tag:blogger.com,1999:blog-75292918408115773802024-03-03T16:25:57.848-08:00ProfessorVCThe last blogger in Silicon ValleySteve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.comBlogger54125tag:blogger.com,1999:blog-7529291840811577380.post-56830130126207010982018-06-07T11:44:00.000-07:002018-06-07T11:44:18.857-07:00Silicon Valley (and ProfessorVC) is Lazy<br />
I taught a class yesterday afternoon to a group of 25 Italian executives, managers, and entrepreneurs participating in the <a href="https://www.tvlp.co/" target="_blank">TVLP Institute of Technology Entrepreneurship and Innovation</a>. I always enjoy teaching these types of groups because it makes me realize the bubble we live in here in Silicon Valley. While a lot of what is done here is clearly cutting edge and best practices, some of what we do doesn't make any sense to those visiting from other parts of the world. And when I think about, it shouldn't make sense to those of us here.<br />
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For example, many visitors are surprised that nobody prepares business plans to raise funding. I am a strong believer in the new school of entrepreneurship education (lean startup, customer discovery, etc.). However, a 4-slide demo day pitch deck showing the market (Venn diagram with giant TAM), team (4 pictures with logos of universities and unicorn startups), product (3 screenshots), and traction (hockey stick chart showing 11 days of growth) has gone way too far the other way.<br />
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In the session, I used a classic video from a talk that VC <a href="https://upfront.com/team/#mark-suster" target="_blank">Mark Suster</a> (Upfront Ventures and the great startup blog <a href="https://bothsidesofthetable.com/" target="_blank">Both Sides of the Table</a>) gave at Stanford in 2010 that remains spot on (video embedded at end of post). In the video, Mark calls out Silicon Valley as lazy for not doing basic research around markets. You can get the gist from the following excerpt:<br />
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"What have the people that have come before me done? What worked? What didn't work? When people come to see me and they don't know the history of the industry they are choosing, I pass always. Because if you're not going to that research it tells me that you probably aren't the type of person in my opinion who is going to do big things."</blockquote>
Mark got me thinking about my personal laziness in not writing a blog post in over a year. I realized that rather than spending the time to write a thoughtful blog post I was writing quick responses to questions on Quora. I promise I'll be back with a fresh blog post soon, but for now, in the continued theme of laziness, here are a few of my "best of" Quora answers:<br />
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<span class="quora-content-embed" data-name="Why-is-a-large-overhang-of-convertible-debt-resulting-from-numerous-convertible-note-rounds-bad-for-startups-before-a-series-A-round/answer/Steve-Bennet">Read <a class="quora-content-link" data-embed="hujykqu" data-height="460" data-id="86067309" data-key="a9b61ef0a625dd437a321a908a631363" data-type="answer" data-width="460" href="https://www.quora.com/Why-is-a-large-overhang-of-convertible-debt-resulting-from-numerous-convertible-note-rounds-bad-for-startups-before-a-series-A-round/answer/Steve-Bennet" load-full-answer="False"><a href="https://www.quora.com/Steve-Bennet">Steve Bennet</a>'s <a href="https://www.blogger.com/Why-is-a-large-overhang-of-convertible-debt-resulting-from-numerous-convertible-note-rounds-bad-for-startups-before-a-series-A-round#ans86067309">answer</a> to <a href="https://www.blogger.com/Why-is-a-large-overhang-of-convertible-debt-resulting-from-numerous-convertible-note-rounds-bad-for-startups-before-a-series-A-round" ref="canonical"><span class="rendered_qtext">Why is a "large overhang of convertible debt resulting from numerous convertible note rounds" bad for startups before a series A round?</span></a></a> on <a href="https://www.quora.com/">Quora</a><script src="https://www.quora.com/widgets/content" type="text/javascript"></script></span><br />
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<span class="quora-content-embed" data-name="How-do-I-invite-venture-capitalists-to-invest-in-my-small-company/answer/Steve-Bennet">Read <a class="quora-content-link" data-embed="hujykqu" data-height="460" data-id="74980352" data-key="95a002b22247fe3d6870649d2b122e8b" data-type="answer" data-width="460" href="https://www.quora.com/How-do-I-invite-venture-capitalists-to-invest-in-my-small-company/answer/Steve-Bennet" load-full-answer="False"><a href="https://www.quora.com/Steve-Bennet">Steve Bennet</a>'s <a href="https://www.blogger.com/How-do-I-invite-venture-capitalists-to-invest-in-my-small-company#ans74980352">answer</a> to <a href="https://www.blogger.com/How-do-I-invite-venture-capitalists-to-invest-in-my-small-company" ref="canonical"><span class="rendered_qtext">How do I invite venture capitalists to invest in my small company?</span></a></a> on <a href="https://www.quora.com/">Quora</a><script src="https://www.quora.com/widgets/content" type="text/javascript"></script></span><br />
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<span class="quora-content-embed" data-name="What-is-an-example-of-an-associate-at-a-venture-capital-firm-that-went-on-to-become-a-successful-founder/answer/Steve-Bennet">Read <a class="quora-content-link" data-embed="hujykqu" data-height="460" data-id="24705173" data-key="6cfaecc8842a1a949d6ce9ddd6285862" data-type="answer" data-width="460" href="https://www.quora.com/What-is-an-example-of-an-associate-at-a-venture-capital-firm-that-went-on-to-become-a-successful-founder/answer/Steve-Bennet" load-full-answer="False"><a href="https://www.quora.com/Steve-Bennet">Steve Bennet</a>'s <a href="https://www.blogger.com/What-is-an-example-of-an-associate-at-a-venture-capital-firm-that-went-on-to-become-a-successful-founder#ans24705173">answer</a> to <a href="https://www.blogger.com/What-is-an-example-of-an-associate-at-a-venture-capital-firm-that-went-on-to-become-a-successful-founder" ref="canonical"><span class="rendered_qtext">What is an example of an associate at a venture capital firm that went on to become a successful founder?</span></a></a> on <a href="https://www.quora.com/">Quora</a><script src="https://www.quora.com/widgets/content" type="text/javascript"></script></span><br />
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By the way, here is Mark Suster's video on research and prototypes:<br />
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<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com10tag:blogger.com,1999:blog-7529291840811577380.post-15327094303732679932017-01-18T13:44:00.001-08:002017-01-18T13:44:33.520-08:00Give Us Your Tired, Your Poor, Your Talented Entrepreneurs<blockquote class="tr_bq">
"Give me your tired, your poor,<br />Your huddled masses yearning to breathe free,<br />The wretched refuse of your teeming shore.<br />Send these, the homeless, tempest-tost to me,<br />I lift my lamp beside the golden door!"</blockquote>
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-- Emma Lazarus (from "The New Collusus" memorialized on the Statue of Liberty)</blockquote>
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<tr><td class="tr-caption" style="text-align: center;">Coffee Mug available from <a href="https://politicallycomical.com/collections/frontpage/products/a-perfect-christmas-gift-red-or-blue-handle-coffee-mug-please-dont-go-lady-liberty-obama" target="_blank">Politically Comical</a></td></tr>
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The Statue of Liberty has seen better days. The harsh reality is setting in as we are two days away from the start of the Trump administration (<a href="http://www.independent.co.uk/news/world/americas/donald-trump-first-weekend-off-us-president-inauguration-ceremony-celebration-michael-gove-interview-a7531576.html" target="_blank">or perhaps five days since Donald wants to take off his first weekend and get a fresh start on Monday</a>). With a lot of uncertainty regarding immigration policy in the days ahead, we are really excited to be launching a Global Entrepreneur in Residence program at San Jose State, where immigrant entrepreneurs will have the opportunity to build their companies on campus.<br />
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I'll share more information on the program later in this post, but first a little background on why I am so excited.<br />
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It is no secret that the U.S. immigration system is broken and even with bi-partisan support for fixing, political gridlock in Washington has prevented any shot at comprehensive immigration reform. It would be great to give Dreamers a path to citizenship and provide protections for farmworkers, but that is a huge hill to climb. A solution to the H1-B problem is also extremely challenging, but is more manageable. USCIS grants just 85,000 H1-B visas annually and applications representing a multiple of that number are received by April 1 (an appropriate date for those that apply given the current system), the first day they are accepted. The chart below shows when the cap has been reached in the past 13 years, and no difference is expected in 2017.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgpwbUExiUB9R-Wtkti_5zxhN_HyoKFbYceIJeyacFbKwYm9qTWttbi6ht_j-jF3kIRxCkCi0XGQZw23q1J5R4cnp9kaQbVP0Hw6ghEQFZYguYeLiMb81WKZnjT-Tz4HEx3Yqcd4l0ZlSFV/s1600/H1B-Visa-Cap-Reach-Dates-by-Year-Historical-Trend.png" imageanchor="1" style="clear: right; display: inline !important; float: right; margin-bottom: 1em; margin-left: 1em; text-align: center;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgpwbUExiUB9R-Wtkti_5zxhN_HyoKFbYceIJeyacFbKwYm9qTWttbi6ht_j-jF3kIRxCkCi0XGQZw23q1J5R4cnp9kaQbVP0Hw6ghEQFZYguYeLiMb81WKZnjT-Tz4HEx3Yqcd4l0ZlSFV/s320/H1B-Visa-Cap-Reach-Dates-by-Year-Historical-Trend.png" width="311" /></a><br />
I represented SJSU as part of a delegation led by the Silicon Valley Leadership Group on an advocacy trip to Capitol Hill and the White House in the beginning of Obama's second term and <a href="http://www.professorvc.com/2013/02/immigration-reform-now-or-never_11.html" target="_blank">wrote about it here</a>. On the trip we met with a number of members and staff of the Senate, House, and White House staff and discussed the possibility of an entrepreneur visa and expanding the H1-B caps. At the time, there was some optimism that comprehensive immigration reform could happen, but it soon became clear that was a pipe dream. A number of other VC's and tech CEO's also made similar trips at the time. <br />
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In 2015, Brad Feld of the Foundry Group <a href="http://www.feld.com/archives/2015/04/announcing-global-eir-coalition.html" target="_blank">wrote about his similar frustrations with visas available to immigrant entrepreneurs and the launch of the Global EIR Coalition</a> with Jeff Bussgang of Flybridge Capital. Jeff had spearheaded the initial <a href="http://vdc.umb.edu/geir/" target="_blank">Global EIR program at UMass Boston</a> with support from the state and was able to have the program included in their 2014 Jobs Act. Brad subsequently funded a <a href="http://www.colorado.edu/entrepreneurship/resources/global-entrepreneurs-residence" target="_blank">Global EIR Program at University of Colorado</a> and together they helped launch the <a href="http://www.globaleir.org/" target="_blank">Global EIR Coalition</a>, which is supporting our program at SJSU.<br />
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In a nutshell, the Global EIR program solves important problems for the entrepreneur and university. By building their companies on campus or being employed by and supporting part of the core mission of the university, entrepreneurs are able to apply for a cap exempt H1-B visa. Given the numbers in the chart above, this is huge for the immigrant entrepreneur. I have seen cases where more than one founder has a visa issue and one is successful in the lottery and the other isn't. There are enough founder dynamic issues in startups that this definitely doesn't need to be part of the mix.<br />
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For the university, there are multiple benefits to student success that can be attributed to this program. Global EIR's will be conducting workshops on a variety of startup topics and holding office hours to work directly with students' projects and startups. They will also be supporting our various programs, such as the Silicon Valley Innovation Challenge, Business Plan Competition, Venture Lab, Entrepreneurship Lab, hackathons, and numerous classes. The ability to track the progress of multiple startups over the course of an academic year is a great opportunity for students (and faculty).<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEglpj3jzDU5IfQQqUqO8pXBnsMSumqxDz79yJTbRcAsihUlfew1c_5lGwG4dAD2-cxvjk8NEPJLWa4FP-6UVpuU3L1mZzCGkFpP31-WkH9XfjFAXN4l7IzaDbWw3awB2HveB2idpV2JUb7m/s1600/Release+the+gusher.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEglpj3jzDU5IfQQqUqO8pXBnsMSumqxDz79yJTbRcAsihUlfew1c_5lGwG4dAD2-cxvjk8NEPJLWa4FP-6UVpuU3L1mZzCGkFpP31-WkH9XfjFAXN4l7IzaDbWw3awB2HveB2idpV2JUb7m/s1600/Release+the+gusher.jpg" /></a></div>
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However, the benefits expand well beyond the ivy walls of the campus. The UMass Venture Development Center prepared the above infographic on the economic impact of immigrant entrepreneurs on job growth and the barriers to blocking the entrepreneurs from building their companies in the U.S. For example, there are 31,000 international graduate students in Massachusetts and a majority plan to start a business after graduation. Sadly, over 90% of the students intend to return home, many due to the inability to get an H1-B visa. It just makes no sense to educate students and send home after graduation.<br />
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Since UMass and Colorado launched their Global EIR programs, 11 other colleges and universities have launched programs. San Jose State is the first in California. <br />
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We are now <a href="https://fs30.formsite.com/sbennet/GEIR/index.html" target="_blank">accepting applications for Global EIR's here</a>. Please send us your tired, your undercapitalized, your talented entrepreneurs. Also, if you are interested in supporting our efforts, financially or otherwise, email me at steven dot bennet at sjsu dot com.<br />
<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com66tag:blogger.com,1999:blog-7529291840811577380.post-7932170882090067882016-07-19T16:15:00.000-07:002016-07-19T16:15:55.352-07:00Portrait of an Artist<div class="separator" style="clear: both; text-align: center;">
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In my professor role, many of my students look up to me (rightly or wrongly) as a teacher, mentor, advisor, confidante, and friend. I'm not always comfortable being put in that position, but have grown to enjoy that role as I've gotten older and (and perhaps although highly debatable) wiser. Two weeks ago, I lost my Dad, who had played all of those roles (plus many more) for me. I've spent the past two weeks thinking about my Dad, sharing stories, digging through his office, and reading notes from friends and colleagues letting us know how much he meant to each of them.<br />
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Philip Bennet was an incredible man. My parents had been married for over 58 years at the time of his sudden passing on the 3rd of July. He had two amazing careers, spending 40 years at the IRS, before becoming an accomplished artist in his last 20 years.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmfToecQC46I4A01dBmmaayGLZHLvT0tkAaecoSbferkYSiqvfkxZrf1RiVHYcf7YRCmE3FQONE3OiYkitcT8kyekpVDmYn3tEIifuJ3W818AhUMQy1IvJz01eBH4SiSt_Y12wnzr1Frp8/s1600/1-3-2010_005.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="239" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmfToecQC46I4A01dBmmaayGLZHLvT0tkAaecoSbferkYSiqvfkxZrf1RiVHYcf7YRCmE3FQONE3OiYkitcT8kyekpVDmYn3tEIifuJ3W818AhUMQy1IvJz01eBH4SiSt_Y12wnzr1Frp8/s320/1-3-2010_005.JPG" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Me and Dad on a snowy winter day (late 1970's?)</td></tr>
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When I was younger, I often wondered why my Dad stayed in a largely unappreciated role with the government, when he could have moved to a lucrative law firm or corporate tax position. Having graduated from Wharton, I'm sure I was trained to think in terms of optimizing financial outcomes. However, over the years, I realized he was doing work that challenged him, was living life on his own terms and was very comfortable with who he was. This truly struck home when my brother connected with a close colleague of my dad's, who he had worked with at a couple of different times during his career" In his condolence note, he wrote:<br />
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"When I returned in the 1980's as Commissioner, I found to my delight that your father had not changed but only had become more experienced and wiser. The Commissioner's office can be a lonely one. But with the assistance of folks like your father, I had a wonderful time while I was there. The IRS itself can often be a thankless place to work because if the IRS and its employees do their jobs well, about the most they can hope for is respect and once in a long while, trust. Your father was someone whom I respected and trusted the most.<br />
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His innate goodness and desire to do the right thing and find good solutions to tough problems were his hallmarks. He is the type of person I think of when I recall how good the folks of the IRS were and are. He was the consummate professional, and I truly believe our country is better for his service."</blockquote>
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Upon retiring from the IRS, he embarked on a second career as an artist. He had dabbled in art in high school and as he neared retirement, he began sketching and creating watercolors on summer vacations to Maine. However, rather than continuing as a hobby, he took classes at the local junior college and began experimenting with different mediums and styles. He continued painting landscapes but his focus soon shifted to abstract art and printmaking. He had a number of exhibits including a 70-year retrospective in 2012 that covered his work from 1942 - 2012 (including a watercolor painted at age 12, a self portrait in oil painted at age 13, and over 25 other works in pastel, acrylics, watercolor, collage and monotype.) Below is a sample work titled Organic, a watercolor monotype from 2008 that was part of a solo exhibit at the Old Print Gallery in Washington, DC in 2014 and an excerpt from a review of that show by the Washington Post.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFWidyzI49iyJIzQUhptG2DLmSp_pG33X0gOxQamIprgmRAlFZiIdTYQUgL3ShwMWyUGhDmwtSz4xmI-yK5LHXxbK5IEUnRSmBky9AwM9DVeh5tzFjUKc5uY6FMxjtTd0LfXPKVHe8517J/s1600/Organic+by+Philip+Bennet-Watercolor+monotype-+2008.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="246" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFWidyzI49iyJIzQUhptG2DLmSp_pG33X0gOxQamIprgmRAlFZiIdTYQUgL3ShwMWyUGhDmwtSz4xmI-yK5LHXxbK5IEUnRSmBky9AwM9DVeh5tzFjUKc5uY6FMxjtTd0LfXPKVHe8517J/s320/Organic+by+Philip+Bennet-Watercolor+monotype-+2008.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Organic by Philip Bennet (2008)</td></tr>
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"'Kaleidoscope,' Philip Bennet’s solo show at the Old Print Gallery, takes its name from one of the artist’s monotypes. Working most often with oil-based inks, Bennet makes one-of-a-kind prints whose vivid colors, layered patterns and sheer energy recall 1950s abstract expressionism. They don’t literally multiply and invert mirrored forms the way a kaleidoscope does. The local artist’s style is freer and more fluid, especially in the handful of prints and paintings that use water-based rather than oil pigments."</blockquote>
He clearly made full use of his analytical left brain and creative right brain. He was a rare man and will be missed by many more than his family.<br />
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<tr><td class="tr-caption" style="text-align: center;">Toasting his grandchildren (10/2014)</td></tr>
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For anyone who has been to a Bennet family milestone event, you may recognize the bottle of Haag and Haag Scotch that my Dad used to toast my niece and nephew at their B'nai Mitzvah last October. My grandfather toasted my Dad with this same bottle at his Bar Mitzvah in 1943. Other occasions included my parent's wedding (1958), my brother's bar mitzvah (1973), my bar mitzvah (1976), my sister's bat mitzvah (1980), my brother's wedding (1990), my wedding (1990), and my sister's wedding (2000) along with other bar and bat mitzvah's of his grandchildren. We celebrated Dad's life last Friday and decided it was time to finally polish off the bottle. My brother, sister and I together toasted our Dad one last time for being an incredible father and the amazing 86 year life he lived.<br />
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<tr><td class="tr-caption" style="text-align: center;">One final toast to Dad</td></tr>
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Below are the remarks I made to honor Dad at the memorial.<br />
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Philip Eugene Bennet<br />
1/6/30 – 7/3/16<br />
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How you be?<br />
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I don’t know how many times I received that greeting from my Dad but wish I could hear it once more. That was his standard greeting. Not the perfunctory and more formal “How are you” but “How you be”. It was always delivered with a smile and often with a pat on the back and sometimes a hearty laugh. I think it wasn’t so much a greeting, but a question that he really wanted to know. He cared. He was a listener. He wanted to know what was going on in your life. He wanted to help make everyone else feel as good and happy as him. <br />
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How you be?<br />
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I’d tell him, “Dad, I’m good but I really miss you. You wouldn’t believe who’s here! But I’m so glad I got to know you over the past 53 years. I’m grateful for everything you gave me and that I was lucky enough to inherit a few things from you: your good looks (obviously), your dry sense of humor and your dexterity with the tennis racket”<br />
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How you be?<br />
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I’ve spent the past two weeks going through Dad’s office and reading condolence notes from friends and colleagues. Some things that came through were his professionalism, kindness, intellect, inquisitiveness and of course, sense of humor. People remembered Dad. He was a man who made an incredible impact on so many people - those who knew him for decades and those he only met once. <br />
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Going through the office has been a bit of an archaeological dig. But he left some great clues – for my nieces and nephews, the game I played was luddite version of Pokemon Go. The starting point was a binder he left labeled “For AB in event of PEB demise” One note in the binder indicated information on his Series I bonds could be found in the top file drawer in a manila folder ¾ of the way back that contained a sheet with dates in reverse chronological order. In addition to the practical financial information, I found a few other gems. My dad was a bit of a packrat (something else I managed to inherit). In with a pile of resumes and cover letters (last updated in 1962) was a reference letter dated August 7th 1956. Lt Colonel Wilner N.J. Nelson wrote “Private First Class Bennet is extremely personable and possesses a lively sense of humor. “ I always wondered if our sense of humor would be appreciated in the military and seems like Dad was able to get away with it.<br />
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My dad was probably the last person not filing a 1040EZ to complete his tax return by hand. If you happened to come by the house between the months of February and April, you’d be sure to see various tax forms spread out across the kitchen or dining room table. He was not about to trust his taxes to a CPA or even worse, some computer program called TurboTax. In flipping through the 2015 tax return I noted separate Schedule C’s (profit or loss from business for those of you not familiar with the IRS form numbering and lettering schema) for both Mom and Dad’s art businesses. Dad had $975 in Gross Receipts in 2015, while Mom unfortunately didn’t sell anything last year. However, on the schedule C for my Mom next to the $0 gross receipts line, Dad wrote by hand “No paintings sold in 2015 even through she had a well received solo show and exhibit”. He wanted to make sure someone at the IRS knew that 2015 was an anomaly and to expect bigger numbers in 2016. He was so proud of Mom!<br />
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Being here at Edgemoor brings back so many memories of my childhood. I practically lived here in the summer as a kid and would often tag along with Dad after he returned from work on the off chance a doubles partner didn’t show. Tennis was such a big part of Dad’s life and my childhood. Which brings me to another artifact uncovered on my dig.<br />
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In his office proudly displayed was this trophy. It was rather dusty and the racket broke off long ago. You can’t read this but it is the 3rd place trophy from the 1973 Parent Child Edgemoor Club Championship. I was 10 at the time and still remember how happy we both were at knocking off teams with kids 4, 5, and 6 years older. I think he was prouder of that bronze medal than the 1st place trophies he won on his own.<br />
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Tennis was such a big part of dad’s life. I just love that picture from the slideshow of Dad proudly holding his Wilson T2000 racket with those young guns. The only people that could hit that damn thing were Jimmy Connors and Philip Bennet. I can picture him holding that racket and hitting one of those wicked backhand slices down the line as he races to the net for a put-away volley.<br />
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One of my favorite tennis quotes is:<br />
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The depressing thing about tennis is that no matter how good I get, I’ll never be as good as a wall. <br />
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Taken literally, I don’t know anyone who has ever taken a set from the backboard. Taken figuratively, it means a lot when I think about Dad’s life. It is natural to compare yourself against your peers. I don’t recall my dad ever getting down or showing signs of envy. He was very happy in his own (very large) shoes. In looking through his correspondence, he had myriad opportunities to take lucrative law firm or corporate tax roles after his initial commitment to the IRS. Many of his colleagues definitely went that route but he knew he was happy and challenged where he was.<br />
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Another tennis metaphor I like is:<br />
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"Sometimes it pays to stay at the baseline. There is no place like home. "<br />
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For my Dad, Home was so many places. Home was 5912 Kirby Road in Bethesda, the only home my parents ever owned. Home was 65 E. 96th Street in Manhattan, where he grew up with my Nana Lil, Papa Charlie and Aunt Carol and slept in the dining room of a very small apartment.. Home was Edgemoor. Home was the Old Print Gallery. Home was Mt Dessert Island in Maine. Home was wherever he was with his beloved wife and friends.<br />
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One final tennis story. About a dozen years ago, we received an email from dad letting us know that his defibrillator kicked in during a tennis match. Once he assured me his cardiologist said everything was good, I had one more question for him. I wanted to know how the much was going at the time he had to quit:<br />
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“Steve. Enjoyed your email. Tim Coss and I won a very hard first set and were down 3-love in the 2nd when I held serve by angling off a drop shot very close to the net and hitting a passing shot between both opponents at the net on the final point of the game. That felt really good until I was jolted by the defibrillator. Love Dad”<br />
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I just picked up a racket a couple of months ago after giving up the game 25 years ago.. I remember telling him I had a surprise for him after they returned from their Sicily trip in May. I told him of my return to the courts and could hear how happy he was. He also had to give some fatherly advice – “Make sure you stretch before you play”<br />
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I was really looking forward to playing some short court doubles with Dad when they visited later this month. Mom, I still have that court reserved. Will you join me?<br />
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“How you be?"<br />
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<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com13tag:blogger.com,1999:blog-7529291840811577380.post-65314067514613933652016-06-06T09:51:00.000-07:002016-06-06T09:51:22.052-07:00So You Wanna be a VC?<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
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<tr><td class="tr-caption" style="text-align: center;">Opening Day Barron Park Elementary School (9/8/98)</td></tr>
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<i>"Make new friends,</i></div>
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<i>but keep the old.</i></div>
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<i>One is silver,</i></div>
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<i>the other is gold.</i></div>
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<i>A circle is round,</i></div>
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<i>it has no end.</i></div>
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<i>That's how long,</i></div>
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<i>I will be your friend."</i></div>
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<i>(girl scout song believed to be adapted from poem written by Joseph Parry (1841-1903) or perhaps Boardwalk Empire if you believe <a href="https://www.reddit.com/r/etymology/comments/2j2q1x/how_old_is_songpoem_that_begins_make_new_friends/" target="_blank">Reddit</a>)</i></div>
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In the picture above, "Make New Friends" was sung by the entire Barron Park Elementary School on its first day as a neighborhood school in 1998. A fitting song for a new school year and new school. (Side note 1: My daughter with back to camera and her friend to her right in pigtails both graduated from UC Santa Barbara together in 2015. Side note 2: School started on September 8th. Yes, after Labor Day! When summer is supposed to end, not in mid-August like Palo Alto and most other school districts do now.)</div>
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I've always believed in the golden rule. You know, the one you learned in nursery school about treating others how you would like to be treated. However, in my 25 years in the Silicon Valley startup ecosystem, I've experienced the VC corollary to the golden rule much more often: "He has the gold makes the rules!" I can just picture Mr. Rogers saying "Children, can you say participating preferred stock with an uncapped 3x liquidation preference and a full ratchet?" Well, maybe so after watching his <a href="https://www.youtube.com/watch?v=2eaS3Saqg88" target="_blank">middle finger salute</a>.</div>
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When AngelList first launched syndicates a few years ago, I was very skeptical of the idea of angels taking carry on my investment. I've always felt that as an angel we should be sharing our best opportunities with each other and follow the golden rule. I work hard on mine and you work hard on yours and we all win (entrepreneurs, angels, and upstream VC's). I went back to look at a few twitter exchanges I had at the time and clearly had some issues with the program.</div>
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So what changed and why I am now launching a syndicate?</div>
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<ol>
<li>I got over it. In looking at how syndicates have developed, there have been a lot of positives for both angels and entrepreneurs. Some syndicate leads have gotten allocations in competitive deals where angels wouldn't have had the opportunity to invest previously. Some are able to offer better terms (pro-rata rights, lower valuation caps) than an individual could get.</li>
<li>It's great for entrepreneurs! A syndicate is very effective and efficient way to raise capital. In addition to the syndicate participants who can potentially add value, AngelList has its own institutional funds that often participate. In addition, the entrepreneur has only one investment entity on its cap table rather than a long list of individual angels. This offers many of the benefits of angel groups (larger investment, breadth of experience, single entity) without many of the negatives (long process, lack of transparency, etc.)</li>
<li>I'm still not totally on board with the 15-20% carry most syndicates are charging (still stuck with that golden rule). This is why I am taking 0% (yes you heard that right, 0%) on my syndicate. There will still be a 5% carry charged that goes to AngelList, but I'm good with that. They have build a great platform and should be compensated for the marketing, administration, etc.</li>
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I'm sure your next question is how can I jump aboard? Well, the train just pulled in to the station and isn't leaving just yet. I expect to announce the first two opportunities this month. You can learn more about the <a href="https://angel.co/sbennet/syndicate" target="_blank">Steve Bennet (aka "ProfessorVC") syndicate here</a>.</div>
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Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com5tag:blogger.com,1999:blog-7529291840811577380.post-30566910071870029052015-12-08T14:03:00.000-08:002015-12-08T14:03:14.754-08:00Does Elon Musk + Peter Thiel = 3 or 1.5I've written previously (<a href="http://www.professorvc.com/2015/03/it-might-not-be-bubble-but-sure-as-hell.html" target="_blank">here</a> and <a href="http://www.professorvc.com/2015/06/please-dont-celebrate-failure.html" target="_blank">here</a>) about the issues with private companies merging in an acquihire or other downside scenario (i.e. one company running out of cash and another with cash but searching for a business model). Often times those involve trading within a venture capital portfolio or between two venture firms portfolios.<br />
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But what about the case where both companies are well capitalized and doing well? I think we will see more of these in 2016 and beyond as IPOs are still far and few between and unicorns struggle to justify their stratospheric valuations.<br />
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One of the first I was exposed to was the merger between Peter Thiel's Confinity/PayPal and Elon Musk's X.com. Both companies were relatively well capitalized, building peer to peer payments businesses and spending a significant amount of their funding on customer acquisition. <a href="https://www.quora.com/Why-did-PayPal-merge-with-X.com" target="_blank">According to David Sacks</a> (PayPal's COO at the time), both companies were involved in a scorched Earth battle to acquire customers (upping referral bonuses to $20) that neither were likely to survive if they continued down that road and the merger solved this problem (although created others).<br />
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Obviously, Musk and Thiel both did fine off the eventual Paypal IPO (and even better subsequently with Facebook and Tesla). Musk was the early winner taking the CEO role (for a brief period) in the merged company and the largest equity stake as well. Not surprisingly, the merger was highly dilutive, particularly to Confinity/PayPal shareholders. I was a Limited Partner in Angel Investors II (Ron Conway's angel fund) that was an investor in Confinity. At the IPO, Musk held a 14.2% stake vs Thiel's 5.6% (Sequoia Capital had 10.7%). <br />
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For the LP's in Angel Investors II, the investment ended up returning around 7x (but only 1% of the fund), which was a very good return but not as high as it could've been, and clearly not enough to make a dent in many of the other 150+ companies (most that went out of business) in a portfolio that included candybarrel.com, eRugGallery, and dunk.net. Luckily, Google was one of the 150 and did ultimately return the fund assuming the LP was smart enough to hold the stock after distribution.<br />
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I originally got to thinking about this when I received a 485 page information statement on a previously announced <a href="http://www.greentechmedia.com/articles/read/Clean-Power-Finance-and-Kilowatt-Financial-Are-Merging" target="_blank">merger between Clean Power Finance and Kilowatt Financial</a>. I was a seed investor in Clean Power Finance (CPF), which subsequently raised $90M+ in venture funding and over $1 billion in project and debt financing. CPF's major venture backer is Kleiner Perkins, who coincidentally, is also the majority equity holder in Kilowatt. Like CPF, Kilowatt also provides solar financing services to consumers. It is obviously too early to know whether this will be a successful merger, but I generally prefer to roll the dice with the original horse I bet on. You also have to wonder about the numerous conflicts of interests involved in a deal where one investor owns a significant stake in both parties.<br />
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Another seed investment where something similar happened was the <a href="http://www.securitysystemsnews.com/article/icontrol-ucontrol-merge" target="_blank">2010 iControl Networks merger with uControl</a> (yeah not a lot of creativity in naming...). Kleiner was also the lead venture investor in iControl, which had raised close to $50M in financing at the time (<a href="http://www.professorvc.com/2011/06/how-much-is-enough.html" target="_blank">I previously wrote a post about iControl's financing history</a>). Both companies offered home security and automation services through partners. iControl had make significant inroads in the security industry (partnering with ADT to deliver ADT Pulse) while uControl had more success with cable and broadband providers. As an investor, I wasn't very excited at the time due to the dilution and challenges in integrating the two platforms. Looking back five years later, it appears that the merger was a very expensive partner acquisition strategy for iControl. By the way, this month is the 10-year anniversary of iControl's Series A financing and I haven't been able to get liquid on a single share. Hope that changes in 2016...<br />
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What does this mean for entrepreneurs and investors? Here are a few thoughts:<br />
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<ul>
<li><u><b>Expect more consolidation</b></u> - While acquisitions of early stage companies often provide benefits to fill in product line, acquire a team, or enter a new market, later stage acquisitions are often a sign that one or both companies got stuck in the red zone and the hope that the combined effort can get the ball across the goal line. </li>
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<li><b><u>Many acquisition are a Zero Sum Game (or worse)</u></b> - This holds true for many public company acquisitions as well. Press Releases always tout the synergistic benefits of the combination, but in reality, rarely are both entities better off. Typically one comes out better and often both end up in a worse position.</li>
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<li><b><u>Resetting of Liquidity Clock</u></b> - Similar to raising a large late stage private round, this also increases the combined enterprise value and limits potential exits to either an IPO or very large acquisition. It takes time for the business to catch up to these market expectations and valuation. Most never make it there. I do wonder if we will being to see the rarely used redemption clauses triggered where early investors may be happy to take their money back plus accrued preferential return to close out a fund.</li>
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Back to that PayPal merger. What would've actually happened if Confinity and X.com had continued to battle it out. One thing I know is that the combined business turned out a lot better than Peter Thiel's original business plan for infrared beaming of electronic payments over Palm Pilots that I unfortunately passed on investing in 1999. For those interested in an entertaining look back at Silicon Valley history, you can find that <a href="https://www.evernote.com/l/AOqoSr7kGXRPlJAM17OvqbTqeu4KcXeDC1I" target="_blank">business plan here</a>.<br /><br /><br />
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<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com13tag:blogger.com,1999:blog-7529291840811577380.post-62374488170476449622015-07-07T16:47:00.001-07:002015-07-07T16:47:45.858-07:00Do Angel Groups Belong in Heaven or Hell?<blockquote class="tr_bq">
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<span style="font-family: Times; font-size: small;">"You analyze me, pretend to despise me, </span><div>
<span style="font-family: Times; font-size: small;">You laugh when I stumble and fall. </span></div>
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<div style="font-family: 'Helvetica Neue'; font-size: 14px;">
<span style="font-family: Times; font-size: small;">There may come a day I will dance on your grave"</span></div>
<div style="font-family: 'Helvetica Neue'; font-size: 14px;">
<span style="font-family: Times;"> — Hell in a Bucket, Grateful Dead</span></div>
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I attended one of the Grateful Dead "Fare Thee Well" shows in Santa Clara last weekend. I have always admired the Dead's biz model (sorry Friendster/MySpace/Facebook, The Dead was the First Social Network) and music, although I never became a full fledged Deadhead. In fact, before this show, the last time I saw them in concert was in 1978! The band closed out the first set with a rousing rendition of "Hell in a Bucket" with Phish guitarist Trey Anastasio energizing the crowd with his licks (pic below). <br />
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During the set break (perhaps influenced by the large amount of second half smoke consumed), I thought about angel groups in relation to the lyrics above, particularly the "you analyze me, pretend to despise me" line.<br />
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In theory, angel groups are great. From an investors position, you have a number of individuals with a wealth of experience to source, vet, and co-invest in deals. From an entrepreneurs standpoint, you can get a much larger investment than with individual angels, have potential follow-on support and leverage skills and network of a large investor base.<br />
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In practice, it can be much different. For entrepreneurs, the process tends to be very long with many different players, information requests, and a lack of transparency with the process. This is the exact opposite of the preferred angel funding round where investors can make a decision over a cup of coffee and a quick "no" is much preferred to a drawn out process. I often jokingly compare the process of going through an angel group as falling somewhere between a colonoscopy and waterboarding.<br />
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A typical angel group process goes something like this:<br />
<br />
<ol>
<li>Entrepreneur submits application to angel group on <a href="https://gust.com/" target="_blank">gust</a>, <a href="http://proseeder.com/" target="_blank">proseeder</a>, or similar platform. To do a thorough job, the application can take anywhere from 2-5 hours to complete. While there is good reason for angel groups to have a platform to share information, discuss opportunities, and track investments, it doesn't do much for the entrepreneur who could simply provide a link to their AngelList profile.</li>
<li>Initial Screen - groups typically have a process to filter applications and may go through an industry group, be done online, or via a conference call or meeting. The goal is to decide which companies to invite to pitch a subgroup. It typically can take up to 30 days to get to the initial screen.</li>
<li>Screening Meeting - the entrepreneur is invited to pitch to a screening committee. The company may have 10-20 minutes to pitch and answer questions, often from investors that haven't reviewed the application materials and/or know very little about the space the entrepreneur is operating. The entrepreneur typically doesn't know who is going to be at the meeting or in many cases who is at the meeting. This might take anywhere from 15 days - 45 days from the initial screen to get to the screening meeting.</li>
<li>Dinner Meeting - the full membership (or as many as can make it) typically meet in the evening either bi-weekly, monthly or quarterly. Here the entrepreneur hopefully has a deal lead and champion in the group who introduces and leads a discussion after 20-30 minutes of the pitch and Q&A. Many deals get derailed here as members may bring up questions/concerns with the deal champion that aren't answered properly. Often, these questions are about competitors or something someone read on techcrunch yesterday. The dinner meeting may be another 15-45 days after the screening meeting.</li>
<li>Due Diligence - after the dinner meeting, members indicate if they are potentially interested in investing in the deal and/or participating in due diligence. The diligence period can take anywhere from 2 weeks to several months. During this time, the entrepreneur may have no idea where she stands or how much investment interest is within the group.</li>
</ol>
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Based on the above, the process can take anywhere from 45 days to 6 months and suck up a lot of time and resources of the entrepreneur while exposing confidential information among a broad group. Contrast this process to sharing an AngelList profile or meeting individually with a handful of angels and you can see why many entrepreneurs cross this funding path off of their list. </div>
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I joined Sand Hill Angels (SHA) in 2005 and at the time we had 10-15 members vs. close to 100 today. Decisions could be made faster and investment amounts per deal (counterintuitively) were actually higher. I took a leave of absence at the beginning of 2012 primarily due to the fact that I felt we weren't serving our primary customer group, the entrepreneurs. I decided to rejoin at the beginning of this year as I missed hanging out with many of the members as well as the opportunity to be the lead investor in financings, which was something I couldn't do on my own. I was hoping the process would have improved in the interim 3 years, but discovered it hadn't.</div>
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Granted, there were ways to get around the process and I managed to lead two financings this year that were completed in two weeks. One was a follow-on investment and the other was an opportunity that was closing quickly and I shared with the members, set up a single meeting, and was able to get commitments and fund quickly. However, these financings are the exception to the rule in SHA and I assume more so in other groups.</div>
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By the way, SHA is one of the better angel groups (<a href="https://www.cbinsights.com/blog/top-angel-groups-mosaic/" target="_blank">#14 out of 370 angel groups and #2 in value of network by CB Insights</a>). Many are filled with service providers looking for consulting work and entrepreneurs only figure this out after they pitch. Others have the audacity to charge entrepreneurs to pitch to the group! At SHA, every member is an investor and those that don't invest, are asked to leave the group. It is also forbidden to solicit work or do side deals with the startups.</div>
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So, how can this be fixed? I've got a few ideas:</div>
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<ul>
<li>Kill the screening call and screening meeting. These provide little value to members and entrepreneurs.</li>
<li>Increase the number of general meetings to accelerate investments in companies that are ready</li>
<li>Only bring companies to the general meeting that have at least a minimum amount of investment committed</li>
<li>Increase minimum investment amount per member/per deal. At SHA (since investments are done through an entity) individual investments can be quite small.</li>
<li>Have groups of 2-6 members work together on sourcing and working on diligence. These would be angel groups with the angel group and would ideally commit to particular deals and bring to the group</li>
</ul>
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I've got plenty more, but this is a good start. From my vantage point, most angel groups have a pipeline full of mediocre opportunities. The best ones don't see any benefit in going to the group and the worst get screened out quickly. There is currently a void in committed lead investors (Hello Party Round) for pre-seed and seed deals and a big opportunity for angel groups to fill this void if they can move quickly.</div>
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A parting thought. It's hard enough to raise money for your startup without having people who don't understand your business pick it apart like a vulture on a carcass. I'd much rather roll the dice with the entrepreneur and laugh all the way to the bank than have a bunch of founders dancing on my grave.</div>
Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com2tag:blogger.com,1999:blog-7529291840811577380.post-5483426392773584222015-06-03T15:02:00.001-07:002015-06-16T11:31:52.639-07:00Please Don't Celebrate Failure!Silicon Valley and the venture capital industry were built on taking risks and making big bets on technology, teams, and markets. It's great that failure does not need to be worn as a scarlet letter as it does in other cultures or Hollywood...(wonder if a pic of Emma Stone will get a few new visitors to the ProfessorVC blog).<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJODKNe2Sdtbdq-isIh85bmkR-3O4wi-u8PYl39-j77mwbh57gq8ZW4SCw-ZmRl9WP5EdKCKAs14Xieaa-BtdaJgjzj4qBAdGOL_4uFWDBrc86zMMo7ujJLpvoQdImbjdb7WuH7yy7fPie/s1600/img-thing.jpeg" imageanchor="1" style="clear: right; display: inline !important; float: right; margin-bottom: 1em; margin-left: 1em; text-align: center;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJODKNe2Sdtbdq-isIh85bmkR-3O4wi-u8PYl39-j77mwbh57gq8ZW4SCw-ZmRl9WP5EdKCKAs14Xieaa-BtdaJgjzj4qBAdGOL_4uFWDBrc86zMMo7ujJLpvoQdImbjdb7WuH7yy7fPie/s1600/img-thing.jpeg" /></a><br />
I remember back in the day when VC's took risks and would invest in nascent technologies and markets. Now firms are more interested in piling on a late stage financing for an Uber or Slack after product/market has been de-risked and the only question is whether the sky high valuation will ultimately supported by the financial markets.<br />
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For a number of years (or at least since twitter has been around), the Silicon Valley echo chamber has publicly celebrated modest exits or acqui-hires. However, now, it seems that the pendulum has swung so far the other way that failure is being celebrated. Every week there is another post about "how we failed". Medium seems to be the platform of choice to promote your failures. <br />
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Here are a few:<br />
<ul>
<li><a href="https://medium.com/inside-wattage/well-we-failed-77e795e16ecf" target="_blank">Well We Failed</a>, </li>
<li><a href="https://medium.com/@brett1211/postmortem-of-a-venture-backed-startup-72c6f8bec7df" target="_blank">Postmortem of a Venture-Backed Startup</a> and </li>
<li><a href="https://medium.com/@jasonhuertas/my-startup-failed-6c54bd68c654" target="_blank">My Startup Failed</a></li>
</ul>
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I recently had a fireside chat with Dave McClure at SJSU where I questioned Dave about a blog post he wrote on failure, <a href="http://500hats.com/late-bloomer" target="_blank">late bloomer, not a loser (I hope)</a>. You can skip ahead to the 37:35 mark where Dave lets out the secret that writing about being a loser will get you a huge audience for your blog. <br />
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<br />
<iframe allowfullscreen="" frameborder="0" height="281" mozallowfullscreen="" src="https://player.vimeo.com/video/124534531" webkitallowfullscreen="" width="500"></iframe> <br />
<a href="https://vimeo.com/124534531">SVCE Speaker Series: Dave McClure</a> from <a href="https://vimeo.com/sjsucob">SJSU CoB</a> on <a href="https://vimeo.com/">Vimeo</a>.<br />
<br />
Perhaps, those entrepreneurs are just looking to make a few bucks with google AdSense and Commission Junction while figuring out next career move...<br />
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I agree it is good to share lessons learned with other entrepreneurs. Also, if it is cathartic for you to do a post-mortem for the world to see, I'm not going to stand in your way. However, where I draw the line is when failures are treated as less than a little speed bump on the road to success. FAILING SUCKS!! YOU ARE IN THE GAME TO WIN!! EMPLOYEES LOST THEIR JOBS AND INVESTORS LOST MONEY!!<br />
<br />
Ok, now it's time to reveal what got ProfessorVC's tighty whities in a bunch. I received this email from a CEO/founder of a company where I was an investor on April 14th at 8:29 PM:<br />
<blockquote class="tr_bq">
Thank you for your belief in me and the entire team. We had bold visions for how we were going to upend research and investment in the private market, and we wanted to make that vision a reality. Unfortunately, like many startups, we’ve run out of runway to execute. As of April 15, company will be effectively out of cash.</blockquote>
Yeah, you read that right! Oops. we're running out of cash tomorrow!! Oh well, we failed...This was with no advanced warning and only bullish statements on company's progress. It's one thing to be an optimistic entrepreneur but another to be delusional and reckless! Apparently the entrepreneur (can't tell you who it is but his name rhymes with Saul Pingh) was too embarrassed or arrogant to respond to my requests for answers and more info. Another investor had to threaten to have his lawyer make the next request before getting a call. It turns out there was ultimately an acquihire and investors may potentially receive a very small fraction of our investment back.<br />
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As an investor, I expect to lose money on many of my investments. That's part of being an angel investor and luckily the returns on the winners far exceeds the losses on the losers. However, if entrepreneurs are going to build their companies on other people's money, they need to communicate and work like hell to win! Sorry, contrary to popular belief among the millennials, there is no trophy for losing (actually, a quick google search shows there is one).<br />
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Please don't win one of these!<br />
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PostScript: <a href="http://dcinno.streetwise.co/2015/06/16/1776-acquisition-disruption-corp-out-of-cash/" target="_blank">The identity of Saul Pingh was discovered by a DC reporter Chris Bing</a> following in the footsteps of those other DC investigative reporters Woodward and Bernstein...Chris attended the celebration of the acquisition (pic below)<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQvb3fj1cWbKjOKrNRkEmfoufFcY4Fs-6BGJoLmn5IsZEj0jOG6i_gFTadS7ZExoFyqBv6otDiWVWtLhglcgn8U0Zs_v50KyQMg_TcDT0-sbQ-Wi_xocLRWvzWZ79yGFwlXDlaS2aKvqgW/s1600/1776-Crystal-City1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="262" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQvb3fj1cWbKjOKrNRkEmfoufFcY4Fs-6BGJoLmn5IsZEj0jOG6i_gFTadS7ZExoFyqBv6otDiWVWtLhglcgn8U0Zs_v50KyQMg_TcDT0-sbQ-Wi_xocLRWvzWZ79yGFwlXDlaS2aKvqgW/s400/1776-Crystal-City1.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="background-color: white; color: #777777; font-family: Georgia, 'Times New Roman', Times, serif; font-size: 15px; font-style: italic; line-height: 18.33333396911621px;">On April 16, the acquisition deal for Disruption Corp. by 1776 was announced. Those pictured include 1776 co-founder Evan Burfield (far left); Virginia Gov. Terry McAuliffe (center, behind podium); 1776 co-founder Donna Harris (to right of McAuliffe); and Disruption Corp. founder Paul Singh (far right). DC Inno photo.</span></td></tr>
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<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com11tag:blogger.com,1999:blog-7529291840811577380.post-40340830433119853402015-03-12T15:33:00.000-07:002015-03-12T15:33:05.361-07:00It might not be a bubble but sure as hell the rent is too damn high!The above was the opening salvo of a controversial tweetstorm yesterday by my former student and 500 Startups founding partner, Dave McClure (full venom below). <br />
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I've known Dave for 20 years and one of my favorite parts about him is that he will always tell you what he thinks and make sure you don't miss anything through creative use of profanity and CAPS. This tweetstorm really hits home (particularly #4 about founders getting paydays while angel investors lose money), although Dave says it better:<br />
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<blockquote class="tr_bq">
What is also fucked is with small exits $1-$10M, founders may get $1M paydays but angel investors at $5-$10M caps will lose money </blockquote>
I invested in my first AngelList syndicate about 9 months ago in the authentication startup, Authy. I started using Authy for two-factor authentication to provide greater security in my digital currency trading. It was a great product addressing a large market opportunity and was interested in seeing how the AngelList syndicate process worked. Suffice it to say when I saw the announcement that <a href="http://techcrunch.com/2015/02/24/twilio-acquires-two-factor-authentication-service-authy/" target="_blank">Authy was being acquired by Twilio</a> less than a year after making the investment, I was initially excited. As with all M&A exits, there was a round of congratulatory messages to the founder in the Silicon Valley echo chamber.<br />
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However, when I read the announcement and saw that the acquisition price wasn't disclosed, alarm bells started going off in my head. This is often a sign of an acquihire or very small exit. Also, a private company buying another private company is not a scenario I typically like, although Twilio certainly has excellent prospects and may go public this year, providing liquidity in the medium term. I already own stock in Twilio indirectly through a limited partnership interest in a venture fund and don't need to bet more on Twilio. I don't know the reasons for selling, but presumably Authy felt their prospects weren't promising as a standalone entity and may have had difficulty raising further financing. Due to confidentiality provisions, I can't disclose details, but there are many very unhappy participants who invested through the syndicate.<br />
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As a refresher, <a href="https://angel.co/help/syndicates?ref=how-it-works#what-is-a-syndicate" target="_blank">syndicates </a>were introduced by Angellist a couple of years ago as a way for companies to raise funds in small increments from a large number of investors (SEC limit of 99 accredited investors). Subsequently, they also introduced a platform for individual angel investors and funds to syndicate a piece of their investment in exchange for a carry on the syndicated portion. Syndicates can either be company led or investor led. In the case of Authy, it was company led, so the only fees and carry were to AngelList. Conceptually, the syndication process provides a way for companies to effectively conduct crowdfunding and angels to act as VCs.<br />
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While I find the theory of syndicates appealing, particularly for individuals that wouldn't have access to deal flow on their own, I'm generally not interested in paying additional fees and carry when I can invest directly on my own. If I'm going to pay a fee and carry, would prefer to invest in a venture capital fund, as the investments are being managed by professionals and have a duty to look out for LP interests.<br />
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However, I did want to check out the process to see if I might want to create my own syndicate. It was indeed very easy to review the investment opportunity and fund through a complete online process. Rather than owning a direct stake in Authy, I became a member of a single purpose LLC created by AngelList to invest in the offering. The entity invested in the same capped convertible note as other investors. AngelList's policy is to have the entity vote along with the majority of investors in the company (not the syndicate) when a shareholder (or in this case, debt holder) vote is required. <br />
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Once the specifics of the transaction were posted to the members of the AngelList syndicate, there was a heated discussion regarding how the transaction was valued in relation to the valuation cap. The board decided not to use an external valuation of Twilio's common stock that had been done the month prior to the acquisition, but instead come up with their own valuation methodology. Of course, this was favorable to holders of common stock (the founder being the largest shareholder) and in addition, the founder received additional benefits in the transaction, presumably at the expense of the debt holders.<br />
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Interesting thing about all of this is that one of the primary reasons Naval Ravikant started AngelList was to improve transparency in the investment process (along with access to deal flow). Transparency became a huge issue for Naval after he felt he was <a href="http://www.nytimes.com/2005/01/26/technology/26iht-dotcom.html?_r=1&" target="_blank">screwed by VC investors</a> prior to his startup (DealTime) being acquired by Epinions. In fact, he took the extra step and filed litigation against two Sand Hill Road firms, something that is rarely done When syndicates were announced in 2013, I had a <a href="https://twitter.com/naval/status/361279651022249985" target="_blank">twitter exchange with Naval</a> regarding the transparency issue in regards to the syndicate lead's investment.<br />
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Given the above, it is interesting that AngelList has been trying to avoid full transparency on the transaction. I have heard from many investors who think they got a raw deal. A number of the posts relate to how the Authy board determined the fair market value of the deal consideration, particularly in light of the board being controlled by the founder. One of the investors in the syndicate says some of his critical posts have been deleted and he has been bullied by someone on the AngelList team. While it may not be practical from a process or legal standpoint to have the individuals in the syndicate vote on corporate matters, they should be treated with complete transparency on the transactions rather than trying to decipher the hocus pocus on a deal. <br />
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My intention of the post isn't to bash AngelList. I have been a big fan of AngelList from day one and am definitely entrepreneur friendly. In fact, I have been on the platform since it's early days as a daily email sharing interesting angel opportunities. It has definitely grown up and become a major force in the entrepreneurial ecosystem. However, I will think long and hard before joining another syndicate.<br />
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At the end of the twitterstorm is a response from YCombinator's Sam Altman:<br />
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<blockquote class="tr_bq">
.@davemcclure just worry about trying to make 10,000x sometimes, and let founders who work really hard for years w/small exit keep the money</blockquote>
I understand where Sam Altman is coming from in his response and it's fine for him to look at the big picture and accept that for his own investments, but isn't right to expect other investors to be so magnanimous. Also, in this particular case it is a big ingenuous. Authy was a YC company, so Sam's firm held a 7% common stock equity stake and benefited from the other angels holding the short end of the stick. But as Dave says,<br />
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<blockquote class="tr_bq">
the truth of this matter is angels & small investors get FUCKED all the time by high cap debt, & founders don't seem 2 give a shit</blockquote>
If you are interested in drilling deeper in to this tweetstorm or discussing any other entrepreneurial topics, I am hosting a fireside chat with Dave on April 1 (No Joke!) at the new SJSU Theatre on campus as part of our <a href="http://www.sjsu.edu/svce/events/index.html" target="_blank">Silicon Valley Center for Entrepreneurship Eminent Speaker Series</a>. We are also looking to break the current campus record for most f-bombs in an hour. The event is free and open to the public. You can register <a href="https://www.eventbrite.com/e/fireside-chat-with-dave-mcclure-500-startups-founding-partner-and-most-prolific-silicon-valley-vc-registration-15984835072?aff=eivtefrnd" target="_blank">here</a>Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com7tag:blogger.com,1999:blog-7529291840811577380.post-51815387161676489512015-02-12T15:29:00.000-08:002015-02-12T15:29:08.681-08:00Is the Unicorn Endangered or Extinct?Before diving in to the topic at hand, I realize Professor VC has been gone for a long time. Although I don't blog for the sake of blogging, I am committed to writing more regularly this year. In fact, that was one of my New Year's Resolutions for 2015. My other was going to the eye doctor and I have an appointment for this coming Monday. Nothing like checking off your resolutions in the 2nd month of the year!<br />
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My favorite podcast is <u>This American Life</u>, hosted by my business school classmate Karen's brother, Ira. It is hit and miss from week to week, but stories are well researched, interesting, and often downright hilarious! One of my favorites is a Little Bit of Knowledge (Episode 293) that has stories on people who believe certain things such as childhood myths well past the age when they should.<br />
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In the episode, Kristy Kruger talks about picturing unicorns roaming the planes in Africa as a kid and being at a party many years later when the topic of conversation turned to endangered species:<br />
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It was about a group of five to seven people, kind of standing around the keg, just talking. And somehow a discussion of endangered species came up, in which I posed the question, is the unicorn endangered or extinct? And basically, there was a big gap of silence.</blockquote>
I doubt Aileen Lee of Cowboy Ventures believed that a horse with a horn existed when she wrote <a href="http://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club/" target="_blank"><i>Welcome To The Unicorn Club: Learning From Billion-Dollar Startups</i></a> in late 2013, but she probably had no idea that it would become a hot buzzword in Silicon Valley and hit the cover of mainstream business press, <u>Fortune Magazine</u>.<br />
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<a href="http://fortune.com/2015/01/22/the-age-of-unicorns/" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;" target="_blank"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1Xt3f5gp7ZRhpzAd73QWQY2BgiH3BltIm20VLLt9qsuY-8CwBy19-DQRWRq6yrPBDjJSgTRtuhfwBwN3i_KJo40ooQg6r3sPGe-Gk5-n5VvweALAozckVNP3QI6KiPhVRr795hTT0vT6z/s1600/Unicorn.jpg" /></a></div>
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The subtitle on the cover asks the question "At least 80 Tech Startups are Worth $1 Billion or More? Is this Boom for Real?" Before answering this question, it is good to at least address the B word (no not Billion, but Bubble). When I pulled the current issue of Fortune out of my mailbox, it reminded me of my reaction to another Fortune cover almost 10 years ago.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwVFC7YI5ijhW3qZksWgiHvzRM0_uH4x9uEG4iWKszKIWC-ICQjSxdDjKFIlVwM9U9FBdgK9sE_PTkKuzWDFUqusxrPHjT40zP2R8lo5vsKLLGNyvmFGk-mQGZqB6g-LmGXgMxJKW6KtU5/s1600/Real+Estate+Gold+Rush.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwVFC7YI5ijhW3qZksWgiHvzRM0_uH4x9uEG4iWKszKIWC-ICQjSxdDjKFIlVwM9U9FBdgK9sE_PTkKuzWDFUqusxrPHjT40zP2R8lo5vsKLLGNyvmFGk-mQGZqB6g-LmGXgMxJKW6KtU5/s1600/Real+Estate+Gold+Rush.jpg" /></a></div>
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When I pulled out the May 30, 2005 issue with Real Estate Gold Rush on the cover and posting the question "Inside the hot-money work of housing speculators, condo-flippers, and get-rich-quick schemers. Is it too late to get in?" My thought was not whether it was too late to get in, but how quickly one could get out! The article profiled one of the flippers:<br />
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"Zareh Tahmassebian is on the way to look at two of his houses in Phoenix. He is lost. Most people don't get lost driving to their own residence, but then, Tahmassebian has never actually been to these particular homes. There are a few reasons for that: (1) He has no intention of ever moving into them, (2) he lives in Las Vegas, not Phoenix, and (3) he owns six other houses--and a half share of seven more--in the greater Phoenix area. "Sometimes it's hard to keep track," he says. Tahmassebian, just 22, is a big, affable guy who dresses the way a budding young speculator should: black trousers, a blue-and-white-striped shirt, cuff links, a Cartier watch, black suede loafers, and rimless purple sunglasses. The son of Armenian immigrants, he has spent the past four years in Las Vegas working as a mortgage banker, a job that he says paid him $250,000 in salary and commissions last year."</blockquote>
I'm not about to compare the current state of private company valuations to the real estate bubble or even the dot-com bubble. The real estate bubble was practically a Ponzi scheme driven by greedy (is there another kind?) investment bankers, while the dot com bubble was driven by investment bankers willing and able to convince institutional and retail investors that companies didn't need to have a business model or even a way to exist without relying on additional investment.<br />
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No, the question today is not whether these unicorns are viable businesses. For the most part, they have proven that. The question is whether the valuations can be supported. For example, Uber (<a href="http://recode.net/2015/02/06/startups-and-loathing-crunchies/" target="_blank">not a startup but someone should let TechCrunch know</a>) is private and has a valuation greater than 70% of the Fortune 500. <br />
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Back in the day, tech companies typically went public at market caps in $100 - $250M range. Late private and early public investors were richly rewarded. With companies remaining private much longer today, most of the value appreciation is pre-IPO. I don't think the intent of <a href="http://www.accountingweb.com/topic/accounting-auditing/jobs-act-economic-solution-or-investor-nightmare" target="_blank">the JOBS Act</a> was to have companies remain private longer, but has had this result by increasing the investor limit prior to required reporting.<br />
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Former students who are readers of this blog may recall the <a href="https://cb.hbsp.harvard.edu/cbmp/product/899003-PDF-ENG" target="_blank">Amazon IPO</a> case from Entrepreneurial Finance class. Amazon priced it's IPO in 1997 at approximately $500M (the $18 IPO price was an increase from the $12-$14 range) and first trade was at $29.25 or a market cap of $800M. It's previous financing round was a little over a year prior to the IPO and was a $8M raise at a $60M pre-money valuation led by John Doerr of Kleiner Perkins. Kleiner got a markup of approximately 12X at the IPO. However, the bulk of the gains were earned post IPO as Amazon's current market cap is $175B or a 2,500X increase from the IPO. If Uber were to go public at its current private valuation, it would have a market cap of $100 Trillion. No company has ever crossed the $1 Trillion threshold. That wouldn't be a unicorn. That would be a unicorn mermaid and cyclops all rolled in one!<br />
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Again, we are talking about Amazon, a company that has completely disrupted the business of retail commerce among other things. We should also remember that Amazon went public at a time (Q2 1997) when many companies were pulling IPO filings because the market was beating up Internet valuations. In the year prior to Amazon's IPO, 23 Internet companies had gone public at valuations ranging from $63M to $485M, including Etrade ($380M), CNET ($211M), and First Virtual (79M). At the time of the Amazon IPO, most of these were trading at prices 50%+ less than the IPO price.<br />
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Benchmark Capital VC (and former tech analyst) Bill Gurley wrote a <a href="http://abovethecrowd.com/2014/01/24/on-bubbles/" target="_blank">post on bubbles</a> a year ago and took a lot of flack for it, but I tend to listen to a guy like Bill who has been around for several cycles and even more so to Warren Buffet who has been around for many more than Bill or I have:<br />
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"Warren Buffet has a famous quote, 'Be fearful when others are greedy and greedy when others are fearful.' Using this traditionally contrarian investment mindset, one would certainly tread with trepidation in today’s market. Although we may have not reached the level of observing obvious greediness, there is most certainly an absence of fear. Those that managed companies in 2008 or thirteen years ago in 2001 know exactly how fear feels. And this is not it."</blockquote>
This also gets me thinking of the old poker adage:<br />
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"if you are sitting around the poker table for 30 minutes and can't figure out who the sucker is, it's you." </blockquote>
I'm a pretty good poker player but can figure out relatively quickly when I'm outmatched. I don't want to be the last money in or the guy holding the bag. Recently, I was given the opportunity to invest in unicorns including Dropbox, Lyft, Palantir, and Spotify. I passed on all. Not because they aren't excellent companies, but primarily based on valuations. Is Dropbox at an $8B private valuation worth 4X more than Box as a public company? <br />
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For Lyft, it is much more painful. I was an informal advisor to the founders from the time they were the only two employees. In 2008, I made an investment offer of $250K for approximately 38% of the company ($400,000 pre-money valuation). The current valuation of $2B is 3,000X the proposed post-money valuation of that seed term sheet. (igthwghjg2q2g8hu4). Sorry about that. Just needed a good cry on the keyboard...Logan and John were wise to turn down the offer and continue to bootstrap Lyft (Zimride at the time). However, I imagine we could've gotten the deal done at a valuation in the $1M range.<br />
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Yes, I do believe that late stage valuations are out of whack but remain excited about early stage opportunities. Also, as the secondary market continues to mature, there will be many more opportunities to get liquid while companies are still private, reaping the rewards that early public investors would've had in days gone by.<br />
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Now back to our friend, Zareh, from the real estate flipper article. I was curious to find out what happened to him. I couldn't find a linkedin profile, but a quick google search did turn up a number of lawsuits and foreclosures.<br />
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If it sounds too good to be true, it probably is. Just like Unicorns as imagined by a child.Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com8tag:blogger.com,1999:blog-7529291840811577380.post-23714221738873318532014-03-05T13:01:00.000-08:002014-03-05T13:01:51.483-08:00Digital Currency and Bitcoinmania. Is ProfessorVC too Late to the Party?Perhaps if my intention was to be a 49er and join in the Gold Rush and speculative frenzy...Unfortunately as much as I'd like to make a quick buck as the next guy or gal, I've never been very good at timing the market.<br />
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For example, I was on the waiting list for close to a year prior to the first Tesla Model S rolling off the robotic assembly line in Fremont. When I finally bought the car in January, 2013, a single Bitcoin was worth $15. Had I skipped the car and bought Bitcoin instead, I'd have a nice $3.5M (assuming I didn't park it at Mt. Gox) and could buy 44 Teslas, enough for my entire extended family, a few students, and of course, some loyal readers of my blog. Of course, I would've missed out on picking up the car after the Tesla factory tour (pic below). I could've used the cash to buy Tesla stock at $33/share, which would now be worth over $600K. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZLa7QEpH6eeBGcWK98kTAWdBo7NJ2Gwyxiu6kts3dagsfXSc7IvMgKLZqwM-sKWB3rCVOmiS8V8_cuNyeLxcjH4pUW2-Z6jESvtlZigrUv0DrcESWFVfIo46QpY1qgy29NKlh97hoLs9v/s1600/2013-01-26+12.58.25.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZLa7QEpH6eeBGcWK98kTAWdBo7NJ2Gwyxiu6kts3dagsfXSc7IvMgKLZqwM-sKWB3rCVOmiS8V8_cuNyeLxcjH4pUW2-Z6jESvtlZigrUv0DrcESWFVfIo46QpY1qgy29NKlh97hoLs9v/s1600/2013-01-26+12.58.25.jpg" height="240" width="320" /></a>Congratulations to those early miners and speculators who made a killing on Bitcoin. For the rest of us, it is early days in the digital payments space and fortunes will be made by those starting, investing, and working at companies building payment infrastructure and applications.<br />
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We are excited to announce the<a href="http://www.marketwired.com/press-release/CrossCoin-Ventures-Launches-Digital-Currency-Accelerator-1885508.htm" target="_blank"> launch</a> of <a href="http://www.crosscoinventures.com/" target="_blank">CrossCoin Ventures</a> today, a Digital Currency Accelerator investing in entrepreneurs building on and advancing the Ripple ecosystem in collaboration with <a href="https://www.ripplelabs.com/" target="_blank">Ripple Labs</a>. Ripple Labs also announced it's <a href="http://www.paymentssource.com/news/ripple-casts-for-developer-talent-with-new-portal-accelerator-3017165-1.html" target="_blank">developer portal and support of the CrossCoin accelerator</a>. <br />
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For those not familiar with Ripple, it is an open-source, distributed payment protocol. It enables
nearly free and instant payments to merchants, consumers and developers
with no chargebacks and in any currency -- including dollars, yen,
euros, and even Bitcoin. Ripple's goal is to make payments just like communications -- global, distributed, instant and free. Ripple Labs developed the protocol, promotes it's use, supports developers, and builds applications and SDKs to enhance it's utility worldwide. If interested in learning more, here is a <a href="https://ripple.com/ripple_primer.pdf" target="_blank">great primer</a> to get started.<br />
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Why are we bullish on digital currency and Ripple specifically? The banking industry is antiquated, inefficient and not built to support many areas of the information economy, including international commerce, financial services for the underbanked, and microtransactions. Friction and fees are prevalent and we are beginning to see consumer adoption of alternative currencies with Bitcoin the obvious leader. We love that Ripple works with Bitcoin, traditional currencies, and any other unit of value from frequent flyer miles to loyalty cards and in the future will support smart contracts for the exchange of specific assets. <br />
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Some people make the analogy of digital currencies being at the same stage the Internet was at in 1994. Huge new Internet businesses were created at that time and one of my partners in CrossCoin, <a href="http://en.wikipedia.org/wiki/Gary_Kremen" target="_blank">Gary Kremen</a>, invented online dating with the founding of Match.com. Clearly, we are not alone in this belief as many astute investors including <a href="http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/?_php=true&_type=blogs&_r=0" target="_blank">Marc Andreessen</a>, <a href="http://bitcoinviews.com/lightspeed-vc-jeremy-liew-loves-bitcoins-heres-why/" target="_blank">Jeremy Liew</a>, <a href="http://cdixon.org/2013/12/31/why-im-interested-in-bitcoin/" target="_blank">Chris Dixon</a> and <a href="http://www.businessinsider.com/fred-wilson-heres-why-im-investing-in-bitcoin-2013-5" target="_blank">Fred Wilson</a> are backing companies in this space. <br />
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If you are an entrepreneur or developer interested in leveraging the ripple ecosystem and looking for capital along with help in launching and building your business, we'd love to hear from you. Some of the areas we are interested in involve remittance, wallets, analytics, along with other enterprise and consumer applications. We are open to all ideas. You can find more information and contact us at <a href="http://www.crosscoinventures.com/" target="_blank">CrossCoin Ventures</a>.Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com4tag:blogger.com,1999:blog-7529291840811577380.post-88086075668975413022013-10-18T13:42:00.000-07:002013-10-18T13:42:24.402-07:00What's wrong with Academia......partly, it might be a guy named Ivgot Tenure (not his real name). I recently got in a flame war with a colleague in the marketing department that started with one of those emails Deans like to send out recognizing a faculty member who was awarded with an Endowed Professorship.<br />
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Ivgot Tenure responded to the dean, entire faculty, and the recipient of the appointment with a screed on another perk for administrators and nothing for peasants (his words) like him. I generally let these things go, but since this was far from the first one of his rants, I decided to call him on it (see embed on exchange below for the gory details if you wish...)<br />
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<iframe class="scribd_iframe_embed" data-aspect-ratio="0.772922022279349" data-auto-height="false" frameborder="0" height="600" id="doc_12126" scrolling="no" src="//www.scribd.com/embeds/177200700/content?start_page=1&view_mode=scroll&access_key=key-1mwxnmeqhin29sgxe4et&show_recommendations=true" width="400"></iframe> <br />
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One important thing to note about the endowed position is that it was funded by a donor interested in the work being done by that professor or the position at the University. The budget situation for the California high ed system is in bad shape and unlikely to get materially better in the forseeable future. The mission of the CSU is to provide high-quality, affordable higher education. I won't debate the overall quality here, but the affordable piece is clearly challenged. State support has gone from close to 100% 15-20 years ago to close to 50% at undergraduate level and much less at graduate level today. My grad school alma mater (Anderson School at UCLA) was getting so little state funding, it said "to hell with it" and <a href="http://www.insidehighered.com/news/2012/06/08/ucla-faculty-approves-plan-end-state-funds-mba-program" target="_blank">declared self sufficiency</a>.<br />
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My experiential classes (<a href="http://www.sjsuelab.com/" target="_blank">ELAB</a> and <a href="http://www.sjsuelab.com/vlab.html" target="_blank">VLAB</a>) require external funding as hard to justify small class sizes. Luckily, we have donors interested in supporting the work we are doing in entrepreneurship at SJSU. <br />
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Back to my buddy Ivgot Tenure. Unlike a commercial enterprise, he does not need to produce results. His job is safe due to our tenure system. I am a firm believer in the tenure system as it relates to academic freedom. However, a non-productive byproduct is that it provides a shield that protects faculty members who are not good educators nor producing valuable research. It is also interesting that Ivgot refers to himself as a peasant when it is actually the non-tenured junior faculty and adjuncts who could make that claim.<br />
<br />At the end of our tete-a-tete, I did what I should've done at the beginning. I blacklisted Ivgot so I don't have to see any more of his whining. I'll just focus on teaching and providing my students opportunties to work in the new venture ecosystem and build their own startups. Hopefully, many will be successful and able to fill some of the growing funding gap in the future.Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com4tag:blogger.com,1999:blog-7529291840811577380.post-78555781783989800762013-07-25T12:16:00.001-07:002013-07-25T12:16:26.927-07:00Pari Passu or F.U...little guy<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: left; margin-right: 1em; text-align: left;"><tbody>
<tr><td style="text-align: center;"><img border="0" height="337" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZBZOKgo-xC-LYdBW-As7k1T81N_raAIhBes6Z98BFhKu9AbrAcJGtQvSDFYf0hKJqK0HGxC1pnt_sThAURGzaHWjqx0-cnAvANcyQKhTGvBhyphenhyphenf_2KI0pCkC2LdyIxjtUPvQ9S-bpEQEY9/s400/Markkula-and-Jobs.jpg" width="400" /></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Mike Markkula presenting Steve Jobs with first investment in Apple</td></tr>
</tbody></table>
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I recently watched an excellent documentary on PBS, <a href="http://www.somethingventuredthemovie.com/" target="_blank">Something Ventured: Risk, Reward, and the Original Venture Capitalists</a>. It is the story of the founding of the venture capital industry in Silicon Valley and features many of the iconic companies created including Apple, Intel, Genentech and Cisco. VCs profiled include Arthur Rock, Tom Perkins, Don Valentine, Dick Kramlich, Reid Dennis, Bill Draper and Pitch Johnson (fathers of the industry). Yup, no women, unfortunately, and industry is still male dominated over 40 years later.<br />
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The documentary is well worth watching. It is both entertaining and a stark contrast to today's venture climate, that is dominated by sharp elbows and the focus on personal gain and self promotion (or the more acceptable term of creating a "personal brand").<br />
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Perhaps, I'm becoming an old curmudgeon, but I like the focus on working together to create something really big. This is the feeling you get from watching the venture capitalists talk about the entrepreneurs and other investors in the film.<br />
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Pari Passu is a term that was used quite frequently in the early days of the venture industry and even when I got my feet wet in the late '80s and early '90s. <a href="http://en.wikipedia.org/wiki/Pari_passu" target="_blank">It is a Latin phrase that means "on equal footing" and has been translated to mean "ranking equally", "hand in hand", and "fairly" according to Wikipedia</a>. In investment parlance, it strictly means that new classes of stock have equal rights with prior classes in terms of liquidation preference, voting rights, etc.<br />
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However, I view pari passu as a more intrinsic definition that goes beyond simple legal definitions. I'm a strong believer in fairness (although my daughters may not agree) and investors and entrepreneurs working together as a team to create something valuable to all stakeholders (customers, employees, founders, investors). Startup outcomes tend to be very binary. The company either fails and provides little or no return to investors or is a success and returns a multiple to investors. Yes, there are a number of cases in the middle where having a senior or participating preference does make a difference in liquidation proceeds, but I argue that it does very little to overall returns in a diversified portfolio.<br />
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I've witnessed a lot of bad behavior by investors recently, along with other examples of greed that stray far from pari passu. I'm all for transparency, but won't be naming names in this post as I don't want to put some entrepreneurs in a difficult position. However, I'm sure some of ProfessorVC's readers will recognize themselves or others in these examples. It's also interesting how a lot of this resembles toddler behavior on the playground from "show me a little more love" to "mine mine mine" and of course, the classic playground bully.<br />
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One area I've noticed a lot more recently are angel investors and seed stage funds trying to grab a little bit extra, whether it's warrants for leading the round, advisor shares to go along with the investment, or a common stock stake for just being who they are. Entrepreneurs are put in a difficult position as they are trying to get a round closed, benefit from having certain investors committed, but at the same time can't feel very comfortable having to tell prospective investors they aren't getting the same deal. I always ask the question if other investors have different terms and almost always don't invest on principal in these cases.<br />
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Another closely related area is that of variable pricing on convertible debt or equity deals where different investors have different caps. Generally (but not always) it is investors that came on board a little earlier. As regular readers of this blog know, I'm not a fan of convertible deals to begin with, and it is difficult for me to internalize how value in the company has been created in the two weeks a cap goes from $3 million to $5 million. I have turned down several of these types of transactions recently.<br />
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Seems like my rant is picking up steam now. I was working closely with an entrepreneur and introduced another angel investor to the company. We considered a joint investment in the company and the entrepreneur decided not to take funding at the time. A year or so later, the entrepreneur did raise a round from a seed stage fund that wanted to have most of the round, but the guy I introduced was able to invest, while I got left on the outside. Company has now raised over $70 million and is growing rapidly. Yes, the entrepreneur could've worked to get me in the round, but not the easiest position when you are a young CEO raising your first round. The other investor could've certainly lobbied to get me an allocation.<br />
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Another area where I'm not sure I stand is with some of the more formal referral and syndication programs that are emerging now. Funders Club (<a href="http://www.professorvc.com/2012/08/democratization-of-angel-investing.html" target="_blank">which I've written about previously</a>) recently launched a <a href="https://fundersclub.com/refer/" target="_blank">referral program</a> where angels can receive 10% of the carried interest in a deal they refer that ultimately gets investment from an FC fund. Since this only impacts the investors participating in the deal through FC, I don't have a big problem with this, although not something I would participate in. Not sure how much value in just a referral, but also going back to pari passu, I'm just as likely to refer the next opportunity and am happy investing at the same terms on one I refer as one that you refer.<br />
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AngelList (which I remain a big fan) also recently launched a <a href="https://angel.co/help/syndicates" target="_blank">syndicate program</a>. In this program, an angel can ask the entrepreneur for an allocation of the round and then syndicate through AngelList. It is assumed that the angel has done diligence and will be working with the company going forward to earn a carried interest from others investing in the syndicate. Effectively, the angel is acting as a VC and works in a similar manner to a pledge fund, where a firm's LPs commit on a deal by deal basis. I could see potentially getting involved in this type of transaction, but am curious if the investor is committing to the full allocation whether she can syndicate or not. If it is contingent, then this could provide some perverse incentives.<br />
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Finally, I have to bring up some bad behavior by a name Sand Hill Road firm (SH). An entrepreneur received two Series A term sheets, one lead by an international investor and the other from SH. The seed round had participation from two venture firms that were committed to doing their pro-rata and seed round was done with a very clean term sheet (1x preference, non participating, no anti-dilution). SH wanted a senior preference over the seed investors (full disclosure: I'm one) and we tried to push back that precedent was being set for Series B and whoever comes after them, to demand the same, which will negate the value of their seniority at A. Unfortunately, not everyone follows the KISS principle. Their response was that we should be happy they didn't ask for a participating preference on top of the seniority. Lucky us!!<br />
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We went ahead and accepted the term sheet, partially due to the fact that they knew the company well from 3 months of diligence, had expertise in the domain, and promised a quick close in 3 weeks from term sheet signing. Well, those 3 weeks came and went, and they decided they weren't sure about the market and needed to get other partners in the firm on board. That is VC speak, for get ready to bend over...After several meetings with different partners, principals, venture partners and associates, they scheduled a partner meeting for one month after the original close date to decide if they wanted to move ahead. They did get the partners on board on the condition that the term sheet is renegotiated at a lower valuation. Don't know why I'm thinking of Kevin Bacon from Animal House all of a sudden. "Thank you sir, may I have another!"<br />
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Just in case you are forgetting at this point, I'm not a pollyanna. It's also not a Rodney King "Can't we all just get along" thing. I'm a capitalist, a CFO and investor. I know it's all about capital and using wealth to create more wealth. However, Wall Street was never an appealing destination for me (unlike the majority of my Wharton classmates) and as much as I snickered, I liked it when VCs started referring to their investments as projects rather than deals. The venture industry has clearly changed and grown since the early days profiled in Something Ventured, but it would be good not to forget all of the lessons shared in the documentary.<br />
<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com3tag:blogger.com,1999:blog-7529291840811577380.post-70982877276087250502013-05-07T14:19:00.000-07:002013-05-07T14:19:01.239-07:00RIP Blackberry...I finally quit you<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjncFHoypfLhIjAwaqQoiJr4GMkH4j6cSmbKywK9TWfAzoiKdF6QLZPE2gfnMK8AwBZG45lqP6Qa4VzUFAScSbBeCuRKArupi_eYku6rWdfA7arW4n3SOsUH-yxT2iImsPgfGvuGHeXg1k5/s1600/RIP.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="214" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjncFHoypfLhIjAwaqQoiJr4GMkH4j6cSmbKywK9TWfAzoiKdF6QLZPE2gfnMK8AwBZG45lqP6Qa4VzUFAScSbBeCuRKArupi_eYku6rWdfA7arW4n3SOsUH-yxT2iImsPgfGvuGHeXg1k5/s320/RIP.jpg" width="320" /></a></div>
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0ci36jjQhcMyfF11o5mgmQIj3s-rvX77vZXaOoofmkF-h9PFwrTDf7YpggJVw5RYnwnxmPHhKWDb77BngavKo10g1Kx2ZCCCzFKbiDg5nARJbxAjsU2GmWV4qpSzbhBZHx4jO3hyphenhyphen7X6Wq/s1600/Brokeback_mountain.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0ci36jjQhcMyfF11o5mgmQIj3s-rvX77vZXaOoofmkF-h9PFwrTDf7YpggJVw5RYnwnxmPHhKWDb77BngavKo10g1Kx2ZCCCzFKbiDg5nARJbxAjsU2GmWV4qpSzbhBZHx4jO3hyphenhyphen7X6Wq/s200/Brokeback_mountain.jpg" width="135" /></a>Over the past 15 years, I've probably been one of the most loyal blackberry users on this side of the Canadian border. The running joke when I'd pull out my blackberry among a sea of iphones was that I was Jake Gyllenhall's character in Brokeback Mountain and my beloved blackberry was Heath Ledger. "Blackberry, you sonofawhoreson bitch! I wish I knew how to quit you." Well, I finally did it two weeks ago and entered the Android camp with a Samsung Galaxy S4. I'm still getting used to the device and sorely miss the blackberry keyboard, but not much else. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi37iXbi8IXwbsvJLiWbBkKNZlBm0JiXamnZ6A7x4_GJoIoIBV-tDpB9TAk_3ARuqi2jOWTxoTEGSWh9SMks5wwjb5yfBqjVi1cc6oz6Ma4IN0pwvp4AIIps1yVB_ByTwqzaWjiGyaaIQ9n/s1600/rim+pager.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi37iXbi8IXwbsvJLiWbBkKNZlBm0JiXamnZ6A7x4_GJoIoIBV-tDpB9TAk_3ARuqi2jOWTxoTEGSWh9SMks5wwjb5yfBqjVi1cc6oz6Ma4IN0pwvp4AIIps1yVB_ByTwqzaWjiGyaaIQ9n/s200/rim+pager.jpg" width="200" /></a><br />
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<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; text-align: left;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjg4rD2AXqSrfii7lD1xPqj-1UsxqDEbNXKuufCEZ6-CBZ5HuGKKXda1UrZdCVj98tHbQK6fvvJaSFJk18K3Fa6Vc_aJ9W9G-Jbx4rdK5zdD1VHrmlsdlwEh9rKUsnJb-g00vjgbSfmMjEi/s1600/richochet-palm.jpg" imageanchor="1" style="clear: left; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjg4rD2AXqSrfii7lD1xPqj-1UsxqDEbNXKuufCEZ6-CBZ5HuGKKXda1UrZdCVj98tHbQK6fvvJaSFJk18K3Fa6Vc_aJ9W9G-Jbx4rdK5zdD1VHrmlsdlwEh9rKUsnJb-g00vjgbSfmMjEi/s200/richochet-palm.jpg" width="146" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">My Original Mobile Email Device</td></tr>
</tbody></table>
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My love affair with RIM started with my first blackberry I purchased in 1998 - the fat pager pictured above. This was years before "crackberry" entered the lexicon and became a must-have for every ibanker and lawyer in a Brooks Brothers suit in New York along with the jeans clad techies and VC's in Silicon Valley. At the time, it's only purpose was email and the occasional lighter substitution at a rock concert to beg for another encore. It wasn't the first time I had email on the go (see picture on the right), but was a much slicker solution than the combination of Ricochet wireless model and Palm Pilot (now there's a story to tell the grandkids - reminds me a bit of those annoying AT&T Uverse commercials). I even had an unoffical antique museum or perhaps mausoleum to my beloved blackberries buried in <br />
<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmRp0h4Glc7gtjlUnFiArAWwuUQOi7fPpgZ4ZNwiV7RoZvKt0a92EOwbM-FY8-IwsTDDyPjIuZMrraY4TzDA23i-vxW7lnVYp7lmnrKE1VCOp4I5AAusBNL0tBPONOqDvg17W8Q0p7ll5R/s1600/blackberry+antiques.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="179" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmRp0h4Glc7gtjlUnFiArAWwuUQOi7fPpgZ4ZNwiV7RoZvKt0a92EOwbM-FY8-IwsTDDyPjIuZMrraY4TzDA23i-vxW7lnVYp7lmnrKE1VCOp4I5AAusBNL0tBPONOqDvg17W8Q0p7ll5R/s320/blackberry+antiques.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Blackberry Mausoleum</td></tr>
</tbody></table>
my desk drawer containing many retired devices. <br />
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I hung on to my Bold waiting for the very late arriving OS 10. As the launch of the Z10 got delayed again, I finally began to consider the switch. However, even up until a few weeks ago, I was considering hanging on for the Q10 to experience the slick new operating system and still have the trusty blackberry keyboard. <br />
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When the Z10 finally showed up in March, I paid close attention to the reviews and analyst reports. I was even amused by the<a href="http://www.huffingtonpost.ca/2013/04/12/blackberry-returns-probe_n_3068585.html" target="_blank"> <span class="st"><em>tête</em>-à-<em>tête</em></span> between the Blackberry CEO and Analyst over reports that the Z10 was experiencing very high return rate.</a> I stopped in the local AT&T store to get my hands on the new device. When the salesman approached me, I asked him about the phone and if they were selling a lot of them. He gave me a look, scratched his head, and responded with "nope". If you ever want to know how products are doing in the marketplace, often better off visiting the point of sale than reading a bunch of analyst reports. With a dwindling market base, nobody is going to develp on the platform, which is a death knell for anyone in the smartphone business. That was the final straw! I decided it was time for a divorce.<br />
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So where did Blackberry go wrong? Where didn't they??? In addition to a number of product failures (Storm, Torch, Playbook) and a really crappy web browser, the biggest issue was probably the hubris of the founders. Rather than anticipating or even coming up with a competitive response to the iPhone, the <a href="http://articles.businessinsider.com/2011-07-13/tech/29979631_1_rim-jim-balsillie-iphone" target="_blank">Co-CEO Jim Balsillie spent several years trying to buy an NHL team</a>. The other co-CEO Mike Lazridis was famously quoted as saying that nobody would want "the equivalent of a personal computer on a phone". I (and many others) believe the company could've been saved if it had adopted android several years ago. <a href="http://www.sfgate.com/technology/businessinsider/article/RIM-Must-Switch-To-Android-Now-Before-It-s-Too-2535477.php" target="_blank">In August 2010, Dan Frommer wrote an article declaring that RIM must switch to Android before it is too late</a>. At the time, RIM still had the leading share of the smartphone OS market at 18%, with Android (17%) and iOS (14%) close behind. Shift to 3 years later and it's game over. Android has 52%, iOS 39% with Blackberry (5%) and Windows (3%) with also ran status. Once Windows passes Blackberry, it may be time for hari-kiri.<br />
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So what am I going to do with that desk drawer full of blackberries? Not sure what I'll do with most of them, but I did put my most recent Bold up for auction on eBay and surprisingly someone paid $194 for it, only $5 less than I paid for my new Samsung S4. Guess there are blackberry fans still out there, but can't imagine there will be for much longer. <br />
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<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com8tag:blogger.com,1999:blog-7529291840811577380.post-48524982511419927342013-03-11T21:06:00.000-07:002013-03-11T21:06:06.620-07:00Was Launch the right platform to Launch?While the rest of Silicon Valley is slamming drinks at SXSW in Austin and trying out the mobile app <a href="http://techcrunch.com/2013/03/08/bang-with-sxsw/" target="_blank">Bang with Friends</a>, I'm sitting in my office thinking about last week's <a href="http://conference.launch.co/" target="_blank">Launch Festival</a>. Seriously, Bang with Friends?? We decided to launch SocialParent at the conference (full disclosure: I'm an adviser, part-time CFO and investor). <br />
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<a href="http://www.socialparent.com/" target="_blank">SocialParent</a> is a social network for those who have moved beyond the Bang with Friends stage, have settled down, had a family and are looking for a social network that mirrors their real life social network.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigw8EcQ5mnwCQYY5WPjW-AVwBSmuv7x2f-Y8viYuI4Xsz0ca5O6ccqqRwZdX24H6JC38dggFx13SkjGLqqtaN9-vmBzA67Axbhm67dHvIiaYmOnB6Ar0lGiTAfcQMH6JmQieAjn0MhEwwv/s1600/modernfamily.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigw8EcQ5mnwCQYY5WPjW-AVwBSmuv7x2f-Y8viYuI4Xsz0ca5O6ccqqRwZdX24H6JC38dggFx13SkjGLqqtaN9-vmBzA67Axbhm67dHvIiaYmOnB6Ar0lGiTAfcQMH6JmQieAjn0MhEwwv/s200/modernfamily.jpg" width="165" /></a> <br />
My proposed tagline for the company was "Powering the Modern Family"
(with pic below), but the CEO (Reza Raji) shot that one down and
reminded me that I was the CFO and not in charge of marketing. I do
love the tv show, but if they all used SocialParent, they wouldn't get
involved with nearly as many predicaments as they would be on top of
their schedules and where the rest of the family was at any given time.<br />
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(For more info <a href="http://www.socialparent.com/" target="_blank">download the app</a> or listen to SocialParent CEO explain the service on PandoDaily below). <br />
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The founding duo of SocialParent (Reza Raji and Gerry Gutt) were also co-founders of <a href="http://www.icontrol.com/" target="_blank">iControl Networks</a>, where I was also an investor and part-time CFO. We used the <a href="http://www.demo.com/" target="_blank">DEMO conference</a> in 2005 as the launch vehicle for iControl and got me thinking about how the seed funding landscape has changed in the past eight years.<br />
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In 2005, incubators were thought of as either bubble era disasters or university science projects. The term accelerator wasn't in the vernacular and <a href="http://ycombinator.com/" target="_blank">YCombinator</a> had yet to set their first class free. <a href="http://www.firstround.com/" target="_blank">First Round Capital </a>(one of the early entrants in the post bubble seed/micro VC funding category) was just getting going and it's primary focus was investing in companies coming out of DEMO. The term "super angel" had yet been coined, and Naval and Nivi were several years away from sending out the first interesting deals email which ultimately became <a href="https://angel.co/" target="_blank">AngelList</a>. Demo days were weeks spent hiking up and down Sand Hill Road not a single afternoon when you can pitch to 150 angel investors and VC's. <br />
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When we launched iControl at DEMO in 2005, the conference was not the only show in town, but was definitely a big deal. Investors and press would flock to the desert to see future hot startups unwrap their products and mature tech companies show off their latest and greatest. It was expensive ($20K+) but no better way to get major mainstream and tech press coverage, not to mention interest from venture capitalists. 6 minutes on stage were truly a CEO's 15 minutes of fame. There was a ton of energy, great networking and the jam sessions were epic!<br />
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The next time I went to DEMO was 2010 and it had moved from a nice resort in Scottsdale, to a Hyatt Hotel in Santa Clara, right in the middle of Silicon Valley. The energy level was much lower, the startups less interesting, and the jam session gone...I've found through the years that conferences are much better when attendees aren't stopping by between the office and meetings. I wrote a post forecasting the demise of the conference, <a href="http://www.professorvc.com/2010/09/are-demos-days-numbered.html" target="_blank">Are DEMO's days numbered?</a> I'm surprised it is still around in 2013, but am sure the selectivity criteria has changed to whoever is willing to pay.<br />
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The Launch Festival was Jason Calacanis' response to the pay-to-play of DEMO and other similar conferences. Launch is a bit of an entrepreneurial orgy (not in a Bang with Friends kind of way). It is held at the San Francisco Design Center (125,000 sf), had over 5,000 attendees, a massive Hackathon up in the loft, demo pit with over 150 companies, and a cavernous hall where the entrepreneurs took to the stage and Jason held fireside chats with a number of interesting entrepreneurs and investors. I had the opportunity to judge the Hackathon and was blown away by what the teams were able to build over a weekend. The winning team (WizzyWig) flew in from Pittsburgh and walked away with over $100K in cash prizes!<br />
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While the investors and press made up a relatively small number of the attendees, the overall vibe of the conference was great. One new addition to the conference was a crowdfunding simulation in partnership with MicroVentures. I imagine the original intent was to make this real, but with the SEC dragging their feet, this provision of the JOBs Act is far from final. The simulation was interesting, and was glad to see SocialParent finish on top of the leaderboard.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGj9i4aoRRSB4uWClHjYeBFfH-vOJREOi1y9JVC3Wh75T9PgzGx7xGExrOpVhcCqnXW2IjSykFRl7bMVt2YZ6TbJzYmkrsq1XIVKxc-VuLTSPsI8dZzoa0t6AAS-RORlMRR-MGQ8bPkGLk/s1600/Crowdfund.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="177" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGj9i4aoRRSB4uWClHjYeBFfH-vOJREOi1y9JVC3Wh75T9PgzGx7xGExrOpVhcCqnXW2IjSykFRl7bMVt2YZ6TbJzYmkrsq1XIVKxc-VuLTSPsI8dZzoa0t6AAS-RORlMRR-MGQ8bPkGLk/s400/Crowdfund.png" width="400" /></a></div>
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Hopefully, we can turn that fake investment to real financing. You can watch the real investment meter go up on <a href="https://angel.co/socialparent" target="_blank">AngelList</a><br />
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Back to my original question on whether the Launch Festival is the right platform to launch your start-up. It obviously depends on a number of factors, one of which is timing. At a conference held once a year, this is clearly important. For SocialParent, timing was good. Also, as experienced entrepreneurs, an accelerator program wasn't that appealing. For many entrepreneurs, you'll get more investor traction and press coverage out of a YCombinator, 500 Startups or AngelPad demo day.<br />
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However, I definitely look forward to Launch 2014. I hear Jason is looking for a bigger venue. I wouldn't doubt him and perhaps he can even give those folks in Washington a nudge to make the crowdfunding real next year. Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com10tag:blogger.com,1999:blog-7529291840811577380.post-90316067336243052092013-02-11T09:13:00.000-08:002013-02-11T22:30:11.905-08:00Immigration Reform: Now or Never?ProfessorVC celebrated his 50th birthday this past week in his hometown of Washington, DC, with visits to the Capitol Hill and the White House to meet with legislators and White House officials on immigration reform. It was a very timely visit and hopefully our group along with many others descending on Capitol Hill over the coming weeks will help spur action.<br />
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Our delegation was led by Carl Guardino (CEO of Silicon Valley Leadership Group) and Greg Becker (CEO of Silicon Valley Bank) and included a number of young Silicon Valley CEO's, VC's, and university representatives. I fell in to all three camps representing San Jose State University, Startups (through my CFO/board roles) and Investors (with my angel investor hat on). We met with a wide range of legislators from both sides of the aisle, including Senators Orrin Hatch (R-UT) and Dianne Feinstein (D-CA), and Representatives Luis Gutierrez (D-IL), Mario Diaz-Balart (R-FL), Raul Labrador (R-ID), Bob Goodlatte (R-VA), David Schweikert (R-AZ), Lamar Smith (R-TX) and Jeff Flake (R-AZ). We also had breakfast with our local house delegation of Zoe Lofgren, Anna Eshoo, Mike Honda, Jackie Speier and Eric Swalwell (the junior member who happens to be tall and decided to stand in front of me in the picture below.) At the White House, we met with Cecilia Munoz (Director, Domestic Policy Counsel), Ari Matusiak (Executive Director Office of Business Liaison), Doug Rand (Policy Advisor Science and Technology), and Nick Sinai (advisor to US CTO).<br />
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For somebody who grew up in DC and has high school classmates in both the Senate and House, but have been geographically removed for the past 25 years, it was very interesting to get a glimpse of the political machine, but it also confirms the reasons I've spent the past 25 years in Silicon Valley.<br />
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We had the opportunity to meet with people behind the four major proposals that have (or will) be put on the table since the end of January: Senate (Gang of Eight), Senate (I-Squared), House, and White House. We were specifically advocating to fix the broken H1-B and Green Card programs and to provide visas and green cards to startup entrepreneurs and STEM degree holders.<br />
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Along with my academic colleagues on the trip from Stanford, Berkeley, and UC Santa Cruz, I've had many exceptional students take advantage of our higher education system and then be forced to return home after graduation to work at and build companies. One of my recent students went through the 500 Startups Accelerator, raised $1M in funding and is now in process of building the next <a href="http://www.business-standard.com/article/companies/will-the-next-instagram-come-out-of-bangalore-112111200019_1.html" target="_blank">Instagram in Bangalore</a>, at least according to the Business Standard, India's leading business daily.<br />
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The backlog of those waiting for employment and family visas is huge (estimates at 4.5 million and <a href="http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/31/how-long-is-the-immigration-line-as-long-as-24-years/" target="_blank">wait times as long as 24 years</a>), not to mention those playing the visa lottery and dealing with per country caps. 120,000 tech jobs are available every year, yet we can only fill 40,000 of these. Over half of the graduate students in STEM related fields are from outside the U.S. We are providing them skills and sending a majority back home. In addition, we have many college students and graduates who came to the US as children, have been educated here, consider the US their home, yet can't legally work. According to the Center for American Progress, an estimated 2.1 million youth (out of approximately 12 million total undocumented population) could be given a pathway to citizenship with the DREAM Act. This could add $329 billion to the US economy and create 1.4 million new jobs by 2030. Comprehensive reform would address both the high tech skilled worker issues as well as DREAM Act and agricultural workers.<br />
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A few takeaways from the trip:<br />
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<ul>
<li>Go Big or Go Home (similar to the venture capital model). Baby steps aren't going to happen. If it doesn't, many of these legislators will be sent back after 2014 mid-term elections and could also be a stain on Obama's legacy. It seems clear that the people spoke last November (Mitt, you could've
played this one better), but that doesn't necessarily move the political
football down the field. While Orrin Hatch seems to believe a narrow solution (I-Squared) can be a starting point with additional reforms added afterward, most of the democrats we met with and the White House officials believe nothing short of comprehensive will pass. We pushed Hatch to at a minimum add the Startup Visa to his proposal, but he was concerned with the challenge of adding a new visa category. He believes that the O-1 Extraordinary ability visa covers this, but that feels like a kluge to me. </li>
</ul>
<ul>
<li>The government is trying to get more entrepreneurial. The US CTO is looking for "bad ass entrepreneurs" (White House term) for the next group of <a href="http://www.whitehouse.gov/InnovationFellows" target="_blank">Innovation Fellows</a>. These 6-12 month paid stints are a great opportunity to get involved if you are between start-ups or can get a leave from your tech employer. We also met with the SBA, which seems to be trying to make working with the government much more startup and investor friendly, although for some reason it was easier to enter the West Wing of the White House than the SBA. One of the guys we met with (Andrew Lee) is an EIR at the SBA and came from Zynga who bought his start-up, Jam Legend.</li>
</ul>
<ul>
<li>Blackberry is alive and well in DC. Haven't seen so many blackberries since before the launch of the iPhone. And many of these look like they date from early in Obama's first term. </li>
</ul>
<ul>
<li>Pictures aren't allowed in the West Wing (go figure) so was forced to take this picture of me and the Jarrett Fishpaw (the 25-year old mayor of Los Altos) outside the White House gates. Yes, it was not only my 50th birthday that made me feel old.</li>
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What can you do? Write your legislators! Visit Washington! Apply to be a Presidential Fellow! Just get involved! As one of my mentors advised me years ago, if you don't get involved in the solution, you can't complain about the problem. Good advice I'll take in to my next 50 years...<br />
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<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com18tag:blogger.com,1999:blog-7529291840811577380.post-73478637307721512472012-12-26T15:36:00.000-08:002012-12-26T15:41:58.991-08:00Series A Crunch...just Darwin at work<br />
As December and 2012 draws to a close, I've decided to weigh in with my thoughts on the impending (or not depending on which blogs you read) Series A Crunch. It seems that The Series A Crunch has been discussed almost as much as the Mayan calendar this month and I've mostly sat on the sidelines figuring that if the world were really going to end, I had better things to do than write a blog post. Alas, we survived 12/21 and looks like we will have to get back to work in 2013.<br />
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For those readers not already familiar with this concept, it refers to the bottleneck for Series A financing created by the increasing number of seed financings and constant number of Series A financings. While this has been discussed ad nauseum on twitter and the blogosphere, I have relevant perspective given my three different roles in the new venture ecosystem - investing in seed deals as an angel, raising seed investment as a start-up CFO and teaching entrepreneurial finance as a Professor. <br />
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I'll summarize some of the varied opinions and data before weighing in with my own thoughts. A good place to start for data is <a href="http://www.cbinsights.com/blog/trends/seed-investing-report" target="_blank">CBInsights' Seed Investing Report- Startup Orphans and the Series A Crunch</a>. According to their research, 2,283 companies received seed funding over a 5-quarter period beginning Q3 2011. Out of these companies, 102 have received follow-on funding and 212 have been acquired (or more likely acqui-hired). Out of the remaining 2,200, they estimate that 1,200 will not be able to raise follow-on financing (see visual explanation below) and $1 billion in angel investment will likely evaporate.<br />
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Is this a high success rate? Is this a low success rate? Is this Armageddon? Depends on who you read. Sarah Lacy started this round of debate a few weeks ago with <a href="http://pandodaily.com/2012/11/28/the-series-a-crunch-is-hitting-now-have-we-even-noticed/" target="_blank">The Series A Crunch is hitting now</a>. Jason Calacanis responded and argues in <a href="http://blog.launch.co/blog/there-is-no-series-a-crunch.html" target="_blank">There is No Series A Crunch</a> that this is a non-issue and up to the seed financed start-ups to prove they are worthy. If there are more companies that have met Series A milestones and metrics, VCs will increase the number of Series A financings. If you are entrepreneur that isn't in a position for Series A, find other financing sources and/or figure out how to bootstrap to cash flow breakeven or in Jason's words "put on your big boy undies". Sarah, of course, responded with <a href="http://pandodaily.com/2012/12/25/jason-is-wrong-winter-is-coming-and-revenues-arent-the-answer-for-everyone/" target="_blank">Jason is Wrong</a>. Have we reached the "<a href="http://www.urbandictionary.com/define.php?term=Jane%2C+you+ignorant+slut!" target="_blank">Jane, you ignorant slut</a>" point?<br />
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For those who haven't already left this post to catch the latest YouTube cat video, let me see if I can bring these divergent opinions together. I did finally chime in on the twitter discussion yesterday:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgY1qdikmZe56wwse8X_U-eXUOQV7N30Hl_IGZQ2w7m0whwZmGwer46XTvEixMeV9waYbH8oMeCj7bwt9ctIm0iTJnZ9ouNdriS_rKbyzP-3VMe4EX6IpMGyhqJaRQfcPICkCvhoKeULLuC/s1600/Series+A+twitter.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgY1qdikmZe56wwse8X_U-eXUOQV7N30Hl_IGZQ2w7m0whwZmGwer46XTvEixMeV9waYbH8oMeCj7bwt9ctIm0iTJnZ9ouNdriS_rKbyzP-3VMe4EX6IpMGyhqJaRQfcPICkCvhoKeULLuC/s400/Series+A+twitter.png" width="317" /></a></div>
I first <a href="http://www.professorvc.com/2011/04/why-i-hate-convertible-debtlet-me-count.html" target="_blank">blogged about this topic</a> almost two years ago when I called out the large number of convertible debt seed financings that weren't going to have any conversion event. It turns out the financing instrument probably isn't as material as I had thought, although it doesn make the mechanics different. From an investor standpoint, I've discovered there actually can be greater leverage with convertible debt if the appropriate protections have been included. I've had a couple of deals where investors were paid out a multiple on exit and in a better position than if holding preferred stock, where the payout would have been subject to escrow and over multiple years.<br />
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Is it a good thing that so many entrepreneurs are able to get $250K - $1.5M in seed financing? HELL YES!!! Investors know (or damn well should) the risk they are taking in making seed investments. The accelerators clearly know the game and the ground rules. If as CBInsights posits, $1B is going to be lost by angels in seed financings, one Instagram makes most of that back and presumably there will be positive returns on a material percentage of the remaining companies.<br />
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Giving more entrepreneurs the ability to step up to the plate is a good thing. I love the accelerators and am a regular on Demo Days for 500 Startups, YC, AngelPad and others. However, many of the graduates of the accelerators aren't even companies, let alone businesses. They are projects and experiments. These are part of the entrepreneurs' education. Learn how to build a product, pitch investors, raise a small amount of angel funding, hire the early team, acquire users, sell, iterate. If it works, great. If not, move on and join another team or come up with another idea with the same or different co-founders. With my academic hat on, this is wonderful. I specialize in experiential education and there is no better way to learn entrepreneurship than doing it.<br />
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My recommendation used to be that it was best to do this learning on someone else's dime and would advise students to spend a few years working in a start-up or potentially large tech company before doing own start-up. However, they now can still do this on someone else's dime, but it is the angel investor and not an employer. As an angel, do I take this kind of gamble? Sometimes, if I feel the opportunity is big and the team is fully committed. But generally, I'm also looking for those proof points that go beyond what most entrepreneurs coming out of an accelerator have. Domain expertise is critical and many of these entrepreneurs don't have enough.<br />
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So, what are the key takeaways for entrepreneurs besides pulling up their big boy (or girl) undies:<br />
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<ol>
<li><b>Keep your options open</b>. Don't raise seed financing with only one path to raise Series A. I'm not a fan of "Go Big or Go Home". That works great for big venture funds with a broad portfolio, but not so good for an entrepreneur committed to a market opportunity. Have a plan for Series A, but also have a plan for slower growth, intermediate funding, and a route to cash flow breakeven. </li>
<li><b>Seek appropriate financing</b>. Most businesses don't fit the
venture model and if that is your only path, the most likely outcome is
hitting the wall. I always hate when folks disparage an entrepreneur
who is building a "lifestyle business". If you can build a business
that provides a good income, doing something you love, living where you
want, and pursuing passions outside of the business, more power to you.
I'm guessing that's how Richard Branson started and he seems to have a
nice lifestyle.</li>
<li><b>Nothing wrong with a cash flow business</b>. Follow around a middle market private equity investor for a few months and you will likely discover some businesses that have great cash flow potential. Unless yoru only end game is being acquired (and if so read point 1 above again), the experiments need to yield a business model that can create a sustainable business that isn't dependent on continued funding to remain off life support.</li>
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That advice should work in good times, bad times and all those in between. Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com2tag:blogger.com,1999:blog-7529291840811577380.post-16942122605627886502012-08-14T17:49:00.001-07:002012-08-14T17:49:44.106-07:00Democratization of Angel InvestingI had a conversation recently with Alex Mittal, Co-founder and CEO of <a href="https://thefundersclub.com/">FundersClub</a> (FC) and decided to revisit my <a href="http://www.professorvc.com/2011/11/crowdfunding-good-idea-or-really-really.html">blog post</a> from last fall that was skeptical of crowdfunding for angel investments. FC is the latest Kickstarter type site to launch to give entrepreneurs the opportunity to raise financing from a large number of individuals. Some of the current services act on the investment bank model and either facilitate transactions between investors and companies (i.e. <a href="http://www.microventures.com/">Micro Ventures</a>) or provide a secondary marketing between investors (i.e. <a href="https://www.secondmarket.com/">Second Market</a>). <br />
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FC's approach is much more akin to the deal flow and social proof model of AngelList, with the ability to make small investments in a number of companies. Since the provisions of the JOBS Act relating to angel investments by non-accredited investors haven't been finalized yet, these platforms are currently only available to accredited investors, who already have the ability to make angel investments. However, there are many pieces of the FC model that are intriguing.<br />
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First, a little background on the company. FC is a YCombinator (YC) company in the current Summer '12 class that will be pitching at next Tuesday's Demo Day. The site has recently launched and all of the 6 companies on FC are part of the same YC cohort. Only one transaction has closed to date. Surprise! Surprise! It is FundersClub, so good to see they are eating their own dog food, in VC parlance.<br />
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In many respects, the service is similar to the way Angel Groups operate, or at least the way Sand Hill Angels, where I was a long time member does. Individuals pool their cash in to a single purpose entity to make the investment in the company. Individuals can make smaller investments in a number of companies, gaining portfolio diversification benefits. And the company has only one investor on the cap table but can (if they wish) take advantage of a larger group network. On FC, you can see who else is investing, invest with a few clicks, and see how the round is coming together by viewing a real time thermometer. Very cool! I had always thought AngelList would go in this direction and this indeed may be on their roadmap. You can connect to FC through Facebook and LinkedIn, but not AngelList...Investors pay a one-time 12% administration fee on top of the investment amount. This may seem steep, but is certainly cheaper than the annual 2% management fee and 20% carry of a typical venture fund. Of course, this is comparing apples to oranges.<br />
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One of FC's goals is to expand the pool of investors. While I will be attending the YC Demo Day next week along with many other Silicon Valley Angels, this is not a public event and difficult to attend for those out of the area. Anyone can now have access to many of the highly competitive investment opportunities. In addition, the angel investment process can be time consuming and daunting to those not familiar with venture deal terms. Now, if you wish, you can make investments as small as $1,000 in several companies in a matter of minutes.<br />
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I'm curious as to how the SEC will view FC. The site was designed with the very simple registration process we are all demanding, including checking a couple of boxes to prove you are an accredited investor. It is no more difficult to move through this than all of the under 13-year olds who have facebook profiles by checking that they are 13 or up. I'm guessing (if FC proves successful) that there will be unsophisticated unaccredited investors making investments and that the SEC may see this as a public offering of securities. On SecondMarket, there is a much more rigorous interview process and an electronic signature is required.<br />
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I still don't see FC as a place I'll make many investments and the administrative fee seems like it will have a material impact on returns, but could prove a great way to have your own angel investment portfolio with aggregate investment amount of $50K instead of $500K-$1M. Jury is still out, but I'm excited to track their progress and am optimistic that there will be a successful angel investment crowdfunding platform. <br />
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I wouldn't bet against FundersClub. Unfortunately, I can't bet on them. I was on vacation last week and missed out on investing in FundersClub through FundersClub before the opportunity closed. Perhaps, there will still be an opportunity to invest the old fashioned way, but signing a bunch of docs and writing a check. <br />
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<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com2tag:blogger.com,1999:blog-7529291840811577380.post-19677483283262717302012-07-16T12:17:00.001-07:002012-07-16T12:17:59.945-07:00Angel Groups Panning for GoldProfessorVC just returned from an Alaskan vacation and was mortified to realize it was almost six months since the last blog post. One of our stops was in Skagway, which became the biggest city in Alaska during the Klondike Gold Rush. Most of the prospectors came up empty and of those who did strike gold, most lost their new found wealth through bad investments or dealings with swindlers. This got me thinking about the "suckers bet" of angel investing and how most don't strike gold for a variety of reasons. Interesting enough, it was an entrepreneur (John Nordstrom) who was able to get out of town with his gold and opened a <a href="http://en.wikipedia.org/wiki/Nordstrom">little shoe store in Seattle</a>.<br />
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Earlier this year, I left <a href="http://www.sandhillangels.com/">Sand Hill Angels</a>, the angel group I was actively involved with since 2005. I've been meaning to share my thoughts about angel groups and will do so in an upcoming post. In the meantime, I ran across the recent <a href="http://www.svb.com/halo-report/">Halo Report</a> on angel group investing prepared by Silicon Valley Bank.<br />
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Some of the nuggets from the report are summarized in the infographic below.<br />
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A few of my takeaways:<br />
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<ul>
<li>Interesting that 81% of deals completed outside of California. This compares with less than 50% of venture deals being outside of California. I would guess that overall angel investments are greater than 50% in California, which means that angel groups are active in areas where VCs and individual angels are not. With deal velocity so great in Silicon Valley along with the large numbers of experienced entrepreneurs and investors, there is little need to associate with an angel group.</li>
</ul>
<ul>
<li>Median pre-money valuation of $2.5 million also indicates a majority of deals being done outside of California, where I would guess the median is closer to $3.5M. There are a number of reasons for the premium, not the least is the cost of engineering talent. </li>
</ul>
<ul>
<li>Internet dominates total deals while Healthcare received the largest share of funding. If you add mobile, ratio is greater than 2:1 on deal basis and a little higher on funding. With the low cost of creating these companies, they are a good fit for angel groups that can move quickly, make a number of bets and have the ability to follow-on. Healthcare (primarily medical device companies) are very well suited for angel investments. At Sand Hill Angels, we invested in a number of these medical device companies that had serial entrepreneurs, patents filed, low valuations, and clear paths to exit. The investment thesis made sense from both sides as funding could get to (or though FDA) and requirement for further funding was low.</li>
</ul>Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com2tag:blogger.com,1999:blog-7529291840811577380.post-71289954305532528122012-01-19T09:53:00.000-08:002012-01-19T09:54:00.485-08:00Rebuild our Inner Cities one Venture at a time?As an active participant in the Silicon Valley new venture ecosystem and entrepreneurship educator, I'm intrigued by the recently announced program <a href="http://ventureforamerica.org/">Venture for America</a> (VFA). VFA is sending high achieving recent college grads into small businesses and start-ups in inner cities.<br /><br />Conceptually, this is very intriguing and goes against the current popularity of accelerators in start-up hubs (Silicon Valley, New York, Boston, Seattle, Boulder) that are filled with recent grads and drop outs looking to build the next web sensation. I am a big fan of the accelerator programs and while most of the companies coming out won't be successful, many will, and all of the graduates will receive a tremendous education. Many will likely be successful in subsequent ventures and you can't start your second company until after you've done your first. <br /><br />VFA is taking a different approach to fostering entrepreneurship. It is modeled after <a href="http://www.teachforamerica.org/">Teach for America (TFA)</a>, a program that sends high achieving college grads into inner cities as teachers. These have become very high sought after jobs as TFA has been successfully recruiting students that would otherwise be going to McKinsey or Goldman Sachs. Rather than spending 80-100 hours per week on Wall Street, these students spend 80-100 hours per week creating lesson plans and learning how to teach disadvantaged children. While certainly a laudable mission, I question how many of these teachers actually remain in the career vs. using TFA as the golden ticket to Stanford Business School, Harvard Law or other select grad school.<br /><br />VFA's tagline is "Mobilizing graduates as entrepreneurs" and is "A program for <span class="red">young, talented grads</span> to spend 2 years in the trenches of a start-up with the goal that these graduates will <span class="red">become socialized </span><span class="red">and mobilized as entrepreneurs</span> moving forward." In an <a href="http://www.inc.com/articles/201108/the-future-applicants-to-venture-for-america.html">Inc magazine article on VFA</a>, one student is quoted:<br /><blockquote>I've applied to a ton of companies," she says. "I have this entrepreneurial mindset that I have to work at a start-up and do marketing, but every company I have applied to, whether it was a start-up or not, said they found someone more qualified or I didn't have enough experience."</blockquote>Nothing against Ashley from UVA, but that is not how you go about finding a job in a start-up. You network! You attend start-up events! You go hang out at the engineering school! You find companies you are passionate about and where you can offer solutions to problems! You don't send in a bunch of applications. Is this the kind of individual that is going to create jobs in inner cities? I don't know, but I'll bet against her. <br /><br />Couldn't you accomplish the same thing within the university environment? That is what I am doing with the <a href="http://sjsuelab.com/">ELAB program</a> at San Jose State University. (<a href="http://blogs.sjsu.edu/today/2012/e-lab-provides-students-experience-in-the-start-up-world/">Entrepreneurship Lab Provides Students Work Experience in Start-up World</a>) We have had 50 students through the first four offerings of the program and almost 50% have received job offers at the end of the semester for either full time jobs or paid internships. All have received tremendous experience not available in a typical academic setting.<br /><br />Back to Venture for America. I hope they are successful in creating companies and jobs in inner cities. Clearly, we live in a bubble in Silicon Valley and our economy is rarely in sync with the nation as a whole. If the rest of the country were experiencing the new company growth, hiring challenges, decreasing office vacancies and rising rents that we are in the Bay Area, the economy wouldn't be the top issue in the presidential campaign. In fact, nobody outside of the far right would care about the Republican primaries as Obama's reelection would be a fait accompli. Politics aside, as the Beach Boys sang, "Wouldn't it be nice"...Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com5tag:blogger.com,1999:blog-7529291840811577380.post-78450172582285296382011-11-14T11:05:00.000-08:002011-11-14T11:05:03.264-08:00Crowdfunding - Good Idea or Really, Really Stupid Idea?<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUbHJOB3sUgzsXMJyZpaJ6nK2uHkotWJZd_vsBW2T18ry-Sz5_fuyfWQb_HA58IWpr4FrWj87GvK0JBp0HHcMljkXAtdW8yXfizuIyoQnpsoU2ZSx1Ti_zonjrrKpRuOYCPpjzp9weEyBe/s1600/100_dollar_bill_fire_hc.gif"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 280px; height: 254px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUbHJOB3sUgzsXMJyZpaJ6nK2uHkotWJZd_vsBW2T18ry-Sz5_fuyfWQb_HA58IWpr4FrWj87GvK0JBp0HHcMljkXAtdW8yXfizuIyoQnpsoU2ZSx1Ti_zonjrrKpRuOYCPpjzp9weEyBe/s320/100_dollar_bill_fire_hc.gif" alt="" id="BLOGGER_PHOTO_ID_5674912897559568402" border="0" /></a><br />Last week, the House of Representatives passed the <a href="http://www.govtrack.us/congress/billtext.xpd?bill=h112-2930">Entrepreneur Access to Capital Act (H.R. 2930)</a>, commonly referred to as Crowdfunding. Since small businesses are responsible for the vast majority of new jobs, legislators believe that these new rules will make it easier for entrepreneurs to raise capital and ramp up hiring. In theory, this sounds like a great idea. However, in practice, this will be very bad.<br /><br />I won't go into the details of the bill, but at a high level, it allows entrepreneurs to raise funds over the Internet up to a maximum of $1M annually (or $2M with audited financials). Maximum investment from each individual investor would be the lesser of $10K or 10% of annual income and investors do not need to be sophisticated. These investments would be exempt from registration under the <a href="http://en.wikipedia.org/wiki/Securities_Act_of_1933">1933 SEC Act</a>.<br /><br />There is a reason the SEC exists. I can't remember if the SEC was one of the government agencies that <a href="http://2012.talkingpointsmemo.com/2011/11/snl-relives-rick-perrys-debate-flub-video.php">Rick Perry wants to get rid of (but neither can he</a>), but it seems like this is the exact type of investor that the SEC was set up to protect. Angel investments are highly risky and I would estimate that over 90% provide no return to equity investors. This is why 25-30 investments are required to achieve proper diversification as an angel. 10% of an individual's income is a very high amount and there will be many scenarios where non sophisticated investors will invest in multiple companies and going over the limit by simply checking a box in an internet form.<br /><br />You may be thinking, "Ah, ProfessorVC is concerned about more competition in his angel deals". I like the way you are thinking, but not true! At the end of the day, very few entrepreneurs say "I wish I had raised less money"...and very few angel deals are truly oversubscribed, no matter what the press release says. More funding at the seed level is a great thing! Just not from investors who can't afford to lose the cash.<br /><br />I often speak on panels and am often asked questions about what are the qualifications to be an angel investor.<span style="mso-spacerun:yes"> </span>My response (only partially tongue in cheek), is to hold a $100 bill on one hand and a lighter in your other.<span style="mso-spacerun:yes"> </span>Light the bill.<span style="mso-spacerun:yes"> </span>Are you calm?<span style="mso-spacerun:yes"> </span>If so, do it another 5-10 times.<span style="mso-spacerun:yes"> </span>If you are still ok, then you are probably fit to be an angel.<br /><br />Clearly, there are benefits to making it easier for entrepreneurs to raise seed funding. I'm an active participant on <a href="http://angel.co/sbennet">AngelList</a> a fan of the excellent accelerator programs (<a href="http://ycombinator.com/">YCombinator</a>, <a href="http://500.co/">500 Startups</a>, <a href="http://www.techstars.org/">TechStars</a>, <a href="http://angelpad.org/">AngelPad,</a> etc.), and an investor in <a href="http://rightsidecapital.com/">Right Side Capital Management (RSCM)</a>. RCSM is seeking to add scale to angel investing through a highly automated screening, evaluation and diligence process.<br /><br />However, I'm just not comfortable with where this legislation is going. Crowdfunding will likely be well received by scam artists and lead to many startup investment pitches in your spam folder along with those for viagra and male enhancement. More importantly, this could lead us down the road we've already traveled with day traders and real estate flippers...At the very earliest stage, this is the realm of friends & family and if you are comfortable taking investment from your fraternity brother, not so rich uncle or brother-in-law, be my guest.Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com10tag:blogger.com,1999:blog-7529291840811577380.post-78265175687615902602011-09-26T14:32:00.000-07:002011-09-26T14:33:46.455-07:00Card Counting for Investors<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDYF46fd-lrl6DxxnO9a28ALI3R1716p2FMK8sS0kl-mrFrwlFUGInx6AU9AIzAvz_r16qj-o-dXxgsWzaSn2JSOvSO7h09gRtwG4gOwLv0cR1ayZrXTUO72bE4Ut_YRj5h9vfFUVMDwRM/s1600/moneyball-poster.jpg"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 215px; height: 320px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDYF46fd-lrl6DxxnO9a28ALI3R1716p2FMK8sS0kl-mrFrwlFUGInx6AU9AIzAvz_r16qj-o-dXxgsWzaSn2JSOvSO7h09gRtwG4gOwLv0cR1ayZrXTUO72bE4Ut_YRj5h9vfFUVMDwRM/s320/moneyball-poster.jpg" alt="" id="BLOGGER_PHOTO_ID_5656776203799322658" border="0" /></a><br /><br />How would Billy Beane have done as an early stage investor?<br /><br />I haven't had a chance to see Moneyball yet, but did read Michael Lewis' book when it came out eight years ago. However, I have seen some blog posts posing the question about whether the same principles of valuing baseball players could be applied to entrepreneurs.<br /><br />Dan Frommer, in <a href="http://www.splatf.com/2011/09/moneyball-for-tech-startups/">Moneyball for tech startups</a>, interviewed Fred Wilson, Chris Dixon, Paul Graham and Ben Horowitz on the topic. According to Dan, the consensus "seems that this sort of technique is possible. And given that four of the most important tech investors in the world seem skeptical of it, if someone can figure out a good formula that works, they may be able to exploit it".<br /><br />Well, I think I know the guys that can do it! I've written previously about <a href="http://www.rightsidecapital.com/">Right Side Capital Management (RCSM)</a>, the latest in my post earlier this year, "<a href="http://www.professorvc.com/2011/01/how-much-diligence-is-due.html">How Much Diligence is Due...</a>" (Full disclosure: I am an investor and adviser in RCSM.)<br /><br />RCSM's premise is that they can reach an investment decision (and valuation) based on an application completed by the founders and take gut feel out of the decision process. Below is a short description of their philosophy:<br /><br /><blockquote>"The part of our philosophy that makes us most different from other startup investors is that we don't believe gut feel is a reliable indicator of potential at the seed stage. Humans are just not very good at simultaneously integrating that much uncertainty to form a judgement. So we focus on specific aspects of a proposed venture that we can evaluate with minimal ambiguity. Over time, we plan to build increasingly sophisticated evaluation methods based on hard evidence."</blockquote>I'm still not convinced that "gut feel" isn't a good way to invest at the early stage, but this can certainly get rid of over-thinking and provides diversification and investments in entrepreneurial teams that would be otherwise overlooked. They have launched a <a href="http://www.rightsidecapital.com/demostart.html">valuation tool</a> that is free to try out. I encourage entrepreneurs to give it a shot and let me know what you think.<br /><br />RCSM is also participating in the <a href="http://techcrunch.com/2011/09/21/startup-incubator-techstars-raises-24m-increases-funding-for-each-company-by-100k/">TechStars funding alliance </a>that will be providing an offer of $100K in funding upon acceptance into the program. This will give RSCM the opportunity to test out their process on the large number of TechStars applicants.<br /><br />Also interesting that some of the guys behind RSCM are professional poker players who have a deep appreciation for odds and statistics. In the trailer below, Brad Pitt in describing the new player acquisition philosophy, says "we are card counters at the blackjack table we're going to turn the odds at the casino"<br /><br /><br /><object id="flash53775" classid="clsid:D27CDB6E-AE6D-11cf-96B8-444553540000" height="224" width="400"><param name="movie" value="http://flash.sonypictures.com/video/universalplayer/sharedPlayer.swf"><param name="allowFullscreen" value="true"><param name="allowNetworking" value="all"><param name="allowScriptAccess" value="always"><param name="flashvars" value="clip=3596&feed=http%3A//www.sonypictures.com/previews/movies/moneyball.xml"><embed src="http://flash.sonypictures.com/video/universalplayer/sharedPlayer.swf" type="application/x-shockwave-flash" flashvars="clip=3596&feed=http%3A//www.sonypictures.com/previews/movies/moneyball.xml" allownetworking="all" allowscriptaccess="always" allowfullscreen="true" height="224" width="400"></embed></object><br /><br /><br />I look forward to checking out the movie and seeing if RSCM can exploit the odds on early stage investing.<br /><br />P.S. ProfessorVC is happy to have been included as one of the <a href="http://www.acceleratedonlinedegree.net/professor-blogs">50 Best Professor Blogs<br /></a>Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com3tag:blogger.com,1999:blog-7529291840811577380.post-18498244231064672592011-08-26T15:15:00.000-07:002011-08-26T15:18:48.931-07:00Waah...Do I have to build a financial model?I get asked this question a lot by entrepreneurs (and students). I often feel like a Dad (which I am to two wonderful teenage daughters) when I respond, "Yes, because I say so"...Everyone seems to know someone who has raised huge amounts of venture capital without ever putting together even back of the envelope projections. The objections range from "it's hard", "nobody believes them" to "all hockey sticks look alike". To that last one, there is certainly some truth as the standard time vs. revenue chart in most business plans looks like this:
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<br /><img style="width: 358px; height: 254px;" 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JIgigAAAEASRBEAAABIgigCAAAASRBFAAAAIOn/A24ZQmtKr2UhAAAAAElFTkSuQmCC" alt="" />
<br />
<br />I'm not teaching Entrepreneurial Finance this semester for the first time since Fall 2007. However, I am teaching the <a href="http://sjsuelab.weebly.com/">ELAB</a> and a new experimental course (The Silicon Valley Experience) for the MBA program. Since I won't have the opportunity to lecture students on this topic until the spring semester, I'll share some of my thoughts here and perhaps can have a dialog on the topic. High level, building the financial model forces the entrepreneur to:
<br /><ol><li>Validate the concept and business model</li><li>Determine financing needs and key milestones</li><li>Build credibility with investors
<br /></li></ol>I used to also argue that it supports your proposed valuation, but on an early stage deal that is a bit far fetched to get in to a valuation discussion based on your pro-forma projections. The importance is what is behind the numbers. How do you think? What are the key drivers and metrics? Is the model consistent with the business plan? Does the business model make sense? Do you understand the business and market? The process of building the model forces you to answer the difficult questions related to the business model and give a complete picture of the opportunity. Most importantly, how are you going to make money? What did you expect from a long time start-up CFO?
<br />
<br />Related to this, I got an email from an entrepreneur this week interested in meeting with me. Unfortunately, I don't have time to take all of these requests, but always try and help where I can so offered to respond by email. Thought it would be appropriate to share his questions and my answers below related to the topic at hand:
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presentation of documents to VC's. </p> <p class="MsoListParagraph" style="margin-left:36.75pt;text-indent:-18.75pt; mso-list:l0 level1 lfo1"> <span style="mso-fareast-font-family: "Times New Roman""><span style="mso-list:Ignore">1.)<span style="font:7.0pt "Times New Roman""> </span></span></span>Does a complicated sales build model make sense for a pre-revenue SaaS company? Analyzing each step of who comes to the website organic, paid, conversions etc</p> <p class="MsoNormal"><span style="color:#1F497D"> </span><b><i><span style="font-size:11.0pt;font-family:"Calibri","sans-serif"; color:#1F497D">[SB] Having a bottoms-up model is helpful. Of course, this is all hypothesis at this point, but you want to make sure that your assumptions are consistent with market realities for other SAAS companies. Byron Deeter has a good <a href="http://www.bvp.com/Team/Byron-Deeter.aspx">blog post on SAAS metrics</a>.</span></i></b><span style="font-size:11.0pt;font-family:"Calibri","sans-serif";color:#1F497D"></span></p> <p class="MsoListParagraph" style="margin-left:36.75pt;text-indent:-18.75pt; mso-list:l0 level1 lfo1"> <span style="mso-fareast-font-family: "Times New Roman""><span style="mso-list:Ignore">2.)<span style="font:7.0pt "Times New Roman""> </span></span></span>How should you include market comps? I don't like doing top down models, but I want to make sure the numbers are based on the other people in the markets.</p> <p class="MsoNormal"><span style="color:#1F497D"> </span><b><i><span style="font-size:11.0pt;font-family:"Calibri","sans-serif"; color:#1F497D">[SB] It is good to have a top down that is consistent with your bottoms-up, so I’d recommend doing both. </span></i></b><span style="font-size:11.0pt;font-family:"Calibri","sans-serif";color:#1F497D"></span></p> <p class="MsoListParagraph" style="margin-left:36.75pt;text-indent:-18.75pt; mso-list:l0 level1 lfo1"> <span style="mso-fareast-font-family: "Times New Roman""><span style="mso-list:Ignore">3.)<span style="font:7.0pt "Times New Roman""> </span></span></span>How much needs to be shown in the form of a cashflow statement, and balance sheet? Also, do you show accounts payable/receivable in these as they are not accurate or real?</p> <p class="MsoNormal"><span style="color:#1F497D"> </span><b><i><span style="font-size:11.0pt;font-family:"Calibri","sans-serif"; color:#1F497D">[SB] I include all of the statements in my models to be complete, but nobody should care about this on a prospective basis. For actuals or short-term projections, much more important. When I look at a model, I care most about the assumptions around the business model. I want to get a good idea of the drivers and what is most important for success. I also want to know how you think about the business and how well you know the market, which becomes apparent through how the model is constructed.</span></i></b><span style="font-size:11.0pt;font-family:"Calibri","sans-serif";color:#1F497D"></span></p> <p class="MsoListParagraph" style="margin-left:36.75pt;text-indent:-18.75pt; mso-list:l0 level1 lfo1"> <span style="mso-fareast-font-family: "Times New Roman""><span style="mso-list:Ignore">4.)<span style="font:7.0pt "Times New Roman""> </span></span></span>Would you put the assumptions/variables on one page that drives the numbers throughout the spreadsheet, or do you put them above each month so they can be altered monthly. </p> <p class="MsoNormal"><span style="color:#1F497D"> </span><b><i><span style="font-size:11.0pt;font-family:"Calibri","sans-serif"; color:#1F497D">[SB] Ideally, it is good to have all of the assumptions in one tab, so it makes it much easier to do sensitivity analysis. I like to have one tab with assumptions and one tab with summary financials and key metrics. If the model is constructed properly, you don’t really need to look beyond these. I also typically, write a text document summarizing the assumptions, validation for the assumptions and key metrics. However, sometimes (particularly in the early periods when annual is too long a period), you may want to have some of the assumptions on a monthly basis within the appropriate tab. I often do this in the revenue tab.</span></i></b><span style="font-size:11.0pt;font-family:"Calibri","sans-serif";color:#1F497D"></span></p> Hope that was some helpful advice from ProfessorVC. Feel free to chime in with your thoughts.
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<br />I'm heading up to the mountains with the family this evening and should probably get ready for that other common Dad question coming from the back seat, "When are we going to be there?"
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<br />One final note: After labeling myself as "the last blogger in Silicon Valley", I am now doing the same thing on twitter. Wanted to make sure it was going to catch on...You can follow me <a href="http://twitter.com/#%21/professorvc">@professorvc</a>, and hopefully will comment more frequently than this blog.
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<br />Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com1tag:blogger.com,1999:blog-7529291840811577380.post-53220775200914309112011-06-20T13:41:00.000-07:002011-06-20T13:41:30.424-07:00How much is enough?<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAR6EYp0-E-HfBlEP0SA1bwrefjdJqTvOte3iNAA8hcyVP4_J_f2iwxNnu79h31aYK-j6gAzXK-cXLJ52clyqTg-9hx3MwsAxaeNEVeXb4Nts04jpi2lipBtuOOjSbooJV7y9UotEOra5X/s1600/Steve+Bennet+042204.jpg"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 320px; height: 240px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAR6EYp0-E-HfBlEP0SA1bwrefjdJqTvOte3iNAA8hcyVP4_J_f2iwxNnu79h31aYK-j6gAzXK-cXLJ52clyqTg-9hx3MwsAxaeNEVeXb4Nts04jpi2lipBtuOOjSbooJV7y9UotEOra5X/s320/Steve+Bennet+042204.jpg" alt="" id="BLOGGER_PHOTO_ID_5620376694825882578" border="0" /></a><br />Financing, that is...I had mixed emotions when I read the the press release on the<a href="http://icontrol.com/news/press_releases/2011/pressRelease_06_20_11.php"> recent funding of iControl Networks</a>.<br /><br />I was the founding CFO for iControl and spent over 4 years with the company (the reason I call myself a part-time CFO and not interim as I tend to remain longer than most permanent CFO's...) 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<w:lsdexception locked="false" priority="19" semihidden="false" unhidewhenused="false" qformat="true" name="Subtle Emphasis"> <w:lsdexception locked="false" priority="21" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Emphasis"> <w:lsdexception locked="false" priority="31" semihidden="false" unhidewhenused="false" qformat="true" name="Subtle Reference"> <w:lsdexception locked="false" priority="32" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Reference"> <w:lsdexception locked="false" priority="33" semihidden="false" unhidewhenused="false" qformat="true" name="Book Title"> <w:lsdexception locked="false" priority="37" name="Bibliography"> <w:lsdexception locked="false" priority="39" qformat="true" name="TOC Heading"> </w:LatentStyles> </xml><![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoPlainText">Now that iControl has raised over $100M, this got me thinking back to our original business plan. One truth of start-up financing is that it generally takes twice as long and twice as much money to accomplish your milestones. I took a look back at our original financial model we presented to VC's in 2004. The business model (OEM through broadband and home security companies for mass distribution) if not specific product functionality has remained largely the same. But of course, the model had us requiring only $10M equity to breakeven and to achieve $185M in revenues in 2008 (the magic Year 5 in all business plans). <br /></p><p class="MsoPlainText">I am no longer an insider, so don't have any view into current financials, but do know that total financing is now 10X the original plan and at the current accelerating growth rate, revenues will still not hit that $185M until 2012 or 2013, so double the time. And this is a company that has managed to get an A+ list of investors and is executing very well. Most companies don't come close to their rose colored financial models prepared when going out for Series A financing.<br /></p><p class="MsoPlainText">There are definitely some lessons in the story for entrepreneurs and angel investors, but before discussing, I thought I'd share a bit about the early financing history for iControl. Before the <a href="http://icontrol.com/news/press_releases/2011/pressRelease_06_20_11.php">$52M Series D</a>, the <a href="http://icontrol.com/news/press_releases/2009/pressRelease_07_22_09.php">$23M Series C</a>, the <a href="http://icontrol.com/news/press_releases/2008/pressRelease_04_02_08.php">$15.5M Series B</a> and the <a href="http://icontrol.com/news/press_releases/2006/pressRelease_4_26_06.php">$5M Series A</a>, there were angels writing checks with many less 0's. In looking back at the old financials, at the end of Q2 2005, our cash balance was a whopping $546. At this point, Reza and I were funding the company to keep the lights on and servers running. We had spent the $275K raised from our original angels and were actively speaking to any and all angels and VC's we could convince to meet with us. In fact, since the iControl system was busy taking pictures of all entering our conference room, we could put together a photo album of all these meetings.</p><p class="MsoPlainText">At this time, we had secured a term sheet from a co-investor from one of my other angel investments (Thanks, Graeme!) offering to invest $75K if we could find another $250K by September 30, 2005. We managed to pull together an angel syndicate and close $450K on 9/30 after working the phones the last few days and anxiously waiting for signature pages to show up on the fax machine and wire confirms to hit the bank account. Less than a month later, we received a term sheet from Charles River Ventures for the Series A and as they say, the rest is financing history...with investments from Intel, Kleiner Perkins, Cisco, GE, Comcast, ADT, Rogers, and others.<br /></p><p class="MsoPlainText">So what does this all mean. As I said up front, I have mixed emotions about the financing. While my ownership stake in the company has been diluted through these financings (and the merger with uControl), my carried interest (paper value of my equity) has been going up with each increase in valuation. However, each financing resets the clock as new investors are looking for a multiple of their investment on exit. <br /></p><p class="MsoPlainText">Entrepreneurial finance (I should know since I teach the course) is all about options. Staged financing gives investors options in deciding whether and when to invest more and gives entrepreneurs options in how much to raise and when to think about exiting. While bootstrapping, there are multiple options from doing as a side project, changing the business, raising angel or venture, etc.<span style="mso-spacerun:yes"> </span>Once you raise a small angel financing, you still keep many of your options, but are now committing to a growth path with an eye towards eventual liquidity.<span style="mso-spacerun:yes"> </span>A talent acquisition or bootstrapping are still options, but need to include buy-in from the investors.<span style="mso-spacerun:yes"> </span>Once you raise venture capital, you are forced on a path to spend ahead of the business and seek the highest growth business model options.<span style="mso-spacerun:yes"> </span>In iControl’s case, there were exit options at different stages, but now with more than $100M invested, the only options where investors will be happy will be an IPO or $1B+ acquisition, which greatly limits strategic options.</p><p class="MsoPlainText">Is $120M enough capital to reach these exit goals? I sure hope so, but we'll have to wait and see how the founding team and angels come out at the end of the day. Stay tuned...<br /></p>Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com4tag:blogger.com,1999:blog-7529291840811577380.post-3001629968983002492011-04-07T13:33:00.000-07:002011-04-07T13:36:57.925-07:00Why I Hate Convertible Debt...Let Me Count the WaysMy partner in <a href="http://menloincubator.com/">Menlo Incubator</a>, <a href="http://en.wikipedia.org/wiki/Gary_Kremen">Gary Kremen</a>, and I had a recent debate on which one of us hates convertible debt more. We weren't able to declare a winner, but I did agree to write a blog post on the topic. This will also serve as a good pointer for all the entrepreneurs who ask why I am not interested in their company led convertible note financing round.<br /><br />I thought about doing this in a top 10 format, but will limit to my top 3 reasons:<br /><ol><li><span style="font-weight: bold;">Misalignment of incentives</span> - As an angel investor I want to do everything I can to help the entrepreneur succeed. In a convertible note structure, I'm penalized for increasing your valuation. Instead of getting a 2-3x multiple from seed to Series A, I get a discount off of the Series A, so I'm better off financially with a lower valuation. Investors are taking all of the downside risk and not getting the upside.<br /></li><li><span style="font-weight: bold;">Is This a Bridge or a Pier?</span> What is the debt converting into? At some point, the debt has to convert or be paid back. Convertible debt can be like a drug - "just a little bit more and we'll hit that milestone". I've seen a number of entrepreneurs, angels and VC's fall into the trap of providing debt in small pieces. It all adds up and the more you have the bigger the round needs to be justify the valuation based on new cash in.</li><li><span style="font-weight: bold;">Why Invest in an insolvent company?</span> Technically, the start-up is insolvent from the day they take the first dollar of investment. This can make it much more difficult to get any bank financing, new investment, and trade credit. Most entrepreneurs don't realize this, but they have actually given a lot of control to investors with convertible debt. Depending on how the transaction is structured, investors could block a financing and potentially take over the intellectual property. Most don't have any interest in this, but why take that risk that one of your investors may decide to call the note.</li></ol>The arguments for convertible debt are that it is quick, easy and cheaper to get a financing done. There isn't a need to negotiate a number of terms in standard preferred financing documents and legal fees will be less. From my experience, negotiating debt deals with an experienced investor will result in a number of the same terms and won't save much (if anything) on legal fees. Particularly, now that standard <a href="http://www.seriesseed.com/">Series Seed docs</a> are commonly used.<br /><br />So when does convertible debt make sense? In cases where it is truly a bridge financing (i.e. venture term sheet negotiations in progress with strong likelihood of closing), I'm willing to take that risk and don't deserve a ton of reward for taking the additional risk at that point. Also, for first money in from friends & family, it makes sense. In some cases, where the round is very small ($100-$200K), it doesn't make sense to price. However, I would generally look to increase the size a bit and price if I were involved.<br /><br />There was a good post recently by <a href="http://www.thefunded.com/funds/item/8150">The Funded, "The Year of the Start-up Default"</a> that discussed the potential ramifications of all of the convertible debt outstanding now. There are probably thousands of companies that have taken convertible debt in the past 18 months. Most of these are not going to raise venture financing, get acquired or become profitable. Even the ones that do get to cash flow breakeven, will not likely be in a position where they could pay back the debt. So what happens to these companies? Some will just shut down. Others will attempt fire sales. Many others may end up filing for bankruptcy or doing an assignment for the benefit of creditors (ABC).<br /><br />You may say, if you are investing in the next facebook or google, why care about valuation? The returns are going to be so big that you want to have a piece of the best deals rather than more ownership in companies that aren't going to do well. That seems to be <a href="http://twitter.com/paulg/statuses/22319113993">Paul Graham's (YCombinator) argument</a>. However, using portfolio theory, your losers are going to far outnumber your winners, so taking half or more of the gains out of the winners will have a big impact on the overall returns.<br /><br />So, the next entrepreneur that tries to convince me that a convertible debt is good for everyone, I'll say, "Let's figure out how much money you need to get to a significant milestone, raise the funding, price the round, and work together to build value. If we're successful, everyone wins. If we're not, let's go down on the ship together and hopefully stay out of those lawyer (I mean shark) infested waters..."Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com5tag:blogger.com,1999:blog-7529291840811577380.post-30086928637959102082011-02-18T13:20:00.000-08:002011-02-18T13:27:25.277-08:00A Lot of Horn Tooting over a Kazoo sized dealThe LinkedIn acquisition of CardMunch a few weeks ago caught my attention. Techcrunch called it one of the "<a href="http://techcrunch.com/2011/01/26/linkedin-buys-business-card-converter-cardmunch-will-offer-its-services-for-free/">most like-minded and forward-thinking acquisitions I’ve ever seen</a>"<br /><br />I met with the founders of CardMunch several months ago when they were out raising their Series Seed round. They have a cute little app that takes a picture of a business card, populates your contact database and data is confirmed through crowd sourced labor. This is a cool way to solve the stack of business cards sitting on your desk and through geocoding lets you know where you met. You can also spread dozens of cards across a conference table and snap away.<br /><br />I liked the founders (Bowei and Sid) a lot more than the business. CardMunch seemed like a nice feature and wasn't clear if there was even a product, let alone a business. It was going to be challenging to get scale with a model that charged on a per business card basis, a requirement given the amount of funding and cost for the crowdsourced labor. I generally only invest when I can think of at least half a dozen potential acquirers off the top of my head. In this case, LinkedIn was the only logical one that came to mind and didn’t see a viable business model short of that result.<span style=""><br /><br />Given that, I wasn't completing surprised when Linked-in announced the acquisition last month. I assumed they weren't able to raise funding and early exits often work out great for the founders, although not necessarily investors. However, after reading some of the <a href="http://techcrunch.com/2011/01/26/linkedin-buys-business-card-converter-cardmunch-will-offer-its-services-for-free/">press</a> and <a href="http://www.k9ventures.com/2011/01/congrats-team-cardmunch/">tweets</a> by investors, I began to wonder if this was a much bigger outcome than I would have guessed. A stock acquisition is a bet that would provide significant upside (and possible downside) opportunity. <br /><br />I was curious about the sale price (not announced in any of the acquisition articles), but was disclosed in Linked-In's S1 filing at cash proceeds of $2,394,000. Seemed like a good time for ProfessorVC to do a little digging to see if there was more than met the eye.<br /><br />I first contacted my friend, Manu Kumar, who incubated the company, coming up with the idea and finding the founders to build the product. He obviously has a founder's common stock stake along with cash invested. I asked him how the deal came out for investors since the sale price was significantly lower than the valuation on the round they were raising when we met. It looked like the preferred investors would get their money back and the founders would get a nice payday for a year's work. Nothing wrong with that and something that Basil Peters writes extensively about in <a href="http://www.early-exits.com/">Early Exits</a>.<br /><br /><iframe src="http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&npa=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=professorvc-20&o=1&p=8&l=as1&m=amazon&f=ifr&asins=0981185509" style="width:120px;height:240px;" scrolling="no" marginwidth="0" marginheight="0" frameborder="0"></iframe><br /><br /><br /><br />However, Manu's response made it sound like there was more there (or possibly a shovel involved):</span><span style=""><br /></span><br /><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-US</w:LidThemeOther> 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</w:LatentStyles> </xml><![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal"><span style=";font-family:";" ></span></p><blockquote><p class="MsoNormal"><span style="font-size:85%;"><span style=";font-family:";" >"Steve,</span></span></p> <p class="MsoNormal"><span style="font-size:85%;"> <span style=";font-family:";" >There was *a* number reported in the LinkedIn S-1, but that doesn't tell the complete story. Other than complying with the filing requirements for the S-1, the terms of the CardMunch deal are private, and we are not allowed to discuss them.</span></span></p> <p class="MsoNormal"><span style="font-size:85%;"> <span style=";font-family:";" >At the time when you met with the CardMunch team, we'd already raised some amount of capital for the seed round. We stopped the fund-raising mid-way once we were approached by LinkedIn and engaged in discussions with them. The transaction was actually a great exit, and *everyone* (including the Series Seed investors who came in less than 2 months before the exist) made money on the transaction. It was a brilliant exit -- from start to finish in 13 months! :)</span></span></p> <p class="MsoNormal"><span style="font-size:85%;"> <span style=";font-family:";" >Regards,</span></span></p><p class="MsoNormal"><span style="font-size:85%;"><span style=";font-family:";" >-Manu"<br /></span></span></p> <span style="font-size:85%;"><span style=";font-family:";font-size:12pt;" ></span></span><br /></blockquote>Ok, so maybe there was more to the deal than announced, but typically the S1 would include contingent payments (outside of the normal 20% escrow) such as earnouts or stock. I began to wonder based on the "*a*" number comment that perhaps Linked-in had thrown in a sweetener to the investors, such as an opportunity to buy some secondary shares pre-IPO or an allocation in the IPO. Given the issues we had in the past around allocation of IPO shares, this would be a very sensitive issue. Mind you, this is clearly speculation on my part (what are blog posts for?) and has no basis in fact.<br /><br />Time to do some more digging. I ran across a couple of blog posts by another angel investor in Card Munch, Ty Danco. One was on the <a href="http://tydanco.com/2011/01/26/cardmunch-acquired-by-linkedin%E2%80%94an-investor%E2%80%99s-view/">acquisition</a> and the other on his <a href="http://tydanco.com/2010/12/02/why-im-psyched-to-be-investing-in-cardmunch/">original investment</a>. I posted a comment on Ty's blog regarding the economics of the deal and was surprised to find that he had deleted some of my speculation and added the following comment:<br /><br /><blockquote><span style="font-size:85%;">Ty’s note: I’ve edited the rest out, as <a href="http://www.professorvc.com/" rel="nofollow">Professor VC</a> asked specific valuation questions, posing some questions I can’t discuss. Sorry, but as is the case often in sales where the buyer has bigtime legal counsel, I’m precluded from giving out details.<br /></span></blockquote>Thus, I am raising my questions here. Perhaps, there is more to the deal or maybe it is just a face saving gesture on the part of investors.<br /><br />Why can’t anyone just say, “it wasn’t a great outcome for investors, but was for the entrepreneurs and glad we could help make that happen”. I guess nobody wants to pull a kazoo out of their pocket when it feels so much better to blare a trumpet.Steve Bennethttp://www.blogger.com/profile/18266137350702331749noreply@blogger.com6