Archive for the 'Angel Investments' Category

Finally, Some Sanity in the Financial Reform Bill

I ran across a post at Tech Flash, Seattle’s Technology News Source, that says that Senator Dodd’s Financial Reform bill has changed the two provisions that would have negatively affected entrepreneurs search for early stage investors. Originally, one provision sought to raise the limit of an accredited investor from $1M to $2.3M. The current language leaves the level at the $1M but now excludes the value of the primary residence. It also provided that the SEC consider the economic impact of any future changes.

The second provision required entrepreneurs to register with the SEC if they intended to raise money. The new language makes this a requirement for what they call “bad actors” or those entrepreneurs who consistently start bad businesses and lose their investors money.

All in all, not so bad and, more importantly good for entrepreneurs and investors.

What is Driving Senator Dodd in His Financial Reform Bill?

I was catching up on reading through blogs when I came across this post on Venture Capitalist’s Fred Wilson blog AVC http://tinyurl.com/y8nm5vy. If you are an entrepreneur who is currently or will be looking for early stage financing or a person who provides early stage capital, then you need to understand what is being proposed and aggressively oppose it.

Senator Dodd of Connecticut has a Finance Reform Bill moving through the Senate that has a couple of provisions in it that will adversely effect early stage company investing. One is a proposal to raise the criteria of an Accredited Investor from a net worth of $1M to $2.3M. Now I have no idea why this is relevant to bank finance reform? The only connection that I can come up with around the last financial crisis and Angel investing is that Angels now have significantly less money to invest in companies! So, if the passage of this bill shrinks the pool of investors, then even fewer companies will get the funding they need and one of America’s economic development engines will be seriously effected. Has Senator Dodd forgotten how many private sector jobs are created through startups? Is Senator Dodd proposing that people with $2,3M of net worth are that much more able to understand the risks in early stage investing? All the Angel investors that I know are quite aware of the risks.

The other provision, if I understand it, requires businesses to make an SEC filing before seeking capital or they will have to register with each state where they intend to fund raise. There is a post at TechFlash, http://bit.ly/96uuEx, that covers this in much greater detail.

Angel investors and entrepreneurs need to read through these and then think about how this bill will adversely effect them in the future, and, if you come to the same conclusion that I did, contact your Senators and Representatives to oppose the passage of these two provisions.

I also think that someone needs to educate Senator Dodd on the differences between funding early stage companies and bank finance reform. Maybe someone should have him look at the Fortune 500 today and what it looked like ten years ago. How many companies on the list were started in the last 10 years? How many jobs and how much economic impact would be missing if these new companies had not received early stage funding they needed and weren’t able to get started?

This is just so bad in so many ways.

Are Startups Still Receiving Funding in Southern California?

I wrote this post earlier today and put it up on Startup Coast but thought I would re-blog it here.

This is one question that I have gotten quite a bit by entrepreneurs who are currently pitching or thinking about pitching their companies. There is a lot of rhetoric out there, so I decided to see if I could find some information on my own.

I went over to SoCalTech, where Ben Kuo’s team has been tracking investments in SoCal companies for many years, and here’s what I found out. 47 investing groups have invested in 105 early stage deals in the first half of 2009. The highest was Tech Coast Angels with five Seed and one 2nd round fundings. Now I am pretty sure that these numbers are down versus previous years, but not exactly zero.

Next, I thought I would see what the national numbers looked like. The Angel Capital numbers for 2009 are not out yet, but Price Waterhouse’s Money Tree Report is available for 1Q09. This shows that there were 549 deals representing $3.0B of investment. Of this, 47 were startup/seed investments worth $169M and 157 were early stage worth $683M.

Again not record breaking, but having $852M of VC funding going into early stage companies is no small amount. So, what exactly is the problem and why am I being asked this so often?

I think that one answer is that, overall, early stage investments are down while the number of people who think that a down economy is the perfect time to start a business. Result, is a bigger group of people going after a smaller amount of money. So the bar gets raised and entrepreneurs need to up their game to get noticed. You need a great story, documentation, with significant investor potential.

I also think that entrepreneurs are running in to investors who just don’t have available cash. The Exit landscape hasn’t been too rosy over the last 18 months. So, you have a lot of investors, especially in the Angel space, without cash. I think that a lot of them would rather tell you to get more traction, or fix some other problem with your opportunity rather than admit they are out of cash. Maybe if you work on your business a while, they will have money by the time you are done and come back to them.

The bottom line is that early stage companies will continue to be funded, but those that do will stand out head and shoulders above the rest. They will have compelling stories offering great returns for the investors, solve big problems that people are willing to pay for, and they will have squeaky clean documentation that meets investor expectations. What meets an investor’s expectation? Try asking before you decide to pitch!

My Plan is a Small Bridge to a Larger Round Next Year

This is the track for a lot of startups. Going after a small investment to accomplish some key milestones allows entrepreneurs to build some value in the company and positively affect the overallvaluation. In the past, this was a great concept and, even in the current economy, may be a great strategy. It also helps when the amount of money required is at a level that is difficult to attract.

For example, prior to a couple of weeks ago, the upper end of where Angels would tread was about $1.5M and the smallest amount most VC’s were interested was $5M although I did hear that is was around $7M in Silicon Valley. Companies needing $2.5M or $3M were having a difficult time. One of the recommendations was to re-look at the requirements to see if there was a way to raise $500K – $750K and get some traction and plan for a higher institutional raise in the future.

For many, this was a great plan. However in today’s environment, you just can’t plan that the next round will be available when you need it. The current economy suggests real financial creativity where you plan on a smaller round and then combine it with a “Bootstrapping” mentality to get to self sustainability.  

Here’s another slide from Sequoia that makes a lot of sense:

Now it seems to me that these make good business sense in good or bad times.

Podcast: Natalie Martin, CEO Blissport

On Valentine’s Day, I did a post on a new company Blissport focused on providing travel information and support, initially to grooms as they plan arguably the most important trip of their life, their Honeymoon. Well, this afternoon I had the pleasure of doing a Podcast with Natalie Martin, the CEO, who is in the process of raising capital as well as getting the business off the ground. Here is a hotlink to the cast. I hope you get a chance to listen and enjoy it and, if you are an interested investor, you can contact Natalie at natalie.martin@blissport.com.

ENTREPRENEURS, Know Your Investors!!!

There is a consistent problem that I see with supposed Investor Level presentations. I saw it again today and I can’t figure out how to, if not fix, dramatically improve the entrepreneurs understanding of the investors they are searching out. I looked back and found that my last set of rants on the subject was last November. So, maybe I just need to do a quarterly rant.

It just doesn’t make any sense for an entrepreneur to expend all the time and financial resources around getting in front of investors and then wasting the effort by not covering the things that we want to hear and describing in the presentation and supporting documents a story that meets our expectations.

It just doesn’t make sense to paint a rosy picture of a very opportunistic business, with large markets, unique products and then describe mediocre revenue projections and outlandish valuations. Oh yes, I love how many companies think that they will be acquired using multiples of companies like Double-Click, YouTube, Facebook, or MySpace. They overlook what kind of traction these companies had when acquired or got an investment.

OK, so what are we looking for: well we look for opportunities that have a believable story that looks like it will return 5X to 10X return on our investment in three to five years. If you present opportunities that in no way come close to this, then you are wasting your and our time.

As for valuations, this is always a touchy subject, but most Angel groups don’t want to invest in opportunities where the valuations at the seed stage are greater than $5m. So, what do you think happens when a company with no or few customers, unprofitable or miserable revenues, and a not so clear story has a $10M valuation. How did that happen?

If you want to use YouTube as an example, then show a company that with results similar to YouTube when they were acquired. I saw Chad Hurley interviewed a couple of months before Google’s acquisition where he stated that they still unclear about their business model. In case lots of entrepreneurs want to jump in and say “see there’s our justification for our valuation, we don’t completely understand our business model either”, he went on to describe that 110K new videos were being uploaded each day.

YouTube was launched in November 2005, experienced a meteoric rise in content and membership and were acquired by Google in 2006.

So, if you are going to be out raising money for your fledgling company please take the time to figure out what type of investor you think you will need and then what is important to them.

If you want a little help, I had an article published in the recent edition of Website Magazine on the subject. But don’t take my word on what is important, talk to the investors you are targeting and find out what they feel is important.

Hopefully, I won’t have to go over this again until May.

Blissport – New Company, Unique Concept

OK, so today is Valentine’s Day, another opportunity for many men to do the wrong thing, get the wrong present, forget to make to right dinner reservation or completely blow it by forgetting it all together. I know I am risking the wrath of many but bear with me for a second.

This morning I sat through a number of entrepreneur pitches and one, Blissport, is a new company focused on helping Grooms with the daunting task of arranging the, once in a life time, all important task in the Wedding process, the Honeymoon. So, here is a woman CEO, talking about a sight to help men work through the honeymoon process, an enormous potential minefield for men, on Valentine’s Day.

There are a number of things I like about the company:

  • Solid CEO with previous successful startup experience
  • Focus on a market segment completely under-served and, at the same time huge!
  • Using the social and new media tools to create a unique user experience
    • very cool looking site that will be attractive to the 18-34 year old target market
    • Only focusing on the top 300-400 high end resort properties that excel as Honeymoon destinations.
    • Include reviews by people who use the site. Obviously these will build over time. As a side, Forrester just released a report that looked at what web users want in four different segments that included travel and found the one critical desire was to have access to user rating and reviews.

Their site went live in beta mode a couple of weeks ago and they are currently out raising a seed round to help them get the traction they need to extend the business and develop the metrics they need to go after an “A” round later in the year.  

So, if you have a few minutes, go check them out. If you are an investor and want to know more, you can reach them from the Contact section on their site or, if you have problems, send something to me at jim@socalbuzz.com and get it over to the CEO.

In the meantime, it was nice to hear a woman talking about doing something for men on Valentines Day. Thanks Natalie.


Subscribe Using Feedburner

a

Flickr Photos

Bonney sunrise

Cloud in the sky

Moods of Manhattan

More Photos
April 2017
M T W T F S S
« Aug    
 12
3456789
10111213141516
17181920212223
24252627282930