The Post Money Value

Interesting Marketing Data

If I was a conspiracy theory phreak, I'd bet the farm the Windows Live Writer folks figured out that the famous "Temporary Post" pellet which gets left behind upon installing Live Writer is a sneaky market share tracking plot.

Om Malik jost poped up:

A big welcome (on behalf of the Live Writer Team) to him.   As it turns out if you do a Google Blog search, Om will find he is in great company. 39,624 other folks are also users. 

And in a nod to that wild and crazy guy, Robert Scoble, I did this search on Technorati and IceRocket just to see what's what in the way of results. Om's was top of heap on the Google Blog search and didn't show up on either of the other two.  IceRocket shows something minutes ago which wasn't on Google, etc, etc. 

The larger point in this humor, by the way, is  Lies, Damn Lies and Statistics. 

Timely Blast from the Past

I'm sure you've been reading current swirl over anonymous posting, death threats, etc.  Rather then pile on with my comments, here is a blast from the past from Seth Godin (circa 2004).

"Virus writers are always anonymous.

Vicious political lies (with faked photoshop photos of political leaders, or false innuendo about personal lives) are always anonymous as well.

Spam is anonymous.

eBay fraudsters are anonymous too.

It seems as though virtually all of the problems of the Net stem from this one flaw, and its one I’ve riffed on before. If we can eliminate anonymity online, we create a far more civil place."

Amen.  Full post is here.

And On the Job Front

b5 Media (JLA company) is currently looking to hire a bunch of people.  The job posting is here:

http://www.ensight.org/archives/2007/03/24/b5media-currently-hiring/

PlugIn Developers Wanted

I have an interesting project/product idea I need to flush out.  I've got some plug in skunk work. (Itunes, Skype, Live Messenger)

I need somebody or a group that knows how to build plug ins (Itunes) and can do them cross platform.  If you can do it, contact me. If you know somebody or a team, send them my way.   They need to have done it before and be able to show me the work.

But wait there's more:

Have you built a live messenger plugin?  I want to talk with you.  Different project.

Have you build a skype plug in?  I want to talk with you. Different project.

Again, in all cases, you need to be able to show me completed work as this has some time constraints.

The pay is in Yankee Dollars.

All contacts welcome and sincerely appreciated.

Great Idea (well, done my way)

I suspect this is some wild tangent off the never ending who signs NDA saga.

I had an opportunity to do an investment last week. Great basic idea.  The idea fell into the, "Damn, wish I'd thought of that" category.

I turned the investment down because I believed the management team was under estimating some basic costs, not fully appreciating some actions they would have to take, sooner rather than later, and generally taking a great idea and implementing it in a way that we didn't believe would be totally successful.  In addition, this approach, in our view, added to the risk somewhat unnecessarily.

Part of me wants to immediately run out and grab a team to pull this off (albeit our way).  In the end, tho, I decided to pass on the idea and just simply wish the guys good luck.  My decision point was simple. 

I never, ever, want to be accused of stealing an idea that walked into our office.  I believe such an accusation/reputation would be fatal regardless of how good we were. 

In speaking to other VCs informally about this, all generally agreed that listening to an idea and grabbing a management team to go do it was in really bad form. And, no surprise, probably has some liabilities associated with it, regardless of what confidentiality agreements were or were not signed.

But where it got fuzzy was where one team comes in with idea A, you pass, and then another team comes in talking about idea A with a slightly different approach.  The few I spoke with said, if the idea(s) walk in the door, they walk in the door. That falls into the category of what VCs do. 

While I completely agree/understand, I still have that nagging feeling about this idea stealing third rail which is guaranteed to destroy my VC career.  Speaking only for myself, I'm inclined to try and keep some distance between two teams, same idea and just avoid saying "great idea, let's get some folks and do it this way."

Check Your Voice Mail Greeting

Mark Evans had a post about trying to try the kinder gentler approach of less email, more voice mail.  (Sorry, no link, on my RIM, Google the boy).

So, always one to follow interesting advice, I've taken to using the phone a bit.

Hmm, others may not be ready for the return to phones.

I get a CV for a senior level position that I'm working on for a portfolio company.  Looks really really good. Rather than email, I decide to leave a message inviting him to come on by for a chat.

one ring, two, three, voice mail:

"Hello, this is []. I am not available. Leave a message and I will call you back if it is convenient for me to do so."

No, really. I called it back to get this verbatim.

I didn't leave a message so as to not inconvenience this person.

If you are in the market for a new job, check your voice mail greeting.

The Bonus

I had a meeting with a management team that is in clean up mode.  Ideas one and two; not so good.  Idea three, well, that's another story.  This idea I like. This idea, two other VCs like.

So, we are rolling down the due diligence path and we hit the 2007 budget.

Line item: Bonus 315,000 accrual.

Line item: Severance $41,000

I pop my head up and ask, "What's the bonuses for, aren't you the team that tried ideas one and two?"

The response was something along the lines of:

<cough> well, we have lots of downsizing, staff reductions, and execution to do and we believe when we are done with all this, we will have a great company with lots of prospects, so we naturally (via the board) think a reward structure is appropriate.

Hmmm...

So, I say something to the effect:

I don't think so. I think you had a shot, you blew it but we believe in idea 3 so and you've now got some battle scars, what the heck, let's take a shot.  However, during the course of trying idea 1 and 2 (and failing at both), a whole bunch of people are going to loose their jobs, stress out their families and generally have a sucky -at a minimum- few months.

I think these two lines should be reversed. I'll pay you a little for having to deal with people loosing jobs and sticking around to take a shot at idea 3 but if your board and your current VCs are hot to part with 300 grand, cool, give it to the people that you are bouncing; they believed and, well, seems fair. Then, I'm good to proceed. 

I was trying, obviously, to make a larger point about doing the right thing, etc.  In general, I'm not happy with this sense of entitlement surrounding bonuses. Just not the way it should be.  And it sets tone. $41k represented the simple minimum the company could get away with, not the culture I'd want to nurture.

I got blank stares, of course. 

Canadian Code Jockey Awards - Two Contests

Microsoft Canada is doing the MSDN Canada Code Awards thing this years.  It's a chance for you to nominate an amazing coder or code team that goes after some cash prizes and a chance to hang out at Mark Relph's house while he makes fresh pasta using his Popiel Pasta Maker.

You can read more about this:

In English: http://msdn.microsoft.com/canada/codeawards/default.aspx 

In French: http://msdn.microsoft.com/canada/fr/codeawards/default.aspx

But wait, there's more!

I have an additional contest to announce here and only here.  Go to either of the above pages. Study them. Read them.  Sit back and ponder the wonders of all that is this contest.

The first person who sends me the correct answer to the question: "What's wrong with this page" will receive a $25 dollar gift certificate from Amazon.ca.   Either page.  One prize, first person.  I'm the judge and the prize funder.  

I'll update this blog post with the winner.

Operators are standing by.

P.S. You get a donation to your favorite charity if you win which makes it worth doing.

UPDATE: WE HAVE A WINNER!

Trextor correctly identified the 2006 Award date for the 2007 contest, first.  Sweet.

Mack de Male was two minutes behind and got it.

And Matt guessed it was the 100% Microsoft code contest being promoted with a flash app.

Mack, does that suck or what. And Matt, that wasn't what I was looking for but it was funny enough.

So, what the heck, all three of you will receive $25 gift certificates from Amazon.  Contact me via email with your correct email information and I'll get it out to you shortly.  Thanks for playing... 

In Case It Got Missed: CRB Ruling = Opportunity

My previous post on the royalty rates going up might have been short on my general message. As a VC, I fund new companies, ideas, etc.

I view the CRB as creating a huge opportunity in the music space.  Figure out what this means, solve it, call me and let's make a business.

I love opportunities and smart people (you).

A Piece of the Action - A Different Approach

One of the big sticking points about taking Venture Capital into your business is the D word. Dilution.  The simple conflict of you keeping as much of the company as possible vs. our objective of making the value as reasonable (yeah, low) as possible makes for some interesting conversations, to say the least.

Some VC firms, 'fix' the problem with share structures like liquidity preferences, interest coupons, etc.  My concern with these complicated structures is they tend to put the start up and the founder on different sides of the table.  A share structure with lots of preferred shares piled up with multiple liquidity preferences makes that exit price go ever higher before you, the start up women, see a payday.  Doesn't do much for the motivation, in my view.

Lately, I've been trying something a bit different with some deals we are looking at.  I've called it the Founder's Incentive Pool.  Basically, I've been putting this pool in place which spells out what happens when the company has an exit. 

In one company, we said that above a minimum exit target, 8% of the gross proceeds goes into a pool for the founders to divide.  In some cases, there is a minimum/maximum cut with the board deciding and in other cases, it is a lump sum that goes into the pool with the founders getting equal amounts.  The minimum exit target is typically tied to a return formula. So, for example, if there is a post value of 5 million dollars, a 50 million dollar exit is a 10x return so, hallelujah, pass out the cash. Sometimes, it is less, just depends on the founder's circumstances.

The point of this approach is for me to be able to say the following to a founder (or founders).

"Folks, if we put in X dollars and sell the company for Y, your cut is Z. That, combined with your equity, makes your total take this amount.  Is it good enough?"

There are a couple of other goals.

Founders First.  A preferred share generally conveys the notion of who gets paid first. My view is that if a business is successful, the first person who should get paid is the person (or people) who made it happen.  So, a piece of the gross profits go out first before anybody else's sees money.  It is a nice gesture, is a meaningful amount, and it allows me to put money where my mouth is.  You should get paid first.

Same side of the table.  When the exit opportunity happens, I want management to be thinking like me with an alignment of financial interests as close to mine as possible so our conversations are not from wildly different places.  I believe having some off the gross/top earnings helps this issue.

I know some will say this is yet another way to deal with "value" and to some extent, it is. I just believe in the messaging and 'off the top', founder first type process.

To date, I have this plan in place with two of our companies and time will tell if this made sense.

All Those Dollars For A University Education

I'm sitting in the United Terminal of LAX waiting for the redeye back to Toronto.  Yeah, I know it's 5p, I like to be early.  I was at MusicIP (my portfolio company) today and then stopped in to see Justin Beckett, CEO of FluidAudio. 

Meanwhile, the blogworld continues its collective breathing in a bag over the Internet radio providers surprise: Rate Increases. Whoa! The suppliers want to charge more. And unlike every other industry on the planet, these businesses gasp and scream to the customers: Write your congressmen!

In every other business, either the business eats it, passes price increases to customers or, and this is the scary part: dies.  They die because there was not enough value to compel a sustainable business where somebody pays. 

I was ignoring this stuff because I have this general belief that free markets always solve these issues.  

But, alas, my bright, beautiful, and wonderful daughter decided to reach out, grab the bag and join the hyperventilating crowd which included Matt Dunn of MusicIP , Tim Westergren of Pandora, and Ari Shohat of Digitally Imported Inc.

Rachel has a clip about the Copyright Royalty Board raising rates, has a clip from Pandora's CEO and ends with a suggestion that this sucks so head over to www.savenetradio.org and help get congress involved.

Rachel, Rachel, Rachel. <sigh>

The last thing in the world anybody should want is Congress getting involved. People, we've seen this movie. Anybody got a WIN button? Or how about we go back to regulated airlines and fares? The government? Gimmie a break.  Free enterprise depends on markets deciding and self correcting as needed or warranted by demand, not by congress telling us.

That save the net radio site has some fairly "interesting comments" which hyping this issue beyond belief.

They claim this action will "take away consumer choice, hurt working artists, damage small record labels, and put small webcasters out of business."

Let's address small record labels and working artists. As I type this, I am listening to Live365's Soft Jazz FM.  A little Peter White,  Bonnie James, Jaszzmasters, Fattburger and more.  Jimi King is lining up the tracks for me.  I've paid for this service.  The VIP service.  In two hours of listening, I've heard no small record labels and zero 'working artists' as I expect means small/independent folks.  What I've heard is popular (and good) stuff.  I like it and I'm paying for it.  If the price goes up, that might mean I will pay more or quit. It might mean live365.com shuts her doors. 

But regardless of what I or live365.com does, that small guy isn't any better or worse off because all these Internet radio stations are not giving these independent/working artists air time.  So the notion that writing your congressman is going to suddenly put food on the table of a starving artist is just wrong.

People are jumping on this call Congress bandwagon because the Copyright Royalty Board is part of the U.S. Copyright office. There is this assumption that pounding on Congress gets us all free Internet radio. 

My view is that letting a bunch of people from the RIAA lobby the CRB to jack up the rates is the perfect incentive to solve the problem with good old fashion free enterprise. 

Let the rates go to 100 bucks a minute. Watch everybody shut down. I guarantee you that within 48hrs there will be 50 new replacement services with new technology, new services, and new choices all at rates people want to pay (or free, advertiser supported).

And within months of those services happening, the artists who watch play counts drop will start screaming at labels who in turn will start putting stuff into these services and we will be back to listening to what we want.

We've seen this movie.  Those monopoly cable companies prompted satellite services which all in turn got us Internet TV, etc, etc.  Free markets, folks, free markets.

Jason Fry at the Wall Street Journal got it right with the headline: Music Industry wants higher rates but are the labels undermining themselves. Exactly right.

This is a lemon to lemonade opportunity brought to you on a silver platter by a bunch of bureaucrats and pheaked out old guys who can't see the new media delivery systems freight train coming right at them.

I love my daughter dearly and I am tremendously proud of her.  I am, however, going to have her repeat that class on free market economics. 

Family and Friends Money - Dos and Don'ts Seminar

Suzanne Dingwell Williams, of Venture Law Associates, is putting on a seminar about the right way to manage the process of taking friends and family money into your start up.  As I can readily attest to, getting this done right, prevents massive problems down the road.

This session will be held on April 11th at the First Canadian Place Gallery between the breakfast hour of 7:30a - 9:00a.  The cost is 4 million dollars per person but if you say something nice about her blog, you can get in for 30 bucks.

From her blog:

"In this fast-paced 45 minute workshop, the team from Venture Law Line will show you how to structure, paper and close an investment by your friends, family and angels. We'll review the principles for valuing your venture, show you how to paper the deal, and cover special issues such as investments from non-Canadian residents and deal "sweeteners". You will also receive a CD of handy reference materials, including model financing-related documents. Also on hand will be some founders and angels to share their own war stories. And donuts."

You can contact her at: info@venturelawassociates.com to get signed up.  I, of course, will be in the back of the room passing out term sheets. And healthy granola bars.

Backseat Driving Usually Causes Accidents

I was at the Microsoft TechFest 2007 event yesterday (separate blog entry on it coming) and while there, took some time to meet up with some companies looking for funding.

During one of the presentations, I was impressed with the team and very impressed with the ability of the team to clearly articulate the pain.  We then got to the solution. 

I listened, pondered, and responded with: "Hmmm, maybe but I'd do it this way if it were me." I proceed to explain my idea.

The response was: "Well, cool, we can do it your way, we're just looking for funding."

These guys can now vouch for my "fast no" policy.

The point here, besides the naked sucking up trap, is that I am not driving the company, I'm funding a solution which will generate returns for you and my limited partners.  Toward that end, I want to believe in your story, your ideas, your solutions and not design your product/company.  While I might have some ideas, great, in the end, it's your thing.  I'm investing in you, your team, and your solution.

After hearing a pitch, I usually feed it back to the entrepreneur just to make sure we are on the same page. I'll ask lots of questions, offer up a view, etc, but in the end, I am looking for a great team to drive an idea to success, not a bunch of people to execute on some half baked mush that comes out of my mouth. If I'm in left field, you say no to me; that's the right thing to do.

Beware of backseat drivers in your business. They usually grab the wheel at the wrong time and cause serious pile ups with fatalities.

Memo to Startup World: No, MSFT Isn't Buying You

Don Dodge is a respected blogger, Microsoft employee, and all around good guy.  If you want a good blog to read with respect to high level goings on at MSFT, his is a good choice.

In a recent post, Don had this to say about companies being bought by MSFT:

"Microsoft acquired 14 companies in 2005 and another 19 companies in 2006. At Microsoft we try to find the best startups early in the game and acquire them for reasonable prices. The average acquisition price was around $30M. There were some that were significantly more than that, but on average we try to stay in our sweet spot."

I appreciate the upbeat and positive tone of the entire post. I would encourage you to read but there are a couple of realities that I'd like to point out.

The numbers speak for themselves. Take the total number of companies that just Om Malik, TechCrunch, and whomever talk about and you'd have a large enough pool that lay out the odds of your being purchased by MSFT. Add in all the companies the venture capital world engages and that long shot purchase becomes even longer.  Don does a good job laying out the what, why, how, how much, what MSFT cares about, etc, but the reality is: Long Shot, at best.

The second point is the sweet spot commentary.  They, like Google, Yahoo, etc, all want to get companies early and 'cheap.'  It means when you are millions and millions of dollars in, getting the 10x return becomes that much harder. 

It also means, to you, watch the term sheets.  High valuations with liquidity preferences, participation, etc, put you and your VC at potential odds when an offer comes in.  If you and your financial partner have a huge gap in exit requirements, things can get ugly.

Finally, getting bought by Microsoft (or Google or AOL or Yahoo) is not an exit that anybody in the VC world would count on as the essential strategy.  We don't fund something with that as our "in the bag outcome".  Most VCs I know do the exact opposite; they factor one or more of the big guys as direct competitors. 

I'd suggest you avoid, Microsoft will buy us as the sole answer to the exit question.

As I said, read Don's stuff for ways to get more out of Microsoft. More meaning code help, marketing/pr opportunities, etc.  Just don't think there is a fast track to a Microsoft check.

The VC "don't do that" List

Last week was interesting and very busy. I had 25 NHNF meetings which is higher than normal.  Interestingly, there were quite a number of folks from outside Canada looking to bounce what other VCs had told them off of me. 

I've started to compile a "don't do it" list of things I think the VC community, as a whole, should try to stay away from doing. 

Here are the beginnings of that list.

1. Don't be rude.

I know this seems like the biggest "duh" in the world but it is happening more and more these days.  I'm believe you have two ways to track VC investment cycles (bubbles if you will). You can -and I do- subscribe to Paul "the chart -n- stat maven" Kerdrosky and simply watch how polite or rude the VC is across from the table.  Good times for them/us, rudeness for you.  This is just a theory, I only have about 6 million horror stories on treatment, so I'll get back to you with more data.

2. Don't ask for the house.

If you commit fraud and steal from me, I'm going to introduce you to some really excellent lawyers.  Having said that, I don't believe having a start up team put their personal property up as a founder indemnity. It's just generally a bad way for the business to work and all the love to be shown by both parties.  Suzanne Dingwell Williams, a great lawyer for you to know, has a longer post here. I agree with her 94%. Just wouldn't be fun if it was a blanket 100%.

3. Don't ignore the word No.

I'm amazed and saddened when a CEO comes into the office telling me about the great conversation with a VC down the road or over the border.  They are moving forward, I'm eagerly told.  Awesome, I say. One phone call later, I find out from the VC they aren't really interested.  Using the word no, as it turns out, is a wonderful tool that earns and not burns respect with the start up community.  They value their time; they appreciate a fast no.

4. Don't go fishing in Lake Competition.

I'm not sure there is anything more reprehensible then a VC firm sending an analyst out calling competitors of portfolio companies in the hopes of getting information.  Most VC firms know that most jr. CEOs will get all goose pimply and shoot thy mouths off before even so much as looking at the VCs web site which -of course- will show the competition.  I don't believe a VC firm should invest in competitive companies, others disagree.  My advice is that if you ever get a random call from a VC firm, ask that question first.  If you are a VC firm, don't do this stuff, gives us all a bad name.

5. Don't forget the handshake.

I always like movies where there is a financial thing going on and the high powered types go "done" and billion dollar deals happen.  My cousin works on Wall Street and I've had an opportunity to watch, up close, some of the trading desks with the Cramer like screaming and 'done' happening.  We don't do that. We have lawyers and paperwork and wiggle room.  The handshake and 'done' is a lost art, for sure, but it might be making a bit of a come back on both sides of the VC investment table.  Two personal examples for you:

• Stu Philips of Ridgelift Ventures is a great example of a VC who has tons of experience and just does it the right way. He has a must read blog here, but more to the point, believes in the handshake.  Stu and I are working on an investment together.  I met him, he met the team, talked about it with me and, in the end said, I'm in.  The paperwork is behind but Stu is in. He is being treated like he is in, getting materials, participating, etc.  And if we sold that company tomorrow, he would get his cut despite the fact that the paperwork isn't done and he hasn't wired the funds in.  That's how strongly I believe in the word "done" and how much respect Stu can command. 
• Second example is on the other side of the table: Howard Lindzon of Wallstrip fame.  He was in my office, talked about it and I said, let's do it/done.  The money is being wired, paperwork to follow.  One handshake later, I'm getting updates, materials, etc, etc.

It's possible for some trust, civility, and honor to actually sneak it's way into this business. Stu and Howard are two of the more notable examples, hopefully, there are hundreds if not thousands out there.

That's the first five, more coming.  Have a great week.