Author Archives: JKNews

About JKNews

Jason E. Klein is an experienced media CEO and builder of digital and traditional businesses who has led two successful turnarounds. He is founder and CEO of On Grid Ventures, an advisory and investment firm in digital media, marketing, and information; a member of New York Angels and Harvard Business School Alumni Angels; and a mentor at several NYC-area “incubators.”

Coast Guard Plans To Block Hudson River Between Haverstraw and Montrose

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The Coast Guard has outlined 10 anchorages for hazardous barges on the Hudson River which will disrupt river traffic, including sailors and other recreational vessels.  The Montrose site, shown here, will cover 127 acres of open water, and will impede boating at Stony Point and Haverstraw.Montrose

The Coast Guard is asking for public feedback on the plan by September 7.  The full list of anchorages is here.

Opponents to the plan include Dutchess County, which says the anchorages increase risks for oil spills and pollution, and spoil the river’s natural beauty. Yonkers Mayor Mike Spano says the proposal “will lead to the re-industrialization of our pristine Hudson riverfront.”

These anchorages do not belong on the scenic Hudson River.  Please contact Craig Lapiejklo of the Coast Guard First District (Craig.d.lapiejko@uscg.mil) and your local elected officials to express your concern.

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UPDATE from Craig Lapiejklo, USCG, 2018:

The Coast Guard has suspended future rulemaking decisions regarding additional anchorage grounds on the Hudson River until we more fully understand the safety and environmental risks associated with the many waterway uses of the Hudson River.

The Coast Guard has made public the Hudson River Ports and Waterways Safety Assessment (PAWSA) report from the workshops held in Poughkeepsie and Albany in November of 2017.

The press release can be found here: https://content.govdelivery.com/accounts/USDHSCG/bulletins/1e0963d?reqfrom=share

The report can be found here: https://www.navcen.uscg.gov/?pageName=pawsaFinalReports 

To view the complete history of this rulemaking in the online docket please go to the Federal eRulemaking Portal atwww.regulations.gov and enter docket number “USCG-2016-0132” in the search bar.

The Knowledge LUMAscape

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LUMA Partners debuts a useful map of the knowledge players in the digital world.  A helpful guide surely to be updated.2016-4-15-Knowledge-LUMAscape_v3

 

What I Look for in an Entrepreneur

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  1. Uncanny drive in a clear direction. Conviction.  
  2. Knows his/her companies secret sauce and guards it, grows it.
  3. Complete integrity.  His/her past decisions and actions should be evidence of this.
  4. Manages leanly.  Avoids waste.  Manages time and money well.
  5. Builds and inspires his/her village:  employees, investors, advisors
  6. Minimizes risk.  An entrepreneur is by definition comfortable with risk; but the best ones don’t seek risk, they seek to minimize risk
  7. Business ability.  There is no free lunch.  The usual qualities of successful business people are important:
    • Intelligence
    • Decision making skills; particularly knowing when its time to wait and assess, and time to decide and act
    • Organization and time management
    • Leadership; motivating and managing people
    • Education (of note, First Round reviewed their 10 year history, and found that their portfolio companies with one or more founders with a degree from an Ivy League School, Stanford, MIT, or Caltech, performed 220% better than other teams).
 Red flags
  1. A cavalier attitude to failure. Failure is not a virtue, despite what you might read or hear.  Failure has no inherent value and is the worst outcome for investors.  Of course, many monumental successes have been born out of failure — it can create time to think, learn, change, and be brilliant — but its what you do after a flop that counts.
  2. A lack of relevant experience and skills, especially when you don’t appreciate what you don’t know, and don’t build a “village” to compensate.

The Venture Capital One Pager

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From VC John Backus, here is the Venture Capital One Pager!  A great primer on how the various rounds of financing work together — at least according to the standard playbook.

Big Caveats:  There are other playbooks!  Like the “take no outside capital” playbook, and the “one round and done” playbook.

rosetta_table_original

More info here.

QSBS: The Death Knell for Convertible Notes in Early Stage Investing?

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no exit taxThe 2015 tax bill contains a giant incentive for early stage tech investors.  Investment gains on exit, subject to certain conditions, are now exempt from capital gains tax and the investment tax.  This means a reduction in federal tax from 23.8% to zero.  Congress apparently feels that early stage investing in tech businesses is an engine of growth for the US economy and US jobs, and removing the 23.8% tax on gains will be a net positive for the country.  This Qualified Small Business Stock (QSBS) tax treatment has been on and off again for years, but is now a permanent part of the tax code since the Protecting America from Tax Hikes Act of 2015 was passed in December 2015.

So, what’s the catch?

  1. The exemption applies only to the first $10 million of gain
  2. The stock must be held for at least five years (most successful angel exits take longer than 5 years)
  3. The stock must be purchased after September 27, 2010 directly from the company
  4. The stock must be in a C Corporation
  5. The stock must be, well, stock. (It cannot be a convertible note!)

The company must be a qualified small business, as defined by Section 1202.  Some requirements are that it have gross assets of under $50 million, and not be in any traditional business categories like a local restaurant, motel, bank, farm, or doctor’s office.

Consult your tax adviser for more information, of course, but by making this tax incentive permanent, early stage investors and entrepreneur’s have a shared and vested stake in working to make sure their investment structure takes advantage of this, as well as aiming for big gains on an exit after 5 years.

Many angel groups and sophisticated angel investors avoid convertible notes and SAFEs since they typically do not afford the protections and advantages of investments in preferred stock.  This new legislation adds a considerable advantage to equity investment – the prospect of tax free gains on exit.

To begin to get equivalence for investors, the typical “discount” in a convertible note would need to increase from 20% to more than 40%.  And that just might be the death knell for convertible notes in early stage investing.

For more information, see Alan Patricof’s column for TechCrunch, this Forbes article from Lowenstein Sandler, or wealthfront.  The Angels Capital Association has posted a very comprehensive 9 page memo on the details of how to qualify for Section 1202 from accountants Godfrey & Kahn written for Golden Angels.  And VC Fred Wilson of Union Square Ventures has a well-reasoned post here “Unsafe Notes” explaining why convertible and SAFE notes are not in the best interest of founders.

Seed & Early Stage Returns Dominate VC Returns

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Why invest in seed and early stage companies, with all the risk of picking winners early, and dilution down the road?  Because that’s where the money is, according to Cambridge Associates.  Seed and early stage investments have accounted for 75% of VC investment gains in recent years!  This is based on the top 100 investments in every year.  Seed and early stage investments have accounted for two-thirds or more of investment gains in every year where data is available.

 

seed returns

 

Winning

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Winning.

A path to market leadership.   I look for this in every investment I make.

“It’s a big industry…there will be many players…we just need a x% slice and we will be a success.”  What b.s.   That a prescription to be one of the 9 in 10 early stage companies that fail and fail soon.

A great idea is the first step, but  there are lots of smart people out there and their attention is often focused on the same problems at around the same time.  At the dawn of search, there was Infoseek, Alta Vista, Dogpile, Excite, Lycos and others.  Now google dominates.  When it comes to profitability, the winner takes it all, and the runner ups are burning cash trying to catch up.

number one“Winning isn’t everything; it’s the only thing.”  So said Vince Lombardi.*

Information and intelligence can spread like wildfire. Network effects are an accelerant.  The biggest network quickly becomes the most useful and shortly the only one needed.  Market share and profitability correlate.  The premium to being #1 is increasing all the time.

Sure, there exceptions, like when the relevant market is just your local neighborhood, and there is a dry cleaner on every block.  But the most attractive markets are national and global.

 

What does this mean to an early stage investor?  That is a full topic for another day, but I’d rather hear “We want to be #1 and here’s how” instead of seeing an entrepreneur wave a giant red flag with “We just need our share.”

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*And UCLA’s Red Sanders…read “What it takes to be Number One” if you are interested.

Home Runs are NOT the driver of VC returns since 2000

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Some new insights from Greycroft:

According to Cambridge Associates, since 2000, DSC_0058 33rd Street from the Hudson wide cropover 60% of the industry returns on average came from investments that were outside of the 10 largest outcomes. This is a significant departure from the pre-1999 era when the top 10 investments were a much larger percentage of the total pie.

Plus, over the same period, managers with less than $500 million have accounted for a majority of the industry’s returns

Get the full story here.

 

A Great 6-Click Primer on Angel Investing

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A great 6-click primer on angel investing.angel-statue-1725x810_19365

  1. The basics of building an angel portfolio
  2. What kind of return can you expect on your investment?
  3. The theory and practice of asset allocation for angel investing
  4. What should your expectations be for the time it takes to get an exit
  5. Why it’s important to undertake due diligence before investing
  6. What are the risks that are inherent in early stage companies?

From the blogs of Hambleton Lord, ACA member, managing director of Launchpad Venture Group

Top 6 Media VCs and their Investments

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The top six media VC arms are in two camps.  AOL, Bertelsmann, Time Warner, and Verizon generally stick to related sectors but Comcast Ventures (generally seen as one of the top corporate VC’s around) and Hearst Ventures veer wide afield.  Good research by CB Insights.Corporate-Venture-Arms-Media

Media VCs and their Investments