Stake Ventures

The Debian world seems to be on a rant on why the RubyGem’s are bad and why we should all be using aptget instead.

For rants see: Wouter – Rails? Stay the f* away from my system, Gunnar Wolf – Ruby has a distribution problem as well as the official Debian take on RubyGems.

However, the Debian/Ruby Extras team fear that Rubygems will make it much more difficult to package and distribute Ruby software in Debian (similar concerns have been raised by other individuals and GNU/Linux distributions)

Updated: Just discovered that Gunnar actually wrote this really good post It’s just a different mindset. Not necessarily a sane one, though, which I think is a way better explanation of his concerns. I still don’t see why Gems is “the most obnoxious of them all”. Gem’s can and should improve. But at its current state I actually do like it.

I always wondered why their rubygem package was intentionally broken. But never took the time to worry too much about it, when it’s easy to uninstall it and install it from source.

RubyGems like CPAN are about being OS agnostic when writing and deploying our apps. At the application level, I really do not care nor want to care about what server os I’m running.

I develop on Mac and deploy to Ubuntu, Gentoo, Redhat and OpenBSD. Using aptget, rpm, portage and pkgadd is fine for initial server setup and on going maintenance, but for day to day deployment of applications nothing but a PITA.

Different worlds, different points of view

The fact is that we are talking about 2 completely different worlds here. The whole thing is something very much akin to the old Men are are from Mars, Women are from Venus meme from a few years back.

For me my focus is the application. Most Ruby developers write applications for a living. For sysadmins their focus is on keeping servers running. Most Debian maintainers probably come from that world. Regardless if my assumption is right or wrong on that, their focus is definitely on Debian and not on Ruby.

So you now have the situation where an American is laughing at the stupid Limies calling a cigarette a “fag” and an Brit laughing at the stupid yanks calling a bum a fanny.

Get over it. We come from different worlds and have to live together. If your job is maintaining a bunch of sysadmin type services such as mail, dns etc you know what you need to do your job. Application developers also know what we need to do our job. It might even be that these things are different.

However if your job as a sysadmin is to support several web applications server, then I’m afraid when it comes to the applications you are no longer king. You need to support the developers and not hinder them.

But as Gunnar says:

By using Ruby Gems, you dramatically increase entropy and harm your systems’ security.

This is what we politely call FUD in the tech industry.

On the server it is the sysadmin’s job to understand the benefits of postfix vs. sendmail. tinydns vs bind etc. It’s the DBA’s job to decide on when MySQL 5.1 feels stable enough to use in production.

It is our job as application developers to understand the finer points between RedCloth 3 and 4.1. RubyGems allows us to test our applications with specific dependencies and make sure that this is exactly how they are deployed.

This enables us to have the confidence to deploy without having to do full regression testing when moving from a Gentoo to a Ubuntu server. Or to deploy minor updates from our Mac’s onto a server.

After having spent years of managing servers manually, the simplicity and beauty of deploying with capistrano is amazing. Besides initial server setup (which I can soon wave goodbye to thanks to PoolParty) I want to focus on the application.

RubyGem’s give me the freedom to develop on a Mac/PC and deploy onto just about anything. I deploy onto Ubuntu, OpenBSD, Redhat and Gentoo.

aptget is fantastic at what it does, installing base software on my server. Maintaining my application dependencies is just not its job. The Debian community is right to be conservative. However the ruby world works at tremendous speed, change is part of our core DNA.

I don’t want to necessarily be installing a new MySQL or GCC version on a daily basis, but I am willing to use the often daily updates of ruby gems. As I have the tests that prove they work and fantastic transparency about what was changed via GitHub

The Debian maintainers should stop breaking software out of some misguided principal. For gods sake Debian is an Open Source OS not North Korea. You broke your RubyGem package, now fix it.

There must be some way of creating virtual packages that just install the gem. This method could be reusable for Perl’s CPAN packages and any other application level packaging system.

Update: Violent platform wars going on over this post on Hacker News

Due to the SEC’s closing of Prosper I do think that it is time to address the SEC rules, which were created by FDR during the New Deal. It was a very different world then. Not that I think they did a lot of good at that time either.

We need the ability to innovate, even in the world of securities and investments. We need to lower the barriers to entry as the larger players who can cross them do not have real incentive to innovate.

The cost of creating a startup is lower now than ever. Often the cost of following existing security regulation is more than the amount sought.

Personal loans on an exchange are even less likely to ever pass existing securities law unless you happen to be David Bowie.

Here are my 3 basic ideas for innovation in securities and investments.

1. Warning labels

I know, I know. I hate warning labels as well. But I’d rather have warning labels and allow anyone to invest than the obnoxious innovation killing rule about Accredited Investors.

2. Special registration rules for micro securities

A $1000 loan should not have to follow the same rules as a $500,000 angel funding round. Why not just require them to be offered through a regulated exchange service instead. I think special rules should be in place for sub $100k securities. I’d be willing to accept sub $25k if it would allow it to be passed.

While I don’t think any kind of registration with the SEC really is needed, I could be persuaded to accept the idea of a very simple free REST based web service for registration of the security with the SEC.

Think tax id, amount, offer date, description and a url to more information on the exchanges web site. The SEC could publicize this information and allow queries of the data. Of course I really think this service should be offered to be run by a private industry organization and not the SEC or we would likely have to wait for 5-10 years for it to be implemented.

3. Regulate the exchanges and not the securities

While I personally don’t think we need any form of regulation. The realities of the day are not really about less regulation. An innovative approach would be for the SEC or congress to regulate a new form of exchange. This exchange would be regulated and have to follow certain rules, but would allow smaller micro securities to be exchanged.

I was working on a project with a couple of really smart people nearly 8 years ago for creating an equities market for micro financing in the 3rd world. The project never came out of prototype stage, but one idea that fascinated me was to tax and regulate the exchange rather than the startups offered within. This would allow developing world governments to achieve revenue and regulation, while keeping a low enough barrier of entry that even very small micro businesses (like these ones in Panama ) could utilize the exchange.

This was our solution to the problems that Hernando de Soto) the brilliant Peruvian economist believes for the basis for most of the economic troubles in the developing world. I have written before in A global virtual shanty town about how similar issues stop innovation and growth even outside the developing world. The SEC/Prosper debacle is evidence of as much.

Prosper were just sent a cease and decist by the SEC for offering investments without registration. Prosper is/was one of a small handful of P2P lending markets offering an innovative approach to lending, allowing normal people to lend money to each other.

Not that I am a lawyer, but from reading the ruling, it appears that for Prosper to be allowed they would need to register each and every loan with the SEC as well as every investor would need to be an Accredited Investor. Either of these 2 would be impossible to do for them or anyone else trying to offer a similar service.

Using existing rules, I think the SEC were following clear rules. That does not stop them from being evil of course. Personally I can’t see either how the constitution even permits them to shut down Prosper without a trial. They are somehow allowed to both make the rules, execute them and judge them.

Reves ruling

The SEC metions the Reves ruling and lists the following rules from it:

(i) the motivations of the buyer and seller; (ii) the plan of distribution; (iii) the reasonable expectations of the investing public; and (iv) the existence of an alternate regulatory regime.

They argue that (i) is breached as:

… Prosper lenders are motivated by the desire to obtain a better return on their money than they otherwise could in another venue. While some Prosper lenders may be motivated, in part, by altruism, altruistic and profit motives are not mutually exclusive.

Oh, horror that someone would like better returns than in the bank.

(ii) is breached because as they say:

With respect to the plan of distribution, the Prosper notes are offered and sold on the internet to the public at large. There is no special level of financial sophistication or expertise that Prosper lenders must have.

Those are the rules, I know but just look at the current financial mess and read anything by Nassim Taleb to see what happens when “sophisticated” investors are let loose.

(iii) is breached because:

bla. bla. bla. … Prosper lenders reasonably expect a valuable return on loaned funds and would reasonably believe that the Prosper loans are investments.

Again they are right according to the rules. Obviously lenders believed they were making an investment.

(iv) is breached because there is no alternative regulatory scheme:

Finally, with regard to whether an alternate regulatory scheme exists to reduce risk to potential investors, there are currently no appropriate regulatory safeguards for Prosper lenders, such as those against misleading statements by a borrower about the purpose of a loan, the borrower’s employment and income, or even the borrower’s identity, or against misleading statements by Prosper.

This is where I believe they are wrong. Granted there is office anywhere in Washington DC called the “Person 2 Person Lending Exchange Regulatory Commision”. However in the US we do have these 3 great regulatory schemes called the free press, contract law and the judicial system.

Prospers.org and apparently a whole host of blogs are busy auditing and criticizing Prosper all the time. There is plenty of information available to anyone, which should make you think twice about investing in Prosper if they are risk averse.

E-Gold were under similar constant crowd sourced regulation via their mailing lists and online tools. Read more about E-Gold’s innovations.

While Prosper may claim they weren’t a bank or under the SEC, they were always under contract law (Both Common Law and UCC). The same can be said for their borrowers and lenders. They have apparently been pursuing law suits in the courts for some time. I have no idea if they have done enough here, but then it is the job of a crafty lawyer to come up with a class action lawsuit to keep them on the right path.

Innovation is needed, new rules are needed. The SEC followed their rules and protected the existing financial industry who have done such a bang up job in recent years protecting our wealth.

Updated: Just posted 3 ideas for innovating securities law where I talk about how the SEC could allow innovation.

Updated: Thanks to David for pointing out that they aren’t actually closed, but just not able to post new loans until they get registered

I am glad to hear that Douglas Jackson and associates manage to avoid jail and get probation, community service and a fine instead.

I still think it’s extremely unfair that a service as innovative as e-gold were punished like this. Apparently so does the US District Judge Rosemary Collyer:

According to cnet:

U.S. District Judge Rosemary Collyer said the men deserved lenient sentences because they did not intend to engage in illegal activity. Even though, Collyer said, the U.S. Justice Department wanted to use the cases to show “this new day of Internet crime is going to be…vigorously prosecuted,” that alone was not enough reason to incarcerate the defendants.

While the courts don’t always do the right thing in this country, I am glad to see that they still serve their function as a safety valve against over zealous government.

Look at the situation the financial system is in right now. It is based on ancient technology and an ancient operating system. The government is throwing trillions of dollars against an unsound system and sending the Patriot Act against innovators.

E-Gold were one of the players, who truly attempted innovation in the financial space. Douglas Jackson’s genius and insight in his quest for sound money is seen in that even after all of this has happened to them, they core value of e-gold still hasn’t changed much.

For more read this article I wrote earlier e-gold innovated and were finally brought down. Also read the DGC Magazine interview with Douglass Jackson here.

Goodbye Fax, Goodbye Fedex, Goodbye Mont Blanc pens… Hello Agree2.

What started as a proof of concept prototype in creating agreements roughly 2 years ago is now officially launched. We have been in beta for a long time, but now we feel the time is right to lift the beta tag and introduce our commercial plans.

But first let me explain what Agree2 is all about. Plain and simple we are all about helping you reach agreement.

See the Agree2 launch Post for more information or go straight to Agree2 to sign up.

AmLaw Daily has a great interview with Richard Susskind about his new book The End of Lawyers?: Rethinking the Nature of Legal Services. It is essentially about the fundamental changes that are coming in the business models of lawyers due to changes in technology in general and the economy as a whole.

The book points to a future in which conventional legal advisers will be much less prominent in society than today and, in some walks of life, will indeed have no visibility at all. This, I believe, is where we will be taken by two forces: by a market pull towards commoditization and by pervasive development and uptake of information technology. At the same time, I identify a whole new set of jobs for lawyers who are prepared to spread their wings.

The fact of the matter is that almost everything that is not highly specialized has come down in price due to technology and commoditization. Richard argues that lawyers have fought against this for too long and need to start changing the way they do business or they will loose for good.

The cost for entrepreneurs of almost all repetitive non specialized things is trending towards zero. We all know that having our own server farm is now pretty much a silly thing to do, unless you are in the server farm business.

Ruby on Rails and Agile methodologies also introduced us to the innovative concept that our smartest most creative people shouldn’t spend 90% of their time on boring repetitive things like configuration and requirements documents.

Why should we still pay top dollars to lawyers for them to fill out word templates or advice us on simple things that google could solve just as easy for us? Why use a law firm to pay a premium on incorporation when 100s of companies who do this well are competing for your business via Google Ads?

Fear, Uncertainty and Doubt

The simple fact is that we pay big bucks to lawyers for silly tasks because of the centuries old campaign of FUD spread by the law industry about people doing things for themselves.

Like Interior Designers lawyers have essentially managed to run an outdated protection racket in the US. Each state has a private association known as a Bar Association which has a state granted monopoly on deciding who can practice law and also pretty much in deciding what “practice of law” means.

Nolo Press and Agree2 are forced by these rules to put silly disclaimers like this on our sites and books:

These also try as much as they possibly can to retain the lawyers monopoly on filling out word templates.

Legalese is another weapon for creating FUD in entrepreneurs. If you look at a contract and can’t understand it, the theory goes you should call a lawyer and have him revise it. Most don’t and hope everything is fine.

Law scholar Adam Freedman who wrote the brilliant Party of the First Part argues that legalese as a concept was pretty much invented and has been preserved by the law profession as a method of job protection over 500 ago.

The current argument I most hear from people who should know better is that each silly little piece of legalese is there because it has a specific legal meaning within the court.

I call total BS on this. If engineers believed in this we would still be riding our cotton to market on a horse drawn carriage. Judges are people. The vast majority of them very intelligent and perfectly able to understand plain English. If some new precedents have to be created so be it.

I know many programmers who live by these same principles. Talking technical BS where it isn’t necessary and overcomplicating architectures and code to preserve their jobs. It’s BS when we do it, it is BS when lawyers do it.

The good news is that the programmers who broke with this BS of the secret brotherhood of programmers now have more work than they can handle and bill at much higher rates, due to previously unheard levels of trust between the client and the programmer. I’m certain the same will be true for the lawyers who break the ranks of secret hand shakes, double talk and word templates.

the lawyers who break with tradition and build new traditions will probably end up with more work than they can handle. The ones who don’t will loose out to Agile US Lawyers, Online services and offshoreing, just like what happened in the US IT industry.

We need more simple on-line legal services

In the comments to the above interview Patrick McKenna says:

Online subscription services typically require a significant initial investment in non-billable time to establish and then take about three years to break-even. Those on-line services that were launched by many UK law firms five or more years ago are proving to be extremely profitable today. Meanwhile, too many US firms are obsessively intent on short-term billable hour requirements to consider making longer-term investments of this nature.

Just imagine the cool and profitable services a smart innovative (Agile) lawyer could come up with working with one or two good programmers.

Online company registration systems are a great example. They can and should be a lot more innovative. In the UK there are several law firms and Accountancies that offer legal/accounting services as complete package deals. Almost all US services are stuck in the Web 1.0/AOL era.

A corporate structure can easily be standardized with an online service to handle meetings, share registers and all standard form documents people use now. Innovate and make a lot more than you would billing people for dum repetitive work. Then focus on being their on standby for more traditional creative work for your now much larger client roster.

Shameless self promotion alert: We at Agree2 are trying to create a system for both lawyers and non-lawyers to manage agreements and legal templates. Our API would allow you to easily create and manage such services. If you have any ideas or would like to talk to us about it please email me personally at pelle@stakeventures.com.

Be the next Lawrence Lessig

The GPL revolutionized software. Several years later Lawrence Lessig helped revolutionize the world of publishing with the Creative Commons License.

There are lots of other things that need revolutionizing. I’m in the Legal Committee of the Open Web Foundation where we are trying to create an open standard IPR license to allow employees of companies to be able to work on web specs without fear of IP attacks. This is important work, but there are lot more interesting things that should be commoditized.

Imagine when talking to prospective employees or investors that you could say we are incorporated under the CCA (Common Corporate Agreement). This imaginary package would be a standard Articles of Incorporation, Memoranda of Incorporation etc. It would be written in as plain English as possible and be sufficiently good to protect both founders and investors. The idea is like the GPL it is a common non negotiated concept that everyone understands.

Y Combinator have graciously published their package of Series AA Equity Financing Documents which offers some of this. Y Combinator have managed to standardize a lot of these things as part of their own business model, which is great. However they are not a well analyzed immutable generic object like the GPL. For more on these documents checkout The Startup Lawyers Analysis.

This is where someone like Lawrence Lessig comes in. A sharp charismatic lawyer who is willing to take on the existing traditions. We the entrepreneurs are willing to follow you. If you are such a lawyer read Seth Godin’s Tribes which should provide great inspiration.

Are you a MySQL or Postgresql scalability expert? Here’s an idea for you. Create and manage a MySQL and/or Postgresql cluster on SliceHost and one on Amazon’s Ec2 cloud. The customers would be people hosting their services in these clouds.

Your job would be to manage scaling, security, monitoring, backups and all of those things. We your customers would sign up and you would give us our connection details, provide monitoring services and links to backups on s3. As a matter of fact the gui would probably benefit if it was as nice and simple as the SliceHost gui.

EngineYard already does something similar as part of their hosting plan. More than the individual slices I feel this is their real value add.

The business model? You could either do tiered plans ala slicehost. Hook it up with Amazon’s Flexible Payment System and you could offer nice metered plans ala EC2.

Future services? How about remote mirroring between slicehost and ec2? Your customers could switch at will.

A simple version of this could be launched into beta by a single dba and a half decent rails programmer. If you’re both, what are you waiting for?

Starting costs? The cost of two slices at slicehost or two on EC2. You could make serious money doing this quickly. You would probably only need 10 or so paying customers to break even. This you could almost certainly get within a month. This is good steady monthly cashflow I’m telling ya.

Customers? Well me for one. I know it’s not that hard to setup MySQL clusters. I’d just rather not have to. I’d happily pay $10-20 for a low volume plan and considerably more for high volume. I’d be perfectly happy with a metered plan as well. With that I wouldn’t hesitate in moving all my rails projects onto it.

Go on do it, and let me know when I can sign up.

Update: See the comments below ScatterHost is being launched offering exactly this service for MySQL on EC2. Great news.

There have been two related blog posts in the last couple of days :The Cure to Our Economic Problems by Mark Cuban and Amen Brother Cuban by Matt Maroon that I can absolutely sympathise with. True entrepreneurs are so focused on their idea that they will find a way.

Mark says:

The impact of tax rates on productivity and development is something economists masterbate about, enterpreneurs don’t waste their time thinking about it. We have business to do.

Matt replies:

Exactly. When I started my first company I’d never even heard of capital gains taxes, and had no clue what I’d be paying even at the personal rate. All I knew was that I had an idea for a web site that I thought would be pretty successful (and it was) and I wanted the corporate veil for protection.

The current tax rates in the US aren’t so bad that they necessarily stop entrepreneurs. In particular entrepreneurs who aren’t focused yet on profits or business models are not particular worried. However before we start voting in more taxes, please listen to this cautionary example of Denmark.

It is possible to kill entrepreneurship through taxes. In my country Denmark taxes are pretty much double than what they are here in the US. When it reaches those levels it plays mind tricks on even the most devout entrepreneur. It colors your strategy and makes you do things you wouldn’t normally do if you were living in a more forgiving tax world. In the US Matt doesn’t have to know about Capital Gains Tax in Denmark he does.

Many Danish entrepreneurs that I know leave the country and go to more forgiving tax climates before they start their business. Just think of all the potential great business ideas that get left on the floor because potentially great people end up fearful to start their business in their own country.

If you start your business and then move to England or Spain you are forced to sell your business to yourself and pay at least %33 capital gains on it. Just imagine if you had to do that moving from say California to Oregon. Rather than face this many Danes never end up pursuing their dreams.

There are all sorts of loopholes and tricks that people who really want to pursue their dream in Denmark have to learn and go through. Isn’t it better to focus on your business than whether or not the computer you are buying to run your business is tax deductible or not.

You can read more about the problems facing startups in Denmark or my bootstrappers guide for Denmark.

One thing that Denmark has that the US doesn’t is a fairly reasonable corporate tax rate. Most European countries now have fairly low corporate taxes yet get you on their sky high personal income taxes and sales taxes.

The US could definitely do with a lower corporate income tax. We have the second highest in the OECD. As a startup the workaround for this is S Corps or LLC’s, where you are taxed at individual rates.

More important though than plain lower taxes would be a simplification of the tax structure. The US tax code is extremely complex. Intuit and various accounting firms have been lobbying to keep it as it is for years as it is obviously beneficial for them. We the individuals as well as startups suffer the consequences of this. It needs to be made simpler. Like what Mart Laar did in Estonia.

While I do think Taxation borders on the immoral, I think that an even worse side effect of taxation than taking your money is that it changes the way you think and manage your business and daily life. Lower it, but more important simplify it.

Are you contracting or freelancing? Would you like to but don’t want to deal with the hassle of all the paperwork? Hire an Umbrella Company to handle all that for you. The only problem if you are outside the UK is that there aren’t any. It’s an obvious business opportunity with a real need and real income, ready for the taking with plenty of space for competition.

Umbrella Companies are hired by their employees to handle invoicing, accounting and payroll for them. They provide a similar service to Professional Employer Organization’s with the exception that the customer is the contractor who becomes an employee and not the employer.

If you are a contractor or freelancer you become an employee of the umbrella company. Most companies in the UK provide a system where you enter your hours or invoice details via a web application. The umbrella company in turn invoices your client on your behalf. They then deduct whatever payroll tax they need to deduct and pay you your salary. In the UK most charge a fixed monthly fee, but I’m sure there are all sorts of other supplementary business models.

Where umbrella companies compete are on the benefits they offer, tax deductions you can take etc. You could imagine an umbrella company offering you the latest top model MacBook Pro. Behind the scenes they would lease it and deduct it from your invoices pretax. I seem to remember hearing about Companies in the UK offering car leasing and all manners of other kinds of deductions, all without the red tape you would normally deal with as a freelancer.

Really there are lots of ways you could do this. All you really need to do this is one or two good programmers and someone with payroll and/or accounting experience. You could probably even outsource the payroll part of it to one of the many Payroll companies out there like PayCycle or PayChex.

As an employer there are risks involved, but with proper advise from an account none greater than any other employer faces.

Umbrella companies became very popular for IT contractors in the UK a few years ago because of new tax legislation making it difficult to work through your own company (or corp 2 corp as they say here in the US). The great site Contractor UK has a List of Umbrella Companies but you can also google the term to see what you find.

With the face of business changing in the US, there are more and more reasons why people would hire an umbrella company.

Update: MBO Partners seem to offer an umbrella company option, which seems to support most of everything I talk about above. Anyone have experience with them?

We’ve already seen what happens when you leave drafting your agreements entirely to an uninterested legal team.

Yet people still have their lawyers draft up an agreement, which more than likely for most contracts really is a paralegal filling out a word template. There are lots of myths surrounding agreements that I wrote about earlier in It wont hold up in Court.

I can’t stress enough that an agreement is not between lawyers, it’s between it’s parties. You as the entrepreneur and the other party, whether it is your users in a User Agreement, your client in a consulting agreement or an investor in a term sheet.

Yes for many of these you need to bring lawyers in. In particular high value risky agreements such as Term Sheets you need lawyers to help you out. That does not remove your responsibility however to understand the core of the agreement.

The mysterious Uncle Saul who is now one of my favorite bloggers says in his great post Roping in the Legal Eagles :

As the businessperson with the most intimate knowledge of a particular deal, you should draft as much of the “business-oriented text” of your contracts as possible. At the very least, you or the appropriate member of your team should document the primary deal points in bullet-point form. The more specifically you document the business terms, the fewer iterations will be required to finalize the agreement. Even a highly attentive, business-oriented lawyer cannot put himself in your shoes. They do not work at your company, so there is no way they will have your insights. Thus, the more work you do upfront to document the business issues, the less you will ultimately be charged and the more closely the agreement will reflect the spirit of your verbal negotiations.

Your Lawyers do NOT and can NOT understand every aspect of your business. Only you and your team have that knowledge. Uncle Saul continues:

There is no magic language which makes an agreement legally binding; in fact, in most cases, the simpler the text, the better. Many a binding contract has been written on the equivalent of the back of a napkin. Once you draft the straightforward text, sans the legal mumbo-jumbo, ask your lawyer to review the text to ensure your layman descriptions do not result in an unintended interpretation. As noted in Tom and Huck, plans and agreements written in plain language reduce confusion and benefit all parties. If you select the right lawyer, he will not load up your text with gratuitous legal jargon (leave that job to the BDC’s legal squad).

Go read the rest of Roping in the Legal Eagles for more tips on how to create and deal with a good legal team.

I guess my best advise here is to remember that it is your job as an entrepreneur to take risks. It is the lawyers job to avoid risk. Don’t let the lawyer talk you out of risks worth taking, have him educate you so you can make the decision if the risk is worth taking.