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Archive for March, 2009

compforcapitalThis section wouldn’t be complete if we didn’t mention the plethora of contests and competitions out there for entrepreneurs. Most of these are business plan writing competitions that target upstart entrepreneurs to enter in hopes they are going to get in front of a panel of investors who will then choose their venture and write them a big fat check.

For young entrepreneurs, it seems that every college with an MBA program is promoting one of these. But again, if you happen to enter one, don’t just fall under the spell of dollar signs. Most of the competitions offer entrepreneurs the opportunity to: 1) help crystallize their thinking (and making them more investor ready); 2) receive feedback and advice from forward-thinking entrepreneurs and investors; 3) network with fellow entrepreneurs and distinguished investors; and 4) sharpen their skills in analyzing, writing, and presenting their business plan. Again, the more value one of these contests provides back, the better it makes the entire process for starting and funding a company.

riceThe Rice University Competition has become one of the premier collegiate competitions in the world; with over 35% of its entered teams (since 2001) going on to successfully launch their business. These impressive numbers can be directly attributed to the counseling and feedback all of these teams received at the competition. Now that’s entrepreneurial education done right.

“The support of business leaders and successful entrepreneurs ensures that tomorrow’s leaders can pursue their dreams by utilizing such an investment to refine their business plan and presentation, potentially develop a prototype or begin the patent process, and build the foundations of a viable business – ultimately attracting additional capital and fostering the spirit of entrepreneurship in the US,” explains Steven C. Currall, PhD, and Founding Director of the Rice Alliance for Technology and Entrepreneurship.

Alternatively, many VCs and Angel Groups are now holding “segment specific” competitions to generate quality deal flow in hopes of surfacing the next big thing. Entrepreneurs submit their innovative ideas on everything from gaming to green energy to senior products & services to social media. The winner can usually drive home with as much as $100,000K of start-up capital in their front seat.

One interesting newbie on the competition front is Ideablob.com. Run by Advanta, one of the largest credit card companies in the States, Ideablob is a place for entrepreneurs to post their ideas and get real-time feedback from their peers. The site was developed around the premise that there are tens of millions of entrepreneurs and small business owners in the United States, but no real way for them to network and bounce ideas off of each other. Eligible individuals can submit their business ideas to ideablob.com, and based on votes from the ideablob.com online community; which includes other innovators as well as friends, family, colleagues, associates, teachers and mentors – one idea every month will win $10,000. Here’s to growing the blob and mentoring entrepreneurs in the process!

googlelunarxprizelogoLooking for something a little more unconventional? As of this writing there were already 16 announced teams registered for the Google Lunar X Prize competition. The Google Lunar X Prize will reward the first privately-funded team to land a rover on the moon (and travel at least 500 meters across its surface) with the $20 million purse. If no one is able to complete the mission and send video, data, and images back to Earth by December 31, 2012, the first prize drops to $15 million. The big challenge for these braniacs will be to do it affordably. Many are already raising money and even turning to corporate sponsorship to help get their idea on the launch pad. Let the countdown to liftoff begin.

The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.

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needleinhaystackThe scarcity of capital for early stage companies in recent years has lead to the creation of literally thousands of businesses focused on helping entrepreneurs raise money for their start-ups. At North, this subject is close to our hearts, as we’ve made it our mission to make the entire process for fostering, filtering, and funding entrepreneurial innovation more efficient.

While some individuals and companies are taking strides to optimize entrepreneurship and inspire innovation, others unfortunately seem to be falling into the all too familiar trap of playing “follower,” when today’s economy desperately needs leaders. While there’s certainly value to extract from a few of these businesses, many unfortunately are coming up short of industry expectations, launching the exact same set of features and functionality as those that came before them.

“They have taken their cue from the Gold Rush when the truly crafty business-people made money not from prospecting but by selling shovels to the prospectors. Likewise, today’s money-raising services have found a low risk means to separate the cash-starved entrepreneur from any money he or she may have left.” – Antiventurecapital.com

In this section, we highlight a few of the emerging ideas, ventures, and individual brand names that either have or are in the midst of trying to bring much-needed efficiency to the early stage venture market. Are any the long-awaited silver bullet that is going to help accelerate economic growth when now we need to create innovation faster than ever before?

You be the judge. Let’s take a closer look at the Pitch Farms.

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We’ve already spoken at length about the recent proliferation of the “Pitch Farms,” those online destinations that promise to connect start-ups with the investor community. If you’re an entrepreneur, you’re probably very familiar with the usual suspects that offer up their virtual cork board for some type of fee (usually a recurring monthly one): FundingPost, FundingUniverse, EFactor, and GoBigNetwork to name just a few.

David Rose, Founder and CEO of Angelsoft, considered one of the “smarter” pitch farms, outlines both the opportunity and the shortcomings of these destinations when he said, “…there are many, many web sites out there which purport to connect, or ‘match’, entrepreneurs seeking funding with potential investors. By our own count, there are probably three or four dozen, and that’s without looking very hard. The reason there are so many is that it’s like shooting fish in a barrel: how many starving entrepreneurs wouldn’t want to come to a web site that promises them cash?!”

Mr. Rose originally launched Angelsoft to Angel groups software that enabled submissions, file management, and group communication tools. It was a lot of the infrastructure that traditional Angels needed to scale and to update their current submission processes and makes them more “new economy ready.” However, Angelsoft has since morphed into another massive deal farm for the start-up community. Perhaps pleasing their engineers on staff, they now offer up a dizzying array of features and software updates. So many in fact, it makes an average Angel investor feel as though they’re playing around on their kid’s Facebook page.

angelsoftscreenshotEven with the questionable, confusing, and clearly off-target features, it’s not hard to tell that Mr. Rose has his sights on consolidating the entire early stage venture market. With 442 Angel groups, over 14,000 investors, and a staggering 2,000 new venture applications per month, they now have an Open Deal pitch for $250 a pop that allows an entrepreneur to get their plan in front of all 14,000 investors with the click of a mouse (if those investors were actually logged on and could even find their way to the Open Deal room…).

“The sad reality, however, is that while it is extremely easy to get hungry entrepreneurs to list their plans, it is well-nigh IMPOSSIBLE to get investors to show up on the other side of the curtain…for the simple reason that (a) the ratio of investors to entrepreneurs is about 1:1000, and (b) investors are so deluged with opportunities that they simply don’t go out LOOKING for plans; plans come to them!” says Mr. Rose who in his own words admits he’s got an efficiency problem on his hands.

Recently Angelsoft started to actually push deals onto the unsuspecting investors of all the third party Angel groups that use their software. This pushy intrusion comes in the form of a bi-weekly unsolicited email filled with recent venture submissions. Angel groups that signed up for Angelsoft to help manage their Angel group now find themselves competing for their own investor members attention with the unrequested (and often unwanted) deal flow being shoveled onto their members by an Angelsoft email server that seems to have its dial stuck on “spam.”

“With Angelsoft, all of the personal aspects of Angel investing seem to be removed from the equation. My materials are submitted through Angelsoft forms, and then disappear into some system that encourages a group of busy angels to evaluate the opportunity in a black box. Do they like it? Do they hate it? Do they even read it? I have no idea, since I have never heard anything!” comments a disappointed entrepreneur.

For all the aggressive email action and striking numbers on this site, one has to wonder, is it really delivering on quality deal flow or just polluting the Internet with more “not ready for prime time” quantity? As of this writing, Angelsoft reports that just 1.32 percent of start-ups on their site have been funded, and that the average number of “views” for each submission is only 5.3 (Which means an average submission is viewed by only 1 of every 3,000 investors that Angelsoft claims to represent). For entrepreneurs and investors, the verdict is still out on whether this site is more “soft” than true “Angel.”

The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.

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I ran across this interesting article today from John Hollinger of ESPN.com, where he took his Player Efficiency Rating stat (PER) one step further (PER is Hollinger’s overall rating of a player’s per-minute statistical production).

He came up with a new acronym: VA. It stands for “Value Added.” The idea behind VA is to take the difference b/t a given player’s performance and that of  a “replacement level” talent – perhaps a player that rides the pine and doesn’t see a lot of quality playing time.  So to get VA you multiply that difference by the number of minutes that player played. The result shows how many number of points the player added to his team’s bottom line on the season.

Hollinger says VA is an excellent predictor of this year’s MVP (really a two-man race now b/t Kobe Bryant and Lebron James),  because it allows us to compare players with disparate production and minutes — say, one player who was brilliant in 60 games and another who was merely good but played all 82 — and figure out which performance was more productive.

That’s not all, there’s another acronym Hollinger analyzes, called EWA (Estimated Wins Added). EWA is the same idea as VA, except that the result is expressed in terms of wins instead of points. This is helpful if you’re trying to figure out the impact of, say, removing LeBron from the Cavs or Kobe from the Lakers.

I pointed out in a earlier blog post called Are They Ready For Prime Time? that professional sports organizations have long been using statistical analysis to conduct due diligence on athletes. The athletes that are predicted to have the most upside are the ones that get drafted, make millions of dollars, and go on to have the most successful careers.

In his review of the book Wages of Wins, Malcom Gladwell wrote, “Weighing the relative value of fouls, rebounds, shots taken, turnovers, and the like, they’ve created an algorithm that, they argue, comes closer than any previous statistical measure to capturing the true value of a basketball player. …Looking at the findings that Berri, Schmidt, and Brook present is enough to make one wonder what exactly basketball experts—coaches, managers, sportswriters—know about basketball.”  Well, after reading Hollinger’s article today, I think Gladwell can remove sportswriter from his expert list…

But this VA acronym that Hollinger has coined raises an interesting question. How can we apply VA to the business world? Well, it’s something we debate nearly everyday. Will Apple’s stock turn sour without Steve Jobs running the show? What will happen to News Corp when Peter Chernin steps down in June and is replaced by average talent? Which executive is more valuable to their team? At North, we love this kind of stuff. We’re all number’s geeks at heart.

Oh, I almost forgot. The winner of this year’s NBA Most Valuable Player Award according to Holinger? King James by a landside. As a lifelong Laker fan it pains me to write that, but after looking at his statistical rationale, it’s extremely hard to disagree. Read the full article on predicting the MVP here.

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Entrepreneurs are an interesting bunch. While nearly all of them have an “I can do it myself” attitude, which is crucial to get the ball moving, that same attitude usually ends up preventing the company from scaling. The truth is there are some situations where you simply can’t be the most effective person for the task. Now if you have to lean on others (something you should get comfortable with if you ever want to scale a business where you don’t work 22 hours a day), you should think about the cost/benefit relationship of doing it yourself or having someone else do it for you.

Think about it. Can you be a reference for yourself? How is an investor to trust an entrepreneur who has conducted his or her own due diligence? These are a few examples where you simply CAN’T do it yourself. In fact if you even try, it starts to have an inverse effect. Try telling an investor that you’ve done a background check on yourself and that it came back clean (and please film their response and send it to us if you can…).

Also, when you are looking at which aspects of the capital raising process you need to offload, be realistic about the time factor here. Sending an email to X number of Angel groups or VCs takes about 30 minutes each (to find the site, read about them, then apply), take that number and multiply it by X applications and we’re looking at X hours. At what point does it make sense to pay someone to do this work for you?

240 Investors X 30 minutes = 120 hours. Okay, if you do this yourself that means that you could spend 8 hours a day every working day for three straight weeks, sending (not responding to) emails. Is this a good use of your time?

For investors it’s the same problem. Reading 40 business plans a month for 30 minutes each = 20 hours of reading. Before an investor has even picked up the phone, or a golf club for that matter, they’ve already spent 4 hours a day reading highly subjective business plans.

Most Angel groups perform their own due diligence, which for most groups means handing off the task to a “casual” investor member who then has to take on the responsibility for the entire group and conduct some free form analysis of the venture. Don’t be surprised to hear that most investors arms retract approximately 4 inches into their shoulder sockets when someone is asking for a volunteer to perform due diligence. For the Angels, It’s hard to get enough to do it yourself, not to mention the threat of having to corral your investment buddies in order to perform a thorough analysis of the company, that is, assuming you can get any volunteers to help you at all. For the entrepreneur, due diligence is a distracting, time consuming effort that ultimately takes away from their focus of growing and improving their business. Outsourcing this work may be a way for both parties to get back to doing what it is they want to be doing. A standardized set of criteria for this process would also provide complete transparency, allowing both investors and entrepreneurs to be on the same page when it comes to evaluating the strengths and weaknesses of a business.

Many investors admittedly invest in the management team rather than in the idea, essentially betting on the jockey, not the horse. This makes sense, since the most other parts of a business can be easily changed. But it’s unrealistic to expect even the best management team to bring a genetically flawed plan to market with any kind of success (remember Kwame Brown?). Investors need to be clear on the whole picture; without such insight it becomes betting rather than investing. In fact, a study done by Willamette University’s Rob Wiltbank shows that Angel investing is actually riskier than people think. The study found that 61% of the Angels surveyed had returns greater than the amount they invested, which means that 39% didn’t! That’s not a surprising statistic; investors simply are not taking the necessary steps to provide themselves with all the information available to them.

act_satLooking at the world of college admissions we see a highly standardized method for measuring prospective students in the SAT and ACT tests. These tests show how you can have a straight A student from a small high school who may not score nearly as high as a B student from a top ranked private school. While the standardization of analysis would be powerful, what really matters is if the investors value the standard.


There are no analytics that tell the entrepreneur who is reading their plan, how it has been distributed, and what parts they are spending the most time on (or how much time they are spending reading it in general). This data is simple to capture and may give an entrepreneur some valuable feedback as to whether or not their plan is getting into the hands of people who can help them grow, and how they are receiving it.

Look for opportunities to transform investment review into something that is more attractive. That is to say, as an investor you have the ability to greatly influence the plan and direction of a company. Some simple suggestions or compromises may make the investment much more feasible for you and also help out the team in the long run.

The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.

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logjamcanoe

The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.

A good presentation with a good PowerPoint given by an individual with a strong personality can easily sway a room full of investors into cutting a check. Investors need to be sure they’re not getting charmed out of their hard earned cash and that the great presentation was great because of what was being offered. Investors need a better mechanism for filtering investments, a standardized venture “combine” if you will. There are simply too many new ventures looking for help and money, and the process for filtering these opportunities is still based on a complex network of personal relationships that will never scale to meet the market needs. As the global economy expands and moves forward, new systems and technologies need to be implemented to accelerate American innovation as well.

As we mentioned, trust is key, so an investor may make a move on a deal because it was given to him or her from a trusted individual (as a favor, for example) even though it may not be the best deal for them. Angel networks provide some buffer between enthusiastic entrepreneurs and investors, but more often than not the Angels are the ones who are doing all the screening work anyway; it’s not as if they can just show up with the confidence that all the pitches they see will be high quality opportunities.

The answer to this problem is pretty simple; look at the entire investing ecosystem and see where there are constraints. Then we need to collectively implement plans that remove those constraints. The systems and technologies are at our fingertips, it’s time we stepped up and innovated ourselves.

Entrepreneurs need to stop jumping in just upstream of a logjam and wondering why they aren’t floating downstream to paradise. Here’s a tip; paddle to shore, load your canoe onto your back, and hike around the blockage, and then put in downstream. Ignore the reams of angry entrepreneurs clamoring on and on about how the market is this or how the market is that, or go ahead and join the masses pushed up against the dam who are wondering what will happen next.

If you’re interested in learning more about how a Venture 360 due diligence engagement can make you a more effective and efficient investor or entrepreneur, please contact us by sending a short email introduction to northventure360@dontgosouth.com and we’ll set up some time to discuss how we can help you avoid the logjam.

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Did McDonalds take Starbucks seriously? Think they do now?

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A crucial undertaking of any new venture analysis is doing a thorough assessment of the Competition.  All new products are judged by consumers relative to existing products in the market. If there’s not a clear understanding of what’s already available (inside and outside of category), a business will have a heck of a time carving out a clear product position in the minds of potential customers. By reviewing competition in and outside of category, it allows one to be conscious of whom likely market entrants will be and enables one to view these other participants as either

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strategic partners or even emerging competitors. To the contrary, not all competition is bad. A rapidly growing competitor could indicate the emergence of a new category of product or service. Competitive advantages come in many forms and this Phenotype is designed to see that the business has

established some form of lead in the market. At the same time, we look to see if there are entrenched competitors or behaviors that would create limits to growth or expansion.

Have you done your homework on your competition?  Go to www.venturephenomeproject.com and share your experiences with investors and entrepreneurs.

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elastigirl_full_length3This  element looks at “the type” of manager that is leading the charge. There are legendary stories about leaders who no matter what changes take place, stick to the original plan. While sticking to the game plan is a good thing, if it means heading in the wrong direction for several years, it is a very very bad thing. It’s essential for managers to be be open and accepting of the many different challenges that they will likely face launching and growing a start up venture. What are some questions you ask to find out if the CEO is control freak? Or if they have good ears and are willing to use them? Are management teams that are open to shifts in their businesses and quick on their feet more likely to succeed? How important is flexibility?

Flexibility is, in my opinion, hands down the most important trait of successful entrepreneurs. I was involved with a startup not too long ago that is slowly dying because the CEO refuses to budge from the current business strategy.  I saw five employees (including myself) walk out on him simply because he’s been unwilling to adapt to new information with regards to the market and viability and of the product. In order to be successful, especially today, entrepreneurs must be able to make decisions quickly even if that means steering the ship in a new direction.

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I was suprised when I read this article, entitled “25 Common Characteristics of Successful Entrepreneur,”that flexibility was not called out specifically.  It inspired me to write…

Share your thoughts and experiences with what it takes to be a sucessfull entrepreneur at www.venturephenomeproject.com

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