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10 Lies Angel Investors Tell

I came across a fun blog post the other day – Frank Peter’s post on 10 Lies Angels Tell. Frank has been an angel investor for quite some time and an active member of Tech Coast Angels. I have taken the liberty to convert the post into a nice little slideshow. I hope you enjoy it.

How Much Equity Do VCs Really Get?

In challenging economic times like this many folk are tempted to break out of their personal economic straight jackets by launching a technology startup. ‘Capital-light’ startups are the rage today, thanks to the extremely low costs of hosted services and the plethora of open source infrastructure software solutions. Many newbie entrepreneurs look to venture capital as the best way to finance the launch and development of their business. A common question raised by many of these entrepreneurs is ‘how much equity do VCs typically get?” Thanks to the folks at OwnYourVenture.com, entrepreneurs can now use a web based tool to model the impact of multiple rounds of venture capital funding. This post explores not only the math behind how founders’ equity gets diluted by venture capital, but it also models what founders’ ultimate payoffs can be in various exit scenarios. One pof the key takeaways is that you should worry more about how much VCs will own at the end of the fund raising process and what your exit will look like versus how much equity you give away in your Seed or Series A round.

Why I’d Prefer 1,500 Mid-Market Customers over 25 Fortune 1000 Customers

As the reality of 2010 sales forecasts settle in, enterprise software firms are beginning their annual hunt for new revenues. Many of them are considering moving ‘down-market’ into the mid-market space. This is a re-post of a piece I did last summer that talks about why I’d rather have 1,500 mid-market versus 25 Fortune 1000 customers.

SaaS Valuation Update January 2010

Interest in public company SaaS valuation trends continue to grow. This post presents an update on key valuation metrics for public SaaS companies as of January 2010. Includes metrics on Enterprise Value, EV/Revenue, EV/EBITDA, Gross Margins, EBITDA MArgins, Revenue Growth Rates, and YoY Stock Market Returns.

What the Proposed Carried Interest Tax Means for Private Equity Portfolio Companies

Congress is looking to raise $24 billion over the next 10 years by changing how private equity firms are taxed on the profits of their investments. If you are a senior executive at a private equity backed portfolio company you need to understand how this tax change will impact your owners and their attitudes toward your business. As noted in a recent Wall Street Journal article there are very different opinions about the tax law change. “Private equity will endure, but the draconian tax hike, if enacted, will unquestionably slow the flow of capital to companies struggling to get back on their feet during this very fragile economic recovery,” said Doug Lowenstein, president of the Private Equity Council, a trade group. “It’s amazing to me that at the same time the U.K. is imposing a 50% excise tax on bankers’ bonuses, the private-equity guys aren’t even willing to pay the usual ordinary income rate,” Mr. Fleischer said. “You would think they would recognize a fair deal when it’s offered.”

Whether the tax is fair or not is not the major issue for portfolio company executives. The real issue is that private equity owners could push for the sale of your business in 2010, at significantly reduced prices, to maximize their yield on the investment in your firm. Click through to read the whole post and take a look at the math and its implications for your business.

Manufacturing Revenue 2010

If your company’s products/services are in the middle to latter parts of the life cycle, it is harder to sell new customers. In 2010 a lot more companies will be looking to acquire social media analysis/monitoring platforms, hardware/software virtualization, and cloud computing services than those looking for ERP solutions, mainframe job scheduling, or electronic data interchange. This does not mean that there are not significant revenue opportunities for older technologies – it just means that you have to work a lot harder since most buyers do not wake up in the morning and say “I really need to buy some middle-aged technology today!”

Manufacturing revenue is a harsh reality for most tech companies today. Over the next few days we are going to be exploring a few techniques you could leverage at the start of 2010 to get you closer to hitting your revenue numbers. The first approach is euphemistically entitled “The Bowling League Sales Program.” This program focuses on building awareness of your brand and customers’ successes via a geographically focused customer success blogging, social media broadcasting, and digital body language monitoring program. It’s a lot of work but it enables you to effectively leverage some of the most active and effective marketing technologies in today’s world to drive new revenues for your business.

Amend, Extend & Pretend

2009 saw a record number of PE-backed firms filing for Chapter 11 protection. 83 firms went bust in 2009, versus 46 in 2008 and just 2 in 2007. The numbers could have been significantly higher in 2009 if the infamous ‘amend, extend, & pretend’ phenomenon didn’t start kicking in after Q1 2009. Click through to the full post to see the detail behind the numbers.

Mary Meeker on Steroids

Morgan Stanley’s Mary Meeker, the “Queen of the Net”, is famous for her in-depth analyses of technology markets. In 2009 Mary and her team have been heavily promoting mobile Internet as the next big wave in the technology market. Several copies of her 68 slide October “Economy & Internet Trends” presentation from the Web 2.0 Summit have circulated around the web. Recently Morgan Stanley released the 671 slide presentation, the Mobile Internet Key Themes Report, that underlies Mary and her team’s research. Click through to the full post to review the entire presentation or to download it from Morgan Stanley.

Suing Gartner Won’t Solve Your Magic Quadrant Problems Part Deux

The ZL Technology/Gartner litigation continues. After having their first case dismissed, ZL has filed an amended complaint charging Gartner with defamation and trade libel. Given the high standard of proof in American libel litigation it is unlikely that ZL will fare any better this time around than they did the first time. Perhaps ZL might consider the advice of Vivek Wadhwa, an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. In a recent TechCrunch article Vivek describes how he turned his developers into the best enterprise sales people in his market. Vivek’s experiences are interesting for not only startups, but mature companies as well. His strategies certainly have a much higher probability of success than ZL’s quixotic litigation approach. See more details inside the post.

Supply Chain Management Exits

Supply Chain Management is not the most glamorous or valuable software market. In Q309 public Supply Chain Management companies had media EV/Revenue metrics of 1.3x and EV/EBITDA metrics of 9.8x. According to the Software Equity Group Supply Chain Management ranks 19th out of the 24 software technology categories they track. Interestingly enough, there have six major exit/corporate development events in the past two months in this market space including a major dividend, two major acquisitions/mergers, a large secondary offering, and two IPO filings. If boring old Supply Chain Management can generate this much activity then perhaps the rest of the tech market can look forward to a happy new year as well.


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