Twitter Making Second Big Mistake On Jack Dorsey

The first one obviously was when Jack Dorsey was ousted as Twitter CEO the first time around. Evan Williams, smart guy, shot himself in the foot. You shouldn't do something just because you can.

It is a DNA thing. Only the inventor can come up with killer features for the product. That person in this case is Jack Dorsey. The Twitter Board is in no position to decide.

If I were the Twitter Board, I would salivate at the prospect. Jack Dorsey is no longer a green horn CEO. He has now become really good at it. The first time around he was like, I should have held weekly meetings.

Twitter Board's problem should have been, maybe Dorsey is not available. Giving an ultimatum is bad manners. And it will hurt Twitter, which has been stagnant for a long time now.

I always thought Dick Costolo was more of a COO person. Evan Williams could have been Chairperson. But neither were cut to be CEO. And Twitter lost major momentum along the way.

A new direction would be to get much better at curate-and-display. Most people don't really want to tweet, they just want to consume.

This is not about whether Jack Dorsey is a Steve Jobs or an Elon Musk. This is about whether there is anyone better for the job, and there isn't. It goes with the territory.

Sorry Jack Dorsey, Steve Jobs And Elon Musk Are Exceptions

Currently, Musk serves as the CEO of publicly traded Tesla Motors and the private company SpaceX. Tesla is currently valued at about $25 billion and Musk has his sights set on a $700 billion valuation.

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Tech Startup Equity Distribution

English: Defunct Belgian shares in a Russian Tram company for the city of Saratov. With the Russian revolution these shares became worthless. Nederlands: Oude Belgische aandelen in een Russische trammaatschappij in Saratov. Na de Russische revolutie zijn deze waardeloos geworden. (Photo credit: Wikipedia)

100% is like the speed of light. The total has to add up to 100%.

33-33-34

33 to the Cofounders, 33 to the investors in all rounds all the way to IPO, 34 to the team.

When you start a company, you probably have two Cofounders, or three. One is often the Senior Cofounder, the possible Founder CEO. It could be 10-10-13, with 13 going to the Founder CEO. Or it could be 5-10-18. Or they could agree to cap themselves at 30% and give another 3% to the team. And so, 5-7-18.

But the investors have not come yet. The team has not been built yet. The Founder, or the Cofounders could keep the rest of the equity in a caretaker capacity. So, 5-7-18 could become (5+15)-(7+25)-(18+40), with the caveat, should a Cofounder leave the company, the equity held in caretaker capacity reverts back to the company. Even the 5-7-18 should have a vesting period of, say, five years. So if the Cofounder at 5+15 leaves after one year. The 15% goes back to the company. And he/she walks away only with 1%. Because the other 4 has not vested yet.

Investors

I am for an anti-dilution clause. Say you raise 50K in your first round to give away 5% of your company at a million dollar valuation. The anti-dilution clause makes sure that 5% stays 5% in all future rounds. Otherwise, without the anti-dilution clause, a round 1 investor could put in money, feel like he/she owns 25% of the company, but by the time there is an exit, that person ends up seeing that the 50K they invested is still 50K when they walk away from a successful startup's exit. I think that is a shame. And it happens all too often.

Say, it is 30-35-35. Then 5% is gone. And 30% to go.

Round 2 you raise 500K at a 10 million dollar valuation. That is 10% gone with 25% to go. Round 3 you raise 2.5 million at a 50 million dollar valuation. That is 15% gone. There has been an anti-dilution clause at each stage. That makes each round of fundraising independent of each other.

You go IPO at a 100 million valuation. You raise another $5 million at that valuation. That is 20% gone. Hopefully your company keeps doing well, and you raise another 50 million dollars at a billion dollar valuation.

The Team

This is of utmost importance. You have 35% to give away. And you have to assume some of your best people might come years later. The formula is, the higher up you are, the earlier you come, the longer you stay, the more you get. And here you want to move to number of shares as soon as possible. Because 0.1% feels like little, but 100,000 shares feels like a lot.

Your team could be five deep, or 10 deep. The Board is layer 1. The CEO is layer 2. The executive committee (COO, CTO, CFO) is layer 3. All three are not equal. The CTO might get more. The CFO might get less than the COO. Depends. Assume there are five other layers all the way to the receptionist.

I think tech startups should pay below market rate salaries as a rule. You only want people who really see the value of your equity. And the equity you give out should vest over five years.

The Board we took care of. The Founder CEO we took care of. Assume the executive team is not any of the Cofounders. Say the CTO gets 2.5%, the COO gets 2%, the CFO gets 1.5%. To vest over five years. That is 6% gone. But a COO coming in in year 3 would get less, something like 1.5%, or even 1%. Also to vest over five years. Unless you get a star CFO in year 2 who is good enough to take the company IPO, then you can be a little more generous. How about 1.5% to that CFO in year 2?

A superstar CTO might be worth 3%. I don't know.

The thing about the lower layers is there are more people in those layers. That further reduces the size of their cake.

Layer 4 might get 3% total. Or you might say, 3% for each layer with a cap of a certain percentage points for each layer.

Layer 4 gets 3% total, but an individual may not get more than 0.5%, something like that. But if there are 10 people in layer 4, they get 0.3% each on average. Some might get 0.2%.

Layer 10 people might get 0.05%.

Number Of Shares

At a 100 million dollar valuation, the company has 100 million shares to give at a dollar each in value. So at a two million dollar valuation, the company shares are worth two cents each.

So 0.05% in equity is actually 50,000 shares, which is a lot. The junior most members of the team will probably be looking at something like that, again, to vest over five years. You don't have to buy them. You just have to stick around, work hard, and your shares keep vesting.

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Zynga Getting Hammered

Its IPO has not been good for Zynga, nor for Facebook. They have been hammered. Not long back Fred Wilson on the East Coast and John Doerr on the West Coast talked of Zynga as the fastest growing company they ever had in their portfolios. I guess there are ups and downs. Right now happens to be a down time. It is not that Zynga's user base has shrunk dramatically. This is more a case of Wall Street looking at cold, hard cash. If you don't have it, you don't have it.

Just like Facebook Zynga is also struggling with mobile.

Zynga COO Said To Lose Product Oversight As Growth Slows

Pincus embarked on the overhaul in early July, at the close of a quarter marked by slowing sales growth and a drop in demand for virtual goods. Schappert, lured away last year from Electronic Arts Inc. (EA) with a pay package worth $42.8 million, has lost support within the company and taken some of the blame for its underperformance ..... “The place is in utter meltdown mode” .... The stock has dropped 72 percent since the market debut. The decline accelerated last week after Zynga reported sales and profit that missed analysts’ predictions. ..... The reorganization was aimed in part at making mobile- software development more of a priority across Zynga

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The Sheryl Sandberg Profile: The Tech Startup Angle

Image via CrunchBaseI am going to be honest. I went to this article first and foremost not from the gender angle. I remain curious about the career trajectory of this woman, as I stay curious about the career trajectory of Mark, The Zuckerberg. Little bits and pieces I have gathered on her life have only whetted my appetite. So I dived in for more details. She has had an amazing life story that both men and women can learn from.

She is not a techie. She is an operations person. You can hope to become a billionaire going down that route as well.

Sheryl Sandberg: New Yorker Profile

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Larry Page At The Helm

Image via Wikipedia

"I was talking to Larry on Saturday," says Nikesh Arora, Google's chief business officer, when we sit down to talk the following Tuesday. "I told him that I'd gotten back from nine cities in 12 days -- Munich, Copenhagen, Davos, Zurich, New Delhi, Bombay, London, San Francisco. There's a silence for five seconds. And then he's like, 'That's only eight.' "

I have been explicit in my preference for the Founder CEO. I have maintained that Eric Schmidt should have been brought in as COO, Chief Operating Officer, at the outset. That he was brought in as CEO tells me VCs have more power than they should have. Or at least that was the case over a decade ago. In John Doerr vs. Larry Page, I am with Larry Page. John Doerr made a big mistake.

Larry Page had Google work on Android and Chrome behind Eric Schmidt's back. Google not "getting" Facebook is not a big problem, but if Google did not have Android and Chrome today, it would have become an old company by now. Android and Chrome are fundamental to Google doing well in the 2010s, crucial to Google staying relevant and on the edge. And Larry Page gets primary credit.