Month: June 2005
I’ve been trying to figure out how to invest in Podcasting. I have a bunch of exposure to it via my investments in FeedBurner and NewsGator (hint – coming soon – maybe even this week). However, I don’t listen to Podcasts much because I’m a reader, I’ve never been a talk radio guy, and I couldn’t figure out when to listen to them.
Until recently, I was a running purist – no music on my runs (I found my iPod too bulky and I thought I should just enjoy nature.) Well – on a long run – after about an hour – I’ve had enough of nature, all the random thoughts have cycled through my brain, and I’m ready for some music (or talk radio). So – I’ve started running with my iPod Shuffle recently (quickly becoming an indispensable running tool). I started with music, but figured I’d try listening to Podcasts to try to understand both the phenomenon and the dynamic.
I had a crossover moment today on my run while listening to Dick Costolo’s interview on Venture Voice (which is great BTW – I love working with Dick and this interview (part 1, part 2) is a great 40 minute investment for any entrepreneur.) I suddenly got why people listen to this stuff and realized that if I was bored, I could simply skip to the next, tune out for a while, or take my headphones out of my ear and just enjoy the run. So – I’m hooked – and will start listening to Podcasts while I work out.
I’ve been paying attention to the various areas that are being focused on by VCs, including creation, subscription, hosting, and search / discovery. I’m really struggling to see how it’s different from features that are quickly being rolled into other services, other than the nuances associated with dealing with audio (and video for vLogs) vs. text. We’ll see.
When Jason and I last wrote about term sheets, Jack was still trying to save the world (surprise – he did) and we dealt with a meaty and important issue – vesting. For completeness (and because all good “series” deserve to be finished off), we’re tackling the terms that rarely matter in the next couple of posts. Today we’re starting with Information Rights and Registration Rights.
You might ask, “If these terms rarely matter, why bother?” Well – you’ll end up having to deal with them in a VC term sheet, so you might as well (a) be exposed to them and (b) hear that they don’t matter much. Of course, from a VC perspective, “doesn’t matter much” means “Mr. Entrepreneur, please don’t pay much attention to these terms – just accept them as is.” Specifically, if one of these terms is being hotly negotiated by an investor or company, that time (and lawyer money) is most likely being wasted.
First up is Information Rights – the typical clause follows:
“Information Rights: So long as an Investor continues to hold shares of Series A Preferred or Common Stock issued upon conversion of the Series A Preferred, the Company shall deliver to the Investor the Company’s annual budget, as well as audited annual and unaudited quarterly financial statements. Furthermore, as soon as reasonably possible, the Company shall furnish a report to each Investor comparing each annual budget to such financial statements. Each Investor shall also be entitled to standard inspection and visitation rights. These provisions shall terminate upon a Qualified IPO.”
Information rights are generally something companies are stuck with in order to get investment capital. The only variation one sees is putting a threshold on the number of shares held (some finite number vs. “any”) for investors to continue to enjoy these rights.
Registration Rights are more tedious and tend to take up a page or more of the term sheet. The typical clause(s) follows:
“Registration Rights: Demand Rights: If Investors holding more than 50% of the outstanding shares of Series A Preferred, including Common Stock issued on conversion of Series A Preferred (“Registrable Securities”), or a lesser percentage if the anticipated aggregate offering price to the public is not less than $5,000,000, request that the Company file a Registration Statement, the Company will use its best efforts to cause such shares to be registered; provided, however, that the Company shall not be obligated to effect any such registration prior to the [third] anniversary of the Closing. The Company shall have the right to delay such registration under certain circumstances for one period not in excess of ninety (90) days in any twelve (12) month period.
The Company shall not be obligated to effect more than two (2) registrations under these demand right provisions, and shall not be obligated to effect a registration (i) during the one hundred eighty (180) day period commencing with the date of the Company’s initial public offering, or (ii) if it delivers notice to the holders of the Registrable Securities within thirty (30) days of any registration request of its intent to file a registration statement for such initial public offering within ninety (90) days.
Company Registration: The Investors shall be entitled to “piggy-back” registration rights on all registrations of the Company or on any demand registrations of any other investor subject to the right, however, of the Company and its underwriters to reduce the number of shares proposed to be registered pro rata in view of market conditions. If the Investors are so limited, however, no party shall sell shares in such registration other than the Company or the Investor, if any, invoking the demand registration. Unless the registration is with respect to the Company’s initial public offering, in no event shall the shares to be sold by the Investors be reduced below 30% of the total amount of securities included in the registration. No shareholder of the Company shall be granted piggyback registration rights which would reduce the number of shares includable by the holders of the Registrable Securities in such registration without the consent of the holders of at least a majority of the Registrable Securities.
S-3 Rights: Investors shall be entitled to unlimited demand registrations on Form S-3 (if available to the Company) so long as such registered offerings are not less than $1,000,000.
Expenses: The Company shall bear registration expenses (exclusive of underwriting discounts and commissions) of all such demands, piggy-backs, and S-3 registrations (including the expense of one special counsel of the selling shareholders not to exceed $25,000).
Transfer of Rights: The registration rights may be transferred to (i) any partner, member or retired partner or member or affiliated fund of any holder which is a partnership, (ii) any member or former member of any holder which is a limited liability company, (iii) any family member or trust for the benefit of any individual holder, or (iv) any transferee satisfies the criteria to be a Major Investor (as defined below); provided the Company is given written notice thereof.
Lock-Up Provision: Each Investor agrees that it will not sell its shares for a period to be specified by the managing underwriter (but not to exceed 180 days) following the effective date of the Company’s initial public offering; provided that all officers, directors, and other 1% shareholders are similarly bound. Such lock-up agreement shall provide that any discretionary waiver or termination of the restrictions of such agreements by the Company or representatives of underwriters shall apply to Major Investors, pro rata, based on the number of shares held.
Other Provisions: Other provisions shall be contained in the Investor Rights Agreement with respect to registration rights as are reasonable, including cross-indemnification, the period of time in which the Registration Statement shall be kept effective, and underwriting arrangements. The Company shall not require the opinion of Investor’s counsel before authorizing the transfer of stock or the removal of Rule 144 legends for routine sales under Rule 144 or for distribution to partners or members of Investors.”
Registration rights are also something the company will have to offer to investors. What is most interesting about this section is that lawyers seem genetically incapable of leaving this section untouched and always end up “negotiating something.” Perhaps because this provision is so long in length, they feel the need to keep their pens warm while reading. We find it humorous (so long as we aren’t the ones paying the legal fees), because in the end, the modifications are generally innocuous and besides, if you ever get to the point where registration rights come into play (e.g. an IPO), the investment bankers of the company are going to have a major hand in deciding how the deal is going to be structured, regardless of the contract the company entered into years before when it did an early private financing.
My traveling – which was pretty intense the past few months – has slowed down. Correspondingly, my reading has picked up again. Not surprisingly I’ve got a huge pile of books stacked up (and now in boxes about to be shipped to Alaska). I’ve read three great books in a row – all covering different things – that I thought I’d share with you.
First up is The Professor, The Banker, and the Suicide King. This is the incredible story of Andy Beal – a Texas billionaire (owner of Beal Bank) – who is obsessed with beating the best poker players in the world at their game. I’ve been playing a monthly-or-so Texas Hold’em tournament style game with some of my Colorado CEO/CTO friends for the past eighteen months. We shifted to tournament style because there was such a wide range in betting tolerances and – as a result – bluffing didn’t work (someone was always willing to toss in $X just to see what you had). Beal’s strategy was to shift the poker greats outside of their financial comfort zone which he did by upping the games ultimately to $100,000 – $200,000 Texas Hold’em where there was $40 million on the table. The book is extraordinarily well written and engrossing – about the characters involved, the actual games played, and the overall super-high-stakes poker scene. A must read if you are into the current poker craze.
Next was Coach by Michael Lewis. I’m a huge fan of Lewis – going all the way back to Liar’s Poker. Lewis has written a memoir that every dad on the planet should read (there – that was my ode to fathers’ day). This is a half book (you’ll be done in less then an hour) that tells the story of Lewis as a teenage boy learning life lessons from his high school based coach (Coach Fitz). Lewis ends with the simple message from Coach Fitz that “fear and failure are the two greatest enemies of a well lived life” – something every entrepreneur should keep in mind.
I just finished FAB tonight. Neil Gershenfeld is the director of MIT’s Center for Bits and Atoms. I’m a software guy, so anything that involved physical materials, a tool, or assembling anything mystifies me. Gershenfeld’s book helped me understand why I should think beyond software by using a simple analogy: The 1960 Mainframe is to the 2005 Personal Computer as the 2005 Automobile Plant is to the 20×0 Personal Fabricator. FAB is full of both examples and theory and Gershenfeld writes in an incredibly accessible way. CBA claims their vision is to get to the point of “literally creating things from ‘it to bit’” and this book gave my brain a shove in a new direction. Personal fabrication is the ultimate in user-driven innovation – big ideas explained in a way anyone can understand.
On my run this morning I was grooving to the Positively 10th Street podcast from the Wilson family. Josh and Emily were psyched it was summer, Josh was farting, and Fred and Emily started riffing on “School’s Out for the Summer.”
School’s actually on for me in the summer. Amy and I are about to head up to Alaska where I dramatically change my rhythm for a couple of months. I’m still working full time – probably more effective then usual – since I eliminate face to face meetings (especially the random ones), eliminate travel, and compress stuff down to things that matter. But – the pace changes.
As part of the change, I choose a few things to go “intellectually deep on.” I figure I get three hours a day back from all the friction of the normal work stuff (travel, random useless meetings, waiting for people, sitting through stupid things that you can’t easily get up and walk away from, lunch meetings just because someone forgot to say no – you get the picture.) So – I’m taking three “self-directed” classes this summer.
Class 1: Programming. I’m a pretty good programmer, but I haven’t done anything seriously in a long time (I like to say that I’m one of the world’s best BASIC programmers, but that would have been before Visual Basic. Wanna know about early versions of the Microsoft BASIC compiler and Btrieve (before Novell bought it) – email me.) So I’m going to start with Brian Harvey’s “Computer Science Logo Style 2/e, Vol. 1: Symbolic Computing” and then retake MIT’s 6.001 using MIT’s OpenCourseWare and the online version of Abelson and Sussman’s Structure and Interpretation of Computer Programs.
Class 2: Drawing. My mother is a fantastic artist and Amy and I have a large modern art collection. I can barely read my handwriting, let alone draw anything. I’m going to start with Betty Edward’s highly acclaimed The New Drawing on the Right Side of the Brain and see where it takes me.
Class 3: A New Kind of Science. I bought Stephen Wolfram’s book A New Kind of Science when it first came out and it sat on a table and stared intimidatingly at me all last summer. Every now and then I’d pick it up and read through a few of the end notes and look at the pictures. This summer, I’m going to tackle it in a systematic way, with plenty of help from the website and the NKS Explorer software.
So – in addition to everything else, school’s on this summer.
I love a good bathroom. When I look at office space, the bathroom is one of the first places I check out, as it can tell you all kinds of things about the place you are at. I’ve been trying for over five years to get a bathroom at MIT named after me in exchange for a financial donation (some people name buildings – my aspirations are much more (im)modest.)
- Felix Restaurant, Hong Kong
- Bar 89, New York
- College Hotel, Amsterdam
- John Michael Kohler Arts Centre, Sheboygan, Wis.
- Seattle Public Library
- 40/40, New York
- Grand Hyatt, Rappongi, Tokyo
- 3D Gold Store, Hong Kong
- Red Bar, Moscow
- Public loo, Rothesay, Isle of Bute, Scotland
I’ll be in Seattle next week so I expect a trip to the Seattle Public Library is in order.
We had high hopes for Bonded Sender when we acquired it from IronPort Systems in April of 2005. Now that we’ve had several months of experience with Bonded Sender, our expectations – based on what we are seeing – have been exceeded.
Return Path analyzed 100,000 email campaigns across clients who were accepted into the Bonded Sender Program while already using Return Path’s delivery monitoring services. The results over a 90 day period were very significant. Email deliverability rates increased on average by 20.6%. 250 million mailboxes are represented by the 35,000 domains (corporations, ISPs, colleges, and filtering packages) that use Bonded Sender as an email accreditation service (think of Fred’s EZ Pass metaphor – if you are a member of the Bonded Sender Program, 35,000 domains let your email pass through their spam filter).
While I’m spending a lot of time with RSS these days, we’ve also historically made a lot of email-related investments, including Email Publishing / MessageMedia (email service provider), Critical Path (email hosting), and Postini (email security / anti-spam / anti-virus service). Return Path continues in this investment thesis and – given both Fred and Matt’s awareness and understanding of both email and RSS – you can expect some nice email / RSS cross-over action as we continue on our quest to make email as effective and safe as possible.
I finally got around to reading Steve Jobs’ commencement address from earlier this week. It’s made the rounds on the Internet and lived up to the raving about how great it is – it’s must reading for any entrepreneur. Perfectly told stories, simple yet powerful messages, in a nicely consumable format.
Amy has a magnificent photo of her old Mercedes CLK55 on fire up on her blog. This apparently complements the thrill she got from driving 120 mph in my SL55 tonight on her way home. And – yes – Mercedes did the right thing and eventually replaced her car (that’s a long story for another time) and my car appeared to still be in one piece when she parked it in the driveway tonight.
The second time Greg Reinacker and I got together, we had a nice three hour dinner and covered a wide range of topics. One of them was that he loved to race cars. As we were heading back to my office from dinner to pick up his car, I tossed him my keys and said “have at it.” It was a spectacular Boulder early summer evening (80 degrees, zero humidity, clear sky, bright moon), we put the top down, and he took off on Highway 36. Within 10 seconds I grabbed onto my door handle and looked over at the speedometer – 130–something. I think I said something like “holy shit, Greg.” I vividly remember him turning his head slightly – as he kept his foot on the gas – and giving me an amazingly silly grin.
Note to self: Do NOT let Amy and Greg get in a car together.
A few days ago I posted about turning on the Pipelining feature in Firefox. In many cases, I’ve seen a dramatic performance improvement. However, now that I’ve been using it for a few days, I’ve run into some sites that it simply breaks, including the Wall Street Journal site.
One of my comments suggested that I try the Tweak Network Settings Firefox Extension. It’s great – it exposes the same options but also gives you and easy off button (“Default”) and on button (“Power”) through a menu option in the Tools menu within Firefox. Interestingly, when I used the “Power” settings (which are slightly different then the ones I had listed in the previous post), the Wall Street Journal site automagically works again.