A VC in Vacationland

Don't Hire a Crook

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We all spend a substantial amount of time trying to find the right candidates for our companies, whether it is a CEO or a developer. I often find that founders or their hiring managers do not review three simple areas to make sure that the candidate is an honest, law abiding citizen:

1. Background Checks--companies such as Applicant Insight  and Hire Right  can provide detailed information on criminal records, lawsuits, loan defaults, foreclosures, etc. on potential candidates, often in three days or less and for no more than a few hundred dollars. 
2. W-2's--you would be surprised at the number of applicant who are willing to "lie" to you about their true earnings, especially sales candidates.  Ask candidates for the last five years of W-2's to discern trends and problems.
3. Your Own References--any applicant is going to give you his best references.  I always ask a  candidate to join me on LinkedIn, then find  someone who worked with them in a prior company and call them to get a less biased view.  Also, I will ask mutual friends if they know people from a candidate's past so that I can speak with them about the applicant's performance.

These may be uncomfortable questions to ask candidates, but trust me, everyone is doing it these days. Don't be caught with a candidate who has fabricated a background and may not perform as promised in your start up.

Happy Fourth of July....

Mars goes sweet for ethically sourced cocoa

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Mars goes sweet for ethically sourced cocoa

By Jenny Wiggins Financial Times April 8 2009

Mars, which owns the Mars, Snickers and M&M candy brands, is to spend tens of millions of dollars annually certifying that the cocoa used in the $10 billion of chocolate products it sells every year is sustainably sourced by 2020.

The move by the world’s biggest confectionery company, which claims to be the biggest end-user buyer of cocoa globally, comes as chocolate companies worry over rising cocoa prices and falling supply.

Fiona Dawson, managing director of Mars UK, said; “Cocoa is a volatile commodity. We want to secure our long-term sourcing.” She also said consumers and employees expected Mars to “do the right thing” because “nobody has to buy confectionery”.

Cocoa analysts forecast total global production at 3.5m tonnes in 2008-2009, down 66,000 tonnes on last year and the fourth successive seasonal deficit, and have warned of more increases in cocoa prices, which hit 24-year highs this year.

Analysts at Fortis Bank said in a recent report: “We are becoming more concerned that the scope for production growth is reaching some upper limits, constrained by the paucity of geographic locations suitable for cocoa production.”

Analysts are particularly worried about the politically un­stable Ivory Coast, the world’s biggest cocoa producer.

Howard Shapiro of Mars said: “Yields have been flat for over 30 years in west Africa ... You’ve got to get frightened.”

Mars, a privately held company, spends more than $1 billion annually buying beans direct from farmers and processors.

Cadbury pledged a month ago to spend $1.7 billion getting all the Dairy Milk bars sold in the UK and Ireland certified by Fairtrade.

Dave believes that Green Logistics is not just about moving products around the global in a "green" manner; but also be about ethically sourcing the ingredients from green producers. Unfortunately, many basic commodities, like oil, coffee and chocolate come from unstable parts of the world. One can understand the green aspects of reducing the energy and environmental costs associated with freight movements. But can ethically sourcing green products be a reality in a troubled world?  Should we refuse to buy oil from the Saudi's because they treat women badly? Is China off the list because of Tibet? And what about chocolate from the unstable Ivory Coast, with it's myriad of human rights problems? How can you be sure that your sourcing strategy is green as well?

First, as the article points out, buying products directly from individual producers who treat their people and the environment well is a critical first step.  Just because a country is "bad" in some way does not mean that all producers cannot be trusted. We cannot continue to be the world's only policeman and must respect the fact that every country will not behave as we desire.

Second, work with organizations who monitor countries and their industries on an ongoing basis for human rights/environmental violations. Companies interested in being green from a sourcing perspective work with NGO's and other monitoring organizations to make sure that producers live up to green pledges.

And finally, make sure you go and see for yourself.  It is one thing to have have consultants and organizations give you benchmark data on a producer's green performance; it is quite another to visit in person to see for yourself.

Allocating Founders Shares

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One of the more difficult initial questions an entrepreneur faces is how to allocate founder shares in their company. I have seen all sorts of allocation proposals from entrepreneurs and lawyers, from the most complex to the simple. My advice?  Keep it simple.

The initial "allocation temptation" is to "please" anyone who has had an impact on bringing a company into being, from Uncle Jack who put up a few bucks, to the 'rents who paid the rent for a year, to the girlfriend who had some useful insights, or to the alpha (read: free) customer who provided feedback on the product.  Forget it.  These allocations can be a huge mistake, as they give ownership to a bunch of people who really will not provide much help going forward.

Here are a few useful rules on who should get founder shares:

1. Early Decisions; Minimal Owners--founder shares should be allocated before the company is actually formed and limited to just a few key contributors.
2. Initial Rewards; Long Term Incentives--founders shares should compensate for work done up to the point of incorporation and give founders a key incentive to contribute to the long-term success of the venture.
3. Percentages Matter; Not Number of Shares--focus on the right percentage ownership for key participants, and be sure you keep at least 51% for yourself.
4. Restricted Stock; Reverse Vesting--founders shares should be restricted and subject to reverse vesting, with the right to repurchase the stock at the original prices in the agreements.
5. Forward Vesting; Timing--restricted founders stock should vest over three to four years, with perhaps 25% up front and the remaining 75% at a 25% yearly vest. The Founder's founders shares can vest immediately, although some may disagree with me.

Under any circumstances, get your corporate lawyers and tax consultants involved early in this process.  They know the federal and state laws around granting founders shares and how to structure allocations to avoid nasty tax consequences in the out years. As for Uncle Jack and other early money sources, consider a convertible debt instrument that will let them convert that loan on the same terms as your first-round venture capital investors. The girlfriend and alpha customer?  Buy them a nice dinner as thanks.

Hiring the Right Inside Sales Person

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Garth Moulton, co-founder of Jigsaw has written a couple of interesting Blogs (part one and part two) around how to hire inside sales people.  This is a particularly important topic for SAAS companies seeking to penetrate the low-end/mid-market without hiring expensive outside sales resources. Check them out....

Google Analytics Blowup?

Image by suzukik via FlickrGoogle Analytics Blowup Likely By End Of Summer

A web analytics train wreck is expected later this year, when an old version of Google Analytics—still being used by a huge number of web sites—gets phased out, according to a report issued Wednesday (April 8) from Pingdom. The report was a survey that looked at the top 10,000 Web sites and it discovered two interesting figures: 50 percent of all of those sites use Google Analytics, which in and of itself is fairly mind-blowing; and a full 40 percent of those sites are using an expired version of Google Analytics.

“Google switched its development over to ga.js well over a year ago. It’s truly remarkable that almost half of the sites using Google Analytics have yet to migrate to the new ga.js script,” the report said. “The question is, for how long will urchin.js keep working? Back when Google made the switch it was widely believed that Google would stop supporting the old script after 12-18 months. If that is the case, the end for urchin.js is getting near.” The report speculated that “urchin.js will be decommissioned sometime this summer” and, when that switchover happens, all of the sites using the older version will “start returning a 404 error (file not found) and therefore stop registering traffic.”

With thanks to Evan Schuman of storefrontbacktalk for authoring this post
April 8th, 2009

Note: Google has since issued a statement that the end of urchin.js is not imminent, but will happen sooner rather than later.  Google says plenty of advance notice will be given, although such announcements are unlikely to make the 6PM news.

A web analytics train wreck is expected later this year, when an old version of Google Analytics—still being used by a huge number of web sites—gets phased out, according to a report issued Wednesday (April 8) from Pingdom. The report was a survey that looked at the top 10,000 Web sites and it discovered two interesting figures: 50 percent of all of those sites use Google Analytics, which in and of itself is fairly mind-blowing; and a full 40 percent of those sites are using an expired version of Google Analytics.

“Google switched its development over to ga.js well over a year ago. It’s truly remarkable that almost half of the sites using Google Analytics have yet to migrate to the new ga.js script,” the report said. “The question is, for how long will urchin.js keep working? Back when Google made the switch it was widely believed that Google would stop supporting the old script after 12-18 months. If that is the case, the end for urchin.js is getting near.” The report speculated that “urchin.js will be decommissioned sometime this summer” and, when that switchover happens, all of the sites using the older version will “start returning a 404 error (file not found) and therefore stop registering traffic.”

With thanks to Evan Schuman of storefrontbacktalk for authoring this post
April 8th, 2009

Note: Google has since issued a statement that the end of urchin.js is not imminent, but will happen sooner rather than later.  Google says plenty of advance notice will be given, although such announcements are unlikely to make the 6PM news.

A Secondary Market for Private Securities

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One of the big problems with being an entrepreneur (or venture guy) in today's investment marketplace is the minimal equity exit options for private companies. You can do an IPO (good luck), sell your stock to an insider or another investor (if you can find one), or get acquired to monetize your equity.  That's about it for the moment.  With currently a six to nine year wait for either an IPO or an acquisition to happen, according to recent data from the National Venture Capital Association, one has to wait a long time for entrepreneurial rewards.

Enter Second Market. They recently announced that they would be launching a marketplace for private company equity, in addition to their markets in auction-rate securities, mortgaged backed securities, limited partner shares, among other "troubled" assets. I am sure that private company equity does not belong in the same world as these dogs, but any market in a storm.  The site identifies a number of interesting private companies, such as Twitter, Facebook, eHarmony and Etsy where trades may be offered in the future.

As anyone who has taken Econ 101 knows, a more efficient market produces better prices.  The Second Market program will bring together buyers and sellers, track trades and prices and provide some sense of fairness in selling illiquid shares.  Problems will emerge, however, as companies may gain undesirable shareholders, employees will have less incentive to work for success if they sell out and founders may bail early.  All are already problems later if a company goes public or gets acquired, but now they may happen earlier.

Before you get all excited, my gut tells me that this market will be limited initially to the "best of the best" private companies, such as those listed above. Over time, as investors and entrepreneurs get familiar with how the second market will work, opportunities may emerge for other private companies to "make the short list". Other start ups are working to create similar secondary equity markets, probably with a variety of market-clearing technologies, including bringing in foreign investors.

Web-Enabled Marketing, Sales & Training

I often get asked which providers my companies use for their web-enabled selling, marketing, demos, training, etc. with customers or prospects.  Here's the short list of the ones we have found to be the best:

• Small Session Desktop Sharing--want to do one click, screen sharing within up to 100 people? Inexpensively and easy to use?  Consider Glance when you want to do a demo for the global IT team evaluating your software.  Besides being quick to set up and prepare invitations, Glance has the best latency of many sites we have tried in the past, especially when participants are in many countries. Plus free phone conferencing with each account. Much faster and easier than competitors for smaller, uncomplicated conferences.
• Larger Session Meeting/Webinars--Cisco's Webex ,while expensive, is still the best way to host a first-class meeting, training session or webinar with all the bells and whistles--moderators, questions, wikis, discussions, PowerPoint sharing, demos, videos, video conferencing, among other options are all available. A poor cousin, Go To Meeting , does many of the the Webex basics, at a lower cost. It works just fine for a straightforward PowerPoint and voice session.

Please avoid using companies like free conference call.com . These "free" services drive me nuts as they have major talk over/latency problems during calls.  When a prospective entrepreneur calls me to do a pitch using one of these services, I politely offer my own services, either Verizon or Ready Conference.

Do not skimp on purchasing quality communication services to call/interact with your customers or prospects.  Often, you have only one chance to make a good impression.  Spend a few bucks to do it right.

Stress Reliever!

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We can all use relief from stress, especially in the current economic environment.  Acupressure is a quick tension reliever, according to researchers at Hong Kong Polytechnic University, who found it can reduce stress by up to 39%.

For fast relief from tension, massage your hoku(the fleshy part between your thumb and index finger) with your opposite thumb and index finger for 20 to 30 seconds.  This is the universal pressure point for easing upper body tension.  It really works....

Marketing & Sales Strategy: Jigsaw

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Jigsaw Data Corporation has a developed a unique company contact database offering, one that is continuously updated and enhanced by their current customer base.   Jigsaw grows their product offering by sharing and trading their existing records for client and potential client contact databases.  In early 2004, Jigsaw started with less than 100,000 names and today has grown to over 11 million contacts.  With over 700,000 members, an average of 20 names per company, Jigsaw projects global contacts (mostly US based) will exceed 20 million by 2010.

Jigsaw is a contract database; not a complete corporate database.  The Jigsaw data is useful for sales lead development, direct marketing mailings, recruiting, credit/finance, among other applications.  The Jigsaw advantage is driven by the members that join and trade business contacts. The Wikipedia model ensures a continuously expanding and accurate listing database.  A number of my portfolio software company are using Jigsaw daily and find it  a viable “reach” tool for identifying high-end and mid-market company decision makers.  Jigsaw claims that their contact detail is close to 90% accurate; an exceptionally high rate for a notoriously unreliable industry space. 

Jigsaw has one of the largest contact databases in the business, including:

 ·       Email coverage at 100% (most B2B files range between 20-40%)

·        Direct (50%) phone number listings; rest main corporate number

·        100%  actual postal addresses, not only the main corporate address

·        Actual position titles with function code classification

 

Jigsaw also sells lists to corporations for direct marketing programs, will take an existing data base, cleanse it and return it to the client, and append the old database with new names, phone numbers, addresses, locations, and email addresses.  They will also swap. For example, a customer who offers 100 viable contacts will receive in return at least 100 new Jigsaw-cleansed names.  The customer can then cleanse the received names, re-submit and start the “swapping” process all over again; driving perpetual growth and accuracy.  This is an invaluable tool, seldom found in any contact database.  Jigsaw also offers a fee-based service to cleanse client’s database on a quarterly basis. 

For a start-up hungry to grow their contact database and willing to contribute contacts in return for new ones, Jigsaw is an excellent tool to help a cash-strapped entrepreneur gain potential new customer contacts.

 

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Marketing & Sales Innovators (Update): Zoom Systems

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According to VentureBeat, Zoom Systems, the San Francisco-based provider of luxury-good vending machines, just brought in $20 million in fifth-round funding to increase its market presence in the U.S. and Japan. You may have already spotted its machines (termed “automated retail stores”) in airports and shopping malls. By and large, they sell major electronics from companies like Apple and Sony, and other swanky tech goods like Rosetta Stone language-learning software.

We originally reviewed Zoom Systems two years ago. They have come a long way in a tough economic environment.  The concept started as a vehicle for marketing Motorola products in 2006 — only 20 machines were supposed to be placed throughout the U.S. Today, more than 800 machines have been installed, bringing in about $40,000 per square foot of space they occupy per year in airports alone. While Zoom doesn’t actually make the machines itself (it outsources manufacturing to a partner), it says it takes care of installation, maintenance, security and supply monitoring.

With just 100 employees, the company claims the recent round will fund the rollout of 1,000 more machines in the U.S. and Japan by the end of the year. The money came from existing backers Sierra Ventures, Goldman Sachs Group, NeoCarta Ventures, Motorola Ventures and Starfish Ventures.

For now, it appears to be the only vending machine provider of its kind. Their minimal supply chain and sales cost per product will continue drive success for Zoom, even in a difficult economy.