Disqus - Friends of MParekh

Re: Fred Wilson Dot VC

fredwilson — Sun, 08 Nov 2009 06:16:53 -0000

oh yeah

good catch

Re: The AVC Reader Census

JLM — Sat, 07 Nov 2009 17:20:40 -0000

Exception noted and acknowledged but hey London doesn't even have good food! LOL

Re: The AVC Reader Census

JLM — Sat, 07 Nov 2009 17:18:49 -0000

My apologies, way out of line. Buy Sammy a mouse on me!

Re: The AVC Reader Census

JLM — Sat, 07 Nov 2009 14:43:51 -0000

A bad idea held by a majority is still not a good idea.

Re: The AVC Reader Census

JLM — Sat, 07 Nov 2009 14:40:23 -0000

On the heels of 9-11, I owned the largest catering company in central TX. Talk about bad timing! It was purely an investment --- a very, very, very bad investment which I just sold a year ago.

Other than meeting and spending quality time with lots of interesting people (every Presidential candidate for the last two cycles, etc.), going to lots and lots of parties, supporting lots of very worthy charities in their gala fundraisers, the introduction to wine and learning from people who really knew what they were talking about was almost worth the small fortune I lost in tuition. It was their expertise that made it such a memorable experience.

The wine tastings --- oh, the wine tastings!

You could almost track the globalization of the world's economy by the next country whose wines became drinkable!

Is there any great country that does not have great wine?

Re: The AVC Reader Census

JLM — Sat, 07 Nov 2009 14:32:21 -0000

Cats --- taste like chicken? Sorry.

Re: The AVC Reader Census

JLM — Sat, 07 Nov 2009 14:28:59 -0000

I only read business books from guys who live in BIG houses.

While Warren Buffett's feet were made of the same clay as everyone else in the recent downturn, his annual letters to shareholders are some pretty damn good reading. And while he does not live in a BIG house, his wallet does.

Why do all those know it all economists live in such ratty houses? LOL

Re: The AVC Reader Census

JLM — Sat, 07 Nov 2009 14:25:08 -0000

The real common denominator seems to be the bourbon. Look @ Garrison Brothers Texas bourbon --- the only bourbon distillery in the Lone Star State. Bottling to start in 2011.

Hey, it's Saturday --- how about the football? You gotta have some culture!

Re: Valuation and Option Pool

JLM — Sat, 07 Nov 2009 14:15:47 -0000

Agree with you completely.

I wonder that given the current economy and the growing body of folks who have started companies and lived to tell the tale that the "essential" employee deserving of equity as part of a balanced compensation program is a decreasing number and that the threshold is moving upward.

Re: Valuation and Option Pool

fredwilson — Sat, 07 Nov 2009 08:27:27 -0000

The pfd is senior to common and options

Re: Great Meetup Last Night

fredwilson — Sat, 07 Nov 2009 08:26:53 -0000

I think there's a lot of us who feel that way william

Re: Valuation and Option Pool

fredwilson — Sat, 07 Nov 2009 08:26:19 -0000

Yes, but at 3.25mm it could come post-money

Re: Valuation and Option Pool

fredwilson — Sat, 07 Nov 2009 08:25:32 -0000

I don't think 5pcnt will get it done. Good devs alone will eat that up

Re: The AVC Reader Census

fredwilson — Sat, 07 Nov 2009 08:24:24 -0000

It is fun. Game like elements should be incorporated into almost all web services

Re: The AVC Reader Census

fredwilson — Sat, 07 Nov 2009 08:23:43 -0000

Everyone is a minority in something

Re: The AVC Reader Census

fredwilson — Sat, 07 Nov 2009 08:22:49 -0000

A fantastic curation oppty

Re: The AVC Reader Census

fredwilson — Sat, 07 Nov 2009 08:21:35 -0000

Small sample size andrew. Just wait

Re: The AVC Reader Census

fredwilson — Sat, 07 Nov 2009 07:33:47 -0000

good suggestion

i bet chris dixon will be by here at one point today and will read this

Re: Valuation and Option Pool

JLM — Fri, 06 Nov 2009 17:01:23 -0000

Miles, Miles, Miles, my boy --- when swimming in the drink w/ sharks you never ever get what you deserve, you only get what you NEGOTIATE!

Trust should be reserved for only those things which nobody could ever have contemplated, the balance should be in writing.

Re: Valuation and Option Pool

JLM — Fri, 06 Nov 2009 16:58:04 -0000

Haha, pretty damn.............................................clever! LOL

Re: Valuation and Option Pool

JLM — Fri, 06 Nov 2009 16:39:32 -0000

I come at this from a little different perspective in that I run a public company which while very small is further down the road than a typical VC funded deal. This might be the product of a VC funded company after an IPO in which it must drag all the accumulated baggage to the subsequent public marketplace.

Options are quite problematic whether from the perspective of having to value their "non cash" GAAP implications or the securities implications. In my view the situation described runs right up to the edge of some of the most dangerous and problematic "dilution" implications of securities law.

All option plans have to be (or at least should be) in writing and must at the very least be "approved" by the Board prior to the first option pursuant to the plan being issued. There should therefore be some thought given to this long before the second round of financing is contemplated. Pollyannish thinking, I concede.

The approved plan should contemplate the implications of dilution on issued and vested or issued and unvested options. There is a simple equity problem here.

The issue of dilution --- of existing option holders --- is most commonly handled in subsequent balance sheet transactions (raising money whether through VC activity or the issuance of common, preferred or some other more exotic security) by the modification of strike prices and the issuance of additional options to compensate for pure arithmetic dilution. One could argue that the manipulation of strike price provisions alone should adequately compensate option holders but that is often not the case.

Public companies have to report earnings on an "as issued" and on a "fully diluted" basis which takes into account, amongst other things, "in the money" but unexercised options as well as other classes of securities which may contribute to "potential" dilution. This calculation is a good discipline for private companies also. It is a kissing cousin of liquidation analysis.

I would further suggest that the issue of stock options as part of a balanced compensation plan incorporating salary, benefits, short term incentives, long term incentives, equity incentives and perquisites for CEOs and CFOs and CIOs, etc., should be addressed in their Employment Agreements and should therefore not be drawn materially into valuation discussions. The compensation cost for a CEO should not be materially impacted by who owns the company and how.

I suggest that this is an area in which a sharp securities lawyer is of more utility than a VC deal guy.

Understanding my thoughts are colored by being a founder/entrepreneur/CEO type, I don't think one can fashion a good management team without allocating at least 10-15% for management plus whatever the founders own.

Re: Valuation and Option Pool

fredwilson — Fri, 06 Nov 2009 08:55:51 -0000

So true. Excellent points Eric

Re: Great Meetup Last Night

fredwilson — Fri, 06 Nov 2009 08:48:25 -0000

That's just mike being mike

Re: Valuation and Option Pool

fredwilson — Fri, 06 Nov 2009 07:33:14 -0000

if there are still unissued options in the pool at the time of the series A
round, then the dilution to get to the new number needed will be less than
if there were none

i have seen a situation, disqus, where the pool setup in the seed round was
so large that we actually agreed to keep a portion of it out of the
calculation of pre-money valuation because we knew it would not be used
before the next round

Re: Valuation and Option Pool

fredwilson — Fri, 06 Nov 2009 07:21:51 -0000

they are not that common because the trade-off is usually a lower pre-money valuation and once the trade is set up that way, most entrepreneurs don't choose to do it that way