Archive for May, 2010

Internet Startups – Something for Entrepreneurs to Consider

I just put this up on Startup Coast, but thought I would put it over here also,

Many times when I am listening to a pitch for a new Internet or Social Media company, the entrepreneur attempts to categorize their company as another YouTube or Facebook. Now it is entirely possible that this may be true, but it is highly unlikely. More importantly, using companies like YouTube or Facebook create an impression of the type of story we should be listening to hear.

I thought it might be interesting to look at YouTube for the type of story they were able to tell. First, they were created in February 2005 and officially launched in November of 2005. They had their first public beta in July 2006 at which point they were getting 65,000 new videos per day and by January 2009 they had about 6 Billion videos. They estimate they now upload 24 hours of video every minute of every day.

Back in 2005, their story was something radical but apparently believable to Sequoia Capital who invested $11.5M shortly after their launch in November 2005. I remember seeing Chad Hurley on stage at the June, 2006 Always On Stamford event where he was asked what his business model is and he said they hadn’t figured it out quite yet.  Google announced a $1.65B offer for the company two months later.

My point is that over a very short period of time, about 19 months, they went from creation to acquisition with a huge payoff, but clearly had some meteoric results to back up their story. They could demonstrate their growth even though they couldn’t tell you they planned to make money. Their service was up and running and delivering results!

So, if you want to make a pitch that your startup is on track to be the next YouTube, remember to show that your service is up and running and bring in the results that shows your ability to be the next YouTube. That’s what they did.

As I have said many times, investors look for reasons to say NO and positioning oneself as the next YouTube without a compelling story of exactly how this is going to happen, gets me to NO fast.

As a side, YouTube is currently the third most visited site on the Internet behind Google and Facebook and is the second most popular search engine behind their parent Google.


Entrepreneur Mistake from Not Knowing the Investor

I am constantly surprised when I see an Entrepreneur presenting to a group of investors and they make a real minor league mistake. The one I encountered recently was a company who passed out a Fact Sheet and in the Pro Forma Financial Projections indicated that the financials were available via an NDA.

The first, obvious problem is that investors don’t sign NDA’s to listen to an introductory presentation and anyone who does the slightest due diligence would uncover this. Second, since these are basically projections, they are, in fact, part of a story that the entrepreneur creates to explain their opportunity. If you tell me that you believe the financial projections are so sensitive that you will only provide them under an NDA, I assume there is something you are trying to hide. Since I am looking for a reason to say “NO” to a deal, this certainly qualifies.

You work pretty hard to get your business/plan together, and it seems like such a waste to get to the point where you are talking to investors and then eliminate yourself with such a rookie mistake. If this is new to you, take some time to learn about the investors and what we look for, both positive and negative. There are a number of venues where you can talk with investors in Southern California and I recommend you attend a couple and get some insight. It may be the difference between funding and frustration.

Politicians at Work – Jack Reed (D) Senator, Rhode Island

About a month ago, I wrote about a nonsense statement that Senator Reed made about making it a requirement that all funds, including Venture and Private Equity, with >$30M under management, should have to register and report to the SEC. His rationale was that these funds can have an adverse effect on the global financial markets. I realize that using “rationale” was probably improper; I should have used irrational instead.

Well it seems that Senator Reed has been convinced to modify his position and has changed it to funds > $100M (See article in the WSJ). Now some people might think that Senator Reed has come a long way. After all, his raised his view by greater than 3X. The problem is that his belief that venture funds, of any size, have the ability to negatively affect the global economy. I would love to hear an explanation of how this would work.

He is also working hard to have this as part of the Financial Reform Bill that Senator Dodd is working on. So he couldn’t get enough support to have this passed as a separate bill. So he tries an end run to incorporate it in a massive piece of legislation.

The real question is exactly who does Senator Reed’s legislation benefit? For the life of me, I just can’t figure it out. Maybe someone else can shed some light on it and help me understand.

This Week In Venture Capital, Worth a Look or Listen

Recently, Mark Suster, General Partner @ GRP Partners Venture Capital firm, took over as the host of This Week in Venture Capital a weekly Internet TV show/podcast. The link takes you to a recent show with Jim Armstrong a managing director of Clearstone Ventures.

One of the things I am always stressing is that entrepreneurs should gain an understanding of investors and what drives the investor process. During this 55 minute, there are a number of discussions that entrepreneurs should find interesting. For instance, why a VC who invests $5M in a seed or A round is not as excited if after 5 years there is an exit which pays them back $25M, which sounds like a good return unless you are a VC who has Limited Partners who are expecting better results.

There is also an interesting discussion on mobile coupon apps, which I have seen a number of in the last couple of years and why they are difficult to fund.

I get a lot of questions about taking strategic investments, and there is a great discussion by both Suster and Armstrong on the topic.

This is a pretty new show and I think I have seen all episodes. I think this is certainly worth your time if you want to know more about what’s going on in Venture Capital.

I realized after posting this on Startup Coast, that it is very relevant to what’s happening in Southern California Business. So I decided to post it here also.


Is Social Media a Fad?

I put this post up on StartupCoast, but thought I would also put it up on the buzz.

There are still quite a few entrepreneurs and business leaders who think that Social Media is a passing fad. I think this is an extremely short sided viewpoint. Erik Qualman, author of Socialnomics, is certainly agrees. He put up a short video on YouTube the other day that stresses his point and is certainly worth looking at. For one, he gives an answer to the always asked question, “What is the ROI of Social Media?”

As a side, I like that he used “Right Here, Right Now” by Fatboy Slim.

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May 2010
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