Archive for the ‘Frustrations’ Category

I’m Adopting A VC Code of Conduct

A few days ago, Gil Dibner posted what he called a VC code of conduct.  I read articles all the time where VC’s write about how venture capital “should work” and the vast majority of the time I either disagree or find them a waste of time.  I feel that most of these articles are just self promotion with no actual new intellectual capital being created.

But Gil’s article is fantastic.  It’s also depressing that he felt compelled to write it.  It is yet another indictment that many VCs behave poorly and have given our ecosystem a bad, but deserved, reputation.  When I read it I had three strong reactions: one, I have tried my best in my career to comply with these ideas (call me out if you feel otherwise!), two, I think others VCs would do well by adopting these proposals, and three I think my partners at Foundry Group score well on these metrics to date.

I’m going to summarize his idea of a VC code of conduct and add a few wrinkles of my own.  That being said, you should read his full article here.  I’m only going to detail where I have a particular spin.  I also think that Gil missed three themes that are important as well.

1. I will do no harm.  Should be “duh,” but being on boards for the last 15 years proves this isn’t as simple as it sounds.

2. I will respect your time. CEO / Entrepreneur time is simply more valuable than my time.  I don’t make the companies successful – y’all do.

3. I will not ask for material I don’t need.  And I wish Gil would have added “And I will read and be responsible for understanding all materials that you send me.”  I can’t stand board meetings where a CEO is having to go through the presentation for the benefit of lazy board members.

4. I will not string you along.  It always surprises me how many people thank me for a quick NO.  It’s the humane thing to do.

5. I will let you know about competitors in our portfolio.  Done.

6. I will be transparent about any conflicts of interest between and entrepreneur and myself.  I’d argue that this should be even broader.  Just be transparent in general!  An entrepreneur should never wonder what a VC is thinking.  Let’s just be open and keep filters to a minimum and clear honesty to a maximum.

7. I will not sign a NDA, but will act as if a reasonable one is in place.  Simple.  But also know that if you ask me for a NDA I’ll know you haven’t done much homework and you aren’t starting off on the right foot.

8. I will not share your slide deck unless you give me permission.  With my partners, yes.  With others, no.

9. I will not speak to your customers without permission.  This is horrible behavior in our industry that must stop.

10. I will educate before I negotiate.  I’ve always loved doing this and this is what led to Brad and I writing our book Venture Deals – Be Smarter Than Your Lawyer and Venture Capitalist.

11. I will be honest about what standard terms are.  I agree with the sentiment, but as a former lawyer, I hate the idea of negotiating over the term “standard.”  I’d prefer to just put our term sheet out on the web and give the same deal every time as we’ve done at Foundry Group.

12. I will not issue a term sheet unless my firm has made a firm decision to invest.  This is perhaps the worst behavior in our ecosystem today. I see it more often with late stage firms than early firms, but it is present at all stages.  Once a firm pulls this trick on a company I will never work with them again. Ever.

13. I will reflect the term sheet in the final legals.  A deal is a deal.  ’Nuff said.

14. I will not seek an unreasonable equity stake in your business.  I think this is an important one.  Everyone must feel like they have proper “skin in the game.”  This seems like a simple concept, but often you find people fighting over things that shouldn’t matter.  Assume the company will be a huge success and don’t over optimize around the edges.

15. I will avoid surprises.  I think that if VCs and entrepreneurs have transparent relations, as in 6 above, then this just follows.

16. I will act in the best interests of the company at all times.  It’s not only the law, but a good idea too.

17. I promise to try not to look at my phone in meetings.  This is a hard one, but an important one. I’m not perfect, but I’m trying.  Frankly, I find myself looking at my phone when the meeting gets bogged down, usually by a board member who didn’t come prepared.

I also think that there should be three additions to the list.  I welcome your feedback.

18.  I will respond to you promptly, especially if we have an investment in your company.  This should be table stakes to a VC, but it isn’t.  There are always particular emergencies and situations which will make this difficult, but it is really important for an entrepreneur to know they always have someone to turn to.  After all, being CEO is a lonely job.

19. I will not collude with other VCs to harm your company.  I find it reprehensible when VCs collude to either drive down valuation / terms prior to a financing, or when the company is in dire straights collude to take over the company on the cheap.  There are plenty of other situations, too.   This one may have the greatest “subject to interpretation” issue to it, but I’ve seen this line crossed at times and it disgusts me.

20. I will answer all well-tailored emails.  If I am sent a well-crafted email, I will answer it.  I promise.  Whether or not I know you or not, you’ll get a response.  This doesn’t mean that I will answer spam, emails created from mail merges, emails with so many grammatical and spelling mistakes that I can’t read or emails that are clearly from someone who has done no research into what Foundry Group invests in.  But if you at least try, you’ll get a response from me.

That’s an even twenty and I’m sure we could add a few more, but this would be my Twenty Commandments of VC, or as Gil put it a VC Code of Conduct.  

I’m proud to say that Foundry Group signs up to this code of conduct as we feel this should be the minimum baseline for good VC / entrepreneur relations.

Have an opinion?  Feel free to leave  comment below or hit me up at @jasonmendelson on Twitter.  Well done Gil and thanks for getting an important conversation started.






January 22nd, 2014     Categories: Entrepreneurship, Foundry Group, Frustrations, Venture Capital    

Venture Summit | West: Wrongly Charging Entrepreneurs to Pitch VCs

What is old is new.  Entrepreneurs  are stil being asked to pay to pitch.  It’s WRONG.

Two and a half years ago, I wrote a post about a Boston group trying to charge entrepreneurs $4500 to pitch venture capitalists at an event.  Many in the startup community were appalled by this especially folks like Jason Calacanis who created the Open Angel Forum specifically to create an event where entrepreneurs could gain free access to investors.

To quote my partner Seth:





Microsoft, who had been a sponsor of the Boston event, terminated their relationship after the pay-to-pitch arrangement was publicized.  I thought all of this activity would die, but it’s 24+ months later and it looks like the idea has been resurrected.  And it makes me just as sick today as it did then.

Venture Summit | West, being held February 13th is an event looking to make money off of entrepreneurs who need to raise money.  The price?  $1585.00.  I suppose the good news is that if you apply and don’t make the cut, they don’t charge you.  But $1600 bucks to pitch VCs?  This is completely backwards and distasteful. They also offer startups a ticket for $400 if they just want to come and network with the VCs at the event.

They are charging the VCs to attend ($500) and they have a bracket for “others” at ($700).  So at least the investors are not getting a free ride on the backs of the entrepreneurs, but can we finally be done with trying to make money off of startups that don’t have any cash?  Come on folks, create a business model where you can make some money but NOT charge the entrepreneurs.  My bet is that many of the VC attendees have no idea this is even going on.

Lastly, if you are trying to raise money, do you homework.  You have many other outlets to meet VCs, including OAF, and simply going to VC websites and finding email addresses.  There are events all over the place where you can network and / or pitch.  Even online.

I hope that companies aren’t taken in by their slick marketing materials.


December 12th, 2012     Categories: Company Running, Entrepreneurship, Financings, Frustrations, Venture Capital    

Boulder It’s Time to Get Serious About Our Energy Situation – Call City Council

As many of you know,  Ballot Measure 2C, to “explore” municipalization, passed by 1.8% of the vote in November 2011.  The idea is that Boulder would investigate taking over responsibility for our energy needs and terminate the relationship with Xcel.

I can’t claim that I’m an expert on all such energy matters, but it sounded like a bad idea.  The notion that a town with less than 100,000 people would be able to efficiently provide electrical service (especially when service interruptions occur) seemed unlikely.  Of course the issue became more political than analytical quickly.

When the measure passed, City Council promised a publicly-available decision plan with decision “off-ramps” to terminate proceeding with municipalization.  These off ramps would be for things like financial feasibility, electric power rate equivalence, and equivalent reliability to existing Xcel service.

This Thursday, on November 15, 2012 the City Council will vote on these off ramp metrics.  In other words, this is the framework they will rely on to determine whether or not Boulder is going to go-it-alone on power.  And I feel these metrics are very flawed and bias the decision to separate, rather than unbiased to get us to the correct decision.  I’ve spent time with several folks in the community who are experts on these matters and who are spending their own time and money analyzing these metrics.  They are convinced they are flawed and I’m convinced their scientific method is sound.

Make no mistake about it.  If Boulder screws this up, the city probably goes bankrupt in my opinion.

From independent analysis and reference, the “off ramp” decision metrics currently proposed do not represent the financial risks, potential reliability impairments, or increases in electric power rates that would result from a city municipalization of Xcel’s assets.  Alternatives have been provided by knowledgable citizens, a city council member, and the Boulder Chamber of Commerce.

We seem to be speeding past the OFF RAMPS in the drive toward municipalization.  Backing up on this busy highway is unlikely.

What should you do?

Write your Boulder City Council an e-mail or letter stating that you do not support a vote for adequacy of the “off-ramp” decision metrics proposed by Heather Bailey (which are the current metrics).  They do not represent our risks of greatly increased electric rates, reduced reliability, and unsupportable bond debt due to creating a Boulder municipal power enterprise. 

Please vote NO on proceeding with inadequate decision criteria November 15.

Call council members who have supported proceeding with the current recommendations:

Matt Appelbaum          303-499-8970  

KC Becker                  303-218-8814   

Macon Cowles            303-638-6884   

Suzanne Jones           720-633-7388   

Lisa Morzel                 303-815-6723   

Tim Plass                   720-299-4518   

I remain convinced that we can achieve transparent governance and a rational outcome for the municipalization movement – but only if we get concerned citizens and businesses involved in our local democracy. This is worth taking time out of your day and making your voice heard.  



November 12th, 2012     Categories: Frustrations, General    

How LexisNexis Martindale-Hubbel are Running a Lawyer Ratings Scam

I am deeply disgusted to report that the good name of LexisNexis Martindale-Hubbel is officially worthless.  This institution which has built its reputation on providing accurate information to lawyers and the general public about lawyers is now nothing more than a marketing organization.  Their ratings can not be trusted.  How do I know?  Simple, they recently rated me as an outstanding lawyer as rated by my clients.

I haven’t had clients since July 2000.  And unless my three partners are secretly spending time rating my services (they aren’t) then this is complete and utter bullshit.  So beware consumers and fellow attorneys:  these ratings are nothing more than a scam to sell expensive plaques and foist the “ratings” on a public who might be looking for competent legal counsel.

Here was the text from the email:

Client Distinction Award
Congratulations Jason A. Mendelson,You have earned the Client Distinction Award. This honor has been made possible by your clients who have taken the time to compliment you in the following areas:

Communications Ability
Quality of Service
Value for Money

The results have been compiled and you have earned a Client Review Rating Score of 4.5 or higher on a scale of 1-5. Less than 4% of the 900,000+ attorneys listed and have been accorded this Martindale-Hubbell honor of distinction.

A commemorative wall plaque has been designed for you in honor of this new selection by your clients. Display your Client Distinction Award Plaque for them to see (especially new and potential clients). It serves as a point of reference which tells them others have confidence in your work.Ordering is easy. To preview and customize your award click here. (I embedded the image)

Or, take advantage of our easy open invoice billing. Simply reply to this email to tell us how many plaques you would like and we will ship and invoice you later for $159 + $12.90 shipping per plaque (net 20 terms).

Please do not hesitate to call or email me with any questions. I am available from 9am to 6pm EST, Monday through Friday and would be happy to walk you through the simple steps of customizing your wall plaque.


Pat Barnes
Account Manager
American Registry, LLC

*Did you know? Nearly 6 in 10 consumers seeking an attorney in the past year checked ratings and online reviews; of those, 65% say ratings and reviews were influential in their decision process.


And there you have it. Even the last tagline is talking about how the ratings are important to consumers. Vomit.

October 5th, 2012     Categories: Frustrations, Law    

A Sure-Fire Revenue Raiser (Tax Increase) That Everyone Will Love

In this day and age where Democrats and Republicans both do their best to distort any real facts in the tax and deficit debate, I think that I’ve come up with a way to increase revenues (yes, increase taxes) that everyone should love.

Kill IRS Section 409(A) and allow companies to issue stock to employees at any price that they wish until such company is public.  If you need a refresher on what 409(A) is, check out this post which will get you there.

When 409(A) forces companies to raise their option strike price, who wins?  Certainly not the employees who have higher strike prices.  Certainly not the company who will have  trouble incentivizing employees as the option price increases and not even the IRS! Because of the heightened price, there is less gain at a liquidity event.  So even the IRS loses money every time the price is raised.

Let’s be controversial for a moment and suggest that if all strike prices were set to 1 penny, then the employees make a lot more money, the IRS receives more tax revenue on a bigger gain and the company doesn’t have to worry about 409(A) valuations and timing of material events and fundraising affecting their option grants.

I realize that this will not work in the public company setting given the market’s need to see option expensing in the financials, but for private companies, who really cares?  It’s just a made up number at the end of the day, anyways.

I probably need to think a little more deeply on what happens if a public company acquires a private company, but I’ll get there.  The main point is that doing away with 409(A) leads to both more money being put in consumers’ hand and more money in the IRS coffers and it’s essentially “free.”

September 20th, 2011     Categories: Company Running, Frustrations    

Declaring Victory – VRBO / Home Away Changes Their Review Policies


Recently, I posted about how I believed VRBO’s online reviews were worthless in that they allowed landlords to manipulate renter feedback.  My article was picked up and expanded upon in a column by Maureen Farrell in Forbes.

There were literally hundreds and hundreds of link backs, retweets and comments regarding my blog.   What came to light was that I was not alone.  There were many people who shared similar stories about dissatisfaction about the transparency of the reviews.  I found interesting that many landlords commented saying they agreed with my assessment of the problem.  (Reason: Quality landlords want quality reviews).

Today, I was sent an email today from a friend informing me that VRBO / Home Away is changing its review policies.  From a VRBO / Yahoo Group forum:

“After considerable thought, we changed our policy in December 2010.  We no longer offer members the option to “opt out” and there is no longer an “opt out” button on your administration page. New members can no longer choose to opt out of the Reviews system either. We understand that some of our members have their own view as to the value of Reviews. We realize that this decision, which will be announced within the coming weeks, may disappoint some of our members. While we can no longer opt your listing out of the Reviews system, we will do what we can to satisfy you.”

(After this statement, there was a fair amount of chatter from landlords threatening to take down their listings, just proving the point that the ability to hide from transparent feedback was indeed a selling point).

I declare victory.

I tried my best to get VRBO to pay attention to the issue, but the best that I got directly from them was a Twitter mention telling me that if I had issues with their reviews, to check out their FAQ page.  (er… Thanks)

But clearly they heard me and more importantly YOU – the folks who took the time to read, share and comment on the earlier post.  A special thanks go out to Maureen Farrell and Erika Napoletano who helped amplify my original message.

Congrats everyone. Social media works.  Sometimes the little guy can influence policy at a large company.  Thank you.


February 15th, 2011     Categories: Frustrations, General    

Brightleaf Automates the NVCA Model Documents (a.k.a. Why Brad Feld will Succeed)

If you are a reader of this blog, or Brad’s you know that we are keenly interested in the ideal that we should be able to arrive at a model document set for venture financings.

Whereas, I argued that he’d never succeed in coming up with a standard set of seed documents, I used the story of the model form document project from the NVCA.  The project actually produced model forms of documents, but most of us were disappointed by the actual usage.  In my opinion, this was because the documents had too many options and took lawyers a while to deal with them.  (For instance founders reps which you never see on the West Coast and things like that).

But at the same time, these documents live and breathe and are updated by some of the great minds in our business on a regular basis.  I feel safe in saying that are more vibrant and accurate than most law firms. 

Today, I’m delighted to announce that our portfolio company Brightleaf has released their platform including the standard form of NVCA documents.  In short, their document automation and assembly software can save lawyers a ton of time using the NVCA forms, while giving them the piece of mind that they are always using the latest and greatest forms in the business. 

Oh yeah.  Did I mention that it’s FREE?

They are offering free “NVCA ASAP” trial accounts to a limited number of VC’s and Emerging Companies law firm practices. For more information about the project (and how to get a trial account) please visit their NVCA ASAP page here.  For a quick overview demo of how Brightleaf works, watch the video here

This could quite possibly be the tipping point in getting us to one standard set of documents.  Maybe Brad won’t fail after all. 

November 5th, 2010     Categories: Financings, Frustrations, Law, Law Firm 2.0, Venture Capital    

Who’s Suing Whom?

Great picture of who’s suing whom in the Telecom world.  Man, I love patents…


October 6th, 2010     Categories: Frustrations, Patents / IP, Technology    

Bilski Redux and Why You Shouldn’t Believe Everything You Read

The Bilski decision came down yesterday and I’m still in a state of complete denial.  Basically, the court punted on the difficult issues and while denying Bilski his patent, they didn’t do anything to help the horrible state of the patent ecosystem that we have today. 

(For a great summary of the case, check out the Groklaw summary). 

To make my stomach even more upset, today I was alerted to an article authored by Ted Sichelman entitled “Why Bilski Benefits Startup Companies.”

In short, Sichelman points to a study that he was involved with and tries to come to the conclusion that these types of patents are good for startups. 

To quote him:

“in a recent survey of startup firms, the Berkeley Patent Survey—which I conducted with Robert Merges and Pamela Samuelson of UC Berkeley School of Law and Stuart Graham (now Chief Economist at the PTO)—startup executives reported that nearly 70% of venture capital firms and 50% of angel investors said that patents were important to their investment decisions.”

While I vehemently disagree with the article, what I found most interesting was a commenter who used a prior post that I wrote on why the study that Shichelman was involved in may be flawed.

Sichelman attempts to refute my post in the comment section, but fails badly.

First of all, it seems clear to me that Sichelman has intuitions on patents based on his experiences and has used the data to fit his theories, rather than using the data in an unbiased way to figure out what is really going on with patents and startups.

I make this assertion based on a couple of observations:

1. Everytime he speaks about patents, he begins with the story of his one experience with a startup company and how patents may have helped.  I’ve had dinner with Ted and I’ve heard the story.  I’ve also seen the story pop up in every situation he discusses patents.  A sample size of one does not make a scientific set. 

2. Sichelman’s co-authors are no where to be found when he comes up with his conclusions.  Ted acknowledges that he doesn’t speak for his co-authors, but very easily uses the word “we” when discussing the study and “his” conclusions.  The blog post that I wrote refuting some parts of the conclusions of the study were not all my own ideas – they were the thoughts of his co-author Pam Samuelson who herself said the article really doesn’t say anything about VC attitudes toward patents.

It’s really clear that Sichelman has a bias that was probably preconceived on a data set of one (his startup) and not supported by his fellow authors who have not backed him up publically.

Furthermore if you read his comments on my blog post, his rebuttals don’t hold water as well.  (And you’ll want to read the comments for this part of this post to make any sense).

1. Response rates – just because you are the most comprehensive study doesn’t make the study necessarily any better.  It might, it might not.  I could be the world’s tallest midget and that still doesn’t get me much (no offense to midgets, sincerely).  I never definitively said the sample size was too low, rather it’s not rock solid clear that it was the right size or targeted the right companies.  It’s not an easy thing for them to do, granted, but we shouldn’t just accept the number “1300” being thrown out and assume that this is sufficient.  And per Sichelman’s own admission in his comments, only about 175 of the respondents were VC-backed startup companies.   This is not a large number.

2.  Only 75% answered the patent question and Sichelman says this is acceptable.  This is not.  In fact, others involved with the study have specifically questioned where the answer rate was a piece of data in itself.  Again, I’m not saying definitively this is data, rather the way Sichelman uses data like this as “proof” is not dispositive. 

3. Results biased toward non-venture backed companies.  Sichelman again presents a non-compelling argument.  First, 2/3rd of the sample size, according to his co-author Pam Samuelson were D&B companies, not VentureExpert companies.  Secondly, him trying to convince readers that I only have a sample size of 25 current portfolios is either poor research on his part about me, or ignoring the facts.  I’ve been involved in VC for over a decade and with well over 250 companies, which alone is larger than his sample size of 175 companies.

4. (My Favorite) – Just because we didn’t survey VCs doesn’t mean that we don’t know what VCs think.  To quote him:

“VCs were not surveyed directly – Although it would have been more reliable to survey VCs directly, unfortunately, our time and resources were limited. Nonetheless, there is little reason to believe that the reports of executives at startup firms regarding the views of VCs during the financing process—which is lengthy and involved—are inaccurate. Rather, executives are presumably well-aware of those items that VCs found important during due diligence.

Basically his response is:  “we couldn’t afford to interview VCs, so we just guessed by asking entrepreneurs.”  This is totally bogus and backed up by Pam Samuelson herself in recent remarks at the University of Colorado law school.  This only talks about perceptions that entrepreneurs have of VCs.  This says nothing about what VCs think.  To think that one study group can be substituted for another study group and presented as fact discredits the valid parts of the paper.  This is just bad science.  If it was good science, we’d just ask parents about what their kids really thought about things. 

In summary, it’s been a rough day thinking about what could have been with Bilski.  I’m getting a ton of backchannel about the politics behind the decision, which just makes me more upset.  To try to capitalize on the poor decision with articles like this just makes me more disappointed about the system and the supposed “experts” who pretend to know much more than they really do. 

June 29th, 2010     Categories: Frustrations, Law, Patents / IP    

Control Your Most Important Asset – Your Brand

Last week I wrote a blog about Atomic PR and their illegal spamming of folks trying to generate buzz for their clients.  [Note: they’ve since apologized and have agreed to stop doing this and let folks opt out – see the comments area for the CEO’s reaction post].

One of the most interesting things to come out of the post, however, was an article by Mike Melanson on Read Write Web entitled “Does your PR Firm Need a PR Firm?”  It’s a really thoughtful piece and had one piece of advice that is critical: 

“Remember that allowing a PR firm to run free with your brand is essentially allowing it to have control over how your startup comes off to the rest of the world.”

In other words:  Control your brand.  Always.  It’s your most important asset.  Your brand is made up of your goodwill, reputation and public perception.  It’s hard to have a good brand and it’s very easy to have a lousy one.  It’s also easy to have a good one ruined and very hard to go back the other direction. 

One can come up with many examples of companies with good brand equity who have made missteps with products and have lived to fight another day (although you can’t have too many mistakes).  But companies with bad brand equity seem to always be behind the eight ball.  For instance, Microsoft, which allowed Apple to rebrand themselves with the “I’m a Mac” commercial series, can’t buy a break despite Windows 7 being a really good product.  And my bet is that Toyota, which had tremendous brand equity figures a way out of its quagmire as well. 

And startups, which have even more fragile brands, hire PR firms at prices that are equivalent to executive salaries and basically hand over the keys to their brand.  And some do the same with their lawyers who interact with their VCs. This also holds true for all service providers that companies hire that deal with the outside world.  All of this can build or damage a startup’s brand.

Even in AtomicPR’s case, they outsourced their brand to a email database called Cision.  They claimed that they don’t spam because they subscribe to a database that gives them contact information of journalist and bloggers in the technology space.   From the word’s of Andy Getsy, CEO of Atomic PR:

“Jason has an active blogger profile on Cision, which lists him as a VC covering venture capital topics. He blogs on tech products and companies from time to time. I suspect that this is partly how his info popped up again”

AtomicPR decided to blindly trust a database that claims it contacts bloggers for inclusion on their lists.  Well, for at least two of them – myself and my partner Brad, we’ve never heard of them or been contacted.  And I’m not a blogger or reporter who “covers” technology, as Cision claims.  I’m just a dude with bad grammar that occasionally writes things that people read. 

And while their intent might not have been to spam, that’s what they did.  They outsourced their contact list and then furthered outsourced their brand to junior associates who did not respond to my polite pleas to be taken off the list.  So in the end, AtomicPR’s brand was tarnished by their outsourcing and eventually one person who took issue (me). 

Morale of the story:  Be hyper careful about your brand and reputation.  It’s your most important asset.  And it’s a bitch to fix.  If you don’t believe me, Google “AtomicPR” and see what comes up on the first page. 

June 9th, 2010     Categories: Entrepreneurship, Frustrations, Observations, Technology, Venture Capital