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It was a brilliant observation from Tim Huntley of An Entrepreneurial Life, based on an exchange with an entrepreneur. The entrepreneur is stuck in some sort of circular-loop thinking preventing him and his team from making progress. In a rather rare display of self-awareness, the entrepreneur likens his dilemma to a concept taken from an obscure documentary called Waiting for Superman.   In this case:

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bad-news 
 
Ordinarily it takes an act of God to make me spill a drop of my morning coffee, but reading the news this morning nearly caused a grand-mal seizure:

“Jilted Kickstarter Backer Neil Singh Is Now An Assistant Attorney General Of Arizona”

 
My first, second and third reaction was “This is really bad news for Arizona Entrepreneurs.”   
 
Arizona:  The state celebrated recently for being #1 in the US for entrepreneurial growth, has just turned towards a cliff.  Maybe I am being shrill, but read on:

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The infographic below is a very good overview of startup funding, particularly for first-time entrepreneurs,  from our friends at Funders and Founders.  how-startup-valuation-works-infographic

For new entrepreneurs the chart can be a tad overwhelming.  When you’re scraping for your first few dollars from friends and family it’s hard to look ahead at the metrics for your IPO in 5-10 years.

The math, logical and psychology surrounding the premoney and postmoney valuation is the most important aspect that every first time entrepreneur has to grasp. Entrepreneurs are focused on the cash that they need to make the idea a reality, or to take it to profitability. Investors’ issues are entirely different. Most entrepreneurs quickly realize the chasm, and start to pitch in terms of a huge return-on-investment potential. This is too simplistic. Experienced investors think of start-up funding in terms of stages – with each stage ideally making their on-paper investment more valuable.

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abc logo2_fullUsually, I am cynical about pithy posts proffering advice such as “5 steps to …” – particularly when it is about becoming a successful entrepreneur, or raising venture funding.  Most often, I find these posts written by articulate armchair quarterbacks (who have never really done it themselves) or by what I call accidental passengers :  people who have been lucky enough to have been aboard a rocketship just as it launched, but somehow think that they piloted the thing.   Every so often though, a very self aware first-timer, is able to explain the journey in such a way that not only makes sense, but contains universal lessons for all.  Such is the case with  Eran Galperin, co-founder at Binpress, in describing in detail their fundraising process.

His opening line is particularly interesting:

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(Originally published as a Guest Blog on CX.com  on December 11, 2012) 

Crowdfunding. You’ve heard of it — sexy projects by entrepreneurs who buck the establishment by going directly to the public for funding. Or maybe you’ve heard of the other crowdfunding — fraud, deceit and boiler room brokers bilking widows out of their pensions and life savings.

It’s a familiar tune. New technology disrupts an established, elite industry and empowers us to do it better, fast and cheaper. And, in the beginning, the professionals, pundits and predictors of doom tell us how bad the world will be if the industry is democratized.

Anyone over the age of 35 can remember the same dire warnings about eBay and the entire eCommerce industry — typing in your credit card number online was insane.

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After I spoke about Crowdfunding:  Past, Present and Future, at the Arizona Innovation Summit, FunditTV decided to conduct a video interview.   During the interview, I talk a bit about my new Crowdfunding initiative, called Propel Arizona.

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How soon we forget. I wonder if the next generation of entrepreneurs will be called the ‘Instagram Generation.’ I hope not.

Back in April, Facebook acquired Instagram for about $1 Billion.  Of course what was most striking was that the company had 13 employees and was less than 2 years old – with zero revenues and no business model.     We’ll let all the other analysis surrounding the acquisition speak for itself, and we”ll see how this plays out before judging.  But let’s not forget that  Google’s acquisition of Youtube in 2006 was a nearly identical deal at $1.65 Billion, 18 months old with no significant revenue and only a handful of employees.  Many were stunned and ridiculed Google for the acquisition.  No one is laughing now.

Today, in the era of The Lean Startup,  investors and venture capitals are strongly favoring the approach of finding a customer quickly, finding a business model and generating revenues soon out of the gate.   It’s a pragmatic approach that makes a lot of sense.   In fact, it’s hard to argue with the strategy of “talk to to customer, develop the product and make money asap.”   But is that always the formula for great ventures?

What got me thinking about this was a short blog post by a Broadway producer (who also is noted as Crowdfunding pioneer):   He asked the question:   How long did it take Facebook to recoup?  and wrote:

What interested me about the articles I read about the IPO was how long it took Facebook to become profitable.

6 months?

1 year?

3 years?

Wrong, wrong, and wrong again.

It took five years for Facebook to make a dime.  Five years.

How does a company stay afloat while they wait five years before a customer pays them a dime?  Investors of course – Angels and Venture capitalists.   In Facebook’s case they raised nearly $2 Billion in capital before they went public – and over a half Billion dollars before they ever saw their first revenues.    Clearly Facebook is not in the Instagram Generation they created.

For any criticisms tossed at Mark Zuckerberg, one thing cannot be disputed:  He built that juggernaut with vision, persistence … and patience.   He had many opportunities to sell the company – getting a $10 Million offer from Friendster just a few months after Facebook was formed.   And during the same era, there were a host of pioneering ventures that started and were acquired by Google and Yahoo, within months of their founding, for $millions – but few remain, and even fewer are remembered.

The moral here is not that quick flips are bad, or that focusing on short term revenues is the right formula or not, but to reinforce one enduring entrepreneurial truism:   Legendary, lasting entrepreneurial successes take vision, persistence and patience – and for those entrepreneurs who don’t have access to unlimited resources – success is a matter of perseverance, above all else.