Tim Marman's Loosely Coupled

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• Why you SHOULDN’T start a tech company in Silicon Valley

  There’s been a bit of back and forth on what the best place to start a technology company is these days. The conventional wisdom these days is that the place to start and run a technology company is Silicon Valley. The key reasons put forth to justify this is money, talent, and expertise. If you’re initially choosing where to move and start a company, Silicon Valley seems to be the right choice based on the confluence of these factors – but I would argue that in some cases these advantages are not that strong and there are just as good reasons to start it elsewhere. Money Most of the time when people are talking about money in the context of startups, they’re talking about access to capital, particularly in the early stages of a company. Menlo Park has perhaps the highest concentration of VCs around, at least those focused on technology companies, but for the most part they don’t limit investments based on geography. Sequioa says it is "helpful" if... Posted Jul 08 2008, 09:00 AM by Tim with | with 4 comment(s) Filed under: Rants, Business, Entrepreneurship, NYC, Startup, Venture Capital, NextNY, Notches

• Serial Entrepreneurs and High Valuations

  I wrote in the past that sometimes you can take too much money - doing so creates certain expectations for an exit that might not be achievable and limits your flexibility. In the context of the discussion last week, I think it's important to highlight that these economics are not always the fault of the venture capitalist. For example, Jason Calacanis said you should take as much money as you can get and Marc Andresseen said “ in general, [you should raise] as much as you can ”. Billions or Bust Another one of my favorite recent examples is Slide, founded by Max Levchin of PayPal fame. Slide recently raised $50M from T-Rowe Price and Fidelity - giving up 9% for a pre-money valuation of roughly $500M. Granted, T-Rowe Price and Fidelity probably aren't quite expecting the same kind of returns over the same time frame as a VC, but it still sets a ridiculous high floor for an exit. That is, in part, the plan. As Sarah Lacy put it , "Levchin, who co-founded and later sold PayPal... Posted Jun 09 2008, 09:06 AM by Tim with | with no comments Filed under: Web 2.0, Business, Entrepreneurship, Startup, Venture Capital, NextNY

• Simultaneous Discovery and its impact on stealth mode

  We’ve talked a lot about the anti-stealth movement here and on the nextNY list, and the topic has resurfaced again recently thanks to Brad Burnham’s post about the advantages of being open . I noticed that, at least anecdotally, there was a correlation between how open entrepreneurs were with us and their ultimate success. Simply put the entrepreneurs who are aggressively open in describing their plans seem to do better than the ones who are cagey. There is absolutely no data underneath this observation. It is just my sense after meeting hundreds of entrepreneurs over 15 years as a VC. If it is true, it could be for lots of reasons. The more experienced an entrepreneur, the more likely they are to understand that ideas are rarely unique, but the ability to assemble a team and execute against that idea is rare. Perhaps they are just more confident, and it is confidence that is correlated with success. But recently, I have started to think that there might be something more going... Posted Jun 08 2008, 09:49 PM by Tim with | with no comments Filed under: Intellectual Property, Rants, Patent, Innovation, Business, Entrepreneurship, Startup, Social Behavior, NextNY, Notches

• Innovation, Disruption and The Economics of Free

  Hank Williams managed to stir up quite the controversy with his recent post lamenting the rise of free and blaming the VCs . His assertion is that the venture capitalists have made free, ad-supported businesses the norm and effectively "ruined it for everyone else" (my words). I believe it should be possible to start a small business and to have a small number of profitable customers, and to earn a living. From there, it should be possible to work hard, and to grow your business into something substantial. Until recently, this was the American way, and it applied to technology as much as to any other business. But no more. In today’s “free” world, in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small... Posted Apr 08 2008, 10:41 PM by Tim with | with 4 comment(s) Filed under: Rants, Innovation, Business, Entrepreneurship, Startup, Venture Capital, NextNY, Notches

• Passion and its role in evaluating new product ideas

  Evan Williams has an absolutely wonderful post up about evaluating a new product idea . I think Marc is spot on - the "personally compelling" criteria is the one that stands out. Last on the list, but probably the first question I ask myself is: How important to me is it that this product exists in the world? If I were evaluating a startup, I'd ask this of the founders. . . . In theory, you can get around this with lots of user research. (It's pretty clear neither Slide nor Rockyou 's founders are creating widgets based on their own needs and desires.) But you're more likely to get it wrong that way. When I've gone sideways, it's when I wasn't listening to my gut on this issue. Specifically, Blogger and Twitter were personally compelling, while Odeo wasn't. Clearly, you're better suited to build a best-of-breed product if you're intimately familiar with the space and "scratching your own itch". But perhaps more importantly, I think... Posted Dec 26 2007, 01:01 PM by Tim with | with no comments Filed under: Technology, Software Development, Personal, Business, Entrepreneurship, Startup, NextNY, Notches

• Why Notches isn't "Anti-Stealth"

  There's been a lot of discussion about being anti-stealth . A stealth startup is one that isn't telling anyone what they're building and being very protective about the idea. Anti-stealth is the polar opposite - broadcasting everything, from your long-term vision, project status, and even financials. Anti-stealth is, in its purest form, about complete transparency in the business. Being "stealth mode" was in part about protecting the idea, but also gives the impression that the idea itself is revolutionary. In a sense, it's At one point this might have worked, but we realized more and more that many of these companies in "stealth mode" had average ideas at best. Being "anti-stealth" has its own pros and cons. The real value in broadcasting your message is that you'll get feedback and opportunities that would otherwise go undiscovered, as Charlie discovered . There are many benefits I can see being completely transparent. Of course, you actually... Posted Nov 26 2007, 11:08 AM by Tim with | with 4 comment(s) Filed under: Intellectual Property, Business, Entrepreneurship, NYC, Startup, NextNY, Notches

• Distinguishing between a platform and a destination

  Charlie says that "the whole idea that you have a main site is dead". I couldn't agree more - I strongly believe that platforms are the future of the Internet. One clarification I'd like to make in this whole discussion is Facebook is both a destination and a platform. It's important to understand that these are discrete things - something can be a platform without being a destination and vice versa. Clearly, Facebook offers a nice API for integrating your code into theirs, but this to me is not what makes Facebook a platform. MySpace, iGoogle, and a plethora of Web 2.0 portals allow you to "embed" your code - Facebook just allows you to do it more seamlessly. If anything, these are all simply platforms - or rather, vehicles - for traffic. Of course, as Charlie and myself and countless others have said, traffic does not give you a business model. On the other hand, Facebook is getting flak for not being open enough with their data . As Fred says, being open... Posted Aug 21 2007, 06:15 AM by Tim with | with 2 comment(s) Filed under: Software Development, Web 2.0, Business, Blogging, Entrepreneurship, Startup, NextNY, Notches

• What's the best state to incorporate in? (Hint: Delaware)

  AskTheVC recently addressed the question of what was the best state of incorporation . The short answer is one of 3 preferred states: "Delaware, whatever state the company is in and whatever state(s) the VCs are located in." Obviously, the last is hard to determine if you're going to incorporate before you close financing. California is notoriously employee-friendly so it should be avoided. Some of those laws may still apply if you are based in California, but if you are elsewhere you should definitely assume those burdens. New York is also undesirable. It's fairly balanced when it comes to dealing with owners vs. employees, but the one big red flag is Section 630 of the NYS BCL. This section states that the top 10 shareholders are liable for employee wages if the company goes out of business and employees aren't paid. This statute does not apply to foreign companies (i.e., those incorporated in other states) even if they're doing business in New York. Considering... Posted Jul 23 2007, 05:53 AM by Tim with | with 6 comment(s) Filed under: Web 2.0, Business, Law, Entrepreneurship, Startup, Venture Capital, NextNY

• Choosing a corporate entity for your startup

  Generally speaking, tax and liability drive the choice of entity. Taxation From a tax perspective, all of the entities except for C-Corps are known as "pass-through" entities, where any income and losses show up on the owners' tax returns. With a C-Corp, taxes are paid by the corporation itself, independent of the individual owners. If you anticipate huge tax losses early on, one of these pass-through entities can be desirable (unless you anticipate taking VC money soon). In some cases, you can even allocate the income and losses differently if you have one owner who can take advantage of the tax loss while the other does not. (There are limitations on the tax losses you can claim with a pass-through entity - the At-Risk rule and limitations of Passive Activity losses - but these are not relevant for now. I'll try to discuss this more in-depth in a future post.) Liability Corporate forms can also provide liability shields. Partners are personally liable for any debts and torts of the partnership... Posted Mar 06 2007, 06:22 AM by Tim with | with 2 comment(s) Filed under: Business, Law, Entrepreneurship, Startup, Venture Capital, NextNY

• How is IP split between separating founders?

  AskTheVC addresses the question of what happens to IP rights when the founders go their separate ways . "Bottom line, you have a strong incentive (as does your former partner) to settle this amicably, otherwise, you both are going to be worse off." I thought it was worthwhile to dig into this a little further, though, and discuss what happens with the various IP rights a startup might acquire. Often you'll hear 3 founders say "we want everything split 3 ways", but joint ownership of IP can be tricky. Rights and duties with joint ownership are poorly misunderstood, even by many lawyers. More importantly, the rights and obligations of each owner vary by the type of intellectual property and from country to country. A joint owner of copyright in the US has different rights from a joint owner in England, and a joint owner of copyright has different rights from a joint owner of a patent. Both copyright and patent rights vest in the original author(s) or inventor(s) respectively, and both can... Posted Feb 12 2007, 06:47 PM by Tim with | with no comments Filed under: Intellectual Property, Copyright, Web 2.0, Patent, Business, Law, Entrepreneurship, Startup, NextNY