No new cash for the next 12 months?!

I spoke with an entrepreneur today who used to be in the private equity world. He is trying to raise $3 million at a $12MM pre-money for an early stage environmental company. I told him that Founder's co-op would not be a good fit as a capital source. I asked him how the raise was going and he told me it was the toughest capital market he had ever seen.
I think he's right about the capital markets. I'm telling the companies that I'm involved in that they need to assume that they receive no more cash for the next 12 months. I don't know if it's true or not but it's a good mind set to have.

Movie recommendation: Slumdog Millionaire


Slumdog Millionaire, originally uploaded by a sack of seattle.

I had the pleasure of seeing this movie over the holiday weekend. I recommend the film without reservation. The movie was the best movie I've seen all year -- truly an exceptional film. I won't give away the plot or tell you anything other than it's great and go see it. I must admit the timing of the release of the movie and the recent terrorist events in Mumbai are ....well ....odd?! incredulous?!

And coming to a theatre near you....the commercial mortgage crisis

This was taken from an article I read yesterday. Read the entire article here. 

The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won't write mortgages as long as investors won't purchase them.

"Credit markets have seized up," corporate securities lawyer Michael Gambro said. "People are not willing to take risks. They're not buying anything."

That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.

"The system has never been tested for a deep recession," said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.

One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.

Saving Citibank makes the market skyrocket, makes me look for cover

I think this Citibank deal is a really bad sign. 

Having to guarantee $300 billion of crap (i.e. bad loans) in order to save one big bank is just nuts.  That’s $1000 per American citizen.  And just a month or two ago, Citibank was one of the "strong" banks bidding on Wachovia.  So it makes me wonder, just how bad are things at the other "strong" banks?  I know George W. Bush says we can do more of these deals, but it makes me question how many of these deals we should be doing! 

You can read a related article on this topic here.

Let darwin solve the US auto industry crisis

I did like the idea I heard on CNBC last night.
The idea was a darwinian strategy for dealing with the auto industry debacle. Simple put, the 3 auto companies should be called together and told that the US government was going to give 25B to one of the 3 companies and the government was going to let the 2 other companies fail (or just not support them). The companies would have to go off and negotiate with unions, sub contractors and come up with the best plan to present to a panel of business execs. The winner of the contest would get 15B today and another 10 in 120 days if the company made progress on its plan.

Headline: Reality slaps entrepreneur in face

That's what's going on right now. Entrepreneurs everywhere are being slapped in the face by economic realities.   Lower sales, lower margins, lower valuations, fewer investors. That's the plight that I'm hearing as I have coffee after coffee with entrepreneurs. It's harsh but true.
I've had two companies that I'm an adviser to decide to shut down operations. Both companies are run by reputable, experienced entrepreneurs.  The entrepreneurs realized that their dreams of making millions in the sale of their company or in an IPO are not going to happen and they've decided -- with no alternate financing options to shut down oeprations. I think this is just the start of the 2009 cold winter bringing the deep freeze to many entrepreneurs' dreams. It may be reality, but it isn't fun.

Buy one Chrysler Avenger, Get one free

“Buy One, Get One Free” - That was the offer last week in the United Kingdom. But the two-for-one sale wasn’t for bags of potato chips or loaves of bread at the supermarket - it was for cars.

U.K. newspaper The Guardian reports car dealers across the country were doing the unthinkable to unload excess inventory. They were selling Dodge Avengers at 2-for-1. The gas-guzzling Avenger, made by Chrysler, has been one of the worst-selling cars in the country where gas will run you $5 a gallon (even with oil at $50 a barrel).

I read the above in a full article here over the weekend and thought it was worth re-posting. 

For what it's worth, I'm against the bailout or rescue (or whatever you call it) of the automotive industry. I have some understanding of how complex of a matter letting them fail is -- however, one can't get over the fact that the US auto companies fundamentally suffers from an inability to make cars customers like and will buy.  So, no matter how complex the failure of a GM or Chrysler -- the foundational problem is a company that fails its core mission -- its reason for being -- isn't worth saving.

I'd rather see the the monies that are being tossed around be -reinvested into the people that would be laid off.   Invest in a special re-training and re-employment programs. Give the employees a longer transition time because the economy isn't going to be able to re-absorb them quickly.  

Just my 2 cents from the sidelines.

The connection between economic and environment fuck ups

Forgive me for the expletives but I heard a presentation today about the state of the environment.  Wow. I don't know what to say other than we're fucked.

The interesting thing about the presentation is that the similarities between today's economic crisis / disaster and the upcoming environmental disaster.  The foundation of today's economic crisis were seen by some many years ago but we as a human race aren't able to do anything about it until imminent danger is upon us.  In the presentation, they talked about how we as humans don't act because climate change is:

  • invisible
  • with complex causality
  • caused by all of us (as opposed to someone else)
  • unpredictable and inderect impacts
  • unprecedented (no real history for it)

  • drawn out (as opposed to immediate

Doesn't most of that list look like it may also apply to the economic crisis about 2 years ago?

Economic reality is setting in on entrepreneurs

I've had a number conversations in the last week with early stage companies who are still holding onto too much hope with regard to the prospects for investment.  I hate to be the harbinger of bad news but getting investors -- whether that be venture capitalists or angel investors -- to part with cash this year is very unlikely. I don't want to say it's impossible, because we're looking at making a couple of investments this year. But, I'm still seeing too many entrepreneurs with expectations that are too high for the prospects of their company and the respective valuations, terms and likelihood of an investment. And, I'm still seeing investors holding onto their cash like a life raft.  Realistic expectations, perseverance, and innovation are the mind set that entrepreneurs must have toward managing their companies through this period.

Some thoughts post web 2.0 conference

I was at web 2.0 last Thursday and Friday and had a good time. I've been attending web 2.0 since 2004 when web 2.0 was born.  I remember because I was there right after George W Bush was re-elected.  The mood at that time was somber disbelief politically and a sense economic opportunity elation (if that's a phrase).  This past week was the opposite. Political relief, elation and awe over Obama and a real sense of economic sobriety. 
That said, it seemed like it was business as usual...just slower with less enthusiasm.  There's a real sense that hard times are upon us but hope springs eternal amongst the entrepreneurial crowd.  People are still looking at starting companies and getting funded... which is good.

Breathe a sigh of relief

Unfortunately, I haven't posted since Nov. 4, 2008 - the election of President elect Obama. The hard thing about writing now is that me emotions aren't quite as present as they were. That said, I recall that evening as the first time in recent American history that I was proud to be an American.  Regardless of your political background or affiliation, the election of Obama was a major milestone for America.  Obam's rise is one that we can all admire and feel proud of -- that we as a country have seen fit to elect our first black president only 60 some odd years after blacks had to ride at the back of the bus. 
Two of the weird things about the election night are :

  1. I don't think the election would have happened had it not been for the colossal disaster of the George W. Bush presidency and while George W. can't claim the election as a victory. He is to be thanked in part for Obama's victory.
  2. Proposition 8 looks like ti passed revoking the right of gay people to legally marry in California.  Ironic. I guess as a country we're more homophobic than racist.  Or more aptly put, better to be a black straight man than a white gay man -- you get the idea.  Makes you wonder when and if we'll ever have an openly gay president!?

A cardinal mistake in negotiating that wasn't a mistake

I recently had a meeting with an entrepreneur who is pitching me on making an investment in his company. After the meeting, he sent me an email saying he had made a cardinal negotiating mistake in the meeting by revealing to me that his cash position was very, very low. I wrote back to him telling him that I thought his revealing his cash position wasn't a mistake at all. Rather, his sharing that information with me:

  1. Built trust that he was a straightforward, high integrity entrepreneur
  2. Gave me a sense of urgency about making a decision about the investment so as not to lead the entrepreneur on. 

Interview tips for CEOs of small companies

I was teaching a class at the UW last night and we had a interviewer from a big company come in to talk about how to conduct an interview. It was a great class and got me thinking about recruiting.  I've long seen recruiting as a critical job of a start up CEO.  And I'd thought share some of the tips from yesterdays class.
Note: The tips below are aimed at CEOs who are recruiting SVP and VP level positions as opposed to staff positions.

  1. Write the press release for the job first. This is something they do at Amazon....and it gets you thinking about one of the key customers of a senior level hire -- the press. It also helps you "vision" the gloating you might make from a great hire....and that's what you want -- a great hire.
  2. Write a solid job description -- these aren't exercises in beuracracy or tedium. They outline by what factors you'll assess a candidate.
  3. Focus on the soft skills as much if not MORE than the hard skills. Be specific about the soft skills when you interview.  When you say you want a leader who is open and hgih integrity. What exactly do you mean? 
  4. When you intereview a candidate -- don't make up your mind in the first 5 minutes. All you learn in 5 minutes is how you react to a candidate and whetehr you like them (which is important information) You don't learn whether they are qualified for a job or might just be different than you. 
  5. Some key skills to focus on :
  • ability to deal with ambiguity,
  • a history of demonstrating good business judgement (they're right a lot),
  • ability to see the big picture AND dive deep,
  • hire and develop the best team,
  • adaptive and flexible