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iVentures10: Starting up in Illinois

Posted on May 1, 2008
Filed Under VC, Technology, Chicago, Business | 1 Comment

As programs like Y Combinator and TechStars gained popularity I started to wonder why something along the lines of those programs didn’t exist here in Illinois. After all the modern web was pretty much born at the University of Illinois at Urbana-Champaign (mosaic/netscape, apache, etc.) and other notable web superstars like PayPal and YouTube have come from the minds of U of I grads. Well, I didn’t have to think about this idea for long…

Enter the iVentures10 program. iVentures10 is a program created by Illinois VENTURES initially as a “new kind of internship” for U of I computer science students. However, they recently announced a partnership with Mozilla along with their intention to take applications from around the world.

I think this is a fantastic thing for tech entrepreneurs based here in Illinois and a great way to get others that aren’t based here to spend a summer here in Illinois building their companies. Hopefully we can all show them such a good time they won’t want to leave! Keeping our tech talent here in the state is crucial to Illinois becoming the tech center it deserves to be and this program will clearly help with that effort.

You can learn more about the iVentures10 program on their site and if you think you want to submit an application make sure to get it together soon. The final day to submit applications is May 15th.

Side note: You can also learn more about the iVentures10 program at the next TECH cocktail mixer on May 29th. The team will be at the event along with some of the folks who have been accepted into the program.

Doing Well by Doing Good

Posted on April 23, 2008
Filed Under Business | 4 Comments

Paul Graham has released another great essay today titled simply “Be Good.” The main point of Graham’s essay can be summed up with this excerpt:

If you start from successful startups, you find they often behaved like nonprofits. And if you start from ideas for nonprofits, you find they’d often make good startups.

That statement doesn’t seem too interesting off hand but it truly is. Basically, Graham suggests that if you simply work on an idea that legitimately helps people you could find yourself with a very interesting business over time even if the current encarnation of the “business” looks more like a nonprofit (i.e. helping a lot of people without making any money).

Graham lays out some interesting examples of this type of thinking (Google and Craigslist among them) and he also covers the reasons why he believes being good can help you do well. His reasons are:

Power -Being good helps you gain power in the marketplace since you legitimately care about your customers and stakeholders and they, in turn, want to help you (I saw this first hand at FeedBurner). This is related to the concept of Karma.

Morale - Morale remains high even during the inevitable tough times during the life of a start-up.

Help - Other people want to help you and you’ll be able to recruit the best of the best.

Compass - Having a solid mission oriented around doing good acts as a compass for the company.

I think Graham is right on with this essay. I firmly believe that doing good will help you do well in life (and business) and have seen it to be true in my own life.

That said, you have to genuinely do good. You can’t pretend to do good because people will figure you out and then you’ll be in trouble.

Following this topic a bit further I would like to point out that running what may be a traditional nonprofit business as a for-profit from day one may actually help more people and create sustainable change rather than simply providing a bandaid.

Case and point for that line of thinking is microfinance. What does microfinance do? It helps the poor pull themselves out of poverty by giving them loans to start small businesses. Off hand you could say that microfinance institutions should be not-for-profit but in fact most of them (if not all) are for-profit banks.

Being that these entities are for-profits they continually find efficiencies to improve their businesses which in turn allow them to help more people. It seems to me that more “nonprofit” ideas should run themselves as for-profit ventures to increase their sustainability.

Graham has this to say about the topic:

The idea of starting a company with benevolent aims is currently undervalued, because the kind of people who currently make that their explicit goal don’t usually do a very good job.

I think he has a point there but Graham links the issue to what he calls the trustafarians (trust fund folks) who simply want to attempt to do something good but never follow through. I think there is more to it than that.

I believe these folks in nonprofits may not be doing a good job because the organizations, being not-for-profit businesses, have no incentive to lower burn rates, be more efficient, etc. They also can’t afford to pay their employees as well as their for-profit counterparts which means that the top minds don’t go work at non-profits (not true in all cases of course).

Imagine if the nonprofits ran themselves as a for-profit businesses. Then they could afford to hire better people and would be more concerned with conserving cash and helping more and more people through their own growth and increased efficiency (assuming they ran the business well of course).

The bottom line is that you can do very well by doing good so follow your idea through even though it may not seem like a business right now. If you are truly solving a pain the business part of the business will most likely follow.

Starting Up: Two Great Posts from the 37signals Folks

Posted on April 23, 2008
Filed Under Business | Leave a Comment

Are you sure you want to be in San Francisco?

David makes some great points in this article. He discusses what the Bay Area is good at in terms of startups and what it isn’t so good at. He also urges us to think outside the Valley in terms of starting a company. Good stuff and I couldn’t have said it better myself (which is why I didn’t and am just linking to his post).

Quit your job!

Easier said than done right? Sure, but Sarah has penned an inspirational article with some great entrepreneurial examples that will get anyone off their butts and starting up a business. She also notes that you don’t have to try to be the next Google. She suggests that if you do what you love you will be happier and more successful and that success could translate into millions even if you never thought it would (and if it doesn’t but you have a nice business and are happy - so what?). I know I have always stuck to doing what I love to do and everything else has seemed to follow.

Liquidity for VCs: A New Exchange?

Posted on April 18, 2008
Filed Under VC, Business | 4 Comments

Update: Check out the comment from Dave McClure to hear his thoughts and read his clarification on the VC side of things (i.e. he does think that VCs are needed and helpful in the market but things more competition is a good thing - agreed!). He also links up his startup metrics which are getting better every day.

Liquidity for VCs and entrepreneurs is a topic that continually comes up. It has resurfaced in the last week due to the fact that public markets have pretty much been closed to startups for a while now leaving M&A as the primary liquidity event for entrepreneurs and VCs. This time Fred Wilson is the one kicking off the conversation about VC/entrepreneur liquidity.

Fred is worried about liquidity for obvious reasons but he also adds a new thought into the mix. He claims that web services that are exited via M&A to larger companies can languish inside their new corporate homes. This worries him as a user of the services and has pushed him to think about newpaths to liquidity even more.

The discussion over liquidity ramped up over the past week due in part to the interesting nature of the idea but also spurred along by the TechMeme effect (Fred event spoke about the topic on Yahoo’s Tech Ticker show). It has been interesting to see everyone’s opinion on the issue all the way from VCs should stop whining to agreement with Fred that a new form a liquidity needs to emerge. After absorbing all of the opinions across the web I decided I should chime in.

In fact, I actually wrote about a related topic back in October 2007 in response to my friend Dave McClure’s post. Dave argued that a market should be developed that would allow transparency and would disintermediate the VCs by allowing lenders and other investors to invest directly in startups while allowing startups to keep most, if not all, of their equity. As a student of finance and VC I found that idea very intriguing.

A large impediment to this type of market is solid data (and metrics). With good data debt and equity markets for startups could look like mortgage markets (ouch - bad example!) or the public markets. If you can look at historical startup data and understand the numbers enough to make a solid bet and know your chances of success an interesting market emerges. (Side effect - more actuarial jobs open up.)

Let’s say we can get the data and can figure out the right metrics, then what happens? Well, here is where things get a little tough. The SEC (or a new org like them) would probably want to step in and protect the individual investor from themselves. That’ll be a big brick wall in the way of innovation and it makes this idea a little more long term (man, I hate regulation). What can we do in the meantime then? This is where Fred’s post comes into play.

Fred argues that there should be another way for VCs to liquidate their positions and it could take the form of an exchange. This exchange would not be open to the general public and it would not disintermediate VCs like the one Dave wrote about back in October. What it would do is allow qualified/accredited investors (i.e. anyone except the average joe individual investor - this exclusion eliminates the need for SEC oversight) to trade positions in private companies. This way VCs could trade their positions to others (like PE firms) rather than trying to bring a company public or sell their companies to larger companies.

It is an interesting idea and one that already happens informally as Fred mentions in his post. He simply thinks that a formal market may help. It turns out that this type of market is already springing up in various forms surprisingly enough.

Goldman Sachs launched an exhange for private companies called GS TRuE - short fo Goldman Sachs Tradeable Unregistered Equity - about a year ago (this market is open only to Institutional Investors with $100mm or more in assets). Other networks like this are also popping up (like OPUS-5) and, according to this May 2007 WSJ story, the Nasdaq is planning on launching a smaller market for unregistered equities.

These markets will probably consolidate over time and then we’ll have our main market for unregistered equities which could be game changing. This isn’t quite what Dave was arguing for but it is a step towards it in many ways.

Even without the need for VC liquidity I think this would have come to bear. The increasing regulation of public companies is becoming unbearable for many managers and directors while also adding a lot of expenses into businesses. This is why so many large companies are choosing to be bought by PE firms and brought private (CDW is a great example).

This is a very exciting time for finance/business geeks like myself. Finance can be very innovative and we’re seeing the proof of that right now. I can’t wait to see how these new markets work out.

Crisis or Opportunity? My take on the Bear Stearns buyout

Posted on March 17, 2008
Filed Under Business, Investing | 1 Comment

Wow. Who would have thought a year ago that Bear Stearns would simply crumble like it did? The stock was around $140, things were looking good and, bam, the mortgage crisis hits and Bear Stearns stock enters into a tailspin that “ended” today at $4.10 per share (a couple bucks above the proposed buyout price of $2 which could mean shareholders are optimistic that the deal price will edge up in the coming days and weeks).

As a long time student of the financial markets (and not an owner of Bear Stearns stock) today was one of those days that gets me excited. Will there be a massive sell off? Further loss of wealth? Or will people be rational about things and take this situation for what it is, a “trimming of the fat” if you will?

With all the sensational media coverage early this morning I feared the worst. I figured investors would send the market into a downward spiral. Investors have overreacted in the past so why would today be any different? Then, Maria Bartoromo appeared on the TV and, lo and behold, was pretty rational about the situation.

Maria spoke about this situation being a good thing for markets long terms and suggested this was not a huge crisis of epic proportions and in fact a good thing. I almost fell off my couch not because Maria is usually sensationalist (she is usually level headed actually) but because she was the only media person not talking about doomsday. It was then that I had hope that this time things would be different.

As the day unfolded there was, as to be expected, a run to the big blue chip stocks sending the Dow up 21 points for the day (partly due to JP Morgan’s stock rising about 10% due to the deal). Holy smoke! It was up! Of course the S&P and the NASDAQ ended down but not by too much. They were only down 0.90% and 1.60% respectively at the close of trading and some companies in various sectors had OK to good days in both of those indices.

It seems that investors acted fairly reasonably today and recognized this situation for what it was: a consolidation that needed to happen in order to maintain stability and to allow things to push forward.

If anything today was a day to consider buying solid companies (which a lot of folks did) since a lot of them would be selling at a discount due only to the Bear Stearns sale and not to anything they could control. Today was a day for the smart value investors to step up and shine.

What a fascinating day. The mob could have ripped the markets to shreds but they didn’t. Well, I guess there is always tomorrow but for now I am impressed with how things turned out. Are investors getting smarter and more rational? Who knows but if today is any indication I think we’re heading in the right direction in terms of mindset.

Sustainability: Services - not Products - Are the Key to Aligning Interests

Posted on February 14, 2008
Filed Under Business, Environment, Sustainability | 4 Comments

Updated on 2/15/08

As can be seen throughout the posts on this blog I have begun to look deeper into environmental issues, sustainable businesses and business practices over the past year. While I am admittedly new to the topic and still have a lot to learn I have picked up a lot fairly quickly and have had a lot of interesting ideas pop up.

In fact, I picked up another interesting idea while hanging out with a friend of mine last weekend. The topic of sustainability came up during our conversation and we started talking about business models around sustainability.

My friend brought up a great point and that was that current product based companies interests are not aligned with those of the environment.

As seen in the Story of Stuff, product companies want to design products that won’t last forever so consumers will buy more. In fact, product companies try to figure out how short of a life span products can have where the companies brand remains in tact and consumers will go out and purchase another one of their products (disclaimer: not all product companies work this way of course).

So how do we get the interests of product companies and the environment aligned? The answer is simple:

Selling services not products.

Update: Selling services instead of products is called “servicing” in green business circles.

For example Carrier - the A/C manufacturers - could do deals where they charge monthly/yearly for air conditioning services. They install and maintain the equipment and agree to keep your air at x temperature for $x per month/year.

This creates a situation in which Carrier wants to build better products that have a very long usable life and products that are super efficient since Carrier assumes the capital costs and costs to run the machines. Pretty interesting, right?

Update: The A/C idea was originally brought up in the book Green to Gold:

By offering “a service instead of a product, a company profits by reducing its use of materials and energy, and providing that service at the lowest cost possible. Lovins argues, for instance, that air conditioner manufacturers should offer cooling as a service - not AC units as a product - so they’d have an incentive to make the systems highly energy efficient. In some green business circles, the idea of recasting a product as a service, often called “servicing,” is the holy grail of environmental innovation.”

I have heard of a company employing a similar type of service model for carpet as well. This company has a carpet system that consists of a number of squares that link together. When a high traffic area is worn out, they simply come into the building, pull up the affected squares, replace them and recycle the old squares. In this situation the company does not charge for the carpet itself, they charge for the service (floor covering services) which causes them to want to create very durable and reusable products.

Update: The company is called InterfaceFLOR and more info can be found on their site.

There are many other product businesses that could employ a similar service model rather easily (in the scheme of things) by figuring out the costs and creating a pricing situation that makes sense for them and for the consumer.

What other industries do you think could employ a “service” makeover?

Update: I have a lot to learn and a lot more to read on this subject. If you are interested in reading and learning more as well please check out the comment on this post left by Peter Christensen as he outlines the best reads for the topic of green business.

Patriots Postmortem: Three things this season and Super Bowl XLII can teach us about start-ups

Posted on February 4, 2008
Filed Under Business, Sports | 1 Comment

So, last night was a stunner to say the least. New England is still reeling from the loss and the pundits are all analyzing and re-analyzing the game to death. I am sure they will continue to do so for years (or at least until the Sox take the field in a few months). However, I think it’s interesting to look beyond the surface of the game for a few minutes. Beyond the Patriots offensive line’s massive breakdown. Beyond Ellis Hobbs’ poor defending. Beyond Matt Light’s few false starts.

Once we get passed all that I think there are three things we can pick up from super bowl XLII and from the Patriots season that relate to business and start-ups in specific.

The mighty can, and do, fall:

The Patriots were more or less invincible this season and they have been a force for about seven years now. However, they fell yesterday night to a team that, by all accounts, was not the better team. Clearly anything can happen on any given day and the Giants (specifically the defense) really stepped it up last night and made things happen.

Start-ups know this is true as well which is partly why they take on the challenges they do including competing with large companies that, to any outside observer, they have no business beating.

Underdogs can take more risk:

Last night the Giants took more risks than the Pats and their risks paid off. The Giants were able to take more risks simply because they weren’t expected to win while the Pats played more conservative football. The Giants pressured our offense at the line at the expense of covering our receivers better and while that could have resulted in some big plays for the Pats it didn’t because the defense at the line was so strong Brady never had a shot to throw. Pressuring the offense at the line was a risk that paid off big for the Giants.

Start-ups also have a similar advantage over large companies. Since larger companies are very concerned with keeping their current revenue streams in tact (due to responsibility to shareholders, etc.) and due to the fact that they are larger and slower to move they sometimes don’t take risks they should leaving themselves vulnerable to start-ups who, by all accounts, shouldn’t win.

Heart really makes a difference:

Last night it was obvious that the Giants just wanted it more. They played harder than we did and they deserved to win that game.

You have to have heart (a.k.a. passion) in business as well. It plays a larger role than I think people think it does. Start-ups with heart can win battles that they technically shouldn’t making them a threat to the big guys.

While I am pretty bummed out with regards to the outcome of the super bowl I am glad that some lessons came from the game that I could share here. All I can say now is, go Sox!

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