Twitter IPO Deserves the Hype, If Not the Investment

No matter where Twitter ends its first day of trading – or its first year or decade for that matter – it deserves the hype.
Forget valuation, which is a red herring anyway. Forget the questions about business models, revenue projections, talk of bubbles and complaints about 140 characters. Twitter's emergence as a public company is worthy of a moment to sit back and see the magic of the free markets in this nation and the uniqueness of our American entrepreneurial experience.
Haters gonna hate, and Twitter has faced its share of opprobrium over the years. The idea of 140 characters was too limiting, too much a sign of the decay of our culture, where we sacrifice good grammar and usage for text-like chatter that gets no one anything but a wrap on the knuckles from the nun who taught us in second grade. Strunk and White are turning over in their graves.
Twitter also faced questions about revenue models. Sure, Rihanna and Miley love you, but how do you book revenue on them loving you? And how do you make profit from that revenue in a way that doesn't drive away your user base? Evan Williams, Biz Stone and Jack Dorsey were derided as terrible managers with their heads more in the clouds than in the books.
Yes, seldom is heard an encouraging word about Twitter. That negative buzz has only gotten louder as Twitter approached its bell-ringing at the corner of Broad and Wall. Twitter, according to thousands of tweets from the financial chatterati, isn't worth the price.
Maybe or maybe not. But Twitter needs to be celebrated by entrepreneurs everywhere. This is what hundreds of companies in Silicon Valley, Silicon Alley, Silicon Gulch and anywhere in between want to be when they grow up. Little girls dress as Cinderella because they want to be Princess Kate. Twitter's rise is Cinderella for geeks and innovators and risk-takers. Events like today's market debut are what entrepreneurs dream about, even if, during waking hours, they give lip service to just wanting to solve people's problems or save sea lions. Deep down, they want success and wealth, and that's OK.
Twitter didn't solve a problem. No one lamented how difficult it was to communicate in 140-character constraints. Instead, it started a revolution in communication, allowed us to share information more efficiently and made us call a pound sign a hashtag.
And, while we hear that so few people use it, so the IPO isn't worth the money, we forget that, well, so many people use it. For Christ's sake, @Pontifex is saving souls with it. (And posting selfies, for which the aforementioned second-grade nuns would probably make him kneel on No. 2 pencils for an hour as penance.)
Anyone who has ever started a company knows how hard it is to reach a day like this. You have an idea, build code around it, discard the code you built, throw out one of your founding partners, give up, then come back and write new code. And all that happens before your first venture round.

Is Snapchat's Co-Founder Completely Crazy for Turning Down $3 Billion From Facebook?

The internet has been a-buz since news broke yesterday that 23-year-old Evan Spiegel, the co-founder and chief executive of messaging service Snapchat, turned down a $3 billion offer to be acquired by Facebook.
Three billion dollars ain't chump change. Especially for an app that so far isn't generating revenue.
So is Spiegel crazy or crazy smart for not taking all that money? Let us know what you think by taking the poll below.

How to Finance a Startup Today

You’ve got an awesome idea, a slick name in mind and the garage space to start your dream business -- but not the cash. I'm not surprised.
Financing a small business -- especially a startup -- is an uphill battle in a crowded field. In the U.S. alone, there are an estimated 27.5 million small businesses. And nearly 80 percent of them get their money through bank loans, credit cards and lines of credit.
It’s no secret that it is harder getting money through those avenues in the current financial climate. But just because it’s a bit of a fight, doesn’t mean your great idea isn’t worth fighting for. Here are some of the ways you can finance your startup, from standing in bank lines to going online:
Bank loans
Once thought of as a go-to option, national banks are still pinching pennies -- even after the Great Recession ceased.

The U.S. Small Business Administration released a report in July noting that lending to small businesses declined last year. Business loans of less than $100,000 dipped to $138.2 billion, from $139.5 billion in 2011. Even though conditions have improved in recent years compared with 2008 and 2009 (the height of the recession), business owners still find themselves facing roadblocks from banks that continue to restrict their lending.
Community banks and credit unions may serve as your next best bet. Since many community banks avoided the housing crisis, they’ll often have money to lend without the same standards as national banks. Local small businesses are finding success with community banks if they can convince lenders they’ll make a profit and pay back the loans.
You might also tap a credit union for available funding. As nonprofit organizations, credit unions may offer better lending terms for borrowers than commercial banks.

Credit cards
Having plastic has its benefits. The perks include immediate access to needed items, cash advances when you’re low on money and a way to track spending. When financing your business with credit cards, a major consideration should be whether you can pay off the balance monthly. Credit card companies know commercial loans are hard to come by and often jack up their rates -- sometimes upwards of 30 percent.
Government assistance
The SBA offers qualified financial assistance programs. While it doesn’t loan money directly, the SBA does set guidelines for loans made by third-party lenders (essentially a commercial loan with negotiated strings attached). Businesses that go this route must first prove they could not obtain financing at commercial banks with reasonable terms.
On the upside: SBA loans are usually structured with longer terms and lower down payments, and may come with lower interest rates. On the downside: SBA-backed loans tend to have a lot of stipulations -- often requiring lots of paperwork and time, as approval can take longer than loans from private lenders.

How to Avoid 3 Common Budget Pitfalls

Let me guess: Your profit and loss (P/L) statement has been in the black for months, yet a quick look at your bank statement tells you that you've got only enough money in the bank to cover four--maybe six--weeks of operations. Don't fret, my friend. I see this narrative play out all the time, particularly among new entrepreneurs.
The root of the issue is that you're basing the company's health on its P/L statement, not on its balance sheet. P/L statements show revenue and expenses, but only a balance sheet lists everything a company owns and what it owes. As a CFO, I usually find the answers to cash issues buried in a complete balance sheet.
Turn the page for some common places where a disconnect can occur between net income on the books and actual cash in the bank--and how to correct them.
Accounts receivable. It's busy season, and you're spending cash like water. Meanwhile, people who owe you money aren't paying in a timely manner (shocking, I know). For example, a builder needs to buy materials and pay workers in the summer but won't see payment until the houses are finished months later.

Deficit Financing

Securing a line of credit to tap as an emergency fund is smart. Even smarter is lining it up when you least need it; i.e., when you have plenty of cash on hand. You'll get a better rate and a better deal from the bank.
Then heed Mark Twain's warning: "A banker is a fellow who lends you his umbrella when the sun is shining but wants it back the minute it begins to rain." If things start to rain on your business, take the cash out of the credit line and park it in a separate bank account. This way, the bank can't suddenly cut you off from that money.

The fix: Offer prepayment discounts if customers pay all or a large portion ahead of starting the job. Then be insistent on getting paid. Sometimes a phone call is all it takes to move your invoice to the top of their pile.
Accounts payable. I worked with a Florida golf course that raked in money during the winter but had trouble finding the cash to buy fertilizer in the summer, when far fewer people golfed. Why? During the high season, management forgot to prepare and budget for expenses that would occur during the off-season.
The fix: Pay for materials needed for the off-season during your flush months, and ask for a prepayment discount. That's what we did at the golf course, buying fertilizer at a reduced cost ahead of the summer.
Fixed assets. New companies tend to go on sprees, buying furniture, computers, equipment, even buildings to ramp up production, set up new offices or expand. And poof! Just like that, there's no cash for day-to-day operations. I once had clients who poured all of their money into purchasing a warehouse and were in a world of hurt when they needed cash and the banks said, "No way."
The fix: Finance or lease everything you can, matching the asset's life with the term of the debt. That way, three to five years later, when, say, a computer is out of date or a machine wears out, you can immediately turn around and upgrade to new equipment.
These are just a few of the ways a seemingly profitable business can run into a cash crunch. To avoid these scenarios, get help from an accounting pro to build a financial model that shows you the whole picture, not just your P/L. The truth it reveals may sting, but the pain will pass when you've got the cash in hand.

4 Start-Up Accounting Tips for the Young Trep

Unless you're an accountant, the word "accounting" probably strikes fear in your heart -- or a little bit of nervousness, at least. For young entrepreneurs, the feeling is probably amplified. After all, poor bookkeeping out of the gate not only can set a project back in the short term, it can really come back to bite you over the long haul. Even young entrepreneurs get audited, you know.
That said, it is possible to avoid the ire of the IRS. Here are a four accounting tips to start your business by:

1. Start off on the right foot. In the same way that you go through your email every morning, or in the same way that you do an inventory review each week, make your business accounting a habit. Set a recurring alarm on your calendar: "Review books!" The frequency is up to you, but you should carve out some accounting time at least once a month, if not more.
    
2. Learn the lingo. The cumbersome terminology of accounting is sometimes the biggest hurdle. Chart of accounts? General ledger? Cash vs. accrual? Accounting lingo isn't natural -- and ignoring what's what won't help you. So take some time to understand the basics. The U.S. Small Business Administration's Small Business Development Centers are a good place to start, as are accountancy groups like the American Institute of CPA's and the Association of Chartered Certified Accountants.
    
3. Find software that fits you. Find the accounting software that's right for you. Don't simply opt for what your friends use. If you're always at a desk, a desktop solution, like QuickBooks Desktop might make sense. If you're like most entrepreneurs and on the go 24/7, something mobile like Xero may make more sense. If you're running your business from your iPad, go with a cloud-based accounting software package like Easy Books or Kashoo, which both offer iPad apps.
    
4. Value good advice. Chances are, if you spend enough time trying to figure out an accounting issue, you could. But the reality is, you've got a business to run. And considering that you'll need to file taxes quarterly -- not just annually -- there should be a certain degree of urgency involved. For help, look into local resources such as entrepreneur-focused groups for advice. (In Vancouver, where I'm based, we have resources like the British Columbia Innovation Council and the Vancouver Entrepreneur Meetup. Scour your local community for co-working groups as they’ll usually have a schedule of talks and classes specifically for entrepreneurs. WeWork Labs in New York is a great example.) Also, ask former bosses and fellow entrepreneurs to see who they use. Usually, there's great value in an accountant or bookkeeper who specializes in small business. If nothing more, they'll be a voice of comfort if you receive some alarmingly confusing IRS mail.

In the end, accounting isn't really that scary. If you start off right, it can actually be fun. After all, that's where you're going to see your fortunes grow

Survey: 1 in 2 Angel Investors Regrets an Investment Made This Year

Angel investors sign up for risk. That’s part of the game. What really gets them frustrated, though, is being sold unreasonable financial projections and valuations.
Nearly one in two angel investors surveyed by Worthworm, a Scottsdale, Ariz.-based startup valuation company, reported having regretted an investment decision they made this year. The small-sample survey of 100 angel investors was conducted in July by market research firm OnePoll.
Of those angel investors who regretted an investment, almost half report that the problem was pie-in-the-sky financials -- entrepreneurs telling them that their company was going to be worth more than it was or that it would make more money than it ended up making.
To get an angel on board -- and keep him or her happy -- entrepreneurs need to have well thought out financial valuations and revenue projections they can deliver on.
“Our research clearly shows that angels believe the majority of entrepreneurs do not do their homework before stepping through the door,” says Alan Lobock, a co-founder of Worthworm, in a statement. “It is imperative that they put themselves in the investor’s shoes and prove that they can efficiently scale.”
Only a small percentage of angel investors say they are in the startup investing game for the pure thrill of it. Most angels say they are looking to either diversify their portfolio or are attracted by the potential for a high reward on their investment.
In addition to wanting well-researched and reasonable financial projections, angel investors' other top concerns when deciding where to lay their financial bets also include having a demonstrable sustainable competitive advantage and relevant previous experience on the resumes of the startup team.

Why Too Many Startups Run Out of Money Too Fast

Over the last five years, my firm Red Rocket Ventures has consulted or mentored more than 500 startups -- nearly all of them suffering from the same problem. They are typically so focused on building their product, they don't raise enough capital to cover essential sales and marketing activities that will allow them to better attract additional venture capital down the road. As a result, many startups run out of money soon after launch, stalling out before they reasonably had a fighting chance.

The root of the problem really comes down to better education. Entrepreneurs need to learn early on that you can't launch a startup unless you have raised enough capital for both your product development and your initial sales and marketing activities. They must learn the essentials that all investors look for: rapid user growth, proven customer acquisition metrics from previously tested sales and marketing channels and knowing the best, most cost-effective sales and marketing tactics to stretch their limited budgets.

By focusing on this education problem, I was originally thinking about building a startup curriculum in a university-style setting. But, given how quickly technologies and marketing tactics are evolving, I was worried about having the curriculum go stale the minute it was finished. Then, I thought some of this could be taught through startup incubator or accelerator programs, but that was only available to the small percentage of applicants that get accepted and only for the short period of time they were in the program.

I wanted a solution that would appeal to all companies that had the interest and the resources; a program that would grow with them through all stages of their growth -- from freshman year through senior year, using the education analogy.

I realized it was the agencies who had their finger on the pulse of all the rapid changes in technologies and digital marketing tactics. But, not the large agencies that are jacks-of-all-trades and masters of none. The boutique, niche agencies are the deep domain experts in their particular field, for example, search engines or social media.

And, more importantly, these boutique agencies that are smaller in size are also entrepreneurial and have first-hand knowledge of how to stretch startup marketing pennies into revenue dollars. By rolling up these services into a one-stop shop, managed by one person from the team, the startup “excubator” model was born in Chicago with the launch of Ensemble in August 2013, of which Red Rocket is a member company.

But, to really appeal to the startup community, we understood we needed a more attractive pricing plan that was more affordable to startups -- one where 20 to 40 percent discounts would apply for bundling your services needs into one “digital services suite” of expert vendors. In this model, the excubator would also consider taking an equity position in these businesses, so it actually had a vested interest to help these businesses succeed, as partners with entrepreneurs over the long term. This evolves the excubator members’ revenue models from the normal “short term fee driven” model to a more logical “long term venture capital return” model, which if done correctly, should improve the a typical startup’s odds of success from 10 percent to closer to 30 percent in the process.

It is too early to tell if this excubator model will work or not. A current flaw in the model is it still requires the startups to go cash out-of-pocket, even with deeply discounted rates, which they may or may not have the money to pay for. In a perfect world, an excubator model would have raised its own venture fund, or would partner with existing seed-stage venture funds, to help fund these early stage entrepreneurs who may have a great idea, but not the capital to afford the collective services which are required to launch the startup with maximum odds for success.

If excubators have done anything, they have creatively brainstormed how to help more startups over the long run.