Posts from July 2010

First off, I want to state that while I am a sports fan, I am not a sports fanatic. I've been out of the country the past week and have not been reading the sports blogs and watching ESPN non stop. If others have written what I am about to write, I did not see it

I did read Dan Gilbert's letter to the Cleveland fans though.

That letter read like a man in denial about what is going on.

My view is we are witnessing yet another power grab by the real talent away from the former owners of that talent, in this case the league and its owners.

What Lebron, Dwyane, and Chris have done is decide they want to play together, play for someone they respect, and attempt to create a new basketball dynasty to rival the Celtics and Lakers who coincidentally recently played for the NBA championship.

Critics of Lebron and his amigos call the move selfish and disloyal.

I call it ballsy and impressive. The league and the owners may control the brands, the teams, the stadiums, and the TV deals. But the players and coaches are the raw talent that makes it all happen.

If Lebron, Dwyane, Chris and Pat Riley are successful in assembling a dynasty that will sit at the top of the NBA for the next decade, they could well inspire others to do the same.

What will Kevin Durant, Carmelo Anthony, Dwight Howard and others do when they become free agents? Sign with the highest bidder or conspire to create a new championship caliber team?

I can't help but see this move in the context of the slow but steady crumbling of institutions that held power by their control of the distribution system. But now when the most talented players have brands that are as big or bigger than the teams they play on, when more and more young people are rooting for their fantasy team and assembling it on their xbox, this move makes total sense to me.

My only question is whether this is an isolated incident or the start of a trend that could pose a serious problem for all sporting leagues.

We spent three days in Tuscany with old friends. We had a blast. The Gotham Gal batched up a bunch of blog posts and put them all up just now. 

The Gotham Gal used to do her travel blogging like that in "batch mode". Check out this post about our visit to Rome a few years ago. It covers four days or more in one post.

Nowadays we all travel with laptops. I even brought the iPad with us this trip. We do something and she blogs about it that same day. Like this visit to MAXXI, the new modern art museum in Rome. 

When you can share something you did right away, it is a lot easier to remember the details. And a post about a meal or a museum visit can be a lot more detailed than a post about four days in Rome.

I call that real time blogging and it is very much the way we do things these days. And in a strange twist, being without fixed Internet over the past three days limited how we could blog but also forced us to do more real time blogging. Check out my Tumblr, where I was posting photos from my blackberry. I could tweet too.

And we got seriously into Foursquare in Tuscany. My son must have checked into every store, restaurant, gelateria, and town we visited. It is so easy to do that. 

Real time blogging doesn't take any time to do. You snap a photo with your phone, if you like it, you upload it, and get back to seeing the sights and sounds of the town. You sit down to a lunch, checkin, and then open the menu and discuss the options with friends and family.

Even though it doesn't take any time to do, there are benefits of real time blogging, both for us and for those who care to follow our travels. For us, we have created an archive of the things we did and when we want to go back, we can search our archives and find them again. For those who care to follow our travels, there are tons of tips and advice on places to go and where to eat, shop, etc.

Services like Tumblr, Twitter, and Foursquare utilize the mobile phone to make real time blogging possible. It's quick and easy and you can leave a trail both for yourself and your friends and followers.

I did not really miss fixed Internet very much over the past three days and really enjoyed using the phone instead. Next time you go on a trip, try setting up a Tumblog and a Foursquare account, download the apps for your phone, and give it a try. I think you'll enjoy it as much as we did the past three days.

In the almost seven years of this blog's history, there have been very few guest posts. One I remember was JLM's take on Obama's rescue plan during the depths of the financial meltdown in late 2008/early 2009.

Today I am going to treat you to a guest post from AVC regular Andy Swan. Those who read the comments need no introduction to Andy. He's funny, smart, a talented entrepreneur, and a champion of freedom and free markets.

He sent me this post this morning and I love it. Lot's of wisdom and learning in here for everyone:

Who are we plowing for today?

In the early 1930’s in Southern Indiana. My grandpa Rock had just returned from a stint in Detroit, which was a favorable place to find employment in those unfavorable times. He was home to help with the planting season and to visit family….maybe settle down with the money he’d saved.

After the first day of plowing was done, and the sun was going down, he got off the tractor and felt that his wallet was missing from his back pocket. Panicked, he looked everywhere possible, to no avail. It was dark and there was no way he was going to find it that night.

What’s worse is that the wallet contained ALL of the money he had saved in Detroit, around $2500 I believe, a sizable sum during the depression.

After a sleepless night, he woke up and went to go to work. Upon arrival, his “boss”, who knew of the missing money, said “Well, Rock….who are we plowing for today?”

“I guess we should plow for Rock”, he responded.

And so all three jumped on a tractor and retraced, backwards, the plowing that they had done the previous day, with eyes searching for a wallet like the Coast Guard for a raft. After several hours and a lot of lost hope, my grandpa spotted the corner of his wallet sticking about an inch out of the ground. Hopped down, grabbed it and they went on to complete as much of actual farming progress that could be completed for the rest of the day.

With that money, he went on to buy his own piece of land, and begin the building of what would become his personal “empire”….a life’s work that spanned over 70 years, thousands of acres, and a family that continues to thrive beyond his leaving us a little over a year ago, at the age of 94.

Instead of criticizing the failures of others, or questioning their judgment in hindsight (how could you carry that much money on a tractor???)…..

Take some time out to plow for the passionate little guy every once in a while. You might just set a great thing in motion

We are staying at a lovely house in Tuscany for the next few days with old friends. The house has beautiful views, a lovely pool, a huge kitchen, and no Internet.

Seems like a perfect excuse to take it easy and decompress with friends and family

If I get the urge to write something, I'll do it from my blackberry, which is how I am posting this.

But I could easily get lost in a book or a conversation and miss a day or two of blog posts.

You may have noticed that Business Insider cross posts a lot of the stuff that I write here. They are not the only online publication that does that but they are the most active one.

Today they cross posted yesterday's MBA Mondays post. But if you click through to that last link, you'll see that the comment thread (ie the discussion) that is running at the end of the Business Insider post is the same comment thread that runs at the end of the same post here at AVC.

I think this is the future. I'd like to see my content run everywhere that there is an audience that is interested in it. But I don't want to have to participate in multiple discussions about it. Using the same comment thread solves that problem.

Business Insider is using a simple hack to put the Disqus comment thread at the end of their cross post. But that won't be required for too much longer. I expect Disqus and any other serious comment system to allow this "multiple cross posts, one thread" approach to work simply and easily.

So if you want to cross post anything you read here, please do that. But also please bring the discussion with you. I appreciate it and our community will too.

I'm in europe this week, using euros for everything instead of dollars. So I thought it would be an appropriate time to talk about currency risk in a business.

When you have a business that only generates revenues in your local currency, you don't have to concern yourself with the fluctuations of one currency versus another. But if you start generating revenues in other currencies, or if you open an office outside of your country and start generating expenses in other currencies, you will have to start thinking about currency risk.

First, let's talk a little about currencies and how they fluctuate against each other. Since I'm spending euros this week, let's look at the past 120 days of price action in dollar/euro:

So let's say that 20% of your company's revenues are euro denominated. And let's say that your business is doing $10mm a year in revenues. So about $2mm in US dollars of your revenue is in euros. And let's say that was the case at the beginning of the year. At that time, the exchange rate was about .7 euros to 1 dollar. So your business was generating 1.4mm euros in revenues. Since the start of the year, the euro has dropped and now you get .8 euros for every dollar. So if your business is still generating 1.4mm euros in revenues, that is now only $1.75mm dollars of revenue per year. You are still selling just as much in euros, but your annual revenues in dollars has dropped $250,000 in six months. That is how currency fluctuations can impact a business.

Let's do the same analysis, but this time with expenses. If at the start of the year, you had $2mm in annual expenses in a euros because you have an office in europe with employees, rent, etc, then you had 1.4mm euros in annual expenses. By June of this year, those expenses have dropped to $1.75mm, saving your company $250,000 in annual expenses.

What this example shows is the primary lesson of currency risk in business. It is ideal to have your foreign currency denominated expenses and revenues be as close to each other as possible. Because if you can do that, they are a natural hedge. If our examples are combined, and you have $2mm of revenues and $2mm of expenses in euros (a breakeven business in euros), then your profits will not be impacted by currency fluctuations. Your revenues might go up or down, but your profits will be immune.

If you cannot match foreign currency denominated revenues and expenses, then you will have risk to your business. If the foreign currency revenues and/or expenses are small (measured in the millions or less), then you should not do anything about this risk. Just understand that you have the risk and live with it.

But if your unmatched foreign currency denominated revenues and/or expenses are in the tens of millions of dollars or more, then you can hedge the risk. As I explained in last week's post, there are a number of hedging strategies that you can put in place to manage this risk. There are currency desks at the major money center banks and global brokerage firms that specialize in hedging currency risk for companies and they will be happy to put in place currency hedges for you. Hedging currency risk can get expensive, which is why I don't recommend it for small companies, but for large companies with significant currency risk, it is standard business practice and it is very common.

For many entrepreneurs, currency risks are not going to be something to worry at the start of the business. But we see most of our portfolio companies start thinking about international expansion about five years into the development of their business. They open an office outside the US and start generating non dollar denominated expenses. In time, they start generating non dollar denominated revenues. At some point, these amounts become significant and the CFO has to start thinking about currency risk. If you get to that point in your business, think of it as a good sign. Something to manage for sure, but a sign that the business is on the right trajectory.

I took this photo on Thursday when I was with my friend Jordy. He suggested that I post it on AVC today to celebrate July 4th. So here it is.

Today is a travel day for our family. We are putting our son on a plane to basketball camp and then the Gotham Gal and I are headed to a week of vacation in Italy.

Longtime readers know that I continue to post on vacations and this one will not be any different. I expect the Gotham Gal will be blogging a lot about Italy on her blog. And I plan to post fun photos on my tumblog.

I'll see you all tomorrow for our next installment of MBA Mondays.

The streets are empty in NYC this July 4th weekend and it seems like everyone is at the beach. The Gotham Gal and I are getting ready to head to Italy for a week on Sunday night. Summer is here and I can feel the pace of work life and city life slow down.

Many of our companies experience a slow third quarter because people aren't working at quite the same pace in July and August and it is hard to get it all back in September. And many entrepreneurs and investors I work with assume for the same reasons that the summer months are a bad time to be raising money.

I don't think the summer months are a bad time to be raising money. It's a different time to be sure, but not necessarily worse. We see a lot less incoming activity in the summer months so it may be the best time to get a VC's attention. If everyone else thinks it is a bad time, then the contrarian in me says it is a good time.

I just did a quick query on our portfolio and we made our first investments in eight of our twenty-seven active portfolio companies during the third quarter. Three of our investments were closed in July. Three of our investments were closed in August. And two of our investments were closed in the first couple weeks of September.

Eight out of twenty-seven is thirty percent of our portfolio, and that is north of the twenty-five percent of the year that the summer represents. So our firm has been more active on new investments during the summer than we are on average.

I suspect that if you look at the VC industry as a whole, and there are plenty of services you can use to do that, you will find that there really isn't a summer slowdown in investing activity.

But as I said a bit earlier in this post, the summer is different. And if you plan to be raising money this summer, you need to plan for some things. First and foremost, people will be on vacation, as I will be next week. So you it will not be as easy to get meetings in the summer. You will need to plan ahead a bit more. And when you do get meetings, there will not be as many partners in attendance. So you may need to visit the most engaged venture firms in your process a bit more than you would other times of the year. It may take longer to get a full partner meeting scheduled and when you show up, some of the partners may be on the phone from vacation spots around the world. It may be harder to get them engaged.

Due diligence is also a bit harder to do in the summer months. The people the VCs need to talk to to understand the investment and the people are more likely to be away. So anything you can do to help schedule those calls and meetings will be much appreciated by the VCs.

The bottom line is it takes a bit more work on your part to run a fundraising process in the summer months. But the benefit is you may well find that you are seeing a more relaxed set of investors, who are spending a bit more time on the golf course, and have clearer heads. If you extend your timeline by a month or so, dedicate a bit more effort to scheduling and quarterbacking the process, you will find a receptive audience with their checkbooks open.

The thing to remember about VCs, and all sorts of professional investors, is that we get paid to invest capital. It is what we do. So just because it's a slower time of the year, doesn't mean we aren't still doing our job.

If your company will be running out of money at or before year end, you should be raising money now. Do not let anyone convince you to wait until "everyone is back from the beach in September." That is too late. Do it now.

We've backed a lot of serial entrepreneurs over the years. It is one of our favorite things to do. About half of our current portfolio is led by serial entrepreneurs who are working on their second, third, or fourth startup.

One hard choice an entrepreneur faces is whether to put the band back together.

On one hand, you want to bring some new blood and new thinking into the mix.

On the other hand, there is great value in reassembling a team that has worked together successfully before.

Dave Morgan, founder of Real Media, TACODA, and now Simulmedia, tells me that each time he has started a new company, he has intended to go with an entirely new team and each time he has found himself bringing back the bandmates within a year of getting started.

I saw Mark Pincus do that with Scott and Cadir, his co-founders of SupportSoft, about a year or two into the development of Zynga.

And I recently saw Mike Yavonditte bring together the product team he worked with at Quiqo into his new startup Tracked.com.

I don't think there is a right or wrong answer here. Assembling the team is such a critical part of startup success. But I do think it is worth noting that we have seen a tendency of entrepreneurs to go back to the well and put the band back together more often than not. And even when they don't do that initially, it seems that over time, it is impossible to resist that urge.