Angel Investing Rule No1: Communicate First, Broadcast Last – Lessons From Seesmic, Omnidrive

Earlier in the month I wrote a post about the Omnidrive situation in which an angel investor in the company, Clay Cook very publicly denounced the company’s founder Nik Cubrilovic. I’ve since spoken with Nik and heard his side of the story and also delved more deeply. There are definitely two sides to every story and this case is no exception.

As a brief aside, there is an interesting bacskstory at play. In addition to being a founder of Omnidrive, Nik was at the time writing for TechCrunch. This made him a magnet for people wanting to be “in” with the Atherton Web 2.0 camp, as personified by TechCrunch HQ – Michael Arrington’s place in the Silicon Valley suburb.

Sometime after Clay had invested in Omnidrive he moved with his family from Perth to Atherton. They quickly became a part of the scene, Clay bought himself a Hummer and they began to hit the Valley circuit of launches, parties and conferences. He made a follow on investment into Omnidrive, but soon after this things seemed to go pear-shaped.

He was unable to secure a visa to remain in the US and ended up back in Perth a few months later. During this time there was a breakdown of communication between Nik and Clay. In addition Nik fell completely off the TechCrunch radar. He stopped writing for them and Michael Arrington has not mentioned Omnidrive or Nik since then. Michael recently lauded Duncan Riley when he left the TechCrunch stable, and he pointed out that all his former staffers remain TechCrunch friends – Nik’s name was not included on this list.

It would seem that personal and business frustrations reached a boiling point and Clay made his public denouncement. At the time he was still a shareholder of the company.

This gives rise to certain legal and ethical obligations. While the strict black letter set of rights and obligations are crystallized in a company’s Shareholder Agreement, it can be argued that even if that document is silent on the matter there are two duties that emanate from the angel investor relationship.

The first is a synchronous duty of disclosure or communication. As an executive of a company, the CEO has a duty to maintain a regular channel of communication with shareholders. In my view this goes beyond providing regular reporting on the status of the business. Angel investing is largely personal and the communication should match that relationship. This duty also rests on the investor and it is not prudent to close that channel.

The second duty is a duty of care that the investor has, as a shareholder in the business, to not harm the company through their actions. Where that investor has a public channel of communication open to them, this duty suggests that channel should not be used to air grievances between the company, its executives and the investor.

As I said initially, I’m not taking sides in the Omnidrive situation, but looked at as a case study, it is clear that we can derive a key rule for angel investing: Communicate First, Broadcast Last.

This rule is directed at both the investors and investees in an angel transaction – both parties should communicate as much as possible and try not to broadcast their grievances.

Let’s now turn to a more recent case study that again illustrates this rule: Seesmic.

In February Seesmic’s CEO, Loic Le Meur, (seen here outside TechCrunch HQ) announced the company had raised a $6 million investment. The funding came from Atomico, Niklas Zennstrom and Janus Friis’s private investment vehicle, as well as from a line-up of angel investors that included Steve Case, Ron Conway, Reid Hoffman, Michael Parekh and a few others including two people who have been involved with Omnidrive – Jeff Clavier and Michael Arrington.

I spoke with Loic recently and in our conversation we discussed how he was building Seesmic and also explored the nature of the relationship he had formulated with his investors. From this conversation I had the distinct feeling that he got this rule: Communicate First, Broadcast Last.

Loic told me that he is “building Seesmic a lot in the open”. He found his investors through networking around: “if Reid Hoffman invests then you have two more entrepreneurs who want to invest.”

And similarly he made it clear that he talks to his fourteen investors on a daily basis. “There is not a single day when I don’t talk to one of them.”

So it came as a big surprise when I read Michael Arrington’s TechCrunch post: Don’t Screw Your Partners Over A Marketing Promotion. Michael is a minority shareholder in Seesmic and yet here he was very publicly taking Seesmic to task over a lack of communication.

Again, I don’t want to take sides – I also have Seesmic’s video enabled in the comments on this blog, but it seems that the first part of the rule was not followed by either Loic or Michael – communicate first. Loic should have let all those parties who have the Seesmic plugin know that there was going to be a series of outages, but he should have told his investors about this as a priority.

At the same time, Michael would have been better off taking Loic to task privately and working collectively to ensure that the public issues management aspect was handled more appropriately. He clearly did not adhere to the second part of the rule: Broadcast Last.

In closing, I call on all parties involved in building early stage ventures to communicate more, no matter how busy you may get and when emotions run high try to exercise restraint, especially when you feel compelled to hit the broadcast button.

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6 thoughts on “Angel Investing Rule No1: Communicate First, Broadcast Last – Lessons From Seesmic, Omnidrive

  1. Great post and a memorable rule. The startup CEO-angel investor relationship will always be fraught if for no other reason than the stakes involved. Both parties have their money/IP in play, but more importantly, both have their reputation at stake and this is still a small industry.

    I don’t know Nik, Clay, Loic or Mike other than as namebadges at the same welcome desk, but the best outcome of an end-game scenario is to hurt the other guy as much as you’ve been hurt. Nobody walks away reputation intact, even those who may deserve to.

  2. Rand,

    It’s pretty obvious that you have done little research into the Omnidrive situation other than talking to Nik. Not that I have much energy or enthusiasm to discuss it much more anyway.

    I assumed you are a friend of Nik’s and this is aimed to discredit me, not a very good attempt, but an attempt never the less, so be it.

    I love your suggestions that we flew into San Fran to get in on the in croud. Having founded our first internet start-up over 12 years ago we have always watched the valley and contemplated moving there at some stage. The opportunity came in early 2007 as we figured our child at the time was 2 and we were starting to get more mobile due to this fact.

    We first of all based ourselves in Menlo Park for a few months, and then moved out of the temporary accomodation to Atherton as originally planned. We figured that Atherton was the nicest suburb in the valley and most relaxed, it also happened to be where our close friends from Sydney had settled themselves, not that Nik would be aware of this. Yes it is true that TechCrunch is also based in Atherton, and this is where Nik was staying.

    While we were there we dipped our toe into the techcrunch seen and have to admit it didn’t suit our style. We also purchased a couple cars and yes one was a Hummer. Lots of fun, cheap in the US, but certainly not very environmentally friendly. Should I mention what the other car was so this can also be judged? Also what about the cars we have now had to buy upon settling back in Perth?

    Now, why did we quickly pick up and head back to Perth? Surely that has to be due to some dodgy reason? The fact of the matter is that we left san fran for perth primarily due to due the impending birth of our second child, and the fact that we concluded perth was far more family friendly and family focused.

    By the way, if you are interested, the Visa was also eventually approved.

    Not sure what this all has to do with a CEO being transparent to his investors, but anywho… I am going back to enjoy my weekend…

    If you want to buy the Hummer, drop me a line. Otherwise don’t bother.


  3. Clay,

    Thanks for the response. I have made it abundantly clear that I have not taken sides. My intention in mentioning your Silicon Valley activities was to connect the dots and provide the backstory narrative. All of this information is publicly available courtesy of your public Twitter feed.

  4. Its funny how when Omnidrive is mentioned in a more common-sense normal post, it must be one of my friends, but every negative post basically originates from the same 2 people.

  5. I am trying to contact Nik Cubrilovic. This is regarding the website for Harrison’s Heart Foundation and we seem to have incorrect email address. Nik Can you please email us.
    Thank you.

  6. The new bubble won’t be veurtne-backed or real estate-driven, but instead a bubble of false perceptions may rise. And this time it won’t come from marketing machines but instead the social web itself. Could the anti-PR machine become its own worst nightmare creating celebrities and brands without substance?

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