Posts from July 2004

One of my top 10 all time songs is Peter Gabriel’s Solsbury Hill. When I first heard it when I was in college, it inspired me to step away from all my comfort zones, to reach out, explore, and grow. Even today, 20 years later, I still get chills when I heard it.

So when I used Bit Torrent to get Dave Matthews’ performance at Bonaroo in June of this year, I was hit hard by his rendition of Solsbury Hill. He uses some kind of computer synthesizer on his vocals. It’s a great rendition and its my MP3 of the week.

Some really good blog conversations going on about measuring new and old media. I got hooked into this from Jeff Jarvis, but Ross Mayfield and Tim Oren are driving this discussion.

My favorite quote from all of this comes from Jeff. He says, “This medium isn’t about impressions; it’s about relationships; it’s about conversations; it’s about influence; it’s about authority. We are starting to measure how many conversations a blog starts (or at least takes part in) with Technorati.”

I’ll go one step further. I think all media (not just the blog medium) is about relationships, conversations, influence, and authority. It’s just that the blog medium is the first that has organized itself to revolve around these concepts. But I believe that all media in a digital world will eventually work this way.

I don’t just want Technorati to tell me which blogs have the most authority. I want to know what media outlet (new, old, or whatever) has the most authority on a particular subject. Until newspapers, TV, radio, film, books, etc organize themselves to allow people to link to, discuss, comment on, and measure the way blogs do, we won’t get there. But it’s going to happen. Count on it.

My friend Seth Goldstein asked me at breakfast last week if I had signed up for Gmail. Seth and a few other friends have invited me to join Gmail but I haven’t done it.

I told Seth that I have a Yahoo! and an AOL email account and don’t use either of them so I wasn’t in a hurry to add another webmail account that I don’t use.

He then said something interesting. He forwards all his mail to Gmail. Whenever he wants to find something, he just goes to Gmail and searches for it. It’s fast, its easy, and its all there.

Hmm. Looks like I’m going to get a Gmail account now and give that a try. I am sick and tired of the terrible search in Outlook. I’ll have to use Outlook when I’m offline, but when I’m online, I’ll give Gmail a shot.

I was biking on the west side highway this morning and headed back dowtown. I was engrossed in the new Streets album, when I was stopped in my tracks by a huge crowd waiting to get into Pier 94 (57th and the west side highway). I started looking around and saw TV crews, secret service guys, policemen, and a bunch of helicopters in the sky.

It wasn’t obvious what was going on but I knew there were politicians to blame for my snap back to reality.

I googled a bit and found out that it was John and Theresa Heinz Kerry hosting some breakfast (it must have been one huge breakfast) at Pier 94 this morning.

I can just imagine what NYC is going to be like in late August/early September. I plan to get out of town for that one.

I’ve been reading about Mike Skinner, the British cockney rapper for the past year. He’s got a new album called a grand don’t come for free. So I figured it was time to see what all the buzz was about.

I bought the album (you have to listen to the whole album) and synched my iPod and went for a bike ride up the west side to the George Washington Bridge this morning.

In about five minutes I was nowhere near the west side of Manhattan. I was in Mike’s girl’s london flat roaching a spliff and sitting on the sofa watching the TV with his girl.

All great art does this. It takes you to another place and you can feel what it’s like to be there.

But there’s more. There’s this whole thing going on throughout the record with Mike’s need for a thousand pounds. And there’s also this hilarious stuff about his TV that doesn’t work. In the end, it’s all cleared up. It’s a short story with each song a chapter.

What does the music sound like? Well Mike’s a cockney Eminem and the music reminds me of Badly Drawn Boy.

This record’s not for everyone. The Gotham Gal doesn’t dig it. But I do. And you might too.

I was at a dinner the other night and was sitting next to a man much older than me. We were having a very interesting discussion about a number of topics including art, children, politics, and government. This man made a very interesting comment to me that I’ve been thinking about ever since.

He said that our democracy is too old and if we don’t modernize it soon, we are in big trouble.

I’ve always felt that our founding fathers built the perfect democracy and as a result America has prospered beyond any other country.

Not so, according to this man. They built the perfect democracy for life at the end of the 18th century. But it doesn’t work at the beginning of the 21st century.

His assertion is that the foundation of our democracy is built around relationships like rural vs urban and educated vs illiterate that don’t exist in our society anymore. He thinks the two party system, the electoral college, and the presidency itself are outdated instutions that our holding our country back instead of moving us forward.

His solution? The modern democracies that have been established in the past half century. He thinks Israel and Japan’s democracies are the best examples of what we need to create. He thinks a parliamentary system that allows for multiple parties is a much better representative government. He thinks that parliamentary governments get created and abolished more quickly and can respond much better to the dynamic nature of our globalizing world.

It’s an interesting thought. At first blush, I liked it. I helps me understand what frustrates me so much about our current political environment where the religious right and the “head in the sand” left seem to control so much of our political dialog.

Will it happen? Not anytime soon. It will take a crisis of epic proportions to change our political system and I am not eager to go through that.

I am a little late to blogging this post from Seth Godin on Search Engine Optimization (SEO for short).

Seth thinks that SEO isn’t worth the money, that its a “black art”, and that there are much better ways to spend your precious marketing dollars.

The post is very thought provoking, but so are all the track backs. If you spend money on paid search and SEO, go read this stuff.

Brad Feld was inspired by my previous post on Valuation to add some more really useful information on this subject. Go take a look.

There’s this dance that entrepreneurs and venture capitalists do when it comes time to negotiate the economic terms of an investment. And it all revolves around valuation.

The question is what is the fair value of the business? This supposedly establishes how much of the company the venture capitalists will own for their investment.

But I think the concept of valuation is often misunderstood by the people engaged in this process. And it’s particularly true in early stage investing.

I do not believe that negotiating a valuation on an early stage venture investment has much to do with the current value of the business. If it did, why would a venture capitalist agree to a $10 million value for a business that will lose money for the next 2-4 years and has little, if any, revenue?

The fact is that almost all venture capital deals are done as convertible preferred stock investments. That means that the money we invest is more like a debt instrument in the event the business doesn’t work out very well. We get our money out before the entrepreneurs do if the deal goes sideways or down.

It’s only in the event that the deal works out that the percentage of the business (the thing that valuation is supposed to determine) matters in terms of how much money we make.

Another important factor to consider is that only a relatively small portion of early stage venture investments really work out in the way they were supposed to when the investment was made. In my experience, which is based on 17 years in the business and over 100 different early stage investments over that time period, there is a 1/3 rule.

The 1/3 rule goes as follows:

1/3 of the deals really work out the way you thought they would and produce great gains. These gains are often in the 5-10x range. The entrepreneurs generally do very well on these deals.

1/3 of the deals end up going mostly sideways. They turn into businesses, but not businesses that can produce significant gains. The gains on these deals are in the range of 1-2x and the venture capitalists get most to all of the money generated in these deals.

1/3 of the deals turn out badly. They are shut down or sold for less than the money invested. In these deals the venture capitalists get all the money even though it isn’t much.

So if you take the 1/3 rule and add to it the typical structure of a venture capital deal, you’ll quickly see that the venture capitalist is not really negotiating a value at all. We are negotiating how much of the upside we are going to in the 1/3 of our deals that actually produce real gains. Our deal structure provides most of the downside protection that protects our capital.

I think it is much better to think of a venture capital deal as a loan plus an option. The loan will be repaid on 2/3 of our investments and partially repaid on some of the rest. The option comes into play in a big way on something like 1/3 of our investments and probably no more than half of all of our investments.

There is more to this whole issue of valuation because there are often follow-on rounds where the deal between the venture capitalists and entrepreneurs gets renegotiated. I’ll save that for another post.