Alan Patricof is one of the country’s most important venture capitalists and angel investors. He founded the VC fund Patricof & Co. in 1969, which has gone on to become 300-person Apax Partners, one of the world’s largest private equity investors. Three years ago, returning to his roots, he founded Greycroft Partners, an early stage $75 million fund focusing on technology startups (and an Angelsoft user). Throughout this time he has also been an angel investor with his own funds, and continues as an active member of New York Angels. In light of the gyrations in the world’s capital markets, and particularly a Doomsday meeting that Sequoia Capital was reported to have had recently with their portfolio companies, Alan felt it important to put things into perspective.

Here is the full text of a statement that he issued this week, addressed to early stage companies and the investors who fund them:

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“The comments made by the partners of Sequoia Capital at their recently held ‘CEO Summit’ have been widely covered by leaks to numerous bloggers. These bloggers have disseminated the details and spread the contagion of the sentiments to the public at large, unfortunately running the risk that the words become a self-fulfilling prophesy. Without challenging the comments, which expressed a heightened degree of doom and gloom for the economic prospects of young start-up companies particularly, I do think it calls for a somewhat more restrained response on the outlook and required action before throwing the baby out with the bath water. Certainly, we are going through a period of enormous economic and political uncertainty. The loss of confidence, primarily in our financial system, as a result of the excess of the past five to ten years (if not longer - we may never know how long some of the flawed practices have been going on) is one of the leading contributors. We are also at the moment looking for leadership on the political front, and both because of very low public support for the President and because we are in the midst of a heated election for his successor, we have no real voice of authority to provide some guidance, reassurance, and inspirational confidence that the bus has a driver who knows where he is going.

Nevertheless, aside from an over-inflated housing boom that had to collapse sooner or later and a complicated financial system that arose in part to fuel this engine, the basic economy was in reasonable shape, with GNP growth and productivity gains supporting a solid, if not vibrant outlook (I know the automotive industry is also going through bad times but it no longer pervades the economy as once conveyed in the expression, “As GM goes, so goes the nation.”)

Advances in technology are allowing companies to make goods and provide services faster and cheaper. The wireless revolution and the Internet have made the dissemination of information easier and more pervasive for the entire world and brought significant benefits to every phase of our economy. That is not going to stop, although it may temporarily slow down. In these difficult times, there will be winners as well as losers (and the former may be fewer in number for a while).

The point is, the financial problems are being addressed, if not a bit belatedly, and some international mechanism will be found in short order for some coordinated policy that will restore order and confidence to the system.

Most young companies, with which we are specifically concerned, are financed with equity capital. That has its positives and negatives; on the one hand, debt is a very small factor in the capital structure of most small companies so loan foreclosures and the interest rate burden are not of prime concern. On the other hand, equity capital, which is provided by private investors, requires confidence in future prospects for reaching profitability and creating a strong market value. Certainly under current conditions it is hard to engender such confidence although history has demonstrated that it is in times like these that great opportunities are created. I have always said, “The best time to invest is when the drums are beating, not when the trumpets are blaring!”

This is surely a time for companies to pay meticulous attention to detail, particularly their cost structure. It is a time to be realistic in their near-term assumptions for revenue growth and take nothing for granted. Raising additional capital to support operations is of course critical, as it is at any time, but this is particularly a time for young companies to be extra cautious in developing pragmatic assumptions of their needs and in focusing on the amount and not necessarily the cost of that capital.

This is not a time to panic, cut off all investment in the future, and burrow into a dark hole. Take a page from the packaged goods industry that the time to gain market share is during tough times when your competitors are weaker in responding. And while this may feel more directly related to portfolio companies, we as a venture industry should not retreat either. It is our strong belief that we can and will continue to make sound investments in excellent opportunities. It is as good a time as ever to start a company with sound fundamentals.

So my point is to heed the caution of the Sequoia comments but to use them only as a strong message to reexamine all cost elements and growth plans and use this opportunity to assure that you are a survivor. Find a way to use this moment to gain your greater share of the market by providing a solution that is needed by others to improve their prospects in the difficult environment ahead. Tighten your belt and live within your means. Although the timing makes this message seem more prescient, it is a philosophy that works for successful companies at all times and at all stages; it is simply put, good business. This is not a time for heroes!”

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Here is a Red Herring interview with Alan from last year, explaining why he has such faith in the early stage technology community.

David S. Rose :: Oct.13.2008 :: Angel Investor, Entrepreneur, Industry Stats, Investor Community, Investors, Tips, VC :: Comments

Angelsoft is NOT a matching site. The main difference between Angelsoft and the myriad of “matching sites” on the internet is that Angelsoft is at its core a deal-flow management tool used by investment organizations every day to do deals - their private deal flow. When you apply to the Investment Community, you are placing your plan directly into a directory in the software that is accessible to all 12,000+ investors. The investment organizations can then click a single button and pull your deal directly into the fold of all of the other deals that they are working on in their pipeline.

But all of these on-line funding exchanges and matching sites claim to bring me to investors, too!

Because 600,000 companies are year are founded in the United States alone and many of them seek outside funding, there are many, many web sites that take aim at this lucrative market and purport to introduce entrepreneurs to investors. The sad fact, however, is that while it’s very easy for a site to sign up thousands of entrepreneurs (who want the money), it’s virtually impossible for them to sign up investors (who have the money.) That’s why none of these sites can legitimately point to their track record for getting entrepreneurs funded (despite any claims to the contrary). Instead, they make their money in one of three ways: selling you as a lead to service providers, selling advertising against your page views as you chat with other entrepreneurs, or charging you listing fees and then up-selling and re-selling you when you don’t get funded.

In contrast, Angelsoft started at the other end. Because it is the unbiased, internal platform used by investment groups, Angelsoft started with the investors. We have formed personal relationships with the general managers of each angel group and venture fund that uses our platform. We know them by name, and speak to them regularly. Their feedback has allowed us to build a system that manages over 2,700 new submissions a month from entrepreneurs and receives many thousands of logins each week from accredited investors (you can see the live statistics for yourself, at http://www.angelsoft.net/industry).

Now, with the Angelsoft Investor Community, you can post your business information in one place, and let investors find you, because they are interested in your company. This is better for you, and better for them. Angelsoft’s corporate mission statement is “more smart money into more good deals”.

Is Angelsoft’s Investor Community appropriate for any kind of investment opportunity?

No. It really isn’t. All those myriad other sites will tell you whatever you want to hear, and hope that you’ll sign up with them, because they are based simply on quantity. In our case, since our primary constituency is the investors, it doesn’t do us—or them—any good to have them wade through hundreds of deals that no one would ever fund. Therefore, this is not the right place for multi-level marketing deals, work-at-home businesses, real estate investment opportunities, film financing deals, local service businesses, franchise opportunities, or other similar lifestyle or financial investment ventures. There is nothing wrong with any of these, it is simply that they are not the types of businesses that have traditionally received funding from angel investors or venture capital firms.

Instead, the kind of businesses that serious angels and VCs seek to invest in tend to have the following characteristics: relatively low capital needs; high scalability; strong management; a unique selling point; a clear potential exit for cash within 5-7 years; and above all, a complete, well-thought-out business plan.

Mark I LaRosa :: Oct.10.2008 :: Angel Group Manager, Angel Investor, Angelsoft 3.0, Entrepreneur, Investor Community, Startup, VC :: Comments

When we launched Angelsoft 3.0 at the beginning of September, there was a lot of talk about our new homepage. Hank Williams said our dynamic map of live VC and Angel Investors activity was one of the coolest homepages he’s ever seen. Fred Wilson commented on the value of our homepage, particularly the Angel Investor industry stats.

For entrepreneurs, displaying traction to both investors and customers is a key component to success. User numbers are important, but displaying engagement will drive funding and sign-ups.

We feel that the Angelsoft activity map is great way to show transparency into our worldwide network. Not only does it give users an idea of the scale of Angelsoft, it displays how active that network is.

Facebook recently re-launched their website and it looks like they are thinking along the same lines. Their map isn’t dynamic, but i wouldn’t be surprised if that changes soon.

Jason D. Schwartz :: Oct.03.2008 :: Angelsoft 3.0, Entrepreneur, Startup :: Comments

I recently watched August, an indie film about the last month of an IPO’d startup during the bubble burst in 2001. The movie isn’t very good, but at the same time a humorous look at the first bubble for anyone in early-stage capital or the Internet industry.

The best scene is when Josh Hartnett, CEO of Landshark.com, pitches his business. In hilariously vague and dated terms he describes his business as “E. Pure E. Not ‘e-commerce.’ Not ‘e-business.’ Not ‘click-and-mortar,’ dear God, please not that … You want ‘E.’ Pure ‘E.’ Not old, not tired, not stepped on. Not a gram of ‘E’ and 10 grams of baby laxative. ‘E.”

Watch the entire scene here.

The viewer never gets a better explanation as to what Landshark.com does. As bad as this pitch is, it’s better than what we see from many entrepreneurs. Hartnett is vague, but at least he’s interesting.

Landshark, like many of the initial dot-coms, didn’t have a clear value proposition and it ultimately fails (spoiler). Entrepreneurs haven’t improved much in this department during bubble 2.0, the investors just lowered their expectations.

In addition to vague value proportions, many entrepreneurs are terrible at describing their companies. Hartnett is great at pitching to guys that are too worried about missing out on something to question him. The investors and customers have learned since ‘01, and entrepreneurs have to be able to describe what it is they do.

The first major field on the Angelsoft application is the One Line Pitch, and it’s probably the most important. When an investor browses deals they see the company name, if it has a video, and the one line pitch. This is the one-shot to get an investor to click-through and read the full application. It’s 150 characters, 10 more than a Tweet. Entrepreneurs get another 450 characters (3.2 tweets) to summarize their businesses for the investors that click-through. If they record a video, they have a lot more time to describe their business.

After looking at many deals, especially ones without video, I have no idea what the company does. The problem is one of the two described above. Either the company has no clear value proposition, or the entrepreneur isn’t doing a good job at explaining it. If you are an entrepreneur wondering why you aren’t hearing back from investors, one of these two factors may be the problem.

Jason D. Schwartz :: Oct.01.2008 :: Entrepreneur, Startup :: Comments

The BootStrapper Summit is a Startup Showcase & Investor Conference for the East Coast PE/VC Community. It will feature 15 vetted companies, across 5 tracks (Seed Spotlight, Digital Media, Mobile & Telecom, Enterprise, Cool Concepts) and will be open to 100 investors.

All 15 companies have filled out Angelsoft applications, which will be available online for the attending investors to pull into their own Angelsoft accounts for further review.

Jason D. Schwartz :: Sep.25.2008 :: Endorsements, Entrepreneur, Investors, Startup :: Comments

After watching the video of my “How to Pitch a VC” presentation at the TED conference, Garr Reynolds, who writes PresentationZen (the name of both the most influential presentation blog on the web, and also the best book ever written on presentation design) asked if I would mind if he created a summary slide show of my top tips that he could use with his students. Mind? I was delighted! So here’s the really, really short crib note version of my pitch training sessions. The first list are the personal qualities in YOU that an investor looks for; the next set are the inside tips that will make your presentation come across as uber-professional. Good luck with your pitch!

David S. Rose :: Sep.24.2008 :: Entrepreneur, HowTo, Resources, Startup, Tutorials, VC :: Comments

In a recent post on TheFunded.com by a local entrepreneur, ACA Chairman and Ohio TechAngels Founding Member John Huston is called:

“the most respected and best speaker about entrepreneurship in Ohio.”

He reveals some helpful hints from Huston for entrepreneurs:

“Forget the word ‘IPO!’”

“Learn to compromise!”

and encourages anyone who has the opportunity to hear John speak to do so.

Entrepreneurs can read the entire post here.

I also ask other investors to chime in and offer your own advice in the comments section below.

John and the Ohio TechAngels are recent converts to Angelsoft and have a stated goal of “being known as the most creative/complete user in your stable!”

John, we and the other 400+ groups on the system will consider the gauntlet thrown down!

Entrepreneurs can apply to the Ohio TechAngels here.

About John:

John O. Huston, Principal, USPrivateCompanies, LLC – During his 30-year banking career, Mr. Huston held positions ranging from Chief Lending/Chief Credit Officer to CEO at five banks in five states. Since retiring from banking in 2000, he has been an advisor, conduit, columnist and frequent speaker in his area of expertise…..optimizing a private company’s capital structure. An active business angel, he provides equity to entrepreneurs through his investment company, USPrivateCompanies, LLC. Mr. Huston was also pivotal in the formation of the Ohio TechAngel Fund and has been passionately engaged in the on-going success of the Fund.

Mr. Huston was one of seven Ohioans appointed by Governor Taft to the Ohio Venture Capital Authority, whose mission is to make professionally managed early stage capital more readily available to the state’s entrepreneurs. He has also taught Finance at The Ohio State University’s Fisher College of Business, and is a frequent judge for business plan competitions at Ohio’s colleges and universities. In addition to serving on several Advisory Boards for his portfolio companies, Mr. Huston is an active member of The Ohio Venture Association, BioOhio, the Columbus Technology Council, and the Angel Capital Association (“The Professional Alliance of Angel Groups”).

Matt Rosen :: Sep.22.2008 :: Angel Group Manager, Entrepreneur, Investors :: Comments

Mark LaRosa and I recently attended the Ohio Early Stage Summit in Columbus and were thoroughly impressed at the progress being made to make Ohio one of the premier places to do business. The efforts by the State over the past few years to develop and foster an environment ripe for entrepreneurship and investment should be a model for others to follow.

They have a plan, and they’re putting it into action.

Lt. Governor Lee Fisher kicked of the summit with a rousing speech that provided an overview of the various programs and incentives available to both entrepreneurs and investors. Based on the initial results, Ohio is doing a lot right and there is no shortage of enthusiasm to keep that momentum going.

The pieces are all in place. The next challenge Ohio faces, say Fisher and many others, is GETTING THE STORY OUT THERE!

I say they should play up the “Cleveland Rocks” angle…and Cincy, and Akron, and Columbus, and…

For more, click here to read a recent Op-Ed piece from the Wall Street Journal by Fisher and Governor Ted Strickland asking people to take a “look under Ohio’s hood” and see how “its engine is being redesigned and retooled in ways that offer important lessons on how to make an economy more competitive in a global marketplace.”

Keep up the good work, Buckeyes, and thanks to Paul Cohn and The Ohio Capital Fund for putting on such a great event.

Matt Rosen :: Sep.22.2008 :: Angel Investor, Entrepreneur, Events, Investors :: Comments

In the early days of New York Angels, we noticed what appeared to be an anomaly in our operations. We had quickly established a good incoming flow of deals, and had followed that up with an effective screening process, but we found that we were actually funding a much smaller percentage of the presenting companies than we had expected. What was particularly puzzling was that we KNEW these were likely fundable companies, because we had spent over half an hour with them around a table during the screening session, and only picked the very best ones (typically the top 10%) to present to our whole group. But after hearing the fifteen minute pitches during our monthly meeting, our full membership just didn’t get excited enough to put their money to work. A puzzlement. We eventually figured out the problem: the companies were great, but the pitches were awful!

That was when we instituted mandatory pitch coaching for every single company that was selected to present to our membership. The result? Our investment rate more than DOUBLED, and we have funded over $35 million into more than 50 companies during the past six years. In that time, I have handled most of the coaching duties on behalf of the group, and have gotten pretty good at helping entrepreneurs refine their Powerpoint presentations to meet the need of their target audience: early stage investors. Word began to spread about these sessions, and soon BusinessWeek came by to do a story about them, giving me the moniker of The Pitch Coach. The next thing I knew, there seemed to be even more demand for presentation training than there was for my investment dollars!

These days, I spend quite a bit of my time teaching entrepreneurs how to clearly and persuasively get their message across. Most of this happens for New York Angels, at business schools like Yale, Columbia or NYU, or for institutions like the National Science Foundation. However a couple of years ago Chris Anderson, the Curator of the renowned TED conference (and a fellow New York Angel member) asked if I would do a session during the “TED University” event before the main conference. I agreed, but wondered how I would be able to compress what is usually an hour long presentation into the allotted 12 minutes. The answer? Talk faster! [grin] So, with the compliments of TED.com, here is The Pitch Coach, in the super-express-version of “How to Pitch an Angel (or VC)”. I hope you find it useful! (The ‘expand’ button in the corner will bring up a full-screen version.)

David S. Rose :: Sep.21.2008 :: Entrepreneur, HowTo, Startup, Tips, Tutorials, University, VC :: Comments

Howard Anderson, co-founder of Battery Ventures, makes a great case against having your startup in Silicon Valley.

He lists his 5 reasons for not being in silicon valley, or leaving it:

1) The weather is too nice in the Bay Area
2) Recruiting is tough
3) Its too crowded with startups
4) The valley is very “exit” focused
5) Easier access to academics outside the valley

Since Angelsoft is based in NYC and heavily involved in the venture community, I think we’ve been dealing with that question for a while. Despite the pull of the Valley we’ve managed to get by the past couple years without having a full time presence out there.

That changed recently as we started to get more interest from the VCs, and now I’m stationed in the Bay Area. I can definitely report that its very crowded and its tough to stick out. It makes me appreciate the New York startup scene for being close knit and easily accessble.

Feel free to share you ideas about startup communities outside of the NYC and the Bay Area.

Evan Bartlett :: Sep.19.2008 :: Entrepreneur :: Comments