Gov. Patrick’s point, I infer, is that a government job supports a family just as well as a private sector job.  Better, in fact:  recent studies show that on average government employees earn more than private sector employees in the U.S. when the value of health benefits and pensions is considered.  More than half of union workers in the U.S. now work for government.  And government, education, and health care are sectors in the U.S. economy that have shown above-average job growth recently.  So we’re shifting the mix towards well-paid, unionized government jobs.  Is that a good thing?

When I served in the military, I learned a concept called the “Teeth to Tail ratio”.  In the army, “Teeth” refers to the people who fight: the soldiers in the combat brigades (most of them are in Iraq and Afghanistan today).  “Tail” refers to the people who support them:  recruiting, training, hospitals, procurement, general staff, etc.  The army understands deeply that Tail is important, but Teeth are essential, because only the Teeth can fight.  Tail tends to grow, so army leaders work on “increasing the Teeth/Tail ratio”.  Soldiers who are part of the Teeth are awarded special respect in many ways.

The Teeth/Tail ratio has relevance for economies, too.  The struggles of the Greek economy illustrate this.  My partner Thanasis, who is Greek, explained to me that the root of the economic problem in Greece is an economy with little internationally competitive industry and too many people working in generously-paid government jobs.  This was financed by international borrowing facilitated by the credit bubble, deceptive accounting, and Greece joining the Euro zone.  Now the bubble has burst, the full extent of Greece’s debt is revealed, and international debts must be serviced.  But, the Greek economy has very little export capability:  little Teeth, big Tail.

In a national economy, Teeth are the companies and jobs that compete in international markets and earn foreign exchange on favorable trading terms.  Tail is the part of the economy that is sheltered from global competition.  In the U.S. economy, Teeth is mostly product companies, and Tail is mostly services.  And the long, sharp Teeth are the technology-based companies:  they create a large surplus in the U.S. balance of payments, which is more than spent by imports of low- and mid-tech products (most of what you see in Wal-Mart) and oil.  The chart below quantifies this.

Source: The Economist, based on OECD data

The point for entrepreneurs and venture investors is this:  what we do makes a large contribution to Teeth, which are vital to the economy, especially now, and this contribution is undervalued in the national debate.  Most of the technology products sector of the economy has its roots in entrepreneurship.  But government is pushing for quick feel-good solutions.  Governor Patrick is promoting “Tail” (government) jobs.  President Obama proposes to double U.S. exports by creating councils composed of government officials and the CEOs of two big, mature technology companies (Boeing and Xerox) and increasing funding to the Ex-Im Bank, most of which goes to big, mature companies.  Most commentators doubt that President Obama’s program will reach its goals.

What would foster entrepreneurs to create innovative, technology-based products that are sold around the world?  It’s things like:  research funding that bridges the gap between basic science and commercial products (eg, SBIRs), readily-available study and work visas for talented foreigners who want to come to the U.S. and who frequently become productive entrepreneurs, and not raising taxes on the fruits of entrepreneurs’ and investors’ success.  This is missing from Obama’s proposals, although Senators Kerry and Lugar have proposed a smart law that would reward immigrants with visas and green cards if they show they can create jobs.

Our community needs to make the case for the vital importance of Teeth, and what creates Teeth.  Like Greece the U.S. has a chronic trade deficit and a growing Tail.  But, we have good Teeth: a vital innovation economy that can grow exports and quality jobs, if we invest in it.

The tagline is one I heard in radio ads on SiriusXM for a mortgage product. I think it is appropriate for describing Facebook Connect.  I am still puzzled as to why some new media companies that come pitch us have not adopted this.  I think they get confused with all the features of their product or service offering to miss one of the biggest distribution opportunities in existence today.  Some others ask me why this is a big deal.  So, let me try an analogy that my mother could relate to.

Imagine you came into some big money from a rich uncle you didn’t know you had and decided to buy an island in the atlantic. Being an ambitious individual, you also decided to start your own country, Softwaristan.  Softwaristan has to have its own passport system and its own currency.  Softwaristan is a beautiful place.  And you want to kickstart its economy by attracting tourists and visitors who might ultimately want to set up shop there.  The problem is, people don’t know about it and don’t really want to apply for a Visa to visit or bother to change their Dollars, Yens, Euros or Cronas into Softwaristans native currency, the Pageview.  Now, the U.N. has a special program. Membership in this program allows a Visa waiver for new visitors from other countries and permits an automatic currency exchange so your country can accept any other currency in the world (the UN helps you convert them into Pageviews).  In addition, the program has another nifty feature.  It has a deal with all of the world’s broadcasters so that tourists in your country can automatically broadcast 30 seconds of daily highlights from their visit to their friends’ TVs during prime time every night.  Oh, and the program is free.  The only condition is you have to sign up to uphold certain conditions in your Passport and Currency program so that they abide with the UN charter.  Do you think you would sign up for this program?  No-brainer!!  Well that U.N. program is basically Facebook Connect.

Facebook is the most successful social network on the planet today.  It has surpassed 400 million users, 50% of whom log into the network at least once a day.  It’s a good bet that it is becoming the place where most people socialize electronically with their friends and therefore, where their social identity exists.  Facebook Connect is a program that allows third party services to integrate with the facebook platform (there are various levels of integration; more info here), such that those services can allow new users to join their service with their Facebook log-in credentials.  That lowers the barrier for new users who might otherwise not spend the time and effort to re-enter all their information (this is the U.N. Visa waiver part of the program).  With the right integration and permissions from the users, these third party services can then post activity updates on the user’s wall on Facebook (this is the prime time broadcast part of the program from above).

In other words, Facebook Connect makes it easy to both get new users and advertise to their friends.  Why would Facebook do this?  Simply, they want to become the standard identification for people’s activities on the internet, thereby permanently claiming mindshare from those users.  A broader initiative on the internet called OpenID seeks to standardize and generalize the hosting of identification information in order to create a “safe, faster, easier way to log in to websites.”  According to a company that is in the log-in facilitation business, an integration with a well-known log-in provider provides user registration lift of more than 30%. Facebook, Google and Yahoo among others are happy to contribute in that effort as providers of log-in credentials but so far are not accepting others’ credentials on their network.  In my opinion, however, Facebook has gained a considerable lead among them because of the number of users and frequency of usage and because of the way they allow integration into the users’ feeds.

As with everything, the devil is in the details.  An effective integration into Facebook feeds has to be implemented in a way that respects the users’ privacy and makes contextual sense (Anyone care that Bobby fed his virtual fish?).   I would recommend that any Facebook Connect integration should at the very least: (a) carefully communicate what information it transfers over from Facebook and how it uses it (in order to transfer some of that built-in trust the user has imparted on facebook);  and (b) creatively think through how the new user’s activities are relevant to that his/her life and social status and only communicate on Facebook in a way that plays to that.

1. The presenters are high achievers who got A’s in engineering classes at prestigious universities (at least until they dropped out).
2. The good advice available on this topic is beyond voluminous.  Thanasis had a great post about it a few days ago.

But if you ask an entrepreneur to tell you how much time they spent on their presentation vs thinking about fun stuff like all the different features they might add to their  wonderful website in 2012, you would question their priorities.  So, while everything that can be written about “effective communication” has no doubt been written, here is my take on common and avoidable mistakes when presenting to investors:

1. Too Much Setup. This is the most common lament I have.  20 minutes into the pitch, and I am still being lectured on what is wrong with the world, why the team is so golden or that old media is in big trouble.  Tell us what problem the business solves in the first three slides.  Get your audience leaning forward, not leaning back and thinking about stealing an inbox glance.  Avoid the dreaded spinning pencil!
2. Too Much Text. If you show me a slide with bullets and sub-bullets only, soon I will be stifling yawns.  If those sub bullets are complete, run-on sentences, then I will be stifling snores.  I really want to know what it is you are doing and why you have decided to dedicate yourself to your Big Idea.  I honestly enjoy sharing passion about ideas.  Help me do that by not reading bullets.
3. Too Many Slides. Twenty slides in 40 minutes is about the maximum possible for a good presentation.  I say 40 minutes because you want to leave room for discussion before, during and after, and while I normally allow a full 60 minutes for pitches, I have heard stories of VCs arriving late and leaving early.
4. Wrong Market Data. We want the total available annual market (TAM) available to you.  If you have an ad tech company, don’t tell me that the annual brand advertising spend is $40 billion online in 2012.  Tell me exactly what portion of that market is available to you, each and every year, based on your business model.  If you are entering a $1 billion market with a much cheaper SAAS product, your TAM is not $1 billion since you are shrinking the market with aggressive pricing!
5. Too Many Points On A Slide. Unless they say “We launched last week and have 1 million uniques, we have spent no money on marketing, we just signed 25 new advertisers at $100K each” bullets are not your friend.  One important, unmistakeable point per slide clearly declared in the title.  Very little text.  Charts, graphs, graphics are all good.

I could go on – there is a long list.  But these are the ones that I see most often.  You got an A in your classes at school – why not get an A in something as important as presenting your business to investors?

The debate in Washington DC is heated and confusing.  We all wish that the proposed legislation was simpler and clearer, regardless of whether or not you support it.  So the purpose of this post is not to comment on the legislation before Congress – but rather to dissect the health care “issues” into their component parts and offer some low-cost, creative, perhaps controversial – yet high-impact solutions to what is being termed our country’s “Health Care Crisis.”

I see three major problem areas in the US health care system today:  High costs (with no spending accountability from patients), insurance company practices, and reach of coverage.  May of these are of course interconnected.  Fixing one can help fix others.  For example, lowering the cost of health care services should lower the price of insurance which should enable more people to afford insurance coverage.  But I want to look at each of these areas independently.

First, what are ways we might reduce the systemic cost of health care?

I suggest that this is the most important thing to get right.  Without fixing this we are only pretending to reform health care.  Unfortunately, all of the bills before Congress do nothing to reduce costs.  Sure, they reduce payments under Medicare to doctors (anyone want to bet how long it is before this part is overturned?).  They also raise implicit taxes on pharmaceutical companies, insurance companies and medical device manufacturers.  But these higher taxes are not cost controls.  Rather they are higher costs which will quickly translate into higher costs for medical care itself.

Here are a few ideas – without an attempt to quantify any specific savings for each item.  All of these are tough to disagree with (unless you have a dog in the hunt) and they each pass the common sense test

1.  Put in place a whistleblower bounty system for Medicare/Medicaid fraud.  Let the whistleblower keep 20% of the fraud dollars from the last 12 months.  This program works successfully today with the IRS and government contracts.  Why not use it here?

2.  Reduce the number and cost of nuisance lawsuits.  This will reduce the cost of malpractice insurance and will also eliminate needless tests that doctors and hospitals perform to cover their rear.  Lots of good idea in this area.  Mandatory arbitration.  Loser pays if you appeal the arbitration ruling to a court.  Standard of care insulation for doctors.  Doctors should be afforded the same level of protection as Board Directors do under Delaware law.  If they are following good practices, they shouldn’t be prosecuted.  Sick people die.  And doctors treat sick people.

3.  Let groups of people, employers, and associations band together to create buyer cartels.  I was once Chairman of the Northern Virginia Technology Council.  We had 1200 member companies.  With probably 500,000+ employees.  Every insurance company out there would love to bid on our member employee pool.  Let them do so!

4.  Let companies and individuals buy health insurance across State lines.  Some states are more restrictive than others on their regulations.  Some have a better or worse litigation climate.  Some states are just cheaper to do business in.  Lets make health insurance available through a national marketplace, and not in 50 separate State marketplaces.

5.  Encourage “treatment tourism.”  While the USA has some of the best medical care available in the world, we do not own a monopoly on high quality medical care.  Lower cost countries like India have state of the art facilities and top doctors (many trained in the USA.)  Why not let people choose to travel to a place like India for high-cost, long recuperation time surgeries like hip replacement?  Insurers would save money after factoring in travel and hotel costs for the patient and their family.

6. Give end-of-life patients  an option (once they are diagnosed with certainty of a life-ending condition) to choose current Cadillac coverage where every heroic treatment is offered no matter the cost, or, let them be treated for pain and suffering, without the heroic measures, and share the savings with their estate.  I know.  Go ahead.  Hurl the Sarah Palin death panels charge at me.  But this is a choice.  Let the doctors try to be heroes – and you could be the one in a thousand who survives systemic metastatic cancer.  Or you could be a hero to your family and leave them a large estate.  Did you know that 1/3 of all Medicare dollars ($528B total in 2010 and $1 trillion in 2020) go to the last 60 days of life?  Imagine if you had the option to pass along $100,000 tax free to your estate simply by choosing to die with dignity.

7.  Let Insurance companies offer “mandate light” insurance policies.  One of the main drivers of cost in health insurance today is the mandated drugs and treatments by our States and the Federal Government.  Does every policy need to cover Viagra?  A great analysis shows that the exact same family of four could buy the same coverage for $364/mo in Oregon vs  $3400/mo in New York (http://moneywatch.bnet.com/saving-money/blog/devil-details/health-reform-rates-are-all-about-mandates/816/)  Why?  The State mandates on what must go in to the base insurance policy.

8.  Make health insurance deductible for all, to a limit, say $7500 per person or $15,000 per family and index this to health care cost inflation.  Anything else is taxable income.  Why make it more expensive for individuals to buy health insurance than for corporations to do so?

9.  Make individuals more accountable for their health care spending by expanding Health Care Savings accounts (like Flex accounts but where the money can build up tax free over time and does not have to be spent each year.)  Speaking of which, why shouldn’t we be allowed to  roll over our flex dollars?

10.  Encourage Direct practices for primary care.  A direct practice (like at www.qliance.com) is a back to the future idea.  Marcus Welby all over again.  In a direct practice, the patient pays a monthly fee of around $60/mo for unlimited, no co-pay access (AND treatment) with their primary care physician.  Anything the doctor can do with their hands or their mind is covered.  In this model, the doctor is not rewarded for the number of procedures they do.  Rather, they are rewarded (with fewer visits) by treating the patient and making them well.

Finally, my favorite idea – with no cost whatsoever.

11.  Make all health care providers post cash prices online and in their offices on the wall.  Let patients compare based on price.  Let patients know how much something costs.  Even if their insurance is “paying for it.”

How might we reform insurance practices?  No doubt, everyone loves to hate the health insurance industry.  They are (often justifiably) perceived as heartless, bureaucrats with nary a customer service vein in their bodies.  Yet they perform an important function in the industry, of underwriting risk, and do not make outsized profits – though the sheer dollar profits are very big in good years.

So what are some simple and doable things?

1.  make health insurance portable if you lose your job.   Once with a group, always with a group, so long as you maintain coverage.  I think the best fix here is for insurance companies to create a new pool for insureds who leave their companies, and maintain individual insurance but at group rates.  Here the pool can consist of similarly situated people, and they would pay the average group rate of other groups in their State for similar policies.

2.  Cover kids on their parent’s policies to age 25 regardless of where they live.

3.  Cover all lineal family members living in the same household on a family policy.  This could include 3-4 generations in certain households.  Plus it encourages families to take care of their parents instead of tossing them out and making them nursing home wards of the State.

4. Guaranteed renewal once you have coverage.  Encourage people to buy insurance and keep it.  Provide an opt in period between ages 25-30 with no rating for pre-existing conditions.  After 30, if you have refused to buy insurance, you can be individually rated.  But once you buy in, your rating cannot get worse over time.  This encourages people to stay in the insurance pool.

5.  Mandate coverage for individual people with pre-existing conditions in a high-risk pool.  They would pay at the group rate, and the other insureds (individual or corporate) would cover the overage cost.  It would not be much spread across millions of other insureds.

What about expanding Health Care Coverage?  I suggest we do this in five years.  Lets implement the changes above.  See how the markets respond.  Employers.  Employees.  Doctors.  I will be willing to bet that in five years we have many more people covered than we do today.

As to the rest of the people?  Lets have a debate about this.  If there are poor uninsured people left, probably an expansion of Medicaid is the most viable solution.  No need to create another Government program.  45M people are already covered today.  And another 45M in Medicare.

At the time, I was really perplexed by the quote.  It seemed counterintuitive to a 9 year old that it would take time to make something shorter.  And why was it so important that they would print this quote in the back?  It was only a few years later that I realized that making something concise, descriptive and short takes time and effort.

I am reminded of this frequently when we get pitched a new business.  And it amazes me that well-trained and educated executives miss this.  Half an hour into the presentation they still have not explained what their business is about in a way that we can internalize and understand.  How important is this?  Critical to success!

As a startup entrepreneur, communicating the business opportunity in a way that others can understand is essential, not only for raising money, but also for recruiting employees, signing up partners, engaging customers, or exciting the press.  Keeping it simple is a big part of effective communication.  And like everything else it takes time and energy to get it right.

I understand that some business are more complicated than others, especially technology-driven businesses.  But all the good ideas are about solving a unique problem for a set of customers.  And that can be described in simple terms.  Getting this right is even more important when it comes to investor presentations.

Investor pitches need to quickly get the attention of investors.  If you have to spend half an hour to explain the outline of what you do, you have failed.  Think about it; a complicated explanation usually signals to us one of the following: (a) you don’t have a strong grasp on your business, (b) you haven’t invested the time to simplify the story in a way that investors can understand, or (c) you are making it more complicated than is necessary in order to prove that you are experienced, usually a sign of insecurity.  None of the above is a favorable statement.

So I can’t emphasize this hard enough.  Organize, practice and simplify.  Try it out with a friendly crowd.  Try the pitch on your spouse or mother-in-law.  In order to succeed, keep it simple!

1. Purchase Tesla.  We all need an iCar, right?  I was going to suggest GM or Chrysler, but even Steve’s magic wand can’t make the UAW disappear.
2. Buy Vizio.  Make their TVs into giant iPads running all the apps in the app store.  Your iPhone is the remote.  Effortless on-the-grid DVR integration.  Built-in High def video conferencing,  This will be a fall 2010 event.  You heard it here first.
3. Purchase all of the big music labels.  Why split revenue with them? And he can make all that DRM nonsense just go away.
4. Purchase the PS3 business from Sony.  The world needs an iConsole with iGames and a sexy iController.
5. Purchase Dell.  Turn all of those Dell machines into Hackintoshs.  Force all existing Dells to upgrade to Snow Leopard, sticking it to Redmond in the process.  At $16/share he could get Dell for $30 billion and have ~$10 billion left over to hire an army to protect Apple employees from a berserk Steve Ballmer.
6. Take over NASA.  The iShuttle, the iStation, and the iRover?  Irresistible.
7. Purchase Disney.  OK, he would have to borrow some money to do it, but then he would regain Pixar, take control of ESPN, and we could watch Apple content on all of our iThings.  Nirvanna.
8. Purchase Cannondale.  I would love an iCycle.
9. Purchase Jarden, the parent of SunBeam.  Then we can really have the iBlender, iToaster, iMicrowave that we all want so badly.
10. Purchase the NAV portfolio.  Some really cool companies in there.  I can say without even discussing it with all the other stakeholders that we would sell for $2 billion, and he would still have $38 billion left to play with.
    

Well, that was fun.  But not as fun as it will be to watch this unfold for real over the next few years.  Personally I am really looking forward to it.

As an entrepreneur-turned-VC, I am very sensitive to the advice I give in my role as a director.  The VC is not running the company.  The CEO is.  The VC’s advice is important, and should be weighed, but should not be blindly followed.  We will never know as much about your business as you will.

BUT, we will be able to bring a perspective on your company and your industry from the vantage point of everything else we see, daily, as a VC.  So do consider that perspective as you decide to heed or not  heed our advice.

VCs are busy.  We sit on many boards at once.  At New Atlantic Ventures, each partner is limited to six board seats.  But I have VC-friends who sit on more than a dozen boards.  So, as an entrepreneur, how do you get more than your fair share of my attention, and how do you get me to help you and your company when and where you need the help?

I have found that the best CEO-entrepreneurs do four things in managing their Board of Directors (which of course includes the VC.)

1. After every Board meeting, the CEO sends out a list of “action items” which came out of the conversations in the Board meeting.  These are things that the CEO and the Company have committed to do, as well as things that any board members have committed to do.
2. Start your next board meeting with the action action items from the prior meeting.  List them on one page.  What the item is, who was responsible, and the due date.  Go over each item to bring closure to the discussions from the prior meeting.
3. Give every board member “to do’s” in the board meeting and put them on the action item list.  Could be as simple as, “Make an introduction to Cisco.”  Or “Introduce company to XYZ VC fund for “B” round presentation.
4. Circulate the action item list , parsed by board member, 48 hours before the meeting.  Remind them what they agreed to do between board meetings. (This may be the moment in time that your VC pays attention to his action item!)

If you do this, your VC will work for you, doing what you want.  Maybe last minute – meaning the items will be done right before the board meeting.  But they will get done.  Because we don’t want to show up on the action item list as having not done our job.

Try it.  It really works!

Of course there is lots of buzz about Tablets now, several major brands have announced products, and numerous analyst reports project strong demand. You need to take analyst support with some salt, however, as analysts’ bread is buttered only if the markets on which they are expert become important, so they work hard to make that happen. As investors we have to make up our own minds about what is going happen.

Here is why we believe the tablet market will take off:

• The tablet is the next stage of the “personal media player” market development that has been ongoing for 50 years, since the debut of the transistor radio. Consumers inherently value the ability to enjoy media in more situations and in more customized ways. The transistor radio introduced portability.  The Walkman added choice of music. The original iPod brought much more music and more control. The 3G+ iPods added video media. The iPod Touch added games and better video. Already the Touch is killing the portable DVD player, even with its 3.5″ screen. Tablets bring much more media viewing capability with 7″ – 12″ screens.
• The tablet fulfills a need not satisfied by either laptops/netbooks or the living room TV. Tablets are personal and portable; televisions are not. Tablets are light and comfortable to hold like a book (designed for viewing media); laptops are not. Some describe this as the difference between the work-oriented lean-forward experience (laptop) and the leisure oriented lean-back experience (reading a book, or a Kindle).

• Tablets make the internet available in every room of the house. Wifi does this technically, but ironically appropriate terminal devices are scarce: weather stations, clocks that know the time, family calendars and to-do lists, remotely reloadable picture frames, internet radios. Laptops have the wrong form factor for this. Specialized products are emerging in some categories (eg, wifi picture frames). Tablets will sweep up much of this demand.

• The tablet user interface (basically the iPhone/iPod touch interface) is remarkably intuitive for users, and also quite capable. My acid test for this watching children: my 5 year old grand-daughter (picture above) has complete mastery of my iPhone, even though she has never been trained and is just learning to read. There are few barriers here.
• Last and most, there is a ton of content ready and eager for these devices – this is a big accelerator for adoption. Most of ~150,000 apps available in the Apple app store will run on the Apple iPad with modest changes; the SDK for this (iPhone OS 3.4) is out already. Ditto for Android. Hulu, NetFlix, and others already offer a rich selection of TV and Movie content for streaming to internet connected devices.  Apple’s iTunes and iPhoto already offer capability to stream music, video, and photo collections throughout the house.  Amazon has 400,000 books available for Kindle, or the iPhone OS Kindle app. Many magazine publishers are eager to offer magazines via tablet because they see an opportunity to make magazine content compelling in the on-line world: eg, Wired Magazine is promoting a mock-up of a multi-media edition designed for a table (see the video embedded below).

• And, at no extra cost, a (sixth) bonus reason:  Apple set an aggressive price point.  $500 has long been seen as the threshold price point for consumer mass markets.  Emerging research is showing that pre-release demand for iPad is greater than it was for iPhone. (Check out the link below.)

http://digitaldaily.allthingsd.com/20100223/initial-ipad-demand-greater-than-initial-iphone-demand/)

A wise man said, “It’s hard to make predictions, especially about the future”. Keeping that in mind, and also the isolated instances in which we have been wrong in the past – ;) – we’re bullish on the tablet.

“Between the idea and the reality.  Between the motion and the act.  Falls the shadow.” — T. S. Eliot

T. S. Eliot was not talking about venture capital when he wrote these words in 1925.  But I can think of no better advice today for entrepreneurs.

Raise money at the idea stage.  Raise money when you have a real business.  But don’t try to raise money in between.

Moment #1:  Napkin Stage.  Unless you are a proven entrepreneur, with a track record, an obviously good idea, and existing connections to investors, this moment is VERY HARD to raise money.  Keep your day job.  Work on your business in your off hours.  Use your savings.  Borrow from friends and family.  But by all means, move your business beyond the napkin stage before you ask someone you don’t know for money.  For an internet business, with cloud computing and storage, ruby and rails, there is no excuse for not at least having a live prototype of your business before you seek outside money.  And by all means, please don’t approach investors at this stage and tell them that you will leave your high paying job and pursue this new business IF the investors will fund you.  We want you to take some risk in starting the business!

Moment #2:  Working Product Stage.  This comes after the napkin stage.  Now, you have built your product and it works, although it is probably quirky, incomplete and not quite perfect.  You have some people who are using the product, but who are probably not paying for it.  It is a new idea.  Perhaps a revolutionary idea.  No one else is doing it.  And it works.  This moment in time, with great enthusiasm from you, is a great time to raise money.  Your expenses are low so you don’t have a big burn to cover.  You don’t need the money to cover big expenses.  But you want the money to grow your business.  You are selling a vision.  Hope.  A big idea.  All based on good early traction.  We get most excited about deals here, at this stage, when the market opportunity looks unbounded, the product works, and there is early customer traction in the market.  Even in the dark investing days of 2009, we lost out on several deals that looked like this, which had competing term sheets, when we backed out of an auction-like process.  This is a great moment in time for entrepreneurs to raise money, whether as a seed round or an “A” round, from Angels or VCs.

Moment #3:  You have a Business Stage.  At this moment in time, your product has probably been live for 6, 12 or 18 months.  You have raised your angel money or “A” round money.  You have assembled a team.  And you have results.  At this moment, your ease of raising money is Dickensian – as in A Tale of Two Cities.  “It was the best of times, it was the worst of times.”  If your business is developing better than you expected – growing customer base, increasing revenue, decreasing net monthly burn – then your fundraising task is an easy one.  Everyone want to invest in a perceived winner.  As an entrepreneur, you have the power here, and can often negotiate very favorable investment terms.  One simple piece of advice.  If you have TWO offers of financing, the terms you end up with will be MUCH better than if you take the first offer, or only have one offer.

However.  If your business is doing “OK,” but not hitting on all cylinders, (and most businesses end up in this category) then this is the hardest time to raise money.  I call it the “valley of disillusionment.”  You have built up a team so your cash burn has increased.  You have a product that works.  But odds are that you don’t have as many customers as you had hoped.  Or they are not engaged with your product as you had hoped.  Or they are not paying you what you had hoped.  While this is a normal stage in most companies, from an investor’s perspective, you have a troubled situation.  Things aren’t quite working right.  And we don’t want to invest in a company that is struggling.  At this point, your best financing option is asking your current investors for more money.

Moment #4:  Revenue, Earnings & Growth.  Congratulations.  You have made it to the point where you have a real business.  That is the good news.  You can raise money pretty easily to grow a profitable business.  There is one downside though.  And that is valuation.  Now, your business is less likely to be valued on its unbounded potential.  Instead, you will be valued on traditional financial metrics.  P/E ratios.  EBITDA multiples.  Revenue growth rates.

Raising money is hard.  Don’t make it harder.  Raise money when you can, not when you have to!

What I mean is that carriers will increasingly become value added internet service providers.  They are currently the old AOL.  Providing access to the internet but also providing a highly controlled and managed service experience where they decide what services become available and under what conditions.  That model didn’t last long in the desktop internet.  People decided that they wanted a fast internet access, but they wanted to control what service to use for email, where to find content, information and entertainment and so on.

I remember 7 or 8 years ago listening to an analyst describe how the wireless carrier industry was a different animal.  That wireless carriers controlled their infrastructure all the way to the phone that the consumer was using and that they could therefore avoid being bypassed and commoditized.  While I don’t think that it is an issue of commoditization, I think that comment was a little shortsighted.  What the carriers control is important, but another key and important factor is what consumers want and desire.  When there is strong demand for open and innovative services, someone in the industry will step up and try to offer them.  Because that is a way for them to get ahead of the competition.  This is exactly what happened with Verizon.  They had shocked the world a year or so ago when they announced that they would abandon their “walled garden” approach more in favor of an open internet environment.  This week they move a step closer with the deal with Skype, a company whose services undercuts their voice revenue.  Verizon realized that the growth potential in data revenues and competitive marketing advantage outstrips their potential cannibalization of already declining voice revenues per consumer.  It’s unclear whether Skype had to kick any share of its revenues back to Verizon for this deal.  No matter what, it signals a new wave of thinking among the carriers.

Off course this all started with Apple and its deal with AT&T.  The iPhone’s app strategy allowed the collective innovation of the app development community to show consumers what they can suddenly do with their phone.  And consumers loved it and now want more.  (While Apple opened up the carrier “walled garden” it now became the gatekeeper of what consumers can access, a more benevolent gatekeeper but still a controlling force, but that’s another story).  Follow some of the debate here, from a panel at the Mobile World Congress:  Telstra’s CTO get it; the GSM Association’s marketing chief doesn’t.  The die is cast and the only way to move forward is to give consumers more of what they want.  Access to more innovative services on their phone.

This is exciting for consumers.  Imagine a world where you can sign up for carrier internet access, but then choose the way you want voice services are delivered. It’s coming.  Innovative companies like Skype and services like Google Voice have shown us what is possible.

This is not neccessarily bad for the carriers.  Being the access point to a fast internet is important and requires capital and operational excellence that needs to be rewarded.  It also gives them the obvious first entry point in order to sell additional services to consumers.  But if they want to win those consumers over, they need to innovate or partner with nimble smaller companies (By the way the answer for carriers does not lie in the recent announcement of a wholesale app store, which is simply a pipe dream).  Consumer demand it and are willing to pay for it.  Carriers can also benefit from additional revenue sharing from companies like Google that know how to monetize search and can kick some of that revenue back to carriers (that’s a nice enticement to work with Android).  Or they may decided to spread their bets on multiple ecosystems because Google is already too dominant.

Finally, this trend is promising for innovative young companies.  We funded a couple of mobile companies in the past that had to sell through the carriers.  One, Mobile365, was very successful and is now a large division of Sybase, who bought it.  But at any point in time, its future was highly dependant on the whims of the carriers doing business with it.  An open mobile network levels the playing field and allows the best companies to win because they are chosen but consumers directly.  I think Skype is an exciting company to watch.  They have a chance of becoming the global voice services provider, a sort of 21st century global Ma Bell.