And Now For the Rest…

My bad..Its been a long two weeks since the last post. Looking at a ton of new deals and really exciting things have kept me away. Facebook / Goldman Deal..wow. LinkedIn talking about filing, attending the UBS Tech and Media conference and Linda Gridley’s awesome event on the 11th. With that said, here is the rest of our top ten list from 2010 so I can bury this and move on with our posts.

#7: Growth of the secondary markets: This has been fascinating to watch over the past few years. We got a very early look at Sharespost from my friend and founder of the company Greg Brogger a while back and he has done a great job getting them off the ground. With Second Market and Sharespost offerings, they have effectively created another opportunity to create liquidity among founders, employees and investors. With the public markets virtually still shut down for many smaller companies, this alternative for individual and institutional investors has been awesome. Huge dis-intermediation. Love it.

#6: Growth of Tablet based computing: I used to use an HP tablet back in 2006 that was so cumbersome and frankly not attractive, that I all but gave up on the format. The IPAD revolution has converted me. They are legitimate on their own without having to be a replacement for the laptop. Changes the way we work, read, play and consume.

#5: Revival of the Merger and Acquisition market: Deals are back in vogue. Corporate balance sheets are flush with cash and innovation and R&D is so often now confused with the M&A or Business Development department. Given we see this continuing well into the next few years, we look at companies primary strategy as being M&A. Very few entrepreneurs see themselves wanting to run a public company and dealing with the hassles, the expense and the short term mentality. The classic acquirers are back again.

#4: Data transformation: Lets just say the last 20 years has been about Data gathering and process. The next 20 will be about usage, information advantage and prediction. This is a huge change. We are looking for those great companies taking advantage of this approach

#3: NY is on Fire: I have posted before about how bullish I have been since the beginning on the NY Metro marketplace. Sometimes I felt as if I was screaming from the hills but no one was listening. Well that is certainly not the case. NY has not only become a legitimate place to start and operate a business, it now the fastest growing venture regions in the country. New funds, lots of angel and seed capital to support start-ups and entrepreneurs who seem to be business driven first and technology driven second. That’s refreshing. I love the west coast, but the east is here to stay this time. Bet on it.

#2: Media transformation: The landscape has transitioned from one consisting of a phone monopoly and three television networks to a variety of networks delivering a broad range of new and re-purposed content to all sorts of devices: allowing consumers to communicate and collaborate. Business models have also undergone significant change. The usage of media and communication is billed by the multiple methods. Furthermore, the notion of immediate media and communication consumption has been altered by the time and place shifting. Individuals communicate across – and expect seamless transparency between – home and office, device and device, and domestic and international. Yet there is still a huge disconnect between Madison avenue and silicon valley. Interesting place to be..

#1: Universal Connectivity: We saw the real beginning of this in 2010. We expect this to be the theme well into this decade. Look around you, visit CES, talk to your clients, ask the consumers. Its everywhere. Our view: We are careening down a path towards a world defined by Universal Connectivity: a place where barriers are broken down between devices, content, applications, people, platforms and data. The integration of these disparate entities into a unified system will require a rich set of solutions and infrastructure. The breakthrough companies enabling this new reality will have sustainable competitive advantageand huge asset value for years to come. Bring on 2011!!

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8th Wonder of the World

Continuing our theme of the 10 most interesting developments affecting our business from 2010, we have to go with the obvious:

#8: Facebook, Twitter and the Social Media Revolution

Enough said. They have changed the way we think, the way we communicate, the processes we use and the way we discover. Just like email and internet did in the late 90’s and early part of the decade, Social Media has gone mainstream, but not in a “jump the shark” way. They are easy targets for people in our business, debating valuation or other metrics. Lets put it this way….I would have loved to invest in these companies at our stage. Who wouldn’t. However, these profound changes are permeating our lives in many unique ways. Some which are predictable and some not.

Think about the long lasting effect of having the twitter feeds coming out of Iran during the uprisings last year. At some points it was cell phone video and twitter feeds that were our only link to a precarious situation. A decade ago, who knows.

Lets wait to see what happens when these technologies really take on an enterprise like sheen to them and start to see how companies and business partners use them in ways that streamline efficiencies, reach new customers and obliterate the customer service organization. Those are companies we are looking to find.

Happy New Year to All

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Number 9

Those who often quote the Beatles are doomed to repeat these actions..Number 9, Number 9

With that said, our #9 cool thing of the year was actually piece of the reform bill that was carved out to exempt most venture capital from the proposed regulatory practices reserved for most hedge funds and private equity. I know, boring stuff….but very meaningful for entrepreneurs. To summarize: the Securities and Exchange Commission proposed a new rule, based on requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Financial Reform Act, defining “venture capital funds” for purposes of exempting advisers to these funds from registering under the Investment Advisers Act of 1940.

This provision was a significant victory for the industry as the original bill aimed to move venture into the larger pool of fund managers that would be required to register. This would have caused undue burden on many managers, especially smaller ones like ourselves to meet regulatory demands. TO compare Venture Capital, with our long term holding periods and active board work to hedge funds is absurd. The cost would have been prohibitive and many funds would have closed shop therefore reducing an already shrinking pool of capital available to our nations last great hope..Innovation and ingenuity.

Lets be fair, VC’s will still have more stringent reporting requirements, but mostly on the fund ownership side, nothing that cant be handled.

Thank you NVCA for the hard work you did on this issue with the support of many in and out of our industry. We have to credit the SEC as well for putting real effort into examining the real differences and making an effective decision.

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Top Ten Cool Things from 2010

There seems to be a top ten list for everything. I believe that these lists are one part reflection and one part procrastination. However, with the best of intentions, I present the Top Ten coolest things that affected our business. I will post them one at a time for greater use of Blog Capital!

#10: DropBox: If you haven’t tried DropBox yet, make a bee-line to the site and sign up. Cloud based online file storage storage at its best. Ridiculously easy to use and a pleasure for the whole staff. Only thing I would add is some sort of true version control and application protection.

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New York is the Best Place for Entrepreneurs This Year

I love it when we are right. As we have been saying for several years now, New York will be the place to be for entrepreneurs going forward. New York is finally is getting the attention it deserves:

New York #2 Most Innovative Cities in US

New York Top US City for Young Entrepreneurs

When everyone thought we were crazy, through the worst of the financial crises and the impending death knell of the start-up and venture capital industry, we kept saying it. The people here tend to solve business problems first and then find technology solutions to address them. What we were missing over the past 20 years in seed capital is now here in earnest. If you have been trying to attend meet-ups you know what I am talking about. Even the Knicks are emerging from a decade long slump!

I cant wait for 2011

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Raising Venture Capital, Tips for Entrepreneurs, Post 5

Sorry its been a while since the last post, I was away with my family for a week. In the time I was gone we received a number of new business plans. Continuing a trend that has been evident over the past few years, many of the plans have compelling business ideas. The issue still remains, however, the construction of those ideas in a coherent fashion. In the last post we dealt with competition, both obvious and not so obvious. The point was to deal with competition honestly and upfront. Ask the potential buyers of your product or service whom they view as competition and you might be surprised. In today’s post, we delve into the team.

5. Who are the people running the show? This seems obvious. One of the core issues VC’s deal with in virtually every business is team building. We help recruit, mentor and advise on key hires all the time. I personally believe this is as important to an investment as any criteria. I bet on jockeys as much as the horse.

Most plans include the obvious, using a section to outline the founder’s background and the management team’s bios. That’s fine and it will help us understand your historical reference. What is missing, however, is the relevance. Some of the best plans I have ever seen use the bio section as a way to create the bridge to why this team is the best to execute the specific vision as laid out. This can be done with a paragraph or two explaining why this particular team was put together. e.g. Given John’s experience with building out the core infrastructure at XYZ, we are convinced he can architect a scalable solution… etc. Sometimes its best to outline what you believe are the core roles necessary for this stage of the company. Brand marketing may be required at some point, but given short-term goals are further developments of the site and attracting a few beta customers, a CMO level position isn’t necessary at this stage. Through this needs analysis, the plan can effectively communicate a link between the need and the skill set. Its ok to point out that the need is still open. An honest assessment of the company and its current goals is preferable. Remember, we are still dealing with an executive summary so try and keep it brief but powerful. In a later post, we will deal with the type of people that tend to make attractive funding candidates.

Next post: 6. How do you intend to distribute?

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Raising Venture Capital, Tips for Entrepreneurs, Post 4

In our last post we took up part 3 of the executive summary; do you have a keen understanding of the market you intend to compete in? This is critical since the addressable market is really the point that we are looking to understand. In this post, we deal with competition, often a “trip-up” point in many plans.

4. Who is the competition, both obvious and not so obvious? I find that many plans fall into two distinct camps on this issue. In the first case, we get descriptions of large competitive markets with many players; some are sizeable, others are small and fragmented. Typically, we get a description of the major competitors that are then broken into many sub classes, explaining how they don’t really compete but instead take pieces of the addressable market. This is helpful, but often doesn’t recognize the power of established parties. Regardless of whether Google, Cisco or some other major player is only going after a small piece of the market, They Are Google and Cisco for Pete’s sake! Don’t ever underestimate the resourcefulness of these organizations. They didn’t become the great leaders by accident. They have relentless competitive instincts and will kill their own young to keep that position. In this case, its better to come right out and say, “We compete with X and here is why we will prevail in this space. We have a cheaper, more efficient solution, and we believe that our focus on this part of the market will make us an attractive candidate for them at some point…” or something along those line. Admit where you stand and now convince me why you will succeed. There is plenty of opportunity to win market share from these ensconced players.

The second case is those plans that claim virtually no competition. This is always confusing, because in the odd and rare chance that you have literally invented something so novel and new so as to have no current market for your product, it immediately sends up a red flag. This is typically a lazy way out of dealing with the real issue; who are the buyers and whom do they perceive as the competition? If for some reason you can’t answer this question, please ask your buyers. This will tell you in a second whom you are dealing with. It may come as a surprise to you, but that is ok. You need to understand where the dollars are going to be spent. This applies directly to your product or to how the buyers are going to solve the problem, assuming you have answered part 2 of our blog series (explaining the problem that needs to be solved). I will repeat this again; if you think you have no competition, think again, rinse and repeat! Dig deeper. Fundamentally break apart the industry. Do whatever you can to find out where those dollars will be spent. I have literally seen plans that have no competitive assessment section in them. In most cases, this disqualifies an entrepreneur. It shows a lack of understanding of the end customer and market, both of which are critical for successful start-ups.

Next post: 5. Who are the people running the show?

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