“Thank You For Supporting Capitalism” and Other Investor Tales of Two Cities

May 4, 2009 by James Geshwiler

[The following is from my post today on Xconomy; follow the link to read the rest]

Two weeks ago, I was in Atlanta for the annual Angel Capital Association (ACA) conference and, this past week, here in Boston for the annual National Venture Capital Association conference. Depending on whom you asked at both conferences, it was the best of times or the worst of times, most likely depending on whether or not they had money to invest. In fact, NVCA conference chair, Kate Mitchell, even kicked off the event with that opening line from Dickens’ book.

That said, both events were generally positive-you’ve got to be an optimist to be involved in entrepreneurship-and both had a roll-up-your-sleeves, let’s-make-things better outlook. Overall, the mood and energy was somewhat more upbeat in Atlanta than in Boston, as characterized by ACA Chairman John Huston’s welcoming remark and call to action, “Thank you for supporting capitalism!” which drew a lot of applause. Perhaps it was because individual investors don’t feel obliged to go to conferences and the pessimists just stayed home. Maybe this part of the venture investing market is still so young that that there’s a lot to be learned and done.

The hot topics among angel groups were….Click here for the rest of the article….

CommonAngels Welcomes New Members

April 2, 2009 by James Geshwiler

In addition to working with many great new companies as well as those currently in our portfolio, we have been adding new investors to our group. We are pleased to welcome four new members with a wide range of skills to evaluate and assist new
ventures: Ed de Castro, Martin Flusberg, Dan Kaplan and Ajay Sadhwani.

Ed de Castro brings a rich background in software, semiconductors, and most recently life sciences. Ed has been a director of the Avax Technologies since October 1993. Since 1990, he has been consulting for companies and participating as a member of certain Boards of Directors. Ed was one of five co-founders of Data General Corporation in 1968 for which, from 1968 to 1989, he served as its President and Chief Executive Officer, and from 1989 to 1990, he served as its Chairman of the board of directors.

Dan Kaplan brings extensive knowledge of on-line and off-line publishing as well as current experience in energy efficiency. He currently is CEO of PowerHouse, which has developed a technology enabling homeowners to monitor and manage the energy consumption (electricity and heat) in their homes. Previously, he started more than a dozen publications including alternative newspapers, regional business publications, and regional and national magazines. He was a co-founder and director of LowerMyBills.com, which was sold in 2005 for $300 million to Experian.

Martin Flusberg adds to our expertise in technology solutions for energy. In his 25+ years in the technology
industry, Martin has held senior executive positions with several software companies, and gained specific experience with software for the utility industry and clean energy. Most recently, Martin was president of Nexus Energy Software, a global software company serving the utility industry. Nexus was sold to ESCO Technologies in 2005 and Martin continued as President until late 2008. Immediately prior to co-founding Nexus, Martin was founder and president of
REALink Systems, a pioneering software and Internet firm serving the real estate industry.

Ajay Sadhwani brings both software and healthcare expertise, most recently as a co-founder and CEO of ARS Clinical (a clinical research organization). Ajay served as President of ARS Clinical since co-founding it in 1998. ARS Clinical was acquired by Premier Research in July, 2007. He has over 14 years of experience in the Pharmaceutical/Biotech industries implementing clinical trial data management systems and their related processes. His career has taken him from Damon Laboratories and GE Medical Systems to Serono Laboratories. Ajay received his B.S. degree in Bioengineering from Syracuse University and his M.S. in Biomedical Engineering from Boston University.

CommonAngels Leads Series A for inStream Media

March 30, 2009 by James Geshwiler

At CommonAngels, we have been running at full speed the past six months. Like everyone else, we have had heartburn about the economy. We are concerned about financial and market risks but bullish about the high-quality, dedicated teams we are collaborating with and the lower competitive risks facing them. We are working even harder with companies to have tight financial plans that will allow them to thrive in the coming months and years.

As an example, we are pleased to announce our new Series A financing in inStream Media, a leader in providing targeted marketing programs delivered through brick and mortar retailers at the point of sale. CommonAngels and Stage 1 Ventures co-led the round and were joined by individual investors. inStream works with retailers, advertisers, and participating brands to develop innovative products to add value to the in-store shopping experience.

The company will use the funds to deploy its patent- pending marketing solution through leading retailers and with national and international advertisers. As part of the financing, David Baum, general partner of Stage 1 Ventures, LLC, and Jonathan Green of CommonAngels join the inStream board of directors.

Hot Tech Companies for Angel Investing

October 29, 2008 by James Geshwiler

It’s a great time to start a company and to invest in early stage tech companies. “Huh?!” you say, “Have you been stranded on a deserted island for the past month?! Just look at the markets, layoffs, and economic outlook!” Yep, I’ve got a ticker on my computer screen, and we’ve been having long discussions at CommonAngels. The question isn’t whether to build companies but how.

It is a bad time if you depend on advertising revenue. It also is a bad time is you need to build a huge company to achieve your goals. It also is a bad time if you need a gazillion dollars to get there, especially across many rounds of funding.

It is a great time if your revenue is counter-cyclical to start and you can grow your business even more when the economy recovers. It is a great time because competitive risk is now way down–you aren’t going to get a bunch of incumbent corporations entering your market nor will you get a bunch of well-funded startups on your heels.

It is a great time to have loyal, hard working employees. They aren’t going to jump ship for a sweeter deal down the street. It is a great time to build a product methodically, with customer input and assistance. It is a particularly great time if you can build a company lean and mean with a modest amount of capital up front and make a good return for everyone on an average exit.

At CommonAngels, we are running at full speed. We have had a lot of discussion in the group, and yes, we get heartburn about the economy, financial risk and market risk. But, we are enthusiastic about the high-quality, dedicated teams we’re meeting. We are bullish about the lower competitive risks and are working even harder with companies to have tight financial plans that can survive in the coming months and years.

We are financially cautious and entreprenurially optimistic. We hope you are as well.

Part 3: Starting Up a Media Company: Growth and Acquisition

September 9, 2008 by James Geshwiler

In this third and final part of our three-part series on ideas for creating successful media companies, serial media entrepreneurs and CommonAngels members Tom Burgess former CEO of Third Screen Media and Jay Habegger, founder and CEO of OwnerIQ, Inc. of Boston, MA, and I share our advice and experience about how a media company grows value and considerations of acquisition.

James: For many angels, media businesses take some getting used to. Creating value is more of a challenge, partly because it’s a different kind of value.

Jay: True. In a software company when a person goes out for capital, they need money to commercialize a prototype. There is a computable amount required to bring a product to market. At that point customers can buy or not, you get customer validation or not, and away you go.

In media, you do have a web site prototype, because the business is all about getting the audience. But that’s tough to do in scale without resources, so there is significant up-front investment while in the early days revenues tend to be zero.

Media businesses don’t look good early on, and you don’t know for a long time whether or not you are being successful. You have a two-year or longer period of building audience and scale; in only a few cases can you make meaningful cash flow without that audience scale. Some lead generation businesses may work that way, but in most cases it takes a while for things to play out, and there aren’t quick exits.

You are spending at high levels—burning cash. You show more audience and your advertising sales people are plugging away, yet nothing much is happening with revenue. You get to a B round, and this is often when media businesses look their worst. It can be hard to tell if this is a growing phase or the company got it wrong.

Tom: There are several models used to determine value for early stage media companies. I’ve found that comparison with other, similar companies that have demonstrated some form of success over time offer a solid place to begin. From that point it is important to identify the strengths, weaknesses, opportunities, and threats of your business model that will add or subtract value.

Invariably early stage media companies will be valued on some combination of audience size, audience demographic, economics of audience acquisition, and potential lifetime value of registered users. This may prove to be a challenging formula for angel investors accustomed to placing value on intellectual property and/or technology assets such as proprietary software or hardware. In the end it is all a risk and the final decision comes down to barriers of entry and execution efficiency.

Jay: Another thing to remember about these businesses. First, advertising rarely sells itself. Advertisers have to be sold. The more specialized the advertising is, the more it requires sales talent to be deployed. The difficulty of advertising sales is minimized. Even if you have a great offering, getting it sold is a challenge.

Any media company business plan needs to have a lot to say about the cost of ad sales, which is likely to equal close to one-third of sales. There are ad networks which will go sell advertising for you. If some rare cases it will sell itself. Google is the outstanding example of this. But, even Google has a sales force. In most cases the advertising is going to have to be sold and entrepreneurs must recognize that getting it sold is key part of their equation.

Tom: I’ve learned through my own history of being able to sell small companies to big companies that whenever anyone looks as you it’s a build versus buy opportunity based on cost and time to market. They can go build hire a bunch of technical and marketing people to compete with this small company or they can acquire the company.

There’s an interesting thing I’ve found over the last eight to 10 years. It used to be that the big companies were buying the little ones once they had good revenue and well-proven business models and were seeing see sizable business transactions. When AOL bought Advertising.com for several hundred million, Ad.com had been around a while, lived through the hay-day, crashed, changed the business model, came out of the hole, and back to making big revenue.

Today the big companies are looking at the small ones companies really early. Even A and B round companies are getting sniffed at. The big companies have learned that if they buy early, they can spend the money and get a dozen small companies—and the great people that come with them.

One of the hardest things to do is to get good, talented, experienced people. When you buy a company that already has people focused on a deal, you buy a team. If you find a team of 10 people wrapped around an idea and working full-speed, your time to market is significantly reduced. Lots of times that outweighs profitability. I can’t state how important is to have a good team.

The most important end result is building value. Whether the potential exit strategy is public markets or an acquirer, what matters is what they find valuable. That should be the media start-up company’s target from day one.

James: For media businesses, creating value is much more than the mechanical step of just getting the email addresses for site visitors and shoving products back at them. A far more elegant reciprocity goes on that starts with understanding the needs of each of the three legs of this stool—the media company, the advertiser, and the audience.

In its ideal form, a deliberate part of the media company’s strategy is to align the interests of the audience and the advertisers. As a result, the advertising messages are not viewed as obtrusive or objectionable to the audience; rather than being seen as an undesirable necessity they are seen as a benefit. I’m talking about the kind of moral contract that Google has. When we use Google, we don’t think of it as advertising; we think of it as search.

Angel Investing in Scotland

August 23, 2008 by James Geshwiler

I just spent three days visiting with our colleagues in Edinburgh and Perth Scotland. Many of them would say they are “off the beaten path” and not as experienced as angel investors in the United States. To the contrary, being in a region with little venture capital investment, in my view, has led to serious reflection and analysis on how to be a good investor. 

If you live in a market awash in capital, it’s easier to be sloppy. You won’t do purely naive things because local norms will dominate the process. But a lot of times those norms won’t be appropriate, or worse, be the wrong choice for the situation. How many angel investors in Boston or Silicon Valley have thought “being tougher than the VCs” was a good idea only to find that doing so hurt the company. Or that by merely replicating VC terms, found themselves out of balance with other investors or management.

Take a look at the portfolio of Edinburgh’s oldest angel group Archangel Informal Investment or of Braveheart Ventures, which is a publicly listed group on AIM! Optos laser eye care is particularly interesting.

Organized angel investing there has been growing there with many thanks to the leadership of David Grahame and his leadership of LINC, the angel capital association of Scotland. David, thanks for your efforts and for being a gracious host! (And for the rest of you, if you can find a friend who is a member of the Scottish Malt Whisky Society, it’s a great place to learn, to visit and to get the inside story on what’s going on.)

Three Ways to Blow Your Venture Capital Round

August 21, 2008 by James Geshwiler

Only about 1 in 100 companies that pursue venture capital money get it. Probably the worst thing you can do right after the financing is then to blow this precious resource. Yet, there is tremendous pressure to scale the company for a large market quickly. Here are the top three catastrophes I have seen first hand and heard from veteran venture capitalists time and time again over the years.

  • Hiring the right CEO at the wrong time: Investors put money in the company to make money, and you do that by making a big company—fast. As soon as the round is closed, the new board of directors and the founders interview lots of candidates and hire someone who just amazes them with their vision and ability to grow a company quickly. That “professional” CEO starts hiring three to six VPs, they in turn hire three or four managers each; they then hire more staff. Headcount after a Series A grows two to five fold in a few months. That’s great if there is a rock solid foundation underneath the company, and it has equally strong ties to the market. It is a disaster otherwise, creating chaos, frustration, anger and tons of finger pointing. The new CEO takes a lot of the blame, but so should the founders and the investors. The CEO was probably the right person; the company should have spent three, six or more months refining the business model, sales process, marketing strategy, and product development process, as well as assimilating the people so they worked as a team, before hitting the gas.
  • Scaling the sales force prematurely: This mistake is similar and often related to #1, but it’s enough of a stand alone error that I put it in its own category. Venture investors look at initial sales traction and think the rest of the market buys the same way or has the same needs It takes a lot of market research to make sure you are ready to scale. “How many times do I have to learn this lesson,” one general partner recently said to me.
  • Building the product ad nauseum: If one is going for a big market, you don’t want to ship one that has bugs, right? That didn’t stop Microsoft—or many other successful software companies, for that matter. The trick is understanding what bugs will be tolerated by which portions of the market and limiting your sales to that segment until your ready for others. Lots of engineers absolutely hate that approach. With a lot of money in the bank, an engineering-heavy venture can be prone to come back to the board time and time again, saying, “we just need another quarter or two of development, then we will be ready for market.”

Part 2: Starting Up a Media Company: Building Credibility and Value

July 4, 2008 by James Geshwiler

In this second part of our three-part series on ideas for creating successful media companies, serial media entrepreneurs and CommonAngels members Tom Burgess former CEO of ThirdScreenMedia (recently sold to AOL), and Jay Habegger, founder and CEO of OwnerIQ, Inc, and I share our advice and experience about building credibility and value in new media businesses.

James: You’ve both sold ventures to very big players in this industry. What have you learned about building credibility with audiences, advertisers, and their investors that you can pass on to other entrepreneurs?

Tom: One of the very first steps if you are an entrepreneur with a great media idea is to surround yourself with “influencers.” This includes management, board members, advisors, investors, partners, and customers. Next, understand how to leverage them.

Small up-starts have difficulty breaking down the doors of large players in established markets. A sales strategy that is well-organized includes empowering your influencers to sell on your behalf. Your story is far more credible when told by a third party or trusted sources within an industry. As a small company, do not rely on direct sales to enter an established market with a new offering.

People with significant connections and experience in your target market will open doors and provide guidance that can only come from those who have “been there and done that.” Spend an inordinate amount of time going after good management, board members, advisors, and investors; this costs money and equity and is worth every dime.

Something that has worked for me over and over again is to focus on well-respected customers in the marketplace. Don’t fall for the theory that you should try your products on small customers before you launch with a large player. Go directly after the big fish, and you will be well rewarded for the effort. In most cases it takes just as much time and effort to secure a small customer as it does a large one.

Jay: Many entrepreneurs are so enamored with ideas and possibilities that they don’t do the validation and diligence that would be required to invest their own time much less someone else’s money.

Entrepreneurs should do a basic level of research to understand what it’s going to cost to carry out their ideas and to understand what’s important to the market. If you can’t articulate that, how can you possibly implement your idea or build a site? The web has actually lowered barriers to get this kind of research. Conducting anecdotal interviews is straightforward, and doing broad-brush surveys isn’t that hard with the tools available.

One simple way to validate your data on the market is to buy key words against the target audience, place key word ads that direct people to a landing page, and count how many go there. You can also speak with merchandising managers and VPs of marketing to see if what you are proposing would be of interest to them. Investigate the other publications in your market. Those magazines have information on demographics. It’s out there for the taking. Look at their rate cards and media kits. What do these tell you about the demographic?

At one point with our business, we were considering alternatives. One of the co-founders suggested that we put together a survey, compile our own email list of people we knew, and ask their opinions.

Like us, any entrepreneur can reach 100 or 150 close friends or associates with an online survey who, because they are friends and acquaintances, will yield a high response rate of maybe 50 or more answered surveys. This gives you 50 market data points. This is something you can do with turn-key web survey systems that wouldn’t have been possible even 10 years ago. Any entrepreneur can gather information about audience; it’s not that hard.

Tom: You also have to figure out your barriers of entry. A lot of software investors are used to looking at patents. They offer solid product validation and are worth the effort, but they aren’t very strong barriers to competition. In fact, a patent is only as good the money you have to defend it, which means it can be worthless.

When your business is media, focus on innovative solutions that remain “sticky” throughout their lifespan. Once customers start using your solution, you want them to find it very hard to replace it with a competitive offering. Sometimes this means becoming technically integrated with your customers’ processes so that it becomes too costly or time consuming to untangle your technology from theirs. Alternatively you might provide your customers with proprietary information that, when combined with their business, becomes more valuable over time causing them to hesitate when confronted with the option of losing progress or momentum by changing to another solution.

Your customers may be the best source of information on competition. There will always be other (potentially better) solutions to compete with your product. Create barriers to churn so that the calls you get from customers are requests for enhanced solutions and not requests to terminate the relationship.

Jay: Investors want to see audience validation. They hear over and over that awareness of the site is going to spread by word of mouth: “its going to be viral.” The problem is that it may work that way, or it may not. Everybody knows the viral success stories, but the non-viral failures are much more numerous. The entrepreneur has to validate that viral traffic by supplying some evidence that viral nature of his or her business can work out. It is highly situational, and the burden falls on the entrepreneur to demonstrate why in his or her case the assumption is reasonable.

As for what is it going to cost to get a user, there are no standard rules of thumb. The burden is on the entrepreneur to explain what he or she is going to do and the cost. If you come up with a model proposing a user acquisition cost of a $1 and the industry cost is $10 that could be your secret sauce.

Tom: Another thing. Forget about being “stealth.” With groundbreaking technology it may be beneficial to run silent during your development process, but media is different. Creating buzz is everything. I believe in talking about it and in telling anyone and everyone about my business. In my opinion, to run it in stealth is crazy. Tell everyone what you are doing. You will always hold back the details of your “secret sauce,” but tell everyone you are in a space and that you are a player, especially if you are breaking into a market.

With Third Screen, we were the first to do something, and we were very, very vocal about it. This was extremely important for Third Screen not only to get customers but it helped with valuation. Media is very much a buzz-driven industry, and public relations is a big piece of that.

James: CommonAngels sees wonderfully creative ideas from media entrepreneurs, but the challenge can be that they become so infatuated with their content that they don’t pay enough attention to the revenue model. I’m not talking only about first time entrepreneurs either; this happens with experienced people, too.

Tom: Making money from content starts with simple but often time consuming research to find out what models have been successful for other similar companies. Sometimes it is obvious what model will work for your business and sometimes not. You may need to take pieces from multiple models to build particularly unique model that works for your business. In any case it is critical to combine your eyeball/customer acquisition strategy with your monetization solution.

If you have a high acquisition cost, your monetization model might be very different than if your audience is easily acquired. For example, if your audience is a particularly difficult group to reach (for you and others) then you will likely have a small audience with high value. This translates into high value inventory that can be sold in a pre-paid cost per thousand (CPM) ad sales model.

On the other hand, if your audience is easily reached then your model may be based on high volume and low cost or a performance-based revenue model. Some companies inject targeting capabilities that increase the value or provide more efficient ad delivery to increase the advertisers ROI which translates into repeat buys.

Finally, subscription models can play a significant role in the revenue model for media companies. It’s important to note that 50 percent of all media revenue, including TV, radio, print, and online, comes from advertising and the other 50 percent from subscription.

Jay: The paths to monetization have been rather consistent. Subscription-based web services for access to content should be treated with a healthy degree of skepticism; there just haven’t been that many success stories based on this model; only rare things have supported a monthly price.

Virtually every significant Internet fortune has come from advertising. When people have neat idea and a neat service, advertising budgets are the place to look for significant dollars. However, just because it is tempting doesn’t mean that it happens easily.

James: It seems clear that pay for placement drives people away. Search works because it’s so relevant to what people are looking for. That’s the quid pro quo that makes media business models click.

Tom: The entrepreneur must know their market, the industry stats, how other companies in the space are valued, and the business models of these other companies. The next most important thing is to be able to articulate that to potential customers and investors very clearly in as few minutes and slides as possible. Never underestimate the value of a strong elevator pitch that includes a succinct positioning statement.

James: When you can simplify someone’s life—whether through awareness, information, education, or advertising, you make the audience happier and the brand happier, it’s a win-win-win.

In our next issue – Part 3: Starting up a Media Company: Growth and Acquisition

Part 1: It’s Not All About Content; Building Media Companies that Succeed

June 20, 2008 by James Geshwiler

It’s an unusual week that CommonAngels doesn’t receive at least two business plans for web-based media companies—businesses that produce information and entertainment in one or more consumable formats using advertising, subscription fees, or pay-per-use as the revenue model in contrast to businesses that are based entirely on direct selling of a service or product.

Most of these firms create and aggregate content and then give it away (sometimes charging a minimal fee to create qualification) to aggregate an audience from and about which they will collect data used to convince advertisers to advertise.

Entrepreneurs who start up media companies almost always recognize the need for the information they are providing. It is okay to be in love with the content to start, but then how do you make it useful?

We asked two of our members, Tom Burgess and Jay Habegger to roundtable with us as a way to share their advice and experience about starting up a media company.

Tom is a four-time entrepreneur who founded and sold Collegelink, a portal for college-bound high school students, to Monster and recently sold his latest company, Third Screen Media to AOL. Jay, also a serial entrepreneur, is the founder and former CEO of Bitpipe, which was sold to TechTarget in 2004. Most recently he is the founder and CEO of OwnerIQ, a media company that aggregates audience by helping consumers support the products they own. OwnerIQ is receiving more than 1,000,000 unique visitors every month.

This is the first in a three-part series which will cover the key areas of focus for media companies: attracting audience and advertisers; building credibility and value, and considerations of growth and acquisition.

Part 1: Starting Up a Media Company: Know Your Audience and Advertisers

James: One question I always ask media company founders is what audience are you reaching and/or what data are you getting that is so difficult or impossible for an advertiser to get through any other channel? What problem are you solving for the advertiser?

Jay: The most important thing about any media business is the audience. Lots of media company business plans are based on a neat idea, but the entrepreneurs haven’t thought enough about their audiences. The entrepreneur will spend significant money in building web sites and will not spend any capital on validating that audience exists and can be aggregated. They can talk about the content, the site, or the tool and why it’s nifty, but they aren’t able to talk about their audience from an advertiser’s perspective.

Tom: It’s never a build-it and they will come—that’s a fool’s model, but any upstart whether software as a service, a heavy technical IP play, or a media company can be out there early if they’ve really created something that fixes an immediate pain in the marketplace, in this case for the advertisers.

James: A media company that is going to be successful must have a methodical way to extract information about people. Tracking site visitors to prove that you have access to a great demographic is important, but you have to collect more than visitor statistics. Attracting an audience with cool content is a vehicle to gain access. The founders must then take their cool content and build it into something of economic value.

Jay: If you are going to sell advertising successfully, your company has to distinguish itself through the characteristics of the audience; the engagement you have with that audience, and/or the reach of that audience. The media company entrepreneur must articulate a formula to achieve at least one of these three.

If the secret sauce is targeting, how is that actually going to get done? If it’s reach, how can I actually prove that I can get to that audience? This is what every advertiser cares about. Can you produce and deliver the audience?

Tom: It’s all about acquiring those eyeballs and creating the underlying infrastructure to monetize through advertising, subscriber fees or a combination of the two. How are you going to cost effectively go out and acquire eyeballs? What is your cost per acquisition, and how is your revenue model going to produce a profit per subscriber? You are going to be asked these questions by any savvy investor. These are numbers you need to know.

It’s also critical to know your audience. Look at Google. Two young guys built a solution that their target demographic used every day. They understood how to build a really clean portal that did a good search. They did it better than existing companies who had lost touch. They didn’t have to go study the demographic because they were the demographic. That demographic is growing up with them. The same people who used Google 10 years ago are using Google today.

James: Goggle is a great example of what drives the media business—the ability to reach and engage the consumer. But knowing the audience isn’t enough. You have to understand the advertisers.

Jay: That’s right. Once you’ve articulated the audience, the next hurdle for the entrepreneur is to understand which advertisers care and why. There’s a market for most audiences, but the market has to be identified. Every media company entrepreneur must be able to identify and define the advertiser who cares; why they care, and how much they care?

One of Google’s big inventions was the way to tap into latent advertising budgets in medium and small businesses. These size companies didn’t have an outlet. Their budgets were too small to take a bite of The Boston Globe in anything other than classified.

Tom: I might expand on that point and say that you need to understand what the advertiser is looking for. There are two fundamental areas of importance for advertisers: audience and content. Advertisers know who they want to reach, and they know what type of content their audience consumes. Many advertisers also focus on content to help define their product; think Gatorade® and sports.

The true job of the media entrepreneur is delivering specific audiences in a format that appeals to media buyers. Once the audience has been defined then the delivery and cost structure must be addressed. Is the audience best reached through unique premium content that is purchased at a pre-determined price and duration, such as cost per thousand (CPM) or share-of-audience? Or is the audience more economically reached through superior targeting technology that allows an advertiser to expand their reach across a larger more disparate set of content through a performance based pricing structure? Google set the standard for the later model.

James: CommonAngels looks for the entrepreneur who says, I have a way to find out what advertisers have been dying to find out.

Jay: The field is so crowded; the number of messages that are editorial and ad driven is enormous. There are a million factors of individual behavior. More so than ever advertisers need to find a way to reach and communicate messages, and anything that helps cut through that clutter has a shot. That need isn’t going away; it’s getting more acute. That’s what’s driving these media businesses.

Tom: This is an excellent point. There are two perspectives regarding the transfer of audience data to the media buyer. The first is wrapped around the behavior and influencers of an audience. The second is accurately tracking and reporting the reaction of the audience to the advertisers’ message. Unique and effective solutions to these issues will help differentiate up-starts from other companies and will create barriers of entry to potential competition. Additionally, media buyers are always looking for something new. Unique approaches to old models will help break down doors and secure sales meetings with the big money.

In our next installment – Part 2: Starting Up a Media Company: Building Credibility and Value

What’s the Next Big Thing?

May 14, 2008 by James Geshwiler

Microsoft’s Don Dodge and blogger of “the Next Big Thing” and I hosted a call-in talk show today for the Massachusetts Technology Leadership Council’s entrepreneurship cluster on exactly that topic. One of our key takeaways was that often the enemy is us in failing to build the next BIG thing and selling out too early. Here’s a link to the The Next Big Thing Podcast with Don Dodge.

On the call, we promised to post our top three “Hot” and “Not” areas for the next big opportunities in entrepreneurship and the results of an audience survey we did before the call (we picked ours before the survey, by the way). Here are our answers (apparently most of the audience agrees with Don; I’m the contrarian, for better or worse):

Don Dodge:

HOT: Local search, mobile applications, virtualization management

NOT: Linux desktop, video search, social aggregation services

James Geshwiler:

HOT: Speech/voice, social computing, multicore processing (runners up: distributed/portable power, robots)

NOT: Social aggregation services, mobile apps, virtualization

Audience survey, “HOTs”:

76%–Mobile applications

73%–Other Clean energy (neither solar nor wind)

67%–Solar power

65%–Local search

63%–Water

52%–Wind power

50%–IT Security applications

Audience survey, “NOTs”:

71%–Linux desktop

61%–Speech

55%–Video Search

45%–Social aggregation

Audience undecided:

52%–Multicore