Is the J-curve a myth?

It very definitely exists, but under two specific constraints: (1) we need to be talking about ‘traditional’ venture funds, and (2) we need to limit the discussion to the top half/top quartile funds that actually make money.

(Below is an example of the traditional J-Curve)

The unbelievably seismic changes resulting from exponentially advancing technology mean that the ‘traditional’ venture world is rapidly giving way to a new world of micro-VC, “super angel”, early-stage seed funds, which have very different economics. With many of today’s web-based startups, a relatively small amount of funding up-front, combined with rapid development time, a non-existent IPO market for smaller companies, and an insatiable acquisition appetite from larger companies means that companies are both failing faster and exiting faster, by almost an order of magnitude, than was previously the case.  Because of this, the new breed of seed and early-stage funds are in many cases completely bypassing the down-swing of the J curve.

On the other hand, the sad fact is that the majority of traditional venture funds formed in the past decade have simply not made enough money to return a profit to their investors. In those cases, the down-swing of the J curve is very real, but they are missing the up-swing. This is because the lack of an IPO market means that unless they were fortunate enough to be in Facebook, Groupon, LinkedIn, Instagram or a couple of other mega-home-runs, they simply have not had enough large-scale positive exits to get back north of the baseline.

*original post can be found on Quora @ : *

Will the most successful crowdfunding portals be restricted to accredited investors?

This is an interesting question, and one to which no one really has an answer yet. To some extent it will depend on what the SEC decides to do with the regulations surrounding the whole subject, which they have until the end of the year to write.

My personal guess is that the early stage funding world will likely trifurcate (or even quadricate, if that’s a word) into several distinct groups. In each of the groups, there will probably be the usual breakdown of the industry leader, the significant #2, and the rest of the pack. At the moment, my guess is that it will shake out as follows (and I absolutely reserve my right to come back and edit this answer as things begin to play out, so that I’ll always be right! Read more

“Bored” of Directors Can Become Clash of Titans

Rhetoric has the power to engage or alienate, to enchant or disaffect.  Perhaps no better example exists than the term “Corporate Governance.”  Even the wonkiest law geeks like me find our eyes glazing over as soon as the term is mentioned.  Yet I’ve rarely seen entrepreneurs more fired up than when recounting war stories of startups whose founders had control of the company wrested from them, were forced to take financing or compensation deals on outrageously onerous terms, or worst of all, fired from their own companies.  Framed that way, “corporate governance” starts seeming a lot less dry and academic.  It’s probably no coincidence that one of the questions I get most often from founder is “How do I keep control of my company?” Read more

Antone Johnson , Founding Principal, Bottom Line Law Group
July 18th, 2012

Investors Don’t Know What They Want

Take a step back and be objective, and U.S. angel investors are hardly a diverse group. Not demographically diverse (sadly, we’re mostly older white men) but in opinions, preferences, and what we want in a deal, for sure.

I strongly recommend a quick tour of the ‘what investors want‘ collection of videos on this site. You’ll find 22 very short videos taken from interviews of some very thoughtful, successful, and influential investors. It’s a bit like an angel investor role call.

What reminded me of diversity was how I was struck yesterday by one of these in which one of the angel investors values certainty very highly. It’s s very short snippet, but the active quote is …  Read more

Tim Berry , Founder, Palo Alto Software
July 17th, 2012

Copywrong Again: Founding the Next Pinterest or Napster?

As I wrote in Part I of this post, many of the most creative and disruptive startup businesses in recent years have involved the use of intellectual property in innovative, non-traditional ways that defy easy categorization and stretch the boundaries of concepts such as the fair use doctrine in copyright. When presented with a product or service in development, we often have to admit that there is no clear precedent and look for the best analogous situation to assess legal risk.  Is Instapaper like collecting press clippings?  (If so, do you have to buy a copy of each paper first?)  Is pinning a photo or article on Pinterest more akin to showing someone an article in a magazine you’ve bought or actually making and handing them a copy?  Does using a friend’s name or photo in a Facebook “Sponsored Story” (e.g., “David S. Rose likes Gust. Click thumbs up to Like it too”) more closely resemble a personal recommendation by that friend to buy the product, or plastering the friend’s photo on the product packaging in stores?

Read more

Antone Johnson , Founding Principal, Bottom Line Law Group
July 3rd, 2012

How do venture capitalists feel about following a crowdfunding capital raise?

This was one of the primary subjects for discussion at Venture Forward 2012 ( The answer to that question at the pre-conference speaker’s dinner implied unanimous agreement (from a group consisting of many of the top angels, VCs, lawyers, and pundits in the industry), that “direct, equity-based, common stock crowd funding as envisioned by the JOBS Act” would absolutely, positively preclude future investment by any serious professional investor, either angel or VC. Read more

Second-Class Investor Citizens: Facebook’s IPO and Dual-Class Equity Structures

Dual-class voting structures are receiving a lot of attention these days along with intense publicity related to the Facebook IPO, following in the wake of other recent tech IPOs with a similar structure such as Zynga and LinkedIn.  This is nothing new; long favored by family-controlled media empires such as Rupert Murdoch’s News Corporation, among Internet firms alone, Google took a dual-class approach when going public in 2004.  Some commentators have suggested this is the wave of the future, signifying a shift in the balance of power from investors to founders of the relatively small, elite group of growth companies that make it to public markets.  Yet I’m skeptical that a widespread shift will occur anytime soon, and for reasons discussed below, as much as I admire and advocate for talented entrepreneurs, I believe it would be a losing proposition for nearly all involved. Read more

Antone Johnson , Founding Principal, Bottom Line Law Group
May 24th, 2012