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December 31, 2007

Time for Non-Compete to go

I've been thinking a lot about the non-compete clause in venture deals since the issue was first brought up by Bijan Sabet at Spark Capital.  Kudos to Bijan for raising the issue and taking a stand against non-compete clauses.

Scott Kirsner's article in yesterday's Globe and his related blog post cover the issue well, including the articles that Scott links to.  I see two aspects to this:

  1. What's the best environment to foster entrepreneurship?  Should employees be free to move from one job to the next without worrying about joining a competitor (but still protecting proprietary information, which everyone in the discussion respects)?  Or, should employers be able to restrict the movement of employees to competitive firms?  Although big and small firms may have different points of view on this, the same rules need to apply to both.
  2. In the current environment, what should companies do about non-compete clauses?  Should they take advantage of existing law and restrict employees, or take a principled stand against these clauses and put themselves at some sort of disadvantage versus others?

In the first question, I think that the data shows that there is little corporate harm from the free movement of employees and some evidence that this free movement fosters more entrepreneurship.  As a believer in freedom first, I have to come out in favor of changing the laws to invalidate non-compete agreements.  Since it's clear that companies can thrive in such an environment, it's hard to say that this will hurt companies.  Every company loses the ability to control where its employees works, but also gains the ability to more directly hire employees from competitors.  So, the best companies should win.

It's logical that restricting the movement of employees hurts entrepeneurship, but I wasn't as convinced by the actual data.  It was limited.  But, the data is consistent with what logic would tell you.

As for the second point, that's a tougher one.  It's great to take a principled stand as Spark has done by saying that they won't require employees of their companies to sign non-compete agreements.  What about existing companies?  What about their co-investors who see things differently?  What about their commitment to their investors where they have a responsibility to do everything they can that is legal and ethical to make their companeis successful?

That's where I think that as long as the laws are the way that they are, companies should take full advantage of them.  VCs have an obligation to their investors to do this.  If you disagreed with a perfectly legal form of tax shelter, you can choose not to pursue it with your own money.  But, unless you tell your investors up front that you will pursue such a strategy, you have an obligation to maximize their return and take advantage of such a thing.  I think that this is analogous to the non-compete clause.

So, I support Spark's efforts and the Alliance for Open Competition.  But, until there is either a new law or widespread support for dropping such agreements, I think that VCs have a responsibility to take advantage of the laws that help their companies.  It's tough being conflicted on this, but to do otherwise may be principled, but also disadvantageous.

What a great week of sports

One thing I have done in the past week or so is watch all the games of my favorite teams, the Patriots and Celtics.

The Patriots completed their perfect 16-0 regular season.  Although the team would rather go 15-1 and win the Super Bowl than go 16-0 and fall short of the championship, the perfect regular season record speaks to their consistency during the season.  The Pats had a tough schedule, playing 3 of the other AFC playoff teams (as well as Cleveland, who just missed), plus 3 of the NFC playoff teams.  Their division was weak, but the schedule overall provided plenty of challenge.  And, they beat the Colts, Cowboys, and Giants on the road.  I think that the pressure of going 16-0 provided some playoff-like pressure on the team.  The core veterans on the team have been through this before, so I think it just shows that this team is ready to go all the way.  Honestly, anything less would be disappointing.

I really respect how the Giants played hard in this game against the Patriots.  They had nothing to gain, other than being the ones who stopped the Patriots.  They risked injury for their players, and will have to go through their first playoff game less healthy and less rested than they could have.  But, I think that the competitive juices took over, and no one wanted the Patriots to get off easily.  This is in contrast to the Colts-Titans game yesterday.  The Titans needed to win to get into the playoffs.  Otherwise, the Browns would get the last AFC slot.  The Colts didn't play their regulars much and looked pretty bad without them.  This made it easy for the Titans, who won a close game. 

I feel bad for the Browns.  They turned around a season that started off horribly.  How many teams dump their starting quarterback after week 1 (not benched -- traded!)?  Romeo Crennel did a good job making them respectable.  They'll have to keep improving, but I hope they get into the playoffs next year.

Although I am thrilled for the Pats, I had even more fun staying up late and watching the Celtics go 4-0 on their West Coast road trip.  The last game was vs. the Lakers last night.  I think that it was the best game that the Celtics have played all year.  They were on the road against a good team, playing without Rajon Rondo, and at the end of 4 games in 5 nights after Christmas.  Tony Allen started in place of Rondo, and had a game that reminded me of how he played before he got hurt last year.  Kudos to Doc Rivers for starting Allen rather than guys who have been ahead of him the rotation like Eddie House or James Posey.  Tony Allen seems to get down on himself quickly by the body language I see.  Hopefully, this game gives him some confidence.  He helped the Celtics get up early on the Lakers with a big first quarter.

The Celtics strong defense has been their key.  They can clearly score points with their 3 superstars.  But, the defense is something that can be there every night and is contagious to the rest of the team.  When you see KG go all out to block a shot with less than two minutes left and the Celtics up by 20, you know that the other players have to work hard to mathc his effort.

The NFL playoffs should be great, as will be the rest of the Celtics season.  Not only are the teams doing well, but they are great to watch.

Unplugged

I purposely took time off from blogging (and just about everything else) from just before Christmas until now.  Sorry for the lack of posting.  I'll do a few today.

December 23, 2007

Do you believe Roger?

Roger Clemens has posted his own video denying he ever used steroids or human growth hormone.  He will also be interviewed by Mike Wallace of 60 Minutes after Christmas.

I'd love to believe Roger, but I have become conditioned to believe that most athletes lie about these things.  I do think that the best thing Roger can do is face all the questions, and no guilty person has ever enjoyed being interviewed by Mike Wallace.  I think that Roger is one of the best pitchers of all-time, and, with or without performance enhancing drugs, is a well-known workout maniac.  Roger is probably at the end of the line, but his career baseball numbers are staggering.

If Roger is lying about this, his reputation is even more ruined than it is by the allegations.  If he's guilty, should he admit it and ask for forgiveness?  Or, should he deny it until he has no other option?  Of course, if he's innocent, he can deny and deny, and people will always suspect that he's guilty after all.  How can he prove that he never used performance enhancing drugs?  Maybe he can get his accusers to admit that they lied, but then they would be subject to prison time themselves.

My 14-year old son was really disappointed when Clemens was named in the Mitchell Report.  He's grown up in an era of sports disillusionment, compared to my childhood where ignorance of my hero's foibles was fine with me.

I'll watch Roger's interview on 60 Minutes.  Maybe Roger can regain his hero status, but it will be tough.

December 21, 2007

Globe Santa - All-Time High!

As we wind down the week before Christmas, we have exceeded all my goals for Globe Santa this year!  Thanks to everyone for their support.  The totals (insert drum roll here):

Facebook donations: $1435
GlobeSanta.org donations: $3400
GrandBanks Capital/Otto Club fund-raiser: $5560 -- Thanks to FAST for their $1000 contribution!
My matching contribution: $5000

Total: $15,395

My all-time high!  Happy holidays!  It's not too late for you to support Globe Santa.  Donate directly on Facebook or on the Globe Santa site.

PS - This is more than 1.5% of all the money that GlobeSanta will raise this year.  We should all be thrilled that we have made a big difference for over 800 of Globe Santa's 54,000 kids.

December 18, 2007

Snoman's Question Answered

If you enjoyed the adventures of Gary Snoman last year, you'll be glad to know that this year's holiday card from Blueprint Ventures answers the question "What about India and China?"  Happy Holidays!

December 17, 2007

VC Outlook

The National Venture Capital Association released the 2008 Predictions Survey recently (powerpoint slides here).

There were some interesting tidbits in here:

  • VCs think that cleantech will be the fastest growing sector in 2008 for new investment, but will also be the most overpriced.
  • Semiconductors and software will be undervalued in 2008 (good fodder for my fellow contrarians).
  • VCs are optimistic about their returns in the future (or at least think that they will be better than they have been recently).  Given the amount of capital out there, I think that this is overoptimism.
  • However, returns in the past 12 months are ahead of historical 10 and 20 year returns.
  • Early stage venture capital, historically the strongest investment category, still has not recovered from the bursting of the bubble.
  • VCs think that Hillary Clinton will be elected President!

December 15, 2007

Globe Santa - Home Stretch

Thanks to all of you, we have raised $3985 total toward my goal of $5000 for Globe Santa.  There is at least one fund-raising event to go, thanks to Charley Lax at Grand Banks Capital.  Wow!

Please join use in supporting Globe Santa either via this Facebook Cause or by emailing me your confirmation from a donation directly on the Globe Santa site.

December 14, 2007

Energy independence is free

This TED talk by Amory Lovins gives you a fast-paced overview on how investments in alternative energy and US energy independence provides such economic benefits that it becomes free (as well as our best form of homeland defense).  Although this talk was recorded in 2005, I think that it is even more true today (and oil is even more expensive).

I think that this path is one of the most important things for a new president to pursue.  The US would lower its dependence on foreign oil, would develop innovative products that we can manufacture here and export to the world, and would have positive environmental impacts against global warming.

I think that this is worthy of a 'space race' level of investment, or at least a 'DARPA/Internet' level.  I don't want the government to own it, but I want to government to sponsor the basic research in our universities, fostering an awareness of this in our young people and providing a starting point for a host of new energy innovations and businesses.

Perfect Storm

Big snowstorm in Boston yesterday.  The snow started falling around Noon.  By 1 PM there was such a mass exodus from work that traffic was snarled everywhere.  In our office in Waltham, we can see the driveway down to Winter Street and the road around the reservoir.  Traffic was backed up from Route 95 all the way around the reservoir and well up the driveway into the Bay Colony Office Park.  People sat on that driveway for hours waiting to get out.  Not sure why.  If it was me, I would have turned around and gone back inside.

We had visitors from out of town in our office, so we decided to keep working with them and wait out the traffic jam.  Our visitors had their return flight cancelled, so they were going to stay over in Waltham.  We worked and waited, but the traffic jam on Winter Street never abated.  Cars waited so long in traffic that they ran out of gas.

Most of the people from our group left around 9, but the traffic still seemed bad to me.  I waited until 10 PM, and then headed home.  Other than dodging abandoned cars in the road that had run out of gas, I made it home in 30 minutes.  Then, of course, I got stuck in my driveway which hadn't yet been plowed.  After waking up my wife and enlisting her help, our snow plow guy came by.  They were nice enough to help get me unstuck and then plowed our driveway.  If you live near Bedford, MA, I'd definitely recommend Anderson Associates for driveway plowing.  They were real helpful!

December 10, 2007

LinkedIn Opens Up

As reported on Techcrunch and elsewhere, LinkedIn is opening up their site with an API to let developers add applications to this professional social network.

I use LinkedIn all the time.  It is an essential tool for entrepreneurs and VCs.  There is so much critical mass with LinkedIn that you have to mine it for contacts and connections.  I have recruited people for management teams and done extensive diligence on people by using my LinkedIn network.

Now that LinkedIn is opening up their social network with an API, I expect that there will be more interesting applications that can leverage my professional network.  I just hope that they keep their business focus.  They shouldn't try to follow Facebook down the social path.  I think that a lot of professional people are confused about why they might want to join Facebook.  I still think that it is more interesting than really professionally useful.  But, LinkedIn has real professional value.  And, that value will get unlocked with a good API and additional applications.

Globe Santa - Keep It Coming!

Here's the latest update on your generosity to Globe Santa:

On Facebook, we have raised a total of $1175.  Offline contributions to the Globe Santa web site (with email confirmations to me) have totaled $2000.  Make Mike Pay -- I'll match all donations, up to $5000 total.

I want to give special thanks to Charley Lax from Grand Banks Capital.  Charley has graciously offered to dedicate his private holiday fundraiser to Globe Santa this year.  Although I am not one for a lot of cigars and bourbon, I'll be there in my Santa hat to mkae my Globe Santa pitch.

As you probably know, Globe Santa provides holiday toys to Boston area children who would otherwise have nothing.  All of your donations go to purchasing toys and delivering them to children.  The Boston Globe pays all the administrative costs.

You can join the Cause on Facebook to support Globe Santa.  Invite your Facebook friends to join, too.  Or, you can give on the Globe Santa web site.  When you do, email me the confirmation, and I'll include it in my matching calculation.

December 08, 2007

Social Networking Meets Sports Talk Radio

Heard about this on Only A Game today.

The social network, My Football Club, based in England, raised over 1.375M English Pounds from its 53K plus members.  It used this money to purchase a controlling interest in the Ebbsfleet United FC soccer team!  According to the My Football Club web site, members (35 British Pounds each, only one membership per person) can weigh in on all team decisions, including team selection, player transfers, and the running of the club.

I remember back when the Celtics went public during their heyday.  That was more of a financial maneuver to raise capital.  There wasn't any real control that the shareowners got.  Many shareowners bought one share to give as a souvenir gift to a friend or family member.  This case is differnt.  The members buy into a trust that is the real majority owner of the team.  There is a private web forum where members debate what to do with the team, including who plays and possible trades. 

We'll see if the wisdom of the crowds produces better management than the more typical structure.  Imagine some of the yahoos on WEEI actually go to do some of the crazy moves they suggest!

December 05, 2007

Bulletin Board Material

Think this will be up on the bulletin board in Foxboro?

Safety Anthony Smith not only thinks the Steelers have a chance to beat the undefeated New England Patriots Sunday, he guarantees it.

"We're going to win,'' Smith said today after practice. "Yeah, I can guarantee a win.''

Saw this first on Reiss' Pieces,  Still amazed that players are dumb enough to run off at the mouth and motivate their opponents.

Ode to bubbles

This video celebrates the ongoing bubble after bubble cycle of the tech sector.  Really funny, and probably at least partly true.  Thanks, Tim, for the heads up.

 

December 04, 2007

If you stayed up late last night like I did...

...you saw a very exciting football game between the Patriots and the Ravens.  The Patriots won, but they needed a lot of help from the Ravens (timeout call, penalties).  Peter King of Sports Illustrated breaks down the controversial calls today.

I think the Patriots are very good.  I'm not sure that they are one of the all-time great teams, but they have the potential to be considered in this group if they play well for the rest of the season.  Their defense looks vulnerable, and their offense hasn't been clicking for the past two weeks.  They have a tough game this Sunday against Pittsburgh, and then a couple of easier games against the Jets and Dolphins.  All of these are at home.  They have played very strongly at home, except for a tight game against the Eagles.  If they can get back to playing as well as they did earlier this season, they should be able to run the table and really be up there with the 1972 Dolphins and 1985 Bears.

December 03, 2007

No Child

I recently joined the Advisory Board of the American Repertory Theater in Cambridge.  I've been a subscriber for a long time and have always enjoyed the theater.  That started when I was a kid.  My parents brought us to shows at a local theater company in Western Massachusetts.  Although I have no ability to act myself (and have some stage fright), I have always loved watching a great production.  I really appreciate what the actors do in a live production where there is no margin for error.

The ART is staging No Child this month.  We saw it on Saturday night and really enjoyed it.  It's a one woman show with Nilaja Sun playing all the roles, swtiching in rapid fire fashion to do all sides of a conversation.  She physically transforms her body, face, and voice to do one character after another.  That effect itself is worth seeing.

But, the subject matter of the play is also interesting.  It's about an inner city school where Nilaja is brought in to put on a play as a student activity.  The No Child refers to the No Child Left Behind Act.  That's the backdrop of the production, where you can see that this law has very little impact on a school in a tough neighborhood and few resources.  The Boston Globe wrote an editorial on the show and this connection a couple of days ago.

The ART prides itself on being innovative.  Sometimes that may go too far for a broad audience.  But, they have had a series of great productions over the past 12 months, including No Child.  If you are in the Boston area, I suggest you give it a try.

Your support of Globe Santa is awesome!

Regular readers know of my support for Globe Santa.  It's a great cause with a simple idea -- give holiday toys to kids who would otherwise have none, spreading hope and happiness.  And, misfortune can hit any of us.  Today's Globe has a story of a single mom from north of Boston whose husband died.  She's struggling to make ends meet and, without Gobe Santa, she couldn't buy her kids anything for Christmas.

I'm matching all gifts to Globe Santa from my network of friends and contacts (and their friends and contacts -- so invite your friends to join the cause!).  I'm very optimistic about hitting my $5000 goal.  Make Mike Pay!

As of right now, there is $1000 donated on the Facebook Cause and another $1550 that friends have donated directly on the Globe Santa site.  Please join by either donating on the Facebook site or by giving directly to Globe Santa and emailing me a copy of your donation confirmation.

Thanks, and Happy Holidays!

The Non-Compete Clause

There has been a flurry of activity in some blogs about whether it is worthwhile for employers to require employees to sign non-compete clauses as a condition of employment.  Bijan Sabet, a VC at Spark Capital in Boston, had written about this a couple of times before.  Over the weekend he said that he didn't believe in these clauses and said that Spark would not longer require companies to have these in place for their employees.  I wonder if Spark's co-investors in future deals with agree.

Fred Wilson from Union Square Ventures disagrees.  Both posts have lively comments which are worth reading.

Having been an operating guy and a VC, I've seen both sides of this issue.  Also, I was once personally sued under a non-compete clause as one employer tried to keep me from taking a job at another company.  It's nice to be wanted, but that wasn't a lot of fun.

In my case, the non-compete clause of the first employer was very broad, making it almost impossible to enforce, even in Massachusetts.  And, my new employer, although in the same industry as my first employer, was also a partner that we had a cooperative relationship with.  So, it was tough to make the case that it was a pure competitive issue.  The case didn't last long in court (15 minutes on a hearing for a temporary restraining order), but I did have to reaffirm my commitment to the confidentiality of the information I had from my first employer.  I'm a strong believer in that.

Clearly, a non-compete clause, if well crafted and enforceable, protects the interest of a company.  VCs have a responsibility to protect the interests of their companies, so they should ask for such clauses.  But, these clauses should be narrow and fair.  If someone leaves voluntarily, they should be able to be restrained from joining a direct competitor of the products they worked on.  This can apply to big companies and small. 

Since these laws don't apply in California, investors there can't get such protection.  I agree with Bijan that this hasn't hurt entrepreneurship in California, but it has probably spawned more lawsuits from companies that may have started with or benefited from information gleaned from someone hired from a competitor.  I know that these are really issues of confidentiality, but they start from the fact that the there is no non-compete clause which is restraining job transfers.

I don't agree with Bijan that the presence of a non-compete clause has significantly impacted the development of start-ups in Massachusetts.  It may be a small factor, but I think that the issue is more of the overall attitude about starting companies.  Here's a comparison:

In Silicon Valley, when you tell your boss that you are leaving your job to start a company, they say "Great, I want to invest!"  In Massachusetts, they say "You can't', we'll sue you!"  This story works even if the start-up isn't a direct competitor.  No one wants to go to court, so the threat of the lawsuit is a big issue.

In summary, I'd like to see the courts require that non-compete clauses be narrow and fair.  If you really do restrain someone from working, you should pay them for their time.  But, these clauses have to be narrow enough to give the employee freedom without harming the company's interest.  I also think that it matters how you leave the company.  If you leave voluntarily, then you should be more constrained.  If you are fired, laid off, or forced to leave for "good reason", then you should have fewer shackles.  If you are so valuable, then they shouldn't want to see you go.


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