Summary: I thought it might be a fun exercise to go through the prominent widget companies – both platforms and applications – and explore which venture capital firms are cutting the checks to propel them forward. Of course, just about every website has a widget or a widget strategy of some kind. In terms of the applications / widget developers, I’ve tried to focus on those companies – like Photobucket - with monster, hugely distributed widgets, or those companies – like Lijit - whose widgets are the primary reason for their existence. So without further ado, here are the folks and funds that have skin in the widget game. Benchmark – Benchmark has invested in avatar company Gizmoz, widget distribution platform Gigya (review), and start page / widget aggregator PageFlakes. Sequoia – Sequoia has invested in widget powerhouse RockYou, and is also rumored to have invested in Widgetbox. Mark Cuban – Mark Cuban is an investor behind Goowy, which is the developer of widget platform and aggregator YourMinis. Cuban has also invested in file sharing service Box.net (review), the developer of one of my favorite widgets. Union Square Ventures – Union Square Ventures has invested in Feedburner (sort of a widget company), Adaptive Blue (review) (a toolbar / widget powered service), and avatar company Oddcast. Trinity Ventures – Trinity was the lead investor in Photobucket. Novak Biddle – This Bethesda, Maryland based fund has invested in widget platform Clearspring and site builder / widget aggregator Freewebs. Steve Case / Ted Leonsis - Former AOL execs invested joined Novak Biddle in the Clearspring investment. Columbia Capital – Fellow East Coast fund Columbia Capital has joined Novak Biddle in the Freewebs investment. Index Ventures – Index Ventures has invested in start page / widget aggregator Netvibes. Accel – Accel Ventures has invested in start page / widget aggregator Netvibes. First Round Capital – First Round Capital has invested in Gigya. Hummer Winblad – Hummer Winblad has invested in Widgetbox. Mayfield – Mayfield has invested in photo widget Slide. Blue Run – Blue Run has invested in photo widget Slide. Khosla Ventures – Khosla Ventures has invested in photo widget Slide. Founder’s Fund – Founder’s Fund has invested in photo widget Slide. Lightspeed Venture Partners – Lightspeed is an investor in RockYou. Partech – Partech is an investor in RockYou Brad Feld – Brad Feld is an investor in blog search widget company Lijit. Colorado Fund – Colorado Fund has invested in Lijit. Boulder Ventures - Boulder Ventures has invested in Lijit. Lighthouse Capital Partners – Lighthouse Capital Partners is an investor in Vendio, owner of Widgipedia. MVC Capital - MVC is an investor in Vendio, owner of Widgipedia. Bay Partners – Bay Partners has created a fund solely targeting Facebook App developers. Google – Google has created a fund for Google Gadget developers. What’s striking to me is the blue chip nature of this list. Funds like Sequoia, Benchmark, Hummer Winblad, Mayfield, Accel… these are the some of the most prestigious names in Silicon Valley. It would appear that the debate about whether widget powered businesses have legs is over – at least in the offices of the blue chip funds.

Summary: A lot of people have opinions about venture capital -- the pros and cons of VC, whether or not to take VC, which venture capitalists to take money from, how to get VCs to invest in your company, whether VCs are seasoned risk-taking professional investors or psychotic entrepreneur-hating sociopaths, etc. Often these opinions are based on one individual's specific personal experience with venture capital, and often based on someone's negative experience -- as is often the case, people who have negative experiences are more motivated to tell others than people who have positive experiences. With that in mind, I will try to provide my hopefully broad perspective on the topic.

Summary: Comparing venture firms, and comparing partners within firms: When raising venture capital, remember that venture firms vary wildly in style and quality. For example, some venture firms are very entrepreneur-friendly. Others are notoriously brutal. Interestingly, financial success in the venture capital profession does not seem to be correlated to entrepreneur-friendliness.

Summary: Bonus chapter! (This will be the last post on venture capital for a while, if I can help it.) The current venture capital environment in the United States is characterized by a very large number of venture firms (866, according to the National Venture Capital Association), investing an extraordinarily large amount of capital (over $7 billion in the first quarter of 2007 alone, according to Price Waterhouse). Traditionally the venture capital industry was said to experience a "seven fat years, seven lean years" model -- seven years of boom, followed by seven years of bust. Following that pattern, the late 60's/early 70's were great (the "-tronics" boom -- this is when Intel was funded by Arthur Rock), the mid-70's were terrible, 1978-1985 was great (the PC!), '86-92 was terrible, '93-99 was fantastic, and '00-06 was not so good. As you'd expect, inflows of capital to venture firms during the lean years typically shrank dramatically -- venture capital returns are terrible during the lean years, and who in their right mind wants to put more money into an investment vehicle with terrible returns?

Summary: In this series of posts I will walk through some of my accumulated knowledge and experience in building high-tech startups. My specific experience is from three companies I have co-founded: Netscape, sold to America Online in 1998 for $4.2 billion; Opsware (formerly Loudcloud), a public software company with an approximately $1 billion market cap; and now Ning, a new, private consumer Internet company. But more generally, I've been fortunate enough to be involved in and exposed to a broad range of other startups -- maybe 40 or 50 in enough detail to know what I'm talking about -- since arriving in Silicon Valley in 1994: as a board member, as an angel investor, as an advisor, as a friend of various founders, and as a participant in various venture capital funds. This series will focus on lessons learned from this entire cross-section of Silicon Valley startups -- so don't think that anything I am talking about is referring to one of my own companies: most likely when I talk about a scenario I have seen or something I have experienced, it is from some other startup that I am not naming but was involved with some other way than as a founder. Finally, much of my perspective is based on Silicon Valley and the environment that we have here -- the culture, the people, the venture capital base, and so on. Some of it will travel well to other regions and countries, some probably will not. Caveat emptor.

Summary: This post is about what to do between when the VCs say "no" to funding your startup, and when you either change their minds or find some other path. I'm going to assume that you've done all the basics: developed a plan and a pitch, decided that venture financing is right for you and you are right for venture financing, lined up meetings with properly qualified VCs, and made your pitch. And the answer has come back and it's "no". One "no" doesn't mean anything -- the VC could just be having a bad day, or she had a bad experience with another company in your category, or she had a bad experience with another company with a similar name, or she had a bad experience with another founder who kind of looks like you, or her Mercedes SLR McLaren's engine could have blown up on the freeway that morning -- it could be anything. Go meet with more VCs. If you meet with three VCs and they all say "no", it could just be a big coincidence. Go meet with more VCs. If you meet with five, or six, or eight VCs and they all say no, it's not a coincidence. There is something wrong with your plan.

Summary: In my last post in this series, When the VCs say "no", I discussed what to do once you have been turned down for venture funding for the first time. However, this presupposes you've been able to pitch VCs in the first place. What if you have a startup for which you'd like to raise venture funding, but you don't know any VCs? I can certainly sympathize with this problem -- when I was in college working on Mosaic at the University of Illinois, the term "venture capital" might as well have been "klaatu barada nikto" for all I knew. I had never met a venture capitalist, no venture capitalist had ever talked to me, and I wouldn't have recognized one if I'd stumbled over his checkbook on the sidewalk. Without Jim Clark, I'm not at all certain I would have been able to raise money to start a company like Netscape, had it even occured to me to start a company in the first place. The starting point for raising money from VCs when you don't know any VCs is to realize that VCs work mostly through referrals -- they hear about a promising startup or entrepreneur from someone they have worked with before, like another entrepreneur, an executive or engineer at one of the startups they have funded, or an angel investor with whom they have previously co-invested.

Summary: This post is all about the only thing that matters for a new startup. But first, some theory: If you look at a broad cross-section of startups -- say, 30 or 40 or more; enough to screen out the pure flukes and look for patterns -- two obvious facts will jump out at you. First obvious fact: there is an incredibly wide divergence of success -- some of those startups are insanely successful, some highly successful, many somewhat successful, and quite a few of course outright fail. Second obvious fact: there is an incredibly wide divergence of caliber and quality for the three core elements of each startup -- team, product, and market. At any given startup, the team will range from outstanding to remarkably flawed; the product will range from a masterpiece of engineering to barely functional; and the market will range from booming to comatose. And so you start to wonder -- what correlates the most to success -- team, product, or market? Or, more bluntly, what causes success? And, for those of us who are students of startup failure -- what's most dangerous: a bad team, a weak product, or a poor market? Let's start by defining terms.

Summary: There are times in the life of a startup when you have to deal with big companies. Maybe you're looking for a partnership or distribution deal. Perhaps you want an investment. Sometimes you want a marketing or sales alliance. From time to time you need a big company's permission to do something. Or maybe a big company has approached you and says it wants to buy your startup. The most important thing you need to know going into any discussion or interaction with a big company is that you're Captain Ahab, and the big company is Moby Dick.

Summary: In this post, I answer these questions: How much funding for a startup is too little? How much funding for a startup is too much? And how can you know, and what can you do about it? The first question to ask is, what is the correct, or appropriate, amount of funding for a startup? The answer to that question, in my view, is based my theory that a startup's life can be divided into two parts -- Before Product/Market Fit, and After Product/Market Fit.

Summary: Can we, at last, put to rest any whispers by jealous Sand Hill Road rivals about the strengths of Fred Wilson's portfolio? The New York-based venture capitalist, a partner at Union Square Ventures, has ably spotted the most profitable segments of targeted marketing and online publishing, from social bookmarks (Del.icio.us, sold to Yahoo) to RSS-feed advertising (FeedBurner, sold to Google) and now, behavioral ad-targeting firm Tacoda, sold to AOL for a reported price of more than $200 million. This deal is more than just a financial win for Wilson -- it's a vindication of his entire strategy. Here's why.

Summary: Here's a measure of how disconnected the tech industry has become, again, from reality. Y Combinator, the spray-and-pray incubator run by Paul Graham, has a bootcamp for portfolio companies it brings to the Valley. At one event, Newsweek's Steven Levy reports, entrepreneurs are given a gray T-shirt to remind them of one of Graham's maxims: Make something people want. It's only once they achieve a "liquidity event", such as an acquisition by a larger company, that they'll get the prized black T-shirt, which boasts: "I made something people want." That's preposterous. Y Combinator's one success story, Reddit, sold before it was making revenue. The only "people" Y Combinator cares about are follow-on investors, and fickle corporate development execs. A more truthful boast would be this: "I made something Google thought it wanted."

Summary: Despite his unfortunate track record as a venture capitalist, Guy Kawasaki does give some appealing blunt advice to entrepreneurs. The big no-no, when pitching a business? "[Do not] try to create the illusion of scarcity. Many entrepreneurs claim that 'Sequoia is interested.' If Sequoia is interested, you should take its money. If it isn't, then the venture capitalist won't be either. Either way, don't even think of blowing this smoke." Of course, it's not quite as simple as that. If other blue-chip venture capital partnerships, such as Benchmark and Accel, for instance, are hot to invest, it probably does no harm to let them know, subtly, that they'll have to outbid Sequoia. It's only if an entrepreneur has already worked their way down the list -- all the way down to, say, a in-desperation-only investor such as Guy Kawasaki -- that the hint of Sequoia's interest has no credibility.

Summary: Garage Technology Ventures’ Managing Director Guy Kawasaki has the best smile in Silicon Valley, but when he isn’t flashing that Colgate grin he’s offering sage advice on how to snag some sweet Venture Capital scratch. In a recent missive, Kawasaki lays out the following tips for entrepreneurs… 1. Get an introduction by a partner-level lawyer. 2. Get an introduction by a professor of engineering. 3. Get an introduction by the founder of a company in the venture capitalist’s portfolio. 4. Show success. 5. Make sure your company is in the right space. 6. Use a short email. Among Kawasaki’s list of don’ts, the standout no-no is: “[Do not] try to create the illusion of scarcity. Many entrepreneurs claim that ‘Sequoia is interested.’ If Sequoia is interested, you should take its money. If it isn’t, then the venture capitalist won’t be either. Either way, don’t even think of blowing this smoke.”

Summary: Bill Burnham, who used to be a venture capitalist before he left for the presumably more lucrative world of hedge fund management, has 10 tips for getting your foot in the door at a venture capital firm. The tips boil down to this: Do your research and find out which VC firms -- and which individuals at those firms -- are likely to be most receptive to your pitch. Then pitch those people, preferably using an introduction or a little flattery to butter them up before delivering your short pitch. Seems like solid advice. And not coincidentally, the same tips work pretty well for pitching journalists and bloggers, getting introductions to executives, and finding sales leads.

Summary: As a former VC I am often asked by entrepreneurs “I am having trouble raising money, can you please give me some advice on how to improve my chances?” Beyond having a start-up that is obviously the next Google, there is no easy way to raise VC money, especially if you are a first time entrepreneur with few, if any, VC contacts. The harsh reality is that you face an uphill battle to get a meeting, let alone a term sheet, but the good news is that by taking a pragmatic approach to getting your foot in the door you can greatly improve your chances. All too often I run into entrepreneurs whose fundraising strategy amounts to “I sent a form letter to the 15 VCs I saw mentioned in Tech Crunch yesterday, but none of them got back to me.” Rather than randomly spamming VCs, you are much better off taking a very pragmatic and methodical approach to fundraising. This method should force you to identify those VCs that are most likely to not only be interested in your start-up idea, but also to have the cash, capacity and inclination necessary to pursue it. To that end I offer this 10 step method for getting your foot in the door of a high probability VC. Once you get in the door, the rest is up to you:

Summary: One thing that many entrepreneurs don't fully appreciate is just how much the financial and organizational dynamics within a VC fund can affect how a VC behaves on their board. Over the years I have heard many stories from entrepreneurs expressing various degrees of frustration and mystification over a position taken by their VCs, usually with regards to an upcoming financing or an M&A transaction. For example, in some cases a VC that has been very supportive about patiently growing a business all of a sudden becomes obsessed with selling the company or in others a VC that has been aggressively pushing the company to grow quickly all of sudden becomes extremely cost focused and lobbies hard to cut the burn rate despite the fact that this will kill growth. After witnessing such abrupt changes in attitude and direction, many entrepreneurs are left scratching their heads wondering "What the hell is going on with my VC and why are they acting so crazy?"

Summary: Article Launched:07/15/2007 01:36:25 AM PDT Venture capital is on the upswing, the deals are bigger and less risky, and the chances of going public are better. What's not to like? For VC firms, it seems, not much. Sure, scarred investors from earlier in the decade always worry about a bubble, but there's little sign of that so far, according to most observers. Yet the implications for valley entrepreneurs are profound. Increasingly, venture capitalists are pouring their money into late-stage companies. That could force some early -stage entrepreneurs to look harder for cash and perhaps bootstrap their companies if the trend continues, despite the $82 billion VCs have raised since 2004. "The venture world is in some ways transforming itself," said Mike Cordano, co-founder and chief executive of the San Mateo start-up Fabrik, which received a substantial $37 million round of funding in April. "In some sense, it's going to change the profile of the entrepreneur." While trends in venture capital ebb and flow with the economy and the ease with which young companies can sell themselves or launch public offerings, this year's free-spending ways show no sign of changing. After years of shunning IPOs, public-market investors are showing renewed interest in them, and venture capitalists want to cash in. So far this year, activity in the IPO market has been brisk. During the second quarter, 22 venture-backed companies had coming-out parties, raising $2.73 billion, the largest amount since the dot-com mania of the third quarter of 2000, according to Dow Jones VentureOne. And the valuations of these companies prior to their IPOs reflects the larger sums VCs are willing to bet on their futures. The median value leaped to $320 million, up from $196 million a year earlier. Despite that, there seems to be little worry about speculative excess. "I don't see a bubble," said Bruce Robertson, managing director at Atlanta-based venture capitalists HIG Ventures. "There is a lot more discipline in the market than in the 2000 time frame. But I do see some price escalation." Many observers say the successes of this year's IPOs justify the prices VCs have been willing to pay. Of the 10 Silicon Valley technology companies that sold shares to the public since the start of the year, nine are trading above their initial offering price, some substantially so. For instance, Cavium Networks, a Mountain View chip maker, is up about 99 percent and Sunnyvale software developer Aruba Networks is ahead almost 104 percent. Venture firms don't want to miss out. In the first quarter, they put $7.1 billion into 778 deals, an average of $9 million a company, up from an average of $7.4 million in 2006, according to figures from PricewaterhouseCoopers, the National Venture Capital Association and Thomson Financial. This pattern was most pronounced among late-stage companies - those most ready for a public offering - where the average late-stage firm raised $12.4 million, a 32 percent increase from $9.4 million in the fourth quarter of 2006. At the same time, money going into early-stage and seed companies fell 30 percent in the first quarter from the fourth quarter. "Prices have gone up dramatically since the beginning of the year," noted Keith Benjamin, managing partner at Levensohn Venture Partners. Many say they expect the trend to show up in the second-quarter numbers. "If you get the right deal, you will make money," said Benjamin. Benjamin says he has seen some inflated values placed on the youngest of Web 2.0 companies. But the majority of the higher prices are for more mature companies, including those in life sciences and clean energy. Some VCs say this is the result of too much money chasing too few late-stage deals, and that it gives them pause. "I'm concerned about putting more capital to work," said Kenneth Sawyer, managing director of Saints Capital of San Francisco. "We have hesitations and concerns." Yet money can still be made investing in these companies, Sawyer said. "People are trying to give us good deals and put more money in," said Yu Chiang Cheng, chief executive of San Francisco-based World Golf Tour, an early-stage Web 2.0 gaming company that raised money in April from Battery Ventures. "We're all being pushed cash. I think (VCs) really opened the flood gates at the end of last year." VCs are chasing Internet deals with an enthusiasm not seen since the bubble years, Cheng said. But what's different this time is that venture investors are spending more effort studying their target companies, he said. Partners from Battery asked for 15 references, five for each top executive, and called everyone on the list, Cheng said. They also spent a lot of time looking at how the online golfing game developer wants to use advertising and sponsorships to make money. Other entrepreneurs will have an even tougher time. As venture money migrates to late-stage deals, the youngest start-ups may be forced to struggle longer without financial backing while promising late-stage companies swim in a sea of riches. Many founders may need to rely on their own money or non-VC money for a longer period, said Cordano, whose Fabrik existed for almost 10 months before accepting $4.1 million of venture financing in November 2005. "The environment for early-stage companies has become more difficult," agreed Jim Jones, managing director at Scale Venture Partners of Foster City. Contact Mark Boslet at mboslet@mercurynews.com or (408) 920-5425.

Summary: PricewaterhouseCoopers, the National Venture Capital Association and Thomson Financial Article Launched: 07/15/2007 01:36:38 AM PDT 2007 START-UPS ATTRACT MORE CASH Bigger companies have been getting more money from venture capitalists in recent quarters. Average start-up Quarter deal size (millions) Q1 2007 $9.1 Q4 2006 $7 Q3 2006 $7.6 Q2 2006 $7.6 Q1 2006 $7.4 Q4 2005 $7.1 Q3 2005 $7.3 MERCURY NEWS

Summary: By Constance Loizos Mercury News Article Launched: 12/12/2006 08:45:18 AM PST GARY REYES - MERCURY NEWS Tony Conrad, in his office at Pier 38 in San Francisco, left a venture capital firm to found and run his own company, Sphere.com. Some people who came into the venture business between 1999 and today have observed that no one has made any money, unless you happen to have invested in Google and YouTube. VC recruiter Jon Holman SWITCH SWITCHFrom VC to start-up GARY REYES - MERCURY NEWS Sphere.com CEO Tony Conrad can foresee a time when he'll return to VC, saying his experience as an entrepreneur will help him avoid some of the mistakes he made before in dealing with start-ups. In the pecking order of Silicon Valley, you can't do much better than the clubby world of venture capital. High pay, intellectual stimulation, prestige and even, for some, fame. What's not to like? Yet VCs do leave the industry, sometimes over personality conflicts or power struggles or unraveling firms. In a newer twist, they are also leaving to become entrepreneurs themselves, lured by ever-cheaper start-up costs and investors' continued fascination with Web properties. "Some people who came into the venture business between 1999 and today have observed that no one has made any money, unless you happen to have invested in Google and YouTube," said Jon Holman, a venture capital recruiter in San Francisco who works closely with more than 50 firms, including Mayfield Fund and Accel Partners. "Those same people are now saying, `Maybe this will get better, but it may be time to try something else instead.'" Vikram Kashyap was a junior venture capitalist at Battery Ventures on Sand Hill Road from 1998 until 2001, but because he was hired out of Harvard, Kashyap had little operating experience. "I thought, to really be world class in this industry, it's not going to work for me to build my way up from the bottom." Two years ago, Kashyap founded San Francisco-based Canopy Financial, which aims to move the payment process between consumers and their health care providers online and is backed by $2 million from wealthy individuals. Kashyap says that while he would "never say never" to another VC job, he has found greater satisfaction in heading a company. Others admit that they would happily return to their old line of work for the right opportunity. "I could definitely see myself becoming a VC again," said Touraj Parang, a venture capitalist-turned-founder of year-old Jaxtr in downtown Palo Alto, whose service combines a social-networking application with an easier way to call friends over cell phones. Still, becoming an entrepreneur is harder than many expected, despite their experience with young companies. "I had no idea of the number of details that I'd have to deal with every day," said Doug Valenti, a former venture capitalist with Rosewood Capital in San Francisco who founded seven-year-old QuinStreet, an online marketing company. "From what kinds of chairs do you order to how do you get the rooms wired to how do you ensure your compensation plan is comparable to other companies, it's an endless list." Some VCs-turned-entrepreneurs also face lower pay, longer hours, and frankly, mundanity. "Founding a company can be less stimulating than venture capital in that you're exposed to less new ideas and instead thinking much more about a particular market and a particular set of products," said Kashyap, who said he took a "big salary cut" but that his company has had some profitable quarters and is closing another round of financing. Personal impact Then there are the surprisingly personal ways in which leaving venture capital impacts some individuals. Tony Conrad, who founded the blog-search technology company Sphere in San Francisco half a year before his former venture firm, VSP Capital, imploded, said that "for months after starting Sphere, I'd still tell people that I was a VC. I think I was in denial," he added, laughing. Even loved ones can become attached to the role. "Striking out on my own actually ended a relationship with someone," said another VC-turned entrepreneur, who earlier this year launched an online advertising network and asked not to be named. "You'd have thought I was opening a lemonade stand." That's saying nothing of the considerably greater risk involved in founding a company. VCs have the luxury of piecing together diverse portfolios with the money of institutional investors. Entrepreneurs, even well-funded ones, are betting on one horse. Still, VCs also enjoy many benefits as entrepreneurs, having sat on the opposite side of the table. Two meaningful advantages are their networks and know-how. For example, said Valenti, "there are many ways to screw up fundraising." He claims he avoided them all by knowing which investors to call and which to avoid. More, QuinStreet - which Valenti said is profitable after raising nearly $60 million in venture capital in its first four years - sewed up its financing on "terms that some entrepreneurs wouldn't see as important at the time but that I knew would be." Lessons learned However, the biggest plus, say these Web entrepreneurs - each of whom hopes as much as the next company founder to strike it rich - is knowing what they'll do differently if they return to venture capital. "I used to sit and nod and think I could fake my way through another meeting with someone," said the founder of the online advertising start-up. "As an entrepreneur, I now see you can instantly recognize who doesn't get it, or care." Conrad, who has raised $4 million for Sphere and whose investors include Kevin Compton and Doug MacKenzie of Kleiner Perkins, said he'll be more sensitive. "I think there will be a place and time when I'll be a VC again, and I'll remember the clueless things I did before," including asking a struggling entrepreneur to meet him at his expensive hotel during a cross-country trip, rather than drive to the start-up. "You don't have to be in the trenches with them, but a lot of entrepreneurs resent VCs because they think they're disconnected from reality. Now, I see why." Contact Constance Loizos at cloizos@mercurynews.com or (408) 920-5920.

Summary: I spent part of my weekend doing a more formal set of financial projections for the site group we’re working on. Given that I am not an Excel afficionado, this was a somewhat painful experience. The general expectation with VCs and angels seems to be that they want detailed projections for the first two years and quarterly estimates for the next three. For a web-based business this means delving deep into the sphere of speculative fiction as our world is completely unpredictable two years from now. And I can’t make myself do it- it is simply useless. So I did two years, month to month. Now, in the business we’re in (the one we know about today), the first metric I have to estimate is site visits. Three things happen during site visits: * Visitors are first time and sign up for our service which reminds them of when they will need us (these are now ‘users’) * Visitors are first time and skip the sign-up but continue in to get something they need- a transaction may occur * Users arrive because of a reminder and go on to do a transaction My challenge is to guess how many visitors we will get, how fast it will grow, how many will generate revenue via a transaction, how much the average revenue will be and what it will cost us to generate that revenue. That is a lot of guessing. Fortunately (apply sarcasm here) Excel allows us to create formulas to help with our guessing. So my formula looks a little like this: X numbers of monthly visits times the number that are there to do a transaction times the number that actually buy times the average revenue per purchase. Example: 10,000 visitors. 10% or 1000 are looking to buy. 10% buy. Average sale is worth $11 to us. Monthly projected gross revenue equals $1100. (((10,000/10)/10)x11). Now I have to estimate costs and operating expenses. The point of this rant is that once I have these formulas and guesses in place, I can tweak the guesses until they show something that shows realistic growth, profitability and projected capital requirements to get to profitability. I can also tweak to the estimated expectations of the investor. Are they conservative? Are they looking for explosive growth potential? I can adjust for each. The crazy thing is that everyone involved knows this. I’m guessing that we’ll have more discussion of the Assumptions sheet than the actual numbers (as it should be). Now, having taken my first real crack at this, I find that when I tweak for my own seat of the pants, ‘we can do this’ expectations, the numbers become useful. First they tell me whether I really need money and how much faster it might help us grow (faster, believe me). Second they tell me if I’m blowing smoke regarding potential: is this a nice ‘mom and pop’ income business for us or a real growth opportunity that can be sold for real money? Fortunately my initial projections appear to indicate the latter. Yay for projections! Finally, if this is a mysterious subject to you there is a great must-read book (pause while I go get an affiliate link): Financial Intelligence This is a great book that is extremely readable (!) on understanding financial statements, including the ways they can be manipulated. Every entrepreneur should find time to read it early in your start-up stage.

Summary: Like Dr. Frankenstein, I have emerged from the Excel lab with a monster. Once I laboriously built (could someone explain excel macros to me?) my statements, the urge to tinker with the scenarios was irresistible. What if I change the this ratio? What if we only get visitors at this rate? What if our average sale is $x? So, of course I wanted to play with the worst case scenarios: slower start than planned, fewer visits, fewer conversions, etc. The results were surprising direct and not really subject to speculation. If we do not take seed capital and things go slower than we think, we still make money. If we do raise capital ($250k is our target) a few things happen. We can put the petal to the metal earlier on the marketing, primarily PPC and PR. SEO gets done by us regardless of budget. We can get the app built that drives our repeat business faster. However even if that takes us a litle longer, the target site(s) that the app aims repeat users to will still be there and they make money as standalone media sites. So either way we’re moving forward. And oh yeah, I suspect raising money gets a lot easier when you’ve got some revenue flow. And now a little rant about our local angel investor group, to remain nameless. To apply to present you must email your plan and PPT. Then their decision process to determine whether you present is three months. I’m not sure what dimension they live in but three months these days for seed money is an eternity. But that’s not seed money we’re talking about, its your first opportunity to present your idea. They state on their site that it will be another 3-6 months before you actually see a check. So why would we even try? These days you can build a web-based business in months without investing in costly infrastructure and see revenue very early. This is a disadvantage of location. If we move to the West Coast things move faster. But, right now, we don’t want to move for a variety of reasons. Those are the choices you face in the real start-up world.

Summary: So, the next step in the seed capital exercise is something called ‘Use of Funds’, i.e. what are you planning on spending our money on? It’s a fair question and one we’ve thought about. We don’t need a lot of equipment and we are not building a data center so we are not hardware intensive. We have programing needs but the app is not rocket science- it does have to scale so we will need a good DB programmer and we should build in the ability to gather as much data as possible for future uses. So developer skills are an important expense but not a huge one. Let’s do a quick breakdown of where we might spend capital (assume one year of spending- goal is revenue positive in six months): Founder’s salaries $140k Developer Contract $50k Editor/shopper contracts, 9 months $18k Rent $6k (it’s cheap here and we have a friend who offered us a deal) Office Supplies $.5k ISP $.6k Hosting $3k PR (6 months) $18k Insurance $1.2k Professional Fees $6k PPC (assumes all revenues first six months are recycled into PPC) $12k Travel $5K Total: $242,300., leaving us about 8k for unexpected stuff (like hosting spikes, a good thing) or more PPC. I did not try to make these numbers fit the budget- I simply picked numbers that seem reasonable. We’ve already spent some money of our own and brought some assets to the table, principally domains and experience (and computers, software, furniture, etc.). What the $250k gets us: Freedom to pursue this 24/7 without having to do other stuff to pay the bills. Much faster ramp to revenue PR campaign at least up to pro standards (we will be going after consumer media so we need help) Scalability Strong business model for expansion

Summary: It's not enough to just have a good idea. In order to be successful, an entrepreneur must think through all aspects of their vision to determine if a real business can be developed. Having been involved with several successful companies and product launches, Neil will walk us through how to to grapple with "the flushing out" of a great idea.

Summary: Pascal Levensohn reviews some of the key findings in "A Simple Guide to the Basic Responsibilities of VC-Backed Company Directors", the collaborative VC board governance white paper which was released by the Working Group on Director Accountability and Board Effectiveness in January 2007. Pascal also previews some of the updates to the Guide which will be released later this year in "A Simple Guide... v2.0". Topics discussed include the director's legal duty of oversight, signs of effective and ineffective boards, CEO review, director self assessment, and the delicate subject of board peer review.