The big dirty secret. Clearly, no one wants to talk about this. When we do a sales forecast, no matter how confident we are, we’re usually sensitive enough to our audience to make the picture look pretty reasonable. That also includes the supposedly brilliant fed finance guys who keep mis-forecasting the ongoing U.S economic bailout. However, if we were living in a totally transparent world, guys that do these forecasts (the feds) would pay more attention to whether we have allocated Enough money and get it right the first time. Problem is, investors or in this case, the public, would never agree with it. So forecasters are forced to make their case incrementally, over time, which makes the situation get progressively worse.

This is different from the normal world, where if you have a willing investor, you should make sure to get enough money the first time, since you may not get another trip to the buffet line.

P.S. Newsflash… I just heard I am going to get a billion dollar bailout. Hooray! I didn’t want it, but the government said I had to take it, to help insure the public wouldn’t worry. (Now see how silly that sounds!)

Advice to Entrepreneurs
Accordion to me…This week’s advice to entrepreneurs

Surviving in 2009. Whatever you do, you must last to survive. No matter what your company does, make ‘lasting’ your New Year’s Resolution. Chances are, this year you’ll have less money to achieve your goals than you originally planned. Right now, put pen to paper to figure out HOW you can last. Change your focus from achieving greatness to… surviving long enough to have sufficient opportunity to evolve your plan, so you can ultimately achieve greatness. Confusing? It is for me, and I wrote it.

Another dirty secret. Wherever I go, people are still asking what’s changed with the recent big shift in the economy. Two big phenomena occur to me. First, those investors who still have lots of cash, are now looking for deals at 30% of what they were six months ago. A necessary part of that reduction is to cover the possibility that the economy may continue to take a further dive. Second, with things being so radically impaired, those less well-blessed investors are looking at previous deals with a new goal of return OF investment, not return ON investment. (I’m hoping you understood this the first time you read it.)

As compared to what? Get ready for that question. Your market is big, compared to what? Your product is better, compared to what? Your team has more experience? Now…you get it.

Other ideas to help keep you tense….Be careful what you wish for, you might get it. And, when you ask a question, you better know the answer.

Got an idea or something you need help on? Email me at rick@hotventures.com

You may have already noticed the social network icons on the top, right-hand side of our blog. If you’re a member of Facebook, LinkedIn or Twitter, we’d love to connect! Access is open to all. Follow the icons on the top-right or keep reading for more info.

Facebook
http://www.facebook.com/pages/FundingUniversecom/36103342879?ref=ts

Network with other entrepreneurs on Facebook and stay tuned for upcoming event notices. FundingUniverse regularly holds online pitching events and in-person events you don’t want to miss out on.

LinkedIn
http://www.linkedin.com/groups?gid=140071

Discuss business ideas, fundraising methodology and connect with FundingUniverse staff and potential partners.

Twitter
http://twitter.com/fundingtips

The FundingUniverse team delivers baked-fresh-daily fundraising advice over the Twitter network in bite-sized portions of 140 characters or less.

We love this time of year because we service the surge of the latter. January brings throngs of people freshly committed to starting their own businesses and racing to find capital. We love the excitement and are glad to see so many dreamy-eyed business people setting out to change the world. We’d also like to offer some advice to eager entrepreneurs on how to avoid becoming one of the SBA’s 98% statistic who fail within the first two years.

Check Your Motives

Why do you want to be in business for yourself? Your answer to that question will help you know on the outset how likely you are to succeed. Starting a business isn’t easy. Sure, it carries the potential of doing what you love but it also carries a lot of risk and can mean doing a lot of things you hate.

Say you’re a graphic designer, for example, and you want to design logos for a living, it might seem logical to start your own logo design business. You register a domain, print some pretty business cards and . . . now what? After about a month of learning about marketing and sales, you land your first client. Six months go by and you’ve got several clients, accounts receivable, several marketing channels to manage and a bunch of other administrative functions you wish you never spent time on.

Or, maybe you’re an inventor/programmer and you just invented a new search algorithm that’ll put Google out of business. You register an LLC with the state and start driving traffic to the Linux box in your basement over your residential DSL line. Everything goes great until your webserver crashes from too many concurrent users and Google’s lawyers send you a letter for your overlooked patent infringement.

OK, maybe the examples are extreme (particularly the latter), but the point is that owning your own business isn’t just about doing the one thing you love. Entrepreneurship involves turning what you love into a duplicable process, and if that doesn’t sound appealing to you, you may be better off working for someone else. But don’t get discouraged, if you’re doing what you love there’s nothing wrong with doing it under someone else’s umbrella.

Expect Lots of Sacrifice

What your mom told you a long time ago is still true: nothing worthwhile is ever free. You definitely can have a successful business. You definitely cannot have a successful business without sacrificing a lot of time, money and energy.

Face the fact upfront that starting a business is hard work. If you have a family, you might need to start scheduling time with them a week in advance. If you have other commitments, scale them back. There are exceptions, but realize at some point you’re going to be asked to give up something you don’t want to in order for your business to thrive.

Embrace Setbacks

Failure is a natural part of the cycle. You’re going to make mistakes, lots of mistakes. You’ll make large, costly mistakes. You’re going to embarrass yourself publicly on more than one occassion. Bad things will happen that will be out of your control. It’s all OK! Learn to love the setbacks.

If you ask ten people if they agree that failure is a good thing, ten people will tell you, “Yeah, cause you can learn from it.” Well, if it’s good, then the more often the better, right? Well if you count how often those ten people have failed, you’ll see that some of them aren’t drinking their own tonic.

As long as you’re not making the same mistakes over and over again, failure is a precursor to success. Whether you caused the problem or it was out of your control, there’s always something to learn from every failure so it shouldn’t be avoided, it should be embraced.

Every time something bad happens, you’ll learn a little more. After years and years of failure, people will call you wise and you’ll realize how all the setbacks were worth it.

There you have it, candid advice to keep you afloat. If we haven’t dissuaded you from your goal to be a business owner in 2009, good, cause we’re cheering for your success. Here’s to a prosperous 2009. Go to it, newly anointed entrepreneur. The free market is waiting for you! And if you want some help with getting the money to get going, give us a call.

I was a high school senior the year Yellowstone National Park caught fire in 1988.  I remember returning a few years later to see for myself the absolute destruction that this fire wrecked on that beautiful park.  I truly believed that in my lifetime, Yellowstone would never be the same. As it turns out, I was both right and wrong.

It’s been 20 years since those fire raged in 1988 and even today the scars are painfully visible.  Amazingly, it has rebounded better than I ever thought possible.  It has been well documented that even though the tremendous heat from those fires consumed anything and everything in its path, it also forced the pine cones to loosen their grip on seeds tucked neatly inside and in essence re-fertilized the soil again.  Wildfires are Mother Natures way of cleaning house.

Depressions, recessions and down turn economies are also wildfires in a sense.  They cause a lot of destruction.  Businesses are forced to evaluate, cut back and streamline.  Profitability values are assigned to products, services and painfully, employees.  Despite this, I strongly believe that these painful choices are a good thing in the long run, even a GREAT thing  Follow my logic here.

It has been well documented that more millionaires were created from the smoldering ashes of the Great Depression than almost any other time in American history.  Like the wildfires of Yellowstone, it’s a painful, somewhat expected and amazing phenomenon.  When you take an average American worker, pull the rug out from underneath them and then hold their feet to the fire, something magical happens.  Inevitably many will choose to take fate into their own hands and become entrepreneurs. 

I predict that some of the greatest inventions, products and services that we will see in the next five years will be born out of this current economic down turn.  We are seeing many of them at Funding Universe right now and many of them will tell you that it took this boot to the shorts to find the courage necessary to TRY.  If you happen to be an unfortunate casualty of the current economic crisis, I am truly sorry AND excited for your circumstance.  I challenge you to seriously take a moment to ponder your situation and do some soul searching to see if there is an entrepreneurial spirit in you.   Is this your time?  If it is, feel free to contact Funding Universe to see what we can do to make your dreams a reality!  Friends, this is a GREAT time to be alive!

Joel Nielsen is a Venture Consultant at Funding Universe.  His email is jnielsen@fundinguniverse.com

In the down market or today Valuation has become of particular interest to both the entrepreneru and the investor.  The facts are these;

1. Down markets give investors stronger leverage in the valuation category because cash is king and credit is hard to come by. so expect investors to negotiate a little harder for lower valuation in order to capture a bigger piece of cheese.

2.  This necessitates a little more negotiating on your part.  Make sure you can clearly show the value of your company, look at everything that could create potential value and make a good argument for it.  Remember although you want to be a good negotiator, don’t let it be a deal killer.

3.  Don’t worry too much about equity portions, worry more about being selective with who you choose to partner with.  If you can get smart and freindly money, then it wont matter if they have 49% equity.  On the ohter hand if you get dumb and controlling money the 10% they take will be a burden you will hate to bare. So focus on partnering with the right people that have similar goals for your company, in the end you both will be happy regardless of what you give up to begin with.  One caveat here.  Smart investors don’t want controlling interest.

4.  Be smart about who you choose as legal council for the transaction.  don’t get firm that wants to control the deal, rather find someone who can give you good council and then move forward with whatever decision you make.  A lot of bad deals are written by lawyers that think there way is the only way.

In summary don’t make too big a deal about who cut the cheese, just make sure the relationship is founded in mutual goals so that when you do smell something displeasing you can work together to air things out.

My contribution to GM, Ford and Chrysler

Every now and then, something occurs to me that I believe has been swept under the rug. In the past few weeks, we’ve all heard plenty of shouting and screaming about best how to save the Big 3 Auto Makers. However, I’ve not heard anyone talk about saving particular Car Models. For example, who ever picks a movie based on which Studio made it? (Like, hey man, there’s this great MGM flick coming out this weekend.) That’s my point! Why doesn’t GM just make the cars (the models) that people like? Why do we hear all this talk about which Divisions that GM wants to keep? If I was running GM, we’d keep the Corvette, Camaro, Cadillac, Solstice (Pontiac) and some GM Trucks. If it was Ford, it’d be Mustang (of course), Lincoln and for some diehards, the Explorer. And hey Big 3… no more making the same car under four different brands. Most of us figured out that trick about twenty years ago. Duh.

My Obsessions

Gas-price WATCH

Back to the Future is here again. Today, we saw a Costco here in Tucson selling regular gas at $1.57. Wow, if it goes below a buck, we’re thinking of picking up one of those big Hummers we see abandoned on the side of the road!

My Travels

Entrepreneurs Conference in Sedona, Arizona

Last Thursday, along with four other investors, I was on a panel that reviewed about thirty entrepreneurs pitching their companies to us. There were plenty of good ideas, but most of all, I’ve not seen such a motivated and energetic group of start-ups. There seemed to be no slowdown in these companies. And, right after their presentations, they got in long lines to confront us investors, and some waited half an hour for just a few minutes of face-time with us.

Advice to Entrepreneurs

Accordion to me…This week’s advice to entrepreneurs

At some point, I’ll give you my full list of the Do’s and Don’ts for raising funds for your company. For now, please take these three quick Don’ts to get you through the holidays. Please… 1) Don’t tell investors you expect to get your exit via an IPO. I wouldn’t bet on being one of seven IPO’s that’ll happen in 2009, and who knows whether it’ll be any different in 2010 and 2011? 2) Don’t describe some big deal you have in the works, and then tell investors you can’t tell them who the customer is, and 3) Don’t put a large budget item amount for marketing in your forecast and not take the time to figure out what you’re actually going to do with it, and how you can prove it’ll actually work. Got an idea or something you need help on? Email me at rick@hotventures.com

If you can’t easily answer that question, you should drop the title of “Entrepreneur” immediately and start going by “Idea-man”. You don’t have a business if all you have is an idea for a great product without a plan for monetization. You have a business if you can sell your solution to a large number of people and do it over and over again.

Investors fund companies, not ideas. So before you set out to revolutionize the world with your stellar new idea, make sure you’ve figured out how it’ll generate sustainable revenue.

Here are two important things to remember when developing your business model:

1. Think “dynamic”: You never have a complete understanding of your market in the early stages of a company. Most of your assumptions about your business will be wrong. Though your market assumptions may be wrong, it’s OK as long as you’ve got a plan from the outset and can adapt on the fly.
2. Stay close to your customers: Talk to the people who give you their money. They give you their money to solve their problems and they’ll tell you how you can increase your earnings by taking better care of them.

At FundingUniverse, we have done our best to both think dynamic and listen closely to our customers, and it has served us very well. For example, our business model has evolved several times over the years but has always revolved around a central focus: connecting entrepreneurs to business capital. As we’ve listened to our customers, we’ve had iterations of paid memberships, consulting, events and other revenue channels — each one bringing us closer to the ideal setup.

For example, SpeedPitching (an event focused on a local community) is one of the most popular FundingUniverse offerings. Forty-or-so investors gather around ten eager, capital-seeking entrepreneurs and “speed date” for great investment opportunities. The goal is to help entrepreneurs land coveted formal appointments with investors and it’s proven to be very successful. On average, nine out of ten companies score a meeting.

SpeedPitching has had a great effect on the Utah investor community. We’ve developed hundreds of strong relationships with local investors and can take credit for a large portion of their recent investments. Our goal now is to duplicate the model that we’ve established in Utah and have the same effectiveness in markets across the United States. We’re also deploying an online version of our SpeedPitch very shortly so stay tuned.

Your business model is your core. At the end of the day, thinking dynamic and listening to your customers will result in increased revenue, profits and customer satisfaction!

$700 billion rounding error?

You’d have to be a desert island not to hear about the current financial bailouts. No matter whether you’re for or against em, the numbers are astounding. Word on the street is that the original $700 billion number was not derived from what was needed, but instead by a calculation on what wouldn’t upset the apple cart. In other words, what could be absorbed, sort of like a rounding error? Ummm…$700 billion, that’s it! Sure, who could blame us for spending 5-7% of our GNP? Well we’re not alone, most other big nations have recently followed suit. China $586 billion (16% of their GNP), Japan $68 billion (1%), S. Korea $80 billion (9%), Russia $209 billion (12%), Britain $450 billion (21%), Germany $151 billion (7%), Spain $111 billion (8%) and Switzerland $66 billion (15%). And this just in… the U.S. is up to $850 billion, plus another $300 billion more for mortgage guarantees (about 6% of our GDP). I just hope it’s going to be enough. [Numbers from Businessweek, December 1, 2008]

When should we start paying President Obama?

Watching CNN or Fox News, you can’t help but see that President-elect Barack Obama is already working ‘round the clock, and he’s not even been sworn in yet. Makes you hope he’s getting some kind of salary for being President-elect. Wouldn’t it be weird if he’s doing all this without pay for the next two months? What kind of welcome would that be? I am sure we are paying for secret service and T&E for all those big meetings, so why not pay the Prez salary upon election, and not simply stand on ceremony?

My Obsessions

Gas-price WATCH

Since gas prices represent the clearest icon of our ‘emotional economy’ we need a reminder how large the swings have been. Since 2007, the price of crude oil per barrel rose from the $50’s and $60’s up to $145 on this July 4, 2008. This month, on November 21, it was $49.93 and on November 29 it was $54.43. Wheeee!

While the lowest I’ve seen recently is $1.83, I decided to check out http://www.gasbuddy.com/ I found there I could buy gas in Tucson for $1.73! Remember, it was $4.00 in July 2008 (regular gas in today’s dollars)? Don’t forget it was up to $3.32 in March 1981, during the Iraq-Iran war. [Prices per zFacts.com]

Advice to Entrepreneurs

Accordion to me…This week’s advice to entrepreneurs

What do angel investors look for? Ideally: A really big market with a big problem, your big solution, your big capabilities, and all it needs is money. Problem is it’s really hard to prove, and contrary to what you may think, even wealthy people don’t want to lose money. Here are two tips on finding your first investors. First, look to people who will give you the benefit-of-the-doubt. These are people who already like you, your friends and family, and already know how great you are, and very much want to help you succeed. Second, while I’m active with several angel groups, including Desert Angels and Northern Arizona Angels, I urge you to spend just as much time looking for specific investors who are likely to find instant ‘relevancy’ with what you’re doing. Like, if you’re working on cure for Alzheimer’s, try talking to local neurologists. No doubt, they’ll be a tough audience, but if you’re on the right track, they’ll know it. Better to find out now. Got an idea or something you need help on? Email me at rick@hotventures.com

Title: Venture Consultant

Matt Pernichele brings a wealth of personal entrepreneurial experience to the FundingUniverse consulting department. He helps clients prepare for and approach investors for capital and works to refine many different aspects of their businesses in the very important foundational stages (pre-funding)

Matt is our longest-employed consultant and is usually talked about in glowing terms by the entrepreneurs he consults with.

What’s the best business advice you’ve ever received? After the above example, I was told by a friend about the idea of “fast fail” that is, when you enter an endeavor make sure you will be able to tell pretty quickly if it will be a failure or a success so you don’t waste too much time on it.

Where did you work before FundingUniverse? Most recently I was doing some accounting work for Consonus.

What drew you to FundingUniverse? I found the idea of working with startup entrepreneurs exciting. It’s a great job where I learn useful new things every day and meet a lot of committed, creative people.

How will you help FundingUniverse grow? Hopefully by getting people in a position where their plans can get funded and by directing investors to real, quality deals I will help FundingUniverse become the place where good deals can get good exposure.

What’s your favorite things about FundingUniverse? Learning about my clients businesses.

What do you do when you’re not working?
Hike and take care of my high maintenance children.

How has FundingUniverse helped you grow professionally? Working at FundingUniverse has exposed me to a lot of different business models and personalities that I would not have otherwise encountered. I have also learned a great deal about my clients industries; from aircraft manufacture to SaaS to men’s hair care products.

First it was housing, banking, and insurance. Now, retail and automotive. Not a good time to have big stores, big shelves and lots of goods from manufacturers who want to get paid. With the credit crunch, big ticket item sales are near impossible, everyone clobbered but the category leaders… i.e. Circuit City and Linens ‘n Things have been slammed. If smart, Walmart, Target and Costco will find ways to get by. Next, it’s clogging auto dealers who sit with big inventories. No one’s buying a car that doesn’t need one right away. I hear 2009 autos are sitting in the ports waiting for 2008 autos on the lots to clear out. Not going to happen this year. And it’s no solution to throw money at them, the big-3 need to change big-time. They need some kind of structured re-organization. If we as citizens must invest in them to keep the entire Midwest economy from crashing, the big-3 must find a way to make better cars, have fewer dealers, and dump their legacy obligations. Sorry, I think big unions (more mouths to feed), big stores and big inventories should be jettisoned. And I say, down with expensive marketing plans, good products should sell themselves!

My travels

This week, I hit Flagstaff (think Grand Canyon) and Tempe (mainstreet for ASU). First, we dedicated the new Northern Arizona Center for Emerging Technologies and AZ Governor Janet Napolitano cut the ribbon of this new 10,000 square foot incubator, which by the way, is already filled with ten awesome technology companies (more about these companies next time). Later that day, the new Northern Arizona Angels group met at the ultra beautiful Pine Canyon Golf Club. Investor presentations were made by Protein Genomics (they make skin), Norchem Drug Testing (like they say, drug testing), Density Investments (new age green building), Ambature (super conductor material) and Visible Energy (making sense of energy).

Spressions

“Be careful what you wish for”… remember when we longed to get rid of our biggest problems: high gas prices and the Iraq war? Don’t you wish we were back there now?

Accordion to me…This week’s advice to entrepreneurs

Looking to fund your company? Wherever you are, there are probably angel investor groups in your region. While November and December may be shot, if you have a killer company, you should apply to the angel group(s) in your area and then, others nearby too. [ look at their directory at http://www.angelcapitalassociation.org/ ] Get some professional advice, know your domain, make sure your company can exploit its unfair competitive advantage, and know your true valuation boundaries. Concentrate on proving the details on how your sales will be brought in. Very few companies know enough how they will get their sales. And…don’t talk about fast exits or IPO’s. Of course you are open to the right liquidity event, but right now, no one knows when, how and where. Ah, but you must be ready and wise. Got an idea or something you need help on? rick@hotventures.com