Line of the Day: The Ascendancy of Democracy

"Democracy, and the political freedom it almost always strengthens, is the least worst form of government (a fact that even recalcitrant, anti-modern regimes in Islamabad, Tehran, and Berkeley grudgingly acknowledge in at least symbolic displays of pluralism)."

--Reason

Damn, I love a good Berkeley joke. Suck it, hippies!

Come Meet Tom Campbell on November 3

59% of Americans consider themselves "fiscally conservative and socially liberal" (I'm one of them).

Yet here in California, a gerrymandered state results in rule by extremists.

Tom Campbell is one of the last FC/SL Republican politicians left in the state. I would argue that this brand of pragmatic beliefs and policy focus is the California GOP's best shot at regaining relevance, something that even non-Republicans should support, since a credible opposition party is a key asset for any democracy.

Despite facing a massive money disadvantage in comparison to his wealthy competitors, Meg Whitman and Steve Poizner, Campbell is running neck and neck with Whitman in the latest polls. Even more interesting, he's leading Whitman in voters 18-49, despite being (my apologies) a dorky white guy who is a policy wonk.

I've got nothing against Meg Whitman or Steve Poizner, who are successful businesspeople (and you know me--there's few people I admire more than successful businesspeople!). But this state is a mess, and needs someone with ideas AND experience.

Tom Campbell has a real shot in the GOP primary. But what he needs now is money.

That's why I've donated money to Tom's campaign, and will be co-hosting a fundraising event in Atherton on November 3.

I'd like to invite you as my guest. There's no obligation to donate, just to listen (though donations will be greatly appreciated).

If you're interested, let me know quickly--the invitations are going fast.

Line of the Decade: On Naked Athletes

From Rick Reilly's column for ESPN, on naked athletes:

One afternoon, Jenny Kellner, then of the New York Daily News, was covering the Jets. She entered the locker room only to find one of the team's stars buck naked. He walked up to her, pointed to his babymaker and said, "Hey, Jenny, do you know what this is?"

"Well," Kellner answered, with perfect aplomb, "it looks like a penis. Only smaller."

Jenny Kellner, you are awesome.

The Onion Nails Celebrity

"Media experts have been warning for months that American consumers will face starvation if Hollywood does not provide someone for them to put on a pedestal, worship, envy, download sex tapes of, and then topple and completely destroy."

Never has the tabloid-celebrity complex been better described in a more concise and biting way.

Paragraph of the Day: On Roman Polanski and Justice

"The point is not to keep 76-year-old Polanski off the streets or help his victim feel safe. The point is that drugging and raping a child, then leaving the country before you can be sentenced for it, is behavior our society should not -- and at least in theory, does not -- tolerate, no matter how famous, wealthy or well-connected you are, no matter how old you were when you finally got caught, no matter what your victim says about it now, no matter how mature she looked at 13, no matter how pushy her mother was, and no matter how many really swell movies you've made."

Kate Harding, Salon.com

Angel Investing Q&A

I was interviewed for an article on angel investing, and I thought you might want to see my full responses. Will let you know when the article appears.

* * *

Q: How did you become an angel investor?

I began my angel investing career in 2005, when I invested in a friend's business. Since then, I've made a series of angel investments in technology companies. My typical modus operandi is to be the first outside investor in an emerging startup. If the company is already established, it's hard for normal angel investor to get in a deal; the key to getting the best deals is to get there first. Once I'm invested, I help the entrepreneurs position themselves and raise their first institutional round.

Besides the monetary benefits, angel investing has helped me get plugged even deeper into the startup ecosystem in Silicon Valley, and gives me access to far more information and dealflow than were I simply an entrepreneur.

Q: What's the smart way for a startup owner to approach an angel investor in

this tough climate?

The smartest way is to get an introduction from a successful entrepreneur. The next best is to get an introduction from another investor. The final way is to read that angel's blog/Twitter output, get to know him or her, and approach him with a highly customized pitch.

Q: What do angels look for in making decisions?

I can only speak for myself, but the two things I look for are great technology and determined entrepreneurs. I don't mind if the company has no clear business model; if the company can create value, I can help them find ways to harvest it. I don't do a lot of financial analysis or market estimates; I prefer to focus on opportunities where the value and upside are plainly obvious.

Q: Biggest three mistakes owners make?

First-time entrepreneurs always underestimate the amount of time it takes to raise money. Even when an investor says, "I want to invest," that's just the start of the process.

Entrepreneurs also have difficulties evaluating their businesses objectively. You have to be passionate about your idea, but you also have to be able to take an honest look at your product and say, "Here's how it needs to get better," not "Why can't people see what I can see?"

Finally, entrepreneurs shouldn't bother raising money before they have real traction in the marketplace. If an entrepreneur doesn't have the chops to get a prototype built and launched without raising money, he or she won't do much better when the money is there.

Q: What's the typical amt you or angels invest?

A typical angel investment ranges from $25K to $100K, though the full range is anywhere from $5K to $500K. Individual angels like me tend to invest less; microfunds like Jeff Clavier's SoftTech Ventures tend to invest more.

Q: How hands-on should owners expects angels to be?

I always describe investors as "employees who give you money." Certainly, some angel investors get meddlesome, but this is typically because the entrepreneur hasn't done a good job of providing transparency and homework. Keep your investors briefed on your progress, and let them know in very specific terms how they can help, and you won't have problems.

Q: how do owners know if there's a good fit?

Ideally, you should talk with other entrepreneurs an angel has invested in. It's hard to tell just from a few conversations how an angel goes about his or her business. Personality fit is probably more important than industry expertise.

Q: what happens if the relationship sours?

Angels don't have a lot of recourse, but if they are well-known in the venture community, you should expect the VCs to ask them their opinion. You should try to avoid antagonizing your investors.

Q: any kinds of businesses that simply aren't suited/appropriate for this

kind of investment?

Angel investments tend to be small, which means that capital-intensive businesses simply don't work with this model. You can't angel fund a semiconductor factory.

Q: what else should I know that I haven't asked?

Those are good questions! The last guideline I would provide is this: Don't bother raising money from angels unless you need at least $250K, but less than $1 million. Below $250K, and it's not worth the hassle. Above $1 million, and you should be raising VC.

Why Getting Social Is Necessary (But Not Sufficient) For Business

image courtesy of HubSpot

There's a lot of social in the air these days. I was chatting with Jeremiah Owyang of the Altimeter Group, and he said that there was even talk of scrapping the term "Enterprise 2.0" in favor of "Social Business".

While I do believe that social is necessary, it's definitely not sufficient, and the current craze for bringing social to the enterprise threatens to do more harm than good if companies don't recognize that social is only part of the picture.

A number of collaboration vendors are betting heavily on social business. The theory is that the consumerization of IT means that Facebook and Twitter for the enterprise will be a huge market. The problem with this overly simplistic view is that it fails to consider the difference between the consumer and enterprise environments.

Take Facebook, for example. I use Facebook to keep up with my friends, to organize events, and to snoop on people without their knowledge (whoops, did I say that?).

The essential purpose is to have a good time. Some might even say its purpose is to waste time.

Within the enterprise, the ultimate purpose of any tool is simple: to help get work done. Thus the approach that works so well for Facebook may not work quite so well within the business world.

The way I think about the market puts the focus squarely on getting work done. I call this the Collaboration Triangle, but it applies throughout the enterprise.

Getting work done is the ultimate goal, and to achieve this goal, we need to bring together the People doing the work, the Processes that manage the work, and the Product they produce, be it work-in-progress or final deliverables. Only by bringing together these three parts of the triangle can we get work done.

Social media helps with the People aspect of the triangle, but we must not forget that it is a means to an end (getting work done), not an end in and of itself. The work is what makes the technology relevant.

When we added social aspects to PBworks, at every step along the way, we tried to keep the focus on getting work done.

Over and over, we asked, "How will real users apply this technology to help them get work done?"

The result is a Social Collaboration release that takes the familiar social tools (networking, microblogging) and tweaks them for a business environment.

For example, the social networking-style profiles allow each company's administrator to set up custom fields that are useful for getting work done, things like product expertise, skills, interests, etc. The PBworks user profiles also integrate activity and tasks, so that everyone can see what each person has done, is doing, and plans to do--far more useful in the workplace than photo galleries or games.

The story is the same for microblogging. Because these status updates are intended for use largely during work hours, there is no need for Twitter's SMS integration, which means that we don't have to stick to a 140 character limit. And while the following mechanism is the same as for Twitter, we let you follow a user's complete activity stream, including edits, file uploads, task updates, etc., in addition to the status updates.

Social media technology will have a major impact on business, and will be extremely useful within the enterprise, but we have to make sure that the tail doesn't wag the dog.

Social media works in the enterprise only if it helps businesses and their people to get work done.

Paragraph of the Day: "Time is more valuable than money"

"People often say, “I don’t have the time to…” Fill in the blank with whatever you like: exercise, make dinner, write a book, start a company, run for political office. What makes these people think that they have less time than anyone else? Of course they don’t. We all have the same 24 hours in each day and make real decisions about how we spend them. If you really want to get in shape, then carve out time to exercise. If you want to write a book, then pick up a pen and do it. And, if you want to run for president, then get started. It isn’t going to happen if you plan your day around your favorite TV shows or spend hours updating your Facebook page. These are entertaining distractions that eat up your irreplaceable time."

--Tina Seelig

Build Product, Not PowerPoint (Even If You're Non-Technical)

When I hear a high-tech entrepreneur tell me, "If I can just raise $250K to build a prototype..." I know he or she is never going to make it.

You used to be able to raise venture money based on an idea and a team, but those days are long gone unless your name is Ev Williams or something similar.

It's not that VCs can't make money by investing in ideas; it's that it's so much more efficient to invest in companies with traction. Don't waste your time (and that of us angels and VCs) trying to raise money before you get traction.

(And no, this doesn't contradict my remarks from earlier today on Vivek's "VCs Harm Innovation" post; there is a lot of risk remaining in a startup, even when it has traction. Both PBworks and Ustream (the two most prominent companies I've been directly involved with) had a ton of work to do after gaining initial traction. For both companies, the initial traction enabled raising seed money to get them to a traditional VC investment.)

As for the non-technical folks who wonder how they're supposed to start a company, I feel your pain. I can't code, and that's a major disadvantage. But great code, while necessary, is not sufficient for success. Building a better mousetrap is not enough; even getting TechCrunched is insufficient (though helpful!).

To overcome your impractical choice of college major (before you flame me, I freely admit that I have a degree in Creative Writing...not at the top of most VC wishlists) requires work, but isn't impossible. Get to know brilliant coders, build long-term relationships, and demonstrate that you can add value.

EtherPad (blatant plug--another investment!) recently hired Daniel Clemens as COO. Why? Because the founders had worked with him before and trusted him.

And if you can't code, and you can't get brilliant coders to like and respect you, you probably shouldn't be a high-tech entrepreneur. There's no shame in being aware of your own abilities and steering your career accordingly.

P.S. Bear in mind that this advice only applies to high-tech startups--there are plenty of great businesses where a CS degree is not an asset!

(Inspired by a post Seth Sternberg)

VCs Are Useless? That's Bullshit.

Vivek Wadhwa has a guest post up on TechCrunch, "What Have VCs Really Done For Innovation?" It's obviously meant to court controversy. Mission accomplished.

This post is my refutation. Wadhwa's post claims:

1) VCs have little to no impact on startup success, and in fact, may have a negative impact

2) Venture capital slows the innovation process

This is one of the most dangerous and wrong-headed posts that I have read all year. And I’m flabbergasted by the lack of critical thinking displayed in the comments section.

There is definite truth to some of what Vivek has to say. The NVCA’s estimates are bogus, because they equate investing in a company with being responsible for its success. This is an egregiously egotistical assumption.

It may very well be true that the venture industry as a whole trails index investing. It’s hard to pick winners. But so does the entire actively managed mutual fund industry.

But the statement that “VCs at best have little to no impact on these companies and at worst have a negative impact” is absurd.

First, there is a major survivorship bias problem with the data. By interviewing successful companies, the study fails to prove whether VC makes success more or less likely. All it says is that the majority of successful new businesses in the US do not rely on VC.

A number of commentators seem to be of the impression that VCs make easy money by investing in companies after all the risk has been removed by the entrepreneur. This is talking out of both sides of one’s mouth. If the VCs aren’t taking risks, then how can they be delivering sub-par returns? By definition, they must be taking risks.

Venture capital plays an important role in the startup ecosystem. It provides high-risk equity capital to startup companies. Not every company can be a bootstrapped consumer Internet company. Many important businesses (semiconductors, hardware, biotech) require significant up-front capital. If VCs went away, would there be enough funding for these business? Do you seriously think banks would start lending to these companies?

I also wager that most of the commentators pooh-poohing VC would be glad to accept funding for their startups.

This is not to say that I support a VC bailout. Screw bailouts. All bailouts do is support the weak and incompetent. There are plenty of VCs who are doing just fine.

On the other hand, having the government hand money over to startups is stark, raving mad. If you think VCs are incompetent at allocating capital, just wait until you start a government program to do so! While in principle, a tax break for entrepreneurs sounds good, the net result will be like cash for clunkers--a disastrous transfer of wealth to people gaming the system.

The three most important companies in Silicon Valley are Cisco, Apple, and Google. All were funded with venture capital before they became going concerns. Keep that in mind before you begin to discard the VC model.