PickYour Angel Investors Wisely

A great deal has been written about angel investing in recent years. Angel investing has become the sport of choice for many successful entrepreneurs in Silicon Valley (e.g., Dave Morin,Chris Michel, Ariel Poler, etc.). What's more, it has spawned a whole new class of venture funds -- once called Super Angels, now called Micro VCs (e.g., First Round Capital, True Ventures,SoftTech VC, etc.). And now traditional venture investors (e.g., Greylock Capital, Andreessen Horowitz, CRV, etc.) have created programs to invest small amounts of money in large numbers of startups. Unfortunately, as seed investing moves from a boutique practice to more mass market, its value is diminished dramatically.

As a general matter, I think that more seed funding is a great thing. It is certainly beneficial -- often times essential -- for small companies to raise a little bit of money to help validate an idea or market. But historically one of the most valuable things about angel investment was that it was accompanied by an angel. That angel wouldn't just invest in the company, he or she would serve as an indispensable advisor to the company as well. Not only did you get money to propel your business forward, you also got the help of someone who had run the startup gauntlet before you.

Regrettably, what once was a boutique business has in many instances become mass market. While there are some angels and Micro VCs can provide meaningful time and attention to their entrepreneurs, there are a number of folks out there who think that angel investing is a volume business. Needless to say, as the number of companies financed by any given investor grows, the amount of help that investor can give to each company diminishes proportionally. These investments become more about the placing of bets than they do about helping entrepreneurs succeed.

Sure, some of these stock pickers will make some good bets and even make some money. But it won't be any thanks to them. As a general matter, early stage entrepreneurs don't just need money, they need help and advice. And if help is no longer part of what you get from your seed investors, I believe the likely success of those investments will diminish.

Worse yet, taking seed investment from traditional venture investors can be counter-productive. It is impossible to imagine how a VC firm that is investing in dozens of early stage startups can find the time to be helpful while also working with their more traditional portfolio. You may get a little of their money and a little of their reputation, but you will get it at the expense of any real help in building your business.

So why have VC funds started investing in seed rounds? They do it because they think it gives them an option on future financings. By putting a little bit of money into a company's seed round, they get a seat at the table. And from that seat, in theory, they can keep track of how well it is going and preemptively finance the "best" companies that they've seed funded. The only problem with the theory is that these traditional VCs don't have the time or capacity to actually keep track of all the companies they've seed funded. So they aren't capable of being pre-emptive. Instead, they expect an early look at any Series A financing, despite the fact that they haven't earned the right by actually being helpful to the companies they have seeded.

More importantly, traditional VCs are incapable of providing one of the most important and valuable angel services -- introductions to future investors. As is becoming increasingly clear, investment is the life blood of the startup world. The problem that companies seed funded by traditional VCs have is that there is a natural assumption that any company that does not receive follow-on funding from its earlier VC investor is fundamentally broken. There is virtually nothing that a VC can say in his or her introduction to other investors that won't raise eyebrows. So taking angel money from a traditional venture investor is a bet on that firm funding your Series A. Unfortunately, if that doesn't work out, you're back is up against the wall. [1]

It is true that money is fungible. But investors are not. The choices you make when raising seed capital can have a meaningful impact on the long-term success of your startup. So find investors who will bring you value beyond the dollars in your bank account. Find investors with the time and inclination to help you. Find investors who will increase your chances of raising additional capital, not diminish those chances. Great angel investors are invaluable. So pick your partners well.

 [1] On the rare occasion that my partners and I seed fund a startup, we work hard to alleviate the concerns I've described above. We only invest in a very small number of seed stage opportunities and we commit meaningful time and attention to those businesses, often going on the board (for example, I was the earliest investor in the likes of WePay and Splunk). Moreover, we take a substantial lead role in the seed financing, so there is no negative presumption when we introduce the company to our VC friends for the next round of financing. We will invest along side the new VC, but have no need to lead the Series A ourselves. Needless to say, this approach won't scale to dozens of startups. But it will increase the likelihood that those business we seed fund are successful.

Courtesy:  http://www.ventureblog.com/2013/01/pick-your-angel-investors-wisely.html

Asia Driving Onwards: how can investors capture the enormous economic potential of Asian economies?

Asia's position as the new growth engine of the world economy is one of the most discussed macroeconomic trends of our times. So how can investors capture the enormous economic potential of Asian economies? After all, capital market developments in Asia have been divergent, both regionally and in different asset classes.

In recent decades the world has been increasingly driven by emerging market economies. They have outperformed the developed world not only in terms of share of global GDP but are also growing more quickly. 
GDP Growth by Country 
enlargeSince the turn of the millennium average growth in the emerging world has surged to rates that are three times higher than in developed economies. This growth has largely been driven by Asian economies. A flourishing Asia has secured an increasing share of global GDP at the expense of the developed world. According to IMF estimates, developed countries will see their share of global GDP decline by 17 percent between 1992 and 2015, an unprecedented deterioration. At the same time, developing Asia's share of global output is expected to increase by 18 percent. 
Asian government debt levels are looking attractive relative to G7 levels 
enlargeIncreasing Resilience to Global ShocksExternal shocks such as the financial crisis, the Eurozone debt crisis or lackluster growth in the US may have slowed Asian growth, but they have not derailed the structural growth story in the region. Equipped with significant cash reserves and policy flexibility, Asian economies have been able to steer through these choppy waters without sinking and have subsequently resumed their growth trajectory. Moreover, the legacy of the Asian crisis in the late 1990s ensured that both companies and governments have focused on balance sheet discipline.¹ Comprehensive reform of their macroeconomic framework and of the financial sector has considerably reduced the region's vulnerability to external shocks. Debt levels for Asian economies are expected to decline further, while the creditworthiness of Western economies is increasingly in question. 
Supportive DemographicsPositive demographic trends have been a key component of emerging economies' growth. While Western economies struggle with ageing populations and higher dependency ratios, the number of people of working age in emerging economies has grown rapidly thanks to population growth. The expansion of the working population in turn has increased the consumer base, thus bolstering private consumption, which is key for economies to master the transformation from an economy reliant on external demand to one powered by domestic demand.²
Advanced Legal Framework Fosters CredibilityIt must be noted that that more than just strictly economic factors, such as low sovereign-debt levels and relatively favorable demographics, have enabled Asian economies to narrow the gap with global economic giants such as Germany and the US. There have also been considerable improvements in political and legal institutions. In recent years, the credibility and transparency of fiscal, financial and central bank structures have improved significantly as authorities have recognized the importance of areas such as property rights in fostering global confidence in Asian economies. 
Appetite for Consumption – Asia Grows, Asia SpendsAsia's future path of economic growth is likely to be determined by how well the region can manage the transition from export-based growth to self-generated growth. Domestic demand expansion can be achieved when consumption and investment increase and the savings surplus is reduced. To achieve this expansion, policymakers need to encourage fixed asset investments, reduce barriers to consumption growth and introduce supportive measures. The improvement of the investment environment, the allocation of government expenditure to infrastructure development and the development of social safety nets, such as health, education and pension systems, will encourage consumption and reduce the savings ratio. 
Long-term observers of Asian economies believe that the rise of the Asian consumer is going to be the next megatrend in the global economy. Experts compare the impact this will have on the world to the rise of the American consumer in the 1950 post-world war era and expect it to have considerable implications for companies, investors and governments across Asia and the rest of the world. 
Focus Shifting to Domestic DemandThe rise of Asian economies that started in Japan already half a century ago has been a story of production. Led by China, increasing prosperity was largely based on export-driven growth and made Asia the world's biggest factory of electronics, toys and automobiles. So far, it was mainly the US that bought Asian products, causing Asian countries to run permanent trade and current account surpluses. The US on the other hand had to deal with ever increasing current account deficits. Almost half of the US deficit has been with Asian countries. In other words, the US consumption engine was the main driver for Asia's production engine. In the past decade, rising wealth particularly in China has created a new consumer for the region's goods. This has made China's economy increasingly less reliant on exports; low wages and cheap currencies are no longer the primary focus. Unsurprisingly, boosting domestic consumption is the key theme of China's 12th five-year plan (for the 2011–2015 period). In fact, if Asian countries manage to shift from being export-driven economies to ones powered by domestic demand, Asian currencies will have plenty of room to appreciate from here, thus simultaneously increasing Asian consumer's purchasing power. 
The Rise of the Asian ConsumerThe Asian consumer has tremendous development potential. While accounting for half of the world's population, developing Asia only produces 30 percent of global GDP. Chinese consumption only accounts for 35 percent of the country's GDP, compared to 65 percent in the US. At the end of 2008, Asia's population of 3.5 billion people spent less than 7 trillion US dollars while the US population of only 0.3 billion people spent 10 trillion.³ Previously held back by high savings rates, there are signs of a cultural shift among Asian consumers. China is already the world's largest market for many household products, such as TVs, refrigerators and air conditioners. China has surpassed the US as the world's largest automobile market. Although lagging behind a couple of years, India's consumer market is seeing similar signs of development. India is already the world's fastest-growing cellphone market in the world. 
Excerpt from the Credit Suisse white paper "Asia – Development, Financial Markets, Infrastructure and Consumption, China"Asia's Middle Class to Become the Centerpiece of Asia's Economic FutureA large part of consumption growth in Asia is expected to come from Asia's new middle class.⁴ Today, Asia accounts for 28 percent of the global middle class in terms of number of people. This share could double by 2020. China's middle class alone by that time would be bigger than the entire residential population of the European Union. By 2030, two billion people are expected to belong to this bracket.⁵The growing affluence goes hand in hand with rapid urbanization. Middle class consumers mostly live in urban areas, which is why Asian cities have been the fastest growing cities since the turn of the millennium. Consequently, the urban Asian-Pacific population is expected to grow by over 21 percent over the next decade.⁶ The OECD⁷ estimates that Asia's middle class accounts for 23 percent of today's total consumer spending. The same estimates peg it at 54 percent by 2020 and it could easily reach 66 percent by 2030.
¹ Aberdeen, Asian Bonds: A misunderstood opportunity, 2012² BlackRock Investment Institute, Are Emerging Markets the Next Developed Markets?, August 2011³ McKinsey Quarterly, Think regionally, act globally – Four steps to reaching the Asian consumer, 2009⁴ It is difficult to accurately define middle class. Homi Kharas, in a study published by the OECD in 2010, defines households as middle class that live with daily per capital incomes between USD 10 and USD 100 in purchasing power parity terms. The Chinese academy of Social Sciences, a state research institution, sets down the yardstick at around USD 7300 in annual income (as of 2009). Other international market researches are setting the threshold at 10,000 or more.⁵ According to Goldman Sachs⁶ Singapore Economic Development Board, Future Ready Today – Understanding the psychology of the new-Asia consumers⁷ OECD, The Emerging Middle Class in Developing Countries, 2010 

Courtesy: https://infocus.credit-suisse.com/app/article/index.cfm?fuseaction=OpenArticle&aoid=379887&lang=EN&WT.mc_id=CS%20International%2023%2E01%2E2013-379602

Peter Drucker’s Advice to CEOs:: Don't Hand the Keys to CFOs

by Ron Baker

On December 21, 2006, my mentor, George Gilder, wrote on his blog about the last time he saw Peter Drucker live. It is such a profound piece that goes to the heart of how accounting is becoming increasingly irrelevant to the spirit of enterprise, it is worth quoting in full:

“The last time I saw Peter Drucker, he was keynoting a Forbes conference in Seattle for CEOs. In the auditorium at the International Trade Center next to the bay, they had wheeled out the great man to the middle of the stage in a great fluffy easy chair.

“Close to 90 years old—at the end of the previous century gazing toward the next—he was the numinous name and Delphic presence at the conference. Everyone leaned forward to hear what he had to say.

“Then a gasp shook the rows of CEOs. The conference management stood there stricken, unable to move: ‘For the Love of Malcolm’s motorcycle...What is this?’ The CEOs sat popeyed.

“The hoary sage’s balding pate flopped back in the chair as if he had fallen asleep...or worse.

“Perhaps Forbes had erred in staking a major conference on an aging guru seemingly well over the hill and in parlous health.

“Then his entire body fell forward. I was ready to run up to catch him if he should tumble toward the crowd. But he somehow caught himself. His eyes opened, and he looked out intently at the throng of CEOs. Everyone sighed with relief. He was awake. He had their attention.

“Drucker growled: ‘I have just one thing to tell you today. Just one thing...’

“Wow, I said to myself, it better be good.

‘No one,’ he continued, ‘but no one in your company, knows less about your business than your See Eff Oh.’

“Huh?

“This was the era of the heroic Chief Financial Officer (CFO). Scott Sullivan of Worldcom, Andy Fastow of Enron, clever, inventive folk like that.

“You remember them. Across the country, CFOs were in the saddle. CEOs would not move without consulting them. What could Drucker have meant?

“He was stating law number one of the Telecosm. Knowledge is about the past. Entrepreneurship is about the future.

"CFOs deal with past numbers. By the time they get them all parsed and pinned down, the numbers are often wrong. In effect, CFOs are trying to steer companies by peering into the rearview mirror. Past numbers do not have anything much to do with future numbers.

“Moreover, CFOs tend to focus on internal problems. But most internal problems cannot be solved internally.

“Determining business outcomes are decisions made by customers and investors and both are outside the company and not directly managed by the company. Their views can change in an instant, casting all the existing numbers into oblivion.

“To reach customers and investors takes outside vision and leadership, not internal problem solving.

“Tech companies should not try to solve problems. Solving problems sounds good, but it is a loser. You end up feeding your failures, starving your strengths and achieving costly mediocrity.

“Don’t solve problems — that’s the CFO’s forte and pitfall. Pursue opportunities.”

A Deteriorating Paradigm

Approximately 70% of the average company’s value cannot be explained by traditional Generally Accepted Accounting Principles financial statements.

Adding more arcane and picayune rules to GAAP, requiring mark-to-market accounting, or converging existing GAAP with international accounting standards, will not solve this problem.

The accounting model is suffering from what philosophers call a deteriorating paradigm—it gets more and more complex to account for its lack of explanatory power.

In all fairness to accounting, it never was meant to predict value prospectively, only to record transactions retroactively. In effect, accounting can only measure the price of exchanges after they have taken place. Abraham Briloff, a professor of accounting, contended that accounting statements are like bikinis: "What they show is interesting, but what they conceal is significant." Accounting can audit the drunk’s bar bill but can’t explain why he’s an alcoholic.

This is why accounting can only record the “goodwill” of a business until after is has been sold. Accounting has no way to place a value on that goodwill until a transaction takes place. That is why my late colleague, and Chartered Accountant, Paul O’Byrne said goodwill is the name accountants give to their ignorance.

The best an accountant can do is to extrapolate the past into the future, and unless one’s theory is that the future is going to be the same as the past, this technique is fraught with hazards. This was Drucker’s point at the CEO conference in Seattle.

CEOs and entrepreneurs have to create the future, not relive the past. The only way to effectively do that is with a theory of the business, which requires one to get outside of the four walls of the organization and connect with external reality — where all value is created.

http://www.linkedin.com/today/post/article/20130113204047-38251380-peter-drucker-s-advice-to-ceos