Posts from June 2007

Radio Silence

Many of the leading Internet radio stations are silent today in protest over the new Sound Exchange royalty rates that are supposed to go in effect on July 15th. Yahoo Music has a good blog post explaining what is going on.

I have mixed views on this subject. First and foremost, I don’t like congress setting any rates. I believe the markets should be allowed to work. However, there is a compulsory license meaning that rights holders are forced to license their music to radio stations. That’s the reason congress is involved in the first place.

I also believe that the current audience size for Internet radio is sufficient that an advertising model could cover a lot of royalties to rights holders. The claim that higher rates are going to put Internet radio out of business seem a tad overblown to me.

But I am with the Save Internet Radio coalition in the end because I think the rate increases are too steep and there’s not enough of a reliance on a revenue share model. This is ultimately a market that can make both the Internet radio services and the music rights holders a lot of money.

But growing new markets takes time and patience. It sure feels like the steep rate increases are more about squashing this new medium instead of letting it develop along a normal timeline.

So I am for a compromise. Sure, take the minimum royalties up from where they are. Nudge all the Internet radio providers into a commercial model. But do it slowly and carefully so we don’t kill the golden goose before it even lays the egg.

#My Music#VC & Technology

The Aerosmith Debate

At some point in the last 24 hours the comments on my All Apologies post veered from a discussion of my arrogance and credibility into a debate about what the greatest Aerosmith record is. For that I am eternally grateful Jackson.

Jackson, Steve, Tony, and Pietro (aka The Lord of the Thighs) debated the merits of Toys in the Attic, Rocks, and Get Your Wings.

I went for a ride this morning and pondered the question with some tunes on my iPod. And I have to tell you that they are all wrong. But you knew the arrogant (or assertive) VC would say that.

The greatest Aerosmith record is Live Bootleg. Because all great bands at their peak are best live (Get Yer Ya Yas Out). And because of the bad ass cover of Come Together. And because of the "encore" of Ain’t Got You, Mother Popcorn, and Train Kept A Rolling.

I love the way Ain’t Got You and Mother Popcorn showcase the early Aerosmith when they were mostly a rythm and blues band. Like listening to England’s Newest Hitmakers. You hear the foundation of the band being built.

And the record ends with a blistering version of Train Kept A Rolling with the crowd shouting the chorus. All rock shows should end like that. So Live Bootleg gets my vote guys.

#My Music

The Carried Interest Tax Debate (continued)

First, I want to thank Bill, Steve and Hey for the excellent debate they carried (no pun intended) on in public in the comments section of my post this morning.

Second, I want to implore Hey to stop posting anonymously. His writing is too good, his opinions are too strong, and his voice is too valuable to go on anonymously. I’ve been getting comments from Hey for years and I’ve always felt that he needs to come clean.

Third, I want to be very clear about my position on founders’ sweat equity versus limited partnership carried interest. We have worked very hard in many of our investments to structure them so that the founders can get basis in their founders stock and qualify for capital gains treatment. It’s not that hard to do. The other people’s money (OPM) doesn’t usually show up in a startup until the company has been formed and the founder has bought (often for a nominal amount) the founders’ stock. At that point, the founder has already or is in the process of taking the capital risk that establishes the basis for long term capital gain.

What I don’t buy is the argument that the venture capitalist is doing the same thing as the founder. The founder takes the risk at the start and then uses OPM to fund the business going forward. And the founder does not take a share of the profits on the OPM.

My friend and college buddy Mike Feinstein, himself a VC, waded into this debate today with a post on his blog. Mike argues for proceeding with any change cautiously. Always a good suggestion when you are tinkering with an incredibly successful model.

I think I’ve said my piece on this topic and will now move on to something more interesting, like can the Mets continue their winning ways against the Redbirds this week. Now there’s a topic that should bring out some real passion.

#VC & Technology

Gooselet's Radio Station

I was browsing this morning and checked out some of my musical neighbors. I found this person called Gooselet. I looked at their play history. This person could be me. But it’s not.

Here’s Gooselet Radio. I hope you enjoy it as much as I do.

#VC & Technology

The Carried Interest Tax Debate (continued)

I was reviewing my Lijit stats just now. I wish I could link out to them so you can see them. I had the search term tag cloud up for a while but I felt a little foolish with a tag cloud that started out with pants, widgets suck, and widgets blow, so I took it down. Socialist VCs was also near the top. That one I wear proudly even though it’s not true. This post will reinforce the socialist VC tag.

The number one search term that brought people to this blog last week was "carried interest". I haven’t written much on the topic but apparently that doesn’t matter. The one blog post I did write on the carried interest tax debate is the number five link in Google. And thus the traffic.

I strongly believe that long term capital gains should be taxed differently than short term capital gains. And I also strongly believe that capital gains should be taxed differently than ordinary income. The counter argument is that the economic incentives to take risk with your capital should be enough and you don’t need additional tax incentives. I don’t buy that. Human nature being what it is, most people are going to want to be conservative with their capital. Taking a risk with your capital, particularly on new business initiatives (whether its a new restaurant in the neighborhood or a cure for cancer), is something we need to encourage. And many of the developed countries in the world agree. In some countries, capital gains are not taxed at all. I don’t think we need to take the economic incentives that far.

But, and this is a big but that will annoy most if not all of my colleagues in the VC and private equity businesses, if you are generating those gains with other people’s money (OPM), then that is a fee you are being paid and it should be taxed as ordinary income. I really don’t see how anyone can argue otherwise with a straight face.

If congress is successful in taxing carried interest as ordinary income, it will massively increase the amount of taxes I pay. So be it. Someone has to pay the taxes to keep our troops equipped, our borders secured, our schools modernized, and our children healthy. It might as well be me and my wife.

But the capital that we invest directly in the funds we manage should be treated the same as if we had made the investment directly. When I put the Gotham Gal and my personal capital at risk and keep it as risk for years (sometimes it’s longer than ten years), that should be treated very differently than ordinary income. It’s not ordinary income. It’s a capital gain. And as I stated earlier in this post, let’s not throw the baby out with the bathwater in the hunt for a more equitable tax code.

I am not the only VC blogger to come out on the side of change on this topic. Bill Burnham (no relation to my partner Brad) wrote a good post last month. He doesn’t go as far as I do on the subject, and his ideas are more evolutionary than revolutionary.

Here are some more links to posts on this topic

PE Hub – Jason Klein Opposed to any changes

Start Making Sense An economic analysis (great name for a blog too) Not such a great name for a blog but this one is written by lawyers and is about nothing but this issue. Worth adding to your feed reader if you are tracking the carried interest tax debate.

#VC & Technology

Love Is A Mixed Tape

I’ve mentioned this book, Love Is a Mix Tape: Life and Loss, One Song at a Time, a few times already. I finished it yesterday. It was good, but not great.

I wanted to love it like I love all of our mixed tapes. It wasn’t as good as any of them.

It’s about two young kids who fall in love with each other and music. They make mixed tapes for each other. Then one of them dies. The other is left to pick up the pieces and deal with all the mixed tapes.

It’s a true story and it’s told well. I loved that Renee named her dog after Duane Allman. I loved that Rob hated dogs but went along with Duane because he loved Renee.

But mostly I loved the song lists. I wanted to listen to all those tapes. That would be something. A book with a soundtrack.

No reason not to do it. They should have.

#My Music#Random Posts

All Apologies

Pietro said in his comment to my Reminder post this morning:

It’s a shame that your multi-millionaire ego prevents you from saying
the four hardest words in the English language: "Sorry, I was wrong."

And I do feel like apologizing.

Not for the Microsoft People Ready thing. That’s way overblown. But for two things related.

I am sorry I called Jeff Jarvis "old school". He’s not old school in the least. His comment to the Reminder post is one of the best things I’ve read in this whole Microsoft advertising affair. Like all things Jeff Jarvis, it’s too long and I am not going to cut and paste it here, but click on this link and scroll down. It’s great.

I am also sorry for the arrogance that was on display yesterday and today, as called out by Michael in his comment to the same post. Again click on this link and scroll down.

Arrogance is a personality trait I’ve had since birth. Ask my brothers and parents. I am not proud of it and I’ve worked hard to mute it. Not alway successfully. And since this blog is me, it will reflect that from time to time.

And for that I am sorry.

#Random Posts

Take a picture of something you see

  Take a picture of something you see 
  Originally uploaded by fredwilson.

It’s all starting to come together, but it’s not quite there yet.

I go out in the world, take a picture of something i see, email it to flickr, twitter the news, and eventually i’ll geotag it and maybe even blog it.

What I’d really like is for all of that to happen in one text message from my phone.

Talk – Coldplay

"you can take a picture of something you see"

#Photo of the Day


Now that I am a Money Hungry Blogger (thanks for the image Dan), I want to remind everyone who reads this blog (or stumbles across it) of several things.

1 – this is my blog, not a publication, and not representative of anyone or anything other than me. in my mind, it is me. if i think it, like it, or do it, it appears here at one point or another.

2 – i don’t subscribe to any code of conduct or rules about what i do on this blog other than it needs to represent me. i try to disclose when i have financial relationships with the companies i blog about but beyond that i don’t try to live up to some journalistic notion of editorial integrity or objectiveness. this is a BLOG.

3 – i don’t get paid to put widgets on my blog. there are three ad units on the page, a banner from federated media, a google skyscraper, and a between post ad unit from feedburner. that’s it. and i give all the proceeds to charity.

4 – i write this blog for me. it helps me think outloud. and for my family and friends who keep track of me through it. and for anyone else who wants to read it. if you don’t like it and don’t want to read it anymore, that’s just fine with me.

#VC & Technology

The Facebook Problem

Brad Feld has a post up where he talks about The Facebook Problem. Brad sees an emerging problem for those who are developing apps for Facebook and says:

It seems like Facebook could easily turn on CPM based ads on all of
the Facebook apps pages and do a revenue share with the application
developer.  Suddenly, the application developer would get paid for the
massive new page views they are getting (as would Facebook), and
Facebook would create a real incentive for the publishers to stay with
their apps and grow them. 

In the absence of this, Facebook is going to need to address the
“value to the apps developer” quickly, before some of the larger apps
vaporize due to the developer saying “I’m not willing to keep paying
for servers and bandwidth.”  I can think of a couple of other
approaches here, including Facebook building an in-the-cloud
infrastructure for their developers that they make available to one’s
that reach a certain level of popularity.  But – the straight “we’ll
make more money and share it with you” seems the most logical approach
to me.

I see a different Facebook problem. Invite overload and application noise. I cannot keep track of all the invites I am getting, both the standard invites and the application invites. And what’s worse, I can’t keep track of all the applications that all of my friends are using.

We all know I am not the Facebook generation. So maybe I am just not capable of dealing with this level of social networking. But I bet that many of the members of the Facebook generation are secretly wishing for the old Facebook where it was more about them and their friends and less about being a social operating system.

The comments to Brad’s post have a few such examples. Since there are a bunch of members of the Facebook generation who read this blog, please tell me what you think.

#VC & Technology