Finding Angels and VCs

I think LinkedIn.com is one of
the best ways to find angel investors in your area. With 3.5 million
members, including many investors, this is a great service and a great
way to get introduced through a mutual trusted acquaintance.

But in addition to LinkedIn.com, I have found value in owning a copy of
the 1998 Pratt’s Guide to Venture Capital Sources, a 600+ page hard
bound book that probably cost about $50. Of course, this edition is
almost useless since it is so out of date. There are probably more
current editions. Vfinance.com sells a current database of venture
firms on CD ROM for $299.

It’s much harder to find a directory of angel investors, and since they
are many times more likely than VCs to fund your startup company, it
can be frustrating if you are an entrepreneur looking for potential
angel funding.

Our solution? Let’s all work together to create a free open-access
directory of angel investors (both organized groups and individuals)
and venture capital firms around the world.

We are launching a directory of venture capital firms called VCWiki.com and a directory of angel investors called AngelWiki.com.

FundingUniverse.com will
appoint a part-time editor to manage the volunteers who want to
participate in building these community resources. We will use Wiki
technology so that anyone can easily add their own information to these
directories.

Sites like this have limited value at first. But over time, as people
contribute what they know, they can become invaluable sources of
information for entrepreneurs. We hope they will become useful to you.

FundingChina.com

So we decided to launch our first FundingUniverse.com
international web site, and thought we would start with China, since
there seems to be a little economic activity going on over there these
days. :)

FundingChina.com is in
English for now, and it will be a matching service for entrepreneurs
with ideas and angel or VC investors who want to get involved in the
Chinese market. Later, hopefully, we’ll offer Chinese language versions
(although I hear there are over one hundred dialects.)

BusM 457: Blogging Required

Tomorrow my internet marketing class at BYU
begins. My father and father-in-law both taught at BYU for 35 years. It
is a dream come true for me to be able to teach at this great
university. I’ll have 45 students, and we’ll cover the ins and outs of
internet marketing for 16 weeks.

I’m planning to require each student to start a blog. This will provide
hands-on experience with what is becoming an essential tool in the
internet marketing arsenal. At first I was considering having them blog
about internet marketing, but this weekend I decided it would be better
for them to choose their greatest passion — or the field in which they
want to make a living — and blog about that. I want their blog to
become a way for them to market themselves within their own industry.

If you are a student, have you ever been required to blog? Can anyone
point me to any professors who have required this? I’d like to speak
with one or two before making this assignment.

How to Get Funding: Traction and Trajectory

Today I decided that in order to be compelling, business plan
presentations really need to have two things: traction and trajectory.

It’s pretty hard to convince anyone, especially an investor who is
naturally protective of his/her own money, that your idea will actually
work.

Entrepreneurs often count their chickens before they hatch. In fact, we
count our chickens before we have ever sourced the eggs. We just
believe. We just have faith that somehow it will all work out. So we
invest time and energy in our idea.

Investors aren’t “full of faith” like that. Investors have wealth and
they want to protect it. They want to grow it too, but there are myriad
ways to do that, some with very little risk. If they even consider
investing in high risk/high reward startup companies, they know they
will have to be careful because most businesses fail. Investors don’t
want tothrow their hard-earned money away.

So how do you convince someone that your idea really will work?

Show them evidence that it is already working. That’s traction.

And show them that the rate at which it is working is accelerating, and
therefore, that success will be achieved because the metrics show that
they will. That’s trajectory.

I like to think that with traction and trajectory that a business plan
presentation could become so compelling that no one would see it
without believing in it.

This happened to me when I saw Jeffrey Brewer, CEO of Goto.com give a
presentation at a conference sometime in 1999. His charts showed
quarter after quarter of dramatic query growth, growth in “paid
introductions” and growth in the average price per paid click.

I came away believing that this model was the best internet advertising model ever devised.

About a year later I championed the acquisition by MyFamily.com of
Ah-ha, a pay-per-click search engine company, because I believed
wholeheartedly in the model and saw Ah-ha charts showing similar
traction and a similar trajectory. (Today Ah-ha.com is known as Enhance
Interactive and is owned by Marchex, a publicly traded company.)

Of course, the Goto.com model was the best internet advertising model
ever devised, and it is the rocket fuel behind Yahoo and Google’s
meteoric success.

Business presentations that show traction and trajectory have tremendous power.

There is a scriptural account of a prophet in ancient times who spoke with so much power that “it were not possible that the people could disbelieve his words.”

Can you imagine giving a presentation that is so powerful that it is
not possible for people to disbelieve what you are saying? I think it
would take a lot of evidence (like in his case, raising someone from
the dead) for that to occur.

What evidence do you have that your idea is working?

What evidence do you have that your rate of success is increasing?

Build your presentation around that.

If you are an online business, make sure you invest adequately in web
analytics so that you can measure your success and your acceleration.
Without web analytics, it’s really tough to have the evidence that you
need.

When you show an investor that your faith (in your idea) has translated
into product development (already) and into marketing programs which
are bringing you customers daily (already) and that the rate of
customer attraction is accelerating and that your product and marketing
roadmaps will bring improvements that will actually increase the rate
of acceleration.

Convince investors with your evidence to the point that it is easy for
them to believe in your five year projections. Make sure it doesn’t
take a huge leap of faith on their part. As long as the global economy
doesn’t collapse, you can tell them, they can believe that you will
succeed.

Not every business has the traction or trajectory to convince investors
to put money down. But work hard and get as close as you can. And even
if you don’t raise capital, measuring your traction and trajectory will
help you run your business the right way.

Google launches Google Talk; Skype gets aggressive

Since last year we have seen rumors about Google getting into the IM space and into the VOIP space. Today Google launched Google Talk,
(here’s a news story)
an instant messaging client that incorporates voice as well. I searched
Google for “Google Talk” and I went to talk.google.com (just a guess)
and couldn’t find anything. (They haven’t pre-programmed their own
index for this launch–I wonder how long it will take for them to be #1
on the search “google talk”). But a blogger pointed me to
www.google.com/talk, so I was able to download the client to try it
out.

You have to have a gmail account to use Google Talk, and Google has now
opened up gmail to any comer (it has been by invitation only up until
now.) It surprises me a bit that Google requires a Gmail account to use
Google Talk. On the other hand, bloggers are already raving about how
Google Talk automatically connects you to all your Gmail contacts, so
maybe it was a smart thing to do.

Skype announced that it will more easily integrate with software applications and web sites.

So the plot thickens, and free basic telecommunications for everyone worldwide is one step closer to being a reality.

Auctioning Consulting Services

It’s nearly 3 am, and I’m having one of those sleepless nights, where
my mind is racing with new ideas and lists of things I have to do. I
know (from experience) that I won’t get back to sleep until I’ve
written things down. And while I’m at it, I decided to blog about one
of these new ideas.

For several months I’ve been contemplating a shift in my career from
pure startup entrepreneur to venture capitalist. I’ve been studying the
history of venture capital and have learned that many of the pioneers
of the industry and many of the leading VCs today don’t just look for
deals, but they create them. They help form companies, generate
business plans, recruit management, and act in many ways like
founders–they just don’t often run the companies.

This appeals to me a great deal. In fact, it is really what I’ve been
doing as a so-called "parallel entrepreneur" — the difference being
that I have been using a bit of personal seed capital for each of my
startups. How much better, I think, it would be if I became a
full-fledged VC so that I could invest more significant funds in these
startups, as well as providing training and mentoring for them.

So I’ve been pondering ways to make this shift.

In the meantime, my startups such as 10x Marketing, Infobase Media,
FundingUniverse, Web Evident, and Worldhistory.com are experiencing
growth (and growth pains) and overall are looking more and more promising. It
is difficult for me to take capital out of these companies in the form
of salary or consulting fees, when every dollar that I can keep in the
company is one dollar that can be used to help the company turn the
corner and get to cash flow positive. And my return in the form of
shareholder value will be far greater than any return I can get from
mere income.

Last night a relative asked me why I don’t just get a normal job. I
responded by asking: would you rather have a normal job with a salary
of say $100,000 per year or a harvest of $1 million every three years?
Internet startups can easily generate millions of dollars of
shareholder value in a short period of time (say 3-5 years). In fact,
the highest percentage growth in the equity value of a startup occurs
in the first few months of its existence where reasonable people
(such as venture investors) look at a business idea and the team that is determined to
execute on it and they often give the company a $3-4 million valuation
before it has even finished its product and taken it to market.

It’s not easy to get a multiple million dollar valuation for a raw
idea. Only 1-3% of companies that pitch venture capitalists get
funding. The strength of the team is of course a major factor. But tens
of thousands of new companies get started every year with investment
from personal savings and from family, friends, and angel investors,
and in almost every case there is an initial valuation that is
significant. If the company succeeds, then the early equity holders can
eventually cash out and do quite well.

I totally value equity in startups more than I value a salary or a
traditional income. But that can create a bit of a dilemma between
harvests — in fact, I am accustomed to experience serious personal
cash flow issues as my appetite for being involved in startups far
exceeds my ability to fund them. The good news is that perhaps 3-5
years from now the harvests will come more quickly, as multiple seed
deals per year turn into harvestable businesses.

But what to do in the meantime? I don’t want to take cash out of my existing startups, but I haven’t yet joined a venture fund.

So here’s the idea that is keeping me up. I’ve done some consulting
over the years, but I had a very hard time pricing my consulting
services. In one instance, I got a wonderful client in Canada, spent a
few days with them, worked feverishly on a marketing plan and internet
strategy for them, and delivered it. But while I was working for them I
discovered how serious their cash flow problems were and how the
founder was going into debt personally to pay my fees. I also realized
that my plan would work (of course I thought it was brilliant) but
would take additional capital for them to pursue it. I felt bad for the
company and waived all my consulting fees. All they did was cover my
travel expenses.

So I’ve learned that I will never been good at charging for my consulting servides.

But, maybe, I wonder, I could auction off my consulting services
through eBay or some other online system. The market demand for my
services would bring potentially dozens of companies into the auction,
and the ones that want my services most and could afford them would win
the auctions.

Since my consulting time during this transition period from internet
parallel entrepreneur to investor would be very limited, perhaps as
little as one day a week, then the limited supply of my time might
drive the prices up to a reasonable level.

I need such an online system to remove myself from the process, since I can be too soft or generous for my own good.

At 10x Marketing when we used to help companies set up auctions on eBay
for their products, we learned that conversion rates on eBay were often
significantly higher (sometimes several times higher) than our clients
pre-existing web sites. With that knowledge, we started directly
pay-per-click traffic to go directly to the eBay auctions. The more
people you can get into an auction, the better the conversion rate and
the higher the selling price.

So with my personal consulting, how could I generate online demand for such an auction?

I could of course use email, and notify some of my 2,600 personal contacts that I’m offering a day a week of my time.

Also, FundingUniverse has more than 1,500 registered entrepreneurs who
are currently seeking funding to grow their companies. Some already
have dozens of employees and significant revenue. These would be
candidates for consulting as well.

Also, I could use LinkedIn.com where I am two or three degrees away
from more than 650,000 people. I wouldn’t spam my LinkedIn connections,
but I might get introductions to a few dozen companies that I would
like to consult for, and invite them to participate in the auction.

And finally, I could always use Google and other search engines to drive traffic once the auction has started.

So here’s the question for all my kind readers (so that I can get back
to sleep): do you know of any individual or consultant or team that has
auctioned off their professional services? Also, what do you think of
this concept? Could it work? Could it work for me? Could it work as a
business model–an auction for consulting services–if the marketing
engine created enough demand to generate decent pricing for the service
providers?

I know there are lots of online systems such as eLance and rentacoder
where companies post projects and individuals or companies bid on how
much they will charge to do the work. But is anyone trying the opposite
approach? Are any attorneys, or accountants, or business consultants
using market demand to fill up their schedule and determine pricing?

Okay. So I’ve let everyone know where my career is heading, and I’ve asked you all for advice.

So g’night.

UK Genealogy Site Acquired

Here’s an interesting development in the genealogy world, posted by paidcontent.org:

Friends Reunited Buys 1901 Census for About $6 Million: In UK, community site Friends Reunited, which is looking for a buyout itself, has bought The National Archives 1901 Census for about $6 million, in a bid to boost membership of its ancestry website Genes Reunited.
Science and technology company QinetiQ previously owned the 1901 Census, which was digitised and made available online in 2002.
Friends Reunited predicts that the acquisition will boost its
overall revenues from $16 million this year to $27 million in 2006. (original post on paidcontent.org)

Earlier, on August 8th, paidcontent.org posted an article claming that Friends Reunited was for sale and could fetch as much as $215 million.
That price seems way high, considering that MyFamily.com has at least
seven or eight times as much revenue. I don’t think it woud “fetch”
$1.5
billion if it were acquired today. On the other hand, if MySpace was
worth $580 million, then who knows . . .

Business Model for Blogging

Jason Calacanis of Weblogs, Inc., one of the few entrepreneurs to
attempt to build a business around by aggregating and paying bloggers,
posted the best article I’ve seen to date on how Google AdSense can support a content company.
Last September, he says, who would have thought that they could
generate $1 million in revenue without hiring a single sales person.
Now they are generating as much as $2,000 per day from AdSense ads.
Google, with their generous revenue sharing for content partners, will
provide revenue potentially thousands of successful online businesses.

I like Jason’s transparency and openness. I think it is great when
entrepreneurs share successful tactics with each other. I think it’s
good for the economy for good ideas to spread. Sure, it may mean less
concentration of wealth in the hands of a few, but the world will
definitely be a better place if best practices are shared and adopted
more widely. More overall wealth–a bigger pie for sure–and less
scarcity and suffering.

The problem is, even with openness like Jason’s, there are too few
entrepreneurial minded folks in the world. Anyone could go out and
start a blogging aggregation company, sign up for AdSense, and make a
go of it. After all, traffic to blogs is up 31% this year,
with no end in sight in the growth of the blogosphere. But few people
really have the nerve to start something from scratch and give it a go,
even in a hot sector like this, and even fewer will have the
persistance to work day and night for years to turn an idea into a real
world success.

Jason’s April post about conversations he has with venture capital associates
to me represents the kind of attitude (not to mention hustle and
passion and resilency) that entrepreneurs must have, even when no one
else believes in them or their business idea.

Some of the most successful blogging business models to date are from
the blog hosting companies. Google acquired Pyra Labs in Feb. 2003 to
acquire blogger.com, which had 12 million visitors in July, more than
twice the traffic of Xanga which seems focused on teen bloggers and
music reviews.

Six Apart raised $10 million in a Series B round last October through an investment by August Capital’s David Hornik, himself a blogger.

Chinese blog company Bokee also apparently raised $10 million in venture funding.

While it might be too late to just copy a blog hosting or blogger
aggregation business model in the U.S., it’s never too late to figure
out how to incorporate blogging into your current business model, and
if I were a venture capitalist, I might be looking for blogging
startups to back all over the world. I do believe blogging is somewhat
addictive, and because it is subjective and first-hand, I think it is
healthier and more honest than traditional journalism, which pretends to be objective, but never really can be.

I believe that blogging will disrupt traditional media in a huge way
(even though I only got to page 28 of Hugh Hewitt’s book Blog–hey, I
was already a believer!) and I haven’t yet finished Dan Gillmore’s We
The Media (same story).

I’m working on one idea now to turn tens of thousands of customers of a
popular CD ROM reference tool into occasional bloggers. With AdSense,
this kind of a content creation engine from already paying customers
might be a powerful profit generator.

I still believe as I said last November that blogging is one of the most important things I do.
(Unfortunately, I couldn’t blog while on vacation for two weeks either
because the software I use doesn’t support remote posts via email or I
just don’t know how to do it yet.)

Money Looking for a Team

You always hear about how much venture capital is out there, and that
there is more capital than there are good ideas or good teams. Business
2.0, one of my favorite magazines, just interviewed 11 VCs to discover which idea they are most anxious to invest in right now,
if only they can find a team to execute on it. Someone emailed this
article to me and suggested that we could implement something like this
on FundingUniverse.com,
so that angel investors could list the ideas that they are hoping to be
able to fund. I love this idea, and we’re going to experiment with it
right away.

How to Have an Overnight Internet Success

My brother Curt, founder of Folio Corp, former CEO of MyFamily.com, and
current CEO of Agilix, a venture-backed company, is fond of saying
telling how his company was going to be an overnight success…after 10
years of hard work.

I believe that the single most important key to success in an online
venture is doing the little things day after day for years and years
until you magically reach the tipping point and everyone seems to have
heard of you. In other words, persistence is required for most
successful ventures.

The reason that I love daily metrics — keeping track of all the key
operating statistics in your company day after day — is that daily
metrics tell me if we are persisting in something that is hopeless, or
if we are persisting in something that is bound to reach the tipping
point and bring us the success that we hope for.

For example, when we launched Ancestry.com’s subscription service in
April 1997, we started getting 50 new subscribers per day. It took a
few months before we got to cash flow positive, and a few months to
convince investors that we could really pull this off, but Dan Taggart
(co-founder) and I knew that with 50 subs per day Ancestry.com was
going to be a huge success.

What were the daily things that we had to persist in before we reached
the tipping point and became the largest genealogy company in the world?

The most important thing we did was add at least one new genealogy
database every business day beginning in April 1997. We started with 55
premium databases. Now, eight years later, the company has thousands of
databases and probably more than 3 billion records.

The next most important thing was internet marketing. Every day we
collected email addresses from registered users, asking them if they
wanted to be notified of our new databases every day or every week. In
1998 and 1999 we did search engine marketing, buying keywords, building
banner ads, and measuring every day which ads brought us the most
visitors. We also launched our most important marketing channel of all
time–our affiliate marketing program–and we started recruiting new
affiliates every day.

By persisting day after day with the blocking and tackling of content
publishing and internet marketing, we built a great company. Today
MyFamily.com (the parent of Ancestry.com) operates as a very profitable
pre-IPO internet company–the largest genealogy company in the
world–with more than 1,000 employees.

There are so many success stories on the internet, so many companies
making millions; and in almost every case, if you dig deep enough,
you’ll find a small team of web developers and marketers and other key
employees in the company, who day after day, and year after year, have
been working hard, focusing on the little things that make a huge
different over time.

Today I’m watching several companies in our portfolio who are months or
years away from reaching the tipping point, and I’m trying to make sure
that the management are tracking the key metrics and that the employees
are focusing hard on doing the little things day after day after day
which over time will turn their company into a big success.

FundingUniverse.com is one
of those. Every day we are recruiting new investors to join our 50
state web sites, and every day we are getting dozens of entrepreneurs
to sign up, many of whom post their business plans online.

Just 30 days ago, I observed that we had 17 states that had at least
one registered angel investor and at least one posted business plan. Today we have reached this level in 28 states. 30 days ago we had only 4 states where we had at least 4 angel investors and 4 business plans. Now we have 7.

It doesn’t take a great deal of faith to project forward and say, if we
continue at this pace (not even accounting for the J-curve that happens
as sites get momentum and as word-of-mouth and PR coverage kicks in)
then we will have about 1,000 angel investors and about 8-9,000
entrepreneurs all across the country who are looking for funding.

The best question for us is not will we have enough traffic, it is,
what is the best way to monetize this traffic, in other words, what is
the best business model to pursue.

Currently, the service is free for investors and entrepreneurs. We sell
sponsorships to attorneys, accountants, office leasing companies and
insurance providers — people who provide services to entrepreneurs and
investors — in every state.

We can project a few million in revenue from this business model. But
perhaps there are other revenue streams (we are currently brainstorming
many) that we could create by selling products or services directly to
our users — premium services, for example.

But my point of this blog post is not to highlight FundingUniverse.com.
It’s the principle that success comes by doing small things over a long
period of time.

My point is this: use metrics, project forward, and if the thing is
promising, knuckle-down and focus on daily execution of the little
things that will turn your online company into a great success.

Don’t give up too soon. You could be walking away from a fortune.