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Monthly Archives: February 2007

Shares and How Not to Give Them Away

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Interesting post by Rick Segal on how a financing deal died mid-stream due to paperwork. The nub:

Last week I watched, live, a promising young start up die because of pesky paperwork and a VC that felt the need to go the distance when it came to covering thy butt. It was ugly and it will be nothing shy of a miracle if the lawsuits don’t come flying.

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A VC offers up a term sheet, does due diligence, and decides, yep, we’re in, let’s go to legals.  The terms are negotiated, everybody appears happy, capital is ready to transfer.

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VC lawyers offer up the shareholders agreement as one of the documents that needs to get signed off by all the shareholders.  No problem. Well, almost no problem.

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All told, 42 shareholders which owned 22% of the company.  42 people spread out over three countries.  42 signatures required.  And, as fate would have it 21 missing shareholders.  Moved, not returning phone calls, no emails, etc.

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The VC refused to close without the signatures and, to make a long (painful) story short, the company died for lack of funding.

Ouch. Rick suggests setting up a voting trust agreement as one way to avoid running into this issue. That’s definitely a good idea. Another would be to avoid, as much as possible, handing out shares to folks. Many entrepreneurs seem to think of their stock as an easy or cheap way to pay people. That’s only true if your company turns out to be worthless. If it doesn’t, then you can rest assured it won’t be as cheap as you thought.

Think of this way – every time you give someone shares, you are also giving them a little stake in your company and some ability to decide what your company does. So think of shares like bits of your body – before you give away your pinkie, or foot, think about what you are getting in return, and whether its really worth it. And keep very close track of it – before you know it, you might be missing a leg.

And I know this sounds a bit self-serving (at least for my profession) but please, please, please spend just a few minutes talking to a lawyer before you  ever give away shares, options to buy shares, or even promise anyone that you’ll give them shares. It may save you a world of trouble later on, as Rick’s story quite clearly illustrates….


XBRL Is Cool

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Just a very short one during my “lunch”. Ever heard of XBRL? Its short for Extended Business Reporting Language – basically a kind of sort of extension of XML or, perhaps more precisely, a subset of SGML. I like to follow developments on it because I think the potential ways in which XBRL will impact a variety of industries (primarily the financial sector) is huge.

To give you an idea, here’s a (rather old) excerpt from a speech that the CIO of the SEC gave at the last XBRL International Conference last May:

I think the agency can be proud of its use of electronic filing and information distribution. But we can aim higher. Today, the vast majority of EDGAR documents are filed in ASCII text, and another large fraction in HTML. That’s fine for reading about a company’s strategy and general issues, but if you want to do financial analysis or compare accounting policies between companies, you then have to do a lot of printing, searching, data entry, text parsing, and other mechanical work. Or, you can go to a third-party data provider, who can provide you with a database of financial information — but the data provider will have made a number of assumptions to simplify and standardize the financial information, and it may no longer be consistent with how the company intended to present its financials. And you won’t get any of the valuable information from the footnotes.

Since you’re at this conference, I know you can all envision the attractive alternative posed by XBRL and interactive data, so I won’t belabor the point. The potential benefits are persuasive enough — greater transparency of financial information, reduced costs for investors and analysts, potentially even deeper coverage of midcap companies by analysts, and ultimately more efficient markets.

Let me paint what I think is an interesting scenario. Wall Street types have been talking for a couple of years about algorithmic trading — basically, using computers to process real-time streams of market data and making fast, automated trading decisions. Today, that market data is mostly about stock prices and volumes, since that’s what’s available in real time. But at some point in the not-distant future, I envision a hedge fund starting to algorithmically trade with XBRL-based balance sheet and P&L data in real-time as it’s disclosed by companies. At that point, we will all know that interactive data has won the day.

Imagine that. And that’s just the tip of the iceberg. The number of tools that one can create to digest, compile, report and analyze numbers is limited only by one’s imagination. I can also imagine the potential impact that this could have on data vendors who charge quite a bit to provide archived financial information – often in rather archaic forms.

Surprisingly, I’ve not heard of many companies or startups that are working on new products (particularly on the software front) either to help in generating XBRL, translating information into XBRL, or crunching XBRL reports (though admittedly, I haven’t been following it that closely).

Anyway, if you’re in this space, and you haven’t yet looked into XBRL, you should certainly consider doing so.

Vista Capable – Capable of Booting – And Not Much Else

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Just a small quick one. Story in Computerworld about how 4GB is the optimal amount of RAM to run Windows Vista. Sure. Fine. Fair enough. Goes on to critique vendors like Dell who have “Vista Capable” machines. And what as does that mean, you ask?

For instance, Dell offers a Windows Vista Capable configuration that isn’t capable of much, according to what Dell says about it on its Web site: “Great for … Booting the Operating System, without running applications or games.”

I thought surely they must be leaving a bit out right? Nope. Not the case. That’s it. That’s all. Scroll down and see for yourself on the Dell site.

So, if you plan on buying a “Vista Capable” machine, enjoy, um, booting up your machine and, well, I guess, admiring the boot process as it boots.

A Really, Really, Really Good Reason to use Spybot

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Story from the Norwich Bulletin. The nub:

NORWICH — State Prosecutor David Smith said he wondered why Julie Amero didn’t just pull the plug on her classroom computer.The six-person jury Friday may have been wondering the same thing when they convicted Amero, 40, of Windham of four counts of risk of injury to a minor, or impairing the morals of a child. It took them less than two hours to decide the verdict. She faces a sentence of up to 40 years in prison.

Oct. 19, 2004, while substituting for a seventh-grade language class at Kelly Middle School, Amero claimed she could not control the graphic images appearing in an endless cycle on her computer.

“The pop-ups never went away,” Amero testified. “They were continuous.”

This all sounds somewhat incredible to me, to be honest. Not just the fact that she was convicted, and convicted so quickly, but also the maximum punishment of 40 years. Seems a bit high when one hears of killers being convicted of manslaughter and getting maybe 2-3 years.

Why I Love the Brits

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As history has clearly demonstrated, the British have no equals when it comes to keen and slightly caustic humour. At the risk of testing the limits of fair use, I excerpt some rather large chunks below from a brilliant article in the Guardian Unlimited about the British version of the Mac ads – I’m sure you’ve seen them (at least the US ones) – the ones with a rather geeky fellow being the poor PC, with the rather cool looking dude being the Mac. Well, one Mr. Brooker had this to say in response:

I hate Macs. I have always hated Macs. I hate people who use Macs. I even hate people who don’t use Macs but sometimes wish they did. Macs are glorified Fisher-Price activity centres for adults; computers for scaredy cats too nervous to learn how proper computers work; computers for people who earnestly believe in feng shui.

PCs are the ramshackle computers of the people. You can build your own from scratch, then customise it into oblivion. Sometimes you have to slap it to make it work properly, just like the Tardis (Doctor Who, incidentally, would definitely use a PC). PCs have charm; Macs ooze pretension. When I sit down to use a Mac, the first thing I think is, “I hate Macs”, and then I think, “Why has this rubbish aspirational ornament only got one mouse button?” Losing that second mouse button feels like losing a limb. If the ads were really honest, Webb would be standing there with one arm, struggling to open a packet of peanuts while Mitchell effortlessly tore his apart with both hands. But then, if the ads were really honest, Webb would be dressed in unbelievably po-faced avant-garde clothing with a gigantic glowing apple on his back. And instead of conducting a proper conversation, he would be repeatedly congratulating himself for looking so cool, and banging on about how he was going to use his new laptop to write a novel, without ever getting round to doing it, like a mediocre idiot.

Cue 10 years of nasal bleating from Mac-likers who profess to like Macs not because they are fashionable, but because “they are just better”. Mac owners often sneer that kind of defence back at you when you mock their silly, posturing contraptions, because in doing so, you have inadvertently put your finger on the dark fear haunting their feeble, quivering soul – that in some sense, they are a superficial semi-person assembled from packaging; an infinitely sad, second-rate replicant who doesn’t really know what they are doing here, but feels vaguely significant and creative each time they gaze at their sleek designer machine. And the more deftly constructed and wittily argued their defence, the more terrified and wounded they secretly are.

Ouch! And, skipping ahead to the finish:

Ultimately the campaign’s biggest flaw is that it perpetuates the notion that consumers somehow “define themselves” with the technology they choose. If you truly believe you need to pick a mobile phone that “says something” about your personality, don’t bother. You don’t have a personality. A mental illness, maybe – but not a personality. Of course, that hasn’t stopped me slagging off Mac owners, with a series of sweeping generalisations, for the past 900 words, but that is what the ads do to PCs. Besides, that’s what we PC owners are like – unreliable, idiosyncratic and gleefully unfair. And if you’ll excuse me now, I feel an unexpected crash coming.

I have just finished erecting a small miniature shrine in honour of Mr. Brooker. Bravo, sir. Bravo.

The Costs of Sarbanes-Oxley

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No, this post is definitely not what you’re thinking. Its not about how more and more companies are looking into going private or going to markets like AIM instead to try to avoid the increasingly greater burden of legislation like SOX.  In fact, quite different altogether. Its a story about how Apple will be charging a few dollars to unlock a feature already built into one of its products. That in itself is nothing particularly earth-shattering. What is a bit wonky is the reason Apple cites. According to another story at iLounge, its because of SOX:

Another Apple representative has added details on the Sarbanes situation: it’s about accounting. Because of the Act, the company believes that if it sells a product, then later adds a feature to that product, it can be held liable for improper accounting if it recognizes revenue from the product at the time of sale, given that it hasn’t finished delivering the product at that point. Ridiculous.

I don’t purport to be an expert on SOX but I thought it had to do with internal controls, rather than accounting standards, which I thought, if memory serves, were still at least primarily driven by the pronouncements of the Financial Accounting Standards Board in the US, and not SOX.

So, if you are the proud owner of Core 2 Duo Macintosh, you too will be personally experiencing the cost consequences of SOX, even if you are not a US public corporation. And you can’t even avoid it by going private. Very odd indeed.


ALPR is….

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short for Automatic License Plate Recognition. Sometimes I find mention of the most interesting things in the most unexpected places. Like this brief article on how police in British Columbia are currently using a system that can easily and quickly scan license plate numbers as they drive along that I saw in bookofjoe. Surprised I didn’t see see it anywhere else, oddly enough, particularly given the implications for privacy, etc. Not necessarily that there are any – after all, license plates are there so that they can be seen by the public at large and police officers. That being said, I find it interesting how the application of new technology (optical recognition) to old technology (license plates), significantly alters the implications of how the old technology is perceived.

Sure, its one thing to have police on the lookout for a particular license plate on a car with a known felon who is escaping, but it seems to be quite another for a police car to scan and process thousands upon thousands of license plates while driving around the city.

Wikiality – Part III

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Bit of an elaboration on a previous post on the use of Wikipedia in judgements. I cited part of a New York Times article, which had in turn quoted from a letter to the editor from Professor Kenneth Ryesky. The portion cited by the NYT article suggested that Ryesky was quite opposed to the idea, which wasn’t really the case. He was kind enough to exchange some thoughts via e-mail:

In his New York Times article of 29 January 2007, Noam Cohen quoted a sentence (the last sentence) from my Letter to the Editor published in the New York Law Journal on 18 January 2007. You obviously read Mr. Cohen’s article, but it is not clear whether you read the original Letter to the Editor from which the sentence was quoted.

Which exemplifies the point that Wikipedia, for all of its usefulness, is not a primary source of information, and therefore should be used with great care in the judicial process, just as Mr. Cohen’s article was not a primary source of information.

Contrary to the impression you may have gotten from Mr. Cohen’s New York Times article of 29 January, I am not per se against the use of Wikipedia. For the record, I myself have occasion to make use of it in my research (though I almost always go and find the primary sources to which Wikipedia directs me), and find it to be a valuable tool. But in research, as in any other activity, one must use the appropriate tool for the job; using a sledge hammer to tighten a little screw on the motherboard of my computer just won’t work.

Wikipedia and its equivalents present challenges to the legal system. I am quite confident that, after some trial and error, the legal system will acclimate itself to Wikipedia, just as it has to other text and information media innovations over the past quarter-century.

Needless to say, quite a different tone than the excerpt in the NYT article. Thanks for the clarification, Professor Ryesky.

ITAC – First Canadian Municipal Wireless Conference and Exhibition

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Wow – lots happening the last week of May. Also forgot to mention previously the First Canadian Municipal Wireless Conference and Exhibition being organized by ITAC at the Direct Energy Conference Centre at the Canadian National Exhibition in Toronto, May 28-30, 2007:

Whether you live or work in a large urban municipality, a small rural town or village, the impact of wireless applications has already or will soon impact the quality of your life and the services you offer your community. If your organization engages in digital electronic services to customers, e.g., taxpayers, suppliers, emergency service providers, other levels of government, non-profit organizations and associations, you need to learn about the latest proven strategies to ensure the success of your wireless programs.

ITAC’s 1st Canadian Municipal Wireless Applications Conference and Exhibition will not only update you on the latest initiatives of Canadian Municipalities, but will provide you with real case study insights, proven strategies, commentary from leading wireless experts and techniques for deploying wireless applications in your communities. If you are currently engaged, or plan to be engaged, in a municipal wireless project, your attendance at this event is essential.

Mesh Conference

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Will be taking place the same week as Toronto Technology Week. What is it you ask?

mesh is Canada’s Web conference, being held in Toronto on May 30th & 31st, 2007. You will hear from thought leaders, connect with peers, and get a better understanding of the impact of new developments online. mesh brings together people who are passionate about the potential of the Web to change how we live, work and play. Meet the next generation of Web ideas, leaders and companies at mesh.

See the mesh site for more details. Taking place at MaRS.