Joi Ito's Web

Joi Ito's conversation with the living web.

A few people have questioned my assertion that no-shop agreements make sense. I'd like to clarify my position. I do agree that in some cases, they don't make sense, but here's where they make sense.

Basically, my point is that if you decide that you like each other and REALLY want to work together but that it will take a lot of work before the actual transaction happens, a no-shop allows both parties to focus on building the business. It's like an agreement that after two people are engaged, you both don't date anymore. Obviously, if you're not sure you have the right partner, you shouldn't sign a no-shop. As a VC, if we have a no-shop we feel much more comfortable putting a lot of work on helping the formation of the business plan, introducing the company to partners, other investors, advisors, possible employees, paying for their legal fees, etc.

Another situation where I have found no-shops to make sense are in cases where you can just SEE how an auction could end up taking A LONG TIME. I am not at liberty to disclose the actual transaction, but I once had a buyer for a company where I had a no-shop. The investment banker broke my no-shop and shopped the company around after I made my offer. I didn't want to deal with the auction so I dropped out. The auction took months and they ended up getting LESS money for the company because they didn't find a better buyer and I didn't want the company any more because the value of the company degraded during the process because everyone was spending all of their time "being shopped around."

I've also signed a no-shop as an entrepreneur. I was talking to a variety of VC's. They were all pitching me on why I should work with them. I ended up choosing one VC, signed a no-shop and we were able to close and fund in 1 month. Without the no-shop I think it would have taken much longer.

I think that in the "clubby" Silicon Valley VC community where everyone's friendly with everyone else, maybe no-shops are not very common. Also, where you are quite confident about your business and don't need much help, just money, maybe shopping it around and raising money from the highest bidder makes sense.

A no-shop doesn't mean that other investors can't come in. It just means that other investors should talk to the lead investor. It just means you stop taking cold-calls from random investors who hear that a deal is happening. It also means that you don't go looking for another investor for the sake of negotiation.

A no shop is sometimes called an exploding term sheet. It means that the company must either accept the deal on the spot or it won't get funded at all. The theory is, we don't want you going around to other VCs trying to get a better deal. It's common among the second-tier VCs, but the best VCs are usually willing to stand on their own merits.
Our no-shops are not about forcing people to take the deal on the spot. It's so that we can invest a lot of time adding value before we finalize the deal. I guess the best VC's say, "Come back when you have a real business. Don't look to us for help." ;-) (Half kidding here. Many top tier VC's have Entrepreneur in Residence systems and other ways to help entrpreneurs before they invest, but you definitely have to be in the club before they'll lift a finger for you.)

Andrew over at VentureBlog also disagrees with my position on no-shops.

Sounds like a party wants to happen in DC on July 7th. A bunch of us will be there for Supernova. I have set up a wiki page to plan the party. Looking for suggestions for places and volunteers to help organize it. Please post on the wiki.

Update: There is a conflict with another dinner. Moved it to the 7th.

Larry's been pushing this idea for awhile now, but it's coming to a head. It's VERY important. You folks better get this passed in the US so we can push it in Japan. Please please please. It's a great idea and is so simple to argue for that we MUST all support it.

reclaiming the public domain

Lawrence Lessig
We have launched a petition to build support for the Public Domain Enhancement Act. That act would require American copyright holders to pay $1 fifty years after a work was published. If they pay the $1, the copyright continues. If they don’t, the work passes into the public domain. Historical estimates would suggest 98% of works would pass into the pubilc domain after 50 years. The Act would do a great deal to reclaim a public domain.

This proposal has received a great deal of support. It is now facing some important lobbyists’ opposition. We need a public way to begin to demonstrate who the lobbyists don’t speak for. This is the first step.

If you are an ally in at least this cause, please sign the petition. Please blog it, please email it, please spam it, please buy billboards about it — please do whatever you can. And most importantly, please help us explain its importance. There is a chance to do something significant here. But it will take a clearer, simpler voice than mine.

So I created a wiki page for my irc channel. Now there is a guestbook for regulars and a section for limericks by Kevin Marks. Wikis work well with irc since irc is so transient and wikis can capture "those moments". ;-)

So I just moved (actually Yusuf moved) my address book to an LDAP server. I thought it would be really cool until I realized that Address Book for the Mac SAYS it does LDAP, and it sort of does, but it doesn't do authentication. Blah. PLEASE PLEASE make address book smarter if you're going to make it the centerpiece of PIM on the Mac. Right now it's slow, doesn't LDAP properly and because Mail accesses it every time I send email, it makes me wait after every single email I send while I wait for address book to update.

I'm almost inclined to go use Entourage if Apple doesn't fix this.