Fun with Klout

I’m not going to bash Klout. plenty of others have done that already, and besides, I like getting free stuff, so, more power to them!  I just want to have fun with them.

A few weeks ago, I did a post about Wikipedia’s fundraising ads, entitled Jimmy Wales, Serial Killer?, which got retweeted by a few people. Well, thanks to that, Klout decided that “Wales” and “Serial Killer” were topics I was influential about (sorry, didn’t get a “before” snapshot). Now, they weren’t among my top 3, which were “Social Media”, “Internet Marketing” and “SEO”, but it was in my top 15.

I decided to have a little fun with it, so I posted on Twitter and Facebook, and sent out a shareholder mail on Empire Avenue, asking people to give me +K in “Wales” and “Serial Killer”. Within 5 minutes:

KloutFun

Awesome!

I think, though, I may have overdone it, because within an hour:

KloutFun2

LOL! Oh well. makes for a great blog post. I wonder what kind of perks that’ll trigger for them to send me?

Feel free to +K me in Social Media and help me get back to normal. Or not. 🙂

How the Networked Economy is Changing the Deal Origination ROI Paradigm

 

Peter Lehrman of AxialMarket posted on his blog this must-read Powerpoint on the evolution of private equity deal sourcing.  I definitely agree with the points he makes here.  Most interesting are his estimates of the cost for different methods of deal sourcing.  We discuss in more depth a lot of these ideas in The Virtual Handshake.

Panel on Super-Seed Funds at Harvard Business School Club of NY

 

I took some notes on last week’s Harvard Business School Club of New York panel on "Super-Seed Funds — Back to the Future." Eugene Radin of Concept Clinic edited the notes and merged in his own.  Incidentally, congratulations to Doug Atkin, Tony Berkman, Steve Miller and the rest of the Majestic Research team on their sale (announced today) to ITG!

 

Moderator:

Steve Brotman – Managing Director, SAVP

 

Panelists:

Chris Dixon – HBS, Founder Collective/Hunch.com

Doug AtkinGuggenheim Partners, former CEO Instinet

Jeff Stewart – founder, UrgentCareer; Mimeo; Monitor110

John Frankelff Asset Management

Select Biographies

 

Doug Atkin

After graduating Tufts, became first employee of Instinet in 1984, spent 20 years there.

Did a lot of investing in financial firms through his work at Instinet.

Ran a few companies, most recently Majestic Research.

 

Steve Brotman

Raised $1m, mostly his own money, in late 90s. His first investment was in LivePerson, which went public in 18 months. Money started pouring in ’99. Collected a return of 3.5x investment, which put him in the top 1%.

In ’04-’05, partnered with Greenhill Ventures and raised $100m. Greenhill raised $2b. Currently spinning off from Greenhill, due to recent regulatory changes. We’re very pleased about the spinoff, because the move will provide more freedom.

 

Chris Dixon

Co-founder of Hunch.

Personal investor in early-stage technology companies, including Skype, Foursquare, Stack Overflow, TrialPay, DocVerse (acquired by GOOG), Invite Media (acquired by GOOG), Gerson Lehrman Group, ScanScout, OMGPOP, BillShrink, Panjiva, Knewton, and a handful of other startups that are still in stealth mode.

Co-founder of Founder Collective.

 

John Frankel

Back in 2007, VC’s invested in 3,500 companies, with $26-30b. Angels put in $26b in more companies (excluding friends and family). Roll to 2008: amount of money invested by VC’s dropped to about $16b, but angels are at about the same level.

Recently spoke with one of the largest VC funds: they did an analysis of all the super-angels, which determined that over 1,000 companies had received capital from this population. They said that’s terrible for their business. He countered: I don’t know if those 1,000 investments came from the pool that gets money from VC’s or the pool that gets money from angels.

Panel Discussion

 

Steve Brotman

What are your thoughts on the recent popularity of early stage investing?

 

The panel unanimously agreed that this method of raising money has gained much more attention lately, and is growing as a viable source of seed investment for entrepreneurs.

 

Chris Dixon

Two contradictory forces: funds are getting bigger, but the amount of money needed to start a tech company has dropped.

Funds like his earn money only if they get returns for their investors, just like the entrepreneurs. Average top-tier VC investor at Greylock makes a few million/year just for showing up (referring to management fees).

Seed funds offer more flexibility than VC’s.

 

John Frankel

Angels invest in far more companies and spend approximately the same amount of money as VCs.

Angels may be threatening to traditional VC’s.

More people are interested in starting companies, especially young people, who view entrepreneurship as a viable direction for their lives.

Very low burn rate for many companies which they invest in.

Economic recession has created more companies, and larger, established companies are more interested in unique/new ideas, which offer more opportunities for exits.

It has become more difficult to pick winners in the large field of opportunities.

 

Steve Brotman

Have prices gone up? That’s the measure of a bubble.

 

Jeff Stewart

Study of six angels: returns were in the range of 18-30% across all the different pools of angels (average returns 30%; lowest 18%.), but 60% of the investments went to zero, So you’re getting all the returns from ~5% of the funded companies.

This is not a bubble, but a non-correlated asset class, with great returns!

Need to invest in many companies given the expectation of most investments returning 0%.

 

John Frankel

There are natural barriers to more money going into this asset class.

You need to start putting together a larger portfolio, which is hard for angels.

It is also difficult for VC’s to reach "down."

Only a small group of people will be able to dedicate next 10 years to managing this type of fund. They have to be financially self-sufficient.

People who’ve launched companies, and are investing in their own domains have higher returns.

More due diligence correlates with higher returns. They don’t simply write checks: active involvement also raises returns. Only a small (but noisy) group are doing this type of investing.

Smaller funds outperform larger funds.

Smaller teams launch/run successful companies.

Entrepreneurs get the difference between "smart" and "dumb" money.

 

Jeff Stewart

Entrepreneurs do better running these funds.

 

Chris Dixon

New hot thing: convertible notes which change in valuation over time.

Most seed valuations are at the $5m level.

 

Steve Brotman

Do most investors care about valuation and dilution or the quality of investments coming in? Study says yes.

 

John Frankel

Most of these companies have binary outcomes, so arguing over valuation with a value-added investor is irrelevant.

 

Doug Atkin

15 years ago, getting money from a name-brand VC would add a lot of credibility to your business. It was like getting backing from a top investment bank. This is changing now.

 

Chris Dixon

Disagrees: our core argument is that an entrepreneur will take less dilution over time by getting the initial investment from angels.

We’ve sold two companies to Google in last three months.

Suggestion: find funds which will help you build your business, not give you the most money.

Seed funds may value companies higher than VC’s, since VC’s spend most money in later rounds and it benefits them to value companies lower in the beginning.

 

Jeff Stewart

It’s important to remember that many seed funds are largely based on owners’ own money, not outside investors.

 

Chris Dixon:

Disagrees: investors’ money just as motivating as personal.

They get rich off of returns, not management fees, so goals are aligned, because they only make money if their companies do.

This works as long as fund managers make most of their money from success of the companies they invest in.

Should take attitude of hedge funds, and invest more, not less. Do so because they don’t believe in most companies, expect failures.

 

John Frankel

Goal alignment is key – better for entrepreneurs to work with peopl
e who are committed to managing their seed fund for the usual ten-year lifespan.

 

Steve Brotman

What are the differences between these classes of investors?

VC’s are so big that they are more like asset managers. Why hasn’t there been a market correction?

 

Chris Dixon:

This is being corrected, but it takes time.

 

Jeff Stewart

Ask if the VC is getting paid to put money to work or just to manage it.

We don’t believe in putting in too much money, e.g., in a capital-intensive industry like nano tech.

Also, entrepreneurs don’t really need VC’s to start companies, since less money is needed, and scaling technology is much easier now.

 

John Frankel

You should also ask: is the VC going to be there? An angel can move around, take new roles. A VC is institutional; the individuals move around.

 

Chris Dixon

We have a $50m fund with a 2 and 20 structure.

A lot of this discussion comes down to fund size.

1/3 of our fund is the principals’ money.

 

John Frankel

The collapse of asset prices elsewhere is making VC overweight.

 

Jeff Stewart

I’m not sure there’s too much money; I think there’s too much money pursuing information technology deals.

 

John Frankel

Google only ever raised $25m.

Google’s of the next generation may only need to raise $3m and won’t need to do it through VC’s.

 

Chris Dixon

Facebook has raised $700m, but $650m of that are secondary sales by friends and family.

 

Steve Brotman

How do you feel about collaborating with other angels, seed funds, and VC firms?

 

Doug Atkin

Won’t invest into companies without other investors with industry specific expertise.

You have a much higher chance of succeeding with more smart people around the table.

Expertise grows revenue rapidly.

Average revenues $1-5m in the companies he invests in.

 

Jeff Stewart

My investments are usually in the $25k-$100k range. I don’t have time to support a company at that level.

Needs other investors to feel comfortable, help with due diligence. Angel investing is a team activity.

 

John Frankel

No collusion when negotiating terms, however someone has to take a leadership role in an investment.

I’ve had two deals in the last two months with documents that didn’t make sense, because everyone relied on everyone else.

You can find a great group of investors who can help you.

There’s an idea of social proof: if A and B invest, I should too. That can lead to very lazy thinking. I believe that I shouldn’t do a deal that’s hot; I like the road less traveled.

Strategically find a group of investors who can help you. A fund is an expertise network.

 

Steve Brotman

What is your investment style? Which sectors are you most interested in?

 

Jeff Stewart

I like really early investments, especially in B2B and ad tech.

 

John Frankel

I will consider anything that will provide good returns. Really intrigued by how people leave footprints online though social media. Klout is people-ranking the web in the way that Google does page-ranking.

 

Chris Dixon

I am primarily interested in information and advertising technology. However, I just did two deals in the robotics space.

Often invests pre-product.

Stays away from theme investing.

Companies are expected to change direction; he ultimately invests in people.

 

Doug Atkin

I invest almost exclusively in financial technology. Anything with an exchange.

He won’t invest in businesses outside of his sphere of influence (experience).

Financial services industry has been slow, difficult to change in the past. The last couple of years have changed things.

 

Question from the audience

When should an entrepreneur approach them?

 

John Frankel

I prefer to give a NO early.

Core of this country is the entrepreneurial spirit.

Everything begins with a conversation.

 

David Teten

Why should entrepreneurs choose you?

 

Chris Dixon

You have to prove you’re helpful. I don’t bother with a speech, I just give a list of references.

He invests in people. Looks for people who have created something (ex: products).

Suggestion to entrepreneurs: call companies in which I invested, ask them about the experience.

When I hire people, I do the same thing: I say call people who worked for me in the past.

The only way to be successful is to be consistently helpful.

 

Jeff Stewart

Only you can make it happen, angels (investors) won’t. Use a group of angels. Don’t depend on them too much.

He has said "no" to deals he liked due to lack of time.

 

Doug Atkin

Set expectations, tell people what you’re good at.

He’s best at dealing with banks/finance: it’s his expertise.

 

Chris Dixon

In our fund, we focus on team-building and follow-on financing.

60 investments give us a lot of insight into who’s doing the next round and at what price.

At about a third of the companies we’re invested in, we’ve introduced founders to one another.

We rarely take board seats.

Generally uninvolved in product building. Won’t micromanage the product.

 

John Frankel

This is a relationship business. You’re going to be working together for longer than the average marriage lasts in this country.

Work with people you like.

Larger VC’s have a reputation for being arrogant — and it’s probably justified.

Suggestion: don’t lose control of your company.

 

Steve Brotman

It’s incumbent on entrepreneurs to find the right fitting VC.

 

Question from the audience

Comment on recent phenomenon of funds established to invest in late-stage tech deals, ex: Facebook/Felix Investments.

 

Chris Dixon

Known as "DST" deals. DST is about to go public on the NYSE.

 

John Frankel

There’s a big movement in New York to build up entrepreneurial culture — a sense of coming from behind Silicon Valley. Unlike Silicon Valley, we have finance, fashion, media, etc., which are all being disrupted.

Our model is that we put in more capital into our winners. Maybe 50% of the companies fail, but they don’t burn up 50% of our capital.

 

Chris Dixon

Rounds which we participate in are typically $300k-$1m. We typically put in $100-$500k.

We usually don’t invest in the second round, but will get involved in helping the company raise money.

 

Question from the audience

What are the characteristics of a team that gets a yes?

 

John Frankel

We want people who are honest with themselves, even if they are somewhat delusional. Have been successful in the past, can form a team.

We invested in ClearPath Immigration, which wants to be TurboTax for immigration. The founder ran immigration for Department of Homeland Security. He has big domain expertise.

Will the person grow up as the company grows?

When you give money to a money manager, you want that person to navigate the financial markets. That’s what I want in the entrepreneur.

 

Graphic: http://www.flickr.com/photos/aunto/110997305/sizes/s/

Internet Business Models

I’ll be presenting on April 26 to the Founder Institute Singapore on "Earning Revenue and Internet Business Models".  I give a lot of credit to Munjal Shah, some of whose slides I incorporated directly into this deck. 

My draft slide deck is below; I would welcome feedback.

Invitation for angel investors: New York Founder Institute graduation ceremony, Thursday 3/25, 6pm

Image representing Founder Institute as depict...

 

The New York Founder Institute graduation ceremony and investor preview is this Thursday, March 25, at 55 Broad Street, 6:00. Up to fourteen businesses are poised to graduate, ranging from a fantasy sports company with a family focus to a business designed to cure cancer. The best business to present, according to a vote by the guests, will win a $5,000 prize on the spot.

Accredited angel investors are welcome to attend. In addition to a free dinner and some fun pitches, Adeo Ressi (founder of the program) will give a 30 minute talk about the lessons learned after aptitude and personality testing nearly 1,000 people interested in becoming an entrepreneur. You’ll be one of the first to hear some of the surprising results about age, intelligence and personality.

Recent success stories from Founder Institute: Skimble, a Founder Institute Graduate, is a finalists for the "Innovative Web Technology" category at the SXSW conference in Austin.  TechCrunch has recently profiled a number of graduates: Molo Rewards; RewardChart; Monstrous.

If you’d like to attend: RSVP.

The Finalists are:

Aaron Price of makeMania

– makeMania.com enables a community of Do-It-Yourselfers (DIYers) to connect, compete with, and learn from one another, while accessing relevant exclusive discounts.

Adam Neary of Profitably

– Profitably is a web-based business intelligence solution for small businesses with a simple proposition: Give us 10 minutes, and we will help you run your business more profitably.

Alexander Ressi of Immortalize.it

– Immortalize.it is a tracking tool that blends user-contributed milestones with social media and 3rd party data-sources to create timelines for personal intelligence.

Bryan Housel of Ditto Health

– Ditto Health allows patients to enter their medical data in one place on the web, rather than on paper at every doctor’s office that they visit.

Edward Kim of Simple.PR

– Newswire enabling businesses to reach targeted local audiences.

Jacob Howerton of Zipmark

– Zipmark enables people to make financial transactions with their smartphones.

Joshua Bernstein of Ancile Biomedical, Inc.

– Ancile Biomedical develops medical devices that accelerate wound healing, saving money for payers and providers while addressing the results of global obesity and diabetes epidemics.

Kyle Jasey and Thomas Pierce of Wepoli

– To bring citizens, elected officials and political candidates closer together, and to facilitate and enhance their interaction.

Olivier Couronne of Genomes United Inc.

– Genomes United sequences the genomes of cancer patients in order to identify novels biomarkers.

Shirley Chow of ProjectChow

– Food pictures exist in fragmented areas all over the web. ProjectChow will serve both as an organized repository for these photos by presenting these images alongside the restaurant menus allowing diners to more informed of a restaurant’s offerings.

Tobin Schwaiger-Hastanan of Plan.fm

– Plan.FM is a social utility for collecting the plans you make on other sites and organizing them into a single source that you can access from anywhere. "It’s tripit.com for your events."

Vincent DiBartolo of FanSprout.com

– FanSprout is a family-friendly fantasy sports site with educational components that allows dads and kids to connect in the context of sports.

Vincent Mota of vimota

– vimota creates the tools & intelligence which helps monetize the costs of rich media.

 

Again, RSVP at: http://nyfi-investor.eventbrite.com .  See you there!

(Image via CrunchBase)

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Launch of Track.com, a market for independent Wall Street research

image

 

Four days ago, a team of Wall Street veterans launched Track.com, a new marketplace for independent research providers.  I met with the management team today.  Ironically, they’re sharing offices with Tracked.com, another NY startup.  John Frankel, the Founder, said that the people at Tracked like the domain name Track so much that they bought Tracked.com.

 

Track.com offers independent research providers a platform to distribute their intellectual property.  Buyers pay subscriptions for access to the pool of content. Similar to Value Investors Club, the general public can get access to the content at no charge after a delay.

 

It looks like an institutional version of SeekingAlpha.  It also has components of the market for research that AQ Research tried to launch some time ago.  Eventually, I’m sure Track will build out internal discussion functionality similar to other collaborative investing startups.

 

I think their greatest obstacle is noise.  There is a deluge of opinions available on the markets in every possible medium, and for every possible view on the market you will find someone passionately defending that view. 

 

The most clever parts of their model are:

– the appeal to elitism, which has a proven appeal on Wall Street

– the recruiting of Wall Street alumni in transition, who want to keep their brand visible in the market.  Given my background working with executives in transition, I particularly liked this aspect of the model.

– the tiered display of research over time, in order to price discriminate

 

I look forward to following their progress.  FYI, they’re actively hiring developers.

Even Mashable Doesn’t Digg

I know there’s a lot of hype, mystery and legend around getting on the front page of Digg. Personally, I joined Digg back in 2005, used it somewhat, and then kind of abandoned it. I stop by occasionally, Digg something as a favor to a friend every once in a while, etc. I have a couple of clients that use it heavily, even though I don’t personally. They are, however, media and/or B2C focused.

I have a B2B client, though, who’s asking me about Digg, and I’m wondering if anyone’s actually using it for B2B. To research this on my end, I just downloaded my 864 LinkedIn contacts to a CSV file and uploaded that to Digg. Out of those 864 business contacts:

  1. 83 (less than 10%) are Digg users.
  2. Only 12 (1.4%) have been active recently (looks like the past 90 days), according to Digg

Mind you, my network has a disproportionately high percentage of social media professionals, too. Heck, even Pete Cashmore (Mashable) is “Not active recently”:

Maybe he’s outsourcing it. Heck, maybe everybody’s outsourcing it. Does kind of make you wonder, doesn’t it? Who’s actually Digging? And why is it still such a big deal?

More research required, but let me know what you think.

Belgian Tax Watchdogs Tracking Facebook, Netlog Updates

NEW YORK - APRIL 15:  Citizens, many of them h...

(Image by Getty Images via Daylife)

From Robin Wauters on TechCrunch: Belgian Tax Watchdogs Tracking Facebook, Netlog Updates:

 

"Not entirely unexpected, but still weird to see it confirmed and acknowledged: the federal tax administration in Belgium, my home country, is keeping tabs on citizens (article in Dutch) via their Facebook and Netlog profiles and their activities on eBay and other social networking sites."

 

Most people really don’t realize how much information they are leaking online.  I spoke with a VC recently who monitors which entrepreneurs other VCs are linking to on LinkedIn; he said that gives him insight into which entrepreneurs are now actively raising capital.

 

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LinkedIn Strategy Webinar June 16

Tomorrow (Tuesday, June 16) at 1pm Eastern I’ll be presenting a webinar in partnership with American Management Assocation (they published my first book, The Virtual Handshake) entitled How to Use LinkedIn to Excel in Your Current Position and Plan for Your Next.

This is not a webinar on the mechanics of how to use LinkedIn – this is focused entirely on the business strategy of using LinkedIn – how to create value for your business and career and how to be most productive with the time you spend on LinkedIn. Some of the specific topics include:

  • The latest “dos and don’ts” for building an effective profile that gains maximum exposure in search engines
  • Tips for direct one-to-one outreach-the right way to find and connect with others
  • Ways to create value from the networks of others
  • Effective use of the Q&A function: how to find the nuggets, what and when to answer, as well as potential legal liabilities
  • How to use the answers section to be recognized as-or to find-an expert in your field
  • Understanding and utilizing the power of LinkedIn groups
  • How LinkedIn can be used as a tool for competitive research and product launches
  • Stealth strategies for seeding conversations
  • How to maximize productivity-profiles and routines (how often to check it, avoiding e-mail overload, etc.)
  • Ways to merge blog feeds into your profile
  • Understand how and why a paid LinkedIn membership can be of value to you

This is a 90-minute webinar with plenty of time for live Q&A. Registration is $149 and includes an activity guide to maximize your learning experience.

twtAd Whale Fail

UPDATE: I’m not sure which is worse, a bug or a security hole (for the record, I never thought twtAd did this intentionally), but according to twtAd they were hacked and that caused ads to be sent out on several people’s accounts without their approval. Also, just for clarification, twtAd is not the same as TwittAd, and the James who owns twtAd is James Simpson (see here), not James Eliason, the founder of TwittAd.

I received the following tweet this afternoon from Courtney Benson:

TwtAdFailTechdomTweet

Since I haven’t tweeted much in the past couple of days, I had no idea what she was referring to, but fortunately it was a reply, to this:

TwtAdFailTweet

What? WHAT???

I did remember briefly checking out TwtAd. I’m constantly researching various ways of “sponsoring the conversation”. I think there are some possibilities in that area, and as a social media strategist, it’s my responsibility to explore new services and business models.

But I never authorized them to start sending stuff out in my name. In fact, once I got in, I decided I needed to take a closer look before I activated my account.

 

Just to be sure, I tried to log in to TwtAd:

TwtAdNotActivated

In case you can’t read the fine print, it says:

You have not activated your account yet so you cannot login. Please go click the activation link that was sent to your e-mail.

So I want to take a look at the activation email:

TwtAdFailEmail

Note the highlighted text:

Before you can get started publishing our ads we need you to verify your e-mail address.

And yet, they’re publishing ads using my account, even though I haven’t activated my account and verified my email address!

FAIL!

Massive, nuclear whale fail!

I’d like to just cancel my account, but apparently I have to activate it first. In the interest of expediency, I’ll probably go ahead and do that rather than wait to get hold of their service department. I’ll post an update.

To the twtAd owners and anyone else running any service related to social media:

General design principle: Don’t do anything automatically on behalf of users without giving them a clear description of exactly what is going to happen (and when), and preferably giving them the chance to approve or cancel it.