in some front yards. But the

resistance wasn’t unanimous, and the clash

between the pro- and anti-windmill factions

tore apart the once close-knit community.

“We had the signs, protesters—it got very

ugly,” explains Alberta de Jetley, publisher of

the monthly newspaper Lana’i Today. “The

argument was no longer rational. People

couldn’t get their minds around the fact that

the power was going to Oahu but that we

would still have benefted.”

With that economic path blocked, Mur-

dock decided to sell. Rumors swirled about

possible buyers. Bill Gates, who had rented

out all of Lana’i’s hotel rooms and booked all

of its airline seats for his wedding in 1994,

Sea change: clifs at

Lana’i’s Sweetheart

rock; the island’s new

landlord, Larry ellison;

the swimming pool at

Manele bay.

Clo

Ck

wis

e f

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m t

op

: Je

nn

a s

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; n

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Travel


neutral colors and more open architecture,

giving on to views of the bay and its spinner

dolphins and whales. The restaurants were

also upgraded, as Ellison lured a branch of

Nobu to the island, which opened in Decem-

ber 2012 in time for his Christmas visit.

Those renovations at Manele Bay were the

focus of a recent community meeting, one of

the regular gatherings with company represen-

tatives instigated by Pulama Lana’i’s Matsumo-

to. In this one, with chairs grouped in a circle

and the af able Lynn McCrory, Matsumoto’s

senior vice president of government af airs,

leading the discussion, hugging community

members and imploring them to eat or take

home the prodigious supply of baked goods,

the questions from the 40 attendees ranged

from where the construction workers would be

living to which new retailers would come into

Manele Bay (among the names being bandied

about were Burberry and Jimmy Choo).

Most residents I talked with heartily ap-

prove of the meetings and the selection of Mat-

sumoto to head the Ellison ef ort. “Kurt knows

how to communicate, how the local people

solve problems,” says Butch Gima, president of

community advocacy group Lana’ians for Sen-

sible Growth. “It was refreshing to know that a

multinational corporation had the foresight to

choose someone local.”

But not everyone is mollif ed by the back-

and-forth. Joelle Aoki, executive director of

the Coalition for a Drug Free Lana’i, says that

she’s grateful for the positive changes. “But

every time I come out of those meetings, I

feel anxious,” she says. “I’m very concerned

about the ability of the Lana’i community to

keep their way of life. Then what if midway

through he decides to sell it?”

Kurt Matsumoto insists that Ellison’s

interest is long term, that the population

growth would be an organic, gradual progres-

sion, explaining that just because they have

access to signif cant funding doesn’t mean

they would or could make all of these proj-

ects instantly appear.

So it will be years before it’s clear whether

Lana’i will become the Pacif c Eden that El-

lison envisions. What is clear is that the com-

munity will be watching every step. “I would

say that the mood right now is cautious op-

timism,” states Robin Kaye. “And that is 180

degrees from where it was. Previously it was

despair.”

was often mentioned. So were groups of

Chinese and Russian developers. Given the

jitters over the prospect of foreign develop-

ers, the announcement of Ellison as buyer

was met with euphoria. “Larry Ellison was

a godsend,” says De Jetley. “He has enough

money to take us to another level and help us

become sustainable.”

The island’s introduction to Ellison has

had some rocky moments, however. The f rst

news of his plans came from an interview

on CNBC. “He was quoted as saying that he

would use the island as a laboratory,” explains

Robin Kaye of the community advocacy group

Friends of Lana’i. “Many people were of end-

ed by that. We live here. We’re not animals in

a study. I understand what he meant. But still.

… There was some sensitivity.”

What Ellison meant, apparently, was that

he wanted to create a world-class model of

sustainability on the island. “He saw Lana’i

as an opportunity to engage in conversations

that are happening around the world—food

security, sustainable energy—rather than sit

on the sidelines and create a fund,” explains

Kurt Matsumoto, a Lana’i native who man-

aged the hotels here for Murdock and was

brought in as COO for Ellison’s management

company, called Pulama (meaning “cher-

ish”) Lana’i, a canny message to locals that he

hopes to enhance the island and not destroy it.

“He appreciates the natural beauty of the

island,” says Matsumoto. “But I think his

main motivation is the opportunity to come

in and make a dif erence.” (The notoriously

press-shy Ellison declined to comment for

this article, but in the past he has described

his attachment to Lana’i, dating back to his

20s: He f ew a Cessna over Lana’i’s pineapple

f elds, admiring the area’s beauty, and even

then expressed a desire to buy the island.)

After the purchase Ellison immediately

made goodwill gestures to the community:

reopening and improving the community

pool that Murdock had closed to save money,

introducing youth recreational and educa-

tional programs, refurbishing buildings in

town and expanding one of the few grocery

stores, Richard’s Market.

Renovation work also began immediately

on the hotels. Murdock’s Chinese furniture

and antiques in the Resort Lana’i at Manele

Bay’s public areas were jettisoned in favor

of a sleeker, more cosmopolitan style with am

az

on

/ a

p

FOrBeS lIFe

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©2013 Fisher Investments. 5525 NW Fisher Creek Drive, Camas, WA 98607. Investments in securities involve the risk of loss. *Subject to Terms and Conditions. See www.AnnuityAssist.com/Terms-and-Conditions for further information. **As of 6/30/2013.

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What You Might Not Know about Annuities Could Come Back to Haunt YouBefore you put your hard-earned money into an annuity, or if you already own one, please call 1-800-695-5929 for a special report, Annuity Insights: Your Guide to Better Understanding Annuities. It could help save you hundreds of thousands of dollars and untold fi nancial heartache.

The vast majority of annuities are really complicated insurance policies that make it very diffi cult to fully understand the implications and unintended consequences. And once you buy into an annuity, it can be a very diffi cult and potentially very costly investment decision to reverse. That’s why it is vital you “look before you leap” and ensure that you have “your eyes wide open” before you purchase an annuity. And if you already own an annuity this free report is just as valuable as it can help you sort out the good, the bad and the ugly aspects of annuities.

What You’ll Learn from this Free Report• The different types of annuities and the advantages and disadvantages of each

• Why annuities can be complex to understand

• What you need to ask an annuity salesman when evaluating his product

• The infl ation risk, tax implications, estate planning considerations and typical annuity fees

Don’t be Lulled by the Soothing Sound of Guaranteed IncomeSure, guaranteed income, free from market volatility, has a lot of appeal, especially for people approaching or in retirement. But that guarantee can cost you big in commissions, fees, surrender charges, taxes and other costs. Plus, locking in a guaranteed income stream that doesn’t take into account infl ation can seriously erode the value of your cash fl ow. In our report, we’ll show you how buying or staying in the wrong annuity could literally cost you hundreds of thousands of dollars in fees and lost opportunities.

Stuck in an Annuity?Because people often regret their annuity decision, Fisher Investments has helped many investors extract themselves from annuities. In fact, if you have a portfolio of $500,000 or more, we may rebate some or all of your annuity surrender penalties up to $12,000 and beyond.* Please call for details and to see if you might qualify.

About Fisher InvestmentsFisher Investments is a specialized money management fi rm serving successful individuals as well as large institutional investors. With over $46 billion** in assets under management and with an over 25-year track record in bull and bear markets, Fisher Investments uses its proprietary research to manage money for prudent investors.

And be not drunk with wine, wherein is

excess; but be flled with the Spirit.

—EphEsians 5:18

Think of weight gain as merely

a rounding error.

—richard hyflEr


THOUGHTS

“The gap between what we would like to be and what we are is widening. American advertising and the mass media portray a relentless urge for ftness. But the truth is that we are not a nation of joggers, iron-pumpers and whisper-thin fashion models. Rather, we are, increasingly, a nation of broad bottoms and bulging middles.”

—from thE nov. 17, 1986 issuE of forBEs

The one way to get thin is to reestablish a purpose in life. —cyril connolly

Seeing is deceiving. It’s eating that’s believing. —JamEs thurBEr

The diet book is one of those fool-and-money separation devices that seems, like roulette or slot machines, never to lose its power. —christophEr hitchEns

Gluttony is

an emotional

escape, a sign

that something

is eating us. —pEtEr dE vriEs

Before long it will

be the animals who

do the dieting so

that the ultimate

consumer does

not have to.

—mimi shEraton

FINAL THOUGHT

Wanna waste money? Buy diet books.

Wanna make money? Write one.

Wanna waist away? Eat less.

—mALcOLm FOrbes

SOURCES: THE COLUMBIA DICTIONARY OF QUOTATIONS; THE INTERNATIONAL THESAURUS OF QUOTATIONS; THE 2,548 BEST

THINGS ANYBODY EVER SAID; THE QUOTABLE HITCHENS: FROM ALCOHOL TO ZIONISM; SIMPSON’S CONTEMPORARY QUOTATIONS.

The two biggest sellers in any bookstore

are the cookbooks and the diet books.

The cookbooks tell you how to prepare

the food and the diet books tell you how

not to eat any of it. —andy roonEy

ON New yeAr’s dIeTs

bOONe bLAsTs “Boone Pickens is mad. After forcing Phillips Petro-leum and Unocal to load up on debilitating debt, the self-proclaimed champion of shareholder rights is now blasting Enron Corp., the natural gas pipeline company, for buying back 16% of its shares from Irwin Jacobs and Leucadia National, the greenmail specialists.”

THe FrIeNdLy sKIes OF UsAIr? “Rumor is going around that deal-ster Carl Icahn has made merger overtures to USAir on behalf of his TWA. Yet another rumor has it that Icahn wouldn’t mind in the least if USAir were to make a counterofer to take TWA of his hands.”

OTHer THOUGHTs FrOm THAT IssUe:

forbes - january 20 2014 usa

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