Original post is Draper University Gets Aspiring Entrepreneurs Out of the Classroom by Tech Deals.

And by “internationally,” they mostly mean Asia. SoftBank Capital is the venture arm of Softbank Corp., the Japanese company that agreed last year to buy  a controlling stake in Sprint Nextel Corp. The fund is also backed by Alibaba Group, the largest online business-to-business company in China, and Yahoo! Japan.

Often when U.S. startups go international for the first time, they expand somewhere in Europe because the culture and business practices most resemble those of the U.S., said Matt Krna, a principal at SoftBank Capital. But the European market has slowed down as U.S. startups face increasing competition from Asia.

“A lot more companies are looking to Asia first as their international expansion plan,” Krna said in an interview. “We have the connections to make that happen.”

Global expansion is becoming a bigger priority for startups, Krna said.

“Companies are looking at that a lot more early on in their maturation than they did 10 years ago,” he said.

SoftBank Capital’s new fund is its largest for growth-stage companies, Krna said. He expects the fund will end up supporting about 13 portfolio companies.

Original post is SoftBank Capital Raises $250M Fund to Help Startups Expand to Asia by Tech Deals.

Courtesy Lumo

The LUMO BodyTech wearable sensor to track posture.

Yahoo! co-founder Jerry Yang and Google Chairman Eric Schmidt may not agree on much, but they do see eye to eye on back pain.

Yang and Schmidt, through his investment fund Innovation Endeavors, are joining with Seattle venture capital firm Madrona Venture Group and others to kick in $5 million for LUMO BodyTech, a Silicon Valley startup that makes a wearable sensor to track posture.

The LUMOback device monitors a user’s back posture and transmits that information via Bluetooth to a smartphone application. The sensor, developed by three Stanford University graduates, is worn around the waist and gently vibrates to alert users when they slouch.

This summer, Monisha Perkash, the Palo Alto, California-based company’s co-founder and chief executive officer, raised more than twice her target of $100,000 using the crowdfunding website Kickstarter. Early versions of the device are being shipped now to Kickstarter backers, and the company plans to offer it in stores early next year.

Madrona said this is the first foray into consumer hardware for the firm, which led the funding round. Madrona was an early investor in Amazon.com and storage firm Isilon, an EMC acquisition.

LUMObody Tech is the latest to enter the movement toward using wearable sensors and data-analysis software to help improve people’s health and fitness. The area is already populated by the Fitbit and Nike’s FuelBand, as well as devices that monitor sleep.

At this rate, early-adopters may run out of spots on their bodies to attach all of the sensors. But Yang and Schmidt, who competed fiercely for years on search engines, have both decided there’s room for at least one more.

Original post is Eric Schmidt, Jerry Yang Back Posture Gadget in $5M Round by Tech Deals.

Photograph by Fragments from Olympus

One of the most successful campaigns on Indiegogo aimed to raise money to buy back Nikola Tesla's old laboratory.

In many parts of the Eurozone, now is not the best time for an entrepreneur to go to the bank and expect to skip away with a loan. But a growing alternative for some Europeans could be crowd-funding websites, which are expanding there.

Indiegogo, a popular site for entrepreneurs to raise money for their projects, added three new currencies today in a bid to draw more users from outside the U.S. Pledges can now be made in euros, British pounds or Canadian dollars, said Danae Ringelmann, the co-founder and chief operating officer of Indiegogo, in an interview.

By the end of the month, Indiegogo will also begin allowing fundraisers’ pages to be written in French or German, the company said. The site, which has been open to users worldwide, will introduce early next year home pages tailored by region for people based in either the U.S., Canada, France, Germany or the U.K, highlighting local projects, Ringelmann said.

“This is something that we’ve been building toward for a long time,” she said. “Thirty percent of our business is international, which is a shockingly big number considering our site is only offered in English and in U.S. dollars.”

By the middle of next year, the San Francisco-based startup plans to establish a subsidiary in the U.K. to reduce costs from its expansion to Europe, she said. New York-based Kickstarter, a giant rival that’s funneled $368 million to its creators, added the U.K. as its second country in October. About 2 million pounds were pledged to British projects in the first month, the company said.

Kickstarter and Indiegogo are going up against European startups, such as London-based Seedrs, which allow for small investments in exchange for equity. That’s something the U.S. companies don’t do because the practice  isn’t yet allowed . (A provision of the Jumpstart Our Business Startups Act that hasn’t been implemented yet would change that.)

American crowd-funding popularized the rewards-based system, where a pledge of, say, $30 gets you a T-shirt or $60 gets you a copy of whatever it is you’re backing. Considering that most startups fail, a shirt might not be so bad — unless it’s the one off the entrepreneur’s back.

Original post is Crowd-Funding Site Indiegogo Is Going International by Tech Deals.

Photograph courtesy of Quizlet

Quizlet founder Andrew Sutherland (left) hasn't found the need for venture capital.

This is the third in a five-part series called “No VC,” which highlights startups that have succeeded without venture capital, the lifeblood of Silicon Valley.

(This post was updated to correct the site’s pricing to $15 a year.)

One night this past summer, Andrew Sutherland was eating takeout at the office of his San Francisco-based startup, Quizlet, when a knock came at the door. He answered to find partners from a well-known venture capital firm. Based on the e-mails and phone calls he received from the firm before, Sutherland surmised they wanted to discuss a possible investment.

“I guess they thought that if they couldn’t get in through other channels, maybe we’d take an in-person meeting,” he said. “We turned them away.”

The 22-year-old  Sutherland has rebuffed numerous investors since becoming one of the hottest new stars in education tech. Quizlet, the program he created as a high school sophomore to prep for a French exam, has grown into one of the most popular study tools for students. The website has more than 12 million unique visitors a month and the company’s app has been ranked as one of the top educational programs in Apple’s App Store for the past three months.

Yet unlike high-profile startups such as Inkling and Kno, which have raised tens of millions of dollars from VCs eager to cash in on the boom in smartphones and tablets in the classroom, Quizlet remains entirely bootstrapped.

“We don’t need the money right now,” said Quizlet Chief Executive Officer Dave Margulius. He said the company is cash-flow positive and predicted that revenue would surpass $10 million in two years.

Quizlet became profitable soon after it was created in 2005, according to Sutherland, who built the flash-card program for the Web and supported it by selling Google AdSense promotions that let marketers place ads on the site. As the game grew more popular and server costs rose, he raised $30,000 from friends and family and invested profits from a separate site he helped to create — an e-commerce service called Collectors Weekly — to grow the business.

He also hired Margulius — a tech veteran who founded Boston.com in the early 1990s and worked as an executive at Evite — to help run Quizlet while he attended MIT. Last year, Sutherland dropped out of college to focus on Quizlet and help produce its first app for Apple’s iPhone.

Investors may like Quizlet because it’s not selling anything to school administrators or teachers, which usually involves clearing red tape and waiting out budget approvals. Instead, the simple and fun-to-use app appeals directly to students.

“A kid in California can create a Quizlet around a topic and 45 kids in South Carolina who don’t even know him can leverage that for their own studying,” said Semil Shah, an entrepreneur-in-residence at Javelin Venture Partners who has written about education for the blog TechCrunch.

Aside from selling ads, Quizlet also offers a $15-per-year version with no advertisements.

While Sutherland sees sales continuing to grow at least 150 percent a year for the foreseeable future, he’s more focused on getting his service into the hands of more students around the world. That’s a vision that may be at odds with outside investors, he said.

“A lot of VC companies go for a subscription business and try to monetize quickly,” Sutherland said. “We can build a bigger business that can serve a lot more people if we’re more open and not trying to get money out of every single user.”

Original post is No VC: Education Startup Quizlet Makes the Grade Going It Alone by Tech Deals.

The money hasn’t stopped flowing. Over the past decade, venture firms poured between $20 billion and $32 billion a year into startups, spawning successes such as Facebook, LinkedIn and Workday.

But those stories are the exceptions. More often than not, venture investments return little if anything to the financiers, with the businesses they back getting tucked into bigger companies or withering altogether.

However, there’s a third class of startups that’s even less frequently discussed. They’re the ones that go it alone or with just the support of friends, family and a few angel investors. Sometimes the venture firms just miss them, and other times the startups shut them out.

When these entrepreneurs succeed, they do so as underdogs. Not only do they lack a financial cushion, they also forego the connections, branding, marketing prowess, publicity and overall stamp of approval that accompany the big bucks from a major venture capital firm. But by going this route, these entrepreneurs keep their ownership, grab control of their own destiny and, perhaps most importantly, gain a real appreciation of money.

Ed Zschau teaches that to students in his high-tech entrepreneurship class  at Princeton University, and he’s observed it in the handful of startups he’s backed as an angel.

“Companies that don’t have much money when they start out develop good habits,” said Zschau, who previously worked as a venture capitalist and served four years as a U.S. congressman for California. “They’re able to do a lot more with less.”

Starting next week, Bloomberg.com’s Tech Deals blog will profile five startups that have succeeded without venture capital. Success does not mean becoming a multibillion-dollar public company, but rather having reached a point where the business is thriving or the brand is at least big enough to make VCs deeply regret missing out.

Look for a series of posts that we’re calling, “No VC.”

Original post is No VC: How 5 Startups Skirted Tech’s Financiers by Tech Deals.

Photograph by Joho/cultura/Corbis

Thomas Foley's next act is a new company called CapRally that is backed by venture capitalist Tim Draper.

When Thomas Foley started Xpert Financial in 2009, he had a simple thesis: Going public was too costly for most companies, and the private fundraising process was overly opaque. So he created an electronic exchange for private companies to raise capital or let early shareholders and employees sell some of their stake.

Xpert hasn’t panned out. The San Mateo, California-based company needed too much capital to comply with regulatory rules and was unable to create a vibrant marketplace of buyers and sellers. The private exchange business also suffered after secondary investors in Facebook and Zynga got burned when the companies’ stocks plunged on the public markets.

Courtesy of CapRally

Thomas Foley

Foley, at just 28 years old,  isn’t giving up. The last thing he worked on at Xpert was a product to help companies keep track of their capital raising, from the time they begin reaching out to investors until they consummate a deal. Think of it as customer relationship management (CRM) software for fundraising. He recently rolled that out into a new company, called CapRally, and is backed by venture capitalist Tim Draper, the principal investor in Xpert.

“Xpert is regulated and has chicken and egg issues,” said Draper, whose son, Adam, was an Xpert co-founder. “Companies, their boards and investors all have to say yes to the new platform. CapRally is a much easier sell to most of these companies because they are already using spreadsheets or CRM software to track and manage their deal flow.”

The software is currently helping manage 127 deals for a group of companies and investment firms that are testing it, and has been available since mid-October for anyone to use for free at CapRally’s website. Foley said the basic product will be free and he’ll start charging for more advanced features in the first half of next year. For investors, the price will range from $25 to $300 a month per user, and for companies and investment banks, monthly licenses will range from $150 to $5,000 a month per deal.

Companies can use the service to find recommended investors, correspond with them, record meeting dates, and keep track of who has committed to a round and who’s declined. Foley compares CapRally to tax software in that it’s highly useful for specific transactions and the information is then stored for future deals. He’s playing into the larger trend towards cloud-based software, which enables users to access data via Web browsers and smartphones.

While the company is targeting startups, the product is also being used by investment banks and venture capitalists, Foley said. He’s actively using the product as well.

“We’re in the middle of our capital raising process and we have 60 investors that we’re dealing with at any stage in the process,” said Foley, who worked in investment banking before starting Xpert. “Some are in due diligence, some we have meetings with, some have just responded and we’re scheduling meetings. We need to know exactly where we are across all those different things and very quickly.”

If CapRally catches on in the startup market, Foley expects to go after real estate investors, while Draper says the product will be useful for non-profits and film financing groups. Within the non-profit sector, CapRally would compete with companies such as Blackbaud and DonorPerfect.

As for the future of Xpert, Foley and Draper are in the process of working it out.  Of the 28 employees the company had at its peak, only three remain. The company still has its broker dealer license, allowing it to execute trades. Draper said he hopes to restart the project and get a group of top venture capitalists to become members, pushing to “ensure that all the best companies would go to Xpert to do private IPOs.” He said the business needs about $5 million to work, and he’s willing to invest if he can get others on board.

Foley is cautiously optimistic.

“There’s a real need there, but who knows if the market is ready,” he said. “Or if we’re the ones to execute it.”

Original post is Entrepreneur Tries Second Act After Secondary Market Fizzles by Tech Deals.

Photograph by George Frey/Bloomberg

Mobile carriers now want customers to manage their megabyte usage, but a startup is pushing a different approach.

It sounds like a high-school math problem: You have 250 megabytes of data left on your smartphone plan. For the rest of the month, you plan to spend four hours a day checking Facebook, e-mail and YouTube. At that rate, will you have to pay overage fees?

Unfortunately, this tricky question is very real for those who try to manage their mobile data usage. A possible solution? ItsOn, a Redwood City, California-based startup, is working on an alternative to the metered data plans that have become standard for most smartphones.

ItsOn’s technology could allow mobile subscribers to tailor their data plans according to the services they use.  For example, rather than monitoring how many megabytes you’re using watching Netflix, a carrier could offer a flat monthly rate just for video streaming. The same could be done just for e-mail or social networking.

With the ItsOn app, customers can manage which types of services they’re subscribed to, and the requests would go into effect immediately. That type of granular control could unlock many more billing options that aren’t possible within the current wireless infrastructure.

“Today’s mobile networks are incredible feats of engineering because they were built in a world of calling and dumb feature phones,” said Marc Andreessen, whose venture capital firm Andreessen Horowitz led a $15.5 million funding round in ItsOn that closed this month. ”The current ways that mobile phones are provisioned in price is sort of a blunt instrument approach. You have aggregate buckets of bits.”

Ron Conway’s SV Angel and others also contributed to the round. Earlier investors included Best Buy, as well as Verizon and Vodafone, which together operate the largest U.S. mobile carrier Verizon Wireless. In total, the company has raised $27.9 million from investors. Bloomberg LP, which owns Bloomberg News, is an investor in Andreessen Horowitz.

The jury is out on whether people would rather get nickel and dimed on each type of app they want to use, as ItsOn’s system could enable. But the current billing setup clearly has room for improvement. About one-third of mobile subscribers are confused by their carriers’ data plans, according to a study released this month by consulting firm Ernst & Young.

ItsOn was started four years ago by Greg Raleigh, who funded it early on with his own money and investments from friends. A longtime telecom entrepreneur, Raleigh sold Clarity Wireless to Cisco in 1998 for $157 million and Airgo Networks to Qualcomm in 2006 for an undisclosed amount.

The advantage of separating the fees for each app or class of apps, Raleigh said, is the flexibility it brings. Companies could pay for their staff’s business-related applications, while the employees pay for their bandwidth related to recreational apps, such as Hulu video streaming and online games. The system also allows for operators to sell advertisements, so that, say, a sportswear maker could provide three hours of free video streaming during a football game.

“In the old world, these things are impossible because it takes so long to build them into the hardwired network,” Raleigh said in an interview. “It’s profitable for the carrier because it presents some new opportunities.”

ItsOn recently conducted a five-month trial with a European operator, Raleigh said. Early next year, a major U.S. carrier will roll out the service to its customers, which will support one smartphone operating system to start, he said. Raleigh declined to provide any other details.

Andreessen is particularly optimistic about this pricing model working well in emerging markets, where customers could choose inexpensive plans that only include basic services such as maps and messaging.

“If you go into the developing world, and you go into countries like India, there are billions of people who want smartphones, and they cannot possibly afford them,” Andreessen said. “What they’re solving is actually the central problem in how mobile networks are going to operate in the next five to ten years.”

Original post is Coming to a Mobile Plan Near You: Pay Just for E-Mail or Facebook by Tech Deals.

Photograph courtesy Drchrono

Y Combinator holds two classes of startups per year, each with six dozen or so companies.

In the last few years, dozens of incubator programs catering to tech startups have popped up. Their typical business model is to take equity in the young companies they nurture in the hopes of breeding some superstars that yield big returns.

With the proliferation of these programs, entrepreneurs could theoretically shop around for the most attractive deal terms. One incubator I wrote about this week in Bloomberg Businessweek has ridiculously favorable terms.

The caveat, of course, is that some of these incubators are extremely competitive, taking thousands of applications per year. And while it’s easy to compare investment amounts with equity splits, it’s harder to measure the value of participating in one of the more prestigious programs, which can give entrepreneurs access to high-profile investors, advisers and business executives.

If you’re a tech entrepreneur looking for an incubator, here’s a quick breakdown of the terms for some of the most popular programs. No need to compensate us in startup equity for this service.

Summer@Highland: Highland Capital Partners, based in Cambridge, Massachusetts, started its incubator five years ago as part of a push into Silicon Valley. The venture-capital firm makes college graduates an offer they can’t refuse: free office space for the summer at its headquarters or in Menlo Park, California, plus at least $15,000 per team without any equity in return. Because of these favorable terms, Highland has missed investing in some fast-growing companies it incubated. But it has won fans among tech startups. Highland turned down 242 applications for this past summer’s class, taking just 14 teams.

Y Combinator: The number of startups accepted to this well-known incubator has ballooned to classes of six dozen or so two times a year. Still, the admission process for the Mountain View, California-based program is very competitive. High-profile investors including actor Ashton Kutcher frequent the Demo Day events. Participating teams get $14,000 to $20,000, depending on the number of founders, in exchange for an average of 7 percent of the company’s equity. Airbnb and Dropbox are two of the most successful Y Combinator companies.

TechStars: With programs located in several cities and a reality show on Bloomberg TV, which is owned by Bloomberg LP, this incubator has become something of an institution. At least 75 venture capital firms provide funds to run the program. One previous participant, Socialthing, was acquired by AOL. Companies that start there receive $18,000 in exchange for about 6 percent in equity.

DreamIt Ventures: This incubator will run next year in Austin, Israel and New York. SCVNGR, which operates the fast-growing mobile-payments service LevelUp, went through this program. Companies will receive $10,000 to $25,000, depending on the size of the team, for 6 percent in equity.

Launchpad LA: Looking to spend four months in sunny Southern California? This program, based in Santa Monica, gives $50,000 for 6 percent in equity. In addition to office space, a standard incubator perk, Launchpad provides participants with discounts for cloud services from Amazon.com, Microsoft and others.

Excelerate Labs: Based in Chicago, this program takes 10 companies a year. Each startup gets $25,000 for 6 percent in equity. Demo Day takes place at the House of Blues, but hopefully it doesn’t leave entrepreneurs walking away singing a sad song.

Original post is What Entrepreneurs Should Look for in Tech Startup Incubators by Tech Deals.

Photograph by L. Shaefer

Brad Garlinghouse said startups are raising money at high valuations, picking numbers for the purpose of “chest-pumping.”

Even as Facebook and Zynga shed more than half their value in the public market, Silicon Valley veteran Brad Garlinghouse sees signs of a technology bubble.

The former executive at AOL and Yahoo said startup founders are raising venture capital at high valuations, picking numbers for the purpose of “chest-pumping” and not because they need the money. Companies are also focused on building glowing public reputations, sometimes using Hollywood celebrities, without the revenue to back them up, he said in an interview.

Garlinghouse, who is chief executive officer of content collaboration site YouSendIt, offered two reasons why the behavior concerns him:

It’s bad for investors. Raising at higher-than-necessary valuations means they’re less likely to get acquired. If a company is worth more than $1 billion, the pool of companies that can afford to buy it shrinks. A startup’s founder may be planning for an initial public offering, but it’s good to have other options for paying back investors.

It’s bad for employees. “Everyone wants those guys to get rich, if they deserve it,” he said. If companies raise at a high valuation, the strike price, or price at which workers can exercise their options in the company, is a lot higher.

Garlinghouse isn’t the first to make these arguments. Around the time of Facebook’s IPO in May, Pacific Investment Management Co.’s co-chief investment officer Bill Gross wrote in a posting on Twitter, “I know a bubble when I see one.”

YouSendIt hasn’t raised money in more than two years and should break even within the next two quarters, Garlinghouse said. The company is dependent on its users, not advertisers, for revenue, he said. YouSendIt competes with Dropbox, which has a $4 billion valuation, and Box, which is valued at $1.2 billion.

Original post is Valley Veteran Brad Garlinghouse Sees Signs of Tech Bubble by Tech Deals.