America is getting its risk-taking mojo back.
Driven by the return to normalcy in the stock market, at long-last signs of life in the residential and commercial real estate markets, and most excitingly by veritable boom-time conditions in “Web 3.0” technologies like social networking, mobile gaming, and interactive advertising, in 2011 new fortunes and legends are being made.
Thankfully, this boom is fundamentally different from the one that drove the NASDAQ to dizzying heights in the late 90’s, or the “Web 2.0” social networking hype of 2006-2007. Here’s why:
1. Individual Investors, NOT Venture Capitalists, are Leading the Charge. So-called “super angels” – wealthy, technology-savvy high net worth individual investors - and NOT traditional venture capitalists, are now the preferred funding source for the most dynamic entrepreneurs in the hottest technology sectors.
The reasons for this start with the fact that most VC’s are suffering from that awful business curse that they look for in industries ripe for new entrants – legacy costs.
Quite simply, VCs have lost so much money for so long that they can only dig themselves out with massive investment wins. This in turn requires them to put very large sums of money to work in companies with huge - as in multi-billion dollar - potential exits.
But the modern technology world is just not built for this model of investing. Readily accessible, off-the shelf, open-source development tools COMBINED with the ability to launch a product extremely cheaply via creative social marketing makes it easy to build a big-time technology company these days without a lot of money.
The result? Most of the highest ROI opportunities we see need just a little money – sometimes just a few hundred thousand dollars or less – to “ignite” their business models.
Our favorites? Entrepreneurs that identify over-looked market needs, and then utilized out-of-the box creativity to inexpensively develop and market products and services that address those needs.
And oh yes, our real, favorite entrepreneurs are doing all this, AND are lucky, lucky, lucky to boot.
Straightforward, but of course not easy. But in a world of historically low interest rates, significant inflation risk and of a public stock market still trading on mostly a 10-year flat run, it is by far the best game in town.
2. Foreigners, More Than Ever, Are Investing Heavily in U.S. Technology Companies. Best evidenced by the Russian investment firm Digital Sky Technologies and their investments in Facebook, Zynga, and Groupon, foreign investors more than ever before are placing bets on early-stage U.S. technology companies. This is driven by a number of factors, not the least of which is that the relative liquidity in the world has shifted RADICALLY away from the U.S. to the rest of the world.
As importantly, because of the rise of global social networking - Facebook now has 300 million non-U.S. members – overseas investors can now connect faster and more transparently with deals and entrepreneurs than ever before.
And these investors feel that they can be higher value-added. Both in terms of outsourced development assistance and because the very act of their investing serves as the kind of high-profile validation that used to be the domain of only the most prestigious venture capital firms.
3. A Quick and Early Exit is By Far the Desired Outcome for Both the Entrepreneur and the Investor. The dirty little secret of modern business, best articulated by Scott Shane in his brilliant book, “The Illusions of Entrepreneurship,” that the real money in entrepreneurship is made in SELLING a company, not running it.
Venture capitalist Basil Peters describes this best as the Early Exit, “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."
So look for companies with quick and early exit potential and with the smartest angels and foreign investors behind them, and you too can be a winner in this new boom.
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To your success,