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Greg Linden was one of the key developers behind Amazon’s recommendations system, which recommends books, movies, and other products to Amazon customers based on their purchase history. He subsequently went to Stanford and picked up an MBA, and in January 2004, he launched a startup named Findory, which offers personalized online newspapers. It’s hard to imagine anyone more qualified to make a startup like this a success, yet Findory shut down in November 2007. In a brilliant post-mortem, Linden says his big mistake was to bootstrap his company while trying to raise funding from venture capital firms — he just couldn’t convince them to invest. He should have raised his funding from angel investors instead.

Where to raise funding is an important decision every startup founder has to make. The three viable sources at the very early stages of a company are: Continue »

We hear often that speed is a virtue in the startup trade. Mike Cassidy thinks speed is the highest virtue, in fact. (Check out his presentation, Speeding Up All Parts of a Startup, which we found via Venture Hacks earlier this week.)

As luck would have it, Found|READ has been talking about this very thing – how to accelerate your startup’s success — with serial entrepreneur Ashfaq (“Ash”) Munshi, currently the founder of TeraBitz, which he launched in 2006 with his son, Kamran Munshi. (Talk about speed: Kamran is 18!) Continue »

We’ve written recently about how to preserve your equity when fundraising. This week we spoke with serial entrepreneur Chris Michel, who explained why founders should not be afraid to give additional equity disbursements — out of their personal stakes! — to reward senior staffers.

That’s what Michel did just six months before selling his latest startup, Affinity Labs, to Monster.com for $61 million in January. Michel gave up a tidy bit of his own windfall, but he has no regrets, and thinks more founders should follow suit.

F|R: You gave half a percent of your personal stake in Affinity Labs to three senior managers shortly before selling the company. Why?

Chris Michel: One key to success is having a very small and overqualified team. We all know this, but forget that the best people could also go and be CEOs at their own companies. In a “war for talent” you have ask yourself: What wouldn’t you do to bring the right people onto your team and keep them in the game? Rarely is compensation enough to make anyone happy. First, people want to be at a place that they’re proud of, surrounded by people who are as talented or more talented than they are, working on problems that matter. Second, they want to be [remuneratively] valued. Compensation is a necessary, though not sufficient, tool. But you can’t screw up the comp stuff because it’s the easiest thing to do right. Continue »

People talk about “selling” technology products all the time, but they usually mean licensing them. Licensing is actually the most common way that technology companies generate revenue. A “sale” occurs when ownership of the product changes hands completely. A “license” is when some portion of ownership is held back. For example, Apple sells iPods, but licenses the software that runs them. The point of this technical distinction is that if you want to “sell” your software to multiple customers, you’ll need to retain ownership, otherwise your first customer is going to walk away with everything. When you license your product, you retain control over how your customers may use it.

License agreements come in a million flavors, but they all contain a few critical elements. Here is a Crib Sheet of 10 Key Licensing Terms you need to comprehend. Continue »

Last October, Found|READ lunched with serial entrepreneur and Lookery cofounder Scott Rafer, who gloomily predicted the technology industry was “no more than five months away from the next bust.”

Pessimistic, even for the opinionated Rafer, but then he knows a thing or two about successes (MyBlogLog), struggles (Feedster), and recessions. Rafer then generously loaded our plate with great tips for less experienced founders who might need help preparing for the market’s “hard knocks.”

Seven months on, times are tougher, but plenty of companies are still getting funded. So this week we checked in with Rafer again. First words out of his mouth: “There has only been a flight to quality. Frankly I’m struggling to understand it.”
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I recently had dinner with a friend of mine, a physician-turned-businessperson-turned-founder. We were discussing the virtues of transferable skills, and I asked him what management tools he brings to entrepreneurship from his earlier career in medicine. He pondered a bit before confessing that radiology skills don’t, in fact, translate so easily. Instead he referred me to what he called “one of the most valuable books” he’s ever read.

Turns out he was referring to one of the original publications to come out of the famed Harvard Negotiation Project, a seminal workshop that was started in 1979 with a mission to improve dispute and conflict resolution. Harvard’s researchers focused on negotiation for all kinds of conflicts, from the interpersonal to the international geopolitical. But since conflict negotiation is something businesspeople do daily, it’s not surprising that the fruits of their work were also published as a business book just two years later in the now classic best-seller, “Getting to YES: Negotiating Agreement Without Giving In,” by Roger Fisher, Bill Ury and Bruce Patton.

I picked it up. As my friend suggested, it’s as relevant as it always was, a common sense approach to effective negotiation rooted in five basic ideas. And if you can manage to absorb and apply these five rules, you’ll be much better off going into your next deal. Continue »

I work as an attorney to a lot of company founders, and I know from experience that when the time comes to negotiate a round of funding, entrepreneurs often find themselves at a disadvantage. Much of it has to do with language. There is an array of terms and issues that investors and lawyers work with regularly and understand, but that entrepreneurs deal with only once in a while. It would take many posts to cover all of them, but here is a Crib Sheet of 10 Key Terms that clients most often ask me to explain when they receive term sheets from prospective investors.

Let’s start with the basics of valuation. The three biggest questions I get are: How much is my company is worth? How much of my company will I have to give up? How is that calculated? Three valuation terms you need to know are: Continue »

In 1999, half a dozen venture capitalists turned me down for financing because the business plan for my company, BlueTie, put me in direct competition with Microsoft. There simply was no point, they said; between its desktop monopoly, ranks of talent and outsized bank account, Microsoft was a guaranteed startup-killer. Instead, they advised us to “pick a market Microsoft doesn’t care about.”

Fortunately my team and I did not listen, and went ahead with our plan. BlueTie is an SaaS company with two revenue streams: We host customized email and collaboration software for enterprises; we also have an ad platform that pushes third-party services and promotions into your email, calendar, or social networking application, so you can make dinner reservations or book travel without interrupting your workflow (see the screenshot below). Continue »