Author: Dana Oshiro

A decade ago, entrepreneurs saw seed funds as a means to an end. There was little effort to brand the separate groups, there were few celebrity angels and the entire VC community seemed shrouded in mystery. Enter the seed incubator model.

Between Paul Graham of YCombinator, David Cohen of TechStars, Naval Ravikant of Venture Hacks and Josh Baer of Capital Factory, yesterday afternoon’s Seed Combinator SXSW panel showcased some of the pioneers of the seed fund model.

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When moderator Marc Nathan asked audience members to raise their hands if they’d applied to one of the featured programs, more than a third came forward. With a group like this it was inevitable to hear the same old questions asked:

How important is it to live in SIlicon Valley?
Those in the Valley, including Graham and Ravikant, noted the wider availability of late stage funding and the breadth of mentors in the Bay. Those outside of the Valley including Baer in DC and Cohen in Boulder, maintained that you can create a startup anywhere.

How do you calculate the incubator participant’s investment?
Graham explains that his $5000 investment per founder was calculated to match the same amount alloted to MIT graduate students over a 3 month period.

How do you choose the participant companies?
Said Ravikant, “Beyond having a good idea it’s important that you’re intelligent, energetic and that you’ve got integrity. Integrity is especially important. Without that you’ve got an intelligent and enthusiastic crook.” Agreed Graham, “It’s true. You need to be a good egg – someone who is willing to help other startups after they’ve graduated.” Said Baer, ” You also need to be the type of person who is willing to take advice. We’ve had those that are unwilling to change and that makes it tough to justify a spot.”

Once the obvious questions were answered, it was interesting to hear the questions fielded from the floor. They ranged from those on mentorship and incubator logistics to the more personal/political. One particularly animated audience member asked the question: Do you fund founders over 40?

Explained Graham, “We’re totally open to funding those over 40, but we honestly don’t get many applications. It’s a matter of social overhead. There aren’t many over 40 who can afford to live like College students. And given that we prefer people who are willing to move and we prefer teams over individual founders, this makes it even more difficult.” As a follow up, the audience member asked, “Why does it have to be a team? I’m over 40 and I’ve started a startup.” Replied Ravikant, “Can you start a startup alone? Yes, of course. it’s entirely possible to raise kids alone, but it’s easier to do it in a marriage.”

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Andrew Keen is no stranger to controversy. He has irritated bloggers by equating Web 2.0 with communism and enraged citizen journalists with his best selling book, Cult of the Amateur: How Today’s Internet is Killing Our Culture. Naturally when I saw Keen’s core conversation “Is Innovation Fair?” on the SXSW program, I knew it would incite lively discussion.

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SXSW and the term “read-write web” are perhaps the antithesis of what Keen has become known for. While we as a publication (and often as a community) celebrate the participatory culture of Web 2.0, Keen sees the rise of amateur publishers as the fetishism of change-based culture and the breakdown of centralized moral authority. In less diplomatic circles, he’s accused of being an elitist. When an intimate 40 person setting of bloggers like Stealthmode Partners’ Francine Hardaway and legendary futurist Bruce Sterling failed to erupt into an angry mob, I was surprised.

In addressing the question “Is Innovation Fair?” Keen maintains that there is no definitive answer. He says, “If you asked a peasant whether innovation was fair during the industrial revolution, he’d answer no. But history is written by innovators.”

Keen explains that the voices that have legitimized change from the industrial revolution to the late 60’s, have been those of the cultural elite. Professional poets, musicians, academics and writers have always had a place in creating the histories surrounding major paradigm shifts. Nevertheless, as the digital revolution rapidly destroys the barriers to creating historical narratives, a new elitism has emerged in the form of a-list bloggers, social media experts and web developers.

While digital utopians generally see technological innovations and social media as vehicles for democracy and positive solutions, Keen argues that the proponents of innovation tend to forget the victims of change.

“Innovation doesn’t lead to justice and fairness. I’d argue there is a more dramatic inequality now then there ever was during the industrial revolution. We have fetishized change, but we are unfettered. If anything, the new media is less transparent and less accountable…I don’t have a problem with Twitter or new media, my problem is that digital utopians have dressed up their ideology to sound like democracy…Google has become the master of seeming like an altruistic and public company and yet laughing all the way to the bank.”

Keen argues that because established elites are being displaced by the digerati, the web ecosystem is suffering from a crisis in authority. He believes that a lack of thoughtful skepticism and the overwhelming emphasis on real-time sound bites rather than academic treatise is leading to the vast majority of netizens consuming only mulched versions of the truth.

Says Keen, “You can’t get nuggets of truth in 30 seconds on Twitter…Skepticism requires deep thinking. We have an increasing nihilism when it comes to traditional authority and yet few of the new authorities are doing the reading or groundwork. …When we simply assume that all traditional structures are wrong, we risk the populism of a Sarah Palin…”

As a blog with an audience of entrepreneurs, self-publishers and technologists, we know Keen won’t hold you back from innovating. But he may make you question whether or not you have enough information to accurately assess your life decisions. Love him or loathe him, let us know your thoughts about Keen’s assertions in the comments below.

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Upon first glance we were skeptical. Generally when someone says they’re launching a business directory it’s an SEO play with little value to users. Nevertheless, the small business web directory is a pleasant surprise. The group is providing a variety of useful resources to help startups integrate services and scale up their internal operations.

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Launched at last year’s SXSW, the small business web is a group of software as a service companies that have joined forces to offer cheaper services to clients. Companies like Batch Blue Software, Freshbooks, Mailchimp, Shoeboxed and Outright have been integrating APIs in order to help businesses flourish. This week’s launch will help startups stretch their dollars even further.

If you were fiddling with multiple platforms to manage your finance, human resources and analytics tools before, the directory can help you fix this through third party service integration. While a number of resource lists are available for accounting and domain management services, this collection is geared specifically towards productivity and life hacking. To check it out visit thesmallbusinessweb.com.

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This week geo-crazy mavens were pleased to hear of location-based updates to Facebook, the launch of Foursquare analytics and of course yesterday’s news of Gowalla’s comment and picture functionality.

So far the most common way to monetize these types of services is through sponsored leader boards and tips on nearby promotions. But the question remains, can local ads really sustain the entire location-based ecosystem?

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Geo-locational services are only now finding a business model and for the first time service providers are forced to think about maintaining the balance between user trust and revenue generation. After all, if there’s anything Yelp’s class action extortion lawsuit has taught us, it’s that communities lose credibility when a thirst for ad revenue sets the tone. Short of selling user data to marketers, below are a few ways companies can monetize while still offering value.

Charging Rent: Location-based service MyTown allows users to buy and own their favorite locations and charge virtual rent when others check-in. If MyTown-style services introduced currency exchange like SecondLife’s Linden dollar, users would be incentivized through revenue share and app developers could collect a percentage on micro-transactions.

Tuángòu: Scoop St. founder Justin Tsang admits that his group buying company is inspired by the Chinese practice of tuángòu or flash mob-style shopping. As a teen, Tsang would organize a group online in order to arrive at a store and barter for a group purchasing discount. The same concept can be monetized in niche shopping sites as users could organize large discount purchases via location-based app. Developers could either charge for the app as a subscription-based directory or charge the store owner for directory listings and referrals.

Gifting: Rather than earning badges, Gowalla users pick up and receive virtual items. If startups charged for virtual gifts, users could geocache items for their friends to be unlocked on-site. Better yet, imagine arriving to work on your birthday and finding a friend has geo-cached an album download or video file. Pending approval and check-in by the recipient, these services could form the basis of a lucrative treasure hunt / gifting business.

We know we’re just skimming the surface here. If you’ve got more ideas on how startups can monetize location-based services, let us know in the comments below.

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Sales and marketing are not the same thing. It’s true they both deal with relationship management and it’s true that neither of these job descriptions require hardcore engineering, but just because they’re both in the realm of words over code does not mean that they are the same. At the risk of muddling your mind with HR jargon, the core competencies of a marketer are very different from those of a sales person. Surprisingly, many startup CEOs insist on hiring for a VP of Sales and Marketing position.

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If you’re the VP of sales and marketing for your company, this article is not about how you aren’t doing your job properly. In fact, it’s about how you’re doing the job of two separate people and shouldn’t be. Interwest investor Bruce Cleveland recently wrote an article entitled, In Search of the Mythical VP Sales and Marketing where he defines the separate domains of sales and marketing.

Says Cleveland, “Sales and Marketing are vastly different functions that require substantially different personalities, skills, and decades of experience to master…A CEO who doesn’t understand this basic fact, or doesn’t believe it, is not a CEO I want to invest in.”

Explains Cleveland, a sales person understands the inner workings of B2B deal probabilities and the short term requirements to increase deal flow. Meanwhile, marketing people look at the landscape from a longterm perspective and lay the groundwork for sales through analyst, media and web leads generation. Essentially, sales people are great oral one-on-one communicators and marketers are great written mass communicators.

He writes, ” I have found that the CEO who makes this serious mistake hasn’t worked with someone who is an excellent Marketer and therefore discounts the role it plays.” With expertise in the Software as a Service space, it’s interesting that Cleveland believes the marketing role is the one that gets tacked on at the last minute. While sales offers obvious measurement through direct revenue generation, marketing tends to have a less clear set of metrics.

Cleveland explains that “today’s head of Marketing must be an excellent demand creator (the “owner” of future revenue) through sales-ready leads.” Essentially he believes that the marketer’s job is to increase perceived value and generate demand on a massive scale in order to grease the wheels of the sales team.

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Last week the New York Historical Society opened the first large-scale exhibit of material from the Grateful Dead Archive. The archive will be managed by the University of Santa Cruz with special access to four decades worth of videotapes, recordings, fan letters and even a note from President Obama. What is surprising about the archives and the band itself, is that this classic group of rock icons is being touted as one of the first businesses to take an active role in viral marketing and brand influence building.

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Beyond the iconic imagery of the Uncle Sam skull, the dancing bears and the jester, the Grateful Dead are so well known for their viral influence on fans that entire academic careers have been spent studying the band as a sociological phenomenon. In a recent article entitled, Management Secrets of the Grateful Dead, writer Joshua Green outlines how the band’s willingness to allow its music to spread via taped concert recordings is similar to that of many of today’s startups.

Said band lyricist John Perry Barlow, “What people today are beginning to realize is what became obvious to us back then–the important correlation is the one between familiarity and value, not scarcity and value. Adam Smith taught that the scarcer you make something, the more valuable it becomes…The Internet doesn’t behave that way…If I give my song away to 20 people, and they give it to 20 people, pretty soon everybody knows me, and my value as a creator is dramatically enhanced.”

The freemium model was implemented with the assumption that merchandise and concert sales would follow. Although the band sought legal action for commercial bootlegging, the group knew that attempting to hold back regular fans from making personal recordings would not only be foolish, but it would be impossible. Instead, an open recording policy for concerts not only pleased Deadheads, but it paved the way for some of the band’s best advocates to recruit others. It’s estimated that recordings for 2,200 of the 2,350 Grateful Dead concerts exist and many of them are available online. Given the fact that all of these recordings required no overhead from the band, it was a great way to crowdsource distribution and increase influence. The group even went so far as to reserve an on-site spot for tapers in a special section behind the soundboard.

This reserved space can be likened to a consumer-facing startup community’s willingness to offer viral tools such as blogging buttons, bookmarking widgets, Facebook fan pages and Twitter integration. The idea here is that a company reserves a space for free distribution in order to gain mindshare and find a conversion funnel for paying customers. In the startup world, the point of conversion has always been up for debate.

Said investor and entrepreneur Dave McClure, “There is a role for freemium, but unless you missed the TPS report the FREE part is only a loss-leader for the MEE-YUM part — it’s a test-drive before you buy something. If your users are just kicking the tires then you need to kick them to the curb eventually.”

That being said, as proven by the Grateful Dead, freemium content and permission to redistribute can trigger a mechanism for broad influence. Because influence generates perceived value, startups may find it easier to overcome barriers for customer acquisition by offering limited teaser content. After all, if the Grateful Dead can overcome wallet friction from more than 40 years of psychedelic drug users, surely a groundbreaking experience can rally loyal (and paying) fans.

Photo Credit: Jim Marshall from the Grateful Dead Archives

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When Sigma Partners’ Richard Dale posted a video of a random dancing guy to his Venture Cyclist blog I was skeptical. I’d seen the original video sans narration and dismissed it as a strange sociological phenomenon condensed into a quick three minute clip. Nevertheless, when the same video is narrated by MuckWork and CDBaby founder Derek Sivers, it provides some valuable leadership lessons for entrepreneurs.

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Having first presented the video at this year’s TED Conference, Sivers make the case that instead of the first mover / leader being the catalyst of a movement, it is in fact the first follower that rallies others.

Says Sivers, “Being a first follower is an under-appreciated form of leadership. The first follower transforms a lone nut into a leader. If the leader is the flint, the first follower is the spark that makes the fire. “

For entrepreneurs, it means that the key to virality isn’t just building a great product. It’s about having the right early adopters to teach others how to use the product and become comfortable with the novelty of something new. Sivers explains that it’s the early adopters that others follow and not the trailblazing / seemingly crazy leader. In other words, it’s important to respect your earliest users and give them the mechanisms to make their support public.

Says Sivers, “We’re told we all need to be leaders, but that would be really ineffective. The best way to make a movement, if you really care, is to courageously follow and show others how to follow. When you find a lone nut doing something great, have the guts to be the first person to stand up and join in.”

We’ve seen our fair share of angel investors, early executives and engineers follow a lone nut and build successful businesses. As an entrepreneur, who do you credit as your first follower and what efforts have you made to ensure that the act of following is made public?

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The best way to reduce bounce rates and design a path of least resistance for members and customers is to offer something they want. While others prioritize member acquisition in order to build an early product test case, Sean Ellis has a slightly different philosophy. Ellis has worked with companies like LogMeIn and Xobni to produce scalable marketing programs. Before tweaking design and funnel optimization, Ellis takes pride in the fact that his successes have been built on establishing a core value to users.

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Earlier this week he wrote a great article about premature optimization and the mistakes startup companies make in their rushed efforts to convert visitors into customers or members.

Says Ellis, “While this seems like an important goal from the beginning, it’s not. If the value of your core product is weak, doubling the percentage of users that get there won’t help much. And it will actually hurt you because every unit of effort put into optimization is one less unit that you can put into improving your core product. Products that don’t become a “must have” almost always fail.”

Ellis suggests that startups wait to optimize until at least 40% of those randomly surveyed admit that they’d feel a loss without your product. In addition to this suggestion he urges entrepreneurs to be deliberate in both their testing and their analytics programs. The idea here is that instead of having your development team churn out new wireframes every other week, you should prioritize those elements that are both easy to test and more likely to produce results. Essentially you need to form a hypotheses and avoid overburdening designers. If you don’t take this to heart, your tests are unlikely to yield early results and your team will have little incentive to continue in this process of iteration.

Finally, Ellis urges startup founders to consider their most passionate users before changing things. Testing conversion funnels is great when it yields improvements, but if you’re scaring away existing members and customers it’s counter-productive. Ask your earliest advocates and users to prioritize the best parts of the experience. From here you can learn how to capture that experience in messaging and tweak only those parts of the site that are a perceived issue.

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Because today’s startup generally requires significantly less seed capital to function, the legal contracts once required for large-scale deals are no longer appropriate. Rather than forcing startups to draft lengthy legal documents, one attorney is offering an invaluable resource to entrepreneurs. Best known as the Fenwick and West attorney responsible for Twitter, Ted Wang recently released a series of templates to help startup companies navigate the difficult task of investment financing.

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The Series Seed documents are a set of guideline documents that allow startups raising less than $1.5 million dollars to lighten the burden of the legal process. Documents include a certificate of incorporation, a preferred stock purchase agreement, an investors’ rights agreement and a seed term sheet.

Says Wang, “From an investor’s perspective, while moving away from the traditional full-blown financing documents entails giving up a number of rights and protections, when taken across numerous transactions, the benefits of spending less time and money on the documents outweigh the cost of sacrificing these additional rights and protections.  Moreover, I don’t believe there’s anything included (or excluded) in these documents that will be wildly controversial.” Should there be any controversy, Wang plans on open sourcing the documents for discussion in the near future.

While entrepreneurs may use the documents at their own risk, some of the endorsers of the resource include Charles River Ventures, Ron Conway with SV Angel, First Round Capital and Polaris Ventures.

To download all four documents entrepreneurs can visit seriesseed.com. For additional resources on how to actually get to this portion of the investment process, early-stage companies should consult Venture Hacks’ series entitled Term Sheet Hacks.

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In an effort to highlight some of the emerging tech centers across the world we’ve written on a number of cities for our Never Mind the Valley series. We’ve featured the funding and opportunities available in places like Washington DC, Bangalore and Beijing. Our intent has never been to create regional rivalries, but rather to highlight the diverse landscape of the tech world in general. That being said, few stories got as much attention as the piece on New York as passionate East Coasters rallied around their hometown. Despite what seems to be a surge of love for the Big Apple, SpeakerText CEO Matt Mireles recently pointed out the shortcomings of the New York tech scene and announced that he’s exploring the Valley for opportunities.

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Similar to Yammer CEO David Sacks’ travels from West Hollywood to San Francisco, Mireles is looking to the Valley to find more opportunities. In an article for Business Insider, Mireles explains that while legendary VCs like Chris Dixon and Fred Wilson are in New York, they are only a fraction of the investors that companies are pitching.

He writes, “In reality, the capital markets in NYC are flooded with Wall Streeters turned venture capitalists. These are people who know how to analyze and pick in assets, not people who know how to build companies. These are people who do dumb s@#$ like ask about pricing for a premium version of a genuinely novel product (in a category with no existing market) that hasn’t even launched yet…in the first meeting.”

On top of the shortage of experienced tech VCs, Mireles complains that New York has a weak angel network with only a few groups to pitch. Because of this, entrepreneurs only have a few shots to get their pitch right and they’ve got little opportunity to drive competition when negotiating deals. Mireles believes the result is lower valuations and slower deal cycles. He also believes that because Wall Street has skewed programmer expectations in regards to salaries, it’s very difficult to find talent who will take a pay cut in exchange for equity. A month ago Venture Hacks’ Naval Ravikant also made the case for startups to move to the Valley. Nevertheless, Hunch cofounder Caterina Fake makes the case for New York adding that the city needs a billion dollar company exit in order to free up some talent and resources.

While we’ve seen our fair share of non-Valley startups succeed and grow, it’s interesting to see so many tout the opportunities of the region. Having covered so many startups, we know that you can pen a deal through your global and online network. But is it possible that just as certain employees and partnerships are more appropriate for a particular stage of the product lifestyle, are certain locales more appropriate as well? Let us know your thoughts in the comments below.

Photo Credit: Epicharmus / Michael

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Earlier this month we noticed PRManna climbing up the Hacker News front page and reached out to the creator for an interview. Ryan Waggoner started PRManna in his spare time and was open in saying that the project was inspired by Peter Shankman’s Help a Reporter Out. The difference between PRManna and HARO is that Waggoner’s product was specifically meant for startup companies to answer blogger and journalist tech queries. Whereas, HARO is a general news service. The question is, are the sites far enough apart to be considered different products?

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In the Hacker News thread Waggoner acknowledges that in the time that he’d developed his site, Shankman’s HARO had transitioned from a listserv to a more comprehensive tool saying, “Unfortunately, I took a look at HARO today and they’ve apparently launched something very similar, rather than just the old mailing list that I was competing against. So what do you think of this? Should I just drop it or should I add features to make it more valuable? Alternatively, is there something else I could use it for?”

As of today Waggoner may not have the opportunity to change tactics. The developer wrote a blog post detailing a cease and desist letter sent by Shankman’s lawyer. As a community with your finger on the pulse of tech launches and entrepreneurial resources, we want to know whether or not you believe Shankman’s takedown notice is warranted. Let us know in the comments below.

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When a startup entrepreneur tells the story of his/her mistakes and how they’ve corrected them, it’s endearing. When an investment associate for one of the more prestigious VC firms does it, it’s surprising.

Union Square Ventures’ Andrew Parker recently started a Got It Wrong Series on his Gong Show blog where he identifies his own mistakes and mis-judgements about the industry.

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While investment analysts and associates don’t directly control the money in the VC world, a large number of our readers believe associates help drive the decision-making process. When someone like Parker decides to air his mistakes for all to see, he’s giving us a glimpse at the information that guides the future of the tech landscape and whether or not the funding will follow. Some of Parker’s mistakes have included:

1. Privacy: Parker was adamant about user privacy and assumed that others were the same. He watched as personal finance site Mint, Loopt and Twitter gained ground despite the expectation that privacy concerns would prove to be a bigger barrier to adoption.

2. Mobile Browsers: In 2006 Parker told investor Fred Wilson that he did not expect the mobile browsing experience to catch up to the laptop in the next 5 years. He believed that the form factor of handheld devices was to small to make it easy to reformat pages on the fly, design mobile web pages and zoom into regular pages. Parker admits he was proven wrong by the iPhone.

3. Taste-maker Risk: Parker explains that certain sites succeed on the ability to popularize content from taste-makers. When he first saw the Huffington Post close a $5 million dollar round he was unsure of the investment thesis. Says Parker, “In hindsight, I think I have a blind spot when it comes to first-party content and editorial choices in web services.  The taste-maker risk is a risk, but it’s not nearly as important as I thought it was, and additionally, it’s a risk that smart technologists can navigate well.”

To keep an eye on the series visit Thegongshow.tumblr.com.

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Just because you’ve been in talks doesn’t mean the deal is done. Entrepreneurs need to remain diligent about timelines in order to ensure that the deals they’ve set in motion actually come to fruition. If you’re negotiating a term sheet, building a partnership or on the verge of an acquisition, get the papers signed. Legendary GRP VC investor Mark Suster has seen his fair share of successful deals, and he writes, “don’t pop the champagne until the ink is dry on the contract and the money is in the bank.”

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Suster wrote a great post on the need to close deals in a timely manner. While it’s important to negotiate well, he’s seen firsthand how deals can go up in smoke if given too much time. Suster raised a round right before a market crash and is convinced that if he’d waited even a month, his offers would have been rescinded. He explains that market crashes, deal fatigue, complacency, or losing your deal sponsor could mean the difference between a banner year and a missed opportunity. Some suggestions to expedite the deal process include:

1. Don’t Over Shop: Although a healthy interest from a number of players is important for leverage, shopping around too much has its downside. Says Suster, “There is a fatigue factor.  If deals drift, people start whisper campaigns.  It is a tight-knit industry.  Like it or not everybody knows each other. ” If you haven’t closed a deal in a timely manner others may assume something negative is holding you back.

2. Don’t Grind Every Detail: Know the important points that you want to negotiate and stick to them. He writes that you shouldn’t get caught up in inconsequential details as they’ll potentially add weeks to the legal process and you’ll risk creating ill will with your newfound partners.

3. Don’t Be Complacent: Suster suggests that you hold all those involved to their deadlines and ensure that lawyers get the documents out when promised. If someone is behind, call them and let them know you are both interested and that you’re willing to fly out and meet them or take calls in the middle of the night to acommodate them.

4. Get People In Person: Put yourself, your negotiating partner, both sides of lawyers and the other party in a room to hash out the details. Suster stresses that it’s important to create goals for what you want to accomplish and take breaks to gain consent from any higher authorities.

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While so much of the startup scene is funded by investment capital, it’s tough to know exactly where all of that money comes from. In chasing the power behind the investment throne it’s easy to believe that everything conspires by the hand of the Illuminati and leave it at that. As of today, Volition Capital’s Larry Cheng spells it out for us in perfect clarity. You may be indirectly pitching for your own money.

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In a blog post entitled, “The Money Behind the Money”, Cheng explains that private equity investments generally come from a select few sources. While he offers a “Funds of Funds” category that invests on behalf of the below groups, because this category is an intermediary and is not a true source of capital, it’s safe to assume that the below three groups constitute the majority of investment capital in the country:

1. Wealthy Families: This funder behind the funders is not surprising. Cheng explains that single family trusts and foundations are the original investors in a number of firms including J.D. Rockefeller’s contributions to Venrock. In other words, your startup money moves from the affluent, to VCs and finally to you.

2. University Endowments: Alumni gifts play a huge roll in the investment landscape. When universities receive an alumni gift designated for endowment, that gift is often reinvested to raise additional funds and then used for school activities. Wikipedia has a fantastic list of U.S. universities ranked by endowment with Harvard, Yale, Stanford, Princeton and MIT at the top.

3. Pension Funds: Those family members that work in government agencies or major corporations and encourage you to pursue a career path with a pension and benefits might actually be enabling your startup dream. Explains Cheng, “A portion of these funds are often allocated to the private equity asset class.  Major states investing in this asset class include New York, New Jersey, California and Oregon.  Major corporations like AT&T and General Motors have also been active investors.”

Photo Courtesy of Photos8.com

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In the summer of 2008, J.R. Johnson sold Virtual Tourist to Expedia for $85 million dollars. While Johnson seems like the type of laid back Los Angeles entrepreneur that would take some vacation time, his quest for relevancy had him launching a new community the following March. Lunch.com is Johnson’s attempt to cut through the noise that has proliferated since he first started in the user-generated-review space in 1999.

Says Johnson, “When I started, people asked me why anyone would want to read an amateur review. Now the environment has changed and there’s even pay-per-post happening across the net. Virtual Tourist is travel-specific and you increase relevancy by picking a niche topic on which to base your community. With Lunch I’m trying to solve something new.” Johnson spoke to ReadWriteWeb about some of the ways he’s managed to ensure that his community is more than just search engine bait.

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1. Identity and Interest: In addition to requiring that individuals use their real names and specify topics of interest within the site, Lunch uses an interesting member matching system. Similar to OK Cupid, users rate a series of topics and the “similarity network” matches them with like-minded members. In order for a spammer to target a specific user, they’d have to answer multiple questions in the same way as their target and trick the matching algorithm into displaying a higher percentage of compatibility. In this way, spammers are deemed less relevant while passionate users are matched by the percentage of overlapping interests.

2. Opinion History: Johnson explains that just because people share common interests it does not mean that they share common opinions. Even at ReadWriteWeb we’ve seen Republicans and Democrats converge on the same comment thread in completely different ways. Lunch lets users view opinion ratings, past reviews and popularity rankings. From there you decide whether or not to follow others or look for additional commentary.

3. Top Review Ratings: The Lunch users rate each other and can review that history of rating over time. Ratings can be about a specific topic, on a specific review and on a specific user. In some cases a contributor with lackluster cooking reviews produces one standout piece about a specific type of food. It’s important to be able to find those gems and weed out the reviews that are less relevant to you as a community member.

4. Existing Networks: Lunch allows users to pull information from their social graph via Facebook Connect in order to follow existing friends. Users can track topic reviews, member reviews and article reviews created by friends. I was actually surprised to see how little I had in common with my own social graph in terms of topic interest; however, where we converged was our opinions on other reviewers.

5. Frequent Contributors: By listing the top contributors to a community, Lunch is able to ascertain those with the most interest in a specific topic area. Johnson gives the example of Wikipedia’s community as one where frequent contributors are also an indication of topic-based expertise. Explains Johnson, in Wikipedia, a community member that takes ownership of a page and can be seen as one of the page’s top contributors (without deletions) is likely to offer more relevant content than those that do not contribute often. Coupled with opinion ratings this adds an additional level of user legitimacy.

While Johnson continues in his quest to thwart spammers and trolls, his site is already flourishing. For those attending SXSW Interactive, he is hosting a March 16 panel entitled, Trolls Suck, where he will continue to explore ways to ensure that thoughtful online contributors remain the majority in community sites.

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Earlier today, conversation tracking site UberVu launched Compare. The service allows you type your name and a competitor’s name into search boxes to produce information on your competing brand conversations on Twitter, Blogger, Friendfeed, Facebook, WordPress, HackerNews and Youtube. After all, if social media is the lead generator and customer service tool that we think it is, then it’s important for us to know where we stand against our competitors.

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Being a market leader has traditionally been based on sales, page views, unique visitors, members and engagement. It’s only very recently that companies have begun to look at their social media metrics in terms of the competitive landscape. Albeit, it’s clear that many have forgotten why.

It’s obvious why we turned to Compete, Quantcast and the less sophisticated GoogleFight to measure our competitors. We wanted to visualize our traffic victories. But with social media, what tangible benefit can startups gain from having 10,000 more Twitter followers than their closest competitor? Many would argue that its akin to counting freckles.

But if you look at what drives traffic to your site, then you’ll understand that social media is where we’re keeping our leads. Rather than just jockeying for traffic and search, we should also consider social media mindshare. But honestly, what could possibly be a metric for mindshare?

UberVu’s Compare is not the answer to all of your problems. It’s not going to build you a positive reputation or make you a market leader. Twitter, HackerNews and the slew of other sites that your users are engaging on are somewhere you can find out if you’ve screwed up or if your competition has screwed up. Good leaders know how to track brand sentiment and conversation to correct themselves, generate leads and fill a void when competitors are losing consumer trust.

The UberVu Compare tool is available at ubervu.com/social-media-comparison. If you’ve got other tools that help startups track leads or indicate a need for damage control, let us know in the comments below.

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Foreign startups with their sights set on targeting a U.S. market will be happy to note that as of this morning, Senator John Kerry and Senator Richard Lugar introduced the Startup Visa Act in Washington. In late December we covered the details of the legislation as well as comments from some of the act proponents including YCombinator’s Paul Graham and Foundry Group’s Brad Feld.

As of today, additional supporters include investors Reid Hoffman, Fred Wilson and Dave McClure. The support has us wondering if there is any real opposition to this act?

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According to the Startup Visa site, the legislation has received the support of over 100 U.S. venture capitalists and angel investors. Supporters believe that the act modifying the existing EB-5 Visa will drive U.S. job creation and will allow foreign entrepreneurs to secure visas in the case where they’ve already established investment from a sponsoring US investor. Investment levels are $250,000 in funding from a venture capital firm or $100,000 secured from an angel. The startup must also have plans to create five new jobs every two years, raise at least $1 million dollars every two years, or generate at least $1 million dollars in revenue.

In other words, within a two year time frame, a startup entrepreneur needs to either scale up the operation and staff it, prove the product to the point of raising Series A, or generate substantial profit. Nevertheless, there has been some opposition as a few ask the question, “Why should we let those foreigners gobble up our resources?”

As a foreigner I’m obviously not completely impartial in covering this story; however, some of the arguments against this act seem akin to those used against immigration in general. In this case it appears that the U.S. is purposely welcoming those who’ve been vouched for by American investors, put on a strict product timeline and given a mandate to hire Americans and pay American taxes. Apart from U.S.-based xenophobia am I missing the point of the opposition here? Is there a valid justification as to why this isn’t a good piece of legislation for the U.S. or startup world? Let us know your thoughts in the comments below.

Photo Credit: Startupvisa

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The words “fat cats in Washington” have been uttered in every corner of the nation from Texas to the Bay, yet DC’s tech scene is anything but sluggish. Companies like AOL, Nextel, MCI and Uunet found early success in the region and since then, a slew of young entrepreneurs have emerged to follow suit. Some of the companies include LivingSocial, Clearspring, CareerBuilder, OPower and iPhone app development service PointAbout. ReadWriteWeb caught up with some of the industry’s movers and shakers to find out what the DC scene has to offer for entrepreneurs.

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Funding and Resources

Technosailor editor and author of the WordPress Bible Aaron Brazell believes that the funding scene in DC is still in its infancy. Brazell mentions email tool AwayFind, advocacy platform Grasshopr and Africa Rural Connect as some of the great DC projects that have been passed up for VC investment.

Says Brazell, “There are compelling stories of entrepreneurs and startups struggling to exist in a policy/advocacy based world. We’re not getting the support of VCs, particularly in the Valley – who have myopia about what a successful startup should look like…We need more entrepreneurs. We need more big names to attract funds. We need people who can see beyond Twitter and see bigger societal and cultural issues.”

But it’s a Potomac Falls company named Summize who recently made headlines after being acquired by Twitter to become the real-time service’s search feature. Still, the region’s startups are by no means Twitter-centric. It’s defense, government and telecommunications that make up the majority of the industry plays.

When asked how the government influence shapes a company’s business development and funding pitch Zoetica Media cofounder and Now Is Gone author Geoff Livingston replies, “If you want to sell to the government, you can’t act like a flippant startup pushing ‘free’.  Free doesn’t fly with taxpayers or conservative public servants who are constantly under fire for overspending. FortiusOne is a great example of a startup that’s 2.0, but also sells to the government.  If you visit Google or Microsoft’s west coast HQ you have a very free work culture, but conversely their DC offices are large, hip, but still conservative DC.”

That being said, Livingston sees enormous opportunity for startups in the DC area as $80 billion dollars of the President’s budget is expected to be invested in the region for new technology and IT infrastructure.

Some of the existing government-related funding sources include DARPA, The National Science Foundation and the CIA venture fund In-Q-Tel. Meanwhile firms like Novak Biddle, Valhalla Partners and Grotech offer opportunities for large-scale investment. Other sources include the Maryland Venture Fund and the Center for Innovative Technology.

Mentorship and Mindshare

The region’s best known accelerator program is Launchbox Digital. Launchbox’s founders Matt Jacobsen, Mark McDowell and John McKinley are heralded as the mentors that are bringing the YCombinator-model to the nation’s capital. The group offers entrepreneurs modest seed funding and similar to many of the region’s incubators, participants also receive space and mentorship. Some of the group’s advisors include former FCC Chairman Reed Hundt, AOL’s Ted Leonsis and General Manager of Microsoft Mobile Eric Engstrom.

In addition to Launchbox’s mentors, DC entrepreneurs gain new insight from Aaron Brazell’s Technosailor, Frank Gruber’s Somewhat Frank, Nick O’Neill’s Social Times, Jared Goralnick’s TechnoTheory and Ernesto Gluecksman’s consultancy Infamia.

iStrategy Labs founderCEO Peter Corbett is an active mentor and strategist in the government-related startup scene.

Says Corbett, “[Entrepreneurs] should be following what our government leaders are thinking and saying. For example, Minds in the Cloud is a new project we’re working on to help people understand the present and future possibilities of cloud computing. If you’re working on cloud technology, you need to be listening to what people like Aneesh Chorpa (Federal CTO) and Vivek Kundra (Federal CIO) are doing so you can build your products and services in such a way that they’ll integrate well with the administration’s technology strategy.”

Challenges like Apps for America and iStrategy Lab’s Apps for Democracy also allow technologists to play a role in government initiatives while O’Reilly’s Gov 2.0 Conference is always a huge draw for the region.

The Ups and Downs of Capitol Hill

With so many great companies in the region, Mixx founder Chris McGill sees DC as a challenging but positive place to run a startup. Says McGill, “The government, defense and telecom industries infrastructure provide an extraordinary business opportunity. The best thing [about DC] is the diversity of people. The worst thing is the distance from the new media epicenter in Silicon Valley and the inability to walk down the street and form a strategic partnership. ”

When asked about how the DC scene has shaped his web-based real estate site, HotPads CEO Douglas Pope replied, “HotPads has tried to use its location and its interest in politics to generate buzz. Each election year we produce Congressional Housing Heat Maps. [We] show the foreclosure rates and home prices by districts and the rates of the parties based on how the districts they control are doing. It’s pretty fun and dorky but it gets some good attention and we probably wouldn’t think to do that if we didn’t see the President’s helicopter out our window every day.”

Pope regularly attends events like Tech Cocktail, Twin Tech and Ignite DC to meet other entrepreneurs. Other great networking events include Bootstrap Maryland and HacDC.

Says Peter Corbett, “By being in the nation’s capital you gain a perspective on ‘how things work’ to a much greater degree than anywhere else. By combining knowledge of government, politics, global NGOs and the technology community, we’re able to see opportunities that just aren’t visible if you’re not here day to day.”

Photo Credit: TechCocktail event by Shawn Duffy

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