Like most people, I had the opportunity to review Facebook’s IPO filing yesterday and admit that, like Apple’s recent earnings announcement, this is pretty damn impressive.

Here are a couple of lessons worth reinforcing:

1) People’s view of what is normal and acceptable in emergent online activities is constantly evolving. What Facebook deserves a lot of credit for is not allowing itself to be held back by what a small and vocal group of critics said they should not do. As a result, by constantly pushing forward, and making mistakes, Facebook created a new normal that in retrospect would never have been accepted even 5 years ago.

2) Zuckerberg, like Larry Ellison and Bill Gates most notably, retained tremendous control of their respective companies through outsized stock ownership and voting structures that assured them total control of their destiny. Shareholder rights advocates will say that this is precisely what needs to change about corporate America but stock ownership is not a democracy where every vote is equal… but it is also a structure that shareholders opt into when they buy stock in a company.

3) Don’t discard old business models because they are old… Silicon Valley is home to the shiny new object syndrome and we often forget that old business models are referred to as old because they WORK. Facebook was criticized for not having a business model, well they did and it was a tried-and-true one… advertising. Turns out that a company can still make a boatload of money doing this and it doesn’t require a 60 slide powerpoint deck to explain it.

4) Raise boatloads of money when it is available to you, and do it on your own terms. Facebook benefited from a wide range of factors that drove interest in the company, not the least of which was that for private equity investors who had large funds to put to work, there were few options that scaled to the degree that Facebook did. These investors are not looking for the returns that early stage VCs are, so they were happy to put large amounts of capital to work at high valuations, and it appears that these bets will pay off. Mutual funds and other traditional investors that bought stock in the private secondary market that emerged were also reacting to a scarcity of investment options. The real lesson here is not to be constrained by the traditional venture capital cycle when macro conditions create an environment that allows you to be non-linear.

Lastly, I’ll refrain from repeating the oft-repeated mantra about hiring the best people… would you hire anyone but the best? I hate it when people say things which fall into the stating of the obvious category.

Mitch Kapor says we should looks beyond the kerfuffle between Arrington and CNN, and yes let’s do that.

I wrote this 2 years ago and nothing has changed:

Why does this matter, especially coming from someone like me who has a gag reflex about the words “affirmative action” and repulsion at the idea that we, as a society, condone hiring or admittance, and promotion based on anything other than merit? It matters because we are not an economy that searches out natural resources like iron ore, timber, coal or natural ports and waterways to determine where we expand; we are an economy that depends upon businesses identifying clusters of talented human resources to solve problems that have economic value. If our solution is that a bunch of white men, young and middle aged predominately, are going to solve the bulk of problems from here on out, then we will neither be very good at it on a global scale nor efficient as a society in lifting earning power and real economic growth across the board.

Silicon Valley is good at a lot of things but one thing we are terrible at is being self-critical about the culture we have created. Zuckerberg was getting to this with his much quoted comments about Silicon Valley being too short term focused (I wrote about that in 2009 as well, ironically the post also centered on TechCrunch).

I realized something recently that in all my years had thus far escaped my attention and it is direct commentary on the distinction between large and small company culture.

A common belief is that small companies (startups in the Valley vernacular) are nimble because they can’t afford to waste time. This is quite true but the difference between successful small companies and meandering ones is that the successful ones value time over perfection and embrace people who are willing to fail as much as succeed. Okay so this much is probably known to you so bear with me.

A common misconception is that the path to decision in a small company is much quicker than that of a large company. It is wrong to assume this because of a unique characteristic of large companies known as turf. In large companies managers of all levels measure their power by the turf they control and a natural reaction to interlopers, other groups who wish to be party to decisions large and small, is to repel them.

In a small company it is quite common for every decision to be made by committee because the stakes are very high for failure and because the interpersonal dynamic in a small company favors consensus, even if the victim of consensus is decision. It is quite strange but I’ve seen it enough to know it is true… every action requires group consent.

I don’t wish to suggest that large companies are more nimble or quick to act than small but it isn’t because they are large, it is because they allow mediocrity in their management ranks and allow process to overcome action, but small companies are just as prone to mediocrity for a different reason, because it is allowed to happen as a result of the unwillingness of the people involved to just act decisively and unilaterally.

Like everyone who has looked at the issue of immigration, I came to the conclusion long ago that it is a broken and outdated system. Just consider that every H1-B visa is snapped up within 12 hours of becoming available and you see how not only demand outstrips supply but an industry has grown up around a flawed system for the sole intention of gaming it for profit.

Pascal-Emmanuel Gobry wrote a piece in Business Insider today that highlights a move by some influential VCs (who also have political clout) to enact a Startup Visa Act that would provide foreign entrepreneurs who receive a minimum amount of funding and hire a minimum number of employees a visa that would convert to a “green card” in two years.

Before I get to Pascal-Emmanuel’s article, let’s cover the basics.

The visa that this act would empower isn’t new, it is the EB-5 visa for foreign investors who commit at least $500k of capital and create 10 jobs according to a complex matrix of “allowed activities” dependent on whatever regional center the investment is located in. Presumably the Startup Visa Act would create a new EB-6 visa that mimics the EB-5 (even takes the allocation) and reduces the required initial investment to $250k and number of full time jobs to 5. Over a 2 year period beginning with the date of visa issuance the entrepreneur has to create 5 full time jobs, raise an additional $1m in investment capital or generate $1m in revenue.

Reading the text of the bill it is clear that this bill:

• takes existing visa and allocates them for the startup visa program
• defines “super angels” as an accredited investors (yes this is a defined category of investor, look it up on the SEC site), who makes at least 2 minimum $50k investments every 3 years and is a U.S. citizen. Venture capital operating companies are also defined according to existing standards but in order to qualify the fund must be based in the U.S. and be comprised of a majority of partners who are U.S. citizens, have capital commitments of $10m and have been operating for 2 years with actual investments in that period.
• After 3 years if the conditions of the program are not met the visa, called “conditional permanent resident status”, will be revoked. BTW, it seems like a contradiction in terms to have a conditional permanent resident status… why not just call it what it is, a visa. It’s supposed to be a 2 year time period but the text of the bill explicitly says after 3 year the visa will be revoked if the requirements are not met.
• It is not clear if the 5 required full time jobs also includes the founding entrepreneur(s).

The bill is a welcome 7 pages long but the brevity, while making for easy reading, also opens it up for potential abuses and Gobry actually has some very good points here. I will also take a moment to submit that the whole exercise of legislative sausage making is incremental and there’s no way this bill would proceed through committee, get voted on and signed into law with 7 pages of text… so let’s assume that I’m not breaking any new ground or discovery here.

Gobry’s primary criticism is that the bill makes entrepreneurs a servant of the investor and on that point I agree. I can’t imagine a situation primed for more potential abuse than one where the entrepreneur is dependent not only for funding from a VC but also residency in this country, a dream of many foreign entrepreneurs despite the state of our economy. While $1.25m dollars is a modest amount of capital, for a seed stage company it is a good sized amount of capital and likely to be allocated not at once but over time as the entrepreneur progresses in planning and execution.

Under this legislation, as the entrepreneur burns his timeline not only is he/she dealing with the pressures of business survival but the threat of deportation that depends solely on whether or not their investors will release more capital when needed. Can you imagine how those discussions would transpire if the investor in question possessed less than altruistic motives?

Another potential problem with this is what happens if the venture firm ceases to exist (it happens all the time to $10m’ish sized funds) over that 3 year period and in the process of disappearing fails to meet the funding requirements of the business? What happens is deportation.

The only “out” for foreign entrepreneurs to get out from under the thumb of investors when operating with conditional permanent resident status is to race to $1m in revenue over the 3 year period (the bill does NOT say annual revenue), in which case they have satisfied the requirements of the program assuming they have also employed 5 people who are not relatives.

The single minded focus on revenue rather than sustainability is another area ripe for abuse and fraud, only in this case it’s not just the integrity of the visa program at stake but also investors. While it is arguable that the incentives are overwhelming for investors to keep things honest, the fact remains that what qualifies as disclosure in private companies is subject to a lot of interpretation.

Lastly, as Goby points out, there is nothing in this bill that requires the entrepreneurs and investors to be focused on technology sectors… as opposed to real estate or automotive painting or whatever. I could foresee a scenario where this program is used by U.S. investors to establish companies onshore with cheap offshore entrepreneurs in exchange for green cards… again it empowers investors to turn foreign nationals into indentured servants.

So where do I stand on this? Well from my reading the initial bill is pretty weak and has few guarantees that the aspirations of professional and reputable investors like Fred WIlson, Paul Graham, and Brad Feld will be met. The weakness is not only in the provisions of the act but in the fact that is will draw on a limited allocation of visas which all but ensures that a legal specialty industry will attach itself to it like a parasite for the sole purpose of selling off access to the visa program. Basically we’ll end up right back where we started.

All of the weakness that I, and others, have identified are not reasons to kill the bill; what they should do is go back and address these weaknesses with draft language that passes muster and puts reasonable checks and balances in place that ensures the intentions of lawmakers and investors are being met.

Why do I call this a “well intentioned bad idea”? I know the investors who are pushing this and I know their intentions are honest, they want to fix a problem that impacts foreign entrepreneurs who would otherwise be welcome in the U.S. and available for U.S. venture capital. It’s a bad idea because it doubles down on the existing visa system that is plagued with so many problems… and because it operates under the constraints of a limited supply visa allocation it is going to be gamed by lawyers and that will increase the costs and lock out smaller funds who would otherwise be ideal participants in such a program. As it is written now, the big VC funds would have all of these visas locked up within hours of the allocations being made.

Like Tom, I am also a big fan of the team at Lunarr and over the last year and a half have become good friends with Hideshi Hamaguchi, who is one of the most interesting and generous of heart people you will have the good fortune of meeting.

I’m a big fan of the team behind Lunarr, a startup based in Portland, OR, and led by two of Japan’s top entrepreneurs: Toru Takasuka and Hideshi Hamaguchi. I was sad to hear that Lunarr is shutting down its service by May 10.

[From Lunarr Is Going Dark . . .]

When Hideshi told me they were shutting Lunarr down I was saddened but not surprised. Their tale is emblematic of the challenges that startups have getting a consumer/SMB products launched and to critical mass when the demands for features and integration to third party services exceed the ability of startup resources to deliver them, and it is also worth remembering that software development is still a time and resource intensive process even with the range of tools that are available.

The cost of acquiring customers is not insignificant either, especially when the macro environment favors the stability of large brands leading to a big getting bigger dynamic. The demand for features coupled with an increasingly fickle consumer market means that getting it right from the start is more critical than ever and even when you do generate some buzz and interest, converting tryers into users remains a significant challenge.

With an ability to self fund the operation of this company well into the future, it is apparent that Toru and Hideshi looked at Lunarr’s prospects objectively, not as founders but as investors, and could not see a disruptive event propelling forward. I admire this discipline because it’s rare in Silicon Valley where we demonstrate an institutional bias that favors hope over experience.

While I am saddened by the demise of Lunarr, I take with me great satisfaction in the knowledge that my relationship with Toru and Hideshi transcends any single company.

Received an email today pitching services for a “renowned business expert” who would like to be interviewed. The pitch was that a recession is the perfect time to start a business because:

* First, everything costs less!

“Start up costs are much lower than 3 years ago,” explains business startup expert, Danielle Babb. “Things like retaining a website designer, investing in commercial space, buying office equipment are all at least 30% cheaper now than they were during the boom.”

* You can hire top talent because of the high unemployment rates.

“Not only are there highly qualified workers available, but most of them are willing to work for less than they did 3 years ago! You can hire more people or you can bring them on as independent contractors.”

* Many suppliers are giving credit.

“Suppliers are now offering a credit option because they need to make the sale. There are lots of low or no money down deals,” outlines Dani.

* You can buy costly equipment at auction for a fraction of the price!

This got me wondering how true these accepted truths really are… let’s take a look.

Everything costs less!

True, many expenses like commercial real estate and some services are discounted but the flip side is that your own pricing will also be discounted while hardware and datacenter costs are not likely to be discounted much at all. Headcount, the single largest expense any business has, is a little more complex. Payroll taxes haven’t changed materially and benefit costs continue to go up, in spite of salaries being flat or even reduced 5-10% in some cases.

Verdict: some things cost less but in light of the more complex picture on business expenses it is certain that margins will be compressed meaning less free cash flow for business investment.

You can hire top talent because of high unemployment rates

Technically true but the best people in any industry are always in demand so to suggest you can have your pick of the bunch is just as untrue today as in years past. You will always be competing for top talent and if anything the best people tend to gravitate back to the security of large companies in times of economic turmoil because of natural risk aversion. Lastly, top talent is always in a position to demand and get top pay, further eroding the “everything costs less” meme.

Verdict: complete bullshit.

Many suppliers are giving credit

This assertion flies in the face of everything we know about the financial market crisis and broader industry news. Suppliers are demanding letters of credit more now than ever before while large customer are telling suppliers that they won’t issue letters of credit because of finance costs meaning the burden for credit is more than ever being pushed on suppliers. It’s a real conflict but one thing is certain, if you go to a supplier for credit to your startup, be prepared to put some personal collateral on the line or agree to some onerous terms… which also reinforces the above claim that not all business expenses are going down.

Verdict: I haven’t seen any truth to this.

You can buy costly equipment at auction for a fraction of the cost

If you need costly equipment auctions are a viable avenue but keep in mind that warranty and support will be extra.

Verdict: As in past economic downturns this is absolutely true.

I don’t think there is a bad time to start a business because the one truth about new venture creation still holds true, you build your business plan to reflect current and projected economic conditions. Starting a business today means you do it with less capital, have a clear line of sight to revenue and profit, and do your best to cover all known risk factors with more specificity than in years past. Capital is tougher to get but still available, and customers will no doubt be more demanding but none of this means it’s a bad time to start a business.

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There is something really important in this post on the Feedly blog about how they launched their company and approach to building out the product. Along with the succinct description of what it means to develop and launch a product using an agile process is the indictment of the stealth-and-hype approach startups have embraced in years past as a calling card for venture capital.

The benefit of this approach is that you put the customer and your metrics at the center of your development process: as a result you get constant feedback and can use that feedback to both improve the idea/positioning and the product. It will also help you iterate and add a lot more polish to the product. Finally, it will help you have a core user community and measurable understanding of their behavior – something which is really important if you are interested in raising VC money.

[From An Alternative to the TechCrunch 50 Model « Building Feedly]

In a nutshell the VC industry is in a bind of epic proportions right now as institutional money, the bulk of money invested in VC funds, is deciding to sit this one out and M&A and IPO activity is trending to zero for the foreseeable future which has the effect of dramatically reducing any opportunity to generate returns for active funds.

Perhaps more significantly, venture capital is on average a 9-10% return as an asset class which means that putting your money in venture funds is no better or worse than what you would have earned on real estate, equities, or any other of a number of different investment options. Venture capital is a cottage industry built on the perception of outsized returns that very few funds actually deliver. I have spoken with a frightening number of individuals, who are LPs in name brand funds, who are questioning the point of funding their capital call commitments, which in effect is capitulating on venture capital in general because defaulting have consequences beyond future investments.

The holy grail of venture capital is the “10 bagger”, also known as the “home run”, and for good reason because venture funds simply can’t survive on a steady diet of singles and doubles because the losses accumulate over time to wipe out anything other than monster gains. Entrepreneurs essentially understand this and have crafted, although not always with deliberate care but rather intuition, a startup process that swings for the fences. This momentum based approach, as in “getting the flywheel spinning” and all other manner of creative metaphors, is designed to catapult a promising startup into the consciousness of potential investors and acquirers, which has the effect of depriving potential competitors, large and small, of the oxygen their require to establish a base in the marketplace.

Furthermore, by being in the rarified air that white hot startups reside in, investors tend to overlook shortcomings and deficiencies by overweighting marketplace momentum and using this as evidence that “it’s the team that matters” in their investment review process. The competitive dimension among investors comes into play here as hot startups benefit from the fear that a competing investor will be first with a term sheet, offer a better deal, or promise a more prestigious syndicate.

Interestingly what has happened in recent years is that by tailoring the startup launch process to investors and the Valley echo chamber what startups, and their advisors, have done is raise the bar to levels that are almost impossible to achieve. Saddled with institutional attention deficit disorder (IADD) the typical Valley pundit and investor is on to the next shiny new thing before any real and meaningful growth is achieved.

It’s a cliche to suggest we need to get back to basics but essentially that is what Feedly is documenting, an approach that values focus on customer experience first and uses that to lever up interest among the various constituencies that startups often court first. Yes it is stating the obvious but sometimes we all need to be reminded of the obvious.

Reading yesterday that AppLoop has apparently shut down impressed upon me a fundamental flaw in the startup economy promoted by a wide swath of pundits and proponents, that starting is more important than sustaining.

Now, we’re hearing rumors that the startup is in trouble, and they appear to hold some truth. For one, the company’s website has been down for the past two days. Worse, a quick glance on Twitter suggests that the service’s downtime is also causing iPhone apps using AppLoop libraries to crash.

[From Is AppLoop Fading Already?]

I don’t have an agenda in singling out TechCrunch and truth be told I greatly admire the brand that Mike has built from scratch but the fact remains that more than anyone else TechCrunch has become a the standard bearer for the high velocity coverage of the web 2.0 brand of startup. Their hit and run coverage, often caustic as it is complimentary, does not offer a methodical or comprehensive approach to assessing merits and weaknesses and this is all too common in the startup economy where layers upon layers of assumptions are taken at face value.

Having launched NewsGator’s iPhone app service I can tell you from experience how complicated this product area really is. The idea that a container app into which you pump any RSS feed would be something to build a business on is highly suspect on it’s surface, you don’t even need to do much digging to figure that out. There are the issues of content aggregation (multiple feeds), fair use of other content sources (often not provided in full text anyway), the AppStore insertion process, app hosting requirements that raise issues about data center operational requirements when content feeds are taken into account, and a thousand other issues.

TechCrunch covered the launch of this self-service product a mere 75 days ago, 6 months ago for the advertising service, and it is already shuttered. What does that say about the mountain of coverage they were able to garner when they became available in a closed beta form? If the point is to amplify events then we are no better than agents of the PR industry, but if the objective is to present coverage that blends facts and opinion based on critical analysis, then the AppLoop case presents a compelling example of why tech blogs have not yet risen above their role as cheerleader and promoter.

I am hesitant to post this because I know from my own experience that there is, on any given subject, deep and compelling research and analysis available in the blogosphere. My complaint is really that just like in all media segments the blogosphere has become brand centric and despite a lot of rhetoric about long tails the fact remains that coverage is disproportionately tilted to a handful of sites. How do we accomplish the greater good of aggregating the best and brightest coverage instead of just amplifying the loudest voices?

If all we care about is starting things then the tech economy will eventually falter because at some point you have to answer the critical question “why do you matter?”. This simple question should be at the top of the list whenever any company or product is written about, I know that it will be for me going forward.

I’m up at Techcrunch 50 today, along with a gaggle of other folks from the media, startup, and investor community. Lot’s of companies, but truth be told not a lot that I find that interesting.

I sat in on some of the sessions, which are a Demo-style “pitch then sharpshoot” format featuring a panel of know-it-all investors and pundits. The point of my sarcasm is not directed at any one element of this but rather the steep hill that companies have to climb in order to connect with the audience with such a format. I think you pretty much have to give up all of the supporting props in your pitch in order to be effective and further complicating matters is that the audience is the 4, 5, or 6 folks on the panel as opposed to the audience out in the chairs.

Let’s be honest, the value of the elevator pitch is vastly overstated, at best it is an exercise that entrepreneurs should use to prepare for something like this, while doing an elevator pitch on stage simply doesn’t work in practice.

In the absence of a better alternative this is what we are stuck with, and as such it would benefit conference organizers to double down in their efforts to prepare presenting companies to help them take advantage of the format. Quite honestly, I found most of the pitch sessions to be yawners.

This is not to say there is nothing interesting here. Among better known names in the startup community, such as Qik, there are companies that I have never heard of who are new and those that are truly new.

Zong is just such an example of a company that has been around for a while, 8 years to be exact, doing something very difficult and succeeding at it, mobile micropayments. The company behind Zong is Echovox, a transplant from Europe that is now located in Redwood City. The way it works is like this, you setup your service to accept a mobile payment from Zong which then passes a keycode to a user via SMS that the users then inputs into the service to authenticate the user. Neat.

With 68 carriers currently active, Zong claims critical mass penetration in North America and Europe, and is bringing Latin America online as well which will move them closer to their 3 billion user goal. I like this company because it is mobile payments that work with a developed and deployed infrastructure that serves as an effective barrier to entry for potential competitors.

MAXroam is another very cool company but in the interests of full disclosure, I count founder Pat Phelan as a good friend (and over the weekend he gave me an iphone 3g unlocked sim card, sweet). In a nutshell, with MAXroam you get a SIM that can provide local numbers in up to 50 countries and a local per minute rate no matter where you roam. If you travel internationally or do business internationally and want a local number that forwards to your regular number, you really need MAXroam.

Lastly, one of my favorite companies at TC50 is Shryk, an online banking platform targeted to a young demographic, in some cases very young demographic. Shryke is targeted at young people because financial literacy begins at a young age and there are few, if any, services that enable the 5-24 demographic to engage in financial management coupled with a positive incentive system. I love this company. The one criticism that I would level at the company is that they need to make it easy to move from interest to engagement through their website, in other words, removing the barriers to entry for interested visitors to get on the system.

Stealth mode is pointless because everyone has figured out that it’s faux scarcity with a PR objective. Just go into alpha release and skip the whole stealth mode shtick.

If you’re starting a company and want to stay in “stealth mode”, make sure you understand the impact of your Form D filing and factor that into your plans. And if you’re a lawyer for a startup company, please tell your clients about the public disclosures you make on their behalf!

[From Redeye VC: The Death of Stealth Mode]