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Invest in Something You Can Control

March 10th, 2010 by Nathaniel

Part of the beauty of angel investing is the idea that you’re investing in a person or idea that you can speak to, see, and interact with.

This as opposed to dumping your hard-earned cash into stocks, bonds, or mutual funds.

Investing in a company as an angel is an intimate affair. You commit only after a thorough due diligence process evaluating the potential success of the idea.  You evaluate the talent and drive of the founding team.  It’s about people, and the company comes to hold a special place in your heart.

Traditional investments like stocks?  They’re just a ticker symbol in a chart, affected by powers far-removed from your own.

Right?  Isn’t one of the best things about angel investing that you get to participate in how well your investment turns out?

It’s Not Just Your Money They Need
My ideal vision of an angel deal incorporates something much more than money.  Forget about being a “passive investor”.  That’s just as boring as a mutual fund.

When you put your money into a company, hopefully it’s partly because you feel it can benefit from your experiences in business.  So you’ve grown 2 online companies through strong search marketing and sold them?  That’s awesome, and you should be finding companies that can benefit from that experience.

Of course you’re not necessarily going to come in and be the CMO.  But the 1 email per week you can give your entrepreneur could be worth $100,000 to the bottom line.  The one answer per week that you can provide about a tough marketing decision could make all the difference in the world.

Go With What You Know
It’s only natural for people to be drawn to things they understand.  In angel investing, that means you’ll likely gravitate towards companies that mirror your own past experiences.

That’s a good thing!  Take your money and your advice to places where it’s mostly likely to be useful.  I’m not about to invest in a pharmaceutical manufacturer, but I’ll jump all over sleepapnea.com.

Remember – You Can Contribute
The “passive” angel investor annoys me, especially if he/she bemoans the poor performance of their investments.  If it’s your Energizer stock, that’s one thing.  If it’s the $50,000 you put in 2 angel deals in 2008, well do something about it. I’m sure your entrepreneurs are open to ideas, help, connections, and insights.  Get dirty!

(If they aren’t, sorry.  Probably shouldn’t have invested to begin with.)

Takeaway
A big reason we coined “growth partner” is because angel investing is the perfect opportunity to actively invest.  Embrace the opportunity to solidify your investment, and get dirty with your entrepreneurs.

Photo: Birdsmack

In Business, There are No Maps

March 4th, 2010 by Nathaniel

I read an article from the 37signals blog entitled “There’s No Room for the Idea Guy (in a Startup)” today, that stated:

The truth is that most everyone has plenty of ideas that could work out to be great businesses.

The title threw me off a little (and I won’t debate it here), but I couldn’t agree more with the idea that almost everyone is full of viable business ideas.

I also think most of those people are waiting around for someone to show them how to execute their idea.

Where’s the roadmap?

So You’ve Got Ideas . . .
Every group of people I’ve been around since childhood has discussed grand plans for business.  From candy in the lunchroom to the internet era notions of blogs or UGC (and we’ll wrap ads around it!) . . . the ideas are plentiful.

Easy to come up with ideas.  Hard to decide which ones to give attention to.  Even harder to give them an honest try.

Why is that?  Why is it so rare that a person or a small team can take a novel idea and make a run at it?

Besides the typical fear and anxiety, it’s a reliance on being shown what to do.

Trained to say “Show-Me”
In Seth Godin’s Linchpin, he talks about how our education-to-job system is broken.  We train people from a young age to take in information, spit it out on a test, and move on.  We train them to sit in their chairs and do what the teacher says.  It creates worker bees ready for instructions.

Worker bees are necessary for many things, but starting a new business is going to take a level of execution that creeps into the unknown.

Embrace it!  Have confidence in yourself to make smart moves.  The intimidation factor is high for many people in taking an idea and putting it to work in the real world.  The distance seems much greater than it really is.

You should remember that every other entrepreneur who put his balls on the line for an idea knew just as little as you do right now about what the future may hold.  You’ll make mistakes, but at least you’ll make something.  And no one’s going to show you the way to success.  YOU have to DO IT.

Cue up a little DIFN.

Otherwise your ideas will be nothing more than a rush of adrenaline, followed by decades of cubicle jockeying.  And do the rest of us a favor – return to your distractions.  The grown ups have business to do.

Takeaway
If you want to start a real business, there is no roadmap to follow.  None.  Make your own.

Images: Jasperdo and 5348 Franco

Entry/Exit Episode #1

March 2nd, 2010 by Brandon

Nathaniel and I are big fans of the audio format so we decided to create a podcast for Growth Partner, entitled “Entry/Exit.”  Each episode will talk about investing in companies or growing a business  (entry) and issues related to selling/leaving/etc. a current business (exit).

The show is going to be an informal round table discussion between Nathaniel, myself (Brandon), and oftentimes a guest or two.  Our first episode gives a little background on us and why we started Growth Partner and we chat a bit about valuing pay per click campaigns when selling a business.  Listen to the podcast below and follow along with the short summary under the player if you’d like.  Enjoy!

Listen Here:

 
Don’t have flash? Want to download? Click here.

What is Growth Partner?

  • Past companies
  • Why is this show called Entry/Exit?
  • What is an ideal partnership?
  • Why we’re NOT consultants
  • Angel investing + online marketing
  • Our investment range
  • We’re active partners not passive investors
  • Anatomy of our first deal with Soccer Pro
  • Exits aren’t necessary the goal
  • We’re not building a “portfolio”
  • Refer someone for some $
  • We want to meet you!

Valuing a PPC Campaign in an Exit

  • Organic traffic always has more inherent value
  • Organic = marketing annuity
  • Step ahead of the competition
  • Social media campaign value
  • Defensibility of social media
  • Can’t just “turn off the faucet” on social media

Selling a Website for Under $100k

February 24th, 2010 by Brandon

The Definitive Guide to Selling a Website is a series outlining the ins and outs of taking a web business or established website ‘to market’.  We’ll show you how to take the proper steps to make a lot of money.

dolla bills

What is the low end?
Anything under $100,000 is a pretty small deal in the grand scheme of things. At this level, you’re not likely to need tons of lawyers pounding out purchase agreements (try something like this instead), nor will you need to spend months bickering on every detail. Often times, buyers and sellers can agree to a deal and do a simple transfer via Escrow.com. This size of deal is sometimes just a domain or a site with no revenue.

Pricing theory
There’s a lot of volatility in lower end website purchases. Revenue is obviously low and tends to be concentrated–coming from a single, potentially unreliable, program like Google’s AdSense. Another issue at this level is accounting related. Most webmasters report profit as simply Revenue – Expenses but don’t include their own labor as an expense. This is a pretty common problem and definitely an issue. Adjusted net profit numbers for small websites can change significantly when accounting for labor–even at a low hourly rate.

Multiples
Predictably, websites in the low end usually sell for a pretty low multiple. Generally, one year revenue or up two 2x net profit would be a pretty reasonable price. This sounds low to many but the problem is the fact that there’s so much uncertainty at this level. Generally, sites for sale under $100,000 aren’t even a real business–they are simply part of something bigger or a sideline for someone. Unsustainable revenues with a relatively short history also come into play here.

Where to sell
The biggest marketplace to buy or sell sites under 100 Grand is Flippa. Be forewarned, the quality of websites for sale on Flippa is all over the place. Some websites are a complete scam and others posted are legit–do strict diligence before transferring any $$$ for a site for sale on Flippa. Beyond that, try business for sale marketplaces like BizQuest and BizBuySell. These sites target pricier listings but due to the mobility of an internet business, websites are likely to generate a lot of interest from people across the country (or world) even with smaller selling prices.

Who might buy your site?
There aren’t many “strategic buyers” looking at this level. A strategic buyer is someone in a related business that acquires you website because of what it can bring to their core business. If you’ve built a solid niche site such as a tool that’s relevant to an ecommerce site or something similar, you might be able to approach some people directly.  You would most likely sell your site to another individual (as opposed to a larger company) who probably operates a network of sites for a living/sideline.

Creative Commons photo courtesy of amagill.

The Definitive Guide to Selling a Website

February 19th, 2010 by Brandon

The Definitive Guide to Selling a Website is a series outlining the ins and outs of taking a web business or established website ‘to market’.  We’ll show you how to take the proper steps to make a lot of money.

C.R.E.A.M.


One of the most exciting parts of being an entrepreneur is an EXIT a.k.a. a liquidity event.

Liquidity event = selling all or a piece of your business.

Selling a business is a common path to individual wealth. (There are other terms for “selling”, i.e. refinancing, selling partial ownership, and so on. These all fall under the category of a liquidity event.)

Many people say real estate is where the wealthy keep their net worth… well, selling a business is where they earned that net worth.

Selling Your Website or Web Business
Selling your website may not necessarily make you a millionaire, but a liquid six-figures or more sure sounds like a nice shot in the arm, eh?

Especially if your website is a sideline to a day job, that amount of money could allow you to become self sufficient and work on growing businesses that you own, day in and day out.

The sale itself isn’t making you rich in many cases, but it’s sure affording you the opportunity to have a better shot than most!

Our Experience
From our experience, there are a few categories of internet business sales. We’re not VC-backed, Silicon Valley hippies, we’re just a group of hard working entrepreneurial marketers that build real businesses on the web. We’ve had 2 successful exits and created many more sustainable businesses online.

That’s where we’re coming from.

On that note, our numbers may reflect “regular Joe” dollars. The fact is – the vast majority of internet businesses are sold in the sub-$5,000,000 range and this area is really our sweet spot.

Here’s the deal sizes we’ve had experience with and I’ll delve into more deeply in this series over the coming weeks:

Low End – Sub $100,000
Middle Market – $100,000-$2,000,000
“Big Deal” – Over $2,000,000

This represents our experiences and what we’ve learned over the years. It is NOT necessarily representative of anyone else’s experiences.

Investing in People is the Game We Play

February 15th, 2010 by Nathaniel

An age-old adage from investors and entrepreneurs is they’ll always take an “A-quality person with a B-quality idea”, and not the other way around.

This means I’ll happily invest in a person or team I believe can produce a successful business.  The business idea itself?  Less important.

Because whether you realize it or not, business is all about things like execution and the ability to adapt to change.  Not a phantasm that solves the world’s problems like a lightning bolt.

Bad Investments
Ask most angels about their mistakes and the answer is usually people-centric.   They lament investing in the wrong person, not the wrong idea.

Look at these key characteristics of a successful business relationship.  Each is tantamount to a profitable and enjoyable experience, long before any dollar is made or lost.

Trust.  Communication.  Leadership.  Determination. These plus the aforementioned Execution and Ability to Change are what make a business successful over time.

As an investor, you want the opposite of the guy who’s chasing a lifestyle business.  You want the most determined business leader you can find to lead your investment to the promised land of a 10x exit.

Why Does the Idea take a Backseat?
Because most businesses start off doing one thing, only later to figure out what really works.

It’s more about talent, determination, and adaptability to change than the million-dollar idea.  Everyone knows this by now.

Personal Investment Contracts
One cool concept that exemplifies this point in the extreme is a ‘Personal Investment Contract”.  Compliments of Rafe Furst and EmergentFool, a PIC is when an investor offers a cash payment to a promising individual in return for a % return on their individual income in subsequent years.

In English (and in Rafe’s example), they gave $300,000 to a promising young mind in a lump sum payment.  In return, this budding star has to forfeit 3% of their income each year so long as the contract remains in place.  Read more about it here.

What’s crazy is I almost like this concept better than a traditional angel deal or investment.  It doesn’t have a single pesky business idea getting in the way.

Our Success has Come from People
When I look back on the past 8 years of businesses I’ve been a part of, here’s what I see:

-Innumerable Ideas.
-Many failures.
-A few successes.
-1 team.

The very reason that we’ve been able to do “growth partnerships” and other investments is because we have a team of people that exemplify the traits I listed above in bold.  (It’s also why you should team up with us!)

Takeaway
As an investor, look past the idea, and see only the people behind it.  That’s what you’re after.

(pic from Cybernet)

“Showmanship” Can Increase Your Chances of Getting Funded

February 3rd, 2010 by Nathaniel

Want to get funded?  You might consider hiring Lady Gaga to sing your pitches.

Ma-Ma-Monah-Ma, Fund Me, Oh La La.

Don’t Be Boring
Startups and other entrepreneurs in search of funding have a tall task in convincing investors to take a chance on their ideas.  Your ability to be a good salesman in your pitch is very important, so don’t be boring.

Lulling well-fed money men to sleep with a boring PowerPoint and meek personality will kill your dream.

Proof you want?  I got me some proof.

geodelic demoGeodelic Wins Twiistup
Last week I was in Los Angeles for Twiistup, a tech investor and startup event.  (Fun times by the way.)

On Thursday morning, 10 or so companies took the stage and pitched their startup to the panel and audience.  While all the presentations featured generally well-spoken and passionate folks, one company took it to the max.

That company was Geodelic, a location service that lets you locate eateries, drinkeries, and other “around you” things.  They also have a sweet deal with airports watching departure times and showing terminal amenities.  View the demo here.

When it was their turn to take the stage, the CEO, who is Indian, took the stage with a ukulele.  He queued up some gaudy pink slides and started talking in corporate speak using a heavy Indian accent.  The collective thought was “This has to be a joke”.

It was.  He had 2 other Geodelic team members placed in the crowd, and they shouted out some taunts- “We can’t understand what you’re saying!”.

On point, he quickly pulled out the ukelele and began singing.  Then a girl danced to “Everybody dance now”.

The Geodelic slides simultaneously flipped from the gaudy pink stuff to a video demo of their technology in action – very fast-paced and demonstrative (something befitting of the attention span of people in 2010).

And surprise, surprise – They won the event.

geodelic twiistup

The Takeaway
Geodelic got people on the edge of their seats, played to our senses, and put on a show.  

While they have a great product, everyone at the event admitted it was the way they nailed the presentation that pushed them to victory at Twiistup.

While I haven’t been an angel investor long, I suggest putting some serious thought and creativity into how you pitch investors.  If nothing else, a good “preso” makes it harder to dismiss your idea.

You can save time if you hire Gaga.  Oh La La.

Flat-Fee Consultants Give You Flat Results

January 28th, 2010 by Brandon

Many business owners have negative opinions of online marketing ‘consultants’ because they work in a flat-fee relationship.

It’s our opinion that businesses are much better off working with a team that is paid on performance only. Particularly through an equity stake or sharing of revenues.

Here’s Why

In many flat-fee consulting arrangements, it goes down like this:

You hire RealCoolSEO for $2,200/month. They come in and clean up some title tags, suggest re-doing your internal link structure, and queue up 25 blog links they use for every client.

This takes about 1 day of work. RealCoolSEO is on cruise control from here on out. A few reports per month, a few more blog links to keep your mind at ease. Just enough to keep that monthly check coming in.

The flat-fee consultant’s incentive is slim. The only way for them to make more money is to get more clients like you, which means their best people are off trying to get more clients. You’re working with the maintenance man. The day-to-day.

Any growth in revenues you see from this arrangement is going to flatline sooner or later.

Your Monthly “Fee” Should be $0

The best partners for your business don’t want money up front. The best partners have a vested interest in your growth. Only when you get paid, should they get paid.

Only then will they take an active interest in your business.

A successful online marketing campaign requires constant attention to connect a service to a customer.

You want links? Constant. Branding? Constant. Conversion optimization? Constant testing. Email marketing?

This is not a “set it and forget it” world, no matter how much the ease of the internet makes it appear so.

The best ‘consultants’ understand this. They will dig into your Facebook account and see how your customers talk. They will sit in on Board meetings and learn every aspect of how your business functions.
Takeaway

Forget about paying a monthly fee. Start thinking about what % of 10x in revenues you’d be willing to share with the right partner to make it happen.

yis.is! Your Internet Startup is Stupid

January 27th, 2010 by Nathaniel

Ninety percent of internet startups fail within 4 months of their founding. And you want funding?

Count me among the angel investors who’d like to see a better return.

Where did all the real businesses go?

You want to know a surefire way to make money online? Take a traditional business, one that already works. It has customers and provides a needed service.

Now, take that business online. Use the internet as a means of communication and/or commerce to connect to a greater number of customers with greater efficiency.

Zippy startup and FNaw.sm need not apply.

The more ‘boring’ the better

I’m tired of reading all the crap hype that comes out of Silicon Valley, LA, and Seattle about lean tech startups with a new web idea.

You can integrate all my social network profiles into one place? So can the last 8 presenters. Shouldn’t you guys have called each other first?

You need to get more boring. Seriously. Everyone that runs in these circles spends all their time online, in real-time, following every tweet and TechCrunch article like it’s going to unveil the next great thing.

STOP. Go read some obscure industry publication that only comes in (gasp!) print. I know I am.

Hot? Hot?
The businesses that intrigue me have a real product, like Yurbuds. Maybe they manufacture their own skin care products, like SkinCareRX.

Annuities. Snowblowers. Or how about one that takes old oil drums and repackages them for resale. I’m seeing dollar signs all day.

Two Reasons Why

1. It’s a much safer bet to take something traditional like that and make the magic of online marketing work for you, than to chase the trends.

I have a lot of ‘internet friends’ who’ve made millions online, with blogs or affiliate marketing or lead gen. Also, everyone knows the stories of Google, YouTube, Twitter, et al. They’ve all emerged as revolutionary web properties, and some have made money ☺.

It seems the dime-a-dozen web startups are chasing that same dream.

Do you know how much money banks make? Insurance companies? Bed spring manufacturers?

It’s insane. But here’s the real treat – you can be the 121st largest insurance company in the U.S., but if you have a niche online that fuels your biz, you’ll make millions online. Wouldn’t that just bore you to death?

You never hear the stories of the millions of bloggers who make $.02/month, or the ho-hums of startups gone bad. Which reminds me . . .

2. 90 percent of internet startups fail within 4 months.

Takeaway
I’m ready to invest. I just want it to be boring.

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