Brad Feld

ClickZ – one of the Jupitermedia companies – just chose Return Path as the Best Deliverabiity Product or Service of the year. I wrote about Return Path’s acquistion of NetCreations a month ago and included a short piece about their acquisition of Assurance Systems (which forms the basis for the Return Path’s deliverability products). This award is nice continued validation of our leadership position in the email deliverability market.

“shameless promotion on”: If your company does any legitimate email direct marketing, you should explore using Return Path’s deliverabiilty – and other – services.“shameless promotion off”

Shortly after I sold my first company, I got a call from Len Fassler – my new boss (the co-chairman of the company) – who asked, “Can you start sending me your DOC (pronounced “dock”) report?” I had grown to like Len during the deal process – he seemed to understand me, my general flakiness about whether or not I wanted to sell my company at the time, and was patient with my overall business naivete. However, at that moment, all I could think of was the cliche “the honeymoon must be over” since I had absolutely no idea what he was talking about.

After I meekly asked Len what he meant, he explained that he was looking for a “Daily Operating Control” report – basically a daily report that summarized the key financial metrics driving our business. Aha – I thought – this is easy. We were a consulting company and our major revenue driver was the number of hours each of our consultants billed per day times their rate per hour (which often varied based on the project they were working for at the time.) Almost everything else in our business was a highly predictable cost on a monthly basis. We relied on a home grown time accounting system that we fondly referred to as FT-BIL. We had built a discipline of entering our time daily so I literally had current month to date revenue numbers within 24 hours. I cranked out a number of FT-BIL reports, including daily billings by consultant and by client and sent it on as an example of what we had.

It turned out that Len didn’t actually want this granular a level of data from me on a daily basis (we were a small part of the overall company), but was more concerned that I had this data, was using it, and understood that it was an important tool to help manage our business performance. This was an instructive early lesson to me about the value of key financial metrics and how they are timeless in managing a business. It still amazes me that companies I’m involved in that have professional services as part of their business – including some of the law firms that work with me and my companies – can’t seem to get a system in place to collect this data on a near-real time basis.

Several years ago, some of y’all may remember an event called “the bursting of the Internet bubble.” Immediately preceeding this event, companies (and investors) focused on growth at any cost. This growth took various forms ranging from the one key financial metric that everyone cared about at the time (revenue) to non-financial metrics such as eyeballs, click-throughs, and affiliates. Shortly after the bubble burst, people started focusing on net income, cash flow, cash on hand, and other financial metrics. Not surprisingly, these were things that most rational business owners had paid attention to since – oh – the beginning of time.

As we were riding down the back side of the bubble bursting, we put a discipline in place at Mobius Venture Capital to track a set of financial metrics on a monthly basis for each of our portfolio companies. Monthly data we collect (and consolidated so everyone in the firm sees it on a weekly basis) includes revenue, cost of goods, operating expense, EBITDA, headcount, cash burn, cash on hand, debt, projected insolvency date, additional cash required to breakeven, and projected first quarter of profitabiity. In addition, each partner began writing a weekly status report with brief updates (typically one to two paragraphs) on each of his companies that was distributed along with this financial data.

In hindsight this seems like an obvious thing to do; however, in my experience, very few venture firms focus on this level of data firm wide on a consistent basis to understand the health of their companies, especially as their portfolio’s grow and they find themselves with a large number of companies. It’s our version of a DOC report (ok – maybe we should call it our WOC report – for “weekly operating control”, but that makes me hungry) and it’s been invaluable to us as we collectively watch and manage our portfolio. It’s clearly not a substitute for regular, deep portfolio reviews, but it creates a consistent baseline knowledge of our companies across the firm.

I’ve tried to instill an equivalent discipline in my portfolio companies. I’ve been successful in some cases, but not in all. I definitely see a correlation between rigorous collection and management of core financial performance data and business success, so I encourage every entrepreneur (and manager) to step back and consider if they are seeing their version of a DOC report.

Amy and I went to our little local movie theater in Homer tonight. The two movies showing are Farentheit 9/11 and Anchorman: The Legend of Ron Burgundy.

We saw Farenheit 9/11 on Sunday. It was as advertised and we were delighted that it made it to our town of 5,000 people. My only simple comment – independent of your politics – is that it’s a must see movie.

We saw Anchorman tonight. My only simple comment – independent of your politics – is that it was hysterical. Will Ferrell has been making the rounds of the Internet in his ACT sponsored White House West. The dude is seriously funny (in that slapstick, cheesy, stupid, juvenille, John Candy inspired, teenage boy way.) I often have to drag Amy to movies like this and I rate them based on her reaction (ranging from hysteria to leaving in the middle of the movie.) Even though she’ll never admit it in public, she was laughing so hard at moments that if she was chewing gum she would have swallowed it. Her funniest moment was an ode to F 9/11 where – at the end of the movie – the narrator did the proverbial “where are they now” voiceover and the “stupid weatherman guy” (IQ 45) had 11 children and was a senior advisor to the Bush administration.

It’s not intellectual, but it’ll crack you up. Women’s rights and equality have made a lot of progress in the last 30 years (ok – there were some not-so-subtle messages in the movie.)

I’ve been having a good summer running in Alaska gearing up for my next marathon. I was considering doing the Salt Lake Marathon in mid-July but I didn’t manage to make it down to the lower 48. I’m now eyeing the Duke City Marathon in Albuquerque, New Mexico at the end of October.

As I’ve been running up and down the monster hills in Homer I’ve been wondering why I’m not getting any faster. I used to be a much faster runner and while I’ve adjusted for age, it’s still frustrating to feel like you are plodding along when you used to be able to cruise at three minutes per mile faster with no discernable difference in effort.

Ben Casnocha turned me on to a great article in today’s NY Times titled “Why Joggers Labor and Olympians Fly“. While the article lays out several specific reasons for my speed deficiency, I’ve decided to take a zen-like approach to it and ask “why faster?” Oh – and the Athens Marathon course looks like a bitch of a run.

I put this in the “only in Alaska category”, although it’s a brilliant idea that I’m sure will catch on in Atherton, CA with a slighly higher entrance fee.

A couple in Anchor Point, Alaska (15 miles from us in Homer, where my wife Amy lived until she was eight) is running an essay contest where the prize is their house. The entry fee is $100 and a 100 word essay that starts “If I could do anything I wanted …” The owners will select the top 100 essays and a panel of independent judges will pick the winner and the runner up. The deadline is August 25, 2004, although the owners reserve the right to extend the contest for up to a year if they don’t get enough entries (they need 1,100 to get to the $110,000 investment they have in the house.) They also reserve the right to cancel the contest and will send back $99 of the $100 if they do this to cover postage and handling.

Return Path just issued an Email Delivery Index research brief based on data they collected from 16,000 email campaigns representing 3.4m email messages over a four month period. They discovered that the best day to do an email campaign is Monday as delivery rates can be up to 10% greater.

Apparently much of Google’s IPO information will be disseminated via email. The expected concern about emails being blocked and spoofed immediately come to mind, as I’m sure all the phishers are out in force trying to figure out how to scam people on the back of Google.

We’ve got several companies in our portfolio – specifically Return Path and Postini – that are doing great work to try to address all the problems surrounding the email ecosystem. It’ll be fascinating to watch how the emails concerning the most visible IPO of 2004 get handled given the radically different approach Google is taking.

Google should definitely ask Morgan Stanley to send out the first batch of emails on a Monday.

StillSecure’s new product – Safe Access – just got an outstanding review in the August issue of Information Security. The punch line of the article is:

“Safe Access’ agentless architecture is brilliant and simple to deploy. This endpoint security solution gets straight “A’s” for enforcing policies to keep infected and vulnerable PCs off the network.” – George Wrenn, Information Security Magazine

The explosion of spyware, adware, and insecure client software (e.g. Windows XP, IE) has brought intense focus on endpoint security. StillSecure came up with a unique, agentless way to provide this security, building on the vision and expertise from their other great products, Border Guard and VAM. Anti-virus and anti-spyware products help, but if you don’t have your entire network locked down (which usually implies either high security overhead or limited end-user functionality) or control over the folks accessing your network (e.g. home users, remote users, visitors), these products are difficult to keep updated, hard to manage, and often annoyingly slow to use. Given how insidious the various attacks are and how quickly they morph, having an agentless solution is a great approach. It’s technically difficult to create software that works this way – StillSecure has come up with a product that addresses this problem in a unique, exciting, and cost-effective way.

My friend Paul Berberian – the co-founder of Raindance Communications – flew us from Homer to Anchorage for a sushi dinner tonight.

Paul and his friend Paul Wareham were up at our place in Homer, AK visiting for the weekend. They flew PaulB’s Cirrus SR-22 up from Boulder, CO – it took them 15 flight hours over three days. We had a great weekend hanging out and showing them around Homer. Originally we were going to fly to Valdez for lunch, but the weather was shaky and Valdez is a tough airport to land at.

We decided to head to Anchorage for sushi since we don’t have any sushi in Homer (one of Homer’s few weaknesses as an ideal place on the planet.). We left the house at 5:30pm, drove the five minutes to the airport, and were in the air by 6:15pm. We dinked around some near Homer looking at Grewink glacier across Kachemak Bay and then headed to Anchorage. We landed at Merrill Field 45 minutes later, cutting over three hours off the normal drive time (four to five hours).

We met up with Amy’s friend Jon Zasada who runs the Boys and Girls Club of Southcentral Alaska and went out to Peter’s Sushi Spot. Our sushi starved bodies hadn’t had a feast since mid-June so – at the risk of having a rocky stomach experience on the way back – we pigged out. We finished things off with Alaska’s best local ice cream – Hot Licks. Yum.

We headed back home and touched down in Homer at 10:30pm. While I’m not a great small plane flyer, we had a pretty magical evening. The view from the plane at 3,500 feet was unbelievable – the beauty and scale of Alaska is even more dramatic by air at this altitude. Dinner was awesome, and the whole idea of round tripping to Anchorage to have dinner with friends in five hours is very cool.

The two guys that work with me in Colorado – Chris Wand and Seth Levine – are visiting me in Alaska this week. We started joking about all the ridiculous things we (VCs) say on a regular basis. At the risk of exposing “super secret VC information”, I thought I’d write up a few of these phrases along with what they actually mean.

Oh – and on the topic of “giving away state secrets”, Matt Blumberg has a great post up on How to Negotiate a Term Sheet with a VC. This is a must read for anyone doing a venture financing. Matt – thanks a lot – look for my upcoming post on “How to give one of your star CEO’s a pay cut.”

Sales

• We need to clarify our messaging: Our customers and prospects (and probably our employees) have no fucking idea what we do. This usually also means the VC doesn’t know what the company does.
• We need to do a better job of filtering our sales prospects so we don’t waste our time on bad leads: Our marketing / demand generation sucks – we’re not targeting the right prospects. This is often a result of a nice pipeline, well presented and formatted, but with no resulting sales. Sometimes this is a marketing problem; sometimes this is a sales problem: often it’s both.
• We need to strengthen our sales pipeline: We’re doing a crappy job in sales, but I’ve decided to be nice today either (a) because I’m in a good mood or (b) I don’t want to demoralize a team that knows it’s having trouble bringing it home. I put this phrase in the “yellow warning flag” category – you usually don’t get to hear it twice (unless your VC is a very blissful person).

Management Team

• You need to focus on your core business fundamentals: You guys have no clue what your priorities are. This is a cliche born out of frustration that often leads up to a more serious discussion with the CEO about the systemic problems in the business (or more specifically, why the business is melting down.)
• You need to get alignment among your management team: This one means two things: (1) One or more people on your team suck and need to go and (2) You – as CEO – are doing a sub-par job of leading the charge – and it shows.
• You need to upgrade your management team: If you have the ability to read between the lines, this often means “if you don’t fix your management team, we’ll focus on ‘fixing’ you.”

Term Sheet Negotiations (Ode to Matt Blumberg’s Post)

• We bring more than money to the table: Uh – yeah. What would that be again?
• That’s an industry standard term: Hint – there are no industry standards in the venture business.
• Don’t worry about pre-money – we’ll take care of you later: Did your mom ever says, “Honey – don’t worry about the water – c’mon in, it’s not too cold.”?
• Don’t focus on percentages: This is kind of like saying to a 747 pilot “don’t bother paying attention to where the runway is – just land where ever you want.”
• Don’t worry about that term, we’ll never actually enforce that: Um, right.

Reasons to Pass on Investments

• It’s not in our sweet spot: I’m still looking for my own personal sweet spot – maybe that’s why I’m so sarcastic feeling today.