Any Ethiopian readers?
Random question, but I have received e-mails from readers across the word. I’m going to be in Addis Ababa later this week and was wondering if I had any readers there. You can e-mail me here
November 27, 2006· 1 min read
Some follow up to “When should you sell your business?”
There was a lot of traffic on my recent post on the best time to sell your business (comments link here), including a few points that I wanted to highlight. Chris Zook sent me a graph with the following note that I think sums up the underlying driver of what I was describing in that post. Company_value_spikefocusing more on the idea that while companies generally increase in value as they grow in size/revenue/customers (per your chart), there is often a period of accelerated value that diverges from the standard trajectory as a function of “s__trategic value perception” or “buzz” about a specific segment or product. The thought being that a given company would optimally want to s__ell at or around the peak of the buzz period, as it would take them some time to get to a point where they could realize the same value after the buzz wears off. I’ve always thought this effect is particularly evident in acquisition activity within certain technology segments where a few dominant players are in a continuous battle to stay on top with the next new thing – thinking not only in relation to GYM but also security software (Symantec, McAfee, Computer Associates) or networking (Cisco, Juniper, Nortel). Always tend to see those companies scrambling for the same new technologies, and thus bidding up the other remaining technology providers, which tends to increase th__e value of public and private offerings for the rest… at least for a time. function of a normalized value curve (perhaps it looks more like a I agree, although I think that this is a cycle that repeats itself over time (i.e., there are several times in a company’s life where their perceived value accelerates away from some more linear stair step, but generally runs in the up and right direction for businesses that are executing reasonably well). Sometimes this acceleration is driven by external factors (i.e., buzz around Web2.0 technologies), sometimes its driven by internal factors (i.e., technical validation of a product, signing of certain new customers, etc.). If you’re a seller, the key of course is to try to figure out how to create that buzz around your company (Brad refers to this as ‘becoming a bright shiny object’) either with a specific partner or more broadly in a market such that potential buyers see you as unique, scarce, critical to some aspect of their business, likely to be bought by someone they don’t want to own you, etc. In this way you can accelerate your deviation from the normal slope and sell for maximum value. Along a similar thought process, Nate Redman pointed out in an email exchange that: as a company moves from proof of technology to proof of business, valuation metrics shift from “strategic value” (which equates to an internal business case and defensive maneuver) to more classic multiples. In between is no-man’s-land. The other piece to this, of course, is the buy-side. $25-50MM is an amount that can be initiated, if not approved, by business units. Once you close in on $100MM and above, the CEO/Board and staff get involved; even Wall Street takes a critical eye. …
January 25, 2006· 4 min read
Here’s how you do it
I got a great postcard today from Ben Casnocha. It said: Yay, summer has come Business, reading, deep thinking Time to change the world I LIKE YOU! Ben understands networking. He’s thoughtful. He posts comments to blogs that are relevant and interesting. He sends private e-mails in response to things he reads. He forwards articles of interest that are targeted to the people he interacts with. He clearly thinks networking is a priority and does it well. …
June 13, 2005· 1 min read
21
I was talking to a friend of mine recently who was telling me about the weekly meeting that he used to have with his boss in which he was asked to talk about his top 21 priorities. 21 priorities – seriously. Talk about getting defocused. . . .
April 12, 2005· 1 min read
Now I’m Really ‘Burned’
I’ve posted a few times about my desire for better users stats (most recently on April 1st but also way back in January). Well – now I’m doing something about it. FeedBurner announced today the closing of a new investment lead by Mobius (yours truly and Brad Feld – Brad will take the board seat and I will be the board observer), with new investor Sutter Hill and existing investors Portage and DFJ. …
April 4, 2005· 2 min read
Quova and geo-location in the news.
I’ve written a couple of posts in the past 2 months on the power of location (read them here and here). Quova – the leading player in the geo-location space – has had a couple of articles published about them in the past week that I wanted to pass along. I particularly like the article about how MLB is using the technology (not because it describes the origin of the Quova name – which I’m embarrassed to say that I never knew – but because it speaks to ways that companies are using geo-location information to create new and significant sources of revenue). …
March 22, 2005· 2 min read
The commonly confused words test
I thought I should post this after making such a stink about data being plural and all. Here’s a link to a little word test for those of you (like me) who are interested in seeing if you really have a clue about these things (turns out I have only a partial clue – I scored 93% on each of the beginner and intermediate, 100% on advanced and a paltry 66% on expert). …
March 15, 2005· 1 min read
eWork/Prosavvy Merger
One of the companies that I work with closely, ProSavvy, announced this week that it merged with eWork (the combined company will keep the eWork name). The merger creates perhaps the largest private company in the workforce management/services procurement/payroll services business. As part of the merger, Mobius led a new round of financing into the combined business. You can read the press release here. In layman terms, the combined business offers products that allow businesses to manage various aspects of procuring, managing and payrolling temporary employees (contract laborers) and what are called fixed project deliverables (consulting projects). The combined business has three main products: eWork Enterprise – a enterprise software platform for managing contract work (whether that be contract labor, consultants, etc.) eWork Markets – a platform for procuring contract labor with a bunch of tools for managing that process (whether it be a formal RFP, which the platform can guide a business through or a less formal requirements process) eWork Services – outsourced payroll and HR services This deal makes sense for a bunch of reasons. We’ve been investors in ProSavvy for over 5 years (along with Park Corporation and Pequot). It’s been an interesting road to get here as the business has done a great job of lasting through the tech bust and emerging on the other side. About 3 years ago the company started focusing more on its marketplace (the on-line market it created where companies can request consulting services and member consultants can bid on these projects) and less on delivering an installed software platform. We were finding at the time that companies that were interested in the product as software were starting their software initiatives by controlling their contract labor spend (temporary workers), rather than their fixed project deliverable spending (consultants). They wanted to manage the latter, but doing so with installed software was taking a back seat to contract labor. So, ProSavvy focused on refining its service and the tools that it built around procuring and managing consultants and built its network of consultants. We’ve had the view for a while that the markets for fixed project deliverable procurement and contract labor procurement were going to converge – fundamentally we’re talking about a very similar problem to manage. Companies started coming to this conclusion as well as more and more RFPs in the space were asking for a combined solution. ProSavvy found itself being asked to team up with companies that provided contingent labor software in bidding on these contracts – and they did so with a number of the firms in the contingent labor software world. Eventually it became clear that the company would benefit greatly from being a part of one of these businesses, rather than positioning itself as an add-on to their solutions (or them as an add-on to ours). Enter conversations with eWork and, several months of work and you have the merger that was just announced. I’m pretty excited about the prospects for the combined business. Certainly there has been a lot of money that has gone into this space and a number of large VCs have made pretty decent bets on companies that compete with eWork (venture-backed companies in the space include eLance; IQ Navigator and FieldGlass). Ultimately I think eWork will benefit from competition in this market – these firms are all hungry, well run and have good product offerings. I think the addition of the ProSavvy marketplace to the eWork product offering brings something different to the mix that will help eWork stay ahead of the competition. On a personal note, while this isn’t an exit (we didn’t cash out in the deal), I’m satisfied to see the hard work that we’ve put into ProSavvy over the past years pay off in the form of a company changing event. The new business is in the capablehands of Hans Bukow,who is the eWork founder and CEO. Thisis a project that I’m going to stay close to – I’m joining the board of thecompany – and look forward to reporting to you on their future success.
January 27, 2005· 4 min read
Finishing what you start
One thing I’ve noticed since I started blogging is that starting a blog entry is a lot easier than finishing it. There are plenty of things to write about and I find it pretty easy to start a new blog (I usually do this in my head first and try to think it through before committing it to paper). It’s a lot harder to finish them, however. My blog draft file is full of ½ completed blogs that are waiting for me to finish up. I’ve been thinking about this a bunch recently and trying to figure out if this is specific to blogging (or any forming of putting thoughts to paper) or if it is just a part of the human condition – something that we generally don’t notice since we’re not often presenting our ideas in an organized format (or without getting immediate feedback). After considering this for a while and thinking about it as I sat through meetings and talked with people in the past weeks, I think that the answer is that this is not something that is specific to blogging at all. Humans as a general rule are pretty good about coming up with ideas, but pretty poor at thinking them all the way through. This isn’t necessarily a bad thing– feedback from others on partial ideas often helps us think them all the way through. That said, I think I’m going to try to effort to better think through (from start to finish) what I say before I jumpin with an idea.
January 23, 2005· 2 min read
Venture Capital Deal Algebra
I’m intending this blog to be a mixture of my personal thoughts on being a venture capitalist (and my travels through the maze of the VC world); thoughts on life more generally; and what I’ll call VC 101 tips and pointers. One of the things I’ve noticed (and this is something that I’m happy to say the TypePad statistics really do a nice job of, my rant about them last week aside . . .) is that my VC 101 posts get a lot of traffic (and cross-posting/track-backs that drive this traffic). The impetus for my starting this blog was to capture my personal thoughts on being a VC, however I want to be sure I mix up my content to attract a broader array of readers. So, I’m going to keep up with the VC 101 posts, since it seems like there’s a segment of people who read my blog that sincerely appreciate an insiders view on the mechanics of venture capital. Today’s post is on deal algebra. Basically it’s a run-down of deal valuation terms. When you live in the VC world and use these concepts regularly, you sometimes forget that they are not necessarily obvious in their meaning (which can lead to confusion down the road; not good when you are embarking on a new venture with an entrepreneur). We noticed this a few years back, and as part of a larger effort to gather information that would be helpful to our portfolio companies Dave Jilk created this summary of key VC deal terminology that we sent around to a bunch of our CEOs and other people we work with (note: I’ve made some edits to Dave’s original work mostly for length). VC Deal Terms: In a venture capital investment, the terminology and mathematics can seem confusing at first, particularly given that investors are able to calculate the relevant numbers in their heads. The concepts are actually not complicated, and with a few simple algebraic tips you will be able to do the math in your head as well. The essence of a venture capital transaction is that the investor puts cash in a company in return for newly-issued shares in the company. The state of affairs immediately prior to theinvestment is referred to as “pre-money,” and immediately after the transaction “post-money.” The value of the whole company before the transaction, called the “pre-money valuation” (and is similar to a market capitalization). This is just the share price times the number of shares outstanding before the transaction: Pre-money Valuation = Share Price * Pre-money Shares The total amount invested is just the share price times the number of shares purchased: Investment = Share Price * Shares Issued Unlike when you buy publicly traded shares, however, the shares purchased in a venture capital investment are new shares, leading to a change in the number of shares outstanding: Post-money Shares = Pre-money Shares + Shares Issued And because the only immediate effect of the transaction on the value of the company is to increase the amount of cash it has, the valuation after the transaction is just increased by the amount of that cash: Post-money Valuation = Pre-money Valuation + Investment The portion of the company owned by the investors after the deal will just be the number of shares they purchased divided by the total shares outstanding: Fraction Owned = Shares Issued /Post-money Shares Using some simple algebra (substitute from the earlier equations), we find out that there is another way to view this:Fraction Owned = Investment / Post-money Valuation= Investment / (Pre-money Valuation + Investment) So when an investor proposes an investment of $2 million at $3 million “pre” (short for pre-money valuation), this means that the investors will own 40% of the company after the transaction: …
January 20, 2005· 5 min read