I’m in Paris again this week spending time with Amy. She’s basically stopped talking English, so I don’t understand anything she says to me anymore, which – while we have a fantastic relationship – also seems to work pretty well and is probably not that different from most male / female relationships.
Unlike my last trip when I did my Q1 vacation, I’ve been working this week. Last night we had drinks with Loic Le Meur, the Executive VP of Six Apart Europe. Loic took us out to the Hotel Costes bar at 239 rue Saint Honore which is a place that easily exceeds my “hip factor.” Loic was a gentleman, didn’t flirt with Amy too much (my core fear of interacting with any French man while in the presence of my wife), and we ate some good snacks together (which you must do when you have drinks at 7 followed by dinner at 9 somewhere else.)
Loic’s doing a great job with Six Apart in Europe, as they’ve already got many of the key portals as partners. Loic’s got a major clue and it was great to catch up with him on what’s happening with RSS and blogging in Europe. We discovered that we are both investors in Technorati (he’s an angel investor), I filled him in on Feedburner and NewsGator, and we talked about his upcoming European Internet 2.0 Les Blogs conference (that I can’t come to because of a couple of pre-existing board meetings, but I’ll likely send Amy as my delegate since it’s being held in the French Senate.)
We finished the evening off with a three hour dinner with some friends from Boston who happen to be bouncing around Paris. Waking up this morning was difficult, but I smiled when I checked my email and had an onslaught of requests for the Buffett Letters.
I received a number of requests for copies of The Buffett Letters as a result of my recent post. I now have emailable copies of them – if you’d like them, simply send me an email request. The email I have came with the following request:
“Now, the important part. These letters are not our property. Mr. Buffett wrote them to his business partners, not to the general public. But they are of great interest, and Mr. Buffett has let it be known that he has no objection to people passing them around like this, but does not care for the idea of them being posted in a public forum. Please honor his wishes. PLEASE DO NOT POST THESE LETTERS, AND PLEASE BE SURE TO INCLUDE THIS PARAGRAPH WHEN SHARING. Thank you.”
So – please honor this.
I also have several great Charlie Munger speeches that have no such disclaimer, although I will treat them the same way. If you want them, just ask.
Dick Costolo, the CEO of Feedburner, announced yesterday that we led their financing and that I have joined their board.
This shouldn’t be a surprise to anyone that read my original Why Did We Invest in NewsGator post or my What do my blog stats really mean post. I first hooked up with Dick Costolo and the Feedburner crew on May 8, 2004 shortly after I started blogging (on May 4, 2004) due to a heads up from Fred Wilson that I should use Feedburner to publish my RSS feed. I’ve been waiting patiently ever since to have the opportunity to invest in Feedburner.
When I dug in and started trying to understand RSS and blogging in the spring of 2004, I identified eight segments that I believed existed: Content Management Systems (CMS), Aggregators (Readers), Tools, Hosting, Content, Search, Analytics, and Advertising. I used this as the framework for both exploring the impact of RSS and identifying companies that I might be interested in investing in. My framework has evolved in the past year, especially once I realized that my technical analogy for how RSS evolved was going to be similar (but not equivalent) to how SMTP evolved. I was a very successful investor in email-related technologies (and continue to enjoy being an investor in two successful email-related companies – Return Path and Postini), but also learned some “interesting” lessons about how quickly the dynamics could change as I had a huge financial win at one point in the “email direct marketing segment” with a company called MessageMedia that ultimately got slaughtered (more on that some other day).
Our investments in NewsGator and Technorati covered a lot of the interesting territory for us. However, analytics was an important segment that neither NewsGator or Technorati touched (although both have huge amounts of interesting data – they just weren’t focused on the publisher-side for analytics). While Technorati – as a search engine – has an advertising component to its revenue model, it didn’t address feed-oriented advertising, nor did it address any of the publisher-side complexity associated with feed management and distribution. While publishers benefit from both NewsGator’s and Technorati’s services (and are customers of each company), we saw a wide open opportunity to help publishers with all of their syndication management, advertising, and analytics opportunities – hence Feedburner.
Dick is far more articulate about this then I am, so I recommend reading what he wrote about Feedburner’s Business Model in his post about the financing. Dick – as a good entrepreneur – built a great syndicate around his financing. DFJ (co-investors with us in Technorati) – are investors, as is Sutter Hill (our co-investors in Return Path – Greg Sands, who I’ve worked with closely at Return Path, will be a big help for us at Feedburner.)
While we’ve missed investing in a few of the segments, most notably CMS’s (and Six Apart is undoubtedly the best emerging company in this arena, especially as the free stuff is already owned by Google/Blogger, Microsoft/Spaces, and Yahoo/360), there are a few new problems (and possibly segments) that have emerged, especially as you start to think about the second-order effects of RSS (now that the first-order effects are over a year old and in our face every day).
If you blog but don’t currently use Feedburner to publish your feed, try it. I promise you’ll like it. Oh – and try NewsGator and Technorati also (my homage to Warren Buffett, master of promoting his own companies – drink a Diet Coke while you are at it).
One of my companies – Quova – just had a month where they served over 2 billion queries from their customers. That’s 64m queries / day (or 750 / second) – a huge milestone (double what 1 billion was <g>) and actually represents less than half of the actual queries since this only counts customers of Quova’s that have query logging turned on. Real time IP geolocation matters to a lot of people.
Non-financial numeric milestones are fun to track and always highly motivating for the team. I remember clearly the day Raindance did more than 1 million of conferencing minutes and then several months later broke the 1.5 million mark. There are patches where the growth curve becomes non-linear for a while and understanding what drives this (and all other growth dynamics) is very helpful to determining what to do to maintain and continue growth.
As a member of a quarter Jewish, half Atheist, and a quarter Theraveda Vipassana Buddhist household (there’s only two of us in my household – me and Amy – you figure out the math), I found the following email on Zen Judaism hysterical. I post it as an ode to my favorite Buddha loving retired VC, Jerry Colonna.
If there is no self … Then whose arthritis is this?
Be here now. Be someplace else later … Is that so complicated?
Drink tea and nourish life. With the first sip, joy. With the second, satisfaction. With the third, peace … With the fourth, a danish.
Wherever you go, there you are … Your luggage is another story.
Accept misfortune as a blessing. Do not wish for perfect health or a life without problems … What would you talk about?
The journey of a thousand miles begins with a single “oy.” … And a lot of travel arrangements.
There is no escaping karma … In a previous life, you never called, you never wrote, you never visited. And whose fault was that?
Zen is not easy. It takes effort to attain nothingness. And then what do you have? … Bupkes.
The Tao does not speak. The Tao does not blame. The Tao does not take sides. The Tao has no expectations. The Tao demands nothing of others … The Tao is not Jewish. The Tao is also not your mother.
Breathe in. Breathe out. Breathe in. Breathe out … Forget this and attaining Enlightenment will be the least of your problems.
Let your mind be as a floating cloud. Let your stillness be as the wooded glen … And sit up straight. You’ll never meet the Buddha with such rounded shoulders.
Be patient and achieve all things … Be impatient and achieve all things faster.
To Find the Buddha, look within. Deep inside you are ten thousand flowers. Each flower blossoms ten thousand times. Each blossom has ten thousand petals … You might want to see a specialist.
To practice Zen and the art of Jewish motorcycle maintenance, do the following … Get rid of the motorcycle. What were you thinking?
Be aware of your body. Be aware of your perceptions … Keep in mind that not every physical sensation is a symptom of a terminal illness.
The Torah says, “Love thy neighbor as thyself.” The Buddha says there is no “self.” … So, maybe you are off the hook.
The Buddha taught that one should practice loving kindness to all sentient beings … Still, would it kill you to find a nice sentient being who happens to be Jewish?
Though only your skin, sinews, and bones remain, though your blood and flesh dry up and wither away, yet shall you meditate and not stir until you have attained full Enlightenment … But, first, a little nosh.
Having watched Federer magically survive the onslaught of Rafael Nadal and eventually demolish him in the fifth set yesterday at the Nasdaq-100 Open (ok – I watch a little TV – usually tennis or 24 with Amy), it was with great delight that I saw Dave McClure’s post on Federer and Agassi fooling around a gazillion feet in the air on the worlds highest tennis court. Jeff Clavier kindly added a comment with a link to Tiger Woods doing the same, but with a golf club. Wow.
Several people have recently asked me variants on the question “How should I compensate a board member in my young private company?” I’ve experienced this question from all sides, having been the entrepreneur with an early stage company, a board member of an early stage company, and an investor / VC in companies that had board members at early stages, so hopefully my answer is balanced and a function of the law of large numbers (I probably have over 100 direct data points at this point in my life).
In general, I have a set of simple rules for board member compensation:
- 0.25% to 1.00% vesting annually over four years
- Single trigger acceleration on change of control
- Clear understanding as to how the vesting will work if the board member leaves the board
- No direct cash compensation
- Reimbursements for reasonable expenses
- Opportunity to invest in the most recent financing
Following is a detailed explanation of each item.
0.25% to 1.00% vesting annually over four years: While the ask from sophisticated board members will vary widely here, I’ve found that most people will accept the argument that they are getting between 25% and 50% of what a typical VP will receive (1% – 2%). It’s always better to grant more options that vest over a longer period of time then to do annual grants early in the life of the company – that way the board members’ incentives are aligned with all shareholders (presumably they are getting the options at a low strike price and will be motivated to increase the value of the stock while minimizing dilution over future financings). These options should come out of the employee option pool and should be thought of equivalently to the employee base (e.g. if there is an option refresh due to a down round financing, the board member should be included in the refresh).
Single trigger acceleration on change of control: Acceleration on change of control is often a hotly negotiated item in a venture financing. I’ll discuss it in greater detail in a future post in the term sheet series. I rarely think single trigger acceleration in change of control is appropriate, but I’ll always accept it with regard to board members since 100% of the time they will not be part of the company post acquisition. By providing 100% acceleration on change of control, you eliminate any conflict of incentives in an M&A scenario.
Clear understanding as to how the vesting will work if the board member leaves the board: In most cases, board members serve at the will of a particular constituency, which could range from a particular VC investor (e.g. the outside board member might be appointed by the Series A shareholders) to the entire shareholder base (e.g. chosen by a shareholder vote). As a result, a non-VC board member is typically not contractually entitled to their board seat and often leaves the board (either because they chose to due to other responsibilities), is asked to leave (because he is not contributing actively to the business), or is replaced (by the shareholder group that has the contractual right to the board seat). As a result, it should be clear – in advance – that the vesting on the options ends if the person is asked to leave the board or voluntarily leaves the board. I’ve never had an issue with this when it was discussed up front; I’ve occasionally had issues when it wasn’t (e.g. the person wants additional vesting beyond their board service, which I think is inappropriate except in the case of the acquisition of the company – see the comment on single trigger above).
No direct cash compensation: Period. If someone is asking for cash compensation for board service in an early stage company, they are not qualified to be a board member since they simply don’t get it. If the board member is also doing specific consulting for the company beyond the scope of a typical board member, you’ll occasionally see some cash comp for the consulting services. However, the bar for this should be high and well defined – a “monthly retainer” for “helping the company” is inappropriate.
Reimbursements for reasonable expenses: Board members should always be reimbursed for expenses they incur on behalf of the company. However, these should be “reasonable”, should conform to the company’s expense policy (e.g. if execs travel coach, board members should only be reimbursed for coach tickets), and board members should be respectful of cash in early stage companies (for example, if a board member travels to several companies during a trip, he should only charge a company for the segment(s) pertaining to them).
Opportunity to invest in the most recent financing: I strongly believe that all board members should be given an opportunity to invest on the same terms as the most recent VC investment. Depending on the characteristics of your most recent financing, this might be difficult (check with your lawyers) – at the minimum the board member should be invited to invest in your next round. While I always encourage this investment, I don’t view it as mandatory – I think it’s a benefit an outside board member should have for serving on a board, not a requirement.
In seed stage companies – especially pre-funding – an early board member might receive founder status depending on his involvement in the company. When I was making angel investments, I’d occasionally commit to a much higher role than simply “a board member” – occasionally I’d be chairman and/or an active part time member of the management team. In these cases, I’d typically get an additional equity grant (usually founders stock) separate from my board grant. As with other members of the founding team, I’d have specific roles and responsibilities associated with my involvement (usually financing, strategy, and partnership related) and – even though I was a board member – I was often accountable to the CEO for these responsibilities.
In addition to a board of directors, many early stage companies have an advisory board. I’ll dedicate a longer post to how to make sure these are effective (as they rarely are) – in any event, advisors typically have a much lower commitment to the company and, as a result, should receive a much lower equity grant. In addition, advisory boards tend to come and go so it’s better to compensate members on an annual basis. A good proxy for the amount is an annual grant of 25% to 50% of the four year grant you’d give a junior engineer (so 1x – 2x a junior engineer if the advisor stays engaged for four years). Obviously, there are exceptions to this, but if you want to get meaningful, sustainable involvement from an “advisor”, consider giving him a more significant role.
Finally, VCs should never get additional equity for board service in private companies. The VC has already purchased his equity and his board involvement is a function of his responsibilities associated with his investment. I’ve been on the receiving end of this and it has always felt weird. In a public company, it’s typical to compensate all board members – including the VCs – equivalently, but private companies are a different matter.
I landed in Paris today to visit Amy for a week (she’s spending six weeks over here to immerse herself in French). I usually get the sleep thing right on international flights – I screwed up this time because I was tired and crashed on the leg from Denver to Cincinnati. So – I had a nice seven hour flight to listen to music on my Bose QuietComfort 2 Headphones and read.
After my post on Warren Buffett’s Annual Shareholder Letter, one of my blog readers sent me the “Annual Letters of Buffett Partnership, Limited, 1957 – 1970.” Unfortunately (again – maybe it’s Paris) I forgot who sent this to me. I apologize – my mother taught me to always say thank you and acknowledge others. At 39, I have to write certain things down to remember them and – since I’m on a continual holy mission to revolutionize the way I interact with computers (which includes eliminating paper from my life) – I didn’t write it down. And – ironically – in this case – I printed them out (rather than tossing them in my “Inbox -> Read” folder), so I don’t have the original email. So – if you are the one, thank you – feel free to put up a comment saying “hey Brad – you buckethead – it was me.”
You’d think that at midnight Colorado time I’d finally fall asleep on the flight. But, in between finishing off a series of speeches by Buffett’s long time partner Charlie Munger (sent to me by the same person – I think <g>) and grinding through Buffett’s letters, sleep was not forthcoming.
The letters are a work of art. Buffett demonstrates his brilliance from age 25 to 39 (yikes – there’s that 39 again) – both in investing, how he operates his business, and how he communicates. They are just magnificent.
I considered posting several things from them. However, in several places, it was made clear that these letters are not for public consumption. Specifically, “while they are of great interest, and Mr. Buffet has let it be known that he has no objection to people passing them around like this, but does not care for the idea of them being posted in a public forum. Please honor his wishes. PLEASE DO NOT POST THESE LETTERS.” So – I respect that and will merely tease you with the delight I got from reading them, even if they contributed to my need to sleep from noon Paris time until 4pm today.
Amy and I are huge supporters (and collectors) of the visual arts. The Denver Art Museum is in the process of building an extension to the museum which is a revolutionary piece of architecture. When completed in 2006, I predict it will do for Denver what the Guggenheim Bilbao did for Bilbao, Spain – namely transform Denver into one of the must-visit arts communities in the world.
I’ve been a member of the Denver Art Museum Technology Advisory Board for the past year, helping Bruce Wyman and his team think about how technology will be involved in the new art museum. Tonight, I hosted 30 folks in the Boulder/Denver high tech / venture capital community for a tour of the new building (under construction), a presentation from Bruce on what he’s up to, and some time with Daniel Libeskind, the amazing architect behind The Denver Art Museum’s Hamilton Building.
I am in love with Daniel. Amy and I got to have dinner with him last fall and I spent two hours watching the two of them rap about an incredible range of subjects. I love the architect brain – it’s a complex combination of artist and engineer – and Daniel epitomizes what is great about it. The Hamilton will be the first completed Libeskind building in the US, which is extremely cool for Denver. Daniel is deeply engaged with the Denver community, very committed to the incredible building he has designed, and full of energy and vision for what it will be when it’s completed.
As we were touring the building, Dave Jilk made the comment to me that this building could not have physically been built 5 years ago. Dave X – the site manager (I can’t remember his last name) told us that they couldn’t have built it 2 years ago as the architectural design requires an incredible amount of computer technology, 3D visualization technology, and significant spatial placement technology (everything in all three dimensions is exactly where it is supposed to be – there is no room for any margin of error or the building won’t physically work). The detailed level of architectural design is unbelievable and simply awe inspiring.
The following anecdote will help, especially if you haven’t seen the building. Last night, Daniel gave a presentation to 1500 museum members about the new building. During Q&A, someone asked him how he felt about the fact that the 1776 Freedom Tower now has a right angle in it (I won’t go into the story of the new World Trade Center site – Daniel is the master architect for the site – but – as one could expect, there are incredible politics and contentious issues at play in the development of the site). Daniel – who is known for avoiding using right angles in his designs, said something like “It’s not that I have issues with right angels, it’s just that I think we live in a democracy and there are 359 other angels that should get their chance.”
Bruce did great tonight. His goal is to incorporate technology into the museum experience in a way that’s revolutionary – taking the best of what others have done, avoiding the typical traps and pitfalls, and trying to have the technology blend into the experience to be a complete part of it, rather than the appendage that technology often is in a museum setting. It’s super fun to work with a blank slate on a canvas such as the Hamilton Building – and it’s great to see our local tech community getting engaged in the project.
I’m obviously extremely psyched about the Hamilton Building on many levels, including the positive impact I believe it will have on the Denver arts community and our standing as an internation destination site for more than just skiing and the Avs (if they ever play again). Wow – tonight was fun.