Get the Anti-Startup and Anti-Angel Provisions Struck From Senator Dodd's Banking Bill

This is part of my Series on Angel Investing.

There is a rather large missile rapidly approaching America's innovation culture. Predictably, it has been hurled in the most careless of manner by a group of uninformed politicians and their staffers in the form of Senator Dodd's sweeping Banking Bill. Putting aside the merits and thrust of the Bill itself, (which ostensibly seeks to regulate the banking industry), there are two provisions in it which, if not removed ASAP, will essentially wipe out a large chunk of one of America's engines of innovation- namely angel investing. These provisions will raise the bar on the definition of an 'accredited investor' from $1M in net worth or $250K in annual income to $2.3M in net worth or annual income of $450K! It will also hamstring angel investing by slapping any such investment with a 120 day SEC review.

If this concerns you, you may want to call your congressmen and educate them on this issue. 

For more in depth condemnation of these stupendously destructive provisions, I refer you to the following cacaphony of frustrated voices emanating from the startup and investment community:

Venture Beat: Angels Sing: Frankly Ridiculous Restrictions Might Destroy Silicon Valley

NY Times: Angels Rebel Against Dodd Bill

Kopelman: Dodd Isn't on the Side of Angels... or Startups.... It Proposes a 120 Day SEC Review Period

Litan: Proposed 'Protections' for Angel Investors are Unecessary and Will Hurt America's Job Creators

Xconomy: Dodd Bill Could Render Startups Too Small to Succeed

TechDirt: Why Does Financial Reform Punish Startups and Angel Investors?

Wilson: Startups Get Hit by Shrapnel in the Banking Bill

Shane: How Dodd's Reform Plan Hurts Startup Finance

For the next post in this Series, click here.

The Verdict on Raising Venture or Angel Money "Pre-Anything"

This is part of my Series on Venture Capital and Angel Investing.

I have the privilege of meeting a lot of entrepreneurs in my dual role as technology investor and university entrepreneur-in-residence. Many of these entrepreneurs are first-timers and are out looking to raise capital for their fledgling companies which very often have no product, no team and no customers. A good number of these folks are also under the illusion that there are investors out there that would be interested in providing them with seed capital nonetheless. This is simply not how things work in the overwhelming majority of cases.

Here are a few quick thoughts for those of you out raising money pre-revenue, pre-customer, basically pre-anything:

• At this point you need to realize that your sources of funding are limited to either grants, friends and family money or your own money. 
• Without some traction in the form of a product, customers, revenue and other proofs of concept, very few investors in the world will even consider investing in your company.
• The sooner you accept this reality, the better off you will be, because you will be spending your time achieving these milestones as opposed to wasting your time trying to pitch investors.

Are there exceptions to this? Of course there are.

• Biotech/Drug Discovery is one of them. For example, if you are a world class scientist in biotech and make a break-through discovery in an area with a huge market and demonstrate this with animal studies, investors will be breaking down your door.
• If you are a serial entrepreneur with a big success or two under your belt, you will be able to raise capital, oftentimes from investors who have backed you before, even if you are at the idea stage.
• Lastly, if you have what I call the X-Factor, then there are no rules. You will be able to inspire certain adventurous investors to bet on you and help you make your vision a reality.

For the next post in this Series, click here.

Some Thoughts and Best Wishes for the New Year: Here Comes 2010!

As 2010 approaches, a few wishes and thoughts come to mind:

1)     First, I want to thank you, the readers of this blog for all your encouragement, thoughtful comments and words of wisdom throughout the year. I wish you all much success and happiness in 2010 and look forward to our continuing dialogue.

2)    I also want to wish the entrepreneurs and investors I work with on a daily basis all the best for the coming year. It is truly a privilege to work with so many enthusiastic and dynamic individuals in a city with such a close-knit start-up community and so many great companies. The New York tech scene is on a huge roll. Let’s continue to make it happen!

3)    2009 was certainly a tough year and the difficult economic climate may well persist.  The keys for fledgling start-up companies will no doubt be to stay focused, flexible and ultra-determined. Stick to the basics of “getting from zero-to-one” at all costs so as to survive and thrive.  Surround yourself with high-quality missionaries who are all about “making it happen” and run like Usain Bolt from everyone else. In this environment there is literally no time for mercenaries, negativity, complainers and/or bureaucrats any more. The stakes are simply too high.

4)    Lastly, as good old Mark Suster says, JFDI and take the plunge!

Heard it from the Horses' Mouth: What Venture Capitalists Like and Don’t Like to See when Doing University Spinoffs

This is part of my ongoing series on University Entrepreneurship.

The annual University Startups Conference put on by NCET was held in Washington DC last week and was well attended by investors and university personnel alike.  Through the course of multiple panels and discussions, a good cross-section of venture investors from very reputable firms weighed-in candidly on both what they like to see and what they don’t like to see when they try to spin-out companies from university tech transfer offices.  Many colorful stories were exchanged to say the least.

Here are some quick bullets straight from the proverbial horses’ mouth that may be of help.

 VC’s like to see:

·       Platform technologies

·       Great faculty “stars”, great scientists, great science

·       Rich entrepreneurial culture and community throughout the university

·       A "go-to person" at the tech transfer office with entrepreneurial experience

·       A tech transfer office that’s “all about throughput” and getting deals done quickly

·       Deal terms that are flexible because "business models change over time"

VC’s do not like to see:

·       Slow-moving offices that take too long to get a deal done

·       "Mismatches" in terms of respective legal counsel (turn-around time, skill, expertise)

·       “Greedy” tech transfer offices with onerous deal terms

·       "Big egos" at the tech transfer office that get in the way of deals

·       Business plans. VC's prefer to have a short summary and decide for themselves

For Part 22 in this Series, click here

Notable News "Read All About It"

CNBC Transcript: “Warren Buffett & Bill Gates – Keeping American Great"

Mark Suster “Deal With Your Elephant in the Room”

Chris Dixon “Pitch Yourself Not Your Idea”

VentureHype “Angels, Is The Entrepreneur Willing to Flip Burgers?”

NYT: “Tweets Are Coming to Linkedin”

Notable News "Read All About It"

1)    NY Times “Lessons From the War Over Skype”

2)    WSJ “Ron Conway Changes His Tune About the Big Apple”

3)    SAI “How to Bootstrap Your Way to Billions”

4)    Chris Dixon “How to select your angel investors”

5)    Scott Anthony “Why Great Innovators Spend Less Than Good Ones”

Notable News: "Read All About It"

1)    Chris Dixon “What Carries You Up Will Also Bring You Down”

2)    Mark Peter Davis “Evolve Your Financial Model”

3)    Entrepreneur “10 World Changing Green Trends”

4)    John Addison “Al Gore Prioritizes Energy Innovation”

5)    SAI “10 Huge Successes Born From Early Failures”

Raising Capital (8): Eyes Wide Shut... Welcome to the Masked Ball

(click on photo for the video of this scene)

This is part of my Series' on Venture Capital and Entrepreneurial Culture.

Over the years it’s been real privilege for me to mentor friends and acquaintances of mine who at one point or another in their careers have decided to make the leap into the start-up game.  I happened to have had the particular advantage of starting early and so carry with me the proverbial scars on my back and psychic black-and-blue marks so reminiscent of the trade.  It’s these same lumps that I always hope to help first-time entrepreneurs avoid.

Perhaps the most valuable counsel I can ever give to someone occurs right around the time they begin to raise capital to fund their company. This may well be the most vulnerable point of all in the life-cycle of a start-up for many reasons. One wrong move can literally mean the difference between success and a world of pain. Here’s truly where lack of experience, even in the smartest of people, can mean sheer disaster. I’ll start with the most important rule of all:  

You need to know who you are dealing with.

Through no fault of their own, first time entrepreneurs fresh out of school, an academic lab or who have worked for years at big companies generally have no concept of the cast of characters that populate the early-stage ecosystem. If you have just emerged from this sort of cocoon, you no longer enjoy the invisible “protection” your old position or firm’s name provided and hardly realize how vulnerable you are.  Essentially, you’ve arrived at a sort of Masked Ball, eyes wide shut, with no concept of who is around you.

Inevitably you will run into certain masked characters that may appear in any number of guises. Their firm might have the words “Capital” or  “Ventures” in it, or they may say that they are part of a “group of investors”, and they will talk about the many startup companies they have “worked with”. Certainly they will discuss how much they would like to help you with your funding needs. But beware…

You may be in the midst of being initiated into the shadowy world of the “broker-dealer”, the “investment banker”, the “middle-man”. At some point you may well discover that he has no money to invest in your company whatsoever. Instead, he will want to “help you” raise capital for a fee, taking a percentage of the money raised for himself and perhaps a retainer and warrants to boot. It’s perfectly legal and I will say that there are indeed some reputable people operating in this business. But these are few and far between.

Jason Calcanis and Fred Wilson have recently published some posts, (here and here), describing yet another masked character on the scene- namely, the type of angel group that charges extremely hefty fees, (thousands of dollars), to entrepreneurs who wish to pitch them.  This is definitely a character to avoid.  Another type that needs to be vetted carefully is the one who tells you he's got a bunch of shell companies on the bulletin board stock exchanges and that with a flourish of his cape he can take your company public with a reverse merger. Warning bells should go off immediately.

The bottom line is that although there are some notable exceptions, most of these masked characters generally do not have your best interest in mind and I have both witnessed and been told of dozens of situations where unwitting entrepreneurs have been victimized by them. My advice is simple. If you are trying to raise capital for your start-up, ask around first, do your homework and talk to half a dozen or more entrepreneurs with funded startups about their experiences. Also, try to find a good mentor while you’re at it. In every community there are reputable angel investors, legitimate angel groups and of course a handful of early-stage venture firms that have money to invest if they like what they see.

Notable News: "Read All About It"

1) Bo Peabody (WPost) “Twitter.org?”

2) John Tozzi “Smart Grid Will Spur Energy Entrepreneurship”

3) The Deal “Angel Investors Fly to Quality”

4) Scott Anthony “What Baseball Can Teach Us About Innovation”

5) Reuters “Angel Investor Makes A Mint”

Notable News: "Read All About It"

1) Silicon Alley Insider "Working Hard is Overrated"

2) VentureHype "Ready to Become an Angel Investor?"

3) WSJ "Where Twitter Ranks in Venture Funding History"

4) VentureBeat "Green Investing Bounces Back From Recession"

5) Larry Cheng "Who is the Venture Capitalist's Customer?"

Notable News: "Read All About It"

1) WSJ "America's CTO Challenges Tech Sector"

2) NYTimes "Twitter Confirms New Funding"

3) D. Shah "12 Facts About Entrepreneurs That May Surprise You"

4) This Is Going To Be Big "Retraining Wall Street"

5) Scott Anthony "My Best Innovation Advice? Be Promiscuous"

Notable News: "Read All About It"

WSJ: "Jim Breyer & Tim Draper at Odds on VC Outlook"

Chris Morris (VentureBeat): "Is the Tech Boom Over for Entrepreneurs?"

Anthony Ha (VentureBeat): "New VC Marc Andreessen Joins HP Board"

Venture Hype: "How Successful Angels Invest"

Larry Cheng: "The Most Expensive Commercial Real Estate in the World is A Place for Computers Not People"

The “X” Factor in Business

 

This is part of my Series on Entrepreneurial Culture.

Much as it has with most other sectors, the economic downturn has taken its toll on the early-stage ecosystem.  Many angels have curled up into fetal position for a while, a good number of VC funds are simply running on fumes and lots of startups are having a difficult time getting traction and are consequently running out of operating capital. By necessity people keep up appearances but plenty of old hands out there know what the deal is. There’s no getting around it- it’s just been tough.

I won't descend into cliché by expounding upon the inevitable “silver-lining” or the “positives” in all this. I will simply say that I have observed that a by-product of these trying times has been a sense of clarity imposing itself almost everywhere. Everything has become very basic in that so many early-stage companies are simply fighting to survive and to get through all this. Entrepreneurs are in hard-core bootstrap mode, the universities and the city are pitching-in trying to do their part, and the local entrepreneurship communities are congregating and banding together like they never have before. There’s something absolutely special going on in this city and I’ve been heartened by it. In my work as an entrepreneur in the university space and as an angel I have the privilege of meeting and working with dozens of entrepreneurial teams each year and the camaraderie and enthusiasm so many of them possess in the face of all this is inspiring.

There’s something else that has been reinforced to me in all this. It’s what I call the “X Factor” in business. When someone in a university lab for example, makes a shocking scientific breakthrough in an area with a large commercial market- it is as if there were never such a thing as a recession. The sun suddenly emerges in full force and the dark skies are a distant memory. Investors and entrepreneurs get on planes, trains and automobiles from near and far and converge in full force- money is suddenly plentiful, the absence of a management team is a mere detail and the future is unlimited. The somber story-line I’ve painted in the paragraphs above (and that the media repeats ad-nauseum) is suddenly rendered meaningless.  When Vinod Khosla decides to raise a couple of new clean tech funds, again, the mainstream narrative is eviscerated and he raises over one billion dollars with a wave of his hand. Similarly, when the likes of an Andreessen feels it’s his turn, a cool $300 million plus materializes for his new fund.

My message in all this? Simply that nothing is as it seems. That the “new story” can be written at any time, by anyone, regardless of the conventional mainstream narrative or the state of the economy. If you’ve got a me-too company or an incremental improvement on a product that already exists, or if you’re not fully committed to the venture- well, it’s a safe bet that convention will apply. But if you’ve got something magnificent, something bold and clever and possibly disruptive, well then… you may yourself be that “X-Factor” and if so, anything is possible.

For Part Fourteen in in this Series, click here

Notable News: "Read All About It"

Chris Dixon: “VC’s Care About the Upside Case Not the Mean”

VentureBeat "Cleantech Due For a Comeback?"

WSJ: "Twitter is Worth $_________."

Alan Patricof (NYTIMES): “Stopping Startups”

Wenger: “Does Your Startup Have the Right DNA?”

VC Deal Lawyer: “Let’s Talk Angel Investors”

Notable News: "Read All About It"

     Caine Moss (VentureBeat): "Seed is the New Series A For VC's"

3)    Aaron Hoos (Venture Hype): "Not a One Trick Pony Angel Investor"

4)    Fred Wilson: "The Biggest Loser Can Be the Biggest Winner”

5)    Camille Ricketts (VentureBeat): "Green Energy Sector Sees Record Patents"

University Spinoffs: A Stunning Track-Record of Success

 

This is part of my Series on University Entrepreneurship.

 Recently I met an entrepreneur at a function who, upon learning that I ran the Venture Lab at Columbia University asked me why he should pay any attention to the university space at all- telling me that he had never heard of any successful university spinoff companies. I responded by saying that I wasn’t surprised and that this view is actually a common misconception. I went on to point out that companies with household names such as Google, Lycos, Genentech, Gatorade, Hewlett Packard, Polaroid and others were all formed around university intellectual property. He was definitely shocked to hear this and we subsequently had a pleasant discussion about the Bayh-Dole Act, the spinoff process, and essentially the whole fascinating landscape of university entrepreneurship. 

I have conversations like this so often that I thought I’d share a few statistics about university spinoffs to which I can refer entrepreneurs and investors in the future. 

• Over 400 university startups are created each year based on federally funded R&D.
• Google, Netscape, Genentech, Hewlett Packard, Polaroid, Lycos, Sun Microsystems, Silicon Graphics, Chiron, Amgen, Regeneron and Cisco Systems are all examples of university startups.
• 68% of university startups created between 1980 to 2000 remained in business in 2001, while non-university based startups experienced a 90% failure rate during that same time period
• 1/3 of SBIRs reported involvement with a university including scenarios where either the founder was a former academic, university faculty were consultants, universities were subcontractors, or graduate students were employed
• 8 percent of all university startups go public, in comparison to a "going public rate" of only 0.07 percent for other U.S. enterprises - a 114x difference
• By way of example, as of FY 2009, Columbia University has spun-off over 100 companies historically, over twenty of which have either been acquired or gone public, over 30 of which have been venture-backed at some point in their life-cycle, leading to the creation of in excess of 1500 new jobs.

(Sources: NCET2 and Columbia Technology Ventures)

For Part Twelve in this Series, click here

5 Steps to Take If You Cannot Raise Any Capital for Your Startup

This is part of my Series on Venture Capital.

In a recent webinar I addressed the topic of raising capital and launching startups during an economic downturn. Previously, I published this post dispelling certain myths about raising capital. One matter I did not address in either of these, however, is perhaps the starkest reality entrepreneurs must face in times such as these. It is the reality that very few newly launched startups will actually be able to raise any seed capital whatsoever.

Until significant traction is achieved in a new venture, funding from angels or VC’s alike is simply more of a scarcity than it normally is. Now is truly a time for friends and family money, but this too is difficult to come by for many these days.

So if you find yourself in such a situation and yet are determined to launch your startup, what should you do? Here are some steps you can take:

1) First forget about paying rent. Find a free cubicle at a friend’s office, work out of a lounge or your home, or try to get accepted into a local incubator program.

2) Employees? Forget it. Hire some unpaid interns, give a talented developer some equity with a vesting schedule based on milestones and make do for now.

3) As for basic startup needs such as conference calling, file exchange services, online databases, blogging tools, analytics, bandwidth, etc., most of these services can be obtained for free and/or on the cheap.  Just check out services such as google docs, amazon web services, drop.io, freeconferencecall, dabble, crazyegg and many others.

4) Lawyers? Forget it. Usually there is no need for a lawyer at this point. Instead, find an experienced mentor and read my post about this topic here.

5) Everything else? Do it all yourself but constantly attend local entrepreneurship events and mix with fellow bootstrappers for moral support so as to constantly exchange information and ideas. Put yourself out there, get "in-the-know", help others and you will find that people will want to help you as well.

If you think this is tough, you’re absolutely right- so read about Bill Powell building an entire golf course from scratch or about Jeff Bezos’ earliest days at Amazon for inspiration.

The bottom line is this: It's all on you right now. Welcome this challenge, be incredibly resourceful and make it happen.

Profiles in Entrepreneurial Courage: The Story of Bill Powell

This is part of my Series on Entrepreneurial Culture.

I was really inspired by an article I read in this weekend’s NY Times penned by Larry Dorman.  It’s about a gentleman by the name of Bill Powell, a veteran of WWII, a great-grandson of Alabama slaves, and a man who endured enormous indignities and discrimination but nonetheless persevered in achieving his entrepreneurial dream. His particular ambition was to design, build and run his own golf course.

Upon his return from the war no bank deigned to give him a loan and he was essentially denied the rights accorded to him in the G.I. Bill.  Unbowed, he managed to scrape together some seed money for his venture, borrowing from his own brother and from two black physicians. He then proceeded to handle the rest on his own and slowly and steadily built a golf course from scratch. He finished with the front nine in 1948. After earning the means to buy some more land, he completed the back nine thirty years later- in 1978.

Today his Clearview Golf Club of East Canton, Ohio is on the National Register of Historic Places and Mr. Powell, who is now 92 years old, will shortly be receiving the PGA’s Distinguished Service Award.

I write quite a lot about entrepreneurship and entrepreneurial culture and you can find my various posts on this subject here. These two passages below, however, said it all to me and embody somehow what being an entrepreneur is all about:

“He did much of the heavy work himself, clearing brush, pulling out fence posts and hauling away stones in a wheelbarrow. He seeded the fairways by hand, sometimes helped by Marcella, who died in June 1996 after 56 years of marriage.”

“He and my mother planted most of the trees you see there bordering the first hole,” she [his daughter] said. “When you think about what he was able to accomplish here, with everything that was arrayed against him, it really is quite amazing.”

For Part 6 of this Series, click here.

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• After Battling Racism, Veteran Found Peace on His Golf Course (nytimes.com)

Raising Capital and Launching Startups in Uncertain Times

This is part of my Series on Venture Capital.

A few weeks ago I authored a post describing five common myths about raising capital. In this webinar organized by the National Council for Entrepreneurial Tech Transfer, I am joined by colleagues of mine from the venture, angel and legal community to specifically address the challenges of raising capital and launching new companies in a difficult economic environment. The webinar's agenda also includes the following specific sub-topics:

• How recent market developments are affecting tech transfer offices and startups.
• Emerging trends in the angel investment market.
• Emerging trends in the venture investment market.
• Changes in legal terms of startup transactions.
• Positioning startups for funding and operational success.

In my remarks I specifically address how the economic downturn has affected university start-ups/spin-offs and what steps university venture labs can take in light of such conditions.  I welcome your insights as always.

Raising Capital: How Would You Pitch Your Business to an Old Friend?

This is part of my Series' on Angel Investing and Venture Capital.

I came across this short post from London-based VC Nic Brisbourne yesterday and it immediately struck a chord with me.  Essentially he recommends that entrepreneurs pitching to investors should communicate as if they were pitching to their best friend. In my opinion this is a simple yet very effective prescription and encapsulates in one fell swoop all the right things one should do in a pitch.

Remember, investors are first and foremost looking to back great entrepreneurs who know how to communicate well with colleagues, employees and customers.  When you convey your ideas in a straightforward and unaffected manner, are responsive to feedback, and as Nic says, “do as much listening as talking”, you’re really putting your best foot forward.  

Would love to hear your thoughts on this.

For the next post in this Series, click here.