E-commerce stocks continue to outpace the market in 2009

April 6, 2009 Leave a comment

As reported by InternetRetailer.com, e-commerce stocks outpaced the market yet again.  The Internet Retailer Online Retail Index was up 9.5% last week vs. 3.1% for the S&P 500.  For the year the index is up a whopping 22%.

The best-performing stocks last week were American Greetings, Drugstore.com, Blue Nile, Bidz.com, and 1-800-Flowers.com, all with growth between 17 and 25%.

For those who are curious, the 25 companies in the Internet Retailer Online Retail Index are:

1-800-Flowers.com Inc., Akamai Technologies, Amazon.com Inc., American Greetings Corp., Art Technology Group Inc., Bidz.com Inc., Blue Nile Inc., CyberSource Corp., DemandTec Inc., Digital River Inc., Drugstore.com Inc., eBay Inc., GSI Commerce Inc., Keynote Systems Inc., LivePerson Inc., Netflix Inc., NutriSystem Inc., Omniture Inc., Overstock.com Inc., PetMed Express Inc., RealNetworks Inc., Shutterfly Inc., Systemax Inc., United Online Inc. (owner of FTD.com) and VistaPrint Ltd.

For more information, click here.

Filed under eCommerce, Finance, Retailing Tagged with , , , , ,

Basil Peters talks about early exits for entrepreneurs and angels – sweet spot $10m to $30m

March 9, 2009 Leave a comment

 

In an interview with the Angel Capital Education Fund, Basil Peters, fund manager for Fundamental Technologies II, encourages angel investors and entrepreneurs to recognize the opportunity for earlier exits.

His target opportunity is an angel-backed company under 5 years old in the $10 to $30 million exit range sold to a large corporation.  Because companies can be started on a shoestring and grow to be quite valuable in just three or four years, the old days of needing to heavily capitalizing via a Venture Capital round isn’t an automatic requirement anymore.

Peters says that large corporations are better at buying technology than developing it in-house and they know it.   The goal of the big company is to take that $10 to $30 million business and 10x it into a $100 to $300 million business unit.

He cautions that although angel investors are already receptive to such deals, entrepreneurs are slower to catch, especially if VC money was always a part of their plan.   But he counters that the introduction of a VC round extends the entrepreneurs commitment to the business several more years, and the required $100m sale needed for the VC to hit its multiple limits the upside (and eagerness to buy) on the part of the acquiring buisness unit.   

For more information and to read the entire interview, click here.

Filed under Business, Finance, Startups & Entrepreneuring Tagged with , , , , , , , ,

Venture Capital vs. Angel Investors – These Facts Might Surprise You

February 3, 2009 1 Comment

 

John Huston, a leading light in the Angel investing community, recently shared some very interesting information that’s hard not to get your attention.  According to data from both the National Venture Capital Association and the Angel Capital Association (2004 to 2007), Angels invested just as much money and had a higher 20 year rate of return than Venture Capital firms.  VC’s invested $24.4B over the 3 year period while Angels invested a nearly equivalent $24.3B.  In addition, when looking at 20 year return data (through 2006) VC’s earned an average of 19% and Angels 22%.

vcangelOf course, there are structural and timing differences between Angels and VC’s to factor in.  The investment focus for Angels  is pre-seed (pre-revenues) while VC’s are cash-flow break-even.   As such, the average deal sizes are different (Angels average $473k and VC’s $7.5M) as are the volume of deals  (51k for Angels and only 3k for VCs).  

In a time of tighter and tighter capital and credit markets, the magnitude of dollars flowing into new businesses from Angels and the returns they generate are worth taking note.  Angels now number over 225k high net worth people, 10k of whom are in groups.   The latest angel study from November , 2007 showed that a typical deal is now earning a 2.6x return in 3.5 years, for a 27.7% IRR.

Filed under Finance, Market Research, Startups & Entrepreneuring Tagged with , , , , , , , , , , , ,

Are You Talking to Angel Investors? Understand Common vs. Preferred Stock

January 24, 2009 1 Comment

 

Ok, you are a budding entrepreneur with a great idea for a new online business.  To fund that idea you begin with founders contributions such as cash, credit cards, your ideas (fancy term is intellectual capital), and sweat equity.  And if that isn’t enough you seek out your family and friends.

stockBut if you are lucky, at some point your idea becomes bigger than the wallets of your relatives and neighbors.  At this point, the next step in the funding process is for you to seek out local angel investors.  Angel investors are high net worth individuals or clubs who invest their own money in startup enterprises.  Their motivations for doing so vary, but they all share one common goal – an “Exit”.  That means the sale of your business or a buyout – at a profit – and in a timely fashion.  What Angels don’t want to invest in is a “lifestyle” business for you.

So here is where common and preferred come into play.    Common Stock is generally reserved for founders, employees, friends/family.  The problem for Angels is that common stock rights are hard to protect (read dilution) in future funding rounds.  Preferred stock on the other hand offers a series of unique rights which can only change with the consent of the series holders.  These include the aforementioned dilution, as well as liquidation options and downside protection. 

If your business is successful, Angels understand that the next step up in the funding food chain will be Venture Capital firms.  VC’s are sophisticated investment companies who will definitely require Preferred Stock, stripping away some common rights.  In addition, VC’s will often protect management at the expense of Angel common through option programs, etc.

Just remember that the difference between an Angel investor and a VC is that Angels are investing “their own money” while VC’s are investing other people’s money.  Sophisticated angel investors need to be sure that a) their money isn’t unnecessarily diluted, b) that management doesn’t decide that they like their high salary and never want to sell the business at any price, or c) that they are the “last out” in the unfortunate circumstance that your business needs to liquidated.

Filed under Finance, Startups & Entrepreneuring Tagged with , , , , , , , , ,

Startup Advice: Know Your Business Model And Be Able to Say It In 15 Seconds

January 23, 2009 Leave a comment

So you have an idea for a new business, one with an online component, and you are looking to raise money.  Before any investor pulls out their checkbook they are going to ask you “what is your business model? ”  What they mean of course is ”How will you make money?” 

business-modelUnfortunately, what often happens next is the source of high comedy (or tragedy depending on your perspective).   The would-be entrepreneur launches into a long recitation complete with 5 year pro-forma forecasts and detailed sales plan.  The prospect nods their head appreciatively along the way, but in reality you lost them the moment you said “Glad you asked!” 

Here is a simple piece of advice:  Be able to express your business model in a way they can understand it in under 15 seconds.   And the best way to do that is to identify the business model type to which you are most closely aligned, as well as sharing an example company to reinforce the point.  In doing so you give the prospect a clear and immediate mental framework they can use to pin everything you say after that. 

To get a better idea of what I mean, here is a short list of business model types and example companies:

•          Subscription business model                     WSJ – Online Edition

•          Razor and blades business model             Gillette

•          Multi-level marketing business model      Amway

•          Network effects business model               Facebook

•          Cutting out the middleman model             Amazon

•          Bricks and clicks business model              Barnes & Noble

•          Loyalty business models                            Nordstrom

•          Servitization model                                     IT Services

•          Low-cost carrier business model               Southwest Airlines

•          Auction Model                                              eBay

So work this into the opening line of your business model elevator speech.   You will be glad you did.

Filed under Finance, Startups & Entrepreneuring Tagged with , , , , , , , ,

Q4 Venture Financings Down, But an Engine for eBusiness is Actually Up

January 20, 2009 Leave a comment

 

With the economy still in a recession it’s no surprise that venture capital investing in the U.S. fell in the fourth quarter of 2008 to the lowest level in four years, according to VentureSource.  Financings for the quarter fell to 554, down from 620 the prior period and 718 a year ago.  The total number of 2,550 deals was the annual total since 2005.

But eBusinesses can take heart.  Media content and information financings actually increased to 50 in Q4, up from 33 a year earlier.  That’s because in economic downturns investment follows capital-efficient business models like those that deliver online advertising and products to consumers.  Content is central to attracting the eyeballs that information sites, retailers and manufacturers then efficiently monetize.

Filed under Editorial/Content, Finance Tagged with , , , , , ,

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