Ambient Awareness & The Promise of Native Experiences

In 2004, I started a group research project, as part of my MBA program, to evaluate the promise of an RFID-based information platform. My original premise was that sensor-based platforms would eventually become the next large-scale information utility, serving as a parallel information network to the traditional web.

While the pricing of active RFID sensors looked like it would inhibit the growth of that sub-segment, it seemed clear that passive sensors had an opportunity to achieve widespread deployment once large retailers like Wal-Mart got behind it.

As our research proceeded, it dawned on me that the largest active sensor network in the world wouldn’t be RFID-driven but more likely mobile device-driven, eventually cuminating in the internet of things. This spawned a whole series of thoughts that eventually coalesced into several investment theses.

The overarching theme was that sensor-rich mobile devices, coupled with high-order intelligent software, would be able to offer numerous obvious and non-obvious use cases to a wide variety of users.

The first thesis was that there would need to be an intelligent platform that captured all the ‘signals’ from sensors, assembled, parsed and routed instructions and information to the user to enable decision support and more.

The second was that data-fueled experiences underscored by spatio-temporal awareness would lead to a dramatic upheaval in our expectations for the utility and value of such sensor-rich devices. Redefining mobile experiences would be a massive shift and opportunity. Incorporating data and information generated by the internet of things could conceivably lead to a smarter planet.

It took a few years to find the right startup teams thinking along these lines.

In 2009, in support of the first thesis, I led an investment in Sense Networks. Sense Networks has developed technology to generate insights based on explicit and implicit sensor data generated in space and time.

In 2011, in support of the second, we led an investment in Dekko. The promise of Dekko was simple: the team believed the proliferation of intelligent mobile devices would require an intelligent interface between such devices and the real-world. In extending the online-to-offline-online construct, there would be a need for a real-world operating system, that could bring your digital world into the real world in a seamless and useful manner. This posed an incredibly difficult set of technical problems but offered an unbound set of opportunities in segments such as gaming, social networking, tourism, construction, e-health and security.

The Dekko team has worked quietly for several years in pursuit of this vision. It is an industry-leading all-world team made up of the best and brightest minds in 3D mapping, mobile UI/UX, augmented reality, cognition and awareness, optical tracking and micro-gestures, and HCI. We are super thrilled to have backed them.

In addition to being incredibly grateful to the team, we also owe a debt of gratitude to our co-investors, most of whom supported a game-changing vision pre-product, and have been stalwarts along the way as the team was grinding along in the shadows. Big thanks also go to Google for helping validate the vision with the launch of Google Glass. Dekko will offer the definitive OS for all mobile devices, including Google Glass.

Take a look.

Technology VC Investing in Underserved Emerging Markets: A Thesis on Risk Mitigation

On February 16, 2013, I spoke on a panel titled 'Venture Capital in Sub-Saharan Africa.' as part of the 15th anniversary celebration of the Harvard Business School's Africa Business Conference. The conference theme was 'Redefining Africa: The Emergence of a New African Story.' The conference was amazing and invigorating. I'll share more detailed thoughts on what I learned in a separate blog post.

During the panel, I shared a view that I have expressed in different fora, albeit casually. Here's a little more background on it. It is our view that the biggest source of risk in startups in emerging markets is operational. Execution (with high-quotient integrity) is everything. Adversity, achievement & accomplishment are also very important quotients and when conjoined with high EQ, likely increase the value of the first three.

We believe that the single most important mitigant of this risk is women in founding, senior management or key operational roles. The insights gained from our advisory and mentorship activity over the years in support of ASTIA and the Pipeline Fellowship buttress our belief.

Our seed and early-stage venture capital investments in technology startups addressing underserved emerging markets such as Africa will serve as role models for. this antifragile approach to risk mitigation.

We hope our fellow travelers consider adopting this approach. The ecosystem can only benefit from our joint leadership in fostering this.

Bite-sized Content: The Socialization of Nutritional Value

Every now and then when I open up @twitter, I see a bunch of tweets about @ev's and @biz's new production from Obvious Corp, called Medium.

The name always brings back a ton of memories. Of Kimbal Musk and the team at Me.dium. And the several attempts I made to invest in the team and their vision of a truly social web experience. 

But I digress.

Back in 2004, I was thinking deeply about the concept of personal expression and the platforms then and in the future that would enable it.

I had been tracking Blogger and its course-mate, TypePad, since 2002 but only casually. The 2003 acquisition of Pyra Labs (parent of Blogger) by Google naturally had made me sit up to consider the long-term implications of crowd-created content. This was prior to Matt Mullenweg starting up the monster platform known as Wordpress. 

But it struck me that we were likely at the beginnings of a movement that would be global in reach and ramification. The socialization and democratization of content creation, syndication and consumption.

I had no idea how to get involved but I knew there would be hell to pay if I didn’t.  

And there began the random notes-to-self that became the framework for an investment mini-thesis on self-expression platforms. 

So between 2004 and 2005, my view distilled as follows:

(1) The desktop web would be the initial driver of this. The combination of powerful search (enabling research and visibility) would be a powerful enabler.

(2) But what would this behavior look like on small devices? I was at Intel Capital at this time and I can share that mobile devices were certainly considered to be an important future growth market. In 2005, I was part of a team that worked with Apple to frame a memory supply contract. This was the second leg of the groundbreaking partnership that Intel forged with Apple. [Remind me to blog some day about the experience of working with Apple, Tim Cook and interactions with Steve Jobs. What an amazing and disciplined group. An out-of-this-world combination of intellect, vision and execution]. Apple was clearly thinking about mobile devices at scale at this point.

(3) We (consumers) needed an outlet to express our thoughts (and alleged individuality) in small chunks. Mobile (and desktop) technologies would offer us the devices. But the services built on top of those devices would give us the tools. 

After literally chasing down Mena (of Mena & Ben fame) at a conference and convincing her that I had a similar vision, I was proud to be able to source SixApart for Intel Capital as a potential investment. Intel closed the Series C investment in March 2006 as part of a syndicate of investors led by Focus Ventures.

Many iterations later, fast-forward to today.

We have seen several generations of personal expression platforms (PEPs): Text (blogger/wordpress/typepad, twitter/jaiku, storify, medium, pandawhale, teethie, google+); Images (pinterest, instagram, flickr, 500px); sound (soundcloud, lastfm, grooveshark, spotify); and, Conjoined (tumblr, new twitter, new myspace, snipit).

The subscribe-to-follow and follow-to-subscribe models changed the dynamics of such PEPs. They became socio-fractal networks, wherein, in objectified chunks of interest, each displayed self-similarity at different scales.

But we are at a crossroads now.

We are getting hit by multiple demands for our attention and engagement. And it’s getting worse. Distractions are everywhere. http://on.wsj.com/WbMYfG 

"In the few minutes it takes to read this article, chances are you'll pause to check your phone, answer a text, switch to your desktop to read an email from the boss's assistant, or glance at the Facebook FB -5.06% or Twitter messages popping up in the corner of your screen. Off-screen, in your open-plan office, crosstalk about a colleague's preschooler might lure you away, or a co-worker may stop by your desk for a quick question…Distraction at the office is hardly new, but as screens multiply and managers push frazzled workers to do more with less, companies say the problem is worsening and is affecting business. Office workers are interrupted—or self-interrupt—roughly every three minutes, academic studies have found, with numerous distractions coming in both digital and human forms. Once thrown off track, it can take some 23 minutes for a worker to return to the original task, says Gloria Mark, a professor of informatics at the University of California, Irvine, who studies digital distraction.”

Paired with this 'epidemic' is Peter Thiel's interesting comment (in his PandoMonthly interview) re: people no longer wanting to think. I don’t disagree. I also feel folks seem to want to read less and less. That is, both in frequency and amount.

These two signals are scary in combination. What does minimum viable scholarship look like tomorrow?

I think therein lies the opportunity. And I have wrestled with this thesis for the last five years. It never fully crystallized until recently.

Many years ago, someone told me that there were mobile games (originally developed in Japan) that were timed to be played between train stops. From start to finish. From stop to stop. Attention, engagement, activity, conclusion, reward. I never forgot this.

Clearly, one can learn and be entertained in modules. Imagine if the modules can be re-composed and re-distributed?

The promise of the open web should offer socialization and democratization of content creation, syndication and consumption.

So I think the looming platform opportunity is one where content can be created, atomized, assembled, distributed, culled, re-combined and re-distributed. Sized and valued as appropriate.

Get in, where you fit in. For the network of one. Or more.

I call this the open web foundry...where creators generate bite-size content that can get consumed, distributed, re-constituted and redistributed. Original and recombinant content with its source DNA embedded (and destinations on file).

But this time, the bite-sized content, and not just people, must become social. Semantic technologies can add the intelligent layer that makes content social and dynamically connective. By extension, assembling content and relying on machine-learned prioritization and a people-like-me construct built by a hybrid of people and algorithms.

Nutritional value is based on an x-y axis of acceptance and interest/desire.

Distribution is now unbundled and bite-sized, with its impact in the general (many-to-one) as well as the particular (one-to-one with a viral coefficient of +1). And so will content, which must be reformatted to fit the new attention and consumption paradigms.

The interface and experience won’t just be re-imagined. Simply because we will have the opportunity to re-order and thus avoid the risk of prime error as Nassim Taleb so eloquently puts it. 

The web we regain (and its interconnected Banyan-like branches) is rooted in the web we lost (h/t @anildash). 

My friend @Semil describes this as the web of extraction.

This doesn’t exist. But it should.  And we want new easy-to-use tools that are widely distributed and built for such an open content creation platform.

There’s a related opportunity to create a marketplace of bite-sized content. And this platform will create a real economy. One that’s economic, karmic and emotional.

I am grateful for the entrepreneurs who have toiled in silence and in the dark building the future for a new consumptive era, enabling the creator in each of us.

2 billion people coming online in the next few years. On mobile.  And one thing’s certain, ‘the next web will grow faster.’

Little Things

Little drops of water, 
Little grains of sand, 
Make the mighty ocean 
And the pleasant land.  

Dots before lines. 

It’s not obvious. Until it is.

EDO

[the twitter conversation below, with my buddy Andy Weissman of Union Square Ventures, spurred the completion of this blog post].

Andrew Weissman ‏@aweissman

The Great Fragmentation http://j.mp/S4Nv4Z  

31 Aug

Eghosa Omoigui ‏@EghosaO

.@aweissman disaggregation of content & experiences, when paired w/ ambient awareness & contextual mapping, means RAMPs will be next biggie

31 Aug

Andrew Weissman ‏@aweissman

@EghosaO RAMPS?

31 Aug

Eghosa Omoigui ‏@EghosaO

.@aweissman RAMPs = Routing And Matching Platforms. a necessary outcome where fragmentation meets social. everything goes bite-sized or less

[SiliconAfrica.com: Silicon Valley Firm To Invest $30M Into African Startups] - A Rejoinder

Silicon Africa ran an article on September 1, 2012, titled "Silicon Valley Firm To Invest $30M Into African Startups.'

We were never interviewed for this article and regrettably, it had a bunch of errors. It also spurred a very active comment thread. Deeming it necessary to correct the article, we submitted a comment which was never published. Our comment is published below to avert any further confusion.

It's important to note that while we have not officially disclosed our fund or publicly discussed its specific goals, what we can share at this time is that we are extremely passionate about (and focused on) helping to build out the technology entrepreneur ecosystems in select emerging markets such as sub-Saharan Africa and SE Asia.

+++++++++++++++++

*From: *Eghosa Omoigui

*Subject: *Silicon Africa comment

Many thanks for the kind article. Regrettably, I was misquoted and so would like to correct that and also add some more color.

My partners and i visited Lagos in late July. EchoVC sponsored/hosted a tech+drinks meetup and we all were absolutely thrilled to have over 50 ecosystem players attend. We also conducted office hours (kindly hosted by the cchub team and organized by the IVD team) for various startups as a service to them. Our office hours were simply designed to listen to startup pitches and offer VC feedback. It was a very insightful and educational all-day session and we are grateful to the folks who all contributed to make it happen.

We also conducted our first EchoPlex (3hr) interactive learning session titled 'How To Pitch: Telling Your Story As A Nigerian Tech Entrepreneur,' kindly hosted by the FATE Foundation. I had a blast and i think the entrepreneurs did too.

During our visit, we met some very dynamic entrepreneurs (male AND female) doing uber interesting things and continue to be excited by the opportunities in the Nigerian and larger pan-African tech markets.

The bottom line is that, as in all nascent markets, there are different tiers of entrepreneurs and opportunities. Our mission as a firm is to focus on seeding and syndicating entrepreneurial inspiration. A key underpinning of this is to embody the mantra of 'knowledge worth spreading.' This means helping to educate the ecosystem to increase the opportunities to seed and build tech startups that have a shot at becoming material successes and thus can spawn even more startups. e.g. we are running another EchoPlex learning session on Sept 5 focused on women tech entrepreneurs and how to increase their numbers while trading strategies on how to reduce the friction that is unique to them in the Nigerian society.

At the company lifecycle stage that we are very passionate about (seed and early-stage), there's a TON of heavy lifting required and we will need folks across the board (entrepreneurs, angel investors, service providers, corporates, educational and financial institutions, government, etc.) to help contribute meaningfully to the development of a vibrant and scalable tech entrepreneurial ecosystem. I will caution that it's easy to think you are a winner because you successfully raised venture or seed capital but that's just the beginning of the real effort that goes into building winners. Focus on execution is what primarily separates the winners from the also-rans, along with a healthy dose of luck, humility, the absence of hubris and finally, the constant reinforcement delivered by self/situational awareness.

My partners and I care very deeply about this and believe that knowledge+mentorship is the priority need in this market, followed somewhat closely by seed infusions of risk capital.

The one takeaway I shared was that local entrepreneurs need to defocus on me-tooism and/or slobbering over US tech blog chatter and spend more time looking around them to solve the various problems that exist for large tracts of the population. As I like to say, 'live in analog, but invest for digital.'

Less talk, more walk.

We are excited at the prospects. Please support us.

Eghosa Omoigui

EchoVC Partners

Sept 2, 2012

Working with a Corporate VC: An Insider's Perspective | VentureBeat

In part due to the dismissively titled "The Only Thing Lamer Than Corporate VCs? International, Non-Tech Corporate VCs" article by Sarah Lacy at PandoDaily regarding 'fair-weather' corporate VCs and their burgeoning activity, I decided to republish my article from February 2007, which was originally posted on VentureBeat.

Ms. Lacy and I had a bit of a discussion on Twitter regarding what I felt was her mischaracterization of Intel Capital's approach to venture capital. It's somewhat impossible to have an unconstrained discussion on Twitter so take what you will from our little back-and-forth.

Its been 2+ years since I left Intel Capital but the article below is probably still directionally on point.

My hope is that startups looking to engage with corporate VC units will find this helpful.

Eghosa

---------- Republished [courtesy of VentureBeat]----------

* Working with a Corporate VC: An Insider's Perspective* [http://bit.ly/yBiC0w]

February 22, 2007 6:39 PM Eghosa Omoigui

[*Editor's note: We asked Eghosa Omoigui, Intel Capital's Chief of Staff, to give us some insights about corporate venture capital investing. Intel has been the largest investor in technology companies for several years, and not in just chip companies. He's given us a primer on how Intel Capital thinks. Later, we expect to hear from Ned Hooper, of Cisco, a company with a very different, acquisitive style*.]

Someone once described corporate strategic investing as ‘misunderstood.’ I decided it would be helpful to talk about Corporate VCs (CVCs) and how best to maximize their impact and value to VCs and entrepreneurs alike.*

Intel Capital is Intel’s strategic investment arm. Typically, it focuses on making equity investments into technology companies, funding internal incubation activity, and leading acquisitions to grow the digital economy in support of Intel’s objectives. These objectives can be to create new business opportunities for Intel and expand global markets for our products, while achieving positive financial returns on our investments.

Since we started investing in 1991, Intel Capital Equity has invested more than US$6B in nearly 1,000 companies headquartered in more than 40 countries. In 2006, Intel Capital invested $1.07B (yes, that’s a ‘B,’) and includes a $600M investment in Clearwire (the largest VC round in US history) in 163 deals worldwide (in 26 countries) including 91 new deals, likely qualifying us as the most active technology CVC, and one of the busiest VCs overall. With on-the-ground investment managers in 20+ countries, and leading over 40 percent of our deals in the US and 60 percent+ overseas, we invest in all stages from seed (pre-Series A) through to PIPEs (Private Investments in Public Entities). In 2006, Intel Capital had a total of 37 exits; eight portfolio companies went public via IPO and a total of 29 were acquired.

But enough, for now, about Intel Capital. What about CVC’s in general? How and why do they invest? And how do they add value?

*Why do CVCs invest?*

Generally, and unlike VC firms that raise money from independent investors, the CVC’s lead-off hitter is strategic rationale. It is extremely unusual for a CVC to make an investment where there is no strategic reason for doing so. Strategic engagement, however, can span a wide spectrum of activity.

For example, the CVC’s investment may aim to support a thriving ecosystem around the parent’s core products, e.g. software stacks, display technologies and power innovations.

Other CVC investment ‘incentives’ include: (a) a proxy for inorganic growth; (b) a market development tool , e.g. ‘planting the VC flag’ in new regions and geographies; (c) an eyes-and-ears tool to identify and nurture emergent technologies or foster new trends or business models; (d) a ‘gap-filler’ which approximates to outsourced R&D but with an end customer-centric goal; and finally, (e) a conjoined source of positive returns (financial in addition to strategic)

For what it’s worth, my sense is that Cisco and Cadence generally invest as a potential stepping stone to acquisition. It’s also no news that IBM and Microsoft no longer invest directly (as a general rule), but do invest in some VC funds and funds of funds, and then do business development work with VC firms and their portfolio companies. I understand Samsung Ventures and Motorola Ventures typically require a business agreement with a product group.

Intel Capital is quite flexible and varied in how we work with VCs and start-ups to find an optimal financial and strategic relationship. Note that we’ve rarely acquired the companies we’ve invested in • last I checked we were at about one percent.

*How do CVCs add value?*

There are several ways for a corporate venture capital firm to add value to its portfolio companies.

First, there’s extended reach. As a global technology investor, our perspective expands the pool of insight and knowledge available to entrepreneurs and co-investors. Illustrating this, most people don’t realize we began actively VC investing in China and India back in 1998, long before most of the tech VC world recognized both countries as the next active growth frontiers. (Intel Corp. opened its first office in China in 1985). A corporation like Intel can also help a company access and tap global operational resources — sales, marketing, R&D, channel/customer access, etc.

There are programs such as our Intel Capital Technology Days (ITDs). These aim to introduce our portfolio companies to Intel customers and bring emerging technologies from those portfolio companies directly to the customer in a structured manner. The underlying goal, of course, is to drive revenue opportunities for the portfolio companies by fast tracking the traditional sales cycle, while presenting helpful products and solutions to Intel customers who may otherwise be unaware. In 2006, Intel Capital held 53 ITDs worldwide with ~200 portfolio companies.

The CVC may also be able to offer, within reason, consistent cash over time, as opposed to the structured funds of most “institutional” venture capital firms.

While we recognize that strategic alignment can change because business unit priorities and strategic direction can and do change, Intel Capital will continue to support financially attractive companies with subsequent rounds of investments where it makes sense.

We’re also experts on deal terms as well as players. Intel Capital has invested in nearly 1,000 companies and had ~350 acquisitions and IPOs worldwide. This means knowledge of IPO or M&A wrinkles, acquirer habits, pros and cons of one acquirer over the other, and standard and not-so-standard terms could lie with your favorite neighborhood CVC investor. In Intel’s case, we have an extensive database. This brings facts and composure to what generally is a relatively stressful and emotional deal process, whether it’s an investment or an acquisition.

*How to Navigate the Corporate VC (and Build Value)*

Some entrepreneurs have complained that corporate VCs are opaque. Here are some tips:

(a) *Learn the investment strategy*: Cisco, Siemens, Comcast, Motorola, Adobe, Intel Capital, Google, TransCosmos, Pfizer, etc. … they all do it differently. A clear understanding of this will help frame the decision of when to invite a CVC to lead a round or add to the investment syndicate. Intel Capital will invest in all stages, if it makes strategic and/or financial sense.

(b) *Value the process in the CVC and its parent*: For start-ups that often pride themselves on lightning-quick decision making and nimble changes, ‘process’ can be extremely frustrating. However, it can be a useful GPS device on cold dark nights. Trust me. I remember a ‘hot’ deal referred to Intel Capital that conceptually would have been very disruptive technology. The deal was coming together very quickly and I pulled in our investment managers post-haste. They collared the technical experts in the business unit in less than 24 hours and we huddled to do some preliminary super quick technical due diligence. The potential investee company had a bunch of customers, investors and a very solid management team • all elements that would have quickly generated a term sheet from a VC in the bubble days. But our process required that the subject matter experts in the business unit (and the research labs in this case) provide technical due diligence. As we poked around, our concern grew. Turned out there was more (snake) oil in this company than OPEC’s daily production output. We didn’t invest. Our ‘process’ helped us (and at least two other VCs who were looking at the deal) avoid a potential disaster.

(c) *Do your due diligence on the CVC*: Be clear upfront on what they can and cannot do • know why you need them • and say so! For example, Intel Capital brings advantages in three dimensions: breadth (we invest in processors, digital homes/health, mobility, software etc.), reach (global and customer access) and depth (technical expertise). Other CVCs will bring different types of value-add (Cisco, for example, may offer a quicker exit) and I strongly recommend you identify what is most important to help generate material company building value. Note that some CVCs will generally take a BOD seat, but Intel Capital won’t do it as a general rule, choosing instead to take an Observer ‘seat’ and potentially an option to convert that to a full BOD seat if the need arises.

(d) *Find the right investment professional*: Be an aggressive networker. Just keep asking “Are you the best person for me to work with on this deal?” and you’ll eventually get to her/him. CVC’s don’t get bent out of shape if you ask this, because their ‘partnership’ tends to be larger and more segmented than that of a financial VC

(e) *Solicit their input*: into strategy, major deals, IP filings, infrastructure scaling, etc. They should help find customers and contribute ideas to strategy, push product development, call down corp. resources as needed to problem solve and accelerate success You will be surprised at the sheer amount of data and resources that you can access.

(f) *Keep updated*: (through the Board Observer or Director) on related business unit and research lab activity. I suggest regular 1:1s with the Board Observer to keep the communication channels well primed

It has been said that corporate venture efforts are fair-weather friends, unreliable in tough times. I believe this is a gross exaggeration. A good number of CVCs disappeared from sight after the last bubble burst. But those CVCs who quit post-bubble jumped into the VC investing business for all the wrong reasons and without the careful deliberation and organizational framework that should accompany a viable long term investing strategy. There are still plenty of quality CVCs that are great at what they do, make fantastic partners and company builders, add meaningful value, and help create great companies that deliver solid impact, while cheerfully weathering the ups and downs of naturally occurring VC cycles.

© Eghosa Omoigui 2006, 2007. Opinions expressed here are solely mine and may not represent official positions of Intel Corporation or Intel Capital

High-Res Financing, High-Res Hangover: Low Resolution Thoughts on Convertible Notes and Priced Rounds

Mark Suster, a GP at GRP in SoCal and all-around good guy, wrote a very detailed post on the perils and unintended consequences of conventional convertible debt financing structures. His post struck a chord as he echoed (no pun intended) a lot of the views i have expressed to entrepreneurs over the years. His follow-on post, which was spawned by a vigorous discussion on twitter (twittercussion?) last Saturday among Fred Wilson, Dave McClure, Chris Dixon and Mark, was a great summary of the key elements that entrepreneurs and angel/seed investors both focus AND defocus on.

While I liked a lot of Mark's content, I was particularly tickled by the illustration on 'reconfigurable' liquidation preferences or, what I like to call the Jacobs Ladder* of Liquidation Preferences.

Unless I missed it, the one thing Mark didn't point out was the actual effect on the pre-money pricing of a post-convertible note round. He gave the example of a round that's priced at $12 pre, raising $3m and with a post of $15m. I will assume, for purposes of my adding color to this issue, that there was $1M of tiered conventional note financing in place (that is, multiple small infusions at different 'price points' with a cap + discount + interest). So the entrepreneur walking around the post-financing party circuit preening about his/her $12-pre/$15-post round that just closed completely misses the point that (s)he just got his/her engine block reworked. The new investor doesn't care (because (s)he got the targeted 20% ownership stake) but the entrepreneur+team got their ownership completely recast, probably to a point whereby the effective pre is closer to high single digits simply because of the high-res financing hangover.

High res financing, high res hangover. (my remix, Paul).

So here's our bottom line:

(1) Despite the oft-stated pros and cons, we are fine with convertible notes. It's important to understand that a lot of the c-note financings actually don't have a lead. Putting in the first $50K or $100K via a form of c-note doc that is just a copy and paste of what one found on the 'net (or blindly repeats your last deal) does not make you a lead. Lead-less (or party) rounds can be high-res value OR stress to entrepreneurs so we are sympathetic to the most optimal structures that can support the get-to-done objective.

We won't do the most recent variant (no cap, no interest, no discount) that we hear some excitable YCombinator companies may have floated (or gotten folks to invest off of). In addition, we have zero interest in investing in 'hot' deals and even lesser interest in acquiring startup logos for the sake of cocktail party chatter.

It's worth noting that in bankruptcy, secured debt always has greater priority than equity, whether common or preferred. Of course, most of these companies wont ever go through the process so that point is mostly moot.

If we do c-notes, we will have basic terms like a baseline multiplier on acquisitions prior to actual conversion, pro-rata floor rights in the next (priced) round, etc.

Occasionally, we hear of folks seeking MFI (most favored investor) rights whereby certain investors want the benefit of a full ratchet even in the absence of the priced round framework. We imagine that this is a function of the gamification of note financing and how 'celebrity' investors seek to leverage celebrity to get better pricing, often with no real exchange of value forthcoming.

We have used warrants (or a similar structure) to get a slightly discounted price in exchange for an early or 'anchor' commitment OR to lower the price but not impact the optics. Since we don’t really buy into social proof as a substitute for effective due diligence, once we decide we like the opportunity, we are good to go, subject to agreeing on terms.

It's worth noting that not all warrants are the same. A warrant convertible into preferred will enjoy a liquidation preference and thus is always 'worth' more than one convertible into common, particularly in a blah exit aka an acqui-hire. Note as well that if you do a priced round and you get a market price for the seed preferred with a common stock kicker (serving as the 'discount for optics'), depending on the exit, that discount may turn out to not amount to anything, meaning all the investor's returns were concentrated in the grossed up preferred price as a function of the exit multiplier.

(2) Priced seed rounds are great. They keep everyone on the same page and generally offer the same terms. Yes, issues like board seats, pro-rata thresholds, et al. will come up but nothing that can't be dealt with, particularly by an experienced lead investor who can set a price and terms and help syndicate aka corral/herd cats. The key dependency here is the need for an experienced lead. Yes, seed financings offer tons of opportunities for angels to help fund the next generation of high value companies but it's easy to take the process for granted, despite the fact that YC has made it 'easy' for their grads.

However, the priced round can become an issue if left open for too long and then existing investors become resentful because they accepted a different risk profile than later investors. This is a tough one to manage because it's the entrepreneur's responsibility to ensure his/her startup doesn’t run out of cash. In this case, I would suggest to the investors already on board to take up the rest of the round. If they choose not to, this creates a set of signaling issues that are outside of the scope of this post.

In closing, it's important to note that a lot of the current conversations around the topic of financing structures for seed-stage companies are almost exclusively US-focused. Our 'triangle offense' focus on leading/driving seed-stage tech investing activity in certain underserved markets (sub-Saharan Africa and SE Asia) will mean we will be doing a lot of entrepreneur and investor education in those ecosystems re: similar structures, albeit appropriately localized. If you are interested in this, look out for our EchoPlex™ learning sessions. We have run a few so far for entrepreneurs and women-in-tech in Lagos and looking forward to doing many more.

Life is a series of trades. Pause and think through your exchange framework. Then put on your big boy/girl pants and step into the arena.

Eghosa

*There’s a very interesting, albeit technical, paper by Chris Calabro on the 'Theory of Jacob's Ladder' @ http://bit.ly/QAjR4h