Saturday, May 31, 2008

Getting Started with Bootstrapping Your Business

Traditionally, angel capital became known as “angel capital” because they were the first investors – the “pre-seed” funding, but with deals becoming more numerous and requiring more stringent expected ROI requirements, the entrepreneur in need of $50K or $100K in seed capital is left to bootstrap their business. If you are looking for that first installment of seed capital, here are some concrete ideas to consider.

  1. Attend local start-up events. Get out and meet people. Yes, you’ve heard this time and again. Check you calendar. When was the last time you attended an industry event? If it’s been more than a month ago, that’s too long.

    Here in Silicon Valley, I’ve been a huge fan of the Silicon Valley Association of Start-up Entrepreneurs (SVASE). You probably won’t find funding at one their events, but you will surely uncover great ideas from their guests, panelists, and speakers.

  2. Keep a regular blog. You don’t need to divulge company secrets, but keeping a regular blog provides you with some very tangible outcomes. First, a blog provides a written history of your idea’s development, so if you meet a potential investor or partner, you can show them your progress over time, not just where you are at the moment. It shows the outsider that you can keep a commitment to yourself and are able to communicate effectively with the outside world. Or perhaps a potential investor will find you when they are out searching for projects.

    Second, this helps you to see your own progress. As an entrepreneur, it’s easy to feel discouraged when you’re developing a new technology or innovation. You can’t always look back at the end of a weekend grinding away in your garage to see your progress. A blog enables you to see your accomplishments over time – everything from setting up an LLC to installing and understanding some new project management software to jotting down thoughts or ideas you’ve recounted from meetings and events you’ve attended.

  3. Ask for advice and then listen. At a recent SVASE event, one of the panelists mentioned (to paraphrase) – “If you ask for money, you’ll get advice. If you ask for advice, you might get some money.” As an entrepreneur, you need to learn how to take constructive criticism and listen. Listening skills are the foundation of good sales skills, and enables you to improve your idea without taking the criticism personally. Remember Dale Carnegie’s book – “How to Win Friends and Influence People.” And if you haven’t read this book at least once in the last three years, then good back and read it again.

  4. Ask for referrals. Memorize this line – “Thank you for your time and your advice. Do you know 2 or 3 other people that I can talk to for their advice as well?”

  5. Carry a 5” x 3” Memo Book. These are about $1 at the local Walgreen’s and fit in your back pocket or jacket pocket. Great for writing down ideas that you get at the spur of the moment, or for jotting names and phone numbers of people you meet.

  6. Stay positive. “It's supposed to be hard. If it wasn't hard, everyone would do it. The hard is what makes it great.” (Jimmy Dugan, played by Tom Hanks, in "A League of their Own" in response to Dottie (Geena Davis) saying she's quitting the team because "it just got too hard.")


Monday, May 26, 2008

"I've got the conch!" - What now for Facebook?

Jessi Hempel’s article in the most recent edition of Fortune Magazine – “Finding Cracks in Facebook” - intends to uncover some new foundational flows with Facebook. The article itself doesn’t necessarily reveal any new revelations about Facebook, but further asserts some of the ongoing concerns that those in the technology arena have long had about Facebook (an inexperienced CEO, an emerging firm without a clear revenue growth model, and an extreme market valuation).

As I wrote several months ago, Facebook’s economic value may vastly different from its business and market value. While the company is bringing several new experienced executives on board, I can’t help but imagine that Facebook corporate headquarters at least mildly reflects the tensions in the Lord of the Flies.

While Yahoo!, once an Internet powerhouse, slowly fades into oblivion as a Microsoft acquisition target and under talk of selling off company assets, it would be imprudent to consider Facebook’s market share and daily visitors as validation that the company has assured a long-term future for itself.

The latest scoop has Microsoft considering an acquisition of Facebook themselves - another story unto itself.

In looking at the lack of revenue growth and ongoing struggles with launching new platforms and working with developers, the technology development and appeal of Facebooks seems to be reaching an entropic stage. Perhaps this would be a good time to cash out and start anew with the next idea that is inevitably rolling through the minds of Zuckerman and his cohorts. I only wish I had such decisions to consider in my our career and the opportunites available to him should be nearly boundless.


Saturday, May 17, 2008

CBS - The CNET Acquisition

The acquisition of CNET by CBS – let’s take a quick look at the numbers.

I began by checking out the Balance Sheet, and as a content and media company, one would expect what I saw – relatively low base of assets and liabilities. Pretty tough to determine the value of CNET based on assets on the books.

Then moving to the Income Statement, annual Revenues have been growing modestly each of the last three years (from Yahoo! Finance):

2005 = $354 mln.
2006 = $387 mln.
2007 = $406 mln

But the bottom line income tally reveals the results of some interesting accounting activity:

Total Income 2005 = $19.6 mln
Total Income 2006 = $6.8 mln
Total Income 2007 = $176 mln

The jump in 2007 looks impressive, until you see that CNET accounts for a $178.8 mln “Income Tax Expense,” thus propping up the overall bottom line income for the year.

Looking at the Cash Flow Statement, nothing here seems terribly appealing.

Change in Cash Flow 2005 = $26.3 mln
Change in Cash Flow 2006 = ($24.5) mln (CNET paid off $125 mln from convertible notes issued in 2004.)
Change in Cash Flow 2007 = $57.3 mln

Aside from debt retirement, it seems that cash flow situation seems is fairly stable as you look at cash flow from operations. But, nothing seems particularly compelling or attractice here from an acquisition standpoint.

So what does all of this mean in terms of the $1.8 billion price paid by CBS for CNET? The $1.8 billion represents a premium price per share of $3+. It also represents about 4 times revenue, slightly less than the price Microsoft offered for Yahoo! (which was 6 times revenue). CBS isn't in a situation where top line revenues really matter, so to acquire CNET simply to add to top-line revenues probably isn't a valid reason for the acquisition.

Total annual income is unimpressive, and the annual changes in cash flow are appealing but don't provide the case for the acquisition either. Overall, as seems to be the case when old media companies are attempting to keep with consumer demand for innovative content, the $1.8 seems to be an overpayment. CBS is obviously buying the CNET brands in hopes (yes, hopes) in evoling these brand names to consumer mindshare.

The bigger question is whether or not CBS can convert and integrate the acquisition into a positive gain to justify the price. I’m guessing not.


Monday, May 12, 2008

Yahoo's Entrepreneurial Capacity

Attending local Silicon Valley events always seems to provide great fodder for articles and conceptual gymnastics --

I attended an SVASE event last week – “Startup Founders – New Kids on the Block” – where Eric Marcoullier, Founder & CEO of Gnip, served as one of the panelist. Eric developed MyBlogLog (I'm a member) which sold to Yahoo! for $10 million back in January 2007. After less than a year, Eric left Yahoo! and is now in the process of launching Gnip, a stealth company that no one seems to know exactly what it does.

Could this showcase the pending problems that Yahoo! might have with its acquisition spree over the past few years? Yahoo’s strategy has been to acquire new technology companies and then fold them into their product and service offerings. To account for the prices that they pay for these companies, the “Goodwill” account on Yahoo’s Balance Sheet continues to grow – a practice that I’ve recently criticized. When a company’s accounts for intangible assets by using the “Goodwill” account, those intangible assets may include the future innovation and development that the acquisition’s management and employees with bring with them. Advocates of overpaying for an acquisition will often defend the price paid by infusing the argument with the future intangibles yet to be realized.

Entrepreneurs inherently dislike the bureaucracy and structure of a large corporate organization. So what happens when these unrealized intangible assets disappear when key managers decide to leave the acquiring firm? When key managers leave the acquiring firm in short order, then the expected future benefits from those managers are lost.

(Sidenote #1 - Gary Becker, Nobel Prize-winning economist for contributions to the concept of Human Capital, estimated that human capital represented 70-75% of a company’s value.)

(Sidenote #2 - this is one of the reasons that acquiring firms will use its own equity shares in acquisitions instead of cash – the equity paid to the target firm managers can be spread out over a period of time to increase retention of the acquired managers and key talent.)

When Yahoo is purchasing new technology companies such as MyBlogLog, they are attempting to buy “entrepreneurial capacity” that otherwise doesn’t exist organically within its own corporate structure. The struggle that acquiring firms face is that increasing entrepreneurial capacity, according to Becker, is accompanied by “significantly rising costs and that the “accumulation of human capital is not instantaneous” (from Becker’s book - “Human Capital”). If ineffective incentive programs are implemented, this purchase capacity flies out of the window as the key managers walk out of the door.

If other key managers like Eric are walking, so too are Yahoo’s "Goodwill" assets.


Monday, May 5, 2008

H1B Visas: E2 Visa Requirements

I came across an interesting article on TechCrunch that provides a straight-forward guideline to the categories of work visas available for foreigners seeking entrance to the US, especially those seeking employment in Silicon Valley's technology sector.

One of visa categories is the E2 visa - this visa is designed to permit entrance to the US for a foreign investor that adheres to several strict requirements. I did some quick research, and found the specific guidelines for attaining an E2 work visa from (unfortunately the US Customs and Immigration site doesn’t lay out the requirements as clearly as this…):

1. There has been and will be a substantial capital investment in the US. There is no specific cash threshold defined, but $40,000 is probably an absolute minimum, and any investment below $100,000 would need a very strong case to support it.

2. Risk Capital has been Committed; the investment must entail some risk to the investor (it may not be all in the form of unguaranteed credit). At a minimum, there must be a long-term lease of an office in the US.

3. The investor will control his/her investment. In this respect control is considered to entail owning over 50% of the US enterprise.

4. The cash invested is not marginal when compared to the total investment. In general, unless it is common to the industry to have higher amounts of 'leveraging' (such as in the property industry), 51% of the investment should be in the form of cash equity. Where debt is secured against other assets of the investor, it is considered to be 'at risk', and may be considered as part of the equity invested.

5. The enterprise is (or will be) active. In order to be 'Directing and Developing' their investment, the investor will require an enterprise that involves active management. 6. US workers are (or will be) employed. The treaties envisage more than just creating a job for the principal investor, but there is no requirement to employ a particular number of US citizens. Obviously, employment of large numbers of US citizens would be viewed very favorably.

7. The enterprise, or its principal investor, has a past history of successful trading.

8. That the 'investor' has sufficient acumen to direct and develop the investment enterprise. 9. That the principal investor, and any other E2 staff, are able and willing to leave the US upon termination of their E2 status.

As you can see, the requirements are strict and complete. The E2 Visa should not be considered to be a loophole or back office channel, but for foreigners that are willing to invest in the United States, it can be a very effective entrance opportunity to the United States. With the value of the US Dollar compared to the Euro and British Pound, this might be a good time to think about investing in the United States from abroad if you are a business owner overseas.

Michael Arrington’s complete article on TechCrunch includes a guest posting from Peter Nixey, founder of Clickpass, a start-up firm founded in the UK and now based in Silicon Valley.

Thursday, May 1, 2008

Winners! - University of San Francisco Business Plan Competition (2008)

Now the results from the 2008 University of San Francisco International Business Plan Competition:

Grand Prize
Carnegie Mellon University - Dynamics
"Dynamics has invented a low-cost paper-thin, flexible computer. The platform technology is piloting as a security card solution. A proven credit card solution eliminates $22.5 billion of fraud annually by changing a portion of your credit card number both visually (via a display) and magnetically (via a programmable magnetic stripe)."

Second Place
Duke University - Cerene Biomedics
"We are developing an implantable medical device to prevent focal epileptic seizures by delivering targeted thermoelectric cooling to the brain. Brain cooling has been proven to eliminate seizure on-sets; however this has been technologically unfeasible to date. Our device could provide first-line therapy for ~230,000 US refractory epileptic patients."

Stanford University - Endurance Rhythm
MIT - Project Einstein
University of Michigan - GIDEON

The University of San Francisco Team led by recent USF EMBA alum, Rob Lahaderne, and leveraging a Lawrence Livermore National Lab technology as part of a new USF-LLNL cooperative effort, gave an outstanding performance, coming in a close second in a highly competitive life science division and earning an Honorable Mention for the contest. Rob will compete again soon in the Draper Fisher Jurvetson Competition.

"New Form Medical Devices: USF
New-Form Medical Devices incorporates Shape Memory Plastics (SMP) to reduce blood trauma from hemodialysis. This business venture has been organized to design, evaluate, and launch medical devices that use SMP as designed and evaluated at Lawrence Livermore National Laboratory. These components will be targeted to hemodialysis centers and home users."

The Professor John Miller Team Spirit Award went to a courageous can-do team from Cambridge University.

The Sustainable Business Award went to an alternative energy proposal from Yale University.

The other award winners will be listed on the University of San Francisco Entrepreneurship Program website shortly.