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Sunday, October 04, 2009

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clive boulton

I found the cursing/swearing kept my attention from skimming to the last paragraph.

Living a dogs life -- BECAUSE I CAN

Kevin Evans

I'm with you Dave on this.

Small and frequent exits create a liquid market which encourages seed/angel investment. Angels thus have a higher likelihood of getting their money back + return.

This is so important in countries like the UK where the angel community is conservative and risk averse. Early stage VCs don't exist at the same level as in the US either so our equity gap is large and difficult to fill.

twitter.com/waynewillis

Don't overlook the opportunities for partial liquidity -- which have the benefits of giving the entrepreneur a) a meaningful sum to bank, b) a "success" leverageable into future startups, and c) major additional $$ upside in future liquidity events. This liquidity event can come when a private equity firm wants to buy in (and will allow existing investors and founders to take some out) or the eventual acquirer is interested in an "earn out" which has significant upside opportunity for the founding team (who stays to build the company according to the vision agreed upon).

Ted Pearlman

I'm not a big fan of Jason Fried. But I do agree with his third point:

"Young entrepreneurs should be more bold, audacious, go all-in on their vision, in order to "kick the ass" of the collective incumbents / dominant players."

Sure, if making money is your goal, then, by all means, dismount and sell. If your goal is spreading your vision and making an impact in the World, stay on the saddle.

John Stack

I was conflicted when I read this. I agree with your points but not the style in which they were made. Greed is good. Entrepreneurs - including VCs would not be doing business - any kind of business if it wasn't.

twitter.com/broukhim

Love it. Keep it up dmc. I don't understand why people are convinced that VC's (or exits, for that matter) either have to be "good" or "bad," when they're rather "appropriate" or "inappropriate" depending on the company, entrepreneur, etc...

Also, fwiw, I think the sailor swearing is actually quite effective.

Stupid calling another stupid

You have great points, Dave. Unfortunately you end up sounding like an uneducated drunk with all the swearing. Swearing is for stupid people who can't express their thoughts using proper vocabulary. Time to hit the dictionary Dave.

meh

I have always thought Jason Fried was a pontificating douche. He is constantly talking out of his ass so I am glad someone finally called him out.

Christopher Comella

People see things how they want to see them. In this case, Dave is really "talking his book," as they say. He is conflicted and has a vested interest in defending his interest. Not that there's anything wrong with that, it's natural response when someone has something to lose, but these people (anyone in the VC food chain) are totally conflicted. How do I know? I used to be in the biz.

Bottom line, most founders and startups are better off bootstrapping and positioning for an early exit than chasing VCs. Let the VCs chase them. Only reason you should take VC money is if you don't need it, if you can drive the deal.

Mark Sigal

Strangely coherent, and well argued, almost to the point of defamation. Just kidding on that last point. ;-)

I think your analysis is dead on. The challenge is that most acquiring companies do M&A really poorly from a post-acquisition ‘integration’ perspective.

If this is to be a long-term trend, and I think that it is, then companies have to get a lot more rigorous about this piece of their M&A strategy.

Provocative post. It is a bit quizzical that so many people think that the entrepreneurs in these cases aren't totally high-fiving!

Mark
--
Innovation, Inevitability and Why R&D is So Hard
http://bit.ly/Y8kcH

Dave McClure

agreed with others above that Fried didn't use "forced" in his post... altho i think the interpretation is strongly suggested in his first paragraph.

the word is left in, but now unquoted.

damon billian

Causing trouble again, eh?

While I may have a somewhat biased view having worked with both you & at Mint (disclosure: I have no options from Mint) , I think the sale is a good thing for Mint (and Intuit) long-term. Intuit gets a great team and technology/idea, and Mint will have the resources to support Aaron's vision of making personal finance easy for your average customer.

37signals is obviously very good at what they do, and I admire their feisty spirit a great deal. But how they run their business won't always apply to some of the organizations they've recently criticized in their blog posts & I don't think the positives were looked at for Mint consumers in this particular context (yes, I do realize some Mint customers were unhappy with the deal...the same thing happened when eBay bought PayPal).

An interesting thing that comes to light in the comments here...a lot of people don't seem to like VCs very much:) Dave, as well as other VCs, provided a lot of solid mentoring and advice to Mint & that doesn't appear to be coming up as part of the overall discussion.

Christine Lu

Dave, you are fucking awesome. Just wanted to make sure you knew that.

twitter.com/talbroda

Dave,

I must admit that when you came to speak to my class in the Berkeley-Columbia Executive MBA last year, as part of Steve Blank's Advanced Entrepreneurship class, I did not appreciate what you bring to the table as much as I should have.

You are clearly a very seasoned investor, and have a deep understanding of what's good for the market as a whole.

Thank you for one of the best posts I have read this year, and fuck those who just focus on the language :)

Tal.

twopaths

Dave's path: become a serial entrepreneur and flip your startups early and often. Who gives a f*ck what the startup does really.

Jason's path: build a company that does something of quality and true worth. It may take longer, but it's much more rewarding.


Ed Anuff

Great post, Dave. The thing I'd add is that you really need to have a plan to run for the long haul, whether or not you're going to take an early exit. I've seen too many entrepreneurs build a Potemkin Village thinking that they're going to game the system and get the quick flip. That strategy is really transparent, and only in the frothiest acquisition markets do they get rewarded for it. In most cases, the good buyout offers, early or late, come when you can credibly state that you're prepared to stick it out. No one's going to pay a premium when they can wait for 90 days when you're going to fold, and just buy your assets and get your team for the price of a paycheck. On the other hand, I've seen and been involved with several startups where there was an early exit opportunity that was turned down that in hindsight would have been a better outcome for everyone involved by orders of magnitude.

Matt

You are hypersensitive and have misinterpreted and misrepresented much of what Jason was saying. You also sound like pretty much of a douche.

www.facebook.com/profile.php?id=568105766

As they say... people dig the long ball, it is sexy and will make folks stand to their feet. But without these singles, doubles, and triples you can't win the game. Investors should know to field a viable team you should always put yourself in a position to win. A team of home run derby players will result in a lot of strike outs as well as home runs. But a team that is balanced with good power will win championships.

I applaud the exit of Mint. The talented entrepreneurs who built it can build the next big thing and become serial entrepreneurs.

Marah Marie

I think the writing style is a little bipolar: starting off cursing and making huge, colorful (literally colorful) statements is one thing and deserves its own space - as a rant. The rest of the article, which I found quite informative and amenable to my own opinions, deserved its own space, perhaps on another page of this blog.

It is like the author calmed down at the three or four paragraph mark, then proceeded to tell us in much clearer language what he was talking about.

It's a rant or it's a well-written opinion piece; unfortunately, it does not go over as well as it could to make it both. :)

Not that I haven't suffered from the same poorly thought out errors in writing style myself, both in public and private...I most certainly have. Just sayin'...

Ben 'potty mouth' Metcalfe

To the people who don't like the language in the post - they can go fuck themselves in the right roaylist ways of fuckery.

There's some quality insight in this post and I can very much identify with the notion of presenting advice and opinion in a package that falls outside of the norm or the expected.

Not everyone is going to speak or look like you, so fucking get over it. Point is there's something valuable here, so adapt or get off.

Fred

+1 for Jeff Pester's disqus request. sadly, getting it to work on typepad is not easy. but that's how i roll.

Jeremy Zawodny

Dave, you crack me up. Well done! :-)

twitter.com/walkercorplaw

Interesting post, David. I just wanted to make a few quick observations from the perspective of a practicing corporate attorney who has no “skin in the game” whatsoever. (The numbers below correspond to your numbers.)

1) Jason Fried did not use the term “forced” in his post. Indeed, I think it is irresponsible of you to use such term in quotes -- thereby implying that Jason used such term. To be sure, Jason merely provided in relevant part that: “I’d bet this sale was encouraged by a Mint investor” -- which seems like a reasonable speculation. Moreover, your vitriolic personal attack on Jason undermines your argument.

2) You are correct that “the ‘growing trend’ in internet deals is towards more and smaller acquisitions”; however, again, Jason did not use the term “growing trend” in his post nor is the thrust of his argument that VCs are “forcing premature acquisitions.” Instead, he’s calling out to entrepreneurs (on an inspirational level) to stay in the game and to realize their vision. Moreover, it is self-evident that VC firms are under extraordinary pressure from certain limited partners to liquefy their investments. Stanford’s recent attempt to unload $1B in illiquid assets is but one example (see http://bit.ly/303wyz).

3) Your advice to first-time entrepreneurs – i.e., “to get a deal done” – is spot on. Indeed, I work with a lot of first-time entrepreneurs, and it is extremely difficult in the current environment for them to raise capital. As you aptly point (and I cannot emphasize this enough), “[o]nce you have a deal under your belt . . . you are bankable.” I don’t think this is necessarily inconsistent with Jason’s post; again, he is speaking on a broader level.

Many thanks,
Scott Edward Walker

jd

The problem with the rant is that Fried doesn't even mention the word "forced" and barely even implies it. A VC who _allows_ a sale is encouraging more than discouraging. The bulk of Fried's post was noting that it's unfortunate that an innovative upstart with a bright future sold out early to the less innovative old guard. Seems reasonable.

Mike

@docmurdock really dude? for someone who's been doing this a long time, I don't think you really followed the post much.

a) Not all the VCs made out, esp the ones that got in a few months ago at $140mm only to see it sold for $170mm. They likely could have done better if they put the money in AAPL or GOOG over the same period of time.

b) You know who made a lot of money? The CEO. Most of the time the problem goes the other way. The entrepreneur only has this one shot at $$, while the VC has an entire portfolio. So the VC tries to force every single investment to shoot for the moon, and if a few (or most) go bust along the way, so be it. The entrepreneur has one shot only, so most of the time they would prefer to cash out early and bank the money, esp if they're young.

c) Given that Dave is an investor, either he's going REALLY far out of his way to lie and cover up, or he's telling the truth. He should know what went down.

BTW Doc, half the links on your site are broken.

And finally, @dmc:
dog ball licking FTW! http://i284.photobucket.com/albums/ll13/NotEinstein/Humor/dogballs.jpg

Kieran ONeill

Enjoyed the post, thanks Dave. Don't listen to these guys - the swearing and colours kept it fresh :)

Jeff Pester

Great job, appreciated the breadth and depth of your counter-argument to Jason's original post. I too have a lot of respect for what he's done with 37 signals but sometimes his perspective is overly myopic and self-serving.

Side note; I find it interesting/humorous that the people complaining about Dave's use of "colorful" language do so either anonymously or without a link identifying themselves.

This is who Dave is, deal with it :)

BTW Dave, would be great if you could install Disqus as your commenting solution.

Steve Gillmor

I found the language highly objectionable and why I stuck with it until the point settled in. Good fucking job.

qthrul

I'm glad I got to meet you (briefly) during TC50 over drinks. Having a voice and demeanor to read this with is a real treat.

As for the potty mouth complaints... right. "Bend over" as a title and visual truly raised the dialog.

Transactions are far more interesting than the alternative. Kudos for amplifying that point.

Justin

This post might be bearable to read if you hadn't spent most of it blowing Jason's post out of proportion and attacking him personally. A simple "The Mint sale was not forced by investors, and here's why" post would have been way more useful.

Tom

All I heard was immature language...what was your point?

Jan Schultink

How did you manage to set that bit.ly URL?

Hillel Cooperman

The main problem with many of these observations is that they make it seem like there's only one path.

I generally believe that building things to last is what really grows our economy and moves us forward as a society is the creation of institutions that last. I think that people tend to create amazing things when they take the long term view, and I believe that really amazing advances and innovations come from people who have a long term view.

That said, I don't think that a company selling out is necessarily a bad thing. I may lament what they could have accomplished on their own, or what might become of them as part of a larger organization.

Ultimately, it doesn't really affect what I do either way. If a company's goal is to sell, or if the situation presents itself and seems like the right thing, then more power to them.

John

I found the cursing/swearing to detract from the overall argument.

Anoynmous

I am pained by a writing style of a person that I look upto. I always forward the blog posts/slides of Dave to all my friends. But, today, I am ashamed of this blog post.

Yes, it is possible that Jason Fried is incorrect in his analysis. But, insulting him in public by such an influential and respectful person (Dave McClure) is beyond professional courtesy.

Mario Aquino

Me thinks the lady doth protest too much.

Mark Miller

Wow someone is drunk on the cool-aid (that may explain the juvenile writing style.)

Mint was a small flip in comparison to Zappos and Omniture. Both companies have been strong armed to sell out for billions. This is not conjecture or rumor as Tony and Josh the respective CEO's have both been vocal and public about it.

The point you overlook (or avoid) is that any company traveling down the VC path looses control of the exit. It simply is not their own, or the VCs but the VC overlords; LP, Pension Funds, Investment Banks, Insurance companies and others who control the money. The VC will simply bow to them and their demands for quick returns. Forced exits are now the norm.

The one in a million company that is able to start, grow and thrive without tapping the capital market is exceedingly rare. Yet its the benchmark for most entrepreneurs and VC alike.

This process simply sets up the entrepreneur and VCs for failure due to lack of resources time and support. And those companies that do not fail along this path due to hard work, smarts and luck are forced into an early exit. And that is the root of the debate - who should control the exit and when.

Tim

Thanks again for using bright colors and for including pictures of fish and dogs. Makes it one of the few blogs my 2-year old finds entertaining, too! ;-)

www.facebook.com/profile.php?id=589275504

Thanks, this needed to be said.

Disagree with "Keeping competing VCs, and even sometimes their own LPs & entrepreneurs in the dark about value and pricing is sometimes in their best interest": I think some old school VCs think that being intransparent can be in their interest. It's not. Liquidity and transparency are good for everyone except the guys still playing at old boys' club.

Max

Giancarlo Gonzalez

So Amazon's acquisition of Zappos was at what time? curious to know your thoughts there...

best,

giancarlo

doc bobbin

Well I must say this is rather timely

Wil Schroter

Fuck yeah Dave.

I like the spirit of what Jason is saying - he's sticking up for entrepreneurs, and that's good (and I know you'd agree). But you can't make big statements on a big stage like that without knowing your stuff.

The whole premise of his post is based on a forced sale, which really, you have to have a hell of a lot of knowledge about in order to create that strong of a statement.

And yes, as a serial flipper myself, I can tell you that the only people that complain about exits are the people that haven't had them.

Indus Khaitan

The single reason every event at the local Plug n Play or SF Tech Meet is full house is due to the sheer power of the "exitable equity".

Exits like Mint keeps the innovation cycle on the roll.


www.facebook.com/profile.php?id=625466084

Thanks for providing a counter-balanced argument; that way startup founders can weigh both sides and decide for themselves which is in their best interest and is more aligned with their goal.

If I may add, it would probably tip in your favor.

Cheers.

Jay Liew
@jaysern

Dave McClure

thanks michael, but i disagree & i think you may have mis-read (or not read?) my post.

the image / allegory to Gordon Gekko was used for emphasis, however the point i was making was actually about selling small, not big.

and for the record: i don't know if you're much older than my 43 years, but started programming ~30 years ago, have worked in Silicon Valley for over 20, founded & sold my own business in the 90's, worked at PayPal in the early days before IPO, ran marketing for a few years at Simply Hired, and -- as noted above -- was an investor in Mint.com, as well as over 50 companies in the past 5 years.

i may swear like a sailor and i may be an blithering idiot, but i've been around the block.

kisses,

- dmc

Michael Murdock

Wow, all those red letters and cursing really drive a point home. I started to laugh and then simply felt sad.

The Mint.com buyout was good for Intuit, bad for MINT and good for their VC's. They got their money. Now whether or not the public has a benefit in this is derived from Intuit and it's basically squashing out a website that was much better and more informative/intuitive than its website which it's built over many years.

Serving the greater good of the buying public and providing up to date financial information as well as alerts was a good thing that Mint provided.

Intuit has yet to update a flagship product of its for a platform that it started on in more than 2 years. Responsibility to its buying public it does not feel.

Gordon Gecko was a movie character and while the movie was good, one of the real life basis for that character ended up behind bars and LOST MILLIONS, so perhaps greed is good, but yet it's also a pain in the backside when your cellmate decides you took advantage of his relatives savings.

Nuff said.

Michael Murdock, CEO
DocMurdock.com
ceo@docmurdock.com

p.s. anyone can talk and rant like a sailor, but simply sharing ideas is much more powerful than the waaaaaa atmosphere of your blog posting. Just a tip from someone who's been doing this much longer than you have.

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