Last week, Vringo, a video ringtone company raised $9.2 million.
That’s a lot of money, particularly considering that Vringo only generated $20,000 in revenues last year.
What’s most interesting is how Vringo raised the money.
It didn’t raise the money from venture capitalists, angel investors, or any of the usual suspects. Which is particularly surprising since Vringo’s CEO and co-founder, Jon Medved, was formerly a venture capitalist himself.
And it’s surprising since Vringo had previously raised $17 million in venture capital.
So what did Vringo do instead?
Vringo decided to go public on the New York Stock Exchange.
Vringo sold 2.4 million shares at $4.60 per share for a total of $11 million. (The stock price has since decreased to $3.80 per share.)
In an interview with the New York Times, Medved sited a couple of key advantages of being a public company, including:
1. It gives credibility. This credibility is key to a small company, particularly if it is selling to big customers who might be skeptical of their ability to stay around long-term.
2. It helps with recruiting top management talent, particularly since the value of/likelihood of exercising employee stock options appears greater.
The huge negatives of going public however were the massive amount of time required to do the pre-IPO roadshow and the $1.8 MILLION in estimated offering fees.
That is a lot of money -- and unfortunately precludes most other entrepreneurs from taking this route. But, I would imagine that with the right law firm, these fees could have been dramatically reduced, to half that amount or less. But which would still require an entrepreneur to raise an angel round to fund the expense of going public.
According to Medved in his NY Times interview, when asked about whether he would recommend going public to other smaller companies, he replied: “I would certainly tell them to think about it, and not to rule it out. It’s a mistake to rule it out from first moment. Most people don’t even think it’s possible. We proved it’s not only possible, but it works.”
Next week, I will be unveiling an even more creative funding source than taking your company public. With this brand new source, you’re not going to raise $9.2 million (it works for smaller amounts of money). But, you won’t need to spend a penny on fees, you can raise the money really quickly, it’s practically foolproof, and you don’t ever have to pay the money back….pretty exciting stuff.
How many times have you heard someone say, "Don't put all your eggs in one basket"?
When it comes to any kind of investing, this is very good advice.
But, if this is the case, why don’t investors in private equity diversify?
Unfortunately, most individual investors in private equity significantly under-diversify their portfolios -- investing in one or only a handful of companies. By so doing, they both greatly increase their risk profile and greatly decrease their probabilities of seeing investment return.
Quite simply, investing in just one or a handful of private companies is way, way too risky for most investors and should be avoided at all costs.
Rather, to leverage the dynamic returns in this sector – click here for a summary of 8 in-depth studies examining returns for the startup and emerging company (or "angel investing") asset class showing an average annual return reported across the studies of 27.3% - the only prudent approach is via a portfolio of positions.
Building a Portfolio - Problems With Current Solutions
Admittedly, a portfolio approach to private equity is much easier said than done for the individual investor. The 3 traditional methods of early-stage private equity diversification all have significant drawbacks:
1. Building a Portfolio One Company At A Time. It is certainly possible to build a portfolio one company at a time. Famed technology investors like Vinod Khosla and Ron Conway have taken this approach, with personal investment positions in literally dozens (if not more) of companies. They, however, are both professional investors and technologists, and deeply networked into the core U.S. angel investor deal community - namely Silicon Valley. And as they and other both admit in interviews, there are strong "hobbyist" and "philanthropic" aspects to their deal interests. Vinod Khosla, in particular, has stated that he is motivated in his current investing as much by his desire to contribute to the development of eco-friendly technologies as he is to making money.
2. Joining an Angel Group. Increasingly in recent years, there have sprung up angel investor networking groups around the country. Most are centered in the main entrepreneurial hubs - Silicon Valley, Los Angeles, Boston, New York, Austin, Phoenix, Salt Lake - among other locales, and generally involve groups of individual investors coming together to review and diligence deals in a group review format. These groups have a lot of benefits - including networking and providing a forum for both less sophisticated investors and entrepreneurs to learn the basic process of private company investing. Like Mr. Conway and Mr. Khosla, many of the angels in these groups are retired (or semi-retired) executives and businesspeople who participate in them as much from a hobbyist perspective as from a money-making one. Not surprisingly, their general investment track records are mediocre at best, and there is a high likelihood of "negative selection bias," whereby the better companies and entrepreneurs are often loathe to approach them because of the inefficiencies of their investment processes and the somewhat "off" messaging and perspectives of many of their members.
3. Becoming a Limited Partner Investor in a Venture Capital or Private Equity Fund. While the biggest private equity and VC funds - the Blackstones and the Sequoias of the world - are, because of their size, off limits to all but the largest of individual investors ($50 million+), there are literally thousands of smaller venture capital and private equity funds that accept capital in smaller increments from individual investors. Some of them have good track records of success (though relatively few in the current market), but as "portfolio plays" they have some core limitations:
o All but the largest funds themselves only invest in a handful of deals. It is unusual for the typical VC or private equity fund to do more than a few deals/year, and also have a tendency to concentrate their holdings in a single industry or stage of business.
o Far more problematically, because of their traditional 2.5% (on average) management fee model, there has been a great propensity in recent years for the better funds to grow quite large. It is unusual for a fund with quality managers with a track record of success to have less than $150 million under management. This larger fund size, in turn, greatly defines the kinds of deals in which the fund can, for logistical purposes, invest. It is unusual for a fund of this size to make an investment of less than $10 million into a single deal, thereby requiring them to invest mainly in later-stage technology and/or higher cash flowing middle market companies. While there is nothing inherently wrong with these strategies, the problem is that in recent years there are have been literally more venture capital and private equity funds out there than actual operating companies in which to invest! This reality has a) greatly driven down the number of deals that a typical fund has/can do in a particular year and is b) leading to a "dead man walking" fund phenomenon where funds sometimes go years without actually making investments.
So What To Do?
We strongly recommend that anyone evaluating earlier-stage, private company deal opportunities do so only in the context of significant advisory and diligence assistance from accounting, legal, IT services, and management consulting firms that specialize in working with startups and emerging companies.
Quite simply, as a wise old horseman once quipped - bet on the jockeys not the horses.
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Last week I was finishing up the development of a new money raising product about Crowdfunding (an extremely exciting new way to fund any company).
I wanted to have a logo designed for the product, so on a friend’s advice, I decided to try Hatchwise.com.
Hatchwise.com is very cool. You go to the site and set up a “contest” to get your logo designed. It asks you a few basic questions (name on your logo, what the product/service is, who your target audience is, etc.) and then your contest begins.
The contest works like this: graphic designers from around the world read your design brief (the questions you answered) and submit logos to try and win your contest.
What's so cool is that you get to see the designs before you select the final designer and pay for it. So you know exactly what you are getting first. And you typically end up seeing lots of interesting designs.
You can see a sample of the logos that were submitted in my contest below. Click here or on the image to go to the full page on Hatchwise.com.
Now what I also really like about Hatchwise is that in addition to graphic design projects (which can include logos, websites, brochures, etc.), you can use it for NAMING new products.
Specifically, if you have an idea for a company name or a product/service name, you can submit the general idea to Hatchwise, and members will submit to you potential names and logos. And, they’ll even make sure the domain names are available for you.
This is really cool.
But, the last part (making sure the domain names are available for you) is something I want you to be aware of as this is where I got burned.
You see, if you look at my design contest again, you’ll see that the name of my Crowdfunding product WAS Crowdfunding Secrets.
Well, when I soon launch that product, it’s not going to be called Crowdfunding Secrets. That’s because, I didn’t decide to reserve the domain CrowdfundingSecrets.com until a few days AFTER my contest.
And what did I find? Someone who had seen my contest reserved that domain so I either had to pay them a premium to buy it or not use it.
Fortunately, the buyer/domain squatter probably didn’t even know what Crowdfunding was or realize that Crowdfunding is a brand new field.
So, there’s tons of Crowdfunding domains to choose from (so I just changed the product name to Crowdfunding Formula and the domain to CrowdfundingFormula.com).
But I want to make sure you understand this lesson – if you post anything about your future products or company online, make sure you have already reserved any domain names you may want. Because someone else could steal your name from you.
Not cool…but it happened to me…
Look at this picture:
Those are pretty big smiles don't ya think?
Well, those are my kids. And the reason they are smiling so much is that today is their last day of school.
Do you remember how you used to feel on the last day of school. I do. I clearly remember how good it felt. Knowing that I was done with whatever grade I was in. And that I had the long, fun summer to look forward to.
So, why am I telling you this?
Because I want you to think about the last time you felt this way in your business.
When was the last time you were really excited after accomplishing a goal. Enough so that you really celebrated and relaxed for at least a day or two after accomplishing it.
As an entrepreneur, too many times it's go go go.
We must all slow down sometimes to enjoy life. We need to enjoy the journey of becoming a successful entrepreneur.
To do this, you need to constantly be setting goals for yourself. Annual goals, quarterly goals, monthly goals, weekly goals and daily goals.
And for certain goals, after you achieve them, you should reward yourself.
Sometimes the reward might be as small as giving yourself a coffee break or a piece of candy.
At other times, a weekend away or a day off makes sense.
But you must achieve pre-set goals, and you must reward yourself. That makes the journey fun and enjoyable. And it ensures that you continue to make progress towards completing your journey and entering the land of the outrageously successful entrepreneur.
A fair portion of “Productivity Secrets for Entrepreneurs: How to Get More Done, Make More Money and Take More Time Off" discusses the importance of goal setting and rewards for you and your employees. It teaches you to set the right goals and achieve a whole lot more. Learn more here.
We’ve all seen it on TV or in the movies.
Usually the plot includes a military or police agency.
And then some big event happens.
And what’s the first thing they do after the event?
They have a debriefing.
They get one or more of the witnesses in a room and ask them all sorts of questions about what happened.
Debriefings are a type of after action review (AAR). AARs, which were originally developed by the U.S. Army, are reviews that determine what happened, why it happened, and how performance could be improved the next time the same or similar event happens.
Does your business conduct debriefings?
If not, you might be missing out on a huge opportunity.
Why? Well there are a few reasons.
The first is that the easiest way to be more successful is to figure out what you’ve done that has been successful, and simply repeat it. So, when you debrief after a project, spend time determining what went right. And then make sure to repeat that in the future.
And with regards to what went wrong, this is an opportunity to improve performance in the future.
Importantly, conducting after action reviews discipline your organization to continually learn and improve.
They’re not just about what went wrong. Nor should they only focus on what went right. It’s about both. And once you determine both, you can repeat your successes, fix your mistakes, and make future projects much more successful.
Toy Story 3? Karate Kid 3? Iron Man 2? Sex and The City 2? The A-Team? Where are all of the NEW Ideas in Entertainment?
The movie business of today is all "pre-sold" IP. NEW media has become the home of innovation and imagination.
Learn What Hollywood 4G Will Look Like
Nothing is more important to U.S. consumers than their entertainment choices, but are movies and broadcast TV even relevant in the new world of entertainment?
Or will the convergence of content, internet, mobile applications, games and social media be the onrushing asteroids that will soon destroy the movie dinosaurs?
Is it a 3-year fad, or will new technologies like 3-D keep going to the movies from being relegated to the dustbin of history like Vaudeville, the afternoon newspaper, the evening news, the variety show, and the compact-disc?
Has the U.S. movie box office - traditionally the holy grail of movie industry metrics -- become increasingly irrelevant?
What is the future of Pay-Per-View/Video-on-Demand (PPV and VOD)?
Video-on-demand alone is estimated to grow from a $1.1 billion dollar business this year to $5 billion by 2012, taking market share away from DVD retailers and intensifying the carriers' ambition to bid for the best (and first run) titles.
How about Internet Video?
Annual U.S. revenues from internet video services spanning user-generated content to television shows and movies will exceed $7 billion this year.
And this business is becoming LESS advertising driven -- transitioning from today's model of more than 85% of revenue being ad-based to less than 60% and trending down with the balance being generated by content payments, either for one-time viewings or via subscriptions.
What do these these new realities mean for the content creators of new media and for traditional studios, filmmakers, producers, and distributors?
What is the future for good-old fashioned DVD rentals and sales?
Get The Answers
I am very excited to share with you the opportunity to meet the Managing Director of Growthink's new media and entertainment practice, Mr. Lee Muhl.
Lee, quite simply, has forgotten WAY more about the entertainment business than most of us will ever know (see his biography below).
And he has graciously agreed to share the answers to the above questions, which winning business models to run with, which losers to run from, and much, much more!
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Biography of Mr. Lee Muhl, Managing Director, Growthink's New Media and Entertainment Practice
Lee Muhl heads Growthink's entertainment-media vertical, encompassing the making and distribution of films, television programming, games, new media content and numerous related distribution platforms, technologies and methodologies including theatrical exhibition, DVD, PPV-VOD, mobile applications, internet/IPTV, and a variety of new content modalities (digital theater conversion, advertainment, infotainment, advergaming).
To date, Lee has overseen the successful conclusion of more than 100 Growthink engagements for funding plans and sophisticated media financial models, including film projects ranging from the production of numerous independent films and major studio productions to scores of angel and seed development fundings.
Originally trained in transactional entertainment law and the representation of above-line talent, Lee worked with a number of well-known writer-director-producers in both traditional studio/network deals and in arranging non-studio financing for independent film production including such classics as Bladerunner. In 1999, Lee joined the Silicon Valley new media content contingent as an Internet-company CEO, and has since founded two innovative Los Angeles media companies. With Growthink, Lee has continued his deep involvement with film, digital media, content delivery protocols, gaming technologies and sports initiatives.
A former partner in two leading Los Angeles media law firms, Lee holds a J.D. from the UCLA School of Law where he also served as Chief Comment Editor of the UCLA Law Review, and earned his B.A. in History from UCLA. He is a current member of the California State Bar, and the Hollywood Writers Guild.
If raising money was easy, would it be a bad thing?
Well, according to Bob Johansen, in his book "Get There Early," the tension between people with ideas and people with money provides the energy for innovation.
He further states that if this dilemma were solved, that creative energy would dwindle.
Now, I don’t necessarily agree with this, because the reason why entrepreneurs go into business is NOT to raise money.
Rather, that majority of entrepreneurs go into business for other reasons. For example, according to a recent survey by Grasshopper, 44% of entrepreneurs started their business since they “saw an opportunity to make something great.” Eighteen percent started their business “to fulfill my life dream.” And 7% started “to help others/give back.”
But, raising money is a necessary evil for most entrepreneurs.
And, I do agree that if it were too easy to raise money that it would be a bad thing. Why? Because there would be too much competition.
I often give my barber example to explain this. I grew up in a small town called Rockville Centre in Long Island, NY. The town had about 30,000 residents and two barber shops.
Well, what if raising money was too easy and 8 new aspiring barber shop owners each opened up stores. That would make 10 barber shops in one small town. Clearly the market couldn’t support that. And most likely virtually all the barber shops would go out of business (and the last one standing may not have been the best one, but the one with the most money in its coffers).
So, if raising money was too easy, there would be too much competition.
But, should raising money be as hard as it is? Clearly not.
And it isn’t if you invest in learning how to raise money. I see raising money as similar to someone passing the bar exam. Passing the bar exam is not about knowing what’s wrong and right (which is what the law should be about). It’s about doing your homework and understanding how things work. It’s the same thing with raising money.
Have you ever seen a TV ad and found yourself really confused?
Like you just don’t get what they were trying to do. And what they did do certainly didn’t appeal to you?
For me, I saw tons of these ads in the late 1990s when I was living in California.
That’s when the West Coast fast food chain, Carl’s Jr. unveiled its “If it doesn’t get all over the place, it doesn’t belong in your face” ad campaign.
The ads featured teenagers eating Carl’s Jr. burgers with ketchup and juice dripping from the burger onto their clothes. It was pretty gross and did NOT want to make me go there.
But these ads were tremendously effective.
Why were they effective? Because they really appealed to their target customers – teenagers!
And because I wasn’t a teenager, the ads didn’t appeal to me at all.
The critical point is this – Not everyone has to get your story or message. The only one who must get it is your target customer.
And it’s often times OK to have multiple target customers, but in your marketing efforts you must speak to each individually. Or your efforts will achieve mediocre results at best.
For example, imagine your target customer was single men aged 40 to 50 living in Omaha, Nebraska living in 2 bedroom apartments who like to watch American Idol. I bet you could craft a message to this highly defined market that makes them salivate to learn more about or buy your product or service.
Creating tight messages that appeal to your target customer is not only critical in generating sales. It is also critical in raising money for your business.
Unbeknownst to most (and particularly those that fail to raise money), your business plan and investor presentation materials are marketing documents. They market your company to investors and lenders and try to convince them to back your company.
In your business plan, you absolutely must speak to your target customer – the investor or lender you hope to back you. You need to understand THEIR needs (e.g., to get a solid return, get their interest and principle back, stroke their ego, etc.) and position your company as the one to meet their needs if you want to be successful!
So, whether you are creating an advertisement or business funding request, make sure to think about who are target customer is; and tell them a story that appeals to them (even if it doesn’t appeal to or even turns off others).
(If you haven’t yet completed your business plan, and need a plan that makes investors salivate, my 2 recommended options are: 1) check out Growthink’s Ultimate Business Plan Template for creating the plan yourself using our proven template, or 2) Growthink’s business plan consulting service whereby we will create your full, investor-ready business plan for you.)
As an athlete for all of my youth, I was always a huge fan of John Wooden.
Wooden, as you may recall, was the legendary UCLA basketball coach who won ten NCAA national championships in a 12-year period. No other college basketball coach has come close to achieving this feat.
Wooden also wrote a powerful book called "The Pyramid of Success." The book showed his 15 building blocks for winning at basketball and in life. Not only have Wooden's teachings been adopted by coaches and athletes, but many, including me, found his lessons to be completely applicable in the business world.
Click the image below to download Coach Wooden's Pyramid of Success:
A few months ago, I watched a documentary on John Wooden. One of the most interesting things I learned was that he started every basketball season with the same lesson. Specifically, he taught his players how to tie their shoes properly.
Some of his former players joked about this. Imagine, having some of the best 18-22 year old college basketball players learning how to tie their shoes properly. To most, that would seem unnecessary. But Wooden always believed that you need to get the basics right before you can do anything else (e.g., if a player developed blisters on their feet, they couldn't play their best even if they were perfectly coached in every other aspect of the game).
Last June, Coach Wooden died at the age of 99. He leaves behind a legacy and amazing principles of success for us all to follow.
I hope that I will do my part in helping Coach Wooden's legacy live on -- I included Wooden in my Leadership Blueprint program teaching entrepreneurs to become better leaders. So they, like Wooden, can lead organizations that win consistently, year after year after year. Check out my Leadership Blueprint video here.
When I started Growthink over a decade ago, I thought I knew more about management then I did.
One of the things I clearly did wrong was running meetings. Looking back, it pains me to think of the literally hundreds of hours lost on inefficient meetings.
Fortunately, over the years, my team and I have read and tried pretty much every technique for making meetings more efficient, and boiled it down to just 8 essential rules.
Following them will make you and your team MUCH more productive. Here's my list of the 8 rules:
1. Start on time. If 3 people wait an average of 2 minutes per meeting for the fourth to arrive, that adds up to hours of lost productivity over the year. It's also extremely frustrating, and starting a meeting in a state of frustration kills creativity.
2. Have a written agenda. Ideally circulate your agenda 24 hours in advance of the meeting so that you and all the participants are as prepared as possible.
3. Everyone must participate. In meetings you want to encourage all viewpoints so you can make the best decisions. So get everyone involved.
4. Stick to a schedule. The entire meeting and each agenda item must have a time limit. If an individual agenda item goes long, revisit it at the end of the meeting (if there's time), or schedule another meeting to discuss it. The discussion for each agenda item should end only when specific action item(s) have been determined, written down, and assigned.
5. Stay on topic. While it's ok to go off on an occasional tangent, you must guide the discussion back on topic. The agenda and time limits will help with this.
6. Don't hold unnecessary meetings. If you have trouble creating the agenda (in that there's nothing too important to discuss), it might mean that you shouldn't hold the meeting in the first place.
7. End meetings with complete clarity regarding the key action items and who will complete them. This is key. Coming up with great ideas during a meeting is meaningless, unless those ideas are documented and assigned to individuals to execute on.
8. Improve. Every five or ten meetings, get feedback from your group regarding ways to improve how your meetings are run.
These 8 rules will make your meetings more productive, and you and your team will accomplish much more and be much more successful!
For tons of other productivity tips and tactics, check out my Productivity Secrets for Entrepreneurs here.