Software revenue recognition can be incredibly complex in today’s world of SaaS, perpetual vs. subscription licensing, SEC SAB 101 (and others), new FASB pronouncements, and the legacy of bad (or fraudulent) revenue recognition policies at companies like Computer Associates. I believe the right approach for an early stage software company is to come up with a revenue recognition policy, vet it with your outside auditors, document it, and then stick to it no matter what. The only changes should come from direction from the outside auditors at the end of the year during the audit (or – quarterly during the audit if you are a public company).

There’s nothing like a solid week of vacation with no phone, email, or blogs to get the writing juices rolling again. Of course, now that I’m through my email, I only have 8200 blog posts to read to catch up – thank god for jet lag – wait, what am I saying? In our term sheet series, Jason Mendelson and I have been focusing first on “the terms that really matter.” We are down to the last one – the pay-to-play provision. At the turn of the century, a pay-to-play provision was rarely seen. After the bubble burst in 2001, it became ubiquitous. Interesting, this is a term that most companies and their investors can agree on if they approach it from the right perspective.

I’ve been a Spencer F. Katt fan for as long as I can remember. I even have a classic Spencer Katt t-shirt and a coffee mug somewhere for rumors I sent in to PC Week (back when eWeek was PC Week and rumors were about Novell – well before Al Gore invented the Internet). Spencer just started a blog – hopefully he’ll start splicing in his Kattoon’s.

It has been a while since I put up a term sheet post so I thought I’d tackle a hard one today. While it’s fun to tease lawyers about math (and – actually – about anything), my co-author on this series Jason Mendelson (a lawyer) often reminds me that lawyers can do basic arithmetic (and occasionally have to resort to algebra). The anti-dilution provision demonstrates this point. Traditionally, the anti-dilution provision is used to protect investors in the event a company issues equity at a lower valuation then in previous financing rounds. There are two varieties: weighted average anti-dilution and ratchet based anti-dilution. Standard language is as follows:

Five years ago, Amy told me that in order to stay married (to her), I needed to commit to going away for a week every three months for a vacation. A real vacation. No computer, no email, no cell phone (and now no blogging / RSS). Five years later, we fondly refer to our “quarterly complete disconnect” vacations as “Qx vacation” (e.g. this one was Q1). Amy has dreamed of living in Paris as long as I’ve known her and even though I’d much rather spend a week in Rome, we spent Q1 vacation in Paris helping her get settled in to a six week “intensive Paris experience” where her goal is to really learn how to speak French. She’s been writing about her first week on her blog – if you have any interest in an American writer’s experience in Paris in 2005, check out her Postcards from Paris section.

Warren Buffett is one of my business heros – I think he is amazing on many different levels. His Berkshire Hathaway annual shareholder letter is legendary (and a model that everyone should follow) – the 2004 annual report is out and the letter is available online. It’s required reading for anyone running a company – for substance, organization, style, tone, and wit. If you feel ambitious, you can (and should) read the Berkshire Hathaway shareholder letters going back to 1977.

Allen Morgan at Mayfield has a nice series up on his blog about the ten commandments for entrepreneurs. His post today is Commandment #6: Explain Your New Ideas by Analogy To, or Contrast With, Old Ideas. He’s right. Mostly. At the end of his post, he asks for ways to “categorize the new ‘It’” (if they are VCs). My constructive addition to his post is the notion of the analog analog (also known as the “analog analogue”, but I like my version better).

Everyone knows that exponential curves don’t last forever. However, it’s remarkable to look at how they apply to specific cost curves – especially when they enable a radical transformation of how technology is used and deployed. My partner Ryan McIntyre – one of the co-founders of Excite – talks extensively about this in his post Mr. Moore in the Datacenter. It’s a great read with some fascinating real data (yes – I remember paying $1k / megabit / month in 1996 back when SaaS was called ASP – but I was too young for it back when it was called timesharing – although I bumped into Multics a couple of times at MIT).

I’ve never completely understood the whole cell phone industry subsidize handset thing, but I’ll roll with it (ok – I understand it – market share, total value of the customer, service plan lock-in, uplift pricing for additional functionality over time). I love my T-Mobile Sidekick II (as you’d expect since I’m an investor – but I really do love it even though Amy forbids me from taking it to bed with me). You can get it for NEGATIVE $50 from Amazon right now.