Posts Tagged ‘Alexa’

7 ways to raise money for your start-up

Tuesday, February 19th, 2008

One of the biggest issues with starting a company – and keeping it running – is finding the cash to stay in business. Even if you work hard at saving money, only spending on the things that are necessary, it is fairly likely that there will be a time when you need more capital.

I am still in the early stages of my start-up, and only have first-hand experience with angel investments, but the following is a rundown of the common ways to raise money for your start-up. Once again, I’m drawing heavily on the stories of the entrepreneurs from Founders at Work by Jessica Livingston for the quotes included here.

SevenThe good news for anyone who has limited resources when starting a company is that entrepreneurs seem to agree that this can be a good thing. The need to conserve resources often leads to creativity, hard-work, and a drive to succeed that can be missing when money is available and things are easier and more comfortable. So the first piece of advice when you’re thinking about raising money is to make sure that you really need it before going after cash.

“One of the things we’re seeing that we really don’t care too much for is that way too many companies are taking money when they don’t need it. And the whole idea we had was that having too little money is a great way of getting great product because it’s a way to get focused.” – David Heinemeier Hansson, partner, 37signals

“The money was scarce, but I’m a big believer that constraints inspire creativity. The less money you have, the fewer people and resources you have, the more creative you have to become. I think that had a lot to do with why we were able to iterate and innovate so fast.” – Caterina Fake, cofounder, Flickr

“I really liked the discipline that came from a bootstrapped startup. I think that everybody that goes and does a startup – even if they don’t do a major startup that way – should start a business that is having to make people happy with them day one, through contracts, through small scale sales, whatever it is. How low can you go? How can you build something really inexpensively? How can you not spend money on furniture and matching carpet and those sorts of things?” – Brewster Kahle, founder, Internet Archive/Alexa Internet

“The advice I would give is to avoid [raising money]. I would say spend as little as you can, because every dollar of the investors’ money you get will be taken out of your ass – literally in the sense that it will take stock away from you, but also the process of raising money is so horrible compared to the other aspects of business. You can’t work your way out of it like you can with other problems. You’re at other people’s mercy.” – Paul Graham, cofounder Viaweb

“I think in general being overcapitalized is a path to failure. The VCs want you to spend. There are general ills with being overfunded.” – Joshua Schacter, founder, del.icio.us

1) Use your own money
In my opinion, this is the best way to fund a start-up if you have the capital to invest. Not only will this ensure that your decisions are not controlled by outsiders, it will also guarantee the highest percentage of profit if you sell. It’s also incredibly motivating if your own money is on the line every day. Of course, if you don’t have extra capital and you’re trying to self-fund, that can be a painful process of skimping and saving every dime – as well as living day-to-day with poverty and uncertainty. So this is probably only a viable option if you have significant personal wealth, or have put money aside in savings.

“There are pros and cons to taking money. The best kind of company is one where you don’t have to take any money…I funded the first few years myself. But eventually, I took some money from Mitch Kapor and then others. Not so much because I needed it at that point, but because I knew that, ultimately, you cannot accomplish something completely on your own. You really need to develop a network of people who win when you win.” – Ray Ozzie, founder, Groove Networks

2) Get a loan
There seems to be a general sentiment that small businesses and start-ups are not able to get bank loans. The truth is, there are loans that are earmarked for small businesses. Bank loans can require collateral to secure them, however, and the terms make all the difference in the world, so be sure to read the agreement closely.

“We lucked out and got an interest-free loan from the Canadian government. We’d applied for it, and gotten rejected, and then just sent the same application in again when it was open again, and much to our surprise, we got it.” – Caterina Fake, cofounder, Flickr

3) Apply for grants
From the research I’ve done, it appears that the United States government does not have any grants for small businesses owners, but there are state-based grants available. This list from About.com includes links to the state-based programs. If you’re based in Canada or elsewhere outside the U.S., you may have more luck finding government grants.

“We heard about these government programs, and we started applying for them. It was a lot of work to actually apply for these things, and then it was a lot of paperwork to maintain them. In the early days, they weren’t really big grants. They were rather small, and sometimes you wondered if it was worth all the trouble. But it was very helpful when we needed it. As you become experienced, and as the government agencies that we were working with became comfortable with what we were doing and recognized that we were onto something, the grants became more interesting.” – Mike Lazaridis, cofounder, Research In Motion

4)Put it on your credit card
While it can be difficult to get a bank loan or a government grant, most small business owners (depending on their personal credit histories) are able to obtain some kind of business credit card. The typical issues related to spending on credit apply, with the biggest concern being that the business will fail leaving the entrepreneur with a huge credit card bill to pay off. According to Joe Knight, co-author of the book Financial Intelligence, in a BusinessWeek article, “the worst thing in the world is to have your business fail and be stuck personally with $50,000 in debt at 21% interest.”

“There are more choices nowadays for people – angel money, for example. And many things are much less expensive to do now. You can go further on your credit card than you could before. I want entrepreneurs to make informed choices when it comes to financing. Understand what the impacts and implications are for different financing options.” – Mitchell Kapor, cofounder, Lotus Development 

5) Get consulting work or side jobs
This suggestion is something I covered in an earlier article about how to save money on your start-up. It’s a popular way for flexible start-ups to get some extra cash – money earned from side projects assigned to the company or one of the start-up founders can then be used as an infusion of cash for the business.

“The first year was entirely self-funded. It was just doing this work mostly for HP. HP basically funded Pyra for the first year, unbeknownst to them, because at the time you could charge a decent amount of money for doing pretty simple web application development. If one of us was working on that full-time, it would pay for three of us (not that we were paying ourselves much).” – Evan Williams, cofounder, Pyra Labs

6) Find angel investors
Angel investors are typically wealthy individuals who use their own money to fund a start-up in exchange for repayment of the investment (with interest), or a percentage of the company or both. Angel investors are often friends, family members or previous business partners or associates – or people who are in the start-up founders’ extended network. (This is a good reason to start networking now!)

Angel investments provided me with the initial funding for my business, and angel money has been an excellent way to make sure that I have the capital to fund my start-up, while at the same time having the flexibility to work on a variety of things in different markets without too much outside control. This is how Chris’ company is funded, as well, and it is an increasingly popular way to fund companies, especially in high-tech.

“We all tried to get $3,000 from each of our parents, and five of the six parents put up, so we had $15,000. After graduating, three of us lived in one house in Palo Alto, and three of us lived in another. We set up shop in the garage of the house that I was living in. It was the classic setup. My parents came up and they saw the garage and wound up buying us some nasty carpet. The tables were all Formica. I won a fax machine at Office Depot. We stole our chairs from Oracle Corp.” – Joe Kraus, cofounder, Excite

“We were very encouraged that the angel investors wanted to invest. We gave demos to two investors. We only wanted to raise $50,000, but both of the investors who saw the demos said yes. So we thought, ‘All right, we’ll raise $100,000 then, since they both said yes.'” – Paul Graham, cofounder, Viaweb

7) Take on venture capital
For me, and for most of the founders featured in the book, venture capital is the type of money that is surrounded in the most mystery. Typically, start-up founders don’t understand venture capital or how it works until they go through a funding round with the venture capitalists. There is also a great deal of fear surrounding the idea of working with venture capitalists, and often a great deal of resistance to taking money from them. However, for companies that need a lot of cash to see their idea come to life or to push them to the next stage of growth, venture capital can be a good option.

“Once you start down the treadmill of taking venture capital, it’s ‘How many rounds before people give up on your or you have a positive exit event?’ So you’re really setting yourself up. The best by far is to structure it so that you don’t have to take money.” – Ray Ozzie, founder, Groove Networks

“We took no investments because there were so many horror stories about what VCs would do to you. ArsDigita was the most public one, obviously, of kicking out the founders and then mismanaging the company and bringing in the so-called professional management.” – Joel Spolsky, cofounder, Fog Creek Software

“We didn’t have any desire to take money. We had heard all these horror stories about people receiving venture money, and even though we didn’t think we could have the aspirations to be something huge, we certainly didn’t want to crash and burn because we took money when we shouldn’t have. And we didn’t know anything about it. Are you supposed to pay them back? We didn’t understand that investors put money in and they own a part of your company. All we had heard were bad things that happened, and we didn’t know why.” – Mena Trott, cofounder, Six Apart (they eventually did take VC money)

“It’s one of those things where, if you look back now, when everyone walked away with a ton of money, everyone loves everyone. We had this great time, etc. It’s generally more complicated than that where, when the company is doing well, they’re happy and they think they’re great. The company’s not doing well; they’ve overpaid and they’ve been too nice. It’s half and half.” Max Levchin, cofounder, PayPal

“Then we found one venture capital firm, Brentwood Venture Capital. Jeff Brody, a VC there, saw it and he thought it was great. He said, ‘We want to invest.’ And they were prepared to put in $4.5 million…It was great, since we were plumb out of money. I would have lost everything; my house; I would have been deep in debt; the company would have folded; it would have been a bad scene.” – Steve Perlman, cofounder, Web TV

The next article in this series on start-ups will talk about one of the key attributes of an entrepreneur – the willingness and ability to change plans quickly, and to adapt to outside pressures and influences.

Trust and Internet advertising

Sunday, October 28th, 2007

I just read an article called “The Trust Issue” by David Morgan in the Online Spin blog. In the post, Morgan is referencing a report from Nielsen that shows that consumers don’t trust Internet advertising. Here’s an excerpt:

A global study from Nielsen … found consumers don’t trust Internet advertising nearly as much as they trust traditional forms of advertising. The Nielsen study, based on an online survey of more than 26,000 consumers, asked respondents their perceptions of different forms of advertising. The results? Consumers rated Internet advertising at the bottom when it comes to trust as compared to offline media. Specifically, 63% said they trust newspaper ads, 56% trusted TV spots and magazine placements — while search ads got a trust thumbs-up from just 34%, and banner ads were trusted by just 26% of the respondents.

He goes on to talk about some ways to help change consumer perception about online advertising. It’s a good article, go read it. But as much as I am an advocate for the Internet and Internet advertising, and as much as I would like us to work at changing negative perceptions about the Internet, I actually agree with the consumers – they are right to not trust Internet advertising as much as they trust TV or print.

TV and print advertising is obvious. You can tell – with close to 100% accuracy – when something is an advertisement and when something isn’t. And I think that this is the main reason why Internet advertising got such low marks – not necessarily because the ads themselves weren’t trustworthy (although that is probably part of it), but because consumers are unsure when they are being shown an ad, and when it’s “real content.”

There are so many ways that Internet advertising is fuzzy. Just think of Google, the second most popular Web site in the U.S., according to Alexa. On the Google search results page, ads run at the top and along the sides – and they are clearly labeled – but many consumers still don’t realize that they are looking at ads because the results look very similar to the organic search results. And what is listed in those ads is sometimes misleading. And that is just one example – there are many others. Bloggers are paid by companies to write reviews of their products with services such as ReviewMe. Parked domains gather advertising revenue from direct navigation (when keywords are typed directly into the search bar), the sites seem like they are providing information, but they are really just collecting PPC dollars. Pop-up ads arise from nowhere and refuse to disappear.

I love the Internet and I am a fan of these new and exciting business models, but there just aren’t the same standards online when it comes to the separation of “editorial” and “marketing” – it is sometimes hard to know what is an ad and what isn’t. In my opinion, at this point, the consumers are right to mistrust.

Some interesting facts about globalization

Thursday, September 27th, 2007
  • In 2006, the fastest growing Internet audience was in…India, where the growth rate was 33%. India’s growth was followed by the Russian Federation (21%), China (20%), Mexico (18%), Brazil (16%), Italy (13%) and Canada (11%), according to a report from comScore. The growth rate in the U.S. was a mere 2%.

  • The largest Internet population in the world is still in the United States. The same comScore report showed that even though the United States’ growth rate is slower than many other countries, it still leads the world in number of Internet users over the age of 15. China, Japan, Germany, U.K., South Korea, France, India, Canada and Italy round out the top ten countries, ranked by number of unique Internet users. 

  • Brazil, Russia, India and China (BRIC) could have a larger GDP than the G6 (U.S., U.K., Italy, France, Germany and Japan) by 2040. This fact is part of a 25-page white paper from Goldman Sachs, “Dreaming with BRICs: The Path to 2050.” As the paper is fond of pointing out, if this indeed happens, “it will be a dramatically different world.”  In the report, India is shown to have the greatest growth potential of the BRICs, followed by Brazil, China and Russia.

  • More than 50% of the traffic to the NBA.com Web site is from international visitors. 54%, to be exact. This is a trend that many companies are discovering – that a large majority of their site visitors are coming from other countries. As John Yunker, author of Beyond Borders: Web Globalization Strategies, sums up in his Going Global blog, “This trend [of sites getting more than half of their traffic from outside the U.S.] is a major reason why multinationals have been investing heavily in Web localization. That’s where all the growth is.”

  • A ranking of the most popular sites by country often shows the localized version of Google at the top of the list. Alexa has the rankings of the most popular sites by country, and the results are fascinating. In many instances, the localized version of Google is at the top of the list, giving some credence to the idea that preparing a localized version of your company’s Web site is a good way to start to penetrate that country’s market. In some countries, however, the number one site wouldn’t sound so familiar to the average consumer. China’s #1 site is Baidu.com . Russia’s #1 is http://mail.ru/.

  • The number 1 site that is published in the SeznamCzech language is Seznam.cz. Sounds kind of like “shezam.”  Anyway, along with finding out the top site in Czech, there is a list of the top sites in 20 other languages, including Turkish, Hebrew and Finnish (Google, Google and Google), on Alexa.

~ Today’s view: http://www.flickr.com/photos/13799608@N08/1445266053/