British satire about i-bankers. Worth watching:
Finally, someone takes my feelings on Guitar Hero seriously. Why spent so much time learning to push buttons when you could easily learn to really play guitar in the same amount of time?
Why East Coast VCs are notably missing from the Midas list.
Who has money to throw around in the tech industry.
Showing posts with label venture capital. Show all posts
Showing posts with label venture capital. Show all posts
Monday, January 28, 2008
Thursday, January 24, 2008
Cutting costs at my company
We are in discussions with a potential buyer of our company at the moment. Unfortunately the final decision is not in our hands as all of our notable assets are now owned by some hedge fund guy who probably finds the however-many millions he spent on us to be like pocket change. I honestly don't know why he is spending as much time and money as he is, given the fact that at best he can make a couple million. I would think he would be better off focusing on bigger and better deals. But I'm not going to look gift horses in the mouth.
Anyway, this suitor wants to keep the development staff (what's left of it) but cut some costs. So I am thinking of what I would do if I was in their situation - picking up our assets and needing to cut costs. Of course I can't disclose any material information about the company for legal reasons, but here is a brief run through of our current costs:
First thing I would do is get rid of the huge 5.4 TB SAN data store. We should never have bought it in the first place. We probably spent a million just getting it installed and set up. We can easily set up servers big enough to meet our data needs, everything is segregated anyway. The only reason I can think of for spending that kind of money on a data store is if we were expecting lots of transactions and data to be recorded over a decade or so.
Second thing I would do is fix the lease. We actually had another 8,000 sq ft of space previously, which was gotten rid of last spring. The space was always way too big. I think that maybe management believed their own predictions of exponential employee growth. By this time according to their old investor deck we should have about 400 employees.
The problem with this is that we spent a LOT of money rebuilding the space to suit our needs, including a huge server room that can't really be used for anything else. It's an air conditioned fishbowl type thing and we could easily cut it to a third it's size (it was never even really close to being filled) but that would require knocking down walls and rewiring stuff. We could easily fit our entire current Stav, including the boss's huge office, into the server room and move the servers into a closet or something, but that is extremely impractical. The logical thing to do is divide the space even further to allow the landlord to rent other parts of it out to other people. But that requires expensive construction which we would have to pay for, and it would be difficult to work while that was going on.
One solution I've heard bandied about is moving all of our servers here to the colocated facility, including our development servers. That would allow us to abandon the space entirely and move to a normal-sized office. However that would force the developers to use painful slow VPN tunnels to access the code. A better solution is getting rid of the co-located facility and moving everything here. That still leaves us with the space issues. The only real solution to that is dividing the space, but it will be extremely difficult as we have all sorts of wiring and building to do. Our space includes a couple large rooms that are just used to hold junk. Closets and loading docks and such. That is totally wasted space. Let's count the savings from getting rid of the co-located facility and call the rest a wash, assuming that the costs of building and rewiring would offset the lower rent.
I have cut out $50k at this point, or 20% of our monthly burn. There is that unaccounted for $50k which I will say we can cut in half, though we really may not be able to. That brings our total savings to $75k, or 30%. We don't want to do anything with payroll or health insurance so that's pretty much all I can cut. We need our people and paycuts would send them scurrying for the jobs they already have lined up for contingencies.
We could sell some of our unused hardware assets to partially finance the buildout, I guess. The real problem is the space. Downsizing the space would save a lot of money but would cost a lot of money upfront as well. Even just to move everything to a new space would probably wipe out at least a couple month's worth of savings on the rent. Let's say we really need to cut some extra money. We abandon this space and move to a smaller space, cut the rent in half and spend however much on moving expenses. That saves an extra $20k per month, not counting outlays, bringing our total up to $95k, or 38%. That's about the best I can do without having a full budget in front of me.
These are all very hard decisions and I'm glad I don't have to make them. However if I had been in a position to make them before we would never have been in this situation. I would never spend money as quickly as the management team did. I would be unable to spend so much money so recklessly.
Anyway, this suitor wants to keep the development staff (what's left of it) but cut some costs. So I am thinking of what I would do if I was in their situation - picking up our assets and needing to cut costs. Of course I can't disclose any material information about the company for legal reasons, but here is a brief run through of our current costs:
- We have a large SAN data store that costs about $60k per month
- Our rent is about $40k per month for a huge 11k sq ft space, giving each employee approximately 1,000 sq ft of space.
- Payroll is probably about $80k per month
- Health insurance, etc. is probably around $10k per month.
- Our co-location facility is probably about $10k
First thing I would do is get rid of the huge 5.4 TB SAN data store. We should never have bought it in the first place. We probably spent a million just getting it installed and set up. We can easily set up servers big enough to meet our data needs, everything is segregated anyway. The only reason I can think of for spending that kind of money on a data store is if we were expecting lots of transactions and data to be recorded over a decade or so.
Second thing I would do is fix the lease. We actually had another 8,000 sq ft of space previously, which was gotten rid of last spring. The space was always way too big. I think that maybe management believed their own predictions of exponential employee growth. By this time according to their old investor deck we should have about 400 employees.
The problem with this is that we spent a LOT of money rebuilding the space to suit our needs, including a huge server room that can't really be used for anything else. It's an air conditioned fishbowl type thing and we could easily cut it to a third it's size (it was never even really close to being filled) but that would require knocking down walls and rewiring stuff. We could easily fit our entire current Stav, including the boss's huge office, into the server room and move the servers into a closet or something, but that is extremely impractical. The logical thing to do is divide the space even further to allow the landlord to rent other parts of it out to other people. But that requires expensive construction which we would have to pay for, and it would be difficult to work while that was going on.
One solution I've heard bandied about is moving all of our servers here to the colocated facility, including our development servers. That would allow us to abandon the space entirely and move to a normal-sized office. However that would force the developers to use painful slow VPN tunnels to access the code. A better solution is getting rid of the co-located facility and moving everything here. That still leaves us with the space issues. The only real solution to that is dividing the space, but it will be extremely difficult as we have all sorts of wiring and building to do. Our space includes a couple large rooms that are just used to hold junk. Closets and loading docks and such. That is totally wasted space. Let's count the savings from getting rid of the co-located facility and call the rest a wash, assuming that the costs of building and rewiring would offset the lower rent.
I have cut out $50k at this point, or 20% of our monthly burn. There is that unaccounted for $50k which I will say we can cut in half, though we really may not be able to. That brings our total savings to $75k, or 30%. We don't want to do anything with payroll or health insurance so that's pretty much all I can cut. We need our people and paycuts would send them scurrying for the jobs they already have lined up for contingencies.
We could sell some of our unused hardware assets to partially finance the buildout, I guess. The real problem is the space. Downsizing the space would save a lot of money but would cost a lot of money upfront as well. Even just to move everything to a new space would probably wipe out at least a couple month's worth of savings on the rent. Let's say we really need to cut some extra money. We abandon this space and move to a smaller space, cut the rent in half and spend however much on moving expenses. That saves an extra $20k per month, not counting outlays, bringing our total up to $95k, or 38%. That's about the best I can do without having a full budget in front of me.
These are all very hard decisions and I'm glad I don't have to make them. However if I had been in a position to make them before we would never have been in this situation. I would never spend money as quickly as the management team did. I would be unable to spend so much money so recklessly.
Thursday, October 04, 2007
Financial Modelling for Start-ups
Guy Kawasaki's blog has some info from a guy at Redfin on how they did the financial modeling for their startup. Back when I was an Apple junkie I loved Guy Kawasaki. But regardless of that, this is a very interesting and informative article.
This is what my company did not do:
Or this:
But we just might do this, although revenues don't necessarily mean profit:
This is what my company did not do:
At least in the financial model, give yourself as much time to grow as you can.
Or this:
Since there's a natural limit on growth, be ready for the question: "What would your market-share be in year five?" If it's over 20%, take the jillion-dollar projection down a notch. Even a hit like iPod doesn't have 20% market-share. You'll be lucky to come close to 20% of any market.
But we just might do this, although revenues don't necessarily mean profit:
Hit $100 million in revenues within five years.
Friday, September 28, 2007
Startup Flash Game
Try to see how difficult it is to run a start-up in this awesome little Flash game. My one gripe - why does a Flash designer cost more than an Ajax coder? And why do PR people make so much more than both of them? In my experience that is not the case.
And here is someone who wants to do a reality show type thing to determine who gets funding and who doesn't. The "wisdom of crowds" is a well established fact but we also have notable exceptions, like George Bush and most of the American Idol winners.
Some other random stuff:
Top Ten Joe Pesci Beatings (from Cracked)
This is what it's like to be Britney Spears - no wonder she is so crazy. Poor girl.
I don't eat meat and this is pretty much why...
And for my own personal reference, how to get a book published.
And here is someone who wants to do a reality show type thing to determine who gets funding and who doesn't. The "wisdom of crowds" is a well established fact but we also have notable exceptions, like George Bush and most of the American Idol winners.
Some other random stuff:
Top Ten Joe Pesci Beatings (from Cracked)
This is what it's like to be Britney Spears - no wonder she is so crazy. Poor girl.
I don't eat meat and this is pretty much why...
And for my own personal reference, how to get a book published.
Thursday, September 27, 2007
Startups and Funding (A Cautionary Tale)
I am thinking about the Microsoft/Facebook deal and the absurd valuation it places on Facebook. Then I started thinking about my experience with start-ups. The previous start-ups I worked for I am not familiar with how the financing worked exactly, but my current employer I have been with since before the beginning so I am intimately familiar with all of the details.
What strikes me the most is how an unscrupulous investor totally screwed us over by formulating a deal which would allow him to pocket millions while screwing us. He had obviously been planning this since the beginning since the terms of the deal contained many bizarre terms that, to me, screamed out "I am going to screw you over!" But I guess the "founders" were too blinded by the site of a couple million dollars to really think about the future. This guy's plan was to "financially engineer" an artificial valuation for our company, and everyone thought he was the bee's knees until he screwed us over, except for me - I never really trusted him at all.
Once the plan put in place by this investor (who has a reputation for doing this with companies) and the company and stock structure was in place the "founders" went out and started finding other investors. They did the whole dog and pony roadshow thing, at a ridiculous valuation for our company of $600 million. But they raised a good amount of money - most of which went right back into their pockets. It seems that the "founders" were not quite as stupid as one might have thought, and had arranged for themselves to be owed money by the company, payable either in monthly installments or once $x million had been raised. Some of the founders went even further and did their own private placement, the proceeds of which were ostensibly to pay off debt from their old company, but which actually went directly into their pockets.
So the "founders" made millions of dollars, in addition to their high salaries and ridiculous severance packages, right off the bat. I should have gotten 5% of those millions but they kind of screwed me out of that. Nevermind though, because they ended up giving me .5% of the company instead of the 5% I had originally been promised, which under the initial ridiculously high valuation of the company was worth several million dollars.
The plan put in place by this devious investor involved bypassing an IPO and becoming public through a reverse merger which allowed us to bypass FCC regulations and become public way before we were ready. We became public well before our stock was even registered to be able to be traded, which kept the valuation artificially high. Once the registration statement went through the price immediately dropped as 99% of the shares became tradeable.
Since then the price has dropped to 0.0167% of it's original price, the price which had been used for the first round of financing. A bunch of people lost a lot of money, including me, because I foolishly held on to 95% of my stock hoping it would go back up after the initial dive. I wish to god now I had sold more of it, even 10% would have made for a nice cushion and savings that would come in really handy now, but no, I just sold the bare minimum I needed to pay off my credit cards and other loans. The only people who made money were the initial investors and the founders, who had to defer their fat salaries as the company started to run out of money and the creditors came knocking. The problem was that since we were public, and so thinly traded that anyone can move the stock price around with a few hundred shares to trade, and the stock price was so low, they couldn't raise money anymore. If we were private I am sure we would have a high valuation and VCs lined up out the door as we have a great idea and a great product. But being public, and having this first investor holding the share price down, we would have to sell 1/2 of the company to raise even a couple million dollars.
The next chapters in this book are yet to be written. The company recently got its main new backer to extend the terms of the deal which we used to borrow money from them. Other people have been interested in the company but the terms of the deal with this new backer make it ridiculously stupid for anyone to invest in us. As far as I know the "founders" salaries are still deferred, though they may have paid themselves once the new deal was put into place.
This makes me think that they way to get rich is to start a company and make sure you have deals in place that ensure you get paid no matter what happens with the company. It might scare off some investors (I nearly peed my pants when I read the first 8k and finally learned about all of these backroom deals) but as long as you can get someone to invest you can still make money without having to do anything. Of course the people who lose are the people who invest in your company, but they presumably have enough money that it's not going to hurt them too badly.
As soon as I come up with a salable idea this is exactly what I am going to do.
What strikes me the most is how an unscrupulous investor totally screwed us over by formulating a deal which would allow him to pocket millions while screwing us. He had obviously been planning this since the beginning since the terms of the deal contained many bizarre terms that, to me, screamed out "I am going to screw you over!" But I guess the "founders" were too blinded by the site of a couple million dollars to really think about the future. This guy's plan was to "financially engineer" an artificial valuation for our company, and everyone thought he was the bee's knees until he screwed us over, except for me - I never really trusted him at all.
Once the plan put in place by this investor (who has a reputation for doing this with companies) and the company and stock structure was in place the "founders" went out and started finding other investors. They did the whole dog and pony roadshow thing, at a ridiculous valuation for our company of $600 million. But they raised a good amount of money - most of which went right back into their pockets. It seems that the "founders" were not quite as stupid as one might have thought, and had arranged for themselves to be owed money by the company, payable either in monthly installments or once $x million had been raised. Some of the founders went even further and did their own private placement, the proceeds of which were ostensibly to pay off debt from their old company, but which actually went directly into their pockets.
So the "founders" made millions of dollars, in addition to their high salaries and ridiculous severance packages, right off the bat. I should have gotten 5% of those millions but they kind of screwed me out of that. Nevermind though, because they ended up giving me .5% of the company instead of the 5% I had originally been promised, which under the initial ridiculously high valuation of the company was worth several million dollars.
The plan put in place by this devious investor involved bypassing an IPO and becoming public through a reverse merger which allowed us to bypass FCC regulations and become public way before we were ready. We became public well before our stock was even registered to be able to be traded, which kept the valuation artificially high. Once the registration statement went through the price immediately dropped as 99% of the shares became tradeable.
Since then the price has dropped to 0.0167% of it's original price, the price which had been used for the first round of financing. A bunch of people lost a lot of money, including me, because I foolishly held on to 95% of my stock hoping it would go back up after the initial dive. I wish to god now I had sold more of it, even 10% would have made for a nice cushion and savings that would come in really handy now, but no, I just sold the bare minimum I needed to pay off my credit cards and other loans. The only people who made money were the initial investors and the founders, who had to defer their fat salaries as the company started to run out of money and the creditors came knocking. The problem was that since we were public, and so thinly traded that anyone can move the stock price around with a few hundred shares to trade, and the stock price was so low, they couldn't raise money anymore. If we were private I am sure we would have a high valuation and VCs lined up out the door as we have a great idea and a great product. But being public, and having this first investor holding the share price down, we would have to sell 1/2 of the company to raise even a couple million dollars.
The next chapters in this book are yet to be written. The company recently got its main new backer to extend the terms of the deal which we used to borrow money from them. Other people have been interested in the company but the terms of the deal with this new backer make it ridiculously stupid for anyone to invest in us. As far as I know the "founders" salaries are still deferred, though they may have paid themselves once the new deal was put into place.
This makes me think that they way to get rich is to start a company and make sure you have deals in place that ensure you get paid no matter what happens with the company. It might scare off some investors (I nearly peed my pants when I read the first 8k and finally learned about all of these backroom deals) but as long as you can get someone to invest you can still make money without having to do anything. Of course the people who lose are the people who invest in your company, but they presumably have enough money that it's not going to hurt them too badly.
As soon as I come up with a salable idea this is exactly what I am going to do.
Friday, August 31, 2007
Getting Start-ups Funded
I found this from Paul Graham on how to keep your start-up alive. From there I followed a link to a page on his YCombinator company that supposedly funds start-ups. I then found this page where he details what they do as far as actually funding companies.
It says that they usually start people off with $5,000 plus an extra $5,000 per founder, in exchange for 2% to 10% of the company. Take a company with 4 founders, they will get $25,000. The site says that this should be enough to cover 4 months of living expenses. Maybe in Iowa it is, but certainly not in NY and not in the Bay Area. You would be lucky to find a closet in SF or NYC for $1,000 a month and that would leave you with $250 a month for food, utilities, and other expenses.
And in exchange for this pittance you give up up to 10% of your company (the say the median is 6%). Maybe I should get into this racket because any company that succeeds is going to be worth a lot more than the $250,000 to $1,250,000 you are being initially valued at (the median is $417,000) for a company with four founders. For one founder you would be valued at $100,000 to $500,000 with a median of $167,000. Unfortunately I don't have enough money saved up to fund more than 1 company which is not a very good risk vs reward scenario.
For that I would rather just bankroll it myself and keep that 10%. If it's an idea I believe in you would be silly to give up 2-10% of it for one month's pay working at an average job. You could easily take out a bank loan for more than that amount at under 10% a year. Instead of giving up 10% of your company you could pay 10% interest. Sounds like a no brainer to me.
It says that they usually start people off with $5,000 plus an extra $5,000 per founder, in exchange for 2% to 10% of the company. Take a company with 4 founders, they will get $25,000. The site says that this should be enough to cover 4 months of living expenses. Maybe in Iowa it is, but certainly not in NY and not in the Bay Area. You would be lucky to find a closet in SF or NYC for $1,000 a month and that would leave you with $250 a month for food, utilities, and other expenses.
And in exchange for this pittance you give up up to 10% of your company (the say the median is 6%). Maybe I should get into this racket because any company that succeeds is going to be worth a lot more than the $250,000 to $1,250,000 you are being initially valued at (the median is $417,000) for a company with four founders. For one founder you would be valued at $100,000 to $500,000 with a median of $167,000. Unfortunately I don't have enough money saved up to fund more than 1 company which is not a very good risk vs reward scenario.
For that I would rather just bankroll it myself and keep that 10%. If it's an idea I believe in you would be silly to give up 2-10% of it for one month's pay working at an average job. You could easily take out a bank loan for more than that amount at under 10% a year. Instead of giving up 10% of your company you could pay 10% interest. Sounds like a no brainer to me.
Thursday, August 23, 2007
Temperature Here at Work
It's cold in our office. Really cold. Here is an IM conversation I had with an employee:
employee: do u think we will all freeze to death in the office someday
skooch: I think we will
employee: we are planning on building Igloos in cubicles to try stay warm. Is there anything we can do to change the temp?
skooch: I will find out.
Screen names have been changed to protect the innocent.
A new show called who wants to be an internet millionaire apparently aired and unfortunately I am not in the cast. I don't know if it actually aired on TV or if it's just an internet only thing.
I was an internet millionaire for a few months last year. But the value came down before I had a chance to sell. I am still very upset about that. If I had sold I could have made a couple million and then bought back my share of the company for 1/30th of the sale price. I kick myself for not doing so every single day. Hopefully the company does well and the value recovers because this was my retirement plan, college savings, and a house fund as well.
If anyone has any good ideas for web sites I have the skills to make a prototype at least.
Here's a sort of good idea, in a sleazy way... Help women get breast implants. I need something better, though. Another silly idea... Girls moaning your IP address.
And this woman needs some help leveraging her extremely vague and non-specific upcoming 15 minutes if fame into longer fame and more money.
employee: do u think we will all freeze to death in the office someday
skooch: I think we will
employee: we are planning on building Igloos in cubicles to try stay warm. Is there anything we can do to change the temp?
skooch: I will find out.
Screen names have been changed to protect the innocent.
A new show called who wants to be an internet millionaire apparently aired and unfortunately I am not in the cast. I don't know if it actually aired on TV or if it's just an internet only thing.
I was an internet millionaire for a few months last year. But the value came down before I had a chance to sell. I am still very upset about that. If I had sold I could have made a couple million and then bought back my share of the company for 1/30th of the sale price. I kick myself for not doing so every single day. Hopefully the company does well and the value recovers because this was my retirement plan, college savings, and a house fund as well.
If anyone has any good ideas for web sites I have the skills to make a prototype at least.
Here's a sort of good idea, in a sleazy way... Help women get breast implants. I need something better, though. Another silly idea... Girls moaning your IP address.
And this woman needs some help leveraging her extremely vague and non-specific upcoming 15 minutes if fame into longer fame and more money.
Subscribe to:
Posts (Atom)
