Today the community turned out in number to celebrate the grand opening of Montessori Children's House of Valley Forge new school.  This grand opening is the culmination over a decade of work from the community, parent, national park system and our elected leaders.  The school is the first of its kind set in a National Park.  Designed for ages 2 through kindergarden this school offers not only an excellent opportunity for its students but an example of what communities can do when they work together to invest in the future.

A special thanks to Congressman Gerlach, Congressional Candidate Pat Meehan, Commissioner Farrell and State Rep Candidate Ken Buckwalter coming today and showing their support. 

How to Win the Hearts of Investors

To me investing in early stage entrepreneurs is kind of like dating with the hopes of finding the girl you are going to marry.  Like a marriage, there is no turning back once you put money into a deal and while it can be very rewarding, it also requires a long-term commitment of working with the person you invest in.

Like my dating philosophy (when I was younger of course) my goal is to 1) Take a quick look at as many options as manageable 2) Spend time with the options that catch my eye 3) Marry the investment that win my heart.

So how do you win mine and other angel investors’ hearts?  Friday I closed a seed round, alongside Gabriel Weinberg and a handful of other investors, which clearly demonstrates what I and other angel investors are looking to marry.

The company is a modern Indian dating site called myZamana.  It was founded by Ashish Kundra.  I fell in love with myZamana because of the entrepreneur.  What I saw in Ashish was 1) someone who was adaptable, 2) approached entrepreneurship in a very methodical and calculated manner, 3) had a clear understanding of the core assumptions the business model and 4) of the right time to raise money

Adaptability – Too often entrepreneurs fall in love with an idea and due to human nature cannot let go of that idea.  However, rarely is an idea perfect from the start and sometimes it is just a bad idea. Ashish had originally founded a company called Mobibolt, which was funded by Launchbox Digital in 2008.  After leaving Launchbox Digital he raised a small amount of Angel funding. After several launches and multiple iterations on Mobibolt, however, he saw for himself that there was no path to success. Rather than running down a dead end, he chose to change course entirely and, with the support of the original investors, used the remainder of the money to build and test a new concept entirely. This open-mindedness and willingness to change paths is critical for successful entrepreneurs.

Methodology – More and more I am starting to see a difference in first time entrepreneurs that come out of the accelerators versus other first time entrepreneurs.  These accelerators force entrepreneurs to focus and attack entrepreneurship in a very methodical and unemotional way. In addition because they are surrounded by a dozen or so other companies that are doing the same thing, this process becomes human nature.  Over time it becomes like breathing. They do not even know they are doing it, but it is what is keeping them alive. 1) They test their ideas and look for customers and market feedback that is quantifiable. This allows entrepreneurs to remove themselves from their products and look at them objectively.  This is a key ingredient to good decision-making. 2) They tend to better understand the importance of maximizing their limited resources. Simply put, they learn not to waste money because the accelerators do not give them much money.  Ashish clearly was frugal. On top of his very modest personal standard of living, he prioritized his spending to effectively test his idea. To me this also shows commitment and a willingness to sacrifice in order to increase the likelihood of success.

Core Financial Assumptions – Ashish did not present a 20-page business plan.  He had a small pitch deck and more importantly, had a financial model that clearly defined the core assumptions of the financial model.  He had defined and understood each of these variables.  Just as importantly, he understood where he was and where he needed to be regarding these variables. This provided me confidence that he was focused and knew what he needed to do to be successful.  The alternative to this, which I usually get, is a P&L statement and hockey stick revenue forecast based on one or two customers (if any).  More importantly, the key variables are usually buried in the model and I cannot tell what is important and what is not.  Which means I assume the entrepreneur cannot tell what is important and not.  With Ashish, I asked him, what if you only reach a conversion rate of X. With one keystroke he knew the impact.

Timing – Ashish did not go out and raise money as soon as he developed the idea.  He waited.  He validated his core assumptions--not completely--but with enough certainty that he reduced the risk of the business dramatically, which meant less risk for investors.  Less risk for investors leads to high valuation, which leads to more ownership for the founders.  Good entrepreneurs maximize their own returns by raising money at the right time.  I respect this understanding and am more willing to invest when I see this in entrepreneurs. 

Angel and Venture Capitalist often say they invest in entrepreneurs, not ideas.  This is confusing and little misleading to entrepreneurs.  What is really being said is that good entrepreneurs are adaptable, use a methodology and financial modeling to develop and perfect ideas and because of this process, these same entrepreneurs leave the bad ideas behind. Coupling this process with the right time to raise money maximizes the investors and entrepreneur’s returns. 

That is what makes investors fall in love.

Steve Welch

Entrepreneur & Angel Investor

Check on my new book on Entrepreneurship

Washington knows better than Entrepreneurs & Angel Investors

Angel investors and entrepreneurs are not Wall Street bankers.  This distinction is obvious to you and me, but apparently not to Washington. The new Senate Financial Reform Bill, which is likely to be voted on this week, lumps the two together as one group. If allowed to pass in its current form, this bill will destroy the way in which our society helps entrepreneurs turn their crazy innovative ideas into viable job creating businesses.

Angel investors are individuals that invest in early stage businesses that often consist of not much more than a folding table, a couple of computers and lofty aspirations. However, it is these early stage investors that often invest in companies five years or younger and help get high growth business off the ground.  Apple, Google, Facebook and a thousand other high growth businesses you have never heard of, all got their start because angel investors took a risk along side entrepreneurs.

It is these types of business that lead in both innovation and job creation.  In fact a recent Kauffman foundation study found that between 1980 and 2005 every single net new job created in the United States came from a company 5 years old or less.  It  is clear that one of the keys to job creation in our country is to ensure that early stage entrepreneurs have access to capital.  This is why many of our political leaders and candidates are trying to craft policies that support angel investors.  In fact, gubernatorial candidate Tom Corbett is proposing an angel tax credit for Pennsylvania angel investors.

With such clear understanding that entrepreneurs and angel investing are critical to economic growth and job creation, you would think our leaders in Washington would be doing everything possible to promote this type of bottom up economic development.  Unfortunately, we are seeing another example of top down Washington economic policy. 

In its current state, Senator Dodd’s Financial Reform Bill would make two sweeping changes to the way in which angel investors and entrepreneurs can operate.  First, the bill would redefine who would be qualified to be an angel investor.  Currently individuals with either $1 million in investable assets or $250,000 in income qualify as accredited investors.  The new bill would change this to individuals with $2.3 million in assets or $450,000 in income.  According to the Kauffman Foundation, this would eliminate 77% of accredited investors.  This single handedly would reduce the amount of capital available to early stage businesses and stunt our much needed job creation.

In addition, the new bill would require any company attempting to raise angel investment to seek SEC approval, which would take up to 4 months.  As an active angel investor myself, I can say with certain that companies in this stage can rarely wait four months for funding. They will simply be forced to close up shop. Yet again this is another example of government bureaucracies getting in the way of the thriving entrepreneurs that this country needs to unleash, not restrict.

Angel investors and entrepreneurs had absolutely nothing to do with the financial meltdown of 2008, and no one believes they pose a systemic risk, so why are they being lumped together with Wall Street Bankers?  Proponents of the bill say that Washington is trying to protect people from risky investments.  

Yes, angel investing is risky, and starting a business from scratch is even more risky.  However, it is this calculated risk taking that has allowed the United States to be the most innovative society in the world and has provided us a standard of living the world has never seen before.  If Washington insists on completely eliminating risk from the marketplace they will also eliminate entrepreneurship and innovation and this, in turn, will eliminate job creation in the process.

As a society we need to be looking for ways to increase capital to early stage businesses.  We need to be trying to find ways to lower the bureaucratic burdens place on our entrepreneurs.  The Financial Reform Bill goes against both of these principals, and punishes us all by restricting our entrepreneurial spirit as a society.

Steve Welch 

Entrepreneur & Angel Investor

Author of “We are all Born Entrepreneurs

Why SquareSpace Rocks!

I am not a techy.  I am mechanical engineer with a background in material science and its applications in the biotech industry.  My first company Mitos had nothing to do with the Internet.  We were a manufacturing company the build disposable systems for biotech companies.  I say this because since co-founding DreamIt Ventures people assume I am a software engineer.

The truth is this, I understand web and mobile applications well, but have not written a line of code since 9^th grade when it was C+.  I provide this background so that you can understand why I am so amazed with SquareSpace.

A couple of weeks ago a friend of mine put together a site for my new book, We are all Born Entrepreneurs, which is getting ready to release.  When I asked him to make some changes I could tell he was busy, and since I knew he put the site together in SquareSpace and I heard all the rave, I decided to try to make the changes myself. 

SquareSpace Rocks! I watched a 15 minutes video and I truly understand the base framework.  Over the last two hours I have revamped the site entirely.  SquareSpace has truly opened up the market for ordinary people to make very functional website that go beyond a static page.   Widgets are easy to tie in, form and data capture can be included with ease.  The value proposition is awesome.

I hope my friend will not be offended that I changed around his work.

Sorry Zeta - Washington Knows Best

It is hard to find a politician that does not talk about entrepreneurs and their importance to job creation.  However these are empty words when actions do not match.  

Today is a reminder that few in Washington have any idea of how businesses get started in this county.  Buried in the Dodd Financial Reform bill are two provisions that would harm Entrepreneurs by resulting in less funding going into early stage high growth companies, at a time when this is exactly what we need. 

If left in the Financial Reform Bill section 926 would;

1. 1) Require companies taking Angel Investments or certain types of Venture Investments to fill with the SEC.  Anyone who has had to work with the SEC will tell you this will be a time consuming and frustrating process.  Simply put this will be nothing but a burden on early stage companies.
2. 2) The provision will double the net worth required to be an accredited investor from one million to two million.  This will significantly reduce the amount of people that are legally allowed to be Angel Investors.

Now more than ever we need funding for early stage companies.  There is not a single person that has tied the financial collapse to Angel Investing.  Why then does the financial reform bill include these provisions?

Just yesterday myself and three other active Angel investors meet with a company  (we will call Zeta for demonstration purposes) that is in the process of raising $200k.  We are likely moving forward with the deal.  How would this legislation affect Zeta? 

First, Zeta is out of money.  Now they will have to spend money they do not have on legal fillings for the SEC.  At least the lawyers will get rich.

Second, they have done an outstanding job of bootstrapping the business, but just as it is starting to take off they need funding.  We are hoping to close within a month.  Under this legislation that would not happen.  Zeta would be required to receive approval from the SEC which they claim could take up to 120 days, but several individual I know that have gone through an IPO think it will actually be longer.  Sorry Zeta you will have to shut down.

Second, at least two of the Angel in this deal would not qualify as Angel and therefore would not be allowed to invest under the new legislation.  Sorry Zeta even about to cover the cost of filing with the SEC and if you are able to survive for the next 120 days you will only get half the capital you need to grow your business.

This policy is bad for entrepreneurs, investors, and anyone looking for a job!

Write you Senators and tell them section 926 does nothing but harm entrepreneurs.

To learn more about this policy checkout Kauffman Foundation. 

http://www.huffingtonpost.com/robert-e-litan/proposed-protections-for_b_511284.html

HITTING PRIME TIME: AN ENTREPRENEUR’S DREAM COME TRUE
Two young entrepreneurs landed appearance on ABC's Shark Tank after a summer with Philadelphia-based start-up accelerator DreamIt Ventures

PHILADELPHIA, PA – Sean Conway and DJ Stephan, founders of Notehall <www.notehall.com> lived every entrepreneur’s dream when they earned a full 22 minutes of airtime on ABC’s Shark Tank in the Fall of 2009, after spending the summer building their business with support from local start-up accelerator DreamIt Ventures (http://www.dreamitventures.com/).

ABC's Shark Tank is a show that pits entrepreneurs against seasoned investors, or “sharks,” in a no-holds-barred pitch session. Impress the sharks and you get an investment offer on the spot. Fail to impress and you face public embarrassment on national television.

Conway and Stephan had the opportunity to leave the show $90,000 richer, with an investment offer on the table from the real estate mogul Barbara Corcoran, one of the show’s sharks. They've since gone on to close a critical round of investment from other sources.

How an unlikely application turned into a TV appearance

Conway and Stephan never planned to be on TV. They were spending their summer at DreamIt Ventures, an intense three-month summer program that's been running in Philadelphia since 2007, which provides entrepreneurs with startup capital, mentorship, and a tight-knit community of top industry entrepreneurs.

Conway and Stephan credit the DreamIt summer program for refining their business model and the idea of a Notehall.com destination website. 

Originally, they had planned to have a different branded website with a different name for each school.  They also were challenged by the DreamIt partners to validate their assumptions, including their customer acquisition costs and expansion plan.

The DreamIt mentors also inspired them to try to make a big national splash and they were just waiting for the right opportunity. Then they heard about Shark Tank.

One of their peers in the DreamIt program, the founders of the ticket marketplace SeatGeek (www.seatgeek.com), told them that Shark Tank was accepting applications. On a lark, the Notehall team decided to apply.

“At first, all we had to do was send in a picture and a mission statement. It didn’t take long at all. Then we didn’t hear anything for weeks and pretty much forgot about it,” said Conway, Notehall’s CEO.

To their surprise, they received a 15-page application from the show, which made them think they might have a shot at making it.

But they didn’t want to get their hopes up or get distracted from their business. So they put their answers together quickly, including a video of them pitching their company. But the process still wasn’t over - they received a forty-page contract from the show even though they weren’t selected yet.

When came the big news that they were selected they hopped on a flight to L.A. just ten days later to film the show. It would be a full two months before their episode would air.

Two long months of waiting and preparing

Conway and Stephen had been a hit on the show, with three of the sharks fighting over the opportunity to invest in their company. Their segment was so intense and dramatic that ABC would decided to feature it in their ads and trailers for the episode.

But Conway and Stephan couldn’t talk about any of this, even with the people closest to them. “They were pretty adamant about saying, ‘don’t tell friends and family,’” said Stephan, the company’s Chief Marketing Officer.

So the Notehall team focused on preparing for the big day.

“We wanted to push it back as long as possible so that we had all of our operations in order,” said Stephen.

The day the show aired

Once their segment started, Notehall rocketed to the #1 most searched term on Google. Their website buckled under the traffic, which exceeded even their best hopes and their intense preparations. The site went down but they were able to bring it back within 5 minutes.

Conway grimaced at one of the most talked about moments of the show, when he wagered his stake in the company that they would hit $1 million in revenue within 24 months.

“I regretted it a little afterwards. They used it to make me look like the over-confident entrepreneur,” said Conway.

But that segment and the whole episode was a big hit for ABC. In fact, when ABC aired it for a second time in February, the Notehall website received so much traffic that it was brought to its knees for a second time.

The Aftermath

Notehall has grown considerably in the last few months with some help from the show but also according to plans they laid out before they had applied to Shark Tank.

Notehall was popular in just 3 schools in May, before they joined the DreamIt summer program and appeared on Shark Tank. Now they are used in 24 schools and growing fast.

“We ended up launching at 14 schools in the last semester alone. And we saturated many of these schools in terms of the how many students were active users of our system,” said Conway.

Their team has grown to over 10 people and they are renting their first office space, graduating from the makeshift office in Conway and Stephan’s apartment.

The Notehall team credits their summer experience in DreamIt Ventures for their recent success as much as they credit their appearance on the show.

“DreamIt really is the reason we are where we are right now,” said Stephan. We went into the summer thinking we were going to individualize every site for every school, even with a different name at each school. After about a month or so at DreamIt, and talking to all the mentors, and looking at all the metrics, we realized it wasn’t a good thing to do.”

What’s Next for Notehall

The Notehall team says their next big move is to expand to graduate and professional schools. By the end of the year, any student at any type of school should be able to exchange notes and study guides using the Notehall system.

They are also looking to raise their next round of funding and are starting those conversations now.

Otherwise, they are going to keep applying the formula that’s been working. It’s not easy, they say, but say they know it can work.

“Anytime you’re pioneering a new idea or a new concept, it takes a lot, a lot of education," said Stephan.

The following is one of a series of blog post that were written while I was in China in the spring of 2009 as part of my Eisenhower Fellowship. If you have interest in China’s culture I think you will enjoy this series.

What is the Right Question?

Who?

A question that leads to a narrative of a person.

When?

A question that leads to a definitive answers of time.

Where?

A question that leads to a simple recitation of a location.

How?

A question that leads to a presentation on how something was accomplished?

Why?

This question stands out from all others.  It is a question that often leads to more questions than answers.  

When, Where, Who and How are most often facts which can be memorized and recited back.  Answering these questions allows one to repeat what others have learned or done. 

Why… requires a broader thinking, a judgment, an interpretation of facts.  A simple yet critical word which opens the minds and leads us down an infinite number of paths.  It often illustrates the root causes of a problem, uncovers the true need and provides a framework for a path forward.

I have been fortunate to be surrounded by entrepreneurs, and I am convinced that one of the key differences in the way that their minds work is that they seek the answer to this one word sentence. Answering this simple question reveals new market needs which provide entrepreneurs the impetus to start new businesses. These new business are first to market and have staying power as market leaders.  

There is no question that China is in the process of attempting to mimic the entrepreneurial success of the United States.  There have been successes in China’s entrepreneurial community, but most have been entrepreneurs that answered the question how.  How did Google capture the market in the United State, the answer a company called Badu.  How did Facebook so quickly rise to prominence, the answer 17 different companies with the exact features, look and feel of Facebook.

China is throwing enormous sums of money at aspiring entrepreneurs to help them build business from the ground up.  Yet I believe they are attacking the issue at the wrong location.  Money alone can not create great entrepreneurs or startup companies.  

During my time in China, I must have asked the question why over 100 times.  Often the question was asked about the most basic of political or economic issues.  More often than not the answers was “I have never thought about it.”

American culture is rooted in heroes that not only asked the question why, but challenged the status quo once they discovered the answers. Individuals like Henry Ford who asked why the workers had to move to the parts.  Or patriots like Thomas Jefferson who asked why taxation without representation.  We have been blessed with a culture and created an education system that assistants in developing entrepreneurs from birth.  

Until either China’s educational system or culture encourage the question, why, to be asked their entrepreneurial community will be restricted to success stories rooted in the question how.

The following is one of a series of blog post that were written while I was in China in the spring of 2009 as part of my Eisenhower Fellowship. If you have interest in China’s culture I think you will enjoy this series.

What is the Right Question?

Who?

A question that leads to a narrative of a person.

When?

A question that leads to a definitive answers of time.

Where?

A question that leads to a simple recitation of a location.

How?

A question that leads to a presentation on how something was accomplished?

Why?

This question stands out from all others.  It is a question that often leads to more questions than answers.  

When, Where, Who and How are most often facts which can be memorized and recited back.  Answering these questions allows one to repeat what others have learned or done. 

Why… requires a broader thinking, a judgment, an interpretation of facts.  A simple yet critical word which opens the minds and leads us down an infinite number of paths.  It often illustrates the root causes of a problem, uncovers the true need and provides a framework for a path forward.

I have been fortunate to be surrounded by entrepreneurs, and I am convinced that one of the key differences in the way that their minds work is that they seek the answer to this one word sentence. Answering this simple question reveals new market needs which provide entrepreneurs the impetus to start new businesses. These new business are first to market and have staying power as market leaders.  

There is no question that China is in the process of attempting to mimic the entrepreneurial success of the United States.  There have been successes in China’s entrepreneurial community, but most have been entrepreneurs that answered the question how.  How did Google capture the market in the United State, the answer a company called Badu.  How did Facebook so quickly rise to prominence, the answer 17 different companies with the exact features, look and feel of Facebook.

China is throwing enormous sums of money at aspiring entrepreneurs to help them build business from the ground up.  Yet I believe they are attacking the issue at the wrong location.  Money alone can not create great entrepreneurs or startup companies.  

During my time in China, I must have asked the question why over 100 times.  Often the question was asked about the most basic of political or economic issues.  More often than not the answers was “I have never thought about it.”

American culture is rooted in heroes that not only asked the question why, but challenged the status quo once they discovered the answers. Individuals like Henry Ford who asked why the workers had to move to the parts.  Or patriots like Thomas Jefferson who asked why taxation without representation.  We have been blessed with a culture and created an education system that assistants in developing entrepreneurs from birth.  

Until either China’s educational system or culture encourage the question, why, to be asked their entrepreneurial community will be restricted to success stories rooted in the question how.

The following is one of a series of blog post that were written while I was in China in the spring of 2009 as part of my Eisenhower Fellowship. If you have interest in China’s culture I think you will enjoy this series.

A Subtle Priority

At almost every meeting when the topic of technology entrepreneurship has come up there has been a mention of Tsinghua University.  Whether the impact of the alumni network or research and development it is clear that Tsinghua is the center of the country’s technology development effort. 

After leaving a meeting at the University’s startup incubator which had over 400 companies under 7 million square feet, we decided to walk around the university.  I had heard over and over that the university is the most difficult in the country to get into with only a very small percentage of those that apply receiving admission.  As I walked I noted how that it was a nice yet typical college campus with relatively small three story granite buildings.  The walk ways were lined with trees and there were several grass area to lounge.   

As we strolled through the campus I noticed that large industrial buses were continually coming into the campus.   As I watched the parade of buses and hundreds of people unload from the buses I asked the escort what was going on.  She replied that they were tour buses.  Tsinghua University is one of the largest tourist attractions in the country. 

I was surprised at first.  There were certainly more attractive and historic places within Beijing.  But as I was thinking about the explanation I started to realize that the buses were full of families with young children, many of which were as young as five years old. They had come from all over the country. Often traveled for days in pack buses to see and pay respect to the institution that was educating the country’s best and the brightest. 

The power and implications of this cultural norm is compelling.  It embeds a priority in the nation’s youth while at the same time providing a visual tangible path to success and a better lifestyle.

The following is one of a series of blog post that were written while I was in China in the spring of 2009 as part of my Eisenhower Fellowship. If you have interest in China’s culture I think you will enjoy this series.

A Relative Perspective

One of my many hopes for this trip is to spend at least an hour each day speaking with random local people.  Yesterday provided an excellent opportunity to spend some time with an ordinary Chinese couple.

I had convinced my interrupter that we could walk to our next meeting which was about 5km away.  In an interesting process, we navigated our way to the meeting by stopping about every two blocks and asking for directions.  (No need for a map according to my escort).  One of the individuals that we asked for directions was an older lady who turned out to be extremely helpful and at the same time was as curious about me as I was about her and her husband.  Neither she nor her husband spoke English, so we walked for several miles with the interrupter translating back an fourth, a process that the older couple obviously enjoyed.

It turned out that the husband and wife were in their 70’s, although I would have guessed that they were in their 50’s.  They were both retired from the local steel mill which they worked at for over 30 years. The couple was taking their daily mid-morning walk to the local park just outside of the Forbidden City.  

As we slowly walked through the busy streets of Beijing there was, a striking difference in what each party was interested in.  They were interested in my thoughts on American politics and movie stars. I on the other hand was interested in the details of how they lived day-to-day in China’s largest city.  

They had two children, a boy and a girl, each who had a single child. They were clearly proud of their son who was working at a private company in Beijing. They were excited about the recent announcement that the government was going to increase spending on healthcare, though few details were provided as to how this would be a good thing.  They survived off a monthly pension and a small amount of savings.  

Since they were over 65, almost all government services were free, including transportation, healthcare, etc.  They lived in a two room apartment with running water, electricity, heat, but no air condition. They had a radio, but no television.  They certainly had heard of the Internet, but neither had ever used it, and most interestingly, never understood why anyone would want to! 

The couple seemed genuinely happy.  

They were a very nice couple, and I hope that they enjoyed our discussion as much as I did.  I’m sure I learned a lot more today about Chinese culture during my walk than I would have during a taxi ride.