I can’t stand fluorescent lights.  I literally can’t sit in a room with them on for very long without noticing them.  For years, people walk by wherever I’m working and ask me if I like working in the dark (I’ve got a long list of catty responses – all various derivatives of “being in the dark.”)

Yesterday, I was a judge at the DaVinci Institute’s A Night with the Visionaries.  I thought it was going to be a strange way to spend a Friday evening, but I ended up having a great time and being completely blown away by the inventions and inventors that were competing.  The evening was extremely well done and Thomas Frey who runs the DaVinci Institute should be proud on the event his organization put on.

While I saw plenty of cool things including an infra-red pistol mounted camera, a self-tuning guitar, a personal cooling device, and an ambient light dome for photographers, my favorite was the Sky-Scape decorative fluorescent light diffuser.  It’s a brilliant idea that is one of those inventions that the instant you see it, you get it, and fall in love with it.

Happiness for fluorescent light haters in now only $37.95 per light away.

Fred Wilson has an awesome blog on The VC’s Customer.  The first few sentences summarize the post.

Many of the people I know in the venture capital business think their customers are their investors, called LPs in the industry vernacular. I’ve always thought that was dead wrong.  The entrepreneur is the customer and the LP is the shareholder. That’s the only way to think about the venture capital business that makes sense to me.

I agree 100% with Fred’s perspective on this.  Both my shareholders (my LPs) and my customers (the entrepreneurs) are critical to my business.  But I (and Fred) think it’s important to be clear on which is which.

If you like listening to me to talk (hi mom) or are interested in search, Eric Olson has his second VentureWeek podcast titled “Search” up.  This one only had two Dave’s on it (compared to three on the first one).  David Hornik (August Capital), Dave McClure (SimplyHired.com), and Jeff Clavier (SoftTech VC) provided some useful content while I tried to ignore the idea that it was 11:30 at night on the east coast and time for me to go to bed. 

Ross (and everyone else that has one) appears to love their Nano’s but they have this little annoying “scratching problem.” I’m trying to encourage Ross to stop playing with his Nano long enough to play with something new, but so far I’ve failed.  He has, however, found a solution to that scratching thing.

As you all know I recently got an iPod Nano. As you also probably know from my review the iPod Nano has had some rather bad screen scratching issues. After getting some feedback from users on the invisibleSHIELD line of protectors I decided that I’d give them a try. I’m very glad that I did.

While other protectors look cool (some with cartoon characters on them) this one seemed to get better reviews. I assumed it would work like many of the other “stick-on” protectors where you peel the film off and have to be careful to stick it on without any air bubbles.  I wrong (and pleasantly surprised).  While it’s very hard to apply it, once you get it on it is well worth the effort. Take a look at the videos demonstrating the material – it’s actually the same material that is used for clear bras on cars.

Once you get it on the Nano (it took me about 30 minutes) you have to let it dry overnight so the glue sets. Once it’s dry, it’s virtually invisible.  It does make the Nano a little less smooth – which really is a good thing since it was hard to use the jog wheel when it was that slick anyway. I’ve shown it to several friends and no one could tell the protector was on it until I pointed it out.  If you have, or are planning to get, a Nano (or any other iPod for that matter) get one of these to go with it.

Dear Ross – ok – I’m protected – now give me something new and exciting to play with.

While it’d never play out the way it did in today’s TSA / Patriot Act world, the next time someone says “you’ll never be able to do that”, simply refer them to David Cowan’s magnificant story of his trip to Athens in 1991.  I remember David telling me the story in – well – 1991 – and it holds up well 14 years later.  Back when you could be “the last person on a flight” and still make the flight, Amy was constantly annoyed at me when we travelled together.  Whenever I cut it too close, I simply reminded her of David’s story.  Now I can simply point her to his blog post.

My partner Heidi pointed out that the analogy (or is it a metaphor – I can never remember – another one of my brain quirks) that I used in my Letter of Intent: Structure – Asset vs. Stock post could have been better.  An asset (or “artichoke” deal) is actually like eating the artichoke heart and leaving the leaves untouched since the heart is the good part and the leaves have thorns. 

The recurring theme of the power of word-of-mouth marketing came several times for me yesterday.  My day started out with an email from Raj Bhargava, the CEO of StillSecure, that pointed to an unsolicited positive review of StillSecure’s StrataGuard product on an end-user’s blog.  Later in the morning, I had a meeting with a new consumer product company with a cool invention that was created by a friend / neighbor.  They had built 25 prototypes and had 24 of the 25 users of the prototypes rave about the product.  At the end of the day I had a meeting with a $400k two person software company that is trying to figure out how to accelerate their growth.

I had the word-of-mouth theme in my head from the StillSecure product review post.  In my first meeting, I listened as the entrepreneurs told me they needed a $2 million financing to do the first production run of the product (1,000 units) done, get a marketing guy hired, do “marketing”, build channel relationships, and see if things worked.  If they did, they either needed $0m of additional financing or $8m of additional financing, depending on how they rolled out the next wave of marketing.

In the second meeting, the founder told me that of all the marketing approaches he tried (trade shows, print ads, cold call of industry lists), the only one that was working effectively was Google AdSense.  In this meeting, he suggested that he was going to try a bunch of new (and the same) things.  When I probed, I found out that his existing customers are ecstatic with the product, the company has plenty of leads, but he can’t figure out how to motivate the leads to quickly turn into customers.

In both cases, I kept hearing the word “marketing” used generically.  I despise the word “marketing” – it’s often the weakest link in a startup company.  “Marketing” is vague and non-specific, often poorly executed and measured, and usually a huge waste of money relative to the output.  Oh – and while there are plenty of “tried and true” approaches (that any marketing consulting would be happy to charge you plenty of money to explain to you) – the effective approaches have been evolving a lot lately, especially as user-generated content becomes ubiquitious.

Several years ago, I suggested to my portfolio companies that they fire their VP of Marketing and hire a VP of Demand Generation (it could be the same person if the VP of Marketing was willing to accept a quota and meaningful, measurable variable compensation.)  Hopefully, this VP of Demand Generation understands the incredible power of having your customers so happy with your product that they’ll talk about it online. To see an example of this, FeedBurner has been doing a great job of highlighting this with their Publisher Buzz blog where they link to posts from “people who kind of dig FeedBurner.”

I suggested to both companies that I met with that they stop talking about “marketing” and instead focus on getting their existing customers to tell the world about their product through blogs, references, online interviews, and at cocktail parties (these are both products that the target customer will ultimately start talking to a friend about over a drink). 

Try something – for 24 hours, substitute the phrase “lead generation” for “marketing” in every conversation you have and see what happens.

While price is usually first issue on every seller’s mind, structure should be second. While there only two types of deals (asset deal vs. stock deal), there are numerous structural issues surrounding each deal. Rather than trying to address all the different issues, Jason and I decided to start by discussing the basics of an asset deal and a stock deal.

In general, all sellers want to do stock deals and all buyers want to do asset deals. Just to increase the confusion level, a stock deal can be done for cash and an asset deal can be done for stock – don’t confuse the type of deal with the actual consideration received (if you start getting confused, simply think of an asset deal as a “artichoke deal” and a stock deal as a “strawberry deal.”)

Sarcastic venture capitalists on the seller side will refer to an artichoke deal as a situation “when buying a company is not really buying a company” (kind of like eating the artichoke leaves but leaving the artichoke heart untouched.) Buyers will request this structure, with the idea that they will only buy the particular assets that they want out of a company, leave certain liabilities (read: “warts”) behind, and live happily ever after. If you engage lawyers and accountants in this discussion, they’ll ramble on about something regarding taxes, accounting, and liabilities, but our experience is that most of time the acquirer is just looking to buy the crown jewels, explicitly limit their liabilities, and craft a simpler deal for themselves at the expense of the seller. We notice that asset deals are more popular in shaky economic times, as acquirers are trying to avoid creditor issues and successor liability. One saw very few asset deals (in proportion) in the late 1990’s, but in early 2000 artichokes became much more popular and there is still a significant hang over today.

While asset deals are “ok” for a seller, the fundamental problem for the seller is that the “company” hasn’t actually been sold! The assets have left the company (and are now owned by the buyer), but there is still a shell corporation with contracts, liabilities, potentially employees, and tax forms to file. Even if the company is relatively clean from a corporate hygiene perspective, it may take several years (depending on tax, capital structure and jurisdictional concerns) to wind down the company. During this time, the officers and directors of the company are still on the hook and the company presumably has few assets to operate the business (since they were sold to the buyer).

In the case of a strawberry deal, the acquirer is buying the entire company. Once the acquisition is closed, the seller’s company disappears into the corporate structure of the buyer and there is nothing left (except possibly some t-shirts that found their way into the hands of spouses and the company sign that used to be on the door (oops – did I say that?) just before the deal closed.) There is nothing to wind down and the historical company is well – history.

So is an asset deal “bad” or is it just a “hassle”? It depends. It can be really bad if the seller has multiple subsidiaries, numerous contracts, employees with severance commitments, disgruntled shareholders, or is close to insolvent. In this case, the officers and directors may be taking on fraudulent conveyance liability by consummating an asset deal. It’s merely a hassle if the company is in relatively good shape, is very small, or has few shareholders to consider. Of course, if any of these things are true, then the obvious rhetorical question is “why doesn’t the acquirer just buy the whole company via a stock deal?”

In our experience, we see stock deals the vast majority of the time. Often the first draft of the LOI is an asset deal, but as sellers that is the first point we raise and we are generally successful ending up with strawberries except in extreme circumstances whereby the company is in dire straits. Many buyers go down a path to discuss all the protection they get from an asset deal – this is generally nonsense as a stock deal can be configured to provide functionally equivalent protection for the buyer with a lot less hassle for the seller. In addition, asset deals are no longer the protection they used to be with regards to successor liability in a transaction – courts are much more eager to find that a company who purchase substantial assets of another company to be a “successor in interest” with respect to liabilities of the seller.

The structure of the deal is also tied closely to the tax issues surrounding a deal and – once you start trying to optimize for structure and tax – you end up defining the type of consideration (stock or cash) the seller can receive. It can get complicated very quickly and pretty soon you can feel like you are climbing up a staircase in an Escher drawing (or running the Manhattan part of the New York Marathon – each time you turn you expect to get to go downhill and see the end, but instead you continue to wind uphill forever – even when you’ve turned 180 degrees and are running the other direction.) We’ll dig into tax and consideration is other posts – just realize that they are all linked together and usually ultimately impact price which is – after all – what the seller usually cares most about.

Have you ever wondered how the splits between selling shareholders in a secondary offering get negotiated? Tom Evslin covers it flawlessly in Chapter 7 of his blook Hackoff.com: An Historic Murder Mystery Set in the Internet Bubble and Rubble.  I’m loving Tom’s blook (which will eventually be a real book) you can pre-order hackoff.com at Amazon (Tom promises that it will be a signed copy).

If you are only interested in how the secondary works – hop online and read Chapter 7 – Episode 1, 2, and 3.  Alternatively, if you are interested in a potential view of how – if you buy DSL from SBC, they will someday, if they can, charge you or Google extra if you want to Google over that DSL connection – then take a look at Tom’s blog.

The man knows of what he speaks.  Tom – good stuff all around.