William Carleton, Counselor @ Law

Crowdfunding a Crowdsourced Ad for Crowdfunding

A group of really cool, hardworking people have put together a campaign to draw the attention of the political class to the crowdfunding exemption legislation currently before the Senate.

The objective is to raise money to place a very nicely designed ad in Politico, the paper all the politicos read. Here's an early version of the ad:

As usual, Paul Spinrad's Change Crowdfunding Law blog has the details. See his February 12 post for background on the strategy, who is behind the campaign, the fundraising plan, and the target date for publication (assuming the funds can be raised).

Okay, I know I have been railing on Facebook for perverting social distribution, chiding Twitter for polluting the timeline with fake tweets, and otherwise advocating for an ad-free commercial web. But this ad is for that offline, political class in DC!

Facebook Cap

I'm working on a Facebook cap table, but it's slow going. Facebook's private financing history is complex!

Below the photo are highlights of what I'm finding so far, subject to refinement or correction. The key sources are Facebook's current charter and the S-1 filing.

• There are approximately 2.5 billion shares outstanding, on an as-converted, fully diluted basis.
• Five series of preferred stock amount to approximately twenty-one or twenty-two percent of the equity, on an as-converted basis.
• Three series of preferred convert into common on a greater than 1-to-1 basis, if only slightly so. (The highest is Series D, at 1.0125606 to 1). This suggests there have been anti-dilution adjustments along the way.
• Notwithstanding the ratcheting, Facebook raised more than $700 million in preferred stock financings with remarkably modest dilution to the classes of common stock.
• Outstanding equity incentives, in the form of stock options and restricted stock units, make up over 20% of the equity. Almost one quarter of this number is taken up by a huge, 120,000,000 share option held by CEO Mark Zuckerberg.

I'm likely to keep plugging away at the spreadsheet from time to time. It's more difficult to reconstruct than most, in part because the charter doesn't tell as much about the terms of the late and significant issuance of common stock to/via Goldman Sachs and others, as it does about the preferred.

Photo, Noel Hankamer, Flickr: "Here's a ratchet patented by Keystone Mfg. Co. of Buffalo, New York, in November, 1883."

Dear Twitter: I would actually pay money to not see sponsored tweets

Venkat Balasubramani thinks it is uncool to complain about services you don't pay for.

Okay, Twitter, so let me pay already!

I really, really don't want to see advertising.

I dislike it so much, I used valuable dev credits given to me by my eldest son, who wrote a script to take the damn sponsored tweets OUT of my Twitter timeline.

Other paid-for content litters the Twitter web interface.

Advertising in the flow is like a dark disturbance in the Force.

When Twitter puts a fake tweet into my timeline, a message from a source I did not invite, it's reminding me that social distribution can be purchased.

But the belief that money can buy all media is something I willingly suspend when I go to Twitter. I'd pay good money to sustain the illusion!

Did you see in the business section of the Facebook S-1 the primer on the social web, how it is comprised of three elements? (By the way, I critiqued how Facebook handles the three elements, here.)

Social distribution is one of those elements.

"Social distribution" refers to the way content is distributed to a particular user. In Facebook's case, content is prioritized according to weightings Facebook gives to different postings. The weightings are set according to what Facebook assesses your preferences to be, and those preferences can be overridden when an advertiser decides to pay to intervene.

In Twitter's case, social distribution is determined (used to be determined?) by the individual Twitter user. The user's timeline is (was?) a reverse chronological rendering of all of the posts of the other users she follows.

In a way, you can read all the other busy-ness in the newer Twitter interfaces - the "who to follow" sidebar and the "discover" tab, for example - as hedges against the uncontrolled, organic power of a social distribution channel left entirely in the hands of the individual user.

I imagine I am in the minority on this, that others do not mind ads in their tweets any more than they mind overt product placements in James Bond movies.

If you are in the majority, humor me for one paragraph. Suppose this all got turned on its head? Imagine Twitter contacted you to say, "we would like to put this ad on the side of your truck? Over time, we doubt you'll even see it. But the more you travel with it, the more we will pay you."

What would be your price?

Photo of the truck: Tony De Marco, Adbusters "Carbon Neutral Culture" issue.

Silicon Pastures and Golden Angels

Check out this great story NPR ran yesterday about the proliferation of organized angel groups in America.

There are 350 organized angel groups in America today, according to the story. Of these, 50 were formed since the 2008 recession.

You know and I know that most third party startup financing comes from angel investors. Not VCs. Not crowds (not yet anyway).

But I don't think most of America knows that. So it's good to hear a national media outlet spreading the good word.

The story focused on two angel groups, Silicon Pastures and Golden Angels, which both happen to be based in Milwaukee. Not Silicon Valley. Not Boston. Not Seattle. Also very, very cool.

Photo: trekker308/Flickr.

"Good Reason" in Sheryl Sandberg's Employment Agreement with Facebook

I've taken a very brief spin of Facebook COO Sheryl Sandberg's employment agreement, now on file with the SEC as part of Facebook's S-1 registration statement.

Others are reporting and analyzing the financial stake that Sandberg and other employees have in the company. I was looking for more pedestrian, mechanical provisions that would "stand out" by not being where expected, or variations on boilerplate that might be innovative.

One tension growing companies often have to resolve, in employment agreements with key executives that merit and/or demand written contracts, is how to permit the company the flexibility it needs to change roles and reporting structures, while giving the executive assurances as to her authority that she will request.

Sandberg's contract is not especially innovative on the flexibility/authority tension, but it does express the considerations in equipoise, in an elegant way:

"You understand and agree that the Company is a rapidly growing and changing organization and the precise nature of the work you do for the Company as COO may be adjusted from time to time but, in any event, your duties and responsibilities always will be at least commensurate with those duties and responsibilities normally associated with and appropriate for someone in the position of COO."

Notice also that the word "authority" is not used. Instead, the scope of Sandberg's job is expressed in terms of "duties and responsibilities." There's an implicit authority in there somewhere, no question; but the Company-leaning emphasis (what Sandberg owes Facebook, as its COO) is smart.

This assurance to Sandberg has teeth by virtue of a "good reason" provision in her contract. As you probably know, "good reason" is typically a defined term in exec employment agreements, setting out those circumstances under which the employee can go ahead and quit, without sacrificing her entitlement to severance, acceleration, or other benefits that should follow in the event that the company terminates her employment without cause. (Here's a post from last year that speaks to "good reason" definitions in general.)

Here are the "good reason" factors in Sandberg's agreement (provisos and conditions omitted for the sake of conceptual clarity):

"(A) a material diminution in your base salary; (B) a material change in geographic location at which you must perform services (a change in location of your office will be considered material only if it increases your current one-way commute by more than fifty (50) miles); (C) any material failure of the successors to the Company after a Change of Control to perform or cause the Company to perform the obligations of the Company under this Agreement; (D) any action or inaction of the Company that constitutes a material breach of the terms of this Agreement; or (E) any other material adverse change in your duties, authorities or responsibilities as specified in Section l(a), above . . ."

Notice that in the verbiage above, the word "authority" is finally countenanced.

Minor point, but the Sandberg contract does not actually use the term "good reason." Instead, the list above is part of the defined term, "Involuntary Termination."

More interesting point: Sandberg's contract appears to be one of only two of the five exec employment agreements/letters filed that has a good reason clause. The other is the company's employment agreement with Theodore Ullyot, its general counsel. The other three, including Mark Zuckerberg, have shorter form "employment letters" that are far more streamlined.

The exec agreements were filed Wednesday as an amendment to Facebook's S-1 filing of last week. Other amendments will follow as Facebook receives and responds to comments from SEC staff on disclosure and accounting issues. This initial amendment, however, was solely for the purpose of filing exhibits, including the Sandberg and other exec agreements.

Photo: Sarah Page/Flickr.

Revisiting Path

The controversy around Path that erupted this week - after Arun Thampi blogged that the social media service appeared to be uploading address books from users' iphones - made me want to revisit the current version.

I was really drawn to the app a year+ ago when I first learned about it. I weathered the introduction of a significant iteration or two of the interface since. But lately my use of Path has fallen off.

I think the controls got too cluttered for me. (To be fair, it could also be that I did not get a critical mass of friends interested in joining, undermining motivation to keep up with the changing interface.)

As I play with it while I'm writing this post, I have to admit that the new UI is not all that difficult to understand. Though I am not interested in the music dial, which seems to shepherd me to iTunes to shop. And I don't get why there should be a separate function and drop-down to tell people whether I am awake or asleep.

But the timeline of pictures - both my own history, or "path" (glad that originating narrative is not entirely effaced); and the stream including friends' posts - still looks awesome, and I'm glad the order isn't rearranged to suit advertising.

What would be so wrong with letting users fork off to keep using earlier versions of the app for as long as it suited them? Or switching at will between versions?

But it's all an adventure. Path, Trover, connect.me, let 'em keep coming. The one who breaks the cycle of surrendering to ads on the way to sustainability will eclipse Facebook.

Pictured: WTF?

The 9th Circuit's Gay Marriage Decision

Huge civil rights decision yesterday by the US Ninth Circuit Court of Appeals.

I didn't have time last night to read the 128 page opinion.

Instead, I've supplemented what I hear on branded media with a succinct, six paragraph summary of the decision printed on the stationary of the Clerk of Court, Molly Dwyer. The summary was "prepared by court staff for the convenience of the reader," reads a disclaimer at the top. (It certainly is not part of the judicial opinion.)

The first three paragraphs explain the scope of the decision in Perry v. Brown - and help one better appreciate that the decision may not stand for as broad an affirmation of marriage equality as one might first suppose:

"The panel majority affirmed the judgment of the district court and held that Proposition 8, which amended the California Constitution to eliminate the previously guaranteed right of same-sex couples to marry, violated the Fourteenth Amendment of the United States Constitution.

"The panel majority held that by using their initiative power to target a minority group and withdraw a right that it possessed, without a legitimate reason for doing so, the People of California violated the Equal Protection Clause. The panel majority held that in this particular case it did not need to decide whether under the United States Constitution same-sex couples may ever be denied the right to marry because under California’s statutory law pertaining to 'domestic partnerships' same-sex couples had all the rights of opposite-sex couples, regardless of their marital status.  Proposition 8’s only effect was to take away that important and legally significant designation of 'marriage,' previously recognized by the California Supreme Court, while leaving in place all of its incidents.

"The panel majority determined that in taking away the designation of 'marriage,' while leaving in place all the substantive rights and responsibilities of same-sex partners, Proposition 8 could not have reasonably been enacted to promote childrearing by biological parents, to encourage responsible procreation, to proceed with caution in social change, to protect religious liberty, or to control the education of schoolchildren. The panel majority concluded that Proposition 8 served no purpose, and had no effect, other than to lessen the status and human dignity of gays and lesbians in California, and to officially reclassify their relationship and families as inferior to those of opposite-sex couples.  The panel majority determined that it need not and did not consider whether same-sex couples have a fundamental right to marry, or whether states that fail to afford the right to marry to gays and lesbians must do so."

In essence, the summary says, the Court found that the federal Constitution prohibited the people of California from amending the California Constitution to take away prior rights, when the only purpose for doing so was to humiliate gay and lesbian couples.

By the way, have a look at the site run by the Ninth Circuit (screenshot below). The ease of access to primary materials - including dozens of briefs on this case - is remarkable.

Update 9:04 AM Pacific: Thank goodness Lyle Denniston of the SCOTUSblog is analyzing this. Here's a paragraph from his post yesterday on the decision that ties the narrowness of the ruling with the possible strategic thinking for crafting it that way:

"By fashioning what it considered to be a narrow ruling, the Circuit Court went some distance toward insulating its ruling from being overturned either by the en banc Circuit Court or by the Supreme Court. However, because it assures a renewed right to marry in the nation’s most populous state, the ruling will be viewed at all levels of the court system as at least a partial assurance of equality to join in a revered social institution — one that many conservative observers believe to be under major stresses of modern life."