When I wrote my first post on the structure and financial components of a typical venture capital investment – where I described Liquidation Preferences – I alluded to the concept of participating preferred as a maligned and typically hotly negotiated issue in many venture capital investments. In this post, I’m going to try to explain the notion of participating preferred (referred to hereafter as PP), how it works, and its financial and emotional impact on a deal. I’m not going to take sides, but rather try to give a broad perspective on it.

Everyday Matters is a remarkable book. If you live in New York; have a family member who has had a tragic accident or a crippling disease; or are subject to bouts of depression, you must read this book. I came across the book while I was browsing in my local bookstore in Homer. The cover caught my eye but the excerpt on the back captured my attention. It was a drawing of the eight stages of an apple being eaten with the quote “Two years before I started drawing, my wife was run over by a subway training and nearly killed. Well, this book is about how art and New York City saved my life.”

I bought the book ‘Your marketing sucks” because of the title. While I didn’t expect much from it, it was worth reading. It’s a quick and easy read that I recommend it to any CEO who thinks marketing isn’t working as well as it could for his company. I’m the second guy to admit that I don’t really know jack about marketing (Steve Bayle is the first – he’ll readily admit that I don’t have a clue.) I came to this realization in the middle of the Internet bubble. I was sitting at my desk in Colorado one day when I received a giant overnight package from one of my investments that I’ll refer to as YACOTWTF (“Yet Another Company On The Way to Failing”). It was an unusually large overnight package and I wasn’t expecting anything, so I was curious. When I opened the package, inside was a giant picture frame with a note taped to it. The note said “Congrats on the great ad we’ve placed in Red Herring Magazine.” I looked at the picture and it was a giant (poster sized) framed (in glass) replica of the ad. My first thought was “why the fuck did they send this to me?” I read the ad. My second thought was “what a shitty ad – it doesn’t say anything about what YACOTWTF does.” My third thought quickly followed, “What did we pay for this?” You can see where this was going. “Did I approve the marketing budget”, “Who is the VP Marketing again”, “I better call the CEO to fire the guy.”

We invested in NewsGator in June and Greg Reinacker and crew have been hard at work building out the next generation of NewsGator for Outlook and NewsGator Online Services (NGOS). NewsGator is now providing RSS feeds for University Wire (U-WIRE) content as part of NGOS. U-WIRE is a free membership organization for the college press. As many as 300 student-produced stories are gathered and edited every day by U-WIRE’s staff, then made available to nearly 700 college media outlets. Their daily feed is a collection of the best news, opinion, entertainment and sports content produced by the nation’s college newspapers.

Newmerix announced today that it had raised $7m in a new financing. Siemens Venture Capital was the new lead investor, joining us and IDG Ventures. We provided Newmerix’s seed financing – with IDG Ventures – in early 2003. The vision of the founders – Niel Robertson and Ed Roberto – was to create a family of software products that take an entirely new approach to addressing the issues faced by packaged application development teams. As packaged applications – such as Peoplesoft, Oracle, SAP, and Siebel – have become increasingly widespread throughout enterprises, the teams within IT organizations who are responsible for modifying, testing, deploying, and supporting these packaged applications have been hindered by tools that are fundamentally inadequate for the job. Newmerix’s products take a revolutionary new approach to helping these folks who are impacted by the inability to easily implement changes to their packaged application infrastructure.

Seth Godin’s ChangeThis project has officially launched. ChangeThis – in their words “is trying to create a new kind of media. A form of media that uses existing tools (like PDF files, blogs and the web) to challenge the way ideas are created and spread.” As one would expect from Seth, the content is stimulating, provocative, and easy to quickly digest. I’ve agreed to host one of the manifestos on my site – I’ll be putting up a link to How To Be a Boor. It’s a great piece that talks about proper email ettiquite which – as email becomes ubiquitous – is useful to be reminded of.

As a hardcore NewsGator user (and investor), I’ve been a heavy user of several of the NewsGator plug-ins. As the number of feeds I monitor has increased, I have found that one of the more annoying things with some feeds is that rather than provide all the content of the article, they provide a very short description. For feeds that I skim or watch headlines, this is no big deal. However, for feeds that I read religiously, this is truly annoying. In a lot of cases, the feed publisher could easily change this (for example, Typepad feeds commonly default to 40 word digests, but it’s easy to change it to the entire content) – however, my guess is that many people don’t know this and it’s not obvious in the setup. In some cases, I imagine this is deliberate on the part of the feed publisher to drive traffic to their web site.

Last week, I was asked to write up my “Top 10 bootstrapping actions” for a book on bootstrapping that should be coming out later this year. Bootstrapping must be in the air as Fred just wrote about how he teaches about it in his course at NYU Stern and Jerry just wrote about it for his Inc. Magazine column Forget VC Money, Fund Yourself. I recognize the potential dissonance about VCs writing about bootstrapping (or – “how to create a business without taking money from VCs”) – I know Fred, Jerry, and I all feel strongly that VCs are only a small part of the entrepreneurial / company creation ecosystem and the vast majority of companies that get created never take VC money (my first business raised $10 – we had 10 shares of stock at $1 each – and – when we sold it – each share made a share of Google seem like a penny stock – although we only had 10 of them.)

Jeff Nolan’s post Blogs as Early Warning Systems inspired me to try a similar approach with a recent disappointing experience that I had at the Ritz-Carlton in New Orleans. I love staying at Ritz-Carlton’s and – while it’s often an expensive experience – I’m willing to pay a premium for the service and comfort provided. Before I left for Alaska at the end of June, I went to the annual EDS / NMCI Industry Symposium where I was on a VC panel with Captain Christopher who runs NMCI for the Navy. The conference was at a sold out Marriott so my assistant put me up in the Ritz down the block. In addition to being a magnificent hotel, I ended up in a room on the Club Level (which I’m sure I paid more for) which included a nice concierge service and a bunch of free (and very good) food.