BLB - Business & Law Blog

Petition to Bring Cuestion Tequila to Your City

2012-01-19T15:04:00.000-08:00

Cuestion Tequila, winner of 20 awards in 2011, is only available in a handful of locations in TN, FL and Alabama as of Dec. 31 2011.

Due to the post prohibition three tier system in the United States, Cuestion Spirits Company cannot independently sell without the support of either the State and/or a Distributor.

Please Sign this petition if you want to be able to try one of the best tequilas in the world in your city!

Online Petition by iPetitions.com

Grassroots Marketing | Inc.com

2012-01-17T13:44:00.000-08:00

If you are struggling to gain market traction this is for you.

Inc. put together a great list of mini articles with some equally great insight into the creativity it takes to compete in a crowded marketplace as a startup. A must read for almost any consumer focused startup: Grassroots Marketing | Inc.com (Link).

Posted via Blog this'

Things I'm working on...

2011-11-16T11:01:00.000-08:00

There is a ton going on in the Birmingham startup ecosystem, some that is public knowledge and some that isn't.

Here's a small sampling of some at least semi public stuff that I've been working on and think is worth supporting...if anything seems like a fit, give me a buzz, we can always use good help.

1. Expanding our BAN Mentorship Program
2. Creating a Culinary Startup Incubator
3. Proposing and Passing a Startup Capital Tax Credit
4. Getting regularly scheduled PR for the Startup scene
5. Supporting and expanding Birmingham Startup Drinks
6. Creating a Deal Flow Clearinghouse for non-startup related alternative investments
7. Brainstorming on ways to fill the "concept validation" gap

That's probably a good start.

If any of that strikes your fancy...come on down.

***This post probably also shows that we could use an initiative that keeps track of the various ways to get involved, but that will have to wait till another day.

A VC: Difficult Is Good

2011-09-13T07:19:00.000-07:00

After reading a great article (Build Something People Need: On Raising Venture Capital And Creating Startups That Matter) about proper entrepreneurial focus on the FastCompany Blog by Rod Ebrahimi, it reminded me of another article (A VC: Difficult Is Good) by Fred Wilson that I had saved earlier this year and meant to write about before now.

Both of these articles touch on two essential characteristics of successful entrepreneurs...they focus on value to customers and work incredibly hard. When those two characteristics are coupled with talent and a dash of luck big things can result and, as an investor, that is the canoe I want to be in.

Code Section 1202: Let’s Hope It Doesn’t Expire | Startup Company Law Blog | Davis Wright Tremaine LLP

2011-08-31T15:56:00.000-07:00

Code Section 1202: Let’s Hope It Doesn’t Expire | Startup Company Law Blog | Davis Wright Tremaine LLP (LINK)

'via Blog this'

Joe makes some great points, but another reason is that many investors are just beginning to learn about Section 1202 and make plans that allow them to take advantage of it.

Let's face it, people don't usually live and breathe the tax code and many people didn't immediately realize (and many probably still don't) that the 100% exclusion even existed, so it is necessary to leave it in place for a reasonable length of time in order for it to have the intended effect.

Entrepreneur Resources - Getting an Education

2011-05-21T07:54:00.000-07:00

So you are an entrepreneur wanting to learn about starting and running a high growth company or about the angel/vc finance world. Where do you go?

Right here:

1. For Videos - (LINK) YouTube
2. For Books - Check out the recommended reading list - (LINK)
3. For BAN information - check out our website (http://www.birminghamangels.com/)
4. For current topics/articles follow BAN on:

Facebook - (Page LINK)
Twitter - (Profile LINK) @bhmangelnetwork
LinkedIn - (Group LINK)

Gov. Haslam: TN to co-invest via INCITEinnovation and jobs-formation campaign on Venture Nashville

2011-05-06T14:53:00.000-07:00

Although I'm thrilled to hear about these kind of initiatives in the Southeast, I would really love to see some in my home state for a change.

CAPCO all by itself, although great, is just not enough.

Gov. Haslam: TN to co-invest via INCITEinnovation and jobs-formation campaign on Venture Nashville

GOVERNOR Bill Haslam's new $50 million INCITE economic-innovation program will include co-investment for Tennessee ventures, new incubators, a push on both tech transfer and entrepreneurship, and a continuing role for Tennessee Technology Development Corporation (TTDC) and other allies, the governor said today.

(Article) The Four Main Things that Investors Look for in a Startup | Both Sides of the Table

2011-04-01T10:02:00.000-07:00

This is a good overview that is worth keeping in mind. I still like the Blue Ocean Strategies factors, but this gets to the point too.

The Four Main Things that Investors Look for in a Startup | Both Sides of the Table

"1. Momentum,
2. Management Team,
3. Market Size, and
4. Money."

Misguided Nebraska Senators question angel tax credit benefit due to business risk

2011-03-22T14:47:00.000-07:00

The legislative debate over the Nebraska Angel tax credit is instructive for Alabama because we will probably have some of these same issues raised when the (hopefully soon to be introduced) Alabama angel tax credit is debated.

Nebraska Senators question 'Angel' tax benefit - Omaha.com

Lincoln Sen. Danielle Conrad, who led a legislative study last year on how to improve the “economic ecosystem” for entrepreneurs, said Nebraska has done well attracting larger businesses but needs to be just as aggressive helping innovators capitalize on a good idea or a new invention.

But Schuyler Sen. Chris Langemeier questioned whether the state should spend $3 million on such tax benefits when it is cutting spending elsewhere.

He called LB 389 “a slot machine.” Research shows that up to 75 percent of such projects fail.

“I’m not against this. I just don’t think today is the day to make this investment,” said Langemeier, who drafted an amendment to kill the bill.

Senator Langmeier is probably a very smart and hardworking individual, but his comments are laughable. There are no doubt risks for the success of an angel investor tax credit, but the good Senator is missing them. Calling an angel tax credit proposal a "slot machine" simply because many small businesses eventually fail completely misses the point...and the point IS that 25% of them succeed (by his statistics). Of those succeeding, some are also going to succeed in a large way and that is exactly what makes the entire process profitable for entrepreneurs, investors and the State. If the Senator's reasoning were followed then no one should ever start a new business.

Nonetheless, to a certain extent he is exactly right, because the law of large numbers is critical to angel investing just as in casinos*...only he has the parties wrong because in an angel tax credit the State is playing the role of casino, not player. *(meaning, like individual bets, it takes investment in a lot of individual companies to normalize the overall portfolio return) In fact, based on some table napkin math, the State stands to create a tremendous capital multiplier by increasing the creation of high growth startups (see prior posts). The only real limitation on the upside is the State's ability to keep supplying potential investors with high quality candidate companies able to appropriately use investment capital and that is a risk worth talking about and trying to mitigate, but that is for another post.

Organized for success...

2011-03-20T13:02:00.000-07:00

Many new (and even some experienced) entrepreneurs seem to struggle with the dizzying array of business entity choices and their various combinations. To name a few there are: proprietorships, partnerships, limited partnerships, LLPs, LLCs, Trusts, Corporations and S-corporations. Each entity has its place and time, but for high growth potential businesses I will choose a corporation almost every time. The reason is mainly tied to tradition and corporate governance.

"Tradition" you say...why in the world would that be a big deal? Well, the reason is rooted in a desire to maximize available resources and standard corporations have been the traditional entity of choice for high growth entities for a long time. That has resulted in most of the resources being created with a heavy Corporation bias and that bias runs the gamut from internet articles to professional expertise.

Corporate governance is the other reason and it is probably the biggest. By corporate governance, I mean the structure of how the entity develops, authorizes/makes decisions and holds people accountable.

Corporations have three main levels of authority to get these things done: (1) Board of Directors ("Board"), (2) Shareholders and (3) Officers. The basic process flow is: Shareholders elect the Board; the Board approves strategies and major decisions, including hiring/salaries of Officers; and Officers suggest strategies and actions to the Board for approval, then work to implement. As payment for their respective parts Shareholders receive profits, Officers (and employees) receive salaries and Board member compensation varies, but they typically receive a stipend of some kind.

By having the Board to focus on overall strategy and wade in on major decisions the company can ensure that planning is occurring (i.e. "doing the right things") while Officers focus on the day to day activities (i.e. "doing things right"). Meanwhile, Shareholders hold everyone else accountable for the end results.

This division of labor is critical in a high growth entity because, without the checks and balances, the high volume of necessary work makes it very easy for the favorite activities of the founders to take dominance to the detriment of other necessary activities. The typical result....Chaos and frustration reign.

In very small companies (startups or otherwise) maintaining a proper division of labor is complicated as well, which can be double trouble for a high growth startup. Small companies by definition don't have a lot of people involved, so it is easy not to properly maintain the division of labor because there aren't actually different people performing each function. When small size is combined with entities that do not legally require such a division of labor it is easy to understand why it may never occur at all and in companies where planning, implementation and accountability are not all treated with due respect (which can certainly happen in a corporation too) the results are going to be sub optimal.

So the net-net is that I usually recommend corporations for high growth potential companies, but I would always recommend that companies think hard about what structures are in place to address planning, implementation and accountability regardless of the entity choice.

Open Letter re: Supercharging Business Development in Alabama

2011-02-10T15:13:00.000-08:00

I would humbly propose a vision. The vision is of a state in the heart of the Southeast that is an economic engine and a force in the global economy. That may sounds unachievable, but I firmly believe that it is within our grasp if Alabama can couple some measure of bold leadership with coordinated and efficient usage of current resources.

The strategic steps need to include solutions for two major bottlenecks in the high-growth company creation process by:

1. Increasing the number of investment ready high growth potential companies in Alabama; and
2. Encouraging investor participation in funding seed and growth stage high potential companies.

As a part of step one.

The state needs to use existing state resources to support the maturation process of quality high-growth potential companies.

Today, the Board of Alabama Launchpad is meeting to discuss the direction of that program and it is potentially a very important meeting in this business development process. Launchpad is a unique statewide organization that was established as a partnership among the state's research universities and the business community. The primary program run by Launchpad is an annual business plan competition that awards grants of $100,000; $50,000 and $25,000 for 1st through 3rd places respectively and it is a great starting point.

The reviewers and mentors already working with Launchpad are great entrepreneurial resources and their feedback is often worth significantly more than the prize money. However, Launchpad can be much more...

Ask almost any active angel investor or seed stage venture fund manager in any state and you will hear a lament about the typical sophistication and "readiness" of most startup businesses for outside capital. This is a huge bottleneck in the creation of high growth companies because regardless of the amount of capital available, it simply will not be effectively put to work if there are not proper risk/reward investment opportunities. Either the capital will under-perform or it will be put to work in other investments.

This is an opportunity Launchpad can grow to fill with a couple of steps:

1. Launchpad is expanded to include any innovative business, so that the entire state population can have the opportunity to participate.

2. A seed fund (or grant program) is associated to provide a stipend of $10,000-20,000 to the top 25 (approx. Phase 4) participants.

*this would be in addition to rather than replace the top 3 awards

3. Launchpad schedule is reworked to be a quarterly program rather than annual.

4. In exchange for receiving the seed funding, the top 25 participants agree to move company operations into the nearest business incubator for a three month program *(think TechStars on a state-wide basis).

Such program incubators could include:

5. During the three month program, mentors and advisors (many qualified candidates are already involved as judges) regularly meet with the participants in a combination of one-on-one company sessions, incubator-wide group sessions and program-wide webinars.

6. Following the end of the three month program all of the participants would come together for a graduation showcase of all the companies and the progress made by them during the term.

As a part of step two.

The state needs to implement a state tax credit that encourages increased investor participation with potential high-growth companies in Alabama at both the seed stage and growth stage.

Such a tax credit would be best if:

1. It is open to many industries and leaves the specific company and industry selection to the investing parties, so that profit motive may direct the investing activity without artificial manipulation.

2. It is targeted at seed stage investments (i.e. no previous 3rd party capital, less than 20 or so employees, less than $1 million investment, etc.)* because that is where the largest gap is located.

*the criteria need to be fully vetted to avoid unintended consequences

3. It is in the 20-40% range, so that the investor incentive is significant while not eliminating the need to properly evaluate prospective investments.

4. It is available for both direct investments into a target company as well as for investment into a qualified venture fund, so that those investors interested in participating, but without sufficient time, skill or interest may act through a qualified professional.

Conclusion

If both of these projects (Part 1 and 2) can be implemented, then Alabama could see the annual creation of 100 new investment ready high growth potential companies. If only 5% of those companies are able to achieve a successful exit, then Alabama could still be creating an annual addition of approx. $225 million* in new enterprise value to the state's economic base. Furthermore, those number would not include the economic effect of the other 95 companies and the "exiting" companies that choose to stay in Alabama and continue to grow, so the total economic effect could be many times the simple exit value.

*(5 companies annually multiplied by the $46 million median exit value in 2010 of venture backed companies...according to DJ VentureSource)

P.S. As always, take what you like and leave the rest.

AngelPool - First Deal Syndication Meeting Recap

2011-01-24T13:44:00.000-08:00

We had the first of, hopefully, many regional web conferences among the southeastern ACA (Angel Capital Association) chapters as a part of AngelPool last week. Included on the meeting were representatives from:

460 Angels, Blacksburg VA
Active Angel Investors, Vienna VA
Angel Capital Group, Hendersonville TN
AngelLounge, Atlanta GA
Birmingham Angel Network, Birm. AL
Central Texas Angel Network, Austin TX
CEO Ventures, Atlanta GA
Charleston Angel Partners, Charleston SC
Concho Valley Angel Network, San Angelo TX
Global Angel Investor Network, Savannah GA
Go Beyond Network, Naples FL
Gulf Coast Venture Forum, Naples FL
Houston Angel Network, Houston TX
Huntsville Angel Network, Huntsville AL
Inception Micro Angel Fund, Winston-Salem NC
InvestIn Forum of Angel Investors, Dallas TX
Jefferson Corner Group, Charlottesville VA
Louisiana Angel Network, Baton Rouge LA
Nashville Capital Network, Nashville TN
New Dominion Angels, Warrenton VA
New World Angels, Boca Raton FL
North Texas Angel Network, Fort Worth TX
Piedmont Angel Network, Greensboro NC
South Coast Angel Fund, New Orleans LA
South Texas Angel Network, San Antonio TX
Springboard Capital, Jacksonville FL
Upstate Carolina Angel Network, Greenville SC
Virginia Active Angel Network, Charlottesville VA
Women Angels, Miami FL

Over the course of an hour or so, we heard from three new companies (including BAN portfolio company TransactionTree) and had a few minutes for Michael Price (AngelPool Chairman) to provide some thoughts and visions for the future.

Despite a couple of to be expected technical glitches, it was a nice start to streamlining the syndication process and providing a great new resource for our southeastern ACA chapters.

Apply to Birmingham Angel Network, LLC - Create Application

2011-01-22T08:45:00.000-08:00

It's a new year and time to kick off a great new class of companies for 2011.

Birmingham Angel Network ("BAN") will be looking for a new high growth companies to work with at our next meeting on Thursday night (Jan. 27th).

If you or someone you know would be a great fit, please tell them to submit an application before Thursday or it will be another 3 months before there is another opening. General criteria may be found at: BirminghAmangels.com/entrepreneurs.php

Submissions may be made online through AngelSoft at: Apply to Birmingham Angel Network, LLC - Create Application.

If you are a potential investor, Thursday is a great time to visit and check things out as well. RSVP at: http://ban012711.eventbrite.com/

Median exit price was up 70% to $46 million in 2010, but either way the math still works.

2011-01-03T13:38:00.000-08:00

"The $46 million median amount paid for a venture-backed company in 2010 was 70% more than the $27 million median in 2009."Exits and amount up in 2010 by Dow Jones Venture Source

Thankfully those numbers are still in line with the the $30 million average successful exit planning assumption we have been using in our portfolio pro formas. (See the Nov. 22 blog post for more detail)

Of course, we would all be even happier if a non-typical paypal/google type 1000x slipped in there too.

Entrepreneurship and Taxes (link)

2010-12-07T11:52:00.000-08:00

Scott does a good job of not just stating his opinion, but also attempting to make sure that his opinion has a basis in verifiable fact and he has some great points about our current Congressional decisions on the Bush era tax cuts.

Entrepreneurship and Taxes by Scott Shane

"The United States has an enormous budget deficit, which may require tax increases to close the gap. But we need to carefully consider the law of unintended consequences when raising taxes. Much evidence shows that higher taxes discourage entrepreneurial activity, including investment and hiring by small business owners. If we let the Bush tax cuts expire, we risk shutting off already weak small business hiring and investment. Is that possibility really worth the relatively small reduction to the deficit that we might derive from a tax increase?"

As an aside, Scott also has a good book out on angel investing too...think Freakonomics for angel investors. Of course, my favorite quote being:

"Particularly promising are angel groups, which pool knowledge and money for wiser and more productive investments. In groups, angels can rely on each other's expertise, share the labor of performing due diligence, and generally insure that their money is being placed--and used--wisely. Fostering the formation of such groups may be the single most important thing that government can do to boost angel investing."

Angel Investing: Do good by doing well (WTN News)

2010-11-22T13:57:00.000-08:00

An article worth reading:

Angel Investing: Do good by doing well (WTN News): "But the giving back is not about lowering investment standards, it’s about providing more active assistance than most VCs can provide in terms of helping entrepreneurs meet those standards. It’s about working with entrepreneurs that combine world-class ideas with the rough edges typical of high impact entrepreneurs that are new to the game and/or otherwise do not have the polish and experience – yet – to pass muster with more seasoned professional investors."

And I would go one step farther...good angel investing is not just about overlooking rough edges, but instead it is about taking well thought out and calculated risks at a very early stage in the life cycle of a high growth business, thus there are apt to be more rough edges in a typical deal than in deals done by later stage investors.

The simple economics look like this:

1. "Successful" deal(s) return 30x or more of investment (e.g. $100k investment equals $3mm or more on exit);

2. Approx 1 in 10 deals are successful *;

3. Approx. 50% return less than the investment*;

4. Average hold period for a successful exit is approx. 6 years*; thus

5. Average IRR of angel deals is approx. 27%*.

Nonetheless, despite the lofty economic motives there is significant "goodwill" (founders, community, employees, etc.) because many of those companies simply would not exist without the investment and support of early stage angel investors.

*(Numbers based on national averages included in a number of different studies. See Marion Kaufman Foundation for just a few.)

Don't mind the media, southern angel investors still wanted!!! *a southern view of a west coast commentary

2010-11-16T12:01:00.000-08:00

Mark Suster (generally, one of my favorite writers about angel/VC investing) wrote an article yesterday called "Here's What Angel Investing And Florida Condos Have in Common" and made several points that I think are worth considering in a southeaster context.

His points were primarily:

angel investing is currently a hot fad;
there are too many startups being formed for the historical ratio to be successful;
the VC market is overheated, so it is masking the problem of too many startups;
we won't fully realize the bubble for another 5-6 years;
angel investors, like other investors tend to pick poorly and buy high then sell low; and
if investors pick the right sectors there are still good startups available.

These are interesting for a number of reason, but mainly because of how west coast influenced they seem to be.

"Hot Fad" - Angel investing may be a hot fad in LA or Boston, but in the southeast angel investors are still few and far between and the resulting investment gap is large. If you question that statement, then I would encourage you to ask your local VC groups because I bet they will tell you they are still searching hard for qualified deals and that they really don't have a good place to refer companies that are too early stage for their investment criteria.

"VC market overheated" - just a couple of weeks ago at the southeastern ACA meeting we heard over and over again how difficult the current market is for raising a new venture fund. Without new funds it is hard for a market to get overheated. Also, the hot VC markets don't reach well into other geographies, so even if certain pockets are hot it still doesn't reach. Brad Feld ( I think it was Brad) explained it well a month or so ago when he pointed out that because of limited time, he really had to spend his time looking at deals in his core travel routes.

"Bubble" - this point I agree with...at least to the extent that I agree that angel deals are no different than other businesses and need to be supported by solid economic fundamentals. Thankfully, we are able to wait and pick through deals that don't seem to have solid fundamentals (i.e. actual sales and even profits...jaw dropping for west coast angels I know).

"Investors buy high and sell low" - this is a trait where I think southerners can claim some superiority in angel investing because southerners by nature are less prone to jump onto the bandwagon of the last hot trend. Southerners are used to being considered uncool on a national basis and some even revel in it, so pragmatism is a bit more apt to rule the day. **I realize the real estate boom hurt southerners too, but the desire to own land is a particularly southern weakness that I think overruled our otherwise general pragmatism.

"Certain sectors are still good" - I want to agree with this point, but I don't because it just sounds too much like the same fad based investing Mark was railing against in the article. Instead, I will say that good businesses and good business opportunities can make for successful investments in any market.

Overall, I will say that the southeast is still an undiscovered gem for many investors and that it is good business to be a part of companies that are growing and successful, which is exactly what our southern angels are seeking to do.

**If you want to see what I mean come check out a local ACA group meeting (BirminghamAngels.com) and I think you will find there is still plenty of room for good business people that have vision and practicality, both as entrepreneurs and investors.

BAN Meeting - Update

2010-11-01T08:21:00.000-07:00

Just a quick update.

We (BAN) met last Thursday at Innovation Depot and had a packed house. TransactionTree (www.transactiontree.com) presented for us and even gave a live demo of their e-receipt product using attendee information.

The portfolio company update was very upbeat since all the BAN companies are currently tracking well. We even had a prior portfolio zombie that sprung back to life in a big way on Friday and that means we are back to batting 1000.

All in all, I couldn't be any prouder of the group and it's leaders for sticking it out through a tough economy and the results seems to be REALLY paying off.

Congrats to everyone and if you haven't made it to a meeting yet, check out the schedule (www.birminghamangels.com) and come visit!

Communication and Planning in a High Growth Company

2010-10-25T07:57:00.000-07:00

Ralph Waldo Emerson once said, "Speech is power: speech is to persuade, to convert, to compel. It is to bring another out of his bad sense into your good sense."

For quite some time I have suggested a plan (see below) of communication to clients and BAN participants. It's not anything ground breaking, but it is a programmatic way for a company to facilitate orderly communication. Nonetheless, it is amazing how few of them really follow it (or any other) systematic plan of communication and I think it ends up hurting them...potentially a lot.

Effective internal communication among stakeholders (Management, Employees, Board, Shareholders, JV partners, etc.) is critical to coordinating efforts and maximizing the opportunities for success, but it doesn't just apply to startups...most companies would do well to try and systematize some regular forms of communication.

Suggested Plan:

1. Quarterly (maybe monthly early on) board/advisors meeting
-- Progress
-- Plan
-- Challenges

2. Weekly recap email of progress and "to do" items

3. Monthly Financial Statements *(email updated statements even if no revenue)
-- Income Statement (aka P&L)
-- Balance Sheet

4. Annual letter (recap and vision)

If you are looking to make a change for the better in your business, give it a try or work out your own plan and let us know how it goes. I bet you will be surprised at the energy and progress it will create.

Niche, Dominate and Repeat

2010-10-15T07:21:00.000-07:00

I was having a conversation with Jonathan Sides, Daxko VP of Finance, the other day about startups in Birmingham and he told me a bit about their story. He summarized their business strategy as "niche, dominate and repeat."

I have seen a lot of strategic theories and there are plenty of books that talk about niching, but I had not heard that phrase used as a complete strategy before...I loved it.

"Niche, dominate and repeat" encapsulates a lot of good strategic thinking because "niching" forces a company to define exactly what they want to be and who they want to serve while "dominating" reinforces that niching process and encapsulates most of the strategic tools such as:

product/service differentiation
value proposition planning
creating a minimum functional unit
customer experience focus
adoption planning
etc.

"Repeat" is also a critically powerful tool because it implies both continued process improvement and new market growth.

A lot of business planning and strategy is cumbersome and somewhat clunky to use, with graphs and graduate level books to understand and it can be difficult for many entrepreneurs to actualize the theory. On the other hand "niche, dominate and repeat" is just four words and it doesn't take a rocket scientist to figure out what it means. With that kind of simple strategy, everyone on the team ought to easily be on the same page and what a powerful place to start. I don't think it is a surprise that the guys at Daxko are getting it done.

If you are in an existing business or starting a new one..."niche, dominate and repeat" is not a bad place to start.

Just Do It....

2010-10-12T08:07:00.000-07:00

Nike has made the phrase "Just Do It" famous. They started with the sports arena and now it is a part of the American English lexicon. It applies to business as well.

I have seen many smart people and good businesses suffer because of a desire for perfection...the perfect label, the perfect timing, the perfect product, the perfect customer, etc. etc.

Unfortunately, waiting for perfection usually is a permanent wait. Even Apple's Steve Jobs (a notorious perfectionist) has to eventually declare the product "good enough" and start selling, but for most startups even a Jobsian style wait may be too long and wastes two of the primary advantages of a startup...speed and flexibility.

For most startups, the best strategy is to plan quickly, execute to the best of your ability then iterate. By following a speed to market strategy startups can take advantage of their relative size and use it against the bigger, slower competition. It also has the advantage of minimizing the time spent in the negative cash flow "valley of death" and that can significantly increase any businesses chances of success.

So don't sit around waiting....Just Do It.

The company financing life cycle...

2010-10-05T07:42:00.000-07:00

I ran across this diagram of the financing cycle of startup companies on eandua.com and thought it was an elegant expression of where true seed stage capital fits in the overall scheme of our economy and the critical role it plays despite it's relatively small dollar amounts.

I also think this points out a somewhat obvious, but often overlooked, concept...things can really start to take off once a company gets to Break-Even and is cash flow positive.

That is why I believe the goal of most seed stage investments should be to get companies to a positive cash flow. When a company gets sustainable positive cash flow all kinds of good things are possible because the home runs have a chance to happen, but solid returns can be achieved over time even without them.

Sales, Sales, Sales...

2010-10-01T07:38:00.000-07:00

"I don't care how good of a manager you are...you can't manage ZERO to a profit." Jim Watkins

For as much time as we spend talking about value propositions, brand position, messaging, social media, etc. the fact remains that REVENUE (for most that means Sales) is the first key, without it any business will fail.

Of course, like building anything there are essential steps and you don't improve by obsessing about the goal, but instead by taking action steps that move you toward the goal.

Nonetheless, it is a good reminder by my dad that, in business, REVENUE is the first goal because without it all the other stuff is pointless.

Capital gains tax exclusion in Small Business Jobs Act signed on Monday (27th)

2010-09-29T07:54:00.000-07:00

The Small Business Jobs Tax Relief Act of 2010, signed into law on Monday Sept. 27th, increases the exclusion from gross income for the gain from the sale or exchange of "qualified small business" stock (aggregate gross assets not in excess of $50 million) acquired after enactment and before January 1, 2011 from 50% to 100% if held for 5 years.

Admittedly that may sound like a bigger deal than it turns out to be because qualifying investments already had a fairly low tax rate, but it is still something to think about when considering a small business investment (or angel investment).

What is the appropriate discount rate for a startup DCF valuation?

2010-09-28T08:48:00.000-07:00

Following a recent discussion with a local investment banker about the DCF valuation of a client where the topic of appropriate discount rate was a hot issue, I wondered what others were using and if there was a "right" rate.

For those that don't live and breathe financial jargon, a DCF (discounted cash flow analysis) is a method of calculating the present value of a future benefit and they are often used whenever someone needs to figure out a justifiable valuation for something that doesn't have a ready market value (and sometimes looking for valuation mistakes in things that do).

The most common reason I will use a DCF is for determining pre/post money valuations for startups, since they by definition have little more than pro-forma financials.

In preparing a DCF for a startup I need to know the expected cash flows and the appropriate discount rate. I can pull the expected cash flows from the proforma financial statements, but the discount rate is really mine to decide. As a definition, the discount rate is:

the rate of return that could be earned on an investment in the financial markets with similar risk. Wikipedia

With that rate in mind, I have started to use 27% as my discount rate for startup companies. Why 27%...because the Marion Kauffman Foundation published a report in November of 2007 based on their research that indicated a national average IRR (internal rate of return) of approximately 27% on angel investments. I haven't seen anything since then that would purport to be a better number, so that is still what I use.

Of course a lot has changed in the economy since November 2007, so I wonder what others are using for a discount rate now or if that metric still holds true?

Birmingham Angel Network - Meeting Update

2010-09-27T06:21:00.000-07:00

Overview of the update that was sent to Bham Angel Network ("BAN") group members Friday:

BAN,

We had a good meeting last night and came away with three new candidates that will be presenting in our 4th quarter cycle.

We also had updates on some of our open deals and portfolio companies. Specifically, we covered Cuestion tequila and their latest news along with a status update on the due diligence report from TransactionTree along with general comments about others. Everyone seems to be moving along and that bodes well for both the companies and our group.

We will have a lot going on in the fourth quarter with the Southeastern ACA meeting, supporting our growing portfolio and current deal flow. It looks to be a banner end of the year for 2010 with a lot of good activity. See you in October and keep an eye out for updates in the meantime.

Best,
Josh

Branding...DNA of the business

2010-09-20T06:49:00.000-07:00

I had a long conversation with one of our clients Friday about branding. The company is launching a new product and we were discussing the branding strategy.

Usually in the planning process we start with the Blue Ocean Strategic steps (article) as a beginning. We can use the value proposition developed in that planning process in conjunction with our adoption plan as the basis for our core message. Of course, at some point that high level strategy has to hit the ground and this is referred to in our office as the "roll out plan." The roll out plan is where we figure out the details of when& how we are going to reach our target audience...media types, creative messages, frequency, etc.

But the conversation we had Friday was a bit different because we weren't just talking about a strict "utility" to the consumer, but a more esoteric "who do we want to be and how do we want to be viewed" type conversation.

This has been interesting so far because we are looking hard at our target market and trying to determine the common traits, interests, etc. so that the brand image can be developed to maximize connection with that audience.

The reason I call it the DNA of the business is because, once the client settles on an initial brand image (we could change based on results), all of the marketing will be developed with that image in mind. We will try to take dead aim on that image and try to capture that ground while avoiding any muddying of the message with non-correlated messaging.

***For those of you that follow along, you may be able to guess the client and if so, keep and eye out and let me know how you think it is going.

Moonlighting (and IP transfer provisions)

2010-09-14T07:54:00.000-07:00

As we are working with a number of deals at the moment, but without a lot ready to report, I thought it would be a good time to talk about one issue that has been a thorn in my side on past deals. Moonlighting...

Now, don't get me wrong, I am not in the "you aren't committed if you don't quit your day job" camp, in fact, I think keeping the cash flow pressure off of the newco until it is ready is a sign of good thinking. However, I have had situations where founders did a lot of work moonlighting on the front end only to realize that they had broad intellectual property ("IP") transfer provisions in their employment agreements. What a disaster...and those provisions are very common for technical employees.

Of course, there are arguments that can be made and the founders may end up succeeding in court, but the cost/risk is significant and probably more damaging, the cloud from potential litigation can (and often does) run off any would be investors.

So, with that in mind... PLEASE, if you have a great idea, make sure and read your employment contract before you spend a bunch of time/money developing that idea. Furthermore, if you find out that you do have language in your contract that is problematic, go see a proper employment law firm and talk to them about it because you may be able to fix it.

2010 Southeast ACA Regional Meeting (Oct. 19-21)

2010-09-13T15:46:00.000-07:00

Dear Southeast Angel Group Leaders:

I hope the Fall is off to a great start for you and your group. With the cooler weather finally starting to arrive, we are now just over one month away from our annual fall Southeast ACA Regional Meeting in Greenville, South Carolina (October 19-21st). In light of the rapidly approaching event, we wanted to reach out with a few reminders and requests...

1. Please encourage your members to register for the Meeting sooner rather than later. Here's a link to the registration page: 2010 SOUTHEAST ACA REGIONAL MEETING REGISTRATION. I've also attached a copy of the registration packet to this note so you can re-distribute to your members.

2. The deadline for securing our block room rate at the Westin Poinsett is Tuesday, September 28, so please have your folks make their reservations within the next two weeks. Here's the HOTEL RESERVATIONS PAGE.

3. Please nominate one of your deals for Syndication prior to the the (extended) deadline of Tuesday, September 28. To nominate a deal, simply refer it to the ACA Southeast Angels Group (listed under North Carolina) in AngelSoft. Remember that qualified deals must have received an investment or signed a term sheet with the sponsoring group. If you run into any issues making a nomination, please just contact me directly.

4. In order to facilitate our discussion at the meeting related to Syndication efforts in the Southeast, please take 3 minutes to complete this SYNDICATION PREFERENCES SURVEY.   We will discuss the survey results and their implications during the afternoon session on October 20.

5. Finally, we are planning to have a panel discussion on day two of the meeting related to your experiences with implementing strategies for Early Exits. If you have an instructive story on how your group has successfully executed or made preparations for an Early Exit, please contact me so we can include your story in our discussion.

Thanks very much, please let me know if you have any questions, and we look forward to seeing you in a few weeks.

Best regards,

Matt D.

Don't do "mandatory redemptions" in seed deals...

2010-09-09T06:58:00.000-07:00

I had a conversation with one of our BAN company founders last night (I have a very understanding spouse) about term sheets and our preferred structure. He was really asking about convertible debt vs. preferred equity, but we ended up talking more about share redemption requirements or puts and related change of control provisions.

We have had this discussion several times in our BAN meetings and my opinion is fairly clear...don't put mandatory redemptions and change of control provisions in seed stage deals.

Why? Because it is a seed deal and they are inherently more fluid than later stage deals, so the flexibility is helpful. Also, we are talking about $300-400k (not $3-30mm), usually in increments of $10-25k per investor, so it is almost always in everyone's best interest to have the founders tackle whatever obstructions may arise and have the investors "keep their day job."

As an investor, I would much rather focus on doing good due diligence and valuing the deal properly for the risk involved (which btw explains part of why I prefer preferred stock deals rather than debt that punts valuation to the next round) than trying to force a deal to work that has developed issues. Furthermore, if a deal is so sideways at the pre-revenue/seed level that someone else needs to come in and rescue it from the founders, then it is probably headed for the scrap pile anyway.

But, this is not just a theory that reduces the investor's risk of throwing good money after bad, I think experience is showing that by focusing on due diligence and hammering out the details rather than trying to contractually bind a minimum return, our BAN deals have a much higher chance of success both short term and long.

Indie Candy on Talk of Alabama showing off some yummy goodness...

2010-09-08T15:16:00.000-07:00

Indie Candy was on ABC 33/40's Talk of Alabama today (link) letting everyone know about their yummy organic candy boxes.

They showed off chocolate dipped oreo style cookies, gummies, lollipops and other goodies that are all allergen free and suitable for a variety of specialty diets.

And now that they have moved the store online, in addition to the retail location in Crestline, customers all over the country can enjoy the goodness of a seriously tasty treat, even if they have serious allergies or other dietary sensitivities.

Way to go ladies!!!

Cuestion tequila dominates in local taste test...

2010-09-07T09:19:00.000-07:00

What a nice way to start the long weekend. Jason Fandrich, CEO of Cuestion Spirits Company, Inc., came down from Nashville to meet with some local investors and to participate in a taste test at a local bar/eatery.

There was plenty of good company and fun was had by all, but at least as important for the BAN portfolio company, Cuestion (www.cuestiontequila.com) topped the charts out of all the tested tequilas which included both big names and special reserves. Only one special reserve was considered close and it's tasting led to a long discussion about the various hints of flavor imparted by the differing barrel types and everyone's personal preferences.

At least one participant noted that they really didn't think that tequila could be a sipping drink, but that they had changed their mind after experiencing how a really good tequila tasted.

Probably the only down side to the afternoon/evening was when Jason had to tell the participants that it would be several months before Cuestion would be available for sale in Alabama.

Of course, he did encourage them to come visit Nashville and check it out in the meantime.

The three musketeers is best for co-founders...

2010-09-03T11:58:00.000-07:00

Anyone starting a business with someone else will eventually have to tackle relative ownership and compensation questions.

For some founders the answers are simple, but for most it is a sticky issue that creates a lot of stress and runs the risk of ruining both friendships and the business.

With the possible risks in mind, these are certainly issues that don't need to be avoided. They need to be discussed openly and honestly. Many situations have been made worse by trying to avoid the thorny issues... you may be able to, at least, until they just blow up.

To try and take some of the emotion out of the negotiations I like to lay out some initial thoughts:

1. The initial founders should have the "skills"/"essentials" necessary for the core business plan;
2. if someone is not "essential" they don't really need to be part of the original founders; *(no one is "in" just because they were at lunch the day it was discussed)
3. if each founder is truly "essential" then lean toward more even splits;
4. shareholders should earn "profits" and employees should earn "wages"; and
5. once the core team is in place it's "pay to play" for equity.

With that in mind, I do tend to favor a 1/x approach to "equity" splits among founders in most startups, unless there is a compelling reason to do otherwise.

I don't, however, think that all founders need to receive the same "wage" unless their relative job functions would demand a similar wage on the open market. For founders wages, I am in favor of creating a specific wage and keeping track, even if there is no money to pay initially (just keep it on the balance sheet as a liability).

How to set that specific wage for each founder is another negotiation. I like using Monster.com (and the like) as a starting spot because I can get reports for average wages based on specific job functions. It's also good to think about how particular jobs are typically compensated (ie - salary, hourly, commission, etc.) and to try and stay in keeping with industry standards, unless there is a compelling reason not to.

Certainly, it is easier if all the core parties can put in equal skills, effort and resources then just split everything equally, but in most instances that is not sustainable (maybe even on the front end), so it is important to think about what is fair to all parties involved for both the beginning and the years ahead.

Debt, Equity and Control

2010-08-30T08:25:00.000-07:00

This is an extension of my Friday post based on some timely reminders...

Many investors, eager to get started and get their company moving, will agree to terms that are not good business in the long run. It is understandable, and I have a partner that is fond of saying "we hope that is a problem" because if it is then the deal has probably been successful. Unfortunately, because of the inequity some deals will get sideways almost immediately and never reach their potential (or even launch).

The results tend to get even worse if a company tries to raise a second round after a poorly negotiated first round. In that situation, either the parties have to recast the deal or the deal will usual blows apart because the shorted party has the incentive eliminated.

Normally, if an early investor is worries about control, it is much better to bring them in as convertible debt and add a control provision giving them voting control until the debt is paid back at which point they convert to common ownership based on the negotiated pre-money valuation of the company and the capital amount they invested. That structure is a lot less likely to blow up and become inequitable over time and a lot less likely to mess up a follow on round of funding.

It is certainly real poker to negotiate an early round hard, with real risks on the other side as well, but the risks entrepreneurs take when they sign on to a bad deal is that they have really signed the death certificate for their company and just don't know it yet.

Company Valuations When Raising Capital...

2010-08-27T08:53:00.000-07:00

There is a ton of information available on the internet about how to value a business enterprise. There is even a lot of information regarding the valuation of a pre-revenue startup during rounds of funding. Unfortunately, most of that information is not particularly helpful for startups unless they are in a major center of startup finance (i.e. Silicon Valley, Boston or NY), have a good track record, and plan to be working with the established players.

If you are a startup company with high aspirations in Hometown, USA (like most of the South), then that deal making process, including valuation, will probably be very different.

First off, there are not a ton of institutional players interested in pre-revenue deals, so angels play a larger role. Angels, however, are just people and people don't tend to write a binding prospectus with projections and investment philosophies, etc. when investing their own money. Instead they invest based on a much fuzzier standard that depends on a lot of qualitative factors, including things such as mood.

In many of the deals I know well, the focus tended to be on shorter term goals and getting the investment paid back while still providing an opportunity for the company to reach its goals. That often results in terms that are based a lot more on the stage of the business (pre-prototype, pre-revenue, pre-profitability, etc.) and will incorporate debt or debt-like features.

For example, BAN seems to be looking at deals with a post-money valuation of $1mm or so that includes an investment of a few hundred thousand dollars with a 1x participating liquidation preference. But those terms are really driven by the type of typical deal:

1. pre-revenue (or little revenue) and post-prototype,
2. reasonable cap-ex for launch,
3. large potential market,
4. clear near term profitability milestones,
5. 1-2 years to initial milestones,

and the desire to provide necessary funding, create a significant potential upside for the investors while maintaining functional control for the founder(s).

However, individual (as opposed to group) angel deals can have some really interesting (and convoluted) terms if the investor is being creative. Sometimes that can help a deal and sometimes they are just clunky, but if it gets the deal done...

Either way, if you are working on raising capital in "Hometown USA" be prepared to openly discuss the deal and be creative because the process probably won't be as cut and dried as the internet may lead you to believe.

Alabama Launchpad opens registration for Governor's Business Plan Competition starting Aug. 30th

2010-08-26T05:47:00.000-07:00

Alabama Launchpad will open registration for the 2010-11 Governor's Business Plan Competition on Aug. 30th.

"The purpose of the Alabama Launchpad Governor's Business Plan Competition is to promote and reward marketable, high-growth, innovative ventures that have the potential to grow rapidly, transform an industy, attract future funding, and add to the diversity of Alabama's economy. The competition is for new, independent ventures in the seed, start-up or early growth stages, or for the expansion of an existing business into a new high-growth market.

On an annual basis, Alabama Launchpad will seed three winning companies with cash and in-kind services:

1st Place = $100,000 cash plus in-kind services
2nd Place = $50,000 cash plus in-kind services
3rd Place = $25,000 cash plus in-kind services"

Interested parties may see eligibility and rules here, and may register here.

ESOPs...with rising taxes it may be time to look.

2010-08-25T08:28:00.000-07:00

Our main clients are closely held businesses (and their owners), so business and individual planning are often tied at the hip in our office.

With what appears to be inevitable rising taxes, both business and individual, in a still tough business environment we are having to look hard for tax advantaged strategies that (at a minimum) won't hurt the underlying business operations.

One of the strategies that keeps popping up are ESOPs (employee stock ownership plans).

Basically, ESOPs have some commonly stated benefits that include:

1. Capital gains tax deferral (IRC Section 1042); **this is the one that gets all the press

2. Tax free income to the ESOP from an S-corp.;

3. Employee motivation and retention; and

4. Succession planning.

ESOPs have been bounced around in our offices for a long time, but we seem to be finding more situations that fit than in the past. I think that is because in the past, most of our clients were looking at a leveraged ESOP as a tax free exit (#1 above) and often the underlying economics didn't work, but recently we have had some clients looking at ESOPs for other reasons and the results seem to be more favorable.

There are, of course, a lot of factors to to look at before anyone pulls the trigger on an ESOP, but it looks like we may be seeing more of them in our future and they are definitely something to consider in the right situation.

Who can be a successful entrepreneur?

2010-08-24T08:59:00.000-07:00

During a discussion today with a colleague, the topic came up of "what makes a successful entrepreneur?"

We discussed lots of attributes and reminisced about books and studies we have read on the topic, but when we finished it seemed that we only had two characteristics left...Vision and Practicality.

1. Vision because the entrepreneur needs to be able to see the big picture and create.

2. Practicality because they need to see where the big picture vision intersects with reality, so they can plan and follow through with the steps required to create the vision.

Of course there are a million other things that are either related too or can support those characteristics, but those two are cornerstones.

Salary in a pre-revenue deal....to be or not to be?

2010-08-23T08:45:00.000-07:00

Dad and I were working on a deal not too long ago and he made the comment that:

"a deal where one party can succeed where the other party fails pretty much guarantees that is what will happen, but if a deal is set up where everyone has to succeed for anyone to succeed, then it has a chance."

At the time we were talking about a deal that just didn't feel right, even though there was a lot to like. Ultimately, we passed on the deal and the founders moved on to another investor I know (who drove a different deal altogether), but I was frustrated that we couldn't put it together. I never want to see a deal fail to launch simply because of deal structure, or worse yet, a deal fail because of poor structure, but it happens all the time and I think Dad hit on a pretty common reason.

Often in start-ups, I see deals where the founder(s) has spent a lot of time developing from idea into a legitimate business opportunity and is ready to monetize that effort or they are ready to jump into the business full time and need to replace the income from their job.

The scenario usually is played out with a founder inserting a "living wage" salary into the pro-formas and hoping to raise enough money to cover it and the launch plan. Unfortunately, that salary creates a form of exactly what Dad was talking about...all the future risk of failure is on the investor because the founders are now covered (so long as they get a new job lined up before the company goes belly up). With that arrangement, until the company is cash flow positive the founder and investor will be out of sync, which inevitably leads to tension. Even most novice investors will sense that likely outcome and shy away...maybe to the point of not doing the deal, even on a good core opportunity.

A few other (and more investor friendly) options are:

1. The founder receives only a percentage of revenue (up to his salary level); or
2. the founder receives salary, but only out of net cash flow of the business; or
*(That still could leave open the possibility of encouraging a lifestyle company that doesn't ever net much to the investor, but that is a lot better than encouraging a full flop.)
3. founders and investors split any net cash flow (splits can vary).

This is not to say that no deal should have pre-revenue salary for the founders, because some deals just cannot get done any other way, but it is always something that needs to be carefully considered and probably avoided unless it is truly necessary.

Content Based Website - Profitability Analysis

2010-08-21T12:38:00.000-07:00

I love spreadsheets for evaluating the relative financial feasibility of a deal. It just helps me to take the personalities out of the equation for a little while and run some scenarios.

I have a fairly basic and flexible version (See Link) that I thought might be a helpful place to start if you are thinking about monetizing a content based (i.e. "eyeball" or advertising based) business.

**Hint - don't start unless it looks REALLY good because no one ever seems to meet the pro formas (at least not in the short run).

For more in depth help (or if you are a Spreadsheet Jockey in training) there are any number of books, etc. available.

Monetizing a Website or Blog...just the Basics

2010-08-20T16:03:00.000-07:00

Ok, I have had several conversations in the last few days about monetizing websites or web businesses (Blogs certainly included here). Basically, it comes down to adding up the value of each visitor, plus any services or products a site sells.

But for a simple lawyer like me, I needed to have a basic course in what revenue streams were available for a content based site.

After a bit of reading...the core seems to be: (Article)

1. AdSense
2. Affiliate Marketing (Article)
3. Banners
4. Sponsors

AdSense pays a percentage of the (reportedly 1/3) of the Google Adwords fee paid by the advertiser. Affiliate marketing (like Amazon's program) is similar, except the payment is a sales commission. Banners are similar to AdSense, especially if you use a banner management program.

In all of these situations, click through rate ("CTR") is very important. Typical CTRs are in the range of 1-5%, but there are occasional reports of higher rates. (Article)

Sponsors (and sometimes banners) are simply companies paying a fee for a branding presence or maybe even individual donations. The drawback with site sponsorship are that they usually need to be individually sold (which requires time), but they have the benefit of bringing a potentially larger revenue stream into the site owner if the correct fit is available.

If all that revenue grows substantial the time may eventually come to sell..., but that is another topic for another day.

Sales Strategy...Solutions v. Products

2010-08-13T06:15:00.000-07:00

I see a lot of startups and more seasoned companies that are trying to cold sell their product. Cold selling a product is hard.

What I mean by cold selling is that they have a product (could be a service too) they like/love and they think just about everyone else will too, if they knew about it. This attitude is often characterized by statements like:

- "Everyone is a potential customer"
- "Sales are not a problem if I just had some more money"
- "I'm not worried about sales"

****Newsflash - Everyone should be worried about sales...it is the lifeblood of the company****

And there is help available.

Sales are indeed a process. In fact there are any number of websites that will be happy to show them to you. One simple flowchart is from www.better-sales-and-selling.com :

This type of chart is a good start toward a real sales strategy because it is simple enough to be flexible for a variety of companies, but segmented enough to build a legitimate strategy outline.

Each step in the process should have a defined solution and in really great sales organizations there are numerous solutions to each step.

Nonetheless, the heart of the process will almost always be the solution. The solution has to have a compelling value proposition to the customer, or inertia and the noise of life/business will makes sales much more difficult. If a company has a solution with a compelling value proposition then most of the remaining process is simply communication.

To validate or formulate a value proposition is critical and there are also any number of websites that will talk about that process as well. Blue Ocean Strategy is probably my favorite, but the simplest one is something I have heard many times around the house:

1. The easiest thing to sell is something that "makes" money,
2. the next easiest thing to sell is something that "saves" money, and
3. the hardest thing to sell is something that "cost" money.

Whatever they choose to use, if a company wants to have better sales, they probably need to look at their overall sales strategy because it can (and usually will) drive the success of a company.

Is a Company ready to think about outside investment....?

2010-08-11T15:05:00.000-07:00

"Sequence of Blue Ocean Strategy" is pretty much a summary of the initial evaluation of an angel deal... www.blueoceanstrategy.com/abo/sequence.html

1. Product/Service has Significant Value/Utility to the User
2. Compelling Price
3. Appropriate Cost of Production (i.e. good margins at the compelling price)
4. Reasonable Adoption Plan

At least self certifying (if not certification by a relevant 3rd party) that a deal passes well through this evaluation should probably be a requirement for beginning any fundraising effort.

Recap - Birmingham Angel Network meeting last night

2010-07-23T09:53:00.000-07:00

We had a smaller (typical for summer) but very engaged crowd last night to hear our two presenters, Transaction Tree and YouthMinistry 360.

Jason Shapiro with Transaction Tree engaged the crowd with a lively discussion on POS systems, e-receipts and the direction of commerce in the digital age. Les Bradford and Andy Blanks of YouthMinistry 360 then gave an inspiring discussion about youth ministry and working with teens and those supporting them.

All in all it was a fun night and a good time was had by everyone. For those that couldn't make it we would love to see you at the next BAN event and we certainly expect to hear more from our presenters as they grow into the future.

www.birminghamangels.com

Birmingham Angel Network meeting next Thursday night (6-8pm).

2010-07-13T09:22:00.000-07:00

Birmingham Angel Network meeting next Thursday night (6-8pm) at Innovation Depot.

We will be having a couple of company presentations and it should be a typical slower and more relaxed summertime meeting, so a great time to bring a guest.

www.birminghamangels.com

See you there.

Baseball and Investing

2010-07-06T09:57:00.000-07:00

Growing up with a dad that played a lot of baseball, many of the advice I heard around the dinner table related to the strategy of the diamond.

Particularly, I think about frequent advice to focus on the fundamentals while hitting singles and letting the home runs happen. Great advice for a young man that had (maybe, "has") a talent for sometimes biting of more than he could chew.

But the thing I was thinking about this weekend was the mystery of a streak. You know, "don't mess with a man on a streak" and all of the hocus pocus that makes for so much fun on the outside looking in.

I think deals may be somewhat like baseball streaks (and maybe home runs too). I never really know what trigger gets a deal on a hot streak, but I sure don't want to touch them too much when they are on one.

I wonder if it would help to suggest wearing lucky socks too.

What do Angels want to see?

2010-07-01T21:44:00.000-07:00

Angel investors should want to work with entrepreneurs that (1) value their investment even more than they do and (2) are fanatical about the product or service...but social intelligence is huge too.

Social intelligence makes almost all of the many tough things about starting a new business easier...marketing, sales, HR, customer complaints, negotiations, investor relations and the list goes on.

Unfortunately, it is the lack of social intelligence that makes many brilliant and creative people a terrible fit to lead a new venture. That doesn't mean those people can't be involved at all, but the overall leadership needs to be good with people.

So if you are an odd duck, be honest with yourself about it and try to partner with someone that can be a great face of the company or you may be fighting a long battle.

Basic steps for raising capital (BAN or otherwise)

2010-06-16T21:34:00.000-07:00

1. Does the business idea/opportunity make sense?
2. What are the initial deal terms?
3. Who are the 1-3 lead investors?
4. Due diligence review
5. Revise the terms per the negotiations with lead investors
6. Begin roadshow process with other investors
7. Open escrow
8. Break escrow when the minimum is raised and continue the roadshow until the offer is full

This seems to be the most consistent process and deals that have tried to skip steps tend to have a hard time.

This is a peculiar political year, even for Alabama...

2010-05-29T21:19:00.000-07:00

This is a good start on explaining why I (and almost everyone I know) are completely frustrated by our political system at the moment.

This has been a peculiar political year, even for Alabama. James’s biggest opponent, Bradley Byrne, was attacked by a group called True Republican PAC, which ran an ad charging that Byrne supported the teaching of evolution.

Byrne, who has multiple degrees and was chancellor of the state community college system, indignantly denied the charges.

But wait, there’s more. It turns out that True Republican PAC was bankrolled by the state teachers’ union, which is angry at Byrne for trying to ban teachers from holding second jobs as state legislators. The Alabama Education Association apparently felt a good payback would be to spend $500,000 on a group that encourages people to vote against any candidate who believes there is a scientific explanation for the origin of life.

NY Times OpEd - Alabama Goes Viral

Birmingham Angel Network - May Meeting next Thursday, the 27th

2010-05-19T09:31:00.000-07:00

Brief reminder that the Birmingham Angel Network meeting will be next Thursday evening on the 27th at Innovation Depot. www.birminghamangels.com

We will be hearing from at least one project currently in the roadshow phase and may have one more depending on how fast a couple of items can get finished, otherwise they will be back in the next cycle.

Please feel free to bring a friend and check out the festivities.

Death of Trust...Sex, Money and Abuse of Power (Part Two)

2010-04-30T23:25:00.000-07:00

Last week we discussed some of the negative effects of a loss of trust, but the big question remains...what do we do?

There are a number of options:
1. Structural reforms - policies, procedures, etc.
Certainly, these are useful tools to prosecute the bad actors, but shouldn't we (and our leaders) hope to strive for a higher standard than simply the minimum required to avoid rebuke?

2. Oversight (internal and external)
*Peter Eigen believes that the best way to root out corruption is to make it known. Ted.com = Peter Eigen "How to expose the corrupt"
Again, internal and external oversight are great tools to root out the bad actors and even may carry significant incentive/disincentive value.

However, I'm not sure we can create enough external controls or even enough 3rd party incentives to materially change average behavior.

I have heard it said that "we get the government we deserve." I think there is a lot to be said for that because politicians and leaders are a part of the community that elects them, so they should represent many of the traits found in the electorate. Therefore, if we want our leaders to have integrity then integrity has to become something valuable to the electorate and each person has to work toward increasing their own standards of behavior. And this leads to #3.

3. Personal Integrity
http://www.ehow.com/how_4746291_restore-integrity-personal-work-life.html -

Integrity starts from within. If we are to have integrity in every day life, we must first master it within our minds. Each and every day, we wake up and begin the day long process of running thoughts, conversations and questions in our minds. In total, it's been estimated that we have 65,000 thoughts every day. Have you ever given thought to your thoughts? What do you think about in a given day and are most of your thoughts of a positive nature? Are they meaningful and productive? How much of your thoughts are negative? What thoughts do you act on?

Negative thoughts are often expressed as complaints. People who complain also tend to make their grumblings known to other people who have no part in a positive and productive solution. People complain about their parents to their siblings, about their bosses to their co-workers, about their husbands, wives or significant others to their friends. They even complain about strangers to other strangers. Complaints are common, often in the absence of a solution to the issue or problem that sparked the complaint. But, if negative thoughts and complaints continue with no mediation or solution, they can manifest into self-destructive or aggressive behavior. Addiction, divorce, aggression, job loss, depression, misery; these are consequences of not having the maturity, responsibility and integrity to manage negative thoughts and difficult situations properly and act on a productive solution. I've read that if you aren't living with integrity, then your priorities, goals and values become sacrificed and you begin to attract people that make you feel bad

Interestingly, people with integrity don't complain much. People with integrity have the maturity to address their issues with the right people. They take responsibility to seek and take action toward solutions to their problems. They do what they say they will do. They have the willingness to create a plan (work and/or personal) and follow it through.

People with integrity are successful because they take control over their negative thoughts and replace them with productive, positive thoughts that manifest into great and powerful actions. If you identify yourself as a complainer, but want to change, you can. It is possible to restore your integrity

Maybe the ehow.com version is the way to do it, maybe another. Either way it is essential that we try.

I know it may sound hokey, but skepticism that runs rampant because of a loss of personal honor can rob societies of their very future. Therefore, it is in each citizen's best interest (and should be our responsibility) to make sure that we are doing what is right and true, so that standard of action may become expected of everyone again.

Thanks for your time and I hope this hasn't been too preachy, but I also hope it resonates, at least a little.

Best of luck on your journey, be good.

Death of Trust...Sex, Money and Abuse of Power (Part One)

2010-04-19T21:46:00.000-07:00

Watergate, Monica Lewinsky, ABSCAM, Jack Abramoff, Iran Contra, Keating Five, Rod Blagojevich, Elliot Spitzer...Don Siegelman, Richard Scrushy, Bill Blount and Larry Langford.

Is there any question why many citizens have lost faith in the American political leadership? And that is only a glimpse of U.S. politics, unfortunately private industry and international leadership are even more scandalous.

So, why should we really care? Isn't this just good news foder for TMZ? Not if you ask anyone currently looking for a job or that is a victim of crime or simply anyone that tries to do things the right way for that matter. Furthermore, we should care because these are our leaders and they are supposed to exemplify the best we have to offer, not act like a common street thugs just looking for a score.

Empirically speaking, the results of this behavior leads to all manner of negative public effects, including but not limited to: higher transaction costs, undercut free market competition, hampered overall systemic efficiency, inefficient allocation of resources and a general sapping confidence in the political system which leads to higher risks and thus increases required potential returns for an enterprise to be viable.

Ok, so maybe it hampers the economy a bit...still so what? It's more than a bit, according to the University of Connecticut the economic impact of political corruption is significantly greater than that of the tax environment. So, we can cut taxes, provide incentives, etc., but it still won't overcome the negative impacts if our elected officials aren't following the rules.

And that is just the economic risk...Michael Spencer speaking at TED 2010 warned of the social and medical dangers caused by a lack of confidence in our leadership. (See: "The danger of science denial" Feb 2010)

If you are beginning to be convinced that ethics are important you may be asking how we begin to solve this issue and increase the likelihood that our public officials will act honorably.

If so, check back next week for Part 2.

Things that I think are worth reading and knowing.

2010-04-09T15:02:00.000-07:00

Occasionally I run across things that I like or think are useful and they may or may not be related to a particular topic, but I like to share so here are a few.

1. The details behind why investors consider being an angel investor...and what entrepreneurs should know if they are going to try and become one too.
Important Things for
Entrepreneurs to Know
about Angel Investors

2. The Angel Capital Association has a research section (including the item above) with a ton of good information.

3. I think handling mail is a hassle so...Earth Class Mail , although some of the reviews give me a rather large pause, but maybe Zumbox.com is the answer. In any case, these are cool ideas and I would love one to work out.

4. Along the same lines as above, I also think paying bills is a hassle so...PayTrust (made by Intuit but 1/5 the cost of Quicken bill pay).

5. Also, while working on this post, I ran across a big list of "Top Web Apps" that has some of my favorites and I intend to try some of the others too.

Be good.

One step forward and two steps back, Senator Dodd's Reform Bill does not attract

2010-04-02T08:08:00.000-07:00

With all due respect to Paula Abdul and Cool Cat, I am not a fan of progress by way of "one step forward and two steps back."

The last couple of years we have seen unprecedented amounts spent to try and stabilize, then invigorate the national economy. TARP added $700 billion into our financial system and the Recovery Act added another $787 billion into tax benefits; contracts, grants and loans; and entitlements.

These measures may have had varying or arguable results, but they were extraordinary measures by any standard and we have started to see signs of a recovery.

It would seem that right now would be the time to nurture our fledgling recovery and make every attempt to ensure that it takes hold. In fact, I have written about and applauded some states' attempts to continue to foster new businesses by creating angel investment tax credit bills and we all probably hear many other programs to create jobs, etc. all the time.

Unfortunately, like a weed in the garden comes Senators Dodd's bill making it even harder to start a new company and specifically taking aim at the ones best positioned to grow into big companies. Provisions such as:

1. one that would require startups raising funding to register with the Securities and Exchange Commission, and then wait 120 days for the SEC to review their filing.
2. a second provision raises the wealth requirements for an “accredited investor” who can invest in startups — if the bill passes, investors would need assets of more than $2.3 million (up from $1 million) or income of more than $450,000 (up from $200,000), and
3. the third restriction removes the federal pre-emption allowing angel and venture financing in the United States to follow federal regulations, rather than face different rules between states.

And despite an outcry heard all over the nation, from both liberals and conservatives, there has as of yet been no movement on the language or provisions and only a minor acknowledgment of the criticism.

This is a big deal...and Senator Dodd needs to hear about it until it gets fixed.

Busy Thursday

2010-03-25T07:56:00.000-07:00

This may be one of the more group meeting packed days I have had in a while.

1. MS Society - Leadership 2010 group breakfast at 7am
2. Birmingham Venture Club meeting at lunch
3. Cuestion Tequila "Meet and Greet" at 5pm
4. Birmingham Angel Network meeting at 6pm

That is a full day for me, but it is exciting to have a lot going on.

If you are going to be at any of these, please drop by and say hello.

Letter to Senator Shelby

2010-03-18T19:30:00.000-07:00

Senator Shelby,

I would like to express serious concerns relative to Senator Dodd's regulatory reform bill, specifically the provisions in Section 926, entitled "Authority of State Regulators Over Regulation D Offerings" (pages 816-819).

I am the Executive Director of the Birmingham Angel Network, Birmingham's only Angel Capital Association chapter, and we are working very hard to increase the availability of angel capital to high growth start-ups in Alabama. These efforts even include the widely supported idea of creating a state tax credit for qualified angel investments. Unfortunately, increasing regulation requirements and increasing the standards for qualified investors will only make that goal harder to achieve, in a time when our state and national leaders need to be doing all they can to promote the creation and growth of new businesses.

While there are certainly reforms that are necessary and should be supported, these provisions will simply impede vitally needed areas of economic growth and we would ask that they be removed from the bill.

Sincerely,
Joshua Watkins
Executive Director
Birmingham Angel Network, LLC

Instead of Dodd's overhaul, why not start with repealing GLBA

2010-03-15T20:12:00.000-07:00

Citigroup and the other mega banks started "too big to fail" in 1999.

Don't believe it. That was when the Gramm-Leach-Bliley Act (GLBA) was passed, after decades of lobbying by some of the largest financial institutions. It repealed part of the Glass-Steagall Act of 1933, thereby opening up the market for mergers among banks, brokerage firms and insurance companies.

The Glass-Steagall Act had previously prohibited any one institution from acting as any combination of an investment bank, a commercial bank, or an insurance company and had been working fairly effectively since the great depression by segregate essential banking functions and preventing "too big to fail" or the related systemic risk.

The history on GLBA (according to Wikipedia) is pretty bad, especially given the results, and it should have been forseen:

"Prior to the Act, most financial services companies were already offering both saving and investment opportunities to their customers. On the retail/consumer side, a bank called Norwest which would later merge with Wells Fargo Bank led the charge in offering all types of financial services products in 1986. American Express attempted to own almost every field of financial business (although there was little synergy among them).

Things culminated in 1998 when Citibank, merged with Travelers Insurance creating CitiCorp, the largest and the most profitable company in the world. The merger violated the Bank Holding Company Act (BHCA), but Citibank was given a two-year forbearance that was based on an assumption that they would be able to force a change in the law. The Gramm-Leach-Bliley Act passed in November 1999, repealing the BHCA and portions of the Glass-Steagall Act, allowing banks, brokerages, and insurance companies to merge, thus making the Citigroup/Traveler Group merger legal."

So, rather than creating an even bigger mess with a "systemic overhaul," why not just start by repealing the ill conceived legislation (GLBA) that got the "too big to fail" ball rolling in the first place.

Of course that won't happen because creating huge new legislation and ramming it through under threat of dire consequences is too big of an opportunity to shift the playing field for any legislator to pass up.

Citique/Analysis of Georgia Jobs Bill of 2010 (HB 1023)

2010-03-14T13:31:00.000-07:00

I have had several people ask about the Georgia Angel Tax Credit bill since the BBJ article, so I thought this was as good of a place as any to cover it.

Georgia HB 1023 - Jobs, Opportunity, and Business Success Act of 2010 also known as the Jobs Bill of 2010 is designed to use tax credits, cuts and incentives to create, expand and attract new businesses. The bill has several parts, namely:

1. Creation of the “Year for Georgia Entrepreneurs”: Allows Georgians the opportunity to start a new business with no state fees.

2. “Angel Investor” Tax Credit: An income tax credit of up to 50% of an investment made in small or start up businesses with 20 or fewer employees. The income tax credit would be available 2 years from the date of investment. The total “Angel Investor” tax credit pool would be limited to $10 Million per year (adjusted for inflation) and dispensed on a first come-first served basis.

3. Quarterly Credit Towards Unemployment Insurance Tax: For each eligible employee hired who is receiving State Unemployment benefits, a company will receive a $25-125 quarterly credit towards their unemployment tax.

4. $2,400 Tax Credit for the Hiring of the Most Difficult to Employ: Any Georgia company which hires a person, in a net new job, who has been eligible to receive unemployment benefits for at least 13 weeks, can receive a tax credit of $2,400 after 24 months of consecutive employment.

5. Elimination of the Net Worth Tax: The net worth or intangible tax (held over from a 1930’s law and only retained by a handful of states) that taxes wealth accumulation is eliminated.

6. A Triggered 50 Percent Reduction of the Capital Gains Tax for all Georgia Taxpayers: Georgia currently has the 15th highest Capital Gains tax in the country and the 2nd highest in the Southeast, with two neighboring states at 0%.

My Thoughts -

I like the elimination of the state fees for creation of an entity, that is a small hurdle, but can be a big deal to small businesses and I think most businesses would be better served in a liability limiting entity rather than as a sole proprietorship.

I would like to see some narrowing of the "qualifying business" definition for purposes of the angel tax credit, mainly to include some version of a related party exclusion. Otherwise, I think it is at serious risk of being somewhat wasted and used in intra-family gifting/estate planning strategies.

Also, the new jobs creation/hiring credit is probably a bit ill conceived, since I doubt many small businesses will let a $2400 tax credit (or similar stipends) drive hiring decisions.

Overall though, Alabama could well use a similar bill and it takes guts to make a proposal (any proposal) because it is some much easier to sit on the sidelines and complain. We should support those that are trying to come up with good solutions and applaud those efforts.

Startup Digest....getting Birmingham on the list

2010-03-03T13:28:00.000-08:00

In a post on Venture Hacks today, Nivi mentioned Startup Digest (link) as a place to see what events are going on in the startup world. Being interested in staying plugged in, etc. I checked out the list and (probably not surprisingly) Atlanta is about the only southern city even on the list.

Birmingham certainly has plenty of startup related events and several startup related entities, so maybe as we grow the profile of our local community we can become more of a player in the national scene.

National Multiple Sclerosis Society - Please help by making a donation - large or small - to fight MS.

2010-02-25T12:31:00.000-08:00

Dear Friends and Family,

I have been selected by the National Multiple Sclerosis Society to become a member of the Birmingham MS Leadership Class of 2010, a group of Birmingham area professionals who have made an outstanding contribution to the business, civic and cultural betterment of our community. With this honor, I have accepted the responsibility of raising money to support the programs of the Alabama Chapter of the National Multiple Sclerosis Society. I have a very ambitious personal goal of $2500.00 that I want to raise for the MS cause. Please help by making a donation - large or small - to fight MS.

The National Multiple Sclerosis Society is the only national voluntary health agency in the United States supporting worldwide research to find the cause of, a cure for, and the means to prevent multiple sclerosis. The Society invests more money in MS research than any other private funder in the world. This investment is paying off as we now have six treatments to help slow the course of this unpredictable disease. Locally the Alabama chapter provides vital programs and services to over 4,000 persons living with the challenges of MS and their families.

Whatever you can give will help! Together we can make a world of difference.

Sincerely,
Josh

Click here to get to my personal page and make a secure, online donation.

To send a donation: Make all checks payable to: National MS Society Mail to: Josh Watkins 2000 Southbridge Pkwy. #500 Feld Hyde Wertheimer Bryant & Stone PC Birmingham, AL 35209-1303.

Early and ongoing treatment with an FDA-approved therapy can make a difference for people with multiple sclerosis. Learn about your options by talking to your health care professional and contacting the National MS Society at http://www.nationalmssociety.org/ or 1-800-344-4867.

Pigs get fat and hogs get slaughtered...

2010-02-24T14:27:00.000-08:00

I'm not sure who first used that expression with me, but it is one I have used a lot lately, especially when asked about our state bingo fiasco.

Why would anyone care what I think about bingo...because in a strange twist of fate, this Southern Baptist political moderate has been engaged to work with a couple of different bingo owners on some tax issues. I can assure you that when I was in law school dreaming of one day being a big time corporate lawyer, I never imagined it would in any way involve me in the showdown between Milton and Bob.

Nonetheless, taxes are a tool of the state and here I am.

So, you ask, what is the deal down in Montgomery and what does it have to do with swine? (insert a big grin)

The specific reason I use that phrase has to do with the bingo bill currently being proposed by the Sweet Home Alabama group. For some reason, probably having too much to do with hubris and ego, the big bingo players took a lot of public sympathy and support due to job losses, etc. and rather than simply saying "Fine, if the governor thinks the old Constitutional amendments don't cover electronic bingo, let the individual counties vote on new amendments that would be more clear." That would have a lot of sense and probably been hard to oppose. But nooooo, they had to swing for the fences and try to get a state approved monopoly out of the deal instead and in the process they may end up wasting all their public support.

So, there you go, pigs get fat and hogs get slaughtered.

The time may be NOW for Alabama to become a new economy leader

2010-02-18T08:10:00.000-08:00

Interesting timing of my last post. The 2010 Silicon Valley Index was just released and already national publications are pointing to it's rather shocking reference of Huntsville, Alabama as a potential competitor to Silicon Valley, due to Huntsville's strong position in Federal procurement.

See: Business Week and Wall Street Journal Articles

Of course, that bold prediction can not come to significant fruition unless Alabama takes a more proactive role in understanding the oportunity that is available and providing appropriate resources and support.

Some of the challenges include:

1. Shortage of seed/startup stage funding
2. Lack of a large local biotech company to commercialize local medical university innovations
3. Connecting the managerial and innovation talent to the opportunities
4. National perception

There are certainly more challenges than those above, but those are some of the big ones. But, they are not insurmountable if our local and state leaders (both public and private) really want to tackle the issues that can help drive Alabama forward.

Time for an Alabama Angel Investor Tax Credit and maybe more

2010-02-17T15:59:00.000-08:00

Alabama's economy ranked dead last in Economic Dynamism according to the 2009 Astra report. That rank was not much better in the other entreprenurial indicators. This is despite ranking 21st in Federal R&D expenditures at colleges and universities.

To be sure Alabama has made some significant strides in economic development. The auto industry has certainly been a good catch for Alabama's EDO.

Also, in February 2004, the Alabama Certified Capital Company Program (CAPCO) created six new private equity funds. As a result, Alabama had $100 Million in new private equity dollars spread between six funds which range in size from $11 to $20 million each. Then, in 2008, an additional $100 Million in private equity dollars spread between six funds became available. The result was $200 Million of new venture capital available to qualified businesses.

Why then, in a state that contains some leading science and technology universities, aren’t new innovative technology companies springing up at the pace of other states? It’s because the new companies can’t find seed capital investors the way they can in other states. Without seed capital for high growth startups, there are very few later stage high growth startups that can make use of the CAPCO investments. The recent economic meltdown in the banking industry has only intensified this investment gap, as investment firms that used to look at earlier stage companies can now look at more established deals because traditional bank financing is not readily available.

Some 20 or so states have already seen the need to encourage investors to fill this investment gap. Those are many states where the government offers an Angel Investor Tax Credit — a tax credit that is given to people who invest in small but emerging companies.

Minnesota is trying to pass a Angel Tax Credit (Link)
ACA study on Investor Tax Credits (Link)

If Alabama legislators want to really do something to encourage good organic economic growth in our state, they should look at what other forward looking state's are doing and provide some encouragement for our local investors to put their invesment dollars to work at home.

Time to look outside of Wallstreet. Local startup capital wanted...and needed.

2010-02-15T10:59:00.000-08:00

According to MoneyTree (report link) we only had three Alabama companies participate in venture capital rounds during the 4th quarter of 2009.

Atherotech, Inc. Southeast AL
Halo Monitoring, Inc. Southeast AL
Silver Leaf Capital LLC Southeast AL

Of course, the MoneyTree report is widely known to be under reported in Alabama, but that is still an absurdly low number. If Alabama is going to pull it self up by it's bootstraps and "refuse to participate in the recession" then we are going to need a much higher VC and similar participation than 12 companies a year.

Let's do the math for a minute. According to the 2007 Kauffman Foundation study on returns (study link), "angel investors participating in organized angel groups achieved an average 27 percent internal rate of return on their investments" however the study also confirmed the conventional wisdom that the majority of those returns were produced by a small percentage of the portfolio. In the study, "the top 10 percent of exits account for 75 percent of the total cash returns in the sample." That means that at the MoneyTree reported rate, Alabama is barely investing in enough companies to consistently produce one significant success a year...for the whole state. No wonder supporting and using venture backed startups to impact the local economy isn't really viewed as a viable economic growth strategy.

But it is...

There are numerous examples of other regions that actively use high growth startups to energize the local economy and are all the better for it...Silicon Valley, NY, Austin, NC Research Triangle and even Nashville.

The strangest thing to me is that I get the feeling that many of our potential local investors think that startup investing is something that is done by "those other people, over there" or that establishing success startups can't be done here or is something akin to gambling. Of course, many of those same people have no problem at all putting money into a fund managed a thousand miles away, by a person they will never meet, to invest in companies they personally may know little or nothing about. And those returns have been dismal for a decade.

Now, I'm not advocating taking all your money out of the NYSE and putting it into some random local startup all by yourself, but for those that have the ability to diversify into some non-traditional investments...why not participate in a local invesment club (see: ACA or Birmingham Angel Network) and use some of that capital to do some good in your local economy, you just may end up finding some higher returns?

Two Alabama Teams in the Running for Global Venture Challenge 2010

2010-02-10T16:20:00.000-08:00

Teams from both UA and UAH have been selected to advance to the semi-final round of the 2010 Global Venture Challenge hosted March 25-26 by the Department of Energy's Oak Ridge National Laboratory. (Link)

What a great showing by teams from two of our local universities. These are the kind of achievements we need to support and applaud.

According to the website:

"Global Venture challenge is an educational competition featuring entrepreneurial and technology-based business proposals presented by graduate student teams from around the world.

The teams will be judged by panels of energy executives, venture capitalists, technologists, entrepreneurs and legal experts. The winning team will receive $25,000."

Glenn Kinstler and Alabama Launchpad have done a wonderful job putting a spotlight on technology entrepreneurship in our state universities, but we can always stand to see success in national forums as well.

Good job.

Facebook and Private Placements...is Facebook "public"?

2010-02-04T22:17:00.000-08:00

Like many of my generation, I have a Facebook page, LinkedIn profile and a (rarely used) Twitter account. Since I work almost all the time, those sites have become an admittedly limited, but important, connection to my new and old non-work friends and I even have a lot of work friends that stay in touch there as well.

Being a budding workaholic, I have made some efforts to integrate my business life into my online social network, with a LinkedIn and Facebook page for our local ACA chapter (BirminghamAngels.com) that I am directing and I have a RSS feed from this blog for them all too.

Still, it seems like I could use the power of social networking better...not just for R&R, but for business too.

In brainstorming that for a while and searching on the web a bit, I ran across an article touting social networking with shareholders (E-Commerce news) and I began to think about how we could use our investment club and social networking better.

The idea seems to work well as an experiment in social workflow, a concept I vaguely understand, but being worked on locally by George Barckley (myWorkAlert and Kreatek).

The concept I had was to use our Angel Network LinkedIn and FaceBook pages to announce and update the progess of new private placements. Kind of like the recently announced AngelList. Sounds great huh...unfortunately, almost all of the securities registration exemptions also prohibit "general solicitation."

Now, I can certainly see a great argument for claiming that a Facebook/LinkedIn page is not "public" because a user has to actively join the group to be a member. On the other hand, almost anyone (in any state/location) with an internet connection can join a group, so they are not exactly private either.

The reality is that I probably won't push the envelope right away, but at some point the law is going to have to accomodate Web 2.0 with some additional clarity. Until then, I guess we will still have to use more traditional communication methods.

Bold Smurf...and other interesting investments.

2010-01-29T14:47:00.000-08:00

I read an article today in the Financial Times (Article Link) that reminded me of something that I think can be forgotten about angel investing...it can and should be fun!

And over the course of my (relatively young) life, some of my favorite family stories revolve around investments. There was the plucky race horse "Bold Smurf" (a purported descendant of Secretariat), the short lived Nascar race team that came along with another deal (it had a pink car and at about 10 or 12 years old, I was embarrassed to tell anyone about it) and this list goes on.

Of course we have now entered the age of the nerd (a term I may resemble), the internet and Web 2.0 etc., but just because some of the investments may have changed, they should still be fun. After all, if you can't smile about it, then it probably isn't worth doing.

Lack of Revenue will Kill your Company

2010-01-24T06:12:00.000-08:00

My dad once told me that the biggest hurdle that many companies face is the failure to be profitable. I would completely agree.

After my last post on Minimum Functional Units, I would suggest that the failure to be profitable causes much of the scope creep that many startups and small businesses experience. The appeal is understandable..."I'm not making enough with service A, so let's add another service."

Unfortunately, scope creep dilutes the marketing message and spreads sales resources even thinner. Often the result is that owners end up overwhelmed with work and without much result, so they go out of business.

A much better outcome can be achieved if the company can stick with the original offering,focus on getting the MFU cashflow positive then scaling.

Of course, some MFUs just don't cashflow and in that case owners are much better off with a small failure than if they have tried to build a diversified structure on a faulty foundation.

What is a minimum functional unit and why should I care?

2010-01-22T19:37:00.000-08:00

I'm not certain where I first ran across the concept of a "Minimum Functional Unit", it was probably is a software engineering book or maybe in a biology blog. Basically, the concept for a business refers to the simplest revenue producing activity that may be sustained in a given market space.

Wherever it initially came from, I have certainly jumped on the bandwagon, at least as it relates to start-ups.

You ask, "Why is it such a great concept for start-ups?" Because most entepreneurs have ADD. Most are creative, go-getters with an abundance of energy. Unfortunately, many have a really nasty habit of starting projects, getting a feel for the major issues, then getting bored or distracted by some new project.

Getting distracted and losing focus for a start-up can mean death because there isn't enough time or money to get everything done anyway, so success depends on focusing all available resources on the highest impact activities.

Additionally, focusing on a core activity and doing it great simplifies almost everything else.

Once that minimum functional unit is operational, the goal is to continue systematizing and perfecting the unit, it is also time to consider scaling the business, which is where a small business starts toward becoming a big business.

So...what is on tap for 2010?

2010-01-21T19:54:00.000-08:00

Almost every project I had (or heard about), across multiple industries, had to trudge for most of 2009. Amazingly, a few of our portfolio companies that boot strapped like crazy are poised for launch in the first quarter of 2010, including:

a Premium Tequila Importer,
a Wide Area Wifi company, and
a Web Asset Integration Interface service.

There are a few more that are hanging around and could get into the starting gate if a few things break the right way.

Of course, I know that eventually some are going to have to raise some capital, but it has been impressive to see how far creativity and determination can take a company.

Interesting Post by Brad Feld on the Future of Human Computer Interaction

2010-01-18T14:38:00.001-08:00

Brad's post is particularly interesting because we have some companies in Birmingham that are working on some of these very issues and it will be really fascinating to see which solutions and competing technologies end up taking hold.

Speech Recognition Is Only Part of the Future - Brad Feld

"A week or so ago, Fred Wilson Dictated a Blog Post. In it he dictated a blog post on his Nexus One phone. He then discovered Swype which now has an unofficial Android app. As usual the comment threads on AVC were very active and had lots of thoughts about the future (and past) of voice and keyboard input.

When I talk about Human Computer Interaction, I regularly say that “in 20 years from now, we will look back on the mouse and keyboard as input devices the same way we currently look back on punch cards.”

While I don’t have a problem with mice and keyboards, I think we are locked into a totally sucky paradigm. The whole idea of having a software QWERTY keyboard on an iPhone amuses me to no end. Yeah – I’ve taught myself to type pretty quickly on it but when I think of the information I’m trying to get into the phone, typing seems so totally outmoded.

Last year at CES “gestural input” was all the rage in the major CE booths (Sony, Samsung, LG, Panasonic, …). In CES speak, this was primarily things like “changing the channel on a TV using a gesture”. This year the silly basic gesture crap was gone and replaced with IP everywhere (very important in my mind) and 3D (very cute, but not important). And elsewhere there was plenty of 2D multitouch, most notably front and center in the Microsoft and Intel booths. I didn’t see much speech and I saw very little 3D UI stuff – one exception was the Sony booth where our portfolio company Organic Motion had a last minute installation that Sony wanted that showed off markerless 3D motion capture.

So – while speech and 2D multitouch are going to be an important part of all of this, it’s a tiny part. If you want to envision what things could be like a decade from now, read Daniel Suarez’s incredible books Daemon and Freedom (TM)"

Full Post - Click Here

Surfing the Digital Wave...Birmingham on the Board

2010-01-04T14:15:00.000-08:00

If you sometime wonder where we may be headed with all of the technology advances that are being made, these links may give some insight.

The Future Internet: Service Web 3.0

Bionic Software

With that as a backdrop, I think it is worth noting that we have a lot of activity in our region, and in Birmingham specifically, related to Web 3.0 and the like. This wave of development includes hardware, software and all manner of industry specific applications.

I would love to see this area take advantage of the democratization of the start-up ecosystem that ubiquitous internet is bringing to fruition and there is already some real momentum.

Over the coming months, there are a number of projects that look like they could pop and probably a good many more that I have yet to hear about. It is an exciting time and one that most Alabamians are highly unaware of, but it has the potential to really shake things up.

Stay tuned...it should be a lot of fun.

Welcome to the future - 2010

2010-01-03T12:14:00.000-08:00

After another full year in the books, it seems proper to recap just a bit and look forward to the year ahead.

2009 was a tough year for the world and US economies, wall street, main street and many personal pocketbooks. Yet, despite the headwinds, we have continued to see the entrepreneurial spirit push forward and seek out opportunities for success.

As we head into 2010, I see a number of groups poised to take advantage of their hard work during the broader turmoil. Some of these are raising capital and some are commercializing, but the opportunities for success are clearly still available.

What trends are we seeing now:

1. Web 2.0 progressing into bionic software
2. Seamless integration of digital technology
3. Globalized opportunities

Probably the biggest trend seems to be the merger of trends together into a broader digital innovation wave.

It also seems to me that we have a rather fortunate circumstance for innovation because at a time that outside investment is more difficult, the internet and digital resources are making it easier to bring innovation to a broad audience. This also has the benefit of decentralizing innovation and adding real opportunity for regions, such as the southeastern US, that have not historically participated in the US innovation economy.

Of course we still have headwinds, but opportunities abound for those that persevere and stay focused on bringing real value to the consumer.

Now go build something.

Indie Candy Grand Opening

2009-12-11T08:33:00.000-08:00

Please join us for the Grand Opening of my big sister's new store:

INDIE Candy
in Crestline Village
Friday 12/11/09
2:30-5:30

Hot Chocolate, Free samples, Gummie Bingo
(and a special appearance by the Rockettes!)
4:00 Ribbon Cutting with Mayor Oden
73 Church Street

INDIE Candy (IndieCandy.com) is an All Natural Candy store specializing in delicious nut-free, gluten-free and allergen-free sweets! Handmade artisan gummies and marsmallows drizzled with chocolate and we also feature organic candy, nut-free chocolates, lollipops, candy canes and custom gift baskets.

2009-10-30T13:29:00.000-07:00

BAN Letter:

BAN,

I want to take a minute to thank our BAN sponsors, to everyone who helped out and to those who attended last night's meeting. It was definitely the best yet.

We had well over 20 in attendance with both Facilitaire and Tattoo Armor presenting and we had an active Q&A period for both. The webcast even seemed to work with only minor hiccups, thanks to a lot of help from Katie. For members that were not able to attend I will be sending out a link to the webcast recording along with rating sheets in a short bit.

I have briefly reviewed the rating sheets from last nights attendees and it clearly shows we had an engaged group with some insightful review that I think will be instructive to both members and companies alike. *(I will be compiling those and sending out a summary once the non-attending members get a chance to review.)

On a membership note, we picked up some excellent new members as well and look forward to their participation. For visitors that didn't get a chance to grab an application, I have one attached as well.

Thanks again to all who helped out and I look forward to seeing you all soon.

This email sent to the attendees and members following the BAN presentation meeting last night...it truly was a very good meeting and I am really proud of our group.

Following up with some prior BAN presenters (Loco-X and Motus)

2009-10-12T15:23:00.001-07:00

It's always fun to watch these new companies as they grow and mature. Since we see them so early at BAN, I usually feel pretty paternal and can't help but root them on as they strive for success.

With that in mind, I thought it would be fun to update you all on some of our prior presenters and what they are up to now.

Loco-X (parent and owner of Locomx.com) principals David Scilabro and Greg Brock came down last quarter as the first of (hopefully) many syndicated deals from our sister angel groups in the state. Specifically, Loco-X came from Huntsville as a part of their tour of the state's angel groups. Since that time Loco-X has almost finished there current capital raise, including some of our BAN members, (apparently they are open for about two more weeks) all while working hard to grow their core business and it looks like it is paying off. Dave says Loco-X is ahead of schedule this year and is planning, in about two weeks, to move into their new 50,000 square foot facility in preparation for launching a sister site before Thanksgiving.

Another fairly recent BAN presenter, Motus Motorcycles (www.motusmotorcycles.com), publicly announced a partnership with Pratt & Miller Engineering "to develop a revolutionary sport touring motorcycle." An announcement which has already garnered international attention from the likes of Motorcyclenews.com in their September Issue. (Click link).

Not bad for a couple of little startups from Alabama and I can't wait to see where they go from here.

Birmingham Angel Network Selects 5 for Presentation Pool

2009-09-30T07:45:00.000-07:00

Last week the Birmingham Angel Network had our 3rd Quarter screening meeting along with this months Birmingham Entrepreneur meeting.

It was a big crowd at innovation depot that came to hear Roddy McKinney speak about how he grew Satellites Unlimited into a major player in the TV market and no one was dissappointed. Mr. McKinney has a great charm and wit that was on full display, along with a deep knowledge of sales and how to grow a business.

Following the speech, we had a great group (including several new members) stay to evaluate the business plans. After over an hour of review, we finally voted to accept a slate of five companies into the presentation pool including:

1. The Manning Group, LLC
2. Facilitaire, Inc.
3. Strawfire, LLC
4. AlwaysHD, Inc., and
5. Innovative Products, LLC DBA Tattoo Armor, LLC.

Those companies will be assigned mentors and we look forward to following their growth and hearing more about them at future meetings.

There were a couple of other companies that we decided to call and work with a bit in hopes that they can resubmit or maybe participate in an open offer in the future.

Finally, we had some updates on previous presenters and look forward to following their progress in the future, which we hope to formalize with a "Company update" section of our BAN newsletter.

As always, if you would like to become a member, please feel free to fill out an application and forward it on to any of our board members.

2010 Southeast Venture Conference - Feb 24-25, 2010

2009-09-17T07:22:00.000-07:00

Join the 2010 Southeast Venture Conference in hosting some of the most dynamic high-growth companies in the Southeast, Feb 24-25, 2010 at the Ritz Carlton in Tysons Corner, Virginia.

The Fourth Annual Southeast Venture Conference will feature market relevant investor and executive panels, exclusive networking opportunities, featured speakers and dozens of the region's top private technology firms presenting to a national audience of venture capitalists, investment bankers and private equity investors.

The Southeast Venture Conference highlights both early stage and later stage investment opportunities from: Alabama, Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and Washington DC.

The sold-out 2007, 2008 and 2009 SEVC’s held in Research Triangle Park, NC, Tysons Corner, VA and Atlanta, Georgia respectively featured over $80 billion in private equity investment capital represented in attendance.

Click here to see a sampling of some of the 2009 investor attendees.

Who Attends the SEVC? Close to 1000 of the region’s leading Entrepreneurs and High Growth Company Executives (from Startups to Pre-IPO), National Venture Capitalists and Private Equity Professionals, M&A facilitators and other leading professionals serving the high growth technology community.

Startup Professionals Musings: Ten Keys to an Investment-Grade Business Plan

2009-08-26T06:50:00.000-07:00

Startup Professionals Musings: Ten Keys to an Investment-Grade Business Plan

Thanks to Glenn Kinstler for pointing this one out ( http://www.alabamalaunchpad.com/ ).

Very good bullet point post on the elements of a good pitch and probably something I will provide to our BAN presenter pool.

Now go build something.

Entrepreneurial Edge - In a Recession, Angel Investors Are a Little Less So - NYTimes.com

2009-08-24T09:04:00.000-07:00

Entrepreneurial Edge - In a Recession, Angel Investors Are a Little Less So - NYTimes.com

Interesting article about some of the current issues facing both startup companies and their backers.

It's probably worth noting that here in Birmingham, I know of one VC firm that has recently raised a new fund and another VC group that has a portfolio company IPO planned in a couple of weeks, so things aren't completely grim.

Now get out there and build something.

Tech Venture Conference 2009 - Call for Presenting Companies & Sponsors

2009-08-19T07:38:00.000-07:00

TECH VENTURE CONFERENCE 2009 We are seeking the best startup and emerging technology companies from throughout the southeast to pitch and demo their innovations.

PRESENTING COMPANIES APPLICATION https://tampabayceo.wufoo.com/forms/presenter-application/ * Application Deadline is September 25, 2009

ABOUT TechVenture Conference 2009 connects entrepreneurs and executives of startup and emerging technology companies from throughout the Southeast with venture capitalists, angel investors, corporate buyers, economic development agencies, technology transfer professionals, university researchers, incubators, media, successful entrepreneurs and premier service providers. Whether you are an investor seeking access to new deals, or a CEO or Founder of a new venture looking for funding, visibility and growth, TechVenture Conference is one event you won’t want to miss.

WHEN/ WHERE Monday, November 16, 9:00am – 8:00pm Hyatt Regency Downtown Tampa, 211 N. Tampa Street, Tampa 33602 SPONSORED BY University of South Florida College of Business, USF Center for Entrepreneurship, Bayshore Solutions, How Do You Innovate?, TechDrawl, Shotput Ventures, Startup Florida, Tampa Bay CEO Magazine, TechLoaf

SPONSORSHIP OPPORTUNITIES Receive significant exposure for your part in making TechVenture Conference 2009 possible. Numerous marketing materials will be distributed in anticipation of the conference Sponsors receive exposure through: print advertising, web presence, email marketing, direct mail, booth space, program book, and on-site recognition.

Request sponsorship information: https://tampabayceo.wufoo.com/forms/request-conference-information/ TechVenture Conference 2009 is a non-profit 501c(3) entity Conference website: http://www.TechVentureConference.org

Angel Networks doing some networking (and growing)

2009-08-16T19:23:00.000-07:00

Ok, so there have been a ton of developments since the last update.

1. There is a strong push to put together a North Alabama Venture Club sponsored by and modeled after the Birmingham Venture Club.

2. In addition to the Huntsville, Shoals and Birmingham Angel groups there are groups trying to form in Decatur and Mobile.

3. The Hunstville Angel Network and one of the group's companies has set a great presedent of active syndication among the other Alabama networks by presenting on a cooperative basis to the Shoals, Birmingham and a core of the forming Decatur group.

4. The Birmingham Angel Network had four companies present at the last meeting resulting in at least 6 different member investments.

Also, there will be a 2009 Technology Innovation Awards Summit at Hudson/Alpha celebrating Rotary Leads Together's award as this years winner for information technology.

All for now.

Is there a "Market Price" on toxic assets?

2009-05-01T08:45:00.000-07:00

Has there ever been a clearer indicator that market to market is broken....."It is unclear whether banks will sell the assets"

http://www.thestreet.com/story/10493886/1/treasury-100-firms-want-toxic-assets.html

Just ridiculous! Why we ever decided to throw real dollars after a phantom unrealized loss is beyond me, but I guess I am going to have to get over it because that is what we are doing.

BAN meeting and SBA hope

2009-03-16T13:53:00.001-07:00

Getting ready for the Birmingham Angel Network screening meeting on the 26th at Innovation Depot. (www.birminghamangels.com)

Also, noticed that the Treasury Department announced they will purchase up to $15 billion in securities backed by Small Business Administration loans in an effort to unfreeze the secondary market for SBA loans.

Here's hoping that we can get some of our new companies up and running.

A modest proposal or Why still Mark-to-Market????

2009-01-20T11:44:00.000-08:00

I know I am not alone here, but since we are still in the grips of a credit crunch and economic downturn, I would like to make a proposal (or at least a post hock observation).

First a recap...

Way back in 2007, we began to have a freeze in the subprime mortgage markets and some writers began to foretell the economic turmoil that could ensue. (See -The Panic of 2007 - No Buyers at any Price) Since then, we have discovered that many Alt-A and subprime loan portfolios have much higher potential default rates on mortgages than at first expected, coupled with a realization that Moody's and S&P did a collective hatchet job in rating many mortgage backed securities, not just Alt-A and subprime. These deficiencies have lead quickly to a wholesale run on the overall mortgage backed securities ("MBS") market. Unfortunately for everyone, due to existing GAAP and mark-to-market requirements, our public institutions have been required to severely devalue balance sheets during the market freeze which has lead to a massive credit crunch, has left our venerable financial institutions either in ruins or gasping for air and threatens to crash the overall bricks and mortar economy.

So......what could or can we do about it?

Well, we could inject billions of dollars directly into financial institutions in order to re inflate balance sheets and make up for the massive write downs in securities portfolios due to the market freeze (See - TARP) and hope that financial institutions will go back to normal policy and not horde the injections in fear of further write downs due to continued market declines. ***this is apparently where we are

Or.....

We could recognize that real economic fundamentals are better than the markets are crediting, due to the widespread loss of confidence in rating agencies' scores as an effective measure of MBS safety. Meanwhile, mortgage defaults are still only about 3% and even those still have significant asset coverage, thus leading to sometimes staggering disconnects between market values and "intrinsic value" of many MBS. However, this disconnect creates some interesting options.

One, instead of replacing the lost balance sheet value with US government capital (see - TARP), the SEC and FASB could simply require companies to value portfolio at "expected realizable value" thus allowing them to adjust for short term market irregularities, so long as a given asset is not expected to be sold in that time frame. (See - Suspend Mark-to-Market Now, Gingrich 2008)

Second, the US government could create a "FDIC-like" insurance for the underlying obligations (ie - individual mortgages; See - Governmental "PMI") on selected classes of perceived at-risk MBS, whereby bond holders (or trustees) could petition the insurance for uncovered losses on defaulted mortgages. This should cure the default risk problems caused by the ratings agency malfunctions and thus re inflate the overall security values, while minimizing actual governmental capital outlays to situations of actual loss.

Humbly offered....

Happy Holidays and Fundraising in 2009

2008-12-18T08:24:00.000-08:00

Well, the Holiday Season is in full swing and a new year is around the corner. I hope the new year sees you all doing well (despite the economists' speculation).

As we look toward a new year I think it is time to talk about fundraising post-credit market meltdown.

Interestingly, we seem to have a fairly healthy market in the angel side because the volitility in the markets has caused private equity to be viewed as less risky (or at least not as big a jump up in risk). Nonetheless, it is not all rosy because there is a lot of competition for the dollars available, since many deals that would have had other methods of finance are now looking for private investment dollars.

For new businesses the take away is really this:

"Do your homework and be the best."

If you are the best in a competitive environment then the dollars are definitely available, but due diligence is up and investors are taking a critical eye to risk, so companies need to really work on being a clean investment. This means, no sloppy contracts, unprotected IP, vague expansion plans, etc. or the investors will just pass you by for easier deals because there are other good companies that have put in the work. But if you work to be the best, good things are available.

Happy Holidays

Initial Birmingham Angel Network Screening Meeting

2008-10-21T08:39:00.001-07:00

The 1st BAN screening meeting is set to be held at the Summit Club on Wednesday Oct. 29th at 7pm.

Members and Board members will be discussing the over 30 companies that have submitted and selecting the few that will be asked to present to the entire group later this year.

www.birminghamangels.com

Freehold Licensing Ltd.

2008-10-14T08:27:00.000-07:00

I had an interesting company pass my way that we have begun to work with that I think has some real application to our current financial and liquidity crisis.

Freehold Licensing Ltd. (http://www.freeholdlicensing.com/) of Texas is helping their clients create long-term revenue streams by creating for-profit transfer fee rights in property owned by their clients.

The company says:

Freehold Licensing enters the world of Real Estate Transfer Fee Rights as the creator of a unique business process and the leading experts at advising property owners how to restructure property rights by easily and efficiently creating a long-term income stream.

The process was originally developed in response to a common problem faced by virtually every real estate developer: How To Add Improvements Without Unfairly Burdening The Initial Buyer?

The result is a fully collateralized income stream that continues to grow year after year. The existence of Transfer Fee Rights benefits both current and future buyers and sellers alike. This approach to structuring real estate transactions is well suited for many different types of owners of large portfolios of real estate such as builders, developers, REIT's, bank REO departments and more, as well as work-out professionals and bankruptcy trustees seeking to maximize the value of estates with large real property holdings.

After looking at the process, these revenue streams seem to be ideally suited for banks to utilize as additional assets that can help shore up lagging balance sheets. Furthermore, it appears that recent SEC and FASB guidance (http://www.sec.gov/news/press/2008/2008-234.htm) provides a pretty clear standard opinion on the valuation of non-market assets such as these rights. (Although the company has plans to create a securitized product option that would likely have a market.)

Given that the world governments are being forced to take extraordinary actions to protect our world economy from what appears to be an indirect run on the banks by rapidly deflating balance sheets due at least in part to disfunctional actions of the mortgage backed securities markets it would appear that it is in all our best interests to locate every alternative available for our banking system to "re-flate" their balance sheets and this appears to be a very viable option.

Birmingham Angel Network adds a new board sponsor

2008-09-10T11:30:00.000-07:00

For BAN the hits just keep on coming.

I am very pleased to announce that Warren, Averett, Kimbrough & Marino, LLC has signed on as the Birmingham Angel Network's fifth sponsoring board member. Warren Averett is a nationally recognized accounting firm ranking among the nation’s largest firms and serving some of the South’s largest companies.

Warren Averett will be represented by Al Murray a member in the firm's Birmingham office. Al has over 20 years experience with closely-held businesses in all areas of accounting, taxation and business consulting. He has extensive experience with audits of retirement plans, manufacturers and distributors, not-for-profits, healthcare organizations, contractors and start up businesses.

Welcome Al.

Competitions provide opportunity

2008-09-03T19:49:00.000-07:00

This week we have had two significant opportunities announced for local startups.

Alabama Launchpad announced the begining of the 2008-09 business plan competition and the Venture Club opened nominations for this years Accelerator Program.

The two can be reached at:

Alabama Launchpad - Plan Competition , and

Venture Club - Accelerator

Birmingham Business Journal Announces - BAN

2008-08-12T08:49:00.000-07:00

Just an FYI...Friday the BBJ did a great article on our own Birmingham Angel Network.

Take a look: New 'angel' group hopes to fill city investment gap

Birmingham Angel Network

2008-07-21T20:57:00.000-07:00

I am very pleased to announce the formation of the Birmingham Angel Network (BAN). We look forward to seeing the group grow and become a powerful driving force in the Birmingham and Alabama economy.

As has been discussed for several years, Birmingham is in dire need of additional startup capital for our many worthy high growth and high tech businesses and BAN will be a great resource for many of those companies.

If you are an accredited investor interested in becoming a member or a company looking for funding you may contact the group directly at: www.birminghamangels.com , which should be completely finalized and "live" within the next couple of weeks.

FundingPost.com - another option

2008-05-09T14:09:00.000-07:00

If you have an idea and are looking to get it off the ground, one of the more popular places to go is FundingPost.com. I spoke with a potential client today and she reminded me about this website and it is cerainly worth looking at if you are a hungry entreprenuer.

40 Government Sites You Can't Live Without

2008-04-28T14:16:00.000-07:00

I ran across this article from Entrepreneur.com and sent it to several of our Private Equity clients. It's a good compilation of informative government sites, particularly the government grants catalog.

http://www.entrepreneur.com/startingabusiness/startupbasics/findinghelp/article65696.html

Gramm Leach Bliley Act and the Mortage Crisis

2008-04-13T21:54:00.000-07:00

Ok, I will have to admit that this is about to be somewhat unfair to congressional men and women that passed GLB, since I have the benefit of hindsight. Nonetheless, I think I can safely say I have been on record since the beginning in condemning the repeal of the Glass Steagall Act by GLB.

Given that Birmingham is such a big banking town, I think we in Jefferson County have a sometimes unrecognized unique perspective. First off let me say I love banks, they have been great for our area and many individuals in our community. However, one of the reasons I love banks as an investment vehicle is due to their semi-protected status. Banks are so vital to our economy that they have to be protected, sometimes (such as is now clearly evidenced by the current mortgage crisis) from their own bad decisions. As such, it is appropriate for them to have additional oversight to minimize the risk of a necessary public bailout. GLB goes against that grain and allows many additional opportunities for companies with cross sector exposure to get into trouble, even while following all the rules. This is true even if you want to ignore the obvious enhanced risk for acting on conflicts of interest.

Applied to our current mess, GLB's repeal of the restrictions on cross ownership in the financial services sector likely would not have prevented the current mortgage crisis, but it may have added a few more barriers and thus created more opportunity to catch bad decisions before they got completely out of hand.

Nonetheless, even if Glass Steagall wouldn't have prevented the current situation it should scare the heck out of everyone. By allowing consolidation, GLB has opened the door for single source disasters to shut down or significantly damage our entire financial system. Banks are simply too important to our economy to allow the additional unnecessary risks created by GLB.

If our congressional elects have their wits about them hopefully they will see the current liquidity crisis as a shot across the bow and move to place some meaningful segregation of financial services back into the system.

Leverage your Private Equity

2008-03-30T20:10:00.000-07:00

I periodically have companies seeking private equity or venture capital funding that need LOTS of funding. Such companies are quite often in the industrial services or products realm, but can come in almost any industry.

Companies that have viable business models, but capital requirements that exceed what typical PE or VC funding will provide have additional and sometimes prohibitive hurdles to overcome in order to make their visions a reality.

If a company is to make the leap from great idea to business reality, then the management team is going to have to strategize a way to leverage the PE or VC funding in order to reach even greater sources of capital. Those other sources of capital could be a public-private partnership, public debt or even a private-private partnership, but in any case there will need to be substantial thought given to the source of that second round of financing because the quality of the plan for realizing the second round will likely play a large role in whether or not the company gets the first round of financing.

Don't forget Uncle Sam

2008-03-14T14:22:00.000-07:00

After reading Jeff McIntire-Strasburg's recent post titled: "Ecopreneurist: How to Approach a Venture Capital Firm with a Cleantech Business Idea" I was struck by the thought of a company I am working with at the moment in the Green Technology world.

One of our early conversations centered around their financial projections and pro-forma statements in which the company president proudly said "our figures don't include any tax based income or incentives, these are straight numbers." Of course, I wanted to see the non-tax based numbers in an overall evaluation of the business, but one of the things that really makes the green industry potentially above average regarding investment returns is the proliferation of numerous tax and government incentives and our management team was really missing the boat on potential tax strategies that could have a dramatic effect on both capital requirements and overall returns of the business.

Thankfully, we have now begun an analysis of the available tax strategies and we have already uncovered federal benefits that will significantly add to our bottom line.

So the moral of the story is...don't forget Uncle Sam.

Angel Soft - Open Deal

2008-03-11T12:33:00.000-07:00

Large Angel Network software provider AngelSoft has now developed a new service designed to allow companies and entrepreneurs to mass submit offering to hundreds of angel groups at one time.

http://www.angelsoft.net/entrepreneurs/index.html

Could be a nice resource for overworked entrepreneurs searching for capital.

Angel Investors and the ACA

2008-03-11T12:08:00.000-07:00

In addition to later stage VCs, startups have an old option that is getting fresh legs by being easier to navigate than before, in angel investor networks. The Angel Capital Association is a peer organization of angel investing groups in North America that includes over 250 angel groups.

The presence of such groups makes it much easier for startup companies and their entrepreneur leaders to find much needed seed capital in order to get good companies off the ground. In the past, active networking and luck might net someone that was interested in investing in a startup, but through angel networks entrepreneurs have access to literally thousands of potential accredited investors.

Some of the southeastern ACA members include:

Southeast
Angel Network of Sumner County/ Angel Capital Group - Hendersonville, TN
Ariel Savannah Angel Partners - Savannah, GA
Atlanta Technology Angels - Atlanta, GA
Charleston Angel Partners - Charleston, SC
Eastern NC - Investor Network - Greenville, NC
Emergent Growth Fund - Gainesville, FL
Fund for Arkansas' Future - Little Rock, AR
Huntsville Angel Network - Huntsville, AL
Inception Micro Angel Fund - Greensboro, NC
Mississippi Angel Network - Ridgeland, MS
Nashville Capital Network - Nashville, TN
New World Angels - Boca Raton, FL
Piedmont Angel Network - Greensboro, NC
Seraph Group - Atlanta, GA
Springboard Capital - Jacksonville, FL
Triangle Accredited Capital Forum - Wake Forest, NC
Wilmington Investor Network - Wilmington, NC
Winter Park Angels - Winter Park, FL