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Another Will.i.am Video On Obama

Information Asymmetry In Fundraising

One of the challenges entrepreneurs face in raising money is that they typically do it once every couple of years.  The rub is that you're usually raising money from some folks who have done several deals in the last quarter.  TheFunded has been slowly arbitraging this information asymmetry. 

First they did it by creating a list of VC investors (before TheFunded you were forced to pay for expensive lists or limited to the handful of firms you knew personally).  The list by itself was quite useful.  Second, they started letting entrepreneurs comment on and rate funds/partners.  That bit was a little less useful, but still provided some useful feedback.  And most recently they launched a section on the site where entrepreneurs can share specific deal terms from term sheets they have received.  So far there are only 60 term sheets uploaded and you have to contribute one to see the others.  They claim to be getting about 3 per day.  This is a potentially catastrophic event for investors and a potential boon to entrepreneurs as it could lift the veil on the "deal spread." 

There is no doubt that the more deals get published, the more leverage will accrue to entrepreneurs.  That said, I wonder how long before some VC sues TheFunded (every term sheet has a clause that says you can't share the contents).  I suppose if you don't sign the term sheet there's no violation, but if you raised money on the term sheet (i.e. you signed it) then that could be an issue.  It will be interesting to see if any fund goes to bat on this.  In the meantime, I can hear the deal spread tightening!

Customer Support 2.0

This morning I was reading a blog post by Ben Yoskovitz on customer support and it reminded me of some of my own experience with clients.  It's basically a truism that one really happy customer might tell two other people about your company but one slightly unhappy customer will tell 10!  Do the math and a bad customer experience for early customers can be fatal for a startup.

The overwhelming majority of companies today have a very "1.0" view of customer support.  In the early days it usually means having one or a few folks in engineering or QA answer the phones and respond to emails on a "help@" email address.  Some more enterprising companies will include IM for more immediate, cost effective support and then start building a FAQ on their website to address common issues.  As the business grows, the company will hire dedicated support staff on a helpdesk, implement Salesforce.com or some similar ticketing system all of which at some point gets viewed as expensive so someone suggests moving it offshore to save money.

Then along comes support 2.0.  Not only is it far better, but it is much less expensive.  A great example of what I mean by support 2.0 is NVIDIA, makers of high end video cards for computers.  NVIDIA hosts a very popular discussion forum as part of their support service.  If you read the posts, there are many and the beauty of this is that customers have a "living FAQ" that addresses many more topics than standard ones could ever do and you will also see that many of the "answers" come from evangelist customers!  Yes, that's right, customers will help other customers which not only reduces the cost to deliver support but also creates a stickier relationship with key customers.  Empowering your customers to connect in this way is incredibly powerful but some find this frightening...what if my customers start colluding on price?  What if they say bad things about our product/company?  My view is that it is best to embrace your customers.  If they hate your product, don't you want to hear that?  I have also found support 2.0 to be a very rich forum for finding new product / feature ideas.  And the good news is that developing a support 2.0 community is cheap, fast and easy using tools like KickApps (a hosted platform) or other "roll your own" solutions.

Buy It (The Company) Now Button

This website, VCWear has been buzzing around the VC circles the past few days.  It's basically a site that sells spoof T-shirs with phrases making fun of entrepreneurs and VCs...for example, "Don't pitch me, bro" or "f@ck it, I'll fund that." That's sorta funny, but not sure I'd part with $25 for the T-shirt.  But the best part of the site is the "buy-it-now" button in the top right of each page...and they're not talking about buy-it-now eBay style, they're talking about buying the whole company (incidentally, they're asking $100K).  I think every company should have a B-I-N button on their site.

   

Sub-Prime Primer

My friend sent this PowerPoint slide presentation

Download presentation_subprime.pps

to me last week and I hear it's been flying around the internets.  It's basically a picture book description of the sub-prime mess.  If you haven't seen this already, it's pretty funny and worth a few minutes. 

How Much Of Your Business Do You Want To Own?

I hear from both entrepreneurs and VCs that one of the most commonly cited reasons for not investing is because the "business won't be big enough."  Usually that is delivered by the uninterested investor in the negative as, "we don't think the market is big enough," or "we think the market is going to take a long time to materialize."  Steve, one of the Softbank partners I work with, has a great saying that puts a positive spin on this and really gets at the heart of the issue (actually Steve has a lot of these Steve-isms, but that's a post for another day).  Anyway, what Steve often says is, "that's a business that would be great to own 100% of, but I'm not sure if I'd want to own 20%."

First, a little background.  Early stage VCs like to own about 20% of a company.  It took me a while to get my head around what seemed on the surface a random number.  But, there are a lot of reasons for 20% including that they typically like to invest between $5MM and $10MM in a company over time, that they like to have a co-investor or two with roughly the same interest and that software companies usually take $15-25MM-ish to achieve an exit of $100MM-ish based on revenue of about $25MM.  Add to that the need for an option pool and make room for founders and it basically works out to a rule of thumb of 20%.  That's the "typical" deal.

Now, if your business doesn't have a real shot at $25MM+ in revenue with a healthy growth rate or have a need for $15MM+ in investment, but instead has a very solid chance of achieving a few million in revenue, take a few hundred grand to launch and has the potential to throw off $50-100K per month in free cash, then that's a business that would be great to own 100% of!  Frankly, I see a lot of the latter companies pitching VCs for money, getting turned down and being frustrated when in reality they're in a great spot of potentially owning all of a valuable asset and not having to answer to nagging investors!

Shpigler is Back!

This time he has advice for Jerry Yang on how to negotiate with Steve Balmer.  Priceless!

Why I'm Voting For Obama

They say all politics is local and this election year, that couldn't be more true for me. Like many folks I first heard of Obama in the summer of 2004 when he gave an amazing speech here in Boston. I remember how he opened the speech:

Tonight is a particular honor for me because, let’s face it, my presence on this stage is pretty unlikely. My father was a foreign student, born and raised in a small village in Kenya. He grew up herding goats, went to school in a tin-roof shack. His father -- my grandfather -- was a cook, a domestic servant to the British.

But my grandfather had larger dreams for his son. Through hard work and perseverance my father got a scholarship to study in a magical place, America, that shone as a beacon of freedom and opportunity to so many who had come before.

While studying here, my father met my mother. She was born in a town on the other side of the world, in Kansas. Her father worked on oil rigs and farms through most of the Depression. The day after Pearl Harbor my grandfather signed up for duty; joined Patton’s army, marched across Europe. Back home, my grandmother raised a baby and went to work on a bomber assembly line. After the war, they studied on the G.I. Bill, bought a house through F.H.A., and later moved west all the way to Hawaii in search of opportunity. And they, too, had big dreams for their daughter. A common dream, born of two continents.

My parents shared not only an improbable love, they shared an abiding faith in the possibilities of this nation. They would give me an African name, Barack, or ”blessed,” believing that in a tolerant America your name is no barrier to success. They imagined -- They imagined me going to the best schools in the land, even though they weren’t rich, because in a generous America you don’t have to be rich to achieve your potential.

When I heard that, I thought, geez, replace "Kenya" with "Pakistan" and "Kansas" with "Oregon" and that's me. A guy with a funny name who was lucky enough to be born in a country where something this crazy is possible.

If you haven't seen Obama give a speech, it really is amazing.  He makes Reagan, the "Great Communicator" sound like a stuttering fool.  I've personally never seen a better speaker than Obama.  In fact, some folks released a music video today (see below) that is a song made from Obama's stump speech titled "Yes We Can."  I think MLK gave the last speech I've heard that was worthy of song.  It's worth watching if you haven't seen it already.

Then in 2006, I was downloading podcasts to my iPod and stumbled across Obama's incredibly articulate argument for legislation he cosponsored to increase CAFE (corporate average fuel efficiency) standards.  That's something I've been a fan of for over a decade and thankfully it was signed into law recently.  I was really impressed not only with his leadership, but also that he was savvy enough to have a podcast when most politicians in Washington barely use email.

The funny thing is that if you asked most people, they would say that Obama is the candidate most likely to "be a uniter and not a divider" and I think that is primarily because of his charisma (after all he was recently ranked as having the most liberal voting record of all 100 senators last year).

So I'm voting for Obama. 

Why Entrepreneurs Don't Scale

My friend Clark Waterfall pointed out an HBR article by John Hamm the gist of which is that the traits that help an entrepreneur succeed in the early days actually work against them as the business grows.  And worse yet, by the time the entrepreneur figures it out, they've either run their company into the ground or gotten themselves ejected by the board.  The article gives some examples that will seem familiar to most of us. 

The four traits are:

• Loyalty to team mates.  A great trait while recruiting the early team, but as Hamm points out, "a potential liability when managing a large, complex organization."  Someone told me a few years ago that first time CEOs are quick to hire and slow to fire while seasoned CEOs are the opposite.  There's some truth to that.
• Task orientation.  Getting things done is important in the early days, particularly when you are CEO and janitor at the same time.  But as the company grows, it can lose its way without a focus on strategy and vision.
• Single mindedness.  Think about how much stick-to-it-iveness is required in the early days but how that can turn into tunnel vision as the company grows.
• Working in isolation.  Building a large organization is a team sport, however in the early days there may not be much of a team.

Toward the end of the article, Hamm lays out questions to assess ability/willingness to scale and has some suggestions on how to transition.  Overall, it's an article worth reading.