Archive for September, 2007

On Lawyers Getting with the Technology Program

September 26th, 2007

Dave McClure posted a rant the other day about how VCs and technology lawyers spend a lot of time around startups, but rely on antiquated communication systems (fax!) to do deals.

He’s right, but what’s interesting to me is *why* “[we] guys are still in the 80’s”. Digital signatures are perfectly legal, but no one uses them.

I think the reason is that everyone spends so much time thinking about the deal itself, that no one puts much effort into the mechanics of completing it. Fax mostly works because most people have fax machines.

On the flip side of the coin, in just about every deal I’ve ever done I have ended up chasing someone for a signature. Someone is inevitably travelling or not near a fax machine. Internet access is so ubiquitous- I would love to have a “virtual closing room” on my website where people could log in and digitally sign documents. This would save a huge amount of time and energy on my part and presumably everyone else’s.

It takes two sides to close a deal, though, which is probably the other big reason things like this haven’t taken off. To do it right, I would have to (a) provide each party to the deal with login information and a way to authenticate individual identities, or (b) somehow coordinate my digital signatures with the other side’s, or some combination thereof.

It’s worth a try, though.  Can anyone tell me how to build such a facility?

Twitter is a Tease

September 24th, 2007

Maybe this goes without saying. Twitter is fascinating beause it is such a proto-social network. It does almost nothing, but I probably use it more than any other network I am on.

Still tring to figure out what twitter is “about”, I’ve been thinking about the posts that grab my attention. I follow basically three kinds of twitterers: friends, news outlets and tech experts/celebrities. I like getting little vignettes of my friends ‘ lives that tell me what’s going on with them. This is less true from strangers, though the occasional trenchant comment can be fun.

What gets me to follow people I don’t know is really the same as what I get out of news tweets- teasers that make we want to learn more. I don’t think I am alone in this. Loic le Meur has twittered repeatedly about certain aspects of the new product his company is developing, but without explaining what the product is at all. In the same vein, Evan Williams posted a couple of tweets this morning about “namestorming”- for a new product? Inquiring minds want to know.

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New York Times Online and the Odds Against it

September 21st, 2007

The New York Times seems to have its head screwed on right as far online marketing goes. Witness its Facebook application: it’s a simple thing that shows off what the NYT does best (news coverage) and lets friends compete against onenewspaper-revenues.gif another for “News IQ” ratings. To do well, one needs to read the news and the NYT provides ample opportunity to link through to articles on the paper’s site.

Add this to the company’s announcement that it is dumping the Times Select pay wall and one could almost forget what they are up against. I saw the graphic to the right and was blown away by the difference between on- and off-line ad revenue.

Something sure needs to change, or publishing (i.e. reading what’s actually happening in the world) as we know it is going to be completely screwed.  Yikes.

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Twittervision Nails the Visualization

September 18th, 2007

I wrote recently about different visualization techniques used by Digg, Lijit and Twitter. I wrote that I didn’t think the Twitter Blocks developer, Stamen Labs, got it quite right. They did a brilliant job with Digg’s visualizations so I’m sure they’ll work out Twitter as well.

The challenge in creating visual representations of text data, it seems to me, is to capture the essence of what the site does.twitt.jpg Digg Stack beautifully captures both the flow of news across the Digg site and the voting element that (partially) distinguishes Digg from traditional news outlets.

Twitter is captivating for a couple of reasons. The “random discovery” element is fun- seeing what’s on people’s minds around the world. The more engaging element is following one’s friends.

Twitter Blocks goes after the latter, which is probably the harder nut to crack. Meanwhile, Twittervision hits the discovery nail right on the head. Watching the posts flow across the globe is mesmerizing.

A couple of requests, though- I’d like to see the tweets persist a little longer instead of fading out immediately when a new one comes up. I’d also like to see the history- it doesn’t seem to follow the Twitter timeline precisely and I can’t necessarily find interesting tweets easily.

If Stamen Labs can figure out how to combine Twittervision’s hypnotic visual timeline with the social relationship aspect that makes Twitter so engaging they will capture the full scope of the site perfectly. It’ll be fun to see.

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Cumulative Voting in 340 Words, with Math

September 14th, 2007

Cumulative voting is one of those theoretical legal concepts I’ve generally tried to avoid- it involves math, the archnemesis of attorneys everywhere.

Math matters, though, and so does cumulative voting. It can give small shareholders a voice on a company’s Board of Directors, ordavid_goliath.jpg even swing the balance of power in certain situations.

In as few words as possible, then, here is what you need to know about cumulative voting:

What it means. Cumulative voting means that instead of voting shares for each director on a slate, shareholders can throw all of their potential votes behind one candidate. In other words, if there are 3 directors and I own 1 share, instead of voting my one share for each director, I can put all 3 behind a single candidate.

Not all states have it. Delaware allows it, but corporations must specifically provide the right in Certificate of Incorporation. In California, cumulative voting is an “inalienable” right of shareholders of private companies- it can’t be written out of the Articles of Incorporation or bylaws. Public California companies listed on NASDAQ, the NYSE or ASE are allowed to eliminate it. Other states vary.

It must be actively exercised. In California a shareholder must notify the corporation before voting of his/her intent to vote cumulatively, and then the entire election runs cumulatively.

How it is calculated. This is the math part. The formula for calculating how many votes are needed to elect a director is:

N= {(X-1) * (D+1) \over S}


X = the number of shares needed to elect a given number of directors
S = the total number of shares represented at the meeting
D = the total number of directors to be elected

Even simpler is this online calculator.

Cumulative voting can be an important right for minority shareholders. Even if it doesn’t allow a shareholder group to control the Board, it can provide visibility into Board discussions and that can sometimes make all the difference. Wikipedia has a longer explanation with history, for those interested in reading further.

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Online New York Times vs. Wall Street Journal

September 14th, 2007

I’m really glad I’m not a print publisher. The Silicon Alley Insider posted an article the other day showing the New York Times Company’s 50% stock-price drop over the past five years. I understand this is largely due to the ad revenue they have lost to Craigslist and others.

The thing is that the NYT is doing everything right, or just about. They’re trying hard to play by new media rules, but the economics just aren’t there for the business. The Times produces great podcasts, seemingly dozens of blogs and has a Twitter feed that is one of the best things on that platform- news comes straight to my desktop throughout the day and the posts frequently get me to click through to the articles. The tweet format seems tailor-made for headline link-baiting.

Compare this with the Wall Street Journal. The WSJ has 3-times-daily updates over AIM, but they completely botch things. First, the updates comes three times every day, but it’s almost always the same stories in each update. Can’t they find more articles to showcase? They have a Twitter feed as well, but haven’t updated in months (ironically, they stopped with a headline about Google’s DoubleClick acquisition).

Worse, though, is that the content is stuck behind the paywall. I have given up linking through at this point because I don’t have a WSJ online subscription. If all I can get by clicking through is a couple of introductory sentences then it isn’t worth it- I’ll use the AIM headlines to let me know to read the details elsewhere. This comparison graph of NYT and WSJ pageviews (courtesy of Fred Wilson) seems to show that I’m not the only one.


Getting back to the original point, the NYT seems to do a great job driving traffic to the site, but online ad revenue just doesn’t compare to the old-fashioned offline kind. What’s going to happen? Will media-companies-formerly-known-as-print-publishers have to shrink to be competitive in the online world? Is that a workable model for companies that depend on far-flung networks of reporters, editors and staff? Or will some new revenue stream emerge to save them? Like I said, I’m glad I’m not in the business and these are not my problems to solve.

Form D Proposed Changes Offer a Ray of Hope for an Open EDGAR

September 12th, 2007

The SEC has proposed to mandate electronic filing of Form D (among other changes), used to document securities offerings. These filings have been a major pain in the neck through my career, so I am definitely in favor of anything that makes the process simpler.

I am even more excited by the apparent recognition on the part of the SEC that people actually want to see the data that gets reported. It gives me hope that EDGAR will one day open up to search bots as well. Public companies file all of their required reports on the EDGAR system so there is an enormous wealth of information. EDGAR has only the most rudimentary of search features, though. Moreover, EDGAR turns away search bots from all the major search engines.

Private companies have stepped in and (presumably) pay the SEC for acess to the data. They then charge users to perform sophisticated searches.

This is bad practice. The SEC requires filings in order to inform the public. It should be free and easily accessible. I am hopeful that the Form D database will give the SEC the feedback it needs to realize that EDGAR should be open and searchable.

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Reading List: Joe Kraus Nails the Startup Angst

September 11th, 2007

30foundersatwork.PNGI am reading a great book called Founders at Work: Stories of Startups’ Early Days– it is a compilation of interviews with tech company founders, prepared by one of the Y Combinator founders. The whole book makes for terrific reading, very much like Startup Review on a larger scale.

Excite co-founder Joe Kraus makes some phenomenal observations that go straight to the heart of the startup experience. When asked “Did it seem like you were onto something huge?” he responded by saying:

The hardest part in a startup is that you wake up one morning, and you feel great about the day and you think “We’re kicking ass.” And then you wake up the next morning and you think “we’re dead.” And literally nothing’s changed.

I’ve certainly ridden that rollercoaster many times since starting my own business, and I’ve learned that it is part of the process. Everyone wishes there was a linear path to success, but there isn’t. You just keep plugging along, trying everything you can think of, and when success happens you still can’t point to a single thing that caused it- it just happened.

Good book. It should be required reading at “startup school”- wherever that is.

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I Made BusinessWeek Online!

September 11th, 2007

My friend Steve Poland roped me into an advisory role with Ringside Startup– he had the neat idea to extend the idea of crowdsourcingbw_255×65.gif content into crowdsourcing a business itself. We and the commenters on the site talked a lot about securities laws and ways we might be able to get some equity to people contributing ideas.

Business Week Online has just written an article about Steve and the crowdsourcing concept. It does a nice job comparing efforts in the music, sports and tech spaces, and does a compare/contrast between Cambrian House (which I have covered before) and me.

It’s the first time I’ve been quoted in a major press outlet, so I am very pleased. They didn’t even misquote me!

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Vosnap: Because Creative Development Deserves Creative Lawyering

September 10th, 2007

Vosnap is a project/company that emerged from Startup Weekend in Boulder, Colorado last July. A whole bunch of people locked themselves in an office for a weekend with a goal to launch a product by the end of it.

They still haven’t launched, but that doesn’t mean it’s not a great idea. Talented people working together are fun to behold.

One trick, though, is how to properly reward everyone’s efforts. This is really a question with two parts:

1) How to value each person’s contributions relative to the others; and
2) How to issue equity to each person under US securities laws.

The Sand-Dollar-Hour System
I once heard about an alternative economic system developed in west Marin County, Calif. It involved sand dollars as units of currency, and was completely egalitarian in that each person earned a certain number of sand dollars per hour worked, whether as neurosurgeon or streetsweeper. The idea never caught on much, but it stuck with me, and the Vosnap group seems to have done something similar.

As their blog explains, they have 60 contributors, each offering different sets of skills. Rather than try to make judgments of relative importance among them (a sure recipe for collapse of the project) each person got one “share” for each day at the weekend, up to 3.

Simple enough, though it would have been better if they had been sand dollars or cowrie shells. Nobody gets it perfect, I suppose.

Crowdsourcing Cleverness
I have written previously about crowdsourcing and securities law issues. The bottom line is that securities laws aren’t conducive to doling out shares to lots of people.

However, some clever soul must have considered that if each participant is “active in the business”, then the contributors can jointly form a limited liability company in which no securities “sale” is involved. That is to say, if the equity earned is all of the “sweat” variety, then there is no securities offering, and no securities compliance issues to worry about. Note that this only applies to LLCs, not corporations.

A Little Ugliness at Tax Season, but it Gets the Job Done
So Vosnap itself is a corporation, which works well for venture funding purposes. The LLC owns 1/2 of Vosnap, Inc., and the Startup Weekend participants own their relative shares of the LLC.

Clever. The tax issues are going to be a little messy when income tax season rolls around (there will be two entities to prepare tax returns/statements for, and each LLC owner will get a K-1 partnership statement to include in their personal returns), but it gets a piece of the business to all participants and gives them some incentive to keep plugging away at it. Nice thinking.

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