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A Lightspeed Ventures blog post describes the profitability and valuation challenges in the gaming industry, and points to 3 problems in the gaming business:

1. High cost to launch a new game
2. Low number of new games launched each year
3. Low probability of each game being a “hit”

If you’re in, or looking at entering, a gaming market, you might want to check out the full post .

As reported last week in the New Your Times , a University of Maryland business school study concludes that:

GO ahead and write that 50-page business plan about your fledgling venture if it helps you to focus. Just do not bother showing it to venture capitalists, because it will do nothing to improve your chances of getting financing.

Yes, it’s true, many investors will not read a business plan.  And a full business plan is usually not a very compelling way to initially get an investor’s attention and generate excitement about your business.  And let’s face it, it takes interest and excitement to motivate someone to read a business plan.

But as suggested in the article, doing “business planning” is important.  I like the way  Pamela Slim, author of Escape from Cube Nation, put it in an interview with Guy Kawasaki :

You don’t have to have a complex business plan with thirteen attachments and spreadsheets, but you do need to engage in business planning. Know the kinds of problems you are trying to solve, and what value solving them would bring to your customers. Get clear on resources needed to bring your business to life.  Start by guessing how many widgets you plan to sell, so at least you have a good laugh the next month when you look at actual sales.  But as business planning guru Tim Berry told me about projections, they are only guesses for a month.  After that, you have real data to compare.  So move quickly, test often, fail fast, and discuss and document your assumptions.  If you keep everything in your head, you will limit your creativity, and in the long run limit your growth.

So yes, planning is important.  Writing it down is important.  But filling in a 50 page outline of a business plan so you can put a check in that box – that, by itself, doesn’t necessarily do you much good!

In his “Pioneers get arrows in their backs” post this past week, Ed Sim (Dawntreader Ventures) states:

…raising too much money too early can be harmful as it puts huge expectations on a company before it has proven itself

That’s advice a lot of pre-bust companies should have taken, and good advice for companies today. Yes, it’s tough to raise money today, but when you do, it’s worth making sure you take one step at a time, and don’t close so much money in the first round that you set expectations that will be tough to deliver in an unpredictable, emerging market.  It’s more likely that you’ll have to stretch whatever you raise to last longer than you’d planned – because most everything (customer adoption included) takes longer than you’d expect.

In a post this week , communications consultant Matt Eventoff talks about two “killer apps” (i.e., killer problems) that afflict startup pitches:

1. No central (clear) message.  Too much complexity
2. No practice or preparation, resulting in a distractingly bad presentation

I’d have to agree that Matt’s two “killer apps” can indeed be killers.  When pitching an investor, the compelling idea, your solution, and how the investor makes money must all be spelled out simply.  And if you don’t practice the pitch, you’re likely to stumble through it and actually make it harder for investors to figure out just what your company does.  So keep it simple, and practice, practice, practice!

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!

Fred Wilson, with Union Square Ventures, made a post about venture capital this past week which had 243 comments posted, when I last looked.  Needless to say, it’s generating quite a discussion.  If you’re interested in the state of (and the future of) venture capital investing, I suggest you check out his post and the rather lengthy (but very interesting) series of comments to the post.  In an attempt to summarize (and way over-simplifying, I’m sure) what Fred argues is:

• Roughly $25 billion is raised by venture funds each year
• Looking at annual exits, and making several assumptions to plug into a model, the estimated returns to venture funds is around 10% (a number that correlates pretty well with some NVCA numbers that Fred quotes)
• 10% is certainly not an acceptable return for this asset class, and assuming all other things are equal, the amount of funds raised annually (to get a more realistic return, given the risk) would need to be on the order of $15 billion to $17 billion

The implication is that since markets do tend to be self correcting, the amount of money venture funds will be raising in the future will decrease (there are signs of that now, as Fred’s post points out) suggesting that smaller funds making smaller and perhaps earlier-stage investments may be the way of the future.

From a VatorNews post , three lessons from entrepreneur Mark Pincus:

1. Especially if you’re going after consumer Internet, pick the macro and test continually to get the metrics that work
2. When you fail, fail fast
3. The biggest lesson in social networking is that there is an unbelievable opportunity to let people network with their real friends and worlds, and that is much more powerful than letting them network with people they don’t know at all
4. Business model is key: “I treated both [Tribe and Zynga] as a project. But I got to the point that the business model worked [at Zynga] before I went all in. And on Tribe, I didn’t.”