Posts from April 2012

Life Liberty and Blazing Broadband

Internet Freedom is a fairly obtuse concept. But ask anyone under the age of twenty five abouut the things that are important to them in the world today and you'll heard strands of Internet Freedom in their words.

I met with a politician from a farm state the other day. He told me a story about being driven around his home state by a young college educated farmer. He asked the young farmer about a number of key internet issues and the young man recited the key points on the issues back to him replete with the rallying cries of the Internet crowd on each issue. The farmer was as conversant on the points as the tech crowd in San Francisco or New York. The politician took notice and relayed the story to me a month or two later like it had happened to him that day.

I drove with my middle child and two of her friends back to college at the end of winter break back in January when SOPA and PIPA were still very much a live issue. I was right smack in the middle of the fight but I did not bring it up in the car ride. My daughter was driving, I was in the passenger's seat, and her two friends were in the back seat. At one point in the ride one of the young women in the back seat said something like "can you believe this nonsense about SOPA?" and the other young women said "where are we going to get our content if they do this to us?". I didn't take the bait and join the conversation. I just listened. They were outraged by the PIPA/SOPA discussion and the Megaupload takedown and the broader desire to limit what as available to them on the Internet.

I have watched my kids closely over the years. I am a noticer. I pay a lot of attention to what they and their friends do, say, and think. It is a guidepost for me in terms of where we are going and how we are going to get there.

Their generation grew up with a computer on their lap and now in their pocket. They were on Facebook before they were supposed to be. Their first phone was a smartphone. They prefer to watch a movie on their laptop lying on their bed than in the movie theater. And as a young woman said at Princeton last week, they want "life, liberty, and blazing broadband".

I loved that line, wrote it down, and used it to anchor this post. It defines this generation to me. They grew up with Internet Freedom, it is a birthright as far as they are concerned, and woe the person or people who ever try to take it away from them.

#mobile#Politics#Web/Tech

The Board Of Directors: Board Committees

A Board has real work to do. In addition to the most important work which is providing strategic advice, accountability, and feedback to the CEO and the management team, the Board is required to provide oversight on the Company's financial statements, the Company's compensation plans, and the ongoing maintenance of the Board.

As such when a Board gets big enough to justify them, it makes sense to create committees of the Board to deal with these specific responsibilities. A good question to start with is "when is a Board big enough to need committees?". A three person Board should not have committees. The Board will be the default committee for all of this stuff. A five person Board could have committees and should have them if there is a lot of work required for audit and compensation. A seven person Board and larger should most certainly have committees.

The audit committee provides oversight of the CFO function, the auditors, and related matters (which might include tax compliance, SEC compliance, etc, etc). The audit committee should be closely involved in the audit, should be briefed both before and after the audit by the auditors, and should do executive sessions with the auditors and without management. If issues come up during the audit that require Board attention, the audit committee and the audit committee chair are the right place to discuss them with the auditors.

In the early days of a company it may not even be necessary to have an annual audit. And therefore the audit committee's duties will be light. But over time as the Company grows, the audits become more complicated and the duties of the audit committee become more involved. When a Company is preparing for an IPO, it makes sense to spend time making sure it has a very experienced and involved audit committee and a "financial expert" as Chair of the audit committee. Most of the time, this financial expert will be a very experienced public company CFO or the partner of an audit firm, possibly retired in both cases so the proper amount of time can be committed to the role of Audit Committee Chair.

I have worked with great public company audit committee chairmen and they are worth their weight in gold. A public company Board member will want to be sure the numbers are correct, the CFO is up to the task of managing the Company's financials, and that the auditors are being properly utilized and managed. The audit committee chair provides this level of comfort to his or her fellow board members. This is a big job and it is important to have someone in the role who is prepared for it and committed to do it well.

The compensation committee provides oversight of the Company's compensation plans, including equity compensation, and also is directly involved in setting the compensation of the CEO and often the senior management team. The compensation committee has two related goals. First, they must insure that the Company's compensation plans are appropriate to allow it to attract and retain the best talent in the market. And second, they must insure that the compensation plans are not too generous resulting in a loss of value from the shareholders to the management and employees.

This is a delicate balance to strike. I like to make sure that the compensation committee has active peer CEOs on it who can speak to the current market value of talent and who will have a gut feel for what is reasonable and what is not. I also like to see compensation committees avail themselves of market data on compensation that can be supplied by a host of compensation consultants in the market. If a company errs on the side of being slightly generous in terms of compensation that is often a good thing. But things can get out of whack, particularly at the senior levels, as we've seen with compensation plans for large public companies that are not performing well but top managers are getting paid tens of millions in annual salaries. It is the compensation committee's job to make sure this doesn't happen.

One of the compensation committee's most important jobs is to help a company create, manage, and evolve its equity compensation plans. That can include restricted stock for founders and early employees at the start of a company, it can include an option plan, and it can include a restricted stock plan for public companies or restricted stock units for late stage private and public companies. This is complicated stuff. I did a whole MBA Mondays series on Equity Compensation and a good compensation committee can bring tremendous value to a Company by keeping it up to speed on best practices and the latest and greatest equity compensation approaches.

 The third and final most common Board committee is the Governance Committee. This committee is reponsible for recruiting and nominating new directors, identifying directors who should leave the board and asking them to leave, setting the board meeting schedule, and a host of other "self governing" issues for a Board. All of this needs to be done in close coordination with the Board Chair and the CEO and so most governance committees are chaired by the Board Chair and have the CEO on them.

I generally like three person Board committees, with one chair and two other members. This is most efficient for everyone. Committees can get bigger for large boards but I don't see many Boards in the startup entrepreneurial world that are bigger than nine. And nine is large in my book. If you have a seven person board, you will have two people who serve on multiple committees. Ideally these people will not be the committee chair since the chair does the most work. If you have a five person board, I suggest going without the governance committee and making that the job of the entire board. Then you will have four non-CEO board members. One can be audit chair. One can be comp chair. And the other two serve on both committees. That's a fair division of labor. If you have a nine person board, then you have plenty of people to serve on all the committees.

Board committees should meet regularly. These meetings are often done before the main board meeting. But they can also be held in between board meetings. Board committees do not need to meet in person as much as the full board does and much committee work is done via conference calls.

Strong, well led board committees that are engaged and active make for better Boards. A lot of the logisitcal work that Boards must do can be done in committee and simply reported to and ratified by the larger Board. This leaves time in Board meetings for the meaty strategic conversations where Boards can add the most value. So make sure you have set up committees when your company and your Board gets big enough to justify them. You will be doing yourself a favor and you will be doing your Board a favor too.

#MBA Mondays

Easter Sunday

TulipsI don't think its a coincidence that Easter Sunday comes in early spring. It's a time of renewal, both spiritually and weather wise. 

Last evening our family got together for a Passover Seder. We went with a post modern version, called Sayder, that our friends helped craft. Our girls came back from college and brought a host of their friends with them. We ate an awesome meal cooked by The Gotham Gal and had a good talk around the table. The tagline for the Sayder is "less reading, more talk". I like it a lot.

I enojoy living in a place where the weather changes a lot. Although we had a mild winter, I have been wearing a winter coat for the past four months. And that coat is now put away and my Vespa is on the road again. The days are longer and the trees are in bloom and it's getting warmer outside. That's a great feeling and I enjoy it immensely every year when it happens.

I am going out for a walk around the west village to enjoy the sights and sounds of a quiet Sunday morning. I will stop by Abingdon Square and take a photo of the tulips in bloom which I will use as an anchor photo for this blog post, I'll get an espresso at my favorite cafe, and then I'll stop by the store and get the makings of Matzah Brei, and then I'll come home to a full house and a big breakfast with family and friends.

That's my version of Easter Mass. To those who are going to church today including my mom and dad, I say Happy Easter. And to those who have been celebrating Passover this weekend, I wish them "Chag Sameach". And to everyone else, I wish you a gorgeous spring Sunday full of renewal.

#Random Posts

Laptop vs Mobile

I took a two day trip Thursday and Friday of this past week. When packing for the trip I debated about bringing my laptop (an 11" macbook air) with me. In the end, I decided to bring it.

I didn't use the laptop on the trip except to write yesterday's blog post. I do a lot of cutting and pasting of links, quotes, etc when I blog and I find that it is still pretty inconvenient to do that on a mobile.

But other than that, I used my android phone for everything else over the course of two days and I was fairly productive.

My friend Bijan wrote a similar post recently about his new iPad3. I have not been able to wrap my head around using an iPad outside my home and office. I don't travel with it the way many do.

But regardless of whether its an iPad, an iPhone, or an Android, it is clear that many of us are starting to leave our laptops home when we travel and rely entirely on mobile devices.

It would be interesting to think about the things that are still inconvenient to do on mobile (like long form blogging) and figure out if there were ways to make it more convenient to do that on a mobile device. It seems like there could be some interesting startup opportunities in solving these remaining hurdles to ditching the laptop entirely.

#mobile#Web/Tech

Feature Friday: People Tagging

I remember when I first met Joshua Schachter. It was in our first office back in early 2005 and he was still working at Morgan Stanley and running Delicious out of a server in his closet. I was immediately struck by the way Joshua looked for lightweight simple ways to do things. He told me that reduction was the key to getting something right.

Delicious was so simple to use. It didn't do much. But what it did do, it did well. I once asked Joshua why he didn't let users rate links. He said "we do. if they post it to Delicious they are ranking it as interesting. if they don't post it to Delicious, they are ranking it as not interesting". That's classic Joshua.

Skills.to is also classic Joshua. For those who haven't seen it, skills.to is a super simple lightweight way to tag people. It currently leverages the Twitter name space to find people, tag them, and tweet out the tags. You can also tweet out to your followers that you'd like them to come tag you. That's about it. Delicious for people.

There's a chrome extension that allows you to see people's tags in line in Twitter. I just installed that so I haven't had much experience with it yet. But I like the idea of a super lightweight people tagging system that is transportable across the web. I hope this takes off. Joshua is the right person to build it.

Check it out and let me know what you think.

Full disclosure. USV is an investor in Tasty Labs which has built Jig and Skills.to.

#Uncategorized

Cloning Successful Startups

Jeff Leventhal, the CEO of our portfolio company WorkMarket, emailed me yesterday. He said:

i would love to see an avc post about copycats like samwer bros. what do u think of this form of entrepreneurs, etc?

I looked back over my archives and I guess I've never addressed this topic here at AVC. So here goes.

It's a free market out there. People can do what they want. That's even more true globally. If you are successful, you will be cloned. That's life. In fact, it's a sign that you've made it when clones of your website, mobile app, and business start cropping up.

That said, I am not a fan of this behavior and approach to making money. It is devoid of any creativity. It doesn't inspire me. And we avoid doing it and investing in those who do it. As Jeff said to me in an email reply, "the problem is that people make money doing it……..these people should just internally understand that they are not entrepreneurs and not creating true value." I agree with Jeff on that.

Some will say "but you are an investor in Zynga and they copy others' games." I accept that critique but we committed to invest in Zynga when it was just poker on Facebook and that was an entirely new idea. They grown by adapting other games to their social model for sure. That's the history of the games business by the way. Even so, I'm not attracted to or inspired by this approach to making money.

Our approach at USV is to invest in the category creator, the innovator, the market leader. That's what attracts us to startups. And when the category creator executes well, we have found that it can win the market by a long shot and produce fantastic returns.

There are a few examples of USV portfolio companies that were not the category creator. Lending Club is a good example of that. We invested in Lending Club because they innovated around the peer to peer consumer lending model and came up with the winning approach and they are now the clear market leader. That was a late stage investment made out of the Opportunity Fund. I suspect that we will do that kind of thing more frequently in our Opportunity Fund investments.

But in the early stage sector, we are drawn to entrepreneurs who have new ideas, novel approaches, and big visions with long roadmaps. We are not drawn to those who seek to knock off another company and execute it better or in a different geographic market. If that is what you are doing, I am certain you can find investors and I am not looking down on your approach. But we are not the best investor for you and your project.

#VC & Technology

45 Minutes With @albertwenger

It's really easy to appear intelligent when you are surrounded by smart people. I've written a fair bit about how my partner Brad is responsible for much of USV's investment thesis and the deep thinking we do as a firm.

But USV is also extremely fortunate to have had the benefit of Albert Wenger's big brain for the past five years, since he helped Joshua build and sell Delicious to Yahoo!

Since I don't have anything particularly interesting to say this morning, I thought I'd feature this interview with Albert that Rocky Agrawal did in our office recently. It's 45 minutes so it's a long listen, but there are a lot of good insights in here.

One more thing while we are talking about Albert – He's been doing this great weekly column called Tech Tuesdays where he essentially explains how this technology we are all using works. He's got a survey up on his blog looking for some feedback about where to take Tech Tuesdays next.

#VC & Technology#Web/Tech

The littleBits Ted Talk

The Gotham Gal is an investor in littleBits, which means that our entire family is an investor in littleBits, which means that this is a disclosure.

It's not surprising that the Gotham Gal is an investor in littleBits. When you meet Ayah Bdeir, you cannot help get excited and inspired by her vision. I've blogged about littleBits before here at AVC, but I'm doing it again because I just watched Ayah's TED talk and I am compelled to share it with all of you. It's short, just five minutes. So check it out.

#entrepreneurship

The Board Of Directors: Board Meetings

The Board Meeting is the primary way that Boards function. This post is about making Board meetings effective and helpful for everyone involved.

A Board cannot be effective if it doesn't get together frequently. Some Boards meet monthly. I like that approach when the Company is young and there are a lot of changes happening frequently. But for most companies, a monthly Board meeting will be overkill.

I'm a particular fan of the twice a quarter Board meeting. The idea is to have one meeting mid quarter and one meeting after the quarter has been completed. A lot of public companies use this format since the Board needs to review the quarterly numbers before they are reported to the public. I think eight meetings a year is a great heartbeat for a Board and this schedule works well for all kinds of companies.

Some Boards only meet once a quarter. I am on a few Boards that meet face to face once a quarter. I generally encourage those Boards to meet over the phone for an update in between the face to face meetings. Those update calls/meetings are less formal than a full Board meeting but they keep the Board engaged in the business and connecting with each other.

Board meetings should be discussions. They should be interactive. They should have some structure. But they should not have too much structure. Some CEOs and Board Chairs make the mistake of driving the Board line by line through the agenda, cutting off meaty discussions in the name of staying on schedule. The purpose of Board meetings are to have these meaty discussions not to get through the agenda on time.

I prefer that the Board get all "official business" out of the way at the start of the meeting so that the meeting doesn't have to get cut short to approve stock options, minutes, or some other important but perfunctory Board resolution.

Once the Board has done that, the discussions can begin. The CEO should tee up the discussions. There should not be too many topics. I think three or four are good. One or two can be tactical items. But most of the discussion items should be strategic and thorny questions that the business must tackle to be succcessful. Good examples are "what is the ideal business model for our company?", "can we be in two businesses at the same time?", "do we need to build, own, and operate  our payments system to be successful long term?", and "can we build a sustainable business long term operating solely on Facebook?". Note that all of these are questions.

Board meetings should last two to three hours. I think two hours is too short. But more than three hours of intense discussion will turn most brains to mush. So you can't go on too long either.

There are a few techniques that I've observed over the years that I like a lot. The first is that the Board deck should be sent out three or four days in advance and it should include all the important financial and operational results for the Board to consume in advance of the meeting. It should also tee up the big discussion items so that the Board can start to think about them in advance of the meeting. The Board does not need to go through a line by line review of the financial and operational results in the meeting. But the CEO or Chairman should ask the Board if there are any questions on the numbers and time should be set aside in the event that the Board would like to have a discussion of the operating results.

The second technique I like a lot is when the CEO puts up a list of the three or four things that are "keeping me up at night" at the start of each meeting. This can be a way of teeing up the discussion items for the meeting. Or it can just be a way for the Board to get into the mind of the CEO quickly. The best way that I've seen this done is the "keeping me up at night" slide shows the items that were on the slide the prior meeting and the items that are on the list currently. That shows what things have been "resolved" in the time since the last meeting, those things that have not been resolved, and the new things that have popped up.

Possibly the most important technique I've observed over the years is the executive session at the end of the meeting. This is when the Board meets without the CEO and team in the room and has a discussion of the meeting and what the key takeaways are. The executive session can be five minutes or it can be a half hour. Sometimes there is very little to discuss in executive session. Sometimes there is a lot. After the executive session ends, the CEO should either be invited back to have a debrief on the executive session or the Chairman of the Board should meet with the CEO to debrief on the executive session. This is an opportunity for the Board to provide feedback to the CEO on the business, the team, and performance, and the strategy. Boards should not miss this opportunity to provide feedback and CEOs should demand it of them.

In summary, Board meetings should not be operational reporting sessions with information flowing one way. They should not be for the benefit of the Board. They should be for the benefit of the CEO and the senior team. I've always loved the idea of a "kitchen cabinet" and to me that is what a great Board meeting should feel like. The Board should be a set of experienced, engaged, and helpful advisors and Board meetings should be a place and a time for that group to provide the most help and assitance they can. It is the CEO and Chairman's job to make sure that happens and it happens on a regular basis.

#MBA Mondays

Je change de langue

A partir d'aujourd'hui, j'écrirai AVC en français.

L'apprentissage des langues est une nouvelle passion que j'ai découverte, et je commence avec le français. Une fois que j'aurai maîtrisé le français, je passerai à l'espagnol, puis je m'attèlerai à des langues asiatiques comme le japonais et le mandarin.

Ca m'aidera à apprendre les langues étrangères et ça devrait vous aider aussi. Parce que vous devrez bien apprendre ces langues si vous voulez lire AVC à l'avenir. 

S'il-vous-plaît, rédigez tous vos commentaires dans la langue du billet. Pas de triche.

#Weblogs