Friday, January 23, 2009

But can you fit that VC under the salary cap?

PEHub has a fascinating story about how you could radically remake the VC industry by replacing the current fund structure with a system of allocating funds to individual VCs:

Venture capitalists are a lot like professional athletes. They often work in teams, but are largely judged on their individual statistics. A great VC can be part of a lousy fund, because his successful deals get drowned out by the aggregate performance of mediocre partners. To keep the analogy going, think Paul Pierce on the ’06-’07 Celtics.

But what if you could have changed the ’06-’07 NBA from team vs. team to one-on-one? Wouldn’t Pierce have become far more successful?

That’s kind of the idea here. This proposal would have an experienced institutional LP (likely a fund-of-funds), create a series of loosely-affiliated evergreen “funds,” with each fund to contain just a single VC. In other words, cherrypick the cream of the crop. Give the VC an annual salary of around $1 million, an assistant, an associate and 15% of any carry. Perhaps a three-year contract, with a two-year LP option.

If the VC’s investments are successful, both he and the LP would make more money than had they both been working under the traditional structure. If the VC’s investments fail, then the LP presumably would lose less money than had it invested in a failed fund of multiple partners.

I have to admit, this does make a lot of sense to me. One of the reasons I've always avoided VC is the fact that I'm not keen on spending my time fighting for deals in a weekly partner meeting, or protecting my piece of the carry from fund to fund.

And the numbers can work out nicely. Imagine the hypothetical 5-year contract. Cost to the LP would be $1 million/year, plus a 15% carry. If you invested in a typical fund, you'd pay a 2% management fee and a 25% carry.

Let's say you gave a VC fund $50 million per partner. You'd be paying management fees of $1 million/year, and a 25% carry on results. In contrast, the 5-year contract would cost you $1 million/year in compensation, and a 15% carry on results.

And if the VC did particularly well, he/she could negotiate a contract extension in a variety of ways...more money to invest, higher base comp, larger carry.

Very intriguing!

P.S. If you are a blue-chip LP and are interested in experimenting with this, drop me a line!

Thursday, January 22, 2009

BSG Fans: Must-listen Podcast With Richard Hatch

Here's a real find for BSG fans--a two-hour podcast with Richard Hatch, the original Apollo, and the current Tom Zerak.

It's a fascinating interview, largely because Hatch is such a passionate fan of Battlestar Galactica, and because he is almost painfully honest and sincere about everything.

Here are a few of the highlights:
  • Why Admiral Cain is a better leader than Admiral Adama
  • Why, despite the "darkness" of the show, BSG is all about redemption and hope
  • Why democracy is so fragile, and what we must do to preserve it
  • How the Internet will change the business model for television
  • His regret that the show never explored the sexual tension between Roslin and Zerak
I was especially impressed with his thoughts on Internet business models, user-generated content, and the value of open-sourcing a fictional universe.

Hatch points out that a show with passionate fans could easily gross $50 million PER MONTH (5 million fans, $10/month), and be both wildly profitable, and allow a show to continue as long as the fans wanted, rather than being subject to studio whims.

Tuesday, January 20, 2009

Speechwriting, Obama-style: History Doesn't Repeat Itself, But It Rhymes

Much has already been written about President Obama's eloquence. As I listened to his inaugural address (on the radio, while driving), I was struck by the way he first courts, and then confounds rhetorical expectations.

Mark Twain once said
, "History doesn't repeat itself, but it does rhyme." Obama uses this allusive approach to both evoke the feeling of the familiar as well as the shock of the new.

Take these examples from the text of Obama's inaugural address:

At these moments, America has carried on not simply because of the skill or vision of those in high office, but because We the People have remained faithful to the ideals of our forebears, and true to our founding documents.

In both "forebears" and "founding documents" I hear echoes of the far more common (and patriarchal) "forefathers" and "founding fathers."

When we hear the sonorous "We the People have remained faithful to the ideals of our fore--", our mind automatically fills in the "fathers." Obama's choice of "forebears" instead jolts us out of autopilot. The same applies to "true to our founding--", where you're 99% sure he's going to say "fathers," especially since he avoided that word in the preceding phrase.

The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free, and all deserve a chance to pursue their full measure of happiness.

Here, Obama echoes the famous formulation of the Declaration of Independence: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."

But notice the twist...rather than "all men are created equal," he says "all are equal," then makes a direct parallel, turning equality from preamble to primary statement.

Later in the speech, Obama echoes FDR's first inaugural, with his statement of America's strengths, and his call for bold action. See if you can tell which is which:

Speech A:

We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished....But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions - that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America. For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act - not only to create new jobs, but to lay a new foundation for growth.

Speech B:

Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it....The task can be helped by preventing realistically the tragedy of the growing loss through foreclosure of our homes. It can be helped by insistence that the Federal, State, and local governments act forthwith on the demand that their cost be drastically reduced....There are many ways in which it can be helped, but it can never be helped merely by talking about it. We must act and act quickly.

Obama, no mean student of history, surely intends the parallel, which he has courted with repeated references to the worst economic crisis since the Great Depression.

None of this analysis is meant to detract from Obama's eloquence and skill as a writer; the fact that his eloquence pays tribute to the great works of the past are a sign of strength, not of weakness.

I suspect that in the generations to come, other presidents will look to the words of President Obama, much as he has done to his predecessors.