Getting a Fair Shake from VCs and Google Circa 2000
BY Max Chafkin
Term sheet red flags. When credit is scarce, investors are apt to get greedy, saddling startups with all sorts of onerous terms like liquidation preferences. (Those require that investors get paid back first--often at a rate of several times their initial investment). TechCrunch has the skinny on another such red flag, the exploding term sheet. Exploding term sheets are essentially offers to invest with a sell-by date. "[T]he goal is to put additional pressure on the company to accept the terms and quickly, without much further negotiation. In particular, they don't want to see a deal 'shopped,' which is when you take their term sheet and go to other buyers/investors looking for a better deal (which is exactly what you should be doing as soon as you get a term sheet from anyone)," writes Michael Arrington. He recommends simply ignoring the expiration date and calling the bluff. For more advice on negotiating with investors, check out the blog VentureHacks.
Small businesses hurting. The stock market may be soaring today, but the recession continues to present new challenges, says the New York Times which has been tracking five small companies since October. Reporters noted a more hopeful tone in recent interviews. Worksman Cycles in Queens has shifted its product line away from supplying to automakers and large corporations. Instead the trimmed down staff is making food vending carts (which laid-off workers can purchase for only $3,000) and delivery bicycles. A butcher from the Bronx has managed to persuade Con Ed to accept lower monthly payments and his landlord not to raise the rent. And a bus tour operator hired an online marketing director, but cut back on ads that didn't yield sales and canceled plans to attend two trade shows. Says the head of Worksman Cycles: "If anyone was asking me what numbers we're expecting, it would not be a reasonable forecast. I can't really know at this point. I know we're going to be down. If we're not down, it would be a miracle. It's just a matter of are we going to be down 10 percent or 30 percent."
Department of hindsight. It's easy to make fun of revenue-challenged companies like Twitter and Facebook--until they're multi-billion dollar monoliths. That's the gist of a clever post on Business Insider, which dug up an old BusinessWeek article on Google from 2000. At the time, Google claimed to be booking just $80 million in revenues from selling search advertising. The establishment was very skeptical. BusinessWeek cast doubt on Google's long term revenue prospects and suggested it wouldn't be able to compete with (now) long-forgotten Northen Light and AltaVista. The lesson, says Nicholas Carlson, is that you shouldn't count a company out just because it hasn't figured out a revenue model yet.
Palm's Pre A threat to the iPhone? Om Malick cites data from Compete showing that hundreds of thousands of people are eagerly awaiting the Palm Pre. At CES, 400,000 people checked out the Pre-related pages on Sprint and Palm's websites and around 100,000 are still visiting. Malick remains dubious about whether the smart phone can keep Palm from being put out to pasture.
Are immigrant-owned businesses surviving better than most?Independent Street takes a look at a story from the Richmond-Times Dispatch that claims that the values immigrants learned about "being thrifty, avoiding excessive debt, and relying on family support from native countries" are helping them ride out the recession. In some Asian cultures, notes the article, the savings rate is as high as 15 to 20 percent compared to single-digit savings in the U.S. Nico De Leon, the owner of a engineering firm who moved to the U.S. from the Dominican Republic, says, "You are used to bootstrapping. You are used to the idea that you are going to have lean years, possibly quite a few."
A new age of entrepreneurship? Pointing to a recent New York Times story about the unemployed leveraging their passions into business plans, Bizbox predicts a coming golden age of entrepreneurship. Like the laid-off biotech employee turned jelly-fish-lava-lamp maker (it makes sense when you see the pictures), more people are seizing on the recession as an opportunity.
Or at least a new age of the infomercial. Laugh all you want, but the Snuggie is having a bona—fide cultural moment. And now might be the time to consider your own infomercial--that is, if you're looking to move the right kind of product. Why? CNN Money breaks it down. Airtime is currently dirt cheap, thanks to big marketers slashing their budgets. And infomercials have often been an effective strategy for entrepreneurs. For proof, see Inc.'s How I Did It with sales legend Ron Popeil.
The world's cheapest car. Tata Motors, India's largest automaker, debuts what they call the "world's cheapest car" which will cost about $2000 this week. A Time Magazine reporter who test drove the "Nano" earlier this month reported that while the car is easy to operate and comes with ample legroom, turning on the air conditioner noticeably sapped power from the tiny two-cylinder engine.