Want To Grow An Economy? Invest In Growth

I was slightly bullish the stock market when I woke up yesterday.  Then the market started out weaker.  Later, Obama made a statement on the economy.  I don’t know if any statistical geek has done a correlation, but it seems like every time the President speaks, the stock market tanks.  Has to be better than an 80% correlation with a very small r squared.

The way to repair this economy is from the ground up, not the top down.  Yesterday, I learned more about that.

Excelerate is a new lab in Chicago for entrepreneurs.  For 90 days, a start up company spends time getting mentoring, smoothing their business plan and working out kinks.  At the end, they get to pitch to investors and hopefully hit the ground with some momentum. Cool stuff.

HPA sponsored an angel conference yesterday. We had some great speakers, culminating with Alan Patricof.  Gleaning the high points of the speakers yesterday, some salient points came out.  While investing is risky, when it hits-it can hit big.  Start up Groupon is adding +100 jobs a month.  It started up two years ago.  But it wasn’t successful immediately.  Brad Keywell said, “It required a lot of tinkering.”  Great businesses do require tinkering.

Bob Okabe, from RPX Group, gave some very meaningful statistics.  Think about these when you hear a government official talk about government programs.  There are 4.2 million angel investors in the US.  In 2008, they invested $17.6 Billion in 57,000 deals. All were not successful, but of the ones that are, think about the Groupon effect.  They add jobs like crazy when they start to grow.

Dave McClure spoke more about the nuts and bolts of internet business.  Fascinating.  Key points when designing a web presence:

Less is more

Focus on the User experience

Measure conversion

Fast, frequent iteration, (with a feedback loop)

Keep it simple and actionable

Interestingly, to him adding more features is not necessarily progress. They can gum up the experience and impact users in negative ways.

The other aspect to all this is valuation. Valuation is the biggest sticking point between entrepreneurs and angels. At HPA, we like to look at it this way. We are marrying you for at least 5-7 years. You are taking personal risk, and we are taking monetary risk on you. If the angel takes too much equity, then the company goes nowhere since your incentive to work is gone. Take too little, and our risk is greatly magnified, so we need a much larger return on investment. Both can screw up businesses.

Another co-founder of HPA looks at it this way. Corporate finance is a business strategy. It is every bit as important as your marketing strategy. Figure out the right balance so that as the company hits milestones, there is never a down round. The company always builds momentum. Makes a lot of sense. This is why angels generally have a very good comfort zone investing in companies that have a pre-money valuation of $250,000 to $2 million. Over that, the risk profile gets a little uncomfortable.

Mr. McClure recommended the book “Spent” by Geoffrey Miller.  Perhaps I will read it on the hopes that all these anti-business, anti-capitalistic types get tossed out of office on their ear, culminating with a new President in 2012.  Hopefully, the country will be in an AOBO(Anyone but Obama) mood!

All in all, we heard some very good advice yesterday. The key will be can we put it to use and create an entrepreneurial ecosystem in Chicago that is self sustaining. As the Techstars innovators said, “It’s going to take 20 years.”, and HPA is on year 3.  We can do it!


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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