Starium (was Re: article: german secure phone)

Bram Cohen bram at
Wed Jun 6 06:16:45 EDT 2001

On Wed, 6 Jun 2001, Declan McCullagh wrote:

> As for the company, they closed Series A round at $2.1 million in
> 6/99 and are currently looking for investors for a $3m Series B round
> hoping to close 7/01. As of May 30, they had $1.5m of that amount.

For those of you who don't know how this game is played, that doesn't mean
they've been handed $1.5m, it means that a bunch of people have said 'If
you get someone to be 'lead investor', I'll put in x' and if you add up
all the x's you get $1.5m. Most investors don't feel confident to due
diligence properly, and don't want to expend the cost if they do (and VC's
don't generally like taking on responsibility) so they go into these
conditional deals in which someone else has to take real responsibility
for claiming the company is a good investment.

There are almost never any actual signed commitments from people to follow
a 'lead investor', and you inevitably lose a bunch even if you get
one. And the chances of getting a lead investor in the current market are
pretty slim. Generally what happens in this situation is the company
starts getting 'bridge money' for a month or two at a time for a very
inflated amount of equity and highly favorable terms, diluting the company
and reducing the chances of further investment quite a bit in the process,
until eventually it goes belly-up, after which it sold for parts. In this
case that will probably be some patents which will be purchased by a
lawsuit machine who will sit on them until such time as someone else
actually makes a real product, and them sue them, hampering and possibly
destroying the product in the process.

> They appear to be aiming for the complete corporate privacy solution
> (my phrase, not theirs)

Too bad the market doesn't care about perfect products. The market just
wants things which improve on what they currently have.

> and are filing for patents on p2p conferencing and voicemail.


-Bram Cohen

"Markets can remain irrational longer than you can remain solvent"
                                        -- John Maynard Keynes

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