With a kind of candor that speaks of the motivation in the startup and investment communities, angel investor Jerry Neumann talked bluntly Tuesday evening about the companies he backs. “All of my entrepreneurs are irritating,” he said jokingly during a panel discussion at the Digital Media Center event held at Times Square in New York. “They need to be smarter than me, they need to be more driven than me, they need to be people who can go the distance,” he said.

Neumann took the stage with Benjamin Wolin, CEO and co-founder of Everyday Health in New York, and moderator Dennis Kneale, senior media and technology correspondent for FOX Business Network. Wolin and Neumann spoke about the startup and investment scene during the third and final panel of Tuesday’s event, hosted at the Nasdaq Marketsite by Digital Media Center, a New York group formed in late 2011 that brings together investors, digital media startups, and other industry players.

Digital Media Center was formed by Cooley, CTPartners, Deloitte, Nasdaq, and Silicon Valley Bank.

The night kicked off with representatives from Facebook, Samsung, and EMC’s data storage division Isilon Systems discussing trends in social, local, and mobile technology—then continued with a look at the future of digital content through the eyes of Verizon and Heart Television. Wolin and Neumann later engaged in a lively conversation about funding and building up startups in the current clime.

“It’s a lot easier to raise small amounts of capital,” Wolin said, “certainly to get started it’s a lot easier than it was ten years ago.” Everyday Health operates websites for brands such as South Beach Diet.

“It’s a great time to be an entrepreneur,” said Neumann. He has been investing in … Next Page »

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A flotilla of fifteen startups from Atlanta presented their ideas in New York on Wednesday for a demo day at the offices of Union Square Ventures. Merrick Furst, director of the Flashpoint accelerator at the Georgia Institute of Technology, said the program helps entrepreneurs develop their concepts beyond their startup phase. “They are trying to figure out what the business opportunity is,” he said.

Flashpoint offers entrepreneurial education to startups, access to mentors, and opportunities for early-stage funding through the Flashpoint Investment Fund, angel investors, and other sources. Furst said the startups that presented at demo day are backed by the Flashpoint Investment Fund, which typically invests $15,000 to $25,000 at a time. The Atlanta startups presented ideas ranging from improving corporate data security in the cloud, to preventing phone scams that spoof caller ID systems, to a 3D scanning technology that runs on iPhones.

Furst said the Flashpoint startups visit cities to seek potential backers. Wednesday’s demo day was sponsored in conjunction with the Harvard Business School Angel Alumni Association and ff Venture Capital. Union Square Ventures provided space for the event. Flashpoint takes some of its inspiration from the Y Combinator accelerator program and plans to bring its startups to visit venture capital firm Andreessen Horowitz in Menlo Park, CA next.

Social Fortress, the first startup to present on Wednesday, offers technology to help companies in regulated industries such as financial services and health care use the cloud more securely. Adam Ghetti, co-founder of Social Fortress, said such companies view the cloud as a major security risk. “They have data that’s very important to them,” he said. “They have laws and regulations that say they can only do certain things with that data in certain places.”

Ghetti said Social Fortress’s technology abates some of that risk by encrypting data before it is shared on the cloud. Social Fortress’s technology can also track how data is used after it’s shared with a third party such as Salesforce.com. Ghetti says angel investors have committed about $1.5 million to back Social Fortress and the startup is talks to raise another $500,000.

Trimensional, another startup presenting at demo day, already has a bit of New York connection. Grant Schindler, founder of Trimensional, developed an iPhone app that captures objects and people in 3D. After his presentation, Schindler told Xconomy he connected with MakerBot, a Brooklyn-based maker of 3D printers, in January 2011 shortly after Trimensional’s app went live. “The day I released the app, Bre Pettis [CEO of MakerBot] emailed me,” Schindler says. The companies developed a way for users to export 3D images captured by Trimensional’s app for use with MakerBot 3D printers, which print objects layer-by-layer using thermoplastics.

Schindler says his technology gives consumers access to scanning technology that might otherwise require expensive equipment. It may not be on par with the gear and … Next Page »

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On a drizzly Tuesday morning in New York’s Chelsea neighborhood, the twelve graduates from the New York TechStars summer program took the stage to pitch their companies to investors and mentors. Though many of the startups hail from the city, some came from as far as Venezuela to participate in the New York branch of the business accelerator program.

Graduates of TechStars receive up to $18,000 in seed funding and the chance to pitch their companies to angel investors and venture capitalists on demo day. Some 1,200 startups applied for this summer’s program in New York. (TechStars held its first New York demo day back in April.) The program puts the startups together with mentors for three months to develop and improve on their business ideas, and to prepare the companies to attract investors. The program runs in Boston, Boulder, Seattle, and New York.

New York Mayor Michael Bloomberg dropped by between presentations to talk about the ways New York is nurturing its technology community. He also called the TechStars TV show, which features the first class of the program’s New York startups on Bloomberg TV, “our answer to ‘Jersey Shore’.”

Some of Bloomberg’s speech was a redux of his appearance at NY Tech Meetup one week ago, again talking about personally soldering circuit boards together for the first Bloomberg terminals. He reiterated the city’s business strengths, particularly as a hub for fashion and media. He also encouraged the latest class of TechStars graduates to grow … Next Page »

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Thanks to a $3.1 million grant from the Michigan Economic Development Corporation, the nonprofit Michigan Venture Capital Association announced it is accepting applications for two new programs designed to retain young talent and expand the state’s angel network.

The Michigan Venture Fellows Program gives budding VCs the opportunity to spend 18 to 24 months in a Michigan-based venture firm, earn a salary and receive training at the Venture Capital Institute. Candidates should have strong Michigan ties, preferably as graduate students at Michigan universities whose professional goals include venture capital. The deadline to apply to the MVCA is November 30.

The Angel Network Growth Program awards a maximum of $18,000 per year to the six Michigan-based angel groups—Ann Arbor Angels, Blue Water Angels, Capital Angels, First Angels, Grand Angels, and Great Lakes Angels—or others to be determined by the MVCA Board of Directors. The angel group must have made at least one initial investment of at least $125,000 in the prior six-month period to qualify for the award. The money can be spent on staffing, educational or networking events, or infrastructure needs such as legal and accounting expenses.

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[Updated 5:15 pm PT with fresh quotes from Richard Sudek, see below] Regional angel investing groups in Southern California, Northern California, and New York say they’re banding together in an effort to lengthen the financial runway for early-stage startups before their founders are forced to turn to venture capital firms.

Tech Coast Angels, based in Irvine, CA, said in an announcement today that it’s joining with Band of Angels in Menlo Park, CA, and Golden Seeds in New York City to form a new alliance called the Angel Syndication Network. The idea is to lower the barriers to funding, so that companies that have already won early stage investments from one regional angel group can get pre-screened introductions to other groups in the network without having to restart the due-diligence process.

Richard Sudek of Tech Coast Angels, who helped instigate the new alliance, says it’s partly a response to increased competition from the venture industry. ”As we have made investments over the last five to eight years, we have found a few things that are not in our favor as VCs have come in,” Sudek says. “What we realized was that we needed to provide more money for companies and get them further along before they went to the next level, the level where they need funding that is outside the angel range. We also found that companies need small follow-on rounds to get to the next milestone, and that sometimes these rounds are beyond beyond the capacity of any particular angel group. By creating this network, we are able to help the entrepreneur get more funding in the initial round, and we are able to provide more capacity in follow-on rounds.”

Sudek says several additional angel groups are in the process of joining the Angel Syndication Network, including the Alliance of Angels in Seattle and Pasadena Angels in Southern California. Eventually the network could include 10 or more angel groups, he says. “As we get different groups, we also get different expertise,” Sudek says. “Let’s say the Alliance of Angels is working on a digital media deal that might have a deeper connection to LA and the Hollywood area. Tech Coast Angels has members who are conected there, so we might be able to provide more board representation and networking into strategic partners and customers.”

While the new network may improve life for early stage entrepreneurs, it also makes sense for investors. As individual “super-angel” investors such as Ron Conway, Mike Maples, and Aydin Senkut have evolved into micro-VCs, and as more and more traditional VC firms have accelerated their seed-stage investing efforts, angel investing groups are feeling the pinch. A syndication network could provide one way to keep startups within the angel-funded ecosystem longer. That could give them time to grow bigger before they turn to venture funds, which typically require large chunks of equity that significantly dilute early investors’ ownership stakes.

“Syndicating investments within the angel group ecosystem is essential in our quest to aggregate capital for early-stage companies that have high-growth potential,” Golden Seeds founder Stephanie Hanbury-Brown said in a statement. “In this way, angel groups across the country are supporting the innovation economy and job growth, without losing sight of the imperative for high returns on our investments.”

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New York-based Angelsoft—a platform for entrepreneurs to connect with 600 angel investor groups around the world—is revamping at midnight tonight with the new name Gust, according to its CEO David Rose. And one new customer with ambitious goals will tap its services. According to Rose, Startup America Partnership—an organization launched in January and chaired by Steve Case to steer early stage companies to resources to help them grow—will use Gust to connect entrepreneurs with potential backers. “When you go to Startup America Partnership and you are looking for capital, it feeds to us,” Rose says.

Angelsoft was formed in 2004 as an online deal-flow management tool. ”Angelsoft has been the platform that was the initial entry to financing for startups,” says Rose, who is also chairman of investment group New York Angels. Companies that seek angel funding, he says, file applications online. Potential investors can review the applications to help them decide whether or not to fund the companies.

Other websites, such as Funded.com, try to introduce entrepreneurs to potential backers but typically devolve into social networks because of lack of support from the investor community, Rose contends. Some 35,000 individual angel investors already use the Angelsoft system, he says.

Rose says 125,000 companies have previously filed applications for funding through Angelsoft and therefore already have profiles with Gust.

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Let’s be honest; the rush to grab funding in the New York startup community has brought out committed entrepreneurs as well as the ne’er-do-wells looking to make a quick buck. Not everyone is born with the savvy to create a killer idea, but Jeffrey Carr works to help those who—with the right mentors—can produce solid businesses. “One of the hurdles New York City has is, as good as the tech scene is, you’ve got to get those people together,” he says.

Carr is the executive director of the Berkley Center for Entrepreneurship at the Leonard N. Stern School of Business at New York University, which connects its students with experienced entrepreneurs and others from the business community eager to share their knowledge. Carr says such mentors can help new entrepreneurs who keep open minds about their real world prospects. “I’m not naïve enough to think people actually learn from other people’s mistakes,” he says.

Brian Cohen, vice chairman of investor group New York Angels, says the local startup community needs more stringent scrutiny to separate the business ideas with potential from the driftwood. “There is a lot of room for improvement on the rigor that startups require,” he says.

At the NY Tech Meetup on Sept. 6, Cohen presented Carr and his team from the Berkley Center with the first ever Outstanding Professionals for their Entrepreneurial Leadership (OPEL) Award for their efforts counseling entrepreneurs and connecting them with experiences mentors. The award, created by New York Angels, will be presented annually to leaders who help nurture the local startup community.

Carr says New York’s entrepreneurial scene is very different compared with the hubs on the West Coast. He sees a need for more mentors and investors in New York who raise questions about the marketability of fledgling companies. “A lot of money here comes out of Wall Street; they’re private equity people,” Carr says. “In Silicon Valley, … Next Page »

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Over the past few years there has been a revival in the technology sector, led by the expansion of the mobile, social, and Internet marketplaces. With this expansion, the number of entrepreneurs attempting to create a startup to capture their share of the market has also skyrocketed. These entrepreneurs face the age-old dilemma of how to fund their companies as they grow from early stage through post-revenue and onto mass market acceptance. Self-funding through revenue growth is often not an option and external investment in one form or another is required.

Depending on the stage of development of the company, entrepreneurs may consider going after venture capital firms, strategic partners, super-angels, angel investment groups, friends and family, or startup incubators. All of these groups primarily offer funding in exchange for equity in the company, and sometimes a board seat. If the company is lucky the board member can be hands-on in building the business. Often this is not the case.

For most startup companies, the VC route or strategic investors are just not feasible; they are at too early a stage to even be considered. The angel route also presents problems, as most of these groups do not have an established fund, but are collaborations of individual investors, which requires consensus building before a deal can be struck. Super-angels consolidate the process but they usually are only a monetary resource.

The best way for many startup companies to go is the route of the accelerator or incubator. Though accelerators do not offer the greatest amount of funding, they are most easily accessible and cater to niche offerings, perfect for low market cap startups. In addition to funding, most accelerators bring hands on experience, a collaborative environment, shared services, entrepreneurial business experience, and personal mentoring. Each accelerator has a unique personality, so entrepreneurs need look at a few to find the environment that they would flourish in. Some people prefer a large accelerator such as Y Combinator, which has a specific formula to determine if you qualify for funding and accepts many startups under their wing, while others may prefer a smaller shop such as my organization, Voivoda Labs, which caters to a smaller group of companies.

Many accelerators host their portfolio companies in collaborative, shared office spaces such as RocketSpace in order to put them in an environment conducive to creativity. RocketSpace offers shared office space where startups can collaborate amongst themselves and hosts events such as their JumpStart days where startups can present their pitch before a panel of judges and get advice and comments on their company.

At Voivoda Labs we have seen how these collaborative spaces are beneficial and have taken heed. We offer a wide array of resources such as development work, office space amongst other startups , access to a number of angel networks and super-angels, and mentoring by industry experts. As at other accelerators, the investment we make varies based on the specific startup and includes everything from capital to development resources. Consolidating all of the resources a startup needs under one roof greatly increases the odds of a successful exit, with fewer hiccups along the way.

The current boom in the tech industry has loosened the purse strings of investors and has allowed for many accelerators, both large and boutique, to actively seek out new prospects. This explosion of funding in the tech industry will not last forever, the most important thing for a startup to remember is to seize the day and work toward getting funded while the moment is still ripe.

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New York’s Company, an online art market, said in a press release Wednesday it raised $1.6 million in seed funding. The website lets art collectors sell and exchange pieces from their own collections. Investors in five-month-old Company include Ten Paces Capital Partners and the Reen Family Office. Company also runs networking events and has a reality television show, “The Collector NYC,” slated to air in the fall.

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Cambridge, MA-based Yesware kicked off late last year with the aim of building an entirely new e-mail system, one that would help salespeople close their deals and help enterprises actually understand their sales forces, says CEO and founder Matthew Bellows. It even raised $1 million on this premise. Then the company’s board spoke up. You see some of its investors knew the whole e-mail space pretty well, and told Yesware not to reinvent the wheel.

So Yesware scratched its plans for an e-mail reboot, and drew up new ones for a sales interface that would work with existing e-mail systems. Late last month the startup, which works out of Dogpatch Labs, opened up its beta version of an e-mail plug-in that offers customizable templates for salespeople. The objectives are still the same. At the individual user level, “we are down in the trenches with the salesperson trying to help them close that business,” says Bellows. And at the organizational level, “it extracts data that their enterprise needs from their activity, to learn from what they do and report on that.”

There are plenty of companies whose business is to generate and qualify sales leads (think Eloqua and HubSpot), and others aimed at managing sales account information (Salesforce), but few that provide tools for actually making the sale, Bellows says.

Yesware’s plug-in offers pre-set e-mail forms to help salespeople first connect with customers, and also to help them once they start getting objections from the customers they’re chasing. Say a salesperson keeps hearing from potential customers that the product costs too much, or that it can’t stack up to an existing offering from a big-name competitor. He or she can pull the appropriately template from Yesware addressing that concern.

“It’s a templates-on-steroids kind of thing,” Bellows says. “We help the salesperson with the right answers at their fingertips.”

The Yesware plug-in also has a button for automatically copying e-mails to a salesperson’s account on the customer relationship management system Salesforce. “It’s a very low cost way of having salesperson update Salesforce,” Bellows says.

Those updates are key to Yesware’s bigger mission of helping sales managers better track the work of their sales force—by actually looking at their communications with customers, rather than relying on the relatively cryptic notes salespeople often type into CRM systems, Bellows says.

“What a salesperson does from an action standpoint is going to be much more helpful than what they say that do,” says Bellows, who saw the frequent disconnect between the two firsthand while managing sales at companies like Vivox, Floodgate Entertainment, and WGR Media, the gaming media startup he sold to CNET in 2004. What’s more, “if we … Next Page »

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The New York Angels is a group of 61 individual investors who have invested more than $40 million in more than 70 startups ever since the group launched in 1997. The organization’s vice chairman is Brian Cohen, who himself has a long history of entrepreneurship—the lessons from which he tries to pass along to the new class of young companies.

Cohen was the founding publisher of Computer Systems News and InformationWeek, both published by CMP Publications. In 1983, he founded Technology Solutions Inc., New York’s first marketing and PR agency focused entirely on science and technology. He sold the company to The McCann Erickson World Group (owned by Interpublic Group) in 1997.

Among the New York Angels are some of the best-known figures in the city’s startup scene, including Esther Dyson (also an Xconomist), and First Round Capital founders Josh Kopelman and Howard Morgan.

Xconomy recently sat down for breakfast with Cohen in the heart of Times Square to chat about the New York startup scene, angel investing, and that nagging question that’s on every Big Apple techie’s mind: Are we in a tech bubble?

Xconomy: You are looking for new angels to join your group. Why?
Brian Cohen: We always limited ourselves, but now I’m increasing it dramatically. Generally speaking, the least amount an angel invests in a company is $25,000. If you look at the number of angels that actually write checks and you look at the number of startups that are scalable, there are not enough angel investors. The more smart angel investors we create the better.

X: You make a distinction between angels and smart angels. Explain.
BC: The Angel Capital Association had a conference recently where Scott Case, CEO of Startup America, got up to speak, looked around the room, and said “We need more of you.” One of the bright old angels got up and said “No you don’t. You need smarter angels.” That’s right. If you just have more angels, you’re going to have more bad deals, which leads to more down rounds. If you start with too much enthusiasm, the first round is price pooling—it’s frothiness. The valuation of some of the companies will not be rational.

X: What are the risks of having too many angel investors jumping in to fund startups?
BC: There’s something I call angel exhaustion. It happens when you spend your money too fast. The average amount of time that angels do due diligence is about 14 hours. Measure that against VCs and its not even comparable. But 90 percent of the seed money companies raise comes from angels. Angel investing without due diligence is like unsafe sex.

There are 450 or so angel groups in the country. Some of them confuse what they’re doing with urban development—they want to help the community. But it has to be about making money. That’s where the angel exhaustion comes in. If it’s not about smart money going after smart deals, bad deals happen, and there are no exits. Then a couple years in, the angels sit back and say, “What’s going on here? I’m not getting anything from this.”

X: How does your group avoid angel exhaustion?
BC: Better due diligence. But it’s competitive. To get the best deal, sometimes we have to move faster, which sometimes precludes rational, logical, good analysis. We can get challenged by that.

X: Also angels get disillusioned because they may have to put more money in to a company to keep it afloat, and then when VCs come in for the next round, the angels get diluted. How can angels avoid that?
BC: There’s a whole new thing called early exits. Generally when you consider investing in a company you always think it’s like marriage—it’s for the long term. But logically many entrepreneurs are saying, “Maybe we can build a technology, act as an innovation lab for another company, and … Next Page »

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If you’re the founder of a new Internet or mobile startup and you’re looking for Silicon Valley investors who can contribute some star power and hands-on guidance along with their capital, sooner or later you’ll probably send your business plan to Floodgate Fund. Headed by Mike Maples Jr. and Ann Miura-Ko, the Palo Alto, CA-based firm has $74 million under management, which makes it more super than a super angel fund but much smaller than most traditional venture funds; “micro VC” is probably the most used and most accurate label for this category, which includes firms like First Round Capital, Founder Collective, Felicis Ventures, and Harrison Metal. Floodgate’s investments, which range from $150,000 to $1 million, are also in the middle range for early stage startups—-not enough by itself to get most companies off to a secure start, but enough to bridge the gap between angel funding and a more serious Series A venture round.

Maples’ investments in Silicon Valley wonders like Chegg, Twitter, and Ngmoco (acquired by DeNA last fall for $400 million) catapulted him to number 17 on this year’s Forbes Midas List, the publication’s lineup of influential tech investors. Maples tends to portray his investing success as one big lucky break. And indeed, there’s some truth to that. His background is in business software rather than consumer-facing Internet services—he worked at Silicon Graphics and Tivoli Systems before co-founding Austin, TX-based broadband software company Motive in 1997—and he got into Twitter mainly because he’d invested in Evan William’s previous company Odeo, which folded. But he has also paid his dues, working at August Capital and Foundation Capital before embarking on his own investing career.

Mike Maples

Maples’ firm was known until March 2010 simply as Maples Investments, but it rebranded itself that month as part of a bid to become more of a fixture in the Valley, where it regularly invests alongside other micro VC funds, angel investors, and even traditional Sand Hill Road firms. The change also reflected the fact that there was more to the firm than Maples. Miura-Ko, who got her PhD in computer science from Stanford University and still lectures at the School of Engineering, joined as a co-founding partner in 2008. She’s a Yalie and a former McKinsey consultant who learned the investing ropes at Waltham, MA-based Charles River Ventures; Forbes has called her “the most powerful woman in startups.”

I’ve profiled so many of the companies that Floodgate has funded—Chegg, Okta, PayNearMe, Stipple, TaskRabbit, and Vook, to name a few—that I figured it was time to meet Maples and Miura-Ko in person and find out how they think. So back in April, I spent a couple of hours with them at the firm’s eco-conscious new offices on Ramona Street in downtown Palo Alto. I’ve boiled down my notes on the conversation into the abridged Q&A below. We covered so much ground that I’m going to break the interview into two parts: today’s part covers Floodgate’s picture of the startup world today and how the firm singles out promising entrepreneurs and business ideas. Part 2, coming in a few days, looks at specific startup trends such as incubators.

Xconomy: Let’s start at the beginning. What’s Floodgate’s basic investing philosophy?

Mike Maples: Sometimes it helps to start even before the beginning. Ann and I have this really strong belief system that there is a fundamental change underway in the way innovation is happening. People talk about “lean startups” and people talk about the low cost of going to market, but we think it’s even more fundamental than that. We think the Internet has a constellation of things that have developed around it—offshore labor, search engine marketing, ubiquitous broadband penetration, variabilized-cost Web servers—that have fundamentally democratized the process of innovation. So what it costs to prove or disprove an idea has been fundamentally altered. When you project forward what this really means, we think it’s as important as Eli Whitney and the cotton gin, or Frederick Winslow Taylor and the birth of manufacturing, or Alfred Sloan and the invention of the modern corporation with General Motors. Our view is that the people who understand this shift are going to win in the next 20 to 25 years. That is not just a statement about entrepreneurs. That is a statement about the people who capitalize their companies.

Ann Miura-Ko: That is a trend I saw coming out of Stanford, where I was doing a PhD [starting] in 2003. When I first got there, there were students starting companies based on blade servers and open source software. It was fairly expensive. But by 2007 and 2008, I had students who were leveraging Amazon Web Services and other increasingly commoditized technologies. You literally had kids starting companies out of their dorm rooms. Before that, it was figurative but not literal. This commoditization of entrepreneurship is truly profound. Now any undergraduate at Stanford or any other university can … Next Page »

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Shortly after Milena Adamian joined the San Francisco office of Easton Capital in 2007, she got involved in two local angel groups, Life Science Angels and Health Tech Capital. Adamian, who is a cardiologist by training, was drawn to the opportunity to support fledgling entrepreneurs—some of whom were developing new drugs and devices that she knew doctors might embrace, if only the companies could get the funding they needed. “Angel financing is a very different mentality because you look at early stage companies,” Adamian says. “The part that’s the most fun is helping companies get off the ground.”

So when Adamian transferred to her VC firm’s New York office in 2010, she started looking for life-science angel groups to join—and found none. “I didn’t believe it,” she says. “I looked at it as an opportunity to build something in New York that didn’t exist.”

Hence, one woman’s love of angel investing led to the creation of New York’s first angel group focusing entirely on biotech, health IT, and medical devices. The organization, called Life Sciences Angel Network (LSAN), launched in October with 25 angels, a half-dozen or so sponsoring organizations, and an initial mandate to screen 50 business plans that streamed in from entrepreneurs who were eager to tap into the new funding source.

Adamian’s goal is to grow LSAN to include 100 angels. And she believes the city is ready to embrace the idea of investing in early-stage life sciences companies. “In New York, the whole financing landscape has significantly evolved in the last three years. All of a sudden people are pursuing deals,” she says.

Most of the seed money in New York is still being poured into tech startups—a problem that’s more about impatience than lack of opportunity, Adamian observes. When she was starting up LSAN, Adamian visited a variety of angel groups, including the tech-focused New York Angels, and Golden Seeds, which invests in women-led companies in a variety of industries. Though some were dabbling in life sciences, none had truly focused on it, she says. Part of their reluctance, she believes, stems from the fact that the payoff can take longer to materialize in life sciences than it does in technology.

Adamian believes that patience will pay off for LSAN’s angels. As proof, she points to a recent PricewaterhouseCoopers report showing that in the first quarter of this year, New York was second only to San Francisco in venture capital funding for life sciences. Granted, it was a far second—New York companies raised $190 million, while San Francisco companies … Next Page »

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Brooklyn, New York-based SocialGuide, where TV viewers go to talk about TV shows as they air, has raised $1.5 million in seed funding, according to a press release. The seed round was run by Alex Zubillaga and angel investors. The company will use the money to build out its site, which is designed to foster social engagement between consumers and networks. “With more than half of the nearly 300 million Americans who watch TV having a second screen experience, the market is ripe for a social TV product that connects with consumers and networks,” said Alex Zubillaga in the statement.

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Last summer, our company AppMakr raised a $1 million angel round over 14 weeks and learned some big lessons in the process. Luckily, Brendan Baker, an MBA student at Oxford University, took an interest in our raise and documented the process, creating a visual infographic of our efforts (see below). His infographic illustrated pertinent trends in the raise period and allowed us to draw some inferences that would’ve otherwise gone unnoticed, which I’ll describe here in detail.

One of the most striking facts to emerge from Brendan’s infographic was what I call “Daniel’s Rule of 10.” It turns out that I could sniff out eager and willing angels only through connectors who made at least 10 introductions. Or to put it another way: Don’t waste your time talking to anyone who offers to make an introduction to only one angel. Focus on people who can make at least 10 solid introductions. The visual representation of this is especially striking because it’s impossible to know ahead of time who will follow through for you, so applying a rule like this could radically change the way you raise a round.

For the entrepreneur, every lead you get is golden. Follow up on every opportunity as thoroughly as possible, but keep in mind the Rule of 10. Passing on what appear to be great leads because you haven’t gotten enough introductions from the referrer may seem crazy, and I’d guess that my data set is too small to be statistically significant. But having spoken to hundreds of potential angels, and seeing as how only 8.47 percent of the angels I spoke with ended up funding us, what I can say for a fact is my Rule of 10 held true for our raise, and that’s a powerful enough inference for me to minimize my efforts on referrers who only make one intro, so I can focus on those who are willing to make at least 10 intros. Having said that, use my Rule of 10 at your own risk!

Additionally, the data showed that timing was a key component. We originally started our raise over the summer, though I heard it wasn’t an ideal time. It’s not. The season is a poor choice primarily because it’s difficult to get on the calendars of prospective investors in between their vacations. That long lead time proves incredibly distracting and has a compound effect: I was never able to be as focused as I wanted to be on the more immediate meetings because there was always a meeting with a prominent prospective investor scheduled for several weeks in the future.

Anatomy of a Seed Round - Graphic by Brendan Baker. For a full-size PDF version go to http://go.danielodio.com/seed_infographic

As it turns out, spring is the absolute best time to go out for a raise, with fall ranking second best. The summer and the holidays are very difficult and not worth the delays and distraction. It’s better to hunker down and shoot for spring if you can control your burn, or better yet, raise the spring before you have urgent cash needs, if you can plan that far in advance.

Nailing your pitch is just as important as timing. Our pitch was still in flux in our first round of meetings, but with many of these investors, you only get one shot. We iterated quickly (as startups tend to do) and hit on some core concepts that have since become key to our business, but iterating during your pitching process is far from ideal. You want to have your pitch down cold and supplement that with supporting data and a deep understanding of the competitive landscape before you start pitching.

We ended up raising our $1 million through a convertible note (a loan that only converts into equity when you do a future raise), as many entrepreneurs are doing these days. Convertible notes have become popular due to their supposed speed and ease of execution. But I don’t recommend them, and if I were to raise our seed round again, I’d do it as a priced equity round.

Some may see this as a pretty bold statement, as convertible notes are seen as very entrepreneur-friendly. However, there is a cost to everything, and notes are no exception. It’s a bit hard for me to imagine what our world would look like had we done an equity round, but I know a few things are certain: There are open-sourced seed round legal documents that can minimize or eliminate any … Next Page »

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Talking with the angel investor Anne DeGheest the other day was humbling. After all, I sweat out long days and nights digging up news and features on what I think often represents the leading edge in healthcare capitalism—new drugs, medical devices, diagnostics, etc.

All that innovation is worthy of attention—she apparently didn’t want to hurt this biotech scribe’s feelings too much—but if you really want to find where the action is heading in healthcare, DeGheest insists it’s in something she likes to call “healthtech.”

What DeGheest is talking about is sort of a catch-all for healthcare delivery technologies that used to be what venture capitalists considered the boring part of healthcare. New drugs and devices represent about 16 percent of the total $2.5 trillion U.S. healthcare market, she says, while the rest of the market is focused on the delivery side of healthcare, like the everyday transactions that happen at hospitals and clinics. Now that President Obama’s healthcare reform effort is the law, and most everyone agrees that healthcare costs need to be somehow corralled, it’s time for a wave of innovative new healthtech companies that are focused on improving care and reducing costs—not adding new costs like with all those innovative drugs and devices.

“Venture capital and entrepreneurship have been focused on drugs and devices for 20 years,” DeGheest says. “I want to look at the other 84 percent of the market. Several forces are coming together at same time, to change the way we practice healthcare in this country, in a way more cost efficient way.”

This idea is still in its pretty early days, but DeGheest is one of the founding Silicon Valley angels in a group that is seeking to define it at something called HealthTech Capital. This is a budding angel group that seeks to bring together people from tech, biotech, and the healthcare delivery system to find scalable business models that can “improve the efficiency of healthcare delivery from the hospital to the home,” as the group says on its website.

Anne DeGheest

DeGheest, a managing partner at Medstars Venture Partners, comes to this effort having founded or advised companies that have raised $500 million in venture capital through her career. The original group at HealthTech Capital includes Don Ross, a board member of Sand Hill Angels, and Kathy LaPorte, a co-founder of New Leaf Ventures.

While “improving efficiency” of healthcare sounds like health IT and electronic medical records, that’s not what HealthTech Capital has in mind, DeGheest says. It’s really about the home. As healthcare gets extended to millions of more people, and the Baby Boomers continue to suffer from expensive chronic ailments as they age, something has to give in healthcare delivery. “Healthcare has to be moved out of the traditional hospital, and emergency rooms,” DeGheest says.

That means healthcare is going to be delivered in the home, via applications that are useful to physicians, nurses, home caregivers, and patients. Companies that figure out how to do this with a mixture of technologies will profit.

It’s not really a new idea to … Next Page »

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Most people on the street would struggle to define what an angel investor does. Mostly, in Seattle anyway, they are the little-known startup investors who operate behind the scenes while venture capitalists get all the glory for bankrolling the would-be Googles and Facebooks of the future. But for a few minutes yesterday, Seattle angels got a moment in the sun on the KUOW-94.9 FM radio show, “The Conversation.”

I was happy to be the guest on “The Conversation” with Ross Reynolds, for a five-minute segment on the latest local trends in angel investment. Reynolds started off by asking about a recent report from the Seattle-based Alliance of Angels, which said it had invested $10.3 million last year in Northwest companies—up from $9.1 million a year earlier.

For those new to the whole concept of angel investment, I tried to make it a little more familiar by dropping a couple famous names like Paul Allen of Vulcan and Jeff Bezos of Amazon—who are a whole lot better known for things other than their angel investments. Bezos, in particular, was recognized by BusinessWeek last year as one of the nation’s top angels, for his shrewd early bets on Google and Twitter. On the local scene, I noted that Pacific Bioscience Laboratories, the Bellevue, WA-based maker of the Clarisonic skin brush, is one of the clear hits that emerged after getting support from Seattle-area angels.

Of course, I had to point out that while the increase in angel investment is encouraging, it’s not exactly a potent enough force to turn around the local economy. For every angel investing success story like Pacific Bioscience Laboratories, there are probably dozens of companies that never got any traction, and whose names nobody can really remember (or which nobody wants to remember).

It was a fun interview, and at least one Xconomy reader tells me it sounded good (although I must say I think my voice sounds really dorky on the air.) If you’d like to listen to the five-minute segment, you can follow the link here to the KUOW website. The angel investment segment comes up about 10 minutes and 10 seconds into the show.

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A new quarterly research report on angel investment activity and trends in the United States and Canada is being launched later this year, providing a comprehensive overview of deals funded by angels and angel groups that was not previously available. “The Halo Report” is intended to raise awareness of early stage investment activities, according to an announcement today from the Angel Capital Education Foundation, Silicon Valley Bank, and CB Insights, which formed a partnership to produce the report. New York-based CB Insights, which tracks data on high-growth private companies, will provide data on the size of angel investment rounds, industry, location, and other details.

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Adding up the deals and dollars invested during 2010, Southern California’s Tech Coast Angels says it funded 31 startups last year, nearly 30 percent more than the 24 deals the network of individual investors did in 2009. But the amount of total invested capital the group raised for startups dropped by more than a third, from $61.7 million in 2009 to almost $40.2 million in 2010.

The investment group, which includes more than 250 members in five regional chapters (San Diego, Orange County, Los Angeles, Westlake/Santa Barbara, and Riverside/San Bernardino Counties), says its members directly invested over $6 million and helped attract another $33.9 million from venture capital investors and other sources of capital. In 2009, the Tech Coast Angels (TCA) made $4.7 million in direct investments and helped land an additional $57 million.

Of its 31 deals in 2010, the TCA says 12 were new investments and 19 were follow-on investments for the company.

The TCA also reported some profitable exits, including IPOs for San Diego’s Trius Therapeutics and Monrovia, CA-based Green Dot (which TCA says yielded a return of more than 100 times the initial investment of early investors), and SDL’s acquisition of Los Angeles-based Language Weaver for $42.5 million.

“Tech Coast Angels is committed to identifying the brightest, most innovative new companies and fostering their growth through both capital investment and mentoring leadership,” said Mike Napoli, TCA’s current chairman, in a statement. “Already, 2011 is shaping up to continue on this upward trend.”

The angel group, which is technically a nonprofit mutual benefit corporation, said the San Diego companies it funded last year included:

—Benchmark Revenue, which develops financial management software to help hospitals handle billing and collection issues.

—Allylix, which develops ways of getting yeast to produce complex hydrocarbon molecules called terpenes for use initially as flavor and fragrance enhancers.

—MicroPower Technologies, which has developed technology for ultra-low power wireless video cameras.

—CardioCreate, which develops cardiac stem cell therapies to repair and replace damaged heart tissue following a heart attack.

—BrandAmerica, which provides U.S. companies with the information and resources to establish joint ventures, trade contracts, distribution, license, and franchise agreements in Asian markets.

—IntraStage, which develops quality management software for companies that design and manufacture electronic products.

—Solulink, which provides proprietary conjugation reagents and related supplies for use in life science research, diagnostics, and pharmaceutical markets.

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What a great week we just had for Northwest regional angel investors. Checkbooks were left untouched but minds were impacted by many insights shared among both highly experienced and new investors. Importantly, the insights shared by angels are just as valuable for entrepreneurs since a highly functional partnership between the two is critical for success. The approach to deal negotiation was that of helping the entrepreneur with his or her wealth accumulation goals.

Why is this important from a policy perspective? According to the Kauffman Foundation study in December of 2009, companies less than five years old created 40 million jobs over the past 30 years while large companies netted zero new jobs.

Investing and entrepreneurship are clearly two sides of the same coin. Investors won’t make sufficient returns to compensate their risk-taking, and entrepreneurs won’t meet their personal goals if a venture is not successful. Angels and entrepreneurs, along with some luck and timing, are both necessary for success. This week drove that notion home over two events covering three days.

Starting last Wednesday at the Northwest Energy Angels event, members from six regional angel groups enrolled to hear Bill Payne, the ultra-experienced angel investor and mentor. He led the Angel Capital Association’s Power of Angel Investing Workshop which focused on the importance of the due diligence process and determining reasonable valuations for investment. Angels need to know how to conduct thorough due diligence that is prioritized on the critical factors yet not overwhelming to entrepreneurs. Research shows that the amount of due diligence effort conducted by angels is highly correlated with returns; the more due diligence is conducted, the better the success rate. However, the key is to focus on the relevant issues that really matter for a particular venture and not get stuck in the weeds of too much detail.

The workshop started with a panel of experienced investors and attorneys including Dan Rosen, Chair of the Alliance of Angels, Geoff Entress, Partner at Voyager Capital, CJ Voss, attorney at Stoel Rives, and Kiki Tidwell, board member of NW Energy Angels. Rosen emphasized the importance of critical analysis of the alternatives a venture’s customers have as substitutes for the venture’s product or service. Entress pointed out that customer calls are critical to validate why they purchase. Understanding customers’ decision-making criteria is just as essential for entrepreneurs as it is for investors. The issue of founders’ share vesting is important for both investors and the other founders to manage precious equity if one of the founders decides to leave shortly after the funding. Retiring some of that founder’s shares is necessary … Next Page »

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