The Post Money Value

MG Siegler: I Hope You are Wrong*

2009-11-27T23:58:21-05:00

[Note: Non Start-Up Post, sorry, doesn't happen often, ignore this, move on, nothing to see.]

[Update: MG has another post up here discussing the reactions I have below to the first post. He makes some good points and backs things up with fact; well done. I hope, tho, we still think about accuracy being something to actually care about.]

MG Siegler has a TechCrunch Post up entitled "This is Why The Internet (And Twitter) Wins" in which he shows us all how our fancy medium and everybody's favorite golden child of the software world (Twitter) will eventually kill newspapers and TV.

The example he points to is the Tiger Woods accident. Hmm.. Let's take a step back since this doesn't exactly track.

First, comparing a newspaper to Twitter is a bit of a stretch but rather than nit pick it, let's just ignore it and assume he was making the higher level point about non-paper places for news have lots of advantages, etc, and they just add to the pile of bad news for print media. Okay, fine, noted and at that higher level, yup I'd generally agree.

But then he goes off into comparing Twitter (or more specifically BNOnews) to CNN boasting how it was on Twitter before it went up on CNN or anyplace else. And he claims the good folks at BNOnews "got it right."

Except a) it appears a local news outlet reported on it first and b) the BNOnews bulletin turns out to be wrong.

Being on Twitter first, not so sure, WESH's RSS feed sent it out and they say on their web site, they were first to report it. But, meh, who cares about 'first to report it' rather let's work on the only reason I bothered to react to his post: accuracy.

The twitter post in question:

“BULLETIN — REPORT: FAMED GOLFER TIGER WOODS SERIOUSLY INJURED AFTER CRASH NEAR FLORIDA HOME.”

Here's what MG said:

"Sure, not a lot of information there, but it’s clearly labeled as a report, and yes, it did turn out to be correct. And thanks to Twitter, thousands of people had access to this information about 45 minutes before it appeared on CNN or ESPN, the “worldwide leaders” in news in their respective fields"

Actually, it didn't turn out to be correct because the police, hospital, Tiger's website, and all those worldwide news leaders (and WESH in Florida) correctly reported this as a minor car accident. He was treated and released, is at home, probably has to explain the 2:20a speed romp down the driveway, and had the no alcohol involved report confirmed by the authorities.

You are about to type "but they got the core right, there was an accident"; don't. I acknowledge that but only to actually make my point even more forcefully.

MG further points out Google was on the case within 10 minutes with links to all the internet goodness:

"Within 15 minutes, we knew what time the crash occurred at, apparently what happened, and some other important details (like no alcohol being involved)."

If BNOnews had said Tiger Woods in car crash and popped a link over to WESH; I'm fine. If BNOnews had said Tiger Woods in car crash, details to follow; I'm good. Saying seriously injured is irresponsible and I'm not good. I'm not good because it is a very slippery slope if this disease of continuous partial attention, gimmie the 140 character version, skip the details stuff turns in to the mainstream. It means we end up with some Twitter "report" of a school bomb scare getting 'reported' as a bomb actually at the school promptly and needlessly phreaking out parents. Not good, accuracy matters and I'll take the extra time for accuracy, thank you very much.

It's a bad thing if things like CNN, the New York Times, local reporting, etc, all get reduced to who Tweets it first. It means we are on a path of being happy with insta-bits minus accounting for details.

To repeat myself, I think accuracy matters.

I'm fine with BNOnews or the lady walking her dog (at 2:20a) using Twitter to tell us what they know/saw/think. I'm not fine with confusing this stuff with "reporting" and those pesky details about serious vs. minor being ignored. MG's apparent praising of a clearly labeled report, in my view, should be the exact opposite. As MG pointed out, within 15 minutes we had 'reports' with the actual ( or official at any rate) information.

Paul Carr wrote a great piece on TechCrunch about citizen journalism. As a better writer vs. yours truly, I would suggest you go read it here. What he said.

If MG's point was you'll read it electronically first before print, yup, the news radio guys have been saying the same thing about their medium over print as well. If his point was Twitter will "win" over all other sources, like those that wait minutes (!), to report actual facts; I hope he is seriously wrong.

Accuracy (and truth as Paul points out) become the first casualties in MG's world.

We now return to my normal blogging....

VC DNA - Make Sure You Get a Swab

2009-11-24T09:00:57-05:00

In between pounding on my product and getting ready for our beta (if you have a BlackBerry Device and are interested, email me), I've been trying to hold true to the giving back/pay it forward philosophies by meeting with the occasional start up to help review this or that. It's free advice and worth every penny.

Over the last couple of weeks, I've met up with two start ups which stand out in my mind because of the interactions they've had with my former work life; the VC community. Both were at the early stages of business

SU1 opened the conversation with "If we just told our VC we quit, left, and started something new, could they get our houses?" Yowsa...

SU2 opened the conversation with "These creepy douche bags don't have a clue what start ups actually do." Another satisfied customer.

Without boring you with all the details of each story, here are some observations I'd like to pass on as you wade into the funding adventure. Or not.

VC DNA

With unbelievably rare exceptions, there is no such thing as "Stage Agnostic" Venture Capitalists in the true sense. By Stage Agnostic I mean a firm/person who can be equally comfortable doing a seed/jumpstart deal or a $5 million series B. I say this not to get bombastic or incite screaming among investors. Most investment specialists follow whatever is in their comfort zone and whatever matches the skill set they bring to the table. Some people are analytics and heavy duty thinkers. They throw massive amounts of due diligence work against a potential investment, chasing down every possible market metric, forecast, historical trends, etc, etc. Lots of brilliant people making very smart investment decisions, bravo, above my pay grade.

This type of person, however, is a walking disaster when you combine them with a founder and his napkin. The the idea is on the napkin here, I need X dollars to figure it out and if I'm right, presto the next Google. That's a Ron Conway thing, if I can use him as one end of spectrum. He spends the short amount of time sanity checking the person, not necessarily the idea, lays down some coin, and takes a shot. Wildly successful guy, bravo.

All of these Y-Combinator shops cropping up all over the place have investors that think like Ron (or try to) and take shots with little more than the napkin. A 150 million fund with piles of process, weekly meetings to endlessly (and maybe rightfully) debate the potential of a $3 million investment with the whole we need 20% argument thrown in simply doesn't have the DNA to take small little risks based on little more than the napkin and founder. That fund spends just as much time on a $200,000 investment as they do on a $15 million investment which is a dumb use of the talent around the table and it has serious implications when they flip some pocket change into a seed deal.

The impact is they don't relax and let it play out, they are on the board creating process & committees, weekly status meetings, fretting about immediate revenue before the idea even gets shaken out, etc, etc. They stress out the entrepreneurs, come off as jerks when they are otherwise nice people, and in general cause the fund to get a bad name in a space they shouldn't have been near in the first place.

The second bad thing which happens to these seed deals in big funds is they can get cut loose, often times, unfairly. A $150 million fund which spends it's time looking at 3-5 million investment clumps who tosses a little coin ($250k) into some idea doesn't have the mindset as I said above. Absent the play it out mentality, it's the seed idea the founders are smart and will figure it out filtering process, what often happens is: cut em loose, it's a rounding error.

The VC community will respond that it is good discipline to cull the herd, not throw good money after bad, etc, etc. It's all true and I agree with it. My observation is that I'm worried about the environment in which that call is made. One partner is a gut check, let's just see and 6 others are 'banking investment types' makes for a stressful table if you sitting there wanting to get some additional capital for an idea that is evolving. I mean no disrespect to banking types, I'm using that term as a label to make my point. And, yes, having others to prevent Dr. Gut Check from drinking all the Kool-Aid and spending insane amounts of money are good checks to have in place.

My point, again to be clear, is the culture/DNA of the firm and people making that call. Angel/Seed guys who do only those types of deals, totally have a better sense of how to cull that type of herd versus (in my opinion) some big fund who allocates some play money. The play money investments can often time get killed because the big fund partner spends too much time on little deal. He spends that time because that's what they do on all investments so it is only natural to say this 200,000 deal isn't worth my time, etc.

What you can do.

First, read the web site of the fund. Really. I know you've heard this advice before but really do it. Spend the time learning about the people in the firm. What have they done, come from, invest in, etc. Read the blogs of the firm/partners. In summary, get to know the DNA. Call the CEO/CTOs of companies they have invested in.

Second, have endless meetings. Yeah, I know makes no sense. Of course what I mean is don't think of those meetings a waste of your time rather use them as an investment in your time. Most of the CEOs who had to slog through Rick's rants and me sitting on the board would tell you they 'knew me' and knew what to expect when the deal closed. I didn't go all Frankenstein on them when the check cleared the bank. I was nuts prior, during and after. Consistency. My point is getting to know that person who will be on your board, in your face, etc, is a seriously important investment in your time, don't blow it off. Interview them, push them on what they've done, get references on them, etc. Just the exercise of you doing it and watching investors reaction will give you volumes of data.

Third. Good ideas get funded. If you have a good idea that others think is a good idea, you can find a way to get the idea into the game. It probably sounds polly-anna but I believe it. So do the homework.

What we (Canada) needs to do.

- Build some $20 million seed funds with people who eat, drink, and live it. It's a DNA thing. Grow the right type of fund for the right type of investments.

- Embrace failure. I've harped on this forever.

- Team up the big funds with the little funds so we start to create a farm team of founders and companies which can grow into big things or get sold as little to medium things which then give the big funds a pool of talent to draw from on big bets. Rinse and repeat.

We live in interesting times.

The End of the West

2009-11-22T10:48:40-05:00

There is a great BBC Documentary (Docudrama) called The Last Days of Lehman Brothers. They are clear that lots of the dialog was invented but one such (likely) invented piece was spoken by Hank Paulson (played by James Cromwell) in a meeting with all the Wall Street hot shots the friday before Lehman's death weekend. I doubt it was said but it should've been.

This clip is outstanding.

Memo to Valley Venture Capitalists Get Quieter Keyboards

2009-11-09T23:43:33-05:00

Sometimes I just shake my head in wonder and disbelief. Before the story, yet another “If I did this to you during the past 8 years, I’m sorry” admission.

A couple of VCs in the US heard about what I was doing and both (partners not Analysts) asked for a call to chat. This was two separate firms. Yep, they called me. Yep, I know these guys for 10+ years. Yep and yep. Read on.

Call one:

All the hey how’s it going, cool, whatcha up to gets out of the way within 3 minutes. So, off I go into my pitch and in the background, I’m hearing the unmistakable clacking of the keyboard AND the standard BONG of Vista’s ‘are you sure’ dialog boxes when stuff is getting deleted. In other words, VC One is going through his email while I’m speaking on the phone. Thank you very much.

Call two:

Do you have Skype? Here’s a tip. Turn off the sounds or mute your PC. Yeah, you guessed it, Skype chat while call number two is going on. Danke mein freund, danke.

As I wrap up this week with a closing, I am not fussed about any of this. In 72 hours, the bank, accountants, and lawyers will all be happy.

But if you are wondering how reputations are created, multiply my little snippets times, oh, a billion instances and there you have it.

Shezzzzzz…..

Memo to Microsoft: Watch the Company Store Bragging

2009-11-06T10:55:58-05:00

I'm on the plane back to Toronto right now and a women comes on to the plane carrying a little goodie bag with 'I visited the Microsoft Company Store' on both sides. Nice bag, actually.

As she walks by a lady behind me turns to her seat mate and says:

"They lay people off, make this crappy Vista thing and she wants to brag? I'd hide that crap.."

Ouch.

http://ricksegal.typepad.com

Congrats to Halifax 3 Billion is a Big Number (Growthworks and SeaMark)

2009-10-29T11:19:48-04:00

Those wild and crazy kids at Growthworks (Roger, Scott, Jim, Andrew, Rolf, et al) decided to team up with SeaMark and make a godzilla company with over 3 billion in assets. Sweet, big is good and the b word is always fun to use.

Why Halifax? You can read the release here. Dateline: Halifax which is where SeaMark makes her home.

As my friend General Crow points out, lots happening in Toronto.

But let’s give the shout out to Halifax as this is a nice feather to put in the Welcome to Halifax bonnet.

Congrats to all.

Exits and No VC - Great Post by Craig Hayashi.

2009-10-24T00:43:19-04:00

The National Angel Capital Organization had their annual summit last week in Toronto. The summit is a gathering of angel investors and angel group managers from across Canada to discuss best practices and current trends in angel investing. Two main themes in this year’s conference were co-investment and early exits. I’ll cover co-investment in another post. In this post I’ll talk about early exits as presented in talks by Dave McClure and Basil Peters.

via www.startupnorth.ca

Craig Hayashi's great post on exits and NO VC funding is something you should take the time to read. Well put and well written.

EYODF Part 10: BookFresh and the Freebie Dance

2009-10-23T21:51:25-04:00

One of the more important decisions startup types have to make is picking from:

Pay for it.
30 day free trail – then pay for it.
Freemium

I stand before you and speak with all the gusto I can muster up and with apologies to Chris Anderson: I hate free. I think free devalues people’s hard work. But that’s me and I’m drinking really serious Kool-Aid, if I think the world is going to see it my way. It’s doesn’t, so like some grumpy old guy, I have to deal with this issue just like you.

In wandering around the internet, I hit upon a company called BookFresh, an online scheduling application that caters to small businesses who want people to be able to book appointments, etc. As a side note, the site is well laid out, has a great home page, see the demo, etc, etc. Really well done; sent to my guys.

I hit the pricing page and, sure enough, there are four categories of pricing with the first one being free and the last one being “contact us.”

You should wander over to their pricing page here (pops open a new window) and follow along with me. As you can see, the obvious item is the number of bookings you can do each month. Freebie users get three and everybody else gets unlimited. You can see what features are included in what version. Hover over for the details.

Here’s where the dance starts. I can only imagine the discussions Ryan/Scott/Matt, the co-founders had with laying out the freebie version. It’s pretty much useless for 99.99% of anybody being even remotely interested/needing this service, but there you go, they have a free version. I know there is a use case somewhere and somebody is going to tell me the zillions of people who can use the 3 appointments a month version, okay, stipulated. It’s still useless to 99.98%.

It is, tho, that number (3), which got me thinking about this free thing. For example, back in the VC day when I was doing 10 or more of the no harm/no foul meetings a week, this product would have been ideal for me. They have a Typepad widget and I could have popped it up on my blog letting people take slots. Awesome, easy, cool. I would have paid for it.

Which of course led me to thinking about a educational version for teachers to let students schedule time during the office hours or tutorial leaders being able to use it for free to schedule times. Or, create a version for VCs, like Brad Feld, Jeff Clavier, or Fred Wilson who like to reserve time each month for random/open meetings. Should those versions be free? Would that class of users brag enough to get paying customers?

I have no answers for BookFresh, they’ve been around for 2 years and seem to be rocking right along without my backseat commentary but they make for a good discussion point with my advisors.

The point/issue for you is to find examples like this and think through the variations on free/paid/freemium for your own product/service. It’s an interesting (and very important) exercise.

[2 Bonus BookFresh Observation]

On the about page, you can read about Ryan Donahue’s founding of the company and then his corralling of Scott Edwards and Matt Rowe into the “co-founder” slots completing the founding team. Solid, + 50 points for that strategy and acknowledgement of founding talent. -30 points for Ryan being "Founder & CEO” with the other guys getting “Co-Founder” title. You almost had me, Ryan. (just a little title humor).

Second bonus: If you are planning to open up a satellite office in a war zone, Matt’s your go to guy. Awesome.

Have a great weekend, everybody.

The take the deal or not debate

2009-10-22T19:15:20-04:00

Pat Moore, of Amplafi, put up a good response to my post regarding do you really want Venture Capital. I’ve 'promoted it’ here because it raises some interesting points which I’d like to expand/share.

I’ve put my comments inline with his.

Respect you a lot but I think you are flat out wrong here.

[Yeah, I used to get the you’re a nice guy, but… a lot in school, always knew the next sentences weren’t exactly coming up roses.]

1) so would you object to a 5x, 10x, 100x ?

In theory? No, I really don’t care provided that there is a provision where at a certain price, everybody converts and nobody can stop a sale unilaterally. So, if somebody has a 5x and the deal says at a sale of over $50 million, everybody converts, no double (or 5x) dip, you just line up at the pay window and get your share. If a VC says downside only, okay, cool. The $50 million number, in this example is arbitrary but it makes my macro point. I don’t care about downside, what I care about is the upside fairness.

2) maybe you wouldn't because as a founder perhaps your starting percentage is high enough that you still see bucks on the horizon - but what about employee #40. He does the math. Math tells him that unless the company sells for $1B he isn't getting much. Instead of stock motivating -- becomes demotivator. Now as CEO you have 9-5 employee and a real gulf between the haves ( founders) and the have-nots ( everyone else ).

I’m looking at my ending percentage not my starting percentage. I believe what I am working on is a zillion dollar company. I truly do. I’ve written a personal check, bet the house so to speak, and I believe that if I own 5% – 10% of this puppy when we win, I’m a seriously happy bunny. So, armed with that attitude, I’ve got lots of stock (mine) and an option pool to reward the key people in my company. Let me also say that if the tech gods above shine onto me a billion dollar exit, I’m locked and loaded to reward the people who got me/us there.

3) I gather you are pretty well off. If this company fails, or you get screwed by investors -- you are not financially devastated. The rest of us are not so lucky.

To this I can only say that if this fails (it won’t) I’d be on the street looking for another gig or maybe another kick at the startup can. At this stage, yes, for a certain period of time, I can pour every dollar back into the company, take no salary, eat capital expenses, and generally make Ebenezer Scrooge look like a drunken sailor when it comes to spending. I’m not on food stamps but I’m bringing my own lunch to work and gladly letting other people buy.

4) you have enough connections that an investor thinking about screwing you will know that it will get around hard and fast -- the rest of us not so connected.

I don’t think my connections are any better than yours when it comes to ‘thinking about’ anything. The fact is that you can post, tweet, comment, and share a VC screwed me story and it will get picked up since the VC community is a magnet for bad stories. I appreciate the thought, but I’m just not that connected nor able to scream louder than you. I wish I was actually.

5) If the investor demands so much downside protection then is the investor really convinced about the idea?

VCs, for the most part are driven by spreadsheets and returns once they get past that first instinct of wanting to do something. This is important. A VC jumping up and down on a deal after a meeting or two do, will eventually have to settle into whatever the firm’s style/rules/plans/IRR/state of the fund/etc is. Reality bites but in my experience, Pat, they bet on you and the firm layers on top of it those things they need for the committees, the LPs, and everything else. As I said before, I’m interested in closing the deal with the lowest legal costs possible and only worrying about things that are going to materially impact my ability to be successful. The rest is noise to the extent that if there a shit pile or things don’t work out, it blows already. If this doesn’t work out (it will) and I’ve taken, say $2 million of other people’s money, aren’t I supposed to get it back to them before I get coin? They placed the financial bet and if the downside says, we’re covered, I’m fine. It’s just me, you clearly disagree.

If I got such a proposal, I would demand upfront money going into my pocket, all previous investors, and all current shareholders. Additionally, the investors would lose the ability to force the sale of the company, and the provision would only kick in after a certain percentage of their money was spent. If it ends up just sitting in the bank because current revenue is adequate then the company gets to return it as a loan.

Do I think any VC would take such a harsh "deal" -- no... but then again why should I take such a harsh deal from them?

This would be a broader definition/debate on what’s harsh. For me, harsh would be a double/triple dip on a major, out of the park, home run. A VC who say, I’m protecting against a flip and if it is a dude, I get my money back, etc, is not (in my opinion) being harsh. A VC who says, 5x participating pref REGARDLESS of exit, yeah, that’s harsh and no, I wouldn’t do it. Your sitting in bank comment points to a disconnect with what a VC would want and what they would do regardless of terms. I hope that I take in the coin under legal review now, and that’s it. I hope it never gets spent and I exit with a billion dollar company. I’m not thinking about loans, returning money etc, rather I’m thinking about the win and joining the ‘blank check’ club.

In reading Pat’s comments over a couple of times, I think he has done an excellent job of making my point about do you really want to sign up to the life of a VC funded company. Thinking in terms of being screwed, giving money to people as it comes in, etc, all point to, well, not being actually ready for a VC investment.

Again, the debate shouldn’t be about the terms, etc, rather about the basics of taking the money in the first place.

Thanks Pat, I appreciate your comments.

Reminder: Failure = Experience

2009-10-22T08:04:50-04:00

Lots of people bash Michael Arrington for all kinds of reasons. Most of the negative stuff tossed his way isn’t particularly fair or deserved but goes with the territory I suppose.

He has a post up about a start-up called DotBlu and it’s death. There is a very important point all of you/us should remember; especially here in Canada:

“Most startups die, so this isn’t any particular slam on the founders or investors. They tried and they failed, and that’s the way of Silicon Valley.

And as a goodbye salute to dotblu, I remind readers of The Man In The Arena speech by Theodore Roosevelt in 1910. Adapt or die, they say. And if you die, put another quarter in the machine and start the game over.”

The Man In The Arena post from Michael (circa 2007) is here and well worth your time reading.

Back to the game….