Brad Feld

Month: April 2006

Last month, I decided to spend April with Microsoft, May with Yahoo, and June with Google.  As April comes to an end, I turn from Microsoft to Yahoo.  I already changed my search default within Firefox and am now sending traffic to Yahoo instead of Microsoft.

In hindsight, April was frustrating.  I started out by trying to switch all my software infrastructure to Microsoft, including IE7b2.  In addition to bonking hard, this attempt messed up enough other things on my desktop computer at home that I quickly backed off the “all Microsoft” and went to “online Microsoft only.”  The nice folks in the IE group tried to help, but the pre-release of the next version that I downloaded was too unstable (and – after one iteration – I decided I simply didn’t have the time to keep fighting with it) so I bailed and just kept using Firefox.

I dug into MSN and to try to switch from several of my web-only apps, including My.Yahoo.  I found that either (a) the switching costs were simply too high (I didn’t have the desire to spend the time setting things up to my liking) or (b) when I spent the time, I ran into walls that limited my desire to continue.  For example, I’m a heavy user of (Yahoo) and – as I tried to figure out how to stop using it and use a corresponding Microsoft tool, I couldn’t find one that was equivalent.  Or – when I tried to shift from Foxmarks (to synchronize my Firefox bookmarks across computers) to Windows Life Favorites, the service was unavailable the first time I tried, I got tangled up in Microsoft Passport login hell the second time, and finally got it working the third time, but then was frustrated that I couldn’t figure out how to sort the “Your Folders” view alphabetically and gave up. 

I had some positive experiences – I did two presentations where I used Live Image Search as my primary search for content and was pretty satisfied.  I didn’t have any fundamental problems with either MSN Search of Live Search – after using it a month I didn’t notice that I wasn’t using Google for search. 

Overall, I didn’t dig into too many non-Microsoft services that I wasn’t already using.  I’m a heavy client app user (Outlook, Office Apps, Trillian, FeedDemon, Picasa, Skype, Adobe, MotionBased, iTunes, and some other client apps) so I’ve got plenty of client stuff, including Microsoft – in my face all day.  However, I just couldn’t get the base under me to switch away on the web apps that I use.  I expect that being intensely busy in April and being on the road all month didn’t help matters as I had lower tolerance than usual for screwing around with new stuff.

I expect life with Yahoo will be easier since I’ve been a heavy My.Yahoo user since 1997.  However, I find that with RSS I use My.Yahoo less and less since I consume RSS in FeedDemon.  Let’s see what else – besides Yahoo Search – I find useful this month.

Last week, I wrote post on A Different View of China from a close friend of mine who is spending the year traveling around the world with his family (wife and 11 year old daughter).  I think he’s got a delightful rhythm to his thoughts and sent me another rant which I feel compelled to share with you.  Remember – my friend has been on the road with his family since the beginning of the year so his thoughts are certain to be tinged with facing “the travel wall.” If you want yet another view, Rick Segal is also blogging about his trip.

I’m sick – lost my voice and I’m sitting in a room at the cheng do sheraton – they’re all the same to me now. (Wife) is surfing the bet and (daughter) is bathing. I ran out of books a few weeks ago – I’m now reading agatha christie that I borrowed from one sheraton – Ill leave it at this one when I’m done. Its not stealing if I move it one sheraton to the next is it? The foreign book stores don’t have the best selection.

It’s not that china is bad – there are just so many other places better to visit.

I love chinese food – but every restaurant is chinese food – and service is something they haven’t quite nailed yet. There are few if any other types of restaurants.

No nice cafes on the boulevards – no al fresco dining – just store after store selling the same stuff. How do they make money – there is zero difference between storefronts and product mix.

The streets are all clean – but traffic is crazy – traffic lights are more of colorful decoration than guiding signals.

The solution to every problem seems to be – more people.  Want to seem like a swank hotel – put a dude in a basement mens room that no one goes to to turn on the water and push soap in your hands. No bulldozer to dig a ditch – 5 dudes with pick axes.  We went in a private car to a restaurant and we parked in a new underground lot with about 60 parking spaces – there were eight people working there (one to push the button to hand you the ticket, another 2 to direct you where to park – another to collect the ticket and run it to the cashier,  two cashiers, and 2 security guards – the rate was 30 cents an hour to park and it was 40% full.  Crazy stuff wherever you look – on one area a million people jammed selling the same dried fruit for 80 cents a kilo and across the street a sleek high rise of condos is going up for millions of dollars a unit.

There is no middle ground – dinner tonight I’m sure will suck if we eat in the hotel and cost 80 bucks – 50 feet from the hotel door we bought the best food we’ve had in 9 days for 70 cents (3 loaves of bread and 8 dumplings! – 4 people were working at the stand – our hotel costs 350 US a night). The problem of eating on the street is you don’t know what you’re gonna get and you’re pretty sure it wasn’t prepared using the most hygienic techniques.  So what’s a dude to do – pay up for crap or risk it.

The parts that are built up are very modern and seemingly well kept. People litter a lot but there are just as many working to pick it up.

English isn’t widely spoken outside of the hotels and tourist stops – and there is no way to fake your way into a word like in Spain or France.  If you speak English you can earn 3 times more money giving tours.

I don’t fear china’s economic might – yet. They have to address a serious class gap, energy and pollution issues, and an infrastructure that can’t keep pace with demand.

(Daughter) just found the complementary condom in our room and was playing with it. It was red. She was telling me what it was for – she got it wrong – I’ll have (wife) handle that part of her education.

On that note – I’ll stop rambling.

And – a few minutes later…

The condom wasn’t complementary – it was 11 dollars! But we also got some tampons and disposable underware for (daughter) to play with:)

We made some ergonomic upgrades to the Treadputer this week.

The main changes, compared to the last iteration, are:

  • Mounted speakers
  • Angled keyboard and mouse holder (the angle is very important)
  • Much better stabilization for keyboard / mouse

We are still working on the headphone / microphone configuration.   Getting this right has proven to be a lot harder than we expected due to ambient noise, weight (it sucks to have real headphones on for two hours while you are running / walking), and modality (speakers and microphones don’t mix that well.)  It’s also time to put a better desktop background on those pretty monitors.

24 The Game

Apr 27, 2006

After a grueling week on the road (I started in Boulder and got to see the ocean off of both coasts and then ended up in Boulder), I just returned to my office at the end of the day to see a copy of 24: The Game running on the PlayStation 2 in my conference room.  In the words of Jack Bauer, “Damnit.”

Bathroom Art

Apr 26, 2006

If you’ve been a long time reader of my blog, you know my fascination with bathrooms.  Yesterday, I got an email with this link twice – I figured it was time to blog some new bathroom art.

Following is a question I got the other day.

We have some people who are currently interested in doing a Series A round with us.  They aren’t VC’s – they’re a company in our market who offer a pile of services complimentary to ours (they aren’t competitors, or substitutes.)  In our conversations with them, they’re asking for a Right of First Refusal – I know this is standard stuff, however, they’re asking for a ROFR for acquisition offers, as well.  Their reasoning (which is valid), is that they don’t want one of their competitors coming and buying us outright – they’d want to do it themselves. My question is, in an acquisition scenario, will this type of ROFR cause problems that make us a less appealing acquisition?  What type of issues might we run into in the future?  Any advice?

In our Term Sheet series, Jason and I talked about the Right of First Refusal (ROFR) in the context of a financing.  When a ROFR is requested for future financings, this is a standard term and one that isn’t usually worth negotiating much.  However, it’s an entirely different case if a ROFR is requested in a financing that will apply to acquisition.

While a rational request, it’s very dangerous to provide a ROFR on an acquisition to investors in a financing.  A VC will rarely request this (and – if he does – tilt your head sideways at him as say “huh – why?”)  However, corporate investors (also known as “strategic investors”) will often ask for this.  The theory is almost always the one posited in the question above – namely – we want to invest in you now but want first crack at acquiring you if one of our competitors starts sniffing around.

Good theory; bad implementation.  Giving an early investor a ROFR on an acquisition materially handicaps the company and disadvantages all shareholders, except the corporate investor that is getting the ROFR.  The corporate investor will already have visibility into your company and will likely have a variety of rights (including potentially a board seat) by virtue of their investment.  In some cases, they’ll be aware (by virtue of their board seat) of any potential acquisition activity.  If they aren’t, it’s likely that if you get into discussions with a potential acquirer, you’ll bring it up (carefully – of course) with your corporate investor and suggest that – if they are interested – that now would be the time to consider making an offer for the company.  So – the notion that they’d be left out in the cold completely – while possible – is unlikely.

If you have a ROFR in place, you are in a bad position with regard to a potential acquirer that is not the corporate investor.  Depending on how the ROFR is written, you’ll likely have a difficult time signing an LOI with a potential acquirer without first notifying the corporate investor and giving them a ROFR.  In the extreme case, you’ll need to disclose the terms to them so that they have an opportunity to match or exceed the offer.  In the mean time, you will lose major deal momentum with your new potential acquirer.  In addition, since your discussion with your potential acquirer is likely governed by a confidentiality agreement, you’ll have to tread carefully as to what you discuss or disclose.  This gets even more difficult when you are balancing multiple potential offers and buyers – the logistics of managing the ROFR can get very challenging.

In all scenarios, unless you have developed a negative relationship with your corporate investor, it’s all probably unnecessary anyway.  Since the corporate investor already owns a percentage of your company (typically less than 20%), they have a built in discount on the acquisition based on the ownership position they already have.  While they’d of course love to buy the company at the lowest price possible, the ROFR probably won’t help them accomplish this as any savvy seller will be able to manage the buying process to get the best offer on the table before exposing the ROFR.  All the ROFR does is jeopardize the deal, which doesn’t do anyone any good (e.g. your corporate investor decides not to proceed with acquiring the company but the intervening time has caused the buyer to get cold feet and back off.)

While it’s conceivable the ROFR will reduce the number of companies potentially interested in acquiring your company, this can be managed.  It’s often said that buyers won’t pursue a company that has a ROFR – in practice I’ve found it relatively easy to “trip” the ROFR early in the process and get that out of the way.  I have run into aggressively written ROFR’s that cause me to shake my head as it is possible for the ROFR to completely tie up the seller – but I attribute this to poor negotiation on the part of the attorney’s for the seller that negotiated the ROFR in the first place.

The bottom line is that a ROFR on an acquisition is never helpful to the investee and rarely accomplishes what the investor that insisted on it wants.  My simple recommendation is to negotiate hard on this term – it’s not worth having it hanging around.

Are You Happy?

Apr 24, 2006

NPR had a great segment over the weekend on the secret to happiness about this year’s most popular class at Harvard is Psych 1504, also known as “how to get happy.”  Apparently the most popular class – until recently – was an economics class also known as “how to get rich.”

While watching the Sopranos tonight, I saw the magic manilla envelope stuffed with cash get passed to Tony and thought “what would a good deal be without some fees?”  Remember – it is important to make sure that the lawyers and bankers can afford their fancy sports cars. 

A letter of intent will usually be explicit about who pays for which costs and what limits exist for the seller to run up transaction costs in the merger. The transaction cost associated with an agent or banker, the legal bill, and any other seller-side costs are typically included in the transaction fee section. While it’s conceivable that the buyer will punt on worrying about who covers transaction fees, in today’s M&A world most savvy buyers are very focused on making sure the seller ends up eating these, especially if they are meaningful amounts.

Occasionally the concept of a break up fee if the deal doesn’t close, or the seller executes a deal with another buyer, comes up. This is rare in the context of private company VC-backed M&A but prevalent in the context of public company M&A deals (where one public company is acquiring another public company.) We generally fight any request of an buyer to institute a break up fee and tell the potential buyer to rely on the no shop clause instead. Most buyers of VC-backed companies are much larger and more resource rich than the seller it seeks to acquire, so it strikes us as odd why the buyer would receive a cash windfall if the deal does not close, especially since both parties will have costs incurred in the process.

No matter how you structure things, most fees end up coming out of the seller’s proceeds, so tread carefully.

If you were interested in my post earlier this week about the closing of the Colorado Institute of Technology, you’ll find Al Lewis’s weekend column – which is a sharp commentary on the Colorado Institute of Technology – a useful compliment, both in terms of some of the details of the events around CIT as well as the spin from Mark Holtzman, current Republican gubernatorial candidate and the effective co-founder of CIT with Colorado Governor Bill Owens when he was Colorado Secretary of Technology.