Follow up to “What’s in a name?”

You can see from the comments to my post on company names yesterday that I actually heard from many of the companies listed (a few wrote me directly and don’t show up on the comments roster, but 3 commented directly). I was actually highly amused by the e-mail exchanges I had on the topic – everyone took it in stride (and thought it was extremely funny). It did get me thinking about how fast information travels in a WEB2.0 world. With one exception that I’m aware of, the people who contacted me were not a regular reader of this blog (despite my wishing that my reach was really that far . . .). Still within a few hours, they had all been alerted to the fact that I had posted about them. There are no secrets in a world that connected . . .I suppose the downside to having a made up company name is that no one knows what you do. The upside is that when someone mentions you on the web, its pretty easy to figure it out (not too many cases of someone writing about the wrong “Nuvvo”, I’d imagine).

January 20, 2006· 1 min read

What’s in a name?

At the risk of throwing stones from a glass house, what’s up with the names of next generation web companies? Catching up on some of my TechCrunch reading this morning I was struck by how crazy the company names were. Here are just a few from posts in the last week: YouTube Kaboodle Tinfinger Fleck YubNub Podzinger Eurekster Nuvvo As Charlie Wood points out – say them together and these names sound “like an incantation.” …

January 19, 2006· 1 min read

More information = good

Here’s a great idea: David Jackson has started posting transcripts from company conference calls on his web site (he’s actually been this for a while, but now has pretty extensive coverage of tech company earnings calls). I try to listen to a handful of earnings calls each season, but invariably I get to fewer than I want to, or miss the key moment of a call – even when I’m listening to the replay (which is almost always what I end up doing). I’d much rather peruse the transcripts. Much easier to consume quickly. Much easier to search. Much easier to quote from (if you’re into that sort of thing). …

January 18, 2006· 1 min read

Tops of 2005

My friend Daniel (sorry no link – he’s not a blogger) pointed me to the BlogPulse 2005 Year in Review. I particularly enjoyed the Top Wikipedia References (especially #5 – nice to see that Wikipedia made its own list). Enjoy.

January 17, 2006· 1 min read

When should you sell your business?

Last week’s news that CA purchased Wily Technologies for $375m reminded me of a working theory that I’ve had for a while (which generally seems to be supported by market experience over time), which is that there are generally two time frames in a company’s life where it can extract the most value from being acquired. Below is my version of the ‘exit value curve’ for a software/technology business where the x-axis is time and the y-axis is value:When_should_you_sell_your_business_1The drop in value should probably be a lot sharper after the initial euphoria phase (but this image took me long enough to produce and I didn’t want to redraw it), but the basic idea is that companies are generally most valuable to a potential acquirer right as the technology is proven and then again as the company reaches scale (certainly most valuable releative to the money and time invested). The ‘technology proof’ phase is the time after a company has built an inital produc and installed it in a handful of key accounts but before the company has started dreaming of its billion dollar IPO; realized how difficult it is to sell to non-early adopters; taken more venture money and therefore raised the bar on their exit; hit a zero bookings quarter; shut their doors; etc. There’s a range her that depends on the company, the time its taken to get to this stage and the money that’s gone into the business but generally I’m describing businesses that have real bookings, but less than around $5m in revenue. The poster child in the last few years for a company being purchased in this stage was Appilog who was bought by Mercury for $49m, but more recent deals that fall into this category include a bunch of Web 2.0 companies bought by GYMAAAE (link from Brad) such as Truveo (by AOL) and del.icio.us (by Yahoo!). Then comes what Gartner would call the trough of disillusionment but what entrepreneurs would more likely call the long hard slog (this is the part of the graph that is circled). Plenty of businesses don’t even get to this phase and a lot who do find it an extremely hard place to be. This is the ‘prove it’ stage of the business – where you need to figure out how to scale every aspect of your company – starting with sales but including product delivery and development as well as support, marketing, etc. You’ve also probably taken a bunch more money (possibly an ‘expansion round’ but just as likely through an ‘inside financing’). Your value in this stage probably goes down – certainly on a relative metric basis, but probably on an absolute basis as well. You’re trying to build a real business now and you’ve moved past the technology experiment stage and the euphoria of your initial PO’s and handful of first customers. You work hard to grow your business and have success at it, but scaling sales is harder than you thought and that great channel partner that really had promise didn’t pay off exactly as you’d hoped. If you’ve taken more money (say your Series C) you’ll find it harder to exit in this stage at a valuation that is attractive to both your investors and your team and instead may have to opt for seeing the business through to the next phase (or if you are forced to sell you will do so for a modest multiple of invested capital). If you execute well and stick with it, however, you may just emerge – as Wily did – on the other side of this slog. While running your business doesn’t exactly get easy, you now have real critical mass and market validation/adoption. Your revenues are well into the double digits and you’re probably cash flow positive even as you re-invest in your business to keep your growth up. The Wily deal is a good example of the kind of value that can be created for a business that reaches this stage of its growth. Teams and investors that stick with it are generally rewarded in this phase of their development with solid investment returns. Obviously there are plenty of variations to the story this graph shows, and different markets reward technological promise vs. customers in different ways. Along the same lines, different individuals, investors and management teams have varying views on what constitutes a good early exit or even a good later-stage exit and success will depend on a number of factors including a team’s ability to execute and the financing strategy employed to fund that execution. …

January 11, 2006· 4 min read

Stanford is for geeks!

A friend of mine (and Stanford alum) proudly sent me the following link to the Stanford Engineering Puzzle (apparently a regular feature on their web site). Despite neither going to Stanford, nor frankly having had any shot of even getting into the school should I have thought to apply, I found the puzzle rather amusing. I think Macalester is the Stanford of the mid-west . . . or something like that. …

January 11, 2006· 1 min read

Saying Goodbye

As much time as VCs spend with our portfolio companies, it’s important to remember that our jobs are actually to see them move on to greener pastures. Of course working closely with these companies – often over several years – one can’t help but get attached to some of them. So it’s often with mixed emotion that I see companies move on to the next chapter in their lives. It’s the natural lifecycle of investing and is absolutely key to the performance of our jobs (performance which is measured solely by the amount of money we return to our LPs). Still, it’s a bummer to stop working on a daily basis with some of the great people that run these companies. Around the end of the year two companies with which I work closely were sold and I thought now would be a good time to acknowledge some of the great people who helped make these businesses successful (and whom I will miss working with). First, Xaffire was sold to Quest Software (no official announcement to point to, but the deal was closed recently and the Xaffire web site now lists them as a Quest company). I’ve referenced Dave Jilk a number of times in this blog (and he’s a frequent commenter to posts). I first met Dave when he interviewed me for my job at Mobius (he was at the time the CEO of a different portfolio company and prior to that had been an associate at Mobius). I’ve worked with Dave in varying capacities over the past 4+ years. I know I’llsee him frequently (we ski together often), but I’ll miss the day-to-day interaction with him. …

January 9, 2006· 2 min read

Some Venture Math

I’m in the middle of writing a few posts on the economics of venture investing (actually on venture “exiting”) and was therefore pretty interested in the VentureWire 2005 venture m&a stats that came out last week (there were a bunch of articles recapping the 2005 venture exits if you want to Google for them). Here’s some of what was reported: – m&a dollar volume rose 17% to $27.4bn -ont-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;”> the number of companies bought fell to 356 (from 407 last year) -ont-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;”> IT companies accounted for $11.73bn of this amount across 221 companies So if you do the math, of the venture backed companies that were bought last year the average purchase price was about $77m. IT companies were lower than the total average, coming in at just over $53m per deal. VC’s spend plenty of time thinking about the exit dynamics of their businesses (thus my future posts on the subject) – it’s interesting to consider the dynamics of tech investing in a market with these kinds of exit profiles. Specifically, sometimes exit expectations don’t match the reality of the market – and these exits (driven by both reality and perception) have important ramifications on the dynamics of capital allocation, company valuations, financing strategies and other key principles of venture investing. It may not exactly be like the real estate market (where they say you make your money by how well you negotiate your initial investment), but optimizing your capital structure is more important than ever before in venture investing. …

January 9, 2006· 2 min read

The Song Tapper

I wrote a post last year about conveying information effectively in which I talked about how difficult it is for someone to guess a song that you are tapping out with a finger (but how easy is feels like it should be when you are the one doing the tapping). Its a true phenomenon, although I meant it as a metaphor for (or perhaps just an example of) how easy it is for people to overestimate their ability to clearly communicate their thoughts/ideas with others. …

January 5, 2006· 1 min read

Colorado Rocks

I imagine you’ve noticed that I’ve been silent over the past few weeks – taking some time off from work and blogging over the holidays.Not to gloat (WARNING: I’m about to gloat), but Colorado is a great place to live. In the same two week period I was skiing in deep fresh powder (multiple times), snowshoeing and cross country skiing with amazing mountain vistas and (here’s the really great part) mountain biking (in shorts!). …

January 5, 2006· 1 min read