THE DREAM IN ACTION

 Think back to pre-Facebook and pre-MySpace days…even pre-Friendster… Nobody understood the idea of a web friend or a social network. Then those companies came on the scene, people understood them and began to find value in them. Then the niche social networks came, the good ones provide great value for those involved and the ones that don’t sit stagnant.

Then micro-blogging came along in the for of Twitter and Pownce. People didn’t understand why they would answer the question of “What are you doing?” to the public. But, when they did the popularity and the value of Twitter skyrocketed. Now just as before with social networks there are community based and customized micro-blogging platforms. The good ones provide great value for those involved and the ones who don’t sit stagnant. No surprise.

Recently, my friend Scott Scheper launched the customized community driven VentureDig micro-blogging platform. The site is focused on increasing communication between venture capitalists and entrepreneurs.

VentureDig is the first micro-blogging platform that focuses on ventures and venture capital.

You can think of VentureDig as Twitter for entrepreneurs, venture capitalists, angel investors or anyone desiring to learn about the next big thing.

The concept behind VentureDig is really quite simple: pitch a venture that you find to be awesome! Something you dig! Something you like so much, that you decide to share it with all of your friends.

This can be anything–a certain website you like, a blog you like, an iPhone app you like, a facebook app you like–virtually anything.

The only thing is, you have to tell everyone why it’s worth checking out in less than 140 characters.

This site has serious potential to be an open and honest live forum for investors and entrepreneurs to interact in a balanced fashion. Similar to TheFunded.com this sites goal is to create that mutually beneficial discourse betwenen the two parties instead of the ‘vulture capital bashing’ that could potentially occur.VC’s need entrepreneurs and many times entrepreneurs need VC’s to get their companies growing…why not start that relationship at VentureDig? VentureDig has launched into beta and was built on an open-source microblog platform written by gaboink.net.

As these community based microblogging platforms pop up, as they undoubtedly will, don’t join all of them. You’ll waste your time because similar to social networks you only have so many units of utility from microblogging. As you spread those units acrooss differencet platforms you begin to lose value from the fairly quickly. But, if venture capital and startup entrepreneurship is of interest as it is for me I highly encourage you to check out VentureDig.com.

For my Blog Action Day post I decided to make a loan on Kiva.org. I’ve talked about Kiva.org a bit before. Kiva.org is an organization that facilitates micro-financing in (predominantly) 3rd world countries. Think of Kiva.org as a place that allows you to be a VC with only $100 bucks!

Kiva.org has a selection of entrepreneurs that you can choose to finance. I decided to finance Komlavi Kini who has been an auto mechanic for 3 years in Lomé, the capital of Togo. Komlavi is 39 years old, married, and the father of 3 children. With this first loan with FECECAV, he wishes to outfit his garage and buy work tools to better meet customer demand. Komlavi hopes  this opportunity will enable him to improve his living conditions. I will be able to follow up with my investment in Komlavi through Kiva.org. If you’d like to help Komlavi too just click here to go directly to his site! I definitely encourage you to take action to give back today whether you’re a blogger or not!

This slide show made it’s way around the web very quickly and for good reason. It is shocking but it is a collections of thoughts from some of the best VC in the biz. Business owners and investors alike would be foolish not to head the advice given here. You may have already seen this on the web but I’d be doing you a disservice if I didn’t share it.

Lets get a discussion around these slides in the comments! Is it to dramatic? Let me know what you think…

Lots of schools have similar programs already.  They just don’t have huge companies.MSOE will pay for your patents, and still rarely anyone takes them up on it.

Why?

Students aren’t fundamentally trained to think about growing a business using their engineering skills.  Initiatives like KEEN aim to change that.

We’ve actually laid a much better framework for the future, but it’s hard to see the benefits in the short run.

We should talk more about the culture that creates this at some point.  There are all kinds of startups around Stanford, so they in turn have students creating new businesses.  The chicken creates the egg, and the egg creates the chicken.  At MSOE (again an example I use because I go there), we’re working hard to create the chicken so that it can create eggs simply by being associated with the school.  A culture of entrepreneurship.

If you go south of the border to IIT (not to be confused with ITT).  They’re a mile down the road already and creating lots of businesses.  Their culture is inspiring MSOE students though.  Cooperation between the schools has been great so far.

What we need in the MKE/CHI corridor is one big win.  Doesn’t even have to be Google sized, but something that really gets the idea going in people’s heads.  Programs like KEEN are already helping to bridge the gaps between institutions so everyone doesn’t need a chicken to get eggs.

A side effect of a successful startup in a city is more startups.  We just need that successful startup.

Originally posted as a comment by Jeramey Jannene on Ryan A Graves.com using Disqus.

Well, not exactly. But did you know that…

Students create interesting idea using university resources. Students create a company and have an exclusive license to use the technology, which they made at their institution. Institution gets bragging rights and extra revenue for the school. For an entrepreneur to promise a large amount of ROI to their university, without even knowing what to promise, I’m not surprised that Marc Andreesen went west.  –from Chicago Tech Report

I have two thoughts on this.

1) Why don’t more schools have this structure set up for companies that are started at the university?

This credibility that Standford gets, especially with a company like Google is huge. Other schools with awesome technology programs like University of Illinois and also University of Wisconsin (Madison) should definitely be taking advantage of this opportunity. A few weeks back Eric Olson wrote about the Midwest brain drain. This is a great opportunity to combat that problem. Here’s what you do, stop the drain even before it becomes a leak, it’s as simple as providing a better opportunity and a better chance for success! That’s the question all ’smart’ entrepreneurs are asking themselves, what position do I have to put my company in to have a better shot at success? The best position for web startups is still either Silicon Valley or NYC but that could change with the increasing number of VC’s in the midwest and hopefully an increase in investment from universities.

2) Would this structure be a deterrent for entrepreneurs at a university program?

The argument here would be, why would I want to give the university a guaranteed piece of the pie? I’ll tell you why, this model is proven. It’s the same decision a company has to make when taking VC money. We give you a portion of our equity and you give us resources. Sometimes those resources come in the form of cash, sometimes in the form of coaching or advice from a board member. Either way, the return that a company gets from taking VC money and having the opportunity to grow, or taking university resources and having the opportunity to start is usually well worth it.

So, Stanford owns Google. Who does Harvard, U of I, UC Berkley, UW Madison, MIT, Carnegie Mellon, or CalTech own?

Imagine you bet on baseball. The Padres are playing the Yankees and your betting the Padres to win. Not a very safe bet, but the returns are awesome when the Padres come through (assume that happened 1 in 10 times). Then a huge steroids bust occurs, 3 Yankee starting pitchers get canned, and only 1 Padres starter. Now, lets also assume the returns on your bet for the Padres to win stay the same. This means that although the steroid bust affects the Yankees more than it affects the Padres, you still get the same return on your bet. The risk in betting on the Padres decreased relative to the risk of betting on the Yanks. If the relative risk of betting on the Padres decreased, wouldn’t you now bet more of your total investment dollars on the Padres? If you’re smart you would.

You following me yet? Let me break it down…

Yankees bet = Wall St. investment; Padres bet = Startup (VC/Angel) investment; Steroid bust = Financial Crisis

We all understand that there is a serious steroid bust going down in todays financial markets but there will always be investment money out there looking for its best available player. If a Wall St. bet becomes a lot more risky and a startup bet becomes just a bit more risky then the startup bet will get much MORE ATTENTION. This is the case because of risk relativity and the fact that smart investment money always looks at every option before being invested. For VCs this is great because the large players who still have investable funds after this financial debacle shakes out will be the recipients of large amounts of investable capital.

Nate Westheimer, or innonate blogged yesterday about the risk associated with startup investments. He pontificated upon this idea that if startup investment risk is not increasing at the same rate that more traditional investment vehicles are (such as money markets or even saving accounts) then investing in startups (VC) becomes a safer and safer investment.

All this then begs the question: What’s risky?

Is it less risky to put your money in startups vs in a savings account? On balance, no, but ask that to a Washington Mutual customer and they may hesitate a little before asking.

Are you better off extending a line of credit to an existing company than taking equity in a zero-revenue prototype? Again, on balance, probably not — but for more and more financiers, the early stage investment will be more on par with their appetite for risk and reward.

Mash up the shifting landscape of risk and reward with the openning of the early stage investment game (look at the path Angelsoft is on) and the continuing lowering of early stage barriers, and one of the most significant results of the market could be a tetonic shift of what “risk” looks like in the early stage investment game.

As I continue on my quest to better understand venture capital the question arises of, what is the difference between angel investing and venture capital? I’ve found there are many; involvement, who’s money, what stage, what size, required performance post investment, type of person, etc. The differences are practically endless so I’ll try to address the basics here.

First, Angels are investing their own money, they are usually individuals not private entities, although there are a decent amount of angel networks that pool money for these types on investments. Angels typically get involved much early in the start-up process and for better or worse their investment decision is much more emotionally charged. Because of that emotional involvement the angel is usually much more involved in the growth process.

Venture capitalist are an entirely different beast. The perceptions of VC’s varies quite a bit amongst the start-uppers and entrepreneurs who often seek there help/money. The term “vulture capitalist” is not uncommon and is used for VC’s who take all control away from the entrepreneur who is building the company. Different from Angels, VC’s are investing someone else’s money and get paid a mgmt fee (around 2.5% of the total fund) and also get carry (a piece of the upside gains, around 20%). A VC’s performance is measure by the investor or LP (limited partner) and a VC is successful by picking long shots and helping them “make it”. Venture capital investments usually come at later stages that Angel investments and VC’s look for “exits” or profitable outcomes usually in the form of an IPO or acquisition. These events can usually return 5-10x on investment (or higher) for big pay-offs.

However, when it comes down to it, both Angels and VC’s are looking for extremely high returns because the investments they make are extremely risky. For VC’s this is a job and for Angels, it is an opportunity to be involved with a success story and entrepreneurs should realize and acknowledge it.

*The image above was taken from the 2008 Risk Capital Report: Wisonsin prepared by Dr. David J Ward.

Reading BeyondVC, the blog of venture capitalist Ed Sim, I came across an interesting quote in a recent post, “companies are bought, not sold.” I want to go into the logic behind this quote because I think it talks to a critical misconception in the start-up and VC worlds, that you can aim at being acquired as an exit strategy. When looking at an investment VC’s look for what is called an “exit strategy”. The most common “exits” are either and IPO (going public) or an acquisition (someone buys the company invested in). The exit strategy is extremely important for VC’s because like a salesman closing a big deal, when VC’s make an exit, its “pay day”!

Currently the market for public offerings has been very poor. There have only been a handful in 2008 and there is really no telling what will come of the rest of the year or 2009. However, there have been a number of strategic acquisitions that continue to drive VC funding and give hope to VC’s.

To get back to the notion that companies are bought and not sold, we have to think about the state of mind of the company. If a company is intently looking for a acquisition target it makes that company seem/look desperate. When this happens they usually are because they have lost confidence in themselves. Its just like being single at a bar, if you’re out an someone approaches you and comes of extremely desperate there is no way that you will find that person attractive. It’s the person that plays “hard to get” that usually gets the most attention and the same goes for good companies. If the company (founders) has lost confidence in itself there is good reason to believe that it is over valued and has limited potential which often ends as Ed Sim states, “in a fire sale”. However, if a company has confidence it itself and focuses on the right things, growth, product, market/customers, it has no reason to loose confidence or seek a sale. Focus on the right things, play hard to get, and a company will be an attractive acquisition target (exit potential) without even trying! Just keep building it, they will come.

When I started this blog I primarily wanted to focus on start-up entrepreneurship and web 2.0.  I’ve done that and I’ve learned a ton from the web, from people seasoned in the industry, and from my own entrepreneurial start-up experiences. However, I’ve realized that I’ve missed one critical piece of this pie, the money! I’ll admit, I really don’t know much about venture capital or angel investing and that is where so many start-ups get their opportunity to “try it out” and see if their product/technology could work.

With that said I’m going to focus some of my reading and studying over the next few months on VC. In the past I religiously read TechCrunch for the latest start-up news and would try to get in as a beta user for every newly launched web start up.  Now, for a few months I’m going to try and focus on the money side. Why do these companies get millions of dollars of funding? How do these companies get millions of dollars of funding? How to the venture capitalists get “paid” in these investments and how can they consistently do it? Who are the best VC’s? And my personal favorite question in studying anything…What are the common factors between the most successful VC’s and start-up investors? I’ve been reading a bunch of VC blogs over the last week as I’ve been thinking about this and I think I’m sold that my new TechCrunch will be Fred Wilson’s blog AVC.com.

Let me say that I’ll definitely still stay up on what is going on in the social media, web 2.0 space. I’ll be writing a column called ‘Growth 2.0‘ in Magazine SOHO (more to come on this) that will focus on using web 2.o for growing a small business and I will need to stay in touch with the latest from the industry in order to write that column successfully. But, in order to truely have an expertise in this industry  I will need to focus on the investment aspect a bit more heavily.  Look for a few more of my posts to discuss VC topics and news and as I understand this aspect better and better I’ll chime in with an opinion here and there. I hope that you’ll enjoy, learn, and contribute to this venture in venture.

As much as I’m a fan of Seesmic and and of the entrepreneurial process, I thought I would post this video that highlights both. This is Loic’s explanation of how he went about raising money for Seesmic and how he will continue to go out evangelizing Seesmic. There is a lot to learn from this guy…