For every foursquare there are a dozen wesabes.
Do you have a net worth of $1 million?
Some of you probably do and some of you probably don’t, but I bet that most if not all of you think you are sophisticated enough to invest in startups. Unfortunately for those of you who don’t meet that standard or any of the other accredited investor exemptions promulgated by the Securities Act, most startups won’t take your money. This post is not about whether startups should take money from non-accreds as there are ample posts on that, see here, here and here. This post is about what the “accredited investor” standard should be. As it stands approximately 8.5% of the US population is estimated to be accredited. Recently congress thought about raising the bar which would have resulted in just over 1% of the population meeting that standard. Luckily they got wise and took that provision out. I, for one, think we should expand the definition. That being said, I agree with the public policy behind the existing legislation: we don’t want people putting money in illiquid securities who might need that money (ever) and it is easiest to determine who can take the risk using a bright line test. So what might an expanded definition look like? I would suggest exempting family members who often invest anyways and intimately know the individual actors and holders of certain professional degrees or accreditation (i.e. JDs, CPAs, CFAs) who understand the risks. If companies like SecondMarket are successful in creating liquidity for private company stock, it would strengthen the argument to expand the definition, and any expansion would greatly help the startup ecosystem.
I recently closed an M&A transaction for some close Kinkaid friends: Mark Schmulen and David Lyman. Nirav Batavia was also on the team. It was rewarding in a lot of ways, as it was great working with friends and helping them achieve a significant milestone in their careers. Financial terms were not disclosed but it was a big win for everyone, which always makes it more enjoyable. A few lessons from the legal side of things:
*The deal must get closed, remember this above all else.
*Give where it is easy to give - don’t posture unless you have leverage.
*That being said, fight for what is important.
*”You’re unlikely to walk into an M&A conference room where everyone is brandishing a copy of Getting to Yes and gushing about shared interests” - James Freund
*It takes a lot of work (read: man-hours as well as expertise) to close a transaction like this; make sure you have adequate resources. Small firms/practice groups simply do not have the resources to efficiently and effectively lead a deal of this nature.
*A drawn-out LOI negotiation does not necessarily mean that there will be less friction when negotiating the definitive transaction documents.
*Set realistic expectations and as the facts change, make sure the expectations change as well.
*Their [tax, benefits, IP, etc.] problem is your deal problem.
*Remember that the parties have to work together following the transaction; if someone needs to be the “bad guy”, it should be the lawyers, not the business folks.
What’s a ‘fan’ really worth?
A social branding firm in Atlanta says $3.60 based on the following formula:
1M impressions x 2 posts x 30 days = 60M impressions
60M impressions / 1000 x $5 CPM = $300,000
Of course this will be debated ad nauseum in comments to blogs, including this one. In today’s marketing metrics driven environment it is important to determine the value of your social media efforts. That being said, I think the value per fan depends much more on who the fan is than the number of fans (i.e. higher attribution for tastemakers, brand champions, etc.). There is a high standard of deviation from the mean.
Services such as Nutshell Mail (disclaimer: client) help bridge the gap between facebook fandom and actionable email newsletters. The key to deriving value through social media efforts is converting fans to sales or at least in-network product recommendations. Note that the terminology is changing, with “becoming a fan” becoming “like”.
I recently had the opportunity to meet the CEO of Maker’s Mark, Bill Samuels, at a hosted lunch at Frank, where he gave us an advance preview of his newest, and ONLY Maker’s spin-off, Maker’s Mark 46.
Prior to taking the helm of the family business 30 years ago, Bill went to law school and got his masters in physics. After a misadventure in rocket science resulted in him blowing up his boss’s office, Bill returned to Kentucky and has done everything not to “f*ck up his old man’s invention”, as he so eloquently put it.
Bill has held up his end of the bargain and has built Maker’s Mark into a billion dollar business, but he wanted to improve on the family recipe and leave his mark. In a nod to one of my favorite movies - the Goonies - “Their time! Up there! Down here, it’s our time. It’s our time down here.”
After brainstorming with the master distiller, he has successfully taken the alcohol notes out of the original recipe through an advance in wood treating technology, and the result is spectacular. The new Maker’s 46 is the most drinkable whiskey I have ever tasted, and it will be available in stores late this summer. An interesting tidbit: no business or marketing folks were brought into the development of the product. Bill credits this fact to the success of the product. When they get their hands on it, I don’t think they will have a hard time selling it.
Let’s Build Something of Value
We all know its getting cheaper to build a startup. Events such as 3 Day Startup, Startup Weekend and the Startup Bus, which spun out startups on its way from the Valley to Austin for SXSWi, have shown that startups can be built in very little time. One even got acquired this week. However, as Om Malik argues it takes time to build something of value. I had lunch with a luminary this week and he said he spends 5 years researching a market before he goes after it. Two of his successes, Bookstop (acquired by Barnes & Noble) and Hoover’s (IPO’d then acquired by Dun & Bradstreet) live on to this day.
Like Gary Hoover, I want to build something of value, and I want your help. I have the luxury of getting a window into where venture dollars are going and have compiled a non-exhaustive list of trends I find interesting. Please help me vet them and perhaps we can find some opportunities that we determine are big enough for us to tackle. I encourage you to reply to this post and share your thoughts. These are just a few to chew on…
- What we do on our hardware will be processed and stored somewhere else.This is already happening in a big way, but its just the tip of the iceberg. There are many opportunities in the “cloud”, with virtualization, data storage and scalability.
- Bringing off-line excess capacity and inventory online. Startups are nipping at eBay’s heels in almost every vertical, such as: uship (transportation), sparefoot (storage), kayak (travel), and gilt (luxury clothing). There are many more opportunities here. We have been looking at something in the jewelry space for almost a year.
- Making sense of the long tail. When I first heard Chris Anderson speak about this in Austin a few years ago, I recall thinking “that makes sense”. It did and it still does. There are huge opportunities in helping us find apps, music, movies, books, and blogs for us to consume. This is moving past recommendations and towards automated curation. Think about waking up and finding a personalized newspaper on your doorstep (in your inbox), organized by relevance, time and every other relevant ascertainable factor. As my friend, Mark Schmulen said at the Bizspark Accelerator Finals, “its about right time, not just real time.”
- Leveraging the wisdom of crowds. Aardvark, Gurustorms and others understand that people can be the product. How can we profit from the democratization of knowledge and communication? What are the implications of Chatroulette? Think about opportunities offshore.
- Healthcare and the Aging U.S. Population. We will probably have a new healthcare policy made into legislation today. Without knowing much about it, I do know there will be a lot of money to be made exploiting it.
The GP of Andreessen Horowitz simplifies startup success:
- Find the product that 1,000 enterprise or 50 million consumers want to buy and grab those customers before your competitors do.
- Raise enough cash and spend it intelligently so that you don’t go broke along the way.
His thesis is that the goal isn’t to be ramen profitable and it doesn’t matter if you blow your VC cash (see Maples’ Law), so long as you have the resources you need to execute on your strategy. If you don’t, you’re toast. This is along the lines of what Brett Hurt has said - “know when to put the pedal to the metal”.
- If you are a high-tech start-up, your value is in your intellectual property. Don’t stare at your spreadsheets so long that you get confused about that.
- You cannot save your way to winning the market.
- The best companies can raise money even in this market. If you are one of those, you should consider raising enough to wipe out your competition.
How Will We Read?
According to Homer, first you get the sugar then you get the power. He may be right, but as we also learned from PSAs during Reading Rainbow commercials - knowledge is power.
I still get the print edition of the WSJ which is like a morning stroll through the news. The editors hold your hand and guide you. I like that and it’s well worth the hard earned dollars I spend on it. That being said, google reader is changing the way I consume information. I can get hundreds of knowls (not Beyonce) in bite size pieces, but can also choose what to read and digest. However, like any buffet one can over-eat.
I hope google or another startup will help curate our google reader by auto populating stories useful to us based on our social profiles. That’s a story I’d like to read.
Wisdom from Warren Buffett (as heard first hand and edited by @mbaconsultant):
Leadership: Happiness and good habits breed the same in others. People want to follow charitable, helpful leaders who give credit to others.
Investing: Invest in a business that an idiot could run and the owners are passionate about.
Marketing: Winning share of mind leads to winning share of dollar.
Business Ethics (“the newspaper test”): Make sure you’d be proud for you family to read anything that you’ve done that gets reported on the front page of the paper
America: Ingenuity, ambition and innovation have not died and make the country sure to succeed.
Happiness: Success is getting what you want. Happiness is wanting what you get.
Yesterday I had the pleasure of joining @joshdilworth, @mickmillsap, @eugeneaustin, @bmenell, @jeffdachis, among few lucky others, in attending Austin’s first TEDx conference. Although there was a “no tweet” policy, McCombs sponsored a live stream of the event for all to see and hear. The speakers and performers remained a mystery until the day of the event which made some nervous, but was exciting to me. When was the last time you went into something not knowing what to expect? In the end, all were impressive and some were great.
The Greats:
Doug Ulman - I had the pleasure of meeting Doug recently, who gave me and a small group of ADLers a tour of Livestrong HQ. Doug is incredibly passionate and is doing amazing things for those battling cancer. Although TEDxATX’s theme was “Play Big”, Doug impressed on us that small is the new big. I was shocked by one thing that he said, which was that there will not be a cure for cancer; however, if we all give, we will all profit. “Non-profit” is a misnomer.
Steve Tomlinson - Steve, a professor at Acton MBA, told us to not discard our passions. The only thing we should discard is the traditional notion of a career. We don’t need one, we just need a calling, which is where a passion meets a need. Lead with what you love and don’t blink.
Richard Garriott - He’s been to space. He is one of only 7 private citizens who can say that, and the other 6 are Russian oligarchs. His father was also an astronaut, making him the only second generation space traveler in history. He was probably the biggest “rock star” at the event and is a true visionary. His speech can be summed up with one phrase - it’s not rocket science anymore. Start planning your vacation…to space.
The Best of the Rest:
Rip Esselstyn preached a plant-based diet and informed us that only 12% of the average American’s diet is plant-based, and half that is french fries!
Chris Shipley told us to forget about the Fortune 100 and think about the Fortune 500,000. The next great innovations will come from that group.
Janet Maykus, a theologist, asked us to play big by listening to the people in our lives. She said the average number of friends has decreased from 3 to 2. facebook friends are presumably not factored in to that research…
Mark Rolston asked us if we’d trade an eye for a computerized one, like the Terminator. He said social norms are changing and that we will eventually interact seamlessly with technology, a la Minority Report.
John Pointer - Hopefully they will post a video of his performance at TEDx, because it was amazing.
