July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

No action is good action. At least for the online investment platform FundersClub, which today received a “no-action letter” from the Securities and Exchange Commission stating that it will not recommend enforcement action.

The letter is a green light for FundersClub and validation that its investment model is legal. The news is significant for the venture capital and finance industries as well as startups looking for more flexible methods of fundraising.

“Venture capital has supported iconic innovative companies, but interestingly enough, the industry itself has been untouched by the Internet,” said FundersClub founder and CEO Alex Mittal in an interview with VentureBeat. “This letter from the SEC officially recognizes that FundersClub is a venture capital adviser. This is the first time in history the SEC has recognized the concept of online venture capital.”

FundersClub is a controversial company that pioneered a new form of investment when it launched out of Y Combinator last year. It provides a platform in which accredited investors access a selection of profiles of promising early-stage companies, vetted and curated by the FundersClub. Members of the community may make small investments in companies that appeal to them. FundersClub then combines the money together into one fund and gives it to the startup under its own name. While the funding is crowdsourced, it shows up as one entity on the cap table.

Many people questioned the legality of this approach because FundersClub is not a registered broker-dealer and the SEC has yet to fully implement the JOBS Act. FundersClub refutes these claims by stating that it is simply turning the already legal offline work of a venture capital adviser into an online process.

The SEC, as of today, officially agrees.

“We are not broker-dealers, we are not working within the JOBS Act provisions or exemptions, and we are not crowdfunding,” Mittal said. “We are the first to demonstrate that it is possible to practice traditional venture capital online. Anything that is new will be looked at from different angles and sometimes bucketed with other things that it is not. It take time for new models to be understood, but we are doing something new and revolutionary that has big implications.”

Making venture capital work online is not just about getting around/approval from the SEC. The industry has remained offline because deals are heavily based on relationships. Investors are understandably reluctant to write checks to companies they have not vetted personally (if not in person), and many of the deals happen through in-person interactions and referrals from within an existing network.

However, angel investment is changing. Accredited investors often aim for a diverse portfolio, but they don’t have the time or resources to perform due diligence for a range of companies. Furthermore, investors from outside Silicon Valley are interested in tech startups, but through geographical and network barriers, they do not have the connections they need to find desirable prospects. FundersClub gives them a chance to get involved with choice opportunities and easily make investments. Startups, who are wary of an overcrowded cap table, appreciate that FundersClub takes care of the leg work.

In October, FundersClub raised a massive $6 million seed round and just last week announced a $1.1 million fund to invest in Y Combinator startups. The first startups FundersClub featured were members of the same Y Combinator class. Each successfully achieved its fundraising goal, raising hundreds of thousands of dollars, and the platform has since expanded to include startups in other sectors and locations. To date, FundersClub has invested $4 million in startups, and portfolio companies have raised a total of nearly $26 million.

The National Venture Capital Association accepted FundersClub into its ranks earlier this year, making it the first and only online platform in the group of over 400 members. While that news was also exciting for the team, it did not offer the same degree of legitimacy, nor the comfort of knowing they won’t be prosecuted.

The JOBS Act is still in limbo, but the SEC’s no-action letter sets the stage for an entirely new environment for early-stage fundraising that is more flexible for people on both sides of the equation. Read the letter from the SEC.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

“Do your shareholders choose you or do you choose them?  Sophisticated CEOs choose their investors by defining their particular business approach and strategy and ensuring that their investors are aligned with that program.”  - Bill George, former Medtronic CEO

Startup founders eager for cash can put the long-term vision of their venture at risk if they make assumptions about investors and why they want to participate. Startup investors have various objectives in mind when they consider a startup, including financial returns, passion for the narrative, or affinity for the team involved.  But when investors’ motivations diverge from founders’, friction ensues — so it’s up to you, as a founder, to make sure your investor’s goals align with your own.

In my nine years of building startups, I’ve heard many stories of misalignment causing entrepreneurs and investors to row in different directions. That’s why I began wondering how I would explore alignment when I co-founded Fig, a mission-driven startup focused on enhancing holistic wellness for consumers.

Importantly, alignment is different than “value add,” which is about the relevant skills, connections, and reputation that an investor provides your company. Value add is important, but it isn’t everything.  Alignment is sharing commitment to the same mission, values, and time horizon.

Here are a few approaches I’ve found helpful for exploring fit along these dimensions:

1. Define your mission and values and share them early.

What is the purpose of your venture?  What principles are most important to your founding team?  What are your objectives and exit plans?  This clarity will help with evaluating investors, team members, and other kinds of of partners. Clearly articulating these values, as companies like Twilio have done, is also important for creating a reinforcing culture. At Fig we aim to incorporate our values into every hiring, investor, and partnership decision.

After determining your mission and values, ensure investors know they are important by sending them in your pre-pitch deck. Including 1-2 slides on mission and values as part of a 5-6 pre-pitch deck will not only highlight their importance to you but also allow investors to self-select based on compatibility — saving both of you time.

2. Share specific instances of your values in action.

Give specific examples of your behavior that illustrate your commitment to your mission and/or values. While many investors are hoping you’ll build an enduring and consequential company, others are hoping for a quick flip.

When I told potential investors that my co-founder Bart and I rejected our first acquisition offer largely because we were not convinced it would lead to furthering our mission, I was conveying our commitment to building a mission-driven company over the long term. My goal was to weed out investors hoping for a quick exit.

3. References are a must.

You wouldn’t make a key hire without checking their references. Do the same for potential investors. Leverage your network of friends, mentors, and former colleagues to both find and screen potential investors. Your friends are likely to share at least some of your values and know others who hold similar priorities. Structure these discussions beforehand to honor your friends’ time. Your company’s mission and values should determine what you’re solving for.

4. Be transparent with your due diligence.

Sometimes it’s impossible to evaluate alignment before a meeting. If an investor seems keen on moving forward, let them know you plan to talk with mutual contacts. I’ve found it helpful to ground this “heads up” in a spirit of reciprocity.

While raising funding for Fig, I would say, “I want you to be confident in who you’re investing in, Mr. Investor. Feel free to talk to anyone I’ve worked with in the past — I’m even happy to introduce you to one or two Fig investors. I plan to call one or two of my friends who have worked with you. I want both of us to enter this partnership with eyes wide open.”

5. Pay attention to your emotions and internal dialogue during pitching conversations.

Building a company will definitely have its ups and downs. Choose investors you want to spend time with at the peak and in the valley. Quality time means enough time to accumulate sufficient firsthand data for your mind and impressions for your gut. In my experience, most investors will want two conversations with you before they invest. During these conversations, ask yourself, “Do I want to spend more time with this person or less? Would I be proud to introduce this investor to my team?”

Investors are key business partners; misalignment with investors has the potential to negatively affect all other areas of your business.  Prioritize alignment from the beginning, and enjoy the benefits of everyone rowing in the same direction.

Kevon Saber is cofounder of Fig, a mobile startup focused on personal wellbeing. Prior to Fig, Kevon co-founded GenPlay Games, a mobile games developer which has created 15 games and $40+ million in revenue. Kevon holds an MBA from the Stanford Graduate School of Business.

The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.

Image via ►Gerard Fritz/Flickr

Silicon Valley venture firm Andreessen Horowitz has brought on its first new partner in two years. The firm’s new hire Chris Dixon is a New York City-based angel investor and two-time entrepreneur.

Most recently, Dixon was tasked with running eBay’s New York headquarters, and improving the e-commerce giant’s recommendations engine. He was brought into the fold after eBay acquired his startup, Hunch. Dixon’s first company SiteAdvisor was acquired by McAfee.

It’s a big win for Andreessen — as an investor, Dixon has built up a strong reputation for supporting New York CIty’s entrepreneurs. He has dabbled in angel investing for over seven years, and successes include Foursquare, Kickstarter,  Dropbox, Pinterest, Codecademy, Stack Overflow, and Skype. He also co-founded a East Coast seed venture fund called Founder Collective.

Storied investor Marc Andreessen authored a blog post outlining the reasons the firm hired Dixon as its seventh general partner. “Chris began programming at 8 (beating me by a whole year), starting on a TRS-80 Model 1,” he said. Andreessen was also impressed that Dixon left Bessemer Venture Partners, one of the oldest venture firms where he worked as an associate, to start his first company.

Dixon will based in California but will maintain his residence on the East Coast. He said he will invest in both consumer and enterprise startups at all stages, including seed.

At this juncture, nine months after joining eBay, Dixon said he considered launching another company, but after some serious soul-searching, he realized his talents would be better served as an investor. “Startups are tough,” he said. “I thought it might be time to try something else.”

In a phone interview from Andreessen Horowitz’ office, he told me that he has been impressed with the firm’s “new model,” and worked closely with them as a co-investor in New York-based startup, Foursquare.

“They have a marketing team and recruiting team as well as a focus on investment,” he said. “As an entrepreneur, I would have loved to have that support infrastructure.”

Dixon, a prolific blogger, announced the news in a blog post today.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Social news aggregator Nuzzel has secured its first round of funding just a few months after its launch.

Jonathan Abrams’ startup pulls together relevant news from your feed and delivers it to you on a dashboard and in daily email. Abrams is the cofounder of social network Friendster. Read more about Nuzzel’s launch.

Invited to join the beta? Sign in via Twitter, and the site will immediately get to work aggregating news stories that your friends are posting and commenting on.

The majority of the people I follow work in tech, so the top stories include Priceline’s purchase of Kayak and Bravo’s polarizing Silicon Valley reality TV show. However, Nuzzel has a “news you may have missed” section, which displays stories shared by an extended network on a broad variety of topics.

Until today, Abrams had built the site single-handedly, and he did not receive any external investment. The idea for the site had been brewing for several years — Abrams told me he often turns to Twitter as a source of tech news.

Clearly, he had no trouble pulling in funds for the startup; Abrams currently runs Founders Den, an elite co-working space in San Francisco alongside Zachary Bogue of Data Collective. Bogue was one of over a dozen seed investors in Nuzzel’s first round.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

For the majority of accredited investors, putting funds in an early-stage startup is no better than pissing thousands of dollars down the drain.

In the past, angel investors have been multi-millionaires, even billionaires. They are classified as “sophisticated” or “experienced,” primarily because they can afford to pour $25,00o, $50,000 or more into over a dozen early-stage startups.

To succeed at the high-stakes, low-odds investment game, you’ll need a diverse portfolio of high-calibre companies.

The first-of-its-kind partnership

This month, SecondMarket and Angellist announced a partnership that lets accredited investors fund startups for small dollar amounts, as low as $1000. They have just completed the first trial.

“Entrepreneurs can now get access to more sources of capital, and there are more people with a vested, financial interest in seeing them succeed,” said Naval Ravikant, the founder of AngelList, a network and subscriber-base of angel investors.

The trial

“But the product itself is being tested,” Ravikant admitted. For this reason both AngelList and SecondMarket only invited 10 percent of their network to participate. These users were chosen at random.

The pair decided to raise $150,000 for a hot biotech startup, which had also already received funding from some of Silicon Valley’s most prominent venture capital firms.

The startup is on the cusp of closing $1 million in its first round. Its founders will benefit from this vast pool of investors from a marketing standpoint, but will not have to contend with multiple shareholders.

“The investors become grass roots advocates for the company,” Jeremy Smith, SecondMarket’s CSO, told me. “This could be tremendously beneficial for technology startups.”

Note that the barriers to entry will not be dropped in 2013. Next year, non-accredited investors are given the opportunity to fund private companies in exchange for equity. ”It changes everything,” said Smith. “But we are not sure this is a space we should be playing. Let’s focus on accredited investors [as] there is enough need.”

The challenges?

Ravikant told me the first problem was the amorphous timing, made more complicated when the startup succeeded in raising an additional $200,000 in funds from an external source.

“We are learning from this experiment,” said Ravikant. “We are redoing the interface and running it again for a couple more companies.”

The model is innovative when applied to tech startups (it’s not all that different to feeder fund structures), so it was not clear from the incipient stages whether it would work.

So, the results are in. It did not go by without a hitch: they had to consistently delay the funding deadline, the amount was lowered from $5,000 to $1,000, and the process of on-boarding investors was far from seamless. To qualify, investors had to sign up to both SecondMarket and Angellist, and both require a rigorous evaluation process.

But it worked. And this will fundamentally change the rules of the investment game in Silicon Valley.

This story was updated with comments from both SecondMarket and AngelList

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Joanne Wilson puts a distinctly feminine spin on angel investing. A majority of her investments are in female-founded companies, and she picks businesses that appeal to a female market.

Joanne and her husband, Fred, a partner at Union Square Ventures, are known forces in the technology world, particularly the New York startup scene. Wilson’s portfolio is currently 24 companies strong, and she has made a name for herself as an advocate for female entrepreneurs, a woman about town, and a savvy investor.

Early in her career, Wilson faced obstacles and discrimination as young, female professional. She got out of the technology industry to raise her children and published a popular blog called Gotham Gal that resonated strongly with women around the country. She realized that many women she worked with in the 1990s were not participating in the next generation of the web, and she jumped back in the game to promote female entrepreneurship.

“I want to help people execute on their dreams,” she said. “It is important to support women because they are not getting funded as often. There are great ideas and great companies, and I want to support them to the point where people in the investment world see the opportunity that these women have created and the strength of their businesses.”

Wilson’s investment strategy is to focus on the entrepreneurs. She said her number one priority is to believe in the founders and their ability to grow a business. Once she has added a company to her portfolio, she gets deeply involved and offers more than just financial support.

“At the end of the day, I have to like the person I am investing in. I have to want to spend time with them,” she said. “I want someone who can execute on their vision and move an idea forward, someone who is willing to evolve and pivot their idea and be flexible. I have to believe in the idea  they have, but the number one thing is the person.”

One of Wilson’s goals is to nurture startups to the point where institutional investors can have the “aha moment.” Many female entrepreneurs struggle to make the male-dominated world of venture capitalism understand their ideas, and so helping them prove their model is key.

“Social and commerce is something women understand more than anyone,” said said. “Women tend to build businesses that fill voids in their lives. If you are another women, you get it. Sometimes it is harder for investors to understand what their businesses are.”

Her portfolio is diverse, although food and fashion are common themes (in addition to females). It includes investments in Blue Bottle coffee, fashion data analytics, hydroponic window gardens, a platform that matches professionals with nonprofits, a scooter rental service, multiple online publications, wedding planning tools, and even an all-natural, sustainably sourced pickle company.

Her most recent investment is in a social e-commerce startup called Have to Have, billed as a “registry for your lifestyle.” Users create shareable wish lists with products they desire from around the web. The technology works like a virtual shopping assistant, tracking items, offering organizational tools, and notifying you when something goes on sale.

Publishers and advertisers can implement Have to Have’s tools and widgets to engage their consumers and gather data. Well-respected publishers like Conde Nast, Marie Claire, and the Huffington Post are clients, and the platform can help companies drive sales.

Founders Carla Holtze and Kimberly Skelton have impressive backgrounds. Both women earned MBAs from Columbia Business School and have years of experience in finance, technology, and fashion. When they first approached Wilson with their idea, she turned them down. They considered her feedback and made significant changes to their model, which impressed Wilson to the point of investing.

“These women spent six months literally re-doing the entire business, came back and pitched me again,” Wilson said. “I had to give them a huge amount of credit for making the shift and loved the angle they are going at it. It has both a consumer engagement and an business-to-business enterprise solution.”

Wilson encourages female entrepreneurship across the spectrum, emphasizing the importance of women serving as mentors, investors, and executives, as well as founders. She is trying to build an ecosystem where women support each other and succeed.

“To be a mentor and to help someone through their learning and career is really important,” she said. “I’d like to see women set up to the plate, and I hope that more women who have deep pockets could invest and provide their own knowledge and experience.”

To this effect, Wilson is one of the driving forces behind the Women Entrepreneurs Festival, put on by NYU. She not only provides advice to female founders in her portfolio, but to women everywhere balancing work life and home life, operating in a male-dominated environment, or simply looking for food recommendations in Brooklyn.

SAN FRANCISCO — Reid Hoffman has become, in Michael Arrington’s words, “ridiculously wealthy” as the founder of LinkedIn and Greylock Partners.

Arrington, a former editor of Techcrunch and the founder of the $20 million Crunchfund, asked the impolite question of what it’s like to be so rich at the Techcrunch DisruptSF conference today in San Francisco. Hoffman is one of Silicon Valley’s newly minted billionaires. He had the foresight to invest $37,500 in Facebook years ago at a $5 million valuation.

“You are wealthy, ridiculously wealthy,” Arrington said in an onstage interview with Hoffman. “Nothing gets you out of bed if it isn’t for $1 million or more. What’s different?”

Hoffman said that he had long wanted to be affiliated with universities, teaching classes on entrepreneurship. Now, when he shows up, he usually is asked to give a donation. He also said he doesn’t own a private jet, but now he knows what it is like to be on a private jet that is carrying only him.

“It’s a strange feeling,” he said.

After that, Arrington asked Hoffman his opinion on a series of issues in the news. Meanwhile, Hoffman is doing what he always does: investing in startups. He created Discovery Fund, a seed-oriented fund with just $15 million, that has invested in 75 companies over the past couple of years. About 40 percent of those have done well enough to get follow-in funding.

Asked if he believes Facebook is a good investment now, Hoffman said that he believes in the social network’s long-term position. The question, he said, is how it plays out in the next couple of years. If it stays at its current stock price, Facebook will be a good investment at some point. He thinks Facebook’s management team is strong and it will be able to make money on mobile social networking at some point. But there are a lot of stock lockups coming due (where employees and others are prohibited from selling stock for a period of time), and Hoffman says he will wait to see the impact of those lockup releases on the market before he starts investing again. Asked what Facebook could have done to address its stock price and have a better IPO, Hoffman said that he focused a lot on long-term investors when LinkedIn went public (and had a successful IPO).

Hoffman is also on the board at Zynga, which has also hit tough times with one weak quarterly report.

“[Zynga founder] Mark [Pincus] is not the furniture-throwing type,” Hoffman said. “Mark is very committed. The social gaming space is still very interesting. Zynga has the best position in it. The fast cycle that Zynga pursues is the best for the market. The negative side was it didn’t diversify its platforms fast enough. The company knows they need to do that. The path forward is relatively straight forward.”

He cowrote a book, The Startup of You, about how to think about your personal career path. It sold 120,000 copies but did not inspire the movement he wanted to create.

“It’s about how to stop thinking of your career as a ladder,” he said. “To get to a dream you haven’t gotten to yet, you have to think of it more as a jungle gym, where you invest in yourself as an entity.”

Hoffman said he believes that the next set of IPOs will be enterprises that exploit social opportunities. As for Yahoo, he said that new CEO Marissa Mayer faces a long-term turnaround task, meaning it will be one to three years before she gets results.

As for Silicon Valley incubator Y Combinator, Hoffman said that he appreciates its goal of trying to fund a lot more than just five to 15 companies a year. But he said stresses are showing, like whether Paul Graham and his colleagues can really understand the incubator’s startups when scores of them are in a class.

“Are they really up to speed in helping everyone as they want to?” Hoffman asked. “They have to make a decision between staying at this level and keeping up their level of service.”

Arrington tried hard to get Hoffman to say bad things about Twitter, which has changed the rules for its third-party developers who are creating apps for Twitter’s platform. Among those who have problems with Twitter is LinkedIn itself. But Hoffman would only say that Twitter’s decision to cut off a number of developers was “partial bullshit.”

He said, “It’s clearly not fair to developers. They based their livelihoods and product strategy on Twitter. On the other hand, Twitter has a responsibility to its vision and its shareholders. They needed to put some order to the chaos. It sucks to be a developer and they have legitimate gripes.” But Hoffman said he was pleasantly surprised that Twitter’s actions didn’t permanently damage LinkedIn.

Asked if social was over as an investment, Hoffman said, “We in the Valley tend to say that social is over. But we are social animals, creatures of the city as Aristotle would say. I think social is still very alive.”

Anyone who says that everything has been invented in a category is exhibiting a “failure of imagination,” Hoffman said.

Jay Levy at Zelkova's Manhattan office

Investing in startups is a funny business. Sometimes venture capitalists find themselves with a company that is growing and profitable. But if there is no opportunity for an IPO or acquisition by a bigger competitor, there may not be an exit on the table that allows the VCs to get a return on the money they invested which satisfies the backers who support their fund.

“It’s a broken system in some ways,” says Jay Levy, co-founder and partner at Zelkova Ventures, over a lunch at Five Napkin Burger in Hell’s Kitchen. “The problem is that most funds are structured so that you can’t reinvest gains from an exit.  This can put VCs in a position where their incentives are misaligned across multiple funds. We think allowing returns to be put back to work is the healthiest system for us, our backers and the companies we invest in.” An evergreen fund, Levy believes, allows for success with smaller returns.

Levy, with gelled black hair and thick silver watch, looks a little more Wall Street than most Silicon Alley venture capitalists. After college he went to work at Morgan Stanley, building software platforms for the banking giant. From there he spent time at the consulting firm MPI, which was eventually acquired by a financial services giant. VentureBeat asked if it was his background in finance that inclined Levy to try out a unique approach to venture investing.

“Not at all, it has more to do with my early experiences as an entrepreneur,” Levy said. He formed a company, UConnections, while he was an undergraduate at Rutgers. “We were pushed by our investors to expand quickly and win the market. In doing this we moved from being profitable to burning considerable cash.” When the venture markets tumbled in 2001, UConnections couldn’t raise cash or scale back quickly enough. It was a powerful and formative lesson for Levy. As for being Wall Street, “When we first started in 2008, I was the only VC coming to meetups in jeans,” Levy joked.

Over the last year Zelkova’s profile has grown as two of its portfolio companies, Fab and Klout, raised significant series C rounds that valued the startups in the hundreds of millions of dollars. Overall Zelkova is backing 35 companies across verticals like the consumer web, green tech, and software as a service. And as the infographic below shows, there has been substantial growth in its portfolio, doubling the employee count among Zelkova companies since this time last year. But can it become a bigger player without raising fresh capital?

“We’ve had three exits in four years. The pool of capital we have to work with is growing. We think maybe this is a sustainable model,” Levy said. It certainly gives them a unique ability to focus. Most venture funds raise capital on a ten year cycle. By the third or fourth year investing, they already have to be out working on a fresh fundraise. Zelkova’s small pool of backers seems content to experiment, although their lack of interest in a cash return can’t last forever.

“It’s an interesting approach, much closer to what angel investors do,” said one New York VC, when VentureBeat asked for an opinion of Zelkova’s model. “In some ways it definitely allows them to be more nimble. But just like all funds, it only works while things are going well. At some point you might still need to go out and raise again.”

To track their growth over the last four years, Levy created this infographic charting everything from his firms investments, to their tweets, to what their portfolio companies think of themselves. “We asked all our companies to rank themselves from 1-10. We have a couple startups I might call a ten in there, but they didn’t think so highly of themselves,” Levy said. “There was one company that gave themselves a perfect ten, I don’t know quite what they were thinking.”

Ever seen one of those in your Facebook inbox? Hopefully you have never responded, because this is “social spam” and one of the reasons why anti-spam service company Impermium has received $1M in seed funding.

The company, founded by ex-Yahoo anti-spam soldiers, including Mark Risher, provides a subscription-based service that monitors your website in real time for user-generated spam, account hackings and other untrustworthy interactions. It then provides what Impermium calls, “hosted mitigation solutions,” which allow you to stage a spam intervention.

According to Impermium’s website, startup companies can spend 30-60 hours a week controlling spam. Even more startling, a 2010 study by Sophos revealed 67% of social network users have been spammed socially. That’s twice as many seen only two years before in 2008. With the over 500 million active users cited on Facebook’s statistics page, spammers have a larger audience than ever.

Currently, spam prevention measures are unreliable and even detrimental to engagement on your site. You know that annoying series of numbers and letters you have to enter before submitting a comment or finalizing a purchase? That’s CAPTCHA, an automated challenge aimed at telling humans and computers apart, which Impermium says can drop engagement rates by 10%.

The new round of financing came from six venture capitalist firms and two angel investor groups, including Accel Partners, AOL Ventures, Charles River Ventures, Freestyle Capital, Greylock Discovery Fund and Morado Ventures, with angel money coming from Archimedes Capital and Embarcadero Ventures.

Charles River Ventures partner, George Zachary, said he has faith that the software can protect the social audience and business owners from losing web conversation. “We’re investing in Impermium because we think it has a great, experienced team and the most viable technology approach. If Impermium gets it right, not only will it become a large-scale company, but it will also provide essential cyber-security defense to the world’s most prominent sites.”

Impermium engages 50 million customers globally despite being in a test period.

I have been described as a “serial entrepreneur,” which makes it all sound easy and full of success. But what I have found is that, whether it is my first or seventh endeavor, starting a new enterprise is exhausting, ego shattering and (at times) infuriating.

But it’s also one of the greatest thrills in my life.

After more than 25 years, I have learned quite a few lessons. Here are my most valuable five:

Just do it – Nike may have trademarked the slogan, but the sentiment is universally applicable. So much is never accomplished simply because the idea generators are overcome with the paralysis of inertia.

There is an old Chinese proverb that says, “The best time to plant a tree was 20 years ago. The second best time is now.” Sitting around thinking about your great ideas will never produce anything. You have to act. Do some research. Build a prototype. Create a website. Network with colleagues. Start somewhere.

What often holds our ideas back is fear – fear of failure and the unknown. Your tree will may not be full-grown tomorrow, but if you plant it today, it certainly has a future.

Be willing to fail and try again – The fear of failure is a powerful de-motivator, but whether your business idea is ultimately a boom or a bust, you will gain valuable insight from the journey. I have learned many lessons with each of my start-ups. Early on, I learned about the perils of over-promising to clients.

My very first company, which provided lighting for concert venues, once agreed to light three separate shows even though we only had two complete lighting rigs. I thought I could wing the last one, using makeshift gear borrowed from other companies. Not only did that third show fail, all three concerts that night were disasters. I never again promised more than I could deliver.

Being able to pull back from a situation and assess why something went wrong is how you gain wisdom through experience. Don’t let your pride stand in the way. Be willing to admit you made a mistake and then exercise the strength to carry the difficult lesson with you so that you will avoid it next time.

The best valuation may not be the best deal – For those considering outside investment, whether angel, venture capital, or private equity, educate yourself on deal terms. Many inexperienced entrepreneurs agree to terms which are not favorable to them simply because they don’t know any better.

Learn about liquidation preference – participating versus non-participating. Above all, don’t let dollar signs fool you. Just because one investor provides a higher valuation than another, doesn’t mean that they are offering you the best deal in the long run. I have learned firsthand to do a pre-deal calculation myself to really understand how “great” a deal I might be getting.

Growing pains are real – It has happened every time. I have gotten my business rolling, revenue is increasing, and I am hiring new employees. Then the growing pains hit. If one thing is certain in the entrepreneurial world, change is constant. The management team that got you to $500,000 in revenue will, in all likelihood, not be the same group of people who can get you to $2 million.

One of the hardest parts of growing your company is knowing when you have to pivot your team. Companies also experience phases of growth with accompanying plateaus often around $2 million and $10 million in revenue. Changing management can help overcome these plateaus, as will proper planning and awareness of the potential for leveling growth.

Don’t be afraid to ask for help – Even if your business is developing a fancy SaaS interface for social media widgets, the small shopkeeper in your neighborhood may have some insights that can benefit you.

All businesses face the same types of issues and problems. Every day, I ask myself the same questions: How do I adapt to a changing marketplace? How do I get my message out and reach potential customers? How do I turn first-time clients into happy, returning clients? Practical, firsthand experience from those who have already been through it is definitely the best kind. Use your network. Talk to people who have been doing it a long time and be willing to consider that you may be wrong.

Let’s keep the conversation going. What lessons have you learned from your business experiences?

(Farid Naib is CEO and Founder of Document Depository Corporation (DDC) which develops online software solutions that enable management teams, boards and investors to store, share, and secure their critical data for greater governance leading to a premium. Mr. Naib has a long history of entrepreneurial activity. He began his first company at 17, providing lighting services to rock bands, including BB King and The Police. In 1992 he founded FNX Solutions, a leading provider of fully integrated, global trading and processing solutions used by the world’s largest financial institutions. Mr. Naib is an active angel investor and advisor for a variety of companies and sits on several boards.)

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

“Raising venture capital is worse than marriage,” says investor and serial entrepreneur Mark Suster. When a marriage doesn’t work out, you can get divorced, but there’s no separation from your VC or angel investors. In this entrepreneur thought leader lecture given at Stanford University, Suster encourages startup owners to thoroughly research investors before accepting their money – and tells you how to do that.

http://ecorner.stanford.edu/swf/player-ec.swf

(Can’t see the video? Click here)

The Fenwick & West Venture Capital Barometer analyzed the valuations and terms of venture financings for 107 Silicon Valley-based technology and life science companies that reported raising capital during the third quarter.

It found that while liquidity, usually in the form of mergers and acquisitions and initial public offerings, has been improving, the overall amount of venture investing is continuing its recent decline as potential investors wait for a more sustainable VC model to appear.

“The likely reason for this is that the venture model is currently out of equilibrium,” said Barry Kramer, a partner of Fenwick & West and co-author of the survey.

“Even though venture funds have reduced their investments in companies, they are still investing more than is being invested in venture funds,” he added. “In other words, over the past couple years, venture funds have had a significantly greater outflow of funds than they have had inflow of new capital. This is not sustainable.”

Kramer said that the valuations at which venture capitalists invest continues to be “relatively reasonable and stable,” but that it is likely valuations will start to decline if the amount of venture investment continues to decrease.

During the third quarter of 2010, up rounds (in which the price per share at which a company sells its stock has increased since its prior financing round) exceeded down rounds (in which the price per share at which a company sells its stock has decreased since its prior financing round). 52 percent of rounds were up round, 30 percent were down rounds, and 18 percent were flat.

Last quarter was the fifth consecutive quarter in which up rounds exceeded down rounds.

The survey also found that the usual “hotspots” continue to be popular, with the best-performing industries in the quarter (from a valuation perspective) being internet/digital media and, to a lesser extent, life sciences. But even the amount of funding being poured into those areas continues a downward slide, the data showed.

But, said Kramer, “There is hope, that with liquidity increasing, investments in venture funds will become more appealing, and venture capitalists will be able to raise more money, making more money available for entrepreneurial opportunities.”

July 9-10, 2013
San Francisco, CA

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Well-connected early-stage investor Christine Herron is leaving seed-stage venture-capital firm First Round Capital to join Intel Capital, the chipmaker’s corporate venture arm. The move adds another voice to the ongoing controversy over whether there is a bubble in early-stage investing that’s causing tension between angel investors and established venture capitalists.

Does Herron’s jump show that corporate venture-capital funds are no longer waiting on the sidelines when it comes to seed-stage funding?

Well, in Herron’s own opinion, yes—and with good reason.

The movement toward established corporate venture arms putting serious money into early-stage deals is definitely gaining momentum, Herron told VentureBeat, though they will continue to invest in startups of all sizes and levels of development.

Herron was a principal with First Round Capital, a firm widely regarded as innovative in its approach to seed investing. Still based in the Bay Area, she will seek out early-stage consumer and Internet deals for Intel Capital starting next month.

She said it is clear that larger companies have begun to realize that they need to get involved as soon as possible if they want a piece of any major startup action, and need to move faster in general.

“It is definitely happening, it’s not just a one-off,” said Herron. She was impressed with Intel’s rapid turnaround in an investment she was involved in this summer that she began to change her opinion about working for a massive corporate operation.

“They were fully aware of wanting to be in this space, they put in the same amount we did, and they did it even more quickly because it was strategic for them to be there,” said Herron.

That’s a trend happening across almost all corporate venture arms she’s worked with recently, added Herron, as they add early-stage funding to a much broader strategic playbook.

“Whether you look over at Google or Samsung, they have the same pressure to get in early as any of the other players at different levels. And corporates get that, definitely,” Herron told VentureBeat.

“If there’s a company or space that you know you like, getting in early is the best way to make sure that you are going to be involved in the future,” she said. “If you want a seat at the table, you have to show up on time for dinner.”

Herron would know about showing up on time.

Before joining First Round, she was a director at Omidyar Network, after holding operational roles with Mission Research, NetObjects and Microsoft. Prior to that, Herron was the founder and CEO of software-as-a-service developer of international trade logistics systems Mercury2.

[Photo of Herron at DEMO Fall 2009 by Brian Solis/Bub.blicio.us]

Together, the talks (which are only a few minutes long) give a pretty broad overview of where the angel investing field is right now. Speakers included Y Combinator’s Paul Graham (pictured above at another event), 500 Startups’ Dave McClure, and Floodgate’s Mike Maples.

If you want a place to start, I’d suggest comparing and contrasting the speeches by prolific angel Ron Conway, who said he hopes that every entrepreneur gets funded, and TechCrunch Editor Michael Arrington, who warned against funding “dipshit companies” that aren’t thinking big. I wrote a post summarizing Conway’s and Arrington’s talks, but now you can see the entirety of their speeches.

The site is also a bit of a showcase for what users can accomplish with Posterous, the simple blogging startup that is itself a Y Combinator graduate. It’s a bit fancier than the usual Posterous blog, but cofounder and chief executive Sachin Agarwal said he was able to build the site in about an hour. The videos are viewable on a mobile phone and downloadable, but they can’t be embedded on other sites yet — Agarwal said that’s a feature the company hopes to add in the future.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

(Editor’s note: Robert R. Ackerman, Jr. is the founder and managing director of Allegis Capital. He submitted this column to VentureBeat.)

It’s no secret it’s been a daunting period for entrepreneurs seeking venture capital. While the market is easing a bit, it will remain tough for the rest of the year and probably well beyond that.  So what’s an entrepreneur to do?

Look for money inside corporations.

Odd as it might sound, the case for a startup/corporate collaboration is actually quite compelling. Startups are renowned for their creativity and efficient innovation models, but they often find it difficult to introduce their product or service to the market because they lack an established brand identity (and, thus, have minimal distribution and customer support infrastructures). On the other hand, corporations have recognized brands, established distribution channels and strong customer relationships. What they lack is a culture of innovation that can keep pace with chronically changing markets.

A partnership between a startup and a corporate partner offers the potential for some seductive synergies. As a startup moves from pure research to product and sales execution, a corporate investor can provide more than just cash. It can help explain market dynamics to a startup, how best to introduce the product to the market and how to scale. Commonly, it also provides manufacturing or distribution channels.

For startups seeking a corporate partnership, it’s critical to realize the goals of the two organizations are different, naturally. The corporation wants to leverage the startup’s innovation to respond to market opportunities. The startup wants high velocity access to new customers for its products and/or services – usually the corporation’s customers. Finding common ground and developing a relationship that promotes a healthy partnership requires significant effort on both sides.

The corporation typically has more leverage, so startups often have to make a disproportionate effort to foster, develop and support a mutually acceptable strategic vision. Eventually, this transitions into a more reciprocal relationship, once the cultural conflicts between the two companies are mitigated.

When a startup is able to demonstrate strong demand for a good product, execution becomes paramount – and could be the catalyst for a discussion about the corporation buying the startup outright. An advantage here is if a startup is acquired before it spends millions scaling up manufacturing and building a sales team, it can avoid unnecessary duplication – thus, saving both companies money.

IronPort Systems, one of our former portfolio companies at Allegis Capital, is a good example of this unusual type of collaboration.

In 2007, Cisco Systems acquired this electronic messaging gateway company. While Cisco could have bought the company a couple of years earlier, it decided to wait and first become a customer. After IronPort proved its worth and began to scale, it became a less risky investment. When Cisco bought the company, it gave IronPort a huge boost by selling its product through its corporate channel, causing revenues to more than triple. When Cisco bought the company, it retained almost 100 percent of the team.

Needless to say, the scenario doesn’t always play out this smoothly. In fact, major mistakes, cultural and otherwise, commonly kill the marriage and inflict irreparable harm. If you’re giving this sort of partnership consideration, here are four crucial tips to keep in mind:

• Share experiences and goals. Like any good relationship, the more similarities between the two parties, the better. Both companies should have experience in the same areas and be good communicators. Both should also have good give-and-take skills, as well as mutual tolerance, because periodic disagreements are inevitable – and they need to be resolved amicably and successfully.
• Seek a synergistic culture. Large corporations tend to resist change. Entrepreneurs are precisely the opposite, priding themselves on being untethered, fast and efficient. Predictably, partnerships between the two can create huge frustrations. Successfully combining the two cultures requires acknowledgment from both parties of what each type of company does well and what it does not. To promote collaboration, the startup should have an inside “champion.” Clearly, the startup won’t always win debates. If you don’t think you can have fruitful conversations with a corporate partner, however, don’t bother with this sort of partnership opportunity.
• Develop strong negotiation skills. A corporation engages with a startup for one of two reasons – to fill a technology product void or to secure an option on a potentially useful innovation. In other words, the corporation is looking out for its own interests. Startup entrepreneurs need to do the same. A large corporation can easily overwhelm the resources of a much smaller strategic partner. And a large corporation can walk away from a strategic partnership with no more than a bruise. The consequences can be far more dire for the startup. So a startup must maximize its exit options to protect itself against the possibility of a dysfunctional partnership.
• Ensure alignment of interests. Strive to develop a partnership of equals, one in which both parties share commitments, milestones and benchmarks. If a corporate partner asks for a startup’s financial records more than once or twice, don’t do it, since this undermines the notion of a partnership of equals. Negotiations are impossible when a corporation holds all the cards.

The investing socialsphere has been all a-Twitter ever since Paul Kedrosky predicted an upcoming super-seed crash.

The result has been a series of opinion pieces, both for and against, that tackle various aspects of the issue — whether super angels are a fad, if there is a seed bubble (I’m on record as saying that there is), what this means for entrepreneurs …

What’s missing is a guide to the underlying assumptions behind these various positions. That’s what I’m going to lay out in this blog post.

For the sake of argument, I’ll simplify both the two positions, which I’m calling Super Angel and VC Revenge.

Super Angel

• Companies are much more capital efficient
• As a result, you can make money on smaller exits
• VCs funds don’t make good seed investors because of the signaling issue (e.g. if they pass on your Series A, why would anyone else fund you)
• Besides which, angels can do more for early stage startups than VCs

VC Revenge

• Because it’s so cheap to start companies, everyone is doing it
• The success rate on these seed stage companies is going to be very low
• Investors make money off home runs, not singles
• When the going gets tough, you need an investor that can support you through the bad times

Let’s examine the assumptions required for each assertion to be true:

Super Angel Assumptions

“Companies are much more capital efficient.“
True, but …

It definitely costs less to start a company. Back in 1999, when I started my first company, I had to pay $20,000 per month for a datacenter. Now I could probably get 10X the capacity from Amazon for $20 per month. For those keeping track at home, that’s a four orders of magnitude reduction.

However, that efficiency only applies pre-salary; once you start to pay people, the costs really aren’t that much lower. And if you’re building a full-scale business, you’re going to need people. Craiglist is a remarkable exception, not the rule.

“As a result, you can make money on smaller exits.”
True, if …

You can make money on smaller exits, provided you sell early, before you start to incur those major people costs. Think of all the successful small exists that have occurred, like MyBlogLog. They made money for investors because a $20 million exit is highly profitable if you’ve only invested $500,000.

But the number of companies that took in less than $1 million in funding and cashed out for more than $20 million is vanishingly small (anyone want to provide an example?). And a $20 million exit returns at most $4-5 million to investors. It takes a lot of $20 million sales to support an industry (more on that later).

“VCs funds don’t make good seed investors because of the signaling issue (e.g. if they pass on your Series A, why would anyone else fund you)“
True

Yep, chalk this one up for the angels. And if you’re an entrepreneur and you think $250,000 will get you to profitability, you probably deserve your fate for being naive.

“Besides which, angels can do more for early stage startups than VCs.“
Increasingly false

Individual angels can be very helpful, just as individual VCs can be very helpful. But the numbers are starting to tell a different story.

I’ve heard folks slam VCs because they sit on 10-12 boards, and are spread too thin to help their companies. So how can we turn around and ignore the fact that there are a number of angels who will do that many deals in a single quarter?

Even if angels are willing to work harder (and from my first-hand observation of friends like Jeff Clavier and Dave McClure, that assertion is 110% true), can they really be an order of magnitude more productive on a unit time basis than a VC?

Super Angel Summary:
The super angel arguments hold try if you start a capital-efficient company and sell out before you need to get too big or pay a bunch of salaries. And if you’re looking for a seed stage investment, angels are a better bet than VCs for signaling reasons. But don’t bet on those angels being appreciably more available to you than an equivalent VC.

VC Revenge Assumptions

“Because it’s so cheap to start companies, everyone is doing it.”
True

So far today (June 30, 2010), 58 companies have been added to CrunchBase. And the day isn’t over yet.

“The success rate on these seed stage companies is going to be very low.“
Depends on how you define success …

If you define success as $100 million+ exits, this is absolutely true. As far as I know, the only such exit from the super angel world so far is Mint (covered in another post).

If you define success as making investors money and making entrepreneurs into millionaires, the list is far longer.

“Investors make money off home runs, not singles.”
As an asset class, true

In 2009, VC investments exceeded $20 billion, with about 20% of that money going into early stage deals. Some of that was VC, but if we assume that only 25% of that early stage money came from angels, we’re still talking about $1 billion invested.

If you need to come up with $1 billion in returns, one $5 million exit at a time ($20 million exit, investors hold 25% of the equity), that requires 200 such exits per year. If you assume the need to generate $2 billion in returns to justify the risk, that jumps to 400 exits per year, or about 8 per week.

We’re not seeing anywhere close to that number of exits right now. And that’s just for angel deals.

Assuming that $1 billion is invested at a rate of $500,000 per company, that’s 2,000 investments. Can we realistically expect a 20% hit rate on seed stage investments?

The only way the math can possibly work as an asset class is if you have home runs as well as singles.

This doesn’t preclude there from being a magical angel investor who gets a 50% hit rate on investments, but I think I have a better chance of meeting the Easter Bunny.

“When the going gets tough, you need an investor that can support you through the bad times.“
True, but …

Good VCs will support their companies during bad times. I’ve witnessed it myself at nearly every company I’ve started or worked at because — guess what — pretty much every company goes through tough times, even Google.

I don’t think that super angels have a long enough track record in this area for a final judgment yet. On the other hand, seed stage deals do have an alternate backstop if they don’t raise too much money.

The rise of the HR acquisition (where Google or its ilk acquire a small founding team for $1-2 million per top-flight engineer) gives startups with hardcore technical founders a strong put option in the event that they can’t build a successful business.

VC Revenge Summary:
More companies are getting started than ever before. And unless their success rate (even at the $20 acquisition level) is freakishly high, simply hitting singles will not be enough to generate a good return for the asset class.

Conclusions:
A lot of the super angel assertions hold true, provided you assume that you’ll be able to achieve early exits. But as an asset class, angel investing at the current elevated rate looks like a bad bet unless the number or size of exits improves dramatically.

Angel investors who really are gifted at picking winners should succeed, but those that are essentially index funds are unlikely to generate strong returns unless they have the wherewithal to maintain their position in follow-on rounds…which makes them start to look an awful lot like VCs.

But whether or not you agree with my conclusions, you shouldn’t lost sight of the fact that the super angel phenomenon is a good thing for the rest of the ecosystem. Entrepreneurs have more opportunities to get funding for their companies. VCs have the luxury of picking and choosing from a massive buffet of startups that have been able to operate and grow for 6-18 months on someone else’s money.

And even those entrepreneurs who raise money at “bloated” seed valuations of $3 million rather than $1.5 million won’t have much trouble raising a Series A at an increased valuation; whether you have a $2 million or $4 million post-valuation on your seed round has a major impact on angel returns, but not on your ability to raise a true Series A of $3-5 million.

I welcome further discussion on this topic, and hope that as a community, we can focus on examining the numbers and assumptions behind these arguments.

Bezos, Dell and Drew Carey (?!) back health care startup: The Amazon.com and Dell founders, along with the comedian, are investing in a Seattle-based Qliance Medical Management, which tries to deliver affordable quality primary care by eliminating insurance companies. The company said it raised $6 million today.

Angel investing heats up: As the traditional venture capital industry still suffers from bloated funds raised a decade ago amid the tech bubble, early-stage investing is becoming rather frothy, reports GigaOm. Googler Aydin Senkut and PayPal mafia members Max Levchin and Keith Rabois say they’ve made several deals this quarter alone compared to the frosty market during the economic crisis.

Speaking of which, a Harvard Business School study shows angel funded companies do better than purely venture-backed ones: Companies with angel funding see between 30 and 50 percent higher growth in web traffic and are more likely to survive for four years, William Kerr and Josh Lerner find.

Cisco’s Smart Grid team grabs Paul De Martini as chief technology officer: De Martini comes from Southern California Edison, where he was vice president of advanced technology.

Time Warner’s big booboo: Ted Turner said the company’s executive team sold a 5 percent stake in Google 10 years ago. Oops. Turner said, “I said to Dick Parsons, ‘Dick, I think we ought to hang onto that Google stock.’ That was 10 years ago. He said that company is a bunch of bullshit.”

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

(Editor’s note: “Ask the Attorney” is a weekly VentureBeat feature allowing start-up owners to get answers to their legal questions. Submit yours in the comments below and look for answers in the coming weeks. Author Scott Edward Walker is the founder and CEO of Walker Corporate Law Group, PLLC, a boutique corporate law firm specializing in the representation of entrepreneurs.)

Question:  I’ve read a few articles and blog posts over the past couple of days regarding Senator Dodd’s financial reform bill, and some of them suggest that it’s going to be more difficult for startups to raise money if the bill is signed into law.  Why is that?  I thought the bill was supposed to address the problems on Wall Street that led to our financial crisis.

Answer: I’m as puzzled as you are, to be honest.  Yes, the legislation is designed to address financial reform and regulation of the big banks, including the “too big to fail” issue; however, buried deep in the 1,336-page bill are certain changes to the federal securities laws that will indeed make it more difficult for startups to raise seed and angel financing.

First, a quick primer on federal securities laws, which I have previously discussed in detail.  (I know this is very technical stuff, but I think it will be helpful for you to understand the issues.)

As a general rule, a company may not offer or sell its securities unless the securities have been registered with the SEC and registered/qualified with applicable State securities commissions or there is an applicable exemption from registration.  The most common exemption for startups is the so-called “private placement” exemption under SEC Regulation D, which comprises three different types of private offerings under Rules 504, 505 and 506.

If a startup sells stock only to “accredited investors” (defined below), compliance is much simpler, faster and cheaper because it can rely on Rule 506, which has two important advantages over the other SEC rules.  First, Rule 506 preempts or overrides State securities laws, which means that the startup doesn’t have to deal with State securities regulators for compliance purposes, other than filing a brief notice known as a Form D (which is also filed with the SEC).  Second, there is no written disclosure requirement under Rule 506 if the investors are accredited.

On the other hand, if one or more of the investors is not accredited, SEC Rule 506 generally may not be relied upon – which opens-up a Pandora’s box of compliance and disclosure issues. Generally, the cost, risks and onerous disclosure requirements generally outweigh the benefit.  That’s why startups have been overwhelmingly (and effectively) relying on Rule 506 for nearly 15 years in connection with their seed and angel financings.

So who is an “accredited investor”?  With respect to individuals, he or she currently must have a net worth (or joint net worth with his/her spouse) that exceeds $1 million at the time of the purchase or income exceeding $200,000 in each of the two most recent years (or joint income with his/her spouse exceeding $300,000 for those years) and a reasonable expectation of such income level in the current year.

Under Dodd’s bill, the definition of “accredited investor” would be revised to require individuals to have a net worth of at least $2.3 million or annual income of $449,000 (or $674,000 of joint income with his/her spouse).  According to Business Week, this revision would lower the number of individual accredited investors by 77 percent.

It gets worse. Even if all the investors are “accredited investors” under the new definition and the startup is thus relying on Rule 506, a filing (presumably a Form D) must be made with the SEC, and the SEC will have 120 days to review it.

That’s right – 120 days.  And if the SEC does not review the filing within such 120-day period, then the applicable States securities commission(s) would have the right to review the merits of the financing.

Alternatively, the SEC can designate that certain financings under Rule 506 are too small in size or scope to warrant SEC review and push such review to the State securities commissions.

The bottom line is that not only is this second change confusing (and sadly it’s even more complicated than I have described), but also it will create significant delay and cost in connection with seed and angel financings and put the State securities commissions back in the game – which is exactly what Rule 506 is designed to prevent.

The frustrating reality is fewer and more expensive seed and angel financings means less and less job creation.  Wake up Washington!

Disclaimer: This “Ask the Attorney” post discusses general legal issues, but it does not constitute legal advice in any respect.  No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  VentureBeat, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.

Not surprisingly, investors aren’t happy about it, saying it’s “insane,” “frankly ridiculous,” and aims to “destroy Silicon Valley.”

There are three changes that should have a particular effect on angel investors, a catch-all category which includes everyone from friends and family members who invest in a startup, to unaffiliated wealthy individuals, to side investments made by venture capitalists acting on their own.

First, Dodd’s bill would require startups raising funding to register with the Securities and Exchange Commission, and then wait 120 days for the SEC to review their filing. A second provision raises the wealth requirements for an “accredited investor” who can invest in startups — if the bill passes, investors would need assets of more than $2.3 million (up from $1 million) or income of more than $450,000 (up from $250,000). The third restriction removes the federal pre-emption allowing angel and venture financing in the United States to follow federal regulations, rather than face different rules between states.

Several investors have written pointed critiques of the bill:

• Fred Wilson of Union Square Ventures said startups will be “hit by shrapnel” from the bill.
• Robert E. Litan of the Kauffman Foundation, which researches entrepreneurship, wrote, “It is difficult to know why these provisions are in a much larger bill whose primary aim is to address the fundamental causes of the recent financial crisis.”
• Mike Masnick at tech policy site Techdirt described the restrictions as “somewhat horrifying.”

Investors offered more criticism on Twitter, with Slide vice president Keith Rabois tweeting, “Anyone still need more evidence that Obama and the Democrats intend to destroy Silicon Valley and the dreams of entrepreneurs?”

Rabois, an early PayPal employee and angel investor, has a strong libertarian/anti-regulatory political stance, but liberals hate these restrictions, too. Chris Sacca, an angel investor and former Googler who campaigned for Obama, also tweeted that people who “care about startups and making sure they have access to capital” need to sign a petition against the investing regulations.

I asked Sacca for more details about his opposition. In a voicemail, he said:

Obviously, I’m deeply concerned about Senator Dodd’s proposal to place these restrictions on angel investing. I think angel investing is undeniably one of the largest engines for job creation as well as innovation and competitiveness on the global scale for the United States. There’s no doubt about it that the restrictions that he’s proposing would absolutely chill investing.

Specifically, one of the things we need to take into account is while 10 years ago it may have taken years to build a company, companies are now built in a matter of weeks. So this 120-day waiting period is frankly ridiculous. I have companies with tens of thousands and hundreds of thousands of users that are built in a matter of weeks. They’re generating actual dollars of revenue, creating jobs, investing in real estate office space, capital equipment, etc. If they had to wait 120 days to actually apply for the ability to obtain financing it would absolutely just crush that market.

I think this is a very short-sighted proposal. It seems far afield from the problems that the banking committee is actually trying to address.

This outrage may not be futile, either. A source in the Senate Banking Committee told PEHub that the committee is talking the complaints seriously.

You can read a summary of the bill here.