For companies seeking additional funding with new investors: watch out! Inter-firm relationships can be “interesting”.
Your existing VC investors frequently have an agenda when they refer new follow-on investors (or steer someone away). Most often, VCs want to expand their relationship with another firm (one way VCs get to know each other is by doing investments together). Or, they’re returning a favor — the other investor helped them with another deal, and they’re giving back.
When you’re steered away, it can sometimes be because of a grudge, or a competitive issue. Maybe your VC felt screwed in some previous deal with the other investor. Or, they feel like it’s a one-way relationship: they show the other group deals, but don’t get anything back. Or, they feel like the investor will hear the pitch just to get competitive info, not with any intent to invest (sometimes, a very legitimate concern).
The key point: the company (usually the CEO) should lead the fund-raising process, not the VCs. The CEO has a clear fiduciary responsibility to act in the best interest of the company. The VCs on the board also have this same responsbility, but sometimes can’t separate that responsiblity from their own firm’s agenda. (NOTE: If the VCs are driving the process, that’s a sign of a weak CEO).
When existing VCs are suggesting leads for follow-on investors, the CEO should do her homework with the VCs:
- Have you done any deals with this firm before? Which partners have you worked with? If so, what was the outcome?
- Has this firm ever referred you deals? Have you referred them deals? How recently? If so, what was the outcome?
- If you haven’t worked with this firm before, why not? How do you know them, and what do you know about them?
I upgraded my MacBook to Leopard today (brave early adopter!) and ran into the problem of hanging at the blue screen immediately after reboot. I’m not the only one that’s run into this.
This fix worked for me: reboot from the install DVD (hold down ‘c’ after power up). On the 2nd or 3rd install screen go into the options and select “Archive and Install”, with the option to bring across your user data.
If you’re not hankering to run Leopard, I’d wait. Or, do a full backup first.
It will be really interesting to see how Apple handles this.
Entrepreneurs should understand VC compensation, because it’s occasionally helpful for understanding VC behavior.
The general partners (GPs) at a typical venture firm get paid two ways: management fees and carried interest.
Management fees (typically 2%) get paid per year over the life of the fund, typically 7-10 years, but may decline over time. Carried interest (the “carry”) is a percentage of investment returns shared with the GPs, and is typically around 20-30%. For example, if a $100m fund returns $300m, the GPs would get a percentage of the $200m investment gain. In some funds, the carry may be net of management fees.
For firms with multiple funds, fees stack up. With $2 billion “under management”, GPs could bring in $40m annually. Deducting operating expenses for the firm, you find VCs making several million per year (or more), each, on average — even if all their investments are duds.
The “dirty” secret in venture capital is that industry returns these days are barely beating (if at all) other, less risky, asset classes. The real money is in fees, pushing VCs to raise larger funds and do larger investments. They in turn push entrepreneurs to take more money, sometimes more than they need.
And, the carry only becomes meaningful if a partnership has serious home-runs. As a result, VCs may push entrepreneurs to take more risk and “swing for the fences”, instead of taking a solid double or triple outcome.
With all of the debate about network neutrality for wired networks, what we really need is neutrality for wireless networks. Tim Berners-Lee said it perfectly: when he invented the web, he “didn’t have to ask anyone’s permission“.
You should be able to write and use apps on your mobile phone without requiring your carrier’s permission. I don’t have an iPhone (yet). Apple’s recent news about a developer SDK is great, but I still need “permission” (i.e. a digital signature) to load apps.
This is getting annoying — when will I get the freedom to build the apps I want?!?
VentureBeat is doing a new experiment, linking from their site to VC firm reviews on The Funded.
I’m fascinated by The Funded and the fact that it even exists. Has venture capital become such as commodity (e.g. in terms of the large number of VC professionals, amount of money available, etc.) that it can support a full-time review site? Yikes!
I started reading Sketching User Experiences (thanks Amazon Prime!), and I’ve already found a quote that’s really resonated:
In terms of stifling innovation, good ideas are far more dangerous than bad ones. They take hold, assume momentum, and therefore result in inertia. Consequently, they are hard to displace, even when they are well past their prime.
Bill Buxton put his finger on a theme that’s been bugging me recently: some designs that have been “good enough” have stuck with us for a long time, with little follow-on innovation.
First, the iPhone has showed us innovation was still possible with phones and mobile devices. We were stuck in a design box, and Apple has showed one way to get out of it (e.g. make the screen as large as you can, dispense with buttons, have rich gesture interaction with the screen itself, etc.)
Second, what about Outlook and email readers in general? Outlook has been good enough for he past decade or so, and nothing has really changed with the way we read email. Isn’t there a fundamentally better way for me to deal with 100-200 messages/day?
Finally, if you’re a software designer, you should read the Story of Improv, about the team at Lotus (led by Pito Salas) that was designing beyond the standard cell-based spreadsheet model. It’s a reminder to keep innovating — don’t accept the status quo.
One way to discover new blogs is to read shared links from other bloggers. When you find an article you like, go visit the blog.
For example, I find a lot of new blogs from Scoble’s shared links feed.
I use BlogBridge as my blog reader.
If you need to cover a lot of blogs, it’s the way to go. It’s free, open source, and runs on Windows, Mac OS X, and Linux.
Platform APIs (e.g. Facebook, force.com, Google, etc.) are a great way to “let a thousand flowers bloom” and get the market to do the hard work of researching and market-testing new features. It’s an absolutely brilliant strategy. We’ll see the platforms acquiring their leading apps. We’ll also see (I bet) some nasty dust-ups where the platform copies features and competes directly with third-party apps.
However, developers beware — the fine print of many API agreements (such as Google’s) require you to indemnify the platform and/or agree not to sue for IP claims (e.g. patent infringement) relating to your work. This can make it hard to defend your ideas if the platform rips off your app, which in turn will make it hard to negotiate a good price if the platform wants to acquire you or license your app. Consult your attorney.
If you’re not reading Ted Dintersmith’s blog about his family’s 10-month trip around the world, you should. It’s a great story and Ted’s a great writer.