On the back of a successful 2009 conference that featured billionaire Sir Richard Branson and 43 other prominent speakers and business success stories, PerfectBusiness is orchestrating an even bigger event this year, The PerfectBusiness Summit 2010, to be held in Las Vegas at Palms Casino’s 2,500 seat concert theater on October 7 – 8.

What the people in this room are doing is creating things which will make a difference to other people’s lives.

- Billionaire Sir Richard Branson at The Perfect Pitch 2009 conference

Watch The Perfect Pitch 2009 highlights.

The PerfectBusiness Summit 2010 is a 2-day event that showcases more than 60 powerful speakers, including world-class CEOs, founders, and business leaders, as well as celebrated investors who represent US$10 billion in investment capital.

This year, our own Joey Lo (Venture Hype) along with fantastic judges like

• John Babcock of Rustic Canyon Partners,
• C. Bryce Benjamin of Tech Coast Angels & Alta Ventures,
• Dan Bliss of PerfectBusiness,
• David Marshall of Santa Monica Capital Partners,
• John Nelson of California Capital Partners,
• Scott Sangster of Tech Coast Angels & OrganicStartup,
• Josh Stein of Draper Fisher Jurvetson & DFJ Global Network,
• Mark Suster of GRP Partners, and
• Andy Wilson of Momentum Venture Management

will once again evaluate pitch submissions received from all over the world. Promising entrepreneurs will win the opportunity to present at the PerfectBusiness Summit 2010.

If last year’s event is any indication, the judges will be up for a difficult task. The quality of talents and pitches PerfectBusiness received in 2009 were astonishing.

Are you an investor? Network in style with other investors and discover promising entrepreneurs at the PerfectBusiness Summit 2010. See a partial list of speakers and attendees and order your ticket here.

We say, give the judges an even harder time. Make them pull their hair out. Challenge them to seek out the bestest from the best.

You in? Enter the pitch competition in any of the 3 categories:

• Start Up businesses
• Established businesses
• Students (college/university)

The Top 3 submissions in each category will each win the following package:

• 2 VIP Tickets to the PerfectBusiness Summit 2010
• Airfare to Las Vegas and limousine to hotel
• 4 nights’ accommodation at the Palms Casino
• Opportunity to present LIVE to the PerfectBusines Summit 2010 audience

The winner in each category will receive:

• Perfect Pitch 2010 Award
• National media exposure
• Investor introductions
• Prize package from Deluxe Corp valued at more than US$2,000

PerfectBusiness encourages you to submit your pitch early to receive feedback or assistance. Last-minute pitches won’t receive this privilege. Sorry.

We were seeking funding that valued our company at US$10 Million dollars. We just received a commitment from an individual putting in another half a million dollars that is valuing our company at US$200 Million dollars. This increase is due solely to the amazing exposure we received and the people we met at The Perfect Pitch 2009.

- Dan Didrick
Winner of The Perfect Pitch 2009

Imagine being the winner of The Perfect Pitch 2010 and receive the funding you need to build your business empire. Don’t deny yourself the chance to experience that “pinch yourself moment”!

Learn more about the event and submit your pitch at the PerfectBusiness Summit 2010 website.

Alliott Cole

It’s no secret that investors fight head over heels for sizzling deals and promising entrepreneurs to increase odds of success and potential returns. But when demand for quality deals exceeds supply, you better come up with exclusive, creative, or effective ways to lure the Steve Jobses of tomorrow.

How to compete for hot deals? Are startup competitions a source of quality deal flow? What are the key terms to negotiate?

From deal sourcing and picking winners to negotiating terms, Alliott Cole of Octopus Ventures shares his perspectives with Venture Hype.

Alliott Cole and Octopus Ventures

Alliott Cole (@alliott) is an associate director at Octopus Ventures (@OctopusVentures) and a director at the British Business Angel Association (BBAA). He’s a broad member of several startups and he devotes his time advising and discovering promising entrepreneurs at the University of Oxford society Oxford Entrepreneurs.

Octopus Ventures is an award-winning early-stage investing firm in the United Kingdom. Its model is unique in that it prefers to back exceptional entrepreneurial teams rather than specific sectors, and co-invests with a private investor group, Octopus Venture Partners, in every investment. The group of private investors is made up of 110 scientists, entrepreneurs, businessmen, and leaders of commerce who can add value to the companies they back.

* Edited interview

Sourcing Deals

VH: How does Octopus Ventures source quality deals?

AC: Most entrepreneurs — around 4,000 companies each year — come to Octopus Ventures directly or are referred to us via the Octopus Venture Partners group. We also receive many introductions via corporate financiers and other venture capital houses.

In addition, I’ve been running monthly “Open Office” sessions in Oxford for undergraduate entrepreneurs and MBA students in the last 2 years. Similar sessions are also held periodically at our London office.

We also actively reach out to entrepreneurs through panels, conferences, and networking events.

VH: Competition is fierce for hot deals. How should investors position themselves as the most suitable/preferred investors for such deals?

AC: Not an easy question to answer!

At Octopus Ventures we look to build enduring relationships with entrepreneurs and to continually help their businesses in as many ways possible.

In competitive situations, we always ask the entrepreneur to do his or her own due diligence on Octopus. We encourage them to speak to the businesses we’ve partnered with in the past. We hope this will give a candid and accurate picture of Octopus and our modus operandi.

As to how should other investors position themselves as the most suitable investor for a deal, I think it comes down to building a strong, equal, and open relationship with the entrepreneur; communicating clearly at every stage of the negotiation; and demonstrating a proven ability to add value to growing businesses.

VH: You also judge startup competitions like the Innovate!100 competition held in March. What do you think of this type of deal flow?

AC: I love meeting entrepreneurs. Their enthusiasm and conviction is inspiring and infectious. If you add in the pressure and expectation of a pitching competition, you often witness something very special.

I’m always impressed by entrepreneurs who can thrive in this environment, articulating their proposition concisely and with force. I think these events provide a great source of deal flow for investors. I try to attend them as often as possible.

Picking Winners

VH: What do you look for in the businesses you invest in?

AC: For the most part, Octopus invests in companies that have revenues but may not be beyond breakeven.

We believe that the team is the single most important factor. We look for effective, inspiring individuals who can infect those around them with excitement and passion of their proposition.

Second to this, we look for companies that can scale quickly into big businesses addressing large markets.

Finally, these companies must resonate with the Octopus Venture Partners group.

To this end, the business must be simple to understand, has a product or service of value, with a clear route to market and a defined customer.

Negotiating Terms

VH: How does the negotiation process work?

AC: Octopus Ventures looks to build strong partnerships with entrepreneurs from the outset and the negotiation process is a critical element of this.

We provide detailed and lengthy heads of terms so that the entrepreneur can negotiate all of the critical terms of an investment at the same time — before committing his or her business.

Someone once described this process as moving in ever decreasing circles until both parties come together at an agreed focal point. We like to do this face to face and in an open and frank manner.

If the process becomes too difficult, we’ll agree to disagree and step away from the negotiation. It’s not in the interest of the entrepreneur or Octopus to force a partnership if either party isn’t directly aligned with the other.

VH: From an investor’s perspective, what are the key terms to negotiate? Why?

AC: The valuation of the business and structure of the investment are key terms.

It’s critical for all stakeholders in a business to negotiate terms that aren’t only fair and workable for the present but also for the future.

Early-stage companies often require several rounds of finance. Entrepreneurs and investors should be careful not to agree to terms that might make the business unattractive for follow-on investment (e.g. unrealistic first round valuations; complex distribution rights; ratchets and/or anti-dilution provisions) or misalign stakeholders when there are key strategic decisions to be agreed (e.g. on an exit).

It’s also important to strike the right balance on governance and ensure that nothing will prohibit efficient decision-making and action.

VH: Entrepreneurs and investors often disagree on valuation. How do you go about negotiating a realistic valuation with these entrepreneurs?

AC: Investment structures like ratchets and distribution preferences can be used to bridge these gaps, but they run the risk of misaligning the stakeholders in the business. And such structures may lead to bigger problems at a later stage.

With this in mind, a frank and fair agreement is always preferable but there’s no quick and easy route to arrive at this outcome.

To date, Schachter has invested in “34’ish” startups. His deal flow includes some of the hottest startups like Foursquare, Square, and Bump Technologies – deals that definitely not your average “junior” angel can get into.

We scoured the forum and found that buried within the Q&As are tips and insights helpful to truly beginning angels. Let’s check out what motivates him to invest, how he got access to such awesome deal flow, and how he “filters the crap.”

Joshua Schachter and Delicious

Schachter says he “never really had the idea of building businesses, just interesting things.” One of the interesting things turned out to be Delicious (former Del.icio.us), a popular social bookmarking service every cool geek and tons of non-geeks are using.

Schachter was an analyst at Morgan Stanley when he started Delicious as a side project in 2003. The social bookmarking site took off quickly and had received acquisition offers in the US$250,000 to US$500,000 range.

Feeling that Delicious would worth more if he’d work on it full-time, Schachter declined all offers, quitted his job at the bank in March 2005, and raised under US$2 million venture capital. The round was led by Union Square Ventures.

In December 2005, Schachter sold Delicious to Yahoo! for a reported US$30 million, according to BusinessWeek.

From Entrepreneur to Angel Investor

Schachter left Yahoo! in 2008 and joined Google in 2009 to take on an engineer role. He says he still enjoys building something interesting every year. More interesting to us, though, is the portfolio he’s been building as a self-proclaimed “junior” angel investor.

The outspoken entrepreneur-turned-angel stresses that he’s a small investor who typically invests between US$10,000 to US$25,000 per company whose valuation is between US$2 million and US$5 million.

He makes it clear that he’s still learning so he doesn’t lead, negotiate terms, syndicate deals nor would he sit on boards. All these are left to the lead investor of each deal. “So that makes me subordinate to people who do these things; they are therefore my senior,” he insists.

What Motivates Him

Schachter believes that angel investing “pays vast dividends outside of dollars.” He can “get connections, notoriety, experience, exposure, and so on.” He says, “I know about a lot of what’s going on in the Valley right now, for example.”

Other usual suspects are to

• make decent returns;
• avoid getting bored; and
• stay near to interesting projects.

So far, he finds that saying “no” to so many entrepreneurs is the hardest part of being an angel.

Awesome Deal Flow

A quick research reveals that Schachter has got his hands in deals like Bump Technologies, DailyBooth, Foursquare, Heyzap, SimpleGeo, Square, and Twilio. Mind you, these are high-profile outfits that many “senior” angels would drool after.

How did he get into these deals? Well, the fact that he’s the founder of the widely popular Delicious makes it so much easier to meet other A teams and promising entrepreneurs.

Schachter says:

Foursquare: I knew Dennis from NYC.
Square: I knew Jack from twitter.
StackOverflow: I was on a panel with Joel once.
Canvas: I suggested Moot to TED and introduced myself at the conference.
Dailybooth: Asked for an introduction to me.

Other than that, his deal flow comes from all directions. “One of my best investments came from a chance meeting with the now CEO at a party,” he adds.

But Schachter isn’t fond of email pitches. Unless the entrepreneur in question has done something great (e.g. built a successful company that he’s heard of), like most experienced investors, he prefers to invest in people he knows or has met. “Cold emails rarely turn into anything,” Schachter comments.

Proximity Matters

Despite what entrepreneurs want to believe, proximity still matters to experienced investors (except when the investor has a trusted syndication partner across the border). After all, trust and face-to-face contacts are crucial in angel investing.

Schachter doesn’t invest in companies that are out of his networks (Bay Area and New York). “I don’t like doing deals sight unseen,” Schachter avows.

Filter the Crap

And rarely does he invests without seeing a working prototype first — preferably a first version that’s already online and attracting users, rather than a prototype with just a few basic concepts. Schachter says that this “keeps a LOT of crap out of the way.”

He concludes that bad entrepreneurs are those who

• don’t have a prototype;
• will only walk him through the prototype in person;
• won’t even tell him what the product does without a meeting;
• don’t know how to communicate (way too verbose); and/or
• don’t have a clear pitch to deliver.

Coming Up

Next, we’ll look at the kind of deals that get his attention, his observations on round size and deal structure, and some of the fun stuff we picked up along the way.

The article draws upon information gleaned from leading platforms SecondMarket and SharesPost.

“[As] opposed to large institutional investors or the companies themselves, looking to raise capital,” small shareholders who are looking to sell their shares – employees, ex-employees, founders, and early stage investors like angels and Series A VCs – appear to be generating the most activity on these electronic marketplaces.

And for the moment, traditional secondary investors aren’t really threatened.

SecondMarket and SharesPost

SecondMarket came onto the scene as a licensed broker-dealer and at the same time SharesPost – an online platform where buyers and sellers of private companies stocks can find each other – made themselves known.

Despite the fact that the future of online secondary marketplace businesses is not yet clear, SecondMarket boasts US$150 million in trades in the first three months of this year.

SharesPost itself has clocked up enough interest to register more than 16,000 members, with the average post coming in at the not-so-paltry US$1 million mark.

“In the first two months of this year, members were actively negotiating over US$279 million worth of posts.”

In the Eyes of Traditional Secondary Players

Traditional secondary players are normally on the rummage for bigger deals than those offered on these online marketplaces. Even so, Hans Swildens, principal of secondary firm Industry Ventures, said the likes of SecondMarket and SharesPost are a great exposure to new opportunities.

David Watcher, managing director of secondary firm W Capital Partners, said although he sees a market opportunity in online secondary marketplaces, “the firm finds most of its deals directly, not via marketplaces or agents.”

[These electronic exchanges are] in a business where personal connections are often essential. Wachter doubts that any part of private equity or venture capital lends itself to a truly liquid exchange.

“There’s just too much due diligence that’s required and a level of relationship that needs to take place before any deal can be done,” he said.

But SecondMarket head honcho Adam Oliveri is tipping his company and its cousins will “make inroads” in about 5 years, when the venture investor market comes to grips with a new way of doing things.

Your thoughts?

This is the first in a two-part series.

ABC’s reality show “Shark Tank” has helped bring the concept of angel investment to the mainstream. Millions of Americans who had never even heard the term now tune in each week to watch hard-working entrepreneurs pitch their investment proposals to self-made millionaires.

In the show, entrepreneurs are forced to sell their ideas and themselves before an imposing panel of investors. These small business practitioners must ask for a specific amount of money from the investors, who in turn seek a percentage of ownership stake.

Entrepreneurs typically unleash a torrent of impassioned pleas, tears and promises of future profits. The sharks, meanwhile, poke, prod and push to find holes or weaknesses in business plans and revenue models, all the while jockeying for position on the really standout pitches.

In essence, it’s reality television at its tension-building best. Too bad it’s giving viewers a warped view of what angel investment is really about.

Here are five ways that “Shark Tank” gets it wrong, along with the bad lessons it’s teaching entrepreneurs and angel investors.

1. Pre- and post-money valuations

In one episode, an entrepreneur says he is seeking $250,000 and will give up 1/3 of his company. The investor then questions the entrepreneur, asking how he can justify a valuation of $750,000 when they don’t have much in sales.

Here’s the problem: The shark isn’t correct in his valuation. The entrepreneur is not valuing the company at $750,000. He is valuing it at $500,000. This is the pre-money valuation or the valuation before the investment. Once the investment is made, the company would be valued at $750,000 — with $250,000 of that coming from the investor. And that $250,000 would get 1/3 of the post-money valuation. So the entrepreneur should not be forced to justify how the company is worth $750,000.

Instead, he should need to justify a $500,000 current (or pre-money) valuation.

2. Wacky company values

In the same episode, the investor claims valuations are based on a multiple of revenue or profits. However, this is not accurate in a startup or early-stage company.

Valuation amounts are generally placed on other things such as management, market potential, intellectual property and a few other key essentials. Sales can help justify a higher valuation, but they are generally given very little weight for startups and early-stage companies.

3. Unrealistic time frames

On “Shark Tank,” investors and entrepreneurs shake hands and seem to agree on a deal very quickly. But deals of any real merit are very rarely done without a significant amount of due diligence to help verify claims, checking out the entrepreneur and other things common in any due diligence process.

The idea of a quick shake and a sudden influx of capital runs counter to the measured and deliberate nature of angel investing. Angels didn’t make money by blindly rushing into business deals while relying on gut instinct alone.

4. One-track negotiations

When entrepreneurs and sharks are negotiating a deal, the focus is entirely on the valuation of the company and the investment amount. While these are clearly important to both stakeholders, the terms of investment deals in the real world of angel investing include a wide array of other cornerstones. We’re talking about things like stock options, liquidation preferences and so much more.

5. Adversarial relationship

For the most part, “Shark Tank” makes it seems like angels and entrepreneurs are pitted against each other. But it’s really not a zero sum game. Both sides are fighting earnestly for the same thing — to build a successful company with terms that provide mutual benefit and long-term growth.

Stay tuned for Part 2 of the series.

Interested in submitting an article to Venture Hype? Just follow these guidelines to get your article featured.

According to Wikipedia

A Research park is a research facility which is often linked with a major research university. Throughout North America, there are more than 170 research parks. They exist to create linkages between the university, industry and the community.

Combining the knowledge assets of a community with local business expertise in order to create high-paying jobs is the raison d’etre of research parks. Today, there are major research parks in many countries.

“AURP published a report indicating that about 750,000 jobs are supported by research parks in North America,” says Brian Darmody, president of Association of University Research Parks (AURP).

Not only that, parks around the world often cooperate and collaborate to help companies within the parks launch their international expansion. In essence, research parks play an important role in helping emerging companies grow and go global.

In part 1 of the interview, Darmody talks about tech-led economic development and research parks. Part 2 will center around technology transfer.

Brian Darmody

Darmody was a staff member in the U.S. House of Representatives; the Maryland General Assembly in Annapolis, Maryland; and the Office of the Attorney-Advisor, U.S. Health Care Financing Administration. He currently leads AURP, sits on several local and national economic- and technology-related boards, as well as serves as the associate vice president for research and economic development, and special assistant vice chancellor for technology development with the University System of Maryland.

Among other achievements and economic contributions, Darmody has developed legislation to create the Maryland Technology Development Corporation (TEDCO); authored reforms to the State’s ethics legislation for entrepreneurial startups; organized University of Maryland’s first technology transfer office; and initiated Research Parks Maryland (RPM), the nation’s first statewide research park organization.

* Edited interview

Tech-Led Economic Development

VH: What sparked your interests in the complex tech-led economic development? How did you get started?

BD: I used to work for a state delegate and for a member of Congress 20 years ago. And as the government affairs representative for the law school I was attending that time, I got involved with bringing elected officials to the campus. One thing I noticed was that the elected officials loved visiting our technology incubator and talking with entrepreneurs.

Around the same time, the Bayh-Dole Act had just passed on the federal level, giving universities the right to own IP from federal contracts and grants. People were interested in seeing how research universities could be the innovation assets to stimulate the economy.

Back then, the interface among universities, public entities, and private companies was a growing arena that not many people were working on. I could see that tech-led economic development was going to be a new mission for research universities.

VH: For someone who’s interested in getting involved with tech-led economic development, what qualities must this individual possess?

BD: Curiosity, persistence, and not taking ‘no’ for an answer.

I just read a Harvard Business Review study on qualities that make good entrepreneurs. The research showed 5 common attributes:

1. Associating — connecting unrelated ideas to different fields
2. Questioning — asking “why not?”
3. Observing — thinking like a customer or stakeholder
4. Experimenting — trying out prototypes and methods
5. Networking — key traits of entrepreneurs and leaders

I couldn’t agree more. I think this is true for an entrepreneur as well as for someone working in tech-led econ development arena. You need to think of yourself as an entrepreneurial bureaucrat, as oxymoronic as that might seem.

Research and Technology Parks

VH: Elements that are beneficial to a startup would help smoothen its path to success, which could be financially rewarding to the startup’s investors. So for startups, what are the benefits of being in a research park?

BD: The real benefits are

• being proximate to other technology companies;
• having access to a highly educated work force at the university (grad students make great part-time employees for many research park companies); and
• developing networks of like-minded companies into a Community of Innovation

Although startups can find cheaper real estate options elsewhere, the companies would be fairly isolated. At AURP, we issued a paper called the Power of Place [pdf], which discusses some of the better science and connections that can be developed from being in a research park.

VH: How can investors and angel groups collaborate with research parks to commercialize R&D and fund university startups?

BD: Angels look for the best investment deals in their region. These deals can often be found in incubators or university research parks. Most universities have connections to, and programs to work with, angel or other investor groups. Investors can invest in incubator or research park companies through this type of program.
For example, University of Maryland administers a regional angel investor network called CAN (Capital Access Network).

Stay tuned for part 2 of the interview next week as Darmody carries on the conversation on technology transfer models, the role startups play in tech transfer, favorite company success story and more.

* VH: Special thanks to Mark Long for recommending Brian.

Link:

• One Stop Shop at University of Maryland

He’s helped Washington University rank first nationally in the number of licensed technologies.

He’s greased the wheels for tech collaborations and business incubation development throughout the state of Indiana.

And he’s acted on behalf of the National Business Incubation Association (NBIA) and presented an intensive training program to incubation professionals in China and Malaysia.

He’s Mark Long, former president and CEO of both Indiana University Research and Technology Corporation (IURTC) and Indiana University Emerging Technologies Center (IUETC), a life sciences incubator.

With over 3 decades of experience under his belt, Long is now the man behind Long Performance Advisors (LPA), a consulting firm specialized in business incubation, technology transfer, and business and economic development.

If you’re interested in founding an incubation facility or are keen on investing in incubator companies as part of your angel investing strategy, you’ll want to hear what Long has to say.

* Edited interview

Long’s Story

VH: How did you get into the incubation field? What’s your story?

ML: I’ve been in the medical diagnostics/device business quite a while, in a private company and in a division of a larger company. So, I’ve seen the “technical side” of business and have observed new technologies being taken to market.

As the former Director of Technology Transfer at Washington University in St. Louis, I worked closely with the incubators there (the Center for Emerging Technologies and the Nidus Center) and saw the positive economic impact incubators could have on a community/state.

At Indiana University, I had the chance to build an incubator from the ground up and build new startups to put in that incubator – the best of both worlds. It was a great experience, and I learned even more about how incubators positively affect the local economy.

VH: Throughout the years of operating and helping others in the incubation industry, which favorite anecdote can you recall?

ML: Well, we’ve all had the “chickens” story – which really did happen. When the news release went out about the start of our facility, we received a phone call asking if we wanted to purchase heaters for our eggs…

Mark Long "The King"!

But my favorite story happened on one Halloween night. The fire/burglar alarm at our building kept going off for “no good reason.” (It turned out that there was a short in the wires.) I had to drive back to the building to enter the code number, shut it off, and check the building for safety.

Remember, it was Halloween, and I was in “full costume.” It was about 8pm, and some of the scientists were still there in their labs. You can imagine the confusion on their faces when “Elvis Presley” suddenly popped up in the building, walking around, checking all the stations for fire and glass breakage while asking if everyone was okay. Good thing the police didn’t show up!

Working with Incubators / Investing in Incubator Companies

VH: Both angel investors and incubators invest at the earliest stages of a company. Can you give some examples as to how angels can benefit from working closely with an incubator?

ML: The true benefit of working with an incubator for angels is “pre-screening.” When an angel investor works with an incubator, that investor has the advantage of knowing the candidates in that facility have been “pre-screened” for selection into that incubator.

Most facilities have a rigorous entrance qualification. The company’s financials, management team, and business plan have all been carefully examined before the company is approved for admission into the facility. This spares the angel investor some due diligence and gives some assurance that the company is legitimate or it’d not have been admitted in the first place.

This may not be true everywhere, but a quick review of the facility’s admissions criteria will help the angel investor determine the degree of diligence that’s already been performed.

VH: Are there any criteria that angels must satisfy before the incubator would partner with them? Or is money the only concern?

ML: Money can never be the only concern. Investors must be “qualified” investors. They must have an interest in the true mission of the incubator and its clients, and they must understand the process of incubation.

My favorite quote about incubation is “It’s an incubator, not a microwave.” In other words, it takes time. Investors who don’t understand the incubator’s mission and how an incubator works won’t be satisfied with investing in incubator companies.

VH: How should an angel evaluate an incubator to determine whether it’s worthwhile?

ML: Typical metrics include the incubator’s –

• mission
• pipeline
• graduation rates
• management team
• history or track record
• focus or types of companies it services, e.g. mixed use, biotech, hi-tech, kitchen, cleantech, information tech

VH: What’s the process of working with an incubator? What should the angel expect?

ML: Many incubators don’t have a formal, structured process or agreement for working with angels. Rather, they serve as a “conduit” or type of “marriage broker” who connects the angels with suitable companies that need funding.

The primary mission of most incubators is to “do what it takes” to ensure the success of their clients. In most cases, that typically includes assisting clients to find proper funding. Therefore, terms, process, investment structure, etc. will vary from deal-to-deal.

Join Venture Hype next week as the rock star imparts his expertise in founding an incubation facility — an interview not to be missed for those who are serious about this option.

* VH: Special thanks to Sandra Cochrane for recommending Mark “Elvis” Long.

Link:

• Long Performance Advisors
  

Over the past 30 years, Zwilling has led technical business transformations, held a wide range of tech management roles, as well as done due diligence and funding analysis for investors. Though he does little investing, Zwilling has a world of knowledge to share with new and aspiring angel investors.

Zwilling is a member of the Arizona Angels Venture Group, managing partner of Southwest Software Ventures & Consulting, CEO & founder of Startup Professionals, and advisory board member for several startups.

* Edited interview

VH: You started your career as an executive in software engineering. What’s your story?

MZ: My initial career was with IBM, where I held many positions over the years in sales, technical support, services, and software development. I was part of the early IBM PC Development team in the early 1980s that worked with Bill Gates, and many other industry executives. I managed software development for early versions of PC DOS, and later software test tools, compilers, and applications.

I left IBM in the 1990s to work for a couple of startups in Silicon Valley and learned many things about software development, investing, and startup operations. About 4 years ago, I moved to Phoenix, AZ, and decided to focus on the business side of startups, including joining the local angel investment group.

VH: How do you identify promising opportunities? What are the characteristics?

MZ: Opportunities come to me through the angel group, through my blog, and other personal contacts. Like most investors, I look for a solid business plan, and give high priority to the qualification of the startup executives.

Investors invest more in the people, than the ideas. Also, I’d only invest in local opportunities, because I like to “touch and feel” the company and key people.

VH: When investing in startups, what terms would you insist on, if any?

MZ: There are no magic terms. Every case is different. Like most investors, I tend to focus on the percent of the company offered (valuation), and like to see traction — some revenue and customers to show a proven business model before investing.

VH: How would you explain the due diligence process and funding analysis to Kevin, a new angel investor?

MZ: Due diligence is just independent verification of as many facts as possible, and validation of the startup executive backgrounds.

The process involves talking to all the key players in the startup, calling their references, talking to industry experts and customers to validate their claims, and logically analyzing their business plan and financial model. It’s hard work, but doesn’t really require any special skills.

VH: How would you explain “proof-of-concept” to Kevin? How does he know whether a startup’s idea has passed proof-of-concept?

MZ: “Proof-of-concept” for the product means at least one of the products has been built, tested and works.

“Proof-of-concept” for the business model means that at least one has been sold for the normal price (give-aways don’t count), and has the expected profit margin.

Both of these are important and easily verified.

VH: Kevin is presented with the opportunity to become a member of the board; what can you tell him about the formalities, if any?

MZ: The biggest concern these days is liability of board members for company problems. He should make sure he’s indemnified and insured against liability. All else is like a normal employment agreement.

VH: Kevin is planning to make a small investment of US$10,000 and he wants to know how big a slice he should get. What should he do?

MZ: With a small investment like $10,000, he’ll be a minor player. As such, he should follow the lead of the major investor to get a proportionate share. Major players will absorb the cost of valuation validation.

VH: Kevin wants to learn more about various deal structures. What can you tell him?

MZ: All investors expect preferred stock, to get first shot at any proceeds if the company is dissolved or sold.

Convertible notes are a good alternative in early-stage investments if the valuation is unknown now or very low.

VH: He also wants to know which structure you prefer. Why?

MZ: Preferred stock – for reasons listed above.

VH: Kevin is now going to invest US$100,000. He’s worried about dilution and would like to know if there’s anything he’d do to prevent it.

MZ: Nobody can prevent dilution, if the company gets into trouble and needs more money than planned. The alternative is to watch the company die. Would you rather have a larger percent of nothing, or a smaller percent of something?

* Martin was recommended as an interviewee by Clynton Caines.

Link:

• Startup Professionals Musings

The main argument for a shark-fee-based pitching system is to cover costs and weed out frivolous entrepreneurs. The rationale is that if an entrepreneur is serious enough to pay thousands of dollars to pitch to an angel group then his idea must be worth hearing.

True, some entrepreneurs might see this as a shortcut to get in front of the investors, but many promising individuals simply look elsewhere or find a way to look elsewhere. They don’t buy opportunities; they create opportunities. And investors in such angel groups miss out on what could be a solid investment.

I’m not suggesting that all angel groups that charge a fee are scams. For some, a cost of several hundred, max, might be justified. But asking cash-strapped entrepreneurs to cough up thousands of greenbacks is a whole different story.

Real angels create wealth by investing in promising startups, not by charging entrepreneurs pitch fees. Set investment guidelines and look at the text or video submissions you receive. You can quickly tell who’ve done their homework and followed your criteria. Weed out those who haven’t. No need to put a ridiculous price tag to help make this assessment.

Shark hunters like Calacanis are out there. It’s just a matter of time sharks are turned into shark fin soup.

Note: Angel Capital Association (ACA) has published some guidelines for entrepreneurial fees [pdf], which include a survey and the association’s recommendation to angel groups regarding charging fees:

The fees should be no more than a few hundred dollars for applications and no more than [US]$500 for presentations. Transparency to entrepreneurs is of utmost importance, so full information about fee amounts and what the fees are for should be included on the group’s home page and/or other prominent portions of the site and other important promotional materials.

Based on a 2008 survey of ACA member groups’ fee practices, 62.2% don’t charge any fees. For the remaining 37.8% that do, application fees range from US$55 to $250 and presentation fees range from US$175 to $750, with two “outliers” at US$1,500 and $3,000.

Sir Richard Branson of Virgin Group

If you’ve been on Twitter, or if you’ve been following Venture Hype on Twitter, you should’ve heard about The Perfect Pitch Competition with Sir Richard Branson. We’d been tweeting frantically about the competition and so did you. More than 1,000 entrepreneurs from all 50 states, plus an additional 8 countries, entered the contest for an opportunity to pitch directly to celebrity VCs and billionaire Richard Branson at The Perfect Pitch Conference, scheduled for Monday, October 26th, 2009 at the Ritz-Carlton in Marina del Rey, California.

To create the “Perfect Pitch,” entrepreneurs were instructed to pitch a one-minute short video or a short written description that would compel investors to take a closer look at their business. In their pitches, entrepreneurs were expected to explain –

• the business
• the customer needs it fulfills
• the market size
• the competitive edge
• the strengths of the entrepreneur and his or her team
• and anything else that matters

The entries were STRONG. Venture Hype, represented by our very own Joey Lo, and other judges from August Capital, Baroda Ventures, Cal Cap Partners, Draper Fisher Jurvetson, GRP Partners, Momentum Venture Management, Qualcomm Ventures, Rustic Canyon Partners, Santa Monica Capital Partners, Tech Coast Angels, PricewaterhouseCoopers, etc., were faced with tough choices but had finally narrowed selection down to 10 entrepreneurs, who were then interviewed by Dan Bliss, Founder and President of PerfectBusiness.

After yet another judging round, the Top 3 Finalists have been named, and each are given two VIP tickets to the conference, airfare to Los Angeles for the event, a 2-night stay at The Ritz-Carlton, and an opportunity to present their startups live at the event:

Drum roll …

• Didrick Medical Inc., offering patented, prosthetic fingers
• ICON Aircraft, offering the next Powersport — personal aircraft
• Vubiq Inc., presenting Gigabit per second speeds at consumer price points

Tagged as the “Entrepreneur & Investor Event of the Year,” the Perfect Pitch conference will bring together hundreds of influential entrepreneurs and investors for a day of learning and deal making. Conference judges represent more than US$10 billion in funds. And the conference will feature a number of presenters and breakout sessions designed to appeal to entrepreneurs and investors alike. Whether you are seeking to make connections, gather fresh ideas, or learn from those who have already traveled the path, this conference offers a little bit of everything.

How do you ensure the next pitch you hear will be the perfect pitch? Attending The Perfect Pitch 2009 Entrepreneur & Investor Conference sounds promising.