Growthink Blog

Angel Investors - Do You Want Venture Capitalists in Your Deals?


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The typical wisdom regarding the appropriate financing course for startup goes as follows:

  1. Founders start the company in classic "bootstrap" fashion - with a combination of sweat equity and their own financial resources. This usually consists of their personal savings, credit cards, and small loans from relatives (Mom, Dad, Uncle Bob, etc.).

  2. Through connections, or through a chance meeting at a networking or social event, an angel investor hears the entrepreneur's story, likes him or her and the technology, and on the spot, writes a check to provide the company with its first outside financing. The angel then introduces the entrepreneur to his or her wealthy friends and business connections who, based on the good reputation and respect that the angel has with them, also invest.

  3. With this capital, usually totaling between $100,000 and $1 million, the company accomplishes a number of key technical milestones, gets a key beta customer or two, and then goes on a "road show" to venture capitalists around the country. The first institutional financing round - usually between $3 and $10 million - is the first of a number of rounds of outside investment over a period of 3 - 5 years.  With this capital, the company propels itself to $50 million+ in revenues  and to either a sale to a strategic acquirer or to an initial public offering.

  4. With the exit, the entrepreneur and the original angel investor become fantastically rich (or in the case of the angel, even more so), and are lauded far and wide for their deep and keen predictive insight.

  5. The cycle is then repeated - the original angel investor utilizing the windfall from their successful exit to fund more companies.  And they are now joined in their investing by the once impoverished but now wealthy entrepreneur.

  6. All live happily ever after.

It all sounds wonderful and it is. The only problem is that it mostly a fairy tale. Here is what really happens:

  1. The entrepreneur pours their lives, their fortunes, and their sacred honor into their company- at great personal sacrifice to them, their families, and everyone connected to the enterprise.

  2. A "black swan" investor appears mostly out of the blue to fund the deal - less concerned re the efficacy of the technology than by the talent, desire, and grit of the entrepreneur. Technical progress and market traction are much slower and cost a lot more than anticipated. There are a lot of dark, hard days.

  3. There is considerable internal debate around whether or not to solicit and/or accept outside venture capital. For most companies, it is simply a non-starter. Management has the wrong pedigree, is geographically undesirable, competes in the wrong industry, and/or has a business model that lacks "scalability credibility" with the venture community.

  4. Usually unbeknownst to all, the conversation and decisions around pursuing or accepting a venture capital round above will be the factor most highly correlated with their expected return on investment.  But here is the key – contrary to popular wisdom it is negatively correlated.

New, groundbreaking research from the Ewing Merion Kauffman Foundation on Entrepreneurship shows that the #1 key for the angel investor returns in emerging technology deals is that there is never any venture capital invested in the company!

As interestingly, the data shows that when you remove a follow-on venture capital round from angel invested deals that expected returns skyrocket.

The data is somewhat inclusive as to why this is.  I surmise three main reasons:

  1. The Best Metric for the Health of A Company is Cash Flow. By definition, companies that receive venture capital cannot fund their businesses from operations - and thus need to seek outside capital. This may lead to inherent negative selection to venture deals – whereby the sample of companies that need outside capital are by definition weaker companies.  

  2. Venture capitalists Have Very Different Objectives than Angel Investors. Venture capital funds are usually 7 - 10 year partnership structures whereby the general partners, the VC’s, manage the capital of the limited partners, usually institutions (endowments, pension funds, etc.).  And at the end of the period, all profits and proceeds are distributed to the various partners on a pre-determined split. These splits are normally such that the general partner professional money managers need to obtain a “highwater” return for their limited partners before they, as the general partners, see any return. beyond their management fees   In practice, this creates a huge incentive for the general partners to hold on for home runs, and to be reasonably indifferent regarding smaller (less than 3x returns).  As a result, the VC will often block a portfolio company from harvesting a very attractive, but not a home run, investment return. Or as counter-intuitively, press for a far more risky strategy than the entrepreneurs or the angel investors in the deal would prefer.

  3. Venture capitalists Cut Tough Deals. Venture capitalists for the most part are very nice guys and passionate about entrepreneurship, but they are not shrinking violets. And they hire very aggressive securities attorneys to represent their interests.  This combo all too often leads to various forms of deal unpleasantness -  ncluding cram-down rounds, liquidation preferences, and change of control provisions, among others. Which in turn often leads to a lot of very unhappy founders and angel investors even in somewhat successful exits.

My suggestions for the angel investor looking to make money?  First, look for "one and done" deals - companies that need just one round of outside capital to get them to positive cash flow.  Second, look for companies that have short and realistic liquidity (exit, IPO) timelines.  And third, don’t get star-struck by big VC interest in your deal.  It can often be a double-edged and very sharp sword.   


How to Make Your Ideas That Much Better


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Every day I hear pitches from entrepreneurs about the great new product or company they are launching (or want to launch).

But unfortunately, more often than not, their ideas aren't that exciting.

Now, if you have great access to capital and are absolutely amazing at execution, then a "regular" idea is fine. In those cases, you simply go out and raise capital, launch your company, and then out-perform your competitors.

But, entrepreneurs who can do this are few and far between.

For the rest of us, we need an edge. Something that's different. Better than what's out there.

What I'm talking about is the kind of business idea that you look at and say, "That's really cool."

Now, these types of ideas typically feed off the wants and needs of consumers. That is, the entrepreneurs who conceive them have considered the true needs of the customer and modified existing products to satisfy those needs.

Importantly, in most cases, the customer hasn't even recognized the unmet need. But when they see the product or service, they realize its advantages and buy it.

I came across a couple examples of such "cool" products recently. The first was a pair of Reef brand sandals which has a bottle opener nestled in its sole making it "a mandatory accessory for a night out with the boys."

The second is Panasonic's BF-104 flashlight which operates with any combination of D-cell, AA OR AAA batteries. How cool is that...as long as you have 3 batteries, regardless of the type of each, it works (rather than all the time we've all spent searching for that last D-cell battery).

Neither of these innovations required years in the lab. Rather, they were both the result of the entrepreneurial mind coming up with creative solutions to the needs of their customers. (Note that the fact that these two innovations came out of corporations, rather than individual entrepreneurs, is even more impressive to me).

So, how can you maximize your creativity to come up with better ideas for your business?

Recently I created this video (http://www.growthink.com/content/breakthrough-business-idea-generator) that discusses one of my favorite brainstorming techniques called Assumption Reversal.

We have been using Assumption Reversal much more internally and coming up with some really neat ideas. I encourage you to watch the video and use Assumption Reversal for your business.

Finally, not long ago, I had the honor of interviewing Michael Michalko. Michael is the author of the book Thinkertoys which is known as one of the best books on creativity of all time. In fact, I learned about Assumption Reversal from this book.

I will be releasing more of Michalko's best creativity techniques in the coming months. In the meantime, try out the Assumption Reversal technique and keep brainstorming to come up with even better ideas.


The Stock Market Rebound: What Does it Mean for Angel Investing?


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With the Dow Jones up more than 35% from its early March lows of 6,440, the investing mood has undergone a 180 degree turn for the better. How does this rebound affect the angel investing returns?
Here are the negatives and the positives:

The Negatives:

  • A Zero Sum Game. On some levels, assets classes compete in a zero-sum game for investor attention. So with money moving back into the real estate market, with long-term treasury yields creeping up, and with the increasing attractiveness of traditional stock mutual funds ticking up, the risk-reward profile of private equity (of which, of course angel investing is a class) are relatively less attractive.

  • The Bad Behaving VC Older Brother. Venture capital performance over the past 10 years has been shockingly bad, with some estimates being that the entire asset class has had ZERO return since 2000.  And so many assume that as venture capital returns goes, so go angel investing returns.  While the actual return statistics actually show the opposite (Data compiled by the Kaufman Foundation, by Ibbotson Associates, and by The Economist, show a 25%+ 10-year average angel investing return performance), perception is too often reality and is sometimes self-fulfilling.

The Positives:

  • Venture Capital Returns ARE Improving with Improving Public Markets. Having said the above, return expectations for venture capital are looking up.   Why? Because the IPO market is in an early boom period with the big recent market move.

  • America is Returning to its Natural State: Deal making. One of the worst aspects of the September–March market “darkness” was the unprecedented crisis of business and financial confidence it precipitated. The mood in America – the land of Vanderbilt and Rockefeller and Edison and Watson and Walton and Gates and Jobs and Brin and Page – felt like, I am very sorry to report, France. The end-of-the-worlders were in their full bloom, and for once, the facts on the ground seemed to agree with them.
But we are getting our groove back. Consumer and business confidence have skyrocketed since March. Bank lending is up. Business capital expenditures are increasing. The real estate market, in most parts of the country, has at least stabilized (and in many places, greatly rebounded). Jobless claims are down. Most importantly, corporate profit forecasts are up.

All of this drives deal-making. It drives big companies to buy small companies to gain access to their people and their technology. It drives venture capitalists to agree to bridge financings. It drives entrepreneurs to get back to pushing the envelope with their growth plans. And all of this positive, forward-looking acting and thinking drives angel investing returns. Entrepreneurs grow their businesses faster, they exit faster, and investors turn their money faster and at great multiples.
All these factors have turned 180 degrees since March. And for those that love America and its entrepreneurial spirit, not a moment too soon.

The Early Exit


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The next big private equity investment idea is the “Early Exit.” The best articulation of it comes from Basil Peters, a serial technology entrepreneur, co-Founder of Nexus Engineering, former Canada Entrepreneur of the Year, and Managing Partner at 3 venture capital funds – Fundamental Technologies I and II and the BC Advantage Funds. His blog is one of the best resources on technology investing out there.

Aptly to the point, Basil is the author of a great new book – “Early Exits: Exit Strategies for Entrepreneurs and Angel Investors.” His core thesis is that successful private equity investing is now driven by quickly getting to the smaller investment exit.  Or, as he says it, "Today, the optimum financial strategy for most technology entrepreneurs is to raise money from angels and plan for an early exit to a large company in just a few years for under $30 million."

I love this strategy because it is realistically attainable for the individual investor. Here's why:

You, Mr. or Ms. Main Street Investor, are NOT getting a piece of the next big IPO: The 2 best known venture capital funds –Sequoia Capital and Kleiner Perkins - because of their reputations and massive bankrolls – will continue to get the lion’s share of the deals with rockstar IPO potential. Try these names on for size – Electronic Arts, Apple, Google, NVIDIA, Rackspace, Yahoo!, Paypal, Amazon.com, America Online, Intuit, Macromedia, Netscape, Sun Microsystems.
They were all Sequoia and/or Kleiner investments that became mega-successful IPOs. To give a feel for the power of their investment model, estimates are that Kleiner’s investment in Amazon scored returns of 55,000%!

YOUR big problem – your friendly neighborhood stockbroker (if they exist anymore) isn’t getting you in on any of these deals anytime soon.  And if you don’t have a $100 million bankroll and the very right connections to become a Kleiner or Sequoia LP, you’re not joining their club.

Hit’em Where They Ain't:
The size of most modern venture capital funds has increased, with the average sized fund now having more than $160 million under management. As a result, the vast majority of professional investors simply can’t and won’t invest in smaller deals. The new VC model has, for better or for worse, become “Go big or go home.” As such, competition for smaller deals is much less and the deal pricing on them far more favorable.

Small Deals Rock:
You don’t need a lot of money anymore to build a technology startup – not with outsourcing, viral marketing, and the Software as a Service (SaaS) revolution. And if your business isn’t cash flow positive REAL FAST, you probably don’t have a very good business.

So the new technology investment model is to place small amounts (under $1 million) into companies that a) develop intellectual property and compete in markets with lots of active strategic acquirers (think Internet, software, biotechnology, digital media, and energy) and b) have management with the mindset and track records to ramp-up and exit FAST and at very attractive but not pie-in-the sky multiples. 

Not a game that big private equity or venture capitalists are interested in playing because it is just too hard to put large amounts of money to work in such a fragmented marketplace.
But if done right, an EXTREMELY lucrative one for thoughtful entrepreneurs and the investors that back them.


Exclusive Interview: Mark DiPaola, President of D3 Ventures


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Recently, I had the great fortune of interviewing Mark DiPaola, an extremely accomplished entrepreneur.

As the founder of Vantage Media Corp., Mark raised a $70 million Series A financing, which is still on record as one of the largest Series A raises in history. And in 2007, his company generated $68 million in revenues.

As president of D3 Ventures, Mark also functions as an investor.

As a person with such success on both sides of the table - investing in growing businesses, and actually founding and growing businesses himself, I couldn't wait to interview him about entrepreneurship and raising capital.

During the interview, Mark went into great detail as he recounted his own experiences on raising capital for Vantage Media. One thing he emphasized was how important it is to know your business inside and out, and how this knowledge impacts not only your ability to grow your business, but also to achieve sales breakthroughs and get the attention of investors.

Mark revealed one website for job postings which helped him assemble a 35 -person team that brought in $40 million/year in revenue -- and it's not the website you might think!  We discussed hiring strategies, the number one factor to look for in job candidates, and when it's time to bring in a highly-experienced management team.

Regarding his role as an angel investor, Mark shared the qualities he looks for in a company before making an angel investment, and why it's important that entrepreneurs are referred to investors.

Growthink University members can listen to the interview here:

http://www.growthinkuniversity.com/members/291.cfm

For those who have not yet joined, you can listen to the first five minutes by clicking the blue triangle below:

 


Here Comes The Sun


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In my role as the CEO of Growthink, I get asked variants of the same questions a lot, namely:  "What do you think about this economy?”  “Do you see things turning around?” “Are there any deals getting done out there?”  I answer these questions based on a number of factors:

  • How is the Dow Jones Doing?  While the performance of the index of the 30 biggest industrial companies is no way near as indicative of the health of the U.S. economy as is popularly imagined, it has enormous psychological importance.  While still massively off its highs, the trickle-down benefits of the market moving to its current 8,300 level from its March 9th low of 6,440 (an uptick of 29%) cannot be overstated.  If we can see the rally continue to the 10,000 level by the end-of-the-year, we can declare this recession officially over.

  • How is Consumer Confidence?   The Conference Board’s Consumer Confidence Index this month jumped to an 8-month high in May, spiking from a 40.8 level in April to 54.9.  The index had hits its lowest level in February (25.3) since tracking began in 1967.  As Lynn Franco, the Conference Board's research director, said "While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us.”

  • What is The Level of Venture Capital Funding Activity?  Venture capital funding activity in the 1st quarter of 2009 hit its lowest level since 1997, with venture capitalists investing just $3.0 billion in 549 deals (National Venture Capital Funding Association).  Signs are very strong that the 2nd quarter will be appreciably better, with the buzz created by the $10 billion valuation on a $200 million investment in Facebook by a Russian investment firm adding significant buoyancy to the overall emerging technology company arena.

  • How is the IPO Market Trending? The successful IPOs of venture capital-backed companies OpenTable, the online restaurant reservation service, and SolarWinds, a network software company are contributing long-awaited liquidity and bull market sentiment to the long-suffering IPO market.  Big valuations and big money being made by early investors in deals like this is what angel and venture capital investing are all about – so see more IPOs like these coming down the pike in the near future (Twitter and LinkedIn, anyone?)

  • How is Growthink Doing?  Because as a firm we touch so many entrepreneurs and angel investors every day, our business and investment activity has historically been a very good leading indicator of overall economic activity and equity investment performance.  And after going through the most challenging 6 months in the history of the company from September through March, business has picked up significantly. May 2009 already has been Growthink's best revenue month since last summer, and our deal pipeline is right now the strongest it has been since late 2007.

 

What does this all sum up to?  The Beatles say it much better than I ever could:

Little darling, it's been a long cold lonely winter
Little darling, it feels like years since it's been here
Here comes the sun, here comes the sun
and I say it's all right


What Investors Really Mean When They Say They Don’t Need a Business Plan


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It is common knowledge that companies need business plans.

Business plans are critical for setting goals and mapping out your plan to achieve those goals. They are also critical in order to raise capital. Whether you are seeking a bank loan, or capital from angel investors, venture capitalists or corporate investors, a formal business plan is simply a requirement.

However, there are some investors that say they don’t need a business plan. Rather, they just want to see a company slide presentation and/or a 1-3 page Executive Summary.

So, at this point you are probably asking yourself, “So, do I, or do I not, need a business plan?”

The answer is a resounding “YES.” Let me explain.

To begin, the types of investors that typically do not want to see a formal business plan are an extremely unique bunch. They are typically the top 1% of angel investors or venture capitalists. These are the investors that see so many deals that they don’t have the time to read through business plans.

Perhaps more importantly, these are the investors that focus on investments that could be worth billions of dollars within a few short years.

They invest in companies like Facebook or Twitter; companies that have massive potential but which may not even have a real revenue model in place yet. For companies like these, that are potential “game-changers,” creating financial projections or analyzing the current marketplace are much less important than for other businesses. As such, formal business plans with this information is less important.

Another key reason for creating a formal business plan is the knowledge that comes out of it. Specifically, the business plan process forces you to make a lot of key decisions about your business. For instance, writing down your marketing plan forces you to determine the marketing tactics you will employ.

Likewise, the business plan development process forces you to assess your market, identify customer segments and customer needs, and determine the strengths and weaknesses of your competitors. This is all critical information that you need to successfully operate your business.

The U.S. Small Business Administration, in a study called “The Small Business Economy,” found a direct correlation between a business’ success and its creation of a formal business plan. That’s because the business plan development process forces you to really think through the business and make informed decisions.

Likewise, the business plan development process gives you the information that you need to include in your investor slide presentation and Executive Summary. For example, one slide needs to include your financial projections and uses of funding. Another slide must talk about your marketing plan. All of this information comes directly from your business plan.

And what about information that is in your business plan, but which you omit from your slide presentation -- is that wasted information? NO. Before they invest, investors will bombard you with questions about your business, your market, your customers, your competition and so on.

Having completed, read and re-read your business plan, you will be able to quickly and correctly answer all of these questions.

So, when investors say they don’t need a business plan, they are NOT saying that they don’t want you to create a formal business plan. Rather, they are saying that the way they want you to communicate your vision and concept to them is not through a long written document, but via another format, mainly a slide presentation and/or 1-3 page Executive Summary.

So, learn the format of business plan and complete your formal business plan. It will give you the information you need to create a winning business strategy and attract investors. And, in addition to your full business plan, create an Executive Summary (which should be the first section of your full business plan anyway) and a slide presentation, since these documents will be required in the capital-raising process.


How Dare You Susan Boyle!


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I hope you're not a Susan Boyle fan. Because I have a major bone to pick with her. If you don't know who Susan Boyle is, she's the 48-year old British woman who gained international fame upon singing on the reality TV show "Britain's Got Talent" in April 2009.

So why am I so mad at her?

Because for 48 years she kept her talent to herself. She was too afraid to take a shot. To use her natural abilities and training to achieve real success.

I say "how dare she do this!" Is this fair to the millions, if not billions, of other people in the world who don't have this talent? Or who live in places where they have no ability to use their talent? And is this fair to the billions of others worldwide who have missed out on hearing her beautiful voice for the past four decades?

NO.

Now what really gets under my skin is when I compare Susan Boyle to an entrepreneur, which she essentially is.  How many natural entrepreneurs are out there who are letting their talent waste away? Who have tons of ideas and abilities, but are working in their same, boring jobs and not using them?

Why do I care?

Because they are failing to create wealth for themselves and their families. And worse, they are killing our economy. Because entrepreneurs like them are supposed to be creating great companies- companies which provide jobs, great products and services for the rest of us, and a tax base that feeds our government. Yes, they are failing themselves and their countries.

So why is this happening? I think it's because they are too afraid. Like Susan Boyle was for many, many years.  And unfortunately, in many cases, these entrepreneurs simply haven't gotten the kick in the pants that they needed.

Like entrepreneur Mark DiPaola who I spoke with the other day. Mark graduated from college and got a cushy job at a consulting firm. He worked there for a couple of years, and may have worked there for decades if he kept getting promoted.

But thank goodness, Mark got laid off. And then he went to work at a startup. And thank goodness, the startup failed. Because it was those two experiences which prompted Mark to start his own company.

Which he did. And which was a massive success. The company, Vantage Media, generated $68 million in revenue in 2007. In March of that year, venture capitalists and private equity firms put $70 million into the company and Mark was able to cash out and leave the company at the age of 30. And retire. And start a foundation to give back. Now that's what I call success.

Are you the next Susan Boyle? Do you have entrepreneurial talent, but are keeping it to  yourself? Have you not started your own company yet? Or failed to really grow your company? Well, I'm willing to bet that you have more talent than you let on and that you could be more successful than you currently are.

And, I also know what's probably holding you back.

MONEY.

That's right. Most entrepreneurs start their companies or grow them properly because of money. Which is odd, since successful entrepreneurs make tons of money. But, to become a successful entrepreneur, you often have to leave your current job and current income.

To solve this problem, many entrepreneurs, like Google AdSense founder Eytan Elbaz who I spoke with the other day, raise capital BEFORE formally launching their companies. They continue to work at their current jobs and develop their business plan and raise money. And then, once the money is in their bank account, they leave their current job and dive into their ventures full time.

And you can do this too! IF you know how to raise money for your business.

So, in addition to all the information that you buy and read on marketing, operations and other business disciplines, start investing in learning how to raise money for your business. Since that is the most essential skill for a successful entrepreneur.

The Future IS Ours To See


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"Those who cannot remember the past are condemned to repeat it" - George Santayana

The financial panic of 1873, which set off a severe nationwide economic depression that lasted for 6 years, included The New York Stock Exchange closing for 10 days, 89 of the country's 364 railroads going bankrupt, and unemployment as high as 14%.  During this extremely challenging time, a gentleman by the name of Thomas Edison started a company called General Electric. You may have heard of both of them.

The Great Depression of the 1930's is even scarier in statistics than in legend.  Industrial production fell by 45% between 1929 and 1932. Homebuilding dropped by 80%. 1,000 of the nation's 25,000 banks failed. US GDP fell by 30%. 

And during these dark days, DuPont created new products and indsutries including rayon, enamels, and cellulose film. RCA invented television.  And a little company called IBM started pouring research dollars into something called the computer.

The 1970's are commonly remembered as a dark period for American finance and business - stagflation, negative stock market returns for the decade, and hits to the national psyche including Vietnam, Watergate, and the Hostage Crisis.  It was also the era that 2 ambitious and visionary young men named Bill Gates and Steve Jobs got their start.

My 20 years in angel investing, small business and entrepreneurship have taught me to separate the world into two kinds of people: Those that comment and complain on how things are and those that do something about it.

Unluckily for all of us, television and the always on Internet give those that comment and complain bigger megaphones than ever to spread their false prophesies of doom. It is only human nature to be affected, depressed, and even scared by their strident negativity.

Very, very luckily for all of us, however, there always be budding Bill Gates and Steve Jobs and Thomas Edisons and Thomas J. Watsons amongst us. And where are these future shining stars devoting their prodigious energies to these days? I promise you that most of them aren't working at General Motors, nor are they drawn to politics or working in the public sector, nor to non-profits.

No, they are capitalists. They are entrepreneurs.  They start and work at Internet companies, they research alternative energy technologies they discover new drugs to make us all live longer and healthier lives. They are and they discover Black Swans.  They - in the words of Voltaire - make "life throb to a swifter, stronger beat."  

And you know what else? They're in it for the money. They want to build companies like Pure Digital (makers of the FlipCam) did and sell out to Cisco Systems for $590 million.  Or Facebook, on the verge of a public offering that will make its early investors billions. Or Integreon, whose business plan was perfected in a small Growthink conference room 10 years ago, and is now the largest legal outsourcing firm in the world (and saving a lot of folks a lot of money on their legal bills).  

With apologies to Doris Day, the future is in fact ours to see. As long as little boys and girls are raised to grow up to do something great with their lives, progress will march on.  Technologies will be commercialized.  New industries will arise.  Companies will be born and will grow and grow and grow. Fortunes will be made.  

The question, of course, is what will be in it for you? Will you be on the couch with the critics? Or will you be in the game with the builders and the doers?


You May Not Have to Quit Your Day Job


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If you haven't yet launched your new business, I have some advice for you.

It's actually not my advice. As I'm a little conflicted about it. Let me explain.

The advice is to start your new business as a project. What that means is that you don't quit your day job. You don't raise capital. You don't focus 100% of your effort on it.

Rather, you work on it as much as you can in your spare time until it either becomes something, or it doesn't.

The advice comes from Bambi Francisco, the co-founder and CEO of Vator.tv who I spoke with earlier this week. It's not only her advice having founded a company, but the advice given to her by Mark Pincus.

Pincus is the serial entrepreneur who founded Tribe in 2003 and sold it to Cisco Systems in 2007, and is now the founder and CEO of Zynga, a large social gaming company. You can watch Francisco's brief but informative interview of Pincus here.

So, the point is to start your new business as a project. Obviously, this depends on your choice of business. If it's a restaurant, there's not much of a project to be had. But if it's software, for example, you can start developing it and see if you are able to start creating features that people want.

And once you can prove that the project is developing into a viable business, you create a real company for it.

This "project" concept also reared its head when I recently spoke with Eytan Elbaz, co-founder of Oingo, the company which later would be purchased by Google and renamed as Google AdSense.

Elbaz and his co-founders were developing their novel software while still holding full-time jobs. After a little while, they were able to develop a working prototype. And then, Elbaz showed it to an angel investor (who interestingly was a client of his at his current job). It was only upon the angel investor writing them a check that they decided to leave their full-time jobs and really launch the company.

So why am I conflicted about this advice? Well, there's definitely something to be said for the entrepreneur that is so passionate about their business that they're willing to fully launch it from the get go.

To leave the comfort of their current job and take all the risk. In these cases, I like that the entrepreneur can't blame their current job for limiting their time. They fully immerse themselves in their business, and give it their best possible shot. And in many cases, this total commitment is what drives success.

The key here is probably that everyone's situation is different. The young entrepreneur might have an advantage in that it may be easier to leave their current position and jump 100% into their business. Conversely, the older entrepreneur with the family and mortgage may be less able to shoulder the risk of foregoing their current salary.

The choice is yours - take the leap fully or partially. Each can result in success.

The only choice that I truly hate is doing nothing. Too many people sit with great ideas in their heads but fail to act on them. And then, when someone else successfully executes on their idea, they say, "Hey, that was my idea."

To them I unfortunately say, "Who cares - it's the entrepreneur's willingness to commit and execute on the idea that really matters!"

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