He's had 3 exits each year for the past three years, so what's his formula for success?

He's got an effective strategy for dealing with angels, "as I tell the entrepreneur, I'm gonna leave some money on the table and we're gonna get this thing closed."

It's Mike who was the first one I heard say, "400K is the new million". What's so good about that? "Smaller raises are just, frankly, easier to get done."

It's never been cheaper to create and run a startup, right? You've heard it described both ways, but Mike Crill at the Atlas Accelerator in Seattle, describes a flight to security that's affecting recruiting.

Read Mike's Dilution is Your Friend.

Listen Show #223 (41:53)

Events
Attend the Angel Venture Fair, April 7th in Philadelphia.

Attend the Angel Capital Association's Annual Summit in Atlanta April 15-17.

Join me April 27-28 at the 9th Annual EBAN Congress in Madrid.

Register for UCLA's upcoming 2009 Entrepreneurs Conference on May 8th.

Entrepreneurs
A lot's changed in this new economy, especially for entrepreneurs. Consider this: the old $3.8M pre-money valuations are gone, replaced by the new $1.8M pre-money values.

Likewise, the $1M raise, at least from angels, is a quaint memory. Today, $400K is the new million. Yes, it'll be harder to accomplish all you want, but let's consider the numbers. In 2007 you could raise $1M at a $4M pre-money, selling 20% of the company to your investors. Today, it's a close shave, but raising $400K at a $2M pre-money is only a 16.6% sale of your company.

Because you're gonna raise less, consider the virtues of bootstrapping, or take your company as far as you can with a friends and family round. Look to government sources for funding; with the decimation of angels and VCs (spoiler!), many jurisdictions will be offering grants to seed and early-stage entrepreneurs.

Angels
You've lost 40-60% of your net worth, but so has everyone, so you're in good company.

Even your best portfolio companies are being tested in this economy, some will not survive. Your diminished returns are moving further into the future.

Your asset allocation pie chart is all out of whack! That seed and early-stage category is way over-allocated. All of a sudden other asset classes begin to look better, safer and more liquid: many equities in the public markets are trading for hat sizes, single digits, and real estate, it's headed to levels we haven't seen in many years.

Double whammy: you've got to budget more for the pay-to-plays that are coming. A pay-to-play happens when the venture capital investors must put more money into the company and they compel all previous investors to do likewise, or suffer severe dilution. I recently faced a 90% dilution if I didn't opt into the pay-to-play terms; I paid.

The cavalry isn't coming: if you don't have VC partners in your deal, they're probably not coming to your B rounds, so plan ahead. As Mission Ventures' Dave Ryan at says, "set aside 2X for your portfolio companies", so instead of investing $25K one time, expect a second investment of an equal amount sometime down the road.

If you're in an angel fund, good. If you're not, if you're in a pledge group, good luck. Without a fund you'll have poor diversification, because you've got less money to invest in this sector you'll end up in fewer deals, and investing in early-stage is all about managing risk and diversification. Get into a fund, or start a fund.

VCs
Your returns are weak, yet it's time to start that new fund. IPOs are an endangered species. Your portfolio companies are sucking up more partner time. Let's face it, it's stressful being a venture capitalist.

The money you still have left in the fund has to go further. Those portfolio companies are gonna need more money and "syndicators have abandoned the scene". Plus, without a new fund coming online, your operational expenses are starting to weigh on your mind.

It's time to start thinking of getting in shape; you've got the time and the stress is killing. You'll feel better. Your head will clear; it'll be a great time to begin a new career.

Limited Partners
Remember the good ole days, when limited partners were allocating more to their venture capital portfolios? Those times are over.

It's called the Denominator Effect. It's a problem for angels and especially for limited partners; that pie chart problem again: over allocation. So not a single investment manager for any pension fund, college endowment or insurance company in the country is going to his board with a recommendation "let's double our VC allocations". This won't change anytime soon.

Leslie Berlin reports in the New York Times today, "Try, Try Again, or Maybe Not". Do serial entrepreneurs have a better chance the second time around? Even if they failed the first time out? A recent Harvard Business School study questions this long held belief.

In my case, I was successful on my second chance at bat. Did lessons learned from my first company and its boom-bust cycle give me a leg up the next time? I probably thought so, but don't ask me what it could have been. In 1979 in Bellevue, WA I took my first try at starting a consulting business; my clients were the growing electronic manufacturing companies popping up around Seattle. I did well, drove a Porsche, had a home with a pool (tells you I came from California), but then when the economy turned sour, like these present times, my clients shrank and my fledgling company with them. Seen from today's perspective, it set me up for a relocation to southern California and the beginnings of my software company which would steadily grow via bootstrapping over the next 15 years. That entrepreneurial experience definitely gave me experiences which would help me the next time. Maybe it's the passage of time, all I remember from the first failure is the pain, seeing my fortunes fall like the rain in Seattle.

But, you've heard it on this show several times, "it doesn't matter, success or failure," a serial entrepreneur is prized for their experience. Is this another myth?

"The data are absolutely clear," says Paul A. Gompers, a professor of business administration at the school and one of the study's authors. "Does failure breed new knowledge or experience that can be leveraged into performance the second time around?" he asks. In some cases, yes, but over all, he says, "We found there is no benefit in terms of performance."

Read the full article.

Andrew's working on a new book, the Reality Version of Investing. And to listen to him he must have had some bad experiences with inventors, but that's just one of the topics we cover in Part II of our wide ranging Saturday morning chat. And how about this for a tease? Andrew's figured out the formula for backing successful startups and he'll share it with you. Then we get into Needed versus Got, bootstrapping and more. Join us.

Show #222 (52:46) Listen

Events
Attend the Angel Venture Fair, April 7th in Philadelphia.

Attend the Angel Capital Association's Annual Summit in Atlanta April 15-17.

Join me in Madrid; I'll be moderating 2 panel discussions April 27-28 at the 9th Annual EBAN Congress.

MATT RICHTEL and JENNA WORTHAM report today in the New York Times on "Weary of Looking for Work, Some Create Their Own". Mark V. Cannice, executive director of the entrepreneurship program at the University of San Francisco, calls the phenomenon "forced entrepreneurship."

"If there is a silver lining, the large-scale downsizing from major companies will release a lot of new entrepreneurial talent and ideas - scientists, engineers, business folks now looking to do other things," Mr. Cannice said. "It's a Darwinian unleashing of talent into the entrepreneurial ecosystem."

Read the article.

This is another great episode! (Alliance of Angels' Dan Rosen) A few of my favorite episodes from the most recent include the interview with Jim Armstrong and those generally with Dave Berkus on them. Although I am more on the entrepreneur side myself, I find this particular episode to provide useful insight into how angels think and operate. Dan Rosen is clearly someone of high caliber, so this also makes the show refreshing to listen to.

Frank, you mentioned that angel investing is a lonely sport. So is entrepreneurship, at least in the early days of a company. I had a couple of years to prepare launching my own company, and has been working full-time on the venture for about a year now. During this period, your show and some others (such as Stanford Entrepreneur Thought Leadership series, Venture Voice) have been the "entertainment" for my lonely moments. I also learned a great deal and hopefully to apply the knowledge in real operation. So much so that I feel compelled to officially subscribe. Thanks for this great show and keep it up, Frank!

What's going on in venture capital in San Diego? And how will the changing venture economy affect angel investors? Mission Ventures' Dave Ryan offers advice for angel investors.

Show #221 (50:22) Listen

Events
Come to the SW Regional Angel Summit in Tucson March 22-23.

Attend the Angel Venture Fair on April 7th in Philadelphia.

Attend the Angel Capital Association's Annual Summit in Atlanta April 15-17.

Join me in Spain; I'll be moderating 2 panel discussions in Madrid April 27-28 at the 9th Annual EBAN Congress.

Dan Rosen hosted the NW Regional Angel Summit two weeks ago and I learned what success the Alliance of Angels are having investing in early stage deals around Seattle. He sees lots of deals and does lots of deals, too. I've heard it said that Seattleites drink a lot of coffee, but would that alone explain that last year AoA made 19 new investments, 36 overall. "It's a huge number of transactions."

What to listen for: Lots of deals and exits, too, a total of 5, "two were rather spectacular". That explains the free flowing champagne at dinner. Who were the acquirers? Who might you guess in Seattle? And what were the amounts? Dan's success story makes me want to move back to Seattle! And why did he move from venture capital to being an angel investor?

Show #220 (52:11) Listen

Events
Register now! Come for the golf. Come for the weather. Come to share your expertise in early stage investing. Come to the SW Regional Angel Summit in Tucson March 22-23.

Attend the Angel Venture Fair on April 7th.

Attend the Angel Capital Association's Annual Summit in Atlanta April 15-17.

Join me in Spain; I'll be moderating 2 panel discussions in Madrid April 27-28 at the 9th Annual EBAN Congress.

At a recent Tech Coast Angels meeting I took on the task of polling other angel groups that operate with a fund. Dave Berkus said, "call Marianne Hudson at the Angel Capital Association and find out who has a fund". Good idea. Marianne recommended Springboard Capital in Jacksonville and the Alliance of Angels in Seattle. Well now you know who next week's guest will be.

"Entrepreneurs have a difficult time discerning actual angel investors from tire-kickers." In today's show Springboard's Al Rossiter describes his angel fund. He sees 400 funding applications each year and culls through every one to find the paradigm breakers. There's no Bozo filter, he wants to see everything, unfiltered.

The advantage of his fund? He has the assets in the bank and he's able to fund deals even during difficult economic times.

He's thinking of raising Springboard III, but it's a challenging time for fund raising.

Show #219 (39:54) Listen

Events
The Anaheim Center for New Energy Technologies hosts the Clean Tech Business Plan Competition. Apply by March 16th.

Register now! Come for the golf. Come for the weather. Come to share your expertise in early stage investing. Come to the SW Regional Angel Summit in Tucson March 22-23.

Attend the Angel Capital Association's Annual Summit in Atlanta April 15-17.

Join me in Spain; I'll be moderating 2 panel discussions in Madrid April 27-28 at the 9th Annual EBAN Congress.