Alcatel-Lucent is a global telecommunications corporation, headquartered in Paris, France. They provide telecommunication solutions to service providers, enterprises and governments around the world, enabling customers to deliver voice, data and video services. The company focuses on fixed, mobile, and converged broadband networking hardware, IP technologies, software, and services.
The company is positioning itself to be in a very sweet position as mobile development progresses in the future. Today, they acquired their second company in three months: OpenPlug.
Apparently, OpenPlug’s software can reduce go to market time by as much as 80 percent, according to a statement made in the press release by Alcatel-Lucent’s VP of global developer strategy, Laura Merling. Applications previously only available on sophisticated smartphones will now be available on any mobile device. In addition, the technology can be extended to other areas of application development: IPTV, game consoles, etc.”
Today, OpenPlug provides a unique set of products and services, aiming to facilitate the development of new mobile handsets and the next generation of mobile applications. Their products are used by well-established players such as Intel and SonyEricsson as well as young and innovative companies and independent developers.
Keep an eye on Alcatel-Lucent and their acquisitions… it’s the future!
Company Description | socialDeck is building a cross-platform gaming technology that enables social gaming on smart phones. Focused on bringing distribution and monetization opportunities that already exist on web social games to the phone, the socialDeck platform allows players to compete against one another on various devices (eg. iPhone vs. Blackberry vs. Web players). Games distributed on the platform all have integrated social networking and community features such as friend discovery, invites, leaderboards, chat, new feeds, plus virtual goods exchanges.
In 2009 Motally presented at Under the Radar and today, we are proud to report they have been aquired by Nokia! Motally is a privately-held San Francisco based company that specializes in mobile analytics.
Company Description | Motally is a mobile analytics tracking and reporting service. They use one common interface to track both mobile websites and applications. Their patent-pending technology successfully handles the nuances of mobile tracking – including accurately tracking visitor sessions and identifying the underlying operator and country when users access sites through third-party proxies. By learning more about user behavior, users optimize product offerings, and maximize ROI on advertising campaigns. Motally’s platform is easy to use and customers can be up and running in minutes.
Mytopia, a game developer for mobile platforms, including Andorid and the iPhone, was acquired by 888 Holdings, an online gambling company for $18 million.
Launched in 2006, Mytopia has developed several top Facebook games including Bingo Island 2 and Pacific Poker. Guy Ben-Artzi and Galia Ben-Artzi presented at Under the Radar back in 2008. Here are some of the event photos.
Tapjoy, a provider of monetization and distribution services for the iPhone and Android, was acquired by Offerpal Media, the leader in virtual currency payment alternatives. Financial terms of the acquisition were not disclosed.
Launched in January 2009, Tapjoy hit our stage last year as a startup with major momentum. You can watch Lee Linden presenting at the Under the Radar Conference here.
Congratulations Tapjoy!
…To register to attend to be among the first people to meet and land deals with the next wave of disruptive startup companies go to http://www.undertheradarblog.com/register/.
In the past three years 58% of presenters have gone on to raise funding and/or be acquired by Google, Microsoft, FOX Interactive, Salesforce, British Telecom, and others. Under the Radar uncovers the next wave of vetted, test-driven startups from around the globe that have launched within the year. Under the Radar brings startups, industry leaders, press, and investors together with one ultimate goal: to get the deal done.
CA acquires 3Tera to expand their cloud portfolio. CA gets access to 3Tera’s AppLogic platform, which allows customers to pull together public and private clouds and display the connections in a handy interface. Terms of the agreement were not disclosed.
3Tera, a developer of cloud computing services and software, presented at one of our Under the Radar conferences in 2008 as a startup with major momentum. Barry Lynn, Chairman and CEO, certainly piqued the audience’s interest at Under the Radar. You can see photos of the event here.
Since presenting at Under the Radar, 54% of startups have gone on to raise funds or be acquired.
It’s been a big week for many alumni startups who’ve presented at Under the Radar. With two acquisitions and some serious funding rounds announced, 2010 already looks up for tech startups hoping to raise dollars and woo buyers as the economy attempts to sturdy itself this year.
Today, two UTR alumni have joined forces, with Jive Software (who presented in 2007 while they were still fresh on the scene) acquiring fellow UTR presenter Filtrbox.
Jive sought a social media monitoring company to bring into its Social Business Software (SBS) platform. The goal is to extend the social footprint of the Jive platform. Jive sees the market becoming far more oriented around conversations on social networks such as Twitter and Facebook. These conversations affect everything from product development to sales strategies. Monitoring is critical to following and capitalizing on the conversation flow.
Congratulations to both groups for joining forces!
To bring 2009 to a close, we wanted to review highlights of 2009 and give some thanks to a few of our friends…
Be sure to check out our: 2010 event calendar Become a member of DMM
2009 Under the Radar Year in Review: 12 Under the Radar Acquisitions!
With your support, we hosted a number of great events this year, too - featuring presenters from Nike, AT&T, Verizon, First Round Capital, Pfizer, Salesforce, Amazon, Google, FOX, CBS, and startups like SimpleGeo, Foodzie, Yowza!!, Melodis, Twilio, Boku and more.
We launched a new invite-only event called Unplugged – bringing together the most influential people from media, entertainment, brands, agencies and gaming.
We helped global technology and media companies (like CBS, FOX, Google, Microsoft, Samsung, AT&T, Coca-Cola and more) foster relationships and do deals with tech’s best startups.
We connected Angels and VCs with startups, leading to Under the Radar companies raising over $450 Million in financing through 2009.
Upcoming 2010 Events:
Strategy Series: evening round table events & mixers in LA and the Bay Area
Microsoft BizSpark: The program launched last year, and already has over 25,000 startups involved worldwide. Who’s involved? SoCal starts like DocStoc, AudioMicro, Loqu8, Yammer and Coveroo. Want in? You can access the BizSpark program through Dealmaker Media. Send us an email.
Manatt: Manatt was named a top firm nationally in the areas of Film, Music, Theater and Television; Marketing and Advertising, for both transactions and litigation; Mergers, Acquisitions and Buyouts by The Legal 500. The publication also named nine Manatt lawyers as being among the nation’s leading lawyers.
GRP Partners: With Mark Suster becoming one of the most active VCs in SoCal, GRP had a very active 2009 – investing in a number of startups, including GumGum, Ad.ly and more.
MediaTemple: Has a busy year! They were named one of the best places to work in LA by the Los Angeles Business Journal; made the Inc. 5000 list (again!) and launched (mt) Ventures.
Shout-outs, Congrats and thanks to the friends of Dealmaker Media:
* Adam Hirsch, Mashable and Sharon Feder- the soon to be “power-couple” of NY’s social media world.
* Alex/Dan, Cloudkick – for landing funding AND girlfriends in 2009!
* Alison Murdock – for starting Silicon Valley Rocks – a battle of the bands for the geek community
* Allen Hurff – for starting LA’s next big success story…..investors pay attention, this is going to be huge.
* Andrew Warner, Mixergy – For becoming the “Barbara Walters” of entrepreneurship interviewers.
* Babette Pepaj, Bakespace – for seeing a sweet opportunity, and going for it!
* Bill Maris, Google Ventures – for sharing our love of bad reality TV.
* Brian Solis – for his book, Putting the Public Back in Public Relations and his new book, Engage.
* Brian Zisk – for building SFMusicTech Summit, one of the top music and technology events in the bay.
* Cathy Brooks 3.0 – launching her new Storytelling company and just being awesome.
* Chris Sacca – for being able to tweet while peddling a bike and riding a chairlift.
* Chris Tolles, Topix – being a rockstar, an amazing host and great supporter of DMM
* Dan Gould – for being an active angel and advisor – and an all around stand-out guy.
* Dana Settle, Greycroft – for being the hardest working and best connected VC in LA.
* Danny Robinson, Bootup Labs – for fostering the startup community in Vancouver (while keeping tabs on the Valley)
* Dave McClure, FoundersFund – for taking geeks global.
* David Travers, Rustic Canyon – For hosting one of the coolest mixer parties for us in the water garden.
* Don Dodge – Google is so lucky to have you! Congrats.
* First Round Capital team – Sending the best xmas card video, the Mint acquisition, mom-to-be Christine Herron and great rock shows with Rob and Kent.
* Greg Grunberg/August Trometer. Yowza – winning best in show for Under the Radar and landing a deal with The Price is Right!
* Gunderson Dettmer – Jonathan/Ivan/Josh, for being the coolest lawyers in the Valley.
* Hale Boggs, Manatt – for your constant support of Dealmaker Media, and being our biggest champion, we couldn’t have done this without you.
* Ian Sometrics – For leading a killer discussion at our Unplugged event!
* Jason Nazar, Docstoc – becoming the unofficial godfather of the LA startup community.
* Jason Oberfest – Congrats on your new role at ng:moco
* Jeff Clavier – one of the most active seed investors in the Valley and your unwavering support of Dealmaker Media.
* Jeff Pulver – launching 140con, one of the best real-time conferences of 2009.
* Jeff Smith, Smule – for trying to walk in our shoes…i mean slippers.
* Jeffrey Hazelett, Kodak – for supporting the real-time movement and the influencers who are driving it.
* Larry Marcus, WaldenVC – for bringing music, tech and venture together.
* Len Brody – Congrats on Now Public getting acquired by Examiner.com
* Mark Silva, Real Branding – for leading the way for what todays? innovative ad agency should look like.
* Mark Suster, GRP Partners – Giving credibility to the LA Venture community and creating Launchpad LA.
* Matt Galligan/Joe Stump, SimpleGeo – the new faces of Silicon Valley cool.
* Matt Van Horn, Digg – being the best “connector” in silicon valley
* MediaTemple team – Thanks for hosting an off the hook party to wrap up our Startonomics LA this year.
* Microsoft Bizspark team – for the continued efforts in creating valuable tools and events for the startup community.
* Mike Jones, MySpace – congrats on joining MySpace and attracting an all-star team
* Mike Marquez, CBS Interactive – for taking a chance on us and helping launch Unplugged.
* Mike Prasad, Girlgamer – for bringing gourmet BBQ to twitter.
* Mike Sigal, Guidewire Group – for cutting the cord and building your dream company.
* Mitchell Kertzman – getting that hot new Tesla and hoping one day we’ll get a ride.
* Navin Chadda, Mayfield – voted “most likely to be a late night talk show host” (if this VC thing doesn’t work out).
* Nicole Jordan, Startup PR Guru – for giving her heart n’ soul to raising awareness of innovative founders.
* Peter Pham, Billshrink – for getting Catherine Zeta Jones to promote your startup to the world. Wow.
* Rafe Needleman, CNET and Jeremy Toeman, Stage Two – for being the best Under the Radar hosts year after year.
* Rob Gelick, CBS Interactive – for being a corporate suit who embraces innovation and can hang with startups.
* Robert Scoble – for your ongoing love, support and enthusiasm for startups.
* Robin Chan – becoming the “super-connector” between the US and China
* Ron Hirson, Boku – for reaching over 1.6 billion consumers and loving us just the way we are.
* Ryan Born, AudioMicro – For always representing the startup community and hanging out at all of our events!
* Sean Percival – for starting LaLaWag, the insiders guide to the LA tech scene, it’s a must read.
* Tim Chang, Norwest – for being a musician first and a VC second.
* Tom Beddecare, AKQA – for your long time support and not ever missing and Under the Radar event.
* Valerie Buckingham, Nokia & Gary Bolles – for putting together IdeasCamp, of the best events of 2009.
* Will Jessup, Citrusbyte – for launching the LA web developers meetup.
* William Quigley, Clearstone – being one of the first supporters of Dealmaker LA and an all round great guy.
There are plenty more all stars worth mentioning. You know who they are. Be sure to give them all a high-five at our next event. Speaking of which, here?s our 2010 Event Calendar – (more details soon!).
Stay tuned guys – more to come….. Happy holidays and Best wishes for a great 2010.
Debbie, Jasmine, Stephanie, Giselle (and Jennifer – who just went on maternity leave)
According to our friends at Mashable this week is off to a flying start with Google taking a chomp out of mobile marketing by acquiring AdMob.
Merger Monday is back in the tech space. Just hours after Electronic Arts announced it was buying social gaming outfit Playfish for up to $400 million, Google has announced that it’s buying mobile ad network AdMob for $750 million in stock.
In a statement, Google’s Susan Wojcicki, Vice President of Product Management, says, “Mobile advertising has enormous potential as a marketing medium and while this industry is still in the early stages of development, AdMob has already made exceptional progress in a very short time. AdMob is the quintessential Silicon Valley startup — generating impressive year on year revenue growth — and we’re excited to welcome this talented team to Google (Google).”
Since its inception, AdMob has served more than 125 billion mobile ads (according to the counter on its homepage) across a variety of platforms including iPhone (iPhone) and Android (Android). Clearly, this is a space that’s red hot right now, and while Google already has launched a number of products into it, this deal greatly accelerates the effort.
Another Under the Radar Success Story:
AdMob, an Under the Radar presenting company alumni, is one of over 400 startups that have hit our stage. In the oast three years alone, 54% of presenting companies have been funded or acquired since pitching to potential partners at Under the Radar.
Be a part of the momentum: Attend the next Under the Radar: Mobility on November 19 in Silicon Valley. Only 350 people can attend this small, niche insider event. Grab your ticket here.
Congrats to Omar and the entire AdMob team. More reason to celebrate at tonight’s Silicon Valley Mobile Monday event. See you all there!
Ivan is a partner at Gunderson Dettmer’s Silicon Valley office, practicing in the Corporate and Securities Group. He has extensive experience working with startup and emerging growth companies through their entire lifecycle as well as representing venture capital, private equity and other investors. For more great resources, we recommend checking our these docs on DocStoc and VentureHacks.
The Series A Term Sheet: 5 Terms Founders Should Focus On
It turns out that a typical Series A Term Sheet for a private company venture capital financing can be as much as 4,000 words long. Given that for many people 140 characters is plenty these days, that is a lot of verbiage for even the most detail-oriented founder.
To try and make it easier to separate the “boilerplate” from the stuff that really matters, I’ve summarized below what I think are some of the terms that a founder needs to drill down on.
Everyone in the tech business is on information overload; the trick is to apply your limited bandwidth in the right places. Of course, as a lawyer, I would never suggest you skim the fine print. My point is that even after your lawyer, the entrepreneurs in your network, your mentors and whomever else you trust have read the fine print and given you their opinion, there are some key provisions that you have to understand and have your own opinion on.
The following comments are done in the order that the points generally appear in a Series A Term Sheet (and I’m skipping valuation on the theory that if you need math help from your lawyer you’re already in trouble):
Option Pool.
Sometimes tucked into a paragraph on “capitalization,” term sheets will generally define price per share as being based on a pre-money valuation of $X and a cap table that includes a “post-financing option pool of Y%.”
The idea is that if the pre-financing option pool isn’t deemed big enough, the investors worry about being diluted shortly after their investment by a pool increase. Accordingly, the desired pool size is factored into the negotiated valuation such that the founders and other pre-financing stockholders bear the dilution. Certainly you wouldn’t expect a new investor to jump into a company with no option pool and accept inevitable and instant dilution. Nor should founders adopt a giant pool and forever protect investors from dilution that is expected in a growing and healthy company.
The key is being thoughtful about finding the right middle ground – how robust is the team at the time of the investment? Is it an industry or region where equity is more or less important a driver of recruiting/retention? Is the hiring plan tailored to the operating plan? Does the team know up front that a major hire will be needed (e.g., is it obvious that the founder group is missing a CEO), etc.
Spending some time on these issues and coming up with an option pool budget helps you have a reasoned approach to pool size. If you can’t tie the pool discussion to the business plan, then it’s just an extension of the valuation discussion and, for the founder, a less effective way of addressing the issue.
Dividends.
There are generally two schools of thought on dividends – (1) they basically should never be declared in an early stage company and any retained earnings should be used for growth and (2) there should be an annual dividend that at least guarantees some modest return. A hybrid favored by some East Coast investors has dividends accumulate from the time the stock is purchased but provides for them to be paid only upon an exit event.
From a founder’s perspective, the second approach can have a real impact on economics. A typical dividend of that type might be 6 to 8% accruing annually – add that up over several rounds of financing and several years to an exit and it can be a major spiff on top of the liquidation preference. So from a term sheet standpoint, you better know what you’re getting!
School (1) generally includes the phrase “when, as and if declared” – the magic words to say there is no mandatory dividend – only a dividend preference for the Preferred if the Board declares a dividend. School (2) will say “cumulative” or “mandatory” and generally have more extensive verbiage around the accrual period, whether they are paid in cash or stock, and whether they are paid regularly or only at exit.
If you’re not sure what you’ve got you need to ask. And always be cognizant that a later investor will want the same terms so an innocent looking 5% on a $750K seed round could be a big deal down the road.
Liquidation Preference.
The basic concept of a liquidation preference is pretty simple – if you liquidate the company, the preferred stock gets money back before the common stock.
But, in the world of venture financings, a sale of the company or its assets is always deemed “a liquidation.” So we’re not just talking about preference over assets when something craters, this is also about how you divide the money when the company gets sold. Who gets their money first when there isn’t enough to go around and how fairly is it shared when there is lots to go around. The problem is that there are half a dozen ways to structure preferences and several of them have multiple names in the lingo – 1X/no participation; “double dip preferred,” “fully participating,” “participating preferred with a cap,” preference multiples with no participation, etc.
In later stages of investment, you also have to deal with “intramural” issues among investor over whether senior preferred should get paid ahead of junior preferred, etc. It’s a bit much to try and review in detail here, but suffice it to say that these provisions are THE major drivers of economics in an M&A exit, and you need to take care to understand exactly what is being proposed and the economic impact at various valuations.
Board Composition.
Virtually all venture capital financings require that the Company reserve one or more seats on the Board of Directors for the investor(s).
Following a Series A financing, a fairly common structure is an odd numbered board (to avoid deadlock) with an independent director as the “tiebreaker” between the directors designated by holders of preferred stock (the investors) and those designated by the holders of common stock (the founders).
In syndicated rounds with multiple investors, 5 is a very typical post-Series A board consisting of 2 investor seats, 2 common seats and an independent. For smaller rounds with a single investor, one might see a 3 person board with 1 investor seat, 1 common seat and an independent. One subtlety to be aware of from the founder perspective is whether a “common” seat is hard wired to the “then serving CEO.” The term sheet typically phrases this as something like this: “Holders of a majority of the Common Stock shall be entitled to elect _____ member(s), one of whom shall be the Company’s CEO.”
In other words, if the founder is no longer the CEO and is replaced, the board seat goes with the office – which can tilt the balance of a board away from the original founder group. Of course the pros and cons of that approach will often depend on the individual circumstances of any particular team or deal; what’s important for purposes of the term sheet is to understand the issue so you can make a knowledgeable decision. Similarly, the choice of the “independent director” can make a huge difference in the tilt of a Board and the choice should be made with care.
For more perspective on Board composition issues, see the following post at Venturehacks.
Founder Vesting.
Often the Series A term sheet will be used to negotiate founder vesting as part of the overall terms and conditions of the financing. With few notable exceptions, the primary value in a typical start up company is in the people and, not surprisingly, investors want to make sure those key people stick around.
As with everything in this business the basic concept is simple – stock owned by the founders is made subject to a repurchase right, exercisable by the Company if the founder quits or is terminated. The repurchase right “lapses” on a negotiated vesting schedule so that fewer and fewer shares are “at risk” over time.
Again, though, the devil is in the details. What percentage of the founders’ shares will be subject to the repurchase right? Over how many years? Will the vesting accelerate if there is a sale of the company? What about acceleration if the founder is terminated without cause? What sorts of things should constitute cause?
It’s a topic on which several hundred words could be written just walking through the lingo – “good reason,” “double trigger versus single trigger,” “constructive termination,” etc. So let me make just two high level points.
First, this is an area where founders often get their first taste of being a bit conflicted. From an individual perspective, a founder might wish to be as aggressive as the market will bear on vesting schedule, acceleration terms and other founder protections.
As a co-founder or CEO, however, one also has to consider the founder/co-founder dynamic as much as the founders/investors dynamic. I’ve often seen co-founders set up aggressively pro-founder vesting terms only to have a team member break up the band and walk away with a lot more equity than the remaining team would have liked. As a related second point, this is an area where it pays to try and strategize a few moves ahead to build consistency into equity terms on the team. Having a patchwork of different deals can create odd incentives or hurt morale if, as a result of different acceleration terms for example, a deal will produce widely different economics for employees at similar levels. In any event, a founder going into a Series A term sheet negotiation should understand his or her existing stock terms and exactly how the term sheet proposes to alter or amend those terms.
Some Final Disclaimers
Having said all of that, I will make a few final disclaimers. First, this entire discussion assumes a company on its first round of professional financing from a VC or angel investor accustomed to working with startups.
Occasionally startups will have an early engagement with a commercial or strategic partner that yields a financing and those deals can vary greatly from what we generally refer to as “market” terms from a venture capital investor. Also as alluded to above, there are additional degrees of complexity as you layer in additional rounds at different valuations. Reasonable VC’s and founders may of course have legitimate disagreements about how to balance these terms, the important thing is to be as informed and self reliant on the key terms as you can be.
Lastly, thanks to the team at Under the Radar for providing this forum and for all they do to support the startup ecosystem.
Plusmo (Santa Clara, CA) an Under the Radar grad that built an easy to use multi-device mobile widgets development platform, has had a busy year. The company won top honors at multiple dev challenges, including the Nokia Developer Summit and the Nokia Hackathon.
Multi-platform Widgets Pay Off Big Time for Plusmo
Seems like the M&A situation may be heating up…AT&T snapped up Plusmo for an undisclosed amount, and will fold the tech into its Interactive division (which includes wireless dev efforts and will allow the firm to roll out apps like YPmobile – a mobile version of YELLOWPAGES.COM – across multiple handsets).
Looks like AT&T wanted an in house dev shop to reduce development time/$, and allow quick updates when new features are ready to roll. Perhaps most interesting is AT&Ts drive to be first with app and widget integration across mobile, TV, and web.
Check out the press release here. More at TechMeme here. Congrats to Aydin Senkut, the rest of Plusmo’s angel board, and the entire Plusmo team.
Hang with AT&T at Under the Radar this year – seems like carriers may be on the prowl for additional tech and talent acquisitions. It’s a good time to go mobile…
Building great companies is more than just knowing when to hold ‘em, and when to fold ‘em… The truth is, if you focus on your entrance more than your exit, you won’t have to find an “out”…it will find you. But startups still need to have a solid exit strategy in place so they are ready for the rebound. Even more important, they need to be prepared for every side of an exit – the good, the bad, and the ugly.
Last Thursday, Dealmaker LA’s Strategy Series focused on “Exits in 2010″ (hosted by the team at Rustic Canyon Partners) where we heard insight from those who bought, sold and negotiated startup acquisition in the past few years about what it takes to line up your company for a potential acquisition.
Thanks to the team at TechZulu for creating a great “highlight reel” (BELOW).
* Brett Brewer, President of Adknowledge and co-founder of Intermix Media
* David Travers, Principal, Rustic Canyon Partners
* Shawn Colo, Co-Founder & Head of M&A, Demand Media
* Jason Kay, Monkey Gods (Former COO, Flektor – Acquired by FOX Interactive)
* Michael J. Montgomery, President, Montgomery & Co., LLC
Who Was in the Audience?
A huge thanks to everyone who attended. Some of the folks who mixed n’ mingled with us that night:
Next up, school will be in session October 6 with our first WORKSHOP funding boot-camp for startups. Think VCs should be throwing term sheets at you? Think again… The Workshop is your chance to get your hands on actual cap charts and term sheets. Ask questions, get answers. REGISTER.
Exciting news! San Mateo based Xumii, a provider of mobile social networking services, was acquired by Europe’s Myriad Group, one of the largest mobile technology businesses with software in more than 2 billion phones. Their 17 employees will be moving to Myriad Group as part of the acquisition.
Xumii hit our Under the Radar stage back in 2008 as a startup with major momentum. This announcement proves they never took their foot off the gas! Watch Xumii’s CEO Jennifer Zanich’s UTR presentation here.
…Are you still Under the Radar? Apply to be considered for Under the Radar: Mobility (on November 19, 2009) or register to attend to be among the first people to meet and land deals with the next wave of disruptive mobile companies.
In the past three years 54% of presenters have gone on to raise funding and/or be acquired by Google, Microsoft, FOX Interactive, Salesforce, British Telecom, and others. Under the Radar uncovers the next wave of vetted, test-driven mobile startups from around the globe that have launched within the year. Under the Radar brings startups, industry leaders, press, and investors together with one ultimate goal: to get the deal done.
Angel investors are the new black. In a down market, many entrepreneurs are looking to angels for salvation. But they may be in for a rude awakening. Angels are not exempt from economic pressures, and their outlook, strategies, and requirements are changing….
Last Wednesday at our Dealmaker LA event, Silicon Valley and SoCal angel and seed-stage investors (both large check writers and small) came together with LA entrepreneurs to hash out the true value of angel financing – and what’s changed due to last year’s econo-clypse.
Speakers Included:
Jarl Mohn, Investor
The Lowdown: Former CEO of Liberty Digital, Created E! Entertainment Television & the Style Network (CEO), former EVP & GM of MTV & VH1, and private investor.
Rob Hayes, Partner, First Round Capital
The Lowdown: Partner at the famed First Round Capital, the Bay Area firm that has provided seed-stage investments to some of the most well known startups, from RockYou to Mint.
Thomas McInerney, Angel Investor, TGM
The Lowdown: Former CEO of Guba who is based in L.A. and now spends his time advising and investing in internet startups like Shopflick and The Experience Project.
Scott Sangster, President, OrganicStartup
The Lowdown: Former Disney exec who runs OrganicStartup, a firm that invests in, advises, and incubates seed-stage internet startups in Southern California.
Moderator: Dan Gould, VP Technology Fox Interactive Media
Check out the pictures from last week; and be sure to join us September 17 at Rustic Canyon Partners for a Strategy Series focused on the Startup Exit Ecosystem – who’s buying, who’s not – and why. More Info.
Huge thanks to all who attended Dealmaker LA’s latest Strategy Series and Mixer, “Partnering with the Big Dogs: Walk Softly and Carry a Big Stick” this past Wednesday at Manatt’s offices.
While the dream of scoring an outrageously successful partnership with a market goliath is enticing, the odds are, it ain’t gonna happen. From unequal bargaining power to rights of first refusal, partnership land mines are one of the most misunderstood and underrated topics in the startup world.
The round table conversation was anchored by Christina Glorioso, VP, Marketing Partnerships, MTV Networks, Kara Nortman, SVP of Publishing, Citysearch, David O. Sacks, CEO, Geni and Yammer, Dmitry Shapiro, CEO, Veoh , and James Citron, CEO, Mogreet.
The debate around rights of first refusal, bargaining rights, partnership incentives, risks of being bogged by bureaucracy, etc was joined by all attendees, including LA PR all-star Nicole Jordan and GRP Partners’ Mark Suster.
Keibi Technologies, a company that provides comprehensive solutions for the moderation and classification of user generated content, hit our stage last year as a startup with major momentum. An announcement today proves they never took their foot off the gas. Keibi Technologies is now part of Lithium Technologies.
Since presenting at Under the Radar, 49% of startups have gone on to raise funds or be acquired.
…Are you still Under the Radar? Apply to be considered for Under the Radar: Mobility (on November 19, 2009) or register to attend to be among the first people to meet and land deals with the next wave of disruptive mobile companies.
In talking to hundreds of startups each year, I know something like this is running through many first-time founders’ heads:
“Legal schmegal! I’ve got a company to build… I’m sure an all-nighter over the books is enough to clean them up before a VCs due diligence. I promised my co-founder he’ll be “fairly compensated” if we get acquired. So I’m good, right? I don’t need to spend my much-needed cash on a lawyer.”
Au Contraire, mes amis. You’re building a business. Working with a lawyer in your early stages can prevent a lot of sweat on your brow later down the road.
THE VALUE OF LOOPING IN A LAWYER:
Unsure about working with a lawyer when you’re first kicking off?
Here’s a few key reasons working with a lawyer can be incredibly valuable:
They help you get your share structure right and properly document it the way investors expect. Straight from the get-go. If you’ve ever had to go through a company re-structuring, or tried to clean up mistakes at the time of a financing or sale. it’s painful. Avoid it at all costs. A clean, well documented company makes for easy due diligence and faster (and less expensive!) deals.
They can help you make sure you actually own and continue to own the IP that makes your company work. Really good ones can help you develop licensing and partnering strategies you can use to get paid.
They have connections. Run away from any lawyer who promises to get you financed, but do look at firms to see who they’ve helped negotiate deals with. Is their Rolodex packed with potential investors or customers? Can they make a warm intro and get someone to focus on your business plan or get you candid feedback?
They can raise red flags and help you fix them up BEFORE the due diligence process.
STARTUP LEGAL ADVICE:
To help you out, I spoke with Ivan Gaviria, a partner at the Silicon Valley office of Gunderson Dettmer, a law firm that focuses primarily on entrepreneurs, emerging growth companies and venture capitalists. Now, Gunderson’s army isn’t your typical team of lawyers. We’ve worked with them on numerous occasions, and they are authentic, cool, business-savvy folks. They kind of people you want in your circle of real-life friends (not just your 500+ facebook friends).
Ivan laid out a number of tips and legal advice for startups. If you have further questions, let me know and I’ll be happy to connect you with Ivan or a member of his team.
TERM SHEET 101
Definition: A Term sheet is typically a non-binding commitment to do a deal based on the terms laid out in the term sheet.
Benefit: The deal isn’t binding until definitive agreements are signed, but the term sheet allows the parties to reach agreement on key deal points up front and (hopefully) makes for a more efficient and cost effective deal with lawyers working on fine points and not hashing out major business issues, says Ivan.
A Common Misconception About Valuation: Ivan says there’s a common misconception among startups that valuation is the most important item on the term sheet. The truth, he says, is that startups shouldn’t get too hung up on small differences in valuation and should focus on choosing the right partner. Especially in the early going, getting an active, engaged VC with domain expertise and with whom you have a good fit can make a huge difference in building a successful business and weathering the ups and downs that every start up will inevitably face.
What IS the Most Important Term? Don’t get bogged down with boilerplate terms such as registration rights that have little economic impact and are highly standardized. Focus on the liquidation preferences, says Ivan, and understand the fine print.
In the context of a venture financing, a “liquidation” is deemed to include a sale of the company (via merger or otherwise) or a sale of its assets, and the liquidation preferences govern how the proceeds of such a sale are distributed to the stockholders.
Do the preferred investors get their money back first – ahead of the common stock typically held by management? Twice their money? Three times? Do they get to take their money of the top and then participate in the distribution of the rest of the proceeds along with the common? When does an investor’s downside protection turn into a double dip? Seemingly minor tweaks in this section of the term sheet can have an enormous impact on how much a founder actually receives at the exit.
Ivan points out that with the current state of public capital markets, startups are finding more than ever that selling their company is the far more common path to liquidity than an IPO. That makes it all the more critical to understand and carefully negotiate liquidation preferences.
Many thanks to Ivan and the Gunderson Dettmer team. If you have questions or want to connect, let us know!
ABOUT GUNDERSON DETTMER: Gunderson Dettmer is a leading law firm for entrepreneurs, emerging growth companies and the venture capital firms that support them. With 125 lawyers in four offices – Silicon Valley, Boston, New York, and San Diego – we represent companies in every stage of development from incorporation through entry into public markets and beyond. We provide counsel on general corporate and securities law, mergers and acquisitions, venture capital services, intellectual property, strategic alliances, and tax matters. We combine our experience, industry relationships and expertise to provide practical, business-oriented advice tailored to the needs of the emerging growth company marketplace.
Quattro Wireless, a Mobile Ad Network company, raised $10 Million from Highland Capital Partners of Lexington and Globespan Capital Partners of Boston. Quattro Wireless presented as a Graduate Circle company at our Under the Radar Mobility in 2007
Another past Graduate Circle presenter, Transera, a leading VoIP service provider focused on next generation IP communication services for business, raised $17M for on-demand call center technology from Accel Partners, Apax Partners, Lighthouse Capital Partners and Storm Ventures. Transera presented at our Under the Radar: The Business of Web Apps in 2008.
Congratulations to both companies for proving VC financing is still running strong for companies with solid teams and actual business models.
