Oregonstartups.com Blog

A Business Week post by Scott Shane with Case Western Reserve University describes his research that shows how angel groups’ deal funnel got tougher from 2007 to 2009. When entrepreneurs apply to a venture group, there’s an initial screening that weeks out many, followed by a pitch, then more due diligence, and then, for a few, an investment. At each stage, companies are weeded out.

In 2009 compared to 2007 and 2008, half as many companies survived the initial screening, and less than half as many survived the due diligence process. Check out the post to see a graph of how the funnel has shifted.

Yet more evidence that yes, indeed, the start-up investment climate is getting tougher.

In a recent post “A VC” Fred Wilson explains How To Calculate A Return On Investment – because he has seen multiple cases of financial projections from entrepreneurs who don’t quite understand ROI. As Fred points out “You don’t need to get a finance MBA to be able to do this kind of thing.” Read his post, and you’ll be one of those who gets it.

You may recognize the George Bernard Shaw quote. The rest of it is: the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.

From WSJ.com: Venture Capital Dispatch Turning Unreasonable Ideas Into Reality

It started with 284 unreasonable ideas. Those were whittled down to 42 unreasonable ideas. In the end, 25 such ideas may become a reality thanks to the Unreasonable Institute – a 10-week incubator for entrepreneurs who aim to make a difference in society.

The project of Rafael Smith, whose idea is to produce emergency shelters that provide humane living conditions to refugees. Smith is one of 42 finalists for the Unreasonable Institute’s 10-week incubator program.

The incubator’s name, which carries an adjective that might usually turn investors away, is inspired by the George Bernard Shaw quote, ‘The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.’

The Unreasonable Institute will unite 25 entrepreneurs from around the world to attend an intensive 10-week summer training program. Among the 42 finalists, announced today, are a computer engineer from Brazil creating devices that will make blind people more marketable for jobs and an MIT graduate from Pakistan working to create heat saving insulation for shanty town homes, thus reducing indoor air pollution and money spent on heating for their poor inhabitants.

At the end of the 10 weeks, the entrepreneurs are connected with socially responsible venture firms that might be interested in investing. One firm, Atlanta-based Gray Ghost Ventures, which invests in business that improve low-income communities, is setting aside $150,000 for a fund with a twist. The 25 entrepreneurs will decide which companies, up to four of them, will get the money from the “Unreasonable Village Fund.”,

Imagine that – the entrepreneurs decide which, out of 25, will receive an investment from Gray Ghost Ventures. OK, I suppose that seems like an appropriately liberal approach given the social-good orientation of the Unreasonable Institute’s mission.

But it’s interesting food for thought. Would a group of entrepreneurs make better investment decisions than a VC firm or angel group? Would 25 entrepreneurs choose to “vote” against themselves, if there could be only 4 winners? And would entrepreneurs make good investment decisions? Hard to say – group dynamics sometimes lead to surprisingly rational decision-making.

But what am I thinking – entrepreneurs making investment decisions for angel groups and professional venture capitalists? The tail wagging the dog? That’s clearly unreasonable.

The Willamette Angel Conference has announced their winners from their May 14 competition.  CenterSpace Software of Corvallis won the top prize – a $125,000 angel investment.   Floragenex won the audience vote, and Orelle Corporation won the IgniteAngel 3.5 minut presentation competition.  Congratulations to all of the winners!

Courtesy of VentureHacks. Worth listening to if you’d like to be an angel investor.

But this video is even better for entrepreneurs to watch – because there’s a lot of good advice (targeted to angels) about red flags to watch out for when investing in startups. Concerns like:

• Incomplete or weak team
• Founder is not effective at selling the concept
• Risk of downstream funding

If you’re planning on raising VC or angel money, check out this video – and ask yourself which of these red-flags your startup has.

From the Angelsoft Blog, this video features New York angel investor Roger Ehrenberg who recently led a $1.25 million angel financing of Domdex, a new company in the Internet marketing space. In this interview from the DailyDeal with Mary Kathleen Flynn, Ehrenberg discusses the new breed of serious angels, and why they can be a viable alternative to traditional venture financing.

From Lightspeed Venture Partners Blog How bad is it for startups seeking financing?, one perspective on the current climate.

From OEN Blog:Companies seeking funding – Don’t miss the chance to apply to present. Deadlines coming up in December.

PAN Submission – Companies interested in applying to present at the January 22 PAN/OAF meeting must do so by Friday, December 4th by 5:00 p.m. Learn more about PAN.

OEN Angel Oregon 2009 – Early bird deadline to apply to present is Friday, December 12. OEN Angel Oregon 2009 will be held at the Governor Hotel in Portland on March 12th.

Round 3 OEN Seed Oregon Pubtalk – Deadline to apply to present is Wednesday, December 17. Round 3 will take place on Thursday, January 15, 2009 at Bridgeport Brewpub.

(I’m republishing this post because of an error in the first posting where I attributed a quote to the wrong person and made an error in a second quote.  I apologize for the mistakes!)

"Don’t be an Entrepreneur unless you have too" (because it’s very hard) was one of the pieces of advice last Friday to the 14 participants in the OEN "Off the Record with a CEO" event (formerly the CEO Bus Tour).  The tour visited Mike Wright, CEO of WellPartner, and Irving Levin, CEO of Genesis Financial Solutions.  Irving is also one of the most active angel investors in the Portland area.

Off the Record is a great event – a chance to spend 90 minutes with two different CEOs and hear some fascinating stories and advice.  The tour on Friday was no exception.

Mike Wright’s advice: be completely transparent, especially with employees.  Although WellPartner is doing exceptionally well today, the early years were tough times, and yet employee turnover has been very low.  Mike attributes that to the fact that all employees own a piece of the company, and to the fact that he has always been open with the employees about the status of the company. 

He commented "if you want to find out how loyal your employees are, stop paying them."  There were times that WellPartner could not make payroll. When a customer payment did come in, Mike would make the rounds and find out which employees absolutely needed some money to pay the rent or meet some other critical need.  With a policy of complete transparency, and treating people with respect. the company lost very few people.

The message from Irving Levin at Genesis Financial Solutions was similar.  Irving stressed the importance of integrity – in dealing with employees, customers, and partners.  In talking about finding the right market opportunity, Irving’s comment was "I hate having competition".  He prefers to find a market nobody else wants, and find a way to be successful in that market.  As an example, one of Genesis’ businesses involves purchasing unsecured consumer debt that has "issues" and turning those loans around.  That’s not easy work, but it’s also an opportunity that the big banks are not interested in pursuing, so there’s not a great deal of competition.

From an angel investor’s perspective, Irving’s advice to entrepreneurs is that because of the difficulties in the financial world, angel investors are nervous, and angel investment will be tougher to get — there will be "more head wind". So, "if you think you need $6 million, find a way to get it done with $3 million".  Figure out how to succeed with less money, and expect fund raising to take even longer than it has in the past.  You’ll need an attractive opportunity, a more polished pitch, a good team, and, of course, integrity.

OTBC Market Survey

• OTBC recently surveyed the local tech community to decide whether a different location would be more convenient location for OTBC events.  Survey results are summarized in the above link to the OTBC blog.

The Inside Scoop on Due Diligence

• Sorry – I just could not resist this one…

Venture Capital, Angels or Bootstrap? 

• A brief overview of the different considerations to think about when looking at VC versus Angel versus Bootstrap

Doing more with less

• In bad times (and in good times, for that matter) it’s a very good idea for startups to make do with less. If you can put off an expense until next quarter, do it.

The Financial Crisis: A Survival Guide for Startups

• Tips on startup survival in difficult economic times.

Me to Customer: Don’t Let the Screen Door Hit You

• Rather than try to "fix" your difficult customers, sometimes it’s better to fire them

What entrepreneurs need to know about Founders’ Stock

• A good overview of founders-stock vesting, and tax traps to avoid.

View all my Ma.gnolia.com bookmarks.