Alternative Financing

I came across an interesting white paper put together by SaaS-Capital and ThinkStrategies: “Understanding the Financial Implications of the SaaS Business Model.” It doesn't need to be always Venture Capital.

Also I set down with a fellow CEO this morning discussing the implications of his highly engaged and emotional investors. Three investors own 52% of the company and have 3 different opinion what the strategy of the company should be. What's left for the CEO and management team? Leaving the company.

Fortunately the market is shifting rapidly... alternatives grow equally fast.

The decadence of Venture Capital

Venture capital is out. The financial world is evolving and so are investment strategies. In a recent post Guy Kawasaki pledged for focusing on inexperienced entrepreneurs. About a week ago I was on a panel with Henry Wong from Garage Ventures inviting everybody who want to start a company to grab his business card. His pitch: "Don't worry about valuation - think what you can do with all the money".

An experienced entrepreneur would just roll his eyes and walk away. The ROI on Sandhill Road is no better than Wall Street. So why take the risk? VCs are in trouble and the latest post "In search of inexperience shows it".

The 7 reasons why entrepreneurs avoid Venture Capital today:

1) Ownership
Creating a company and following the entrepreneurial instinct is more than just fulfilling a dream to be one’s own boss. It is creating something that is better than what we have today, a journey to find people who help shape the idea, will buy it because it is better and a journey of evolution, improvement success and failure. Entrepreneurs need partners and not a financial owner that takes 50% of a company for a hand full of dollars and make it their own.

2) Passion
Entrepreneurs are extremely passionate about their idea and need to go their way with no interruption and constant "help" from an investor. Passion is not a guarantee for success but a key ingredient that once broken, breaks the business

3) Founding Leadership
A recent report from Morgan Stanly compared the world leading innovators such as Microsoft, Google, Cisco and others. One of the metrics was passionate founders in the executive bench. 9 out of ten got a check. VCs typically replace the leadership team within 3-5 years and bring "experienced" executives to the team, making the founder a second degree player.

4) Business Objectives
VCs are in the business’ business. Making money from shoving around companies. Butting less and less money in the first place to invest in more and degrade to 1:10 ration of a winning deal to a 1:20 ration. It's also called risk management. Entrepreneurs aren't players who like to play in that category. Business objectives of both groups have departed to far from each other.

5) Disruption
True entrepreneurs come up with disruptive ideas and try to make a difference. VCs are not really looking for such ideas - even so they say so. When Google was founded, it was Andreas Bechtolsheimer, one of the founding members of Sun Microsystems who gave Google money not a VC - Jee who would invest in this where we have Yahoo. Since Google went public VCs invested in over 50 search engines. Very disrupting. VCs didn't invest in MySpace or YouTube in the first place but now invest in 100ds of social networks or video sites - very disrupting.

6) Investment Profile
True Entrepreneurs ceased building their business plan to match a best practices list of people like Guy Kawasaki hoping that it matches the trend. The opposite is the case, true entrepreneurs have counterintuitive ideas, don't follow mean stream and create businesses in very different ways. entrepreneurship is no longer matching the idea of a VC to invest in.

7) Venture Capital Success
Entrepreneurs became very critical when it comes to the success of a VC. While some entrepreneurs don't really care as long as they get the money - true entrepreneurs do care. Today’s ROI of an average VC firm is lousy. They are under huge pressure to deliver results to their investors in order to maintain their management fees of several hundred thousand dollars per head and keep their Aston Martins and Ferraries. That pressure makes them irrational. And the downfall continues.



At the same time very attractive alternatives raised from that downfall. Healthy individual investors are much more likely to invest in disruptive technologies and true entrepreneurs. Large successful companies all have investment arms and seek people with new ideas and the ability to make the idea a successful reality. Even banks, which kind of evaporated from the entrepreneur’s scene, are back with very creative offers. And as Garage Ventures strategy is just a representation of what other VCs doing, seeking inexperienced entrepreneurs at all cost - the success rate will further decline until Venture Capital may completely reinvent itself sometimes in the very distant future.

Clearly people like me know that they are "unfundable" after stating their opinion. But that's the point, we don't care. Venture capital is just no longer of any interest - we are going after true investors who have only one goal: using their money to make more money - instead of expressing their opinions on tactical measures at board meetings.

Yahoo blocks Xeequa and others

It looks like Yahoo has a new spam filter. All emails from Xeequa, Tanooma and ChannelExcellence are blocked by Yahoo. We are working on the issue but it is extremely difficult to deal with Yahoo - so in the meantime GMAIL accounts work just fine.

To call Yahoo for support is another interesting exercise: pay $29

Oh well - another item in the comparison list Google vs. Yahoo

Internet Monopoly

Today I tried to get the new Fiber to the home from Verizon (FiOS). Unfortunately our area is not served by Verizon. O-ton Verizon sales rep :"You know it is a monopoly we can't serve your area, AT&T is". Hmm - I tries AT&T but they don't have any high speed Internet in our area. So I checked back with my current provider Comcast Cable - yes, I have Internet via cable but when I check bandwidth with my little tool I see upload speed of some 70 Kb.

Wow - and that all happens in Silicon Valley. Some times I hope I would be somewhere in Eastern Europe, 5MB fiber to the home.

So was that what we had in mind when we went from a government owned telecom to the "free market"?

Can you hear me - can you hear me now?

Happy New Year 2007

With the beginning of the new year and changes in the blog software I'm experimenting with a new Blog for Xeequa and updating this blog. The new software for Blogger is pretty cool - B U T as I converted it to the new format I guess I lost a lot of the old customizations such as the Technorati Links, Feedburner Links etc. Oh well...

Please visit also my new blog which is http://Xeequa.blogspot.com