Entries Tagged 'money' ↓

Evan’s latest initiative is identi.ca. Edd Dumbill describes the importance of the new twitter clone: it’s open source, open data and federated.

Another advantage of being good is that it makes other people want to help you.
Paul Graham, Be Good

Identi.ca’s design philosophy could not be better designed to appeal to its early adopters. A project so open only makes geeks want to help, sign up and spread the word. The idea of federation alone is so long-overdue and powerful that it is probably unstoppable.

Like wikitravel and librivox, Identi.ca is going to be yet another local success story.

It may be too early and too few actors, but it seems Montreal could become a magnet for idealistic startups. Every new idealistic startup helps inspire us, and creates real, sustainable value.

Mulling Patrick’s proposed “bunsen burner fund” and the answer it provoked, it’s clear that there’s a core of community-minded people that would like to make that kind of thing happen.

If you haven’t done so yet, go sign up on identi.ca with either openid or a regular username / password. I can be your first friend: http://identi.ca/daniel.

“Lifestyle Businesses”: The topic came up at yesterday’s Montreal Tech Entrepreneurs Breakfast after the Montreal Start Up crew joined Darrel and I.

Lifestyle Businesses are businesses that are set up and run by their founders primarily with the aim of sustaining a particular level of income and no more; or to provide a foundation from which to enjoy a particular lifestyle. (wp: Lifestyle Business)

Why wait until an IPO, after you are already addicted to the 80 hour weeks? Freelancing already affords me the opportunity to make a healthy income and pursue other interests - dancing, community building and more.

When I got home, there was an Amazon parcel waiting for me with two books:

• Paul Hawken’s Growing a Business
• Stephen T Beckett’s The Science of Chocolate

I actually bought a chocolate maker, beans and chocolate. Just for fun. It’s the kind of lifestyle I would want after a successful start-up, only I get to have it now. If you are waiting until you’re a millionaire to enjoy the life you can have now, you are crazy.

VC’s naturally dislike these businesses. Investing in Daniel Haran simply won’t scale. Once I can charge more per hour, I’m more likely to work fewer hours. I could hire sub-contractors and grow but the margins are small - if there is growth, it will be organic.

If you ask a VC to invest in your lifestyle business, you will just annoy them and waste everyone’s time. As Daniel (from MSU) pointed out, there’s probably some way to make money at it - however the structure of a VC fund isn’t appropriate (they have to return the money to their investors at the end of a fund, usually around 7 years).

Around this time, Aran Rasmussen joined the conversation: Would micro-finance or another type of fund structure help us get some sustainable lifestyle businesses? More than a handful of high-profile successes (like RIM), Montreal could have a vibrant tech business scene if we could figure out a funding model for these companies. Fortunately, people like Daniel are thinking about it.

I may one day decide I want to start a company. Working at a small business should hopefully increase my odds of success - I’ve built relationships and learned valuable lessons already.

The motivation would be different. I believe the lottery ticket approach to startups is a personal and spiritual dead end. I already have enough money to afford a comfortable lifestyle, a few millions will not make me happier. Well, not for very long.

Hopefully the discussions at these breakfasts will bear fruit. The most potent one could be a vision of entrepreneurship that did not sacrifice community, family or sleep. As the Silicon Valley prophets of greed and workaholism continue blogging their tired message, we could be using the web the way it was intended and creating lasting wealth.

Wednesday I attended Rick Segal’s VC Roundtable in Montreal. Rick is a partner at JLA Ventures, a venture capital firm specializing in technology and software. Their last fund was one of North America’s top performers (top 5%), and they should shortly open their next fund.

Over the course of 2 hours, he went over venture capital basics and a brief overview of their working process.

JLA’s differentiators:

• Coders. They have techies on staff, and will try your beta software.
• They want to take you out for lunch when you’re still writing a prototype, before you even get angel money.
• Due diligence happens *before* signing a term sheet.
• Deals are made by partners, as long as their other partners don’t have strong objections. This is different from consensus, multi-layered approvals or vote-systems common with some VCs

Because there are a few mistakes companies can make early on that will torpedo their chances of ever making it, I’d recommend talking to them early on. One other point worth mentioning here is that JLA has made a few smaller investments - that is, small by VC standards - in businesses like B5 Media and Tungle. Rick lovingly referred to these as ’science experiments’: smaller bets in an emerging market that are very uncertain but should help them understand that space.

I bet those two experiments will be incredibly successful.

Some of my take-aways probably apply to all VC businesses:

• “Lifestyle businesses” need not apply. While making $5 million in annual revenue might be fantastic for an entrepreneur, they want companies that will sell for 25-100 million. Companies usually sell for 1.5 to 2 times revenues.
• Target investments have to have a ‘liquidity event’ within 5 to 7 years. VC’s have to repay their investors too, so you have to be prepared to see your baby bought, merged or sold on the public market.
• “pre-money valuation” is usually 3-5 million.
• Keep track of who owns the company - including your mom, and that designer or coder in Hungary.
• Ask angels for convertible debt, not equity.
• Don’t call yourself the CEO: those get replaced. A founder gets to stick around on the board.

If memory serves, they met over 850 entrepreneurs last year, and have funded 4. Some of those 850 are still being considered, but most were told ‘no’. Those odds appear quite similar to those of getting funded by most VC’s.

When AngesQuebec announced $750k of funding from the Québec government, I asked what the justification was for giving money to already wealthy investors.

Austin Hill is one of the network’s members, as well as one of Standout Jobs’ 3 founders. I pinged him, teasing him about getting government financing. He argued that while he’s generally opposed to the idea of subsidies, it makes sense in this specific case. In our discussion, a few facts came out that changed my mind about the project:

-$750,000 is over 3 years, after which the network should be self-sustaining
-AngesQuebec aims to have a network of 200 angels
-Over the next 5 years, $50 million should be invested in 120 companies, creating 800 jobs
-Other angel networks have gone bankrupt trying to bootstrap from member fees.

AngesQuebec is a non-profit, trying to build a public infrastructure good - something markets tend to fail dismally on. They are currently all volunteer run, and seeking their first paid staff. Hopefully this hire can improve communications and start the process of recruiting angels in order to grow to a sustainable size.

The thread on Montreal Tech Watch’s Capazoo Update got increasingly surreal this week, first with their Director of Communications heralding their strategic partnership with the National Lampoon. To contact him, anyone in the press should just do so through the service he is promoting (!).

Capazoo is a multi-level marketing scheme. Like Amway and countless other MLM schemes, it turns people into money-grubbing zombies that erode our social capital.

Today one Jean-Christophe decided to comment as a satisfied customer, pleading for us to see for ourselves how fantastic and lucrative Capazoo can be. Naturally, he finishes by giving us his profile page. If we sign up after visiting it, he earns zoops. So far, he’s earned 806 zoops - or $8.06.

So I looked at the referral scheme:

For every friend you invite who upgrades to Privileged Membership, you’ll earn 100 Zoops!

For every friend you invite who upgrades to VIP Membership, you’ll earn 130 Zoops!

The Capazoo.com Referral Program lets you earn Zoops when your friends refer friends – up to four generations!

Ick. Capazoo will quickly fill up with amateur spammers looking to make a single dollar of each of their social connections. Maybe one day they’ll have Amway-style rallies and conferences. Unlike other MLM organizations that manage to stick around for years however, this socio-economic virus should peter out once they burn through their cash reserves and exhaust their possible partnerships.

I hope Capazoo goes out with a bang rather than a whimper, that it serve as a reminder to other idiots that would try similar ideas.

This morning I attended the December MTEB.

A couple of venture capitalists were in attendance, who graciously answered my questions about what is going on with the VC industry. I basically think the industry is big, slow, and doesn’t understand new technology. They’re closely watching the efforts of Montreal Startup, but weary several incubators, seed funds and other schemes have foundered before.

The real surprise was talking with Darrell and the engineers at Stanox. We come from different technology backgrounds: micro-chips, ERP and web. Yet we all have similar attitudes: KISS. YAGNI. Think. Simplify. We’re all fans of Saint-Exupery’s quote on perfection:

Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.

When I griped about a horrible API I might have to integrate (the variable names are inconsistent and ugly) one VC said “well, it can be ugly, but it’s ok if you make money”. The dividing line was obvious. For the engineers, if it’s ugly and verbose it’s probably buggy. For the investors, it’s bearable if it’s profitable.

The folks at Stanox look like they will be successful, and mentioned they may become angel investors in the future. I’m hoping they succeed; we need more angels like that.

I finished reading The End of Medicine: How Silicon Valley (and Naked Mice) Will Reboot Your Doctor last week-end. Andy Kessler is a Silicon Valley geek that struck it rich, and wants to find the next big thing in medicine. I give the book 3 out of 5 stars.

Looking for areas where silicon meets biology, he documents one year of dialogs with various researchers including Nobel prize winners. No doubt being wealthy opens many doors. Silicon gets better, faster and cheaper - surely if we can bring these qualities to medicine in a way that can scale we can cure many diseases?

I’m not convinced Kessler is quite on the right track. While the technologies he describe are very promising, modern medicine has had plenty of spectacular failures and the future rarely unfolds as expected. We have bottled water and oxygen bars, but we still don’t have flying cars or X-Ray machines in every living room.

More to the point, his emphasis on early detection misses the most obvious point: prevention. Several times when dining with eminent researchers Kessler judges whether they are true believers by the fat content of their meals. Apparently someone convinced that their research will bear fruit wouldn’t subject themselves to bland and healthy food.

We are already doing much better at curing some cancers like childhood leukemia. Even while more children fall ill, fewer die. In other words, more and more children go through the ordeal of cancer treatment and we still aren’t sure what’s causing the disease.

Perhaps Kessler thinks his bacon and eggs are worth the risk of needing treatment. And in his mind, treatment will be quick zaps at the very earliest onset of the disease. I hope so, but doubt it.

My hope for the future is radically different. As more sensors let us capture more and better data, and as early diagnostics help us better associate environmental conditions and diseases, we will be able to more clearly identify causes. We may finally answer whether and which pesticides cause childhood leukemia.

Prevention won’t make anyone billions the way cheap silicon wafers cancer diagnostic kits and advanced imaging will. Because Kessler is chasing money, he misses the obvious - that prevention always saves many more lives than treatment.

I have been a fan of Kiva since Jamais Cascio wrote about them on worldchanging. Kiva works on a simple idea: 20 people in rich countries can each lend $25 to a person somewhere half-way around the world. It’s small change for us, but that $500 can be enough for a borrower to build a decent livelihood.

99.7% of loans made through Kiva are repaid. It’s easy, cheap and changes lives; a lot of people love the idea.

They’ve had trouble keeping their servers up after receiving mainstream media attention, so when news came out that Oprah was to feature them I figured they might crash hard. They were only down for three 20 minute periods. 94,000 people visited the site that day, and 4388 new registered users lent $145,000 - more than triple their previous week’s total.

With two years of operation, Kiva has managed to get some solid data on repayment. Their knowledge and experience is paying off. What mainstream media recognition they are getting is richly deserved.

Because of the sudden influx of loaners, they have run out of businesses to fund. This is an excerpt from their site:

We’ve funded EVERY business on the site!!

[…]

With your help, one day we’ll run out of businesses forever. We at Kiva.org look forward to the day our website ceases to be a functioning microfinance site and instead becomes an online museum dedicated to showing future generations what we used to call “poverty.”

Daniel Drouet just posted another article in his series on VC capital in Montreal. I like where he’s going with this. There is good talent in Montreal, and VCs and Angels aren’t nearly as active as they could be. He finishes by asking “In a city with limited angel activity, how should entrepreneurs proceed? What should local VCs be doing?”

Here’s my take: invest amounts of $50-$250k, with answers for applicants given in 1 week after the first meeting. I know a few people that could build a good product and be ready for an A round or buy-out with $250,000 - and could get a prototype for $50k. Well, less if he wants to hire students that will eat ramen for 3 months.

He refers to a Union Square Ventures post claiming they’re not staffed to do as many small deals as Charles River Ventures. That sounds like nonsense to me. CRV needs fewer partners to OK a seed investment; they didn’t double their staffing to double the deal flow; they’re putting less work into vetting each opportunity. This is normal, since the risk is inherently spread.

One thing I would change about CRV’s standard QuickStart terms is a clause in the case of a sale. The VC should have an upside if the company gets bought out by Google after an angel investment, so incentives are aligned.

To pull this strategy off, a VC would have to be able to assess the technical chops of hackers as well as the market potential of their idea. It would only take one of those to make Montreal a magnet for new startups, so I hope Montreal Start Up succeeds!

My student loan is no more. From $30,000 nearly 10 years ago, it got paid in lump sums as I settled with collection agencies.

They could have waited for me to get out of school before asking payment. They could have let me pay it off in monthly installments. Some bureaucratic barf-up ensured I never would have the benefit of such sensible policies.

After some phone calls from a collection agency, I would wonder if the banks really didn’t do this on purpose. They could point to default rates to justify the need for more money, as well as justification for more market-oriented policies towards students

I’m not likely to go into debt for schooling ever again. No one should have to leave school with $30,000 in debts.

Next time I hear about students striking against tuition increases, I’ll be cheering.