Adventure, Observations, Photos, Venture

The term "Trail Angel"comes from the long distance (Pacific Crest Trail, Appalachian Trail) "thru-hiker" community.  Thru-hikers travel very light, covering up to 35 miles a day often solo.  Trail lore has it, when a thru-hiker needs help, it will  be provided at a time of need, by a trail angel.  Thru-hikers pass along angel reports, particularly locations of Shower Angels, folks who are legends for help near resupply points.  We learned the term from a through hiker who we helped with directions a few years back at a particularly confusing trail junction on the Pacific Crest Trail above our lake place.

Last week, Katie and I were standing confused, and jet lagged after an overnight flight, in front of a ticket dispensing machine on a trolley in Amsterdam.  The ticket machine would only take euro coins, we only had bills, the trolley was rolling down the street, Katie was giving me that look of "Dad are we going to get arrested for not buying a ticket?"  With that a young man stepped up, inserted his ticket strip, explained how it worked, and said "I punched a ticket for you too".  A true "Travel Angel".

Venture bloggers occasionally write about our process,  This post continues on the theme, how do VCs really make decisions that result in investing in a company.

A core trait of human nature is pattern matching past experiences to predict future experience. Listening to Blink by Malcom Gladwell, on the way to and from skiing last weekend may be partly responsible for this post. When talking with my partners or potential syndication partners it is very common to define a deal in terms of comparative references. Company X, has a similar model to company A and we all know how that turned out… Whenever we evaluate an investment opportunity we are constantly pattern matching to our previous experiences (25 deals over 12 years) and countless (100s) of deals that we didn’t do, including a number we wish we had.

Don’t worry if your deal does or doesn’t fit the patterns of a particular venture investor.  Patterns don’t govern if an investment will be made, sometime themes do but that is a different topic.   Patterns can provide you with a convenient way to harvest valuable experience.   In the give and take discussion, explicitly ask "does my proposal pattern match, positively or negatively on other deals you have been involved with".  My prediction is you will learn things that will help your business regardless of the outcome of any particular investment discussion.   If you keep hearing about the same problem or challenge to the model or strategy you are pursuing you will have learned something very important.

A CEO of a recent potential investments was presented with a challenge by the input our patterns provided. If his deal follows the patterns we have seen in a number of similarly structured companies, we expect that it will take twice as long to meet his projections and take considerably more money to attain his goals then he currently is planning to raise. This of course puts the CEO in a difficult spot.  Going to other potential investors and saying "hey these guys think it is going to take twice as long and cost twice as much", is a problematic fund raising strategy. By asking leading questions in future investment discussion the CEO can validate or not the issues raised in our meeting.

The irony in this discussion is we passed on the deal with the strongest pattern match in the set, it took twice as long, it cost twice as much and handsomely rewarded early investors…

In summer of 2007 I was very fortunate to be the adult leader of Seattle Boy Scout Troop 15s Trek, (route #26) to the Philmont Scout Ranch. As Crews heading for Philmont this summer step into the final training and planning stages, here are top 5 learning’s from our Trek.

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I co-manage a community blog at www.lakewenatcheeinfo.com.  Helping build a hyper-local community site has been a great learning exercise.  Last year Lake Wenatchee froze for the first time in 12 years, which provided lots of entertainment and some angst for dock owners with pilings.  We had a local email list which we used to run an ice break contest:

Ice + Flag + Webcam + Email = $ for local charities. 

The lake has refrozen this year, so we are running the contest again, with the added benefit of having a website where participants can track both the state of the ice, current entrants and the all the lake news that is fit to publish.

Bridge notes can provide investors with a discount in exchange for putting up money along the way to a major financing. Bridge notes can allow an individual or small fund to get into a deal when there might not be room in a round being funded by larger institutional investors. Bridge notes leave price negotiations to independent (often times angel investors personally know the entrepreneur) experienced investors. I have recently been asked to evaluate two investment opportunities that came from friends who are active angel investors. As is common, both of these deals were structured as bridge notes. Both of these deals suffered from the condition we call “A Bridge to Nowhere”.

Like the famous Ted Stevens earmarked bridge in Alaska, a bridge to nowhere can cost a lot of money with the added pain it is your money, not just some tax payers from the lower 48.

Bridge to Nowhere Symptom #1: Not Enough Capital Being Raised

Every investment round should have enough money in it (with buffer for unanticipated shortfalls) to fund a company to the next funding milestone. This is not a precise science. There are many ways these milestones can be cast, but regardless they need to be able to answer positively the question “will the accomplishments be sufficient” to motivate new investors to join the party. In a company without professional investors, this can be a big hurdle. This involves real on the ground accomplishments (beyond spending the cash on hand). Putting 1M into a deal that is going to require 5M - 8M to generate enough traction to attract a deep pocketed professional investor isn’t wise.

Bridge to Nowhere Symptom #2: Terms That Spoil the Deal

We have always been advocates of using the cleanest term sheet possible. Avoid special preferences, ratchets, punitive clauses we are definitely out of the build the company and good things will follow school of investing, others make good money by financial engineering.

Bridge to Nowhere Symptom #3: A Badly Priced Round

This one is a bit of an oxymoron, but bear with me. We recently saw a deal where the company had set a price for a small angel round. The price was, needless to say, very company friendly. This has bridge qualities, these funds will carry the company until it needs a larger professional round or the company becomes self sustaining. This next round has four potential pricing outcomes:

1. No additional funds are needed. The angels now own a small illiquid piece of a small business.
2. All is incredibly great and new investors are willing to do an up round.
3. More money is raised at the current price, which means todays money overpaid.
4. The only way to raise money is in a down round. Down rounds are bad for the current investors and cast a negative light on the company.

Is it ever prudent to invest in a bridge round. Absolutely.

1. When the funding source for the next round has been identified and has a high likelihood of completing the deal.
2. When there are deep pockets already at the table who believe in the deal and are willing to continue funding the company.

As a smaller fund, we frequently take bridge positions so we have a seat at the table. Good deals are a bit like musical chairs and small $ tend to get shoved off the last chair by bigger dollars.

I enjoy virtual vacations. I don’t read travel blogs, but I love reading “normal” if you can call any of my friends normal,folks experiences as they take a break from the day to day go somewhere off the beaten path and take the time to write about it. Tom Evslin a long time friend has been sailing in Mexico. He was offline when on the water, but has landed apparently found a connection, climbed to 7000′ and has a great adventure write up today. The Curse of the Tarahumara

Thinking about Tom’s post, brought back memories of the very early pre-blog writing of Mark and Greg, aka Wizmo and Gizmo. Mark and Greg did a series of motorcycle adventures and posted text and photos on a website for their friends to follow along. This all occurred before the word blog was invented. The website is still up and worth a look http://www.whizmoandgizmo.com/ They put tons of effort into their sites, including contests every few days. I did this last year on when Lake Wenatchee froze as an email based charity fund raiser and will do it again this week if the ice holds as an official contest at www.lakewenatcheeinfo.com

Seth Levine from Foundry Ventures in Boulder wrote a post a week back or so <Link> as a primer on how to do CEO reviews. In the comment stream the question was asked, who should deliver the review? In my experience this is best done by the Chairman/women of the board, aka the Chair. In my experience the Chair can provide a key mentoring and organizing role that makes a CEO’s job easier.

A few challenges:

• Boards aren’t always as effective as we would like. Agenda’s can conflict, personalities can be, well personalities.
• Boards sometimes need to be managed. Agenda’s organized, difficult issues broached. CEOs and particularly first time CEOs need help with these challenges.
• CEO’s need feedback more frequently then annual performance reviews. A best practice that we use is to always have an executive session at the end of every board meeting, without the CEO, followed by one on one feedback to the CEO.

An active, involved, seasoned Chair can provide a key role across these challenges. The Chair can help the CEO before meetings sorting out the agenda, in the meetings by running the agenda and after the meeting in providing feedback from the executive session. This helps the CEO organize the meeting beforehand. Insures the CEO is focused on the content during the meeting. After the meeting the Chair should provide post meeting feedback to the CEO and begin the planning process for the next meeting. The pattern makes it completely natural for the Chair to be in charge of the annual CEO performance review process.

Prototype post for www.lakewenatcheeinfo.com. I just couldn’t resist creating a post out of the following time lapse sequence. Sometimes technology allows us to see things we can only imagine. Thanks to our friend David Smith at www.zeitcam.com . Zeitcam collects webcam images from all over the world and creates daily/multi-day time lapse movies. To view gravity in action at the lake press [Read more →]

Before I was born, suffice it to say a long time ago, my parents acquired a Coke a Cola promotional Santa, yes that is a bottle of Coke in Santa’s right hand. This Santa graced our family Christmas tree until my folks needed to consolidate their ’stuff’ when they moved into their retirement apartment. The Santa came to live with us in Seattle and was resettled to our lake house a few years back.

My dad decided this fall that Santa wasn’t having a very good time in Washington State and that he should move back to California. Spending time separated from family at the holidays is always challenging. Instead of the traditional holiday phone call, I took a series of photos and sent them to my dad in a series of emails over the holiday. If I had my blogging act together i would have just put them here. The complete set, with the original email captions are available at: Santa Stories

My trusty Nikon D50 has been suffering from occasional freeze ups, with Err flashing in the display window. I searched on the web for hints and found a number of reports of this problem, all with the solution “take it in for service”. In my case the err appears when using auto focus, the camera freezes and Err flashes in the display window on the top of the camera. I had the camera cleaned and tuned up by Photo-Tronics link in Seattle The error has returned twice since servicing. The first time it went away on it’s own.

Yesterday it occurred again. While playing around with the camera, trying to get the error to clear, my friend Michael took a photo in Manual mode. Magic error gone. Data Set of 1 is not a conclusive solution, but it did work once.