1. Focus on Cash Flow
2. Make Little Progress Every Day
3. Try Stuff
4. Ignore Schmexperts
5. Never Ask Anyone To Do Something That You Wouldn’t Do

Sound advice from someone who knows. I’ll add one more thing that I think is the most important lesson of all:

6. Do What You Love

When you love what you are doing, you will pour your heart into in and it will show. And, whether or not your startup is a big success, you will have done something you enjoyed and will have no regrets for having started it.

© Eye on Startups & The Startup Guidebook

The decline in New England venture deals is significantly worse than the drop experienced nationally. The value of VC investments in the U.S. dropped 12.4% during the 2nd quarter compared compared to the same period last year.

This news comes on the heels of my post last week, which reported on the growing pessimism from VCs nationally.  It doesn’t look good…

© Eye on Startups & The Startup Guidebook

This dearth of IPOs and successful exits has some dire consequences for startups. Where there’s no exit, VCs are forced to invest any new money into their current portfolio of companies to keep them going, rather than invest them in new ventures. This is consistent with an earlier post where I reported that VC activity was down during the first quarter of 2008.

If you are just starting up and looking for money, then you should consider approaching angel investors. As previously posted, angel investors appear to be taking up the investing slack.

If you are a startup that has money in the bank, consider yourself lucky. But with the current market conditions, its time to tighten the belt just a bit and perhaps conserve your cash. Hold off on any big purchases; after all, maybe the team can do without those brand new notebooks until next year. You never know how long it will be before VCs’ purse strings will loosen up….

© Eye on Startups & The Startup Guidebook

• Be Smart and Thrifty, But Don’t Panic. This, Too, Shall Pass
• Marketing is Muscle, Not Fat. Be Careful About Cutting It.
• Don’t Lose Focus By Chasing Business You Wouldn’t Normally Want
• Don’t Discount
• Don’t Neglect the Elephant in the Room

In his last point, McKee drives home the point that as the leader of your company, you have to let your employees know that you’re on top of things and that you have a plan for guiding the company through tough times.

When John Crowley spoke about his days founding and running Novazyme at the TCN Year-End Gala Event, he recounted days when things looked bleak at Novazyme — they were running out of cash, or drug development wasn’t going as well as they hoped, etc. — and that he had to make sure he went out of his way to talk to his employees to tell them what was going on and project continued optimism. That was one of his “lessons learned” from starting and running a company: You have to remember that you are a leader and that everyone is taking cues from you on how to handle challenges.

Its a good lesson to remember: Being a leader not only means being the big boss giving orders — it also means being the lead cheerleader whether things are looking great or otherwise.

© Eye on Startups & The Startup Guidebook

John Crowley started Novazyme Pharmaceuticals in 2000, spurred by the the 1998 diagnosis of two of his children with Pompe disease – a fatal neuromuscular disorder - and would not survive for long without treatment. In a little over a year, he raised $27M from venture capitalists to develop a cure to treat Pompe disease. Within two years of its inception, Novazyme was acquired by Genzyme for $137.5M and John oversaw the progress of clinical trials to reality, including the enrollment of his children in the trials.

In his talk, John recounted how he never thought of himself as an entrepreneur until driven by circumstances to find a cure for Pompe disease. Among the many lessons he offered was to have a vision and to be resilient in the face of disappointments, whether from the funding front or the research front, to reach this vision. I think this is the essence of entrepreneurship.

In 2006, Geeta Anand, Pulitzer prize winning writer for The Wall Street Journal, authored a book on Mr. Crowley entitled “The Cure: How a Father Raised $100 Million- and Bucked the Medical Establishment- in a Quest to Save His Children.” (www.thecurebook.com). If you have a chance to read the book, do so — it is truly an inspiring story about how anyone with the drive CAN build a company and make a difference.

© Eye on Startups & The Startup Guidebook

MHT quoted Janice DiPietro of Tatum LLC, a CFO services firm, as saying that the IPO costs vary from company to company depending on the strength of the company’s management team, its record-keeping history, and the size of its market share and customer base.

Of these three, I think the biggest factor is the record-keeping. With the advent of the Sarbanes-Oxley Act of 2002, companies are subject to more rigorous financing reporting requirements than ever before.

Many startups often make the mistake of not taking SOX compliance seriously. As a result, when the time does come (as in the case of an IPO or an acquisition), there is a scramble to get everything in order and in compliance. And this is what costs money — accountants and lawyers don’t come cheap.

In consulting with startups, I am always surprised when I hear about a startup that isn’t paying attention to SOX. Seeing that SOX compliance is required for a successful exit event (an IPO or just about any form of acquisition), why wouldn’t a startup be paying attention to it? Don’t these startups (and their investors) believe they will eventually reach one of these exit scenarios?

If you are a startup, get your house in order to comply with SOX. If you are an investor, demand that your portfolio companies have a plan to address SOX compliance.

Unless, of course, you’re not thinking of a successful exit. <g>

© Eye on Startups & The Startup Guidebook

About halfway through the event, Don Dodge, a serial entrepreneur, angel investor, and member of Microsoft’s emerging business team, gave a short talk on the value of networking in the fundraising process.

Don confirmed what I said in a previous post, i.e., with the potential of being inundated with business plans coming through mail and email, investors must necessarily have some way to filter which new startup they will look at in detail. And that filter is usually a warm introduction to the startup (by a colleague or friend), or positive personal contact with someone at the startup. Hence the need to not only network, but to be prepared with an elevator pitch to catch their attention.

In his closing remarks, he said something that struck a chord with the entrepreneurs in the room. He asked everyone in the room to think about their stock portfolio and think about why they invested in those particular companies, out of thousands of others. That is, why did you invest in just 1% to 5% of the market?

VC and Angel investors are no different — out of the entire universe of businesses that they see, they invest in perhaps just 1% to 5% of the ideas which they think will make them money, whether because of technological superiority, market leadership, or a belief that it is the next big thing.

As you are going around seeking funding, you need to make sure you can position your company as one of the top 5% of startups.

So, are you in the top 5%?

© Eye on Startups & The Startup Guidebook

TCN and NEVN are two of the area’s preeminent organizations for providing a community for bringing together entrepreneurs and investors, and have put together the event: “Networking for Startups: Why a Good Pitch Deck is No Substitute for Good Conversation” to bring together entrepreneurs and the Boston area’s leading angel and venture firms for an evening of wine, food, and networking.

If you haven’t figured it out yet, despite appearances to the contrary, you can’t simply send a business plan to an investor in the hopes that they will read it. You really need either a warm introduction or a personal connection to an investor or a firm before they will even consider looking at your business plan.

Short of knowing someone on the inside, your best bet to getting to know an investor is meeting them! An event like this one is an instant meeting place — so sign up, hone your elevator pitch and show up and start networking. If you are an entrepreneur looking for an audience, this is a MUST event.

© Eye on Startups & The Startup Guidebook

(In the interest of fair disclosure, I should mention that I am on the board of TCN.)

These changes are viewed favorably by VC firms, as it would mean additional funding vehicle for some of their portfolio companies. VCs also believe a portion of SBIR funding should go to entities that have a better chance of actually introducing new technology to market (i.e., venture-backed startups), rather than simply individuals or firms that just conduct basic research.

Not surprisingly, these changes are opposed by small businesses and research firms who rely almost exclusively on the SBIR for funding. They are particularly concerned that with the larger grant amounts, fewer SBIR grants would be available to them.

In my opinion, it is exactly this competition that will make for a better SBIR program. From a market efficiency standpoint, it will ensure that the best ideas get funding.

© Eye on Startups & The Startup Guidebook

While this figure is modest compared to the overall ad spend, they signal a growing comfort level on the part of advertisers to put some money into this medium. And that is significant — many advertisers have previously very been wary about a medium that gives its readers the ability to provide feedback and otherwise generate content about their brand without their direct control.

This positive trend in the blog ad market is welcome news during these recessionary times. Investors don’t like to miss out on a promising market, so you can bet they will be putting some money to work in this sector while it is still in its early days. Keep your eye out for startups targeting the blog ad market to come out of stealth mode in the coming months.

In the next three years, MHT projects the total ad revenue from blogs, podcasts, and RSS feeds to reach $1.1B. That’s certainly a big enough prize for investors to bet on.

© Eye on Startups & The Startup Guidebook