Angel-Backed Companies More Likely to Succeed, Says Harvard Study
A new study published by professors at the Harvard Business School shows that angel-backed companies are more likely to succeed and show more growth than those funded by venture firms alone. Researched and written by William Kerr and Josh Lerner, the report found that companies with angel funding see between 30% and 50% higher growth figures in terms of website traffic, are more likely to survive for four years, and are also in a better position to receive further rounds of funding. Sponsor Angel investing itself has seen large growth over the last several months with the creation of various organizations, events, firms and legislation to spur it on. We’ve discussed the Open Angel Forum series of events, the creation of “Super Angel” firms , the curated Venture Hacks AngelList , as well as current legislation both helping and hurting angel investments. Angel investing has become more common, and as this report shows, this is largely due to the value and success it tends to breed. But why are angel investments the secret sauce for some companies? As the report points out, its the intangibles that angels bring to the table that could be playing a large role in company success. “Access to capital per se may not be the most important value-added that angel groups bring. Some of the ‘softer’ features, such as angels’ mentoring or business contacts, may help new ventures the most,” the report says. One of the other reasons that companies could tend to be more successful with angel funding is because of the human face placed on the investments. Angels are usually investing in companies at an early stage, and are investing their own capital in the company. Entrepreneurs may be more likely to work that extra bit harder when they know they are playing with the personal cash of an actual person, not the collected funds of an entire firm without a human name. The reputation of the angel could play a large role as well, both for the attitude of the people running the company, and for the audience they are looking to attract. Most angels tend to be successful entrepreneurs themselves, and thus are likely well known in the startup scene. The chance to sit and talk with these investors, let alone receiving funding from them, is likely a treat for most entrepreneurs, so they may be more likely to be more careful with their money. Additionally, when the public hears of a new startup that may not immediately interest them, the mention of particular angel investors can change their mind. As angel investors mature, they build their own personal portfolio of companies they noticed and provided early funds for, so when company XYZ launches with angel funding from an influential angel investor, that alone can attract people to the product. I know personally that I have looked into startups I otherwise would have largely ignored simply because an important angel investor was certain they’d be a hit. “Some of the ‘softer’ features, such as angels’ mentoring or business contacts, may help new ventures the most.” – Harvard Business School report Since some companies receive early financing rounds from angels, it is also logical to assume that when working with a limited amount of cash, the entrepreneurs may be more focused on doing more with less. A company that bursts out of the gate with large amounts of VC firm funding may spend it slightly more haphazardly, whereas a company running on limited angel funds may adopt leaner practices and take baby steps toward success and future funding. As the report mentioned above, the “softer” features provided by the angels are also a large help to the companies. In his email newsletter yesterday, angel investor Jason Calacanis discussed loyalty and how he goes to bat for the people who are loyal to him and his companies. He mentioned that whenever he invests in a company, he immediately becomes an evangelist for that company and it’s founders, doing all he can to promote it. This may not be the same for all angels, but when influential investors like Jason get behind your company, they do their best to make sure good things happen. I would be interested to see similar data from this report that compares companies with solely angel funding versus those with more traditional VC firm funding mixed in. The influence of angel investors is significant, but I would think the angels alone are not enough to create more successful businesses at a higher rate. But the lesson here is, if your startup has the opportunity to include some angel investors (especially at the early stages), it would seem like a wise decision to go ahead with. Photo by Flickr user Brooke Anderson . Discuss
Volcanoes, Boot Camps, and Other Opportunities for European Startups
The grounding of flights in and out of European as a result of the Icelandic volcano Eyjafjallajökull has been a powerful reminder of how much of our global economy relies on air transportation. As we wrote yesterday , the volcanic ash not only impacted the airline industry, but the tech world as well, disrupting business and conference travel alongside product deliveries. European startups, particularly reliant on quick transportation from country-to-country, may be feeling the consequences of restrictions on air travel even more so. Mike Butcher argues in a Techcrunch Europe article , “It seems that Europe’s startup economy has been running partly on the spread low-cost airlines for the past 5 years, and without airlines the startups, along with the whole of the general business sector, are going to be badly affected.” Sponsor It’s unclear how much the volcanic eruption will further challenge business development, or if it will spur innovation and opportunities, particularly around virtual conferencing and alternative transportation planners. Jame Andrews, co-founder of Loco2 , a site promoting sustainable travel, remarks, “Thanks Iceland volcano for helping us to prove the market for alternatives to flying!” Jacek Kelski, founder and director of f3fundit , a blog and business portal aimed at helping support European entrepreneurs, argues that the major hindrance in Europe remains “investor readiness.” According to Kelski “there are definitely a lot of good ambitious companies out there. There is a lot of activity all over the continent.” But while there seems to be a lot of startup activity, Kelski is less optimistic about investor activity. “We’re seeing very little if any VC activity in Europe at the moment, and the majority of funding is coming from angels and larger corporates.” To help, f3fundit are holding a “Next Top Startup” competition. Ten finalists will take part in a boot camp June 16 and 17 in Barcelona, Spain, where they will work closely with a team of 25 mentors. One of the companies will be crowned the “Next Top Startup” and win a €25,000 prize. Kelsi hopes f3fundit.com’s competition can help provide both the cash and the support for some of the startup community. Hopefully, European volcanic activity will cooperate. Discuss
Is Apple Booting iAd’s Competition from the iPhone?
At the most recent Apple keynote , Steve Jobs announced Apple’s upcoming advertising platform called iAd . Included as a part of the OS 4.0 update, the mobile operating system upgrade due out for iPhone this summer and iPad later this fall, the iAd system aims, in its very Apple-ly way, to make mobile advertisements “delightful,” meaning ads worth clicking on, engaging with and viewing. What Jobs didn’t mention, though, is how Apple plans to give iAd its head start: by kicking out the competing analytics and advertising platforms now thriving in nearly every iPhone app today. Or so it seems. Sponsor Developer Reports App Store Rejection Due to Analytics Inclusion Last week, technology news blog VentureBeat caught wind of a story where Apple had rejected an iPhone application because it, according to the email sent to the developer, “is not appropriate for applications to gather user analytics.” Not appropriate, you may ask? Since when? Apparently since Apple released their updated iPhone Developer Agreement. Alongside the SDK 4 beta , made available shortly after the announcement in early April, the developer contract was updated, too. Specifically, the clause in question, section 3.3.9, reads, in part (more here ): Notwithstanding anything else in this Agreement, Device Data may not be provided or disclosed to a third party without Apple’s prior written consent. Accordingly, the use of third party software in Your Application to collect and send Device Data to a third party for processing or analysis is expressly prohibited. To date, the changes detailed in this clause have been overshadowed by the one preceding it – in Section 3.3.1, Apple banned the use of cross-compiler tools for building iPhone applications, like the one Adobe was just about to ship , for example. But in the long run, it’s Section 3.3.9 that may have more impact on the industry as a whole. “FEAR” You may have not heard too much about this change because no one actually knows what’s going on thanks to Apple’s par-for-the-course policy of refusing to clarify its meaning. Plus, the companies who may be the most heavily affected by an analytics ban – services like Flurry , MediaLets , Motally , Localytics , and SimpleGeo , to name a few – don’t want to talk about it. On record that is. But after a dozen or so phone calls and emails, we’re starting to see a picture forming and it can be summed up in one word: FEAR . “Nobody wants to be the canary in the coal mine,” one source told us, referring to the radio silence we’re getting from these companies when you would have otherwise expected to hear outcry, or perhaps even anti-competitive claims. Some companies, off-record, say they are afraid to complain . If they do, they could be the next to be banned. Another source reported that a number of their company’s clients weren’t submitting updates to the iTunes Application Store because they were worried that the updates, with the analytics included of course, would be rejected. Instead, the clients are leaving their older applications in place since it doesn’t appear that Apple is going back through all the current apps and booting out those that already include analytics within them. “Maybe the older apps are grandfathered in?” they wondered aloud. The fact that no one knows, not even the big name, big box retailer that sits at the top of the latter’s client list, is a testament to how Apple likes to do business. Here’s the agreement, read it and sign it…and that’s the extent of the communication. As to those who did manage to get someone from Apple to talk about it? The answer was simply: “read the agreement.” But if Apple holds true to what’s written there, it sounds like it could spell doom for mobile analytics and ad firms, especially the small-time players beloved by independent developers. iAd, Anti-Competitive? What no one will say – again, on record, that is – is that the changes have a whiff of anti-competitive behavior to them. The issue at hand: Apple is preparing to launch iAd, an advertising platform based on the newly-acquired Quattro Wireless, a second choice for Apple after the Admob deal fell through. “We tried to buy AdMob, but Google snatched them up because they didn’t want us to have them,” Steve Jobs said during the April keynote. “So we bought another smaller company, Quattro. But we’re babes in the woods.” Some say that the added language to section 3.3.9 is a direct shot at AdMob in the same way that the changes in 3.3.1 were a shot at Adobe. That is, instead of allowing Google to get its mobile advertisements onto the iPhone, Apple can keep them out via the new analytics/ad ban. Whether or not that’s the case is certainly up for debate. But considering that the Google/AdMob deal is still being researched by U.S. antitrust enforcers, regulators aware of the issue. Word has it that Google even pointed it out to the FTC, just in case. Continue Reading: Next page, “A Second Opinion” A Second Opinion: Privacy Concerns Others, however, say these changes aren’t really about analytics, ads and anti-competitive behavior as much as they are about privacy concerns. In speaking with Alan Chapell, chairman of the Mobile Marketing Association Privacy Committee and whose firm advises companies on privacy and data strategy, the changes to Apple’s agreement have to do more with consumer privacy than anything else. With language that refers to “geo-location” and targeted advertising, a good bit of Section 3.3.9 is about how location-based applications should behave. With the rise of location-based services especially and location-based social tools like Loopt, Foursquare, Gowalla, and others, privacy is at the forefront of everyone’s minds these days. ( Including ours ). There are no standards for location based data yet, Chapell explains. No rules about how such data should be used, retained, shared and so on. In addition, Apple is under heavy pressure from regulators to protect the privacy of its customers. And if the third-party analytics providers do something which comprises that privacy, it will be Apple that gets in trouble. “This debate is about privacy and innovation,” Chapell notes, “and finding a balance between the two.” Unfortunately, even if Apple chooses never to enforce the new rules, explains Chapell, the changes will have an indirect impact on innovation in this area. The next round of ad networks, analytics providers and other in-app data-sharing tools will be less likely to be funded. Not Just Funding at Risk… These changes won’t just affect the funding of services like those noted above, though, they could affect how services are developed for the iPhone. Take for example, Xtify , a location-triggered geo-messaging system now available for Android ( previous coverage ).
Ten Countries Call On Google to Respect Privacy
A letter sent today from leaders from 10 countries criticized Google’s handling of privacy concerns when rolling out new technologies, such as Google Buzz and Google Street View, saying that the company launches new products “without due consideration of privacy and data protection laws and cultural norms.” The letter , first reported by CNET , is addressed to Google CEO Eric Schmidt and signed by “Privacy Commissioner of Canada, Jennifer Stoddart, and the heads of the data protection authorities in France, Germany, Israel, Italy, Ireland, Netherlands, New Zealand, Spain and the United Kingdom”. Sponsor The letter starts out by acknowledging Google’s role as a technological innovator, before continuing to say “we are increasingly concerned that, too often, the privacy rights of the world’s citizens are being forgotten as Google rolls out new technological applications. We were disturbed by your recent rollout of the Google Buzz social networking application, which betrayed a disappointing disregard for fundamental privacy norms and laws. Moreover, this was not the first time you have failed to take adequate account of privacy considerations when launching new services.” It then calls for Google to set an example to other companies in regards to user privacy, making the following requests: collecting and processing only the minimum amount of personal information necessary to achieve the identified purpose of the product or service; providing clear and unambiguous information about how personal information will be used to allow users to provide informed consent; creating privacy-protective default settings; ensuring that privacy control settings are prominent and easy to use; ensuring that all personal data is adequately protected, and giving people simple procedures for deleting their accounts and honouring their requests in a timely way. While Google was sued in the U.S. following its roll-out of Google Buzz, the letter notably lacks any U.S. representation. In all, the letter makes some reasonable requests of a company that likely knows more about us than our closest of friends, and we are looking forward to reading Google’s response. Discuss
Thinking Inside the Box: Eric Ries On Creating Startups Within Large Organizations
Every now and then we hear the story of the entrepreneur who left his or her steady job at a large company to follow their dreams and create a startup, but we aren’t all as daring and brave to quit steady work, especially in a time of economic uncertainty. If you have the entrepreneurial itch but aren’t in a situation that would allow you to sacrifice your day job, there are still ways you can scratch said itch and bring innovation to a “startup” within a larger company. Sponsor This morning I talked with Eric Ries , the driving force behind the ” lean startup ” movement, which encourages high efficiency and meticulous metrics tracking within entrepreneurial ventures. Ries, who is often asked to speak on the subject, says he noticed a trend among some of the people attending his talks. Many managers from large companies were coming to his sessions to learn what they could, because, as Ries discovered, the principals of lean startups can exist within larger corporations that are attempting to innovate. “A startup is a human institution designed to create something new under conditions of extreme uncertainty,” Ries told ReadWriteWeb. “There is nothing in there about the size of the company, or what industry you’re in, or whether you’re the manager of a division or if you’re two guys in a garage, its just about the conditions in which you operate.” As he points out, there are times in larger corporations when divisions are created to work on a new project, and similar rules and guidelines for managing that project which come from startups can be used here as well. Ries says that managers, like entrepreneurs, are taking risks on new ideas, and when they create a new division, they are essentially investing the company’s time and money as a VC would invest funds in a startup. “The more I started to work with those managers I started to notice that they were having very familiar sounding arguments,” Ries says. “The arguments between a venture-backed entrepreneur and a venture capitalist are almost exactly the same word for word as between these ‘intrepreneurs’ and their CFOs because the same issues come up.” One of the ways larger corporations can implement entrepreneurial innovation into their businesses is to allow for what Ries calls “innovation inside the box,” or a fenced off sandbox for experimentation with new products. By creating a place where employees with ideas can test a tweak to a feature, or where new ideas can be built within certain constraints, companies can greatly increase their potential for innovation. “The real value is [this] starts to catalyze change because by changing the way you work you start to accelerate that feedback loop and that can become the basis for making other changes,” Ries says. Unfortunately, most larger corporations aren’t allowing for this open sandbox of innovation within their companies, and choose to buy up technology and talent from startups. Ries agrees that many entrepreneurs get frustrated working inside a larger company, but he says the combination of these entrepreneurs with a walled off innovation playground could provide for some amazing innovations. Companies could also benefit from the addition of a sandbox by inspiring their existing employees to be innovative, instead of wrangling up entrepreneurs from a startup, which would save them money in the end. “They have this idea that a certain alchemy will happen that ‘if I bring these special people into my organization, they will teach my regular people how to be special,’ and that’s just a formula for breeding resentment,” Ries told ReadWriteWeb. “If the people doing the acquiring had more of a theory about how entrepreneurship is supposed to work they could start to think of better ways to plug an acquired company into the larger organization, taking advantage of what they’re good at without destroying it.” If you’re a budding entrepreneur or a manager at a large company, there is an excellent chance to hear from Ries and others on these concepts and others this Friday at the Startup Lessons Learned conference in San Francisco. If you can’t make it to the Bay Area, there are simulcasts occurring Friday in nearly 50 cities worldwide, many of which are free or very inexpensive, so RSVP and bask in the lean startup goodness. Photo by Flickr user longhorndave . Discuss