As an entrepreneur, I always hated the month of February. Why? Because it had 10% fewer days than many of the other months, which meant that it generated 10% less cash flow for my business.
So in honor of the extra day we get every four years, I want to wish a Happy Leap Day to all of you entrepreneurs out there!

The Angel Capital Association reports on their latest survey of angel investor attitudes. It seems that angels are not quite as gloomy as their VC cousins (see my post on their mood from last week).

Angel group leaders expressed optimism about the climate for investments in early-stage businesses in 2008 in a recent survey by the Angel Capital Association (ACA). This optimism comes despite recent news about the slowdown of the US economy and follows a year in which investment activity stayed level with 2006.

You can read a summary of their report here and find the summary statistics from this survey here.

To those of you who deal regularly with venture capitalists you probably think this is the start of a bad joke. How do you tell when a VC is feeling pessimistic? Well, the University of San Francisco has created an index to measure the mood of VCs — and as dour as they usually seem, their confidence plummeted during the last quarter of 2007. (I am a horrible joke teller, so if you have a punch line to offer for my hypothetical joke, please pass it along!)
“The Q4 Silicon Valley survey indicated a significant decrease in Bay Area VC confidence in the high growth entrepreneurial environment to its lowest reading in 4 years,” says Mark Cannice of USF.
And the mood overseas is not much better.
“The China Q4 survey indicated a modest decrease in China VC confidence in the high growth entrepreneurial environment. This decrease was primarily attributed to a changing regulatory environment and inflated valuations.”
Here is a graph that displays this sudden drop in the confidence of VCs.

So what does this mean?
– VCs will likely now look at each possible deal with even more scrutiny. They will become even more diligent in reviewing each deal and will likely be quicker to throw deals that give them any heartburn out the door.
– They will also in all probability offer less favorable terms to protect their returns. The assumptions they use to model growth will become much more cautious, leading to much lower valuations.
– And they will be quicker to pull the trigger on replacing management if the entrepreneur starts to falter.

The SBIR (Small Business Innovation Research Program) funding program is in jeopardy of not being renewed. From GenomeWeb Daily News:

The Federal funding program that supports small businesses that pursue innovations in biomedical and other high tech fields is in need of an overhaul, according to some industry representatives, and is set to dry up later this year if the US Congress does not agree to extend it.
In an effort to press lawmakers to do something about the Small Business Innovation Research program, industry representatives held a sort of a cheering session this week on Capitol Hill that touted the value of the program to biomedical research.

One of the “cheerleaders” is Belmont alum Dr. Jim Stefansic, CTO of Pathfinder Therapeutics, Inc. (PTI). Here is part of his testimony before Congress:

Although PTI has overcome much of the technology and regulatory risk associated with bringing a new medical device to market, many other challenges remain to ensure that our technology can improve the lives of those suffering from abdominal cancer. It is important to note that these risks would not have been conquered without both the SBIR grants and the modest seed round investment in PTI. Both of these funding sources are described in more detail below.

Given that the expertise of the founders in successfully acquiring academic federal grant funding, we were encouraged by our seed round investors in the summer of 2004 to raise additional early-stage funds through the SBIR mechanism. With teamwork and considerable effort from all the founders, in early 2005 PTI was fortunate to land on our first attempt a fasttrack SBIR grant from the National Cancer Institute (NCI) to develop a commercial software and hardware platform for a variety of image-guided therapeutic applications that target cancer. As the principal investigator on this grant, I have been able to focus part of my time and energy on taking the technology from the founders in the academic setting to commercialization without being concerned about salary support and other R&D resources for my engineering staff. The $1.5MM in grant funds have been primarily used to develop the SurgiSight image-guided therapy platform and will enable PTI to grow from one specific therapeutic area (liver surgery) to the broader field of surgical oncology (kidney and colorectal) to the broadest field of general surgery (vascular/soft tissue applications throughout the body). The key to unlocking this potential is the stability and versatility of our software platform and its ability to seamlessly interact with multiple hardware configurations. This versatility will enable Pathfinder to release products that are amenable to applications that employ either an open or minimally invasive surgical approach.

Jim knows that I am not a big fan of programs like SBIR. I do not believe that it is the role of government to steer entrepreneurial activity and fund businesses. That being said, we are very proud of Jim and we are glad that he was able to leverage this funding to start what we know will be a great business.

The latest statistics from the National Venture Capital Association seems to suggest that the high growth sector of our entrepreneurial economy has leveled off. Venture capital firms raised just slightly more than they did in 2006 (up 2.6%). This was expected, since capital markets have tightened and many funds still have significant over hang of uninvested funds. Mergers, acquisitions, and initial public offerings were up a bit. These results are good in that we did not see a downturn in the venture backed sector. But, it is a further indication that the entrepreneurial economy is no longer showing the robust expansion we saw over the past few years.

If you’ve ever interacted with a VC you might find it hard to imagine them feeling bullish about anything, but the latest survey released by the NCVA paints VCs as having a fairly optimistic outlook for 2008.

Venture capitalists are forecasting an active year for the industry with high growth in the CleanTech sector, an improving IPO market and fewer venture firms in 2008. These predictions are among the top line findings of the NVCA 2008 Predictions Survey. The results also show concerns about global investments in certain regions including China. Additionally, the industry believes fund sizes will become larger and returns for limited partners of venture capital funds will improve in both the short and long term horizons.

When you deal with something almost everyday it can become second nature to you. So it is with financial statements for those of us who pour over them in business plans, financial forecasts, and case studies. But for many entrepreneurs, even some with surprisingly large companies, financial statements are difficult to digest and interpret.
My column in this week’s Tennessean offers some tips on how to begin to understand and better utilize the information contained on a monthly income statement.

It is important to look beyond the numbers presented in the income statement and examine the percentages that each of those numbers represents. Look at major expenses every month to see what percentage of sales is being used to pay for each expense. Entrepreneurs who train themselves in how to read their income statements carefully will begin to see trends that will help them make decisions and solve problems within their companies.

In this week’s column at the Tennessean I provide a summary of what it takes to attract investors to your business.

So what do these professional investors look for in a business when they make an investment decision?
We often hear that such investors will put money in an “A” team with a “C” idea, but not an “A” idea with a “C” team. That is, rather than investing in the next great idea, they invest in entrepreneurs with a proven track record of success in previous deals. However, the truth is that you will need straight A’s to get angel or venture capital money.

the Kauffman Foundation has released a study indicating that angel investment groups are now seeing returns on their investments that rival VC firms.

Angel investors participating in organized angel groups are seeing average returns — 27 percent — that rival those of in the VC industry. The “Returns of Angel Investors in Groups” study, released by the Kauffman Foundation and the Angel Capital Education Fund, shows that within 3.5 years from investment to exit, this group generated 2.6 times their invested capital. Seven percent even generated returns 10 times their initial investment. However, the risk inherent in angel investing also was illuminated — just over half of the cases resulted in a negative return with some or all investment capital lost.