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A new study published by professors at the Harvard Business School shows that angel-backed companies are more likely to succeed and show more growth than those funded by venture firms alone. Researched and written by William Kerr and Josh Lerner, the report found that companies with angel funding see between 30% and 50% higher growth figures in terms of website traffic, are more likely to survive for four years, and are also in a better position to receive further rounds of funding. Sponsor Angel investing itself has seen large growth over the last several months with the creation of various organizations, events, firms and legislation to spur it on. We've discussed the Open Angel Forum series of events, the creation of "Super Angel" firms , the curated Venture Hacks AngelList , as well as current legislation both helping and hurting angel investments. Angel investing has become more common, and as this report shows, this is largely due to the value and success it tends to breed. But why are angel investments the secret sauce for some companies? As the report points out, its the intangibles that angels bring to the table that could be playing a large role in company success. "Access to capital per se may not be the most important value-added that angel groups bring. Some of the 'softer' features, such as angels' mentoring or business contacts, may help new ventures the most," the report says. One of the other reasons that companies could tend to be more successful with angel funding is because of the human face placed on the investments. Angels are usually investing in companies at an early stage, and are investing their own capital in the company. Entrepreneurs may be more likely to work that extra bit harder when they know they are playing with the personal cash of an actual person, not the collected funds of an entire firm without a human name. The reputation of the angel could play a large role as well, both for the attitude of the people running the company, and for the audience they are looking to attract. Most angels tend to be successful entrepreneurs themselves, and thus are likely well known in the startup scene. The chance to sit and talk with these investors, let alone receiving funding from them, is likely a treat for most entrepreneurs, so they may be more likely to be more careful with their money. Additionally, when the public hears of a new startup that may not immediately interest them, the mention of particular angel investors can change their mind. As angel investors mature, they build their own personal portfolio of companies they noticed and provided early funds for, so when company XYZ launches with angel funding from an influential angel investor, that alone can attract people to the product. I know personally that I have looked into startups I otherwise would have largely ignored simply because an important angel investor was certain they'd be a hit. "Some of the 'softer' features, such as angels' mentoring or business contacts, may help new ventures the most." - Harvard Business School report Since some companies receive early financing rounds from angels, it is also logical to assume that when working with a limited amount of cash, the entrepreneurs may be more focused on doing more with less. A company that bursts out of the gate with large amounts of VC firm funding may spend it slightly more haphazardly, whereas a company running on limited angel funds may adopt leaner practices and take baby steps toward success and future funding. As the report mentioned above, the "softer" features provided by the angels are also a large help to the companies. In his email newsletter yesterday, angel investor Jason Calacanis discussed loyalty and how he goes to bat for the people who are loyal to him and his companies. He mentioned that whenever he invests in a company, he immediately becomes an evangelist for that company and it's founders, doing all he can to promote it. This may not be the same for all angels, but when influential investors like Jason get behind your company, they do their best to make sure good things happen. I would be interested to see similar data from this report that compares companies with solely angel funding versus those with more traditional VC firm funding mixed in. The influence of angel investors is significant, but I would think the angels alone are not enough to create more successful businesses at a higher rate. But the lesson here is, if your startup has the opportunity to include some angel investors (especially at the early stages), it would seem like a wise decision to go ahead with. Photo by Flickr user Brooke Anderson . Discuss
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Angel-Backed Companies More Likely to Succeed, Says Harvard Study
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When film critic Roger Ebert posted on his blog that "Video Games Can Never Be Art," he seemed to incur the wrath of the gaming community, and the entry now has over 3,000 comments, many protesting Ebert's claims. Ebert wonders why the designation of art or not-art matters to those who play video games: "Do they require validation? In defending their gaming against parents, spouses, children, partners, co-workers or other critics, do they want to be able to look up from the screen and explain, "I'm studying a great form of art?" Then let them say it, if it makes them happy." Sponsor Here's an argument to make gamers happy. According to John Seely Brown, former director of Xerox PARC , massive multiplayer online games demonstrate ways in which groups can manage information and maximize learning. At a recent lecture as part of Stanford University's Entrepreneurial Thought Leaders series, Brown said that World of Warcraft guilds can serve as models for entrepreneurs in understanding how to succeed in a knowledge-based economy. Brown urges entrepreneurs to look at WoW for ideas on how to boost information management and performance feedback. Brown points to the guild, the game's primary organizational structure, as the way you "get things done in World of Warcraft." Noting that over 12,000 ideas are posted to the official World of Warcraft forums daily, Brown points to the necessity of having a guild in order to process this information. "If your guild is going to be successful," says Brown, "you have to figure out how to get the members of your guild to process tens of thousands of new ideas." The guild structure, Brown argues, allows for groups to crowdsource information and to test, filter and disseminate strategies. The most successful guilds also meticulously record and review their performances. "In terms of extreme performance," says Brown, "I've never seen anything quite like it. World of Warcraft high-end guilds do after-action reviews on every high-end raid." Brown praises the way in which WoW players have developed their own dashboards so they can constantly measure and adjust their own performance. Brown argues this vigilance around feedback helps WoW players learn exponentially. With over 12 million World of Warcraft subscribers, chances are WoW is an incubator for future entrepreneurs, whether or not the game is "art." Discuss
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Lessons for Entrepreneurs from World of Warcraft
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Heroku is a platform that offers an effective join of the best parts of scaling cloud infrastructure with simple but great tools for immediately provisioning Ruby applications. Last week, at the Under the Radar event, where Heroku is a alumni, the company announced that they are nearly at 60,000 applications - marking a growth rate of over 1,000 new applications hosted weekly. In this quick analysis, we'll review Heroku and New Relic as two pieces of cloud infrastructure that helps web sites perform to service level agreements even the developer can love. Sponsor $ sudo gem install heroku - or - Getting Started is Easy Feeling like impressing the boss? Tell 'em you can transform that whiteboard sketch into an working web application in two weeks. That is what some inspired Ruby developers are doing. Some significant enterprises are giving it a shot. We found this list of enterprises that are known to have a Ruby application in production. So, the boss says " do it " What do you do next? If the answer needs to be "now", Heroku can fit in nicely as a place to launch your application without having to bring new technology or skills into the organization. Heroku's ruby platform lives on top of Amazon Web Services. The company sells a unit of computing called a Dyno, and bundles packages like the Ronin that are comprised of compute plus storage packages. All of Heroku's offerings come with infrastructure curation build ton top of EC2, S3 and a host of Amazon Web Services. Shown here is a snapshot of the Heroku Add-ons , partners the company offers to developers. It offers simplicity to the developer in the way the platform is bundled into Ruby. It has simple documentation that almost makes it fun to flip through architecture diagrams. And, it uses a model for add-ons that both promote the partner and make it easy to on-board. For example, when buying the popular Ruby application performance tool, New Relic for use in Heroku, the billing comes directly through Heroku's console and process. Recently, Heroku teamed up with NorthScale to introduce a memcache implementation to Heroku customers. Now, memcache is a command away, provisioned in your Amazon infrastructure cloud, all tuned and orchestrated by Heroku. All of the sudden, the cloud looks even smarter for developers scaling Ruby. New Relic Saves the SLA So, your app is ready, it looks exactly like your team wants it to. Is it ready for production launch? This can be an important time, and more and more often, developers are turning to tools like New Relic to test for application bottlenecks as part of the acceptance process. Sometimes, however, something is missed, and an application starts getting reports of "slowness", perceived or real. New Relic is ready to offer help, where you can tune your application, or do a quick two-minute install and troubleshoot. Here is a demonstration application company hosts with a sample application. New Relic has become a dominant application performance management tool. Its services provide a way to tune Ruby (and now Java) applications and report on a number of factors such as application performance satisfaction. The company has chosen to guide users towards simplifying the way SLAs are defined by implementing Apdex (Application Performance Index) which buckets application SLAs into three buckets, "satisfying" "tolerable", and "frustrating". By taking this approach to judging performance, the company moves users to the true experience of the web application instead of the raw metrics. What this boils down to is business owners being able to pinpoint where they need to be satisfied with the overall application performance. Ruby hosting in the cloud is catching on. With cloud offerings for real-time performance tuning and scaling up in the cloud a whole new door for growth with the language and adoption for the enterprise. Platforms like Heroku and tools like New Relic are bending the time-honored boundaries of Information Technology. The old joke "quality, time, cost - pick any two" is about meeting reality face-to-face. Yet, we wonder if Ruby in the cloud will offer the opportunity to break the rules of reality and let developers have it all. With commands such as "heroku scale memcache" directly near our fingertips, it may be time to claim a future where quality, time, and cost are joined as one. Discuss
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Developer Trends: Ruby in the Cloud with Enterprise Class SLAs
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It's been a given for some time that businesses, including startups, should have a presence on and connection with Facebook . With over 400 million active users, chances are your potential investors and customers are already there. Fan pages have been a simple way to generate interest and engage customers, and Facebook Connect has quickly become a standard in signing up and signing in users. In his keynote at f8 yesterday Facebook CEO Mark Zuckerberg actually mentioned startups in his opening remarks, stating that they "are requiring that their users use Facebook Connect. We want to make it simple to create these personalized experiences." Sponsor Whether or not Facebook is a "requirement" for startups, there are some things new businesses should think about based on yesterday's announcements. "Facebook Connect On Steroids" Facebook announced a major overhaul to its API and introduced three new components yesterday: social plugins , the Open Graph protocol , and the Graph API . By using the tags specified in this protocol, any website can now become part of the Facebook ecosystem. If a Facebook user visits your site and Likes your page, you have the ability then to publish information into that user's stream. In addition, implementation of the code on your site will give you access to administrative tools and analytics just like any Facebook fan page owner. As we wrote yesterday , this will take analytics to the next level, providing an incredible amount of demographic data about users who like and link their profiles to your site. However, this information will reside with Facebook, not on your own website, making them a de facto owner of your visitors' social data. Applications & Virtual Currency: Where the Money Is? While many businesses will likely integrate their websites into the expanding Facebook ecosystem, there is likely still room for growth within the platform itself, namely with application development. There are over 550,000 applications on the site, a number that continues to grow - and to encourage return visitors. To coincide with the growth of the application market, particularly in the area of social gaming, Facebook also announced the expansion of its official virtual currency, Credits . Last year Paypal processed over $500 million in virtual goods last year, with social gaming company Zynga becoming Paypal's second largest merchant (following eBay). Clearly Facebook seeks to stake a claim in the virtual currency market. Facebook Credits are currently in beta with over 100 applications, and will roll out to the entire network soon, Zuckerberg said yesterday. Credits will allow users to purchase one currency for all transactions on Facebook, rather than have to enter their credit card information with each purchase. By facilitating online payments, Facebook hopes to increase the percentage of users willing to purchase virtual goods to between 8% and 20% David vs. Goliath? Despite repetition at f8 yesterday that these changes were meant designed "for developers," it remains to be seen how the announcements will play out for developers and for users alike, the latter of whom are notorious for protesting changes to the site. In particular, continued concerns about privacy might not be well received, particulary given Facebook's past history with opening user data. Privacy concerns might not be the only thing that gives some businesses pause about Facebook's direction. Facebook also announced yesterday " instant personalization " yesterday, giving three "preferred partners" - Yelp , Pandora , and CNN - instant and additional access to Facebook profile information when users visit their sites. For startups in these areas, namely restaurant recommendation, music sharing, and news delivery, the "preferred partner" program might make industry in-roads more difficult and could adversely impact user adoption. As the "preferred partner" program expands beyond the three selected for launch, it remains to be seen the effect of being sanctioned - or not - by Facebook. The buzz yesterday was that Facebook had just " seized control of the Internet ." Comments on how you think the f8 announcements might play out for startups welcome! Discuss
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David vs. Goliath? An F8 Overview for Startups
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Facebook today announced that application developers will be allowed to store user data for more than 24 hours, removing a major restriction that the company had imposed on its ecosystem for years. Competitors like Twitter and MySpace had no such restrictions and now Facebook is in the same boat. Founder Mark Zukerberg used to say that the rule against storing data was essential to protect users and their privacy. Where are those now? Privacy, Zuckerberg told me in a March 2008 interview, "is the vector around which Facebook operates." Two years later, not so much. In a December 2009 interview , Zuckerberg said that Facebook's new public-by-default privacy settings reflected how he would build the site if he were to do it again from scratch today. Compare below what Zuckerberg said in 2008 and what today's new Developer Terms of Service say about holding on to user data now. Sponsor I believe that the Facebook policy change on storing user data is a net win for the web: it will enable all kinds of new innovation. It was that kind of innovation that I was asking about two years ago when I got the following answer about privacy that just doesn't sound right anymore today. Zuckerberg on Data Portability, March 10th 2008 interview with ReadWriteWeb : "If you export your friends list, does their contact information come with that? What if they change their privacy settings later? Right now if you take an action that gets published to your friends' news feeds, but then if you change your privacy settings later to be more restrictive - then those events disappear from the news feeds. If that data is published off-site, then there's no longer any control over the data for users. " (emphasis added) And today, on the new Developers' Terms of Service : You must give users control over their data by posting a privacy policy that explains what data you collect, and how you will use, store, and/or transfer their data....You may cache data you receive from the Facebook API in order to improve your application's user experience, but you should try to keep the data up to date ...You will delete all data you receive from us concerning a user if the user asks you to do so, and will provide a mechanism for users to make such a request. (emphasis added) One thing that remains the same? "You cannot use a user's friend list outside of your application, even if a user consents to such use." Facebook doesn't want you taking your data out of the Facebook ecosystem, to other competing services, but it doesn't insist that 3rd parties under its shadow check in with you daily anymore, either. It's hard not to feel a little cynical about that. Discuss
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Facebook Data & Privacy: So Much Has Changed in Two Years
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