Angel Investment up in 2006

Angels also have a lot of idle cash (see earlier post today on VCs) and their deal flow seems to reflect this. From the Center for Venture Research:

The angel investor market experienced steady growth in 2006, with total investments of $25.6 billion, an increase of 10.8 percent over 2005, according to the 2006 Angel Market Analysis released today by the Center for Venture Research at the University of New Hampshire.

Are VCs Getting Desperate?

Dr. Jim Stefansic of Pathfinder Therapeutic sent me something I never thought I would ever see:

On Friday, April 20, I would like to invite ANY person that wants to meet to come by our office in Raleigh, NC. You can have just an idea all the way to a well run business doing millions in revenue. It doesn’t matter. And all the typical venture capital BS that you may hear is removed – you won’t be screened out in advance, you don’t need to know someone to “get in” and there are no secret handshakes required. Everyone is welcome and I’ll plan to be in the office all day.

This was posted by Jason Caplain of Southern Capitol Ventures at the blog site TechJournal South.
I knew that VCs had a lot of extra cash these days, but this sounds like it is either desperation or an unprecedented PR stunt for a VC firm. Either way it seems to indicate what many of us have suspected — VCs have over-sold their funds.

Does Silicon Valley have a Special “It”

From the SBA Office of Advocacy:

Many observers have long claimed there is something special about Silicon Valley that promotes entrepreneurship. Are these claims true? Is Silicon Valley more entrepreneurial, and if so, is there a special “it” factor, or are the rates due to factors already known to produce entrepreneurs? A study released today by the Office of Advocacy of the U.S. Small Business Administration answers these questions by showing that while high, Silicon Valley’s entrepreneurship rates are not unique, although the factors that drive them may be.
Entrepreneurship in Silicon Valley during the Boom and Bust, written by Dr. Robert Fairlie of the University of California Santa Cruz with funding from the Office of Advocacy, examines the reasons for the rates of entrepreneurship in the dot com boom and post-boom periods.
The study found that Silicon Valley’s entrepreneurship rate, as measured by the Kauffman Index of Entrepreneurial Activity, was consistently higher than the national rate during the dot com boom of the late 1990s. However, several other Metropolitan Statistical Areas had higher rates of entrepreneurship during the same period.
The Silicon Valley rate rose in the post-boom period, suggesting that the tight labor market, high wages, and available stock options suppressed entrepreneurship. After controlling for factors such as education and native/non-native birth, the Silicon Valley rate remained high, lending credence to the idea that Silicon Valley has a special, unmeasured factor that drives entrepreneurship.

My best guess is that there was a convergence of money and talent that happened at just the right time. Just like any success story, there may have been more than a little luck involved — in fact, luck may be the mysterious “it” factor in the Silicon Valley story.

“Boing Boing” Economics

James Pethokoukis at US News posed the interesting question on how to make America more innovative. He has summarized the responses from a variety of people including Cory Doctorow (co-editor of Boing Boing), Dallas Mavericks owner Mark Cuban, law professor and Instapundit blogger Glenn Reynolds, design firm CEO Tim Brown, and yours truly among others, to this question at a new post at his site. A great read with lots of interesting ideas — I hope those in Washington are paying attention!

Don’t Short-cut Planning

My column this week for the Tennessean addresses the importance of following the correct process in developing a business plan:

Many aspiring entrepreneurs turn to the latest business planning software when getting ready to start their businesses, but such tools create too many shortcuts that undermine the crucial process of business planning.
To construct an effective and more accurate business plan, it helps to understand how the experts — such as investors and bankers — evaluate business plans.

Is There a Medical Device Bubble Waiting to Burst?

We have seen it before. Too much money chasing one particular market segment creates unsustainable valuations that eventually come crashing down — the medical services roll-up boom and bust of the early 1990s and the dot.com era of the late 1990s.
Medical Design Magazine posted an article earlier this month that points to another possible segment that may be suffering from overvaluation. The story says that as of 2004, 85% of market capitalization in medical device companies was supported by intangible assets. These intangible assets are the speculative part of any business valuation. It is that part of the valuation that predicts what the future might hold.
If speculation proves correct, vast fortunes can be created.
If speculation proves to be unrealistic or just plain wrong, these values can come crashing down. Physicians who sold their practices for stock in the roll-up companies of the early 1990s experienced first-hand what happens when billions of dollars in market cap vanish. So did the millions of people who bought into the intangible assets of the dot.com’s. Wealth that was only on paper disappears.
We do not know if this is an overvalued market, or one that has incredible up-side, but it certainly bears watching.
(Thanks to Dr. Jim Stefansic for passing this along).