Okay. I hate to say it....I hate to admit it. But last night, I note only found myself watching the American Idol Gives Back Episode and was amazed to learn they had 70 million votes....but I also ended up contributing $250 to the show. I was sucked in...schmaltzy, cheesy, whatever....I did it and I admit it....and I'm kind of a little proud. I'm really becoming a sucker now.
The Kefta Story (Part II)
Part II - May of 2003
- After a lot of hard work in early 2003, the company was making some decent progress with large enterprise customers like Societe Generale, Verizon, and other large customers and had gotten some of the customers to renew their annual service contract. (FYI -- Kefta sold an annual service contract) The company needed additional investment to continue to scale sales. Kefta negotiated with its current investors and managed to structure an internal round of $2,000,000 investment. The investment was going to be led by Amicus again. Softbank agreed to participate if and only if Amicus would. Softbank didn't want to carry the financial risk of the company alone.
- There were a bunch of partner meetings at both Amicus and Softbank to get the required approvals necessary to complete the round -- and ultimately Philippe was successful. The round was schedule to close in May 2003.
- This is where the story gets really interesting.
- I remember well the call at 10:30PM from Michael Samols of Amicus -- the day before we were scheduled to close the financing. He said, "I've got cold feet and I'm not going to close tomorrow". I could tell by the tone in his voice that this wasn't negotiable. I'm not sure what exactly caused this to occur but for any entrepreneur who has been in this position -- it sucks. I called Philippe.
- On Friday, Philippe had a board call. The board consisted of Brad Feld, Michael Samols, Michael Oiknine and myself. Without the $2,000,000 the company was in a terrible position. At the time we had more than 10 employees, but the company didn't have the cash to meet payroll the following week. We decided to take the weekend to see if an alternative financing path to save the company existed -- and if not, we all agreed that on Monday morning we would start acting on behalf of creditors and start to wind the company down as gracefully as possible. Again, for context, there were lots of companies going bankrupt from the crash of the bubble. In fact, Softbank was so adept at dealing with this that they even had a consultant who specialized in liquidating the assets of failed dotcom companies named Marty the Cleaner.
- I had convinced one of my partners from abuzz, Shaun Cutts, to invest in Kefta's B round. He had put in around $100K in that round. When the company was in this aborted financing crisis, Shaun agreed to lead a group of investors in creating a cram down "save the company" investment. He ultimately invested an additional 130K into the company at a very low pre-money valuation. The founders including myself each put in approximately $20K and Softbank agreed to put in 40K. All total, Philippe and I managed to raise about $250K that would be put into the company. However, the investment was contingent on Philippe being able to get Amicus to sell their stock back to the company and approve the financing.
- You would think that after pulling out of the investment at the 11th hour, that Amicus would act contritely and would gracefully write off their investment and step off the board so that the entrepreneurs could carry on with what the VC had determined was a pointless effort. That is not what happened.
- Due to confidentiality reasons, I can't tell the whole story here....suffice it to say that it was interesting to live through and experience. Ultimately a deal was reached whereby the company would buy back Amicus preferred stock at a low cost on the dollars they invested.
- A small amount of money came into the company and the founders lived to fight another day.
Acxiom acquires kefta: Part I of the Kefta story
In recent weeks, Kefta was acquired by Acxiom for an undisclosed amount (it was a good exit).
The story is one that is filled with good karma, good entrepreneurial lessons,
and ultimately makes a great story. The most notable part of the company
story from my perspective has been the founder perseverance in the face of
adversity to bring the company back from the brink of bankruptcy in 2003.
Philippe, Michael, and Fazal should be congratulated for an outstanding job.
The blog version of the kefta story follows:
Part I - 2000 to 2003
- Kefta was started in January of 2000 by Philippe Suchet, Michael Oiknine, and Fazal Majid. I was also given honorary co-founder status.
- The company started as an email version of All Advantage. Use our email client and get a cut of ad revenues for promoting companies (or something like that).
- I was an EIR at Softbank and managed to convince Rex Golding and Brad Feld to make the initial investment.
- The company couldn't think of a company name so used kefta as a placeholder -- the founders used to eat kefta kabobs. Obviously, the name stuck.
- In the first 6 months of the company, it became clear that keftamail as a consumer play wasn't likely to work. So the company shifted to more of an enterprise model. Remember the timing here: April of 2000 everything that was consumer internet was dead. The company retooled and started to sell a set of marketing solutions to enterprise customers which first included a refer a friend product.
- In 2002, the company raised a Series B round that was led by a small bay area VC firm called Amicus. There were two partners at Amicus Capital : Bob Zipp, the senior partner and Michael Samols the junior partner. Michael Samols ultimately was the point partner (but didn’t have total authority) and made the decision to invest in Kefta. Kefta managed to raise this Series B round on the backs of one big French customer called Societe Generale. The company had moved from just selling refer a friend solutions to selling suite of solutions that would enable marketers to significantly improve online revenues with better site conversion.
Stay tuned tomorrow for Part II of the story.
Sell that bridge note today and price it on Tuesday
In other words, this post could be titled the an angel investors problems with convertible bridge notes.
From an angel investor's perspective, bridge notes are often too entrepreneur and company friendly. (Remember, I am an entrepreneur).
The big picture problem with bridge notes
The real problem with bridge notes from the angel investor perspective is one of timing, risk and reward. The angel invests today and gives the company capital to create value that ultimately gets priced (valued) tomorrow. The value of the capital that the angel parts with today and associated risk is HUGE but under the structure of the bridge note the angel investor is not able to capture the real value of the capital and risk that is being undertaken. A good metaphor for a bridge note comes from Wimpy and Popeye – the entrepreneur will gladly sell you a bridge note today and price it for you on Tuesday.
The second problem is that the convertible bridge note structure gives the angel investor too much price uncertainty. In order to invest with confidence, it's much more useful to know the price of the stock. If the price is good, the angel is more likely to invest more. If the price is bad, the angel is likely NOT to invest. The uncertainty surrounding the price of the underlying security in a bridge note makes it difficult to invest with confidence. So, in a weird way the bridge note actually acts as a deterrent to angel investing (it does to Geoff and I at least). Investing in start up companies is risky enough, investing using bridge notes makes the investment game even more like a game of roulette.
There's another problem with bridge notes ....there's not a standard structure and they're often implemented in a way that favors the company too much. The biggest issue I've seen is the way in which bridge notes handle the event of conversion if a Series A round is not achieved. Often, there is no clear provision for this whatsoever. This is unacceptable as an investor. If the milestone of teh institutional round is not met within a reasonable period of time (i.e. 6 months) then, in my opinion, the note should automatically convert into a preferred security at a set price that is stated in the bridge note.
I'm sure that there are other problems that I'm omitting but I think I hit on the big three problems. More on bridge notes to come. That's it for today.
Seattle Open Coffee is a good event!
We had the second OpenCoffee meeting today at Louisa's. I was worried because I didn't send out an email or publicize it in any way....and lo and behold, 13 people showed up. I think this is going to be a good event in Seattle.
I didn't have my camera so no photos this week but you can imagine what 13 entrepreneurs drinking coffee in a Seattle cafe looks like.
It is interesting that no VC has yet to make an appearance at the event. I'll try and invite some for next week.
I should mention that a few people even made it over from the east side. Special thanks to them -- tells me there's a real need for this.
So the specifics of next week are the same as this week.
Every Tuesday, 8:30AM - 10AM, Louisa's Cafe on Eastlake in Seattle
sawickipedia
A short but good post in response to my google post from a friend.
Google as the new Microsoft
We just had a management meeting and someone said, "Google owns the internet and let's not forget that". Anyone who doesn't deal with that reality in the startup world, isn't dealing with reality.
Google's deal with Double Click only increases their market share and they're already using their position to their advantage. I don't think it's good when companies get this powerful -- but it's the facts, gotta deal with it.
I predict more and more law suits for google and more and more attorneys for google's payroll. This is very similar situation to Microsoft in the 1990's.
What's a blog?
We had friends in from out of town this weekend. They are a nice couple in their late 30's. The man is a real estate developer and the woman works for a non-profit. THey had heard about blogs but had never read any. I found myself explaining things I take for granted at this point:
- what is a blog,
- why people blog,
- why I blog
- how to find blogs you like
A few things surprised me:
- I found myself saying that I get about 75% of my news from blogs. That after reading google news and CNN, I turn to my favorite 20 blogs for interesting reading each day. It's part of my ritual. They (and I) were surprised by this statement.
- My answer to how to find a blog was -- Finding a blog you like is like finding a book you like....except it keeps living. I told them to check out technorati (which they hadn't heard of)
- Talking to novices is fun
A good week
It's Friday and I'm feeling pretty optimistic about life despite:
- Having a cold
- Being in a dispute with the contract on my remodel
- Having a disagreement with my wife
- The supreme court decision regarding abortion
- The war in Iraq
- Still being above 200 lbs.
- Not moving as fast as I'd like at Judy's Book
- And all the other shitty things like global warming etc.
Why...you ask?
- It's sunny
- My kids made $19 at their lemonade stand last night after work (it was awesome)
- My good friend doesn't have terminal cancer
- There's progress in my fitness and at Judy's Book
- It's Friday
- I'm alive and healthy.
Love these market numbers
Greg Sterling -- one of the leading analysts in local search has written a couple posts about what we're doing at Judy's Book. Check the full posts out here . I love these market numbers though (taken from his post)....
Of course, people love deals and saving money. But you still might be surprised to hear that the total face value of distributed coupons in the U.S. was a whopping $332 billion in 2006 (most of which were never redeemed) and that more than 79% of the U.S. population uses coupons. There are also data that show more than 50% of Sunday newspapers are purchased for the coupons.
Judy's Book -- Let's go, go, go!
Fast food version of Lipstick on a pig
You have to check these photos out of the pictures of advertisements for fast food and the real photos of the same products. It's awesome. The originals were posted by Jackson Fish.
Seattle Open Coffee a big success
This morning we had 14 people attend the inaugural Seattle Open Coffee. This far exceeded my expectations and I look forward to doing it again next week on Tuesday at 8:30 AM at Louisa's on Eastlake in Seattle. If you're an entrepreneur or just interested in entrepreneurship come join us.
monday morning lessons from my son
Had a rough morning today. My son didn't want to go out with pants that have a zipper or button because he is unable to go to the bathroom on his own. He strongly prefers pants that he can just pull down and then up without adult assistance. Perfectly logical request for a four year old. The manner in which he communicated this request left something to be desired....even if it was effective. It made accepting the request a real challenge. I've witnessed myself and others make this same mistake over the past week.
Check out CouponLooker
My team at Judy's Book has been hard at work lately! They've just released a little experiment that I think is very cool -- it's called CouponLooker and simply put is the best way to search for a coupon online (period, exclamation point). !
WHY COUPONLOOKER MATTERS?
People love to save money! And thus, many people love
coupons. When shopping online, most online checkout forms have a field
for coupon code entry. It's a pain in the ass to find the right coupon code to
put into the box to actually save the money. (this probably isn't accidental). Google and other companies don’t make it easy
for consumers to find this information. Couponlooker is designed to solve that
simple pain -- and to save people money....which is something that the entire
team at Judy's Book has gotten obsessed
with recently. Moreover, CouponLooker would not be possible were it not for the engine that we're building at Judy's Book. More cool stuff to come!
We monitor top coupon and deal sites, extract online coupon information and
then de-dupe and surface the best coupons. We display data like the coupon
code, the store, and the expiration date to save users time and effort. Because
we’re focusing on finding coupons as opposed to web pages about coupons we do a
better job than other sites. (I think)
Please check it out and let me know what you think (give me feedbac) via email at :
info at couponlooker dot com.
You can also check out the coupon widget right here on my blog....
Seattle Tech Entrepreneurs networking is improving
There's a small group of technology entrepreneurs (mostly CEOs) who are getting together once a month for informal dinner, drinks, talk, and the occasional poker game. I went last night and got home at 1:30AM. Had a really fun time. All the people there were high caliber. This was our second meeting. If you'd like to be invited to the next one please email me -- while this is an invite only event out of necessity, it's an open good group. Maybe there is hope for networking Seattle entrepreneurs.
Reminder: the first Seattle coffee club is next Tuesday. I look forward to seeing you at Louisa's on Eastlake.
Speeding ticket in California
Back in January, I got a speeding ticket on one of my trips to CA. I promptly lost the ticket. I can't remember what police department actually gave me the ticket. I just know it was on 280. I'm trying to track it down but having a heck of a time. Is there some online database for doing this? Can anyone help me?
It was just 10 years ago that you could get a ticket in one county and not worry about it in another. Not anymore. Made me think about the progress cities and towns have made of interconnecting all the different databases to track people. We've made a lot of progress and still have a lot of progress still to make.
Kefta acquired by Acxiom
This past week Kefta was acquired by Acxiom for an undisclosed amount (it was a good exit).
The story is one that is filled with good karma and good entrepreneurial lessons. The most notable part of the company story from my perspective was the founder perseverance. In the face of market and financing (i.e. venture capital) adversity, the founders managed to bring the company back from the brink of bankruptcy in 2004! Philippe, Michael, and Fazal should be congratulated for a outstanding job!
I'm going to blog about this story over the next few days....stay tuned.
blog traffic
Wow. Lesson learned. If I miss blogging for a day or two, my traffic seems to fall off the floor. I'll try not to miss days going forward. Sorry folks.
Seattle Open Coffee Club Trial
I've long complained that there isn't more early stage entrepreneur and investor networking in Seattle....so I decided to try and do something about it.
I'm going to try this format and see how it goes. I'm setting up a weekly meeting at Louisa's on Eastlake, Tuesdays at 8:30 AM starting on April 17 2007. Come have a cup of coffee with me and others.
And please spread the word!! Check it out here.
Time as the enemy
I wrote yesterday about time being the enemy....people want to know why?
It's simple. Judy's Book is onto a new evolution of its business. I'm feeling good about what we're doing but we've got to move faster. I think there's a real opportunity to grow a business in the local shopping space and we're very well positioned to execute on the opportunity ....we just need to move more quickly on that opportunity. More product evolution, more consumers, more traffic, more revenue....yesterday.
There's a second reason time is the enemy. As a company that is evolving it's business model fairly significantly and approaching it's 3rd birthday, there's an even greater sense of urgency to get it right and make substantial progress quickly. Everyone's patience (including mine) for getting it right is that much thinner than when you just start out -- that's just a reality that I deal with each day and in that way, time is the enemy.
I want to be clear -- my post about time was not as some reader has suggested that we are running out of cash (we've got plenty of runway thankyou) or out of business.
