April 26th Press Conference with Governor Huntsman

David Bradford (former general counsel of Novell) and I have teamed up to launch FundingUtah.com, a new free service that matches Utah angel investors with Utah entrepreneurs. We will be holding a launch event and press conference, with Utah Governor Jon Huntsman, Jr. on April 26th at 1:00 pm at the Larry H. Miller Business Innovation Center (Karen Miller Conference Center). Some of the leading investors and entrepreneurs in the state will be in attendance.

Seating is limited. To RSVP for this event, you must be an entrepreneur or angel investor (or press representative). If you need more information, please email me at paulballen – at – yahoo.com.

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Idea Stage Investing: Hitting Singles, Not Home Runs

I keep puzzling over the fact that only 2% of venture capital flows into early stage companies when it is also reported as a fact that early stage investment funds provide the highest average returns. Maybe VCs like to swing for the fence and only invest in companies that have huge potential–admittedly, most seed stage companies don’t. Many small businesses want to grow a bit, but aren’t necessarily aiming to dominate a multi-billion dollar industry someday and therefore disqualify themselves from getting venture capital.

At an angel investing seminar recently I heard one angel who has done more than 30 deals say that the first thing he does when looking at a business plan is check the five year forecast. If it’s not over some number (I think he said $50 million) he throws the plan out. Even though he knows full well that all revenue forecasts are just dreams, he still has decided that if the dream isn’t big enough he isn’t going to look any further.

So everyone seems to be swinging for the fences.

So what if a venture fund decided to go for all singles? Here’s an interesting scenario:

What if a $10 million venture fund decided to invest $100,000 in 100 different early stage companies who had modest plans but a very low risk of failure? There are a lot of factors that can reduce the risk of failure: low startup costs, established partnerships, proven sales model, experienced management team, growth industry, use of technology, internet marketing skills, etc.

In fact, what if the venture fund focused energy on training key employees in each startup (group seminars, executive curriculum, required readings, etc.) so they could develop the skills they needed to be successful?

What if 50 of these companies fail, and the other 50 end up growing to $1 million in annual revenue over a 5-year period, and were either breakeven or slightly profitable?

What if the venture fund had the right to liquidate each company that didn’t achieve more than $2 million in annual revenues in a 5-year period, and it’s equity stake in companies under $2 million in revenue were automatically pushed to 50%? In other words, if the management team doesn’t hit the milestones of $2 million in revenue, not only does the venture fund have the right to sell the company, but the management team doesn’t get all the equity they originally hoped for.

So back to the scenario. If 50 companies doing $1 million in annual revenue were each sold for 1x revenues and the fund owned 50% of each company, then the fund would return $25 million to its investors.

The little calculator at youcalc.com says this would be a 20.1124% annual return over the 5 year life of the fund–higher than the average return for venture capital funds over the last 20 years.

Does anyone know of any venture capital firm that systematically goes for singles, and tries to help every company it invests in to eliminate the possibility of failure? I think that VCs often increase the chance of failure by investing too much money and asking management to spend it quickly so they can get big fast. The VCs still win if only 2 out of 10 portfolio companies hit a home run and the others all fail. But what about the entrepreneurs? 80% of them end up with nothing if 8 out of 10 companies fail.

Has anyone ever thought of something like this, or tried it? I’m curious to know if there is any academic literature on this or if anyone can point me to any articles that explore this concept.

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Inspiration from the Founder of JetBlue

Today I had lunch with my cousin, an attorney from Salt Lake City. He told me about taking a JetBlue flight from New York last year and having the good fortune of being on the same plane with JetBlue Founder David Neeleman. Neeleman served the customers, as is his custom, and then sat next to my cousin and chatted for some time.

My cousin is not alone. Thousands of people have experienced David’s personal service and concern. Last year Norm Brodsky wrote an article for Inc Magazine about how he met David Neeleman on a similar JetBlue flight. He asks all entrepreneurs how often they take time to talk personally with customers.

Just last week, JetBlue was again recognized for offering the best airline service.

A couple months ago I wrote an article for Connect Magazine which hit the newstand this week about how David Neeleman has inspired me to more earnestly search for business heroes.

Keep your eyes on Neeleman if you want to learn outstanding lessons about succeeding in business by putting your customers first and truly caring about them.

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iProvo: Fiber Optic for a City of 100,000

Provo, Utah, a city of more than 105,000 has owned its own power plant since 1940 (see Provo Mayor’s message: November 2000). In 2000, Mayor Lewis Billings began discussions that resulted in decisions to deploy a city-wide fiber optic network called iProvo.

The city owns this network, but leases it to companies who will provide telecommunication services to Provo residents and businesses.

Larry Lessig would be pleased. He slammed the private sector in a Wired magazine article last year for failing to deliver broadband services quickly enough in the U.S. This nation has fallen from 1st place to 13th place in broadband deployment in the last few years.

Today I checked the map to see when my neighborhood will get the services. We are in one of the phase IV sections, so service will get here in July 2005. The entire city will be finished by mid-2006. iProvo claims speeds that are 100 times faster than cable and 250 times faster than DSL. I can’t wait. I’ve had high speed internet since I bought a DirecPC satellite dish in the fall of 1995, but I’ve never had speeds this fast, even at work.

Novell is making 25,000 sq. ft of space available in one of its buildings for an incubator of open source software companies. All the businesses who locate there will be hooked into the iProvo fiber network, given them tremendous bandwidth at a very reasonable price.

Meanwhile, UTOPIA, the largest municipal fiber optic network in the country is now available in Orem and will soon be available in 14 other cities who voted to participate in this project.

It’s nice to live in such a forward looking state. First the Utah pioneers developed irrigation techniques in 1847 so they could raise crops, even in a desert.

In the late 20th century we invented computer graphics at the U. of U. (Evans and Sutherland), digital audio (Tom Stockham), word processing (WordPerfect), and computer networking (Novell.) We also lead the nation in entrepreneurship, with more Inc. 500 companies per capita than any other state.

Now the UTOPIA project and iProvo will help ensure that we maintain an edge in innovation.

Thanks Mayor Billings and whoever championed UTOPIA. With our fastest internet speed, highest birth rate, and the biggest population under 18, we’re going to be a force to be reckoned with for generations.

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Raser Technologies Raises $20 Million

Provo, UT-based Raser Technologies has raised $20 million in a private placement. The company went public in October 2003 and has an amazing two year stock chart.

Enterpreneurs in Utah should track publicly traded and fast growth Utah companies, so they can know who they can learn the ropes from. I have 44 public Utah companies in my MyYahoo Finance tracking portfolio. Job seekers should keep track of these fast growing companies as well. Two good lists of fast growing companies are the Utah 100 (awarded by Mountain West Capital Network every year) and the Top 25 Under 5 (awarded by Utah Valley Entrepreneurial Forum every year.) I like to track all these companies for business networking purposes and to find great speakers for the Utah Valley Entrepeneurial Forum and other business events.

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Innovation in Mobile Content and Advertising

I got an email this morning from MEOW: the Mobile Entertainment Opportunity Watch. The author lists these “cool companies” from the latest mobile conference he attended:

SOME COOL COMPANIES

ThirdScreen Media. This company is to mobile what DoubleClick is on the web. Established only a year ago, their timing to address the mobile advertising B2B opportunity should be good. www.thirdscreenmedia.com

M:Metrics. Seamus McAteer is launching a well-funded attack to create the ‘Nielsen’s-like’ research and rating service for the mobile industry. www.mmetrics.com

m-Qube. Jon Bukosky took up the role as GM of Los Angeles and VP of Worldwide Content. This mobile marketing company is hot in Hollywood, partly fueled by the media industry growing to understand how to integrate promotional components into mobile programming. http://www.m-qube.com/

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Paul Allen the Lesser Climbs in Google

For years I have been hearing about the “real Paul Allen.” I was dubbed Paul Allen the Lesser by some of Utah’s VCs to keep me straight from the Microsoft/Vulcan Ventures Paul Allen.

But my blogging is paying off. I now rank #3 in Google for the query “Paul Allen.” Last year I was about #55, but I guess a lot of people are linking to my blog these days.

I always joked about contacting the real Paul Allen when I outranked him in Google to see if he wanted to invest in my search engine optimization company. I guess that day is rapidly approaching.

Last year I blogged about the benefits of blogging. I continue to find more. Last week I spent 30 minutes on the phone with some great Silicon Valley entrepreneurs who wanted to talk to me because of my “5 Most Valuable Services Most Entrepreneurs Can’t Afford” post. We had a great visit and I now have new friends in the Bay Area who want to keep in touch.

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