Forgot Your Password?

Incorrect login or password


Existing user?

The Long Teeth of VC Backed Firms

Source: Today, dear readers, we speak of Rent The Runway as an exemplar for changing conditions in the world of financing and venture capital. Today RTR announced they had closed a $125,000,000 VC round led by Franklin Templeton Investments and Bain Capital Ventures. This brings the total of VC funding (they also have $200,000,000 in debt) to $337,000,000 based on a valuation of $1,000,000,000. Wow! RTR has come a long way since its 2009 funding by Bain of $1,800,000. RTR has been working for ten years to become an overnight success. Some whisper RTR is being groomed for an Initial Public Offering, something they spoke of in the past, but not recently. Backstory So, two HBS students founded RTR because one of them comes home from a wedding having seen her sister’s closet full of wedding dresses she will never wear again. A light goes on. Full closet underutilized based, an enormous financial investment that goes unused. They did go to HBS, right? RTR is the “Netflix of dresses” — a comparison that the founders bristle at as they view Netflix as being a rational transaction and they are “emotional.” Fair play. Today, RTR is an eCommerce site with subscription plans (two) — converting transactional income into recurring income while peddling the same product — and a handful of bricks and mortar sites. RTR will also sell you a dress from their portfolio at a discounted price. Do not miss this as a clever way to peddle exhausted inventory. Remember, RTR is buying their portfolio at huge discounts based on quantity alone. So, this means of disposing of out-of-season inventory is quite clever. One day they see their model being used for men, but not for some time. They describe their business as being an “active partnership” with more than 500 fashion brands for whom they operate as some form of distribution channel. In that partnership, RTR is the marketing, discovery, and customer care arm of the rag merchants. So, what can we learn, Big Red Car? Turns out we can learn a lot.  1. First, it has taken ten years to get to this stage of development wherein RTR is valued at a billion dollars. This unicorn is getting a little long in the horn.  2. There is a lot of equity at work here — $337,000,000 with a valuation  of $1,000,000,000. To be perfectly blunt, that is not a unicorn rate of return. There must be an expectation of more growth, right? The founders owned 13% each prior to the latest round. That is Jenny Fleiss on the left and Jennifer Hyman on the right. Fleiss has left RTR as of early 2017 and has moved on to a new gig, Jetblack which is a “…highly-personalized, one-to-one shoppng experience.” It is being developed under WalMart’s umbrella, Store No. 8.  3. The pricing mechanism has been very creative — they didn’t change their fundamental product; they changed how they related to their customer and took one-off transactional revenue and transformed it into monthly recurring revenue. A lot of folks have been doing this. We have spoken of it before. We spoke of how Restoration Hardware did exactly the same thing in a different industry. This transformation to recurring revenue is now a “move” that is well understood. RH – Restoration Hardware, Swimming Upstream  4. RTR has opened five stand alone bricks and mortar stores — San Francisco, New York City, Chicago, Georgetown, and Topanga (Woodland Hills. Los Angeles). These stand alone stores allow a client to come in, try a dress, pick the right size, and take it with them — no waiting for the mail. They can also return the dress to the store.  5. RTR also has “drop off only” boxes in WeWork facilities in New York City (4), San Francisco (4), Los Angeles (2), Chicago (2), Washington DC (4), and Miami (2). So, there you have it, dear reader. “Uhh, Big Red Car, all perfect at RTR? No, dear reader, the company went through a bit of a difficult time back in 2015 when it lost within ten months its Chief Operating Officer, Chief Financial Officer, Chief Marketing Officer, Chief Creative Officer, Chief Technology Officer, Chief People Officer, and its Head of Partnerships. That, dear reader, is a lot of change in the CCCCCCCCCCCCCCCCCCCCCC suite. The company chalked it up to “…hyper-growth…” and the “…evolution of the executive team.” Ahh, Big Red Car is not buying that. Sounds like a bloodletting. They have this behind them now, but they did lose one of their co-founders. So, there you have it, Rent The Runway and what you can learn from it. But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. March Madness starts — right now!     Share this:EmailTweetShare on TumblrPrint Related Source:

Forest Conservation - The one and only way to conserve water

An article on the occasion of World Forestry Day (21st March) and World Water Day (22nd March), by Dipak Sharmah, Retd IFS Karnataka is blessed with some of the most magnificent forest ecosystems harboring diverse flora and fauna. In addition to the major types of tropical forest such as evergreen, semi-evergreen, moist deciduous, dry deciduous and thorn forests, a number of special forest types are met with in the state. These include: Shola forest with surrounding grasslands, Mangrove, Myristica swamp forest, forests of kamara (Hardwickia binata), dhupa (Boswellia serrata) and jalari (Shorea talura), Devarakadus of Kodagu district, Hadlus of Mysuru and Kodagu districts, Kans of Soraba, Sagar and Banavasi taluks, etc. The diversity of species within each vegetation type is also enormous. The forest diversity is so wide and varied that in a number of districts in the malnad region, all types of forest, starting from wet evergreen to thorn forest, are encountered within a crow-fly distance of less than 100 km. The forests of the eastern plains, though these are limited in coverage, exhibit high degree of plant diversity including varieties of medicinal plants. The Western Ghats, of which Karnataka has the largest share, is one of the mega biodiversity hotspots of the world. All the perennial rivers, which form the lifeline in the state, originate from the pristine forests of the Western Ghats. Karnataka’s forests are very rich in wildlife, harboring about 25% of the elephant population and about 18% of tiger population of India. About 25% of the state’s forests comprising five national parks, thirty wildlife sanctuaries and sixteen conservation/community reserves have been earmarked exclusively for conservation of wildlife and biodiversity. Recorded forest area of Karnataka is about 43,383 km2 constituting 22.62% of its geographical area (1,91,791 km2). The extent of notified forest area is 33,358 km2. The total extent of natural forest (including grassland and scrub forest) is about 31,000 square kilometers. Broad distribution of the major forest types as indicated below: Distribution of natural forests in Karnataka Sl. No. Major forest type Extent (in km2) 1 Evergreen forest 5,960 2 Semi-evergreen forest 2,465 3 Moist deciduous forest 8,385 4 Dry deciduous forest 5,675 5 Scrub forest 7,655 6 Grassland 910 TOTAL AREA 31,050 [Source: Land use-Land classification Report (2006) of KSRSAC, Bengaluru] [Note: The above figure of 31,050 km2 of natural forest also includes about 4,500 km2 of forest occurring in non-forest land, such as thickly wooded revenue land, revenue Paisary, Betta, Bane, Kumki, etc. However, it does not include about 4,500 km2 of plantations raised by the Karnataka Forest Department within the recorded forest area; these plantations have been delineated separately.] The evergreen, semi-evergreen and moist-deciduous forests are located in the malnad districts of Belagavi, Uttara Kannada, Shivamogga, Chickkamagaluru, Udupi, Dakshin Kannada, Hassan, Mysuru, Kodagu and Chamarajanagar. The dry deciduous and scrub forests, mostly in degraded condition, are distributed all over the state, including the eastern plains and south interior Karnataka. One significant aspect regarding the forests of Karnataka is that most of these are concentrated in the Western Ghats region where almost 45% of the geographical area is covered with forest, whereas it is about 12% in the interior Karnataka region and about 8% in the eastern plains. The abysmally low distribution of forest in about two-thirds of the state is a matter of concern, as vast expanses of open agricultural lands without adequate tree cover in the vicinity do not augur well for the long-term health of the agricultural lands. Organized management of the forest areas of the present day Karnataka started during the 1860s. These areas were under different administrations and were integrated in 1956, after the reorganization of the states. The integrated areas comprised the old Mysore state, the former state of Coorg, portions of the former Bombay and Madras Presidencies, and some areas of the former Hyderabad state. As major portion of the re-organized state was from the old Mysore state, it was then named as Mysore state and was rechristened as Karnataka in 1973. Although the integrating areas of the newly formed state were under different administrations, they were directly or indirectly ruled by the British for a considerable length of time till India became independent. As a result, there were many commonalities in matters of forest policy, law and management practices in these regions with local and minor variations. These were harmonized and consolidated in the re-organized state with the formulation of Karnataka Forest Act (1963), Karnataka Forest Rules (1969), Karnataka Forest Manual (1975), Karnataka Forest Code (1976) and Karnataka Forest Account Code (1976). The forests of Karnataka, like the forests of the rest of India, had passed through a rough phase of heavy exploitation during the colonial era and the post-Independent period thereafter. This phase of heavy exploitation, which continued up to the 1980s, is exemplified by large-scale felling of trees or clearing of forest for catering to War supplies, post-War reconstruction, running of locomotives and steel plants with firewood as energy-source, supply of railway sleepers, supply of wooden poles for electric transmission, extraction of plywood and matchwood, formation of highways and railway lines, construction of dams and reservoirs, rehabilitation of project-displaced people, development projects, Grow More Food campaign, etc. This period also saw an unprecedented increase in the demand for timber and firewood which prompted clearing of more forest areas and replenishing the cleared areas with quick-growing species to keep pace with the increasing demand. In the aftermath of large-scale, decades-long forest-exploitation, and in order to heal the scars of deforestation, Karnataka Forest Department, since the mid-1970s, had initiated a number of steps aimed at overall forest conservation. A very bold initiative was taken by the then Forest Minister of the state Shri K. H. Patil, who issued directives in 1974 to do away with the practice of issuing pre-paid licenses for bringing firewood from forest in bullock-carts. This was perhaps one of the most important decisions taken for forest conservation in Karnataka, as continuous degradation of large extents of forests of the state was halted and, within a span of six-seven years, these forests showed signs of recovery through natural regeneration. An important amendment was made on 16-09-1974 in the Karnataka Forest Act, through which the power of the Government to de-reserve a forest by a notification was modified and it was stipulated that ‘no such notification shall be issued unless a resolution to that effect has been passed by both Houses of the State Legislature.’ This amendment was very significant in that it slowed down the process of de-reservation of forest areas and brought down the number of such cases. The Act was further amended in 1978 categorically stipulating that regularization of encroachment taking place after 27-04-1978 must have the approval of the State Legislature. These amendments can be said to be precursor to the Forest (Conservation) Act which was enacted by the Government of India in 1980 in order to regulate diversion of forest land for non-forestry purposes. During 1976, a new Act, namely, the Karnataka Preservation of Trees Act was enacted in order to preserve trees by regulating their felling in private lands, particularly in the malnad region. The period from 1980 to 1990 was very significant from the point of forest conservation in Karnataka. This period heralded a major change in the forest management practices with the Forest department shifting its focus from production forestry to conservation forestry. Although this change was triggered partly by the overall change in the national forestry scenario which had highlighted the need for ecological security, preservation of natural forest and biodiversity conservation, sincere attempts were made at the state level towards protection of forests. The department had done away with the system of standing sale of forest coupes in the early 1980s. Clear-felling of natural forest for regeneration was stopped and felling of natural green trees was restricted in 1983. Felling in the evergreen forests was discontinued in 1987 and two years later, the state government stopped all concessions to wood-based industries and they were required to obtain their requirements in open auction. In 1990, felling of all naturally growing green trees was banned. These changes initiated by the state were in conformity with the National Forest Policy, 1988 which advocated a ‘conservation oriented forest management’ approach. Karnataka’s commitment towards conservation oriented forest management is also reflected in the Karnataka Forest Policy, notified on 11-06-2013 giving detailed guidelines for forest conservation and development in the state. Karnataka’s focused approach towards forest conservation is also evident from the fact that large extents of natural forest have been brought under the protected area (PA) network comprising national parks, wildlife sanctuaries and conservation reserves. During the last decade, a number of new wildlife sanctuaries were notified and a number of existing national parks and wildlife sanctuaries were expanded by including adjacent forest areas. Protected areas now cover more than 25% of the state’s forests, and their number is increasing every year. Given the highly degraded condition of the dry deciduous forests, more and more dry deciduous and scrub forests have been declared as wildlife sanctuaries, such as Chincholi, Jogimatti, Rangayyanadurga, Yadahalli, Gudekote, Ramadevara Betta, Thimlapura, etc. Forest areas such as Bukkapatna, Kappatagudda and Kammasandra are also being notified as wildlife sanctuaries. The PAs receive the best possible attention in terms of forest protection; these are inviolate areas, and nothing, not even grass, can be removed from such areas. While the protected areas have been expanded, the focus of management of the remaining reserved forests (not included in the PA network) has also been reoriented, primary focus being on conservation. Large extents of evergreen, semi-evergreen and moist deciduous forests are already included in the PA network. The remaining evergreen and semi-evergreen forests are invariably managed for biodiversity conservation with nil or minimum intervention. The level of working in the remaining moist deciduous forests has also been progressively brought down, being limited to removal of dead and fallen material from only a few pockets. Fire protection, soil and moisture conservation, assisted natural regeneration, prevention of smuggling and poaching, etc. have been given high priority in these areas. The Forest department also exercises utmost caution while regulating felling of trees in private lands in the eco-sensitive areas of the state. For similar reasons, mining has been done away with in the Western Ghats region. Even though the Forest department since the early 1990s has virtually stopped felling of trees in the natural forests, rejuvenation of the forests has been slow and many areas are under various stages of degradation. As already mentioned, the dry deciduous forests are in highly degraded state and the scrub forests continue to remain impoverished. The department has been relentlessly engaged in large-scale tree planting to stop or slow down forest degradation and to improve forest quality. However, such efforts have met with limited success. Although about 60,000-70,000 hectares of plantations are raised every year, the increment in forest cover as assessed by the interpretation of satellite imageries is very marginal. The forests and plantations continue to be under stress due to external biotic factors. Even plantations protected by fencing are safe only for a few years. By and large, the department has not been able to contain the external factors responsible for forest degradation. It is apprehended that until and unless the primary causes of forest degradation are comprehensively addressed, any initiative at improvement of forest quality will not succeed. One of the most important factors responsible for degradation of forests is excessive withdrawal (mostly unrecorded) of biomass in the form of firewood and small timber. Another important factor is uncontrolled grazing by very large numbers of cattle. Other factors like fire, soil erosion, etc. are subsidiary to these two primary factors and will be under check once the primary factors are brought under control. The only way to reduce excessive removal of biomass from forest is to create abundant biomass outside the forest. This is possible only through very intensive and aggressive farm forestry / agro-forestry. The notion that fuel wood should come from forest must go. Fuel wood required for cooking or heating must also be grown along with food crops. Farm forestry not only reduces the pressure on forests but also helps in increasing the tree cover. Besides, it provides economic security and improves income levels of the farmers. The Forest department has been carrying out a number of programs to encourage people to plant trees in their farmland and other areas outside the regular forest. These include Krishi Aranya Prothsaha Yojane (KAPY), Raising of Seedlings for Public Distribution (RSPD), etc. KAPY provides very attractive financial incentive for growing trees in farmlands. As regards stopping or regulating grazing in forest areas by large numbers of unproductive cattle, it is necessary to discourage rearing of unproductive cattle by encouraging cattle improvement, stall feeding and fodder improvement. Farmers owning cattle can achieve these objectives by adopting appropriate agro-forestry practices and integrating these with sound animal-husbandry practices. Large-scale tree planting outside the natural forest areas is also necessary as the natural forests have a much larger national / global function of regulating stream flow and moderating climate. Forests and trees play vital role in maintaining a stable environment conducive to sustained agricultural development. Forests are the foster mother of agriculture and unless the forest ecosystem is maintained in a protective and productive state, the future of agriculture itself is at stake. Forests protect and enrich the soil mantle by reducing soil erosion and nutrient loss, and by facilitating nutrient recycling and microbiological activities. They also protect hydrological systems and regulate stream flow, thereby augmenting water availability so vital for agricultural production. Forests also serve as a unique storehouse of plant and animal genetic resources and contribute significantly to the biological diversity which in turn serves as insurance against food crises and as an assurance for health care. The overall impact of the forest eco-system on climate, hydrology, agriculture, health, etc. is so overwhelming that it is prudent to manage the natural forests in such a way that the national / global functions are not compromised or jeopardized. Although raising plantation is an important activity of the Forest department, it has been increasingly realized that forest protection is the most cardinal duty of the department. Very good plantations have been found to have degraded or denuded for want of adequate protection. On the other hand, there are many examples where degraded forests have rejuvenated solely due to rigid protection given over a long time. One of the best and the easiest ways to develop a degraded forest is to ensure and enforce rigid protection from the various pressures working on it. Many of our forests, especially the ones near habitations, have been degraded due to intense biotic pressures caused by human need and human greed. It is therefore necessary to ascertain the pressures responsible for such degradation and take steps to withdraw or reduce these to reasonable limits. Withdrawal or reduction of these pressures itself is a big step towards restoring the forest to its original glory. Rigid protection from fire, illicit removals and excessive grazing will enable a degraded forest patch to bounce back to life. In view of what has been narrated above, the Forest department has adopted a three-pronged approach as overall strategy for management of the natural forests: (a) to give maximum protection to the existing forests; (b) to take up afforeststion in the highly degraded forest areas which are not capable of regenerating on their own; and (c) to develop abundant biomass resources outside the regular forest. In the days and years to come, the most important assets to be managed for the welfare of mankind are going to be forests and water. There is an inseparable and intrinsic relationship of mutual inter-dependence between these two natural assets. Significantly, the ‘world forestry day’ and the ‘world water day’, which symbolize the importance of these two resources across nations, are observed on two consecutive days, namely, 21st and 22nd of March. Among all natural eco-systems, forest is the most efficient in harnessing water (precipitation) and releasing it gradually through regulated stream flow. Healthy forests play a very critical and important role in protecting and sustaining water resources. This role is all the more important in the peninsular India where the basic source of water is rainwater. The entire river system of Karnataka depends upon the forests of the Western Ghats which arrest, regulate and release rainwater throughout the year. Forests absorb rainfall, refill groundwater aquifers, retard, filter and cleanse surface water runoff, mitigate erosion, reduce flooding and maintain stability and vitality of watersheds. While the forests of the Western Ghats primarily provide for protection and sustenance of the state’s river system, there is need to expand and protect forest and tree cover throughout the state in view of the critical role played by forest and tree cover in conserving rainwater. Although the tree canopy traps rainwater and lets it down to the forest floor, efficient and effective absorption of the precipitation into the ground is possible only when the forest floor is rich with humus, leaf-litter and varieties of ground flora including weeds, grasses, ferns, seedlings, saplings, etc. The factors which adversely affect the health of the forest floor are fire and excessive grazing by domestic cattle. A forest which has been rigidly protected from fire and grazing by domestic cattle is bound to have an ideal forest floor facilitating maximum absorption of rainwater into the ground and thereby enriching the groundwater resources. It is in the above background that the Forest department’s focus on forest management has been evolving over the years to be more and more conservation oriented. It has been increasingly realized that the existing natural forests which are already under tremendous biotic pressure can not be expected to provide for all the biomass needs of the people as it happened for centuries in the past. This is due to the fact that during the last few decades population has increased manifold whereas forest cover has shrunk considerably. Keeping the natural forests under such continued stress will be suicidal, as their efficiency and effectiveness in protecting and sustaining water resources will be seriously jeopardized. The signs of increasing stress on our forests are too obvious to be missed: depleting ground water level, recurring drought, frequent flash floods, repeated forest fires – these are all portents or manifestations of the stark ground reality that the existing forest or tree cover is not capable enough to sustainably harness the rainwater. Therefore, there is an urgent need to increase the forest and tree cover both in quality and in extent. This is possible only when additional forest resources are developed outside the natural forests. Such forest resources, besides relieving the pressure on the natural forests, will provide people with their biomass needs, help in improving rural economy and usher in all-round ecological development. Once the natural forests are relieved from the relentless pressure from biotic interferences, most of these will show signs of rejuvenation by way of natural regeneration through seeds or from existing root system. Forest department will then be in a better position to conserve and develop these forests by providing rigid protection from fire, grazing and pilferages and by carrying out enrichment planting wherever necessary. This will help in the development of what is called a normal or ideal forest. Such normal or ideal forest eco-system is the only guarantee for protection and development of our water resources.

Reply Spam

The AVC comments has been experiencing a wave of comment spam that has largely been replies to legit comments. I appreciate the community for flagging it and our moderators for nuking it. Keeping the comments free from spam is important to me but not an easy chore. One idea I have, which I don’t even know if is possible in Disqus, is the idea of limiting replies to longstanding community members who are registered with Disqus and have high reputation scores. What this will do is eliminate the reply spam, but will also make it impossible for new commenters to reply. They will still be able to leave a comment. I think the pros may outweigh the cons. Thoughts?

The Unions Come For Tech

Source: Bit of a gray day out here in the ATX which is a great day to be viewing the bluebonnets. Bluebonnets do not belong to a union. If they did, they would require more rain, no? Today, however, we speak of the unionization of tech companies. A pal of mine (tip of the hat to LE of the City of Brotherly Love) sent me an article announcing that the staff of Kickstarter is going to become members of the Office and Professional Employees International Union Local 153. In announcing this bold step, the union had this to say: Kickstarter United is proud to start the process of unionizing to safeguard and enrich Kickstarter’s charter commitments to creativity, equity, and a positive impact on society. We trust in the democratic process and are confident that the leadership of Kickstarter stands with us in that effort. Kickstarter has always been a trailblazer, and this is a pivotal moment for tech. We want to set the standard for the entire industry. Now is the time. Come together. Unionize. Kickstarter is the first notable tech company to embrace the idea of a union, but in the last few years employees have begun to speak with a louder voice at some of the other companies on issues such as sexual harassment [talking to you, Uber] and selling technology to the Pentagon [talking to you, Amazon, Sales Force]. These louder voices are what has attracted OPEIU to come calling. What will high tech unions change, Big Red Car? Unions represent their members in negotiations with management on such issues as job descriptions, working conditions, compensation, benefits, termination, severance, advancement, and dispute resolution. All of this is codified in a written labor agreement called a Collective Bargaining Agreementa which varies from company-to-company. Said another way, the union will inject itself into every aspect of their members’ working lives including whether orange M&Ms are in the break room. This union is pretty damn clear as to what they think about Kickstarter having said, “The goal of our union is to have a formal seat at the table to negotiate with management. We’re negotiating to promote our collective values, and ensure Kickstarter is around for the long haul. We care about preserving what’s great about Kickstarter and improving what isn’t.” So what, Big Red Car? The Big Red Car was a member of the cement finishers and plasterers union once upon a time. I am a huge fan of unions as they once existed. In that time, the union required members to attend craft training one or two nights a week. The union was deeply rooted in the community. I used to see the union business agent at Sunday Mass [I was an altar boy.] This move is going to create a very formal moat around employment at high tech companies as well as a vicious advocacy around any issue that impacts recruitment, membership, or retention. [And, most importantly, dues paying. Can’t forget the dues.] Unions will be enormous advocates for the things I mentioned earlier — anything that impacts its members. None of this is free — the unions will charge members monthly dues. These monthly dues will be paid directly from the company’s payroll system. One of the long term problems with unions is they forget where the money is really coming from. This will also add a new skill set requirement for CEOs — the ability to relate to and work with unions. Unions really only have limited abilities to fight with employers — work slowdowns and work stoppages. In the fast paced high tech world, these will be powerful and disastrous happenstances. Stay tuned. Office and Professional Employees International Union The OPEIU is more than 100,000 members strong, a member of the AFL-CIO and has been around since 1945. Here is a link to their website. Go to the page that deals with OPEIU Membership Benefits. The Office and Professional Employees International Union Check them out. They do not look like high tech workers, but does that really matter? Politics No discussion about unions these days can be complete without delving into their political leaning. As one might expect, the OPEIU has its own PAC — OFFICE AND PROFESSIONAL EMPLOYEES INTERNATIONAL UNION (OPEIU) JB MOSS VOICE OF THE ELECTOR. Whew, that’s a mouthful. This particular PAC showed total receipts of $705,542 in 2018 with $726,466 in disbursements. Ninety-percent of their political contributions went to Democrats with 0% going to Republicans. You can look this kind of stuff up at the Federal Election Commission — here is a link to the OPEIU filing page. They have FEC filings going back to 1993. I mention this because the left leaning tendencies of high tech are right in line with the total left lean of the union. Bottom line it, Big Red Car Here is what I foresee:  1. It will be easy for the OPEIU to organize high tech company employees once they get a couple of name brand firms under their tent. Kickstarter is one of them.  2. The union is going to have a huge impact on hiring and working conditions.  3. This is going to be a battleground for a few years until the requisite skill sets emerge.  4. The union will be a powerful force for revealing bad acts and bad actors in Silicon Valley and other points on the high tech compass.  5. The leftward lean of the union and high tech will have some impact on the political situation — talking to you, Beto. Stay tuned. But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. March Madness, y’all! Hook ‘Em, Heels!   Share this:EmailTweetShare on TumblrPrint Related Source:

Respecting The Pro-Rata Right

When early stage investors make an equity (angel, seed, Srs A, Srs B) investment, they typically negotiate for something called a pro-rata right which gives them the right to maintain their ownership in the company by investing in future rounds on the same terms as new investors. I have written about the pro-rata right a bunch here at AVC. I think it is one of the most important things that early stage investors get from their investments. Obviously the ownership an investor gets is the most important thing, but the ability to maintain it by making additional investments is also very valuable and can be the source of out-performance of an early stage portfolio (against whatever benchmark one might be using). At USV, we value the pro-rata right and exercise it very frequently. We often will make five, six, or seven investments in a company between when we make our initial investment and when we make our final investment. We even have a follow-on fund called the Opportunity Fund, that allows us to take our pro-rata in companies that continue to raise privately and delay going public. Our Opportunity Fund will also make some investments in companies that aren’t currently in our portfolio. But a large part of our Opportunity Fund thesis is about maintaining ownership via our pro-rata rights. In the last ten or so years, companies, lawyers, boards, management teams, founders, and in particular late stage investors have been disrespecting the pro-rata right by asking early stage VCs to cut back or waive their pro-rata rights in later stage financings. This can happen as early as Series B (and happens to angel and seed investors in Series A rounds), but it is even more common in the later stage rounds like Series C and beyond. I think this is bad behavior as it disrepects the early and critical capital that angels, seed investors, and early stage VCs put into the business to allow it to get to where it is. If the company agrees to a pro-rata right in an early round, it really ought to commit to live up to that bargain. But increasingly nobody does that and it is a black mark on the sector in my view. We make commitments knowing that we don’t plan on living up to them. It is very unfortunate. The reason this happens is that allocations get tight in later stage rounds, particularly where the company is doing well and everyone wants to get into the round. The new investors, including the investor that is leading the round, will almost always have a minimum amount of ownership they want to get to in the round and the math tends to work out that the only way to get there is to cut back the early investor’s pro-rata rights. Sometimes the way the gap is filled is by creating secondary for founders, early employees, and early investors. That can work and is sometimes good for everyone involved. That “trick” has been the saving grace on this issue over the last few years. But I believe we are at a crossroads on this issue and I am wondering if early stage investors need to put more teeth into our pro-rata rights to insure they are honored. What if a company that was unable to offer a full pro-rata right to an early stage investor in a later round was forced to go back and change the price of an earlier round to make it up to the early stage investor? Or what if an early stage investor got warrants at the new round price to make up for an inability to honor the pro-rata right? These are just two suggestions I came up with in a few seconds of thinking about it. But I would really like to force early stage companies, their lawyers, and their boards to think clearly and carefully about the pro-rata right when granting it. The current practice seems like “we can give this because we always get away with not honoring it down the road” and frankly that sucks.