Thursday, May 31, 2012

The FaceBook IPO - Social Media's Last Stand?

Unlike the Google IPO which used its considerable popularity to reward individual investors and boost their stock value, Facebook used the same dynamic against their users, the retail investors. So, is this the end of Social Media - from the Entrepreneur's perspective?
In this version of the Wall Street Spring, the pinstripe set got to show how Social Media can be used against the crowd.
While it isn't exactly a revelation that Wall Street is rigged in favor of insiders, it wasn't supposed to happen with our friendly FaceBook.
The market expected the typical "popping tech IPO" based on the idea that you sell a tiny sliver of stock, limit availability to insiders who ride the pop as they dump it on willing outsiders (a/k/a fans of the company) in a way that keeps the prices up. 

Facebook did the opposite.
They let the considerable number of willing outsiders (a/k/a fans of the company) get their hands on the stock at just about the highest valuation of the stock as insiders lined up at the bell to blithely sell into the market - knowing that the pop had already happened before the opening. Instead of spreading the wealth, they knew just how many suckers there were out there to milk. Remember when they unleashed more stock just a few days before the IPO? That's when they know just how many fools there were. 

All they had to do was make sure to put out as much stock as they could to all of these willing buyer. There was so much that they jammed NASDAQ. Not that they care, they had already run for the hills.
Let's just say they un-occupied Wall Street.
This head fake by insiders took away scarcity and an underlying faith in the stock that had the effect of lowering prices. The old sell-a-sliver-and-let-it-pop technique usually meant the value stayed high as the insiders waited for the secondary offering. But not here.
As the price slides, the air goes out of the Social Media bubble - at least in the short term. In the long term? Let's just say that without trust, you really don't have a Social Media. You have Media that is used Socially.
Bottom Line - if you haven't already figured that the low hanging fruit has already been picked in the Social Media space, this should serve as notice.
What I would invest in though, is a Facebook porting utility - a website that lets you back up your Facebook data assets and lets you move them as you see fit while making it easy for you to get the word out to your Friends.
Let's call it SavingFace
by Alan Brody   

Saturday, May 19, 2012

TEDx EAST Report: The Good, the Bad and the Missing

To those of you who wondered, we apologize for any misunderstanding. What took place is an interesting tale of kool-aid and competition.

The organizers, who have done a great job building TEDx East over the past few years arranged to do this event at Alice Tulley Hall at Lincoln Center - the pinnacle of NY venues. 

Given the proliferation of TEDx's like TEDx Gotham, TEDx Manhattan, and TEDx Wall Street this might have been a kind of non-profit's end run.

Nevertheless, with 1100 seats to fill, this was a tall and very expensive order. So, we were approached to help promote it return for the usual - guest seats and promotional consideration.
They also wanted help selling sponsorships, which seemed very attractive except for the $25,000 price tag - in this economy! More significantly, not all sponsors will take the kool-aid - explaining the audience demographics or content can be a challenge. It is not a parade of Nobel laureates, it doesn’t reflect NY’s entrepreneurial culture and it offers no stars with current marquee value. It is just TEDx East and to many sponsors that can look like a dilettante’s ball.
Nevertheless, we gamely promoted it to our community and to our amazement, after sending out over 20,000 emails and Social Media messages, we began getting notices that it was sold out.
Good for them!
We probably should have called to high-five, but our work seemed done and whatever advice we'd had about price points and demographics seemed irrelevant. Unbeknownst to us, TEDx East hadn’t achieved anything like their numbers and so they had quietly switched venues without telling anyone except the people whose registrations they had accepted (you don’t just buy a ticket, they have to approve you!). There wasn’t even a notice on their website about the new venue, the more modest, NY Times auditorium.
The net result is late registrants (including us) were sent to the original Alice Tulley Hall where no one had a clue. The only way they got oriented was by viewing the Twitter feed for the occasional mention of the NY Times venue.
Once these bedraggled latecomers appeared, they were met with a vastly reduced version of TEDx - and they had to wait for the good stuff to reappear. As for the sponsors, none of the originally announced ones were in evidence except for a “globo” sign from the History Channel and a selection of new energy bars. They were ironically useful since latecomers arrived for the dance and music performances which were hardly ideas worth sharing. I have nothing against the performing arts, in fact I have helped present several off-Broadway shows including one now at the Little Schubert Theater called “Potted Potter.” But the theme was “The View From in Here.” So, was that a visionary gathering or just a view from the ivory tower and inviting whoever is playing in the courtyard. As for the History Channel - don't they look backward?
Assuming they are trying to make the point that we are producing today’s history then, from the performing arts we learn the following: you can be a fantastic dancer at 80 if you don’t mind prattling about creation myths, opera singers can be skinny and still have great voices and classical music continues to have a vibrant new generation of practitioners. The kids from PS22 sing pretty well and their tiny soloists have definitely mastered the art of swagger.
As for the “ideas worth sharing” there were some wonderful presentations that genuinely reflected the TED zeitgeist: John Marks, “you are not an Ape” (whew!), Maya Lin’s topographical architectural visualizations, Helen Fisher’s Biology of Mind was a fascinating journey into the 4 key brain chemicals that define personality types. Antonio Bolfo, the policeman turned photographer, had an interesting perspective on the stories that pictures tell (context is everything) which was an ironic contrapuntal to Sam Gregory’s “Visual Anonymity in a Surveillance Age.” To keep away from the policeman’s eyeball, you need face paint or some other way to fool their facial recognition systems. Think capcha for faces.
Entrepreneurship was represented in the form of the 13 year old Cassandra Lin who’s story of turning old cooking oil into a home heating oil and helping around a 100 needy families in Rhode Island was inspiring. Entitled, “Be Your Own Superman” it was, understandably, the day’s sole hyperbole since it represents a extraordinary achievement brilliantly told by this teen. It was also strangely misleading because it encouraged you think she had invented a new way to turn cooking oil into energy. That would be superhero stuff, all right. In fact, she was a precociously grounded young businesswoman for the public good who knew how to tap the local recycling and political system. She steered old cooking oil to the local biodiesel refiner who was able to deliver some amount refined product to the poor for free and still make a profit. The lesson here is not go invent, young person or even think kind or be supercreative - it is get business and politicking savvy. A great lesson, but subtly different from the one advertised.
The event ended with a ponderous lesson from a Finnish educator who flew in to tell us what we can learn from Finland’s stellar school system. Maybe he knew that he had nothing but bad news for us or perhaps it was just cultural, but these are not answers we want to hear: don’t change so much, you could be wrong and unlike us, Finnish culture cherishes teachers. They may not do it for the money but everyone wants to marry a teacher. So, lesson one: don’t raise the budget just hand out free subscriptions and somehow boost their profiles. Lesson 2: everyone learns differently so cut back on those standardized tests and teaching. Bottom line - the slow food movement will give way to the slow teaching movement - plus extra love.
We can’t end without noting David Pizarro’s “How Disgust Shapes our Thoughts on Moral Wrong and the Political Right.” Aside from beginning his talk with the disgusting image of putrid flesh, his message was that people will almost never agree with you if you start out by disgusting them - unless you want them to be just as disgusted by the political opposition as you are. The obverse of this - which retailers long ago figured out - is that you can just as easily charm customers into agreeing with you (i.e. buying stuff) with great smell. Hence the olfactory stimulation at the mall.
If only entrepreneurs knew how create the smell of money, investors would be more willing to write checks! 

Maybe Supergirl will figure this one out.

Tuesday, May 1, 2012

Are You Fundable? Part 1

Section 1 - Summary 

The Entrepreneur’s Guide to Winning Over Investors
by Alan Brody

After 12+ years of evaluating pitches and helping entrepreneurs raise money, we have put together a book of rules on what it takes to get funding. What Investors look for and how to make your plan fundable. By looking through the prism of Angel Investor wisdom. It tells you how to:
• evaluate an idea
• find the right investor
• build sales
• attract sponsors
• pivot, reconstruct or know when to fold

At the heart of the book is this idea: you understand Start-Ups by seeing them through the eyes of investors. If you know how they handicap you, then you not only know how to get ahead but which race you should be in.

Not all Start-Ups are the same. You already knew that, but do you know what sets them apart in the minds of investors? When you do, you can increase your chances of success dramatically.

Why Ask “Am I Fundable?”
The key reason to ask is that it forces you to think about your enterprise from the outside in. When you do that, you get out of your own spin zone and into the mindset of real customers and investors.

Here is what you will discover:

1.     There is a hierarchy of Start-Ups - you need to understand where you belong on that line-up.
2.     Customers and Investors may be  connected to each other but often have very different points of view – what makes a customer want to buy your product or service can be different from why an investor would want to write you a check.
3.     All businesses have to adjust their much loved ideas to the reality of the marketplace.                                                                                                                                                                                             
4.     When you know what you have and how it is really perceived, you can calibrate your message for each audience: investors, customers and potential partners. You can also realistically determine how to spend your – pursuing customers or investors in just the right measure, instead of wasting time doing both incorrectly.


The Start-Up Hierarchy: What Kind of Entrepreneur Are You?

The heart of Are You Fundable? is the idea of a hierarchy of Start-Ups and then a matching taxonomy of investors. Investors handicap you according to your status. If you pitch an idea that is inconsistent with your status you will probably lose credibility. Without credibility, you don’t get funded or even attract business.

The Hierarchy of Entrepreneurs

What is a Serial Entrepreneur?
A serial entrepreneur is someone who has started one or more businesses. These Kings of the Start-Up realm can sit by the phone and investors will offer them money just in case they come up with an idea.

What is a Semi-Serial Entrepreneur?
At the next rung are serial entrepreneurs with a mixed record.

The Pedigreed Start-up
At the next level down in the hierarchy are what we like to call the Pedigreed Start-ups. I can say anecdotally, that these people seem to get the lion’s share of the Start-Up money. Almost anyone with 10 years in an industry could make a case if only they found the marketable idea within their domain of expertise and understood the “rules.”

Pedigreed Start-ups are people who have:
• 5 or more years of domain experience in a field (10 years seems to be the sweet spot)
• have identified a key market with a critically needed product in their field
• have the developer team in place with the product ready or at least a working demo
• have the customers who want or need to buy it

Not-So Pedigreed
Here are some of the traps this kind of entrepreneur can fall into. Investors look out for this and if you are not careful, you can disqualify yourself:
• Salaryman/woman: never been an entrepreneur before
No skin in the game – as in not having your own money at risk, is negatively viewed. 
Tied to a paycheck: the risk with this type of entrepreneur is that they could be more interested in finding a paycheck than in taking on the struggle of launching a business. • Mixed age team. Having an older manager and a very young developer raises generational issues.
• Acting like an exec. Don’t be aloof, you’re supposed to hustle or it will seem like you never left the previous company.
You were fired. Tricky and best left to the later conversation but if you were fired for being an entrepreneur, as long as you were one in the past is not a bad story.
The worst sin: coming up with an idea that has nothing to do with your previous line of business.

Moonshots, Up-and-Comers and Career-Enders
At the bottom level are the youngest and the oldest. These are the folks who come to our really early stage Start-Up events called Startupalooza. They are the heart and soul of the TV show “Shark Tank” and they are the biggest winners when they get it but overall, the most consistent group of losers. They either reach the moon or fizzle out trying.

1. The greatest Start-Ups are usually founded by people under 27 Google, Microsoft, Facebook, Apple, Netscape and so on.
2. Only the young can invent the defining ideas of their generation which is by definition, an untapped market.
2. They can afford to take the greatest risks since they have the least to lose. The right person is also adaptable, able to struggle, accept loss and still recover.
3. They appeal to the vicarious reinvention psychology of Angel Investors.
4. Young people who have these qualities – even if the idea is wrong or the investor doesn’t invest in their deal – are a kind of currency that Angels like to “trade” with each other.
5. They have nowhere to go but up.

Let’s Give them Something to Tweet About
The way investors find out about great Start-Ups is that people talk.

The Up-and-Comer
Most Start-Ups have a good idea that is essentially a twist on other ideas in play.

The Older Player
If you are over 50, you can pretty much forget about getting Angel money. Angel Investors will probably deny this but I am sure they will also want you to believe they are not a day over 50 either.

The Going Enterprise that Seeks Growth
For a company already showing profits, to bring on investors is usually a double edge sword. Their actual profits tend to put a cap on their valuations.

This is more challenging than it seems. Do you have a formula that with nothing more than the addition of capital, will generate more sales?

Transformative Element  Not just projections,
--> something that the changes the business paradigm.

What Impresses Investors
How to Improve the Way Investors Rank You

Get a Lead Investor or Champion or Make Friends with Serial Entrepreneurs
If you don’t have a lead investor or at least an investor who introduces you to other investors, or a serial entrepreneur, the next best thing is a fellow entrepreneur.

Thumb on the Scale and other Anti-competitive Ideas
They want to know if you have a thumb on the scale – a special advantage that others don’t have and can’t see.
A defensible patent is prized by investors, but any patent along with business momentum carries value because it has the possible effect of warding off competition.

Barrier to Entry
If you don’t have a patent then you want to convince investors that you have some type of barrier like special equipment or rarefied knowledge that competitors either can’t get.

First Mover Advantage
This is essentially what Amazon had as the first online bookseller. The reality is not so much that the first in a market as much as the first credible player in the market wins.
What Investors Don’t Want

Lifestyle Business – the Big No No
What they cannot abide, what the live in fear of is the lifestyle business. Be careful of phrases that suggest this: like having a steady business, being a consultant or living off sales.

What Investors Fear
Settling (A Tribute of Sorts, to Steve Jobs)
Even the idea of selling out too soon – or settling will upset an investor.

The Zombie Business
Never quite taking off but never quite dying either. You always need more money because you’re always just about to break .

Failed Execution/Failed Idea
Fix it and then pitch….

The Tells – How you Know You Need Help!
a.      “If we just had 5% of Google’s (or Apple/Facebook/put_big company_name here) market we would be worth a billion Sure!
b.     We need the money for sales and marketing. When you ask for money in order to sell you’ve just told them you don't have the confidence to sell yourself.
c.     We have no competition
Hosni Mubarak used to say the same thing about his Egyptian regime and for 40 years he was right. Then along came Facebook. There is always competition.
d.     Our competition is Microsoft, eBay and Google - but they don’t get it.
Nor do the investors.

What kinds of deals investors are looking for?  

What Investors DO Want

The rule of thumb for fast-rising business in a massive, emerging market is a defensible business in a sector that is likely to double every year for 5 years in at least a billion dollar market. They also need to know that it is scalable through capital. 

Are You Fundable?

eBook or Print
Part 2 discusses fundable ideas like anticipation, natural progression, aggregation, undercutting. How ideas are measured and rated. How to pitch them, how to value and how to move to the next level.