austinpreneur

9 Tips for Raising Startup Funds on @AngelList (via @Mashable)

AngelList is an online community that matches startups with investors to streamline the fundraising process.

I’ve personally raised $1 million from AngelList for my startup, and have helped dozens of other startups raise $3 million more. I’ve referred more than 20 startups to AngelList, vouched for a dozen other investors and am ranked as one of the top connectors on the site.

Try a similar strategy by adhering to the following steps...

Read the rest on Mashable

What would it take to make Austin 'the next Silicon Valley'?

I'd like to share my viewpoint on the recent Statesman article, What would it take to make Austin 'the next Silicon Valley'?

While I don't think that Austin wants to become Silicon Valley any more than Texas wants to become California, I think that we can learn from Silicon Valley to continue attracting great innovators and entrepreneurs to Austin.

Steve Blank commented that one of the most important aspects of Silicon Valley that differentiates it from the rest of the world is that failure is a badge of experience, not a badge of shame. Austin needs to be a safe environment for entrepreneurs to try out new ideas, to experiment, and to fail.  

Part of that is attitude and culture, but a big part is access to early stage capital and collaborative working spaces where entrepreneurs can meet each other, incubate ideas and inspire each other. We are very fortunate to have spaces such as Conjunctured, Cospace and Tech Ranch and communities like Bootstrap Austin. Still, we would benefit from a larger, central community meeting space and coworking facility. We need the Startup District that John Erik Metcalfe and Ceasar Torres started promoting a few years ago.

Capital Factory is one piece of the puzzle. We provide a small amount of capital and lots of mentorship to 5 select startups each year. More than half of the 15 companies in our portfolio are from outside of Austin and come here to participate in our summer program. Half of those stayed here after the program ended because they find the environment so friendly to entrepreneurs. We need to expand the number of companies so that we can have a bigger impact.

One obvious way reach more entrepreneurs is through the University of Texas. Inspired by the success of Capital Factory and the encouragement of Dr. Bruce Porter in the UT Computer Science department, I'll be joining with John Butler and Bob Metcalfe to teach and undergraduate entrepreneurship class at UT called 1 Semester Startup. I hope that through this class we can identify promising young entrepreneurs at UT, accelerate them down the path of success and keep them here in Austin.

Communities like Angel List are helping Austin by connecting our entrepreneurs with early stage investors from Silicon Valley and around the world. There are more than 100 Austin startups listed and more than 300 investors "watching" the Austin market (most of them NOT from Austin).

First time entrepreneurs need inspiration from successful entrepreneurs. They need role models to look up to and get advice from. Bazaarvoice, HomeAway, Spiceworks and Rackspace are all helping to fill this void. Let's not forget the massive Trilogy Alumni network that are driving many of the top companies in Austin right now. We need more visible leaders in the entrepreneurship community like Andrew Busey, Brett Hurt, Jack McDonald, Kip McClanahan, Bryan Menell, Bob Metcalfe and John Price.

I actually think most of the right things are happening. I've been here for more than 10 years and Austin has only become more attractive to startups and entrepreneurs. We are one of the top cities in the world attracting young smart entrepreneurs, college grads, and young professionals.

We are attracting startups like Gowalla and others that are moving to Austin from elsewhere in Texas and around the country. Austin is a great place to launch a startup because it is a market full of early adopters. I am contacted at least once a month by a startup who is looking for advice about moving here.

What do we need to do? We need to keep Austin attractive to young, smart people and innovative startups. We need to continue growing the early stage venture community and our connections to outside capital. We need to identify our Startup District (East side?) and achieve critical mass. We need to embrace failure. We need to keep being Austin. 

What do you think we should be doing to promote entrepreneurship and startups in Austin? Leave a comment below.

Motivate angel investors to close by the end of the year with the Small Business Jobs Act

If you are raising money for your startup, here is some leverage you may be able to use to close your deal. The Small Business Jobs Act says that you can avoid capital gains tax on money invested in startups before the end of the year.

Here is the fine print:

• must not be a corporate investor
• to be qualified as a small business the company must be a C corp with less than $50 million in assets.
• stock must be purchase between Feb 17, 2009 and January 1, 2011 
• investor must hold the stock for at least five years

One key piece of leverage for an entrepreneur raising money is to have a "significant event" that forces investors to shit or get off the pot. This might be just the piece of encouragement you need.

You can download a summary of the act here.

What other ways have you found helpful in motivating angel investors to close?

Thanks to Mason Arnold for reminding me that the deadline was coming up.

Austin Startup Digest Event Submission

I recently started curating the Austin Startup Digest, a weekly email list of the upcoming startup events in town. I assemble everything I can find, but I need your help making sure that its got all of the best events listed.

For a short link to this form, use http://bit.ly/austinstartupdigest

Mission: Austinpreneur on assignment in Puerto Rico

    

Earlier this month I was fortunate and flattered to be invited to keynote the Puerto Rico Venture Forum in San Juan, Puerto Rico. This was my first trip to Puerto Rico but it definitely won't be my last. My wife Amy came along for the trip and we got to spend a day exploring through the forts of Old San Juan. It was such an easy trip - no passport, everyone speaks English, and they use dollars for money. Gowalla was already there too - most of the places I visited were already listed and one of the old forts even has a custom stamp! On our next trip we want to explore the bio-illuminescent algae, caves, mountains, beaches.

 

I want to thank Grupo Guayacan and all of the great people we met - everyone was so welcoming! Special thanks to Francisco, Bob, Eva, Joanna, Paul many others. And of course thank you to Manuel Rosso for introducing me!

The Puerto Rico Venture Forum is the culmination of the EnterPRize competition - a business plan competition that on its face looks very similar to Capital Factory. They have a longer process that starts with a business plan competition and extends over the course of a year or more. There are five finalists each year and the top 3 receive $25k, $15k, and $10k in addition to other free services and mentorship.

I was very impressed with the Puerto Rico startup scene. The community is highly educated, with expertise in biotech, aerospace, manufacturing, and more. I met a dozen young entrepreneurs and many of the elders of the community as well. The energy and enthusiasm was infectious!

The five finalists that presented were:

• Adiestrate.com - Online Learning Classes
• Edunarium - Online Learning Store
• EMM - Simulations for Unmanned Aerial Vehicles
• NanoEssentials - Nanoparticle production
• Sonar Sending Technologies - Medical device for improving catheters

Unfortunately, none of the five really got my juices flowing. All of them had interesting ideas and viable businesses, they just weren't in my areas of expertise or interest. I wish there had been an email marketing company! Still i was impressed by what I saw and wish all of the companies the best in their entrepreneurial journey.

 

 

Angel Investor Panel moderated by Frank Peters

Frank Peters of the Tech Coast Angels led a fun and informative panel of angel investors with Mic Williams of the Boston Harbor Angels and Christian Meade from a Mexican angel investor group. Here are some of the best quotes from Twitter: 

"Don't tell me what the rate of return will be, tell me who your potential acquirers are" - Frank Peters

"Investors want NO risk, high return" - Mic Williams

"Investors want to give you money once you don't need the investment anymore." - Frank Peters

"New angel investors should 'just watch' for 6 months before investing. At the start, every deal looks good!" - Frank Peters

I definitely plan on checking out the Frank Peters Show podcast about startups and angel investing.

Corporate Venture Capital with Blake Modersitski

Next we heard Blake Modersitski speak about corporate venture capital. For a while he ran the venture capital group at Novell (reporting to Eric Schmidt, who is now CEO of Google) and now he's with UV Partners. 

Blake warned to "be careful about taking a high valuation early on [from a strategic investor who might be less valuation focused], it can make it harder to raise more money later." 

He also cautioned that "if you're taking venture capital from a company, cut your business deal first because it can be harder to do it after." 

 

From Bootstrapping to Venture Capital with Brian Halligan

My favorite talk of the day was probably Brian Halligan from Hubspot. He had great content but also a fun and engaging delivery. Many of his points resonated well with the Startup Lessons portion of my keynote that followed. 

Brian presented an interesting equation to illustrate just how hard it is to get funded by a VC. Most VC's require up to 8 meetings to a termsheet, and at each step of the way it just takes one "No" to eject you out of the process. He gave most people a 50/50 shot at each step, which leads to the following formula:

    F(VC) = 1/2 x 1/2 x 1/2 x 1/2 x 1/2 x 1/2 x 1/2 x 1/2 
    F(VC) = about 1 in 200 = 1/2 of one percent

I don't think he was trying to be exact, but more just to show how the process works and how easy it is to get a "No" somewhere along the way.

Some of my favorite quotes from Brian's talk:

• "Syndication is bad for founders - it's better to make the VC's compete"
• "Build it or sell it: you only need 2 founders for your startup"
• "Series A is about founders, Series B is about market, Series C is about business model"
• "don't bootstrap by just writing checks from your bank account, instead you should invest with a convertible note" 

Keynote - Mission: Austinpreneur by Joshua Baer

My keynote was the conclusion of the event and I presented over lunch in a beautiful room overlooking the sea. I talked about my passion for entrepreneurship and the companies that I've started, described Capital Factory 2009, and shared some Startup Lessons I've learned along the way. I wasn't able to record the whole thing but I have 20 minutes that tell my story from my first dorm-room dotcom in 1999 to the founding of Capital Factory.

I'm hoping to be invited back next year. I would love to come early and help the companies to prepare their pitches.

Keep your eye on Puerto Rico

Some of the entrepreurs that I talked to said that they often are discouraged from pursuing entrepreneurship - they are told that it would be better to get a safe government job. I think they just need some success stories to point at. And with them, more successful entrepreneurs as mentors. Fortunately there seems to be a strong sense of loyalty to the homeland - many of the people I met were born in Puerto Rico, went to school or a job in the US, and then came back to Puerto Rico. And I could see that they are bringing back more and more of the entrepreneurial spirit.

Overall I was very impressed with the entrepreneurial community in Puerto Rico. It's small but passionate. It's just going to get easier and easier for startups in Puerto Rico. The same forces that made "$500,000 the new $5,000,000" will soon make $5,000 the new $500,000. As the cost of starting new companies drops capital will no longer be a limiting factor.

Here are the complete slides from my keynote:

"Shit, that's not fair!" When does a competitive advantage matter most?

I often see startup pitches that contain slides on competitive advantages. I rarely see startups with any real, significant competitive advantages and when I do I get very excited.

Here are a bunch of (not) competitive advantages I've seen:

• we're enthusiastic!
• we have having passion!
• we are going to work harder than everyone else
• we're built in the cloud (I put this one in an OtherInbox deck once)
• we're students so we know the student market (replace "student" with anything)
• we're going to charge less money (I hear this so often)
• it's going to be just like XXX  but we're going to let people do YYY
• we're very, very excited!

None of these are real competitive advantages. You're better off just saying that you don't have any significant competitive advantages at this time and focus on why that's not as important in your situation or how you plan on acquiring competitive advantages.

Most startups don't have any significant competitive advantages (besides being a startup). You don't have to have a competitive advantage to succeed. But competitive advantages reduce risk and that's why investors are trained to look for them.

What are some real competitive advantages?

• Network effects (once you get there)
• Intellectual property
• First mover advantage (debatable)
• Relationships
• Rare expertise

Does a competitive advantage matter more at some times than at other times? 

Competitive advantages are rare. They can be very significant. They are the kind of thing that makes the other guys say to each other, "Shit, that's not fair!" 

I think that there are times when competitive advantages matter more than others. If you are entering a mature, crowded marketplace then having a competitive advantage is more important to me. If you are creating a completely new space or if all of the competitors are small and insignificant then a competitive advantage is still desirable but can be offset by other benefits. If you're in a niche that no one else is paying attention to then there may not be any competition to worry about anyway.

If you're a startup entering a mature market, you're fighting uphill to begin with. The existing competitors have more resources, existing customer relationships, and probably know the market better than you. If you don't have some secret weapon it's going to be hard to make any progress or get any attention.

If you're creating something completely new or in a market that is immature and doesn't have any entrenched competition, the playing field is fairly even. Chances are no one has a competitive advantage.

If you're niche is so small that there is no competition at all, then competitive advantages don't really matter (at least not right now). 

Competitive advantages are always good. I don't want to downplay them or say that they aren't important. But I'm tired of hearing about fake competitive advantages. If you don't have any, just say it. 

Bootstrappers will shine in the startup depression

Some really smart people have commented publicly about the US and global economic crisis at hand and what that means for startups. Jason Calacanis was one of the first, followed by Fred Wilson and Ron Conway (my good friend Ian Clarke has jokingly referred to me as the Ron Conway of Austin because I'm an early stage investor in so many different Austin companies). As I've been fundraising for OtherInbox, I've talked with many other entrepreneurs, advisors and investors and wanted to share a summary of what i've been hearing and how its affecting my direction at OtherInbox. Each comes at it from slightly different perspectives.

Jason, an entrepreneur, takes a very introspective view of how he wants to respond to adversity and who he wants to be as a person. He says the three main causes of startup failure are poor execution, a poor idea or external factors (in this case the market) and advises startups to focus on execution and make the most of the down time by being lean and acquiring good talent.

Fred Wilson, a venture capitalist, explains the view of a well-funded company with cash reserves of its own and experienced investors with deep pockets to draw on in tight times. He points out that companies who are not profitable or growing could have trouble, but that companies that are doing well shouldn't have trouble because VC's have deep pockets and will invest more capital to help weather the storm.

Ron Conway, a prolific angel investor, looked from the perspective of entrepreneurs about to take the plunge and raise angel money. He cautioned them not to quit their day jobs until they have secured funding for at least one full year of operating capital.

Ajay Agarwall, a venture capitalist from Bain Capital Ventures and friend from when we both worked at Trilogy software, pointed out that the typical Series A investment takes 7 years to mature and that 7 years from now is probably the right timeframe for the economy to recovered and growing. Consequently, he thinks that the next year will be a great time for smart venture capitalists to make early stage investments. He cautioned that later stage companies that are not profitable and have a shorter time horizon are going to have a tougher time raising capital over the next few years.

My first company, SKYLIST, saw incredible growth during the last recession. I started it in 1996, but we really started to boom in 2000 as the dotcom bubble deflated. True, it was the first time when I was focused on it full time, and not going to college or working at Trilogy. But I think the reason for the growth was that we were riding the rising tide of online marketing and email marketing in particular.

Even though the overall economy was down, some forms of online marketing grew. Marketing budgets were scrutinized and cut. Broadband Internet became pervasive and online marketing boomed because the audience was finally there and it was more measurable than traditional advertising. Budgets shifted from offline to online. Even though the total budgets were shrinking, the total amounts allocated to online were growing.

One way to be successful in a down market is to find these niches that may be growing as a result of shifting budgets and priorities. With currency, when the value of the dollar goes down, the value of gold goes up. Where is the gold in the market now? What opportunities have been created as a result of the credit crunch?

As I've been fundraising for OtherInbox, the current market conditions have certainly affected my goals and risk profile. I'm inclined to raise more a little more money and make sure that I give myself a longer runway. I'm searching for ways to generate revenue sooner than originally planned to cut my burn rate.

This is where bootstrapping will shine. All things considered, I'm kind of wishing I was bootstrapping a startup right now and am looking for every way to make OtherInbox more like a bootstrapped company. Bootstrapped companies are lean and efficient. Bootstrapped companies delay every cost as long as possible. Bootstrapped companies are resourceful. But most importantly, bootstrapped companies are forced to focus on the Right Thing at the Right Time because there is no alternative.

Low CEO salary is tied to company success, says Peter Thiel

Last week at TechCrunch50, the interview with Peter Thiel was the one hour I was looking forward to the most - and it did not disappoint. I must admit, Mark Cuban was very entertaining - but Peter Thiel was the most insightful.

One quote that I think entrepreneurs and investors would find particularly interesting was focused on CEO pay:

The lower the CEO salary, the more likely it is to succeed.

The CEO’s salary sets a cap for everyone else. If it is set at a high level, you end up burning a whole lot more money. It aligns his interest with the equity holders. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks.

In practice we have found that if you only ask one question, ask that.

When I was starting OtherInbox and trying to figure out what to pay myself, I asked around to other entrepreneurs and VC's and got the answer $150k-200k - with the median around $180k. That just didn't feel right to me. I ended up settling on a lower so I'number that was about half what I was being paid as Datran Media's CTO. Enough to cover my cost of living m not worried about paying my mortgage, but nothing extra.

YouNoodle startup valuation predictor says OtherInbox will be worth $73M

Want to know how much your startup will be worth in 3 years? YouNoodle.com will tell you. Based primarily on information about the founders and investors, YouNoodle tries to predict the valuation of startups after 3 years.

I filled it out for OtherInbox, and YouNoodle says we'll be worth $73 million after 3 years. Like with most projections, it's probably not that accurate (I'm sure we'll be worth much more than that!) but it's still an interesting exercise.

FundingSleuth.com sends email alerts when companies raise money

First Round Capital released a cool new tool for entrepreneurs and investors called FundingSleuth.com. It lets you enter in companies to watch and automatically sends an email alert if that company files a sale of securities with the SEC.

If you work for a funded company, you should sign up and watch your employer. If you are an entrepreneur, you should watch your own company so that you know when your fundraising becomes public information. If you're an investor, you should watch your portfolio so that you know about other fundraising. If you're just really interested in a particular startup, you might want to monitor their fundraising.

Thanks for this cool, free tool!

Venture-backed IPO recession?

This BusinessWeek video clip points out that there were only 5 venture-backed IPO's in the first quarter of 2008 and ZERO venture-backed IPO's in the second quarter. The VC's blame Sarbanes-Oxley, picky entrepreneurs and globalization as the cause and suggest that we make a concerted effort to save venture capital by raising awareness and easing some expensive accounting requirements.

Hat tip to Barry Thornton

Imitation is the sincerest form of flattery

I'm smiling as I write this, but I must admit that it took me a while to see the positive side of things. At first I was very insulted and angry. But now I think it's a funny story and worth sharing.

Someone I don't know sent me a question on LinkedIn about the best way to raise money for his email marketing company. The question was sent to a group of people, not just to me.

Even though I didn't recognize the person, I clicked on his name to see his profile and try to help him out. I immediately saw that he was involved with email marketing and went to his company's website to learn more. When I clicked on the Consulting tab, I had a strange sense of familiarity reading the text.

It seemed so familiar. I went to the SKYLIST website and looked at the description of our consulting services... and they were exactly the same. I know that they copied and pasted the text from our website because I personally wrote the text on our site.

I'm just including one example below, although there are other examples of entire paragraphs that were copied word-for-word if you look for them. Every page of our website is clearly marked "copyright 2008 SKYLIST, Inc. All rights reserved."

Here is their website:

and here is the same section on our website:

Hopefully he'll see this post and change his web page. Either way, I'm flattered!

Get in line at The Grove

I went by The Grove last night to pick up some takeout at 6:30 and it was packed as usual! While I was there I bumped into Bill Leake having a glass of vino at the bar.

If you haven't been there yet, The Grove is a wine bar and restaurant opened by Reed Clemons and Beth Lasita over on Bee Cave Road, just west of 360 and across from The County Line. Reed has been doing restaurants in Austin for years, including Mezzaluna, The Bitter End, The Granite Cafe, Hangtown Grill, Reed's Supper Club and more. I was fortunate to get involved as an investor!

Besides having great food, great wine, and great service, The Grove has an incredible deck under a massive tree that makes it the place to be on a summer evening or weekend morning. We'll be opening a coffee shop next door soon!