I’ve been to zillions of board meetings (and lunch meetings) over the past decade. The food at 98% of them is shit.
We had a board meeting at FeedBurner today. Lunch was – nope – not “yet another soggy sandwich.” Dick and crew treated us to Thai food – yum.
It took virtually no extra effort (or cost) to shift from “generic unhealthy roast beef and ham sandwiches that the vegetarian board members (me) had to avoid and settle for a bag of potato chips instead” to “sumptuous, fun, exciting, hot, spicy, and stimulating food. Oh – and NO cookie plate laden with 500 calorie bombshells that no one wants but those with poor impulse control and sugar addiction (like me) can’t avoid gobbling down.
The next time you have a board meeting, be creative. Feed us something fun and healthy. Make me jump with joy when I see the food.
Following is a question that I got from a reader of this blog on Friday. “I have wondered about the dynamics of a restart company and how it affects employees, options and the dynamics between existing money and new money. My company took about 30MM during the boom years, did not get anywhere, and there was a restart financing round for a new product/market. However, I feel a “bad” history has an overhang even in a company’s new life. “
Since Jack Bauer got a restart last night I thought I’d take on the question today. Restarts are a way of life in the world of VC-funded companies. An entrepreneur starts a business. A VC (or VCs) fund it. Time passes. The company gets fucked up and goes off the rails for a variety of reasons (the product doesn’t work, the market doesn’t develop, the executive team doesn’t gel, the entrepreneur gets kicked out of the company, the VCs push the company in a direction that makes no sense.) Suddenly, a bunch of money has been invested and – while there might be something there (most notably a product or some customers) – the business has clearly stalled. The board tries to find a new investor to lead a financing or a buyer for the entire company and comes up dry. While shutting down the company is one option, VC-backed companies often get a second (or third) life via a restart (it’s harder for most people to call the ball and declare failure then it is to put in a little more money in and keep trying.)
In a restart, some subset of the existing investors provide financing for the company. While this can be done in conjunction with a new lead investor, in this case I’m describing the dynamics of an internally led restart. Often this follows or is in conjunction with a change in the leadership team and a meaningful headcount and expense reduction. In the cleanest restarts, the company is recapitalized via the new investment, reducing (or eliminating) the previous liquidation preference overhang and well as the previous equity ownership. A “full recapitalization” (at a $0m pre-money valuation) will eliminate the value of all previous equity – this is the harshest case – typically the previous equity will receive some small share (5% – 10%) of common stock in the recapitalized entity. There is often extensive negotiation around this since not all of the existing investors are participating in the new financing and – even though they don’t want to put any more money in – want to figure out a way to preserve some economics in the off chance that the company is ultimately successful. This gets even more complex if the existing investors have been bridging the company with debt as some of the investors may not want to put any new money in, but want to get credit for their debt investment. Ultimately this resolves itself because if the existing investors can’t figure out a structure that works for everyone, the company usually disappears into dust.
As part of this recap, the employees that are staying with the company will receive new options in a “refreshed” option pool that is usually between 10% and 20% of the equity of the company. Since this is a restart, this equity also starts vesting again, although in some cases employees are given some vesting credit for previous service.
It’s kind of like Jack coming back from the dead. Some people will think this is bad; some people will think this is good; most people will be suspicious. While the company undeniably has an emotional overhang, a lot of companies address it by such simple things as changing their name and pretending the history doesn’t exist. If the recap is clean (e.g. no big liquidation overhang, employees treated fairly, non-participating investors acting like big boys and girls and taking their medicine), then there probably isn’t much overhang on the restart. If there’s a complex ownership structure with the non-participating investors and old executives hanging around trying to extract something out of their investment without continued participating, then the overhang will be meaningful.
Each restart is going to be different – as an employee, rather than default into “it’s good” or “it’s bad”, look under the hood and see if the company has a clean restart (financially and emotionally) or if it’s merely the same group of characters deceiving themselves that “a little more money will make us successful.”
Seth Levine has a great post up about the dynamics of exit value in a startup. If you wonder why there are so many relatively quick deals for startups under $50 million but it takes a relatively long time for a deal to reach the point where it can command an exit value of $200 million plus, get a cup of coffee and settle in for a good read.
I read You Need to Be a Little Crazy : The Truth about Starting and Growing Your Business over the holiday break. Barry Moltz’s marketing and PR Director Sarah Moore sent me Barry’s book after sending me an email suggesting my blog fit with Barry’s writing. While I probably have read my lifetime supply of “entrepreneur / startup books” I decided I’d give this a try since (a) Sarah asked nicely and (b) I once had the domain “entrepreneursarecrazy.com” (with some weird idea of writing something about entrepreneurship) so the title of the book “spoke to me.”
This book is aimed at three types of people:
If you fit in any of these categories, this book goes nicely with Greg Gianforte’s Bootstrapping Your Business: Start And Grow a Successful Company With Almost No Money. It’s short, sweet, and full of anecdotes. Barry is based in Chicago, so you get plenty of local Chicago stories and characters, including Matt McCall, my fellow board member at FeedBurner.
I spent a delightful few days in Aspen with Amy, my uncle Charlie, and his wife Cindy. My first computer experience was at a Frito-Lay office in Dallas when I was 10 where Charlie sat me down in front of a terminal with a green screen, fired up an APL interpreter, gave me a big book called APL: A Programming Language, and then left me alone for the next five hours. Over the years Charlie and I have worked together on a variety of things, most recently when I was a major investor in his previous company, The Feld Group (acquired by EDS in January 2004).
We covered a wide range of topics over a dozen meals and several long walks together (neither of us are skiers). One theme that we kept revisiting was the current decline of the United States in the world order (ahem – China, India anyone?) I’ve been rolling around the idea of living in a country equivalent to post-Edwardian England (e.g. we peaked, life can still be great, but we aren’t at the top of the mountain anymore) since a rollicking dinner with Pat Kenealy a few months ago and have started to get comfortable with the idea.
While I accept that the United States can’t be the unambiguous leader of the world (if you disagree with that statement, read Thomas Friedman’s The World Is Flat again), the future of the United States as defined by Atlas Shrugged is profoundly unappealing. On the heals of yet another piece of empirical evidence that our government is trying their hardest to emulate the moochers in Atlas Shrugged (e.g. “Oops – yes – we were spying on you – a lot – even more than we said we were – but it’s for your own good”), it’s hard not to be just a little bit discouraged.
As someone who has been playing in the sandbox of entrepreneurship and innovation his entire adult life, I’ve never really thought much about the need for a catalyst for our country since I have always been immersed in a zone of endless overstimulation. However, as I get older and watch many of my venture brethren hop on airplanes to Beijing, Shanghai, and Mumbai, I’ve been thinking about the United States’ place in the next wave of innovation. As the Web 2.0 meme finally starts to fade (or maybe it’s just that 2005 is coming to an end), I’ve been waiting for something to replace it, just to see if anyone had any new non-China/India innovation juice.
While sitting at the St. Regis in Aspen the other day having a hot apple cider, Charlie said something simple, but completely profound. “We need another Sputnik.” I hadn’t been born yet when the Sputnik Crisis happened, but as a kid I was fascinated with space (like most nerd-boys) and it always stuck in my mind how Sputnik focused and rallied the United States around innovation.
I don’t know what the next Sputnik is for the United States, but I’m keeping my eyes open for it.
Eric Olson has another VentureWeek podcast up – this time with me, Dave Hornik of August Capital, and Mike Arrington of TechCrunch. We discuss the important things of 2005, at least to our little insular universe.
Next week is Syndicate. As a result, you are going to see a bunch of bullshit press releases for a wide variety of companies announcing nothing (I’ve already seen a few – how’s that for “embargoed press releases”.) Anyone that knows me knows that I general dislike the “broadly defined” discipline of marketing (I much prefer its skinny and much more powerful sibling “demand generation.”) However – I’m not from the school of “press releases are useless – just blog about it” as I think press releases can serve a purpose especially in conjunction with additional active outreach (e.g. blogs).
As I was driving back from a meeting this morning I was pondering what things were useful to put in a press release. When I got back to my office, I bumped into Matt Blumberg in the hall and asked him what he thought were useful topics for a press release. He answered immediately “new hires, new customers, new products.”
Those were exactly the same three topics that I had thought of in the car. Lots of companies – including ones that I’m an investor in – are guilty of the “barney press release” (two companies announcing a partnership that is akin to nothing more than saying “I love you, you love me”) – this was particularly pernicious during the Internet bubble. In addition, there are endless content free releases that don’t actually address anything specific. As I scan my RSS headlines, I’m seeing more and more of this – specifically a partnership between two young private companies that doesn’t specify what they are actually doing and why anyone should care or a headline describing something that seems like it might be interesting but – when I dig in – there’s no there there.
Beware the press release that says nothing.
Are you a company with between 50 and 250 employees, located in a major city (e.g. New York, Chicago, San Francisco, Los Angeles, Austin, Dallas), in any industry, that wants to participate in a compensation benchmarking project? Matt Blumberg – CEO of Return Path – is spearheading this and looking for up to 20 companies to participate. You’ll get excellent comp data for a fraction of a price of a normal comp survey. If you fit the parameters and are interested in finding out more, email a note to comp.benchmark@gmail.com.
On Friday 11/25, Elon Musk’s new company, SpaceX will launch their first rocket, the Falcon 1, at 1pm PST. I got a note from Elon’s brother Kimball – who now runs an awesome restaurant in Boulder called The Kitchen – with some photos.
Yes – that’s a rocket ship on a remote island called Kwajalein Atoll. According to Kimball, Kwaj is the largest Atoll in the world, 1,400 miles away from Guam, 2,100 miles away from Hawaii, has a population of 2,500, a runway, a small military base, and a lot of excited rocket scientists hanging around.