Corporate transparency

Jeff Bone
Tue, 08 Jan 2002 21:46:18 -0600

Owen Byrne wrote:

> You're in Silicon Valley, I guess, or somewhere where money grows on trees.

BWAHAHA!!  :-)  Dude, if you just understood the overwhelming wave of irony built into that statement, the realization alone would probably kill you.  Just for the record:  14 months
and counting on the funding trail, more market research and validation than has *ever* been performed by a pre-funding company --- I'd bet on it --- term sheet for over 60 days, no
closure yet.  Money doesn't grow on trees, it *doesn't exist anymore for any opportunity, regardless of team, track record, and merit.*  Some of us have completely redefined the
meaning of the word tenacity, because *we believe in capitalism and in our particular opportunities.*  And I'm sure that while my current play is certainly in the tiny minority that
understands this kind of tenacity and is able to demonstrate it, there are no doubt some few other die-hard entrepreneurs out there who can tell similar stories.  (Most just packed up
and went back to work at BigCo when their first three pitches last year failed to get traction.)

You simply have no idea.  It's not that it takes personal guarantees --- those are usually worthless anyway --- it's that funding *just isn't happening.*  All the latter-day venture
capitalists are scurrying for their mother's skirts while folks like you and Beberg --- good-time friends who were happy to tell the world just why their lame-ass neonatal ubergeek toy
/ idea was world-changing and deserved an outrageous valuation not two years ago --- retreat into some cynical category attack of the whole notion of capitalism.  Rather sickening,

Here's a few factoids that may amuse you about venture capital:

* >50% of all VCs (individuals) weren't investment professionals before 1996
* >50% of all investment *into* venture funds, ever, happened after 1998
* the bottom quartile of the '98-'99 venture fund vintage is expected to return *no money*
* the top quartile is expected to return on average 1.5x --- compare to 7x expectation

These guys are reeling.  They don't know whether to shit or get off the pot.  All funds are currently fighting a war on four fronts:  standard war -w- the potential investments, war
with their limiteds, war with co-investors on existing deals (which continue to hemorhage money as they are forced to throw good money after bad to salvage ROI) --- and intrafund wars
between partners involved in older funds (which want dollars from new funds to save old dogs) and partners who came in with newer funds and have no carry / economic incentive from the
older funds.  Net-net:  total and complete investment gridlock, fear, panic.

Daily, I've lived with the gritty repurcussions of this reality for over a year now.  When these kind of abstract things impact what kind of Christmas presents I'm buying and how often
I'm taking my girlfriend out to eat (and where) then you'd better believe that I suffer no illusions about where money comes from.

Trees?  Whatever, dude.

BTW, Texas, not Silicon Valley.

> - now tits up - which was at one point the leader in the online photo
> archiving business - is just down the street from me.

Sounds like a dumb idea to start with.

> Suddenly there was all the money they could ever want, no personal
> guarantees, VC money. Course you have to move to California, and you have spend $500,000
> a month and you have to give away your service. Now its history.

Remember what I said about investment professionals?  The downturn is subjecting many of those to the same kind of fitness test that it's running on the entrepreneurs.  Poser
entrepreneurs?  Gone.  Poser venture capitalists?  On the way out.  Advice like the above, from your VC?  Was dumb, is dumb, will always be dumb.  You can't just blame the geeks, or
the Valley culture, or the entrepreneurs.  The VCs have to take some of the burden.  They (among others) created the bubble and then guaranteed the burst by pumping stupid money into
silly things that never had any chance of being real businesses.

> Think they're going to need personal guarantees the next time around? I think they would probably prefer mortgaging their houses to dealing with VCs again.

All I've got to say is, go spend over a year getting something funded and then you'll have both a deep enough understanding of entrepreneurs *and* venture capitalists to have this
conversation with me.  Cheers, and good luck.

> Actually the fact that you have been through numerous complicated incorporations without
> experiencing a practice that most things I read has become prevalent says something
> about information-sharing, doesn't it?

I can't parse this at all.  Oh wait, okay.   Well, all I'm saying is, don't believe everything you read.  Personal guarantees?  Maybe if you're trying to fund a real-estate deal.  It
just doesn't work that way in the technology industry because (usually) the guys with the opportunities usually don't have the financial wherewithal to give them, and the guys *with*
the financial wherewithal are often considered to "not be hungry enough" to make interesting things happen.

> I'm sure you're brilliant, etc., etc. but isn't the
> reason that these ventures haven't had to put up personal guarantees is likely intangibles
> like contacts, reputation, etc.

No, that's just the way the game is played.  In the tech field, always has been, always will be.  The important things are opportunity, barriers to entry (i.e., technology), and team.
Team *is* admittedly a lot more important now than it has been at any point in the last five years, but the days of "fund anything that guy does" are just as over as the days of "fund
any guy who happens to have the right idea."

> In other words, because of information available to those
> companies that is not available to us dimwits up here in Canada (although I expect the
> funding environment around Ottawa is probably similar)..

Canada!  Why didn't you say so!