My Devils

Kate is a good devil.

Jack is a little more impish.

I took a little evil quiz.  Turns out I am good.

Happy Halloween!

Quote of the Week

"Even if Microsoft does outbid Google in a testosterone-driven rage, moreover, Google will still win.  Why?  Because Microsoft will overpay, too--wildly--and won't get much for its money.  Facebook will no doubt extract other concessions (great pricing on ad sales, full control, etc.), and then will probably take Microsoft's money and turn its back."

Henry Blodgett

With all due respect and hearty congratulations to Facebook for securing $240 million at a $15 billion valuation, there is no way that Facebook is worth that number on an economic or even strategic basis.  But as I said when the first Micosoft/Facebook deal was announced, when you try to steal the ruby slippers the Wicked Witch of the West is coming after you.

Oh Atlanta

Brand Atlanta has rightfully decided to dump the "Everyday is an opening day" campaign that they have wasted millions on.

The replacement.

"City Light, Southern Nights." 

Great job folks.  Another distinctive, rolls right off the tongue slogan.  First thing that popped into my mind?  A porn shop I pass on the way to photog class.

Several years ago when Atlanta developed the three O's of boundless opportunity, inspired optimism, and universal openness I thought they had created a pretty good messaging platform.  Why do they keep messing up the execution.  Could it be because they are still using Lattimer Moffitt (no Web site to link to, that says boatloads right there), an agency involved since the inception of Brand Atlanta? Perhaps.

Not just to be Mr. Negative Boy, here's a suggestion.  A free suggestion at that, that won't cost millions of dollars. Introduce another O.  Oh Atlanta.  As in the Little Feat song.

"Oh Atlanta
Oh Atlanta
I said oh, oh Atlanta
I got to get back to you"

It builds on the O's, it is distinctive, and it is memorable.  If you know the song it will be in your head for the rest of the day.  Contemporize the song with newer artists/execution and you would have a winner.

Email Me

I don't like Facebook messaging.  It's really an annoying process.  I get an email telling me there's a message waiting for me at Facebook.  I have to click a link, go to Facebook to read the message and reply.  It's a two step process.  Good old email is a one step process that is much more efficient.

Why does Facebook not but the users content in the email message they send to me?  They want me to return to Facebook to drive page views. I don't care about their page views.  They should just put the message in the email they send and the sender's email address in the reply field so it works as easy as email.

In the past day I have received more than five Facebook messages.  They are too time consuming.  I just installed the Email Me Instead app on my profile.  If they does not stem the tide I am turning off notifications.

Double Quote of the Week

"When it comes to taxes, Barack Obama is no Jack Kennedy."

The Wall Street Journal.

The Journal's assessment is based on the Illinois Senator's announcement that he wants to to nearly double the captial gains tax to 28% and the quote below:

"The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy."

John F. Kennedy, 1963

I don't venture much into politics at FoG but I gotta tell you, I am not going to vote for anyone that wants to increase the capital gains tax and urge folks in the technology startup community to do the same.  Here's why.

First and foremost having a low capital gains tax encourages risk taking and investment.  Conversely, having a higher rate will discourage these activities.  Venture capital hurdle rates will increase.  Thus investment and the availability of capital to start new ventures will decrease.  As someone involved in the world of technology startups, this outcome is not something that I can support.  Moreover, this is particularly damaging to the economy because studies indicate that small businesses create anywhere from 50 percent to 80 percent of all new jobs in the United States.   The Cato Institute has much evidence to support what I have outlined here.

Beyond that, at the macro level, there is no guarantee that an increase in capital tax rates will actually produce an increase in tax revenues.  While they don't cite the source, The Wall Street Journal claims that for the past 40 years capital gain tax increases have been associated with a decrease in tax revenues.  It seems that when capital gains tax increases are put into effect investors rush to unload many of their holdings before the change takes effect.  They also have an incentive to hold onto a current investment longer to avoid paying the tax.  Like the venture investor, the hurdle rate for individual investors to make a new investment increases.  According to  Strategas Research, after the 1986 Tax Reform Act increased the capital-gains tax rate from 20 to 28 percent, capital gain tax revenue remained depressed for nearly a decade thereafter with the higher tax rate in place.  What broke the slump?  President Clinton's cut back to 20%.

Getting things a little more personal, the financial markets immediately incorporate the higher tax rate into their models.  An increase in the capital gains tax rate will result in  lower stock prices.  I know this is overly simplistic and some tax wonk is welcome to correct my logic, but given that a 5% capital gain tax cut of 2003 resulted in a 10% increase in stock values one could surmise that a 13% increase in the capital gains tax would result in a 26% decrease in stock values.  I don't know about you, but I don't want to see that.

And I won't vote for anyone that wants to increase the capital gains tax.

Redfin Financial Model

A few weeks ago I wrote an article pointing to Guy's post on Redfin's financial performance vs. the financial model that they had built.  Guy has a follow up article with the actual Excel file that Glenn Kelman has been using to run Redfin. 

Not sure that using someone else's model as a template to build your own is a good idea, but I do think the file demonstrates the level of detail that you need to create a good working financial model.  I just finished working on a detailed revenue model for a consulting client that is over 30 sheets with some of the sheets running as deep as 400 rows. 

Creating a solid financial model and using it to run your business is one of the fundamental actions required to build to a successful business.  Not because you have a great model.  Because it helps you to understand the key drivers of the business.  Understanding the key drivers  focuses management attention on the things that matter.

Its pretty simple and straightforward, but not enough entrepreneurs put enough thought into it.

Heartfelt Words on Funding Strategy

I first got to know Tony Stubblebine at SoCon07.  Tony founded CrowdVine, a roll your own social network service.

Like many founders, Tony has spent a lot of time thinking about the funding strategy for his company.  Unlike many founders, Tony has bared his soul by writing a captivating article that is well worth the read about his personal journey and thought process.

Best Seat in the House

A long, long time ago in a place not so far away, Catalyst Magazine used to have a series where they would interview a prominent Atlanta technology person.  One of the questions they routinely asked was “What’s the best seat in Atlanta?”  The most excellent answer ever award goes to Kathy Harris of Noro Moseley who replied,  “The bar at Taqueria del Sol.”

With all due respect to the West Side Margarita, I gotta tell you, the seat that I have at ATDC right now is pretty hard to beat. 

First of all it literally looks out over Tech Square.  But more importantly, I get to interact with some amazing entrepreneurs, good angels and VCs, savvy technologists, and smart academics.  Every day is at least one new startup case study. Every day I learn something. Every day I see a new concept.  Every few weeks or so I see a great concept.  About once a quarter I find something great that I know I could make go.  It really is an ideal sentry position.  The master plan to achieve my goal of founding and leading a successful technology company is working.

Today is my one-year anniversary at ATDC.  In addition to spending lots of time with applicant and member companies, I have been focusing on opening up the ATDC and making it both more accessible and more meaningful to a larger number of entrepreneurs.  The biggest visible manifestations of this effort can be seem in the new programs ATDC is undertaking.  Over the course of the past year we have surveyed entrepreneurs to see how ATDC can better assist them, launched PeachSeedz, hosted BarCamp, reached out to TechJournal South to bring DeckParty to Atlanta, and been the driver behind Startup Weekend heading this way.  While there is always an opportunity for improvement, the general feedback is that we are heading in the right direction.

When I joined ATDC I made a two-year commitment to Tony and the ATDC team.  One of those years is behind me now and it has been a successful one.  Over the course of the next year, with the help of my teammates, you will continue to see more of the same. 

But I am also going to start putting my master plan into higher gear. 

Capital Gap is Shrinking

Over on PeachSeedz Cindy Cheatham wrote an article about Knox Massey's presentation at ATDC on the state of angel investing.  Both she and Knox addressed the capital gap, the lack of funding for firms looking to raise more than $500k but less then $2 million. While this gap certainly exists I think it is shrinking for three reasons.

1.  The rise of super angels and super angel groups.  The Seraph Group based in Atlanta is a good example of the latter.  You have all the required fundamentals of a good investment and need to raise #2 million.  They can write that check.

2.  Capital efficient startups.  There are lots of companies, particularly in the web app space, that don't need more anything close to $500k to get started and gain customer acceptance.  YouTube just jumped over that gap and raised $3.5 million at $8 million pre due to the traction that they had created with little capital requirements.

3.  VCs moving downstream.  VCs are smart.  They recognize the capital gap just as much as you and I.  Some of them seem to be focused on being able to fund companies in the capital gap.   Charles River's QuickStart,  Southern Capital Ventures, and Union Square Ventures are three examples that come to mind.

Yes there is a capital gap problem.  Just like all real problems that are big and real, there are lots of folks out there looking for ways to solve it.

Update:  Interesting conversation at Hacker News.

Quote of the Week

"Paul’s a smart guy, but just because he says you need to move to Silicon Valley doesn’t mean it’s true."

Ryan Carson

In response to Paul Graham.