I guess it is only fair that while Jason and I rip on the IRS, accountants, and lawyers regarding 409A, we make take a few shots at the VC community.  VC’s are perhaps the most uninformed population with respect to the 409A guidelines. In general, it’s been very disappointing to here other VCs speak about the regulations and make grotesque over-generalizations regarding their applicability. At this point, I can’t remember how many “this isn’t right” emails that I’ve had to send. At least I have a blog that I can send them to (of course – not for “official advice”), as opposed to having to type the same email 100 times.

Following is an example that came up last week that made my head spin.  One of our companies – a relatively young one that has only had one round of financing – is in the middle of raising a new financing.  They are doing well, have a competitive financing situation going on, and I expect they will have multiple options to choose from.   The company is well informed about 409A, has done all the things you’d expect them to, and are planning to have an outside audit done by the end of April.  The financing is expected to close by the end of March – they are holding off on the 409A audit to wait for the financing to be completed.  They have decided to hold off granting any new options until after the financing and have accepted that the option price will be driven by the 409A audit based on the new preferred stock price associated with the financing.

One of the VCs they are talking to has asserted that they cannot close a financing without an outside audit. The assertion from the VC is that “it’s too risky and creates too much liability for the new investor.”  Huh?  In addition to being a completely illogical statement, it’s clear the VC simply doesn’t understand 409A since holding off on the financing will likely drive the value of the common stock down (since the company is running out of money) while doing the financing will drive the value of the common stock up (since it’ll be well-financed at a higher per share price then before.)  Which is a more conservative position to take?  Actually, it doesn’t really matter – since it’s an early stage companies we are likely talking about pennies a share in any scenario.

Add one “point” to the “noise” column under 409A. It blows my mind that major business decisions (e.g. the financing of an early stage company) are being driven by the IRS guidelines. Shame on you IRS, but more shame on the VCs who remain ignorant about the real facts.

This just in from the Wall Street Journal News Alert service.

The White House unveiled its budget proposal for fiscal 2007, which starts in October, calling for $2.77 trillion in spending. Though the U.S. government will remain deeply in the red next year, the federal budget deficit should dip to $354 billion, a decline from the current year’s projected record $423 billion shortfall.

Only negative $354 billion this year?  Respectfully Mr. President – you’re a Republican.  Can’t you figure out how to run up a bigger deficit than that?  Gotta go – five more minutes left to pack.

Lon Sunshine (a frat brother) sent a group of us a way to waste our entire day.  I’ve decided to share it with you.  I gave it two minutes and managed to go 12.547 seconds.  I’ve got to go pack now – I leave for the airport in 10 minutes

Are you a media company that is tired of losing online traffic to the RSS capabilities incorporated into My.Yahoo? NewsGator announced the general availability of the NewsGator Hosted Solution (NGHS) and will be showing it off at Demo. 

If you are a publisher, media company, or content provider and want to incorporate an RSS Aggregator into your site to increase the user experience for your online users, NewsGator has a great solution for you.  Look for launches from Newsweek.com, SFGate.com, and Macworld.com in the next month.  Oh – and look for the elusive “FeldReader” – whenever I manage to find a few spare hours to put it together.

I love exponential curves – they are beautiful things.  Whether they are linked to positive or negative things, they signal opportunity.  Dave Sifry – CEO of Technorati – has started on his February 2006 State of the Blogosphere report.  He starts off with a very pretty exponential curve and begins his periodic dissection of the growth of the blogosphere.

My friends Paul and Renee Berberian (and their daughter Marlo) are taking a trip around the world for the next year.  If you’ve ever fantasized about something like this, I expect you can do this vicariously through Renee’s blog.  She has a delightful entry up about packing for a trip like this.  Whenever Amy and I travel, even if it’s for a week, I get to watch Amy have a similar experience.  Of course, being a guy, I can pack in five minutes for any trip.

Western Union announced on Friday, 1/27/06, that the age of the telegram had officially ended.  The Western Union website has the following comment on it.

Effective January 27, 2006, Western Union will discontinue all Telegram and Commercial Messaging services. We regret any inconvenience this may cause you, and we thank you for your loyal patronage. If you have any questions or concerns, please contact a customer service representative.

Presumably they don’t expect you to contact them via telegram (they provide a nice email form, physical mail, and a bunch of 800 numbers.)  I imagine that someday in the future a similar message will go out on some other communication medium about “the death of email.”  I wonder how that’s going to work.

George Gombas passed away yesterday.  While you probably don’t know George, he was an entrepreneur with a big mind and an incredibly big heart.

I first met George when he and his co-founder Steve Buck were pitching me – in 2001 – on the idea of a company they had created called Npulse.  George, Steve, and a band of a few others had some really big ideas around monitoring, measuring, and managing application activity on the web.  I was interested and immediately liked George and Steve, but suggested they spend some time refining the idea with Ben Wen who was working for me at the time.

A few months later – in January of 2002 – I decided to invest in Npulse.  The first year was an exciting one, as the company grew from a few people to 20 and George, Steve, and the gang worked hard on getting a product out.  2002 was a particularly bleak year for me as I was mired in the midst of the dotcom meltdown (or rather, buried under the rubble).  Npulse and my interactions with George and Steve were a bright spot during this time.

George – who had been battling cancer for a number of years before I met him – was always fully present, no matter what he did.  He was always a pleasure to be around and brought infectious energy to every project.  As Npulse grew, we added a new CEO, continued to try to evolve Npulse from an early stage pre-product company to a real business.  George eventually left the company and took some time off to travel and get married. 

Npulse – which turned into Alignment – then did a financing / merger and became Xaffire, after which point it struggled to find relevance in the market.  The technology that George and Steve originally envisioned came to life, but as with many software product companies in very competitive markets, Npulse’s products were more “features” than products.  At the end of last year, Quest Software acquired Xaffire, providing a nice long term home for the technology that Npulse / Alignment / Xaffire had created.

I haven’t been in touch with George much over the past two years.  We’d email occasionally – he was always happy and upbeat.  A few weeks ago, we had a Xaffire party to celebrate their acquisition by Quest.  At dinner, Steve told me that George wasn’t doing very well.  I thought about calling him, but then got caught up in the normal flow of life and didn’t.

Steve sent a note out that George passed away yesterday.  I had a few sad moments and then though kind and happy thoughts about George and the vigor with which he lived his life.  George – you were a great person – I will miss you.

I’m not a news breaker (I’ll leave that to guys like Mike Arrington and Om Malik) but I just noticed an announcement that I expect will get a lot of blog time tomorrow.  Fon – a wireless startup in Spain – has landed $21.7m from Skype, Google, Sequoia, and Index Ventures.  The Skype guys have a post up, Martin Varsavsky from Fon has his thoughts up, and Dan Gillmore – a US advisory board member for Fon has his thoughts up on Bayosphere.  This will undoubtably land on the top of Tech.Memorandum on Monday.