Sorry – meant to have this one up a little more proximate to the actual event . . . You go to Gnomdex? Me neither.  I was bummed I missed it, so I spent some time rummaging around on Google and Technorati looking for some links.  Here’s a few that I found that, while they don’t replace the experience of attending in person, at least give you a little bit of the flavor.

Here’s the conference site. – http://gnomedex.com/

Here’s the conference update site (scroll down and track the action) – http://gnomedex.com/updates/ Here’s the conference blog roll (links to attendees who blog) – http://www.gnomedex.com/updates/2005-04.phtml

Here’s some photos put up by “laughing squid” – here and here.

Of course the big announcement at Gnomdex was Microsoft’s broad support in Longhorn for RSS. Nick Bradbury had a great review here.

I’ll see you there next year. <g>

Wouldn’t it be great if you could subscribe to the comments of certain blogs (or better yet, to certain posts) in your reader?  I’m going to add it to my wish list (we’re actively working through these sorts of ideas at both Newsgator and Feedburner).

I must have reached some kind of critical mass in my readership where I’m actually getting a reasonable number of comments and trackbacks to my posts.  It got me to look at the comments to some of the other blogs that I read (I rarely visit sites directly – rather I read them in Newsgator).  Turns out that there are great comments out there that I’m completely missing.  The solution for the moment is to click through on posts that I particularly like or think will be well commented to and see what’s posted, but wouldn’t it be great to be able to subscribe to these and read them directly in your reader.  In an ideal world you could subscribe to comments for only those posts that you care to see feedback on.  Yup – that would be pretty cool . . .

I recently asked my friend Daniel Benel if he’d consider contributing to my M&A series. Daniel was a banker with Lehman Brothers (in NY and Tel Aviv) an  is now a corporate development exec at Verint Systems (NASDAQ: VRNT). Despite having never bought one of my companies, he’s a great guy with a smart corporate development mind (rim shot). I thought he could add a corporate development perspective to the series. I’ll make sure he gets copies of any comments that get sent back, or feel free to reach him at the hyperlink attached to his name above.______________ Below are three topics on my mind related to acquisitions from a corporate development perspective (perhaps the beginning of a series): The Hockey Stick Projections – Hockey Stick Financial Projections did not die with the bubble’s burst. Perhaps they were put away in the back of the garage for a while alongside other unloved sporting equipment like that confusing lawn bowling set or the ambitious NordicTrack. Unfortunately, some mischievous banker found the darn things, had them shined up and sent out to technology companies near and far. It is more likely than not nowadays, when I receive a book from a banker selling a technology company, that the financial projections show jaw-dropping out-year growth. The most noted reason for the turbocharged numbers: The Market. The Market is hitting a “sweet spot,” or the company is in a sweet spot and the market is about to develop a sweet tooth. These saccharine solution sellers expect, of course, to be valued off of forward numbers. My common response to wild growth projections is to advise the company not to sell. If management of a selling company believes that they can accelerate growth dramatically over the next 12 months, why don’t they prove the business plan and come back to the merger market with a significantly higher value? At this point in a discussion some sellers choose to revise their outlook. Other sellers claim that the projections are based on “what the company can do on a pro forma basis,” that is, when combined with “your more significant resources.” (I’ll discuss that in the “We Don’t Pay for Synergies” section.) Companies whose sales are truly going to accelerate dramatically, and are selling for a defendable reason, need to back up projections early on with a real sales pipeline/backlog (not a Frost & Sullivan report). Sharing pipeline/backlog data will immediately trigger competitive concerns in the mind of the seller, which is fair and will be discussed further in the “Overboard Competitive Concerns” section. We Don’t Pay For Synergies – Often stated as an acquisition truism, but not always true. In general, it is synergy that motivates an acquirer’s interest in a given target to begin with and not something for which a buyer is willing to pay extra. Synergy is a value that the transaction itself generates and is not produced by a company on a standalone basis. Depending on the transaction, each side may lay philosophical claim to a greater share of this value, but this debate will not affect the standalone valuation an enterprise can demand and is usually a losing negotiation point anyway. That being said, the more synergy a given business combination offers to a buyer, the more that acquirer is able to pay for a business. While an acquirer may not admit to paying for synergies, in a competitive acquisition process, the acquirer with the most significant synergies (all things being equal) could write the bigger check. Sellers should negotiate accordingly with this knowledge in hand. Overboard Competitive Concerns – Acquisitions often occur between competitors. This is natural, particularly in early stage markets that are in a consolidation phase. It is important to recognize that the time it takes to sell a company is correlated to the speed of information sharing. I am not referring in this case to the relationship-building phase that can take months or years, but rather to the moment in a transaction when there is a meeting of the minds between seller and buyer and perhaps a non-bindingMemorandum of Understanding (or other term of art) in place. At this precarious juncture, just when you are tempted to think that some of the hard work has been done and you can put your Blackberry down for the night, sellers can become frozen with fear that all of their competitive secrets will be stolen during the diligence process and somehow abused. Sometimes this happens when they receive a buyer’s diligence request list and it is longer than the federal budget. Sellers must recognize early on that they will have to accept the risk of sharing sensitive competitive information with potential acquirers in order to get a deal done. Some data, though, may be deemed so sensitive that particular work arounds need be put in place in order to make diligence acceptable for both sides. Sometimes a two-stage approach to diligence (deferring highly sensitive material to when the deal feels more certain) can resolve concerns. In this case, it is important to first determine how critical a particular piece of sensitive data is to the buyer’s diligence process. It may be, for example, that the seller believes his source code is something that can’t be revealed to a buyer early in diligence and he therefore stymies a process, when in reality the acquirer might be far more interested upfront in a customer list than in source code (and would be willing to delay source code review to just before signing).

Sometimes competitive concerns kill a transaction, or at least slow it down to a degree that momentum is lost, which is a topic to be discussed in a subsequent post entitled: “Don’t Lose Momentum.”

Today is bike to work day in Boulder. I’ve been meaning to ride my bike into work for a while, so today seemed like a good day to start.

Here are a couple of observations from the road:

– Riding in is a fantastic way to start the day.  I got to work and felt great.  I was completely energized and awake after my roughly 15 mile ride in.- Leave your computer at home. I forgot to do this last night and as a result had to lug my laptop on my back (along with a change of clothes, which would have also been a good thing to have brought into the office the day before my ride). What didn’t feel all that heavy in mile one felt like a ton by mile ten . . . – I live in the sticks. I didn’t realize how many miles of farmland I actually pass on my way to work.  Zooming by at 60mph most mornings it fails to register with me. Riding at a more moderate 15 or 20mph I got to take it all in.- God – Colorado is beautiful. For about 8 or 9 miles of my ride I was riding with unobstructed views of the rockies, including Longs Peak – Bike lanes are everywhere here. I probably only rode about a mile this morning that wasn’t in a bike lane – excellent!

– If there is a water main break and you get passed by a car you will get very wet.  ‘Nuff said.- There are a lot of other cyclists out on the road.  I passed more than I thought I would (hopefully people out like me for bike to work day).  Everyone waved or nodded – very nice. So it can be done. Assuming all goes well on the ride home I plan to do this again.  I hope you’ll think about it too . . .

Here’s a thought for those of you considering taking venture capital – don’t do it. Seriously. It’s not worth it. Ok – so I’m not 100% serious. I’m trying to make a living investing in companies and would therefore be out of business if everyone followed this advice, however I think that for the majority (50%? . . . 80%?) of entrepreneurs taking venture capital money is a mistake. As I explain why this is the case, please read from the perspective of someone who is actually trying to encourage people to go into the process with their eyes open more so than I’m truly trying to scare people off from raising venture money. The worst thing you can do when you take venture capital is to go into the relationship with a misunderstanding of what each party expects – an example of that in a minute.

While I obviously believe that venture capitalists add real value to the businesses they invest in (perhaps the subject of another post), there are two things that come along almost by definition with venture capital that not every entrepreneur probably really wants: 1) VCs have opinions and they are not want to share them. This should be obvious, but rare is the early stage VC that gives a company money, asks for quarterly updates and then pretty much lets them alone. For starters, we have a fiduciary obligation to our investors (known as limited partners or LPs in VC parlance) to be good stewards of their money and part of this obligation is to keep regular tabs on the companies in which we’ve invested. Mostly though, VCs believe that they have something to add to the mix. We see lots of different business situations, experience similar challenges across businesses and believe we can offer the benefit of both our own operating experience (since most VCs have some type of operating background) as well as the experiences of the rest of our portfolio. 2) The goal of a venture investment is to make money – i.e., sell the business or go public. This as well should be a pretty obvious thing, but I’m not entirely sure that it’s always understood. In the VC business we take a box of money fro our LPs and attempt to give them back that box with more money in it. This requires us to ultimately get out of every investment – either through a sale of the business or an IPO (there are rare cases where companies redeem investors’ shares at a specified premium, but this almost never happens). Since most venture funds have a 10 year life this means that there will be pressure on you and your business to grow quickly and sell (or go public) within this period (which shrinks if your investment is made in subsequent years of the fund).

Rather than belabor the point (or come up with the 10 item list rather than a 2 item one) I’ll tell a quick story of a very good friend of mine who should not have taken venture capital. He did, of course, and after the bubble burst and with his business in a poor investment sector (telecom IT) his investors (both very large and well respected VC firms) were ready to call it quits. He retrenched and came up with a new plan that leveraged the existing infrastructure and tried to convince his investors to stick it out. Ultimately they decided to pull their money (about ½ of their investment was remaining). My friend went around for a bit trying to drum up capital for his business. I remember talking with him during this time and trying to convince him not to take any more venture capital. He had a great team assembled, had equipment from the business that he was allowed to keep when his original venture firms pulled out, and had a vision for how he wanted to run his business that frankly was not necessarily compatible with taking venture money (really because of #2 above rather than #1). He wanted to run a business for a while, grow, but at a measured pace and experiment with some ideas he had on how to build a solid culture and a lasting business. Ultimately he came to the same conclusion and together with some of the other management team came up with enough money to finance the business. Fast forward 3 or 4 years now and he has built a solid business. He’s cash flow positive, growing at a reasonable pace and he has created the type of company that he always wanted to work in. He’s clearly benefited from having to figure this out on his own and while he has a board, he answers to himself (and a few friends) as investors. He was telling me a few weeks ago that he really wants to keep running this business for a while – he wouldn’t sell it now even if he could.

So think before you take the venture capital leap – and do so with your eyes wide open.

Comments and thoughts are, as always, welcome.

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.

Ben also just graduated from high school, which I think puts him light-years ahead of his peers in his understanding of human interaction (ok – lets face it – it puts him light-years ahead of people of any age in his understanding of this). If you don’t know Ben, you should. UPDATE: Ben sent me a friendly reminder that he’s actually just finished his junior year of high school – not his senior year. . .  Guess that puts him yet another year ahead of the pack.

Here’s an interesting stat from a M&A update I received in my inbox a few days ago: Since 2000, the ratio of technology companies sold vs. going public is 10:1 (1,300 m&a deals vs just 125 IPOs).  The moral of the story – be realistic.  If you run a software company you are WAY more likely to sell your business than to go public.  Time to start planning . . . now.

Tony Perkins posted a cautionary piece on China yesterday to AlwaysOn entitled “Chinese Youth, Unite  A moral view of China”  In it he argues that we (silicon valley) are being perhaps too quick to look past some of the moral and ethical issues with the Chinese government while we give them what he terms a “gigantic money-fisted hug”. My parents just returned from a two week vacation in China and dad sent around his reaction to Perkins piece with his recent on the ground observations as his perspective. I’m printing it here, with his permission. __________________________ I’d like to offer a (limited) bottoms-up view to complement Tony’s top-down view. I strongly agree that the economic, political, and ethical issues are strongly intertwined (or will be in the next decade). I just got back from two weeks of cycling and hiking in China. I didn’t tour factories or get any official presentation about economics or politics. I just met a lot of Chinese people in cities and in the countryside, and I wasn’t restricted in what I could talk to them about. I have three observations: 1. The expansion of the Chinese middle class is real, but superficial so far. Yes, there are a lot of cell phones, and I got excellent coverage everywhere (even on the tops of mountains and on a fairly

remote section of the Great Wall). New construction is evident in all but the smallest towns. Shops with “western” goods are open in larger cities. But I noticed that the fanciest shops (Gucci, Ferragamo) had no customers and seemed to be there to establish a brand identity (trying to ensure that what’s chic in the West stays chic in the East). Most ordinary Chinese have access to very modest consumer goods and live in (at best) very modest housing. I also noticed that a lot of new construction (especially outside of the largest cities) deteriorates very quickly, mostly due to poor materials and building practices. The huge numbers of people involved make this an economically significant trend, but I think it’s important to note that for most individual Chinese their actual living conditions would be considered very modest in the West. Their aspirations, on the other hand, are not as limited. TV, Internet, the presence of high-end (empty) stores, advertising, etc. expose Chinese people to living conditions still not available to most of them. I would predict that within the next five years the disconnect between people’s economic aspirations and their ability to achieve them within the boundaries of government policies could lead to a political crisis. 2. The impact of this on the environment (and on cultural treasures) is significant and may become a growth-limiting factor. My advice to those of you who haven’t seen theForbidden City or the Great Wall is: go now. I don’t see how these treasures can withstand the huge crush of tourists descending on them. On a typical weekend there might be 20,000 people visiting the Forbidden City. And these aren’t foreigners. One interesting consequence of the economic gains in China is that most of the tourists are Chinese — people who can now afford to go see the cultural and historical sights they have heard about. This all takes place in an environment of increasing pollution and (by our standards) inadequate environmental controls. This is another source of potential political unrest, though harder to predict because other countries have shown that their populations can tolerate considerable environmental (and personal) damage in the context of economic growth. 3. Moral/ethical issues cannot be ignored. I hear stories about political repression, but I didn’t see any evidence of it so I can’t comment on it. But I did see one story that was remarkably moving and, unfortunately, common. When we checked in for our flight in Denver we met a couple also on their way to Beijing and learned that they were going to adopt a year-old girl. When we got to Xi’an (400 miles SW of Beijing) we were delighted to see them again in our hotel, the day after they had gotten their new daughter — along with 14 other couples and their new babies. In all, I probably saw 100 Western couples from the US, Spain, Finland, and France adopting (girl) babies in China. And when we got back to San Francisco we ended up on the same plane to Denver as our new friends and their daughter. So we got to see her meet her new brothers. I have never seen a child happier. No eye was dry among those of us who knew the story. The fact is that if a couple lives in a Chinese city they get to have one child; in the countryside it’s two. This is strongly enforced. Many girls babies are abandoned and not reported (so the couple can try again). There are two important consequences of this. First, it is significantly depleting China of girls, which will have implications in the future as Chinese men look to build families (this was a common topic of conversation among Chinese young men). Second, the government practices behind this are strongly at odds with Western ethical values. I do not believe that this can be separated from economic and political issues. (And the fact that much of Western politics is now dominated by religious belief increases the potential conflict here — but I want to emphasize that I believe this transcends religious belief and is a basic ethical issue for many people inside and outside of China.)

Conclusion: The growing economic power of China is significant, but gains in living standards are spread over so may people that the impact on most individuals is modest. That, coupled with the cultural impact of exposure to Western consumer values and deteriorating environmental conditions, may create conditions that are not conducive to the political continuity so important to the Chinese government. The social and ethical conflicts created by the Chinese government’s family policies are significant factors, but their impact is very difficult to predict.

Perhaps I’m stating the obvious, but one thing that I’ve noticed over the years (and have talked about extensively, particularly with Brad who very much shares this view) is that it’s much easier to have a company get bought than it is to sell a company. Getting bought means that someone comes to you. Selling means you go to them. The former results in a more motivated buyer, an easier (and faster) process for rounding up competitive bids and a higher price. The latter is a pain in the ass, tends to result in fewer options and generally a lower purchase price. When you are getting bought, you by definition have other options (since you don’t necessarily need to sell); when you are selling you are signaling to the market that you’ve made up your mind (whether you’re “exploring your strategic options” or more directly “have decided to sell the business to take advantage of . . . “). So position yourself to be bought rather than to sell. Yes, sometimes this isn’t possible (otherwise all of our businesses would get bought), but I think companies think too late in the game about their exit and as a result end up as sellers. An ongoing conversation at companies should be the list of possible buyers and the right ways to get close to them. Striking “strategic deals” or OEM relationships should be at the top of the list (we’ve had several very nice ‘getting bought’ experiences with significant OEM partners – they understand the business and the fit and can more easily take advantage of owning the company/technology). If those aren’t options, still work at getting into a conversation (competitive or otherwise) with people that might be buyers of your business.

The right time to do this is when you don’t need an exit. The wrong time is when you’re got 6 months of cash left and need an out.

See my other posts from this series:

M&A Part I – Lines in the sand
M&A Part II – A few thoughts on negotiating skills

I wrote a post last month on my way back from some meetings at Feedburner about some trends in the RSS world.  In it I noted that Podcasting was on the rise and promised to link to more details once Feedburner posted them.  They did that today  – you can check out their report here.  Clearly podcasting is taking off.  To quote from the report: It took us [FB] nine weeks to manage our first thousand podcasts, and we added our most recent thousand podcasts in under a month. As you can see, the rate of growth changes in bursts. We added about 800 podcasts per month initially, then 1000 a month, and now we’re adding about 1400 a month Podcasting is an interesting phenomenon.  I’m not sure I completely get it in its current incarnation (I listen to a few podcasts, but its frankly hard to find the time to fit them in).  Stepping back. however, I think the technology makes a lot of sense – just an easier way of storing, shipping around and retrieving audio and video files.  I can think of plenty of scenarios where this would fit into a corporate infrastructure (i.e., training, compliance, etc.).  I’m sure that’s all coming . . .