On Funding: Where have all the good angels gone?

I am in the middle of raising funding for my business right now and the one eternal question that many entrepreneurs struggle with is do I go for angel funding or go for VCs?

For many that is easy. If you don’t really have revenue and are in prototype phase without customers you are really in the seed/angel stage. If you have customers and some revenue/traffic track record you could go for venture funding.

But alot of that is changing.

I was motivated to write this post in response to a TechCrunch post “Where have all the bold VCs gone?” that took an excerpt from Paul Graham’s post “Why aren’t there any more Googles?” who astutely observes:

I used to think of VCs as piratical: bold but unscrupulous. On closer acquaintance they turn out to be more like bureaucrats. They’re more upstanding than I used to think (the good ones, at least), but less bold. Maybe the VC industry has changed. Maybe they used to be bolder. But I suspect it’s the startup world that has changed, not them. The low cost of starting a startup means the average good bet is a riskier one, but most existing VC firms still operate as if they were investing in hardware startups in 1985.

They’re terrified of really novel ideas, unless the founders are good enough salesmen to compensate.

And yet it’s the bold ideas that generate the biggest returns. Any really good new idea will seem bad to most people; otherwise someone would already be doing it. And yet most VCs are driven by consensus, not just within their firms, but within the VC community. The biggest factor determining how a VC will feel about your startup is how other VCs feel about it. I doubt they realize it, but this algorithm guarantees they’ll miss all the very best ideas. The more people who have to like a new idea, the more outliers you lose.

TechCrunch points out that most web startups don’t need $2 million, but rather $300-500K. The reason most VC’s don’t do those smaller amounts is not risk but rather resources. Many entrepreneurs don’t understand the VC fund model so I will give you the quick and dirty explanation:
– VC’s that have a fund of let’s say $100 million have only a certain amount of partners and associates that can sit on boards and actively participate in guiding the companies to their next round or their exit.
– The lower equity position for a higher investment round stays within a risk-return ratio they have established at their respective firm.
– Despite many VC’s saying they invest in risky ventures, they are still investing other people’s (their limited partners) money and have to produce a return or they are dead in the water to raise money for a future fund.

So with all of these innovative companies that only need $300-500 to really get traction and become an excellent acquisition target, where have all the good angels gone?

Back during the Internet boom (oh, those were the days) everybody and their brother with a little bit of liquid assets where investing in web companies thinking they would have the next Yahoo or Amazon. As we know, that didn’t pan out to be the case and many people went to more solid things like real estate and bond markets. We all are seeing the bottom falling out of the heated real estate market so there should be people out there ready to dip their toe into the Internet pool again.

So again I ask, where have all the good angels gone?

Sure, there are angel groups and investment groups that pool investments from rich doctors or real estate developers but their risk level is not what it should be in order to take advantage of this new market landscape.

I have a two part solution.

Part 1: A separate seed fund within a larger VC fund.

– This would be a fund of $2-5 million that would have higher risk-return and separate books for those LP’s looking for diversification in their portfolios. You could get a few associates and one partner to manage this and the fund would have a ready portfolio of companies ready for their next stage of funding with better terms.

Part 2: Angel groups need to partner with venture funds
One of the greatest challenges to an entrepreneur raising angel funding is they know that the money is enough for a while to reach certain milestones but they know they will have to almost immediately start working to raise the next round. If angel groups are partnered with VC firms the angel groups will be more apt to find these diamonds in the rough to get them ready for VC rounds with an agreement to not get badly diluted. For the entrepreneurs they will see an easier path to future rounds of funding without having to spend so much time fund raising and can focus on running their business and delivering their product.

So I put this out there to the audience, where have all the good angels gone? Do you have any examples of this working in the marketplace that we should know of? Please comment and share your opinions.

Your Blogging Success is Based on Conversions, not Page Views

If you listen to the masses, you can only enjoy success in your blogging if you’ve got pageviews. The establishment has been setup this way and the theory is shoved down our throats from the very first day we start blogging. This theory is peddled by advertisers looking for impressions, the elbowing that occurs among bloggers trying to display their endowment and networks who build their businesses on such (Disclaimer: I work for a blog network).

I wonder if the whole establishment is backwards though.

I think the real value for bloggers, particularly business bloggers but also personal bloggers on a different level, is in the ability to “convert” readers and make them “buy in”. The old adage that “content is king” is usually used in the debate over the importance of aesthetics over the importance of hard, quality content. I think, however, that “content is king” really counteracts the establishmentarian mindset that the real value in having a blog is in the traffic that it sees.

As time goes on, it is becoming increasingly difficult to follow the breadcrumbs to where and how your content is being used. On the nefarious side, content scrapers are lifting RSS feeds and blatantly repurposing them into splogs, or spam blogs. On the completely legitimate side, content is being consumed into applications sitting behind corporate firewalls or used in industry newsletters (I can think of one such case where my content is being used in a low-tech email distribution to lawyers trying to understand social media).

This stuff can’t be tracked, and you can bet that a large portion of those eyeballs never lay their eyes on my site. Does my content be become devalued to advertisers and readers if those eyeballs never rest on my site? I think not.

Businesses have to understand that ideas are, by nature, open source and that the content they write will represent them, no matter where or how it is being used. I’ve come to a point where I don’t care if spammers use my content, because at the end of the day, I remain the authority on the topic and my reach is increased. My content is all distributed under Creative Commons Attribution-Share Alike 3.0 so, while spammers are not explicitly permitted to take my content and repurpose it, I am overtly encouraging the use of my content to extend my reach.

And that’s where the value comes in. Reach allows you to influence and shape the minds of others outside of what you would normally reach. If you insist on stipulating the use of your content from within the comfort of the four walls of your blog, you will reach your target audience, but you’ll never influence anyone outside of your target market.

Reach gives you the chance to develop new business, become a thought leader outside of your market, and extend your influence. The internet is increasingly becoming more open, despite the best efforts of over-reaching government. Just as newspapers have to deal with more people getting their news online than ever before, you have to deal with the the fact that more and more people are reading your content and engaging your ideas in unknown centers of the globe. To the winner go the spoils.

Ubica a tus Amigos con Livecontacts

FindWhere lanza el beta de Livecontacts.

FindWhere, proveedor de servicios de ubicación y seguimiento via GPS, lanzó hoy la versión beta de su herramienta social de ubicación.


Livecontacts funciona en cualquier red celular GSM y eventualmente funcionará en teléfonos sin GPS. Según la compañía, pronto podrás incluir data de ubicación en tu mensajería de texto, juegos y redes sociales desde tu celular. El sistema de ubicación puede ser activado por el usuario según su preferencia.

La posibilidad de ubicar a tus amigos en tu celular (y que estos te ubiquen a ti) abre interesantes posibilidades (dodgeball ha intentado algo parecido), pero también nos obliga a pensar más a fondo en nuestra privacidad y hasta donde estamos dispuestos a cambiarla por comodidad.

Hasta ahora hemos estado dispuestos a compartir mucho de nuestra vida profesional y cotidiana via redes sociales como Twitter y Facebook con perfectos extraños que sólo conocemos por referencia (a veces de otros extraños). Aplicaciones como Livecontacts nos permitirán compartir nuestra ubicación física con nuestra red social… fomentando encuentros en el mundo físico. Se cierra de esta forma el círculo social, usando la internet para encontrarnos fuera de ella. Espero que esto sea para bien de los usuarios y nadie salga lastimado.

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Social Media Is Only As Valuable as What You Put Into It

As a company, your job is to make money. Trust me, I get it. Launching into social media is a scary place to be, if you’re a company that has not historically embraced transparency and customer facing transparency. Again, I get it.

However, in todays age, it is becoming increasingly difficult to simply not engage in the conversation happening around you. It’s going to happen. The feedback will occur. My friends in PR have taught me the idea of “getting out in front of a problem”. This concept says that if there is a potential for bad press, you do what you can to try to avert the nightmare by proactively engaging the customers.

There’s nothing wrong with being wrong. It happens all the time and any company who thinks they are immune to mistakes should not be in business. More importantly, any company who thinks they are immune to the weight of social media also is deceiving themselves.

Recently, on Twitter, Comcast showed up on the scene when Mike Arrington had a most unfortunate situation involving many hours of downtime. While the talking heads have talked extensively about the fact that Comcast called Arrington up after seeing his tweet, I’d like to look at the aftermath.

Frank Eliason, presumable a customer relations manager at Comcast, registered Twitter username ComcastCares. Some folks have complained about the nuance of the name and that Comcast really doesn’t care, but putting all that aside, the outreach has been simply amazing.

It is unclear if ComcastCares is officially sanctioned by the company, however it is obvious that Frank is in a position of some power and influence and is able to get things done at Comcast. On Sunday night, Frank was seen engaging many customers about problems they had and services the company offered. Some of the conversations got heated and were handled as ably as possible.

As a company looking to dive into social media, you can take two routes. You can setup a blog and use it as a one way communication tool, posting blurbs about your company and not engaging in a whole lot of conversation (maybe comments are turned off). On the other side of the spectrum, you can jump into Twitter and Facebook and blogging, etc fully prepared for and engaged in the exchange of ideas with your customers.

Direct2Dell is a great example of a company who has done the latter. At the end of the day, your company will get as much out of social media as you put into it.

Business Plan Series: Part 8 – Operations Strategy and Processes

Last time in Part 7, we discussed how to explain your sales and marketing strategy to investors. As investors dive deeper into your business plan they must know how you will handle things on a day to day basis.

The Operations section of a business plan usually comes before the Financial Plan, but after the Management section. The purpose of the Operations Plan is to describe the where’s and how’s of your business, meaning where you will locate the business (along with any physical necessities) and how you will produce products or services for your clients.

To write an operations plan, you’ll need to answer the following questions:

  • How will your product be made (for product-based businesses) or how will you serve your customers? Can you describe the process from start to finish?
  • What regulations and organizations are in place to monitor your industry? How do you plan on staying up to date? Are you a member or plan on becoming one?
  • Who are your suppliers? How do you receive products/services from these organizations? How long will it take? How much will it cost? Do you have backups in place?
  • What quality-control measures will you implement, if any?
  • Getting the Business Operational

Content of the Operations Plan

  • Business location
  • Operating facilities and equipment
  • Production and operating procedures
  • Purchasing procedures
  • Inventory management procedures
  • Quality control procedures
  • Customer service procedures
  • Organization structure
  • Management plan
  • Establishing a Web Presence
  • Web site hosts
  • Web site development
  • Selecting a domain name

Your next step in writing an operations plan is taking the list above, determining what you’ve already done, and what still needs to be done in order to get your business up and running. Write these points out in full, explaining to someone who doesn’t know your industry just what it all entails. Then, take the questions you answered in the first section of your operations plan, and answer them at length as well.

It might take separate sections to list the risks associated with your business, as well as your quality control measures and supply procedures. If you are a service business it might only take several pages to flesh out this section of the operations plan. However, if you are a manufacturers or producer of hard goods you may have dozens of pages along with flow charts and appendixes.

One Last Note: About Day-to-Day Processes
Since this is the most detailed I thought would help you detail the day-to-day operations. To do so, make sure you list the following items (where applicable to your business):

  • General, such as the hours and days your business will be open;
  • Buildings, including layouts, engineering drawings and lease agreements. Essentually, anything to do with the physical space your business will inhabit;
  • Equipment, such as what you’ll need to get, what you already have available, and how much it will all cost;
  • Special requirements specific to your business that are operational in nature, such as ventilation or parking;
  • Any and all materials needed to produce your products or services;
  • Production, including the length of time needed to create each product;
  • A description of your inventory plans; and
  • The costs involved with all aspects of the operational processes.
  • Most business plans take several pages to flesh out this section of the operations plan, but manufacturers and producers may have dozens of pages along with flow charts and appendixes.

That should do it for the Operations and Strategy section. Next time we will cover the thing that all the investors love – Financials. In Part 9 we will discuss various strategies to forecasting, what elements you must have in the financial summary and how pretty charts and graphs can go a long way.

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Feed Updates

This weekend has been filled with lots of sprucing up and shifting around of various portions of this blog. The navigation has been streamlined. Author bios have been added to every post. The about page is less about me and more about the writers and content here. And there has been some feed shifting.

Currently, there are five feeds you should know about:

  • Technosailor Feed – This feed contains all content except Spanish and Photoblog content
  • Venture Files – This is all Venture Files content written by Steven Fisher
  • Spanish Feed – All spanish content has been removed from the main feed by request of readers. It can be found in the separate feed. All content is written by Carlos Granier-Phelps.
  • Photoblog – This category is an experiment and an educational opportunity to highlight one of my photos in each post. As I’m a rookie photographer, posting each one provides me an opportunity to learn from others. The feed is not completely functional at the moment as the photo itself is not being included in the feed.
  • Google Shared Items are the items I find in my Google Reader that I find interesting and have decided to share with you

Though I’d like to think the feed shuffling happened transparently, I’m thinking there may have been problems. So if you’re concerned or have questions, just make sure you have the correct feed. And thanks for reading.

Venture Files Joins Technosailor

vflogo.jpgOver the weekend, we have been hard at work integrating Venture Files into Technosailor.com. As you know, Technosailor has largely been focused on business and technology with a focus on social media and the internet technologies we enjoy today.

As part of the continuing debate surrounding venture capital, particularly here in the District, the content of Venture Files and the enthusiasm of Steve Fisher in writing it is a strong complement to the content already produced here.

As part of this integration, you can expect to see regular venture related content from Steve as he provides his own analysis on the venture ecosystem from the perspective of an entrepreneur. Previous content can be seen here and you can subscribe to the Venture Files feed as well.

I am a particularly strong fan of Steve’s 7 part series on Business Plans.

Welcome Steve and Venture Files to the Technosailor family.

Relevent Conference 2009

This morning, I leaked high level information about a new conference I’m organizing here in the DC area. This conference was born out of over a year of attending conferences and events that were mostly good but seemed to be missing key components. The most recent was WordCamp Dallas where I noted in previous post:

At the end of the day, it’s not about if you use WordPress or Typepad or any other blog platform. Sure, there are things to consider when choosing. However, at the end of the day, it’s about creating engaging content that creates community between author and readers. That’s the important part.

The conference, that is being called the Relevent Conference (typo intended, play on words), is all about relevancy, a topic that I talk about a lot in various forms on this blog. I see relevancy in social media that meets real life needs, brings real life value to individuals and businesses. I see relevancy as being as much a philosophical factor as it is a practical factor. Why is Twitter more relevant than Pownce? To me, it’s because I can use it from my cellphone much easier than Pownce. Just a single example.

So the goal in Relevent 2009 is to bring together web people tot talk about relevancy in the social space. how can we do better? What is being done right? How can I contribute? What is relevant to me?

To that end, I’ve got a rough list of folks I’d like to have come and speak, but the list is far from complete or set in stone. The distinctive nature of the event is that fewer of the “typical players” that make the conference speaking circuit will be speakers and more folks that can speak to the application of social media in their mainstream lives will be there. Hopefully a few you might know of. ;-)

The questions I have to answer before going into a whole lot more details are:

  1. Can we get the speakers? How much will they cost me?
  2. Where in the Baltimore/Washington area can we host this?
  3. What is a good balance between conference pricetag and sponsorship?
  4. Which companies (with a good mix of local companies) can sponsor?
  5. Who will design our site and blog?
  6. Who can step up as a facilitator and help with the logisitcs of bookings, phone calls, etc?
  7. Dates
  8. Parties and Dinners
  9. Wifi
  10. Which bands will be asked if they will come and perform? (Yes, I want a mini-concert or two from a local band – distinctive! ;-) )
  11. ______

I’ve never organized a conference so this will be a learning experience. Any advice, pointers and volunteers are welcome. Email me at aaron@technosailor.com and I will also certainly share more as the details become clearer.