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May 30, 2007

Coolest Thing I've Seen In a While

In watching the videos from the recent TED conference, I found this talk from a guy at Microsoft about a technology they have called Photsynth.

The video is definitely worth watching as it gives you a great overview of this breathtaking technology.  The idea of stitching together the world's photos automatically and automatically propogating tags to related photos is very cool.  This can really change the user interface for navigating through information.

Check it out.

 

Mobot

It was several years ago when my friend, Russ Gocht, started Mobot.  They started with an interesting idea -- have consumers capture images on their cameraphones and use image processing technology to determine what was in the picture.  Then, send the consumer an appropriate marketing message that is tied to what they took the picture of.

Mobot may be a bit ahead of its time, but you have to admire the persistence of the team.  They have found opportunities to deploy their technology and have built up great real-world expertise in deploying innovative mobile applications.  I think that the market is maturing and these types of capabilities will be in greater demand.

Part of the challenge is consumer education.  The graphic above certainly looks and sounds simple enough.  But, who is going to educate consumers about this capability?  That takes time, money, and a compelling reason.  And, what happens if I take a picture of my big toe and send it to Mobot?

It's clear to me that there will be more and more marketing to consumers through their cell phones.  Mobot may be part of that mix.  They're certainly staying close enough to the market to be sure that they have a good shot at it.

May 29, 2007

Surrender

surrender.jpg

I've been a Yankees fan since I was a kid.  It's tough being a Yankees fan in Boston.  It was really tough in 2004 when the Red Sox finally reversed the curse and won the World Series (and the Yankees collapsed).

The Yankees have had a great run since 1996.  But, their team is getting old.  Even so, they have horribly underperformed this year.  And, the Red Sox have been the best team in baseball.  My son is a huge Yankees fan, too.  We spend a lot of time in the summer watching games and tracking their progress.  But, this year I have already raised the white flag.  The Yankees don't have a chance of catching the Red Sox and probably will miss the playoffs for the first time in a long time. 

I'm still a fan and will follow the team online and in the newspaper.  But, I am getting off the emotional roller coaster now.  This will save me lots of time and anguish.  Discretion is the better part of valor, and now I can spend more time enjoying my summer.

No more baseball posts until next year!

Networking Events

The Boston area pales in comparison to Silicon Valley when it comes to high-tech networking events.  Boston has fewer, and fewer worthwhile, networking events.  This needs to change.

I know from my friends in Silicon Valley that networking is a way of life there.  Engineers are always mixing it up, both for technical growth and to look for the next company to work for.  VCs, who are good networkers everywhere, are more prominent at networking events that have broader audiences.  There is a lot of sharing of experiences among entrepreneurs, both at formal networking events as well as informal dinners.

There are a few good networking events that I have been attending in Boston lately, and I am always on the lookout for more.  Here's a couple worth checking out.

Web Innovators Group - this group was started by David Beisel (now at Venrock).  This is a large event, usually 200-250 people.  It includes product demos and lots of networking.  It is free of charge and open to anyone.  Just go to the Wiki and sign up.  One thing that makes this event successful is that it is product/service oriented and draws a lot of engineers.  I have to say that I am amazed at how few VCs show up at this event.  Maybe most Boston VCs don't like talking to engineers.

OpenCoffee - this is a smaller, less formal event at a coffee house in Cambridge.  It's been fun to have conversations about all sorts of things.  Again, technical people form the heart of this weekly event.  I like the high frequency of this event as you are likely to meet different people each time as most people don't go every week.

While in the registration line at the last Web Innovators Group (yes, it was so crowded there was a line to get in!), I overheard one entrepreneur talking to another about the frequency of networking events in Silicon Valley vs. Boston.  He said that he didn't want to go to too many events and was glad that they were infrequent.  Although I can understand the need for family time, I think that some professional time, including breakfast and evening, has to be allocated to networking events.  These events are great for growing professionally and for fostering entrepreneurship in the region.

In Silicon Valley, you can see plenty of high-tech people at your kid's soccer game.  In Boston, the economy is more diversified and people from high-tech are mixed in with financial services, health care, biotech, manufacturing, academia, and much more.  I like the diversity in my community, but need more ways of having good networking opportunities with others.

Post about your favorite networking venues in the Comments.

May 23, 2007

Time to Reverse Another Curse

In 2004, the Red Sox finally reversed the curse by beating the Yankees in dramatic fashion and winning the World Series.  The Yankees haven't recovered, much to my chagrin.

The Celtics have been cursed for more than 20 years, since they won their last championship in 1986.  First, Len Bias died right after he was drafted by the Celtics.  Then, Reggie Lewis died of heart problems in 1993.  Then they were cursed with Rick Pitino as Coach and President from 1997-2001.  Rick may have been a great college and pro coach elsewhere, but he was horrible at the Celtics, churning through talent like Chauncy Billups and making horrible trades.  The current Celtics management, including Danny Ainge, has made the team much younger, but no better.  I give Ainge credit for sticking with his plan, but it was all supposed to get better in this year's NBA draft when the Celtics would get one of two prime picks, Greg Oden or Kevin Durant.

But, the fates gave the Celtics the #5 pick in the NBA Draft Lottery last night.  This was the worst possible outcome for the Celtics given their second worst record last year.  They'll draft a good player (and Ainge has maximized most of his draft picks, although his record in trades is mixed at best).  But, without a top two pick, they don't seem to be in line to get a franchise player.  So, they'll stay young and hope for a better future.  Or, maybe they'll put a trade together for a good veteran who can help somewhat.  Neither path seems like it will really get the team where they need to be in order to compete for a championship.

Too bad the 'Reverse Curve' sign from Storrow Drive that was modified above is gone.  Maybe they need a Reverse The Curse sign on the TD BankNorth Garden.

May 22, 2007

The Enterprise Strikes Back

There is a resurgence in enterprise purchases of IT products from start-ups.  The WSJ has an article today (subscription required) that describes this.  For those of you without a subscription, here are a couple of highlights:

Big businesses and institutions have always been somewhat hesitant to buy substantial amounts of tech gear from small companies. But they grew even more averse after the dot-com implosion: Many enterprises got left in the lurch after they purchased from small equipment makers such as Caspian Networks Inc. and Procket Networks Inc., onetime successes that went bust in the downturn. As a result, many businesses began shying away from tech start-ups and instead turned to stable suppliers such as Cisco and Alcatel-Lucent.

Now corporate tech managers are once again starting to buy equipment from small networking businesses with little-known names such as Riverbed, Aruba Networks Inc., Isilon Systems Inc. and BigBand Networks Inc. Many of these small firms make products that solve new corporate-technology problems, such as how to most efficiently store new corporate data like video, or how to best improve the transmission of information across networks that have been weighed down by multimedia applications.

While some of the big tech firms also offer similar technology to deal with such issues, tech managers are finding that the start-ups often have more cutting-edge products that are cheaper than the big suppliers' offerings. "The old guard equipment guys are having to think about more than just equipment [and] they're having to think about software and video," says Joe Skorupa, a research analyst with Gartner Inc. "They aren't used to thinking in those terms."

The upshot: a surge in business for many small tech companies, which is contributing to an overall boom in the tech-networking industry. Riverbed, which makes products to speed up corporate networks, saw its 2006 revenue more than triple to $90 million from a year earlier. BigBand Networks, a Redwood City, Calif., firm that increases corporate-network bandwidth, nearly doubled its revenue last year to $176 million. Many of these start-ups have recently staged successful initial public offerings, with Riverbed's stock jumping more than 50% on its first day of trading in September, while Isilon's rose 77% on its debut in December.

Businesses and institutions aren't over all their start-up fears, however. Many are putting their new small suppliers through a far more rigorous inspection process than in the past before deciding whether to buy from them. Among other things, they are consulting industry research firms to vet the start-up's financials and are talking with other customers to see how the start-up responds to problems.

There have been several IPOs of tech companies that made it through the bubble and sell to the enterprise.  With enterprise IT spending on the rise and a general dearth of innovation from many of the big vendors, there certainly are some start-up opportunities.  But, start-ups have to be smart to build trust with enterprise customers and develop cost-effective sales channels.  This usually begins with some sort of OEM partnership with a bigger vendor to get initial sales and establish credibility.

In addition to the types of networking and storage gear that is mentioned in this article, I think that enterprise infrastructure to roll-out and manage wireless applications across a wide area network should become a hot area.  With enterprise profitability strong and ROI from IT roll-outs easier to measure, spending in many of these segments should remain strong.

May 21, 2007

Keep It Simple

One of the start-ups I work with received a term sheet a few days ago for a first round of financing.  As a very early stage company, this was not a big round nor was it at a high price.  But, this is the type of financing that early stage companies need to get going.  Up until now, this company had raised a few hundred thousand dollars of angel financing.  If this new round closes, it will allow the company to launch its new Web service.

As I was helping the CEO review the term sheet, I was surprised at some of the bells and whistles that the venture firm had put into the financing terms.  Without going into all the details, I would say that the venture firm had pushed toward some of the limits on what they could expect in an early stage round.

One reason why I like clean and simple terms for early stage financings is that terms for later rounds always get 'worse'.  Later stage investors, who generally pay a higher valuation for the company, feel that they should get some nicer bells and whistles than the earlier stage investors.  Rather than no dividend on their preferred stock, they will ask for an 8% dividend.  Rather than having a capped participating preferred, they will ask for an uncapped participating preferred.

[By the way, if you are baffled by these VC terms, you should read the Term Sheet series on Ask the VC.]

Another reason to have clean terms is that it gets the VC onto the same side of the table as the entrepreneur as quickly as possible.  As an early stage investor, you only really make money when the company has a nice exit.  You can't do much by trying to juice up the downside with a few nice financial terms.  And, certainly, you don't want to do this by taking away the upside from the entrepreneurs.  This leads to the start-up employees defaulting to the 'living off the fees' mentality that I described here.  This is the antithesis of what start-ups are about.

So, what's the right structure for an early stage deal?

  • Convertible Preferred Stock
  • Simple 8% dividend
  • 1x Lquidatoin preference
  • Participation after the liquidation preference, but cap that at 2x the original investment
  • Weighted average anti-dilution protection
  • Keep the Board small

There may be other questions on terms.  Put them in the comments, and I'll respond.

I like the structure above because it is clean and simple.  It gives the investors the preferred treatment they deserve for putting up the money.  It gives the investors a modest 8% return via the dividend.  It gives the investors preference in getting to a 2x return, which is very modest for an early stage VC.  But, for outcomes bigger than that, the investors and entrepreneurs are directly aligned as the investors would convert to common rather than take their capped preferred return.  Most importantly, you can push later round investors to stay close to this structure, which keeps some upside for the entrepreneurs.

Geezeo Mobile

One of the companies I work with is Geezeo.  I wrote about them previously here.  Geezeo recently launched the mobile application, a small subset of what they will ultimately deliver.  You can sign up for the mobile beta on their web site.

What Geezeo Mobile provides is something very simple and very useful.  Once you register your accounts on their site, you can use a simple SMS message to get your current balances.  This is particularly useful for checking your credit card balances before you attempt to make a big purchase.  Since Geezeo has some important partnerships in place, they can easily connect to your accounts at thousands of financial institutions.  Setting it up is pretty straightforward, and using the SMS application is dead simple.

Give this a try, and give Geezeo your feedback.  They also have a good blog on financial management.

May 19, 2007

Two from the Globe

Two items caught my eye from today's Boston Globe:

This ad was in the Boston Globe magazine.  It's very subtle, but definitely made me laugh.

Second, I noticed that there is a growing movement of Guitar Hero competitions in bars in NY and Boston.  I love how the Harmonix game is becoming a real phenomenon.  I love playing Guitar Hero I and II, but I can't keep up with these guys.  And, there are many videos on YouTube of people playing better than them (but not having as much fun!).  Look for their new game, Rock Band, for Christmas this year.

May 18, 2007

Alice Cooper and Terry Gross

This morning, I listened to a podcast of Fresh Air from NPR featuring Alice Cooper.  If you aren't familiar with Terry Gross and her show, Fresh Air, you should check it out.  Terry has been on the air for 20 years and is one of the best interviewers I have every heard.

I was a big Alice Cooper fan as a kid.  I still remember my 7th grade research report on a 'famous person'.  When I told my teacher that I was going to write about Alice Cooper, my teacher said "Who's she?"  That's exactly the reaction Alice was after, of course.  I dutifully researched magazine articles and cut pictures off my copy of the Billion Dollar Babies album.  Alice was huge during the 70s.

In the interview, Alice is amazingly realistic and coherent.  Not bad for an old rocker (and long time sober rocker).  Supposedly, Alice Cooper is now addicted to golf.  Hard to believe.

School's Out!

May 17, 2007

Like a Virgin

One of my companies, CircleLending, just announced a major deal with Virgin USA today.  CircleLending is a company that formalizes and services loans between family and friends.  They take the hassle out of getting loans, including mortgages, documented and handle monthly servicing.  It's a great business model, and they have been growing quickly.  And, the market for loans between family and friends is huge.

You may not know this, but Virgin is a big player in financial services in the UK and elsewhere.  Starting with their investment in CircleLending, they will be moving into the US.  A good backgrounder on the deal is in American Banker Online (subscription required).  The article is copied below.

Congratulations to Asheesh and the team at CircleLending.  I remain a personal investor in the company, alongside Virgin and Venrock, and am excited about their future.

The Next Big Name in U.S. Financial Services?
From: American Banker
Thursday, May 17, 2007

Setting the stage for what could become a wide-ranging effort in the U.S. financial services market, Virgin USA, the North American arm of Sir Richard Branson's Virgin Group PLC, has acquired a majority stake in CircleLending Inc., a peer-to-peer lending company.

Like the British mogul's other investments — which include the Virgin Atlantic airline and the Virgin Mobile phone company — CircleLending plans to adopt the Virgin handle, though its name has not been decided.

Asheesh Advani , CircleLending's founder and chief executive, said Wednesday that his company will be a "launching pad to brand Virgin in the U.S. " in financial services. Virgin Group arms provide credit cards and other financial services in the United Kingdom , Australia , and South Africa .

CircleLending's specialty is arranging and servicing loans extended by individuals to friends and family members. But Mr. Advani said the Waltham , Mass. , outfit's first new product as a Virgin holding will be a direct mortgage.

The company also is looking at opportunities in student lending and financial planning, he said, and a credit card "definitely is part of the plan."

Anthony S. Marino, Virgin USA's senior vice president of corporate development, told American Banker, "CircleLending caught Virgin's attention because their products are game-changers."

The peer-to-peer lending platform "provides a broad opportunity to address consumer needs, and the Virgin brand allows us to bring a unique tone of voice to the market," Mr. Marino wrote in an e-mail. "We are … building a major, Virgin-branded financial services company in the U.S. "

Mr. Advani said that Virgin USA had approached his company, and that the parties had been "talking for a few months" before the stake sale. "They are pretty rigorous in their analysis of what industries to enter. They tend to pick industries that are overly regulated or very traditional in their approach, and financial services" fits the bill.

CircleLending started in 2001 as a facilitator of unsecured loans, added peer-to-peer small-business loans in 2003, and began supporting mortgages a year later. All told, it has arranged $190 million of loans. Jim Smith, CircleLending's vice president of marketing and sales, said last month that mortgages now make up about half its business and are its fastest-growing line.

Mr. Advani said his company expects to roll out the direct mortgage in the next 12 months. It will be offered as a supplement to its peer-to-peer home loans, giving the borrower a larger loan amount with a "blended cost of capital, which will always be lower, because it includes some element of money from family and friends."

CircleLending is assessing whether to broker the direct loans from partner banks or lend the funds itself, he said.

Dan Schatt, a senior analyst with Celent LLC's retail banking group, said Virgin USA is taking "a very smart approach." The conglomerate saw "the opportunity of integrating a P-to-P lending provider with a standard financial services offering" before others did. "The opportunity there from the bank perspective is really about pairing this product" with other offerings.

The peer-to-peer model "can allow people that would have otherwise not qualified for a bank loan to potentially qualify," he said. For instance, a parent can offer a child a debt-consolidation loan that would then qualify the child for a bank loan.

Also, "not being turned down" for the loan produces "goodwill," Mr. Schatt said. "You're also talking about opening up a market … for primary financial services products that may not have been possible had this not been part of the equation."

Frances Farrow, the CEO of Virgin USA, said in a press release: "Our investment … is consistent with Virgin's focus on developing fresh approaches to consumer issues" and "will form the foundation for a major new Virgin-branded financial services offering in the U.S. "

Mr. Advani said that CircleLending's management will remain in place, but that it is recruiting.

"We've just scratched the surface on understanding the power of family and friend transactions and how they can change the financial services landscape," he said. The task ahead "really is about taking what we've learned about the motivations of family and friends to help each other in financial transactions, and translating that."


© 2007 American Banker and SourceMedia, Inc. All rights reserved.

May 16, 2007

Checks Unbalanced

The wheels of government generally move slowly.  I think that is a good thing.  One thing that slows it down (or should) is the knowledge that decisions and actions can be reviewed under a healthy system of checks and balances.  Knowing that the spotlight will be turned on you keeps you honest.  In start-ups, we often talk about the Wall Street Journal test -- would you want this decision or action reported on the front page of the Wall Street Journal?  If not, don't do it.

I try not to rant too much about the Bush administration on this blog, but today the latest breach of checks and balances has come to light.  As reported here, President Bush, then White House counsel Gonzales, and Chief of Staff Card overruled the Attorney General and went ahead with an aggressive domestic wiretapping program.

Now, if John Ashcroft thinks that a program tramples on civil liberties, it's got too be overreaching.  However, Bush and Gonzales went ahead and authorized it anyway.  Finally, as the Democrats have re-taken Congress, we are seeing checks and balances in action.  These decisions and out-of-balance approaches are coming to light.  There was virtually none of this Congressional oversight in the Republican controlled Congress in the first six years of the Bush administration. 

No matter who gets elected President in 2008, we need a more open and ethcial administration that will cooperate with Congress to ensure that our system of checks and balances remain in force.  It's for all of our benefit.

May 15, 2007

Living off the Fees

There has been a lot written lately about VCs living off their management fees (I mentioned it here).  This is a side-effect of large fund sizes which throw off 2+% management fees per year.  The bigger the fund, the larger the fee.  And, the VC partners of large funds tend to keep any 'excess' fees (beyond operating expenses) as a 'bonus.'  The problem is that VCs make a lot of money each year from their fees, significantly lowering their motivation to drive value in their investments (which would reward the VC in carried interest).  This is an even bigger problem in buyout funds, although they have had good performance lately.

This morning at breakfast, an entrepreneur told me that he felt that a lot of start-up executives were inheriting the 'living off the fee' mindset from their VCs.  Because many serial entrepreneurs have not made money from their equity in their recent companies, or have had their equity squeezed from multiple rounds of capital, executives are focusing more on getting 'market' salaries and on having job perks (flying business class, etc.).  They also see the lifestyle that the high VC fees have provided for their board members.

To me, this totally destroys the start-up model.  One of the main advantages that a start-up has is a highly motivated workforce.  You really can't afford to pay in cash to compensate a start-up executive for the high-level of work they have to do.  But, if their equity pays off, they could end up doing very well.

The key is to make a lot of progress on a little capital.  That's the only model that ensures that the VC gets a good multiple on their money (which they and their limited partners require) and the entrepreneurs still have a lot of value left over to divide up between them.

If a company can generate an exit value of $100M on $8M of total invested capital, that's a 12.5x multiple on capital.  If the VCs owned 67% of the company for their $8M, the VC would make just over 8x on their money (they're happy) and the entrepreneurs still have $33M to divide up between them (they should be happy).  This is a simple analysis assuming no bells and whistles on the VC terms.

It's much worse if the company has to raise $25M to get the same result.  By this time, the VC's probably own 80% of the company.  So, they make just over 3x while the entrepreneurs and employees (and there are likely many more of them for a company that has raised and spent this much money) will split up $20M.  This might seem like a lot of money, but chances are that this kind of deal also has some VC bells and whistles which suck another $5M out of the entrepreneurs pockets.  Not much of a payout for a $100M exit.

The lessons: Clean deals.  Simple terms.  Raise only what you really need.  Be frugal.  Stretch your cash.  Get to break-even as quickly as you can.  And we should all have our compensation dependent on the upside.

May 14, 2007

The War That Keeps on Costing

Although I don't know of a good solution now that we are into the mess in Iraq, we shouldn't lose sight of the fact that this war is costing us a fortune, bound to drive up our national debt for decades to come and crowd out other priorities.  Of course, there are also thousands of dead and wounded, too.  In my opinion, there isn't enough backlash against the Bush administration for getting us into this war of choice.

 

Cost of the War in Iraq
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Mom for a Day

Yesterday was Mother's Day.  I gave my wife the usual gift -- I do everything that needs to be done around the house, and she gets to lounge around and do exactly whatever she pleases.  My work started with planning a menu and doing the grocery shopping on Saturday.  On Mother's Day, I made a fancy brunch and dinner.  Luckily the kids helped out.  It was a ton of work.  I like to cook, but I rarely have the time to do it right.

There is something to be said for trading places with someone.  Now, my wife is a great cook, but even she doesn't make elaborate meals every day.  But, I am sure there are many days where she is as tired as I was at the end of the day.  Really appreciating what she does every day is a great gift that we all share.

May 09, 2007

Trolling the College Halls

There is a good post on VentureBeat today about finding investable opportunities in college labs.  The clear message of this post is that you have to take a long-term view in university relationships.  You have to be willing to invest time far in advance of finding a deal.  And the volume of deals to consider is very high.

Building trust with the faculty is a key factor, too.  I've tried to stay engaged at MIT over the years by teaching a few class sessions, participating in some entrepreneurial workshops, and serving as a Catalyst for the Deshpande Center and the i-Team class.

I just finished up mentoring an i-Team looking at a technology from the Media Lab at MIT.  The process of working with the students was great.  We had a team of Sloan students who were highly qualified for this project.  They did a very thorough job analyzing various market approaches, did significant customer diligence, and came to reasonable conclusions.  One of the students is likely to spend some time with the technologist to see if this can become a stand-alone business.

As a VC, you have to be willing to put in this type of effort with university students to build trust and to eventually find a deal worth investing in.  By building up a good reputation at MIT, I found some deals there over the years.  This past semester, I also taught a class session at Babson, in my friend Angelo's class.  Students there are just as sharp.  It would be great to be more involved there over time.

So, if you are interested in finding deals in university halls, be prepared to put in a lot of time first.

May 08, 2007

VC's Not Yet Big on Cleantech

I think that within the next five years, 'cleantech' will be a significant investment sector.  I also think that it is a critical area for Massachusetts investment.  Massachusetts has the technology source (places like MIT), entrepreneurial talent, many industrial companies that have executives with skills to build manufacturing businesses (Millipore, Waters, etc.), and a trained workforce hungry for manufacturing jobs.

However, according to this report from Lux Research, VC's are not yet a significant funding source for cleantech start-ups.  VC's accounted for $2B of the $48B in cleantech funding in 2006, but that was more than double the dollar amount of 2005.  The balance of the funding comes from government and corporate investors.  VC's funded about one-quarter of the start-ups.

I expect this will change soon.  Unfortunately, many existing venture funds aren't looking actively in this space.  You don't see a lot of the 'usual suspects' as investors in cleantech companies.  These firms are going to have to dip their toes into these waters in order for them to position themselves for what is likely going to be a big increase in opportunities in this sector.

May 07, 2007

Return of Roger

Clemens

Yesterday's surprise was the announcement that Roger Clemens had signed a one-year contract with the Yankees.  I was surprised on two fronts:

  • I didn't expect Roger to make his decision this early.  Last year he didn't decide to come back until the end of May.  Since he was one year older, I didn't expect him to even pitch as long as last year.
  • I really thought that the Red Sox had the best chance of getting Clemens this year.  There is the sentimental aspect of Roger returning to where he started in Boston.

In the end, Roger went with the team that offered him the most money.  No surprise.  He has said in the past that his decisions weren't about the money.  When an athlete says that, you know that it is only about the money.

The Yankees needed Clemens.  They need his pitching.  He'll be a stable #4 starter for them.  He's a competitor.  He can't pitch deep into games, but anything will be an improvement over some of their starters.  As you may know, today the Yankees will stasrt their 10th different pitcher in their first 30 games.  This has never happened in major leage history.  Not a record you want to own.

The Yankees also need the emotional lift that signing Clemens brings.  It's a vote of confidence on Steinbrenner's part that he'll continue to spend lots of money to win.  I've heard that the Yankees were the only team in baseball that lost money last year.  Heavy luxury taxes will do that.  I don't think that Steinbrenner cares.  He wants to win the World Series one more time before he fades away.

Speaking of emotion, I think that the Yankees broadcasters were carried away with the Clemens announcement.  It may have been a surprise, but it wasn't a big drama.  I'll be happier if he beats the Red Sox in Fenway in early June!

I don't think that the Yankees with Clemens are as good as the Red Sox today.  But, there is still a long season ahead.  The Yankees pitching has been better lately, and their offense has been fantastic.  They'll need even better pitching to get through the playoffs, but they are at least good enough now, with Clemens, to tighten up the race with the Red Sox.

 

May 02, 2007

It's impossible to raise $2M

I have heard from entrepreneurs over and over again that "it's impossible to raise $2M!"  This amount is too large for most angels and angel groups.  They are more likely to want to invest $250K - $1M or so.

For most VC funds, an investment of $2M is too small for them to bother.  As they have a $300M - $1B fund to invest, a $2M investment doesn't put enough money to work to take up a precious time slot.  Every investment, regardless of size, takes some time to mentor, monitor, and add value to.

But, $2M is just about the right amount for most early stage companies as a first investment.  Perhaps a company has raised $250K-$400K in angel money.  This gets the company up and running, but is not enough to move toward scaling the business.  $2M should be enough to get to the initial revenue stage and to show exactly how the business scales.  The product should be in its first release, and the initial revenue model should be validated.  A sales pipeline or steady source of sales traffic should be in place.  An initial team is probably in place.

In the Boston area, there are very few firms that will really invest only $2M in a new company (excepting situations where a VC firm is providing seed funding to a known successful entrepreneur).  I can direct early stage companies to the same 5-6 firms, but the other 10-15 'name' firms haven't shown an interest in looking at early stage companies that have modest capital needs.

Some of these companies may turn out to be big outcomes.  Many of them will provide a very significant multiple return to their investors.  But, none of them are likely to require much capital.  That sounds like a sound investment recipe to me, but if you have to put a big fund to work, you may miss the chance...

May 01, 2007

Why the Randy Moss outrage?

I don't understand the problem that some people have with the Patriots picking up Randy Moss.  Here's what I know:

  • The Patriots have built a successful team and great goodwill in the community partly due to the high-character players they have.  They have not gotten into trouble on or off the field, and they don't embarrass the organization. 
  • The Patriots have shown that they can absorb 'trouble' players and make them productive without disrupting the positive team chemistry.  Positive examples are Bryan Cox, Corey Dillon, and Rodney Harrison.  I can't think of an example of a 'bad boy' who has come in and had a negative impact on the team's image.
  • The Patriots didn't need to get Randy Moss.  They had already significantly upgraded their receivers during the offseason.  If he causes trouble, I have no doubt that the Patriots will have the guts to cut him.
  • The Patriots are taking no financial risk on Randy Moss's contract.  He reportedly gave up his $9M+ deal and took a $3.5M deal with no up-front bonus.  If Randy gets caught running over another meter maid with pot in his car this summer, he's gone and the Pats spent nothing more than a 4th round pick.  Now, I don't think that Randy had a chance of collecting on his existing contract.  The Raiders would cut him rather than pay him.  So, Randy was smart enough to know that he had to give up something.
  • The Patriots only risk here is a 4th round pick.  But, they have lots of draft picks this year and more next year.  They were already trading away this year's picks, so they must not be too excited about the talent available.  They could use some more linebacker and defensive backfield depth, but they didn't pick a lot of players at those positions with their remaining picks anyway.

So, the real issue is that some people don't like Randy Moss and the fact that he has caused trouble and has dogged it on the field.  It bothers people that Randy is getting another chance on their beloved Patriots.  Unfortunately, when you have talent like Randy, you keep getting those chances.  Why shouldn't the Patriots, who are just trying to win another Super Bowl, risk their 4th round pick and no guaranteed money to see if this will work?  With just a one year deal, Randy has every incentive to behave.  If he dogs in on the field, he can explain that to Tom Brady and Richard Seymour.  If it becomes too much, he'll get cut and the Pats are still in good shape.  But, if he returns to his All-Pro form with a bit of effort, the Pats offense will be as explosive as it ever has been.

I don't think that Patriots fans should be high and mighty abut the positive qualities of their team.  Randy will have to live up to this.  If he doesn't, the Pats can let him go with no risk.  If he does, it's a big win.  What's not to like?


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