Friday, February 29, 2008

Do You Need Capital?

The Connecticut Venture Group is sponsoring an event to help you raise money. The event on March 18 in Hartford, CT, includes workshops on business planning. I've always been impressed with the high quality of all CVG events Here are the details:

Connecticut Business Financing & Assistance Fair
If you need capital or other resources to start or grow your business, we want to talk. We’ll tell you about available grants, loans, venture capital and angel investors. Or if you need assistance finding space, engineering expertise, permits, help with a business plan, information on patents or legal structures for your business, experts will be on hand with answers. Our aim is to help you help us create jobs.
Click here to view the flyer for the event.
3:30 - 3:45
How to write a business plan to start a new venturePresenters: Shipman & GoodwinORHow to write a business plan to grow an existing companyPresenters: TBD
4:00 - 4:45
Funding Sources: Which ones are right for your stage of developmentPresenters: Brown RudnickORWhat you need to know to obtain a bank loan Presenters: Webster Bank; CVG
4:30 PM
6:00 - 7:30
Reception and Exhibits
Tuesday, March 18, 2008
Gengras Student Union at University of Hartford, Hartford, CT
4:30 pm to 7:30 pm
To Register:
Click here

Thursday, February 28, 2008

Getting Gadgets On TV

Are you an inventor just dying to get your gadgets into infomercials? Or are you a consumer who wonders how the gadgets get into those infomercials? Advertising Age columnist Lenore Skenazy has written a story about the guru of infomercials A.J. Kubani. (also in the sidebar).

A.J. Kubani gets his ideas from his own needs -- like the need for a portable, battery-powered light bulb that you can just stick on the wall. He also reads classified ads and searches in stores for unusual gadgets that he can license and promote. But the product still has to meet a need. It's funny how that is such an essential element for success.

He also says that it pays to advertise on boring TV shows and networks. That way, his ad stands out and grabs attention. Interesting point to ponder....

Wednesday, February 27, 2008

Stop Planning, Start Doing

In the past two weeks I discovered that two people who took my course in business planning had started businesses. I was so excited. Typically, people take a class on how to write a business plan and then procrastinate. But these two entrepreneurs have actually started businesses. One called me to come over and see his products, distribution center and offices. His website will launch next month. When it does, I'll be sure to write about it. In the second case, I saw an ad for the business and remembered it from my class. It's called DanielCare. Daniel provides aides to frail elderly who need help with the chores of daily living.

I was particularly interested because I'm doing volunteer work to help people in my town and church age in place. Aging in Place is a national movement. Most older folks simply want to stay in their homes, not move to assisted living or a nursing home. Aging in Place organizations help them do that.

The thing that struck me most about my students is that they each perceived a need in the marketplace and commenced to fill it. They took their own money and time and just did it.

Please contact me with questions or comments.

Tuesday, February 26, 2008

Commercialization Beats Innovation

Bell did not invent the telephone. At least that's the contention in The Telephone Gambit: Chasing Alexander Graham Bell's Secret, a new book by Seth Shulman. (The link in that sentence takes you to The genius of Bell was in the ability to commercialize the telephone, which was really invented by Elisha Gray. Shulman came to the conclusion that Bell actually took a basic idea from Gray when he was reading Bell's 1875-76 notebooks and comparing them to Gray's papers. The Library of Congress only recently released these documents, now available online in high resolution.

No matter how you feel about the controversy, the lesson is important. Commercialization is key. Look at Google. The Google guys didn't invent paid search. They just capitalized on it better than the originator. Overture, now owned by Yahoo! originated paid search. Google had to pay Yahoo! a license fee, after being sued by Overture for patent infringement. (They settled the suit out of court.)

If you're an inventor or are working with an inventor, get yourself allied with good marketing people. Figure out how you'll take your great technology and commercialize it. And don't waste precious time. Bell beat Gray to the patent office by minutes.

Friday, February 22, 2008

Lots of Venture Capital

There's a lot of venture capital out there. According to Wharton's "Get It Started", VCs are sitting on about $80 billion, just waiting for the right investments to come along. In an article called "The Real Deal on Venture Capital" (, Prof. Raffi Amit Helms of Wharton West and a panel of experts said that venture firms are flush with money but are still cautious due to memories of the tech bubble bursting in 2001. Last year investors put about $30 billion into companies, the largest amount since the meltdown. About half of those funds when to information technology companies and a third to healthcare.

Psychology is very important for investors, said the panel. In other words, investors are looking for liquidity events. Last year, there were more IPOs (initial public offerings) and a lot of M&A activity, which have made VCs more likely to make new investments. At the same time, it's difficult to take a company public. A company needs about $100 million in revenue to have an IPO, and it can take about seven years for a business to get to that point. Legal and compliance costs are rising. Compliance with Sarbanes Oxley can cost $1 to 3 million annually. This legislation has had a real dampening effect on business formation because even private companies need to be concerned about compliance.

On the down side, the article also points out that average returns to VCs are about equal to that of the S&P, which is also helping to keep money on the sidelines. In addition, start-ups don't want to part with control just to raise money. They are asking for just enough to become cash flow positive, rather than the millions they asked for prior to 2001.

What are your thoughts about Venture Capital?

Thursday, February 21, 2008

Do You Really Need a Business Plan?

Kelly Spors wrote in the Sunday Wall Street Journal (syndicated to The Stamford Advocate) that you really don't need the 100-page start-up plan. Ironically, I couldn't agree with her more. Here I am, a business plan writer, agreeing that you don't need a big plan. The focus is on the word, big.

Ms. Spors doesn't say that you don't need a plan. Rather, she says that you shouldn't spend too much time writing a huge plan. As Ms. Spors's small business column points out, entrepreneurs need to put their time into getting going. They need to create prototypes and figure out if they can manufacture a product or deliver the service at a profit. If they spend too much time planning, they can lose their window of opportunity.

At the same time, she says that you need to do some planning, as the planning process makes you think through your business model. She also allows that the time you do need a written plan is when you're going to be pitching to investors. Still, you really need to spend most of the time crystalizing your idea, getting your management team in place and figuring out your costs and burn rate so that you know how much money to ask for. If you've gone through the planning process, you then have a roadmap -- Ms. Spors calls it a compass -- which can help you dodge roadblocks, while you head toward your goal. That's why when I work with clients, I usually write an executive summary which covers all the key topics investors ask about, plus financial projections with documentation of key assumptions. I have never crafted a 100 page plan, and have not written a 25-page plan since 2002. Yet, I have clients who have launched successful businesses and raised millions of dollars. The ones who accomplished these things used their brief plans as guides as they focused on executing.

To read all of the WSJ article, "The 100-Page Start-Up Plan -- Don't Bother", see my sidebar under shared items. If you want to explore your own business plan, please visit my website: or email me at:

Wednesday, February 20, 2008

The Elevator Pitch

When one of my clients asked me last week what it's like to present to an angel group, I told him it was like reality TV. It's like American Idol or The Apprentice. You give the pitch, then the angels or VCs ask questions and discuss your idea. They show interest or quickly dismiss you. So when I read a piece by Tomio Geron, a reporter for Dow Jones VentureWire, that attending an Elevator Pitch Roundtable hosted by VC Taskforce in California was like American Idol, I had to smile. (See a link to the article in my sidebar under shared items. Here's a link, too:

The elevator pitch lasts about 90 seconds. That's all you've got to get the essentials of your business across to a room of potential investors. In some cases, you have a little more time -- three to five minutes. When time is up, you have to stop because more entrepreneurs are waiting to pitch right after you. The key to success in this situation is to be sure you hit the points that answer the questions that investors have. You have to pique investors' interest quickly.

Having judged entries for venture fairs and graded pitches at venture boot camp, I can say that the biggest mistake entrepreneurs make is not answering the key questions. The Connecticut Venture Group has a form to fill out for its Crossroads Venture Fair. (You can see the forms at You would not believe how many people don’t answer the questions on the form. For example, in response to “What is the market?” several hopefuls wrote about the product. To win over VCs, answer the questions correctly, clearly and succinctly. It seems like this should be pretty basic, but it obviously isn't for many people.

The other problem is that inventors and other highly technical people tend to be in love with their technology. That's all they want to talk about. But they lose their audience. Investors want to know about your value proposition, the market potential, your management team and your business model. If you want to read more about the top ten questions, visit my website:

Please comment or ask questions.

Tuesday, February 19, 2008

A New E-Commerce Company - TrialPay

Alex Rampell is a young entrepreneur who has founded a new Web-based business called TrialPay. The New York Times's Technology section's e-commerce report on Monday, February 8, 2008, ran an article about the man and his company. TrialPay helps businesses close sales of software by enabling consumers who are sitting on the fence to get the software for free. All the consumer has to do is agree to sign up to buy something else from another online store in the TrialPay network. It's kinda like -- "Buy one, get something else free." The amazing thing is that it works. According to the article, everyone is coming out ahead. To read more, go to the article:

This just shows that there are so many ways to rethink the marketplace. You just have to be open to seeing the possibilities. Rampell says that people do not like to pay for software. They typically will opt in for a free trial but then don't convert when the trial is over. His business offers the software for free when the trial is over, as long as the consumer signs up with companies such as Gap or Blockbuster to purchase items from them. Once they purchase from Gap, for instance, they get the code to download the software for free. Gap then pays the software company. TrialPay is an intermediary and collects a commission. Pretty good variation on the affliate theme.

Friday, February 15, 2008

Great Time for Start-Ups

In a blog called "Online Spin" David Morgan, who is EVP for Global Advertising Strategy at AOL, says he's leaving for a start-up. Why leave a great job like his for a start-up in this melting economy? Some people say that businesses started in a recession that survive usually go on to become very sound and successful. But Mr. Morgan isn't saying that.

Rather, he's saying that so much growth and change is taking place in digital media that it's a great time to be in a start-up in that space. He lists the reasons:
  • A big, growing market.
  • Lots of "white space", i.e., unexploited niches.
  • Room for geographic expansion.
  • Lots of infrastructure in place
  • Distracted incumbents
  • Uncertain economy

If you want to read more, go to his blog --

The point is that entrepreneurial people and inventors tend to see the opportunities. That's what Mr. Morgan is seeing. You can too.

Please contact me with your questions or comments.

Thursday, February 14, 2008

SEO - Search Engine Optimization

How do you drive people to your Web site? An entire business sector sprang up over 10 years ago to help companies do just that. It's called Search Engine Optimization, or "SEO". SEO helps your Web site get picked up by search engines and displayed on the first page of natural (or organic) search results. Google, Yahoo! and MSN all use different algorithms (logical formulas) to search out and rank pages based upon the keywords searchers type in.

A good Web site designer ought to know what to do to optimize your site, but what if you're just using a free template and building the site yourself? When I was making one of my sites, I overlooked one of the most important things you can do -- writing a good statement about the site for people to read on the search results page. The description of my site said something about my host and Web site software, and Website Creator, not about my site. So if you typed Wyn Lydecker into Google or Yahoo!, my site,, would come up in the results, but you learned nothing relevant about my site.

I quickly went to my host and my Web site creation software, which is provided for free, and found that I had neglected to put in a meta description. I added the description, and within two weeks, Google displayed the correct description of my site.

I also checked my meta tags. Meta tags are keywords you want to have associated with your site. So if someone types in a keyword, the search engine crawlers will have made a connection between that keyword and your site. That helps the site come up in results. Of course, if you have an advertising budget, you can bid on keywords and purchase a featured position in the search results. Google and Yahoo! make money that way. Your site can get top billing. But you'll pay money to the search engines every time someone clicks through to your site.

I'll be writing more on Search Engine Optimization. In the meantime, Google and several blogs have great articles on how to optimize your site. (see my sidebar for a link to one of the articles from Ask Enquiro -- and Google's blog on the topic --

Wednesday, February 13, 2008

Finance Basics and Taxes

I'm always amazed when I work with entrepreneurs who don't understand the financial side of their businesses. They have great ideas. They have the moxie and energy to go out and just get things done, but they either have no idea how to manage their cash flow or they don't know the difference between revenue, income and cash flow.

Here's a little advice. If you're going to run a business, keep a record of every check you write, every bill you pay electronically and every credit card purchase you make. You can do this with paper and pencil or on Excel or some other financial software.

When you book a sale, write it down. Write down when you expect to be paid, and then, when the cash comes in, you should record that revenue. That way, you have the ability to know what is really going on in your business and whether it is as successful as you want it to be.

It's easiest to keep your books on a cash basis, that is, just keep track of every cent of cash that comes in and flows out. If you want to know more about how to categorize all this, you should look at the IRS's Schedule C. That lists the categories of expenses and can help you keep track in the same way the IRS wants you to make your reports. You can also go to the SBA's site and read about financial statements. This will help you understand the difference between things like inventory, cost of goods sold, gross profit, overhead, EBITDA (or operating profit) and net profit. You can also learn about capital expenditures and how to account for them. Visit these government Web sites to learn more: and

Before you go to an accountant or bookkeeper or purchase a tax package, it's good to understand the basics yourself. I've also written some explanations about all this for classes I've taught. Feel free to contact me, if you'd like personal tutoring or mentoring. or visit

Tuesday, February 12, 2008

Business Formation and Taxes

If you're forming a business, you should think about all the reporting and tax ramifications you'll be facing before chosing the form of organization. Cliff Ennico, an attorney, TV host, lecturer and friend of mine, has posted information about the various business forms on his Web site:
His main site is:

His "Demystifying the Business Organization" provides a great overview of the pros and cons of the different business forms. Read it over, take notes and then go to your own attorney or accountant and ask them for their advice. If you read Cliff's notes first, you'll be able to ask more intelligent questions, thereby using less of your professional's valuable time.

In a nutshell, if you just have a small business that you're running yourself, you can be a sole proprietor and file a Schedule C for your business income along with your personal tax return. If you want to protect yourself from liability, the LLC (Limited Liability Company) is very popular. Again, the business income flows into your personal return. If you want more formal structure, and you think you'll be selling shares in your company to investors, then a "C" Corporation is the way to go. But your corporation will pay taxes on its income. You'll pay taxes on your salary or dividends that the corporation pays to you. (Note: I'm not a lawyer or accountant, and this is not legal or accounting advice.)

The most important thing is to keep track of your business transactions. Don't get them mixed up with your personal money flows. While many people use QuickBooks, I prefer to use Excel. The beauty of Excel is that I can update my records and easily recalculate the totals. I have neat printouts to use at tax time.

Many people believe that they can just gather their information at the last minute and hand it over to accountants at tax time. But I believe that it's much more prudent to keep track of your money yourself so that you know what is going on. Accountants can make mistakes. Do your own due diligence. Know what records you need to keep and then keep them.

Monday, February 11, 2008

Small Business Taxes

The Sunday New York Times ran a special tax section on February 10. One article focused on the tax costs and savings from owning your own business. Many people think it's great that they can deduct all their business expenses. However, they may not realize that they have to pay both sides of the employment taxes (Social Security and Medicare) -- the employer's and the employee's sides. You also have to set up books to track your business expenses separately from your personal expenses. You can read more of what the NY Times has to say at this link:

Since tax time is rapidly approaching, I'll be writing more about this topic in the days to come.

Friday, February 8, 2008

More on Demystifying Term Sheets

From the CVG Workshop on Term Sheets on Jan. 24, 2008 --

Business founders may not realize that investors will be looking for milestones to be achieved. That's why investors list milestones in a term sheet. Sometimes, they dole out the funds as the company reaches the milestones. This is called "staged closings." For example, if you have a dot-com, soft launches or hard launches can be milestones. As you negotiate, make sure your milestones are achievable.

Other things to know: Think about what you as a business owner are giving away to the investors. Is it worth it to you?

VCs usually want preferred stock so that their dividends can be accrued and they can get their money out before others. Preferred owners also get veto rights when voting on corporate matters.

VCs usually want to get their money out in 4-5 years. And they want a clear path to liquidity. The term sheets will have details about conversion of preferred to common stock. Remember that investors want to maximize their investment.

Most entrepreneurs think that they can raise capital quickly, but that's not true. VCs need to do background investigations into the company and the owners -- called "due diligence". Then, there's the negotiation of value and dithering over the term sheets. Once you've signed a term sheet, there's still a lag before you get the funds.

Keep in mind that more important than raising funds quickly is to make sure that your investors have deep pockets and will want to stay in the game for future rounds of investing, as needed. The section of the term sheet that addresses keeping the original investors in the game is called "Pay to Play."

Other clauses that protect investors are ones on antidilution and information rights.

As you go through a term sheet, it's really important to be sure you understand what all these clauses are doing for the investor and for you. That's why you need good attorneys by your side. Institutional investors bring a lot to the table, as they have experience you may lack. On the other hand, remember that they are out to maximize their investment with a clear path to liquidity. That may or may not be your goal. Protect yourself by negotiating intelligently.

If you want to maximize your valuation, do the following:
  • Have a solid plan, a good revenue stream and solid management.
  • Consider a staged closing.
  • Establish a stock incentive pool (5-15%) to incentivize employees.
  • Consider tax ramifications of all your business decisions. (Get a good accountant.)

Le me know if this has been useful. And please send questions for me to answer.

Thursday, February 7, 2008

Demystifying Term Sheets - Valuation

More from the CVG Jan. 24 meeting:

How do you value a company? Virtually every one of my clients asks me that. The answer given at this Term Sheet Workshop echoed the ones I've heard countless times before, "It's a negotiation." But how do you, the entrepreneur, get the best valuation for your company?

The workshop leaders said that professionally produced financials really help. For later stage companies and companies with revenues, having a CPA help with the developing the best tax structure for the company is also valuable. And while LLCs are becoming more popular, and VCs are beginning to fund LLCs, making your business a C-corporation makes the funding process easier.

For more information on preparing professional financials, visit PriceWaterhouse Cooper at:

Also understanding the process, including valuations at:

Wednesday, February 6, 2008

Demystifying Term Sheets - 2

From the Connecticut Venture Group Workshop on Term Sheets, held Jan. 24, 2008 in Stamford, CT. -- Term sheets are essential documents for investors in non-public companies. You'll begin to understand why as you read what they include. Here are some of the things that they delinate:
  • Key players -- founders, issuers, purchasers, early investors
  • Investment amounts
  • Use of proceeds
  • Price and capitalization -- valuation
  • Closing date
  • Form of investment -- usually preferred stock

In the next blog, we'll discuss valuation and other topics.

Please send questions or comments to this blog or to my email:

Tuesday, February 5, 2008

Investor Term Sheets continued

Why are term sheets necessary? They provide a written summary of the principal business and set down the economic terms of an equity investment in a non-public company. Typically, the investors do not have control over the company in which they invest, so they need the term sheets to protect their minority rights. In other words, the term sheet puts into writing a clear path to liquidity for the investor. Creating the term sheet enables both parties to think things through. What's the downside protection for the investor? Who has a seat at the table? How much of the company do early investors and founders get? What is the valuation? What's going to happen as more money is raised? How much dilution will there be?

All these questions need answering. Stay tuned for more in the blogs ahead.

Monday, February 4, 2008

Understanding Term Sheets

Last month I attended a workshop run by lawyers on "Nuts and Bolts of Investment Term Sheets." The Connecticut Venture Group hosted the session, and Eric Dale of Robinson & Cole and Mark Kaduboski of Wiggin and Dana ran the workshp. These attorneys did a great job taking the audience of entrepreneurs and investors through the key sections of a term sheet. The biggest thing I learned is that it is essential to have a good attorney on your side, if you're going to sign one of these documents in the process of raising capital.

It's easy for the layman to miss key points that take rights away. Face it. Every entrepreneur wants to raise as much capital as she or he can, while giving away as little of the company as possible. The investors want to get as high a return as possible, and sometimes, they believe that requires taking a big chunk of ownership and rights away from the founders. You need a lawyer to help you. The investors certainly have lawyers.

In future posts, I'll go over the other points I picked up from this excellent workshop. Stay tuned.