The line between straight up copying someone and modeling after someone is very thin…

An entrepreneur who sees a business and does exactly everything like it (same offers, same operating procedures, etc.) is in fact not adding value to the market and should be frowned upon…

An entrepreneur who sees a business and models after it to come up with different offers, different operating procedures can add value to the market and should be encouraged… after all we wouldn’t want only one business offering a solution and having a monopoly in the marketplace… that’s just never a good thing…

Here’s my response to Fred Wilson’s Blog Post on Cloning Successful Startups…

The internet has brought about droves of wanna-be entrepreneurs through affiliate marketing programs…. affiliate marketing is simply selling someone else’s product and getting paid on commission only… most of these affiliate marketers only do what they are told and never innovate or come up with original ideas… they are in turn not adding any value to the industry…

They simply copy blog posts and offers which they use to spam Twitter, Facebook, Forums and anywhere else they are told to…

There are however a select few who take a product or a series of products within an industry and come up with their own content and add value to the industry… as their affiliate sales grow, some of these entrepreneurs make the turn and launch their own products and become competitors in the market…

It sounds scary for many entrepreneurs to have competitors, but that doesn’t have to be the case… many internet marketing gurus don’t see each other as competitors… even though they all sell ‘how to make money’ information, they use each other to market their own products and become JV partners, not competitors…

They are still competing, which has forced them to improve their products and altogether add more value to their industry…

Not all industries can have this mentality but I think there is a place for cloning successful startups as long as it’s ethical and for the overall improvement of the industry…

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It’s known that greed and fear are the two emotions that move the world… Beginner entrepreneurs love to think that if they have no competition, the market is wide open and they’ll end up making millions of dollars effortlessly by taking over an entire market… experienced entrepreneurs on the other hand know that a market with no competition is probably like that because there is no market to begin with… and even if it were to be a new market, it would not be long before competitors show up…

Guy Kawasaki talks about the top 10 lies entrepreneurs tell VC investors. One of them is “No one else can do what we are doing”, which goes along the same lines of “I have no competition”. It is the greed part of the entrepreneur that craves the monopoly of his market. Or is it the fear that the business won’t get funded unless the competitive advantage of the business is ‘no competition?’…

See, I believe that if a business idea is solid and the team has a good plan to execute that idea, and if the company has a good purpose to exist, then proving it’s worth doesn’t need to include ‘no competition’… that is purely a fantasy…

New ideas do come up, but being first to market and having ‘no competition’ doesn’t always guarantee success anyway. TiVo came into the market with a new technology and had for the most part no competition. The market however became flooded with competition from the big boys coming up with their own recording devices. Although I never used TiVo, it is said that their product is superior, yet it still didn’t make it.

So even if you do start out with no competition, you should tell your investors how you plan on competing when your competitors do show up!

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If you are serious about being part of the Venture Capital world, both as an investor or seeking funds, then I believe there is no faster way to get in touch with what’s going on than by joining the conversation…

I came across this article that lists the top VC firm Websites… what most of these websites have in common is their use of blogging and social media to attract traffic…

… and here’s what that means for you…

Unlike static VC websites that simply have boring profile pages, about us, our process, ya-da ya-da… blogs have a conversation going on… they are constantly being updated by real people, talking about real ideas and topics you SHOULD know if you are looking into getting involved with Venture Capital…

Here’s an example… Chris Fralic over at NothingToSay.com wrote an article about the benefits of buying another start up as a start up…

Not being an expert in VC myself, I can’t say this with certainty, but it appears this topic can be a highly debatable and controversial topic in the VC world…

Most industries have topics like these and until you are able to take a position or talk about a topic like the one above you probably are not ready to take part and contribute to the industry…

If you are just a start up looking for funds, it’s ideas like these that may help you get that financing you want and need…

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Most businesses have a presence online these days… but there’s a big problem that haunts businesses online, privacy…

It seems that many start ups don’t worry too much about this, not because they don’t care, but because they don’t know what exactly it means to come across a privacy issue…

I was recently reading an article about Geoloqi, a company looking to save battery life when using apps that require constant GPS or location tracking apps that drain batteries dry…

This company started it out with a few hundred thousand dollars in seed investments and is now looking to raise more venture capital…

They argue that as long as users see value in their services, they won’t be concerned much with privacy issues… would you invest in a company with that kind of mentality?

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There seems to be trend to come up with any excuse to drink every day… ‘Sunday Funday’, ‘Cinco de Drinko’, etc.

… and Friday is of course one of the most popular days to turn into a drinking day… but Red Nova Labs is taking this to the next level with their Venture Fridays… http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/03/01/prweb9241516.DTL&ao=2

It is a mix of happy hours plus speed dating for entrepreneurs looking for any help they can get with their startups!

I think the inevitable ‘new way’ of business startups and funding is underway… I’ve always thought that one thing social media and the internet has done is to level the playing field for businesses to spawn anywhere an entrepreneurial spirit roams…

Soon you’ll be able to stay in your back yard and look for funding and help for your business… no longer will you need to fly into the Silicon Valley or deal with the big boys who’ve kept the markets to themselves through expensive media out of reach for start ups…

Hmmm… this makes me want to start a group like this in town… (staring at the ceiling contemplating)…

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The F word is like a laser beam that drags people’s eyeballs to stare at our classmate Moritz with a grin… This F word is in trouble… our good classmate  has been dead set on Facebook being overvalued since the very beginning and I came across an article that brings up a couple of good points…

http://www.readwriteweb.com/archives/forget_3b_in_revenue_things_dont_look_good_for_fac.php

One is that growth for facebook doesn’t look too good… they are already big and can not continue to grow at the same rate they were growing before…

Two is that they are heavily dependent on ad revenue and if there is one thing social network users hate it’s ads! just ask MySpace…

Three there are some concerns about the privacy of facebook and the information facebook is trying to make available for businesses…

And last, I have noticed a trend lately that people are DROPPING facebook or they just don’t have a facebook account… this is a young generation too!… maybe the next generation is already on it’s way to the next big thing?

Either way, this article makes you wonder how the Silicon Valley is pitching Facebook to Wall Street to make it so valuable… especially when they are already looking to miss their first quarter revenue projections?

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You know the saying “you can sell ice to Eskimos”?… ever feel like your idea will never be funded because there are too many competitors or solutions available?

Well how’s this for a breath of fresh air… a customer service mobile application company by the name of Tello, recently raised $2.7M in venture capital!!… Read the story here: http://venturebeat.com/2012/02/28/tello-series-a-funding/

The idea of the app is to connect customers to business for real time feedback… Now as cynical as it may sound I don’t see people opting into an app like Tello when you have companies on Facebook pages with options to provide feedback directly through there as Walmart does here… yet this company was somehow able to convince a VC firm to fund them!

Well either the VC firm sees something we don’t or they are just taking a risk ‘hoping’ for something…

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In response to Moritz blog post Mr./Ms. Chameleon, not Gekko… the question asked in class was “What’s Your Number?”… If someone came up to you and and gave you whatever your number was, the amount of money you would need to walk away from what you do for a living and never have to work again…

The question comes from the movie Wall Street… and a difference of opinions were scattered around the room…

Two main ideologies were spotted… One was, there is no amount of money you could pay me to walk away from what I do… and pay me X and I’ll walk away, but I have to work or I’ll go crazy, even if it’s for a non-profit…

I believe the arguments on both sides were legit, but I also think there was a misunderstanding of what was being argued… it is true that if you do what you love, you may not care if you make tons of money or just enough to survive… however a third argument on the class was about independence… financial indepence…

I would go more on the side of financial independence… though I also believe that doing what you love is the way to go to live a happy and fulfilling life… One reason why I have become interested in business and making money is not so much to make a ton of money, but to know that I can make a ton of money should I ever NEED the money… it’s about having the option…

I personally don’t need a ton of money to do things I like and enjoy… I did make a lot of money in real estate and have made more money in one month than most people make in one year… but I wasn’t ‘loving’ my career…

That led me to shift gears and start a business, which so far hasn’t payed off, but I do enjoy what I do a lot more…

Knowing that I can at anytime go back to my old occupation or do something else that could pay me a lot more money if I needed to make more money is what gives me the feeling of indepence to do whatever I want when I want… If I didn’t have that experience behind me, I wouldn’t be as comfortable as I am even though I ‘love’ what I do now…

Today I had a realization, VC is full of opportunity!! While there is a science to valuating companies for VC purposes, I realized that it is more of an art than a science…

My realization came about because of my experience in real estate and valuating homes… just like VC valuations, real estate has a science component to it… most realtors, buyers and sellers look at the average price per square foot of the area and base the value of the home mostly on that… but the art side of real estate is in being able to see when adding granite countertops and tile doesn’t increase the value of the house by the cost of the materials put in, but rather by the love the home buyer feels when they see it… there’s no way to measure, but experience teaches you how much the improvements are really worth…

To contrast, we learned in class that companies are valuated on their assets and cash flows primarily…but that only tells us part of the story… how much cash the company has, what is the actual net income and how much is the company worth should we have to liquidate it?… those are some of the questions investors ask when looking at a company… and just like real estate, a good estimate of the value of the company comes by multiplying the income by a multiplier… sort of like a cap rate for real estate, but you multiply the net income or revenue by a multiplier… (gross revenue multipliers are lower since it doesn’t consider expenses)…

In other words, the multiplier is sort of like figuring out the cost of buying the cash flows from the business compared to similar businesses or businesses in the same industry…

So that’s the science part of it…

… but even then, the numbers used to figure out revenues or net income are often times projections with many what if’s… so even that is somewhat of an art… it takes good judgement on the investor’s side to determine what the company is really worth just based on that…

… and if that wasn’t enough, part of valuating a company takes into account intangible stuff like the quality of management, the brand of the company, and more or less a gut feeling…

There really is no way to tell how an investor goes about establishing a value for the management team… they may be referrals, relatives, famous entrepreneurs with previous track records… strictly an art…

One investor may think the management team is worthless while another may look at it as the most valuable part of the company…

The brand? not sure how a company can establish a brand within the start up phase when they need VC the most, but apparently that’s taken into consideration as well…

My favorite however is a gut feeling… in the end, if the investor is familiar with the industry, they’ll be able to ‘feel’ whether the company has a good chance of success or not… if they are not familiar with the industry, even if they company is the next big thing, their gut may get them to hesitate long enough to say no and pass up a great investment…

This blog is part of my Venture Capital Blog series

Since the introduction to Venture Capital blog I posted, I have picked up a few things about venture capital that I thought would be worthwile to share…

The first and possibly most important thing about venture capital is that the process to get a company founded is not by any means scientific or methodical… there is an element of judgement and gut feeling which can not really be taught… some investors are just able to see what others can’t either through a gut feeling or experience with the industry…

We had an investor as a guest speaker in our class and told us the only methodical part of venture capital – at least in his firm – is the filtering of deals that they come across… A brief summary or cover page is the deciding factor of whether or not a business plan will even be considered…

In my eyes this means that good opportunities can be missed if a good cover page doesn’t compel the investor to keep looking… you can have the best business plan, but the summary or cover sheet is what gets the business plan looked at to begin with…

The second most important thing I learned was that success in Venture Capital – from an investor’s point of view – is highly dependent on having expertise in an area. Some investors will only invest in an industry they are familiar with, while others will venture out and look at other industries, but they run ideas through consultants who are familiar with the industries… Sometimes, having experience in an industry allows you to see opportunity in other industries that could use an idea borrowed from another industry… this is why expertise in at least one area is important and believed by many investors to be a determinant of success…

Last… there is no right way to go about choosing which deals are good and which are bad… a recent blog published by the Thunderbird Angel Network stated that roughly half of the Angel investment exits were at a profit… This to me sounds like flipping a coin and winning 50% of the time and losing the other 50%… So what are some ways to minimize the losers and find more winners? Well that’s what I hope to learn in the next few weeks!