Tuesday, January 26, 2010

The Red Box Manifesto

I have to admit that I am a relative late-comer to the Red Box revolution.
About a year ago, one of these strange red contraptions appeared in front of my local grocery store. I was not sold, though I was a bit intrigued. Then, a few months later I was handed a coupon at the end of the check-out line. It said the magic words -- free movie, just input secret code. A sucker for free, I promptly went to the box thing and was immediately impressed with the ease of check out and the decent selection. I quickly discovered that the free offer only worked one time per credit card and so over the next few days I had to keep careful track of which cards had rented a glorious free movie and which were still eligible.

The magic of the Red Box experience is in its immediate gratification. I am a long time Netflix subscriber and a alpha (now beta) tester of Boxee. Both are amazing, but both have limitations. Netflix is all about massive selection and delayed gratification. Boxee is all about discovery, social media and casting off your chains of servitude to big media. However, neither really works to scratch the old movie store itch where you could go rent a current movie and watch it that same day. Red Box gives you this immediate gratification. And did I mention it only costs a $1?

But it is precisely this strength which is Red Box's weakness. People versed in either the ways of Netflix/Boxee or their local Blockbuster store do not naturally have the finely-honed skill set necessary for successfully navigating the Red Box. When you are sitting in your living room surfing Boxee or on your home computer queuing up your next movies on Netflix, you have the luxury of time and privacy. The same is true to a lesser extent when you are at a Blockbuster -- you can wander the stacks for hours, perusing the backs of DVD cases, chatting with your significant other about the last movie he or she saw and what he or she wants to see next. You have all the time in the world.

This is not true of the Red Box. Especially when it is outside. Even more so when you have a line of people behind you. And it is raining. Seriously.

Please people -- have some awareness of the suffering of your fellow humans!

After much consideration, I have prepared the following RED BOX MANIFESTO. My hope is that you will print it out and tape it to your local Red Box. It may save lives and it will at the very least save folks like me some aggravation.

The Red Box Manifesto

1. You are not in the privacy of your home. People can see and hear you. Please act accordingly.

2. If you do not know what you want, try searching by genre or something. Paging through every single movie takes a really long time.

3. Let me repeat that -- Paging through every single movie takes a really long time. If people are waiting, maybe you should just make a decision?

4. Even if you don't page through them all, discussing with your sweetie-pie the relative merits of every single movie also takes a really long time. Maybe you could just let one of you be in charge on a given night? Take turns or something?

5. If people are waiting and you have no idea what you want, see if the next person back is only there to do a return. It takes like 10 seconds to return a movie, let them go in front of you.

Corollary to 5. No need to let everyone go in front of you. Just the person right behind you. Let's not get too crazy here people.

6. Maybe you don't need to rent 4 movies? I mean seriously folks, are you really going to watch all of those tonight? If not, you just wasted a dollar. Why not rent 2 now and then rent 2 more tomorrow when you return the first pair?

7. Before you return the DVD, try wiping it off? I have no idea what you are doing with these disks, but I don't want to touch most of them.

Hope this is helpful. Please let me know if I missed any key Red Box commandments. Our revolution is open to the masses, no need to limit it to a video vanguard. Click Here to Read More..

Monday, January 25, 2010

Should You Take Corporate Venture Capital?

Corporate Venture Capital is seemingly everywhere -- from Intel’s venture capital arm ranking as the #1 venture capital firm for funded deals over the last decade, to the massive hoopla surrounding Google forming a 100mm venture capital fund last May to invest in virtually any sector they see fit.

In the current economic environment where 1) VC money is tight and 2) the IPO market (although marginally improved) is still quite bad, startups are increasingly taking a serious look at corporate venture capital as a fund raising solution, especially if it is the only money available to them.

Anecdotally, over the last six months a large percentage of my VC-style deals have been driven by corporate or strategic VC. For example, I helped one large “consumer goods” business seed four different high technology start-ups last quarter and also helped a different corporate VC untangle a purchase option its baby company was no longer happy with. Right now, I am working on raising a new $100mm VC fund that is targeting LPs among large companies in a particular sector and that is designed to give these large company strategic LPs a first look at its portfolio companies and their technologies. Below I give more details on the pros and cons of taking corporate venture capital.

Large companies are intrigued by the siren call of venture investments. It allows them to “outsource” their R&D efforts without having to get in bed with the innovators they are seeding. They look at the relationship more as a strategic partnership then a financial play. You could say that the focus is on “partnering” rather than “venturing.” The big companies are focused on finding synergies – how can the baby company with the promising technology fill some gap in our product portfolio, or accelerate our time to market? The value to the big company is not calculated purely in terms of hard cash – rather it is also calculated in terms of the overall business proposition.

The big company investor will often expect an option on the company it invests in or on the technology the target is developing. However, they typically do not want “control” of the baby companies at the outset. They prefer to make minority investments – and often will couple these with a license right or purchase option. By making a minority investment and not actually acquiring the baby company, the big company may be able to avoid or delay having to consolidate the baby company’s financials with its own – depending on its analysis of FIN 46.

That the big company does not want to acquire the baby company outright can be a good thing for the owner’s of the baby company. For one thing, they may get to defer the sale of their company until a later date when, presumably, they will have hit their milestones and will have a much higher valuation. Also, it allows the baby company to have a champion – hopefully, in an industry or sector that the baby company can really use a champion. I have seen this work very successfully in the biotech space and also in certain hardware sectors – knowing that you have someone at big pharma already interested in your company can give you some peace of mind and allow you to focus on your clinical trials.

The flip side of this is that you may end up discouraging any other potential partners from coming forward – which will not only seriously chill any auction process for the sale of your company or technology, but might also be an impediment to basic business success. Close ties with one big client can hurt a baby company if the partnership with big company A will prevent you from doing business with their competitor, big company B.

Another thing to keep in mind is that the terms of your technology license or purchase option with the big company will typically be locked in at the very beginning. The terms of this arrangement may seem great when all you have is an idea; however, once you have traction and have hit several milestones, you may not like the pre-established price or the terms of the license. Maybe you could do better in the open market? Maybe you don’t want to sell at all anymore and the big company is exercising its purchase option? These are certainly perils. A baby company has few legal options at this point and may end up with the Hobson’s choice of taking the deal that is available or taking none at all – and potentially killing the company.

A final thing to consider is that big companies are typically slower than independent VCs in cementing their deals. In a sector where speed to market is very important – such as consumer e-commerce or social media – this is a serious disadvantage.

Corporate venture capital is not without its risks, but for the right baby company, can be the right choice.
Click Here to Read More..

Wednesday, January 20, 2010

And now for something completely different ...

And now for something completely different ...

... well, different to the extent that, for the last six months, I haven't put up a single post. And, though I freely admit this is inexcusable, please at least allow me to attempt to explain ...

My first posting interruption was caused by a new e-commerce business that captured my attention early this summer. It was an elegant business idea that combined some current theories in mass customization with both social media and discovery engine concepts. My hope was that we had a potential ETSY killer/competitor. I built up a very solid founding team and we went through a few rounds of VC pitches. Unfortunately, after several month's work, we were unable to come up with a model that successfully bridged some unique projected cash flow issues that the company had. For various reasons it is (was) a broken model. I'm still tinkering with the concept and have it on deep back burner -- my hope is that a new approach will come to me when I am not actively pondering it. But it definitely took up any spare blogging minutes I had during summer and fall of last year.

Winter of last year had three different distractions.

First, my son Jasper Arjen was born in September. A healthy flying Dutchman, he is keeping us busy.

Second, I have been very involved in my retail business, These Four Walls. As I am sure you can imagine, the retail furniture business has been DISMAL for about 15 months. We focus on international antiques and custom or one of a kind items, but -- unfortunately -- these sectors are fairing as well as the overall furniture industry. We have an 11,000 square foot show room in downtown Richmond and another 5,000 square foot warehouse. Our overhead costs are substantial and the day to day management and survival of our business has taken a lot of time. We are currently hopeful that we will be able to make it through this continued downturn, but it has certainly not been easy.

Third, the legal business. It has picked up. I realize that I only can provide anecdotal data, but the last half of 2009 was very busy for me and my team. I closed almost two dozen transactions in 2009 and the vast majority of these closed in the final 4 months of the year. The terms may be more "investor favorable" than 2007, but at least my VC fund and VC money eligible clients have been doing deals again at a pretty good clip. After the first half of 2009, it felt really good to be busy again.

However, while these various distractions may suffice as reasons not to post, they are really only excuses. Recently, a few of you folks have reached out to me and asked if I was done blogging. A few others have asked questions about older posts -- reminding me about the long tail of blogging and social graphs. I realize now that I have a few more things to say and I hope that you will be patient enough to stick around for me to say them.

Anyway -- I am back to posting again. Hopefully, you will enjoy what I have to say about my run ins with venture capital, technology, the law and general ridiculousness. If not, my apologies.

-- Hank Click Here to Read More..
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Dividends and Preferences by Hank Heyming is licensed under a Creative Commons Attribution 3.0 United States License.