A smart way to divide stock, VC interest in early-stage companies, doing business related to Cuba, the pros and cons of advertising on Google and Yahoo!
Here's a Way to Ease the Process of Dividing Stock
One of the big challenges of dividing a company's stock among a team of founders is that it isn't usually clear in advance who will contribute what in terms of time and value to the enterprise. So one venture I'm familiar with decided to put off confronting this issue at the enterprise's outset, and instead handled it in stages.
The founders agreed to a preliminary allocation and placed the percentages into a letter of understanding, with the agreement they would revisit the matter once they received financing. In the interim, they recorded their time devoted to the enterprise, much like a lawyer keeps track of time devoted to clients.
In the case of this particular venture, it received $5 million in venture capital a year after its formation, at which time the founders made some minor adjustments to the original agreement, and also used the time sheets to pay themselves consulting fees for their previous work. This approach hinges, of course, on the flexibility of the founders, since there's no way of knowing in advance whether the original letter of understanding might hold up in court as legally binding.
Will a Newfound Interest by VCs in Early-Stage Companies Bid Up Share Prices?
Howard Morgan of Idealab and First Round Capital worries that the void among venture capitalists for early-stage backing could mean he will be paying higher prices (see BusinessWeek, Fall, 2006, "Venture Capital: The Spigot's On").
"We expect a lot of money to flow into this stage in the next year," he says on his blog. "Hopefully the new players will stay smart enough not to push up prices so much that the inefficiencies go away completely." By the way, "inefficiencies" is VC slang for bargains.
Update: A Cuba-Oriented Travel Agency Hangs On, Just Barely
I wrote a couple of columns in 2003 and 2004 about a Cambridge, Mass., agency's struggle to offer travel packages to Cuba in the face of an intensifying Bush Administration campaign against the Communist island (see BusinessWeek.com, 11/11/03, "When Your Business Is a Political Football" and 5/3/04, "Target: Castro's Cuba. Victim: Small Business").
Merri Ansara, the owner of Common Ground Travel, provides this discouraging update: "We have indeed lost 90% of our business due to the restrictions on travel imposed by Bush in 2003 and 2004, making it near impossible for Cuban Americans to visit family, impossible for most undergraduate students to go to Cuba, impossible for graduate students to go for anything but thesis work, and, of course, out of the question for ordinary Americans. Some churches and synagogues are still traveling, though what they can do has been narrowly circumscribed. Individual researchers and journalists may still go, though their numbers have been reduced by sheer intimidation from the Administration. But yes, we're still in business, though 'we' is now simply 'I'."
Google vs. Yahoo!: The Favorite Is…
The comments I invited in last week's post suggest the cop-out answer: it depends (see BusinessWeek.com, 11/6/06, "What Entrepreneurs Need to Know"). While Edward Blau agrees with the entrepreneur I quoted who trashed Yahoo, R. Tallman says he finds dealing with Yahoo (YHOO) to be much easier than Google (GOOG).
Others said that once you begin seriously evaluating your own advertising results, you discover that each outlet offers its special advantages. BostonScott notes that, "For certain kinds of advertisements we tend to prioritize Google (tech related advertisements for example). For other kinds of ads we'll prioritize Yahoo (consumer disposable products for example). But generally speaking—we try both."
Matt Biskup argues that success with either lies in managing the details of keyword bidding and testing copy. Sounds like the drudgery inherent in effectively managing any marketing campaign.