The Post Money Value

CES 2006

I’ll be there. If you are there, let’s hook up and talk about your new start up. Operators are standing by.

Onward to 2006

It’s been a great year for me as I hope it has for you.  Wrapping up the year, here is a handy set of surefire actions, guaranteed to help you make it just a bit different in 2006.

Delete your inbox tonight.

It’s a well documented fact that 62% of all the email you have inside that inbox are messages from people asking, “did you get my email.” So, in deleting all of it, you really are actually impacted less then 40% of your inbound mail. When you factor in SPAM, “CC”, “FYI” and other stuff, heck, the two folks that really needed something will start their year off with “did you get my email.” Nothing do it.

Forward your phone to a responsible person.

Let’s face it, you need the personal touch of a responsible assistant but, as a start up, you can’t afford it.  Simple. Forward your phone to a responsible friend. You know the one that keeps the desk neat, remembers people’s birthdays and never seems to have any fast food wrappers tossed in the back of their car.  It works brilliantly and you don’t even have to tell them because, being all responsible -n- such, they will handle the calls. A live call gets a responsible person who will take a message for you after the “uh, I’m looking for Rick” stuff.  A voice mail gets done with “this is, uh, a message for Rick” which, of course, gets dutifully transcribed by your responsible friend. Try to get the one not particularly tech savvy so you can blame this on the phone call company with a reasonable shot of getting away with it. As a start up, these costs savings will add up.

Turn down a big VC firm.

Randomly pick a super large VC firm, hit the about our people page, find the “associates”, and send one a letter declining to allow the firm to participate in your next fund raising. Make it all official like, use buzz words like synergy, web 2.0 personification, and mention that, “frankly that associate of yours really didn’t understand basics of recurring revenue on a recursive basis.” Invite them back for an opportunity to discuss your mezzanine round “should someone else in the firm think it is of interest. Your new associate pen pal, looking to climb the corporate VC ladder, will no doubt see this as an amazing opportunity to make one of the other ladder climbing associates look like a dork for missing an opportunity. Expect a call. Great fun for the whole gang.

Actually write a Thank You note.

You know, paper, pen, envelope, stamp.  It’s fun, nostalgic, and the postal service job you save, might just be your own someday.  And memo to Marc Orchant of the Tablet PC Weblog: No, handwriting an email note on a Tablet PC does NOT count.

Answer the “Put me in coach” call.

Somewhere along the line, somebody helped you, offered advice, gave you a break, etc. Do the same. Make 2006 the year you give somebody a break and a chance to get in the game. It could even be the chance you never got, regardless, the world needs lots of smart people making more smart people.

Here’s hoping that your 2006 exceeds your expectations.

Best wishes for success, health and happiness,

All of us at JLA Ventures.

 

Mouse Mistakes

If you’ve ever been to Disney World, you’ve noticed that employees (cast members) all wear name badges that are typically first name with the home town under the name. It’s been a very effective consumer activity, one which almost everybody in the industry followed.  Guests would delight in seeing somebody from their state and/or home town. Wait staff would tell you about people who would tip more and kids would play the equivalent of the license plate game, tracking down people from where they live, all over the parks.

It was an amazingly subtle but effective brand/marketing activity for the Mouse.  I say was because they ditched it.

Yup. Some marketing wonk in Disney decided to take that little tiny piece of brand real estate and change it.  Because of the 50 year celebration, they re-issued all of the name tags so that you saw a branding message about the happiest celebration on earth. Uh Huh.

The net effect of this exercise? Pissed off employees and customers talking more about this ‘loss’ and talking about the pissed off employees vs. talking about the happiest celebration on earth.  It was fascinating to ask employees “What happened to the name badges” and watch the robot-like smiles turn to growls as they complained about the “jerks, goofs, idiots, morons, and those people in head office”.  Ah, yep, those would be quotes.

Disney, the master at controlling the message, making everybody happy happy, has hundreds, if not thousands of ‘cast members’ all grumbling outwardly to the customers.  I randomly asked 20 employees at the various parks and, to the person, got a grumbling, growling, not happy answer, all pointing fingers at, well, see the above list.

The more important observation? The guests walking around talking about it. In lines, people would ask the employee in front of the Ride.  At the gift shops, people were asking the clerks.  At the restaurants, you guessed it, people were asking the staff about it. The responses, as you can imagine, were not pleasant. Ranging from the polite, yes it is a change, to the more direct home office moron alert.

While not up there with the New Coke Old Coke mess, it is a pretty interesting lesson in how the front office, you, often gets completely disconnected with what actually is going on and what actually matters to people on both sides of your counter.

So, boys and girls, Mickey says the lesson for today is: Pay attention to what really matters when it comes to your employees and guests.  You’re likely to be amazed at what you find.

Memo to Seth: They have really really clean fire trucks  at Disney World.

Build to Flip = Build to Fail

There are a bunch of blog posts flying around on the subject of flipping companies. Yes, we’ve been here before, 5 years or so ago, and yeah all the same issues remain.

The interesting difference this time around is, thanks to the world wide everybody talking to/about/for everybody/everything, there is a ton of material for you, the start up, to absorb in your quest for world domination or just a bigger house.

Some notable blog postings out there are Don Dodge’s notes on selling your start up. Smart guy, worth reading and listening to. He makes the point about talent and does it in a way that shows his experience and professionalism.

“One superstar engineer/visionary like Ray Ozzie is worth 100 really great engineers. And, one really great engineer is worth another 100 good engineers. This is the normal order of things, yet few CEOs understand this. The truth is you need all levels of talent to build out a team, but without the superstar it will be tough to win.”

Don’s post is great.

He was responding to Dare Obasanjo’s post on building a company to flip it. The so-called 101 missive tries to point out the raw, unvarnished thinking that is likely to go into big company munching little company.  The current example of the month is a company called Meebo. Meebo is a nice app that brings all the IM things you have into a nice single interface.

Dare’s commentary is fairly straight up until we hit this really nifty quote:

“That leaves the people,  according to the Meebo team page there are three people; a server dev, a DHTML/AJAX dev and a business guy (likely to be useless overhead in an acquisition). The question then is how many million dollars would Google, Yahoo! or Microsoft think is worth for the skills of both [most likely excellent] developers?”

Some will probably argue that Dare is just telling it like it is and others will might draw the conclusion that Dare is an arrogant jerk. Most of the non-tech/biz people are likely to slide toward the jerk part.  I lean toward the “tell it like it is” view but judging from my “did you see this” email count, there are mixed views.

Anyway,  I’ll stay out of the jerk/no jerk debate and point out a few other things.

In my world, the VC world, we evaluate the whole team to see if they can be effective in accomplishing what they set out to do. And, much to Dare’s possible shock, the VC community, weird though we may be, actually value business people highly.  In fact, I’d argue that since my neighbor’s 13 old year has shown me six different AJAX/RUBY gizzmos that are clones of existing services, business guys (and gals) are even more important in helping the technical talent rise above the noise, guide the product toward what customers want and, maybe bring in a little business. Give me those super stars but toss in some superstar “overhead” while you’re at it.

For sure you should read all of Dare’s post because it does point out, in straight language, the meat market which is big corporations and that’s okay. It’s data you should have and it should keep the pixy dust from scrambling your brain. Plus he, like Don, is a smart guy.

My guidelines for flip thinking:

1. If you want to work for Microsoft/Google/Yahoo, do a mash-up, do a .net widget, do whatever, get it out there and call HR.  The odds of your company getting bought as a statistic of all the companies started up filtered by the ones that one of the 60,000 MSFT employees knows about, filtered by the ones anybody cares about, filtered by those that have a financial value, well, you get the point. The odds suck.

2. Build to solve a problem and see how many people share the pain. Love those customers, make a small amount of coin and feel the love. Here are some very simple numbers to help guide your thinking:

– The average cost of a person is around $100k, fully loaded.

– Expenses, all in, are normally budgeted at two times payroll. In other words figure out what everybody is going to be paid, double it and that’s the general expense guideline. Below that, you are golden.

– a 10 person team should cost around a million bucks. Less is good, just don’t be shocked when the real math happens.

– at 1 yankee dollar per month per user, you need just shy of 100,000 happy people to keep the lights on, pay the ten person team some salaries and live to play another day. Smaller team, cool, less money required, etc, etc, don’t get all math crazy on me.

If you are working from home, no salary, free hosting, free this, low cost that, these numbers will go down for sure. And, for sure, if your team all agrees to take no salaries, no offices, etc, there is almost no cost, I get that, the numbers above are just examples to point out it isn’t that hard to put together a serious team and get going.

Also, I point this simple math out because you can dig into your passion, make it amazingly great, and knock one completely out of the park without worrying about a flip, being crushed or ripped off.  Keep it personal, grow the business, and let the big guys come knocking on your door.

3. Don’t make a flip the cornerstone of your business plan. If you’d like to come by for a no harm/no foul meeting and you’d like to talk about how to get bought by Microsoft, I’m happy to regale you with stories and walk you through the companies/technology I personally bought while in Redmond as well as what many of my friends are thinking about these days.  Happy to give you any and all of my thinking but not much, if any, of my money because I don’t believe that a business built upon the objective of a hail mary pass is sound and I would question the judgment of the team. I’d be impressed with the honesty but want to be very candid about my thinking.

4. Build to enjoy. Companies that love what they are doing have that attitude shining through loud and clear. Customers will pick up on it and a certain percentage will, in fact pay for it.  Tomorrow, Microsoft could put every feature of TEO into Outlook and I’ll stay with Josh Einstein’s implementation. Why? He loves the customers, it’s personal, and it shows. I may be in the minority but I have this sneaky feeling that there are going to be lots of 100k happy customer businesses out there which make good money, return good value to customers and have a reasonable shot at growing and morphing into even more successful companies.

5. Get some good business people. I know I’m picking on Dare’s comment way too much but it’s such a good target. More to the point, great business people are important for any business endeavor to be successful. Don’t get all hung up on why your code rocks or smokes anything out there because the other guy is probably going to hire a killer sales/biz dev gal and she is going to kick your technical ass.

If you are a Microsoft business guy and you are feeling a little useless, call Dare, he wants to buy you lunch. He will make you feel better.

 

The more things change.....

I’ve been hopeful that, over time, all the “kids” who grew up on video games, SMSing friends, IM, etc, would continue to get into jobs as those “take a memo” types retired to golf courses around the globe.

I fear it is going to take yet another generation of pencil pushing, moronic, beauracatic nit wits to “retire” before someday we finally use technology the way it is supposed to work and actually help us.

If you are thinking about using live chat on your website and are thinking about the product LivePerson, use care. Consider this story, happening live, as I type this.

I’m working on my free everything project. One of those free things is a domain name I got.  Turns out there are some issues so I hop over to registerfly, the service provider I’m using for this experiment.  Ah, live chat, cool.

Up pops a box. Enter your account name and:

Hello, Welcome to 24/7 Registerfly.com Customer Support Service. Please wait for a site operator to respond. Your call will be answered in the order that it was received.

Sigh.. Okay, no big deal. minimize it and it will pop up when somebody comes online to help me. I can work on some PHP code that I am futzing with (thanks Ken!) as well as play with this Rails stuff.

Or so I wish.  Every 120 seconds this pops up in my face:

 

 

 

 

 

 

 

 

 

 

 

Yep. For 45 minutes (so far), this puppy pops up, over and over again. When you are typing, guess where your typing happens to land. Right, in the chat window. Minimize and back she comes over and over again.  And I’m still waiting…

Okay, it didn’t have highlights from Musical Oklahoma screaming out of the speakers but jezzzzz… I’ll spare you the rant on how this should be properly done and just suggest that you STRONGLY think about the whole process of your support options. Live Chat can be great or it can be just as annoying as anything you can inflict on a person.

Back to the waiting…

Microsoft - They aren't eating enuff dog food.

I believe that Microsoft’s MSDN subscription is a very handy product and one which is super helpful to developers worldwide. In addition, I believe that cookies are pretty handy when used correctly and I have lots of them on my PC happily letting web sites call me “Rick” and welcoming me back.

Hoohkay. With that out of the way:

I’ve got a problem with a Microsoft App. Shocking, I know.  I futzed with a dll and, <boom>, I toasted the application.  I don’t have my MSDN CDs with me so I zip on over to the MSDN site to just download what I need. Simple. Well, I thought so

I get to the web site, log in and get into this loop of being asked for a password, saying welcome, and being flipped to the asking me for a password page again.  Growl.

MSDN has an online, live, help system.  24x7 designed to help with nit things like this.   The entire transcript is below. Take a quick read and then scroll on down for some commentary.

————————————————————————————

Welcome to the MSDN Online Concierge

The session has been accepted.

[jerry]

Hello and welcome to MSDN Online Concierge. How may I assist you today, Rick?

[Rick Segal]

I'm trying to get to the down loads page and I keep getting a page about managing my sub. [Ed note: the response below took less then 1/4 of a second. Tells ya I’m not the first person with the problem]

[jerry]

1)Close all Internet Explorers excluding the current chat window. 2) Open Control Panel and select the Internet Options item. 3) Under the General tab, click the "Delete Files" button in the Temporary Internet Files area. Click to add a checkmark to the "Delete all offline content" item and then click OK. 4) Click “Delete Cookies”, then click OK. 5) Under the Security tab, set the Security level for the Internet zone to "Default Level". 6) Under the Privacy tab, set the Privacy level to Default. 7) Under the Content tab, click Publishers. Remove all Trusted Publishers. 8) Under the Advanced tab, click "Restore Defaults"; then clear (uncheck) the "Enable third-party browser extensions" option. 9) Under the Program tab, click Reset Web Settings. 10) Apply the change and open a new Internet Explorer. Try to access the MSDN Download Site again.

[Rick Segal] This isn't cool, it deletes cookies to ALL my sites. What are the specific cookies/files for MSDN that I need to kill

[jerry] But this issue is really of cookies

[Rick Segal] By cookies you mean that MSDN's cookies are currently, on my machine, a problem?

[jerry] The cookies associated with the download site will lead you to a looping problem.

[Rick Segal] ok. So how would I find out exactly which cookies those are so i can avoid deleting all of the cookies and offline content on my computer.

[jerry] I am not sure on this

[Rick Segal] Would it be possible to ask someone or email someone and then email me? I am not in a rush so I can take the time to do it right.

[jerry] I can not get the answer for you right now, it will maybe in several business to get the right answer for you, Rick

[jerry] Sorry, it's several business days

[Rick Segal] That would be fine, Jerry, I just would like to do this correctly on my machine so as to not mess up all the other programs. I can give you my email address if you'd like.

[jerry] Is that E-mail address valid for you to get the E-mail? rick@jlaventures.com

[Rick Segal] That would be correct. If you email someone inside Microsoft, I am sure this information is available and I will wait to hear from you.

[Rick Segal] I appreciate your help.

[jerry] It's my pleasure to help you

[Rick Segal] Have a good holiday and don't let cranky customers mess up your day.

[jerry] Thank you, Rick, ,thank you for using the MSDN Online Concierge service. We are open 24 hours a day, 7 days a week. Please feel free to come back at any time again

————————————————

Whew.  Let’s start with some fun stuff.

The live chat software isn’t LiveMeeting or any other recognized piece of MS technology. When the chat started Microsoft’s anti-spyware phreaked out. It still worked even after I said no, block it, pretty funny.  Too bad as this a perfect opportunity to show people LiveMeeting in action. No dog food at this table.

As I mentioned inside the transcript, 1/16 of a second after I hit the send button on the problem that whole delete *.* checklist flew into my machine.   

This points to a much larger problem and one that you should pay attention to if you are launching software or services: Don’t screw somebody else because of your problem. 

Had I done what jerry suggested, my Air Canada “remember me” settings would have been blown away, for example. It means that if I don’t have my FF number handy/memorized, I’m not able to do things on the Air Canada site.  And lets not even talk about telling me to just set everthing to default.

You have a responsibility to know what your software does, what it modifies, and what people need to do in order to back you or your problems off the machine.

This points to the other big issue: Outsourced customer/technical support.  Here’s a guy that is trying to do the right thing. Give me a solution to my problem. The split-second jerry is ‘off script’, uh oh. He is just hanging in the breeze, thank you Microsoft.  Doesn’t know, doesn’t have an easy way to find out and has to tell the customer (who had paid thousands of dollars for MSDN) that it will be several days before an answer will be coming. Totally not his fault, rather Microsoft’s for not arming this guy better.

As a side note, I try to be extra nice to technical/customer service people because I really believe that those people are just trying to make a living and the issues with service rest with the home office executives.

Other side note: David Sifry, CEO of Technorati, was personally picking up the phone and helping customers during the time when people were writing the company off as dead. I know because I called, got him, got help, got a call back, and got a follow up email. He didn’t know me, doesn’t care if I am a VC or the Pope, just rabid desire to help the customers.

The point of these two side notes: Don’t leave your people hanging and walk the walk before you talk.

There are hundreds of thousands of people using MSDN and paying for it. After more then 10 or 100 people call/email/chat with the same problem, a very granular checklist can be offered up to the support people.  Even better: Make the “having trouble” section of your web site as helpful as you can with all sorts of issues people come up with. 

Anyway, for your start-up, remember these things:

1. Delete *.* or Format C: may solve the issue your product is having but it may screw others. Get specific and granular.

2. Give your people the tools they need to support the customers along with a fast path to get to the right people.

3. Walk the Walk. You go serve the customer, directly, and feel the pain.

The best part of this story? Jerry Ding.

While I’ve been typing this, Jerry sent me an email message with a third party tool that deals with this cookie issue and one of Scoble’s (go figure) channel9 links. Plus he asked if I’d check out both and let him know which I thought was better.  I’ll be doing that while trying to steal this guy into one of my portfolio companies.

Well done, Jerry, you are a great example of good people making all the difference in the world.

Enjoy the Ride

Lots of people out there like to make lists. Like the number of times Robert Scoble has been called a Microsoft shill. I think the latest post put Robert “Partial feed this” Scoble over 500 but I stopped counting last July. Robert put a counter on your blog template, heh. 

I’ve got an interesting suggestion for a good use of the blogsphere’s list makers: The best quotes that sum up the technology revolution we are under going.

Here’s one to start:  “This is the fastest idea-to-tool cycle in the history of the planet. Glitches are part of the deal.” Seth Godin, Dec 2005.

Drawings count so this one, from Hugh, has my vote:

If you are thinking about starting something or are working on something, tape this posting to your cubicle, the bathroom mirror, and anyplace else that will remind you that now, not yesterday, not tomorrow, but now is the best time to get out there and make it happen. There will be, as Seth says, glitches along the way but that’s part of the fun. Enjoy the ride.

Inside the process

Starting the day at 4a on a Sunday, having to roll out of a toasty warm bed into the Canadian winter, is not something I’m all that excited about. Unfortunately, duty calls with this, the beginning of a busy week of meetings, travel, and checking out some new companies. 

Over the past several weeks, I’ve been packing in the meetings with new companies. I’ve been impressed with the quality of the management and the opportunities being created.  It’s also nice to see folks doing some homework on our firm.  Many entrepreneurs read this blog, check out our web site and, in general, are doing a good job knowing a bit more about our firm.  Well done. And Albert’s been back all focused and ready to ship stuff, go get em Albert.

One question that comes up is about the VC process and what to expect, timing, process, etc.  I’ve put together this long entry in an attempt to give you our process in the hopes it can help with your expectations. Keep in mind every firm is different and we all have our particular quirks, so your mileage may vary.

WARNING: This post is very very long

Probably way more information then you’d ever need but I did it this way to try and give you as much behind the scenes, so to speak, because there isn’t really much detail to all the checklist and ‘tip’ stuff we VC types like to throw around. 

So, in advance, I apologize to those of you who fall asleep, don’t hit your head on the desk.

Step One: No Harm No Foul

The first step I recommend, if you’ve never done the VC bit before, is to come by for a 30 minute no harm, no foul meeting. You can tell me the general story, give me an idea of what you, your idea, your company, etc, is all about, while getting feedback, suggestions, and a free drink. This meeting typically doesn’t count against you so if the demo blows up, you forget stuff, mess up the names of whatever, etc.  The idea is to lower the stress levels so we can have a great conversation that is valuable to both of us. We can also establish, right up front, if we’d be a target financial solution for you.  

Step Two: The pre-meeting activities

Send me electronic materials to read. This is probably where lots of other VCs will give you different opinions. I like data from a market perspective. I want to understand the problem set, the people who will pay, etc. This can take many forms besides the standard Gartner or whomever stuff. I met a women last week who hit upon a really interesting way to solve a particular problem while she was digging through some PhD thesis documents for an unrelated project. Paper was written in 1974, 30 years before the technology even existed to solve this problem.  It was a fascinating read and she just might be onto something.  When it comes to JLA and my bookworm partners, we will read the stuff you send us. The smarter we can be ahead of time, the better.

Step Three: Face to Face (1)

This is the first meeting where the meter starts running. Up until this point, it really doesn’t count. It is this meeting where we’ve agreed you are starting the process to raise capital from my firm.  This meeting will usually last an hour or so. I say, or so, because I try to leave enough room for the unexpected as well as making sure you feel comfortable that when it b done, it b done, you don’t have to stick around.  You are going to tell the story and I’m going to listen. Really. It is not that complicated. You talk, I listen and then we have some dialog with questions, give -n- take, etc.

Don’t put up with these cocky jerks who think they know more then you because they get to be in the VC office. Don’t accept rude, condescending, treatment. You are working hard on growing a company and that fact alone, affords you respect.  I try to follow my partner, John, who has a great habit. During a presentation, he asks if it is okay to ask questions. Simple, polite behavior and, more often then not, it blows people away. 

Just tell me the story and let’s talk about it.

There are common questions that will always come up so you might want to consider doing a first (i.e. I’ve never seen it); create an Investor FAQ. It could consist of these (and probably other) questions:

• Are you the founder?
• How many founders are still in the company?
• How many full time employees in the company?
• Do you have any revenue today?
• What has been the amount of capital gone into the company to date?
• What is the current capital structure of the company?
• What do you think the total investment is required in order to have the business begin to generate net income?
• What are the key milestones you will use to measure the company’s success/progress?
• What keeps you up at night?
• What factors, outside your control, will have to be in place (or have to happen) in order for this business to be successful?

This isn’t a long, painful, power point deck, rather a simple list of the obvious questions that pretty much everybody is going to ask.

At the end of this meeting, I am likely to tell you that I will speak to my partners and get back to you with a go forward yes or no, typically, within 48hrs.  If I know for a fact that this isn’t for us, I will tell you on the spot.  If you’ve read the web site, asked around about me, know what we do, etc, you’ve probably got a good shot at peaking my interest. I’m new, like you, am growing a brand, like you, and work hard, like you, to make my business successful. Hopefully, we can do it together.

Step Four: The Huddle (1)

At JLA, we have an open office concept. Cubicles, if you will. We do that to insure we all know what’s going on as well as keeping a good buzz around the office. Nothing kills cooperation and teams faster then private offices with doors. Leaving that debate for another day and moving on; we will chat about your idea during that 48hr period. We think about the market, the space, our collective expertise, the docket of pending deals, and the general first pass, collective gut check. 

Assuming nobody reaches for a barf bag and the partner driving the deal is still keen, we move on to step five. If it dies at this point, you will get a phone call or email.  The jury is out on which style is better. I think a rapid response phone call is more personal then email while others thing getting out the email quickly beats telephone tag every time. In the end, speed is the issue. I try hard not to waste your time. It’s just a bad thing for everybody.

I take it as a supreme compliment when an entrepreneur recommends me to another entrepreneur after I’ve said no to their idea. This tells me, loud and clear, that respect for you and your time is appreciated.

Step Five: More info (1)

I try to do as much work as I possibly can before issuing a term sheet. It’s the worst thing in the world you can do or have done to you, it being having a term sheet pulled. I’ve been on both sides of that table and nothing, regardless of the reasons, hurts more then having that paper killed.  To combat this, we try hard to get as much information as we can so that when we give you a term sheet, it is as far down to the legals and reference checks as possible. We’ve made the call to do it, now it’s the pesky details.  Others toss term sheets with no shop clauses, break fees, and other silly things and that’s fine for them but not for my partners and I.

During this phase, we provide a checklist of the items we’d like to see before making the call on a term sheet and valuation, etc, etc.  The checklist we provide list the materials you will likely have to have regardless of who funds you so we try to make this request work you will do anyway and work you only have to do once.  You are, of course, free to decline on some or all of those things and we will make the call on what we have.  A term sheet with less data is likely to have issues with valuation, structure, etc, but we can serve the customer as best we can.  If you are interested in what those checklists look like, drop me a line or come by; I’ll be happy to share this data with you. 

It’s important to note that we will say no as fast as we can if there is something that doesn’t check out or there is a serious problem which impacts our basic thesis. This is the place where “good business but not for us” is reasonable so long as we get you that feedback quickly and with a minimum of pain.

It’s also important to note that we will issue a term sheet if we think something is interesting/good before completing all the work.  I just strongly recommend you think twice about insisting on a term sheet before you know if the party is really interested in your business. Get all your materials together, let them review what they need and make that term sheet count.

Step Six: Face to Face (2)

You and your team will be invited back to our office to meet our entire team. This is basically an opportunity for you to present to our whole group and give everyone a chance to meet and greet.  We are pretty laid back about this but we want you to know everybody. It’s the best part of the process, actually. You get to meet some really smart people who, by this point, are really interested in you, your team, and your ideas.

Step Seven: The Huddle (2)

The JLA team huddles and we spend time going over what you’ve presented. The lead partner on the deal, along with an analyst, will present the basic thesis again, opportunities, a standard SWOT (Strengths Weakness Opportunities Threats) chart, and we will debate the deal to determine the value and structure of a deal.  We usually will make the term sheet call at this point and begin the process of getting a term sheet out the door or somebody will have found a major flaw/problem that, if not resolvable, will kill the deal. Either way, we communicate this to you quickly.

Step Eight: The Term Sheet

At Last! We will issue you a term sheet with fairly standard terms and one that matches what we’ve talked about prior to the paper being transmitted.  The single more important suggestion I can give you is to negotiate this document and take your time! Do not fall into this silly trap of being told, aww hell, its non-binding, don’t worry about it.  Get that term sheet as detailed as you possibly can and have every business term that matters to you spelled out and agreed to before you sign it. Why? Money. You will save a small, well large, fortune in legal bills if you get the business terms clearly spelled out now, before the lawyers go at it.

In addition, you will get a very very clear feel for your ‘partner’ and how they act.  Don’t let the lure of a term sheet cloud your judgment. Don’t be afraid and don’t listen to ‘we don’t do that’, ‘it’s standard’ or any other stuff we toss at you.  Dilution might very well be the solution but make darn sure that it is on business terms that make sense to you.

Again, take your time. Work out your employment agreement. Work out the option plan. Work out shareholder rights, minority shareholder rights, etc, etc.  Read Brad Feld’s term sheet series if for no other reason then he gets standing ovations for showing up late to dinner parties, in jeans and a t-shirt. Plus he is all old now, you know, 40, yowsa.

Step Nine: Validation

It’s numbers and crunching time. We ensure there is agreement on the plan, agree on what will need to be spent, the basic metrics, and where we can add the most value quickly.  During this time we are also continuing to refine the business terms we’ve collectively laid out in the term sheet so we can turn a business list over to lawyers for legal language not a legal debate on our mutual objectives.  This is additional face time between you and I as another checkpoint for both of us to get to know each other.

Step Ten: The Huddle (3)

Our team gets together for a third time to talk about our findings with respect to the final plan, milestones, people, terms negotiated, etc. It’s the time where we ‘sign off’ internally before we head to serious legals. At this point, my partners have had lots of time to review the opportunity, maybe play with the service/app, look at the competition, etc, and just continue to get smarter about the space. It should be noted that along the way, we usually provide the feedback to you. You will notice we forward items of interest from blogs, news clippings, etc, just to make sure we are on the same page and seeing the things you see.  Hopefully, we are already adding value to your team by seeing things you may be missing.

Step Eleven: Legals

Crank up the lawyers and roll out the paperwork. By this point, we should be ‘there’ from the perspective of ironing out legal points that have been translated from the business issues we have agreed upon.  The smoothest part of the transaction or the nightmare from hell with no middle ground is how this step gets classified by me. Nothing kills a deal faster then both sides going off track with respect to legals. Actually, nothing kills the working relationship faster, is probably the more accurate statement.

On the VC side, there are many things which you can assume are going to be required prior to closing. A no material change clause, for example, or a rep and warranty with respect to ownership of intellectual property is likely going to pop up.  On the start up side, you are going to be looking for things to be defined like “for cause” or “best efforts” or “to the company’s knowledge”, etc.  All of these things are in the domain where the lawyers look out for the client’s best interests.

My advice at this step is twofold.  First, common sense and reality rule the day.  This applies to both sides.  There is always a business agreement that is the basis for the legal translation. I find it very helpful that when a sticking point comes up, the business people (you and I) simply agree on the business principal and then, with both lawyers in the room, give instructions to ensure the translation is carried out, no free lancing.  Make the two lawyers work it out and do that as a team.

The second point is risk management. There is risk in everything. If you believe I’m going to steal your company, we shouldn’t be past step zero. If I believe we need eighty layers of protection because there is some question about you, again, we shouldn’t be past step zero.  We either want to do a deal or we don’t.  I know that sounds silly but, in the end, it really will be that simple. Give on points that, in the end, will be the least of your problems.

This applies to both sides of the equation.

Step Twelve: Final Approach

We have a last review of the details, the agreements, put some beer in the fridge, coin in the box, and get cracking!

If you’ve lasted this long, and I know it was painful, thank you.

I hope this long entry will help you get a feel for how at least one firm, ours, operates. Drop by. Canada is always open for business, we’ll keep a light on.

Microsoft Max - The Human Touch

I’m sure you’ve already seen a blog entry (or two) for Microsoft’s new photo tool, code name: Max. It is in beta and while my machine crunches on yet more goop to deal with, I’d thought I’d point out some things you and your start up can learn from this application.

First, this picture:

You can argue the whole big company, Microsoft is evil, Robert Scoble the corporate shill thing, or you can use much of what big companies are doing in order to learn.

Simple message on this one: Put a human face on your software and/or service. It really helps and is meaningful to people using your stuff.

Second, the notice that Max is in beta. Again, the human touch:

Again, you can argue this language, but look at the larger point: Plain English. The full down load page, found here, is a good page for you to start when laying out a beta or preview announcement about your code.

Next, the product itself.  I’ve shown it to a number of people. The specific groups had various answers which might be interesting to you.

VC folk

The simple question was, if three Microsoft guys (and I added the, headed up by Robert Scoble part, but for a different reason) pitched this to you, would you be interested.  The answers were uniformly uhh, err, no. Nice little app but, big deal, dime-a-dozen type, etc. Then I pointed out this snip from the Max home page:

I then proceeded to “look around the corner” and give them a bunch of things the product will do. To be clear, I made it all up, vaporware like you’ve never heard, I was trained by the best. Anyway, people then got interested.

Message for you: It’s not always what it appears. Microsoft, Google, and those kids down the street living at home all have one thing in common, release it, get feedback and lay down the foundation for satisfied customers.  Don’t be too quick to blow off V1 one of anything the Borg does is always good advice but this applies equally to companies with an employee base of 1. 

Closed betas, fixed releases, schedules, etc, are out the window in many cases. Putting something out for “beta” or “preview” is now the norm which is changing the rules of customers expectations thus impacting what you deliver. Get out there, get some customers, and get the conversation and human touch rolling.

Customers

Simple question was play with this and tell me does this solve any problems for you. 10 people (not scientific!) looked and 3 said yeah maybe. All said ‘pretty interesting’ as well as “cool” on some of the UI stuff.  The more interesting conversation was the follow up being, well, what do you need solved with respect to your photos.  It was there I got some very good data with respect to the whole space in the context of what isn’t working with current tools, services, and sites.

Message for you:  If it’s possible, use your competitor’s product and do focus/survey work to see what problems they are really solving. I’m surprised by the number of people who are working on product that do not understand what customers truly say about competitor’s products but more importantly what the customers say is actually missing in the context of the competitor’s products. 

From a VC perspective, instead of that standard power point slide with the laundry list of competition, proving to me you know how to use Google, I’d rather know what you’ve done to understand the space, esp. from the view of customers using other products.

In the end, WinFX is now installed on my production laptop and I’ve had no problems whatsoev$)%<$#)O!)#$<……………………………….

Air Canada - Everything

and I mean everything you ever wanted to know.  During the months of Oct/Nov, Air Canada ran a promotion called the North American AirPass. 60 days, unlimited travel anywhere Air Canada flew in North America.  I had one and it was outstanding for all my business trips. I packed the trips in and saved a ton of money.

Meet Marc Tacchi.

Marc got a pass just like me. Unlike me, Marc spent 60 days logging 1 million air miles. Little things like going back and forth from Vancouver to Victoria (15 minutes, 500 min miles awarded) to Transcontinental flights all over North America.

And of course, he blogged it all.  You learn everything about Air Canada including details you probably don’t want to know.

“….but no pot roast. In lieu of pot roast, I have now decided I am going to try all the special meals in the AC inventory and rate them in my blog. I will start with the fruit platter…depending on the time of day this can range from a slice of orange and two grapes, to a full-on Carmen Miranda hat. So, for this meal …..”

“I have discovered the most valuable item you can take on this odyssey is a pillow…the pillow is useful for sleeping and for protection against those medieval torture devices – A321 seats. More than one flight attendant gazed longingly at my nice fluffy pillow.”

“1) Since the 1st of Oct I have flown on 41 flights.
  2) Roughly translated into 40,000 miles flown.
  3) 40,000 miles translates into 120,000 including all bonus/promotions.
  4) I have lost 3.5 lbs since starting. AC's breakfast is doing me in”

I thought as I read through this Doc Searls would become insanely jealous of all the wonderful photos he shot from the windows but, Doc’s hobby is safe. Not much in the way of photos unfortunately.

Hit the restroom, get a comfortable seat, and go here to read all of it.