Category:

Angels

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“JOBS” Law Has HUGE Impact for Entrepreneurs

April 5, 2012, Angels, Bootstrapping, Raising Money, Venture Capital
http://www.schoolforstartups.com/jobs-law-has-huge-impact-for-entrepreneurs/

Last week both houses of Congress passed the JOBS Act (JOBS stands for “Jumpstart our Business Startups”).  The law, making it easier to raise up to $1million from a larger pool of investors, garnered bipartisan support, passing the House 380-41 and the Senate 73-26 (all votes against were Democratic). President Obama indicated that he plans to sign the law on today, with Eric Cantor (a major sponsor) in attendance. 

The law will create very few jobs, the name is purely political, but has huge implications for entrepreneurial funding.  I think what excites me the most is that from now the excuse “I can’t find funding” is mute!  Funding is now so much easier to get, maybe too easy!  Can we say “invitation to fraud”?  And “You got funding for that?”

The big change is the formalization and government blessing for crowdfunding.  Crowdfunding opens startup investing to almost all individuals (is that good I wonder? The Hope Scholarship here in Georgia makes college much easier for all, and has hurt education I would argue!) and gives young companies more funding opportunities.  Companies can sell securities to non-accredited investors using the various crowdfunding platforms.  Websites such as Indiegogo.com, Kiva.com, and Kickstarter.com allow entrepreneurs to post business plans for thousands to read and possibly invest.  Instead of fighting to get meeting with pretentious venture capitalists and angels, entrepreneurs can get capital from willing small investors just by posting online.  Individuals making less than $40,000 a year will only be able to invest 2 percent of their annual income in startups. Those earning more than $100,000 can invest up to 5 percent.

The biggest change perhaps is the so-called 500 rule.  It becomes the 2,000 rule, meaning that certain SEC reporting is delayed until the company has 2,000 shareholders.  This extra room allows companies to sell shares to 1,500 extra people, the crowd.

For more advanced companies, they have greater flexibility in filing to enter the public markets, hopefully making it easier to IPO.  By allowing general solicitation, companies raising money will operate under new rules, which should make it easier.  But like the rest of the bill, the final implementation lies up to the rule-writing SEC.  Some VCs opposed this easing, arguing that going public is supposed to be hard.

The effect of all this?  Some crappy companies will get funded for sure. Fraud will go up, and the cheated will be the poorest, even though they are supposedly protected. The number of jobs will certainly NOT go up.  Nothing in the bill does that.

This is the most important aspect: funding should become much, much easier, even for bad ideas.  I predict that for awhile, 2-3 years, this sort of investing will be cool, in vogue.  Crappy ideas will get funded.  Everyone should list their young companies and see how much money they can get off the table.  Reduce risk, see how much Kickstarter money you can get.  I plan to.

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Indian Funding Landscape and Congrats to Ayush!

February 12, 2012, Angels, International, Venture Capital
http://www.schoolforstartups.com/indian-funding-landscape-and-congrats-to-ayush/

I wanted to reflect some more on my recent trip to India. In particular, I would like to share with you the things I learned about the Indian angel and venture capital community from a panel of experts that spoke at the IIT eSummit in Mumbai two weeks ago. The panel included Indranil Deb of Mobius Strip Capital, Pranav Bhuta of Guggenheim Partners Private Equity, and Taranjit Jaiswal of BoA.  The following list is taken from the comments they made….

  • the biggest problem is that successful Indian entrepreneur does not reinvest in India,
  • the US system is 10 times older, only 4-5 years old in India,
  • US education system promotes entrepreneurship better, especially in research, innovation,
  • there is a innovation bottleneck in India,
  • best time ever to raise money is now and its easier than ever before
  • In the last 24 months, many Indians are starting to come home to invest in India and the slow US economy is  drives money back to India,
  • VCs looking for non-tech entrepreneurship, it  was financial services 10 years ago,
  • tech entrepreneurship is not the only way and tech startups have fewer exits, so plan for exit from beginning!
  • there are significant regulatory issues here and government is not helping enough, the incubators are not good, there are tax issues here  (investments not tax free is in UK),
  • it takes 45 days to set up a company in India, versus 2 days in China,
  • there are 10,000 people worth $100m, mostly in real estate, but its not doing as well now, so people moving into other areas,
  • bottlenecks to innovation include needing different enablers at different points such as accelerators and incubators, 50-100 incubators are needed still,
  • Indians need inspiration by a “go to moon” type national project,
  • Tata mentioned several times as not doing enough,
  • back people not ideas,
  • most business plans have an extremely poor idea of competition,
  • and most have not actually gotten real customer feedback,
  • entrepreneurs must create the value differentiation, as most are very poorly articulated,
  • India biggest challenge is distribution and biggest potential,
  • most important question is how will you get the first 100 customers?  and how will you keep them loyal?
  • looking for billion dollar ideas, not million dollar ideas,And my favorite, and I have never heard this anywhere else, so I am not sure it is true, but I hope it is…
  • over the life of the whole VC industry (50 years), all VCs are a net loss!!

Jim Beach of School for Startups at eSummit Jim Beach of School for Startups at eSummit

And I wanted to congratulate Ayush Agrawal, my friend at IIT.  He was selected a co-chair for the eSummit next year, a huge honor!!  See a horrible pic of the ’12 team below.  This picture proves your iPhone camera is not worth using…..

Jim Beach of School for Startups with eSummit leadership team

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Have a new venture? Need VCs to look at your ideas?

June 13, 2011, Angels, Entrepreneurship Tools, Venture Capital
http://www.schoolforstartups.com/have-a-new-venture-need-vcs-to-look-at-your-ideas/

During an conference in San Francisco, http://www.leanlaunchlab.com/ was the center of the attention. So far there are 5 VCs that have signed on to fund companies that uses the website. It is a website there you blog/track your company weekly. Where you upload photo, videos, and notes on what you are doing with the company.

The Venture Capitalists include Mohr Davidow Ventures, Menlo Ventures, Floodgate Fund, Guild Investment, and Inventures Group

So what are you waiting for? Get started!
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Cutest Baby Ever

March 11, 2011, Angels
http://www.schoolforstartups.com/cutest-baby-ever/

My son, William R Beach V, has been smiling for several days, but this is the first smile we have captured on film.  In this picture, he is 8 weeks, 2 days old…….

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Update: Chris Dodd's Financial Bill

May 25, 2010, Angels, Financial Concerns, Government
http://www.schoolforstartups.com/update-chris-dodds-financial-bill/

Last month, we wrote about the detrimental proposals in Chris Dodd’s financial bill that would affect entrepreneurs.  Luckily, the original draft containing these provisions did not proceed in the finance reform bill passed last week by the Senate, and Angel Investors and other small business funding sources dodged a major bullet.

As reported in our previous blog, Chris Dodd wanted to add a provision for entrepreneurs seeking Angel funding to go through a 120 day Securities & Exchange Commission review.  In the world of start-ups, a 120-day review would render most new companies dead as competition would reach the market before the start-up.  The competition would likely be foreign competition that didn’t have such arcane 120-day rules.

Be thankful this part of the financial bill did not go forward.

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Dodd's Financial Reform Bill for Entrepreneurs

April 22, 2010, Angels, Financial Concerns, Government
http://www.schoolforstartups.com/dodds-financial-reform-bill-for-entrepreneurs/

This morning’s Wall Street Journal described the impact Senator Chris Dodd’s financial reform bill will have on Angel Investing if it gets passed as it currently stands.  Remember that Angel Investors are those who fill the financing needs between the Friends & Family stage and raising capital through banks or venture capital.  They fill a very important role in the world of start up companies.

Here is a list of how the proposed bill will negatively affect entrepreneurs and start-ups:

  • The bill proposes to raise minimum net worth & income levels for Angel investors.  Right now, Angel Investors must have a total net worth of $1 million and have income of $250k a year in order to invest in a start up.  This bill proposes to raise those levels to $2.3 million net worth, $450k income.  This would effectively eliminate 77% of current angel investors.
  • The bill proposes a requirement that start-ups file with the Securities & Exchange Commission (SEC) if they are seeking Angel Investment.  The SEC will then conduct a 120-day review of the start-up I guess to determine if they need the funds.  120 Days!  4 months!  In 4 months, other countries will have started the business and deemed the new US start-up useless.
  • As the WSJ states, this proposed bill also seeks to change the rules for a federal pre-emption for state regulation.  Under the proposed bill, start-ups would be subject to state regulations from the 50 different states.  Right now, start-ups & investors are not subject to 50 different state regulators.  This would likely lead to more cost & risk for the start-up.

We’ll keep an eye on this proposed bill and see if any of these items are removed before the bill proceeds.  We sure hope so for the sake of USA start-ups.

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Angel Investor Tax Credit Georgia – Faculty Chris Hanks Testifies to Georgia Legislature

March 24, 2010, Angels, Government, Raising Money
http://www.schoolforstartups.com/angel-investor-tax-credit-georgia-faculty-chris-hanks-testifies-to-georgia-legislature/
Chris Hanks with the Small Business Development and Job Creation Special Committee

Chris Hanks, a member of The Entrepreneur School’s faculty, testified Tuesday March 16th, 2010 in front of the Georgia House Committee on Small Business Development and Job Creation.  Chris talked specifically on the programs and activities that assist aspiring and existing entrepreneurs throughout the state.  He was also there in support of House Bill 1001, which is The Angel Investor Tax Credit Bill.  As follows is an interview I did with Christ about the Angel Tax Credit and his time with the Special Committee on Small Business Development and Job Creation.

Interview with Chris:

Jacob:  What is a brief description of the Angel Tax Credit.
Chris:   There is a much longer story to this but basically the Angel Tax Credit is a part of a larger package called the Jobs Act of 2010 that focuses on providing a tax incentive to angel investor to invest in young start-up businesses.   [Here's a link to the bill:  Official site for HB 1023 - Jobs, Opportunity, and Business Success Act of 2010 -  See section 9 for the Angel Tax Credit].  [Here's a link to the Angel Tax Credit Bill]

Jacob: For those who may not know what an Angel is, will you elaborate on the term?
Chris: A company is started with an idea, customers to which to market, and execution. Money is needed to fund each of these steps. Initially, that money comes from bootstrapping, the founder, friends and family, credit cards, etc… As the company grows, further rounds of funding are often needed. Angels are the next step. They are typically high net-worth individuals who invest in early stage companies with their personal capital.

Jacob:  What exactly does the Angel Tax Credit provide and why is it in a jobs ‘creation’ bill?
Chris:  Basically it provides a tax credit of half of the total investment, up to $50,000 to an angel investor who invests his/her capital in a young startup.  There are then stipulations for the tax credit on the investment that keep the new company in the state of Georgia.  The idea then is to fund young companies in Georgia and incentivize those who have money to invest in them. Then the companies grow and create jobs for the state.

Forty percent of Atlanta’s high-tech start-up companies leave the state within three years, according to a recent Georgia Tech study.  “Instead of building great high-tech companies, Atlanta has become a feeder system for great high-tech companies in other states,” says study co-author Dan Breznitz.

Jacob:  What are your thoughts as an entrepreneur and professor regarding the bill?
Chris:    Currently, there are 22 other states that have similar incentives, and those states have benefitted from new business creation, and new jobs and new revenue. Competing states also benefit from Georgia innovation as we’ve seen entrepreneur-graduates of our schools leave our state in pursuit of capital in other states. HB 1001 will help to address this.

This bill provides an incentive for active angel investors to become more active and for those angel investors who are the sidelines to get back into game, while keeping businesses in Georgia.

Jacob:  Every piece of legislation has people, champions, who are often responsible for the creation of and implementation of the bill.  Who are they for the Angel Tax Credit?
Chris:  This bill was introduced by TAG (Technology Association of Georgia) and has the support of the Georgia Chamber of Commerce, The National Federation of Independent Business and The Georgia Public Policy Foundation.  A group was also formed to fund the lobbying efforts associated with this bill. This group is the GAIC (Georgia Angel Investors Coalition).

Jacob:  What is the current status?
Chris:  This bill has been successfully progressing through various committees of the House of Representatives (the House originally deals with bills related to taxes) following which the bill will go to the Senate. This coming week is a very important week for the bill as two very important committees which will review the bill and then the bill will go to the floor of the House for a full vote.  Gaining support of the leadership of the House will go a long way in helping the bill successfully emerge this process in a timely fashion.

Links, Quotes, Facts:

Links:

Facts:

  • North Carolina’s angel investor tax credit program resulted in approximately 660 new jobs per year in high-growth companies providing average wages of $58,792. The success and accolades of the program have opened the door to increasing the tax credit cap amount to $7.5 million annually.

The reason North Carolina/RTP is cleaning our clock in funding young tech companies? Tax Credits. North Carolina has had tax credits since 1996 and now has two NEW angel funds of $5M each–all due to tax credits.

  • Georgia’s unemployment rate has climbed from 4.3 percent in January of ’07 to 10.3 percent today, tying the record high for Georgia and exceeding the national unemployment rate of 10 percent.
  • There are more than a half-million Georgians are out of work.
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2010 Entrepreneurship Outlook

January 5, 2010, Angels, Banking, Bootstrapping, General Thoughts, The Entrepreneur School, Total Entrepreneurial Activity, Venture Capital
http://www.schoolforstartups.com/2010-entrepreneurship-outlook/

2010 will be the Year of the Bootstrapper.  It will be the year of the Entrepreneur who can figure out how to do the most with the least.

2009 was a bad year for entrepreneurs.  Most predictions for 2010 show a slight improvement in conditions and funding, but still, a difficult time to start a business.  But we at The Entrepreneur School believe that now is as good a time as any to start your business.

The Wall Street Journal had a great article this morning covering the different funding avenues available for Start-ups:

Angel Investors
Angel funds fell by 30% in the 1st half of 2009.  Predictions are that Angel funds will stay flat in 2010.  An interesting fact about angel funds is that even though the total dollar amount invested has decreased, the number of start-ups funded has increased.  Fewer dollars for more entrepreneurs.  The bootstrappers will win.

Venture Capital
Average deal size in the 1st half of 2009 was $5.7 million compared to $7.5 million + average from 2005 – 2008.  Venture Capitalists are saving their money for companies in the late stages of development or are giving more funds to companies already in their current portfolios.  Bootstrappers will be a step ahead by not having to wait on the dwindling number of venture funds to come through and will also retain more of their company.

SBA Loans
Less than 45,000 SBA loans were approved from Sept ’08 – Sept ’09, which is 36% lower than the year before.  Right now, SBA loans only make up 1% of start-up lending.  This is expected to increase to 5 – 10% in the near future due to the government’s stimulus packages.

The end of the article describes how Babson College, which is one of the elite entrepreneurship universities in the world, estimates that the average entrepreneur needs $65,000 to get their business up and running.  In this economy, with savings accounts, nest eggs, and house values in disarray, it will be difficult for most entrepreneurs to come up with $65,000.

We at The Entrepreneur School teach ways to start businesses for much less than $65,000.  There are a number of businesses that can be started where Bootstrapping is considered for each aspect of the business.  One of Babson’s professors, Dr. Zacharakis states this in another way:

“Instead of capital infusions, there might be a lot more exchanges of services or trading favors.”

Take a look at the first set of entrepreneurship lessons at The Entrepreneur School.

All info and statistics for this blog post were gathered from The Wall Street Journal on Tuesday, January 5th, 2010.

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Raise Your Own Money!

December 15, 2009, Angels, Business Ownership, Venture Capital
http://www.schoolforstartups.com/raise-your-own-money/

I had breakfast this morning with a consultant who is trying to raise money for a software technology company.  The company has developed a cool technology for web sites.  It actually might work for a certain sector of the web.  The founders and owners of the company have , supposedly, run companies in this space before and have quite a few industry contacts.

But they hired my friend to raise some angel or VC money for them.  My friend asked what percent is normal for agents that bring in funds.  I told him 2% to 7%.  And I started to question him about the firm, its technology, and its plans.  He knew some of the answers, but his answers to many questions just demonstrated his lack of knowledge of the company and raised new questions.  It was clear he barely knows the firm.

This brings several issues to mind.  Why, if the founders have industry knowledge and connections, are is the company outsourcing this incredible important function?  It seems to me that if the founders had such good connections, they would be able to raise the money themselves.  In many ways, it raises more questions about the company.  Do the founders really have such good contacts?

Also, the agent they have hired, my friend, needs to go one way or the other.  He needs to just make introductions or he needs to learn everything about the firm.  Being in the middle, is the worst place to be.  If he represents himself as a representative of the company, only bad things can come of it.  He will not be able to answer the questions well, and will hurt the prospects of the firm and will hurt his reputation with the investors.

Raise your own money!  The investors are looking at the management team to judge how the firm will do.  By hiring outsiders, the management team is announcing their weakness.

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Great Funding Opportunity for Start-ups

October 24, 2009, Angels, Bootstrapping
http://www.schoolforstartups.com/great-funding-opportunity-for-start-ups/

Picture 1Recently, we have pointed out the horrible nature of angel investing help organizations, those guys that charge you $500 to $5,000 for advice on how to raise angel money and then introductions to some angels.  These groups almost never help land funds, and the unwitting entrepreneur can spend lots of time and money chasing a dream.

So today, I wanted to tell you about a new, exciting, safe way to raise funds.  This method probably wont be useful to raise $100,000, but if you need $10,000 or so, it would be a great bet for you.  Fred Anderson, from Atlanta, was interested in starting a car inspection center.  He tried banks and other traditional outlets, but was not able to find the resources.  So, he placed an ad on Kiva.org and soon had raised the needed $7,000 from almost 200 investors in 15 countries.

Kiva.org was designed to provide micro-financing for super-small businesses in poor countries like India.  You can go on Kiva, see listings of hundreds of small businesses around the world, and invest in companies that appeal to you.  You invest as much or as
little as you wish, even just $25.  And, incredibly, the default rate on loans like this is very small, usually less than 2%.  Its a great way to help the poor and a powerful website.  The site now allows U.S. based firms to list their opportunities too, which is how Fred was able to get involved.  If you want to start a small business here in the U.S., we recommend giving kiva a try……

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