Letting go

Everyone deserves to have one truly outstanding dog sometime in their lives. For us this dog was Beau – our 100lb yellow lab. Beau was a truly sweet dog. It’s hard to describe what this really means to those who never met him, but Beau was gentle despite his size and sweet in a way that sets him apart from all of the other dogs we’ve known. His favorite pastime was to present people with a series of toys (typically stuffed bones and animals) when they walked into the house while vigorously wagging the entire back half of his body – just before making several laps between their legs. Much to our amusement and unlike most labs, Beau didn’t enjoythings like swimming (which he never learned to do), hanging out outside (when we would leave the door to the back open, he would sit just inside the house – choosing to be inside rather than out) or fetching a ball (he preferred to watch as you retrieved the ball yourself, jumping up and down upon your return in an attempt to egg you on to once again throw the ball so he could watch you retrieve it). His great pleasures were the hikes we all took together and sleeping(preferably on a sofa or futon). He was a good companion to our other dog, Rosie, and the two would sleep together on the same doggie bed – spooning each other through the night. He had this funny habit of cocking his head to the side when you would talk to him – turning almost completely sideways the more you raised the pitch of your voice. My wife used to joke that if he could talk, he would have a Barry White voice – very deep, but kind and soft. We would often talk in this voice for him around the house (as in “I could not possibly eat another piece of hamburger . . . well, on second thought maybe I could”). She gave him an appropriate Barry White-esque theme song in St. Germain’s Sure Thing– and would joke about the things he would do in his music video to that song. Beau had endless patience wit children. First with our next door neighbor’s daughter (who would sometimes fall asleep when we were watching her using Beau’s stomach as a pillow) and then with our daughter, who would use Beau as a jungle gym – climbing over him, pulling his ears and tail, pretending to ride him like a horse, or kissing him on the head. Beau loved the attention and would lie with his tail wagging, tongue out, smiling doggie-style. Beau died yesterday at the age of 14. He was a good boy . . . …

August 23, 2006· 3 min read

First round valuations

I get quite a few questions sent in by readers and am going to make more of an effort to post some of the ones that I think would be of general interest (please – keep them coming). Recently Jonathan asked: Do you have any reference regarding recent pre seed, seed, and first round valuations for B2C companies? We had several back and forth e-mails about this over the past week and I thought they were worth summarizing here. First, some additional background from a subsequent e-mail from Jonathan: I am actually doing two simultaneous rounds: one for 125K and another for 1.4 million. The first one aims at testing the viral potential of the application. We will focus on improving our site, doing PR and furthering our relationship with bloggers in the field. The distinctive aim of the second – 1.4M – round is to do conventional online advertising. The idea is that if our 122K round is successful (meaning we acquire users at a very cheap rate and manage generate some income early on) we can improve our barging power for the 1.4 M round or skip it altogether and take it to the next level. The main problem with this process is in the valuation. Here was my response: Classically in this type of situation you’d probably try to structure the first $125k as a bridge that converts into the next preferred round at a slight discount (from 10-20% depending on risk and timing of the second round). That way you essentially punt the value conversation until later and if you execute well on the first set of money you get the benefit of your stellar execution in the form of less dilution when you put together the big round (and at the end of the day from your perspective this is all about getting money into the business so you end up with as much of your company as possible). HOWEVER, if the money for both rounds is coming from the same set of investors, you need to be careful here because they’ll have the ability to foreclose on the business because of the debt structure of the financing instrument in this case. If that’s the case, I’d look at trying to roll this together into a single round that is traunched based on your hitting milestones (so the first $125k funds at closing but the $1.4m doesn’t fund until you hit some level of traffic or something like that). You’ll have to have the valuation conversation up front in that case, but the benefit is that you’ll have a deal for $1.525m instead of just $125k. As for valuation, it varies a lot depending on the type of investor you are bringing in, the amount of money you are raising and the region of the country in which you are located. If you were just raising a $125k angel round, you pre-money value would be ~ $1.5m – $2m. If you raise $1.5m you could probably push that a bit – maybe to $3m. First round venture deals (true institutional Series A – product with some interest, but not yet generating any real revenue) are generally in the $5m range. BtoC is in favor again, so there’s some room to push your valuation based on market interest, but that’s likely for your next round and based on strong execution (and lots of subscribers).

August 22, 2006· 3 min read

Linking around 8/15

Here are a few links worth taking a look at: Google Trends – www.google.com/trends (thanks to Jason for the pointer). I played around with this a while ago – they’ve improved it so you can compare search trends for different terms at the same time and also see what region the searches are coming from. Woot – Think you can’t make a business based on one product sale at a time? See www.woot.com. splunk’d – You may have heard that AOL released their search database (that actually had customer identifying information attached to the search terms – oops). www.splunkd.com will let you search against this database to see what people were actually looking at – compare your searches to the population at large. …

August 15, 2006· 1 min read

Fire Fast

My last post generated a bit of harsh comment (a few on the site, but many more in private e-mail and on a few other sites that picked up the theme). Apparently I came off as pretty insensitive (perhaps ‘jerk’ would be an appropriate description) in how I described my approach to some of the “can I get 30 minutes of your time?” meetings that I seem to have a difficult time saying no to (note to commenters: I do see value in the meetings and as a general rule spending time getting to know as many people as possible. Hey – at least I TAKE the meetings . . .). Trying to roll with that theme, I’ve been thinking recently about how companies get rid of non-performers. I have a lot of visibility into the performance of most of the executive teams of the companies I work with and some visibility down the ranks. One thing I’ve observed over and over and over again is that companies tend not to fire fast enough. I understand that US employment law can make this difficult (I am NOT giving legal advice here, so don’t take this as such in any way shape or form), but regardless, companies tend to hold on to people too long. This is true both in terms of mass lay-offs and more disturbingly in the case of non-performers. This is true almost 100% of the time and often in the face of extraordinarily clear evidence that supports the decision to ask someone to leave. …

July 27, 2006· 2 min read

Why are we here again?

I should probably do a better job of controlling my meeting schedule. I don’t and as a result end up with too many ‘networking’ meetings (i.e., where I’m on the receiving end of the networking). I have two observations about these interactions: Left to their own devices, people tend to ramble . . . ramble . . . ramble. The conversation lacks focus, direction and purpose. Sometimes this is fun; most of the time it’s a waste of time. 2) Most people don’t seem to know what they want to get out of meetings like these. This clearly contributes to the rambling – there’s no focus because there’s no clear end point or goal. To speed things along a bit, I’ve been starting these meetings of late with a simple question: “What do you want to get out of this meeting” Turns out this isn’t something that most people come prepared to answer, which I think explains why I was encountering the two problems described above and reinforces the need to start meetings this way. I’m starting more and more meetings with this question (or the answer to it if I’m the one initiating the interaction) – not to be callous, but to get things started with an outcome in mind. Plenty has been written about how to make meetings more efficient, but for me, other than skipping them altogether (which tends to make them much more efficient – at least for me), this has worked better than just about anything I’ve tried to speed things along. Especially those pesky “networking” introductions . . . This post reminds me of my Networking 101 post from last year. Worth taking a look at if you haven’t read it yet. See point 3 for another description of what I’m talking about here.

July 10, 2006· 2 min read

The Buzz about HiveLive

My friend John Kembal recently started a company – HiveLive – that facilitates communication between groups (friends, co-works, clubs, associations, etc.). The system looks like a social networking site, but allows you to upload more relevant information to your “Hive” and control better how you share it (i.e., its both a personal organization tool as well as a tool for communicating and sharing ideas across a group of people – kind of a cross between a blog, social network and wiki). They are in beta, but John has set up a site for VC Adventure readers to sign up – http://hivelive.com/join/vcadventure (click on the link and you’ll be taken to the sign-up page). …

July 10, 2006· 1 min read

TLAs

In a recent note Bill writes: I love your blog, but if you’re going to use TLAs (three letter acronyms), you need to spell out the first reference so the uneducated (like myself) know what you’re talking about. When you write about NOLs, us neophytes from Colorado think you’re talking about spending three days alone in the wilderness. 😉 He’s right. I sometimes forget how insular venture/finance/technology can be. In one of my very first ever business experiences – a training session at Morgan Stanley – I spent an hour listening to a Morgan associate (who happened to be the assignments associate from the group I was about to start working with) talk about the “Morgan way of doing DCF analysis” all the while thinking “I’m totally screwed. There are 100 people in this room and I’m the only one who has absolutely no clue what DCF stands for, let alone whatever subtlety he’s talking about that is the ‘Morgan way’.” (Turns out DCF stands for discounted cash flow analysis – something I have gotten intimately familiar with over the years). …

July 6, 2006· 1 min read

We’re losing control of the Internet

Two stories hit my desk today that serve as a stark reminder that the Internet as we know and love it is not guaranteed to continue on indefinitely. The first was the announcement that the Senate Commerce Committee split their vote on proposed compromise language on Net Neutrality (the idea that carriers should treat every packet on the internet the same). Plenty has been written on this subject so I won’t repeat the arguments here, but suffice it to say that the failure to guarantee neutrality on the net is a huge loss to anyone who cares about the future of the internet (and has a clue). The second was sent by my partner Greg Galanos via Brad and pointed to the Wired blog post on how to detect whether your net traffic is being sniffed by the government. It highlights an analysis done by the EFF that concludes that the allegations of AT&T secret surveillance rooms are likely valid, that the program covers domestic traffic, not just international traffic and that the system is capable of looking at content, not just addresses. You can read the full EFF report here (its been redacted by the government for security purposes). …

June 29, 2006· 2 min read

Are you a Yankee or a Rebel

NPR has the answer.

June 20, 2006· 1 min read

AppExchange is the new black

eBay jumped on the App Exchange bandwagon with an announcement from their development conference this weekend of a bunch of new APIs and development tools. This was a pretty broad announcement – Shoping.com, ProStores and even PayPal (who had traditionally been relatively closed) are participating in the effort – and expands their existing developer efforts significantly (see their developer site for more information). API’s are certainly nothing new – they are common ways for companies to allow access to their systems – but it seems to me that application exchanges are the new ‘it’ thing to do for platform companies (Salesforce.com, Google, eBay, etc.). This is a pretty new concept – companies in the past were extremely protective of their platforms and wanted to control almost every aspect of access to their systems (in this paradigm “open system” often meant ‘we’ll let you use our proprietary scripting engine to ‘develop’ to our platform). Companies have loosened this view in more years and moved to more open API’s (sometimes through a developer program; more recently completely open to anyone who wants to access them). The AppExchange idea is the next logical extension of this (the “Web 2.0 model for development”, if you will) and makes perfect sense: open your system, give support and help to those that want to develop extensions to it and give them a single home where users of your software can find these extensions. Its free development work, makes your platform that much more powerful and provides a nice sourcing ground for potential acquisitions. …

June 13, 2006· 2 min read