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Archive for October, 2015

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TO ESPN: sent to our family from another Tom Mitchell supporter ——I feel that you guys should do a story on Tom Mitchell. Tom just completed one of the hardest tests an athlete could face. He will tell you in his own words that he is “not a runner” however he just completed the Tahoe 200 Ultra marathon. He also would be a perfect person to be awarded the ESPY Courageous award next year. You see, Tom ran the ultra marathon to help bring awareness and funding to childhood cancer, carrying 200 children’s pictures (one for each mile) with him to honor them as he battled each and every mile.

He did this to honor his daughter, Shayla, who died from the effects of Childhood Cancer. But he also did this for all of his “Renegades” who have or are currently fighting childhood cancer. This one man raised over $215,000 for his non-profit, Stillbrave, which helps families pay for things not covered by insurance. You want to find someone courageous? It’s a man who puts everything he has as a father in order to keep his promise he made to his daughter which was to remain Stillbrave and to keep fighting for all of the kids. This man “Gives a Damn” and you should too….

Please click on this link and watch “Tatoo Tom Mithell” complete the “Tahoe 200 Ultra Marathon”  https://www.youtube.com/watch?v=0BTQDzXKU4s

This is what “courage, commitment and love” is all about.  Keep on fighting for kids with childhood cancer.

Please support this cause – to http://stillbrave.org

With much respect

The Gerbsman family

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Boo: The increasingly crowded unicorn club in one infographic
In honor of Halloween, here is our scariest infographic ever. We visualize the rise of unicorn companies since 2011. So much for unicorns being mythological.

https://www.cbinsights.com/blog/increasingly-crowded-unicorn-club/?utm_source=CB+Insights+Newsletter&utm_campaign=dd8c09211b-Top_Research_Briefs_10_31_2015&utm_medium=email&utm_term=0_9dc0513989-dd8c09211b-86855673

 

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A retired Navy SEAL commander explains 12 traits all effective leaders must have

jocko willink and leif babinCourtesy of Jocko Willink and Leif BabinRetired Navy SEAL Task Unit Bruiser commander Jocko Willink.

Jocko Willink is the retired commander of the most highly decorated special operations unit of the Iraq War: US Navy SEAL Team Three Task Unit Bruiser, which served in the 2006 Battle of Ramadi.

In his new book “Extreme Ownership: How US Navy SEALs Lead and Win,” co-written with his former platoon commander Leif Babin, he and Babin explain the lessons learned in combat that they’ve taught to corporate clients for the past four years in their leadership consultancy firm Echelon Front.

During his 20 years as a SEAL, Willink writes that he realized that, “Just as discipline and freedom are opposing forces that must be balanced, leadership requires finding the equilibrium in the dichotomy of many seemingly contradictory qualities between one extreme and another.” By being aware of these seeming contradictions, a leader can “more easily balance the opposing forces and lead with maximum effectiveness.”

Here are the 12 main dichotomies of leadership Willink identifies as traits every effective leader should have.

‘A leader must lead but also be ready to follow.’

Willink says a common misconception the public has about the military is that subordinates mindlessly follow every order they’re given. In certain situations, subordinates may have access to information their superiors don’t, or have an insight that would result in a more effective plan than the one their boss proposed.

“Good leaders must welcome this, putting aside ego and personal agendas to ensure that the team has the greatest chance of accomplishing its strategic goals,” Willink writes.

‘A leader must be aggressive but not overbearing.’

'A leader must be aggressive but not overbearing.'

Echelon Front

Leif Babin and Willink when they were deployed in Ramadi, Iraq in 2006.

As a SEAL officer, Willink needed to be aggressive (“Some may even accuse me of hyperagression,” he says) but he differentiated being a powerful presence to his SEAL team from being an intimidating figure.

He writes that, “I did my utmost to ensure that everyone below me in the chain of command felt comfortable approaching me with concerns, ideas, thoughts, and even disagreements.”

“That being said,” he adds, “my subordinates also knew that if they wanted to complain about the hard work and relentless push to accomplish the mission I expected of them, they best take those thoughts elsewhere.”

‘A leader must be calm but not robotic.’

Willink says that while leaders who lose their tempers lose respect, they also can’t establish a relationship with their team if they never expression anger, sadness, or frustration.

“People do not follow robots,” he writes.

‘A leader must be confident but never cocky.’

Leaders should behave with confidence and instill it in their team members.

“But when it goes too far, overconfidence causes complacency and arrogance, which ultimately set the team up for failure,” Willink writes.

‘A leader must be brave but not foolhardy.’

'A leader must be brave but not foolhardy.'

Courtesy of Jocko Willink and Leif Babin

Task Unit Bruiser SEALs look up at an Apache flying overhead Ramadi in 2006.

Whoever’s in charge can’t waste time excessively contemplating a scenario without making a decision. But when it’s time to make that decision, all risk must be as mitigated as possible.

Willink and Babin both write about situations in Ramadi in which delaying an attack until every detail about a target was clarified, even when it frustrated other units they were working with, resulted in avoiding tragic friendly fire.

‘A leader must have a competitive spirit but also be a gracious loser.’

“They must drive competition and push themselves and their teams to perform at the highest level,” Willink writes. “But they must never put their own drive for personal success ahead of overall mission success for the greater team.”

This means that when something does not go according to plan, leaders must set aside their egos and take ownership of the failure before moving forward.

‘A leader must be attentive to details but not obsessed with them.’

The most effective leaders learn how to quickly determine which of their team’s tasks need to be monitored in order for them to progress smoothly, “but cannot get sucked into the details and lose track of the bigger picture,” Willink writes.

‘A leader must be strong but likewise have endurance, not only physically but mentally.’

'A leader must be strong but likewise have endurance, not only physically but mentally.'

Courtesy of Jocko Willink and Leif Babin

Navy SEALs on a roof overlook in Ramadi in 2006. (Faces have been blurred to protect identities.)

Leaders need to push themselves and their teams while also recognizing their limits, in order to achieve a suitable pace and avoid burnout.

‘A leader must be humble but not passive; quiet but not silent.’

The best leaders keep their egos in check and their minds open to others, and admit when they’re wrong.

“But a leader must be able to speak up when it matters,” Willink writes. “They must be able to stand up for the team and respectfully push back against a decision, order, or direction that could negatively impact overall mission success.”

‘A leader must be close with subordinates but not too close.’

“The best leaders understand the motivations of their team members and know their people — their lives and their families,” Willink writes. “But a leader must never grow so close to subordinates that one member of the team becomes more important than another, or more important than the mission itself.”

“Leaders must never get so close that the team forgets who is in charge.”

‘A leader must exercise Extreme Ownership. Simultaneously, that leader must employ Decentralized Command.’

'A leader must exercise Extreme Ownership. Simultaneously, that leader must employ Decentralized Command.'

Amazon

“Extreme Ownership” is the fundamental concept of Willink and Babin’s leadership philosophy. It means that for any team or organization, “all responsibility for success and failure rests with the leader,” Willink writes. Even when leaders are not directly responsible for all outcomes, it was their method of communication and guidance, or lack thereof, that led to the results.

That doesn’t mean, however, that leaders should micromanage. It’s why the concept of decentralized command that Willink and Babin used in the battlefield, in which they trusted that their junior officers were able to handle certain tasks without being monitored, translates so well to the business world.

‘A leader has nothing to prove but everything to prove.’

“Since the team understands that the leader is de facto in charge, in that respect, a leader has nothing to prove,” Willink writes. “But in another respect, a leader has everything to prove: Every member of the team must develop the trust and confidence that their leader will exercise good judgment, remain calm, and make the right decisions when it matters most.”

And the only way that can be achieved is through leading by example every day.

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“Portfolio Advisory Services for Equity and Senior Lenders” from Gerbsman Partners
by Steven R. Gerbsman

San Francisco, October 2015

I have attached for your information and review an updated presentation (please click) Portfolio Advisory Services for Equity and Senior Lenders, from Gerbsman Partners. Also, attached is a video taped presentation on “Corporate Governance”, “Early Warning Signs” and “Maximizing Value” for under-performing/distressed venture backed Intellectual Property companies at Stanford University. This video will be for used in the Stanford Engineering School via STVP (Stanford Technology Ventures Program) and SCPD (Stanford Center for Professional Devlopme nt).

Aside from Gerbsman Partners core business of maximizing value utilizing its proprietary “Date Certain M&A Process”, Gerbsman Partners has been assisting equity and senior lenders “Identifying the Early Warning Signs & Maximizing Value for Underperforming and Distressed Portfolio companies”.

Gerbsman Partners has been engaged by numerous equity groups and senior lenders to perform a “business audit” and provide observations, recommendations and an action plan for maximizing value. Typically this is a 1-2 day on site review at the portfolio company and a written and in person review with equity or the senior lender. If Gerbsman Partners is retained to perform Crisis Management and/or “Date Certain M&A” services for the portfolio company, Gerbsman Partners will credit 50% of the business audit’s fee’s to any future engagement.

By background, since 2001, Gerbsman Partners has focused and been involved in maximizing enterprise and Intellectual Property value for 89 venture capital/private equity backed and /or senior lender financed, technology (software, mobile, telecom, optical networking, internet, digital commerce, cyber-security, etc.), life science, medical device, solar, fuel cell and low tech companies through Gerbsman Partners proprietary “Date Certain M&A Process”. Gerbsman Partners has also terminated/restructured over $ 810 million of prohibitive real estate and equipment leases, sub-debt and creditor issues. Gerbsman Partners also assists US, European and Israeli technology, digital marketing, and medical device companies with strategic alliance development, M&A and licensing and distribution of proprietary content.

Gerbsman Partners has offices and strategic alliances in San Francisco, Orange County, McLean, VA, New York City, Boston, Europe and Israel.

Identifying Early Warning Signs & Maximizing Value of Distressed Portfolio Companies – Presentation at Stanford University by Mr. Steven Gerbsman

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Please visit the attached link to view the program. Click here.
I also was the moderator for a panel on the same subject that consisted of Marc Cadieux, Chief Credit Officer of Silicon Valley Bank, Peter Gilhuly, Esq., Partner at Latham & Watkins and Michael Scissions, Entrepreneur/CEO and former head of Facebook Canada.
Please review and hopefully the information will assist in “Identifying the Early Warning Signs” and provide “food for thought”.

GERBSMAN PARTNERS
Email: steve@gerbsmanpartners.com
Web: www.gerbsmanpartners.com
BLOG of Intellectual Capital: blog.gerbsmanpartners.com

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The Toxic Term Sheet: Founders beware

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By John Backus, New Atlantic Ventures

Its official. The unicorn has jumped the shark. The Wall Street Journal and Dow Jones Venturesource established The Billion Dollar Startup Club this year. The special feature on unicorns comes with an interactive infographic, which tracks private, venture-backed companies valued at more than $1 billion.

Companies like Uber, Airbnb, Palantir, SpaceX and Pinterest remain in the top 10 right now. There are also a few more recognizable names on the list. And then there is a collection of supposed billion-dollar companies as recognizable as the characters in the bar scene of “Star Wars”.

Enter the Toxic Term Sheet

In real estate, there’s a saying that goes something like this: “You set the price and I will set the terms.” If you want to sell your million-dollar house for $5 million, fine. I will pay you $4,167 a month for 100 years.”

That very same dynamic is playing out today, right before our eyes, in the world of private investing. Naïve entrepreneurs who want to join the unicorn club, who want a billion-dollar valuation, are setting the price.

But savvy investors are setting the terms. They are using “Toxic Term Sheets.” This usually means some combination of preferred stock, a senior liquidation preference, cumulative dividends, heavy anti-dilution protection (down-round protection) or guaranteed returns. In other words, these savvy late-stage investors have almost no downside—unless the company is a total bust.

Try selling your common stock at a billion-dollar value in this scenario. Good luck with that. In many of these cases, the REAL value of the company is closer to the value of the investor’s preference stack.

If you just raised $100 million at a $1 billion value, via a Toxic Term Sheet, and your company ultimately sells for $200 million, the investors will be just fine. They will get their $100 million. And then some more. The prior investors may also be fine (so long as they invested less than $100 million). The founders? They are toast in this scenario.

The Faustian bargain

Heidi Roizen did a good job explaining the dark side of unicorns, in her blog post. In short, if the performance of your business does not grow into that unicorn valuation, then when your business is ultimately sold, you, as the founder, along with your employees, may see nothing. Just add up the costs of the preference stack and guaranteed returns you offered to your investors in exchange for that mirage of a unicorn crown.

There are actually some really good reasons entrepreneurs want unicorn-status. It helps recruit top talent. Customers believe in you. You’re sought after by journalists. You crowd out your competitors because they will have a more difficult time convincing other VCs to back them. And you get to be on that Billion Dollar Startup Club list.

But entrepreneurs can make a painful, costly, rookie mistake by seeking that $1 billion prize at any cost.

VCs aren’t without blame here either. Unicorns give them bragging rights, as well. It may help them raise their next fund. It can even lead to a spot for the VC partner on the Forbes Midas List. Some VCs are even “buying” unicorn logos so that they can put them on their website, and brag to the world about how many unicorns they backed, even though unicorn logo shopping trend does not serve the VC’s investors, their limited partners. And that is what I call the Faustian bargain.

Rewarding investors for dragons

We should reward angels, seed investors, microVCs, early-stage VCs and expansion-stage VCs for finding, backing and helping entrepreneurs build unicorns over the long haul. Investing in unicorns is easy, because as the VC, you write the term sheet and often set the price. But as I’ve suggested previously, the yardstick that institutional investors should measure VCs by is not the number of unicorns they invested in, but how many unicorns, and other companies turned out to be Dragons for their funds. A Dragon is a company that returns the entire underlying venture fund, as I explained earlier this year on CNBC.

Should we be worried about all of these unicorns? Not really. In the long run, the private capital market is efficient (even though it does not correct in real time as the public stock market does.). Private companies with unicorn valuations will either grow in to those valuations, or, their valuations will adjust downwards—to match the true value of the business—the next time that business raises money.

The rise of the private IPO

Like I said in the Los Angeles Times, “the rise of unicorns and other startups represents a fundamental shift in the way companies are funded.” Venture-backed companies are raising late-stage money privately with increasing speed and ease, and will continue to rely on private market financing for longer in their lives.

In Q2 of 2015, there were 26 companies that raised late-stage funding rounds of $100 million or more, according to the MoneyTree Report published in July by PwC and the NVCA. I call these “private IPOs.” As a former entrepreneur who took a company public myself in 1995, I can see why smart founders might say: “Why raise money in the public markets if you can receive the same valuation, with much less hassle, in the private markets?”

But there is a silver lining here. Today’s unicorns are very different from the accidental IPOs of the late 1990s. Most of today’s unicorns are real businesses, with real metrics, and real scale. And most of their investors are sophisticated institutions. When these companies do go public—and many eventually will—they will be much safer investments for retail investors. Less upside perhaps, but also much less downside.

And for institutional investors in VC funds, there is a gold lining. Longer holding periods and private IPOs result in more value creation while the company is private, accruing directly those institutional investors.

But we should be worried that entrepreneurs are hurting themselves with the stampede to join the Unicorn Club.

The Toxic Term Sheet is a great tool for sophisticated investors to take advantage of naive entrepreneurs. For them, it is “Heads I win. Tails you lose.”

Don’t fall for it!

So if you want to be the next unicorn, fine. Set your price. But be careful of the terms you accept as part of your Faustian bargain.

John Backus is a venture capital investor at NAV. He can be reached by email at backus@nav.vc or you can follow him on twitter @jcbackus.

This guest column first appeared in affiliate magazine Venture Capital Journal, which is published by Buyouts Insider. Subscribers can read the full story by clicking here. To subscribe to VCJ, click here for the Marketplace.

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Sirens are sounding for tech companies hitting the IPO market

A growing percentage of companies that filed for initial public offerings this year disclosed so-called ‘material weaknesses,’ according to research from PwC.

Just under a third of all companies that filed for an IPO through September did so. More than half of the tech companies made such a disclosure – up from 30% last year.

These material weaknesses relate to deficiencies in financial reporting that mean there is a “reasonable possibility that a material misstatement” of annual or interim financial statements will not be prevented or detected, according to the Securities and Exchange Commission.

There’s two ways to look at this. Material weaknesses are a sign of immaturity, or that companies aren’t prepared to be public – and that’s a risk for investors. On the other hand, companies are being more upfront about possible risks.

“In the past few years, more companies have reported material weaknesses in advance of their IPO. With the timing of this disclosure, companies are alerting investors but also disclosing remediation plans in their initial registration statements.”

The weaknesses range from things like insufficient accounting personnel to lack of procedures to insufficient technology systems. More than 90% of the companies disclosing weaknesses included remediation plans in the documents, with the hiring of additional personnel the most popular solution.

Tech companies are most likely to disclose material weaknesses, according to the PwC study, with more than half of all the technology companies that have filed so far this year including MW disclosures.

Material weaknessPwC

The smaller the company, the greater the likelihood it will disclose a material weakness, the PwC survey says. Companies with less than $500 million in revenues are more likely to experience a material weakness, according to the report.

The report comes at a difficult time for the IPO market. Grocery chain Albertsons was forced to pull its IPO temporarily and First Data’s initial public offering first priced beneath its anticipated range, of $18-$20 a share, then disappointed in trading for the first two days after the IPO. 

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Global Venture Capital Report – Q3 2015 KPMG and CB Insights: VC-backed Companies Haul in US$37.6 Billion Globally in Q3 2015 Due to Mega-Rounds and Continued Crossover Investor Activity- from CB Insights

An in-depth analysis into the financing trends including unicorn growth, mega-rounds, country breakdowns, the most active investors, and more.

https://www.cbinsights.com/research-q3-2015-venture-capital-report?goal=0_9dc0513989-5882a30484-86855673

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