from Breakingviews:

Angel investor valuations fly off to heaven

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Internet start-ups have needed less cash and left the venture capital industry out in the cold. The latest response to this growing conundrum comes from Yuri Milner, the Russian founder of DST Group, which has invested in Facebook, Zynga and Groupon. He has decided to back dozens of start-ups sight unseen. It shows just how far power has shifted to digital entrepreneurs.

The cost of everything from servers to software to Internet bandwidth keeps falling. And businesses can grow very quickly these days if an idea catches on. The result is that it's cheap to give birth to online companies and they can command high valuations while still young. So there's a push by investors to get into start-ups earlier in their life cycle, but at higher valuations.

That backdrop helps explain Milner's decision. He and co-investor SV Angel are offering $150,000 in convertible debt to all 43 companies in a current batch of fledgling firms backed by seed fund Y Combinator. The terms are extremely generous. If a company completes a follow-on round of financing, the debt will convert to equity at the same valuation. Normally, convertible debt from angel investors includes a cap on a firm's value and offers the holders a discount on equity pricing. Both work to increase the value of equity received by debt holders in a conversion.

There may be a method to Milner's madness. His due diligence hasn't so much been scrapped as it has been outsourced to Y Combinator. Even though the firm is young, its returns have been strongly positive, according to people familiar with the situation.

Obama should help small business, but not too much

P. Griffith Lindell is a veteran business consultant, speaker and author. His newest book is “Struggling With Your Business? Ten Questions to Consider Before Investing A(nother) Dime“. The views expressed are his own. –

President Obama focused part of his State of the Union address on the need for “government (to) create the conditions necessary for businesses to expand.” I applaud and agree with him. The lifeblood of America must flow through micro and small-business veins.

It’s going to take more than political pronouncements, however, to produce the revenues and profits that will change the rules of the current economic game.

Taking the entrepreneurial plunge

– Jeff Bussgang is a partner at Flybridge Capital Partners and the author of “Mastering the VC Game” and the blog “Seeing Both Sides“. The views expressed are his own. –

When to become an entrepreneur is a common quandary for many. For whatever reason, this issue has come up a great deal recently (recession-driven workforce dislocation?), so I thought I’d share a few thoughts that might help frame this critical decision.

I have concluded that being an entrepreneur is an irrational state of being. If human beings were purely rational, evaluative, value maximizing individuals (see Harvard Business School professor Michael Jensen’s paper on self-interest and human behavior), they would not start companies. If they sat down and did the expected value calculation by laying out the probability weighted outcomes of being an entrepreneur as compared to taking a safe job, it would not pencil out.

Can VCs serve the medical device market?

– John Lonergan is the managing member of Mach Ventures. This article previously appeared on PE Hub. The views expressed are his own. –

Traditional venture capital firms are struggling to remain relevant to new company formation, the development of new technologies, and the capability of bringing new medical device technologies to market. Although my comments are specific to medical device venture investing, my friends in Silicon Valley will agree, if even only in a quiet moment of reflection, that the same applies in biotechnology and general technology investing.

There are four reasons the traditional venture capital model has failed with regard to backing medical device companies.

Cloud storage company Cirtas raises $22 million

– Alastair Goldfisher is the Editor-in-Charge of the Venture Capital Journal, a Thomson Reuters publication. –

Venture capitalists and cloud storage companies are picking up in 2011 where they left off in 2010.

San Jose, California-based Cirtas Systems, a provider of cloud storage hardware, announced on Tuesday it has raised a $22.5 million Series B round that was co-led by Shasta Ventures and Bessemer Venture Partners and included previous investors New Enterprise Associates, Lightspeed Venture Partners and Amazon.

Small business ad spending fuels Facebook growth

The growing use of small business advertising on Facebook is a trend worth watching.

As much as 60 percent of the social media network’s estimated worldwide revenue of $1.86 billion in 2010 was gleaned from self-service ads, according to a new study from eMarketer, which specializes in digital market research.

The low risk associated with this type of promotional activity is increasingly attractive to small companies across the board, according to Debra Aho Williamson, the firm’s principal analyst.

Small business prominent in State of the Union

OBAMA-SPEECH/President Barack Obama’s State of the Union address was peppered with references to small businesses and other Americans who he applauded for living the “American Dream.” Following is a roundup of excerpts from the speech where he mentions small business.

On progress:

“We are poised for progress. Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again. But we have never measured progress by these yardsticks alone. We measure progress by the success of our people. By the jobs they can find and the quality of life those jobs offer. By the prospects of a small business owner who dreams of turning a good idea into a thriving enterprise.”

On innovation and the future:

“No country has more successful companies, or grants more patents to inventors and entrepreneurs. We are home to the world’s best colleges and universities, where more students come to study than any other place on Earth… The first step in winning the future is encouraging American innovation. None of us can predict with certainty what the next big industry will be, or where the new jobs will come from. Thirty years ago, we couldn’t know that something called the Internet would lead to an economic revolution. What we can do – what America does better than anyone – is spark the creativity and imagination of our people. We are the nation that put cars in driveways and computers in offices; the nation of Edison and the Wright brothers; of Google and Facebook. In America, innovation doesn’t just change our lives. It’s how we make a living. Our free enterprise system is what drives innovation.”

On improved Internet coverage:

Super angels and the startup bloodletting of 2011

– Mark Boslet is a contributor for PE Hub, a Thomson Reuters publication. The views expressed are his own. –

Super angels have been super active over the past year. Now their business models will be put to the test, and a bloodletting of startups may be on the way.

Both they and the new crop of micro-cap funds actively pursued seed and early stage opportunities in 2010. They funded scores of companies, including many in the Internet space, where shoestring startup costs make business plan experimentation relatively painless.

Want free publicity? Try these websites

announcement-megaphone- Adam Hoeksema is the founder and CEO of ExecutivePlan and a contributor to Under30CEO. The opinions expressed are his own. -

Entrepreneurs are always looking for an easy way to make a big PR splash.  If you are a local business that only serves a specific geographic area, then your local newspaper is still probably your best option for some free publicity.

On the other hand, if you offer a product or service that is available in multiple locations or via the Internet, then you must consider the following websites in which to submit your company to, and gain free publicity.

Customers want to pay with wave of their smartphone

INDIA-STARBUCKS/- Jason Beahm is a contributor to FindLaw’s “Free Enterprise” blog. FindLaw in is owned by Thomson Reuters. -

The future is now. Why? Because now we can buy coffee at Starbucks and pay with a smartphone.

Sure, Japan has had the technology for years, but finally the service was rolled out this week at 6,800 stores as well as 1,000 Starbucks inside of Target stores. For now it is limited to BlackBerry devices, iPhones or iPod Touches, so it’s hardly a revolution, but it’s a start.