Socializing

Readers of this blog know I preach simplicity. Some of the great companies I work with (popscreen, infochimps, prefinery and nutshellmail to name a few) have developed sophisticated solutions with intuitive and attractive UIs. Their special sauce is not necessarily the underlying technology (though some have filed provisionals and/or patent applications) but rather their “human” approach to resolving real pain points.

With the amazing speed at which the world is a changin’, there is a great need to streamline information.

Very soon I’m going to put my money where my mouth is. Stay tuned and follow us on twitter @2taps, a little web app I’m developing for fun with Jordan Rex.

TheFunded “Standard” Term Sheet

There has been a lot of blog chatter about TheFunded’s form term sheet, including here, here and here. The sentiment from VCs has been generally positive with some saying that a return to balance for founders has been a long time coming. The WSJ queried whether VCs would put their money where their mouths are. I would be interested in your opinion. I think the term sheet makes too many assumptions and is unlikely to be used as a form.

I wonder what the standard startup looks like that would receive this term sheet as its currently drafted? In my admittedly limited experience (having worked on 20 or so venture financings), I just can’t imagine a VC saying, “we want to invest in this standard startup, let’s use TheFunded form term sheet”. That’s just not how it works. A term sheet consists of many levers, or terms, used to satisfy an investor’s risk/reward investing requirements. For instance, if the company is asking for a valuation that an investor perceives as high, maybe they give and make up the risk with a greater liquidation preference. The point being, these deals aren’t standard.

Some comments on the term sheet: Why did they include registration rights? It is unlikely those will come into play, and for a “simple” seed term sheet, seem superfluous. The net-net is most founders would be happy to receive a term sheet with a 1x non-participating preference and full acceleration upon a change of control while maintaining board control, too bad few are going to receive one.

Y Combinator’s RFP for Startups Cleverly Called ‘RFS’

Drop what you are doing and start thinking about how to fix the broken journalism model. That’s essentially what Y Combinator is asking startups to do. I hope they fund a micropayment startup or something of that nature and not a crowdsourced journalism concept. The most disturbing part of the RFP is the following request: Groups applying to work on this idea should include at least one writer who can write well and rapidly about any topic. Why not leave the writing aspect to professional journalists? The problem is certainly not the writing, but the monetization aspect. I hope they are not searching for a solution to a problem that doesn’t exist.

Facebook/friendfeed Thoughts

I haven’t been able to get my hands on the purchase agreement but the WSJ reported the $50m purchase price was $15m in cash and the rest in equity installments that vest over time. This is a similar mix to what was offered to Twitter earlier this year. Twitter rejected Facebook’s advances because they didnt want a bunch of illiquid securities they would have to pay taxes on.

If the equity installments are tied to friendfeed’s founders and other employees continued employment with Facebook, then the stock might be taxable as compensation income (although the individual’s basis would carry over subject to Section 83) as opposed to installment payments for the assets. If that’s the case I imagine the $15m in cash was to cash out the VC (Benchmark) and pay the taxes.

Please write in the comments if you have seen any of these details posted somewhere. This doesn’t seem like the most tax efficient structure if the assets of friendfeed were capital assets held longer than a year.

UPDATE 8/14

VentureBeat is reporting that the deal was for $47.5m and that Benchmark took stock in the deal. That lends some support that the cash might have been to pay taxes.

Teens Don’t Tweet

The *groundbreaking* report released by Morgan Stanley this week highlighting teenagers’ use of technology was actually pretty predictable. Teens don’t tweet or read the newspaper. Yawn. I am often told by my colleagues that I’m the only person they know who still gets a paper (the WSJ), so its not surprising that younger generations get their news online (if they even read it at all). Also, most articles I’ve read have quoted the following from the report, “Teenagers don’t use Twitter [because] they realize that their ‘tweets’ are pointless as no one is viewing their profile.” Nobody is viewing their profiles because they are probably tweeting about inane things that nobody cares to read, but the critical and overlooked point is that teens don’t tweet because anyone can view them! The reason they use Facebook is because of the privacy settings and controls, which they can use to limit what their parents, teachers, etc. can see. Twitter is an open community and thus not attractive to teens who want privacy. Twitter can of course add more advanced privacy settings (which I imagine they will) but the value proposition is in their open searchable community.

“The Shack” Finds a Way to Stay Relevant

After 88 years Radio Shack is losing the *Radio*. Most of the blogs covering the rebranding have decried it (see TechCrunch’s piece titled “Why? Why!?”). I am somewhat agnostic as to the change, though I think its funny they are taking a page from Yum Brands’ Pizza Hut strategy (now just “The Hut”). Name changes are tough to pull off since you risk losing some brand awareness, but I believe The Shack has the potential to not only survive, but thrive. Fred Wilson posted today about how surprised he was to see a bunch of people using pay phones at the airport. The take away is the fact that most technologies live on well after TechCrunch has labeled them has-beens (you may recall FourSquare was the “Twitter Killer” at this year’s SXSW - Twitter has 50 million users, how many does FourSquare have??). Fred noted that technologies take a long time to die unless they are rendered completely useless like analog TVs. Guess who made a killing on the death of analog TVs? Radio Shack pulled in $70 million in Q1 and $50 million in Q2 in digital converter box sales. Not bad.

Harry at Technologizer somehow got the following placed prominently in the TC article: “Its stores are tiny by the standards of the past few decades of American retailing, and therefore can’t compete with the product selection at rivals. (The TV section at my nearest Costco is larger than my local RadioShack.)” Even though Idiocracy predicts the future of retailing is Costco, I don’t. You can get most items shipped. Its the convenience items that people will go to retailers for. Things like converter boxes (nobody is going to go a day without TV), cell phones (when you lose one, you need a new one) and the connectors and gadgets they are famous for (leaving on a trip to Asia tomorrow?). The Shack needs to bridge the gap between old and new technology, stay with their small store concept and carry electronic necessities. That’s a recipe for success even Lance Armstrong can get behind.

Sunday Thoughts

Social media startups are REITS: A REIT is a company dedicated to owning, and in most cases, operating income-producing real estate. Back in the early days of social sites, the only real estate being used to generate revenue was side bars and banner ads. In the ‘now’ economy it is important to think of your site like a mall operator. What spaces and subdomains might be available to license to other startups or retailers to add additional revenue streams. The sites that think like this will be much more attractive to investors and potential suitors.

Finding friends: Social sites should leverage Twitter, LinkedIn and Facebook APIs to permit users to find additional friends from those sites. Using Gmail (or AIM, or worse - Yahoo!) isn’t effective any more since more and more people are communicating and collaborating from social networking sites, not just email.

(Un)classes: (un)classes is a social site that looks to bring its users together in the real world. The site allows users to create and host classes on any subject matter which other users can then search, sign up for and attend. They can be free, or for a fee. Think local —> (un)classes should open up their API to how-to video sites to add a geo-specific revenue stream to instructors on those sites.

Tweet Your People Right

Whether or not you believe the whole is greater than the sum of its parts, when push comes to shove all that matters is an organization’s stars and cash cows. Cash cows, however, can become obsolete, whereas stars will always shine. The classic BCG Matrix as reproduced above (sans legend) provides guidance for organizations as to how to distribute their resources. The traditional approach is milk your cash cows and use the proceeds to fund stars and question marks. Question marks generally have great potential but are unproven. Once it becomes clear whether a question mark is a star or a dog (its bark was bigger than its bite), an organization should fund the stars and divest the dogs. Too many organizations keep their dogs when they should put them to sleep. This hogs resources which should be devoted to the stars.

The BCG matrix can be applied to any organization because resources are always limited. GE found out the hard way that if you hold on to your dogs it can poison your cash cows and take resources away from the stars which are critical to growth. This model can also be applied to professional services firms. Some individuals within such firms have more potential (to produce revenue) than others. The firm’s resources should therefore be more heavily weighted towards those individuals. The question marks (new hires, junior team members) should be given a long enough leash to sink or swim. Under-performers should be summarily terminated, cash cows (hard workers without the desire/ability to bring in new business) should be given just enough resources to continue producing, and stars should be given whatever they require to shine as they are the lifeblood of any organization.

Hat tip to AdvertisingAge, whose recent article titled How to Turn High-Profile Employees Into Brand Ambassadors hits on the point above. The article highlights Fortune 500 companies that are tapping into the personal brands of their most inspiring, effusive and public employees. In fact, rather than being viewed as renegade moonlighters, these individuals are being given the tools to drum up new business and build brand awareness. Here is one gem: “Hiring employees who have established personal brands will help companies immediately inherit value and relevance in a crowded market and may lead to quicker results in meeting growth objectives.” Another take-away is to tweet your people right and foster employee use of social networks to leverage both their individual brand and that of the organization.

A recent study found that the brands most engaged in social media are also experiencing higher financial success rates than their stone-age competitors. Remember, whether you like or not, individuals within your organization are brands in and of themselves. Think of your organization as a mutual fund holding a lot of individual employees. The higher the value of those individuals, the greater the value of the fund. Don’t let dogs dilute the value.

Are we living in a “FREE” economy?

I downloaded Chris Anderson’s “Free” (for free) but haven’t yet turned the first digital page. I look forward to reading Anderson’s thoughts on the future where prices are driven to zero as productivity increases and input prices decrease at an exponential rate. Anderson is testing his hypothesis by providing his new book, the hardback version of which will fetch upwards of $25, gratis through Amazon’s Kindle service. It will be interesting to see retail sales since it can be downloaded legally for free. Samples have always been an important marketing and sales tool, but Chris’s book is not a sample - its the full monty. Chris’s model is more akin to bands who play free concerts in order to sell records, paraphernalia, and tickets to future bookings. Chris can make just as much money or more from the free press (pun intended) garnered from such benevolence. For instance, I am sure sales of his *revolutionary* bestseller “The Long Tail” are going through the roof. Remember, however, that there is a huge chasm between free and $0.99 whereas additional price increases have less marginal effect on demand. Tapulous COO and co-founder Andrew Lacy said install rates for one of its free gaming apps dropped 95 percent overnight when the company started charging 99 cents for it. So if you are going try this tactic you have to go all the way, but make sure you have a monetization plan. If its free with no plan, you will not make any money. That won’t work now or in any future.

* As Amazon calls it in their editorial review of “Free”. They are trying to sell the bundle of “Free” and the “Long Tail” for $39.11 which is 5% off the retail prices of the two. I imagine the code just says where an author has multiple books for sale, bundle whatever item the user is viewing with the most similar or best selling item from the same author and knock 5% off. They clearly need to re-write the algorithm when one of the products is being given away for free.

“News is what somebody somewhere wants to suppress; all the rest is advertising.”

— Great quote from an unlikely source: Michael Arrington paraphrasing news baron Alfred Harmsworth. What is cleverly being referred to as “Twittergate” has been the subject of much blog chatter. After the most embarrassing of security breaches (Twitter’s password was “password”), Twitter’s confidential information leaked on the web. TechCrunch scooped the breach and got its hands on copies of the files. Relying on the first amendment, precedent and an alleged “green light” from Twitter, they published the files for the world to see. Good for network security professionals, not so good for Twitter. The files contained various meeting minutes, financial projections and some insight on Twitter’s strategy to remain a private company and its relationships with Facebook (viewed as threat), GOOG (viewed as suitor), and MSFT (viewed as irrelevant). Silicon Alley Insider summarizes the findings nicely here. Twitter’s legal threats are not helping from a PR perspective. Twitter has been the darling of the press for some time now (getting a lot of free advertising as Mr. Harmsworth would note), but they are finding out what the other side looks like, and it ain’t pretty.