Tim Oren's Due Diligence

Pajamas Media: Breaking Cover

A few weeks back I mentioned a couple of stealthy, blogging related projects that were consuming time and energy. Now it's time for one of them to surface:

For the last few months I've been acting as an advisor to the team putting together Pajamas Media, a syndicate of bloggers that will form both an advertising network and a source of high quality, bylined content. That team includes Roger Simon, Charles Johnson, and my friend and Winds of Change colleague Marc 'Armed Liberal' Danziger. Roger's post gives more details of the editorial board and points of contact for bloggers and others.

In addition to a gratifying number of bloggers interested in joining the network, the team has been getting a number of inquiries from possible investors. While that's also gratifying, they've asked me to explain a few rules of the road on investing in small, private companies, since many of the questions seem to be coming from those without that experience. And when I say rules, I really mean 'laws'.

Assuming the PJ Media team decides to take outside investment, it will be only from qualified, 'accredited' investors, per the SEC definition. Go read it now.

You're going to have to come up with reasonable evidence (there's a standard questionnaire) that you're in that category to get information, so the PJ team doesn't potentially get in trouble for making an unregistered offering. You should have prior experience in private equity investment and be able to demonstrate that as well. You should be interested in making up a reasonable proportion of a few million dollar total capitalization, because the team will run afoul of another SEC limit if they took on many investors. And if you're an individual in this category, you'll be working through a broker/dealer when and if that time comes around. (And, no, I'm not one.)

Sorry to be exclusionary, but that's the law. There's a good reason for it, too: The technical terms for this kind of investment are 'illiquid' and 'speculative'. For almost everyone reading this post, and most bloggers, you're going to be better off speculating with your blog traffic, not your capital. And, frankly, the team won't have the time to deal with those who don't know how such deals are structured.

Now That Was Relaxing

We're back from the long weekend escape to Carmel Valley and other points South. Among other exploits, we walked the shorelines of Point Lobos State Reserve, Carmel Beach and Pacific Grove, the former in the morning fog. We took my (early) birthday hike up to the 2000 foot level of Snivley's Ridge in Garland Ranch Regional Park, with marvelous views across the Carmel Valley and south towards the Big Sur back country. (It'd been 20 years since we'd made this climb - nice to know we can still do it in a morning.) And we spent a morning backroad driving on the Chalone and Old Hernandez Roads in rural San Benito County's rural Gabilan Range ranch country, followed by an afternoon that included visiting two Salinas Valley wineries. All of these were timed to coincide with the peak of the California wildflower season - OK, maybe not the wine bibbing - but since I still shoot those photos on 35mm, they will have to wait for a while. Meanwhile, have some California spring landscapes.

Rant: Abusing The Long Tail

Those associated with technology and its markets knows that any popular explanatory framework will suffer a semantic death at the hands of marketers, promoters and other hucksters. Sometimes sooner than later. Why, just this week...

I heard a senior exec of a large enterprise software explain why their architecture supports and enhances the Long Tail phenomenon. And shortly thereafter received a pitch from a component architecture startup saying exactly the same thing. Both rubbish. Let's review, shall we?

The potential for a Long Tail market (or attention) distribution exists when the fixed costs of production, distribution, and buying are reduced by technology or other means. Then you don't need as many units of whatever to amortize the fixed costs to a competitive point, and niche products are supported with a decent ROI. BigCo's appeal to the Long Tail falls down right here, as I didn't hear one word about how they are going to reduce the substantial (indeed, notorious) fixed costs of adopting their solutions. Megabuck antes on the buy side will likely keep down the size of their market to the point where extending the tail of developer solutions into specalized niches is problematic from an ROI standpoint.

The degree to which a Long Tail evolves depends on the degree to which costs of transactions are also reduced. Transaction costs aren't just monetary, they also include the overhead and cognitive burdens of finding, deciding on, and integrating the value of each purchase (or use of your attention), as Kevin Laws ably points out. The bigger the monetary and non-monetary transaction costs in a market, the larger the granularity of the practical transactions, the less chance for the fine grained decision making that supports a Long Tail distribution. And I'm here to tell you that the transaction costs of deciding to read or not read a blog post are in no way comparable to those implied when choosing to adopt a software module, form a relationship with its vendor, and build it into architecture and business process for the future.

Yes, technology can in some cases also mitigate transaction costs, by automating much of the search process, often replacing branded, manual aggregation. But with automatic, requirements driven programming still largely in the Real Soon Now category, that doesn't apply to software. Modular software vendors, flagged with the programming flavor du jour, have long ignored the transaction costs aspects of selling at the module level, and have all left larger or smaller craters on the landscape. The attentive will recall that I worked at Kaleida Labs - sic transit gloria. That's one lesson learned on OPM that still holds. You're not going to find my partners' money at the bottom of one of those holes, wannabe LittleCo.

So this is my moral for this weekend: Just say 'no' to bogus Long Tail pitches. This useful meme, like all others, is on its way to the shark tank. But let's at least try to delay its arrival there until Chris Anderson's book can appear and its publisher recoup his munificent advance.

Escape velocity

Fund, management company and personal taxes filed? Check. All active deals pinged? Check. E-mail caught up? Check. (If I missed you, my bad, try again.) Ready for departure on a well-deserved long weekend in Carmel Valley? Definitely check. But first, this rant....

If It's Friday...

I'm back in town, largely intact in body and sinus mind. But since I'm the 'tax affairs partner' for the fund, I've walked back into trying to whip along our tardy (and falliable) tax preparers to get the necessary documentation done in time. Yes, that means I get to read and check it all - Oh, Joy of Joys. You have also just learned the correct answer if someone asks you to be the tax affairs partner, right?

So i'm going to fall back on that end of the week staple, Catblogging! Meet our possibly-adopting-us outdoor foster kitty, Ginger Boy, who showed up in our woodpile one weekend, matted and emaciated. Possibly a runaway, but more likely was abandoned. What kind of jerk dumps a declawed cat to fend for itself, anyway?

After a few weeks of feeding up, he's still thin as a rail, but at least you can't feel the ribs anymore. Our incumbent indoor cat, Smoke, has not taken to the competition very well, and throws a hissy-fit everytime Ginger Boy shows up at the windows, while he gives his best "What'd I do?" look. Looks like 'never the twain shall meet', so likely he's a barn cat for now, if we only had a barn. Fortunately, we have a sunken, fenced patio as a refuge from the coyotes that hang out in the neighborhood. And likely time to coax him into a cat carrier for a checkup and some shots.