I was reading Mark Suster’s Both Sides of the Table about how Seriously came to be funded.

It’s a good read, as most of them are, but towards the end he says something that is both a fact and a fault in funding.

So I hope that offers you insights into how companies move through the VC system. Intros. Vision. Domain Knowledge. Clear path to execution. Ability to build without a massive budget. Execute.

The bold emphasis on ‘intros’ is mine, because they are why many valid, worthwhile, game-changing startups will not get funding.

No matter how brilliant, the founders are outsiders and/or don’t fit the accepted profile.

In short, they don’t fit investor bias.

But mostly, they don’t have the connections who are able to pick up the phone and evangelize to someone like Suster.

All of which means that the pool of fundable startups keeps shrinking.

Flickr image credit: Andrew Basterfield

Facebook’s IPO is all over the news and who am I to ignore a topic of obvious interest? Suffice it to say that IMHO valuing Facebook above McDonald’s, Citigroup and Amazon is totally ridiculous—but what do I know?

However, I’m not alone.

A survey done by WhisperNumber.com polled 1,100 registered traders and investors, found that 71% do not consider Facebook a long-term investment and will not be buying share after Facebook’s initial public offering.

And comparing Facebook to Google isn’t a no brainer; it’s a no brains-er.

But when Facebook amended its S-1 on Monday…the company reported a season decline in revenues hitting $1.058 billion compared to $1.131 billion in the quarter before — the questions started cropping up about whether it was too much to ask that Facebook soar in the markets like Google had. Just prior to Google’s IPO, on the other hand was gearing up quarter after quarter pre-IPO and experienced sequential revenue growth of 27.2% from Q4 to Q1 before its IPO.

Bottom line is that for garden-variety investors (that us) making a profit from Facebook isn’t likely (unless, IMHO again, the market crashes and you still have spare change to invest. And even if you there would probably be better places to use it.)

But if history offers any lesson, average investors face steep odds if they hope to make big money in a much-hyped stock like Facebook.

The IPO should create at least 1000 new millionaires, but it’s unlikely that wealth will be ostentatiously displayed; the exception being when funding another startup—or buying a bicycle.

The hand-painted Italian bicycles that flash across Silicon Valley on Saturday mornings have become the new Ferrari — and only the cognoscenti could imagine that they cost more than $20,000.

My favorite bit of IPO wisdom addressed to all those newbie Facebook millionaires comes from Seattle-based entrepreneur and investor Jonathan Sposato, who earned his first taste of wealth at Microsoft 20 years ago, then founded Picnik, which was bought be Google, and is currently GeekWire’s chairman.

For some, stock wealth launched entrepreneurship and philanthropy. For others, materialism and conspicuous consumption. It was a lottery ticket, plain and simple. And statistically, 90% of all lottery ticket winners go broke after 3 years. And while people seldom talk about money in our culture, avoiding the topic makes history repeat itself, and stigmatizes issues around money.

Thus, I offer some very candid advice for my younger colleagues at Facebook, who are about to have a life-changing event.

Finally, here is some useful advice in the form of what to consider when offered equity in lieu of cash.

The shares-versus-dollars decision presents a common dilemma for startup staffers and consultants. Early-stage companies often don’t have the ready money to just write a cheque, so they have to lure talent with the promise of stock. (…) If you are in the fortunate position of weighing a juicy stock offer, what issues should colour your decision?

Flickr image credit: pedroelcarvalho

Hooray! Finally! It’s about time.

For more than a decade my angel investor and many of our colleagues have been bemoaning what happened to the venture world. Call it the takeover of the walking investment banker.

It started when the name partners wanted to kick back a bit. That made sense, but unfortunately they went to Wall Street for their new people and hired a lot of the hot young turks who were great at manipulating money, but had never really produced anything.

I remember a client telling me how the Board member from his VC investor had a tantrum yelling for the company’s ROI numbers—when the company was six months, working on a revolutionary hardware/software system and the product was still in development. Sheesh.

“The biggest names in the industry are concerned about low returns and are blaming several factors: funds that have grown too large, the M.B.A.’s that have invaded the industry and older partners who have lost touch with what is new in technology.”

For those who don’t understand, typically a partner sits on the board of each startup that the firm funds and this limits the number of companies in which they can invest. In 1990 VCs invested $2.7 billion, at the height of the dot bomb it was $104 billion; it’s dropped back to around $30 billion now.

Because the money must be put to work, too much money is often forced on firms that didn’t need it.

“That often means forcing $3 million into a company that needs $300,000,” according to Ben Horowitz.

Now a number of VC firms, some old players and some new ones have decided to change the game.

The latest, and one of the hottest, is Andreessen Horowitz.

“Marc Andreessen, who co-founded Netscape, is announcing on Monday that he and Ben Horowitz, a longtime business associate, have raised $300 million that they intend to invest in technology companies. The venture capital firm, Andreessen Horowitz, will risk small sums, as little as $50,000, on new ideas.”

This is good strategy, far better than pushing millions on a company that needs far less for no other reason than the money needs to be invested and the number of partners is limited.

So what does all this mean to you?

Well, it won’t happen overnight, but it could mean dozens or even hundreds of new, solid startups with doable business plans and backed by patient money.

The kind of companies that grow and flourish because their investors don’t have to have a multi-billion return next week to look like heroes to their investors.

And that’s what made our economy and country strong.

Image credit: Mark Coggins on flickr and agoldfisher on YouTube