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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Revenue vs. Income

Comments (76)

Put this in the pet peeve rant category. I’m tired of “Revenue” being referred to as “Income.”

Yes – I know Quickbooks defaults to “Income.” I know it’s technically correct when referring to “Income accounts” in a company’s “Chart of Accounts.” But it’s confusing, and it baffles me.

I spent a few minutes tonight trying to figure out the origin source of this but got bored. I did find a fun explanation in the source of all truth (Wikipedia).

Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms.

For households and individuals, income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received.

For firms, income generally refers to net-profit: what remains of revenue after expenses have been subtracted. 

I’ve decided this is a confusion being promulgated by Quickbooks. Since many first time entrepreneurs use Quickbooks before they learn basic accounting, they end up referring to “income” (instead of revenue) and “net income” as “income minus expenses.” Factually true, but confusing, especially when “net income” is often referred to by many as simply “income,” since those same people will refer to “income” as “revenue.”

Confusing? You bet. Whenever I ask “do you mean your bottom line or your revenue” I’m often surprised by which answer I get, including “I’m not sure what you mean.”

Help stop the madness. Call the thing at the top of the P&L “Revenue,” not “Income.”

Rant off.

Is There Anything I Didn’t Ask You That I Should Be Asking?

Comments (35)

Recently I’ve been on the receiving end of a bunch of due diligence calls. Some of them are for companies I’m involved in, some are for entrepreneurs I’ve worked with in the past, and some are for other VCs I’ve worked with who are raising new funds. I view these differently than reference calls (I won’t do reference calls for anyone) – these are not about “employment”, they are about investment and a long term working relationship.

I experience two types of due diligence calls: (1) confirmatory calls and (2) investigative calls. The confirmatory calls result when someone has clearly made their decision and is just checking the box of “I’ve made my due diligence calls.” The investigative calls tend to be much more substance – these often happen well before a decision has been made and someone is in exploratory mode.

In most cases there is either a script or standard set of questions. The interesting calls are the ones where the person on the other end clearly knows how to interview or uses a method like five whys to really get at the core of something they are interested in. I especially enjoy the ones where the person on the other end of the phone is actively developing a relationship with me, rather than just collecting data.

But on many of the calls, there is a weird question at the end. It goes something like “Is there anything I didn’t ask you that I should be asking?” For a while I used to try to be polite and engage with the question. But at some point I realized it was a stupid question that someone included on a “how to do due diligence” form from 1961. So now I answer it simply with “nope.”

Here’s why I think it’s a stupid question. You are calling me for diligence on someone. Presumably you have specific things you are interested in. You’ve either done research on our previous relationship or you want me to fill you in on that. You then use this to pursue whatever line of questioning you have. If you are inquisitive and capable of reasoning, my answers will open up more questions. Eventually you will have enough information or will have reached a conclusion. If I’ve been doing my job I’ve been concentrating on answering your questions, not trying to follow your path of inquiry.

Now, while we are at the end of the inquiry, you ask me an open ended question in search of something magical. Maybe I’ll finally tell you the deep, dark, negative secret about the person that I’ve been withholding. Or I’ll come up with some incredible insight about the person that hadn’t come out in your previous line of questioning. I suppose this happens occasionally, and maybe it’s worth asking the question just on the off chance that something yummy will pop out. But I just find this an annoying way to end the conversion, so my answer from here on out is “nope.”

How Not To Start A Relationship

Comments (36)

In the last month I’ve had the chance to make about 50 new friends. I’ve suddenly become very popular with investment bankers and have been on the receiving end of over 50 emails that look something like the following:

“We met once a long time ago when I was with firm X. I’m now at firm Y. We are the blah blah blah best at blah blah most successful blah blah tied into blah blah working with blah blah blah connected with blah blah blah. Congrats on all the success at Company W. We are very interested in talking to them about blah blah strategic blah blah – can you introduce us to high-profile-CEO.”

At first I felt compelled to respond as part of my “answer every email and try to at least be polite / responsive to everyone” approach to life. After a few days, I started getting annoyed when I realized I was simply viewed as a conduit to an introduction. When I saw a few similar emails to my co-investors in at least one company, I realized that there was a complete lack of sincerity in many of these emails – it was no different than a random salesman emailing me asking if I wanted to buy a random widget.

Now, I have several good friends who are investment bankers and we have a handful of trusted ibanking relationships and folks who are our go-to ibankers. These are people who have developed a long standing relationship with me and my partners, have worked with us in good times and bad, and have always been reasonable and thoughtful about their fees, especially in situations that didn’t work out.

It amazes me that 50+ people could suddenly come out of the woodwork in an effort to “build a new relationship that’s not really a relationship” thinking it would give them an opportunity, or even an advantage, in the context of a set of hot companies.

When I think about the relationships I’ve developed, whether it be with investment bankers, LPs, co-investors, or anyone else, they evolve over a period of time. They don’t require boondoggles or fancy things; they require sincerity and substantive interaction over a long period of time. Then, when there are moments of opportunity, these are the people that I go to (and hopefully who come to me.)

There suddenly seem to be an abundance of “transaction relationships” out there. Entrepreneurs beware.

The Quora For X

Comments (23)

Suddenly the VC/entrepreneur meme for Q1-2011 is “The Quora for X.” Here are two examples from the past few days:

Lest you think this is a TechCrunch phenomenon, I’ve received a half dozen emails in the last week pitching companies as “Quora for X” or some derivative of this (often “The Quora for X”). Of course, Joshua Schachter very cleverly suggested last night via Twitter that we create the “Quora for XXX“. Given the presence of PornoTube and YouPorn in our universe, I expect some clever porn purveyor will quickly figure this one out.

This meme goes around regularly. Here are a few built off of success cases (which bodes well for Quora if you view meme development as a leading indicator of success. “The Youtube for X”, “The Facebook for X”, “The MySpace for X” (oops), “The Google for X”, “The Twitter for X”, “The LinkedIn for X”, “The Groupon for X”, “The FourSquare for X”, and “The Zynga for X.”

You’ll probably infer that “X” in each case is a specific (often tightly defined) vertical market. Each of the companies listed above are arguably several of the very few companies that have actually established enough critical mass of users to declare themselves a true platform. The “X’s” presume that specialization in a vertical market will result in unique functionality that the general platform can’t create.

Ironically, this thought process runs directly counter to another massively overused entrepreneurial meme – “I’m creating a platform for X.” Think about it for a sec – are you creating a derivative of a platform that is vertically focused or is the vertically focused derivative of a platform that you are creating going to also be a platform?

Now, step back and think about how many huge companies have been created using “The BigSuccessfulStartupNowPlatform for X” approach? While modest companies emerge out of this (and there’s nothing wrong with that), there aren’t very many really significant companies that emerge. The platforms – if they are real platforms – usually either extend into the vertical segments nicely or quickly acquire “The BSSNP for X”.

As an investor, I’m not really interested in any of the verticals that are derivatives of platforms. Other than a few specific cases, where we actually believe a platform company can be created, we stay away from vertical markets. And often, the driver of the decision is the entrepreneur and his obsession with and experience in the particular vertical market in question.

I expect that we’ll see many “Quora’s for X” get created and talked about in the next quarter. If I was an investor in Quora, I’d be encouraging the team to be focused on expanding quickly into every vertical that appears which seems like it would be easy given their existing infrastructure. And if I was an entrepreneur, I’d already be looking past “The Quora for X” meme for what’s going to be next.

I’m Creating A Platform For Platforms Of Platforms

Comments (27)

I nominate “platform” for overused tech word of 2010.  Yeah, I whined about this a few months ago in my post Your Platform Is Not In My Space.

I hear the word “platform” in over 50% of the short pitches I get.  A friend of mine who is working on a new startup that isn’t even funded yet (and he’s grinding on the financing) described his goal of “creating a platform for a-phrase-that-only-73-early-adopters-will-userstand.)  Entrepreneurs everywhere describe the first release of their MVP (“minimum viable product” – for those of you that haven’t intersected with the Lean Startup movement) app as a “platform”.  The first three pages of a google search on “platform” are 33% tech, 33% politics, and 34% other.  At least Google image search is more accurate, for example:LEGO City 4210: Coast Guard Platform - View 4.jpeg

Ahem – give me a fucking break.  Yup – I get it – it’s great to be a platform.  I give you Facebook and Twitter as examples.  But real platforms are few and far between.  And creating “a platform” is not necessarily the right first move for your brand new consumer facing application.  Why don’t you start by being super useful to a bunch of consumers first.

I know I’ve been overusing the word “platform” lately – it’s like a weird brain infection that is hard to diagnose and then eliminate.  I’ve found it – now it’s time to remove it from my vocabulary.

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