Friday, December 30, 2005
Matt's reference to Hummer Winblad suggests that the firm has been quiet of late. It is worth noting that Hummer Winblad has been an active and successful software investor through three major technology cycles: PC, client/server, and the Internet era. The firm's track record of successful investments includes Arbor Software, Net Dynamics (sold to Sun), Adforce (sold to CMGI), Powersoft (merged with Sybase), Scopus (sold to SEBL), and Wind River.
In the past 18 months, the firm led investments in 14 companies including Akimbi, Palamida, Scalent Systems, Cittio, and ActiveGrid. Active portfolio companies include Omniture, Voltage Security, and Employease.
Thanks again to Matt for the post and to the entrepreneurs who read Silicon Beat, please be in touch:)
Running on Empty
Search: The Rise of Specialization
The Golden Age of IT Buying and What Does it Mean for Investors
H1-B Aliens and the Myth of Free Labor Markets
IBM: Standards, Customer Alignment, and Ecosystem-based Competition
The Cost of Optimism
Pat Your Head and Rub Your Tummy
Friday, December 23, 2005
Wednesday, December 21, 2005
Venture capitalists are very much tabla rasa investors. One frequently hears about deals with "no hair," "plain vanilla terms," and good hygiene. Conversely, deals that come with cap table challenges (too many investors, too much prior preference, or onerous terms granted to a prior round) are often dead on arrival.
Why? My view is that company formation and growth is hard enough - one has to deal with market risk, technology risk, team risk, downstream financing risk, etc; therefore deals that layer "bad organizational/legal hygiene" as an additional risk factor into the investment evaluation tend to fail to secure investment.
In thinking of starting a company, it is worth understanding the VC industry's attraction to greenfield situations and is well worth thinking through two specific capitalization challenges that often create downstream pitfalls.
- Too Many Founders
A typical Series A sees the following equity ownership distribution: VC syndicate 50%, option pool 20%, founders 30%. Each subsequent financing will see founders diluted by roughly 20% per financing, such that after three rounds the founder shares represent 30%*.8^2, or 19.2% of the company. The per founder math is very simple - founder shares/# of founders. It almost seems redundant to state that too many founders can greatly impact the downstream economics of the founders, however, I have seen very smart, experienced founding teams launch with 5-6 founders and come to realize later that the per founder ownership in the entity creates real incentive problems. The VCs will rarely take less than 40-50% of a Series A and the pool is almost always 20%. Therefore it is important to think through the distribution of the remaining shares to ensure that each member of the team is truly required to get the company off the ground. Teams of 2-3 founders seem to be the norm and cap table issues, questions about equity (wrt fairness), often arise if the team gets much bigger.
2. Too Many Common Holders
All things being equal, the number of common shareholders is inversely proportional to a VC firm's interest in funding a company. The brutal reality of company formation is that often one must take capital from as many angels as necessary. While a small number of qualified angels can add needed runway and perspective, too many angels creates shareholder issues that may impact downstream financings, acquisitions, and legal liability. In raising angel money, try to limit the number of investors required to hit the financing target. When shareholder consents are required - financings, acquisitions, etc - the logistics of rapidly getting approvals can be problematic. I have seen some buyers require full shareholder consents, even if not legally necessary, in order to limit downstream problems relating to minority shareholder lawsuits.
Reality often dictates the necessity of sub-optimal strategies, however, if you can think through how many founders and how many angels to have in your next company you can limit the negative impact of "bad hygiene" on a venture financing.
Friday, December 09, 2005
The democratizing effect of "two tables and a microphone" allowed people without instrumental training to create wonderful music. Similarly, today's web tools are enabling thousands of web users to create content and applications without deep knowledge of programming languages and technology. Mashups are the web equivalent to rap's sampling, code jams the analog to rap's freestyle battles, beta launches the equivalent to demo tapes, shout-outs the analog to track-backs, Apple's Garageband software similar to Typepad or Jotspot. Moreover, the blogosphere and rap are perhaps the most self-referential creative mediums known to man, whereby songs and posts build off one another in a call and response manner. Mashup's are experiments that create rich blends of underlying applications, as rap tunes are created via the synthesis of jazz, funk, and soul classics. Creativity and innovation is redefined from ground-up development (100% original material) to innovations on the margin. Finally, web 2.0 and rap are both driven by young innovators, often around project-based interaction rather than long-term relationships.
The steady advance in web tools is introducing on-line creativity, rather than simply on-line consumption, to millions of people. As with rap, I think the world is richer for it.
Monday, December 05, 2005
This could be the funniest thing I have read in a long time . Well done Mike.
Re: Next of Kin
By a most uncanny coincidence, I am also soliciting a barrister, preferably a national of your country, who worked with Shell development. By a most unfortunate series of events, I was being held hostage in the trunk of the car that claimed the lives of your client. Fortunately I was blown clear of the wreckage and was able to make my way through the jungles of Nigeria to the Plains of Arjuna dragging a dozen large boxes that I was informed by the sister of the mailman who claimed to be the ilegitimate heir to the throne of Uganda, Mr. Yanindada N'Golo Botticelli Vespa, manservant to your client, contained bars of gold bullion!
When I made it to the Baltic sea I was able to obtain safe passage (after many months of hardship as a fish monger's wife) in a freighter to northern Llapland where I met a Nordic Shaman named Odin who told me you would be contacting me after 23 full moons to fulfill my economic desires.
Paul, I feel I can trust and confide in you and feel from your words that you are a man of God and the people who will help me in my time of need. If you can help me with my immediate need of exporting 300,000,000 pink plastic monkeys to Jakarta I will then be in a better position to provide assistance in routing US$106M to my accounts in Lichtenstein.
be the ball Danny,
I am Barrister paul debayo Solicitor. I am the Personal Attorney to Mr
Thomas Anindya, a national of your country, who used to work with
shell development company in Nigeria.On the 2nd of may 1999, my
client, his wife And their three children were involved in a car
accident along Sagbama Express Road. All occupants of the vehicle
unfortunately lost there lives. Since then I have made several
enquiries to your embassy to locate any of my clients extended
relatives, this has also proved unsuccessful.
After these several unsuccessful attempts, I decided to trace his
relatives over the Internet, to locate any member of his family but of
no avail, hence I contacted you. I have contacted you to assist in
repartrating the money that belong to my client before they get
confisicated or declared unserviceable by the bank where this huge
deposits were lodged.
Particularly, the Bank where the deceased had an account valued at
about $30million dollars has issued me a notice to provide the next of
kin or have the account confisicated within the next ten official
working days. since i have been unsuccesfull in locating the the
relatives for over 3 years now I seek your consent to present you as
the next of kin of the deceased since you are from the same country
and bear the same last name ,so that the proceeds of this account
valued at $30 million dollars can be paid to you and then you and me
can share the money. 55% to me and 40% to you,while 5% should be for
expenses or tax as your government may require, I have the certificate
of deposit that can be used to back up any claim we may make. All I
require is your honest cooperation to enable us see this dealt
I guarantee that this will be executed under a legitimate arrangement
that will protect you from any breach of the law.Please get in touch
with me by my email to enable us discuss further.
I WILL OBTAIN AFFIDAVIT FROM COURT WHEN YOU RESPONS TO ME.
Thursday, December 01, 2005
The site provides a great overview of the firm, timeline of investments since founding in 1989, and our process.
For those of you who know the firm well know that John's dog is a key member of the team.
See if you can find an overview on our honorary senior canine leader.