We just released a white paper titled "Secrets of Investing in Startup and Emerging Companies." It provides tips and advice for those looking to make early stage investments in private companies.

We're releasing the report in the midst of strong "angel" investing activity in the United States. According to the University of New Hampshire's Center for Venture Research, in 2006, there were approximately 234,000 active individual angel investors and approximately 49,500 private companies which received funding from individual investors.

Early stage angel investment can produce stratospheric returns on investment. Our report cites the famous example of Google's first private investor, Andy Bechtolsheim, who wrote a $100,000 check to Google in 1998 when it was an early stage private company. That $100k investment grew to be worth $1.5 billion.

And, according to more than 20 years of data collected by Thomson Financial, early and seed stage private company investing has over the long-term, outperformed all other investment classes -- with average annual returns of over 20.6%.

The report provides an overview of private investing, including its benefits and risks, and key advice for successfully investing in early stage private companies, including:

- How to Find, Evaluate, and Profit from Early Stage Investment Opportunities
- How to Position Yourself to Earn Outsized Returns
- How to Mitigate Your Risk Through Diversification and Investment Monitoring

To download the report, please follow this link: Secrets of Investing in Startups and Emerging Companies.

Last week, several theater chains and studios announced they were nearing an estimated $1.1 billion financing deal to upgrade cinemas to digital technology. This investment is expected to boost attendance and save Hollywood billions of dollars in various annual print and delivery costs.

"We're hopeful that in the second quarter we will get it all arranged," said Travis Reid, chief executive of Digital Cinema Implementation Partners (DCIP).

DCIP is a joint venture between Regal Entertainment Group, Cinemark Holdings Inc and AMC Entertainment Inc.

Growthink assisted in the development of the strategic business plan for the joint venture.

Read more about DCIP and digital cinema technology here and here.

Entrepreneur.com has published an interestingarticle reporting that entrepreneurs are connecting with venturecapitalists on VCs’ blogs – and some start-ups are attracting funding throughthese new online relationships. For example, Paul Edmondson contacted Will Price of Hummer Winblad via his blog, and this communicationresulted in a $2 million investment in his online publishing company, HubPages.

Here’s another sign of theimportance of blogging in the venture capital world. When looking for a newanalyst, early stage VC and prolific blogger Fred Wilson specifically requested“no phone calls, no resumes, no emails” – candidates should only provide a linkto their web presence.

Social media is having – and willcontinue to have – a significant impact on the shape of venture capitaland angel investment in the months and years to come.

Update:  

Are you an entrepreneur looking to find angel investors to fund your company? Learn proven strategies and tactics when you download Growthink's Step-By-Step Angel Investor Guide.

The NYTimes broke the news that Silicon Valley has teamed up with Hollywood to launch a digital media fund. More specifically, Accel Partners and Venrock have joined the William Morris Agency -- and AT&T -- to invest in digital media start-up companies in Southern California. The fund will be capitalized with tens of millions of dollars and investments may be as small as $250,000. The focus will be on online technology including social networking, advertising and mobile games.

We’re thrilled to see Southern California venture capital investment continue to grow.

Other interesting stories from around the web:

• Scott Shane of SmallBusinessTrends.com analyzed how the presidential candidates would help entrepreneurs. Hillary would give tax credits to small businesses that provide healthcare to workers; McCain would establish an R&D tax credit; Obama would create a clean technology venture capital fund.


• In his BusinessWeek article “Why Widgets Don’t Work,” Dan Kunz outlined three phases of the Internet economy: 1) Receive, 2) Hunt, 3) Do. David Beisel of Venrock explores the implications of the most recent “do’er” phase for digital media start-ups and venture capital.


• YoungEntrepreneur.com tackled conventional wisdom regarding the effectiveness of teams.

This past week saw several interesting blog entries, articles, and reports from the world of entrepreneurship, management, and venture capital.

• John Tierney of the NY Times wrote an excellent article on opportunity costs and decision making, regarding research on the risks associated with keeping too many options on the table. An interesting observation from Professor Dan Ariely of MIT: “Closing a door on an option is experienced as a loss, and people are willing to pay a price to avoid the emotion of loss.”


• Chris Anderson wrote a fascinating article, The Rise of the “Free” Business Model. “Once a marketing gimmick, free has emerged as a full-fledged economy,” he writes, citing the success of Radiohead and Google as prime recent examples. Read the article here.


• Thanks to Jeff Cornwall for pointing us to the Angel Capital Association’s outlook for 2008. Despite recent news about the slowdown in the U.S. economy, nearly half of angel groups expect deal flow to improve in both quantity and quality in 2008. However, angel groups’ expectations for positive exits in 2008 were not as optimistic. More information about the Angel Capital Assocation’s report can be found here and here.


• Fred Wilson of Union Square Ventures wrote about the importance of conviction and discipline -- specifically, the importance of careful, deliberate planning in order to achieve conviction in one’s strategy, plus the necessary discipline to adhere to that strategy.


• He also provided great advice on choosing board members, including avoiding “big names” and making sure you get people who have enough time to commit to the job – it’s not a “retirement perk,” he says.


• imagine it! is a new documentary about Stanford students building companies solely from Post-It notes (available for download here, once you fill out the form). As Anthony Ha of VentureBeat wrote: “Watching the students at work is a great illustration of an important point: even if you’re facing substantial constraints, you can still produce something valuable.” (You can listen to him interview the executive producer of the film, Richard Tavener, here).


• Is there such a thing as a “born” entrepreneur? Scott Shane examines whether a person’s genetic makeup could affect their inclination to start a business.


• Michael McDerment of ThinkVitamin recently posted a great article with advice on How To Name Your Company. Evan Carmichael of YoungEntrepreneur.com also provided a few business naming tips of his own.


• Mashable introduced us to Fundability – a website that matches startups seeking seed capital with investors. While many websites also serve this general purpose, Fundability claims to match startups with investors’ preferences with an algorithm. Entrepreneurs looking to find investors can use the service for a $50 fee (though there is a 30-day free trial).


• Last week, Mashable also polled its readers, asking “What Would You Want to Invest in Online?” Mobile applications, social networking, and online advertising topped the list.


• Inc published The Nuts and Bolts of Entrepreneurship. A key insight from the article:
  “Real entrepreneurs grab an idea and start moving—and adapt their vision of the business as they go.”


• And finally – courtesy of VentureCyclist – we got a laugh from VCWear.com’s venture capitalist parody t-shirts.

The U.S. Hispanic market, combined with the number of successful small businesses in Los Angeles, means that regardless of the fluctuations of the stock exchanges, opportunities continue to germinate on our doorstep.

Companies that create products and services for the U.S. Hispanic Consumers will continue to enjoy impressive growth, increasing revenues and expanding markets.

Our optimism on the potential of U.S. Hispanic consumers to be promising partners to enterprises astute enough to provide a range of solutions—from credit cards to Internet connectivity—which embrace the needs and aspirations of U.S. Hispanics, is based on three powerful trends which have transformed 44.3 million U.S. Hispanics from a group long ignored by the majority of American businesses into an empowered and emerging market.


1. The U.S. Hispanic Economy – An Emerging Market Right Here At Home

Together, 44.3 million U.S. Hispanics constitute their own sizeable, secure and financially empowered domestic emerging market that the 245,000 businesses based in greater Los Angeles businesses should be serving today. U.S. Hispanic consumers possess several important advantages typically seen in consumers in foreign emerging markets: rapidly rising incomes, which are fueling a surge in demand for consumer goods and services.

The average age of U.S. Hispanics is a young 27.4 years, giving this group the advantage of time to build wealth—and for companies to develop lifelong loyal customer bases – loyalty being a hallmark of the Hispanic consumer. In 2007, Hispanic consumers will spend $800 billion dollars, a figure that is on track to reach $1.5 trillion by 2012.

And this particular emerging market enjoys an additional asset that consumers in foreign emerging markets can as of now, only dream about: U.S. Hispanics are creating economic opportunity in a nation where laws governing employment, financial transactions, private and intellectual property are strongly enforced. These advantages provide entrepreneurs with a level of security crucial to making investment decisions, which develop new products, expand capacity and provide high levels of services to their customers.

Clearly all companies—here in Los Angeles and throughout the U.S—must develop strategies and services appealing to a group, which is moving en masse, from aspiration to affluence.


2. Capital: The Cornerstone of Success

Providing entrepreneurs who are leading early and middle stage companies with access to the appropriate types of investment capital – especially in the $2 million to $5 million range – and the advice critical to building successful businesses — rather than a slowdown in consumer spending—presents the greatest challenge to growth.

Even those beginning stage companies with deep and proven knowledge of their markets have difficulty raising the investment capital needed for establishing a strong consumer presence and market share. Growthink’s expertise in providing capital and counsel to early and expansion stage companies has been vital to the success of Los Angeles-based, early stage enterprises such as Authenticlick, a developer of fraud detection software and Xcom Wireless, a creator of wireless routing technologies.

Growthink’s involvement with both companies was comprehensive. First we helped each enterprise identify a profitable but unrecognized opportunity to serve their target markets. Then, working with their leadership teams, we developed a business structure adaptable to potential changes in the target market and a range of capital solutions, which transformed Authenticlick and Xcom from promising ideas into thriving, venture-backed enterprises.


3. Plan and Prosper Now

Between 2005 and 2006, fifty-percent of the people added to the U.S. population were of Hispanic origin. Today 13.1 million Hispanics call California home. By 2050 Hispanics will make up twenty-four percent of America’s population.

Can you name one business that succeeded by ignoring one-quarter of its potential customers? Neither can we.

For Los Angeles businesses, Hispanic consumers present a rich opportunity for growth—and a vital shelter from the possibility of recession we’re seeing in the statistics and signals coming from Washington and Wall Street. Business cycles are a natural component of free markets. But so is opportunity. And the opportunities available to Los Angeles companies embracing the potential of the domestic U.S. Hispanic market will only grow stronger, more diverse and profitable.

Goldman Sachs recently came out with a report analyzing recent venture capital investing trends. Key takeaways from the report include:

Strong current investment interest in:

• Software as a Service business models focusing on consumers and small and medium business, aka the Salesforce.com, 37 Signals, and SuccessFactors models.
• Next generation mobile - including mobile GPS/navigation, television, and advertising.
• Video-related investments, ranging from web video tools to enterprise video conferencing.
• An increase in global (specifically India & China) focused investments

Concurrently, previous hot sectors of enterprise software, storage, and security software have and forecasted to see a cooling of interest.

It is important to note that the VC investment marketplace tends to move in waves - large crests of interests in certain investment spaces that as quickly crash and fall out of favor. Above all else, it is NOT advisable to start or re-focus a business based solely on "hot" investment interest in that sector. A chameleon business strategy of this nature is usually transparent, and almost always unsuccesful.

Good posts on the Goldman report can be seen here and here.

In 2007, for the first time Southern California passed the Boston area as the 2nd largest venture capital market in the country. According to Dow Jones Venture One, Southern California saw a 12 percent increase in amount of funded deals - to $3.8 billion. Venture funding in general was up 8 percent in 2007 - and VC's raised over $35 billion in fresh capital from limited partners to invest.

A few takeaways:

• While the 2007 funding numbers for Boston and Los Angeles are still way behind the Bay Area's $9.9 billion in funding in 2007, it is encouraging to see VC funding continue to be more diversified around the country versus being so Bay Area centric.

• The early stage, private company equity markets are probably the most insulated arena in the investment world these days. Other than psychologically, the fallout from the real estate credit crunch and generally soft economic numbers on a macro level have not effected the consistent, year-over-year uptick in VC funding.

• There is a move in private equity and venture capital investing back to more traditional startup and seed investing. Later stage investing remains extremely competitive, with a LOT of VC's chasing relatively few deals. Because a number of larger funds, simply because of fund size, find it diffiicult to invest in smaller deals (say less than $5 million), there is a move to these funds actually investing in startup and seed FUNDS to give them early stage and seed equity positions. This is encouraging for entrepreneurship.

• Having said this, raising money for a startup remains, as it always has been and probably always will, VERY, very challenging. Doable for sure, and more doable in these solid VC investment conditions, but still a complex, multi-faceted, and arduous process.

Raising capital for a startup or small business is without question one of the most challenging aspects of growing a business. The stories are manifold of entrepreneurs and small business owners becoming both frustrated and discouraged by the amount of time it takes to secure capital, the rejections they endure, and the lack of linearity and progress checkpoints over the course of the fundraising process. Complaints we hear repeatedly from entrepreneurs regarding fund raising include the following: