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Venture Capital: Pros, Cons, Alternatives

Posted by Roman on Aug 21, 2009 in Finance, Government Aid, VC
Venture CapitalThis post is inspired by different conversations I have had over the past couple of weeks; I wanted to discuss my personal opinion on getting Venture Capital (VC). In short I think getting a VC, at least in the initial stage of the business is, not only unnecessary but can even be counterproductive due to the loss of focus on developing the idea and overspending. My suggestion is to spend the first 6-12 months on generating even a small revenue and proving that your idea is viable. Learn how things work, what money is spent on, and what is needed to take your love creation to the next level.  It will be easier to receive VC after this period and you will actually know where the money will go.

Pros:

Cashflow: It is the bloodline of a start-up. Often having enough of it determines the business’s success. The appropriate amount of venture capital allows an entrepreneur to concentrate on the development of the idea and not worry about cashflow for a bit. It also allows a business to take bigger steps and develop product before they get copied by competitors with more funds.
Mentorship: Is another major benefit, VC’s have a vested interest in your business succeding, that is why you are often able to tap into their experience, brain, and frequently their rolodex.

Cons:


Loss of Control: I got into my own business, because I wanted the freedom of not reporting to anyone but myself. I dress, go to bed, wake up and take vacations when I want. I am able to do all of that because I don’t report to anyone. When you receive VC you automatically start reporting to your investors. Furthermore, you exchange part of your company for the investment which means that a VC can potentially sell this part to somebody else. Moreover, many times VCs see a return on their investment when company goes public. The danger here is that VC will push for IPO, before the company is ready and the company will receive a low valuation. VC will still get their return, but you won’t.

Loss of Focus: Getting VC is never an easy task and it is even harder these days due to the recession economy. Getting a VC is a time consuming process and the danger is that an entrepreneur will lose the focus from developing the idea to running around from one fund to another, or from one Angel investor to another. Some start-ups don’t even know yet what they need the money for and are already looking for some. This is especially true for someone on their first start-up and for those who lack formal experience. The first six months of a start-up is when the idea is still new and the entrepreneur has a lot of energy and motivation. If you can, spend this energy on getting your business off the ground and prove that your idea is viable. If you would like to get a VC after it will be much easier.

Overspending: When a business is bootstrapped the entrepreneur usually counts every penny, they get what they can for free, pay only for necessities and concentrate on cashflow. Sometimes when the entrepreneur receives investment – they relax.They start flying to every kind of event out there and spend more time talking about their business than actually working on it. The inevitable result is that once the company runs out of VC it is done. One of the signs of this is when the founding CEO jumps the ship.

High Cost in the Long Run: If your company does become successful and receives high valuation you might end up giving back to your VC 1000% of what they invested. If you are positive that your new start-up will succeed try getting a loan–the APR is better.

Alternatives

Savings: For G-ds sake dont quit your day job without savings for at least 3-6 months, plus enough for some initial business investment. Some people hope they are going to find  VC fast or get some sort of loan. This rarely happens fast, so better plan your exit from a regular job and save appropriately.

Government programs: I am only familiar with Canadian and Israeli programs, but I would assume that any developed country would have similar programs in place. Some of these programs are easy enough to be apply to yourself; with other programs, that are more complicated, you are better off using a third party company that works on contingency basis. This is a list of the most famous programs, there probably more programs that are specific to the industry. You must keep an eye on all the announcements from the government as they change programs and budgets often.
  • SR&ED credit: Research credit that is applicable to most of the tech startups. A corporation can receive up to 35% of first $2 million expenditures in Canada
  • OIDMTC: Ontario Interactive Digital Media Tax Credit up to 40% of eligible Ontario labour expenditures and eligible marketing and distribution expenses.
  • SBIP: Small Business Internship Program. Government of Canada reimburses 75 percent of intern salary up to a total of $10,000 per intern.
  • NRC-IRAP: Provides non-repayable contributions to Canadian SMEs interested in growing by using technology to commercialize services, products and processes in Canadian and international markets.
  • NRC-YES: Youth Employment Strategy. Internship Program with Innovative Small and Medium-sized Enterprises and Collaborative Research Internships Program provide firms with support to hire post-secondary graduates.  Up to $15,000 from 6-12 months.
Loans: There are some loans that are specifically targeted to new businesses. A word of caution: don’t borrow money unless you absolutely have to and NEVER and I mean NEVER use credit cards as the source of your finances.
  • CYBF: Loan up to $15,000 for two to four years with CIBC prime rate plus 2% in the first year and only CIBC prime rate plus 1% in consecutive years. Plus you receive a free mentor for 2 years.
  • BDC: In case you got approved for CYBF loan BDC can match it for up to another $15,000 amortised over 3 to 5 years matching the CYBF amortization period

 
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Running a media company – productivity tools we use:

Posted by Roman on Aug 17, 2009 in Tools

Media Business

A couple of my friends have asked how we manage time inside our company and how I personally manage my time. To be a successful web entrepreneur managing your time wisely is not an option–it is a prerequisite. You better have a good system in place for managing your remote departments, be social on- and off-line and still have time for strategic development. What I’ve learned through trying many different set-ups is whatever system you use, make sure it provides value and is easy for everyone to use. There is no point in complicated software if nobody checks it or updates it regularly.


My own system is heavily influenced by Getting Things Done and my occasional readings of Lifehacker.com.


Principles I find helpful:

  • You must have a trusted Inbox where you can upload everything from your mind You must commit to make this Inbox comprehensive and check it every single day I follow Inbox Zero philosophy: Move quickly without rushing


Process:


My process pretty much follows the GTD philosophy:

  • Every morning I start by looking at my Gmail. I am looking first at messages that were not sorted automatically through my filters. I then decide if it is trash, resource, or an actionable item and add an appropriate Gmail label to it.
  • I then look through the actionable items and sort them into: scheduled events – schedualed in Google Calendar, context to-do – logged in right away to RMT or full-on projects that need to be logged into Zoho Projects.
  • I then look at my “Waiting” label in Gmail and see if I need to follow up with anybody.
  • I go throught the list of open projects in Zoho and see what tasks are pending.
  • I then brainstorm on what else needs to be done.
  • After that process, which takes anywhere from 15 to 30 minutes, the list of tasks is born and logged into Remember the Milk to be synced with my Blackberry that by now has the list of all my apointments, new contacts and urgent task.


Tools:

Microsoft Outlook :

I use it as a Desktop Calendar that gives me reminders when I am at my computer. I also use it as a backup to all of the emails in Gmail.

Google Sync:

I have Sync installed on my desktop, laptop, and Blackberry. This allows me to wirelessly sync all my appointments and contacts between all the devices, so if I put something in my Blackberry it will show up on my Google Calendar and on desktop in my Outlook. For a person that works from any location this service is invaluable. My only pet peeve with it is that it will only sync to your primary calendar.

Google Calendar:

I use this for many reasons: 1) A hub between desktop and Blackberry 2)Ability to quickly share my events with employees and family 3) Ability to see my schedule from anywhere with internet access

Google Docs:

There is a great reason to use Google Docs – portability. There are thousands of ways to sync your documents, but I’ve found that Docs are the easiest way to have your documents wherever you are. With Docs being constantly improved I rarely use Office these days at all. Another reason to use Docs is collobaration. When working with more than 1 person on the same Doc this feature becomes a life saver as you don’t email document back and forth.

Gmail:

For me this is the best email management tools. Portability, labels and filters make it the best tool for me. If for some reason you are new to Gmail read how to become a Gmail Ninja and use filters and labels effectively.

Remember the Milk:

Simply the best task management tool I have ever used. It is very easy to capture and organize your tasks with this tool. You can access your task from anywhere with internet access and my favorite feature is it syncs with my Blackberry. I use it as a gadget to see my Gmail window. Too bad there is no official product that syncs RTM with Outlook.

Blackberry Bold:

After many trials I still prefer Blackberry over Iphone ( I didn’t check the 3GS version yet). I can write a long post on why I still prefer Blackberry, but I won’t. In summary–it is fast and has a keyboard. Due to the awesome aforementioned sync tools my Blackberry contains all of my appointments, tasks, emails and I don’t have to even plug in any cables. Applications I use: Google Maps, TwitterBerry, WeatherEye, Gmail, Gtalk, Fleshlight, FlyCast and of course Facebook

Zoho Projects:

This is where the management of the company happens. While Zoho projects are not the most sophisticated project management system, it is easy to use, economical, and people actually use it. Not only do we schedule all the milestones, deliverables, and documents related to a project, but we also use the forums for communication. That way we eliminate missed emails, and all the communication related to the project is within reach

Pros and Cons
Things I love about my set-up is comprehensivness and portability. The most annoying thing about my set-up is that it has three Inboxes: Gmail, Zoho and RTM. Hence the reason I keep on hoping that RTM, Zoho and Google will include task synching in their products.

I might write a follow up to this post on how I plan and schedule projects in Zoho Projects.



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Wired Wednesdays TO : Regan Fletcher

Posted by Roman on Jul 28, 2009 in Events
Wired Wednesdays TO

Wired Wednesdays TO

Last month was the first time I visited Wired Wednesdays Toronto (@wiredwedto). The key presentation was by Regan Fletcherfrom Yoono and consisted of three very interesting demos. It was a great event to visit both for networking and for motivational lessons from people with experience. As a side note—I found that guys from BackType have the best presentation skills.

I thought the presentation by Regan Fletcher, a serial entrepreneur on his fifth startup, was rich with insights one can only get from the experience of building companies from the ground up. He obviously has a very good sense of humor along with business acumen. Here are some key points that I took with me after the event:>

Learn How to Use a Shotgun

The benefit of a shotgun is instantaneous, extreme power. Obviously Regan meant this metaphorically. What it means is that if you want to hang with the big dogs you have to act like one. One of the examples he gave is getting VC funding. When you come to the meeting with a VC don’t get scared thinking that you are just a little company and they are some big company. You have to feel that you are giving them a favor by letting invest in your amazing product. I think this is what he meant; the last phrase from the analogy was “Don’t bring a knife to a gun fight.”

I pretty much agree with this thought and think that if you don’t know to use a shotgun just yet: fake it ‘til you make it. I don’t advocate misrepresenting your business, what I am suggesting is if you want your company to be something (the top creative agency for example), then start portraying that exact image from day one.

2) Know the business you are getting onto

Regan mentioned that he constantly sees people who want to make better existing ideas and “easily” make money, while not really knowing the insides of the business. Regan mentioned that he usually never hears from those guys again.

I can say that when I started running Toronto4couples I had been reading blogs for awhile and knew how to run a successful newspaper. That’s why I thought that I was ready to take on a brand new web project, but the reality is…I wasn’t. I wish a year ago I was where I am right now in terms of my experience, my team—I ran into many pitfalls that completely screwed up my business plan. At the same time I wouldn’t be able to learn about all of those details if I hadn’t been running this business for the past year. Therefore, it is the best to get involved with something you know the best, but when you do approach unknown opportunities expect a learning curve, pitfalls, and DO NOT expect that you will be able to easily improve what other smart people have been working on day and night.

3) Embrace A..holes

You are going to run into some—that is a fact. Sometimes they can be so big, that you can’t possibly fight them. Use them to learn how to deal with challenges and LEARN from them. I always say that I learned what not do from my bad bosses just as much as I learned from the good ones. Same goes for challenges, embrace them, if what you were doing was challenge free then everybody would do it.

4) Fight with a shotgun for the A round of financing.

Regan says two things in this one: it is pretty much guaranteed that you are going to run out of cash faster than your business plan says and that it is easier to receive round A of funding then round B. That is why if you decided to receive financing don’t settle and fight as much as you can for that first round of financing. Appropriate cash flow is a lifeline of any start-up and determines your ability to have an ample amount of time to develop the product and start making money off it.

5) When everything else fails there is always porn.

This was meant as a joking way to finish the conversation, but Regan was half serious—porn companies adopt and push the development of new technologies. So there is always a possibility of selling your technology to a company like and to move on to the next creation of passion.

I think all of these are great lessons from someone who has been there and done that. Have some lessons of your own, share them in comments!

P.S. The next Wired Wednesday is on August 12 @ London Taphouse.

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Spam followers: Why aren’t you blocking them?

Posted by Roman on Jul 23, 2009 in Social Media

102423-ultra-glossy-silver-button-icon-social-media-logos-twitter-bird2-squareWhy do we get so hung up on numbers? Do your grades in school really show how successful you will be in life? Do those extra 000s in your bank account make you a happier person? Does a larger Twitter following make you a social media expert? I would say the answer to all of these questions is “No”.

I registered for Twitter over a year ago, but didn’t use it too much. Simply because none of the people I knew were on Twitter and I didn’t find a lot of use for it. I used search.twitter.com to identify trends and such, but I didn’t tweet as much myself. With the installation of TweetDeck and TwitterBerry (now trying to use TweetCaster) I started to get involved with a Twitter a bit more.

I instantly learned what Twitter spam is: you type a certain keyword and you get bunch of followers who are either: bots, porn people or social media experts. My favourite kind is “social media experts” they usually follow like 10,000 people and 8,000 or 9,000 will follow them back.

Now comes the question—do you block those accounts which are obviously spam or do you let them follow you? I mean, you will look cool if you have more followers, right? Wrong, due to the simple fact that it is easy to see who is following you. So if you claim to be a marketing expert and have, say, 1000 followers and then your clients click on who follows you and sees names like Kelly4568 or Mandy124 what kind of expert are you?  Of course, if you have hundreds of thousands of followers it is hard to monitor new adds, but the majority of people don’t fall in that category.

This reflects very poorly on your brand and also, from a practical point of view, you can’t really use your twitter account to deliver message to the masses. You think those bots care about your new blog post? The internet is just a medium, marketing principles stay the same: to be an expert in “Social” you have to actually be social. Social means developing conversations and, in a marketing context, helping people satisfy their needs.

So fellow Tweeps who don’t block those accounts, why aren’t you? Agree? Or think I am full of it? Let me know.

@romanz

P.S. Definitely not a social media expert.

P.P.S. But I have couple of good ones working for me.

 
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SEO Video by Matt Cuts – Highlights

Posted by Roman on Jul 1, 2009 in SEO

This video is very good video as it search engines are always developing to combat spammer and help users to find the most relevant information. This video is more an hour long, but I watched it all and here are some highlights if you don’t have time to watch.

Highlights:

  • If you have fancy navigation (in flash) make sure that your page is accessible in many ways. Static htmls are the easiest for search engine to crawl
  • Alt text on the images is very important. This also correlates with Whiteboard Friday video @ seomoz.org
  • Do your keyword research in AdWords you might rank high for a certain word, but there might be a very popular search term in your industry that you are completely missing out on
  • Don’t use too much bolding, people can’t read it very well and crawlers might think it is a spam
  • Make sure your thumbnails lead to bigger pictures. Google tries to index bigger pictures as this is what users are searching for
  • Basic, but make sure your loading time is appropriate. Especially if you want people to access your website from cell phones
  • ALWAYS backup your website. Everybody gets hacked, timely back-ups will allow you to quickly restore your website.
  • My favourite: best $20 you can spend is by taking a random person, tying your hands behind your back and ask them to use your website
  • Before buying a website make sure you check its history. Some urls were owned by spammers, burned to the ground and then put up for sale

Overall great video. It is almost like going for class session on SEO.

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