Jason and I are planning to finish strong with some serious stuff in our term sheet series, but we figured we’d put one more term in that has us sniggling whenever we see it (a “sniggle” is a combination “sneer-giggle” – sort of like how I reacted to Kidman / Ferrell in Bewitched last night). The last sniggle term is as follows:
“Initial Public Offering Shares Purchase: In the event that the Company shall consummate a Qualified IPO, the Company shall use its best efforts to cause the managing underwriter or underwriters of such IPO to offer to [investors] the right to purchase at least (5%) of any shares issued under a “friends and family” or “directed shares” program in connection with such Qualified IPO. Notwithstanding the foregoing, all action taken pursuant to this Section shall be made in accordance with all federal and state securities laws, including, without limitation, Rule 134 of the Securities Act of 1933, as amended, and all applicable rules and regulations promulgated by the National Association of Securities Dealers, Inc. and other such self-regulating organizations.”
We firmly put this in the “nice problem to have” category. This term really blossomed in the late 1990’s when anything that was VC funded was positioned as a company that would shortly go public. However, most investment bankers will push back on this term if the IPO is going to be a success as they want to get stock into the hands institutional investors (e.g. “their clients”). If the VCs get this push back, they are usually so giddy with joy that the company is going public that they don’t argue with the bankers. Ironically, if the VC doesn’t get this push back (or even worse, get a call near the end of the IPO road show) where the bankers are asking the VC to buy shares in the offering, the VC usually panics (because it means it’s no longer a hot deal) and does whatever he can not to have to buy into the offering.
Sniggle. Our recommendation – don’t worry about this one or spend lawyer time on it.
Anyone that knows me knows I love to talk (I also love to sit quietly and ponder things – ah – the duality of being me.) Another duality – I hate to sit and listen at conferences (I learn by reading, not by listening) but I love to speak at them.
I end up doing random speaking things when it’s convenient for my travel schedule (rather than deliberate ones that I have to travel specifically for.) I just got the invitation for a panel I’m going to be titled Putting it All Together: Business Structures and Financing New Media Ventures at the Law Seminars International Regulatory and Business Issues for New Broadband Services conference on September 26 / 27 in San Francisco (man – that’s a lot of words to describe a conference.)
Apparently I’m going to be talking about (according to the agenda) “What investment is necessary to ensure success in using broadband networks and distributing content over those networks? Who is funding what?”
If you’re going to be in the bay area on these days and need some CLE credits (lawyers = YES, entrepreneurs = NOT LIKELY), come “play.”
A few days ago, I wrote some thoughts on the war on spam. Today Matt Blumberg has an insightful post up on what’s going on in several state legislatures concerning so called “Child Protection Acts” which are actually just children to the mess that almost occurred at the state level at the end of 2003 which resulted in the federal CAN-SPAM law.
I hate the notion of “spin” when applied to articulating what’s going on. I especially hate spin when it gets in the way (in the middle of, in front of) a decision. (Picture of me calmly, but forcefully, saying “just tell me what the fuck is going on and we’ll deal with it.”)
Tom Evslin has an awesome post up today titled Decide First, Spin Second. He recounts the story of a small nuclear crisis that was occurring in Vermont when Richard Snelling was governor and Tom was Secretary of Transportation. Snelling started the cabinet meeting off with the following statement:
“First we have to decide what the right thing to do is; then we’ll think about the politics. Otherwise we’ll just confuse ourselves.”
I was on a board call for a company today where we talked about “acceptable downtime” for their web-based service. This company has commercial customers that depend on its software to run their businesses and the software in question is delivered “as a service.” I’ve got a number of companies using this approach (vs. a straight software license approach) and I have a lot of experience with this issue dating back to investments in the 1990’s in Critical Path, Raindance, and Service Metrics.
While it’s easy to talk about “5 nines” (99.999% uptime), there are plenty of people who think this metric doesn’t make sense, especially when you are building an emerging company and have a difficult time predicting user adoption (if you are growing > 20% per month you understand what I mean.) While most companies have SLA’s, these also don’t really take into consideration the actual dynamics associated with uptime for a mission critical app.
For example, when I was on the board of Raindance, the CEO (Paul Berberian) described Raindance’s system as similar to an incredibly finely tuned and awesomely powerful fighter plane (on that even Jack Bauer would be proud to fly in.) There was no question that it was by far the best service delivery platform for reservation less audio conferencing in the late 1990’s. However, in Paul’s words, “when the plane has problems, it simply explodes in the air.” Basically, there was no possible way to create a situation where you can guarantee that there will not be a catastrophic system failure and – in this situation – while there was plenty of fall over capacity, it’s too expensive to create 100% redundancy so it will take some time (usually in Raindance’s case an hour or two, although it once took two days) to get the system back up. The capex investment in Raindance’s core infrastructure (at the time) was around $40m – we simply couldn’t afford another $40m for a fully redundant system, even if we could configure something so it was – in fact – fully redundant.
There have been many high profile services that have had catastrophic multi-day outages. eBay had a number of multi-day outages in 1999; Critical Path had a two day outage in 1999 (I remember it not so fondly because I was without email for two days in the middle of an IPO I was involved in); Amazon had some issues as recently as last years holiday season; my website was down for an hour last night because of a firewall configuration issue; the list goes on.
Interestingly, as an online service (consumer or enterprise) becomes more popular, the importance of it being up and operational all the time increases. While this is a logical idea, it’s a feedback loop that creates some pain at some point for a young, but rapidly growing company. As the importance of the service increases, expectations increase and – when there is the inevitable failure (whether it’s for a minute, an hour, or a day) – more people notice (since you have more users).
After watching this play out many times, I think every company gets a couple of free passes. However, once you’ve used them up, the tides turn and users become much more impatient with you, even if your overall performance increases. Ironically, I can’t seem to find any correlation concerning price – the behavior that I’ve witnessed seems to be comparable between free services, services that you make money from (e.g. eBay), and services that you pay for.
My advice on the board call today was that – based on our rate of growth (rapid but not completely out of control yet) – we should get ahead of the issue and invest in a much more redundant infrastructure today. We haven’t yet used up our first free pass (we’ve had several small downtime incidents, but nothing that wasn’t quickly recovered from), but we had a scare recently (fortunately it was in the middle of the night on a weekend and – given that we are a commercial service – didn’t affect many users). The debate that ensued balanced cost and redundancy (do we spent $10k, $100k, $500k, or $1m) and we concluded that spending roughly up to 50% of our current capex cost was a reasonable ceiling that should give us plenty of redundant capacity in case of a major outage. Of course, the network architecture and fall over plan is probably as important (or more important) then the equipment.
I’m searching for a way to describe “acceptable downtime” for an early stage company on a steep adoption curve. I’m still looking (and I’m sure I’ll feel pain during my search – both as a user and an investor), but there must be a better way than simply saying “5 nines.”
Killing Rain by Barry Eisler was dynamite. I continue to make one step forward and two steps backward through my shelves of unread books (Amazon delivers more than I consume.) After every few books I resort to pure mental floss – Eisler’s series on assassin John Rain is spectacular summer reading.
When Killing Rain showed up via Dan the UPS Man, Amy grabbed it and wouldn’t give it up until she finished it. It’s the fourth book in the series – if you haven’t read the others, you must start with Rain Fall, the first in the series. The flyleaf review from Entertainment Weekly – usually shoddy stuff – is very accurate this time:
“If Quentin Tarantino ever got to take a crack at the James Bond franchise, chances are the resulting film would resemble one of Eisler’s novels about John Rain. [Rain] is the stuff great characters are made of.”
Great stuff. Dad / Ed – don’t both buying copies – they are on their way to you.
Spam is one of the flagship members of the Internet Axis of Evil – it sucks worse than War of the Worlds. I’ve been supporting the war against spam through my investments in Postini and Return Path and I plan to continue to do whatever I can to help eradicate this scourge from Planet Internet.
While it would be nice if spam just disappeared, it’s not going to anytime soon. So – in addition to attacking spam, it’s time to really address the “legitimate email issue.” Return Path has been after this for a while and just released a new version of their email delivery monitoring tools. Today – TRUSTe (a non-profit dedicated to online privacy issues) launched an “Email Privacy Seal Program” – members of this program can confidently say “We Don’t Spam.”
As I’ve gotten deeper in to the spam issue, it’s clear that it’s needs to be addressed from both sides. The obvious side – prevent the bad shit – is what the anti-spam companies like Postini do. The less obvious side – allow the good stuff through (which also includes “tell consumers who is good and who is bad”) is becoming more central to the war. Return Path and TRUSTe are doing good things around this.
About every three months I hear someone say “RSS will eliminate email (implying that the spam issue will go away).” This is a ridiculous construct – Matt Blumberg the CEO of Return Path has several good posts on this so I’ll refer to him rather than repeat what he has to say. But – Matt gets it – he knows email, knows RSS, knows online marketing, and – well – generally has a clue. If you care about this issue, you should pay attention to what he’s up to and what he’s thinking.
Of course – spam has moved well beyond email at this point. My email spam issue completely under control because of the magic of Postini. However, I get between 50 and 100 comment and trackback spams on a good day (and several hundred on a bad day). My tools for this suck – SixApart is promising new happiness in MT 3.2, but for the time being I’m struggling along with the MT-Blacklist plug-in. Michael Parekh tells an entertaining story of the ineptness of my blog when he tried to comment.
While the world would be better if jerks didn’t feel compelled to write software that posted crap like:
Tell us what you like about the מטבחים events and what you think would make them even better. You are the key to making your <a href=’https://ceramics-tiles.blogspot.com’>מטבחים</a>…
to my blog, having lived through the last 10 years of the email spam wars, I accept that we’ll have continued fun with all sorts of new variants. Ironically, I recognize that this helps power the “technology perpetual machine” – I guess that’s just something we have to live with.
So, earlier tonight, I turned to Amy with a twinkle in my eye and watched as she stared intently at something that looked suspiciously like Typepad on her monitor. The following conversation ensued:
Brad: “Hey, Atom 1.0 is out.”
Amy: “Adam Who?”
Brad: “Atom 1.0 – the new feed format.”
Amy: “I thought that was RSS.”
Brad: “Yeah, yeah, there’s this other format called Atom that … (long unnecessary technical explanation followed).”
Amy: “Uh huhnnnhh”
Brad: “Stop playing with your blog – this is important.”
Amy: “So – what does it mean – what do I have to do differently?”
Brad: “Heheh – nothing – because you use FeedBurner and they automagically will format your feed for Atom 1.0 if it makes sense.”
Amy: “Brad – you are such a nerd.” (As she continued typing on her computer).
I was a little surprised she didn’t say “What was wrong with the last version of Atom?” – this from a woman who regularly says “Damnit – DOS was good enough – why doesn’t Shift-F7 Y exit Word?”