Jack Bauer does the voice over for the new Mac / Intel ads. It just dawned on me that The Answer to Life, the Universe, and Everything is simply the reverse of the digits of 24 – that helps me understand my obsession a little better.
I’ve never really gotten into Desperate Housewives (I’m – well – more of a 24 guy). However, I saw a note forwarded to me today from another VC that is definitely a mashup between “Desperate Housewives” and “24”. It could also be subtitled “a note you should not send to VCs.”
From: Desperate Entrepreneur (not his real name)
Sent: Recently
To: A long list of VCs, including a bunch of “dead email addresses” like deals@vcfirm.com
Subject: As you know we need our financing today. Thank you for discriminating against me. Good thing I own the copyrights as well. Price is now 1 million per lateral ejection seat.
I know nothing about this particular deal, but I do know that – even in the most desperate situation – this is not a particularly effective approach to a VC.
Paul Allen (of Microsoft fame) has put up a web site for his collection of Digital Equipment Corporation mainframes and minicomputers. The collection has a real history, some pretty pictures, and the ability to telnet to a DECsystem-10 or an XKL Toad-1 and actually use them. Serious cool nerd factor.
Two things happened at both ends of the spectrum today in deal land. A little company named Truveo was acquired by AOL and a little company named SearchFox announced it will shut down on January 25, 2006. While congrats go out to Truveo, I expect we’ll be seeing plenty more of the “SearchFox case” in 2006 even as AGILEAMY (or GEMAYANI, or GYMAAAE) continue to do the acquisition thing.
The whole world knows that Apple officially announced it’s first Intel-based products today. Simultaneously, Apple stock closed at a price of $80.86 (it has traded up to $81.89 in the aftermarket, but that doesn’t count.) I once had a Compaq Deskpro with an Intel 8086 microprocessor. What a delicious number trick – I wonder how Jobs got Nasdaq to clear the final trade of the day at $80.86.
Matt Blumberg has a good thoughtful post up on the notion of the “We Media Deal.” Matt spends a lot of time paying attention to the transition from “Old Media” to “New Media” to “Next Media” (or “We Media”). Matt posits that We Media has two components:
Worth a careful read if you are developing anything that interacts with end users.
Ah – 24 Season 5 starts on Sunday. To celebrate (and warm up), we are planning having a 24 party starting Friday night. We’ll toss the first disk from Season 1 in at 6pm and go until we crash and then start up the next morning at 8am and try to finish things off before the Broncos game starts. Fortunately, my brother Daniel found a drinking game for 24 – at least we’ll have some assistance.
NewsGator has been gradually releasing new inline features for NewsGator Online. If you haven’t played with it in a while and are tired of your existing web-based RSS reader, give it another try. Several new improved features include:
Some more FeedDemon 2.0 features and screen shots are also sneaking out. And – keep your eyes open for the upcoming launch of FeldReader.
Jason and I continue our Letter of Intent series with one of our “favorite” clauses (sarcasm intended). The escrow is another hotly negotiated term that often is left ambiguous in the LOI. The escrow (also known as a “holdback”) is money that the buyer is going to hang on to for some period of time to satisfy any “issues” that come up post financing that are not disclosed in the purchase agreement.
In some LOIs we’ve seen extensive details – with each provision of the escrow agreement spelled out – including the percentage of the holdback(s), length of time, and carve outs to the indemnity agreement. In other cases, there is simply a declaration that “standard escrow and indemnity terms shall apply.” Since there really isn’t any such thing as “standard terms” this is another trap for deferring what can become a brutal negotiation to the post LOI stage. Since whatever the escrow arrangement is, it will decrease the actual purchase price should any claim be brought under it, the terms of the agreement can be very important since they directly impact the value that the seller receives.
While there is no typical mechanism or agreement, we can say in our recent experience an escrow is set up which is the sole remedy for breaches of the reps and warranties, with a few exceptions (also called “carve-outs.”) Normally between 10% and 20% of the aggregate purchase price is set aside for between 12 and 24 months to cure issues. You should note that while this is usually where the deals end up, it can take a herculean effort to get there. It’s not uncommon for a buyer to start by asking for uncapped indemnity if anything goes wrong, personal liability of company executives and major shareholders, and – in some cases the ability to capture more value than the deal is worth.
The carve-outs typically include fraud, capitalization, and taxes. Occasionally a buyer will also press for intellectual property ownership to be carved out. We’ve also started to see liabilities resulting from lack of 409A compliance be carved-out in escrow agreements under the argument that 409A is like “taxes.” In all cases, the maximum of the carve-out should be the aggregate deal value (e.g. you shouldn’t have to come up with more than you got paid to satisfy an escrow claim).
A lot of buyers will say something like “well – I can’t figure the specifics out until I do more due diligence.” We say “bah” to that – we’ve yet to meet a buyer that was unable to put an initial escrow proposal – with some detail – in the LOI – subject to due diligence of course.
Finally, the form of consideration of the escrow is important. In a cash deal, it’s easy – it’s cash. However, in a stock deal (or cash and stock deal), the value of the escrow will float with the stock price. There are lots of permutations on how to best manage this on the seller side – you should be especially thoughtful about this if you have concerns that the buyer’s stock is particularly volatile. Imagine the situation where the stock price declines but the buyer’s escrow claims are of greater value then the stock in escrow represents. Reasonable people should be able to agree that the seller doesn’t have to come up with extra money to satisfy the claims (note the “reasonable people” assumption.)