Deep Green Crystals

October 19, 2009

Transparency in fundraising is already here

The row last week over Angel funding and presenting fees has been completely overblown.  I am sad to be still writing about it actually.  A key problem in the marketplace for money that start-ups participate in is information.  What is the right price of money, which firms actually close deals, which angels are good, which are soul suckers, etc.  TheFunded.com has been providing this transparency around Venture firms for some time (much to the VC dismay).  So I thought to check out if the entrepreneurs here had an opinion on some of the for-profit angel groups.  Yup, Kirestsu Forum is there (no ratings.)  So there already is a structured market for this information, just fill it out guys.  Then everyone will know and we can take it off the blog and get back to work. 

Use The Funded.com.

Posted by Martin at 8:53 AM | Comments (0) | TrackBack

October 13, 2009

My last word on Angel Group presenting fees

Ok, now that I have cooled off a bit, here is my last word on this boring non-issue topic.

Here is the problem I have with Jason’s first blog post:
- demanding zero fees from Angel groups treats them all like they are run by scam artists and provide zero value. That is too broad a brush.

Most angel groups are ok and don’t rip people off. There are scammers and rip-offs who should die a slow death. I do hope Keiretsu does sue because you are right, they will loose. They are already loosing in the marketplace. But to generalize from these to say all presenting fees in all groups are bad is a non sequitur. Minimal bozo fees are ok (<$200). It provides a reasonable bozo bar and helps offset an Angel Group's cost. A well functioning Angel group will get the vast majority of it's revenue from sponsorship and membership fees with presenting fees < 10%. High fees, stock percentages are not ok. As a CEO every vendor on earth has tried to roll me for stock and high fees, accountant, lawyer, PR firm, angel group, investment banks, even Fat Boy Slim wanted 1% of my company (LOUD) to play our IPO party. I have raised over $500M for my companies and invested in over 50 start-ups as an Angel, I have seen every scam there is. The right thing for entrepreneurs to do is to tell these people to pound sand. I am not offended that they tried to scam me, it is a free world.

Reading some of the indignation spewed forth against presenting fees you would think the Angel groups were demanding child sacrifice. Lets go ahead and expose the guys who don't deliver value. Then lets all get back to work.

Posted by Martin at 4:50 PM | Comments (1) | TrackBack

OK let me clarify something on the Pay to Present Angel non-issue

1.  As an entrepreneur I would NEVER pay more than a nominal fee present to ANYONE.  I would NEVER EVER EVER issue stock or a % of a deal to an “angel” group.

2.  There are for-profit angel groups and pseudo investment banks that DO try to exploit the pitch process.  Buyer be ware.  Organizations like Kieretsu Forum and Mike Segal are (in my experience) simply not providing a good value to the entrepreneur.  These bad apples should not be supported by entrepreneurs or investors.  I also believe the high presenting fee (plus equity) business model is not long for this world.  But I don’t begrudge them the ability to try. 

3.  The vast majority of angel groups operate on reasonable fees (<$200) and as non profit break-even enterprises.  Calling for ZERO fees is not realistic.  There is expense in these organizations and there needs to be a balance between member dues, sponsorship and fees.  Jason does these groups a disservice by painting anyone with any level of fees as some kind of dishonest crook.

4.  Having a minimal fee is actually a very valuable “bozo filter” to qualify companies.  I support minimal fees. 

5.  The key is in the motivation of the Angel group.  The vast majority are just trying to provide a valuable service to entrepreneurs and Investors.  There is no vast conspiracy.  There is no discrimination. 

6.  I support exposing the frauds.  Lets do that. 

7. Angel groups are not like Venture Capital groups. VC’s have a revenue stream (their management fee) with which to pay people to listen to pitches and to do due diligence.  Angel groups do not.  Trying to equate the two displays an appalling lack of sophistication. 

8.  There is no news here.  What is the news?  That there are scam artists there?  Anyone with 5 brain cells will sniff them out.  This is not rocket science. 

9.  Entrepreneurs need to only present and use networks that actually provide value.  Do you diligence on groups.  Ask other CEO’s.  If you don’t do your homework you deserve to get scammed.

10.  Everyone should settle down and get back to work.

Posted by Martin at 2:18 PM | Comments (0) | TrackBack

I guess Calacanis only wants fawning praise on his blog

Received this just now as his editor deleted my comments.

Ok, the “big fat idiot” was out of line, but come on.  Jason is spinning this up like some human rights violation and defaming plenty of Angel groups.  This is just such a non-issue stupid discussion I just blew a gasket…

Ok. Sorry for the “big fat” part.  But I stand by the “idiot” part.

m

On Tue, Oct 13, 2009 at 11:45 AM, Alex Miller <alex@calacanis.com> wrote:

Hi Martin,

 

Thanks very much for reading Jason’s blog and submitting your comment.  Given the passion surrounding the issue, we’re moderating all of the comments and working to keep the discussion as high level as possible.  You’ve made some great points in your comment, but, because of the couple direct attacks (“you’re a big fat idiot”, “stop being stupid” and “Stop whining”) we can’t approve it for the blog.

 

Could you resubmit your comment, removing any statements such as that and focusing on your great points?  Would like to have it as part of the discussion surrounding this issue

 

Thanks!

Alex

Posted by Martin at 1:06 PM | Comments (0) | TrackBack

Stop whining Jason and get back to work

Jason Calacanis is being a big fat whining idiot complaining about Angel group screening fees.

Presenting at an Angel group is not a fundamental human right. There are costs to running these organizations and they are not monopolies. Angel groups tend to have to charge because they don’t get a management fee on a committed capital base like a VC does (that is why VCs can hear pitches for free). These fees are their only offset to their costs.  For profit angel groups are just that, for profit.  Providing a product/service for a cost.  If you don’t like the product/service, go somewhere else. Entrepreneurs are not required to present. No entrepreneur is being discriminated against because there are fees. There are plenty of angel groups who don’t charge or who charge very minimal fees and operate as non-profits. Entrepreneurs can use their personal networks to bypass Angel groups all together!  In the end if the cost of capital is too high, the entrepreneur should go somewhere else. In tough economic times the cost of money goes up (interest rates, tough getting loans, fees, etc.).  We are in a tough economic time.  Angel financing is a very inefficient market and the cost of providing liquidity in that market has gone up as well as the risk tolerance of investors has gone down.  Given these facts, the cost of enabling the market of buyers (Angels) and sellers (entrepreneurs) is going to rise. 

Next will you be telling us that Investment Banks should provide IPO services for free and Mutual Fund managers should not be paid for their work.

There is no fundamental right to easy, free access to venture capital or angel capital. There is no fundamental right to certain terms in a term sheet. It is all buyer and seller meeting in the marketplace. Capitalism works. Stop being stupid.

Stop whining and get back to work.

Posted by Martin at 9:58 AM | Comments (0) | TrackBack

September 17, 2009

The problem with Entrepreneur Pitches

Mark has a point.  Here is a recent e-mail pitch I received from an eager entrepreneur and the many warning bells that it set off.  If you want to pitch me an idea, please, please, please read this and DO NOT DO THE BAD STUFF.

I get pitched ideas for companies every day.  Lately I have been getting alot of renewable energy ideas.  In pitches there are many things that set off warning bells and start the bile coming up.  Here is an e-mail pitch I received last week and am using for illustrative purposes on what to NOT do.  I have redacted some names and details to protect the guilty.  If you are thinking of pitching me an idea, please do not do it like this. 

----Start of email----

Jon- thank you for this valuable introduction.

<MT: good to reference our mutual friend, bad to start ass kissing with “valuable” right off the bat >

 

Martin,

I hope this message finds you well. Given your previous leading roles in biofuels and current investment interest I find the opportunity to discuss our SUPER DUPER WORLD CHANGING IDEA <name removed> company with you to be an invaluable opportunity. I would like to give you a short summary on my company and see if you were interested in participating in a small "friends and family" round through a convertible note.

 <MT: no idea is an “invaluable opportunity”.  Cut the superlatives.  The “small” sounded good, but $125K is more like Nothing.  And I am NOT your friend nor your Family, so why me?>

XXX WORLDS GREATEST COMPANY is a seed-stage company developing the next generation algae platform for production of low-cost renewable biofuel. We will bring efficient genetic engineering and synthetic biology to algae to overcome critical problems currently limiting the immense potential of algae-based biofuels. We believe that genetic engineering of algae is the key to directly and aggressively address the major cost hurdles in algae-to-biofuels. An initial production modeling study indicates that our ability to avoid harvesting and oil extraction through oil secretion added to the capacity to increase total oil synthesis without tradeoffs in growth rate allow us reduce costs by 50% to 70%.

<MT: woa. a mouth full.  They are asserting their value prop right up front without knowing what I think about it. If they had read my blog they would have seen posts that say I believe the primary problem to be solved in Algae-Biofuel is the cost of the farm, not the growth rate, yield, extraction, etc.  This just proves they didn’t do their homework on me.>

 

I think this is a great opportunity. Our company has the true technical breakthrough that the algae field was waiting for, strong IP, bringing huge measurable benefits in production costs, and a founding team and advisors from top academic centers such as UCSF, Max Planck, HHMI, others. I will summarize the most important points about the company but please take a look at the attached executive summary for more details:

<MT: You think this is a great opportunity.  I fucking hope so.  Why are you wasting my brain with that piece of obviousness? Then you make all sorts of assertions on “strong IP, big names, etc.” then ask me to read more. Too many words, too much fluff.  Make it shorter, leave out the fluff.” 

- Problem

According to a landmark DOE study, microalgae are the only feedstock with the potential of replacing crude oil at competitive cost and scale. However, the promise of algae as a cost-effective, large-scale oil source has never been fully realized because existing algae do not simultaneously support (i) high enough rates of total oil synthesis and (ii) easy oil extraction. Most importantly, biologists have not been able to apply genetic engineering to algae to address oil production problems because of a lack of fast and efficient methods to express nuclear transgenes.

<MT: lots of assertions, no facts.  If you are going to have a section called “problem” make it clear ONE PROBLEM you are going to solve.  After reading this i don’t know what that is except maybe “efficient methods to express nuclear transgenes.” which isn’t a problem anyone can empathize with.  If i can’t as an investor empathize with your problem I am not going to invest.">

- Product/Platform

We have secured worldwide, exclusive rights for proprietary materials and technologies from the BIG IMPORTANT SCIENCE Institute that give us the ability to do efficient and stable nuclear genetic engineering in algae. This is a true breakthrough in the field. Essentially we are bringing genetic engineering and synthetic biology to eukaryotic algae.  Our initial product will be oil that can be readily processed by existing fuel infrastructures into commercially competitive transportation biodiesel. We will bring genetic engineering, systems biology, and synthetic biology to generate algae with high levels of oils, oil secretion capabilities, and better growth characteristics.

<MT: Oh, so this isn’t your invention, it is some else’s?  How much did you pay for that? If this is the secret sauce, shouldn’t i invest in that thing? And it requires you to “bring” six or seven other things together before you can succeed?  Woa.  Too many moving parts. No demonstrated proprietary ownership or expertise in any one.  #FAIL>

- Who Cares?

            * Oil companies

Every oil company is looking for an algal oil platform. We are excited about last month's announcement of a $600M deal between Synthetic Genomics and Exxon. Even though Synthetic Genomics is a competitor, we find this recent news to be very positive for our project. Our technology is much better than what Synthetic Genomics has announced. This legitimizes algae as "the" biofuel feedstock. Also, it means that every other oil company is going to be desperately looking for their own source of technology to rival that of Synthetic Genomics. We actually got a call from Shell two weeks ago and we are currently in talks with them.

<MT:  So wait a minute, it takes $600M to bring a competitor’s technology to market and you only need $125K to rule the world?  This is not a causal relationship. >

            * Algal oil companies

Current algae-to-biofuels ventures use approaches that only bring marginal improvements in costs, are limited to what nature offers, or use genetic engineering methods that have very limited abilities to express transgenes (i.e. chloroplast genetic engineering). Many of them have more than $100M in funding.

 <MT: Wait a minute, I thought you were one of them?  What would they buy from you?  No explanation of what the product is they would sell.>

            * Agricultural Companies

Companies in the plant oil business (Cargill, Bunge) have invested heavily in infrastructure for biodiesel from soybean and Jatropha. Algae oils yield are 10X greater than Jatropha' and 100X greater than soybean's.

 

- Value/Why will they pay for our solution?

With our ability to genetically engineer algae, we will perform proprietary metabolic manipulations and bioengineer oil secretion to attack the major economic hurdles in algae biofuel production. An initial independent production model indicates that our ability to avoid harvesting and oil extraction through oil secretion added to the capacity to increase oil synthesis without tradeoffs in growth rate allow us reduce costs by 50% to 80% (to around $60/bbl).

 

- Funding

We are currently talking with 2 VC funds. They are interested but things are moving slow. Other funds are asking for more data. We recently decided not to wait for outside funding to start doing experiments. We have planned a small budget for a small operation of 3 persons to work 5 months to accomplish some initial milestones while we continue negotiations. This will show some initial results, skin in the game, and will give us the ability to apply for grants more freely. For this we have set up a convertible note to help us raise a $125,000 “friends and family” round. In 10 days, we have already raised more than 65% from founders, relatives and outside investors in investments going from $5,000 to $20,000.  

<MT: Never use “skin in the game”.  Ever.  And What is the milestone you are funding here?  How does $125K fund a meaningful milestone to improve the valuation of this company?">

I hope this opportunity is of interest to you. Please don't hesitate to contact me if you have any questions. Thanks, and looking forward to hearing from you.

 

Best,

Eager Beaver Entrepreneur

 

Summary:

1. do your homework on me if you want to pitch me

2. Get rid of the superlatives

3.  Tell me exactly the problem you are uniquely able to solve and why it is valuabe

4. Tell me what the money you are raising is going to fund and why that milestone will improve the valuation of the company.

5. Make it short (one screen).

Posted by Martin at 3:10 PM | Comments (0) | TrackBack

September 15, 2009

Looks like a bottom

And everyone is back to the bar. The bar at the w hotel sfo is full if drunks from tech crunch 50. , ladies of the evening and a few third tier investors. Bernanke says the worst is behind us. Obama is doing a victory lap. It must all be true.

I'm Martin Tobias and I endorse this message.

Posted by Martin at 11:20 PM | Comments (0) | TrackBack

October 29, 2008

Searching for project management tool

Every startup has too much work and not enough resources. Most startups fail due to poor execution versus market. I have used alot of different tools over the years and have never found one that I totally love. Starting a new company gives me an excuse to check out the latest offerings. Here are a couple early impressions of a few.

What I am looking for
- a tool for me (CEO) to manage company goals and tasks at a high level across departments
- something light weight but still useful
- Hopefully some kind of mobile strategy since 1/2 my time thinking about to-do/goals I only have my mobile device.
- Integration with email /calendar (outlook) that works.

Initial thoughts: Liquid Planner

met the CEO at barbecue this weekend. Billed as "where basecamp leaves off and replacement for MS Project". I was intrigued as I found basecamp way too lightweight and toyish and MS project WAY too gandt chart old schoolish. The key to this online system is their intelligent scheduling engine. You can tell right away that is designed to manage big projects with lots of resources and lots of management time to manage schedules. It is really a software or web site development project management tool. I tried setting up general business goals but a couple of things were lacking.
1. no goal/task relationship. just tasks and how those tasks relate to a project folder.
2. No good import feature (my current task list in MS Tasks).
3. my (one employee) is not very technical and the interface was too developerish, she couldn't easilly figure it out.
4. The tool wants you to associate lots of docs and links in their tool with a task. I tend to want separate the company document store from the task manager. Going back to find stuff later is easier that way.

Initial reaction: Too development focused, not general business management tool. Pass.

PlanHQ.com. billed as a start-up goal/task manager it delivers just that. No fancy doc storage or sophisticated scheduling, but some neat board report stuff and basic goal/task management. What i like
1. goal/task relationship
2. good email integration and calendar (although iCal not outlook)
3. simple set up.
4. cross department task managment.

What it still needs
1. ability to make more departments (they only offer three)
2. full screen goal list (only support drop down, no clear priority)
3. better outlook integration
4. more printing or output options for goals/tasks by person, etc.
5. more area for notes.

Initial impression: This is a good basic C level goal/task manager. Works fine for now. I have set up all our company goals and tasks in it. Will try it for a month and report back.

Posted by Martin at 3:52 PM | Comments (1) | TrackBack

October 11, 2008

the tunnel is getting smaller

Check outthe list of Global IPO's and M&A activity over the last four quarters here. Down and to the right. In q4 08 only 3 tec IPO's globally, down from 456 in 2007 (ok, quarter is just started, but I think it won't break 20).

Posted by Martin at 3:42 PM | Comments (0) | TrackBack

October 9, 2008

don't lie to your board

I have invested in over 30 companies. Have sit on five boards. Been a CEO four times. I have been an optimistic CEO, but have never lied to any investor or board member about anything. Today, the CEO and CFO (both of whom I know) of the Ignition Partners (where I am affiliated) funded company Entellium did the perp walk for cooking the books to the tune of almost $12M in non-existent revenue over the last three years. This is actually very easy for me. As CEO you are always responsible for everything that you say to the board and all the performance of the company regardless of if you actually had any knowledge of it (see Enron). Keeping two sets of books in the hopes that you can raise lots of venture money on lies and "make up the difference" in later quarters is the most bizzare strategy I have ever heard of. I hope Paul and Parrish have a better defense than they put in their e-mail admitting the scheme to the board "it seemed like a good idea at the time." I am hoping drugs and hookers were at least involved. But this was not a one time thing. This was month by month fraud for three years. That was only discovered by confession. I can see more private company audits coming..... This sucks for the entire start-up community. You can't blame that on the credit crunch.

Posted by Martin at 12:21 AM | Comments (0) | TrackBack

January 23, 2008

Special Limited Partner at Yaletown

I have known the guys at Yaletown ventures up in Vancouver since before they raised their first fund. Good guys. Recently I joined the equivalent of their Advisory Board as a Special Limited Partner. If you are doing anything in software or cleantech in the northwest, especially with any Canadian connection, these are the early stage guys to help out.

Posted by Martin at 9:43 AM | Comments (0) | TrackBack

January 17, 2008

Why Early Stage Venture Investments Fail: from Fred Wilson

I tend to agree with his take on why most fail and also on the need to have the flexibility to transform ventures on the fly as most successful ventures changed their plans a couple times. Unfortunately some plans are only discoverable with large capital investment, especially in the clean tech space. Look for lots of capital to be deployed in cleantech, and lower multiples in the end than technology. I doubt you will see 100X returns in clean tech. You just need too much money to scale cleantech.

Fred's summary:

Regardless of whether you have taken venture capital or not, capital efficiency and bootstrapping are critical values. You must keep your burn rate low until you can show without a shadow of a doubt that you have a business model that works, can be operated profitably and is ready to be scaled. Then and only then should you step on the gas.

Posted by Martin at 10:21 PM | Comments (0) | TrackBack

December 19, 2007

Submit your business plan to me

Alot of readers want to know how to get a business plan to me.  Submit it to the NW Energy Angels, the group I started and chair.  I look forward to it.

Posted by Martin at 8:21 PM | Comments (0) | TrackBack

December 11, 2007

Congrats to TTM

TTM raised $120M this week breaking Imperium Renewables's record as the largest venture financing in the state this year.  Glad to see it as I am also a shareholder there through Ignition Partners. 

Posted by Martin at 6:14 PM | Comments (0) | TrackBack

April 30, 2006

Start-up lessons

Paul Graham posted some good tips for start-ups (in software) here: The Hardest Lessons for Startups to Learn. Old hat for two timers, but for first timers a good list of practical advice.

Posted by Martin at 8:53 PM | Comments (0) | TrackBack

April 28, 2006

Learn from other entrepreneurs at CasePlace

If you are thinking about starting a business, check out the extensive case studies here: CasePlace.org - Business case studies and social impact management teaching materials. Learn just like they do at HBS but for alot less.

Posted by Martin at 11:18 AM | Comments (0) | TrackBack

April 15, 2006

take teh entrepreneur quiz

thanks Dave for the pointer to: StartupJournal | Sound Advice. If you think you have what it takes to be an entrepreneur, take the quiz. If you fail miserably, you should have second thoughts. As I took it, it was interesting to note that many of the traits the quiz was honing in on were the same ones I look for in entrepreneurs when I am being a VC. Wouldn't the VC business be so much easier if we could just have a simple checklist of things like this?

Well life is not that easy, but collecting data is very important. And this quiz is one data point. And a good one.

Posted by Martin at 12:11 AM | Comments (2) | TrackBack

VDMBA ramping up some thoughtful posts

My friend Dave over at: Tech - Startups - Capital - Ideas has been putting up some very good posts lately. I especially recommend the ones on his experiences off-shoring small development projects. Here is a guy who in his spare time while taking a Stanford MBA has built a handful of fully functional sites with developers he has never met personally. And some of those sites are profitable!

I won't ever listen to an entrepreneur again who doesn't walk in with a demo or some kind of skelleton site developed in the first pitch. These things are just too easy to do with VERY little money. You don't need a band of a dozen $100K plus programmers anymore. Just do it!

Keep up the good work Dave.

Posted by Martin at 12:08 AM | Comments (0) | TrackBack

March 12, 2006

Joining Industry Ventures as advisor

As if I didn't have enough to do, I am going to help a friend over at Industry Ventures source and review deals in the secondary venture capital market. I have been an investor at Industry Ventures since 1998 in their first incarnation as an early stage venture fund. The current focus is providing liquidity for limited partners in venture portfolios. Hans Swildens has been a good friend and a great guy to go surfing with down in San Francisco. They had a home run with their investment in Spedera (recently acquired by Akamai) and have been able to buy venture portfolios at a significant discount over the last couple of years. I believe the strategy still has legs as many corporates continue to change their venture strategy. I will help them evaluate portfolios and individual companies in those portfolios for current and future value.

Posted by Martin at 5:56 AM | Comments (0) | TrackBack

February 21, 2006

How to pitch an idea

David Cowan, Who Has Time For This?, unlike me, thinks about his posts. And makes some very good ones. His most recent on how to summarize your idea and pitch it in a quick an conscise manner is a keeper for anyone with an idea.

Posted by Martin at 9:02 PM | Comments (0) | TrackBack

May 22, 2005

Hats off to Ross Mayfield

Ross is again pioneering new ground by going against the grain and trusting the blogsphere when announcing his venture financing: Tech-Confidential: Flacking by blog. I have got to hand it to Ross, this is a very cool move. In my experience, giving this kind of information to the main-stream Venture media only tends to bring phone calls from accountants, lawyers and bankers anyway. Why not give the scoop to the blogsphere? I am going to do this on my next financing...

Posted by Martin at 7:58 PM | Comments (0) | TrackBack

March 16, 2005

Akamai acquires Speedera

Akamai continues to roll up the content network space. They have been in a patent fight with Speedera for some time although it hasn't hurt Speedera's ability to grow their business profitabily. I am a small investor in Speedera through another fund and am quite happy with the outcome as an investor. Glad to see George is keeping Akamai on an even keel.

Akamai to Acquire Speedera in Stock Deal Wednesday March 16, 8:51 am ET Akamai Technologies to Acquire Speedera Networks for $130 Million in Stock

NEW YORK (AP) -- Software maker Akamai Technologies Inc. said on Wednesday it has reached an agreement to acquire Speedera Networks Inc., a provider of distributed application hosting and content delivery services, in an all-stock deal valued at $130 million.

Akamai, whose services allow companies and government agencies to deliver Web content and applications such as advertisements and video, said acquiring Speedera would allow it to better compete against larger rivals. The acquisition is expected to add to Akamai's earnings excluding items, the company said.

Under terms of the deal, Akamai said it will issue about 12 million shares of common stock to acquire all outstanding common stock, preferred stock, and stock options of Speedera and its India subsidiary.
Based on Akamai's Tuesday closing stock price of $10.79 on the Nasdaq, the transaction is valued at roughly $130 million, the company said.

The closing of the deal, which is subject to approval from regulators and Speedera's stockholders, is expected to occur in the second quarter, Akamai said. It also said that all pending litigation between the two companies is stayed upon signing of the deal, and will be formally dismissed when the deal is closed.

Nasdaq-listed Akamai shares rose 13 cents to $10.92 in premarket activity.

Posted by Martin at 9:46 PM | Comments (0) | TrackBack

March 15, 2005

Today I told three entrepreneurs to not raise money

I have been quite vocal in the past about how entrepreneurs should not raise money unless they really need it. Today for some reason that theme came home to roost in spades. I told THREE entrepreneurs that they should NOT raise venture capital. Without using names, here are the scenarios:

Entrepreneur 1: Has a niche community web site around "peaceful living" or you might say "eco living". They have about 65,000 registered users who receive e-mails once a day an visit the site to read inspirational things that will help them lead better lives. The site has begun to sell some advertising and get some sponsors. They wanted millions of dollars to grow to millions of users quickly (ala Friendster) and create many cross-media properties like Oprah or Dr. Phil or Depak Chopra have. Now I am a technology investor so I don't really understand building cross media brands so I start out with a bias. But here is a site being run by two people in a basement that will be profitable on a very small revenue run rate. Why pour gas all over it? Do you really want investors who will come in with their own ideas on how to grow and push you to do unnatural things? If you really are passionate about the niche, grow into the niche with revenue and see how big it gets. Not every niche is an IPO. And if you take VC money they will try to push your niche larger and faster than it may naturally go. You will get irrational behavior. Don't do it.

Entrepreneur 2: Created a slightly profitable (on a couple million revenue) connector/management software company for VOIP and internet video delivery. One shareholder, the founder. Built the business with the only paying customers he could find through the dry years of 2001-2003, the world's oldest profession. Now that the venture markets are heating up he wants to leverage that work and customers into a "respectable" business and grow it like gangbusters. He wants a premium valuation for his company since it is profitable. First, private equity investors are going to have a problem with his customer base. For better or worse the public markets are not ready for a porn IPO. So the question is can he attract whole new customers? So in that way his current business is really not of much value and he is going to have to spin up a whole new sales channel and level of professionalism in the company. Against well funded venture backed and some public companies. I say life is too short for that brain damage. Keep your medium size business all to your self and take out as much cash as you can.

Entrepreneur 3: Has a digital media and software e-commerce system that has been in development for five years and finally has gotten a major customer. There has been alot of money put into the company by prior non-professional investors. The first major customer has an option to buy the company at a price that will make the prior investors whole but not leave much for the management team. The management team of course wants to raise more money, dilute the prior investors and get a larger piece for themselves. I advised him that if I were the prior investors faced with a return of capital or a cram down and further ride after 5 years of hard work, I know my decisions. As a new investor I wouldn't want to be selling that story to existing investors. Sell the company and don't raise more money.

Now if I could just see some deals that REALLY NEED my money...

Posted by Martin at 11:30 PM | Comments (0) | TrackBack

Keep your eye on this site

My friend Sean Ryan recently left Listen.com (acquired by Real) and started his own thing in DonnerWood Media. He won't let me tell anyone what he is doing, but Sean is a very bright guy. I have high expectations.

Posted by Martin at 11:12 AM | Comments (0) | TrackBack

March 4, 2005

some infoporn

Tim Reha over at Venture All Stars invited me over late last year to do an interview for their new radio station. Just found the link today. I should listen to it so find out what I said...

Posted by Martin at 12:40 AM | Comments (0) | TrackBack

December 30, 2004

What happened in 2004 that was interesting?

Here is TRN mag's picks. TRN's Top Picks: Technology Research Advances of 2004
" Each year sees more researchers at work and more research papers published than the last -- the volume of scientific and technological research has doubled every decade for the past three centuries.

The profusion of technology research in 2004 includes notable advances in biotechnology, communications, computing, engineering, energy, security, nanotechnology, applied physics and the Internet." Most of the stuff is pretty obscure. And remember this is basic research that won't see productization for years. But this stuff is the wet dream of many a VC.

It gets me thinking about what I think was interesting about 2004. I will have to think on that some more.

Posted by Martin at 2:09 PM | Comments (0) | TrackBack

December 19, 2004

The little country that could

Ross Mayfield's Weblog: Estonia: If It Works, You Can Break It. Ross makes a very insightful point in this post. Estonia has the "imigrant mentality". Remember when America had that? I like to see that in an entrepreneur. I have not been as impressed with third and fourth time entrepreneurs as I have with first timers. Just as four generations off the boat people are less hungry and more comfortable than when they first arrive. Maybe I should start taking some plane rides...

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November 29, 2004

The Bzz....

Ran across BzzAgent recently. Joined just for the fun of it. Basically it is a specialized PR agency that is trying to manufacture word of mouth for it's clients. They are using the Internet and some social networking techniques to do this. There are many companies that try to pay people for their opinions but most of these have come off as sleezy. BzzAgent positions it as you are joining an "insiders network" of early adopters who get stuff early and can spread the word to their friends on a voluntary basis. Hey, if I can get gadgets early, great. I will wait to see what happens. If they just keep sending me stupid survey's to take and giving me "points" to redeme for t-shirts, this is not going to last long.

Word of mouth is the best way to market a product. Approaches like this have the potential to really revolutionize the way WOM is created and managed. That would be a good thing for any innovator or company with a new product.

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November 16, 2004

thank you Google and Bye Bye

Google had a lock-up release today. I was lucky enough to have a tiny stake in Google very early so my broker got some more shares today. I know the analyst say the thing is worth over $200, but I am selling. I am going to sell on the next two lock-up expirations as well. I would rather take this money and invest it again in more start-ups than let it ride at these valuations.

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November 11, 2004

Meaty M&A story over at NWVV

Kevin Cable posted NW Venture Voice: A Rising Wave of M&A Activity - a view from the trenches which gives a very detailed overview of NW M&A trends. Graphs too! All good news for NW venture companies.

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October 21, 2004

Musings about India

Just posted some musings on India and how it may affect venture capital in the northwest over at : NW Venture Voice: Musing about India

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October 7, 2004

Seven digital disruptions

Nice list over at A VC A VC: The Seven Digital Disruptions

MPEG/MP3 - Disrupts the music and movie business
PVRs - Disrupts the TV ad business
Broadband Entertainment - Disrupts the TV business
Digital Cameras and JPEGS - Disrupts the film business
Linux - Disrupts the operating system business
Network Computers - disrupts the PC hardware/software business
Wireless Networks - disrupts the wire line phone business
VOIP - disrupts the entire phone business

I will muse on my own list and maybe specify it for the NW and post on NWVentureVoice.com

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August 11, 2004

What would you pay for a top VC?

Infectious Greed: Paying for Top Venture Capitalists points to an study showing entrepreneurs are willing to take a 10-14% discount on their equity to get a name brand VC. I know from personal experience that this is the case. But one should look for more than a name. When I was raising money for Loudeye, alot of name brand VCs came calling. In the end, I took the ones I liked working with best and who I believed would actually work.

I recently posted How to Shop for Venture Capital over at NWVentureVoice. The key to remember is that this venture thing is a long term business relationship. Price is not the only factor to measure. Value is the ultimate goal. Entrepreneurs who only optimize for price are not optimizing for their business. As a VC, that tells me something about how they will operate if I invest. Something very telling.

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How to leverage the web when starting your next company

Everyone should be so resourceful. NW Venture Voice: August 2004 Archives

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August 10, 2004

Now here is Leverage for a start-up

I have been impressed over the last couple of years at how easy it is to rent most everything you need to start a company. Shared hosting, interim executives, outsourced fulfillment, outsourced customer service, software over the web, programming services, and design services. Many of these industries are project oriented with lots of out of work people looking to fill holes in their schedules. Very good market to be serviced world wide!

My friend Tom Ryan sent me a great story about how he leveraged these services to start his latest company:

"You’d be interested in this story – I got my logo, business cards and website all done for less than $400 via finding a site called www.designoutpost.com – have you heard of it? I’d think you’d like it – basically, it’s a site where a bunch of out-of-work graphic artists worldwide hang out, and primarily consists of message boards. I ran a logo contest for $100, and ended up getting about a dozen or so submissions from all over the world. I picked a Russian guy who had just relocated to Venezuela, and had him do my cards and website as well. I use iKobo to wire him the money and he picks it up via an ATM in Venezuela. It’s such a cool little way to get started with cheap graphic arts for start-ups. "

cool huh?

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Tom Ryan starts a temp CXO service

Tom Ryan, former CEO of TrueActive software and former workmate of mine at Andersen Consulting has started yet another interium CXO service in Seattle. Welcome to Athena Chiefs!? Interim CXO COO CEO Services for Early Stage and Fast Growth Companies. Tom is a dedicated thorough guy who can help. Northwest needs more of these kinds of services.

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August 3, 2004

What I want from Web 2.0

Just posted this to VentureBlog:

excerpt:

Andrew, "David" and "modest" are two words I would not have expected to see in the same sentence, but bully to you for breaking new ground!

Good to see the both of you (and many more friends) at the recent BlogOn shindig. The night before I spent two hours trying to pay $15.99 for 24 hours of broadband connection only to have to debug their system myself (IP address assignment problem). There were a couple of weak WiFi signals available out the window, but most were WEP protected and breaking out AirSnort just to check mail seemed like overkill. Although Any@Web caught a couple of wardrivers trying to hack the WiFi connection! In the morning, the surf reports for Ocean Beach said it was small, blown out bad surf. We went anyway and had a great time in medium, decent shape, no wind waves. On the way to the conference the MapQuest directions were wrong. There was voice cell phone but not data coverage. My Jabra 250 Bluetooth headset randomly paired with another device and forgot all about the new Nokia 6230 it was recently in love with (bought from Taiwan - not available in the US - and hacked onto ATTWS). Lots of people on the WiFi connection made it frustratingly slow. Ouch! where did that surly rant come from and where is it going?

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July 27, 2004

Cool globetrotting weblog

Ever think about just dropping it all and taking a boat around the world? The Trawler Transat weblog written by Georgs Kolesnikovs will let you do this vicariously. He is a Nordhavn fanatic. Nordhavn trawlers are built on the PassageMaker design which was pioneered by my grandfather Capt. Robert Beebe.
Our foundation has contributed money to save all his ships plans in an archive at the Mystic Seaport.

Hey wait a minute, don't know why I am pointing readers to diversions like this, because I really want you all to start companies so I can fund them!

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July 12, 2004

The Seattle Times gives me an extra job

I have had lots of experience with the media (just google my name). It is a tortured relationship and a very complex process. I am actually amazed how the news gets done on a daily basis with all that needs to be pulled together. This morning the Seattle Times reported on my new blog NWVentureVoice in a very positive way. So positive that they gave me credit for two jobs! Venture Parnter at both Ignition Partners AND OVP. The typo is understandable as it is Dave Chen at OVP and I who had the idea to get the thing started. I am going to have some explaining to do at the partners meeting!
m

Politics aside, some venture capitalists are getting into the blogging act. Martin Tobias, a partner at Ignition Partners and OVP Venture Partners, both located in the Washington State, has started a blog, www.nwventurevoice.com, The Seattle Times reported. "The site is modeled after the valley's VentureBlog, at www.ventureblog.com, down to the taglines. ... Tobias, who started Seattle-based Loudeye, doesn't appear to be slowing down, though he says he'd like more VCs to participate in this new venture. 'Want EVERYONE in the NW to post. There are a couple posts in the works,' he wrote in an e-mail."
• The Seattle Times: Venture Capitalists Muse On New Blog

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July 9, 2004

PeerFlix gets competition

Moogul wants you to share your shovel | CNET News.com

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July 6, 2004

New business model, Hit Phishing...

We have all heard about people trying to game Google. Most of the people who are trying to do this actually have some kind of legitimate business that they are trying to increase the exposure of. Or maybe a not so legitimate business. But some kind of transaction they want you to complete or offer they want you to accept. Tonight, I found a totally different animal. I am calling it the Hit Phisher.

I was on Google doing diligence on a potential investment. I was looking for DVD and CD trading networks and exchanges. I typed in "trade CD". The top result was http://www.onecer.net/. At first blush it looks like a generalized trade, exchange, swap and barter network with all categories under the sun. Lots of Google AdSense ads, and a lot of pages with keywords on them. For all my trying, I couldn't find ANY actual application code or sales offers. ONLY ADS! The site that has lots of words on the pages to be picked up by the search engines in key categories, but no actual users of the site. Phish for the traffic with lots of words, show an ad and hope the person clicks through. Live on click-throughs. I clicked through all the categories and found ZERO application code behind the text pages. I only found text pages with every combination of keywords in that category you could imagine. Plus lots of dictionary entries. All designed to attract google and then server up Google AdSense ads. I wonder if Google knows it is being gamed on search AND paying these guys through their own AdSense program!

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July 1, 2004

Supernova thoughts

Went to Kevin Werbach's SuperNova conference last week. I like Kevin. He is a deep thinker about messaging. I like conferences with alot of other deep thinkers around. This one filled that bill. The conversations in the hall and during the breaks were VERY useful. I met lots of interesting people and caught up with lots of old friends.

Unfortunately, many of the sessions had an erie unproductive quality to them. The Gillmor Gang noted this as well. These days most conferences provide a wifi network and much of the audience is on their laptops during the sessions. But SuperNova, true to it's name, was OVER THE TOP in this regard. Nearly EVERYBODY was frantically typing away in e-mail, IM, or their blogs during all the sessions. Leaving the poor people on stage to wonder if anyone was listening! The CEO of Skype called in on a POTS line. It was erie to be in the audience looking up on stage at powerpoint slides being driven by an assistant with the dis-embodied voice coming over the PA. And of course he couldn't hear questions and the mikes didn't work well, so the Q&A was a disaster.

One side effect of having so many smart people in the audience is randomization. Nearly every session regardless of topic degraded into monologues about each person's individual pet issues. The most striking case of that was the "Spam and the future of eMail" session. Out of the hour allocated, I counted less than 5 minutes spent on e-mail. The rest was spent on consuming RSS feeds in Outlook, Unified Messaging and VOIP. One audience member asked "Why aren't we talking about voice in this?" Because the panel is called "SPAM and the future of email" you idiot! Go to the next session on VOIP in another room. I tried to get the moderator to put the discussion back on e-mail a couple times, but it kept wandering off into social networking and everything else. After the session, a reporter behind me thanked me for trying to get the session back on track and fretted about what to write. He said "I am trying to write an article about this session which I thought was going to be about SPam and e-mail, but after this, I don't know what to write."

All of these are symptoms of getting lots of smart people together and letting them speak their minds. A fun exercise. People do it every day on Slashdot. For conferences that I am paying lots of money to attend, my expectation is a little more structure and focus on topical content. I come to hear new things on topics I care about. Supernova delivered some of that, but in a bitstream that was not very organized. Looking forward to the next one that is a bit more structured. The Xml version.

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June 23, 2004

Ebay opens up APIs more

Want to start a company? Become an EBay ISV. All these guys are opening up their platforms. I need to start a company.

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Enterprise IM dies

The big guys are out. AOL quits enterprise IM game | CNET News.com And Yahoo did earlier. They haven't built enough business and have found it is harder to monitize than they thought. I predicted something like this because AOL and Yahoo are not software companies. They don't really understand how to build software and deliver it to the enterprise. Glad I didn't invest in any of those IM companies last year. This is good news for Microsoft who DOES know how to make enterprise class software. Get ready to buy Microsoft's RTC server....

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New VentureBlog post on Entrepreneur success factors

Read my long-form musings on: VentureBlog: Thinking About Success Factors

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June 21, 2004

New site about North West Venture Capital

Having recently started posting on VentureBlog, a couple of us up here in the upper left hand corner got to thinking that such a forum would be useful to focus more locally on the North West Venture community and activity. Thus, NWVentureVoice was born. Just one post up there now, but there are a couple of people working on new posts. The idea is to have a place where North West venture capitalist can share longer form articles about our interests, trends, gadgets and other random thoughts. Don't look here for a list of events or a guide on how to raise Venture money in the North West. But do keep checking back here to get a feel for whitty insight into the Northwest venture community.

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June 15, 2004

New blog on marketing

The Marketing Playbook is a new blog on marketing which is published by John Zagula and Rich Tong, my partners here at Ignition. Probably two of the smartest guys on marketing I know, especially software marketing. They are publishing a book in the fall, so the site is a bit of a lead-up to that, but has more real time useful marketing stuff.

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June 9, 2004

Started posting on VentureBlog

I started posting as a guest contributor on VentureBlog. There are more lengthly and thoughtful posts about the Venture business and macrothemes. My first post here: VentureBlog: The Future in Review

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June 6, 2004

Final FIRE Hot Spot comments

Here are my final notes that I used for my FIRE hot spot 5 year predictions last week.

Martin Tobias, FIRE 2004 Hot Spot comments...

Mark, thanks for hosting this great event. I really enjoyed the event last year. In fact for me it was the watershed event signaling Tech is back! Based on the number of imitators and the rise in the markets since then, I would say your timing was impeccable as usual!

Last year I stuck my neck out with some pretty specific predictions for the next 2-5 years rather than the Macro view that many have taken. Time for a report card on those and a couple of new ones. Out of my 10 specific predictions of things that WILL happen last year, my record is 6 of 10 right, 2 inconclusive and 2 dead wrong.

What WILL happen, last year�s predictions

1. The PC economics of commodity hardware will come to networking gear.
How doing?
- Intel solidifying it�s lead in design wins here.
- IP Fabrics Alpha to customers in June.
- RIGHT On track.

2. The first meaningful products will be delivered to consumers from nano-technology.
How doing?
- Nano-Care wrinkle free pants at EddieBauer.
- Gap, Old Navy, Nike, and Perry Ellis are also shipping products today.
- Defense will drive Metal Rubber from NanoSonic into the market by next year.
- RIGHT On track.

3. The interlopers who came to technology companies from selling toothpaste would leave.
How doing?
- The last wave washed out.
- Quality of teams up.
- After the Google IPO more will come.
- This started in the right direction, but I am afraid will go backward again.
- INCONCLUSIVE.

4. There will be VC bankruptcies.
How doing?
- A few VC consolidations, some fund give backs, lots of partners �retiring�, office closures.
- Fund size down overall. Smaller funds mean smaller VC firms.
- Brobeck and VLG closed.
- Still have a couple years for the tail on many funds to stop wagging.
- RIGHT. On track (unfortunately).

5. Real broadband applications will be delivered and used in meaningful numbers.
How doing?
- Last year 20M broadband households.
- In April Pew said 48M adults have broadband connections at home!
- For now, simple speed is driving.
- Itunes and this year video on demand, VOIP will drive broadband.
- RIGHT, on track.

6. SPAM will be a thing of the past.
How doing:
- Well Bill Gates says he will take care of Spam by 2006.
- April was the first month ISP�s recorded over 80% of their mail SPAM!
- Wait for this afternoon and my Panel "SPAM and the future of e-mail as we know it".
- Boy was I WRONG on this one.

7. Instant Messaging becomes a real business application.
How doing?
- Valuations on private companies are up, but real business applications are still lacking.
- Mostly compliance driven.
- INCONCLUSIVE.

8. There will be no carrier model for WIFI.
How doing?
- I apologized to Larry from Cometa for this one last year. Seems like it came to pass sooner than I expected at least for Cometa.
- Commercial hotspots went from about 12,000 in 2002 to 28,000 in 2003, but private hotspots are estimated to be 10X this number.
- No-one is making money and free sites are growing faster.
- Park Associates in late 2003 showed less than 5% of internet users have tried a public hotspot and less than 3% of THOSE have become subscribers. That is 15/100 of 1% subscribers.
- Joe Laszlo of Jupiter Research said it best: �Paraphrasing [Federal Reserve chairman] Alan Greenspan, the degree of exuberance about the revenue potential of public hotspots borders on the irrational�.
- RIGHT. I am right on this one.

9. Round 2 of telco bankruptcies.
How doing?
- Can you say WorldCom? More to come.
- RIGHT

10. There will be no IPO market for small unprofitable tech companies.
How doing?
- I see lots in registration, all waiting for Google. I guess hope springs eternal.
- WRONG. I am wrong here.

Two NEW predictions that WILL happen in next 2-5 years.
1. Blogging software will gain significant share in the web authoring and content management business.
- >2.5M blogs now, growing double digits per month.
- Blogs have already made a meaningful impact on the Geocities and Yahoo hosted template business.
- Look for them to move upmarket into Enterprise.

2. Microsoft will NOT ship Longhorn.
- Already delayed it to 2007. I think it is 2009.
- Took out half the features including everything about WinFS.
- They may ship Indigo sooner.

What I HOPE happens:

Last year I had hoped to decrease technology footprint in my life. I completely failed on this one! I bought 7 new computers, 5 new digital cameras, two new camcorders, 5 music players, 8 new home entertainment devices and became an addicted blogger. Some things never change.

I only have ONE thing that I hope happens in the next year! I said it last year.

The next president should make energy independence the #1 national goal over the next 10 years. Just like Kennedy did with the space race. The economic and security benefits will lay the foundation for another century of American leadership. If we don�t do this, we risk being passed on all fronts except military.

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May 21, 2004

My FIRE 2004 five year predictions

Lase year I attended this conference and made some pretty specific predictions. Next week, I have to check my progress and make some more comments. You, dear reader, get a sneak preview!

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P2P DVD sharing legally

PEERFLIX.com is a spiffy new web site in the "why didn't I think of that?" application category. Think a P2P version of Netflix. Why pay $19.99 per month to borrow NetFlix owned DVDs? You have to pay all their overhead and shipping and handling, etc. Where do you get your best recommendations for movies? Your friends. Why not just trade with your friends, or friends of friends? Unlock the lending potential of all those bought DVD's sitting on shelves out there. I have over 300 in my house and hardly ever watch them. I am sure the legality of enabling this kind of massive scale trading is going to be challenged by the studios. After all, they get some percentage of NetFlix revenue and all other "rental" services. But this is just doing what you can do with your friends anytime you want. Trade DVD's you don't watch much for those that you do want to watch.

I just signed up and haven't made any trades yet, but here is how it works.

- Sign up and create an account.
- You can buy a $10 starter pack of swaps ($1 per) with 10 mailers which will be sent to your house. Or you can sign up form $5 per month for unlimited swaps (based on the popularity of your library, etc.)
- Enter DVD's you own by UPC code in the "what I Own" tab.
- Browse the "Available" DVDs section, rating ones you know your opinion of and adding those you want to see to your "What I Want" tab.

While I haven't tried it yet, supposedly my marking that I want a movie (and it being on the available list) means that one (or more) of the owners of that movie will get a message for them to send it to me using one of their handy dandy mailers. The DVD's I added to my "what I Own" tab will show up as available. Now of course I don't have to send them to anyone if I don't want to, but I assume you won't get "karma" points if you don't share and share alike. There is a rudimentary karma system much like E-bay's feedback system for reporting on transactions. Since I haven't done any I will have to wait to review that. Since the system moderates all trades and inventory movement, you are supposed to be able to "ask" for your DVD back from the system at any time. That will be interesting. Because my DVD may not come right back to me. It will probably go on to the next person who wants to see it. You can keep a DVD as long as you want (unless it is someone else's and they ask for it back). All DVD's are guaranteed against breakage and loss by the company. Totally safe! They also of course try to sell you more while you are there.

Bye bye NetFlix.

Posted by Martin at 6:42 PM | Comments (5) | TrackBack

May 17, 2004

Been thinking about micropublishing lately

I like what the local boys over at Citadel Media are doing with The Insiders. There is a business in providing a common publishing platform across both print and the web to drive value to subscribers. Then I find NEPA which is a newsletter and electornic publishing association. Lots of useful links and resources there. I wonder what their thoughts about the transition from e-mail based newsletters to blog sort of publishing systems is? The guy who I have seen do it the best is PaidContent. For the professional journalist there will be lots of platform options. Even for the semi-professional. Now for the average person who wants to make a couple bucks on the side, I haven't seen a solution yet.

Posted by Martin at 9:37 PM | Comments (0) | TrackBack

May 13, 2004

Want to back into a value for Google?

This WSJ article lays it all out. Backing into a value from the way Google values it's options.

• Valuing Google By Reading Between The Lines
By Scott Thurm of The Wall Street Journal 5/13/2004

By Scott Thurm

Investors are puzzling over how to value Internet-search innovator Google Inc. for its planned stock offering.

Some clues, from Google itself: Think either $80 or $91 a share, which would value the company at $20 billion to $22 billion, before the initial public offering of stock.

Those numbers don't appear in Google's IPO securities-registration statement. But accounting sleuths say other disclosures in that document allow them to estimate how Google values its own shares.

Those disclosures relate to the stock options that Google granted to employees. Many of those options were granted at share prices that now seem ridiculously low -- an average of $2.65 a share for last year, for example. So, applying a common practice for companies going public, Google has reassessed the value of those options and recorded the difference as a compensation expense.

By digging into those numbers, Jack Ciesielski, publisher of Analyst's Accounting Observer, says he can estimate how Google itself valued its shares as recently as the first quarter of this year.

One way to unravel the numbers, Mr. Ciesielski says, is to track how much deferred compensation Google records for the "excess" value of the options -- that is, the value above the exercise price.

Mr. Ciesielski says Google added $75.4 million to its deferred-compensation account during the first quarter. Dividing that by the slightly more than one million options Google issued during the first quarter, he estimates that Google figured the excess value of the options at $75. Those options carry an average exercise price of $16.28. Adding the two figures together, Mr. Ciesielski estimates, Google valued its shares at roughly $91.

Mr. Ciesielski has a second method for determining how Google valued its shares that yields a different result. It relies on the Black-Scholes formula that companies use to value the options they grant to employees.

Google discloses this "fair value" for various time periods in its filing, as well as the financial assumptions it used to arrive at the value. Mr. Ciesielski realized he could run the Black-Scholes formula "backwards" to estimate the per-share value that Google must have put into the formula.

Here is how it works: Google says that, based on the Black-Scholes formula, the fair value of the options it issued in the first quarter was $67.06. Using that figure, the $16.28 exercise price and Google's other financial assumptions, Mr. Ciesielski says Google valued its shares at $80.44.

David Larcker, an accounting professor at the University of Pennsylvania's Wharton School of business, ran the Black-Scholes numbers independently and arrived at essentially the same result -- an estimate of $80 a share. Mr. Larcker labels Mr. Ciesielski's approach as "clever." Even though Google doesn't provide an estimated value for its shares directly, Mr. Larcker says, "the stock price shows up in various calculations."

Mr. Cieselski says he can't explain why the two methods yield different results.

A Google spokeswoman declined to comment, citing the "quiet-period " restrictions around the IPO.

But in its filing Google says it relied on advice from its investment bankers, its own historical and forecast results, and comparisons to public companies to value its shares. It warns investors that the values are "inherently highly uncertain and subjective."

Mr. Larcker says it will be interesting to see if investors use the numbers derived from Google's filing in bidding for shares during the auction that Google says will help set the price for the IPO. "You would think that the numbers that are out there would be pretty close to what you'll see" at the time of the IPO, he says.

According to its filing, Google has roughly 246 million shares outstanding, meaning that the per-share estimates value the company at $19.7 billion to $22.4 billion. The IPO itself will add to that value, by issuing more shares. Google hasn't yet indicated how many shares it will issue, but companies typically add roughly 10% to their shares during an IPO. That would boost Google's total value to $21.7 billion to $24.6 billion, in the range that analysts and investment bankers have estimated.

In reassessing the value of its options, Google is following established Securities Exchange Commission procedures. Richard Rowe, a former director of the SEC's corporate-finance division, says the agency has been requiring IPO registrants to reassess the value of historical stock options since at least the 1980s.

Mr. Rowe, now a partner in the Washington, D.C., law office of Proskauer Rose LLC, says SEC staffers adopted the practice because they found many about-to-be-public companies had issued options at unrealistically low prices, essentially transferring value to employees. "If a company granted a lot of options in the last year, the staff will ask them to justify how they accounted for them and revalue them," he says, stressing that he has no specific knowledge of Google's filing.

Mountain View, Calif.-based Google has raised approximately $35 million to date from investors including Sequoia Capital and Kleiner Perkins Caufield & Byers. Stanford University, where Google founders Page and Brin were PhD candidates, is also an investor, along with Andy Bechtolsheim, co-founder of Sun Microsystems; and Ram Shriram, former president of Junglee and vice president of business development at Amazon.com.

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May 12, 2004

Our next generation CRM company getting good press

ASPnews.com -- Strategies : Entellium Turns Its Attention to America. Look for this company to start eating sales away from Salesforce.com.

Posted by Martin at 12:17 PM | Comments (0) | TrackBack

May 10, 2004

Detailed analysis of Planet Out IPO and business

gfn.com does a very good job of putting the S-1 for Planet-Out in terms we all can understand. A very strong growth business actually. And loyal customers, without alot of competition. This will be a very good thing if WallStreet can look beyond any emotions and recognize a good business when they see it. A great thing for Mayfield as well, their major VC shareholder. This is all good news for us VCs. If you can take a risk on a fringe business for a fringe social group and come up with a return, maybe the VC business has a future..

Posted by Martin at 8:39 AM | Comments (0) | TrackBack

April 19, 2004

Broadband subscribers blow past 48M

Many people have been posting about the new Pew Internet & American Life Project study showing 48M broadband households. Up 60% year on year. The broadband user doing roughly twice the number of activities as the dial up user. No real news here other than the shear rapidity of adoption. Absolutely astounding. What is all this complaining about not enough broadband penetration for real business models?

Posted by Martin at 8:17 PM | Comments (1) | TrackBack

April 15, 2004

So much software to review!

I have so much new software to review, I need to carve out a couple hours somewhere. Anyone had experience with any of these?

www.4migo.com (i have a 256k usb dongle with this on it)
www.trueactive.com (authorized spyware)
MovablePoster
Life Balance
A9

so much software, so little time.

Posted by Martin at 9:40 AM | Comments (1) | TrackBack

April 13, 2004

MiniBubble in internet ideas?

Gates thinks so. I certainly have seen the valuation of private companies go up considerably, driven by the still too much money in venture. There have been some exits, but not a stellar valuations. Too early for me to call it a bubble, but I can understand why Bill wants to pop this one early if he can.

Posted by Martin at 10:28 PM | Comments (0) | TrackBack

April 10, 2004

Slightly better automated phone attendants

Voxify just closed a $6m insider round with El Dorado and Polamar. I noticed it because I have been looking at some call center automation, outsourcing kind of deals lately. Looks like they provide a slightly smarter automated voice tree to off-load call center volume. But customers hate these things. Voice tree hell. Even if the computer can make better decisions on how to navigate you through the tree, it is still a tree and customers hate it.

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March 10, 2004

Ray Lane on the future of Silicon Valley

Trouble on Silicon Valley's doorstep | Newsmakers |CNET News.com

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March 3, 2004

Tired of Tech?

Start a chocolate company. That is what Timothy Childs did with www.cabaretchocolates.com. I met Timothy at an event last week where he was handing out free samples. Then for my participation on the panel I got a free box of the little devils. I do have to admit it is the best chocolate I have ever tasted! For awhile after LOUDeye I was thinking of starting a chocolate company. May still do it. Sounds like fun.

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February 16, 2004

on-line entrepreneur test

One of the hardest things in the VC business is figuring out your team. Are these guys really motivated and organized to do a start-up? This Small Business Entrepreneur Profiler uses some Jung techniques to figure out if your personality is suitable to being an Entrepreneur. There are certainly telling clues. You need to have a high degree of tolerance for ambiguity. Not be overly structured. Innovative. Willing to delegate, but also willing to lead strongly. A very complex soup of stuff. This test does a passable job of giving a top level view.

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January 19, 2004

An interview with Chad Waite, OVP partners

Chad Waite funded me at Loudeye Technologies. He was a great partner in building the business. OVP, his firm is celebrating their 20 year anniversary this year. The interview is a good one for anyone wanting to understand some perspective on the VC business.

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January 1, 2004

Cute little example of adware that is sorta useful

My brother sent me this one: WeatherBug.com. It installs a little application that talks to their servers and gets you local weather. That is not revolutionary, but you get the current tempreature for your zip code in your task bar which is pretty cool (geeky).

This is the cleanest least offensive implementation of adware I have seen yet. They tell you right up front it is a free download, but you will need to see some ads. During the download they offer you two configuraiton screens, one for what category of offers you want to see and one for a primary sponsor. You basically get to choose your poison. But it is not offensive, and you can't download it without configuration, so you know what you are getting. I will try it for awhile and see if they have any sneaky back-doors in there that are going to piss me off.

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December 19, 2003

Bill Gurley details a threat to us all

I am a Republican and didn't much like Clinton. But he did something great (and not in line with traditional Democrat policy) for all of us building technology by saying the government should keep out of regulating the internet. That long followed policy is in danger of being reversed by a recent Ninth Circuit court decision. I have not seen any general press about this but I hope the issue gets main-stream. If not, this fragile recovery we are seeing will be short-lived and it will be much harder for us VCs to invest. I don't usually quote articles wholesale here, but Bill Gurley did an excellent job of exposing this issue and graciously gave me permission to reprint them here, so here you go!

ATC: Cleaning Up After the Ninth Circuit in an Attempt to Save the Internet
by J. William Gurley

In 1998, President Clinton noted "Information technology now accounts for over a third of our economic growth, and government should follow one guiding principle: First, do no harm." This phrase, which translates from the Latin phrase, primum non nocere, is a signal to pay just as much attention to the "means" as the "ends." Often in complex political systems, the objective of an action can be honorable, yet the impact of said action can be completely at odds with the objective. This is largely because the tools we use to encourage behavior in such systems are often crude and imprecise.

On October 6, 2003, the Ninth Circuit Court of Appeals issued an opinion in the case of Brand X Internet vs. FCC that has the potential to delay the progress of the Internet in the United States by certainly years and potentially decades. Through its actions, the Ninth Court has "invited" the fifty independent and natural bureaucratic state-based public utility commissions directly into the fold of the Internet.

How the Ninth Circuit accomplished this feat is both curious and confusing. The case in question deals with whether or not cable lines that deliver Internet service can be considered a "telecommunications service." This wording is critical because Congress and the FCC have made it clear that states can regulate "telecommunications services" but must keep their hands off "information services." In 1998, the same year Clinton made his declaration, the city of Portland mandated that AT&T Cable, as a requirement for approval of its acquisition of TCI, open up its broadband lines to competitive carriers. Ruling on this in 2000, the Ninth Circuit stated that the city of Portland could not mandate this behavior as its jurisdiction was over cable franchises, and these broadband connections did not technically represent a cable franchise. But the Ninth Circuit did not stop there; it made one more historical, but seemingly unnecessary step. It declared cable modem service a "telecommunications service."

The FCC was compelled to react to the Ninth Circuit Court's assertion, as it flew in the face of the FCC position on this matter, as well as the clear intent of Congress and the Executive Branch (both of whom had echoed their desire to keep the Internet unregulated). Therefore in 2002, in an effort to clarify and correct the decision in Portland, the FCC ruled that cable modem services are "interstate information services" and not "telecommunication services." Seven different petitions for review of the FCC's "information services" ruling were filed in the Third, Ninth and D.C. Circuits. Under the multi-circuit rules a judicial lottery was held, and the Ninth Circuit was ironically elected to rule on the FCC's ruling.

In its decision of October 6th, the Ninth Circuit noted that the Supreme Court had ruled in Chevron that agencies should be given the benefit of the doubt in interpreting the subtleties of their own provisions, particularly when consistent with the clear intent of Congress. Despite this, and without ever questioning the intent of Congress, the Ninth Circuit relied on two key precedents to escape this Supreme Court decision and rule against the FCC. Surprisingly (or perhaps not), these two key precedents were both previous actions by the Ninth Circuit – one being the Portland case. The argument, quite simply, is that the FCC had no business ruling on something that a prominent authority, none other than the Ninth Circuit itself, had already decided. Meanwhile, in a similar case across the country on October 16, a U.S. District Court in Minnesota unequivocally noted that "State regulation would effectively decimate Congress's mandate that the Internet remain unfettered by regulation."

Not lacking in hubris, Ninth Circuit Judge O'Scannlain in concurring noted, "our adherence to stare decisis (the legal doctrine that courts are restricted by precedent), even in the face of subsequent agency interpretation contrary to our Portland decision, produces a result ‘strikingly inconsistent with Chevron's underlying principles.'" He went on to note "adherence to stare decisis in the present case…appears to aggrandize, rather than limit our power over an admittedly complicated and highly technical area of telecommunications law." Judge O'Scannlain is right in that this certainly "appears" to be a jousting match of epic proportion between the Ninth Circuit and the FCC. The unsuspecting and unfortunate casualty in all of this is the Internet and everything it means to American society.

Who would benefit from increased regulation of cable modem services? The only clear answer is the fifty state public utility commissions. Perhaps fearing irrelevance as a result of the rise of the Internet, these agencies have quickly sided with the Ninth Circuit. It is not at all clear that the Internet "needs" regulation -- in fact, quite the opposite. Therefore, in a day and age where everyone is fearful of rising deficits, our government should revel in the opportunity to downsize rather than increase outdated government programs.

Who would be harmed by increased regulation of the Internet? There are four constituents that are negatively impacted as a result of such action:

1) Consumers will be faced with higher prices for Internet services. Highly regulated industries typically have complex tax structures and consistently increasing prices. Competitive technology industries typically have low or no tax structures, and constantly falling prices. Apply regulation to the world of the Internet, and you lay the foundation for things such as email taxation, instant messenger taxation, VOIP taxation, per minute fees, bandwidth monitoring, and controlled pricing (once again, read "increased" pricing at something like 5% per year). Requiring Internet service companies to interact with fifty different state agencies every time they "tie their shoe" will undoubtedly add costs and complexities to their lives, which will in turn result in higher costs and slower innovation/deployment. California consumers, already accustomed to paying the highest gas prices in the country, will quickly enjoy the highest Internet fees as well.

2) The growth in information technology businesses will slow dramatically. The Ninth Circuit decision, if it stands, will have horrible consequences for Silicon Valley. The growth of the Internet and the numerous resulting businesses and services are the unquestioned drivers of our current economy. Slow the penetration of broadband through the imposition of increased regulation and all of high tech will suffer. The Ninth Circuit decision pours concrete on the number one facilitator of technological growth in the U.S.

3) American competitiveness will suffer. Household broadband penetration in the U.S. is quickly falling behind innovative countries like Korea and Japan. While we are struggling to move beyond 20% broadband penetration, Korea is soaring past 60% on its way to 70%. Moreover, the connections in Korea are built around fiber optics and are resultantly many times faster than traditional U.S. broadband. These increases in Internet performance have resulted in increased usage of the Internet for such things as telecommuting and online education. As the U.S. faces the real loss of white-collar jobs to the hard working, but lower wage connected workers of Asia, one cannot help but wonder what political leader would aim to intentionally slow the roll-out of the Internet inside the U.S. Additionally, the key driver of the U.S. economy over the past twelve months has been productivity based. Why mess with the underlying network that is essential to this important metric?

4) Competitive RBOCs object as well. While one might assume that all of the entrenched Bell monopolies would be in favor of regulation for cable modem services, this would be an erroneous perspective. Verizon, one of the most competitive of all RBOCs, was quick to point out that it believes that cable modem services should be exempt from regulation. Make no mistake, it wants regulatory parity, but it wants it through decreased regulation on DSL not increased regulation on cable services. Likewise, a spokesman for BellSouth recently noted, "The Internet, and for that matter cellular service, has thrived because of limited regulation. Economic regulation is crippling this industry (telecommunication services)."

Some will argue, as does Judge Sidney Thomas of the Ninth Circuit, that opening the cable networks to competitive carriers will directly benefit consumers. The enormous problem with this argument is the prima facie evidence suggesting the opposite. Clearly stated in the Ninth Circuit opinion, 70% of all broadband users use cable modem services as compared with 30% for DSL. Cable companies, free to compete without the shackles of regulation, represent over two-thirds of all broadband users in the U.S. DSL, supposedly advantaged by its open connectivity and therefore supposed increased competitiveness, represents less than one-third. If regulated open-access is such a great thing, why are cable modems such a compelling value proposition for consumers? And why were the RBOCs slow to roll out DSL?

The bottom line is that we tried an experiment in DSL and it failed. Attempting to increase competition by mandating that a company invest in infrastructure and then share that infrastructure with competitors is simply not a market-based solution. Companies, naturally motivated to take market share, not give it away, are simply not effective at appropriately enabling competition. If you want to increase competition, add holistic competitors, not partial ones. This type of solution had a huge positive impact when PCS licenses created a third cellular alternative in most U.S. cities. Solutions such as cable overbuilding can accomplish this as well. Notably, a WISP in Cerritos, California recently announced an eight square mile 802.11 coverage zone based on Cellular-WiFi equipment from Tropos Networks*. This solution will offer ubiquitous broadband of greater than 1MB throughout the entire city. These solutions are the ones that will successfully advantage the customer while avoiding the overt dangers of increased regulation.

We should all know by now that rather than increasing competition, regulation typically reinforces monopolies and oligopolies. Startups will not and cannot prevail in heavily regulated industries. They lack the required resources and capital to manage fifty different utility commissions on a hundred different regulatory issues. For this same reason, you will never see a startup deliver an automobile in the U.S. as the regulatory red tape swamps all efforts. Increased regulation will do nothing more than ensure that new competitors and innovative solutions are permanently locked out of the market.

There are three ways to put an end to this potentially catastrophic problem. The first is for the Ninth Circuit to clean up its own mess in an upcoming large panel review known as an en banc review. The likelihood of success here is slim. The Ninth Circuit is well known for its reputation as the most over-turned appeals court in the nation, and it is doubtful it would pick now to jeopardize its record. Luckily, there are two more solutions that exist beyond the Ninth Circuit. For starters, the Supreme Court could once again correct the Ninth Circuit. But perhaps more appropriately, Congress should step in and legislate to ensure that this type of misunderstanding never happens again. As Clinton and many others have noted, the future of the Internet is simply too essential to our national interests to suffocate it with unnecessary regulation.

Judge O'Scannlain made a peculiarly ironic but accurate warning in the Ninth Circuit opinion. "Regardless of one's view of the wisdom of the FCC's declaratory ruling, it cannot be denied that our holding today effectively stops a vitally important policy debate in its tracks, at least until the Supreme Court reverses us or Congress decides to act." For those in Washington that do NOT want to (1) increase the likelihood of higher Internet access rates and increased costs for incremental services, (2) dampen the growth of Internet services and all the companies that benefit from that revolution, and (3) negatively impact American competitiveness, we hope you heed his urgent call.

*Benchmark Capital has an investment in Tropos Networks.

If you have any comments or feedback, please send them to atc@benchmark.com. The Above the Crowd archive is now available by visiting http://www.benchmark.com/about/bill.html.

The Above the Crowd newsletter focuses on the evolution and economics of high-technology business and strategy. The information contained herein has been obtained from sources believed to be reliable but not necessarily complete, and its accuracy cannot be guaranteed. Any opinions expressed herein are subject to change without notice. The author is a General Partner of Benchmark Capital and its affiliated companies and/or individuals may have economic interests in the companies discussed herein. J. William Gurley 2003. All rights reserved.

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December 16, 2003

I told you so...

Today an article in PaidContent.org points out that e-Bay is getting into the content business by selling pricing data. Intuit is using the data feed to allow people to figure out prices for items they gave as tax deductions. Two years ago I spent a couple of weeks trying to design this business. In the end the money you had to pay e-Bay was too much and my thought is that they would compete with you if it turned out to be a good business. Good thing I didn't spend alot of time on that one!

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December 15, 2003

Size does matter

Want to know who's database is bigger? Winter Corporation Top 10 largest

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December 12, 2003

My FIRE 2003 Predictions

In the spring of 2003, I attended Mark Andersen's Future In Review Conference. There from on high, I made my FIRE 2003 Predictions. Am going back in 2004 to see how I am doing. These are 5 year predictions.

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November 20, 2003

HP buys Persist, one that we passed on

Venture Capital is a funny long term thing. You invest and you don't know for a couple years if you are right or not. You see alot of plans and you don't know if you missed something big until later. Last week H-P to acquire Persist Technologies - 2003-11-11 - San Francisco Business Times. We looked at them about a year and a half ago as an investment. At the time they were focused on exchange/mail storage. Looks like they morphed to an enterprise data store, much more attractive to HP. Wonder what the valuation was and if the investors made any money...

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November 18, 2003

How to manage a sales force in the new Millennium

When I started Loudeye I hired a VP of sales and said "set up a tracking system for our pipeline". What I got was an excel spreadsheet. There was a column for customer name, deal details, deal size, percent probability, and stage in the sales process (we had a seven stage process). The goal was to see opportunities growing and moving along through the process to Purchase Orders. But for some reason, things never turned out the way the spreadsheet said. Customers really weren't qualified. Sales people didn't follow up. Senior executives weren't looped in at the right time. The deal size changed. There was no coorelation or communication trail to map back actual sales force activities to the spreadsheet. For example, e-mail or phone trail.

These kinds of sales automation systems (currently called Customer Relationship Management - CRM) were expensive and difficult to deploy enterprise software. They required lots of integration and training. Lots of unnatural acts to get access to these things on the road too (where sales people are most of the time). This application was ripe for change and perfect for the ASP model. Along came Salesforce.com. They convinced people that the model could work.

Now along comes Entellium. They are cheaper and better than Salesforce.com. Are sales people loyal? This is a cost center for them. Will they switch? maybe. Will Start-ups prefer a cheaper solution? You bet.

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October 30, 2003

How do you lend money to friends?

Over the years on occasion I have lent money to different people. Sometimes family, sometimes friends. The general rule is to not do these kind of transactions due to the ramifactions to your personal relationship if the business relationship goes bad. My solution was pretty simple. Consider the money a gift. Consider it gone. If it ever came back, be happy. Never talk about it. If I couldn't afford to loose the money completely, don't make the loan. That strategy has worked well for me and allowed me to sleep and keep up relationships.

Now, there is a solution that may work better. Especially for people who actually want to believe they will get their money back some day. CircleLending | Home Page: Complete loan and mortgage document creation and servicing, including contract development, billing, and payment collection. Maybe I will try using this next time.

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