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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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At the most recent Apple keynote , Steve Jobs announced Apple's upcoming advertising platform called iAd . Included as a part of the OS 4.0 update, the mobile operating system upgrade due out for iPhone this summer and iPad later this fall, the iAd system aims, in its very Apple-ly way, to make mobile advertisements "delightful," meaning ads worth clicking on, engaging with and viewing. What Jobs didn't mention, though, is how Apple plans to give iAd its head start: by kicking out the competing analytics and advertising platforms now thriving in nearly every iPhone app today. Or so it seems. Sponsor Developer Reports App Store Rejection Due to Analytics Inclusion Last week, technology news blog VentureBeat caught wind of a story where Apple had rejected an iPhone application because it, according to the email sent to the developer, "is not appropriate for applications to gather user analytics." Not appropriate, you may ask? Since when? Apparently since Apple released their updated iPhone Developer Agreement. Alongside the SDK 4 beta , made available shortly after the announcement in early April, the developer contract was updated, too. Specifically, the clause in question, section 3.3.9, reads, in part (more here ): Notwithstanding anything else in this Agreement, Device Data may not be provided or disclosed to a third party without Apple's prior written consent. Accordingly, the use of third party software in Your Application to collect and send Device Data to a third party for processing or analysis is expressly prohibited. To date, the changes detailed in this clause have been overshadowed by the one preceding it - in Section 3.3.1, Apple banned the use of cross-compiler tools for building iPhone applications, like the one Adobe was just about to ship , for example. But in the long run, it's Section 3.3.9 that may have more impact on the industry as a whole. "FEAR" You may have not heard too much about this change because no one actually knows what's going on thanks to Apple's par-for-the-course policy of refusing to clarify its meaning. Plus, the companies who may be the most heavily affected by an analytics ban - services like Flurry , MediaLets , Motally , Localytics , and SimpleGeo , to name a few - don't want to talk about it. On record that is. But after a dozen or so phone calls and emails, we're starting to see a picture forming and it can be summed up in one word: FEAR . "Nobody wants to be the canary in the coal mine," one source told us, referring to the radio silence we're getting from these companies when you would have otherwise expected to hear outcry, or perhaps even anti-competitive claims. Some companies, off-record, say they are afraid to complain . If they do, they could be the next to be banned. Another source reported that a number of their company's clients weren't submitting updates to the iTunes Application Store because they were worried that the updates, with the analytics included of course, would be rejected. Instead, the clients are leaving their older applications in place since it doesn't appear that Apple is going back through all the current apps and booting out those that already include analytics within them. "Maybe the older apps are grandfathered in?" they wondered aloud. The fact that no one knows, not even the big name, big box retailer that sits at the top of the latter's client list, is a testament to how Apple likes to do business. Here's the agreement, read it, sign it...and that's the extent of the communication. As to those who did manage to get someone from Apple to talk about it? The answer was simply: "read the agreement." But if Apple holds true to what's written there, it sounds like it could spell doom for mobile analytics and ad firms, especially the small-time players beloved by independent developers. iAd, Anti-Competitive? What no one will say - again, on record, that is - is that the changes have a whiff of anti-competitive behavior to them. The issue at hand: Apple is preparing to launch iAd, an advertising platform based on the newly-acquired Quattro Wireless technology, a company that was the second choice for Apple after the Admob deal fell through. "We tried to buy AdMob, but Google snatched them up because they didn't want us to have them," Steve Jobs said during the April keynote. "So we bought another smaller company, Quattro. But we're babes in the woods." But these "babes" are toting means guns, some say. A couple companies see the language in section 3.3.9 as a direct shot at AdMob in the same way that the changes in 3.3.1 were a shot at Adobe. That is, instead of allowing Google to get its mobile advertisements onto the iPhone, Apple can keep them out via the new analytics/ad ban. Whether or not that's the case is certainly up for debate. But considering that the Google/AdMob deal is still being researched by U.S. antitrust enforcers, regulators aware of the issue. Word has it that Google even pointed it out to the FTC, just in case. Continue Reading: Next page, "A Second Opinion" A Second Opinion: Privacy Concerns Others, however, say these changes aren't really about analytics, ads and anti-competitive behavior as much as they are about privacy concerns. In speaking with Alan Chapell, chairman of the Mobile Marketing Association Privacy Committee and whose firm advises companies on privacy and data strategy, the changes to Apple's agreement have to do more with consumer privacy than anything else. With language that refers to "geo-location" and targeted advertising, a good bit of Section 3.3.9 is about how location-based applications should behave. With the rise of location-based services especially and location-based social tools like Loopt, Foursquare, Gowalla, and others, privacy is at the forefront of everyone's minds these days. ( Including ours ). There are no standards for location based data yet, Chapell explains. No rules about how such data should be used, retained, shared and so on. In addition, Apple is under heavy pressure from regulators to protect the privacy of its customers. And if the third-party analytics providers do something which comprises that privacy, it will be Apple that gets in trouble. "This debate is about privacy and innovation," Chapell notes, "and finding a balance between the two." Unfortunately, even if Apple chooses never to enforce the new rules, explains Chapell, the changes will have an indirect impact on innovation in this area. The next round of ad networks, analytics providers and other in-app data-sharing tools will be less likely to be funded. Not Just Funding at Risk... These changes won't just affect the funding of services like those noted above, though, they could affect how services are developed for the iPhone. Take for example, Xtify , a location-triggered geo-messaging system now available for Android ( previous coverage ). The company's VP of Business Development, Joshua Schmiffman, says they're still figuring out what this all means, but they will have some location-triggered functionality for the iPhone. "We are going to try," he says, "but it may not be exactly 'real time.'" That is, if it ever comes to the iPhone at all. Backup Plans: 1st-Party Analytics, "Trust in Apple" As for Localytics , a small-time analytics provider for mobile apps, the decision is to focus more on the company's soon-to-launch enterprise solution. The upcoming offering will allow application publishers to directly collect and process app analytics data, without going through a 3rd party. Ashish Chordia, CEO and Founder of AppDiscover , an iPhone application development and analytics company, is also generally unconcerned with the changes. "While the wording of the terms in section 3.3.9 is quite strict, Apple will not enforce this specific term," he writes in an email. "Enforcing this term would mean rejecting a huge number of apps. Moreover these analytic services are very important for a healthy market for free / ad-supported apps, so that there can be transparency behind the CPM / CPA pricing." On a call, he tells us that several of the company's analytics-enabled apps have made it into the App Store since the agreement was released. Essentially, Cordia believes that Apple will selectively enforce this restriction, but it won't affect applications like his. "Looking Forward to More Insights" Outside of public statements like those received from Flurry and Motally (the latter: "We've reached out to Apple for clarification and are looking forward for more insights into the policy."), the backchannel whispers are that this whole iAd thing is worrisome right now, but not deadly...at least, not yet. But when reading through the initial hands-on reviews of iAd, like the recent one from ad agency Hill Holiday which spoke of iAd's impressive granularity, there are concerns that Apple wants to now dominate where the third-party analytics providers once did. In the meantime, you can count us among those who are also "looking forward to more insights" from Apple. But we're not holding our breath. Image credits: Toy Story iAd, Hill Holiday ; Steve Jobs, gdgt Discuss
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Is Apple Booting iAd's Competition from the iPhone?
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Every now and then we hear the story of the entrepreneur who left his or her steady job at a large company to follow their dreams and create a startup, but we aren't all as daring and brave to quit steady work, especially in a time of economic uncertainty. If you have the entrepreneurial itch but aren't in a situation that would allow you to sacrifice your day job, there are still ways you can scratch said itch and bring innovation to a "startup" within a larger company. Sponsor This morning I talked with Eric Ries , the driving force behind the " lean startup " movement, which encourages high efficiency and meticulous metrics tracking within entrepreneurial ventures. Ries, who is often asked to speak on the subject, says he noticed a trend among some of the people attending his talks. Many managers from large companies were coming to his sessions to learn what they could, because, as Ries discovered, the principals of lean startups can exist within larger corporations that are attempting to innovate. "A startup is a human institution designed to create something new under conditions of extreme uncertainty," Ries told ReadWriteWeb. "There is nothing in there about the size of the company, or what industry you're in, or whether you're the manager of a division or if you're two guys in a garage, its just about the conditions in which you operate." As he points out, there are times in larger corporations when divisions are created to work on a new project, and similar rules and guidelines for managing that project which come from startups can be used here as well. Ries says that managers, like entrepreneurs, are taking risks on new ideas, and when they create a new division, they are essentially investing the company's time and money as a VC would invest funds in a startup. "The more I started to work with those managers I started to notice that they were having very familiar sounding arguments," Ries says. "The arguments between a venture-backed entrepreneur and a venture capitalist are almost exactly the same word for word as between these 'intrepreneurs' and their CFOs because the same issues come up." One of the ways larger corporations can implement entrepreneurial innovation into their businesses is to allow for what Ries calls "innovation inside the box," or a fenced off sandbox for experimentation with new products. By creating a place where employees with ideas can test a tweak to a feature, or where new ideas can be built within certain constraints, companies can greatly increase their potential for innovation. "The real value is [this] starts to catalyze change because by changing the way you work you start to accelerate that feedback loop and that can become the basis for making other changes," Ries says. Unfortunately, most larger corporations aren't allowing for this open sandbox of innovation within their companies, and choose to buy up technology and talent from startups. Ries agrees that many entrepreneurs get frustrated working inside a larger company, but he says the combination of these entrepreneurs with a walled off innovation playground could provide for some amazing innovations. Companies could also benefit from the addition of a sandbox by inspiring their existing employees to be innovative, instead of wrangling up entrepreneurs from a startup, which would save them money in the end. "They have this idea that a certain alchemy will happen that 'if I bring these special people into my organization, they will teach my regular people how to be special,' and that's just a formula for breeding resentment," Ries told ReadWriteWeb. "If the people doing the acquiring had more of a theory about how entrepreneurship is supposed to work they could start to think of better ways to plug an acquired company into the larger organization, taking advantage of what they're good at without destroying it." If you're a budding entrepreneur or a manager at a large company, there is an excellent chance to hear from Ries and others on these concepts and others this Friday at the Startup Lessons Learned conference in San Francisco. If you can't make it to the Bay Area, there are simulcasts occurring Friday in nearly 50 cities worldwide, many of which are free or very inexpensive, so RSVP and bask in the lean startup goodness. Photo by Flickr user longhorndave . Discuss
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Thinking Inside the Box: Eric Ries On Creating Startups Within Large Organizations
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Back when I was in graduate school getting my masters in journalism and mass communication, I worked on various "lab projects" which were challenges faced by media organizations that they wanted to tackle but didn't have the means or the resources to do so. So basically, the students at my school were a think tank for the local media. One of the first issues we were tasked with investigating was finding a new way to allow comments for online news stories to be more efficient and less offensive. Sponsor The problem faced by most online news sites is that the anonymous nature of the Internet makes it very easy for vulgarity and off-putting comments to be posted, and for some sites, these types of comments pervade their site. Many of today's popular sites with comments have integrated systems to where readers can vote down bad comments while promoting good comments, which helps the bad stuff to be filtered out. Others have tried blocking fowl language with asterisks or by deleting the comment automatically, but this has only lead users to find unique ways of spelling their beloved curse words. Some startups, like Disqus , have made it much easier to manage comments, and identity tools like OpenID and Facebook Connect have helped to lower the amount of anonymous commenters on the web, but anonymity is a fundamental cornerstone of Internet culture. Or is it? In a recent New York Times article about how many news sites are starting to remove anonymous commenting, Arianna Huffington of The Huffington Post said she thinks that anonymity is losing its once exalted position atop the foundation of the Web. "Anonymity is just the way things are done. It's an accepted part of the Internet, but there's no question that people hide behind anonymity to make vile or controversial comments," says Huffington. "I feel that this is almost like an education process. As the rules of the road are changing and the Internet is growing up, the trend is away from anonymity." Fred Wilson of Union Square Ventures says there is plenty of room for innovation within comment boards. Wilson uses Disqus on his blog and has some suggestions for features they could include to make the commenting experience better, but he believes one of the ways to innovate in the space is to introduce game mechanics into commenting. "Game mechanics will reward the kind of behavior the community wants and will punish the kind of behavior the community does not want," writes Wilson on his blog. "The anonymous commenter who has valuable information but can't publish in their own name will be rewarded. The anonymous commenter who leaves a hostile name calling piece of crap will be punished. And the comment thread and community will be better off for it." Entrepreneurs that strive to create a truly innovative product usually first start with a problem that needs solving, and comment systems are certainly a problem that needs solving. Therefore by some transitive property, innovation in the commenting space seems to be an open door of opportunity for startups to walk through and offer a solution. Are there other companies like Disqus that may be looking to disrupt the traditional comment system, or do you have an idea for making the process more user friendly? Let us know your thoughts on the state of comments and how you would change them in our very own comments section below! Disclosure: The New York Times is a syndication partner of ReadWriteWeb. Discuss
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Comment Innovation: An Open Door of Startup Opportunity?
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Before tonight there were probably 30 to 50 teams making a serious play to build the best mobile client for Twitter. Tonight one of those teams was annointed the official selection of Twitter itself and its leader at least is now a millionaire. People are saying that the acquisition of Tweetie by Twitter is bad news for the ecosystem of 3rd party developers that made Twitter so much more useful for millions of people. In truth though, those odds were pretty good for all of them. Tonight's news demonstrates again that independent developers can code their way into cash, equity and a job at one of the hottest startups on the web. That bodes well for those of us who love to use the software built by all of them, too. Sponsor Tweetie developer Loren Brichter is just 4 years out of college. He graduated from Tufts in 2006 and got a job doing embedded graphics and iPhone development for Apple through July, 2007. That month, the iPhone 3G was released and that year Time Magazine named it the invention of the year. After more than a year of development Tweetie was launched in November, 2008. Less than 18 months later Brichter and Twitter announced tonight that Tweetie has been acquired and will become "Twitter for iPhone." Between cash and equity, Brichter must be a millionaire on paper at least. Brichter's one employee is Ash Ponders, who is in Spain and isn't saying anything on Twitter tonight. These guys built a service that won the big contest. If there were (and this is generous) 50 viable mobile Twitter clients - do you really think any of them launched this kind of business expecting better odds than that? There are a number of other companies that could have become the official mobile app for Twitter but at this stage of the game Tweetie was an obvious choice. It loads fast, is relatively feature rich, is attractively designed and has proven popular with users. Tweetie offers an attractive and simple desktop Twitter client, but was most valued for its iPhone version. Its strongest competitors were Twitterific , Tweetdeck and Seesmic . Twitterific is beautiful and perhaps a viable ad-supported small business but is too complicated to be appreciated by all but power users. (It's great on the iPad though.) Seesmic is strong on the smaller Android platform and is extending beyond Twitter alone. Tweetdeck is the most powerful 3rd party Twitter app but it has higher aspirations, is exploring development of sophisticated Artificial Intelligence , is more complex than mainstream users need and is most likely to be bought by an enterprise, media or financial services company - not Twitter itself. Tweetie is the everyperson's Twitter app. Twitter is chronically confusing for mainstream users, something the company has been trying desperately to change. If you are looking for a simple, attractive Twitter app for casual use then Tweetie on the desktop works great. When you're on a mobile phone, that's really all you ever need. In his blog post tonight Loren Brichter mentioned "simplifying the Twitter experience." That's something Twitter needs and something he's very qualified to help do. There is still a place for other, more complex, Twitter apps. Media companies around the world (including this one) are finding Tweetdeck invaluable in carefully parsing the stream of Tweets for high-value nuggets. Seesmic is believed to be working closely with Microsoft in order to bring social media stream reading to all kinds of different platforms. But tonight one of the many Twitter apps hit it big. That's good news for app developers in general and for the users who would use their software. Go ahead and build a client for a major social network. Odds are it won't prove a viable business, but if you were risk averse then building a Twitter client startup is probably the last thing on earth you'd do anyway. The fairy tale came true for one of these companies. That's reason enough for many more developers to build many more innovative apps in the future. Discuss
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Why Twitter Buying Tweetie is Great News
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