Satya Murthy

From – Shailesh Menon,ET Bureau

Early stage funding for promising start-up firms appears is set to receive a boost with local and foreign venture capital (VC) investors

lining up investment plans as the economic recovery gains strength both in India and abroad.
Over 30 new VC funds have started putting money in start-ups across various sectors such as clean technology, micro finance, rural technology and genomics apart from conventional segments, a marked contrast to the bleak days of 2007-08 when the global financial crisis hit these investors hard.
The pace of economic recovery now coupled with factors such as higher investment returns and easier exit options have triggered off fresh interest among both domestic and foreign VC firms to invest in India. Amongst foreign VC (FVC) firms, funds such as Artiman Ventures, BAF Spectrum, ATEL Ventures, Blue Orchard, Mercatus Capital and Foundation Capital have already made the initial investments in Indian start-ups.
Newly-set domestic venture capital (VC) funds such as Aavishkaar Goodwell, Ambit Pragma, Axis Holdings, Rabo Equity and VC Hunt are also cutting deals across sectors, according to data maintained by private equity tracker- Venture Intelligence.
“The economic slump has not hit India as badly as it has impacted the West. Early-stage investing is a risky proposition in indecisive markets. This is where India scores well over other markets. Venture funds are seeing limited downside potential while investing in Indian start-ups,” said Harshal Shah, CEO, Reliance Technology Ventures.
VC firms invested $475 million over 92 deals in India during calendar 2009. In the quarter to December alone, VC firms logged 42 investments worth $265 million — significantly higher than that during the same period in 2008.
According to analysts, one of the main reasons for VC gathering pace in India is higher returns and easier exit options.
Most VC funds expect a return of 25-30% on their investments annually. VC funds that invested in listed companies — or had investments at the time of going public — exited these stocks at high prices
when markets were climbing in mid-2009.
Companies such as Gayatri Bio-organics, First Solutions, Excel Glasses, ESS DEE Aluminium. Punj Lloyd, Motilal Oswal Financial and Gujarat State Petronet have seen an exit of VCs from their shareholding scrolls. Companies such as Compulink Systems and Spanco and groups that recently came out with public offerings such as Pipavav Shipyard and Indiabulls Power still have VC holdings between 7% and 20%, according to ETIG’s database.

“The risk aversion attached to early stage investing during economic downturn has come off by a good measure. Once the start-up is validated, venture capital funds do not have any reservations to invest in them these days,” said Gaurav Saraf, director, Epiphany Ventures.
While domestic VC funds have it easy in respect of receiving licences, the majority of foreign VC funds are investing in India through the foreign direct investment (FDI) route. RBI is granting approvals to funds to exclusively invest in nine specified sectors (with tax pass-through benefits) namely IT, biotechnology, nanotechnology, poultry, dairy, biofuels, hotels and hospitality centres, seed research and chemical research & development.
Foreign funds would want to invest in India through the foreign venture captial route as it allows them an easy exit at the time of an IPO. Funds investing through the FDI route will have to hold on to their investments for one year after the listing,” said Pranay Bhatia, partner, Economic Laws Practice.
According to Mr Bhatia, foreign VC funds, at the time of exit, will have to adhere to the valuation guidelines if they are investing through the FDI route.
RBI’s valuation guidelines is not applicable to funds that come through the foreign VC route. Foreign funds investing in domestic venture funds (that are incorporated as trusts) will have to obtain approvals from the Foreign Investment Promotion Board. This is not needed in the case of funds investing through the FVC route.

from: http://smartstartup.typepad.com/my_weblog/2007/09/how-to-find-sta.html

I have this conversation at least once a week.  Some visitor to my site on financing startups spends a couple of hours reading all, or most of it, and decides to call me up. The conversation then, almost invariably, goes like this.

Caller: Hi, I read your site. It’s fantastic, by the way. Look, we’ve been trying to raise X dollars for over 6 months now, without any luck, and we’re starting to get desperate.

Can you help us raise X dollars?

Me: Well, it doesn’t really work that way in real life. Raising money is actually all about relationships and personal trust. Let me put it this way. You have three basic financing options out there.

The first and best bet consists of your former investors. These are people who gave you money in a previous deal and made off like bandits as a result. They know you, trust you, and believe in you.

Caller: Hey! That makes perfect sense.

Me: Your next best bet consists of the "3Fs", otherwise known as "family, friends, and fools".  This group includes dad, mom, uncle Ziggy, your Yale "frat bro" Chipper Drysdale III, and anyone else foolish enough to fall for your pitch (e.g., your dentist).

Caller: Got it!

Me: The final option is to get creative and do what most of the great entrepreneurs did at the beginning when they were in your shoes and couldn’t raise a dollar either. This third option is what my Smart Startup Guide teaches you how to do. It teaches you how the greats started with minimal or no capital. It goes into great detail about their strategy and tactics.

Caller: Well, I’ll be danged! Wish I had known all this 6 months ago.

Me: So, Mister Caller, let me ask you if you have any previous investors whom you made rich and who trust you?

Caller: Ahh, no I don’t. I have never made money for anyone. This will be my first business.

Me: Hmm, okay, let’s work our way down the list. What about the 3Fs? Do you have any family, friends, or dentists who would be willing to gamble their savings on you simply because they like you?

Caller: Ahh, no I don’t. My family is not rich and I didn’t graduate from an Ivy League school.

Me: Hmm, well then you need to forget about raising any outside money for the time being. Instead look at devising an alternate strategy for launching your business. You need to show potential investors that you have what it takes to create some cashflow first. Then they might take you seriously enough to invest.

Caller: Wow, I never knew any of this stuff. This explains why we haven’t been able to raise any money with our business plan despite 6 months of pounding on doors and doing "dog and pony shows" for angels and venture capitalists.

Me:  Yes, it does explain it. Investors only invest in entrepreneurs they know and trust–or those who have proven the viability of their idea with actual cashflow.

Caller: Sure looks that way.

[There's usually a short pause here before the final question.]

So, can you help us raise X dollars then?

~

At this point I usually feel like banging my head down on the desk. So if you are tempted to call me about helping you to raise capital, please don’t. I wrote the Smart Startup Guide for people who have wasted 6 to 18 months of their lives in a futile capital pursuit. After this much time they have either become realists or quit. But both finally understand that a business plan alone means little to investors. So feel free to invest or not invest in the Guide, but please don’t call me about helping you to raise money.

I decided to post this because the number of entrepreneurial wannabes who waste 6 to 18 months chasing capital with nothing more than a business plan is absolutely staggering. They might as well just stay at home for the same period buying lottery tickets. The odds of success are about the same.

So what’s the take home here? First-time entrepreneurs should focus on proving that they can generate some cashflow first. The investors will follow. Don’t fall for the hype from the business plan industry which tries to fool you into thinking that all you need is a well-written plan.

by Don Dodge

Entrepreneurs face some pretty tough questions at a very early stage. Should I take Angel or VC money? How much money should I raise? How much equity should I give up? How much equity should I grant to early employees? There are some guidelines, but every situation is different.

Paul Graham wrote a blog "The Equity Equation" 1/(1-n), which basically says "You should give up n% of your company if what you trade it for improves your average outcome enough that what you have left is worth more than the whole company was before."  For example, if you take $1 Million from a VC in exchange for 33% of your company, it is a good deal if the company is worth 50% more as a result. Theoretically you owned 100% of a $2M company before the investment, and now you own 66% of a company worth $3M.

Both the entrepreneur and the investor have much higher expectations than just "even money" on their bet. The entrepreneur expects the company to be worth many times this valuation and so does the investor. VCs and Angels can add tremendous value to a growing company, and it is in their best interest to work hard for you.

Shouldn’t the entrepreneur negotiate to only give up 20% of the company for $1M? The short answer is that the company is only worth whatever a competitive group of investors is willing to pay at that point in time. The key is to have several VCs or investors competing for the deal to arrive at a "fair" valuation. It isn’t always possible to have a competitive bidding situation at each financing round so here are some guidelines for funding sources and percentages.

Friends & Family can usually raise between $30K and $300K and usually take an interest bearing note that is convertible into stock at the next financing.

Angels will usually invest between $300K and $2M. They often take a convertible note too, but with warrants for additional shares or a discount on Series A shares. No loss of equity, at least until they convert at Series A.

VCs want to put in $2M to $8M and usually want 30% to 50% of the company. So they will give you a pre-money valuation somewhere around the amount you raise. Sounds strange, but it usually works out that if you are raising $2M the VCs will value your company at $2M pre-money, and $4M post money so they end up with 50% of the stock. If you are raising $5M they will typically value your company at $5M pre-money. The theory is that if they trust you and your business plan enough to give you $5M, then you have probably created something that is already worth $5M.

The second and third rounds of funding take additional shares of equity and dilute existing investors and founders. Founders usually end up with 10% to 20%, all the other employees end up with about 15%, and the VCs end up with about 60% to 75%.

How much money should I take? Marc Andreessen says take all you can get. My simple answer is a little more than you need to reach the next milestone. Don’t cut it too close. Things will take longer than you project, some things will go wrong, and it always take longer to raise money than you think it will. So, figure out how much you need to fund you for a year, or to your next milestone, then add 50% as a safety cushion. That is how much you should raise.

Shouldn’t I raise as little as possible now and raise more later at a higher valuation? Great in theory, that is what you hope to do. But, don’t cut it too close. Give yourself some extra cash and runway to get to the next level. Companies fail because they run out of cash. This sounds simple but think long and hard about this. Companies fail because they run out of cash…they usually don’t fail when they have too much cash in the bank.

Don’t worry about giving up too much equity at an early stage. If the company is successful you will be very rich. If it isn’t successful then holding 60% versus 30% won’t matter anyway.

How much equity should be given to employees? This is another tough question but there are some broad guidelines. To use Paul Graham’s theory, you should give that superstar employee enough stock to keep them, and in return they should add double the value you gave up. If you give up 1% equity for an employee, they should add 2% of value to the company. That is much harder than you might imagine.

A basic rule is that each level of the organization should get about one half the options as the level above. If a VP level person gets 100,000 shares, then a director level person might get 50,000, and a manager/supervisor might get 25,000 shares. Here are some "average" guidelines for equity percentages at a liquidity event. They start out higher and get diluted down to these levels after multiple rounds of financing;

• CEO – 4%
• VPs – 1% each
• Director level – .5%
• Managers – .25%
• Individuals – .05

Now, lets do the math for a company that has 100 employees. The VCs will end up with about 60% to 75% of the company depending on how much was raised and how many rounds. Founders and VPs usually have about 10% and employees have about 15%.

The CEO will have 2% to 4% depending on when they joined or if they are a founder. Lets say you have a non-founder CEO and two founders who are VPs; they will account for 6% of the stock. There will probably be 4 other VP level people with 1% each. That is a total of 10% for founders and execs.

You might have five directors with .5% each and ten manager/supervisors with .25% each for a total of 5% equity. Then you have about 75 individual contributors at a variety of levels, but on average they hold .05% each for a total of about 4%. So, founders and execs end up with about 10%, directors and managers get 5%, and individual contributors account for another 5% collectively, for a total of 20% of the company.

Should I sell the company now for $5M or hold out for a $100M exit 5 to 7 years down the line? This sounds like a "no brainer" but it really depends on what stage you are at and how much equity you have given up. If you are one of three founders holding 33% of the company a $5M exit gets you $1,667,000. If you build the company to 100 employees and sell it for $100M you will probably end up with about $2M. See the equity percentages above to understand how I got to $2M.

Talk to other entrepreneurs – These are tough questions. Every situation is different. The investment market conditions change all the time. What worked three years ago may not work today. Experienced entrepreneurs who have "been there – done that" are your best source of advice. They have lived it and most often are happy to help a fellow entrepreneur. Good luck!

My next post will be about the importance of cash flow, keeping burn rates low, and how to avoid excessive equity dilution

For all those hungry entrepreneurs/CEOs of startups…

• If you cant look at other entrepreneurs and learn – then don’t look at them. Jealousy (or self pity) will kill you in this business!
• When you look at facebook and twitter, your imagination must run wild… you heart might say, I wish I could come up with an idea like that. Well here is the truth – don’t try and create something for the entire world – break it down. Remember the British – divide and conquer!
• Companies like facebook were never created for the world – they tried to address a small, specific need – and it just happened to become big. And – NO – it didn’t happen overnight!
• I see most entrepreneurs trying to sell the product before its fully functional or useful! Give it some time – its good to talk about it – but pls for gods sake don’t spam the networking sites, your friends and families mail boxes.
• Don’t copy – After the success of FB and twitter, there came some 100 scripts which can the do the same – what’s the point? Its good to have a niche social networking site about cats or fashion or women in games or what not – but thinking that you can replicate the success of twitter and FB or MySpace is madness – you will end up like orkut – neither dead or alive!
• Don’t burn yourself – if you are making a decent salary and working for someone –great – keep doing that until you really really have to quit! thinking that you can survive on the revenue from adsense is crazy talk!
• Say yes to venture capitalists – money in all forms is good – if a VC is ready to fund you, I’d say take it! Don’t listen to people telling you about “how VCs will take the control away” that’s nonsense! Having that extra $ or Rupee in your pocket will only help you be a little bolder and experiment with you company/product. Remember, you want to stay alive in today’s business – keep reinventing your products/ideas.
• Lastly – marry as many people as you can in your business, its good to have people who believe in you and can advise you in crappy times. You will need more than a couple of shoulders to cry on if you are an entrepreneur – that’s how this game is!

Don’t take on the world all at once, take once city/district/state/country at a time! My 2 cents!

An excellent article by Sarah Lacy on business week the prime suspects responsible for the Valley’s nagging aversion to risk. Here is an excerpt

“I was recently at a Silicon Valley conference where one of the debates that raged into the wee hours centered on Silicon Valley’s increasing aversion to risk: Is it a good thing, and who’s to blame for it?

Less risk-taking by entrepreneurs means less outright failure. A lot of burned startup founders and investors see this as a plus. But any macroeconomist will tell you it’s the rare home runs—successful, innovative companies yielding high returns—that create jobs and capital that keep the Valley humming.”

Read more here – Business Week

from: http://www.pehub.com/52616/angel-investors-to-startups-yes-we-charge/ 

Jason Calacanis’s blog post Friday attacking angel investor groups who charge entrepreneurs to pitch their start-ups continues to generate Tweets, comments and blog posts, many from outraged entrepreneurs.

VC Fred Wilson of Union Square Ventures also weighed in for Jason, warning entrepreneurs to avoid not only angel groups that charge but also “start-up agents that charge entrepreneurs upfront cash to make intros to potential investors…A basic rule of thumb for fundraising agents is that they must work on a success fee basis or you should not use them.”

However, representatives from two more of the groups Calacanis attacked by name — Maverick Angels and the Keiretsu Forum — called over the weekend to defend their practices.

They said some entrepreneurs have “a sense of entitlement” and believe that whatever they do is worth a hearing. (Entrepreneurs have to believe in what they’re doing or they’ll fail, but “sense of entitlement” is a phrase used by every angel group I’ve talked to). One of these groups also claims that Calacanis’s TechCrunch50 conference makes a lot more money off start-ups than they do.

Any entrepreneur can apply for a hearing to Maverick Angels or Keiretsu Forum, they said, and those who are chosen to move forward get weeks of free coaching and mentorship on their pitches before they’re asked to pay. Also, entrepreneurs don’t have to pay — they can drop out if they want.

Maverick Angels seems to have more steps in their process than Keiretsu and their fees are staged accordingly. Maverick founder John Dilts, who used to be associated with Keiretsu, said there’s a lot wrong with angel investing — the process is still too random, he said, and the angels have to be controlled as well as the entrepreneurs. At Maverick meetings, for example, angels are not allowed to make long, off-the-point speeches.

The Keiretsu Forum, meanwhile, said that while TechCrunch50 charges all but the entrepreneur to attend, associates of the entrepreneurs chosen by Keiretsu can participate in their process for free. “We are not in this to make money,” a spokesman said.

Jason Calacanis hasn’t gotten back to me on this one, but if he does I’ll add his comment.

Dave Troy here with Kris Appel, our guest blogger for today. Kris is the founder of Encore Path, a medical technology start-up in Baltimore.

As a first-time entrepreneur, raising the money to launch launch a medical device was a significant undertaking.

I am not only a first-time entrepreneur, but I chose to start a company in an unfamiliar field. I have a background in linguistics, but my company develops medical technology for stroke rehabilitation.

So I started this endeavor with two strikes against me. This month, I will close my Series A round, and my first product was launched this summer, a rehabilitation device that improves arm function in survivors of stroke and other brain injury. Here is how I was able to attract investment:

• Humility — Everyone knows something I don’t. Why wouldn’t I want to learn from them? I am thankful that people care enough about me to offer their advice and give me their time. I’m sure they have other things to do, but they’ve chosen to spend this part of their day with me, and I’m going to listen to what they have to say.

• Be nice to everyone, all the time — I’ve met people everywhere who might turn out to be investors or important advisors. You never know when someone is going to help you, it could be weeks or even YEARS away, but you want them to remember you fondly, and to want to help you succeed.

• Meet with everyone who asks — Especially early on, I met with everyone who requested a meeting with me. And I didn’t mind asking each person for something — a referral, a market report, scientific data I couldn’t afford to buy, business advice. Some of those casual meetings turned into major investments later.

• Enter business plan competitions — I entered, and won, a few business plan competitions. In addition to winning cash for my business, I made a lot of contacts, got some very positive press, and got a TON of free advice about my business plan.

• Let people get to know you — All of my investors were strangers to me when I started this company. But I sought them out in the beginning as advisors, and spent time with them over months and years, talking about progress I’ve made and where I’m headed. It helped to build trust and credibility, and they eventually invested.

• Be patient — Every single aspect of this business has taken a lot longer than I thought it would. But so far everything has happened exactly as expected, just at a different time.

• Surround yourself with supportive people — This is the hardest thing I’ve ever tried to do. I needed all the courage I could muster, and support from friends and family. I dropped friends who couldn’t support me, and found new ones who understood. It made a difference.

• Keep your business plan current — This seems obvious but it’s harder than you think. Almost every month STILL I take time to update my business plan. You never know when you’ll need to email it to someone, or enter it into a business plan competition, or use parts of it for a grant or loan application.

From http://onstartups.com/tabid/3339/bid/10216/Burning-Cash-Is-For-Toasting-Marshmallows-cartoon.aspx

I’m going to go on a bit of a rant here.

I’m miffed that the industry term for the process whereby  startups invest in building their businesses is called “burning cash”.  If your startup is burning cash (as shown in the cartoon above), you’re doing it wrong.  You should’t be burning money, you should be investing money — with the goal of growing your business.

I find it interesting that when venture capitalists (VCs) take money from their limited partners (LPs), they don’t say:  Hey, we’re going to take your money and go burn it on a bunch of different startups.  Why?  Because that’s not what they do (not the good ones anyways).  What they do is invest the cash in the hopes of generating a good return.

So, I’m going to ask that all startups that have raised funding to no longer use the term “burn rate”.  Instead, lets call it what it is (or should be):  An investment rate. As in "our startup has an investment rate of about $400k/month".

Oh, and if you really are burning cash, please start using smaller bills.

From: – Dean Takahashi on Venture Beat

IMVU has been fairly quiet about its success in virtual chat rooms, where people can create their own dressed-up 3-D characters and socialize in graphically beautiful settings. But today it’s starting to trumpet loudly that it has established a strong business with a $25 million annual revenue run rate.

Cary Rosenzweig, chief executive and president of the Palo Alto, Calif.-based company, said in an interview the company has doubled its revenue in the past year in spite of the recession and the cooling off of the virtual world hype. IMVU now has more than 40 million registered users and six million unique visitors a month, according to comScore. For the past three months, the company has been profitable, Rosenzweig said.

If the company keeps up its momentum, it will have a shot at generating the kind of highly profitable larger business that publicly traded chat/virtual world companies in China have seen. Rosenzweig says he admires companies such as China’s Changyou and hopes to duplicate their success. He’s speaking up about the success now because IMVU hopes to land partners that can drive more traffic to the site.

“I think it’s important that potential partners know which companies in this space are going to be around tomorrow,” Rosenzweig said.

IMVU grew its revenue primarily by increasing the sale of virtual currency to its members, who use that currency to purchase virtual goods ranging from clothing for their avatars to furniture for their rooms. Since 2004, IMVU’s own users have created more than 3 million items, giving IMVU the biggest catalog of virtual goods in the world.

[EMBED1]Users can create their own avatars for free, but IMVU got a big boost this summer after it launched a new user interface. That interface allows users to try clothes on their avatars using a “try it” button. They can then purchase the clothing with virtual currency by clicking on a “buy it” button. With the new interface, more users are clicking on “buy it.” In the past 30 days, more than 35,000 user-developers have sold virtual goods. Those users are adding more than 4,000 customized 3-D items for sale each day.

Rosenzweig said the business model is dependent mostly on the sale of virtual currency. Users buy credits from IMVU and then use those credits to buy items from each other. Developers can get training on 3-D artistry and within a very short time upload their creations for no charge. They keep 100 percent of the proceeds of the credits. If developers want to cash out, they can do so through an in-game market that allows them to sell credits directly to users. IMVU takes a small processing fee when that happens. Hence, the more trading that happens, the more IMVU makes.

“We’re kind of like an eBay for virtual goods,” Rosenzweig said.

IMVU also recently started inserting advertisements into the site and spending some of its profits on online marketing. It accommodates younger users (who don’t have credit cards) with the sale of prepaid cards in 24,000 outlets, and it also lets users buy credits by filling out surveys or special offers from Offerpal.

With all of these changes, revenue has grown from roughly $2.5 million in the first quarter of 2008 to an expected $6 million-plus in the third quarter of 2009. Revenue has been growing each month for the last 13 months, even with the downturn. Monthly revenue is now above $2 million.

Users engage in 770,000 chat sessions per day, with the average chat session lasting 60 minutes. That represents a level of engagement that is enviable among entertainment sites. Some folks like to joke that it’s all sex chat, since there are a lot of racy avatars in IMVU. But Rosenzweig says it’s not a predominant part of the experience. Porn isn’t allowed and the audience is predominantly female.

Despite its large growth, the company has been able to keep its costs low. One reason is the way it is designed. Companies such as Linden Lab, which runs virtual world Second Life, have enormous server costs because they have to maintain a physically interconnected virtual world 24 hours a day. But IMVU’s virtual spaces are limited to rooms or scenes (like the beach or an estate), and its content is user-generated. That means that IMVU doesn’t have to buy or lease a lot of new servers or hire a lot of artists as it adds more users or catalog items. By contrast, a virtual world owner (without user-generated content and with a continuous virtual world) would have to add a lot of fixed costs as it expands.

IMVU has 59 employees and has raised $30 million in three rounds of venture funding to date. Most recently it raised $10 million in January from Best Buy Capital, Menlo Ventures, Allegis Capital, and Bridgescale Partners.

Rivals include Facebook and MySpace on the social networking level. In virtual worlds/virtual chat, its rivals include Meez and Gaia Online. The fashion-based game being developed by Nurien Software is also a likely competitor, when Nurien launches its highly realistic fashion game world in 2010.

Both of the latter appeal to younger teens. But 58 percent of IMVU’s users are 18 or older. About 69 percent are female, largely because of the fashion-oriented nature of the site. About 62 percent are in the U.S.

Rosenzweig said there are plenty of avenues for expansion in the future. That includes expansion into non-English speaking geographies. The company could also move into mobile platforms and the Mac.

By Steve Tobak

Venture funding is tighter than ever, business loans are virtually nonexistent, nobody’s spending, and morale is down in the dumps. So why is this a great market for entrepreneurs? No, I’m not on drugs … except for Claritin. I’ve actually got a logical argument here.

10 Reasons Why This is a Great Market for Entrepreneurs

1. First, I’m a big believer in contrarian logic when it comes to markets, a sort of “fools rush in” mentality. When the masses are running for the hills, check out what they left behind.
2. In this market as in any market, if you have a great concept, after you’re through listening to dozens of investors tell you you’re crazy and it’ll never work, you’ll find one or two believers who will back you. Google had Andy Bechtolsheim. You’ll find yours.
3. Because of the economy – layoffs and startup failures – lots of smart people are sitting on the sidelines waiting for something good to come along. Sure, you have to wade through lots of mediocrity, but you’ll find them.
4. After more than a decade of hype, digital convergence is finally here! The mobile Web is here. Lots of new concepts, devices, and technologies are possible. Why should Apple, Google, Qualcomm, and RIM get all the spoils? 
5. Alternative energy may be hugely overhyped, but it’s here, it’s big, and big government is pushing it with more than just words.
6. Baby boomers are getting older and want to live longer, healthier and happier lives. We want new antibiotics for all those resistant strains, drugs for Alzheimer’s and other forms of dementia, replacement livers and other body parts grown from our own cells so they won’t be rejected, and dare I say better “performance” (not me, of course).
7. With all the health clubs, diet crazes, antidepressants, therapists, and self-help books, people are fatter and crazier than ever and taking a record number of pills, vitamins, supplements, and homeopathic cures that don’t do a darn thing. There’s got to be room for something that actually works, right?
8. Social networking and search technology are huge and in their infancy. There will be a dozen more like Amazon, Yahoo, eBay, Google, Baidu, LinkedIn, MySpace,Facebook, YouTube, and Twitter before these markets reach maturity. You can lead or be part of the next one.
9. 3D is coming, not just to theaters, but also to your TVs, PCs, and game consoles, and in a huge way. Virtual reality is not far behind, and within 5-10 years you can even ditch the glasses. 3D will open up a world of opportunity for startups. 
10. Okay, now it’s your turn – you name the tenth!

Repost from: http://entrepreneur.venturebeat.com/2009/09/21/the-ideas-great-but-the-leadership-team-stinks/

(Editor’s note: Jeff Bussgang is a General Partner at Flybridge Capital Partners. This column originally appeared on his blog Seeing Both Sides.)

One of the things I continue to struggle with as a VC is the unfortunate fact that I am in the business of saying “no” all the time.

Saying “no” in the context of how you invest your time is one thing – fellow VC blogger Brad Feld did a good blog post on this topic in the context of time management a while ago as did Y-Combinator’s Paul Graham. But I really struggle with saying “no” to entrepreneurs.

Entrepreneurs pour their hearts, souls and dreams into their start-up ventures – and to summarily dismiss them remains the hardest thing about the job. One of my entrepreneur buddies asks me whenever I see him:  “So, did you crush any entrepreneurs’ dreams today?” Very funny. Ha ha.

One of the reasons for this dynamic is that VCs are in the business of trying to see everything (i.e., learn about and meet with all the best deals out there) but do nearly nothing (i.e., invest in only one or two companies a year).

My dilemma becomes more acute when I try to explain why I am saying “no”. In particular, how do you say no when the reason for turning down the investment opportunity is the team?

It’s easier to say no when you have concerns about the market, the business model or the price. The entrepreneurial team is great, you would enjoy working with them, you think they are money-makers, but there’s something in the general model that prevents you from pulling the trigger. Those are the easy ones.

The hard ones are when you are saying no because of the team. Successful start-ups typically follow Thomas Edison’s genius formula: 10 percent inspiration (the vision or idea), 90 percent perspiration (the execution). Whether you like the idea or not is irrelevant if you don’t believe the team has the wherewithal to execute it successfully.

Sure, a team can evolve over time and new leaders can be brought in, but very few VCs invest behind teams they don’t believe in.

One curmudgeonly VC I know used to say to entrepreneurs: ”I don’t think is an opportunity that suits you.” At Flybridge Capital, we try our best to be direct and honest in providing feedback to entrepreneurs to help them with their ventures and perhaps we should have the courage to give it to people between the eyes.

I’m just not sure this blunt feedback would pass the decency and respectfulness test. After all, who am I to project such an unfair judgment based on a 45-60 minute meeting? VCs need to “Blink” and make snap judgments after those 45-60 minutes in order to filter and prioritize how they spend their time, but why be mean about it?

In the end, I often settle for a polite “it’s just not a fit for us” – but I often wonder if that’s the right approach.

Let me know what you think. IF a VC turns you down because of you or your team, would you rather be told bluntly – or have the news couched in more polite t What’s the meanest turn down you’ve ever received from a VC?

Image by smudie via Flickr.

from: http://entrepreneur.venturebeat.com/2009/09/25/12-facts-about-entrepreneurs-that-may-surprise-you/

(Editor’s note: Dharmesh Shah is a serial software entrepreneur and the founder and CTO of HubSpot, which provides marketing software for small businesses. This column originally appeared on his blog. )

I have a picture in my head of what the average entrepreneur is like. I’d guess pretty young (think Facebook, Twitter, Google, etc.) living the red beans and rice lifestyle, working 80+ hours a week and sleeping under their desk. 

On some parts, I’m probably right — but on many, I’m flat-out wrong. This is demonstrated by a recent report from the Kauffman foundation for entrepreneurship.  The report, “The Anatomy of an Entrepreneur,” is based on a survey of 549 company founders across a variety of industries.

Here are some of the points from the report that I found the most interesting.

1. The average and median age of company founders when they started their current companies was 40.

2. 95.1 percent of respondents themselves had earned bachelor’s degrees, and 47 percent had more advanced degrees.

3. Less than 1 percent came from extremely rich or extremely poor backgrounds

4. 15.2% of founders had a sibling that previously started a business.

5. 69.9 percent of respondents indicated they were married when they launched their first business. An additional 5.2 percent were divorced, separated, or widowed.

6. 59.7 percent of respondents indicated they had at least one child when they launched their first business, and 43.5 percent had two or more children.

7. The majority of the entrepreneurs in the sample were serial entrepreneurs. The average number of businesses launched by respondents was approximately 2.3.

8. 74.8 percent indicated desire to build wealth as an important motivation in becoming an entrepreneur.

9. Only 4.5 percent said the inability to find traditional employment was an important factor in starting a business.

10. Entrepreneurs are usually better educated than their parents.

11. Entrepreneurship doesn’t always run in the family. More than half (51.9 percent) of respondents were the first in their families to launch a business.

12. The majority of respondents (75.4 percent) had worked as employees at other companies for more than six years before launching their own companies.

Which surprises you the most and alters your mental model of what entrepreneurs are like?

Image by emutree via Flickr.