As active angel investors (the group has invested multi millions of dollars to date), we see a lot of deals in different contexts and one thing we value above all is a quality pitch from entrepreneurs who are passionate and who have done their homework on their industry.

Our modus has been to ask entrepreneurs to submit an initial 90-second video pitch. That may not seem like a lot of time, but remember that most television ads only run for 29 seconds!

Those entrepreneurs who are chosen to actually present to the group at the quarterly dinners are given six minutes to pitch and may answer questions from the room for another six minutes.

Why all these time constraints and formats?

We’ve tried the unstructured, open ended approach and it simply does not work. Anyone can bang together a business plan or executive summary on a word processor and make it look good – but getting a message across via video in 90 seconds takes skill.

Standing in front of a room of 40 successful businesspeople and selling a business in six minutes takes further skill, discipline and practice.

Besides, investors have only so much bandwidth to hear from an individual entrepreneur and rattling on for 15 – 20 minutes won’t solidify your investment case, nor would it be fair on others who also want to garner the group’s attention.

What should your video be aiming to achieve?

One of the best comments made recently by one of our angels sums this up succintly:

“Short, sharp, punchy. Gives enough to establish credentials. There is enough in this quick summary to make me want to found our more.”

The videos we receive are placed on a private forum and members of the group are able to ask questions of the entrepreneurs who submitted them, and they have the ability to respond. From these comments (for the last round there were well over 300 comments) and the questions asked at the dinners, we’ve collated a set of Frequently Asked Questions, which I’ve set out below.

Entrepreneurs should know the answers to as many of these as possible and while they may not be able to cover off on each and every one in their videos, we would expect them to do so by the time they finish their six minute pitch.

THE ANGEL FAQs

PROBLEM/SOLUTION
How big is the problem you are trying to solve

What is your core value proposition

MARKET/CUSTOMERS
What is your customer make up – geographically and by industry

What is the return on investment (ROI) for customers

Can you give a bottom up outline of the market size rather than “a % of a $bn market”

How do you define your target segment, how many potential customers are there in this segment and what are they willing to pay for your product or service

What is the cost to acquire customers

If you are initially targeting a niche of early adopters, how will you get across to mass market adoption

Are there any regulatory or entrenched business practice barriers you need to overcome

Is there something about your space that means we need a local solution rather than a modified US solution

Are there any analogies you can use to explain your product, eg “the Farmville of Health Education” or “Groupon meets Zynga”

If you are initially targeting a niche of early adopters, how will you get across to mass market adoption

Are there any regulatory or entrenched business practice barriers you need to overcome

COMPETITION
What is your sustainable competitive advantage

Which are your major competitors and what do you do different

Not for everyone but: why are you best placed to win in this torturously overcrowded and undifferentiated space

While your product may in fact be different from others in the market, how do you get around the perception that it is the same as other products out there

TEAM/THE BUSINESS
Who owns the IP

Who will be on the team for executing

What are your views on the LeanStartup Model

What are the backgrounds of the founders

What is your backstory – how did you come to tackle this problem/market

Does your product exist already – if so, will you be able to demo it

BUSINESS MODEL
Outline some key figures – revenue predictions, staff

How do you make money, what is your revenue model

What is your distribution strategy

Are revenues primarily from product or services. How will that change in the future.

What are your plans for scaling the business (what are the requirements and obstacles to scale)

How are/will you handle the huge amounts of data that you need to gather

THE FUNDING NEED
How will you spend the money

What your investors should contribute in addition to money

THE DEAL
How much equity are you offering to Angels

What will equity split be

EXIT STRATEGY
What’s your exit strategy

One final point – don’t go asking investors to sign a non disclosure agreement. You’ll likely get short shrift.

I hope these pointers assist you in your quest for funding and good luck growing your businesses!

Nokia, for example, have acquired Bit-Side, Cellity and Plum so far this year. The Finnish mobile company is now reportedly targeting the London-based travel social network Dopplr.

After a hiatus, Google is also back in the M&A game. CEO, Eric Schmidt told Reuters Television:

“Acquisitions are turned on again…and we are doing our normal maneuvers, which is small companies. My estimate would be one-a-month acquisitions and these are largely in lieu of hiring.”

Google acquired On2 Technologies last month and reCAPTCHA last week. MeetTheBoss has a subway-style map of the company’s acquisitions (thanks TechCrunch) – this may prove useful if you are trying to figure out their M&A strategy.

After a break of almost a year, Adobe turned on the spigot last month with the acquisition of start up Australian hosting and ecommerce company, Business Catalyst. They then fronted up for a billion dollar deal by acquiring Omniture, a web analytics business.

How can we forget Oracle’s billion dollar acquisition of Sun Microsystems last month.

Microsoft’s only acquisition so far this year has been BigPark, a Canadian interactive gaming company. Before this deal they had last made an acquisition this time last year.

IBM has kept up a steady pace in recent months acquiring Exeros Assets, a data discovery software company in May, both statistical analysis software developer SPSS and source code analysis company Ounce Labs in July and Singapore-based analytics and optimisation business Red Pill Solutions this week.

So, what does this mean for entrepreneurs and their financial backers?

Investors typically focus as much on the potential exit as they do on the team, the technology and the market when they are deciding whether to bring a company into their portfolio. Knowing that the corporate development VPs are once again actively scouting for deals for their companies will be comforting to venture capitalists and their limited partners. They will become more active in growing their portfolios again.

As a result the entrepreneurial economy or ecosystem will be sufficiently lubricated to begin grinding its gears and tending towards a state of equilibrium.

Former Google Head of Strategic Initiatives, Chris Sacca is following up on his 20 or so personal investments with the formation of a new early stage venture fund.

To be named Lowercase Capital, this new $5m fund is perhaps a reminder to all venture capitalists that they are service providers first and foremost and as such should look at themselves in the lower case.

Notably an investor in Omnisio, Photobucket and Twitter, I look forward to seeing what else Chris finds interesting out there.

[via TechCrunch]

As Ross mentioned we had someone from the Federal Department of Innovation introduce the group to the Commonwealth Commercialisation Institute. That someone was Donna Valenti and I am most grateful to her for making the trek down from Canberra.

I’d asked Donna to come along as a way to kickstart a dialogue around what the formula for success should be for the CCI. They are in a process of consulting the start up community and it was good to have her share their current thinking.

The key questions for me, with respect to the CCI are: How best can the Australian tech community (in its broadest sense – ICT, bio, nano – researchers, entrepreneurs, investors etc) leverage this incredible opportunity to ensure Australia punches well above its current commercialisation weight? What precedents exist that we can point to, what are the measures of success and how can the Government adequately gauge sufficient economic, social and other ROI for its decision to deploy $196m initially and then around $80m annually? And finally, how can we create an environment in which entrepreneurial magic happens, continuously?

As you can imagine, I have some strong thoughts about these questions, but I’d very much like to hear your thoughts and aspirations – in an ideal world without constraints, how would you envisage the CCI unfolding?

I’d also like to hear from folks, especially in Silicon Valley, who have thoughts around how best to leverage up the current funding for the Institute so that it extends the ramp further for Australian start ups.

A core premise behind the piece is that in an IPO and acquisition-starved market, the math of billion dollar VC funds doesn’t add up. Enter the traditional, venture capital as cottage industry style fund – smaller, leaner, more agile and definitely more entrepreneurial, similar in nature to the people it invests in and both able to identify with and nuture successful entrpreneurs.

It’s a good article and well worth the read.

I am witnessing somewhat of a shake up in the VC industry in Australia at the moment as well. Together with two partners, I’ve been running Innovation Bay since November 2003. At the time I was an early stage VC and there were a number of other players in the market. Over the next 5 and a half years though, the VC industry has gone through some major contractions. The number of active VCs has totally shrunk, yet the demand for capital and savvy advice has continued to rocket.

Fast forward to mid 2009. Innovation Bay is hosting a new format event on the 9th June. We are putting on an Angel Dinner for a select subset of our members, many of whom easily fall within the BusinessWeek rubric of ‘super angels’.

We are inviting along two technology entrepreneurs to pitch their ventures. I’ve been truly amazed at the number and talent of the entrepreneurs who have approached us with a view to being chosen. The hardest part for me is that I’d love to have them all along, but alas we have to limit the numbers for this event.

The demand, though, does point to a real need in Australia and I am hopeful that the newly announced Commonwealth Commercialisation Institute will play a major role in satisfying this demand.

I am also going to be a judge in a pitching competition for creative projects called Back My Project. It is part of the Creative Sydney festival of ideas and has a pool of cash behind it. Come along to the MCA on the 4th June if you are in Sydney – it will be loads of fun. It is all part of Vivid Sydney, the “biggest international music and light festival in the Southern Hemisphere”!

Over the course of the past ten years the number of initial public offerings (IPOs) by venture-backed companies has seriously declined. A key form of exit for venture investors, IPOs have all but dried up with very few serious listings. In fact, in the US only six such companies entered the public markets in 2008, with none in Australia.

The contribution of venture-backed companies to economic growth is proven, and a concerted effort is needed by a range of participants in the capital markets ecosystem in order to restore a viable IPO environment. A change in approach by both the private sector and government is essential.

It is critical to both Australia’s competitiveness and the country’s economic recovery to boost the venture-backed IPO market. One can extrapolate that the same would apply to Australia when considering the figures in a report to be released in early May by Global Insight that estimates that in 2008 public companies that were once venture-backed accounted for more than 12 million U.S. jobs and $2.9 trillion in revenues, which equates to 21 percent of U.S. GDP. Further, it is estimated that 92 percent of job growth at these companies occurs once the company enters the public markets.

As Mark Heesen, the president of the NVCA says, “This capital markets issue is not just a venture capital industry problem; it is a U.S. economic concern. If America wants to maintain its economic leadership and continue to grow and innovate, we must re-invigorate the public markets and strive towards healthier IPO levels similar to that which our country enjoyed in the 1980s and 1990s. Without this activity, we can expect job growth to disappear over time.”

In Australia this is a more pointed issue. Much of the country’s core intellectual property finds itself being commercialised offshore with minimal economic, environmental or social benefit back to Australia. Without a viable Australian IPO market, there is little chance that there will be a comparable venture capital ecosystem in place and much of the country’s incredible research will either be stillborn or shift offshore.

I agree wholeheartedly with the NVCA’s Four Pillar Plan as set out below and call on my Australian colleagues to rally around formulating a uniquely Australian solution to the crisis faced here.

The NVCA Four Pillar Plan to Restore the Venture-Backed IPO Market
At the core of the issue is a recognition that today’s market environment is challenging with respect to the issuance of small cap IPOs. There are multiple reasons as to why this is the case including the high costs of going public, the constituents involved in the process, and the restrictions placed on potential public companies. The NVCA recommendations, which seek to address these issues, comprise four categories or pillars, two which focus on changing behavior in the venture capital market and two which involve the government exploring policies conducive to venture-backed IPOs.

Pillar I: Ecosystem Partners
Within the last decade, venture-backed companies have been faced with fewer choices as it relates to investment banks and accounting firms that will assist in the IPO process. While the major investment banks continue to operate, the “four horsemen” boutique investment banks of the 1990s (Alex Brown, Hambrecht & Quist, Montgomery Securities, and Robertson Stephens), which specialized in IPOs of venture-backed companies, no longer exist. Further, the fall of Arthur Andersen and the resulting pressure placed on the Big Four accounting firms has, in many markets, left a void in terms of quality auditing services available for these smaller companies.

Against this backdrop, the NVCA believes that the venture capital industry must do more to promote alternative ecosystem partners while engaging with existing members to identify ways to better serve the needs of emerging growth companies. The Association has begun to engage in talks with boutique and major investment banks as well as the Big Four and other public accounting firms about how they can also better serve the needs of small cap companies. The NVCA also intends to encourage the use of a broader array of service providers such as the “Global Six” including Deloitte LLP, Ernst & Young LLP, Grant Thornton LLP, KPMG LLP, PricewaterhouseCoopers LLP and BDO Seidman LLP.

Pillar II: Enhanced Liquidity Paths
There is consensus among many within the capital markets ecosystem that the distribution system that connects sellers and buyers of venture-backed company new issues is broken. There are many drivers behind this disconnect including mismatched expectations in terms of issue size, the lack of sell side analysts, and the propensity of hedge funds to buy and sell stock quickly. All of these factors contribute to a lack of an adequate distribution channel and considerable post-IPO market volatility.

To offer small venture-backed companies an enhanced distribution system for the sale of initial stock, the NVCA endorses concepts such as Inside Venture which is a private market platform that connects qualified companies that intend to IPO within 18 months with pre-screened cross-over investors. These buyers commit to buy and hold these stocks for the long term. Other providers with similar models include Portal Alliance (NASDAQ), SecondMarket and Xchange. Additionally, the NVCA will help raise awareness about pro-active M&A roll up strategies of smaller portfolio companies to achieve IPO critical mass and global alternatives to the U.S. public markets.

Pillar III: Tax Incentives
The NVCA has long asserted that the government must support a tax structure that fosters capital formation and rewards long term measured risk taking. To support a more vibrant IPO market, the U.S. must maintain tax policies that have been proven to encourage venture capital investment so that the pipeline of promising IPOs is as robust as possible. Further, Congress should consider adopting new tax incentives which would stimulate IPOs, at least in the short term.

The NVCA will continue to advocate strongly for a capital gains tax rate that is globally competitive and preserves a meaningful differential from the ordinary income rate. The Association asserts that venture capitalists who are successful in building new companies should continue to be taxed at a capital gains rate for any carried interest that is earned over the long term. The Association also intends to explore the possibility of a one time tax incentive for buyers and holders of IPOs as well as increasing the holding rate for capital gains status to two or more years.

Pillar IV: Regulatory Review
From a regulatory perspective, the last decade has been characterized by a series of broad sweeping regulations aimed at curbing serious abuses within the financial system but fraught with unintended consequences for small pre-public and public companies. From Sarbanes Oxley (SOX) to the Global Settlement to Reg FD, small venture-backed companies have been faced with costly compliance and increasing obstacles to enter the public markets as a result of regulations intended for larger multi-national corporations. The NVCA strongly supports regulation and protecting investors where necessary but does not support a “one-size-fits-all” regulatory approach.

To wit, the NVCA will advocate for a full systematic review by the Securities and Exchange Commission of recent regulations which impact small cap companies. This review would include interpretations of SOX, pre-IPO financial reporting requirements, the separation of analyst and investment banking functions, and private placement requirements. There are opportunities within existing regulations to tier compliance so as not to overburden emerging growth pre-public and public companies at a time when they need support from the government, their auditors, and the markets.

“We are optimistic that the recommendations included in the Four Pillar Plan will contribute to a more vibrant IPO market for venture-backed companies over the long term,” concluded Doll. “The NVCA remains committed to fostering an environment that fuels significant economic growth and job creation. The adoption of our recommendations is a critical element of our country’s continued global leadership and ability to bring high growth, innovative public companies to market.”

When I have found the time to feed the meter, as it were, I’ve turned to the newsfeeds. Mostly I’ve kept up posts on Facebook and to a lesser degree, Twitter.

I think I am not alone in this shift: blogging less, posting more.

I’m heading back to Sydney this evening for a few weeks and will hopefully have a bit of breathing space to do some more considered posts.

Let’s see how that pans out. If you are in Sydney and would like to meet up please ping me – I look forward to getting a grip on how the tech space has progressed downunder.

I’m also very happy to let you know that despite reports to the contrary, Silicon Valley is alive and well. One of the companies I am advising has gone from zero to term sheet in less than two weeks. I am keen to see more of the same!

As with everything in life, it’s how you view it that determines your response. You could bitch about how cool the Bay area is this week or marvel at the clarity this brings to the marvellous vistas that abound in this beautiful part of the world.

Same thing with the National Venture Capital Association’s annual survey results. Yes, by all accounts venture guys will be investing less in 2009 than they have done in 2008, but so what.

If your business is compelling enough chances are you stand just as good a likelihood of getting funding in next as in any year. Let others hold back or fold, this increases your funding probability factor.

That said, don’t let me belittle the task ahead for both investors and entrepreneurs – the air is cooler, you get to see further, but the mountains are no less steep. Keep on the journey.

[Pic courtesy of mrjoro]

If things look tough in the Valley, spare a thought for companies trying to raise funding in the far flung reaches of the galaxy.

The UK Government is apparently taking this seriously and is going to launch an emergency venture capital fund to help startups through the funding gap that has grown yawingly big in recent weeks.

Do it. Fast. Don’t get caught up in bureaucracy. And whatever you do, don’t give the usual suspects the purse strings. Get innovative, get entrepreneurial and make speed your friend. Startups will love ya for it!

Other thoughts: broadstuff .

Will other countries follow their lead?

[Pic courtesy of HDR London]

For the most part it’s an old, but recurring argument – one that’s rolled out whenever there is a shift in the markets, and usually by successive generations (who may not have seen the previous shift).

Could venture capital be done better. Hell yeah. Could it be done more efficiently – I doubt it. Much of the game is played on experience-based gut feel and, unlike in other asset classes, cold-hearted algorithms will not replace this.

Fred Wilson sums things up brilliantly: venture capital is dead, long live venture capital.