From Ivan's Tumblr.
In my last post, I crunched the data to see where Illinois ranked on a variety of metrics related to venture funding for startups. Turned out that no matter how you sliced the data, Illinois came out pretty poorly. This poor showing was a pretty strong indictment of the infrastructure, leadership, and general environment for startups here in Illinois - as far as I'm concerned, whether or not you want funding, being able to get funded is an indication of quality infrastructure and a strong startup environment.So the obvious question is, if Illinois is so terrible, which states are good?In my analysis of the data last time, I made two claims: 1) seed/startup funding is the best stage to evaluate, because those are the first dollars a new team is looking for. I believe that new dollars for a new team is the best indication for general environment, given the small dollars involved and the less company-specific nature of seed investing. (Nevada ties for dead last in the startup/seed data, no matter how you slice it, despite the success of Zappos.) 2) per-capita metrics, while a bit flawed due to network effects, are the best option we have, better than aggregate dollars or aggregate deals because per-capita metrics control for the "California is the biggest state, so it should see the most dollars" objection. So, I re-ran the numbers to see what states had the highest per-capita dollars invested in startup/seed deals. Here are the results for the one-, three-, and five-year spans ending 2007:
As you can see, there's a clear "step" between Massachusetts and California and the next tier. There's more than double the amount of money per-capita in Massachusetts and California in 2007 than there was in Minnesota and Washington state, the 3rd and 4th best on the list.
For the three year period of 2005-2007, just as for 2007 alone, Massachusetts and California dominate, with significantly higher per-capita dollars flowing to seed and startup deals than the next tier of states (from New York to Virginia, which has a range just slightly larger than the difference between New York and California).
Lastly, here's the data for the five-year period of 2003-2007. Delaware is skewed by very high per-capita amounts in 2003 and 2004 (the state had $23.60 invested per capita in 2003 and $49.05(!) in 2004  ), but the rest of the chart is generally in line with the one- and three-year charts. Again, Massachusetts and California are heads and shoulders above the rest of the states. In all three charts, you see strong showings from New York and Washington, which I wasn't surprised by. What I didn't expect was the strong showing by states such as Maryland and Utah. I know that Maryland may benefit some from federal money, but if that was so strong, we'd expect a stronger showing from Virginia and DC as well, which we don't. As for Utah, I know the Computer Science program in Utah is strong, and there are a number of technology companies in Utah (Omniture immediately comes to me), but still - it's astonishing. There must be something cultural in Utah that makes startups there more palatable than, say, Illinois. When I talk to entreprenuers that want to start their own technology companies, the first question I ask is "do you have a co-founder?" The second I ask is "how committed are you?" The third I ask is "if you're so serious, why haven't you moved to California yet?" Turns out the data says that I should amend that last question to "why haven't you moved to California or Massachusetts yet?" (This, of course, assumes that you can syndicate a seed deal among angels in Massachusetts as easily as you could syndicate a deal in California. Again, I don't have angel data - see .) Again, comments welcome on the data, methodology, and requests for other cuts of the data. Now, of course, the data I had was only about VC firms' funding - it was silent on angels. Knowing this was an issue with the PWC MoneyTree data, I've spent a fair amount of time since my last post begging for angel data. [1a] But, in the end, no one could find angel data to send to me. So, at this point, I've given up on angel data. (If you have some, please send it to me.) [1a] I even managed to get promised an invite to the psuedo-TechStars demo day here in Chicago (it was actually an independent event, put together because so many of the Boston summer cohort had Chicago ties), but I never received it, despite a flurry of e-mails the day of. Many thanks to Brad Feld for trying to get me in; boo to whoever was supposed to send me the official invite. (I had time/location, but I didn't want to crash without an official invite.) I really wanted to get a headcount versus the Mountain View headcount and see who showed up. I was going to take that list and try to determine which Chicago-area angels actually had done deals in the last 12 months. As far as I know, Apex's seed investment in Appolicious is the only one in the last twelve months. Anyone have an explanation for these two outlier years? Delaware comes in at $0.00 per capita for 2005, 2006, and 2007 seed/startup deals, so I'm guessing just a handful of deals - maybe even just one or two deals - skew this chart, especially as Delaware is a relatively low-population state. The PWC data I got from SSTI is aggregated; I don't have access to the Thomson database with the deals themselves.
So, Chicago's lacking in tech leadership, says a columnist in the Chicago Tribune. No, it's not, respond the heads of various tech organizations in Chicago and the State. As someone who's founded a startup here in Chicago, I'm certainly more inclined to agree with the Trib columnist than with the panel. However, I'm also a policy wonk - so I decided to take a look at the data to see who's right.
 Data geeks: I fully acknowledge that the MoneyTree data excludes deals done solely by individual investors (angels); however, 1) this is the best objective data I could find and 2) my guess is that individual investors would only further demonstrate the conclusions I'm about to make. Feel free to grab your own source MoneyTree data and run it yourself. I couldn't find industry breakdowns by state, and I believe that the overall data is plenty clear about the conclusions to be drawn.
The goings-on on various econoblogs regarding Rattner supposedly threatening the creditors who didn't go along with the Chrysler debt cramdown is one of the more generally well-written "you people are missing the pot" things I've read in a long while.Chrysler, of course, filed for a Chapter 11 bankruptcy reorganization after all the creditors could not come to an agreement. The Obama administration, by way of the Treasury Department and Steve Rattner (the "car czar"), managed to get the four largest lenders (who had no choice, as they're being propped up by TARP funds), the UAW, and Fiat on board. But the agreement failed to get enough support from all stakeholders, and President Obama all but blamed the non-TARP debtholders for the bankruptcy filing during a news conference the morning of Thursday, April 30. Of course, the non-TARP guys objected to this characterization. Later in the late afternoon April 30, Perella Weinberg, one of the leaders of the non-TARP group, came around and supported the administration's plan, but it was too late. The bankruptcy was set. A lawyer representing the non-TARP lenders said that Perella Weinberg only came around because of threats made by the administration to bring negative PR to bear by way of their supposed influence over the White House press corps. Perella Weinberg, of course, denied this. On Finem Respice, Equ Privat wrote that there was a more sinister threat - that the administration did not just threaten bad PR, but would bring the IRS and SEC to bear upon the non-TARP creditors, their employees, families, alma maters, dogs, and favorite sports teams. Of course, this could be seen as an abuse of power (as we are all terrified of the IRS and all investment managers are scared of the SEC's ability to "slow them down"). Equ Privat called the purported Rattner threats "fascist". For this, she was mocked, mercilessly. The author of The Epicurean Dealmaker, used Looney Tunes to jab at the non-TARP creditors, saying "[i]t's called politics, you fucking morons. Stop being such a bunch of whiny pansies." The point TED made was that even if such a PR threat was made, there were a lot of people in the government under under a lot of stress, and the threat was just a negotiating tactic anyway. As Felix Salmon points out, the non-TARP creditors don't have much of a leg to stand on for their whining, coerced or not into a supplicant position at the mercy of the bankruptcy judge. Their position in Chrysler was a moral hazard one - "of course the Obama administration won't let Chrysler go bankrupt". Thus, if it won't go bankrupt, as senior secured creditors, they stood the most to gain. Pretty simple arithmetic. Problem was that they didn't think the administration would really let Chrysler go bankrupt - albeit a Chapter 11 reorg rather than a Chapter 7 liquidation - and they did, because they had all the post-event actors on their side: Chrysler management, the large banks, and a private actor, Fiat, to act as a savior. This was a completely predicatable outcome, and the non-TARP guys treated it as impossible. They assumed that the sanctity of American bankruptcy law and precedent would strengthen their hands well enough to force a positive outcome for their vulture investment. The non-TARP creditors are morons, not for whining, but for not seeing this play out the way that it did. It's called political risk.Look, we generally think of political risk when making investments in, say, Pakistan or Russia. But to completely discount the political risk of a vulture investment in Chrysler debt is completely insane. The notion that a Democratic administration was going to stand idly by as vulture investors were going to cram down the UAW and TARP banks is foolish. One, there's a legitimate policy argument that the United States needs a Detroit-based domestic automobile manufacturing enterprise for national security. You can agree or disagree, but it's a legitimate policy position. Two, the UAW is a powerful union in a swing state. To put it another way, the UAW ain't UNITE HERE. Three, it was completely forseeable that the Obama administration would take advantage of the troubles at GM and Chrysler to kickstart their environmental policy goals. The idea that the administration would put all of that aside based on fealty to the well-established order of creditors that you'd have in any traditional bankruptcy, as the non-TARP creditors believed, is naive at best and a violation of the prudent man standard at worst. Look, in most vulture situations, the non-TARP creditors would be right. You'd have an orderly liquidation, and the secured creditors would be in the front of the line to receive proceeds. But not here - the political risk wasn't even close to zero. It'd be like making a bunch of greentech investments with Dick Cheney and Phil Gramm as President and Vice President. You have to, at the very least, merely consider that maybe, just maybe, future policy decisions will make your current investment thesis weaker. The non-TARP creditors were insane to think their hand was as strong as they played it. It wasn't even a bluff - they really thought they were playing Omaha high low and that they were holding a Wheel. In the end, it turned out they were playing 52 card pickup and they lost.
How To Legally Incorporate Your Startup (Quick Answer: Get a Good Lawyer) - A Conversation with Yokum Taku
One of the best things about Silicon Valley is that almost anyone will meet with you for a cup of coffee provided that you're reasonably intelligent and not an axe murderer. My intelligence aside, I'm not an axe murderer, so Yokum Taku, partner at Wilson Sonsini Goodrich & Rosati, was kind enough to meet with me on Friday.As people who read Hacker News know, I consider Yokum's Startup Company Lawyer blog indispensable for budding and active entrepreneurs. There is a wealth of information on all stages of a startup company's legal needs, free for the reading from one of the Valley's most esteemed lawyers. Yokum most recently helped bring WSGR's termsheet generator to life and drafted the publicly available Series F documents for Adeo Rossi's Founders Institute. Wilson also drafted YCombinator's "open sourced" Series AA angel financing documents. In addition to Wilson Sonsini's work, Cooley Godward drafted a set of angel funding documents released by TechStars and the NVCA also has publicly available venture funding documents, which were led by Sarah Reed of Lowenstein Sadler. While we did discuss Dawdle, Yokum was kind enough to talk to me about a question I've been asked plenty of times: "how do I get started if I don't get into YCombinator/TechStars/LaunchBox/pick the clone of your choice?" This actually ended up being a rather fascinating discussion, and with Yokum's permission, allow me to share with you what we talked about. (Quotes are from handwritten notes I took during the conversation. No recording was made.) I presented the following hypothetical to Yokum: you have two people who want to create a startup. They're convinced it has the potential to be a billion dollar company, and one of the founders was able to convince her parents to seed the company with $50,000. The other founder has an uncle who's a small-town lawyer who's willing to create and file the paperwork to set up the company for free. Given this situation, and incorporating Yokum's knowledge of financings and exits backwards and forwards, the question was "what set of documents should the founders give the uncle as a basis to form the company?" After thinking about this hypothetical, Yokum responded "I don't think those docs are out there." He volunteered that it would be "better to use [the YCombinator Series AA] docs than anything else [he] could think of", since there's "not much [the lawyer] could really screw up if he was reasonably intelligent." But Yokum did volunteer that the ideal would be to have an experienced startup attorney at an established firm draft documents for the company given the firm's standard documents. Surprised, I asked Yokum if he knew of any firm using the open sourced documents since they were available for free for anyone to use. He said there was not a lot of actual use that he knew of since every investor already has their own set of documents with their preferred terms. Yokum stated that the documents serve to "give entrepreneurs a chance to look at [sample docs] before getting educated [by] their attorneys," who ostensibly charge for the privilege. The documents effectively serve to educate startup founders for free rather than actually replace seasoned counsel doing incorporation work. Given that Yokum's advice was to forgo the free attorney and seek out experienced counsel, I asked "where does a startup founder find this counsel?" Yokum responded with a list of regions: Silicon Valley, Seattle, Austin, Boston, New York City, and DC. I joked, "not Chicago?" and he responded "well, I was just giving you a list of cities where [WSGR] has offices." (A quick one, that Yokum.) In fairness, Wilson Sonsini does not have a Boston-area office. But upon discussion, I agreed that experienced counsel would naturally arise in areas that had active levels of investment, which Yokum characterized with two things: venture investors, and "companies that 'throw off' rich people to be angels." Yokum volunteered that he only knew of one or two venture firms in Chicago, and I named a couple more in town. He then asked about angels, and I had to concede that I knew of no active Internet angels in Chicago or the Midwest as a whole. However, the list of areas that did have counsel that Yokum termed appropriate was higher than I thought it would be, meaning that there are a number of lawyers at a number of firms in a number of cities from which to choose. I asked "well, how does someone find such a lawyer?" and Yokum responded, simply, with "an introduction." He elaborated, saying that even the largest firms still do startup incorporation work, but that not every "bakery and restaurant" needs this sort of counsel. Introductions provide a filter for hard-working partners to signal that a company is worth representing. That said, Yokum was very clear: "any [WSGR] partner [in any city] is happy to sit down for coffee and chat" with founders. Yokum made the further point that any startup "[has] to network to be a successful startup company" anyway, so it wasn't unreasonable for partners to want some sort of filter to meet for coffee. I then asked "well, where should founders network to get this introduction?" Yokum, being extremely patient with me, explained his thinking: in any startup hub, there are numerous events where startup founders meet. Anyone can stick out their hand, introduce themselves to another founder, and strike up a conversation. Startup founders are generally thrilled to recommend their lawyers to another founder (if they like their counsel), so it's actually rather easy to get a name or three. Then the new company can do a little internet research and ask the founders they met at the event to do a quick e-mail introduction to the lawyer(s) they might want to represent them in their new venture. Founders should meet for coffee with those partners before they make a final decision on representation - again, any Wilson Sonsini partner will meet with you as long as you have a warm introduction. (And although it may sound like just talk, since WSGR is "Google's lawyer and Sun's lawyer", they still do startup incorporation work. As Yokum quipped, "once upon a time, we did Sun's incorporation paperwork".) I found this conversation extremely valuable: Yokum acknowledged that any set of open sourced documents wasn't appropriate to use as a "fill in the blank" template, but he also didn't state that only a small handful of Valley firms were qualified. There are a number of firms in a large number of cities that have partners that not only "do" this work, but have the requisite experience to not make the simple errors that prove costly down the road. I personally would recommend Wilson Sonsini to any potential founder given my high esteem for Yokum and his colleagues, but there are partners at other firms in all these regions that may be a better fit for your given situation. Please note that you are looking for a good fit with a particular partner, not just the "name" of the firm. Even though each firm's documents are "off the shelf" and an associate - or paralegal - will do most of the work, having a good relationship with the partner is critical for quick and accurate answers to your well-researched questions.
[EDIT: Apparently YC may make their incorporation documents public, which may specifically address this issue by giving the "lawyer with a shingle" a fill-in-the-blanks template that would work: http://news.ycombinator.com/item?id=579872 ]
I've seen some tweets and the aforelinked blog post, but I haven't seen a lot of concrete details on what was discussed. However, if Aaron's post is an indication of what was discussed, the ideas were more abstract and less immediate (more education, yay H1-Bs) than I would like. I'm also concerned that the ideas presented only apply to a miniscule subset of businesses (AMT only kicks in for employees with compensation at more than double the national average for household income). Again, I don't have a formal list of what was discussed, so I'm projecting based on Aaron's post.
I don't want to just find fault with the ideas I've seen, but rather, I'd like to examine why the ideas that were presented were presented. My thesis: because those invited were unqualified successes, and not those of us who are small but growing organically without outside funding, so the ideas they proposed reflected their reality, not the reality of the rest of us. (Threadless has revenue of $30 million a year - they have have grown organically, but they're not small any more.) Because small bootstrapped businesses and traditional small businesses (corner coffee shop, neighborhood laundromat, fledgling architect) don't have the resources of the companies invited to speak, we're both more constrained by the things government imposes on us and more likely to benefit from changes that could occur in the short term. Here are some suggestions that would help both internet startups and your traditional small business and could be changed in this Congressional session. I've grouped my four suggestions into two buckets. Bucket One: The federal government needs to simplify the incorporation process among the various states and jurisdictions.Incorporation is a mismash of state and federal law. The Cono Project, Inc. (the legal entity that owns Dawdle.com) has a federal tax ID, is incorporated in Delaware, and is headquartered in Illinois (so we're a "foreign corporation" to Jesse White and his tumblers). In addition to that, I had to file paperwork with the city of Chicago as a resident business. I only knew that I had to register The Cono Project with the city because I happened to be in the office when Table XI had a city inspector drop by and fine them. I dare you to guess which documents you need, and in what order you need them to get the next document in the process. The federal government should simplify this process, whether by legislation or regulation. It clearly has this authority under the Interstate Commerce Clause of the Constitution. There's no such thing as a purely local business anymore. Making it easier to start a company and file annual paperwork would surely make it easier for tinkerers, students, freelancers, and others to incorporate, providing them the flexibility and protection of incorporation. Quarterly estimated taxes, annual reports, and so on introduce "soft friction" that complicate the foundation and continued operation of a small business. These should be simplified and streamlined. Note that I have no complaints about the fees - just the process. It's the friction of uncertainty and the different requirements of the various overlapping jurisdictions that causes me heartburn. I propose that the federal government set mandatory guidelines for all states regarding incorporation and tax jurisdiction to simplify the incorporation and ongoing filing process. Bucket Two: The federal government needs to revamp the SBA. The SBA is a wonderful agency in theory - it has a large number of various programs tailored to an equally large number of niche constituencies. However, when you really consider all the programs, they have a single thing in common - increasing business liquidity. Loans, grants (SBIR/STTR), and investments (SBIC) are all just ways of helping companies meet expenses and grow. Helping companies navigate the cumbersome process of federal contracting is just helping companies raise funds through customers (the least dilutive source of capital). However, these programs have not adapted to the 21st century. The SBA loan program most applicable to startup small businesses - SBA Express - sends companies to private lenders for loans up to $350,000. Private lenders have collateral requirements that effectively restrict companies to use the funds for capital expenses. These banks are looking for the funds to go into inventory, large capital expenditures, or seasonal buildups that will be torn down. However, many new small businesses need funds for hiring - not secured property. As we become a knowledge economy, where we want to have jobs that cannot be exported, the current loan program should be revamped and the requirements altered to better encourage the type of companies - high intellectual capital - that are likely to provide our best jobs. I propose a new SBA lending program for amounts up to $350,000 that cannot be secured by collateral to encourage investment in knowledge workers instead of physical implements.The SBIR/STTR grant process is cumbersome and has a bias towards companies building "protectable" IP. The existence of grant writers working for profit to navigate the SBIR/STTR grant process is proof enough of the cumbersome process. It's been clear that proprietary IP has gotten out of hand and actually stifles innovation in current practice. The sponsoring government agencies for the SBIR and STTR programs require a multiple-year process to migrate from Phase I to Phase III of the programs. The most frustrating requirement is that the the entity receiving the SBIR or STTR grant must exist as a company even though SBIR and STTR grants are intended for pre-commercial research. The only pre-existing companies that can reasonably qualify are those that already have a commercial product line with researchers available to divert once the grant is received, if they are lucky enough to win grant funds from a sponsoring government agency. This reiterates the problems with the incorporation process discussed above. The SBIR/STTR grant process and structure has the perverse effect of retarding actual innovation by emphasizing the grant process itself and increasing the risk to spinning out technology from host institutions. I propose that the SBIR/STTR programs be entirely replaced with a program to spin out companies from from our nation's land grant universities via the existing technology transfer offices of those schools using standard terms and forms. The SBIC investment process is also broken. Almost any fund with actual LPs can apply to be an SBIC licensee, but many of our best investors are not SBIC licensees. Those who are in the SBIC program are restricted by geography, but there are no requirements on disbursed funds on an annual basis. And the list of SBIC investment companies by state is full of useless information - here's Illinois'. If the federal government is going to co-invest, it should demand that companies invest a set amount annually to encourage stable economic development. Given the inability of traditional VCs and early stage investors to make capital calls in this economic environment, the SBIC program could be critical in keeping the innovation engine humming while the private credit and investment markets recover. I am unpersuaded by the argument that "there is more money available than good investment opportunities". That argument appears to only be plausible - if true at all - for traditional VC investment amounts in thematic "frothy" investment cycles. I propose that the SBIC program be revamped to encourage the formation of new SBIC licensees based on industry, not geography, and that all SBIC licensees to required to disburse a given amount, which is public, per year to new investments. These four proposals would require no new money, no new institutions, no new government regulation (indeed, the first proposal would eliminate and streamline regulation), and are uncontroversial regarding incentives and purpose. All they do is bring existing institutions into the needs of the 21st century - they would reduce entrepreneur risk and make government an enabler, not a hindrance, to new company formation and hiring. There are other concerns for small businesses and startups - among all the entrepreneurs I speak to, healthcare risk comes up the most, and by a wide margin - but baby steps first.
It's very clear to me that these documents were substantially informed by the YC docs' terms but that they were adapted from standard VC documents, and aren't just mere re-wordings of the YC documents. Again, these documents and the YC docs are for the round *after* TS/YC funding. Lastly, I'm just comparing the Term Sheets here (although I've browsed through the legal documents). For my analysis of the YC documents, see my previous blog post.Substantively, the instrument is the same as the Series AA Shares in the YC documents: convertible non-participating 1.0x preferred stock at a 1:1 conversion ratio. Both the YC and TS Series AA documents give the Series AA investors rights to participate, on a pro rata basis (to maintain their ownership percentage of the Company after the closing of the Series AA round), in any subsequent financings. However, there are many things in the TechStars documents that aren't in the YC documents. First, there is a three-member Board of Directors that splits 2/1 founders/Series AA investor representative. There is no mention of the Board composition in the YC AA docs. Second, the TS documents introduce the idea of a "Qualified IPO", which is a standard VC term sheet concept. Again, the YC documents are silent on this. Third, there are specific notes about conversion price adjustments in the TS documents - the "broad-based weighted average anti-dilution protection (with customary exceptions)" is pretty standard language for a formal VC round that protects the investor in a down round. For a description of weighted average anti-dilution, see Yokum's post on the matter on his indispensable Startup Company Lawyer blog. Lastly, it's nice to see that each side is specifically responsible for their own fees in conjunction with the Series AA round. There is something in the YC documents that isn't in the TS documents - the 180 day holding period for insiders. Again, the 180 day period is awfully optimistic (especially in this environment), but it raised an eyebrow that the TS documents chose not to, at least, contain every term in the YC documents. Again, this is probably due to the TS documents coming from Cooley's standard VC round documents rather than being a Cooley version of the Wilson Sonsini YC documents. Further evidence for my theory is that, as of this writing, the Protective Provisions part of the TS term sheet makes reference to Series A, not Series AA. (Associate lawyer/paralegal oops. :) ) To me, I prefer the Cooley/TechStars documents, if only because they're more similar to standard VC documents, and I like that level of familiarity and I have nostalgia for the days when I'd wake up at 4am for a flight across the country. (Note: not true - I hate to travel and I really hate to wake up early.) The instruments are the same, however, and this is essentially just a style preference on my part. If you have any questions, fire away in the comments.
So I went to Thursday's big BizSpark shindig at Microsoft's fancy (very fancy) new regional office at the AON Center. Dan'l Lewin gave the speech - one that was way too focused on the startup ecosystem and less about the program benefits than I would have liked, but he's a big shot. This was clearly an important initiative for Microsoft, especially given how they've done a tremendous job of bringing on board partners for the program.This is the thing, however - BizSpark won't save anyone any money. If you're locked into MS tools and want to build a web app, OK, great - you don't have to learn PHP/Python/Ruby/whatever and Apache. But if you're starting from scratch - there's nothing there to make you want to use Microsoft tools. So, yeah, I was there. And during the Q&A, I stood up and said "I have a public LAMP stack application; how can I use BizSpark?" And the answer I got was "Microsoft can help you scale." And Dan'l's proof was how Microsoft helped MySpace. MySpace, as many know, was built on Cold Fusion. There was nothing about how the MSDN subscriptions could help me get Office licenses. I use OpenOffice for most things, but we all use our personal computers for Dawdle, which means we use our personal licenses for MS Office. Clearly, this doesn't scale as we hire up. (BTW, the MSDN subscriptions are only for "developers", so I can't use it as a mere suit.) And, the best part - access to Azure won't be free. It'll be at "market rates." So, I could use LAMP stack tools (all free) and AWS/GAE or I could use Microsoft tools and Azure (which isn't launched yet). The MSDN subscriptions are hands-off to the business folks (you know, the least adaptable individuals in an organization). Someone at Microsoft needs to stop thinking their shit don't stank.BTW, Dawdle's already *in* BizSpark. What a waste of $100.
I've become obsessed with the "25 random things" meme that's sweeping over Facebook. One, they're fantastic reads, especially of people who I'm friends with but don't really know - I get to learn all sorts of things about them that I didn't know. Two, they just make me happy. They're almost universally positive, rather than being negative, "woe is me" depressive missives. If you know anything about me, a lot of what drives me is finding ways to make other people happy - from being a Democrat (not having to worry about health care lets you have more time to do other stuff) to starting Dawdle (being able to sell stuff online quickly gives you more time to do other stuff). Third, the mechanics of how and why it took off in the last week are fascinating.Let's look at the instructions:
Secondly, the clear deliniation of steps is important. In my experience, this is the first new Note written by the vast majority of my friends. A quick unscientific sample of other non-Facebook friends who I communicate with via Twitter and IM shows this pattern to be the same for them, as well. Not only do the instructions tell the user what to do, they tell the user *where* the link is to complete the action. This is enabled because of the consistency of Facebook's interface - good luck trying to pull this off on MySpace, Tumblr, or any other site where users can make themes or mess with CSS. Lastly, there's an instruction of *why* to write the list. The reason of "If I tagged you, it's because I want to know more about you." shows that this isn't an exercise in self-promotion; it's an invitation - a favor for someone else. Because people are basically good, if the favor is small enough, it becomes easy to do. The recipient gets something they couldn't do themselves, and the giver gets the satisfaction (and some measure of happiness) of doing something for someone else. Finally, the fact that Facebook Notes have comments further increases both the utility and the viral nature of the meme. Users come back to the same note to see additional comments, and comments left allow people who weren't tagged, who weren't friends with the poster, or those whose News Feeds did not pick it up the first time around, to become aware of the Note. As far as I can tell, there isn't a tab or selection just to see Notes in Facebook - the only way to come across them is to see them in the News Feed (much more likely) or to randomly stumble upon them by looking at someone's profile (you're more likely to look at a profile after seeing a Note in the News Feed than the other way around, I believe). One of the things we've seen is that Facebook apps have completely lost their virality after the redesign of profile pages - people are trying to spread new apps by embedding them in apps that already exist on users' profile pages. I'm not too sure if the viral nature of Notes can be replicated - asking about favorite movies, music, and the like are redundant with existing fields on profile pages. And the text-based nature of the Notes feature limits its usability. Perhaps Notes will turn into a semi-private blogging platform (as opposed to the public blogging platform of Posterous, Wordpress, TypePad, Tumblr, etc), but if that was the case, I'd guess that would have happened already. I cannot see people tagging others as a recurring behavior, as it becomes as spammy as the applications who were doing that became, which necessitated the redesign to a certain extent. Plus, the tagging goes against the intended use of the feature, which Facebook has shown a particular disgust for over the years. In the end, what fascinates me about the "25 random things" meme is that 1) I was able to learn lots of interesting things, and 2) it seems unlikely to be replicated in a substantially similar form again despite its utility to create happiness, and 3) happiness is awesome.
At first, I thought 25 was way too many things to write, and spreading it to 25 people was way too many people to tag. However, I was clearly wrong on both accounts. One, even though there's a fair amount of platitudes, most people are interesting enough to have a good proportion of the 25 things be worthwhile. This makes it more likely that, as News Feeds get flooded, people will take the time to read them. Secondly, tagging 25 people not only introduces a cute little parallelism, but it accounts for the dropoff in participation rates. If only ten percent of those tagged write their own note, that's 2.5 new notes that are written.
Fact: MLB teams cannot have more than 10 times their average EBITDA over the last three years, per the MLB's debt service rule, which came into effect in the 2002 collective bargaining agreement.
Thus, this means that the Cubs would have to have had average EBITDA of at least $45 million over the last three years. Stay with me here.
The best case scenario for the Cubs - PIK interest, Wrigley Field as a secured asset, is around 8% interest rate. Now, there'd probably be various tranches of debt, with a tranche secured by Wrigley Field itself probably getting less than 8% because it's backed by a hard asset, and so forth. But after talking to three different sources in private equity, 8% is the best reasonable case for an interest rate.
Based on the amortization table I've put together, that means that the Cubs would have debt service obligations of around $40 million annually. I am reliably told that the Cubs do not make $40 million in free cash flow per year. With their share of CSN Chicago, it might be doable, but it's certainly tight. As we've seen over the last few months, sports are not recession-proof, especially for the high value luxury suites, corporate sponsorships, and box seats.
So 1) the $450 million in debt is clearly in violation of MLB's debt service rule and 2) there's a pretty good chance that the Ricketts can't afford the payments on the debt on the proposed 450/450 transaction.
I submit that there's no way in hell the Ricketts family can afford the Cubs. They might be able to secure $450 million in debt, so Sam Zell will get his money, but they won't be able to service it after the sale. This will mean that MLB will have to step in - as they did for the Diamondbacks - to help with the debt obligation. That means the Ricketts would have to gut the Cubs to pay down debt. And you thought Cardinal fans were pissed at ownership.
The only way this works is if there are subsidies - from the City of Chicago or the State of Illinois. Or from MLB. In the first case, taxpayers are on the hook. And this isn't like the Yankees and the Mets getting a break to build their stadia. It would be a taxpayer subsidy for a private sale. And if it's from MLB, that's coming from the pockets of the 29 other teams, including the White Sox. I'd be disappointed if Jerry Reinsdorf was party to a giveaway to the northsiders.