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Archive for the ‘Funding’ Category

Investing by ‘angels’ down 40 percent – Atlanta Business Chronicle:.

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With Venture Capital Scarce, Entrepreneurs Find Alternative Means

OCTOBER 15, 2009

http://online.wsj.com/article/SB10001424052748703790404574471433151548294.html?mod=wsj_share_linkedin

By EMILY MALTBY

Sean Conway needed to raise funds for his start-up, Notehall.com, an online marketplace for college students to buy and sell class notes. But a year into the venture he was broke and investors weren’t willing to infuse the company with a capital boost.

Mr. Conway’s grandfather contributed $17,000 for marketing and operations, which allowed the company to hit nearly 8,000 users at Mr. Conway’s alma mater, the University of Arizona, by January 2009. But the angels and venture capitalists remained skeptical.

“I had invested my life savings and I knew there was no turning back,” says Mr. Conway, a 2007 graduate.

Rob SheddSean Conway, founder of Notehall.com, found creative ways to get funding for his business.

So last March he submitted his idea to DreamIt Ventures, a sort of entrepreneurial boot camp in Philadelphia—funded by four economic development organizations—that provides office space and mentoring to fledgling business owners, and helps set them up with potential investors. Notehall.com, one of 10 ventures chosen to participate in the three-month summer program, walked away with about $500,000 in investments.

Amid a stark climate for venture capital, small-business owners are finding more creative ways to get funding. Some are turning to boot-camp-style programs like DreamIt Ventures, Y Combinator in Mountain View, Calif., or TechStars in Boulder, Colo. Others have found success appealing for funds via television, or even hitting up friends and relatives for cash.

Venture capital deals have been steadily declining since 2007 and are hovering at levels not seen since the mid-1990s, according to data from PricewaterhouseCoopers and the National Venture Capital Association. The amount of funding in the second quarter dropped more than 50% from the year earlier period, landing at 612 investments worth $3.7 billion.

Yet entrepreneurial activity can remain vibrant even in downturns. A June study by the Ewing Marion Kauffman Foundation, a Kansas City group that promotes entrepreneurship, found that periods of unemployment trigger individuals to launch their own ventures instead of applying to corporate jobs. These days, like Mr. Conway, they are needing to find alternative paths to reach investors.

After his success with DreamIt Ventures, Mr. Conway applied to be a contestant on ABC’s Shark Tank, a television show that gives entrepreneurs a chance to pitch to investors and vie for their money. Through the show, which aired Notehall.com’s episode last week, Mr. Conway landed the company an additional $90,000 after agreeing to give up a 25% equity stake. “The last two weeks have been crazy,” says Mr. Conway, who says he hopes for the company to reach 30 colleges by the end of the year.”Everyone is emailing, wanting to partner with us.”

Marc Fienberg, head of Story Films Inc., a production company in Los Angeles, also found his enterprise wasn’t garnering much respect from the venture capital community. So he tapped some acquaintances from his days at Northwestern’s Kellogg School of Management and proceeded to network for about three years.

“I quickly realized that to do this, I’d have to reach outside my comfort zone,” he says. “There was no room to be shy or humble.”

In total, Mr. Fienberg says he pitched to hundreds of contacts, many of whom scoffed at the idea and told him he was wasting his time. But eventually he found 17 people—made up primarily of Kellogg alumni—who were interested. He flew to meet each in person.

From 2007 to 2009, Mr. Fienberg says he secured between $1 million and $5 million. His company’s first film, “Play the Game,” recently landed in theaters and has grossed about $500,000 in box office sales.

In this economy, entrepreneurs need to work even harder and put more effort into thinking outside the box, says Bo Fishback, vice president of entrepreneurship at the Kauffman Foundation.”Smarter entrepreneurs are looking to put more sweat equity into the company, not magic $100 bills.”

Mr. Fishback is seeing a trend of more innovators competing online at NineSigma.com and InnoCentive.com. Large companies post challenges on these sites and award money to the winning inventor or problem solver.

Small projects from large companies can be lucrative. That’s what William Volk found out after he joined a start-up called MyNuMo LLC, a company that produces games for smart phones. In 2008, he reached out to a venture capital firm that had invested in a company where Mr. Volk had previously worked. “I thought for sure we would get it because I had a track record,” says Mr. Volk. But he wound up losing to a competitor seeking capital from the same firm.

Given his background in programming, an undeterred Mr. Volk contacted several companies to see if they’d be interested in a custom smart-phone program. “We were using those smaller projects to keep us going,” he said. The projects financed the research and development for MyNuMo’s game applications, which are now available online and as mobile-phone applications.

Revenue is expected to hit $1.5 million this year. “We managed to create a higher number of titles than our well-funded competitors,” Mr. Volk says.

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Investors are hip to “Startup lies” Oct 13, 2009 When marketing their start-ups, entrepreneurs will naturally seek to put their companies in the best possible light. Investors are a cynical lot, however, and there are a number of “red flags” which every potential investor unconsciously listens for in elevator pitches, business plans, and executive presentations, notes Martin Zwilling, CEO and founder of Startup Professionals, Inc., and managing partner of Southwest Software Ventures and Consulting. He offers a list of ‘Ten Start-up Lies,’ “not to impugn the honesty and integrity of entrepreneurs, but maybe to curb your natural over-enthusiasm that might detract from your impact.”

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Written by Lori Vechazone
Posted on 10/30/2008 3:43:39 PM

Studies have shown the best time to start a new business is in a down economy. Some of America’s biggest companies began during economic downturns.

A few examples throughout our history:

1873-Coors
1891-Wrigley
1896-IBM
1907-UPS
1908-GM
1923-Walt Disney Company
1938-Hewlett Packard
1948-Toys “R” Us
1960-Domino’s Pizza
1975-Microsoft
1982-Symantec
1991-Nantucket Nectar
(Inc. Magazine May 2008)

Now is the time to be on the lookout for the next great company. As venture firms are less willing to take on seed and early stage investments and valuations are down, Angels can get more value for their money in these companies. For those that desire it, there is the opportunity to get directly involved with companies they invest in. It is also a great way to diversify a portfolio.

While Angels can invest on their own, belonging to an angel group provides a myriad of benefits, including deals that are prescreened and coached. Angel group members are also able to co-invest and share due diligence. Some Angel group members say the social aspect is equally important to them, having the ability to interact with other investors they may not meet otherwise.

Despite the recent economic downturn, Angel group membership across the country has remained steady, with some groups seeing slight increases. If you have ever considered becoming an angel investor there is no better time that the present.

 

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With a turbulent stock market and a real estate market in serious decline, it definitely makes sense to seek out alternative investments. One possibility that many wealthy individuals overlook is making investments in private equity. This simply means investing in a company that is privately held rather than in a public company that offers its stock to the public over a stock exchange. People who make these sorts of investments are sometimes referred to as “angels,” a term that originated in show business, to describe individuals who provided financial backing for theatrical productions. It is now widely used to describe an investment in any business venture, particularly start-up companies. Many of today’s most successful technology companies received their initial capital from wealthy individuals.

An angel investor is sometimes called an accredited investor. That is defined as an individual who has a net worth of at least a million dollars not including the value of their residence.

Angel investing is riskier than investing in public companies because many times the companies seeking capital are early stage enterprises without significant cash flow or earnings, and it is difficult to predict how profitable the company is going to be. A significant number of early stage enterprises fail, so there is a very real possibility in any investment of this type that you will lose all of the capital you invested. The other significant element of risk is liquidity: private equity investments typically must be held until the company is sold or goes public, which could be 2, 3, or 4 years in the future. You can’t simply log onto your investment account and put in a “sell” order as you can with a publicly traded security. The upside potential is extremely attractive, however. It’s not unusual for angel investors to earn a 50% compounded return on their money. And angels also get the satisfaction of watching a small, unknown company become large and successful-and knowing they contributed to its success.

Angel investing is definitely an activity for high net worth individuals. Although the amount of investment in any one deal varies widely, it is quite high, $20,000-$100,000 or more. The average investment in a single company by an angel is $78,000.

How do you get started in angel investing? There are angel investor organizations, called angel networks, in many cities in the US, and not just in traditional centers of venture capital investment such as the San Francisco bay area, or Boston. Joining one of these and attending their monthly meetings is a good way to see how angel investments are made. The investment can be made as a group to spread the risk or on an individual basis, each angel conducting their own due diligence and deciding whether to invest or how much to invest. By becoming part of an angel group, it allows you to network with other angels and learn from their experience.

Written by Brian Hill, the author of Attracting Capital from Angels

http://angelinvestorguru.com/become-an-angel-investor/

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Angels Den Blog: 10 Darn Good Reasons For Becoming a Business Angel

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Venture-backed start-ups hoping to go public or get acquired had a tough first quarter, according to data released Wednesday.

So you’d think that with start-up valuations down, corporate acquirers could be jumping on opportunities. Instead, they are becoming more selective, waiting to get the best price possible, said Mark Heesen, president of the National Venture Capital Association.

“In the last couple quarters, potential acquirers were waiting on the sidelines for the companies they would like to have but didn’t have to have,” he said. “Now they’re on the sidelines waiting for the price to go down even of the companies they have to have, because they understand there’s nowhere else for these companies to go.”

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