Steppin’ Up

I took an important step in my life as a venture capitalist today when I attended my first board meeting as an actual board member (rather than a board observer – see my post on this distinction from last month). While the earth didn’t exactly shake off its axis, I can’t help but feel that today was a real milestone in my life as a venture capitalist. I’ve worked with a lot of companies since joining Mobius, but this is the first deal that is really my ultimate responsibility. Today’s board meeting wasn’t unlike the hundreds of other board meetings I’ve participated in over the past 3 years, but there was no question that there was something a little different about it for me. I don’t want to make more out of this than there really is – I work very closely with all of the companies I’m involved in at Mobius and am for the most part treated by all of them as if I were on the board. Still, there was something different about my meeting today – maybe just in knowing that Mobius (and our investors) need look no further than me when judging this investment . . .

February 15, 2005· 1 min read

Venture Capital in the Rockies

I spent the much of last week attending the annual venture conference sponsored by the Colorado Venture Capital Association. The purpose of the event is to attract out of state VCs to take a look at Colorado venture deals that are in the market (click here for a link to the companies that presented this year). I’ll talk about Colorado’s venture capital market in a separate post, but suffice it to say, it’s important to the local VC community to have financial support (at least on some deals) broader than the local community can provide. While each of us has relationships with firms out of state that we syndicate deals with, as a group this is our one annual chance to put our best foot forward to out of state investors. …

February 14, 2005· 5 min read

The Masses Speak

A couple of days ago the following story hit my inbox from Marketwatch (story below, link here): WASHINGTON (MarketWatch) — While you watch the Super Bowl, dozens of online-savvy consumers and Web loggers will be watching the Net to see how the game’s TV commercials are playing in Peoria. Intelliseek Inc. of Cincinnati and New Media Strategies of Arlington, Va., have lined up dozens of people to surf Web sites, blogs and message boards to get a fast read on the effectiveness and popularity of marketers’ commercials. With TV costing as much as $2. million for a 30-second spot, companies want to know whether their money was spent wisely. …

February 8, 2005· 4 min read

The Power of Location

The Mobius web-site was spoofed recently. Someone – presumably looking to pass themselves off as a legitimate venture capitalist and needing a web-site to do so – copied our site and changed the name of the firm as well as some of the biographical information (contacts, team, etc). They even went so far as to pull live feeds from our site that updated our portfolio ticker. We looked up information on the domain on whois and on some of the registry sites, but the most interesting data came from one of our portfolio companies – Quova. Quova has mapped the IP space of the internet for physical location. If you give them an IP address, they can tell you where it is located (the data are extremely accurate to the country level; very accurate to the city level and beyond). They can also tell you some useful things about the address (connection type; carrier; proxy info; device; etc). We’ve been investors in Quova for several years and I’ve worked with the company pretty closely since I joined Mobius. In this time I’ve had the chance to talk with some of the company’s customers (who use the data for things like fraud detection and localized marketing), sat through demos of the company’s service, talked with their technical team, etc. I’ve never really had the chance to use the service . . . until now. I was amazed with the data they were able to come up with and it was very helpful to our IT group who was trying to gather more information about the site in question. The Internet is often described as a place without borders. In reality that’s not correct. Technology exists that gives us the ability to define these borders. Technology also gives us the opportunity to take some of the anonymity away from the Internet and to create boundaries around our on-line lives. There is such a thing as ‘there’ on the internet (as opposed to ‘anywhere’) and I think we’ll see an increasing use of this technology to make each of our experiences on the Internet both safer and more relevant (just the past year has seen the ability to localize searches; more geographically targeted banner adds; etc. – often powered by Quova’s technology) and more profitable (routing traffic that was previously unserviceable, for instance, to a partner site who can service the traffic, etc.). Think of the Internet as comprising both a virtual ‘there’ and a physical ‘there’ that combine to create our experience (and may separately be relevant to enhancing that experience). It’s not hard to come up with the ways that the combination of these data will quickly change our on-line experiences.

February 3, 2005· 3 min read

The 10 Minute Difference

When I graduated from college I worked on Wall Street for a couple of years as an analyst for Morgan Stanley. While a valuable experience, especially for someone such as myself who had never even considered taking a business or finance course (I was an econ and psychology major), the job pretty much sucked. While I enjoyed the finance aspect of it and, particularly in my second year, had great access to the CEOs and CFOs of the companies I worked with, a lot of my job involved staying up until all hours of the night (morning, technically) preparing analysis and putting together ‘pitch books’ for use in presentations the following day. Not particularly glamorous work. Nor was it generally mentally taxing (to be clear, we did plenty of extremely complicated analysis work, but much of the day to day analysis was more mundane and involved lots of data gathering in the Morgan Stanley library – this was pre the ubiquitous access to financial data on the internet – and less time actually crunching numbers. The job involved working about 90 hours a week (up to 120 on some weeks) and was akin to running a marathon – stamina counted for a lot.One of the things that’s true about investment banking – even at the analyst level – is that a pretty sizable portion of ones pay comes at the end of the year (actually February for most banks) in the form of a bonus. Bonuses are doled out at senior levels based on deals brought in and revenue generated for the firm, but at the lower levels they were directly tied to your performance review. Morgan Stanley had a rating system with a bunch of levels and the difference in bonus pay-out was pretty substantial. At the top of the pyramid was Outstanding followed by Very Good and so on. A pretty descent percentage of analysts were rated Very Good (probably over 50%), but a very small number (about 5%) were rated Outstanding. The difference in pay was tens of thousands of dollars (a pretty substantial portion of one’s pay as an analyst).So what’s the difference between Very Good and Outstanding? I’ve been asked this question a bunch of times and the answer to me is very clear. The difference is 10 minutes every day. At a job where one regularly worked 90 hours or more every week there was a huge incentive to cut out of work as soon as you could (at 2am you wanted to get home as soon as you could). But the difference between doing a very good job and an outstanding job was the last 10 minutes of every day when you had the chance to stop and consider the work you had just done and check it. Most times it was probably fine, but 1 out of10 times you found something that needed adjusting or correcting. …

January 31, 2005· 3 min read

eWork CEO Hans Bukow on OutsourcingTV

Ok. I can’t say that I’ve ever heard of OutsourcingTV.com but apparently it exists and they did an “interview” with Hans Bukow, the CEO of eWork on the recent eWork/ProSavvy merger (see my last blog post). You can check out the interview at the following link: http://www.outsourcingtv.com/ot/index.jsp?movieid=13688&channel= I’m in the middle of writing a post on whether blogging means an end to traditional media and, not to steal my thunder, but I think this interview backs up the point I’m going to make – there’s lots of room in the world for niche media (or point media) to exist along side more traditional media sources. Clearly enough people care about the outsourcing market for there to be a website that supports it (and magazines, etc.). While the merger of two companies like eWork and ProSavvy won’t necessarily make it to traditional media (other than perhaps an inch blurb in the business section), it’s clearly important to people who follow the industry and, as this piece shows, warrants further discussion/elaboration.

January 28, 2005· 1 min read

eWork/Prosavvy Merger

One of the companies that I work with closely, ProSavvy, announced this week that it merged with eWork (the combined company will keep the eWork name). The merger creates perhaps the largest private company in the workforce management/services procurement/payroll services business. As part of the merger, Mobius led a new round of financing into the combined business. You can read the press release here. In layman terms, the combined business offers products that allow businesses to manage various aspects of procuring, managing and payrolling temporary employees (contract laborers) and what are called fixed project deliverables (consulting projects). The combined business has three main products: eWork Enterprise – a enterprise software platform for managing contract work (whether that be contract labor, consultants, etc.) eWork Markets – a platform for procuring contract labor with a bunch of tools for managing that process (whether it be a formal RFP, which the platform can guide a business through or a less formal requirements process) eWork Services – outsourced payroll and HR services This deal makes sense for a bunch of reasons. We’ve been investors in ProSavvy for over 5 years (along with Park Corporation and Pequot). It’s been an interesting road to get here as the business has done a great job of lasting through the tech bust and emerging on the other side. About 3 years ago the company started focusing more on its marketplace (the on-line market it created where companies can request consulting services and member consultants can bid on these projects) and less on delivering an installed software platform. We were finding at the time that companies that were interested in the product as software were starting their software initiatives by controlling their contract labor spend (temporary workers), rather than their fixed project deliverable spending (consultants). They wanted to manage the latter, but doing so with installed software was taking a back seat to contract labor. So, ProSavvy focused on refining its service and the tools that it built around procuring and managing consultants and built its network of consultants. We’ve had the view for a while that the markets for fixed project deliverable procurement and contract labor procurement were going to converge – fundamentally we’re talking about a very similar problem to manage. Companies started coming to this conclusion as well as more and more RFPs in the space were asking for a combined solution. ProSavvy found itself being asked to team up with companies that provided contingent labor software in bidding on these contracts – and they did so with a number of the firms in the contingent labor software world. Eventually it became clear that the company would benefit greatly from being a part of one of these businesses, rather than positioning itself as an add-on to their solutions (or them as an add-on to ours). Enter conversations with eWork and, several months of work and you have the merger that was just announced. I’m pretty excited about the prospects for the combined business. Certainly there has been a lot of money that has gone into this space and a number of large VCs have made pretty decent bets on companies that compete with eWork (venture-backed companies in the space include eLance; IQ Navigator and FieldGlass). Ultimately I think eWork will benefit from competition in this market – these firms are all hungry, well run and have good product offerings. I think the addition of the ProSavvy marketplace to the eWork product offering brings something different to the mix that will help eWork stay ahead of the competition. On a personal note, while this isn’t an exit (we didn’t cash out in the deal), I’m satisfied to see the hard work that we’ve put into ProSavvy over the past years pay off in the form of a company changing event. The new business is in the capablehands of Hans Bukow,who is the eWork founder and CEO. Thisis a project that I’m going to stay close to – I’m joining the board of thecompany – and look forward to reporting to you on their future success.

January 27, 2005· 4 min read

Finishing what you start

One thing I’ve noticed since I started blogging is that starting a blog entry is a lot easier than finishing it. There are plenty of things to write about and I find it pretty easy to start a new blog (I usually do this in my head first and try to think it through before committing it to paper). It’s a lot harder to finish them, however. My blog draft file is full of ½ completed blogs that are waiting for me to finish up. I’ve been thinking about this a bunch recently and trying to figure out if this is specific to blogging (or any forming of putting thoughts to paper) or if it is just a part of the human condition – something that we generally don’t notice since we’re not often presenting our ideas in an organized format (or without getting immediate feedback). After considering this for a while and thinking about it as I sat through meetings and talked with people in the past weeks, I think that the answer is that this is not something that is specific to blogging at all. Humans as a general rule are pretty good about coming up with ideas, but pretty poor at thinking them all the way through. This isn’t necessarily a bad thing– feedback from others on partial ideas often helps us think them all the way through. That said, I think I’m going to try to effort to better think through (from start to finish) what I say before I jumpin with an idea.

January 23, 2005· 2 min read

Venture Capital Deal Algebra

I’m intending this blog to be a mixture of my personal thoughts on being a venture capitalist (and my travels through the maze of the VC world); thoughts on life more generally; and what I’ll call VC 101 tips and pointers. One of the things I’ve noticed (and this is something that I’m happy to say the TypePad statistics really do a nice job of, my rant about them last week aside . . .) is that my VC 101 posts get a lot of traffic (and cross-posting/track-backs that drive this traffic). The impetus for my starting this blog was to capture my personal thoughts on being a VC, however I want to be sure I mix up my content to attract a broader array of readers. So, I’m going to keep up with the VC 101 posts, since it seems like there’s a segment of people who read my blog that sincerely appreciate an insiders view on the mechanics of venture capital. Today’s post is on deal algebra. Basically it’s a run-down of deal valuation terms. When you live in the VC world and use these concepts regularly, you sometimes forget that they are not necessarily obvious in their meaning (which can lead to confusion down the road; not good when you are embarking on a new venture with an entrepreneur). We noticed this a few years back, and as part of a larger effort to gather information that would be helpful to our portfolio companies Dave Jilk created this summary of key VC deal terminology that we sent around to a bunch of our CEOs and other people we work with (note: I’ve made some edits to Dave’s original work mostly for length). VC Deal Terms: In a venture capital investment, the terminology and mathematics can seem confusing at first, particularly given that investors are able to calculate the relevant numbers in their heads. The concepts are actually not complicated, and with a few simple algebraic tips you will be able to do the math in your head as well. The essence of a venture capital transaction is that the investor puts cash in a company in return for newly-issued shares in the company. The state of affairs immediately prior to theinvestment is referred to as “pre-money,” and immediately after the transaction “post-money.” The value of the whole company before the transaction, called the “pre-money valuation” (and is similar to a market capitalization). This is just the share price times the number of shares outstanding before the transaction: Pre-money Valuation = Share Price * Pre-money Shares The total amount invested is just the share price times the number of shares purchased: Investment = Share Price * Shares Issued Unlike when you buy publicly traded shares, however, the shares purchased in a venture capital investment are new shares, leading to a change in the number of shares outstanding: Post-money Shares = Pre-money Shares + Shares Issued And because the only immediate effect of the transaction on the value of the company is to increase the amount of cash it has, the valuation after the transaction is just increased by the amount of that cash: Post-money Valuation = Pre-money Valuation + Investment The portion of the company owned by the investors after the deal will just be the number of shares they purchased divided by the total shares outstanding: Fraction Owned = Shares Issued /Post-money Shares Using some simple algebra (substitute from the earlier equations), we find out that there is another way to view this:Fraction Owned = Investment / Post-money Valuation= Investment / (Pre-money Valuation + Investment) So when an investor proposes an investment of $2 million at $3 million “pre” (short for pre-money valuation), this means that the investors will own 40% of the company after the transaction: …

January 20, 2005· 5 min read

Board Observer vs. Board Member

Venture capitalists generally participate in boards in one of two fashions – either as actual board members or as board observers (see Brad and Jason’s post on Term Sheets – Board of Directors — for more information on how we take positions on boards). As an associate at Mobius I was not able to take actual board seats, so I took the board observer position in the companies I worked with (note that generally this isn’t an official designation – although I have seen board agreements that require the venture firms to specifically designate the board observer; more commonly its just a seat at the board table reserved for someone from the venture firm other than the board member). As an observer I am an active participant in board meetings, but I don’t vote on any board matters and in some cases need to step out of meetings (typically to protect attorney/client privilege, which covers board members but not board observers). The boards I am involved with have all welcomed me into all of the regular and executive sessions of their meetings. Different firms treat the distinction between board observers and board members differently. At Mobius I am encouraged to be an active participant in the businesses I work with and I have never been shy about voicing my opinions at meetings. Other firms have a similar philosophy, but some feel that observers are just that – people who can attend meetings but should not participate. I’m planning a series of posts with some of the CEOs that I work with, so you can get a sense of how the relationship dynamic plays out. Stay tuned for that. …

January 18, 2005· 2 min read