Category Archives: Business Financing

Is There a Tech Bubble? We’ll Know If It Pops

Business Financing, Economics, Technology, Venture Capital, , ,

Earlier today I posted disruption vs. revenue and the tech bubble on the gust.com blog. I’m suggesting in that post that some special-case web-based startups have to choose between disruption or revenue, because they can’t have both.

That may or may not be true, but I’ve been guilty of suggesting it is to a couple of startup software companies recently. I think both were special cases. They had a real chance to go really big and generate spontaneous buzz based on the product itself.  But locking their wares behind pay walls might slow their growth and dampen their success. 

That may or may not be true. After the tech crash in 2000, I never thought I’d see that happen again, much less me recommending not covering expenses with revenue. Still, though, there’s Facebook and Twitter and Instagram and, oh my.

Bubble? Las Sunday the NYTimes’ bits blog published Disruptions: With No Revenue, an Illusion of Value. Author Nick Bilton says yes there’s a bubble and tells why he’s sure.

When this next bubble pops — and it will pop — the idea to make no money can finally pop, too. Then investors can start working with companies to build businesses that have long-term financial goals, instead of just building a short-term mystery.

But on the same day Chris Dixon (smart person) asked Is It a Tech Bubble on his blog and answered with some convincing analysis, “no.” And the second comment on that post is Fred Wilson of AVC (another smart person) saying: 

[Zynga price] certainly doesn’t seem like a bubble valuation either. I do think there is more money sloshing around the tech/internet/mobile sector now than there has ever been. and that is impacting valuations across the board. The question is if this is temporary or the “new normal”. I guess we will find out.

So I’d like to answer this tech bubble question here, but as I was writing this, on Sunday, those other interesting and contradictory posts, from smart people, kept rolling onto the web. I ended up tweeting my conclusion to this post last Sunday, with the following tweet. 

A 2-Second Business Pitch that Worked

Business Pitch, Technology, ,

Last Thursday I’d just spoken as a guest to a class in entrepreneurship. As the class ended I was anxious to go because I was late for my grandson. The professor was thanking me and three students waited to talk to me individually. I didn’t want to be rude and I like talking to students, so I didn’t run off immediately.

The first in line was the one student I didn’t want to talk to — the one who had asked if I would listen to a quick business pitch after class. There’s no such thing as a quick business pitch when you’re not in an elevator.

However, instead of a pitch, it was iPhone in hand, showing me, and:

I know you don’t have time for a pitch but can I show you my app? It’s done and it works.

So, at least for me, an old software guy, that pitch worked. I couldn’t resist. Of course I wanted to see the app.

And it looked pretty good too. I’m asking him to show it to somebody I work with.

So there’s an elevator speech replacement that worked. In two seconds.

(Image: bigstockphoto.com) 

The Paradox of Profits

Business Financing, Business Mistakes, Weblogs

We take it for granted. One of the main goals of a business is making a profit. Right?

Maybe not.

Answer this question: What makes a business more valuable? Is it profits, or growth? Or future prospects?

And then this question: Don’t you have a straight trade-off between profits and growth?

Assume you have money still in your bank account after you’ve booked costs and expenses.

  • That money could be booked right then as profits. 
  • Or you could spend it instead on marketing or product development to enhance future growth. 

Reinvesting profits really happens before the month is closed and that discretionary money is booked as profits. Once it’s down on the accounting statements as profits, it’s almost always going out of the company.

If you can, reinvest your profits before they become profits. 

(Image: shutterstock.com)

Watch This Excellent 1 Minute Elevator Pitch

Business Pitch, Business Plan Contest, , , ,

Although it doesn’t take an MBA to do it, one of the things business schools teach more often these days, as part of the entrepreneurship curriculum, is the elevator speech, also called elevator pitch.

The one embedded here, from the Rice Business Plan Competition last week, won first prize in a contest that included 42 elevator pitches. It’s a great example. Notice how Gaylene Anderson, CEO of Solanux, hits all the high points, and all in just 60 seconds.

In case you don’t see the video here, you can also click here to go to the source video on YouTube.

And in addition, if you’d like to see more, click this link to see the whole collection.

I’ve posted some how-to advice on the elevator speech on this blog, in a four-part series. What I’m recommending in that series fits very well with what’s working in this contest.

 

On Building a Business Because the World Needs It

Angel investment, Starting a Business, , , ,

I’ve posted about Arcimoto on Up and Running almost two years ago. It’s a local (Eugene OR) business based on building cool, fun, and economically accessible electric cars, like the one shown here.

Arcimoto2012.jpg

It was a startup then, one with a believable team and a vision to build on. Two years later, it’s still a startup, still got a strong team, and sticking to its vision. So time hasn’t been wasted. They’ve been engineering for fun and manufacturing at scale, and they’ve been talking it up too. Search YouTube for Nathon Fillion, the hollywood star, and Arcimoto, and you’ll see what I mean.

Meanwhile, founder Mark Frohnmayer explained the vision behind the startup, a new vision of clean and green transportation, at a recent TEDx conference in Portland. I’m embedding it here because I think he’s got some really important points that go beyond his specific electric car. He titled it “Dude — Where’s My Car.”

If you don’t see that video here, you can click here for the original on YouTube.

This is not an easy startup to build. Founder Mark Frohnmayer has been at it for several years now, has recruited and held onto a team of leaders experienced from the nearby recreational vehicle industry, has raised several million dollars, and has spent a million or more of his own, money he had from a successful exit of a computer games company. I’m still watching with interest, and hoping they make it.

No, by the way, I have no investment in Arcimoto, no financial relationship whatsoever. I just like the company, its founder, and its ideals. And I do want them to get to market. I can’t promise I’m going to spend $20K to own one of these next year, but I do like the idea.

(Image: a screen shot from a business plan … hoping Mark won’t mind that I posted it up here)

Blogger About Angel Investment: “Confused, Scared, and More Than a Little Ashamed”

Angel investment, , ,

(Note: I posted this first on the blog at gust.com, my favorite site for entrepreneurs and angel investors. I’m reposting it here because I want to make my points under my own banner too.)

Rick's PostNow there’s a great title for a blog post. Writing about angel investment, on his Portland-based Silicon Forest entrepreneurship etc. blog, Rick Turoczy titled his post: I’m confused, scared, and more than a little ashamed. Don’t even try to tell me that doesn’t make you curious. Rick’s a smart guy, very well known in Portland (OR), and his blog matters. So here’s his problem:

WTF Angel Oregon? This is one of your concept companies? Blanket Booster? Again… WTF?

Yes, it turns out that the Portland angel group called OEN Angel Oregon just announced an investment in a startup making a bar that goes on a bed to hold the blankets up so they don’t weigh down the feet. What’s the problem?

I’m struggling to grasp how a rail that holds your blanket off of your feet is a better investment than the hundreds of concept companies I’ve talked to in the past six months.

Rick likes high tech. He’s a techie, entrepreneur, and startup expert, deeply immersed in a local incubator. (And I get that, I’m a techie too. Look at my bio.)  He says this shows two problems:

  1. Angel investing in our region is decidedly weak in tech. And with good reason. Very few of the Angels in our region have a tech background. As such, they’re not very confident investing in tech. Angels invest in what they know. I get that.
  2. You didn’t even enter the race. You didn’t even have the confidence to take your awesome idea to Angel Oregon. That you didn’t feel like you had something worthy of investment. That you didn’t think your startup was worth submitting to a selection committee.

I like the way Rick writes. His point number two is golden. I hope it’s clear he’s talking to all the techie entrepreneurs in his incubator, on his blog, and working in Portland. You didn’t enter. Touche. Well said.

Posting here as a very active member of an Oregon angel investment group — not Angel Oregon, but one in Eugene and Corvallis, the Willamette Angel Conference (WAC), I’m not comfortable with Rick’s summary of Oregon angel investor tech background. Our group has 35 members and more than half of them have come out of software, web business, or computer hardware. We have two major universities in our two towns, and there’s a huge Hewlett Packard installation in Corvallis. We’ve made three investments so far, two of them software companies, one a clean-and-green personal product. I don’t think we’re weak on tech. But Rick’s talking about the group in Portland, 100 miles north.

Here’s part of the comment I left:

One thing I dearly love about business is that almost everything is a marketplace. Buying is voting, and investing is voting. And people are unpredictable. Self interest rules in these markets, and investors are spending their money. Some consider the good of the community, some care more than others about the environment, some want to change the world, most are comfortable with investments in industries they are familiar with, some care only about what gives them the best risk-return relationship. You wind those various factors up like a top or a wind-up doll, and you set them lose, and what happens is what happens. It’s beautiful.

That’s my answer to Rick’s worries. I’m not confused, I’m not scared, and I am not in even the slightest bit ashamed. Hooray for business.

 

Can’t Get Funded? Maybe There Are Better Ways

Bootstrapping, Business Financing, , , , ,

Today I joined Ian Sigalow, Jim Estill, and Mike Edelhart on a free webinar titled “Revolution in Venture Funding.” If you’re interested, here is the link to the permanent archive: http://myventurepad.com/93875/audio-archive-revolution-venture-funding.venture-funding-revolution

The sizzle in this one is the idea of crowd funding: specifically, there’s a bill in congress that would loosen up restrictions on small-time investments in startups, relaxing the constraint related to “accredited investors.” A lot of people are excited about that. Me too, but I’m also worried about opening up a floodgate of spams and scams. I have mixed feelings.

I’ll be adding in some suggestions for alternative funding and bootstrapping, including my own experience of funding a new product by giving a professional programming shop a percent of future revenue rather than percentage ownership in the company, and of getting a big company promising to purchase a product to fund the development. And, in the end, my experience of bootstrapping Palo Alto Software so that as it stands now, we own it outright, with no outside investors.

In that vein, I was searching the web and came up with this Smoothspan: Directory of Bootstrapped Companies listing some very well-known companies (37 Signals, WordPress, Zoho, and several others) that were bootstrapped. And you can add Palo Alto Software to that list.

And I want to add that Ian and Jim are world-renown pros in venture capital investment, and Mike is a smooth moderator, so the discussion will also get into a lot of other angles on the main theme, revolution in funding. I hope you join us.

Blaming Angels and VCs for Choosing is Like Blaming Up for Down

Angel investment, Bootstrapping, Venture Capital,

I was happily reading Sramana Mitra’s The Other 99% of Entrepreneurs on Read/Write Web, agreeing with every detail, when I ran into a snag. It’s in italics in this quote from Sramana’s post.

Sramana_RWW_Bootstrapping.jpg

Over 99% of entrepreneurs who seek funding get rejected. Yet, the entire world is focused on the 1% that is “fundable.”
The media, when pitched a startup story, is interested in who funded the venture. They seldom ask how much revenue the company has or if it is profitable. Incubators take pride in how exclusive they are and how many “deals” they “reject.” Angels and VCs, of course, discard most of their “deal flow.”And entrepreneurs? They seem to have confused the definition of entrepreneurship altogether. Entrepreneurship, they mistakenly believe, equals financing!

This is wrong.

I agree with her: It is wrong — except for that one extra detail. On the core of it, well, I posted something similar more than three years ago, in a respectful hats off to bootstrapping, on this same subject:

For years now, I’ve complained every so often about how we (in blogs, business plan contests, academia and entrepreneurship in general) tend to idealize the venture capital-financed startup, the SBA loan and the more formalized and carefully planned financial strategy. This is especially true in venture competitions.

This is the real world. Bootstrapping is often the only way to start, build and grow your business.

But don’t blame the investors. That’s like blaming up for down. Angel investors spent about $18 billion last year to fund more than 50,000 startups; of course they have to pick and choose. That’s the nature of investing in startups. And venture capitalists are investing other people’s money. They’re being paid to generate a return on investment. Their job is picking the best deals they can find. It’s for the rest of us to understand and respect bootstrapping.

Sramana Mitra is way too smart for that. I like her work and read her often, and included her in posts on this blog. I think she just got on a roll and added one detail too many. Because everything else in that post makes a lot of sense. And she’s one of the best writers/bloggers/thinkers you can find on startups and investment in general. I love her reengineering capitalism idea. So consider this a small correction for a really good post. On an important subject.

Q&A: The Perfect Letter to Potential Private Lenders

Angel investment, Business Mistakes, Q&A

This is another question received in my ask-me form on my timberry.com website:

I’m hoping you might be able to help direct me in finding the perfect letter that I need to send out to potential private (mainly friends) lenders for a start-up I’m involved.  I need this letter to spell out the details of the lending terms, conversion, etc.  I’m a numbers person (CPA) not a writer but I need this letter to be very appealing to convince them to lend us the start-up capital we are seeking.

My answer:

You’re focusing on the wrong thing. People don’t invest or not because of the perfect letter. Get the details right and the letter will follow. If you’re a CPA you’ve got an education and you can write the facts in correct English. Or, if you have money you don’t know what to do with, pay somebody to write a perfect three-paragraph letter.

The best a letter can do is communicate facts quickly and easily. The facts sell your deal, not the letter. what matters isn’t the letter but the startup, the team in charge, the product-market fit, the deal itself, and of course (as you suggest) the details of the lending terms, conversion, etc.

Start with a conversation, not a letter. Don’t ever think you can find startup investors by sending some letter out to a lot of people. You need to pinpoint the right people, and communicate well. A letter might be useful for following up, but think of it as a cover letter to a legal document. It should be no more than three paragraphs, hit the highlights legally, and that’s it. Then you have all the legal documentation your people will have to read and understand and, eventually, sign.

What you do need, by the way, is to check with an attorney about anything you say, or write. There are a lot of banking and fraud rules related to these deals. It’s pretty easy to break the law if you don’t know it. And the wrong terms on a letter to potential lenders can screw up your chance for angel investment or venture capital later. Now there’s an expertise you might really need for the letter, and, more important, the loan documents.

Q&A: Finding a Consultant to Find Investors

Angel investment, Starting a Business, , ,

This is another frequently asked question that came from the ask-me-a-question web form on my main site at timberry.com.

Question:

Trying to find a consultant that links me to investors? Does this exist? I’m a 21 yr old entrepreneur. Learning on the fly!

Answer:

  1. You don’t need a consultant to learn about angel investment. There are thousands of good links on the web. Not that mine are necessarily the best, but since you asked me:  Browse though the angel investment articles on this site (click here for a site search for angels). Read the angel investment category on this blog.
  2. Please make sure you have a deal that will interest investors first. It takes a credible experienced startup team, an attractive product-market fit, an interesting market, and defensibility. Way too many people waste their time and — if they hire consultants — trying to find investors with a deal that no investors would ever be interested in. Please read Is Angel Investment Realistic? and be honest with yourself.
  3. If you don’t have the right stuff, don’t spend energy searching for investors. Change your plan. Either gather some more team members to beef up the offering, or focus on what you can implement by yourself. Bootstrap your business. If you still want a consultant, forget paying somebody to link you to investors. Get somebody to tell you what you need to have.
  4. If you do have the right stuff, then you probably don’t need a consultant. Go register at gust.com where you can browse through about 600 angel investment groups and look for one in your local area, or one with interest in your kind of business. Don’t apply to all; don’t send your info bouncing around everywhere; concentrate on the groups that are more likely. Connect with your local small business development center (SBDC). Ask people you know who they know locally who might be interested. Find out about local investors using the SBDC, the chamber of commerce, local business schools, etc.
  5. And if you really want the consultant, and you have money to spend, buy expertise and experience from the consultant, not heavy lifting. Buy very targeted help. There are honest legitimate consultants in this business, but they are rare. Check references carefully. Talk to past clients. And if you have a consultant help with your own business plan and your own business pitch, what you want is coaching, constructive criticism, not writing and formatting.