You don’t have to live in Palo Alto to become a software billionaire, though it can help.

For decades, people with ideas, programming talent, and the ambition to make their fortune as entrepreneurs have been moving to Silicon Valley, just as Mark Zuckerberg did shortly after founding Facebook.

But now an increasing number of them are staying at home.

Take, for example, Andrew Mason, the founder of Groupon, who started the company in Chicago in 2008 and kept it right there in the Windy City through its initial public offering in November, 2011.

Or 37signals founders Jason Fried and David Heinemeyer Hansson, who started a web design firm in Chicago in 1999 and kept it there even as the company grew to become a small but influential provider of project management tools and an even more influential blog about effective startup management.

You might think that Chicago was turning into a hive of startup talent, and you’d be right. According to BuiltInChicago.org, the number of digital startups created in the Chicago area in 2011 increased 56 percent over the year before, to 128 new companies.

Even more impressive, the funding raised by those companies was up 431 percent over 2010, to $1.45 billion. Excluding the massive pile of cash that Groupon alone raised ($972 million), Chicago area companies still raised 76 percent more than the year before.

One thing that might be helping is the presence of J.B. Pritzker, a Chicago native who founded New World Ventures in 1996 to invest in technology startups.

Pritzker is a wealthy man, one of the heirs to the Pritzker family fortune, he’s worth an estimated $2.5 billion. He is literally as rich as Rockefeller (David, that is), though that much wealth only qualifies him for a seven-way tie for 159th richest American, according to Forbes.

I had dinner with Pritzker and a group of venture capitalists and journalists recently, where the conversation focused on what it takes to create regional innovation hubs. According to Pritzker, Chicago’s entrepreneurial scene has taken off in the past few years, and it’s not just thanks to the recent success of Groupon’s initial public offering. It’s not just having a rich guy bankroll things, either, though clearly that helps.

Rather, the VCs at that table agreed, what it takes to create a startup ecosystem–whether that’s in Chicago, New York, Salt Lake City, Detroit, or Boulder–is the presence of serial entrepreneurs. Someone has to take that first leap, start a company, recruit talent, and then stick around long enough to do it again.

Serial entrepreneurs can provide capital, by becoming angel investors or even venture capitalists. Their employees form a base of recruitable talent: people who have worked at startups before and understand that the work is not like a job at an ordinary company. Serial entrepreneurs also provide leadership, by serving as an example and as a magnet for talent: Smart people want to hitch their wagons to a rising star, in other words.

“The thing is the pull of jobs and the pull of the serial entrepreneur,” Pritzker said.

In a way, it’s easier to start a company outside Silicon Valley than inside it. Competition for talent is lower, because here in the Bay Area everyone needs engineers, driving their starting salaries into six figures, even for kids just out of college with no significant experience. Elsewhere, you don’t have to pay such rich prices. That may be one reason why Silicon Alley startups are coming up fast.

And, because of the abundant infrastructure provided by the Internet, it’s easy to offshore jobs that you can’t get done locally. Need more designers or more engineers? Turn to India, or the Philippines, or Romania.

Still, not everyone is convinced. I talked with Verdi Ergun, a cofounder of point-of-sale system startup Own, which recently moved from Ann Arbor, Michigan to San Francisco.

“We went from being a big fish in a small pond to a small fish in a big pond,” Ergun told me. “We hit this point where we needed more access to engineers and more access to capital, given the stage that we were at.”

Own’s prospects for success will be very dependent on the company’s ability to form partnerships with other tech and social networking companies, many of which are in California, so the move makes sense strategically as well.

But for an increasing number of companies, you don’t have to make it here: You can make it anywhere.

Note: As part of our global DEMO tour, VentureBeat will be traveling to Chicago on February 27th, where we’ll be partnering with one of the city’s top incubators, Sandbox Industries, to find the best startups in town. If you’d like to meet with us, please fill out this form, and we will be in touch shortly with more details.

Cloud gate photo: Kara Allyson/Flickr

Related articles

• Silicon Valley and Colorado companies – Do you sizzle? (Reminder) (venturebeat.com)
• Dylan’s Desk: Meltwater aims to build a billion-dollar business without venture capital (dylan.tweney.com)
• Silicon Valley may be too smart for its own good (venturebeat.com)

Watch out! There’s some adults-only vocabulary in Startup Land.

For this week’s video show installment, we decided to deliver a very special VBWeekly addressing the dangers of myopia and jargon.

Also, we decided to slay what’s left of the “Sh*t People Say” meme.

Since we get a lot of press releases, talk to a lot of VCs and entrepreneurs, and live the dream ourselves as startup employees, who better to skewer the startup community than VentureBeat, we figured.

We took a liberal amount of this script from real life (the number of times we’ve heard “We don’t have any competitors” is astronomical), but some of it is fictional.

Generous thanks goes out to @MochaSips, @CynthiaSchames, @dabent, and @matthewcyan for their Twitter suggestions.

And to the many, many hard-working developers, founders, VCs, angels, bloggers, and PR folks whose work we quote directly, please know that we’re laughing with you, and we know very well that VentureBeat wouldn’t have anything to write about without you. We mock only with the greatest love.

Special thanks to “the talent” and “the crew”: Sarah Mitroff, Meghan Kelly, Garrett McCullum, Amanda Lopez, Matt Marshall, Jason Spangenthal, and Jolie O’Dell.

Jorn Lyseggen thinks he can. He’s the founder and CEO of Meltwater Group, a major player in marketing intelligence services.

I spoke at a Meltwater event recently, and got to know a bit about the company. I was intrigued by the company’s unusual strategy and its unique sense of corporate culture, so I decided to find out more.

Meltwater got its start with Meltwater News, a media monitoring service that scans hundreds of thousands of news sources and delivers summaries and alerts to its clients based on what they’re looking for. It has since added services for monitoring and engaging with customers on social networks, creating and managing PR lists, search engine optimization and others. The company delivers its products as a service, making it one of many SaaS (software-as-a-service) companies.

The company is 10 years old, and has been almost entirely self-funded. Lyseggen started the company in Oslo with $15,000 of his own money and has been growing it through revenues ever since. The company now employs 900 people, is headquartered in San Francisco and will post $114 million in revenues in 2011, Lyseggen told me recently.

Lyseggen himself is a bit of an unusual character: A Korean-born adoptee with a ready smile, he grew up on a farm in Norway and speaks with a Norwegian accent. He enjoys salmon fishing in his hometown fjords and reading Viking sagas, according to his company’s website, but he also knows how to work a crowd and has obviously inspired his workforce with a charismatic vision of what Meltwater’s culture is all about.

Meltwater has never taken venture capital. That makes it an anomaly among tech firms in Silicon Valley. If Lyseggen succeeds in reaching a billion dollars in revenues, he’ll have done something very few have accomplished. SAS Institute, HP and Best Buy appear to be the only modern tech companies to have reached this milestone unaided by VC investments.

Lyseggen has ignored other Silicon Valley maxims, such as the primacy of engineers and the desire to build a large, impressive headquarters. And the company hasn’t been as widely covered as rivals such as social media-monitoring service Radian6 (acquired by Salesforce.com earlier in 2011), recently-public Jive Software and Google News (whose “alerts” serve some of the same purposes).

“I think we’re a nonentity in many ways. We’ve just been doing what we’re doing,” said Lyseggen. “I believe in focus.”

For Lyseggen, that focus meant building a distribution network first. A veteran of three startups, he says his initial goal was to build software that could easily be sold, enabling him to keep his team super-small.

It didn’t work out. Lyseggen learned quickly that successful sales depended on having local sales operations, so he oriented his company around that mandate and started hiring local sales forces. The company now has 57 offices worldwide, each one with a relatively small number of people.

“Distribution at the end of the day trumps technology,” Lyseggen said.

The small local offices enable another key aspect of Meltwater’s culture: The emphasis on leadership. With small, relatively autonomous teams, there are plenty of opportunities for people in each location to learn how to make decisions and take charge, whether that’s deciding what color to paint the walls, which furniture to buy at Ikea, or what the best marketing strategy is for recruiting new customers in the area.

His conviction that leadership is important runs deep. Lyseggen said that most of what he spent the first five or six years doing was recruiting. For that period, he interviewed every single candidate. (So did many other Meltwater staffers, as the interview process is an intensive two-day audition that involves talking with lots of people and working on group projects with other candidates.) He estimates that he’s done about 3,000 face-to-face interviews. Only 5 to 10 percent made the cut.

Once the company built out its distribution network, Meltwater started developing or acquiring additional products for its portfolio.

But how can a small company whose major business is essentially a high-end clipping service aspire to a billion dollars in revenue? Lyseggen thinks it’s by following a larger trend: The imperative for companies to get savvy about collecting and analyzing data from the outside world.

Companies like Oracle, SAP, Microsoft and IBM have gotten huge by giving their customers tools to manage data “inside the firewall,” through databases and applications built on top of that data. Now, Lyseggen believes, it’s time to build a comparable stack of data and applications based on intelligence about the wider world.

“In the last 15 years there’s been an explosion of information outside the firewall,” Lyseggen said. The need to manage that data will give rise to many billion-dollar businesses.

Managing that data can be helpful for recruiting, marketing, sales development, but also for product development, by giving companies better information about what potential customers want. And it’s not just big companies that need this kind of information. Lyseggen likes to tell the story of a small Norwegian window installation company that is a customer of Meltwater, which it uses to monitor local news sources for news about robberies and break-ins. It then visits each location to see if they need any broken windows replaced.

Ultimately, Lyseggen told me, he thinks that in the next five years, CEOs of every company will demand dashboards that give them knowledge of their customers and potential customers, just as they now demand dashboards showing the state of their internal business processes. Building those tools will take a lot of time and effort, but will also create an enormous amount of opportunity.

“This is food for generations of scientists and engineers,” Lyseggen said.

Photo courtesy Meltwater Group.

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BestVendor wants to make it easier for any business to find the right software to get work done, based on the experience of professionals at similar companies.

“When it comes to desktop Web and mobile applications there are new things coming out all the time,” BestVendor co-founder and chief executive Jeff Giesea told VentureBeat. “There’s a lot of noise, but some of them can be really helpful to businesspeople.”

The BestVendor signup page is simple and elegant and asks you to submit three work-related apps you love. Then it helps your build a profile by connecting your LinkedIn account to the service. The information about your company size and industry helps BestVendor match you with similar companies in similar industries. From there it’s quick and easy to see what tools companies like yours are using and to try them out for yourself.

BestVendor is solving a problem for businesses, but it is also bringing new customers to the app makers. Rather than spend money on marketing their products through traditional channels, developers can use BestVendor to connect with the people most likely to buy what they’re selling by finding them at a time when they need it.

In 2008 there were 27 million small businesses in the U.S., according to the Small Business Administration. A small business is one that employs fewer than 50 people. It’s fair to assume that most American small businesses don’t have a procurement department whose sole job it is to find and test the best work tools.

“Ten years ago it would have seemed weird that we all share our resumes online using Linkedin. We’re working towards a world where professionals are sharing the tools they’re using online and it becomes part of their identity,” said Giesea.

Right now BestVendor  has 4,100 users, but the site launched in an open beta at the beginning of November. BestVendor is based in New York City, and has three employees. The company received $600,000 in seed funding from Peter Thiel, Ron Conway’s SV Angel, Lerer Ventures and Softbank Capital.

Giesea recently shared the 25 most beloved work web services and work apps on VentureBeat. BestVendor has also compiled a list of top tools for developers, and the results of its 500-person survey were compiled in an infographic released today.

A year later, the 26-year-old was standing on stage (in his typical electric orange sneakers) in front of 350 customers and press at his company’s first annual conference, BoxWorks, held yesterday in San Francisco. He had just turned down a buyout offer worth more than $500 million. That evening, Box.net hosted a party where the entertainment was one of his favorite bands from middle school, Third Eye Blind.

Levie has come a long way since middle school. In fact, he and his company have emerged as iconic figures for the new wave of enterprise technology.

Like Steve Jobs, Marc Benioff and Mark Zuckerberg, Levie is part inspirational leader and part visionary. More to the point, Box.net is part of a new wave of startups that are bringing new ways of thinking into the enterprise, borrowing from Apple’s consumer playbook. For instance: make something simple, easy to use and insanely useful, something that you would have never realized you needed, but can’t live without today. It’s a totally different way of working than most enterprise technology companies.

“In the last 10 years, it feels like something fundamental is changing, consumer computing is leading the industry,” Andreessen Horowitz co-founder Marc Andreessen told VentureBeat. (Andreessen Horowitz is one of Box.net’s investors.) “Consumers get the hottest mobile devices years ahead in advance before adoption in the enterprise.”

Box.net was started in 2005 in a garage by a bunch of University of Southern California students. It has since gone on to capture the attention of investors and massive companies. The enterprise-focused cloud storage provider went from five-figure revenues in its first year to millions by the time it closed its first round of funding from Draper Fisher Jurvetson in 2006 and more than $10 million by its fourth round in February, 2011, Meritech Capital managing director George Bischof said.

Today, the company has more than 7 million users and 77 percent of the largest companies in the world on the Fortune 500 list have deployed its service in some form. Box.net just closed an extension to its most recent funding round worth $50 million that includes its existing investors — including Draper Fisher Jurveston, Andreessen Horowitz and Meritech Capital, all Facebook investors — and also a new investment from Salesforce.com. In total, the company has raised more than $130 million in funding.

“We were kind of kicking ourselves for not getting in earlier, but they were below our revenue threshold,” Bischof told VentureBeat. “We met a year before, and we saw it had the potential to be one of those mega-spaces that affects everyone.”

And half of the $130 million is still in the bank, Draper Fisher Jurveston partner Josh Stein told VentureBeat. The most recent round is an extension to its fourth round of funding, which had already brought in $48 million. Box.net is gearing that funding toward infrastructure costs and opening a third data center to run alongside its existing two centers to manage the load from its new customers.

Now, using all those new enterprise applications is basically a prerequisite for an investment by Andreessen Horowitz, Andreessen said. Every company funded by Andreessen Horowitz in the past year has used Box.net to some extent, along with a mishmash of the other enterprise 2.0 applications like Google Docs and Workday, he said. Most of the time they are either free to try out — in the case of freemium apps like Yammer and Box.net — or are dirt cheap.

A lot has changed since I first made it to Silicon Valley a little more than a year ago.

But one thing has remained constant: the ruthless competition for discovering and reporting the best news stories. Among those competitors is TechCrunch, one of the most efficient and tenacious tech news publications in the valley.

Michael Arrington stands — or, stood, rather — at the center of that team. His personality and potential conflicts of interest have generated a lot of discussion. I’m not going to comment in on either of those observations, because I’ve only personally experienced one of his sides in my short time here: He is a ruthless, relentless reporter, regardless of the environment.

Watching Arrington on stage at the company’s yearly conference in San Francisco, TechCrunch Disrupt, is like watching a boxing match. He’s constantly on the offensive and trying to get his speakers to admit to something. Some get away unscathed, but others will inevitably cave to his pressure — such as Digg founder Kevin Rose disclosing his sale of shares in micro-blogging site Twitter. I almost take it for granted that any event where Arrington takes the stage will generate some news.

On Thursday, Arrington left the tech news publication he founded in 2005. It put a bit of a damper on the whole show, and nowhere was that more apparent than the TechCrunch team itself. The news was all over their faces, and you can see it in some of the photos from the show. (Pictured on the right are TechCrunch writers MG Siegler and Alexia Tsotsis.)

“TechCrunch has to start a chapter of its new life, and that’s a life without its founder Michael Arrington,” TechCrunch chief executive Heather Harde said on stage at the show. “TechCrunch, like most startups, has really been operating like a closely knit family, the loss we feel is great, even as we embrace Erick (Schonfeld) as our new editorial lead.”

Disrupt was born from the same philosophy that TechCrunch and Arrington always embodied: Find the most disruptive companies in the valley (and soon the world) and tell the rest of the public about it. While Silicon Valley always seemed like the birthplace of disruption, there were an astounding number of international companies present at this year’s Disrupt.

And they were all there to see Arrington and the team that he’s able to assemble. It was quite the star-studded cast: Vinod Khosla, John Doerr, Marissa Mayer, Elon Musk, Peter Thiel, Max Levchin, Ron Conway, Dave McClure, April Underwood… the list keeps going on. That doesn’t even count the ridiculous number of investors present at the show. Even an outsider like myself can appreciate the incredible force Arrington was able to gather at this year’s show.

It’s already hard to imagine both TechCrunch and its yearly Disrupt show without Arrington.

“We all need to appreciate what, exactly, Arrington has done here today and in his five years at TechCrunch,” super-angel investor Ron Conway said. “He has really set the bar for everyone.”

Arrington has gone on to start an early-stage $20 million investment fund called the CrunchFund. It was a natural evolution for Arrington to take, seeing as he was already an angel investor.

However, it was the breaking point for Arrington as a blogger. Starting CrunchFund was the move that made Arrington too conflicted to be a credible reporter any more, no matter how aggressively he pursued the facts or disclosed his investments.

Granted, AOL chief executive Tim Armstrong didn’t help things with his ham-handed approach to manning publicity for the CrunchFund, for which AOL is a large investor in (and said to be the majority investor). Armstrong confused matters and outraged TechCrunch’s other writers by saying that TechCrunch was “an exception to the rules.”

Except there are no rules in journalism. There are directives: Be aggressive, be tenacious and report the facts. The reader will decide to which level you achieved all those goals. Any conflict of interest ends up eroding the notion of reporting a “fact” because it raises questions about whether facts are omitted or presented in a different light. That’s a choice the readers make, it’s not a directive the chief executive of a fading media company can shape.

But eventually something had to give — there was no way Arrington could remain at TechCrunch while running the CrunchFund. It doesn’t take a philosopher to see the incredible ethical nightmares that lie ahead for the publication had he continued to write about companies he may or may not have chosen to invest in. Arrington, perhaps, said it best himself when he said: “It’s no longer a good situation for me to stay at TechCrunch.”

That much was obvious.

Arrington has raised many questions about the future of ethical journalism. But he was an integral part in re-making and shaping the coverage of Silicon Valley and, if the buzz at Disrupt this year was any indication, was a net positive force for entrepreneurs in the valley. Give him credit for that much.

So, Michael, as a new reporter just a year out of college and still Silicon Valley semi-outsider, I tip my hat to you.

To the TechCrunch staff and every other journalist still out here on this side of the ethical line: keep fighting the good fight.

That’s what storied investor Vinod Khosla said on stage at TechCrunch Disrupt 2011 on Tuesday. He is considered a venture capitalist by most as he has invested in companies like GroupMe and Jawbone, but he’ll deny that any day of the week, he said.

“I am a venture assistant. I want to help out entrepreneurs with what they actually need,” Khosla said. “It doesn’t matter what you call it, a great entrepreneur needs more than money, they need help.”

Khosla and his firm, Khosla Ventures, is particularly known for investing in clean technology. But clean technology investing has hit a few hiccups lately, with investments in cleantech companies slowing in the second quarter this year. PayPal co-founder Peter Thiel said clean technology was a “disaster” on stage at TechCrunch Disrupt 2011 on Monday.

“Cleantech is not a disaster, just in the last 12 months we’ve generated over a billion dollars in profits and three IPOs, and there are six IPOs ready to go if the markets hold up,” Khosla said. “I challenge anyone to claim that cleantech done right is a disaster, we’ve generated more profits than anyone has.”

When Khosla left storied venture capital firm Kleiner Perkins Caufield & Byers in 2004 to invest in clean technology startups, he swung for the fences. Khosla was known for taking a “portfolio” approach to cleantech investing by dropping money in just about every potential part of the budding sector, from biofuels to smart grid companies.

His firm has also invested in some information tech companies like group texting service GroupMe. Khosla himself is an investor in payments service Square, and Khosla Ventures has a partnership with the Designer Fund. But, again, those investments were focused on the team — not the product and not for the sake of making a deal, he said.

“We are clearly investing in (Square chief executive) Jack (Dorsey),” he said. “I’m a big, big fan of design, and I don’t think startups use them enough, and that starts with the entrepreneurs.”

Khosla also said he’s a fan of Foodspotting, a food discovery application, and some other off-beat interesting revenue models and ideas. One of those is a “high-tech burger company” he calls “Meat 2.0.”

And yes, he’s serious about it. That company saves money and saves greenhouse gases by increasing the efficiency at which plant protein is converted to animal protein in meat.

“We’re doing Meat 2.0 for god’s sakes, re-invent the hamburger,” he said. “This is real science. It’s a stealth hamburger company.”

[Photo credit: Matthew Lynley]

It wasn’t long before the everyone found out the news of the day at TechCrunch’s annual Disrupt conference in San Francisco. Michael Arrington, founder and editor-in-chief of TechCrunch, had stepped down amid controversy surrounding his new investment fund, the CrunchFund.

The whole hooplah put a little bit of a damper on the show at first. But the mood quickly picked up once some of Silicon Valley’s most influential investors and power players took the stage with Arrington and his former co-workers, like new TechCrunch editor Erick Schonfeld and writer Paul Carr.

Then the startups that hope to completely reshape the industry took the stage. After all, that’s the point behind Disrupt — finding the next big thing that will disrupt technology as we know it. By the end of the day, we’d all but nearly forgotten that TechCrunch’s head honcho had checked out.

It’s not clear what direction TechCrunch will take with this new turn of events. Schonfeld has taken over as editor of the company, with Arrington focusing on his duties as an investor (although he will certainly be involved with TechCrunch in the future). But the team certainly knows how to put on a good show and generate a lot of buzz for the startups that they cover on a daily basis.

The company hosts more than 100 million public member profiles, which means there’s quite a bit of useful information to be gathered if you look hard enough. LinkedIn Senior Data Scientist Monica Rogati narrowed down the study to tens of thousands of startup founder profiles, and in the process came across some insights that may surprise you.

For example, Rogati found that 65 percent of entrepreneurs on the service are above age 30, which puts a bit of a damper on breathless reports on wunderkind CEOs like Facebook’s 27-year-old Mark Zuckerberg. The study also found that only two percent of entrepreneurs founded multiple companies.

When it comes to education, technical majors dominated (except civil engineering). “While computer engineers find it easier to start companies in their areas of expertise, building a bridge or hospital requires a different approach,” Rogati wrote.

The study also found that most entrepreneurs went to business school, with Stanford, Harvard and MIT Sloan leading the pack. The figure stands in contrast to well-publicized college dropouts like Zuckerberg and Bill Gates.

Rogati notes that founders in the study were highly mobile in previous jobs, staying for around 2.5 years, compared to the national average of 4.4 years. That figure alone is interesting, since it points to a certain amount of restlessness that leads people to start their own companies.

Do you have what it takes to be an entrepreneur? Take DoubleClick founder Kevin O’Connor’s quiz and find out.

VentureBeat recently teamed up with Ernst & Young to profile a number of promising entrepreneurs.

These innovators, all from northern California, were finalists for prestigious E&Y’s Entrepreneur of the Year award, which is now in its 25th year.

The finalists are in company with the likes of Google founders Larry Page and Sergey Brin, as well as Oracle founder Larry Ellison. (Page and Brin won the award in 2003.)

The prestige may be more than enough.

“Our independent panel of judges consists of past award recipients, business and community leaders, and educators. These are people who have a stake in the Bay Area,” says Ernst & Young partner and Program Director Ernie Cortes. “The judges choose finalists and winners based on their entrepreneurial spirit and innovation, so it really is an award from the community.”

33 entrepreneurs representing 30 different companies were chosen as finalists, out of 167 nominations this year. To reach this level the entrepreneurs have to pass through a stringent judging process. The judges meet with each entrepreneur, evaluate their written nominations (which include financials and other information), and consider impartial executive summaries provided by Ernst & Young. Judging is based on six criteria:

• spirit of entrepreneurship
• innovation
• strategy
• financials
• community & global impact
• influence & integrity

The judging process culminates with an intensive four-hour meeting among all the judges, where they discuss the nominees and make their final decisions.

They’ll now go on to compete with 250 other regional finalists in the national Entrepreneur of the Year competition. From that group, just 10 national winners will be chosen, and one of those will go on to compete in the World Entrepreneur of the Year competition in Monte Carlo.

Here’s a quick look at the entrepreneurs we featured in our series. Click through for a short video interview with each one.

“Kids and companies are going to ruin your life, but they’re going to ruin them in amazing ways.” That’s what I was told by Amobee’s founder and CEO, Zohar Levkovitz, who compared being an entrepreneur to being a father. Continue reading…

When asked what advice she gives aspiring entrepreneurs, Eileen Gittins quickly responds with a common theme: “Never give up.” Gittins is the founder and CEO of the do-it-yourself online book publisher, Blurb. Continue reading…

When young entrepreneurs ask Vlad Shmunis, founder and CEO of RingCentral, for advice, he starts with what his mother told him: “Believe in yourself. And never shy away from a fight.” Continue reading…

Jim Marggraff is chairman, CEO and founder of Livescribe. As soon as you close your first round, “you put the money in the bank, you look how long it’s going to carry you, and you start planning your next round of financing,” Marggraf says. “It’s always a matter of cash.” Continue reading…

Tasso Roumeliotis is founder and CEO of Location Labs. According to Roumeliotis, “Get ready to put ten years of your life into it, because that’s what it’s going to take to build a great company.” Continue reading…

Want to be the next Ernst & Young Northern California Entrepreneur Of The Year? Provide your contact information and we’ll let you know when the nomination period opens in January 2012. Fill out the form here!

This was StartX’s second demo day. Students and companies spend months preparing to present at the event. It’s a chance for them to get face time with some of Silicon Valley’s most well-known venture capital firms and angel investors — and a chance to pick up some funding for their companies.

“This is going to be one of the top three accelerators in the world,” said Charles River Ventures investor George Zachary, who was an investor in Twitter. “The most exciting things in the Bay Area are YC, StartX, AngelList and 500 startups — the list drops off after that.”

The program has received more than 1,000 applications and has accepted 24 total. Around one in every five people who have participated in StartX have been women. Two recipients of the Thiel Fellowship, a $100,000 award that encourages college students to drop out and start companies, have also participated in StartX.

The team of each company doesn’t have to be composed entirely of students, but the founders that are students have to hold a majority equity stake in the company. So it is geared more toward student entrepreneurs and gives them a chance to try building their own company from scratch with some help.

Here’s a list of the companies that presented today and a brief description of what they do:

6dot Innovations: This company has created a portable braille embosser that can quickly create braille labels. The device has a few buttons that let blind individuals type out messages, mathematics, music and other types of information in braille on a line of tape. The company plans to make money off labeling tape and third-party software add-ons. 6dot Innovations expects to launch the main product in the fourth quarter this year.

Clear Ear: This company is trying to solve “the earwax” problem. The company is creating a device that automatically cleans out an ear canal. It’s designed to be safer and quicker than typical earwax cleaning procedures, which can lead to complications. There are three products that project light into the ear to make it easier to see where the earwax is in a person’s ear.

GameClosure: GameClosure is an application that lets developers quickly build online social games like Zynga’s FarmVille. It is basically an HTML 5 game development kit. The games work across both mobile devices and web browsers on regular computers. The company has already built one game — called Pop Star Defense — that works across most devices.

Juntos Finanzas: Juntos Finanzas is a text-messaging based system that tracks spending practices. Whenever a user leaves the supermarket, they can text a number with how much money they spent. At the end of the month, the user receives an email message or a physical letter that includes a story of how much money was spent over the month and what kind of spending habits the user has. It’s like online financial advisory app Mint.com, but for low-tech users who don’t have ready access to the web and smartphones.

Kitchit: Kitchit gives consumers direct access to chefs and tools to help them plan private events. It also gives chefs a way to find cooking gigs so they can focus on cooking rather than the logistical details of running a restaurant. You can think of Kitchit as a social catering network — for graduation parties, weddings and other events.

Leglytics: Leglytics is a legal document search engine designed for lawyers and legal researchers. It’s designed to be a simple search engine — like Google search – for legal documents instead of more complicated search engines like LexisNexis. The search results are visualized with an array of dots, with larger dots representing more important documents or legal cases. The company doesn’t actually host its own data — it’s basically an application programming interface (API) that ties in with other sites that carry all the data.

Qwhispr: Qwhispr is an application that aggregates data from social media sites like LinkedIn and Facebook. The app filters the information it gets from the social media sites — such as unimportant content like a happy birthday note. The app extracts important keywords and returns them to the person executing the search.

PredictiveEdge: PredictiveEdge has an app to help retailers determine an optimal price point for products. It determines price based on the price for other products that are somewhat similar or carry similar characteristics. The actual product will be a web application that’s sold as a subscription.

WiFiSLAM: WiFiSLAM is working on an indoor global positioning system that uses WiFi hotspots to figure out where an individual is within a building. Current GPS technology doesn’t typically work in buildings and can’t pinpoint an exact position. A phone scans for WiFi hotspots and checks the signal strength of all nearby routers. The application then determines a person’s position based on the signal strength of nearby WiFi routers. The app should be compatible with current smartphones. It uses as much battery power as a typical WiFi connection.

Scvngr

Traditionally, local deal services such as LevelUp (and more-established players such as Groupon and LivingSocial) feature things like massages or restaurant discounts. However, this local deal, only available in Boston and Philadelphia, will allow entrepreneurs to incorporate, get their books in shape and have lunch with well-known venture capitalists Google Ventures, Highland Capital Partners and Common Angels in Boston and NextStage Capital, Robin Hood Angels and Dreamit Ventures in Philly.

LevelUp is a funded pilot from the founders of Scvngr, a service that asks users to check-in to physical locations and complete activity challenges for incentives. Scvngr founder Seth Priebatsch told me a bit more about the pilot:

The reasons for doing it as a pilot (as opposed to just another feature) is that we wanted to a) see if it could stand on its own (not cheat with our 1MM+ users) and b) not de-stabilize a rocketship (Scvngr) until we’re sure it works like whoa! Which it looks like it is (woot!) but we want to collect data for quite a bit longer before declaring it a win.

The companies and prices involved in the LevelUp include legal services Foley Hoag in Boston and Morgan Lewis in Philly for $250 ($2800 value) as well as accounting firms Raphael & Raphael in Boston and PartenteBeard in Philadelphia for $150 ($2000 value).

The proceeds from this particular LevelUp deal will go to MassChallenge in Boston and Startup Corps in Philly, two organizations that help connect startups with valuable resources, like investors.

Starting companies is hard.  And it’s critical to make sure that your venture is pointing in the right direction from the moment it leaves the launch pad. Any misdirection or miscue on the basic organizational steps can be fatal.

It’s a lot like launching a rocket aimed at the moon—if the launch is only 2 degrees off target at blast-off, it will miss by hundreds of thousands of miles.

There’s no end to the advice and opinions entrepreneurs will hear in a company’s early days, but three basic rules that every company founder should take into consideration:

Keep it simple – In setting up the capital structure and the first equity of the company, many founders either try to innovate or try to accommodate the wishes and desires of every co-founder and early stage employee. The result is too much complexity.

In most cases where there is more than one founder (probably on the order of over 80 percent of startups), the stock should be split equally. If it isn’t an even split, then you should re-evaluate whether your co-participants really deserve to be in the “founder” category. Establish uniform stock vesting provisions that apply equally to both founders (although maybe with some “credit” for pre-formation activities) and early stage employees.

Stay away from unconventional employment terms that differ from founder-to-founder or employee-to-employee. And make sure and outside board members (including, if you have one, your advisory board), are compensated equally.

If you fail to keep the capital structure and the equity incentive arrangements absolutely consistent with convention, then every investor you approach and every manager you hire will require an explanation. Stay focused on the business plan, not the infrastructure of the company.

Select your business entity wisely – If you are planning on raising professional capital, whether from an angel group or from a venture capital firm, use a Subchapter C corporation incorporated in the state of Delaware.

LLCs simply do not work. Investors categorically will not put money into an entity that will require them to file annual federal and state tax returns to reflect the pass-through of operating gains and losses (as LLC’s do).

Subchapter S corporations are also a poor choice if the fundraising process is likely to begin in the first year. Sub S companies are viable only with investors who are “natural persons” (which automatically is a problem with VC firms and most angel groups) and only where there is a single class of stock (i.e., not preferred stock, which is typically the class of stock given out to angels and VCs).

A Delaware corporation is the preferred choice among states to choose from—most law firms will recommend this for a number of reasons, not the least of which it will save you the expense of reincorporating to Delaware in the event you are successful enough to consider an IPO in some distant future. (Fun fact: some 70 percent of the US publicly held companies today are incorporated in Delaware.)

Wait until the time is right before forming your company – Many founders are in a rush to go out and incorporate and set up the founders’ stock arrangements and stock plan. WAIT.

It doesn’t take much time to form and organize a company—with three general exceptions:

• You have promised your co-founders and/or anticipated early stage employees specific allocations of stock, and they are tired of waiting to get their hands on the stock certificates.
• You are about to enter into a contract with a strategic partner or a significant vendor or a major customer, and either they want to see a corporate entity on the signature line, or you are worried about potential personal liability if you sign as an individual.
• You are highly confident you are going to get funded.

Absent these circumstances, focus on the business.

Of course, there are many other matters that need to be addressed almost daily by any founder, but these three rules are likely to save you a lot of aggravation later on. More importantly, they will enable you to keep your focus where it belongs—on your business plan and persuading the investment community to see the potential in your company that you see.

As we wrap up 2010, things might seem bleak. The common wisdom says that the chickens have all come home to roost from a disastrous series of economic decisions including outsourcing the manufacture of America’s physical goods. The pundits say the American dream is dead and this next decade will see the further decline and fall of the West and in particular of the United States.

Personally, I think there’s a chance that the common wisdom is very, very wrong – and that the second decade of the 21st century may turn out to be the West’s – and in particular the United States’ – finest hour.

I believe that we will look back at this decade as the beginning of an economic revolution as important as the scientific revolution in the 16th century and the industrial revolution in the 18th century. We’re standing at the beginning of the entrepreneurial revolution.

This doesn’t mean just more technology stuff, though we’ll get that. This is a revolution that will permanently reshape business as we know it and, more importantly, change the quality of life across the entire planet for all who come after us.

You see, it’s only in the last few years that we’ve come to appreciate that past startups were constrained by:

• long technology development cycles (how long it takes from idea to product),
• the high cost of getting to first customers (how many dollars to build the product),
• the structure of the venture capital industry (a limited number of VC firms each needing to invest millions per startups),
• the expertise about how to build startups  (clustered in specific regions like Silicon Valley, Boston, New York, etc.),
• the failure rate of new ventures (startups had no formal rules and were a hit or miss proposition),
• the slow adoption rate of new technologies by the government and large companies.

What’s happening now is something more profound than a change in technology. What’s happening is that all the things that have been limits to startups and innovation are being removed.  At once.  Starting now.

Compressing the Product Development Cycle
In the past, the time to build a first product release was measured in months or even years as startups executed the founder’s vision of what customers wanted. This meant building every possible feature the founding team envisioned into a monolithic “release” of the product.

Yet time after time, after the product shipped, startups would find that customers didn’t use or want most of the features.  The founders were simply wrong about their assumptions about customer needs. The effort that went into making all those unused features was wasted.

Today startups have begun to build products differently.  Instead of building the maximum number of features, they look to deliver a minimum feature set in the shortest period of time.  This lets them deliver a first version of the product to customers in a fraction on the time.

For products that are simply “bits” delivered over the web, a first product can be shipped in weeks rather than years.

Startups Built For Thousands Rather than Millions of Dollars
Startups traditionally required millions of dollars of funding just to get their first product to customers. A company developing software would have to buy computers and license software from other companies and hire the staff to run and maintain it. A hardware startup had to spend money building prototypes and equipping a factory to manufacture the product.

Today, open source software has slashed the cost of software development from millions of dollars to thousands. For consumer hardware, no startup has to build their own factory as offshore manufacturers absorb the costs.

The cost of getting the first product out the door for an Internet commerce startup has dropped by a factor of a ten or more in the last decade.

The New Structure of the Venture Capital industry
The plummeting cost of getting a first product to market (particularly for Internet startups) has shaken up the venture capital industry. Venture capital used to be a tight club clustered around formal firms located in Silicon Valley, Boston, and New York. While those firms are still there (and getting larger), the pool of money that invests risk capital in startups has expanded, and a new class of investors has emerged.

New groups of VC’s, super angels, smaller than the traditional multi-hundred million dollar VC fund, can make small investments necessary to get a consumer internet startup launched. These angels make lots of early bets and double-down when early results appear. (And the results do appear years earlier then in a traditional startup.)

In addition to super angels, incubators like Y Combinator, TechStars and the 100+ plus others worldwide like them have begun to formalize seed-investing. They pay expenses in a formal 3-month program while a startup builds something impressive enough to raise money on a larger scale.

Finally, venture capital and angel investing is no longer a U.S. or Euro-centric phenomenon. Risk capital has emerged in China, India and other countries where risk taking, innovation and liquidity is encouraged, on a scale previously only seen in the U.S.

The emergence of incubators and super angels has dramatically expanded the sources of seed capital. The globalization of entrepreneurship means the worldwide pool of potential startups has increased at least ten fold since the turn of this century.

Entrepreneurship as Its Own Management Science
Over the last ten years, entrepreneurs began to understand that startups were not simply smaller versions of large companies. While companies execute business models, startups search for a business model. (Or more accurately, startups are a temporary organization designed to search for a scalable and repeatable business model.)

Instead of adopting the management techniques of large companies, which too often stifle innovation in a young start up, entrepreneurs began to develop their own management tools. U

sing the business model / customer development / agile development solution stack, entrepreneurs first map their assumptions (their business model) and then test these hypotheses with customers outside in the field (customer development) and use an iterative and incremental development methodology (agile development) to build the product.

When founders discover their assumptions are wrong, as they inevitably will, the result isn’t a crisis, it’s a learning event called a pivot — and an opportunity to change the business model.

The result: Startups now have tools that speed up the search for customers, reduce time to market and slash the cost of development.

Consumer Internet Driving Innovation

Today, consumers – specifically consumer Internet companies – drive innovation. When the product and channel are bits, adoption by 10’s and 100’s of millions of users can happen in years versus decades.

The barriers to entrepreneurship are not just being removed, they’re being replaced by innovations that are speeding up each step, some by a factor of ten.

And while innovation is moving at Internet speed, this won’t be limited to just internet commerce startups. It will spread to the enterprise and ultimately every other business segment.

The economic downturn in the United States has had an unexpected consequence for startups – it has created more of them. Young and old, innovators who are unemployed or underemployed now face less risk in starting a company.  They have a lot less to lose and a lot more to gain.

If we are at the cusp of a revolution as important as the scientific and industrial revolutions what does it mean? Revolutions are not obvious when they happen.

Yet it’s possible that we’ll look back to this decade as the beginning of our own revolution. We may remember this as the time when scientific discoveries and technological breakthroughs were integrated into the fabric of society faster than they had ever been before. When the speed of how businesses operated changed forever. As the time when we reinvented the American economy and our Gross Domestic Product began to take off and the U.S. and the world reached a level of wealth never seen before.

It may be the dawn of a new era for a new American economy built on entrepreneurship and innovation – one that our children will look back on and marvel that when it was the darkest, we saw the stars.

Running a start-up is anything but a life of wine and roses. Seasoned entrepreneurs know that, but budding ones are often a bit naïve. After running down five ugly truths of the startup world last week, Jason Baptiste is back with another half-dozen truths that can help prepare people for their entrepreneurial endeavors.

There is no silver bullet - There shouldn’t be (and usually never is) a single deal that can make your company. Certain deals or customers can take you to another rung on the ladder, but there are still many more rungs to climb along the way. Don’t look at a deal as the end game to the startup, but rather as a means to a specific milestone that is in the near future. It’s much easier to lose a deal than it is to secure one. By training yourself to diversify your risk and the milestones that advance your company, you control the destiny of your company, not any single partner. The success of a startup is the compilation of luck infused with many little wins along the way.

Customers will frustrate you - Having customers is a great thing, but dealing with them is a whole other ball game. If you’re in the consumer world, expect to face customers who don’t notice the obvious – even with your fancy pants UI/UX in place. You will also get an influx of feedback that is often contradictory. One customer wants it in red, another wants it in blue, and a third wants it combined to become purple. The key to dealing with customers is to respond to everyone, but have a strong rule of authority. If you succumb to customers frustrating you and do everything they say, you quickly end up in a far worse position.

You can’t do it all yourself - Some entrepreneurs have a superhero complex and feel they can do everything themselves (or with just one co-founder). In their minds, it’s possible to scale the company with just two to three people. In reality, that just results in being overworked and unfocused. Know when to let go of your pride and bring in people that may be smarter than you are. It will grow the company – and help improve the focus of your team members.

There is no such thing as an overnight success – Yeah, we’ve all heard the fairy tales, but the truth is most companies don’t get acquired early on – and fewer realize when their idea just won’t work. Be prepared to work on your startup for many, many years. Overnight success, as defined by the press, is often the result of entrepreneurs who have spent many years shaping and building the company. Startups aren’t a 5k, but an all out iron man competition.

Building a team is hard – Finding co-founders is hard enough. Finding a group of individuals smarter than yourself across a broad range of skills takes up way more time than you would ever think. In the early days, you may be excited about your company, but it’s often hard to get a large group of others equally so. They may have their own ideas they want to work on, be comfortable with a cushy salary, or generally just not interested in what you’re doing.

If you’re lucky enough, you will hit a certain period of growth explosion that requires you to hire rapidly and be a great judge of character on the fly. This is a dangerous period for a startup as the company is still small enough that the wrong DNA can make things take a turn for the worse, but you cannot be as granular with hiring these employees as your first 10.

There are forces outside your control – Understand that you cannot control everything in the universe. Markets collapse, the government intervenes, tragedy strikes, and other unforseen circumstances occur. Don’t let this make you quit.

In the words of the late Randy Pausch: “Brick walls are there to show you how bad you want something.” Roadblocks aren’t a deterrent to becoming an entrepreneur, but rather a reality check to make sure you’re prepared. Many companies die because people just give up.

There’s always talk about a startup’s end game – whether it’s in the form of an acquisition, funding announcement, or eventual flame out. But we rarely hear about the harsh realities that entrepreneurs face. This isn’t meant to be a downbeat and negative article, but actually quite the opposite. By knowing the harsh realities that lie ahead, you can be prepared when they come about. Here are some of the oft unspoken realities I’ve noticed entrepreneurs face regularly.

Your first iteration of an idea will be wrong – Very few people get it right out of the gate – but as it turns out, this is actually a good sign. No idea survives its first interactions with its customers. This sort of failure requires you to synthesize feedback to adapt to the customer. You could be prideful, not listen to what your customers are telling you, and keep things the way they were, but that leaves you with no customers and a product you may not even use yourself. It’s okay if things change up a bit when it comes to your idea and its implementation.

Your friends and family won’t understand what you do – “You’re an entrepreneur, so that means you’re un-employed?” or “Oh that’s nice.” are some of the many reactions you will get from close friends, family members, and others over the course of starting your company. Even if you achieve milestones that are worthy of praise and denote success in the entrepreneurial world (customers, fundraising, new traffic levels, press, etc.), people still won’t get what you do.

Unless you build one of the few consumer success stories that come around every few years, things probably won’t change here. The b2b space is even more difficult to explain as most people aren’t your customer, especially if it’s a niche workflow. But just because they don’t understand it, doesn’t mean you’re doing something wrong or unacceptable. I doubt most of Larry Ellison’s family understood Oracle (that database company that stores information), but things turned out pretty well for him at the end of the day.

You will make less than normal wages for a while – If you got into entrepreneurship first and foremost for the money, then you’re in the wrong business. Sure you may sell your company, but that day is probably far far away. Even if you raise a good chunk of cash, the money is better spent on hiring the best talent than paying yourself a higher wage.

There’s nothing wrong wanting to make money, but in the beginning it’s going to be rough. You will make less than most of your friends, especially the ones doing the “normal” paths of things like finance.

It’s a litmus test in its finest form, though. If you truly love what you’re doing, the capacity to have a large bank account takes a back burner to completing your mission. Sure you need some basic creature comforts, but luxury items almost seem silly as you will not have the time to truly enjoy them.

Everything takes twice as long … if it even happens – Multiply everything by two, including the things inside of your control. When things take longer, you sometimes think that you’re doing it wrong or no one really cares. In reality, everyone else has multiple deals and responsibilities on the table. By factoring this into the expectations of your startup, it makes a lot easier to prepare for launching products, closing deals, and more.

Also, be persistent and get the other party what they need as soon as possible. And realize that most deals never work out – from acquisitions down to simple business development agreements. There are always many moving parts and excitement that can fade.

That’s okay though. If you’re building your company upon a single deal, then you need to re-evaluate things. Don’t be depressed when a deal falls through. That’s just the nature of the beast.

Titles mean nothing. You will be a janitor – When you’re the CEO, chairman or co-founder of a <10 person company with a product that doesn’t have customers, titles really don’t mean much. Everyone will be doing a little bit of everything, including cleaning the toilets. Don’t try to mask the grind of being an entrepreneur with some superficial title. Instead, embrace the nitty gritty of those first days.

Business cards are nice to hand out, but they really shouldn’t say more than co-founder or something else. Maybe someone inside the company plays more of the CEO role (speaking and being the face of the company), but that doesn’t really matter in the early days. You have to be humble and you have to be willing to do whatever it takes. You don’t have a staff of 50 to throw the task on to either. If you don’t do it, it won’t get done. Sure you could also try to optimize for efficiency, but that’s almost counter productive as the early days of a startup requiring doing so much, that it’s hard to just cut something out.

The company has managed the rapid rise by devising a clever financing model where everyone seems to win. Residents pay less for electricity, SunRun makes a profit, and the earth gets greener. And going forward, SunRun looks perfectly poised to keep exploiting the growth of the American solar market, which is projected to explode some 30-fold over the next decade. With revenues of its own growing three-fold a year, the company could be on its way to a classic success story of Silicon Valley entrepreneurship. It’s a tale punctuated by smart finance and strategy, as well as surprising endurance in the face of a brutal recession.

The brains behind SunRun’s business are cofounders Ed Fenster and Lynn Jurich, who met at Stanford. Both had significant experience at finance in their previous careers; both are confident number crunchers. But in 2007, they found themselves at Stanford University kicking around for the next great idea. That came when Nat Kreamer, a high-school friend of Fenster’s, returned from serving in the war in Afghanistan with a vision to launch a company in alternative energy.

The three of them became intrigued with SunEdison, a fast-growing company founded in 2003 that was delivering solar power to utilities. By 2009, the company would sell for $400 million, an impressive exit for such a young company. Even back in 2007, though, the SunRun founders knew they were on to something: “We looked and said, ‘Oh, interesting, they have really no competition,’” Jurich said in an interview.

So the three decided to do SunEdison one better. They pioneered the idea of leasing solar panels to residential homes, starting with houses where electricity prices are the highest. The three made it dead simple for consumers to install solar on their homes — by allowing them to do it for zero money down. SunRun would handle the financing of the up-front installation itself, as well as repair and maintenance over the ensuing 20 years of a contract. Consumers would simply pay SunRun a monthly bill comparable to, or in most cases, cheaper than their original utility bill — using an innovative financing model that took advantage of federal and state subsidies.

The rest of the story has been one of steady execution. (We’re going to be hearing more of that story next week at GreenBeat 2010, a conference for green technology entrepreneurs and executives, which takes place at Stanford University. Co-founder Ed Fenster will be speaking about the “Rise of Distributed Solar,” on a panel at 1:30 p.m. on Nov. 4.)

Cherry-picking markets

So for now, the outlook looks bright for SunRun, at least from the outside — although the company won’t comment on how much money it is making on each home it finances. Much of its fate depends on subsidies. SunRun, like competitors who have launched similar offerings — SolarCity and Sungevity — earns a profit on these 20-year power purchase agreements with tenants. But it can usually only earn a profit if it can earn enough subsidies from municipal, state and federal governments — and so the trick is to do the hard math to figure that out where it can do that.

Thanks to subsidies, SunPower can sometimes sell electricity profitably as low as eight cents per kilowatt-hour. In some cases, it can make money even without subsidies. Without subsidies, it can sell at 30 cents. And here there’s still a market worth $3 billion, Jurich estimates.

Solar power offers the prospect of a cleaner environment, but solar system installations are expensive. They’re usually more expensive than the power most houses get from dirty fossil fuels. According to SunRun, the average solar installation costs $35,000. So rather than sell solar to a broad market, the company cherry-picks states where solar power prices can compete with traditional electricity sources. In California, for example, residents pay three times what commercial entities pay for power. So SunRun has focused on residential units there.

SunRun’s advantage is that it has hired financial experts who know which markets to target. In addition to subsidies, state permitting and other regulations also play a role in raising or reducing costs. That’s why SunRun’s rollout is currently limited to Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey and Pennsylvania. As permitting processes become more streamlined, Jurich said she expects further cost cuts.

Dark moments

SunRun has come a long way from 2008, when the financial crash almost killed it. The three founders had thrown their own money into the business but still needed a lot more cash to get it off the ground. SunRun’s business required significant long-term financing in order to take on the solar contracts. However, in mid-2008, the nation’s leading financial companies were starting to founder. The cofounders visited a number of venture firms to get some initial backing, but most firms insisted that SunRun would have to line up some financing credit before they would invest. It didn’t look good. “When we saw the market crumbling, it was panic,” Jurich said. “We had no business without raising the project financing.”

In a stroke of luck, a long-sighted venture capital firm, Foundation Capital, decided to back SunRun with $15 million, in June 2008 — amazingly, right before Lehman Brothers crashed in September and completely destroyed the confidence of most lenders. Foundation’s backing was a godsend, but SunRun still needed to raise hundreds of millions of dollars from the credit markets. “It was just devastating,” recalls Jurich of the time, adding that there were plenty of “dark moments.” Somehow, in November — at the depth of the crisis — SunRun’s founders managed to secure $100 million in financing from U.S. Bancorp. “We just showed up at their offices and charmed them,” Jurich says of the multiple desperate meetings at the time.

Part of a growing market

The third co-founder, Nat Kreamer, has since moved on. Jurich and Fenster now run the company and have hired 75 employees. They’re doing their best to stay up with market growth. The U.S. residential market is expected to see 44 gigawatts of installed solar capacity in 2020, from just 1.4 gigawatts today, according to a recent report from Bloomberg Energy Finance. Most industries double in seven years if they’re lucky. SunRun’s business itself is growing three-fold a year right now, and could grow faster  – if things keep going its way.

Indeed, the nascent residential solar market is still very tiny. About 80,000 U.S. homes have solar roofs, far less than one percent of the 126 million homes in the U.S. But residential solar should grow to 2.4 percent of U.S. houses by 2020. In the majority of cases, residents with solar panels choose to buy them directly from installers rather than tapping into a leasing company like SunRun. Right now, SunRun has only 6,000 customers.

But it’s catching up quickly. Solar power service agreements, of the type SunRun and its competitors offer, took up 21.5 percent of all new California solar homes in 2010, or double the 11.2 percent they claimed in 2009. In California, which makes up half of the nation’s solar market, the non-leasing solar homes grew 19 percent this year, while SunRun claims it is seeing 300 percent growth.

Money in hand, surging forward

Clearly, the co-founders’ finance background is a key part of the DNA that has made the company successful. It’s instrumental to SunRun’s ability to raise capital: SunRun claims to be the only home solar company that has had an uninterrupted stream of project financing. Fenster worked at Blackstone, a leading private equity group that raked in profits by making smart bets on which companies to buy out or invest in then flipped them for vastly higher amounts of cash. Fenster says he helped complete more than $10 billion worth in deals. Jurich previously worked at venture capital and private equity firm Summit Partners, where she says she worked on investments worth $900 million in technology and financial services.

Because SunRun’s business model involves contracting with local installers and Home Depots, its entire model hinges on project financing. SunRun announced yesterday a new round of financing with U.S. Bancorp; it has also raised $300 million in project financing from U.S. Bancorp and PG&E. The company has raised $85 million in venture capital from Foundation, Accel Partners and Sequoia Capital.

Armed with cash, SunRun has surged ahead. In California, which is half of the nation’s solar market, SunRun leads with 55 percent of  market share for 2010, according to the California Solar Initiative. But SolarCity and Sungevity have chipped away at its lead. SunRun’s market share of solar power service in residential markets is down from 62 percent.

“It’s not easy maintaining 50 percent-plus in a competitive market,” said SunRun spokeswoman Susan Wise. ”In fact, it’s natural for market share to dip slowly over time as new entrants join the market — Sungevity and other small entrants were able to nick away a bit of share.” She said SunRun is still two times larger than the nearest competitor.

Loftier goals

There are other positive signs for the company — lately, Chinese solar panel manufacturers have been growing stronger and getting cheaper, challenging American solar panel makers. It’s good news for SunRun in a market where panels are a big part of cost. Half the cost of a SunRun installation goes to panels. “As the Chinese panel manufacturers make cheaper and cheaper high quality equipment, that really helps drive consumer adoption,” Jurich said.

SunRun has also been looking for other ways to expand its reach. It has teamed with homebuilding company Toll Brothers, which is building houses with SunRun systems pre-installed. Through Home Deport, SunRun gets additional exposure to potential customers in Colorado, New Jersey and Pennsylvania.

If you listen to Jurich talk about the company’s future, you’ll notice she sounds like Microsoft founder Bill Gates when he promised to put a PC on every desk. For SunRun, it means putting solar on every roof: “Our company mission is that every homeowner should have a choice of clean energy in their new home,” she says.

Are you a green executive or entrepreneur? If so, sign up now for GreenBeat 2010 — the year’s seminal conference on the smart grid — November 3-4 at Stanford University. World leaders in smart grid initiatives will debate how the new “Super Grid” is creating huge opportunities in cars, energy storage, and renewables. GreenBeat 2010 is hosted by VentureBeat and SSE Labs of Stanford University. Go here for full conference details and to apply for the 2010 Innovation Competition.

When my students ask me about whether they should be a founder or cofounder of a startup I ask them to take a walk around the block and ask themselves the following series of questions:

• Are you comfortable with chaos? (Startups are disorganized)
• Are you comfortable with uncertainty? (Startups never go per plan)
• Are you resilient? (At times you will fail – badly.  How quickly will you recover?)
• Are you agile? (You may find the real opportunities for your company are somewhere else.  Can you recognize and capitalize on them?)
• Are you creative? / Can you recognize patterns? (Can you think “out of the box?” Or if not, can you recognize patterns others miss?)
• Are you Passionate (Is the company/product/customers the most important thing in your life? 24/7?)
• Are you tenacious (Can you keep going when everyone else gives up? Can you keep giving 200 percent despite all the naysayers who don’t believe in your idea?)
• Are you articulate? (Can you create a reality-distortion field and have others see and share your vision and passion?)

Even if they answer yes to every question, I remind them that they should be bringing some type of domain expertise (technical or business) to the table.

This is the minimum feature set for founders.

Generic advice given to entrepreneurs assumes that everyone is going to be the founder/co-founder. Yet for every founder there are 10-20 other employees who take the near-equivalent risks in joining an early-stage company.  If you’re not a founder (by choice, timing or temperament,) you may be an early employee or a later stage startup employee.

(And my advice to students who believe they want to do a startup but are unsure if they want to start one, is to join one that’s already raised their first round of funding. Founders know they want to start something.  If you’re unsure, you’ve just decided.)

I believe that founder, early and later stage employees each require different risk/personality profile.

The Early Employee

If you’re a founder/co-founder all the attributes I mentioned above are needed in spades.  However, if you want to join a startup as an early employee (say in the first batch of 25), you can modify the list above.

You still need to be comfortable with chaos and uncertainty, but by this time the major risk of where the first round of funding is coming from is gone.  However, you will be dealing with almost daily change, (new customer feedback/insights from a Customer Development process and technical roadblocks,) as the company searches for a repeatable and scalable business model. This means you still need to have a resilient personality, and be agile.

Early stage employees are “self-starters” and show initiative rather than waiting for other people to tell them what to do or how to do it. (You may be wearing multiple hats in one-day.) You have to be passionate about your work, the company and its mission to be working 24/7. But more than likely you don’t need to be as articulate or creative as the founders (they’re doing the talking, while you’re doing the work.)  And while you do need to be tenacious, you won’t need to be the last man standing if the ship goes down.

The Later Employee

If you want to join a startup as a later employee (say employee number 25-125, before the company is profitable) you can continue to modify the list above.

You still need to be comfortable with chaos and uncertainty.  And you will be dealing with change, but it won’t be the constant daily change the early employees dealt with. By now the company may have found and settled on a repeatable business model. And at this stage of the company rather than everyone doing everything, actual departments may begin to form. However, job responsibilities and organizations will change regularly and you need to feel comfortable in embracing those changes and taking responsibility and ownership.

And you’ll still need to have a resilient and agile personality, as new customer and product opportunities will appear and change your work.  But it won’t be happening daily.  And while you still need to love what you do your passion doesn’t have to extend to tattooing the company’s logo on your arm.

Take the time and think through who you are and what level of challenge you are looking for.

You’re not joining a big company.  Startups are the adventure of a lifetime – but make sure it fits who you are.

In the mid-1960s, the Kauffman Foundation had the foresight to see the need for an organization promoting entrepreneurship. More than 40 years later, it boasts an asset base of $2 billion, has a global reach that includes ties with the US Department of Commerce and has become one of the world’s most important training facilities for entrepreneurs.

Where the Kauffman Foundation falls short, though, is in its online offerings. Specifically, there really aren’t any that are useful to people looking for targeted answers. This has opened the doors for a plethora of online education sites targeted towards entrepreneurs.

Some, such as iValueRich.com and YCombinator.com, focus on raising capital. Some, like PartnerUp.com, help start-up founders find partners. Others focus on general coaching (HorsesMouth.co.uk is a good example). And some, like EFactor.com and my company, FledgeWing.com, try to cater to everyone.

More and more, though, these online schools are recognizing the importance of the university market and trying to appeal to students. They’re doing this by offering tools to create projects online, share files, comment on discussions and enter business plan competitions. Many also offer detailed search engines for finding like-minded students and Facebook-style news feeds to facilitate interactions and content generation.

One of the most important services these sites provide is in-depth mentoring (picture LinkedIn’s Answers section taken to the next level). This is an immense benefit for users who lack connections or need quick answers from real-world professionals.

The benefits to the mentors vary. Some have the opportunity to invest in promising ideas at the early stage. Others bring the students on as interns or employees. And some simply enjoy being socially responsible.

Of course, there’s nothing unique in a mentoring program. Most well-known business schools have similar platforms in place. However, matching students to mentors can be an arduous affair. The sites are also closed-wall – restricting access to those that attended the institution, severely limiting participation. The social networking model of the open platform is able to transcend these virtual borders, reaching a broader demographic.

In a traditional academic setting, business schools are the only parts of a university that have entrepreneurship institutes or clubs – making it difficult for other students, particularly engineers, to become involved. This social network model makes it quick and easy to find people with a variety of specialties.

Despite the influx of new online spheres of entrepreneurship, it’s important to remember that real-world networking and pitching is just as – if not more – critical. Be sure to browse through the ‘Events’ pages of the sites mentioned above (and GarysGuide.org) for regularly scheduled meetups in your area.

If nothing else, public speaking helps you to refine your elevator pitch for investors.

Image by James Sarmiento via Flickr.

Thinking of starting a business or looking for ways to grow your recently launched firm? VentureBeat’s Entrepreneur Corner is filled with expert advice on taking your company to the next level.

Here are a few of the most recent stories that you might have missed:

Do you need a loyalty program? – Loyalty problems tend not to be on the forefront of entrepreneurs’ minds. But an aggressive retention marketing program, even in early stages of a company’s history, can pay big dividends.

Incorporating social media: There’s no magic bullet – Successful social marketing isn’t as simple as installing a set of apps and regular Facebook updates. But if done right, it can give you another avenue to reach existing and potential customers – and get a sense of your company’s reputation in the real world.

You’re not as good as the press thinks – Believing your own media clips can be lethal to a start-up, especially one without a product. Serial entrepreneur Steve Blank discusses how he learned this the hard way as CEO of Rocket Science Games.

Staying out of the weeds – Microsoft is hardly a small company, but with so many divisions vying for R&D dollars, CEO Steve Balmer sometimes feels like a VC. Here he talks about how he decides what to move forward with.

People Capital brings peer-to-peer lending to student loans – Our Startup Spotlight feature focuses on a service that allows investors to decide what percentage of their money goes to which students.

Market research vs. gut instinct — Jeff Hawkins, founder of Palm Computing and inventor of the Palm Pilot, discusses how to balance market research with your intuition.

Cashing in on non-English search engines — Global consumers are more than five times more likely to buy from a website with content in their native language. Here’s how to outwit your competition and quickly become an international success.

DEMO announces $1M media prize — Trying to decide whether to launch your product at the fall DEMO conference? Here’s an incentive. Two winners will be awarded a significant amount of media publicity, totaling $1 million in ads.

Cinching sales with sports scores — Sometimes, the best way to close a deal is to not pitch your company at all. Retired serial entrepreneur Steve Blank introduces a master of the consultative sale.

10 unconventional wisdoms for funding startups — Naval Ravikant, chief executive of Vast.com, offers pointers about how entrepreneurs should approach fundings.

Harnessing the power of analytics — Too many new business owners ignore their web logs. That’s a critical mistake. A good analytics program can give you valuable insight into your customers, their habits and their interests.

Four keys to a great PR campaign — You’ve sent out the press release. Now what? If you don’t have follow-up elements ready when reporters call, you may miss out on publicity for your company. Learn the four Ps to a successful PR campaign.

Key steps for developing customer loyalty — It’s easy to focus on getting as many customers as you can in the early years, but don’t be blind to the importance of customer retention. By your company’s third year, 50 percent of your revenue often comes from just 10 to 15 percent of your customers.

MoneyTree Report Q1 2009 — VC investments hit a 12-year low during the first quarter of 2009 with only 549 deals struck, according to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report. VentureBeat now has the complete reports available for download, as well as details about the quarter’s 10 largest investments.

While you can’t underestimate the power of a good press release, too many businesses forget that it’s just the beginning of a process. The real trick to successful marketing is ensuring you have all the elements of your public relations campaign in place before turning the spotlight on yourself.

Consider the four “Ps” when it comes to establishing the groundwork for a successful PR campaign: photography, pitch, profile and pack. With these elements lined up, you’ll be better prepared for the follow-up.

Photography: Make sure that you have a great selection of visuals available, should your press release capture a reporter’s eye. This includes projects, screenshots, shots of the spokesperson and anything else that is relevant.

Reporters like to have distinctive angles to their stories, so try to have a wide selection of photographs available, rather than using the same one for every outlet.

Also, make sure you have high-quality content. Many journalists use digital images, so make sure these are available — with a resolution of at least 300 dots per inch (300 dpi).

Pitch: Capturing attention with your press release is just the start of the process. You need to have your pitch ready for when the media begins calling.

Journalists often call looking for a quote and some additional news beyond what was in the release. Make sure you have something prepared, so you don’t fumble through a phone call, making the reporter less inclined to write about you and your company.

Profile: Your corporate profile should always be up-to-date. Never assume the reporter is familiar with your company. Many reporters file several stories per day and sometimes details get lost in the process.

Providing an accurate, comprehensive and succinct profile will help the reporter do their job and give you an opportunity to control the positioning of your business in the story.

Press pack: A good way to communicate that profile is via a press pack. This should contain additional background information to help journalists prepare a story or an interview.

Put together both a traditional printed pack as well as an online version. Both should include the same information — background, biographies, images, database structure and data sheets. Include a company brochure if you’ve got one.

As with your profile, keep this pack up to date at all times. This will allow the journalist to easily find what he or she is looking for when preparing a story.

The four Ps take a little more time, but if you make the investment, you’re likely to see a much greater return on your press release.

By your company’s third year, it’s typical that 50 percent of your revenue will come from just 10- to 15 percent of your customers. To achieve this level of loyalty, though, there are a few steps you’ll need to take as your company goes through three growth phases.

The shotgun phase

In the early days of your business, you’ll sell anything to anyone in order to keep the doors open. You need customers to prove to your investors that your ideas and plans are sound.

The feedback you get from early customers is priceless, but understand if you are signing customers of any type, your retention will suffer and you’ll ultimately have to work even harder to replace them relatively quickly.

To develop those early customers into loyal patrons, listen closely to them. Find out what they truly value from you – and realize this often is not why they bought from you in the first place.

The band-aid phase

Very quickly, you’ll find yourself with happy and unhappy customers. It’s inevitable. Your first inclination will likely be to slap Band-Aids on the bad relationships and hustle to adapt your product or service when unhappy customers stop buying.

This can be a dangerous trap, though. Too much time spent fighting customer churn can easily pull resources away from R&D investment or revenue generation.

Your response, of course, is highly dependent on your cash position. If you are fighting for survival, by all means try to keep the revenue. If you’re in a more secure position, keep your eyes on the future and do the following:

1) Segment – Identify which customers have the potential to stay in your top 20 percent for a long time.

2) Focus – Understand exactly what these customers want and give most of it to them

3) Make Tough Choices – Explicitly decide which customers will get lip service

Remember, you can’t keep everyone happy. Pick and choose who you absolutely need to keep and cross your fingers on the rest.

The lovefest phase

Once you hit cash flow positive or 12-18 months of cash reserves, you can start making more rational choices about investment. If there is any repeat purchase behavior in your business, retaining customers fuels your cash flow engine.

It’s critical at this point to figure out why your best customers stay or rebuy, then do more of it. Then do even more of it. And then do some more. Don’t take them for granted – keep investing in the features or services they actually use. Ask them why they stay, and more importantly, why they leave.

At the same time, put programs in place that recognize great customers and reward their loyalty. During downturns like the ongoing reession, high value customers in retention programs defect at much lower rates than your average customers in the same program. They’ll also refer more, contribute more content (like reviews or forum posts), and be less likely to complain to the 10,000 people they influence if you screw up.

Ultimately, if you think early on about retention, you’ll look like a genius. At least 70 percent of your customers should be returning each year, making your growth plans both impressive and realistic. You’ll have lots of referrals, taking the stress off your sales and/or marketing team. Your prospective VCs will have great due diligence calls. And you’ll be well positioned for a good multiple or a long run.

About the Author, Michael Greenberg

Michael is COO of Loyalty Lab, a SaaS marketing solution for consumer brands including Virgin America, Nine West, and Gold’s Gym. Michael started as the company’s VP Marketing and has held executive positions at several startups and a couple public companies.