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

• 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

• 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