our potentially best investment, Green Dot, is a consumer product. Most of our 2-3X exits are consumer products as well. I think Frank Singer is wrong in this case. and, that we should look at where we had successes and why. we should also still track what companies we missed that are successful to see what characteristics they share.

It is a complicated issue but the idea of looking at which types of companies get follow on rounds by top vc's or IPO's is a good one. we should get a team to do this.

we need to be data driven with conclusions and see if those conclusions project forward.

Just read your article on screening for success. I'm friends with Joe Platnick, a 15 year hi-tech recruiter and have an MBA in addition to significant prior hi-tech experience. I've been reading your site for pleasure for awhile. (I know, odd pleasure.)

I would suggest that the model has changed. The cost of meeting SOX regulations to go public is $2m according to one of my clients; a more realistic exit is positioning the company for purchase. Unfortunately this doesn't result in the big payoffs for employees or investors.

Although I don't agree with everything you say, I think you have some good points and a much better understanding of the process and our problems than messages from a couple of other insiders have shown in the past few days.

Four points --

1) I am tired of hearing TCA members say that if we act more rationally in our best interest we will only see the deals that no one else wants. That is our role almost by definition. Any sane entrepreneur would go to a well funded VC rather than angel investors if he could get the money from them. We should expect to only see the deals that the VCs don't want. The critical thing in successful angel investing is to make sure that the VCs don't want them because they are too early and immature rather than because they are bad business concepts or unqualified people. Then we can step up to the plate and provide a little money and a lot of assistance adding value to the company and getting it to a point where it would be of interest to a VC. The critical thing for us is to make sure that they are at that point because they need money to grow and expand rather than to survive. Hence we need to be sure that we are investing in a company that can get to that point on the money we put in rather than half way there.

2) We should be careful about trying to follow the VC model because of significant differences. VCs have multi-millions of dollars for initial investments and follow-on rounds -- we have a few hundreds of thousands. VCs can make a decision by agreement of 3 to 7 partners -- we need decisions by 25 to 30 individual investors. VCs have enough money to attract other VCs to co-invest on equal terms -- we are very limited in available money and no one can commit it. VCs have a lever on the founders because they will be needed for the next round and will gain voting control after 2 or 3 rounds -- we have no such leverage so any control we have has to be gained in the initial investment. And so on. Modeling TCA after a VC is somewhat analogous to modeling a taxi company after an airline or railroad. We can take them to the airport or station but not to New York or Miami.

3) We need to put more emphasis on the people in whom we invest. We need to pay more intention to the integrity, character, resourcefulness and business sense of the entrepreneurs. I believe that is where many of our investments have failed. I could cite four or five, but I will not.

4) We need to provide better and more frequent reporting by the company management to the investors. At the same time we need to elect TCA representatives to the Board and then restrict all individual investors from contacting the management other than through the elected Board members. I had one frustrating case where a TCA member/investor significantly undermined the board by dealing directly with a founder and siding with that founder against the elected Board members who had a much broader and less one-sided view of what was going on.

That blog was beautifully written and captures our dilemma well. Nice work!

You made some great points that should be considered by both angel groups and companies looking for investors. I agree that investors should be wary of businesses that are predicated on regulatory edicts, but I disagree that Cyber-Rain is an example of this.

Cyber-Rain's business model is built on the well documented and looming water shortage. The EPA estimates that 36 states will be facing water shortages within the next 4 years. As water becomes more scarce, the cost of it will rise which will drive the growth of water saving products. The EPA estimates that 58% of a household's water use is on landscapes and 50% of this is wasted. Cyber-Rain dramatically reduces wasted water and cuts water bills by up to 40%. It typically pays for itself within a year. The business model for the product makes sense on its own.

Municipalities have already recognized the conservation power of smart sprinkler controllers like Cyber-Rain and have widely implemented rebates to encourage their adoption. Roughly 50% of the US population is covered by a rebate. And these rebates can be sizable. In Orange County, they can cover the complete cost of a Cyber-Rain controller. In parts of San Diego they are $350. California residents can find their own rebate at: http://www.conservationrebates.com/Application/SoCalApplication.aspx?RuleEngine=ConservationRebates.RuleDef_MWD_LSRebateAmount&Appliance=LS&Utility=MWD&ContractID=08-MWD1-LS

Some municipalities even have funded programs to purchase smart controllers. DWP is the best example of this with a 10,000 unit buying program. And states like California have gone further by passing regulations requiring only smart controllers can be sold by 2012. All of these programs are already in place and will accelerate adoption.

In short, Cyber-Rain makes sense because it saves water which saves money. The government rebates and regulations aren't creating a market but are accelerating its adoption. And these rebates and regulations are not promised but are widely available today.

It is great to see you get upset Frank; "To heck with...." People should have gotten much more upset a long time ago.

I have submitted my fast pitch to the TCA competition. I am hoping that you and others that have posted here will give me feedback as to how you view my opportunity in light of the issues you raised and in light of counter arguments that were raised in some of the other posted comments.

My pitch can be read at abolishthetinykeyboard.com

Does your article mean that the TCA Fast Pitch Competition will not be well attended? I noticed that last year's pitches included hair extensions and other labor intensive opportunities. What ever the selection process is, I already get the sense that I do not fit it if things like hair extensions are a top ten. Does the competition exhibit the top ten opportunities or does it exhibit the top ten friends of TCA members organizing the event? Or are hair extensions truly among the height of what TCA attracts?

I don't see that you have supported your arguments for favoring software and internet, especially since in other shows you have spoken against them.

Some in the venture industry have already been promoting Regulation A as a way to go public more quickly and cheaply. Perhaps TCA needs to consider this in light of the absence of VC involvement. I think it can be used as a way to prevent dilution.

Frank, I think I'm done ranting. I'm happy to see investors get so upset and I hope it leads to the proper changes.

When you are on the entrepreneur side of the fence for a long time, it is very frustrating to see opportunities with less potential and greater risk get funded. It can also be down right aggravating to have investors who won't reveal their track record tell you they know what's what. There is no shortage of people telling entrepreneurs how to spend their time and resources in order to get funding; advice that doesn't lead anywhere.

I want to warn you that you are in your own way when it comes to making the changes that need to be made. From my perspective you are playing a dangerous time and resource consuming game.

You will not, and can not, learn as much as you think you can by going over your past failures. To do that assumes that you already know how to look at things from the successful investor's perspective.

How will you know the mistake when you see it? It will still be a case of the blind leading the blind. You'll figure out a couple of things, but it is a long slow process to do it that way. Knowing what is bad is not the same as knowing what is good. You will not avoid bad investments and therefore fall into a good investment by default. Your screening process lists a lot of things to exclude, but maybe only one thing to actively seek.

If you think you already know how to identify your past mistakes, then you don't need to waste your time looking at the past. Just get on with evaluating current opportunities. If you still don't know what your past mistakes are, then you need someone else to show it to you.

You wrote "Research VP John Taylor at the National Venture Capital Association says IPOs are often companies that are easy to explain and simple in their approach, product or technology. We've all heard plenty of complex and esoteric pitches, let's avoid these." Does that mean you have given up on life science? Isn't "easy to explain" relative to the audience?

You did not dispute my comment that a lot of big successes in history were not easy to explain when they were new. Not everyone jumped on the PC, phone, airplane, or car. John's comment is also a direct contradiction to Randy Lunn's comment of "by the time you know... it is too late to invest". What's John Taylor's track record for investing in winners?

This contradiction illustrates my point. It is much faster to learn from the winning investments, rather than self teaching by looking at the losing investments. It is much more important that your screening process states what it is looking for, rather than stating what it is not looking for.

You hinted at this at the end of your article when you wrote "listen to the leading angels and VCs that appear on my show". But you don't identify the winning process.

Note the differences in the beginning of your article and the end. You start out by saying "I'm taking a fresh look at the successes and failures in my early stage portfolio." But at the end you say to learn from the leaders. Your time is best spent learning from specific successful investments.

Looking at your portfolio from the perspective of the winners lets you know how well you understand winning. But you must make sure you are looking at yourself from that perspective. Because you list a lot of what not to do and very little of what to do, it sounds like you are still getting a grasp on what the winning perspective is.

I appreciate your candor, Frank.
TCA seems to be going through growing pains. Many members use TCA to network, find some angels they like and then pool deals on the side - circumventing the overhead/strain.

They may want to think about cutting the fat, and taking only those who actually have skin in the game.