There is a saying that the road to hell is paved with good intentions. If that’s the case, the federal government’s current assault on innovation in America must signal Washington's determined effort to seek canonization for its technocrats. At a time when our economy is in desperate need of re-invention, the federal government is putting American innovation at enormous systemic risk. Sure, rhetoric calling for innovation is common in many speeches about re-invigorating our economy. Unfortunately, through a series of policy decisions – decisions either already enacted or likely to be enacted – the United States is rapidly becoming a much less attractive host for the twin pillars of innovation -- talent and capital.
There’s a great line in the movie Wall Street when Gordon Gecko first meets Bud Fox. Gecko says to Fox: “This is the kid, calls me 59 days in a row, wants to be a player. There might be a picture of you in the dictionary under “persistence” kid. So tell me ‘Why should I be listening to YOU?’”
One of the things I continue to struggle with as a VC is the unfortunate fact that I am in the business of saying "no" all the time. Saying "no" in the context of how you invest your time is one thing - fellow VC blogger Brad Feld did a good blog post on this topic in the context of time management a few weeks ago as did Y-Combinator's Paul Graham. But I really struggle with saying "no" to entrepreneurs. Entrepreneurs pour their hearts, souls and dreams into their start-up ventures and to summarily dismiss them remains the hardest thing about the job. One of my entrepreneur buddies asks me whenever I see him: "So - did you crush any entrepreneurs' dreams today?" Very funny. Ha ha.
A recent case from the Delaware Chancery Court, Stockman v. Heartland Industrial Partners, L.P. decided important issues relating to the indemnification of private equity and venture capital professionals by their affiliated funds, in connection with their service as directors and officers of the funds’ portfolio companies. The decision was largely in favor of the investment professionals and will likely result in their prevailing on claims to be indemnified by the fund. Like any of the cases involving the critical issue of indemnification, this one both provides new guidance and confirms the importance of carefully applying existing rules of the road when crafting investment partnership agreements. The case arose from a failed investment by Heartland Industrial Partners in Collins & Aikman Corp., a manufacturer of automotive interior components. David Stockman, a co-founder of Heartland, and Michael Stepp, a Heartland managing director, served as officers and directors of Collins & Aikman. After exhausting all available insurance policies, they sued Heartland when the firm refused to advance funds for their legal defense expenses in various civil and criminal cases related to Collins & Aikman.
I met a prospective client last week to discuss a search they need to fill for an important position. In the course of discussing the job and what they had done to fill it, the CEO told me that he had posted the listing on a social networking site and received over 800 responses! He went on to tell me that he had to hire two contract recruiters to go through the responses and they still weren’t sure if they had any candidates, which is why he called me. On the ride home I got to thinking about what has happened in the last 20 years...
“Don’t waste a good crisis,” the new mantra goes. So let me ask this: Why aren't we using this epic downturn to fundamentally re-frame the relationship between GPs and LPs? Instead, people are battling along the same lines across which LPs and GPs have been skirmishing for years. It's like World War I: fierce battling yields a few acres of pockmarked muddiness. But what if it doesn't actually matter if the fee offset is two-thirds or three-quarters? What if it really doesn't make a difference whether the no-fault is triggered by 66% or 80% in interest? Maybe the the LP-friendly/GP-favorable axis needs to be discarded in favor of some entirely new, orthogonal continuum that re-thinks how interests are aligned? Let me put a finer point on it: Currently, LPs worry that the carry system grants GPs a free option in times of frothy markets; LPs ask: "Why pay an incentive to people who simply capture beta?" GPs on the other hand bellyache about how long-dated carry payouts can be; after all, those wacky hedgies get paid every year (watch those high watermarks, boys).
It's not often that we hear about an event that could have crippled a venture capital fund, wiping out years of success and severely impacting the fund’s operations, returns and ability to raise future capital. We recently did, however, and we wanted to report on it so that other investors would gain a deeper understanding of the risks and responsibilities that are thrust upon the individual or firm that takes on the role of a shareholder representative following the closing of an M&A transaction. The following is based on a true story, but the names and other details have been changed to protect reputations. Be assured, the thrust of the story and its implications are completely true.
I’m used to finding ways to keep myself psyched about looking for new opportunities all day, every day and beating back job search burnout. These tips are bound to work for you, too.
This week, one of my favorite customers of all time passed away: Neal Page. Neal had been fighting Acute Myeloid Leukemia, and a good friend of mine sent me news that he succumbed to it this past Monday – I hadn’t talked to Neal in a few years, so I was unaware of all of this. You can read about Neal here. As I reflected on him, it got me to thinking about a situation that happened to me a few years ago. When we were raising our most recent fund, a prospective investor was finalizing his due diligence process on us, as we were being presented to his management for approval. He had taken interest in our somewhat unique approach to apply our deep sales and marketing backgrounds to the venture side of things, and as a final step of his due diligence process, he asked to speak to 50 former customers that either my partner Brian or I served from our past.
While the FDIC is well known for providing deposit insurance, another of its principal roles is that of receiver for failed depository institutions (i.e., banks and thrifts). In connection with this activity, the FDIC engages in the post-failure sale of the assets of these institutions in order to recover the maximum amount possible to settle the claims of the institution's creditors, including the FDIC. The FDIC's Division of Resolutions and Receiverships, located in the FDIC's Washington, D.C. and Dallas offices, coordinates the sale of these assets, which, while numerous and varied (including furniture, art and other miscellaneous items), are comprised primarily of performing and non-performing loans held by failed institutions. Although the FDIC has great latitude in how it structures its loan sales programs, it must comply with its statutory obligation to dispose of a failed institution's assets in a way that is least costly to the FDIC's Deposit Insurance Fund. While these efforts have typically involved the direct sales