Facebook and the Accidental Billionares

Posted on September 23, 2009 by Ben T. Smith, IV

Okay so avoiding my ongoing reading of the 10 Books about the Great Depression is getting out of hand, now I am reading more books to avoid it than the ten I am supposed to read.
I just finished The Accidental Billionares.  Actually I started and  finished on a six hour plane flight out to the east coast last week and I took a two hour nap during the flight.  It is not a challenging read, it is pretty empty so there is just not much to force you to actually read.
The book is about the starting of Facebook and provides no real inside into why it won, the times they have passed on exits, or even how the company works.  It is supposed to be about the people but comes up short really explaining how they ticked before or think now.  It simplifies Zuck down to a girl chaser which is not the case.
It does share some of the inside baseball stories that most people in the valley know and even discusses a few events that I was around for like Zuck’s first trip out to the west coast to raise money and when Sean Parker got involved.  These both stick in my mind because they both cost me a fortune for not doing the write thing.  I did not take up the offer for “giving us $50K for servers” and when Sean asked if they could sublet part of the Spoke space for stock, I handed it off to someone else and it never got done.  Now the guy I handed it off to did become the Chief Privacy Officer of Facebook, so that worked out well for him.
Facebook is an incredible company and it is run very different than any other.  Much like Google changed the way people think about running Silicon Valley companies, Zuck’s approach will also have a major impact. If nothing else given the executive churn, it is producing alot of people who are going back out to the start up world with some great learnings.

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Revenue is a Drug

Posted on May 22, 2008 by Ben T. Smith, IV

Revenue is a drug..

I have heard a number of times how venture capital is a drug, it is addictive to some entreprenuers, and of course never confuse raising venture money with success.

Today I heard another good one.  Revenue can be a drug.  Now this was not from some crazy web entreprenuer. This was from a well known enterprise CEO with Intel,Adaptec, Cadence and Documentum on his resume.

His point

  • don’t confused getting some short term revenue with a business and don’t let it distract you from the business you are building
  • don’t get addicted to it so that you trade off your other business metrics to grow your business because of “revenue”
  • it can chase your off your strategy…

Now this is one that really hits me from my earlier experience.  It is especically true from businesses built on networks.  If it is a network business, grow the network.

Now having said this 2M of revenue that generates 2M of incremental cash in a series A company may be worth $200M of equity over the life of your company.  Why ? This is the old point Mattucci at USVP makes when he talks about the $500 coke.  A can of coke cost 50 cents.  Series A venture guys want a 1000 times return,if you buy a coke with series A money you are spending money $500 on a coke.  (I know all the reasons why people say this is BS but on some level it is right)

So $2M of revenue early might be worth $200MM or $2B.  This is actually partially true.  The early revenue at facebook from a few sponsorships lead to them not taking venture until late.  This is going to be worth an extra $2B for the founders.  It also meant less vc meddling early…with is worth about $15B when you consider the difference in value between friendster and facebook.

Now about finding $2M of revenue that is 100% profit with no sales cost…hmmm..  I need to think about that.

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Good Deals that Don’t Work

Posted on May 7, 2006 by Ben T. Smith, IV

Good deals that don’t work…

About 6 years ago, I did a great deal. I went in with Seqouia.  I then did a follow on round in the same company with Redpoint and USVP.  The management team stuck together, the team sold alot of software to GE and other brand name companies.  The software delivered an ROI.

6 years later, zero.

I did not get my money back and neither did all the big firms who I invested with.  These are the ones that I had to loose on.  All the arrows pointed right all the way along.  They did take on venture debt and that really cost them in the end when it removed thier flexibility.   They were picked up by a group who seems to be rolling up enterprise software startups, but after the debt was paid, nothing.

I am sure this will come back to bite me, but this is officially my last pure venture investment in a enterprise application start up.  If this team could not pull it off in this area, I just don’t think the risk/reward works.

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Trovix

Posted on May 1, 2006 by Ben T. Smith, IV

One of my favorite deals is doing some really interesting things on search related to jobs.  I did trovix.com about a year ago with USVP who I created Spoke with.  Great deep technology.

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Missed Deals

Posted on April 19, 2006 by Ben T. Smith, IV

Missed Deals..

So every once in a while you have to eat crow.  The summer before last at a dinner at Zibibbo around the corner from Zao Noodle Bar  hosted by Oliver Muoto I had my first real interaction with Sean Parker of Napster, Plaxo and Facebook fame.

During the first hour, he was pretty pissed and basically threatened to beat me up over some things that Spoke had done related to Plaxo. (Ok some of them we had done, most we had not, and all the bad stuff is Tolles’s fault)

Within 2 hours we had settled things  (after I joked that it is never a good idea to threaten a good ole boy from the South, we react in funny ways related to the second ammendment), he introduced me to Mark the founder of the Facebook.   He then asked me if I could get him $50K to buy some servers or even just the servers as a part of a round he was working.

Ok here is the mistake.  I believed in the idea, I believe that Sean knows how to make magic happen..but was busy with planning a start up and getting Spoke transition done.  I passed.  This has cost me alot of opportunity.    The ones you miss matter often times as the bad ones you do.  Opps.

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MerchantCircle Launch

Posted on February 28, 2006 by Ben T. Smith, IV

Now here is a deal you have to love.

MerchantCircle   is focused on solving the problem is the local internet ad business that there is not effective channel to the small local merchant on any scale for selling ads. That is unless you want to consider the yellow pages’s salesforce, who loves to sell something that is outrageously expensive and has zero transparancy with fear.

MerchantCircle is gaining significant  momentum with merchants all over the country including out of the way places like Fairhope where it already has more merchants that alot of web business who have been around for years without a single telesales person, sales person, etc.

We incubated it with Rustic Canyon and funded it with Disney and Bank of America.  It is getting fun.

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Integrations

Posted on February 12, 2006 by Ben T. Smith, IV

Another deal closed last week.  It is a big one so it will be interesting to watch the integration process on this one.  I drove the acquisiton of a public company, Seque Testing by Borland.  Of the deals done this year, this is the one I am the most worried about.  East coast versus west coast, different price points, etc

We have an outside firm involved in the integration, my old firm, A. T. Kearney. They are driving alot of interesting analysis to focus the issues.

I look forward to sharing the learnings once more time goes by and it can be done without impacting confidentiality

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Getting Deals Done

Posted on January 25, 2006 by Ben T. Smith, IV

Deals getting done So after alot of back and forth over the past six weeks, one of my companies just closed a deal.   Borland bought Gauntlet from Sam Pullara and team There is nothing like sitting in a room reviewing the final … Continue reading →

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A’s Baseball

Posted on January 13, 2006 by Ben T. Smith, IV

A’s Baseball

We are approaching baseball season.  As a 20 year season ticket holder for the A’s this is always an exciting time.  (yes I know that the bowls just got over and the SuperBowl still has to happen, but will no hope for the Raiders, football season is over for me).

The thing most people know about the A’s is they are almost always a contender yet they spend so much less money than the rest of the teams.  Now I am not sure that this makes them a well run team, just a well run cheap team.  There are times when you have to decide to play to win, and not to play to do the best you can while spending the least.

I do think there are alot of lessons in how the team is run for startups, but I have seen it taken to far.  In the end, createing a start up is about passion, vision and leadership.  The numbers will help you focus it better, run it better, but if they ever get in the way of vision, passion, and leadership..you will lose.

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Giving Up and Setbacks

Posted on January 4, 2006 by Ben T. Smith, IV

One of the companies I work with had a big set back today..or at least they think so. They had a venture firm they really liked say thier deal needed some work.  It is a great deal with a great team but still needs a little work.  They fell for one of the great VC tricks on how much do you think your company will be worth.

 

Sound crazy and greedy or have a number so low no one is interested.

 

My big concern is them wanting to give up.  You have to wonder how many companies on this picture would have never been built if people had given up.  The valley does not give up.  We get side jobs, we do some consulting, we borrow from family and friends, but we don’t give up.  They won’t either.  Because the other side of what this VC said was this is the best team I have seen in this space, hands down.

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