What does a guy have to do to get his StackExhange site set up and running? I put my submission in a while back, but I am probably way down on the list. So in a creative attempt to convince Joel and Jeff that I am worthy, I figured I would give them something to read. I spent this past week at the TechCrunch50 conference listening to developers talk about why they don’t use the Microsoft stack. It was a great set of conversations, but I also spent a good bit of time talking with some of the business guys. Many similar topics of concern came up over and over again, and I really want to help solve those problems. Q&A for founder types anyone? Let’s get this thing started already. I will be a tireless promoter, and I can bring a pretty powerful ally to the table in making sure the site is funded and gets promoted. Jeff, Joel, I beg you…please get my site rolled.
I have been waiting to write this post for a long time. There are a great deal many resources on the web for entrepreneurs looking to learn, such as Hacker News, Andrew Warner’sMixergy, and Eric Ries’s Lean Startup Blog. However, I have always felt there was a gap in the the resources that really would help an upstart. Having a really good base Excel model, fully built, and flexible (think Basecamp but for your financial/ operational model), would be extremely helpful.
Another resource I have always wanted to see were the actual decks which were used to get companies funded. For obvious reasons, those are pretty hard at which to get a look. Now that I am three years on from the initial funding of IMSafer, I have decided that I would post the slides that we used when we went out to raise angel funding. Beyond just throwing the slides over the wall, as part of my community book The Failing Point, I have an entire essay dedicated to the content of the slides, and what it means with regard to putting together a long form business plan.
These are the actual slides, with no edits, save a few names removed for privacy reasons. Please send questions. Don’t be afraid to ask. They biggest take away most of you will have is that there is no magic bullet for content, but there is good form to follow, and more than anything, at this early a stage, investors are backing people first, ideas second, slide content third.
It’s been an interesting week. I posted the note about the Zappos deal and got quite a few comments and emails about it. I will readily admit that the use of the word “hate” was a bit pejorative, but I had a point to make and at the time it seemed appropriate. I don’t think VCs hate entrepreneurs, but I do think that there are things that VCs do that make life for entrepreneurs very hard.
In some of the discourse I have had over the past week on this topic, I felt a bit like George Costanza trying to explain to his co-worker that he has black friends (for the record, I am an African American, on the off chance that this paragraph offends someone’s sensibilities). I have VC friends. I have many VC friends. I’m not sure that my opinion of the trade has improved much over the last handful of years, but I do like some of the people in the trade. My opinion of the trade itself has more to do with my observations of the value delivered versus the value extracted by VCs.
I was asked if there were any VCs that I do like, and while I won’t generalize and say that there are firms that I like, there are a handful of VCs I have met in my travels who seem to have good heads on their shoulders, want to do the right thing, are willing to tell you “no” (instead of stringing you along because it costs them nothing), and are people whom I would go to with a deal if someone was looking to raise money and needed an introduction. These are folks at firms that invest along the entire spectrum of deals, but these 10 are some of the “good guys”:
The title here might be a bit sesationalistic, but the deal certainly shows how VCs can act in a way that is counter to the wants and needs of the entrepreneurs and management teams. The news yesterday that Zappos sold to Amazon has been circulating with many emotions. CEO Tony Hsieh wrote an amazing letter to his employees, which laid out the deal and what it would mean for the company. Read it if you haven’t already.
Unfortunately, when the press and journos report on a sale, they focus on the topline number, and it is rare that they report much beyond that. As most of my readers are in the tech industry workers or entrepreneurs, the topic that is of more importance to them is “what did the shareholders who weren’t VCs get?” That’s a great question, and one that is usually difficult to answer without access to the funding docs of the various rounds.
In the interview that I did with Andrew Warner of Mixergy, I touch on this topic of trying to create a structure that has the interests of both the entrepreneur and the investors aligned. This morning I was reading the peHUB account of the Zappos deal, and there are a couple of things which pop out at me:
Zappos management didn’t want the deal – the management team wanted to remain independent. It’s a well reported meme that Zappos has a culture which is very unique, but has generated a booming repeat customer business, and one that has grown quite nicely, even in these tougher economic times. Being part of Amazon will certainly change that.
The sale was forced – it appears from the reporting that the investors were able to force the sale of the business. That’s their right if they own more than 50% of the business, but it could also be their right if they had what’s called a protection right in the security in which they invested. These provisions allow for a great many things, including the ability to force a sale at a valuation of X times the value of the round invested. That takes the decision out of management’s hands, and clearly not always in their best interest.
Not all liquidity events are created equal – the total investment in Zappos, according to peHUB, was $49.1 million. Most casual observers would think that this is all that must get repaid before the employees/entrepreneurs start seeing money. This is not the case, as it would depend on whether or not the different rounds of investment were made as common stock, convertible preferred stock, or, worse, participating preferred.
VCs will screw you – the most interesting line of the whole article is the peHUB quote attributed to a shareholder about Sequoia: “…came in at a high valuation, but he countered that with a very high liquidation preference.” The high valuation is meant to give the entrepreneur the sense of relief associated with keeping more of their baby, but that liquidation preference (3 or 3.5X!!) is meant to ensure that no matter what, Sequoia actually gets a guaranteed return. I would love the opportunity to invest is a repeat successful entrepreneur with a 300% return guarantee.
The liquidation preference issue is moot depending on if the security was a convertible preferred and if the valuation of the round at which the money was invested would be low enough such that the shares converted. Regardless, this serves as a great example point of how investors can create situations where the entrepreneurs are not being looked after, nor are the interests of management and investors aligned.
Tony is a super succesful entrepreneur, with one exit in the late 90s for almost $300 million, as well as successful investments out of his own fund. If Sequoia took him to the woodshed like this with the liquidation preference, and the forced sale, imagine what they would do to the unseasoned entrepreneur. As an entrepreneur today, you can do so much more with so much less. See what you can get done before taking money from the large fund investors who “need liquidity” rather than what’s best for you. If you take money from a VC, caveat emptor.
UPDATE: I got an email from Dianne at Kel & Partners (presumably Zappos’s PR firm) explaining to me that the story is false and that she cannot say anything else for legal reasons (which is true). Unfortunately she called me Brian, which is not going to endear me to you. The email was pretty impersonal (probably a form letter) and leads me to believe that this meme has upset someone and the PR firm is in damage control mode. Whatever the actual reason for selling, I am happy for the Zappos management team if this is the exit they indeed wanted.
Mini-MSFT is back, with a post about Microsoft turning The Corner. It’s interesting to contrast his point of view with that of MG Siegler over at ParisLemon. Given my own perception of Valley bias on the part of Siegler (he is one of the new voices of Techcrunch after all), it’s great to see that we’re making progress which is being met with receptivity and not suspicion. Further, everyone is focused on the most important beneficiaries – customers.
I have to admit, since returning to the company a little over a year ago, I have had this sense that things are looking up. Don’t get me wrong, there’s no shortage of frustrations for me, but that’s to be expected when you come from a tiny company where you were the founder and CEO to a large company where you a cog in a wheel.
With the new fiscal year, I have a new role and a new team, and I plan on making liberal use of my training and experiences in constrained resource environments to do some things that will harken back to the mojo days of the late 90s and IE/Netscape goodness. Read the rest of this entry »
Apparently (apparently!), I have said something that hit a nerve. When I posted my thoughts on the whole issues as to whether or not the VC model was broken, I had no idea that it would be the most popular post I have ever written (and it’s not even noon on day 2). Crazy.
Predictably, some of my VC friends showed up to the conversation to point out that 1) am angry, and 2) that the “good” VCs don’t have associates. First, I am not angry. It’s easy for the VCs and their ilk to cast those aspersions, but the reality is that they have a fantastic business model, and they are going to fight to the death to protect it. Second, the venture firm that completely blew me up at my last company has no associates. One day I will tell that story, but even firms with only partners can behave badly.
I certainly don’t want to over-generalize an entire industry, but I can say that the vast majority of VCs are either neutral to the value of your business or in fact do actual harm. I would go so far as to say that 10% of VCs are net positive, 70% are neutral, and 20% actively destroy value in the firms in which the invest. As I quipped on Hacker News, partners in VC firms tend to practice what I call seagull management: the fly in, make a lot of noise, crap all over everything, and leave.
There’s an interesting article over that The Funded which discusses the state of affairs in the VC market. The post itself is a response to the Fred Wilson post about the current state of affairs in the VC market. Fred’s claim is that the VC model is not broken. He’s right. Sort of. Being broken would imply that it was fixed or working correctly at one point in time. I would in fact argue that the model was flawed from inception, and was based on the imbalance of supply and demand for risk capital.
I am about to go on a bit of a (LONG) rant here, but my point of view is one of someone who has worked in a private equity firm, sat on boards, invested privately, worked in multiple startups, founded a company, been a CEO, and raised money from angels and VCs, including securing term sheets from some of the most well known names on Sand Hill Road. I am an entrepreneur first, and someone who has been smacked around by the VC community as a seeker of funds.
Let’s start with the venture funding process. The Funded rightly points out that the junior folks at these VC firms are all business school guys who have no depth of experience from which to draw on when they are deciding which deals to pursue. That is mostly correct, though there are a few I have met in my travels who at least had some real operational experience before going to a venture firm.
The trouble isn’t so much that the associates don’t know what actually constitutes a good business, it’s that they believe that they are uniquely qualified to make that determination. Further, they actually believe that their few years of business school entitles them to an opinion as to whether or not a leadership team is going to get the job done. This is particularly pronounced and troubling when the management team has 20+ years of experience, but the associate doesn’t think is “cool.” If the associate doesn’t like you, you don’t get through them as a gate keeper.
I’m going to go out on a limb and say something which is going to be very unpopular. Digg, as an entity, is a gigantic hypocrisy. There. I’ve said it. Want me to prove it? Here goes.
As a condition of use, you promise not to use the Services for any purpose that is unlawful or prohibited by these Terms of Use, or any other purpose not reasonably intended by Digg.
By way of example, and not as a limitation, you agree not to use the Services:
<snip>
9. with the intention of artificially inflating or altering the ‘digg count’, comments, or any other Digg service, including by way of creating separate user accounts for the purpose of artificially altering Digg’s services; giving or receiving money or other remuneration in exchange for votes; or participating in any other organized effort that in any way artificially alters the results of Digg’s services;
Right there, they make it very clear – do not, under any circumstances, try to inflate your digg count. The most common manifestation of this sort of thing would be to mass email everyone you know to go digg your story. This is where I take exception.
I am reaching out to my audience, and hoping my readers can pass on the message. My great friends are getting their new company going and need to hit beta customer milestones for June. If you are in the process of buying a new car, or know someone who is, check out CarWoo. They will save you time, money and hassle in your new car buying experience (full disclosure: I am an advisor and investor in CarWoo). I can’t share anything about the service, but if you become one of their beta customers for June, you will find that there is a far better way to buy a car, and they are the service for you.
If you aren’t in the car buying process, but can help pass along this message, we would be much obliged.
Apple, I used to love you. I love my Macbook. I am on record as saying that the iPod Touch is the finest piece of technology that I have ever owned. It has changed my life. You make great products. Why do you have to lie to me and the rest of the population? I used to think the smarmy ads were a novelty, but now they just annoy me. You used to be creative, and now you are just an outright liar.
Look, if you really have to resort to such tactics to sell your product, you may have to rethink your offering. When netbooks roared into the scene, you mocked and dismissed them. That’s fine. Retain your superior price point and premium products. However, don’t effing lie. Your Macbooks have small screens too. Your memory prices are insane. Stop lying.
Most importantly, your computers crash. It doesn’t have as widely a known name like blue screen of death, but it’s just the same. Any Mac owner has seen the kernel panic screen. This screen comes without any warning, and you are completely hosed. Further, it comes at unpredictable times. Stop lying about your reliability. I haven’t seen a blue screen of death in a very long time. Not once in the year I was running Vista, and not once since I have started running Windows 7. I regularly see kernel panics on my personal Macbooks. And stop with the “no viruses’” thing. That’s like bankrupt bank claiming that they are awesome because they never got robbed by Jesse James. Unfortunately, he went where the money was. So you must be making the claim that no one uses your computers (thus making them an unappealing target for viruses). Well done.
Word of advice to Apple. Please get back to showing me why your products are awesome. You iPhone ads are great for specifically that purpose. These “I’m a Mac” ads are completely disingenuous and it’s time to move on.
What does a guy have to do to get his StackExhange site set up and running? I put my submission in a while back, but I am probably way down on the list. So in a creative attempt to convince Joel and Jeff that I am worthy, I figured I would give them something to read. I spent this past week at the TechCrunch50 conference listening to developers talk about why they don’t use the Microsoft stack. It was a great set of conversations, but I also spent a good bit of time talking with some of the business guys. Many similar topics of concern came up over and over again, and I really want to help solve those problems. Q&A for founder types anyone? Let’s get this thing started already. I will be a tireless promoter, and I can bring a pretty powerful ally to the table in making sure the site is funded and gets promoted. Jeff, Joel, I beg you…please get my site rolled.
