Business Incubator Series: Mark Lieberman, Business Technology Center of Los Angeles County, California (Part 1)

Posted on Wednesday, Jun 1st 2011 By guest authors Irina Patterson and Candice Arnold I am talking to Mark Lieberman, manager of regional economic development at the Community Development Commission of the County of Los Angeles. He has also been managing Business Technology Center of Los Angeles County for the past nine years. Irina: Hi, Mark. How did you arrive to this point in your life? Mark: I grew up in New York City and spent my formative years there. I graduated from the City College with a political science degree, of all things, and worked as an international banker, and then went over and worked as chief operations officer for an international investment bank. From New York, I decided to leave investment banking and came out to California, primarily, because I met the woman of my dreams. I started consulting and went back to school. I went back to Pepperdine and got an executive MBA and a doctorate in management of organizational change. From there on I started consulting. I was consulting for a while, and unfortunately, due to some family circumstances, we had to cut back on hours. The position at the incubator came up. I guess that was quite fortuitous and seemed like it would be a fun position. A lot of people applied, and I was the one selected. And that was just about nine years ago. So, about nine years ago I took over the incubator. Then, four or five years ago I was promoted to a managerial position for regional economic development, which encompassed the managing two incubators, a $100 million loan program and the State Enterprise Office. Irina: OK, so now you are also in charge of regional economic development? Mark: Right. We had a bit of change in staff at our incubator. Im back in the project until we can find an appropriate replacement. So, right now I am doing regional economic development and incubation, yes. Incubation is my true love. Irina: What is your official title right now? Mark: My official title is manager, regional economic development, and the organization is the Community Development Commission of the County of Los Angeles. The project that I am in right now is the Business Technology Center of Los Angeles County.

We believe it is the first incubator owned and operated by a county organization. This incubator is owned and operated by Los Angeles County. Irina: What year was this incubator started? Mark: In 1998. This is year 13. Irina: Does this incubator have a particular industry preference? Mark: Were a technology incubator. We are focused on more of the hard sciences. We draw our clients from a number of research institutions in the Los Angeles area. Los Angeles is known for its research, one being California Institute of Technology, or Cal Tech as its known. There is the University of Southern California, USC. Also we have a federal lab, just a mile down the road, the Jet Propulsion Lab, JPL, which is part of NASA [the National Aeronautics and Space Administration]. We are also close to City of Hope [National Cancer Institute-designated Comprehensive Cancer Centers] and UCLA University of California Los Angeles all primary research institutions. Irina: What kind of businesses do you usually get in the incubator? Mark: It varies. We have a very broad spectrum of clients running from game development and cloud computing to implantable sensors to 3D imaging for security, all the way up to even someone doing a high definition karaoke machine. Irina: At what stage do you suggest a company apply for incubation with your program? Mark: We tend to take a little bit of a later look at the companies. So, if someone just has an idea and hasnt looked at where he can commercialize it, that would be too early for us. We are looking at someone who probably has a prototype or has proof of the technology. Were looking at someone who has looked at it in an industry and a potential market, hopefully has written actually has written a business plan, although I am not a fan of business plans. I can explain that to you later. But maybe someone who has a very good executive summary, but certainly someone who could talk about where their target market is.

Business Incubator Series: Mark Lieberman, Business Technology Center of Los Angeles County, California (Part 2)
Posted on Friday, Jun 3rd 2011 By guest authors Irina Patterson and Candice Arnold Irina: Could you give an example of what kind of entrepreneurs you would like to see applying to your incubator? Mark: Yes. I am looking at a spin-out at a university where they might have had an SBIR [Small Business Innovation Research Program] grant or an STTR grant [ Small Business Technology Transfer (STTR) Program]. They made a prototype. They have approached a couple of companies to figure out if there is a market there. They have a few dollars to pay, because we do charge rent to be here. Thats our primary source of income. Theyre ready to commercialize, but they are scientists. They know their science, but are unsure about the business aspects of the things. They may have made an attempt at writing a business plan or have some good PowerPoint presentations and can talk about potential market. That is the stage at which we like to see them. Irina: How many companies have been incubated since the incubator started? Mark: I started to do a count, and I got over 100 and then stopped counting. But I think that we have incubated more than 100. We have probably helped in at this point with multiple interviews and multiple consultations, which, of course, we dont charge for, probably, weve helped more than 1,000 companies. We have over 20 companies in the incubator right now. And we generally will range from 22 to 28 companies at any given time. Of course, it depends on the stage of development and how long they have been here. Thats part of what we excel at, enabling the entrepreneurs to grow within the space without having to take on the extra risk of real estate. Irina: What are your core benefits? Mark: There is a number of things that we provide. I can divide it up into two pieces. One, of course, is the facility. If you know anything about Los Angeles, we are located in a very nice area, right outside of Pasadena, which is a suburb of the city of Los Angeles. Theres a lot of technology going on right here, right in this area. Cal Tech and Jet Propulsion Lab are right here. We are right between the two, so we are a mile and half from JPL or a mile from JPL and three miles from Cal Tech. Were well situated. Its a large technology community here.

What we offer is we have a 40,000 square foot building. We offer subsidized rents, so rent is much cheaper than going market rates. We offer reduced risk for the entrepreneurs. They come in and they take on the space that they need. They dont have to think about what they might need a year from now, two years from now. Well absorb that risk; we hold 10% of our space available for companies to grow. We have space on demand. Need another office? We supply them with another office. Need to downsize an office? Thirty days notice, they can downsize. There are no personal guarantees, and the price, again, is below market. There is nothing there. We have no low charges, so there is no paying for common space. We have three conference rooms that they dont pay for. We have high-speed Internet, a telephone system, and FedEx postage. They pay for what they use. Everything is right here, so they dont need an operations person. We take care of that. The entire risk of facility is out of the equation. Thats the facility part. That is the easy part for anybody to understand. The service part comes in a number of different packets. Number one, because everybody here is doing technology, all the entrepreneurs are in the same position. A huge community is built, and you cant discount the effect of community when everybody is commercializing and working together. Two, of course, we do a lot of mentoring. We have a team of about 40 volunteers mentors, so it comes from the private community, who dedicate their time to mentor the companies. Clearly, the companies that come in earlier need more hand-holding than companies that are in the later stages are getting ready to leave. But we are willing and able to mentor them at all stages, and we have the expertise to do that. We also provide a network. We have been around a long time, and we are experienced. Our mentors and advisors open up their contact lists and make introductions. We walk people into their doors with strategic partners.

Business Incubator Series: Mark Lieberman, Business Technology Center of Los Angeles County, California (Part 3)
Posted on Saturday, Jun 4th 2011 By guest authors Irina Patterson and Candice Arnold Mark: We have connections to two of the largest angel groups in Southern California. The Pasadena Angels reside in our incubator. Thats over 100 member organization. And The Tech Coast Angels, I think, is the largest angel network in the world with close to 300 members, all here in Southern California. And then we have a very vibrant venture capital community, as well private equity. Were able to open those doors. We have an executive-in-residence, someone here who has done start ups, whos done incubation. He is an investor and is going to take companies under his wing as an incubator within an incubator. So, we both work together to help the companies as well. Thats the easy way. The idea is to make the entrepreneur comfortable here because they are spending so much time, to give them the resources they need and take away as many risks as possible. Irina: Could you explain what an incubator within an incubator means? Mark: Its a phrase were using and came up with. Our executive-in-residence has worked out a memorandum of understanding with us so that he can bring in companies into the incubator. Hes willing to fund those companies for the costs of that space, and the cost of his time, to work with companies under his name. In a sense, he has an incubator located within our incubator, but we work together. He is an investor at heart, so there is a profit motive, of course. But, there is some altruism involved as well. He is looking to give back to the community. Even if he doesnt fund a company, he does offer mentoring and advice to the companies that are in the incubator as well the existing ones. Irina: Is there anything specific that makes your incubator different from the rest of them? Mark: There are a number of things. I will say, it primarily comes down to experience. It comes down to support. It comes down to networks and relationships. We actually started an incubator network in Southern California called BINS the business incubator network of Southern California. The incubators come together to improve each other, to help each other and to refer back and forth.

What may be a good fit for me, may not be a good fit for someone else and vice versa. We have 13 years of experience doing this incubation. You have someone who is a published author thats me who teaches at university that is also me. Someone who has been doing incubation for nine years and working with technology companies for a longer than that, who is an expert in commercialization. The relationships that our mentors bring in are so key. The fact is we bring in networks, a contact list and relationships to the table. Its a matter of bringing resources to a company. A startup is resource poor. Coming into an incubator increases the value that you have, because you are coming to somebody with the networks and with the resources to help. And, of course, introduction to money. We have international relationships as well. We get companies coming in here from outside the U.S. Most are from New Zealand, Australia, Japan, and Korea. Its one flight over for the Asian community. They use us as a beachhead and as a launch pad for their technology commercialization plans in the United States. Irina: How do you structure those relationships? Mark: Those are mostly structured through the governments, although our agreements with New Zealand is through venture capitalists. We work closely with the governments, Australia, for example, and the states of Victoria and New South Wales, with the government of Japan through their JETRO organization, which is their export trade organization. The same thing with Korea through KOTRA. Its their trade organization as well. And we work closely here with their offices in Los Angeles. Well, actually, the Australians are in San Francisco. Irina: How do you find applicants? Mark: Mostly referrals from graduates, from existing clients and from I will call them our evangelists, which are our mentors, our angels, our advisors, almost exclusively evangelists. We dont go and advertise in the newspaper, although I do go out and provide speeches and talks. Ill go into university classrooms. Well hold larger events as well. We hold an Technology Week, something we founded 10 years ago. We do a lot of educational pieces through hands on workshops where we invite the outside public to come in and through mailing lists. But, again, I would think that probably 80% or more is referrals.

Business Incubator Series: Mark Lieberman, Business Technology Center of Los Angeles County, California (Part 4)
Posted on Sunday, Jun 5th 2011 By guest authors Irina Patterson and Candice Arnold Mark: We receive about five or six applications a month. Irina: How many out of those do you usually take in? Mark: We have two programs. One is the resident program where we devote most of our resources. We also have an affiliate program. The affiliate program is for clients who arent residing here, maybe a bit earlier than we would like to see them, but we feel [they] have good potential. We dont want to turn them away [so] we put them in our affiliate program. Of those five, perhaps one or two are not ready. One or two will go into the affiliate program. One or two might come into the incubator. Irina: Would you tell us more how your affiliate program works? Mark: The affiliate program provides all the services that we would provide as part of our resident program, except they dont have an office here. They have the ability to use the conference rooms. They receive mentoring. They can attend the workshops. They get a mailbox if they want one so they can have a professional address. They can use the conference rooms, so they dont have to have meetings at Starbucks. It presents a more professional appearance. Again, they get the mentoring, but everything comes at a small price. We charge nominal fees for each service they choose, and they get to pick from a menu of options. Irina: Once you accept a company for incubation, what is the next step? Mark: One of the things that I believe in, in incubation, is more of a hands-off model than a hands-on one. My job, as an incubator manager, is not to run the company for them. They have to do the work. They have to do everything. We are here to provide advice, so we have an open door policy. Its driven by the entrepreneur. All they have to do is ask. They want a referral to a CPA? We will refer them to a couple of CPAs. Want referrals to attorneys? We will refer them to several attorneys. All of them will provide discounted rates for them. They want to come to my office and talk for an hour? Come on down; we will talk for an hour. Want to bounce ideas back and forth? We can do that. So, the entrepreneur is in the drivers seat.

Or, you can say, they are sitting on the coach holding the remote. The idea is they have the control. If they are looking for someone in the aerospace industry, who in the aerospace industry do you want to meet? And what do you want to meet them for? What do you plan on talking about? We will help them with their pitches. Well do a whole host of things, but it is all entrepreneur driven. They have to come and drive it themselves. When we accept them, we do an entrance examination if you want to call it that. Usually, if they get past me in terms of the application and couple of interviews, they go to an entrance committee. During the entrance presentation, we are getting a feel for their milestones, what they need, and usually our mentors and advisors attend that presentation. Those who are interested in that industry. The match is made right then and there. When they move in, of course, it is the usual paperwork involved. We try and make it easy. When they come in, we sit down again. We talk over what they want. Again, they are in the drivers seat. We sit and talk and then we have formal I guess semiformal quarterly interviews. We do annual reviews that are tied to their lease agreements. Their annual reviews will be a month or two before their leases are up for renewal. Then we have semiannual reviews as well, which are semiformal, I guess. Theyre presentations, but not as formal as the annual reviews. We want to know that they are making progress, they are growing. Our model is economic development, so our interest is in job creation as the number one metric. From there, how can we help? Again, when the entrepreneurs come in, they tend to be a little nervous about an annual review. From our point of view, it is really about how we can learn more about your company so we can help you even more.

Business Incubator Series: Mark Lieberman, Business Technology Center of Los Angeles County, California (Part 5)
Posted on Monday, Jun 6th 2011 By guest authors Irina Patterson and Candice Arnold Irina: How long can entrepreneurs stay? Mark: Entrepreneurs can stay in our incubator no more than four years. We will look at extenuating circumstances and possibly extend that for another year at most. Most of our better clients graduate sooner than that. Irina: You said you use a lot of volunteer experts. What else do you use to help your clients? Mark: Well, again, its about a system of referrals. We dont provide legal assistance. We dont provide CPA assistance. It is really about the entrepreneurs learning to garner resources and make arrangements for themselves. We make arrangements for them to get great advisors. Essentially, our mentors are an in-house advisory board. Its up to the entrepreneurs to pay for the other professional resources that they need. Irina: What are your metrics of success? Mark: Number one is job creation. Again, our model is economic development. As a government-owned institution, we have job creation as the number one metric. We also look at investment dollars that our graduates receive, although that is very difficult to track for our alums. We have been tracking the monies received while they are in the incubator. We look at revenues. We want to see that they are growing. Those are our major ones. But ultimately, you are known by your graduates and when our graduates are referring clients, that is a good enough metric for me. Irina: Can you talk about some of your successful graduates? Mark: Sure. Some are known in the Los Angeles area. Most of our clients, because they do business-to-business, are not well known throughout the United States. We have a company, for example one of our alums is a company called Arecont Vision. They create and manufacture high-definition surveillance cameras.

They started as two gentlemen, both had PhDs and started in a very small office, squeezed in, real cozy and then grew from that very small office to this is five years ago now to they now have 130 people and revenues are over $50 million a year. We have another company called Spectra Sensors, which makes an airplane sensors, something wed never heard of. Their revenues are probably around $70 million. Some of my favorite companies have not taken any outside capital. In fact, Arecont has not taken outside capital. Another one of our more retail companies that people in Los Angeles would know, although they are moving across United States, is a company called Goldstar.com. They are now the largest seller of discounted tickets to live events in the United States. Three men in an office started here and now employ well over 50 people and are known throughout Los Angeles for great deals on tickets to live events. Weve had other interesting medical device companies, some recent companies that are just spinning out as well. Another one of my favorites is a company called CRAIC Technologies and they make a micro photospectrometer. Basically, it is a microscope with a computer attached, and its used in forensic sciences. [By using it], you dont have to destroy a sample in order to test what it is. They have great traction in selling to the FBI, the Secret Service and selling internationally as well. And they also grew organically. Irina: Would you give more details on how these companies were able to grow without outside funding? Mark: There are great lessons in a lot of that. Each one has a slightly different story. To put it together, Arecont Vision was one [where they] just focused on where they were going. They knew exactly what they wanted to do, exactly what they were doing and just went out and started selling. It was just through hard work, perseverance and experience in the industry, just really knowing the industry. CRAIC Technologies had a beautiful business model. It is not just about selling the micro photospectrometer, it is also about the other revenue streams that you can extract from that. So, you could sell the machine; you could sell the warranty to calibrate the machine. Every three years, the machine needs to be recalibrated. You sell the training on the machine and [people] have to be retrained every two years. You sell the samples for the machine plus the new samples that come out. Its a wonderful business model to have multiple revenue streams.

Business Incubator Series: Mark Lieberman, Business Technology Center of Los Angeles County, California (Part 6)
Posted on Tuesday, Jun 7th 2011 By guest authors Irina Patterson and Candice Arnold Mark: Actually, Gold Star started by thinking that [they were] going to be an employee benefits company, but they rapidly realized that they can only grow so far in doing that, and opened up to the public and that just took off. So, they did, in a sense, an industry pivot. The concept was the same, to sell discounted tickets to live events, but their target market was [at first] as a benefit to large companies. [They were planning to sell] through the HR departments; it is an added benefit for employees. Then, they just opened up to the public, and it was off to the races. Im sure it wasnt that easy, but thats the easy way to say it. Irina: What is the businesses model of your incubator? Mark: I mentioned before, as a government institution, our model is economic development. We own the building, so when the building was done 13 years ago, it was done through federal grants and some local matching money. Our main revenues come from the rents that we charge to our clients. It is discounted. The clients receive discounts because of the purchasing power of Los Angeles County, so everything we provide for them is at a subsidized rate. We dont have a mortgage to cover. All we have is overhead on our large building. We do take warrants on the companies coming in. We ask for 1% warrant for each year they are in the incubator. And that is 1% of their shares, so we dont have to get into a valuation issue. It is based on the number of shares rather than the valuation. Thats as a give back to the incubator for supporting them in the early years. So, if there is a liquidity event, the incubator will benefit and be able to carry out its mission. Irina: Does anything else support you financially? Mark: We are always looking for grants. We do get donations and we do raise some money, particularly around our technology week program. We do look for sponsorships. But that is not a larger part of our business. There is a lot of technology organizations in Lost Angeles and a lot of competition for dollars now that government and other sources of funding and sponsorships have cut back. Its very

difficult. There were years when we needed to raise over $100,000, and some years it is much less than that. Irina: You talked about your affiliate program, which is not a full-service incubator. Do you have some entrepreneurs who participated in your affiliate program come join your incubator full time? Mark: Actually, we just have one that did, but not as much as I would like. I guess, thats one of my biggest disappointments is that I thought that that would be a very neat program that would work. It turns out that a lot people who join the affiliate program just either launch or go back to work. But again, our risk was nominal in doing that. We havent spent a whole lot of time, and we havent spent money. They paid a little bit. It hasnt cost them much, but I dont know what a good batting average for that is. I havent compared that against other affiliate programs. Its probably one out of every five affiliates will come in to be incubated. Irina: What are your challenges? Mark: Our issues, I think, relate to the same problems that the entrepreneurs have. It is the same crossing the chasm issue that we hear over and over again. Its about going from a technology company to a marketing company. They have to make that switch. The other challenge, of course, is since were dealing primarily with scientists and researchers, they have to learn the business aspects. You cant just read that from a book. You have to experience it. If they are going to be a high-growth company, they have to know that CEO is not a title that they are most likely going to be retaining. After one round of funding or perhaps two rounds of funding, they are going to be replaced, and they need to choose a role that they want to play in the company even before then.

Business Incubator Series: Mark Lieberman, Business Technology Center of Los Angeles County, California (Part 7)
Posted on Wednesday, Jun 8th 2011 By guest authors Irina Patterson and Candice Arnold Irina: What kind of support do you offer to your entrepreneurs with funding? Mark: I mentioned before that Pasadena Angels are a resonance to our incubator. They do their screenings here. They do their due diligence sessions here. They do the prescreening sessions here. We also have a special loan program geared for our clients, where they are eligible again, the key word is eligible to receive up to $200,000 in loan money. We are currently lending at 6% fixed, and for a startup company thats very, very inexpensive. And of course we are looking at collateral and personal guarantees on those loans. The process is very similar to an SBA loan. They can apply any time. But we need to know that we are going to be repaid, just like any lender. It is not a grant. A lender is looking at cash flow. He is looking at the ability to repay and, of course, security for the loan. Look at it as a three-legged stool. Get the character. If theyre in the incubator, you assume the character. You need the cash flow, and you need the collateral. Usually, home equity is the collateral. Irina: Thank you, Mark. This has been very interesting.

Outsourcing: Arijit Bhattacharyya, CEO of VirtualInfoCom.com (Part 1)

Posted on Wednesday, Aug 29th 2012 Virtual Information and Communications (VirtualInfoCom), based in Kolkata, India, provides its customers with services like game development, simulation, Windows Phone applications, mobile applications, iPhone applications, Android games, mobile gaming and ad promotion, ad commercials and short films, corporate films, animated movies, music videos, visual and special effects, software development, Web page designing, and management solution tools. In short, everything around its core competency of animation and graphics. Sramana Mitra: Hi, Arijit. Lets start with your background. Arijit Bhattacharyya: When I started, I was in school and I used to draw comics. SM: What school were you in? AB: I was in Shodepur High School, and I started dreaming of comics. Usually my teachers would throw me out of class because I was drawing and writing stories during my history classes. So, that was when I thought Id like to do something with animation and comics. That dream stayed with me for the next couple of years, and then I decided to start my own company. Now, Ill give you my family background. My father is a company secretary, and my mother is a public prosecutor. Naturally, my mother wanted me to either become a doctor or a lawyer. But when I took the position that I would be an entrepreneur, it was a tough time trying to get my mother to understand what I was trying to do. SM: When was this? AB: It was in 1998. I started my single shop with 50 rupees ($0.90) in my pocket and no computer support. I decided to open an animation house so that I could recruit a couple of people and start my company. That was my sole dream when I started back in 1998. It was a tough time. So, I shifted into machine assembling and software development. With that, I went for my B Tech entrance examination. SM: Where did you go for your B Tech? AB: Well, I joined economics instead of B Tech because economics (I thought) would give me an opportunity to gain deep knowledge of the business process as well as an understanding of commerce. Im a hard-core science student, and I dont know anything about commerce, economics, statistics and subjects like that. SM: So, you stayed in Kolkata?

AB: Yes. I chose a college near my home so I could do my business as well as my studies. I told my principal that I had a job because if I told him that I had my own business, he wouldnt have allowed me to bunk my classes. So, I used to do my software development from 8 a.m. to 9:30 a.m., and I used to go to college at 10 am and would leave at 3:30 pm. Then I would find a couple of customers, find a couple of marketing people so they can market my company. SM: Did you pay these people? AB: Yes. I used to pay them a percentage. Whenever I developed software, I would give them a 20% cut of each sale. Thats how I paid them and how I created a circle of people. SM: How did you find these people who could sell software? AB: I used to roam through buses and trains and talk to people. If I found that a person was acquainted with retailing or selling or hes doing an office job, I would ask whether he needed a backup solution or a software solution, something like that. It was kind of hectic because selling software was not easy. During those days, I would carry an extra shirt and shoes in a bag because I had to travel through trains. You can imagine what that was like. SM: Yes. It was extremely hot, and you were drenched in sweat. AB: Exactly. I used to carry that shirt because I needed to showcase myself in front of the clients so that I could sell myself. Thats how I used to take orders. After a year, I thought things werent happening, and I needed to try something else. So, I started taking people from rural areas in remote Bengal. I would go once a week to these areas and try to find talent there. I found my first employee, you could say, in one of those areas. He was a day laborer on an agricultural field and used to get paid daily. They would sell every day. Thats how they lived.

Outsourcing: Arijit Bhattacharyya, CEO of VirtualInfoCom.com (Part 2)

Posted on Thursday, Aug 30th 2012 SM: They were farm workers? AB: Yes. But that boy has talent. He is an extremely good painter. I found him while roaming near the river bank and saw him trying to draw a picture of a couple of fishes near the river. I asked him if he would like to learn drawing and animation. First, he asked what was animation. The second thing he asked was what is the benefit of it. I told him that I was not a big business person, but I had a dream that one day I would be and if he came with me, I could teach him and guide him and possibly improve his living conditions. So, I took him with me, and he stayed with me at my residence in Kolkata. My parents gave me a lot of support. Apart from money, they gave me a lot of moral support. I used one of my study rooms for business purposes. My next step was to travel from Kolkata to New Delhi because I found that there are a couple of companies that outsource a lot of digital graphics work. So, I went there and stayed in a waiting room because I didnt have enough money to pay for a hotel room. I moved around a lot. Within three days, I got a job from one of the companies I pitched, which I will not name. We had to do a 30-minute animation for this company within four months. Now, I took the opportunity because it was the first animation project for us. But I didnt have any kind of high-end machines to do animation. But it was a 2D animation. I could draw parallel things, movements, light box setups, so I came back to Kolkata and invented a technology using my software development skills and creative art skills. With that technology, I and the fellow I hired his name is Ayan did the animation and created a 30-minute animated series within four months. The client was really, really happy because it was a challenging job for them also. Animation in India in 2001 was pretty new. Thereafter, we got a repeat order. After that, I started recruiting people from the same areas I went to before. I just recruited people and trained them. Then I got an idea. If Im recruiting people and training them, why dont I convert the whole thing into a business model. So, instead of taking people in for free, I started an animation training institute and started taking money by charging tuition. The model was pretty simple. Whoever was learning in the institution would get 100% job guarantee. Now, the challenge was to get a couple of jobs so that the pipeline would move along. I converted a team of four people into a different segment. I look after the marketing and business development section. Ayan used to look after the technical segments. Another guy looked after the HR division. From another person, a lady, she used to take care of the new technology innovations and that kind of stuff. With those four people, we grew and converted that animation institute with a combination of a production unit along with a full training unit.

Right now, we have a team of 91 people working directly under us. We have three offices in Kolkata. I have my own office in my house also. I have another office in Salt Lake City, and I have a third office, a pretty new office, near the Shodepur area. We have two offices in Shodepur. SM: OK. You said you got one project from Delhi, and that was kind of the breakthrough for your business. How much did you get paid for that project? AB: Well, it was not much about 75,000 rupees (~$1,348). It was small for an animation project, but thats OK because for us, it was a huge amount. SM: What did you have to do? AB: We had to do the storyboarding, the character designing, the drawings, the coloring and the animation through the computer graphics. The voiceover portion was not done by us. It was done by the client. We did it in a classical way. Animation can be defined in two ways. One is digital and the other one is classical. So, what we did is we use a vehicle that can combine classical and digital. Because we combined the classical with digital, our product was marvelous. Because I am a software developer, I invented a plugin that can take normal drawings and convert to frames. Let me give you the technical terms if you see an animated movie, a one-second output request is 24 frames. Thats how the human brain understands animation. Now, if we can invent a technology that can give you 8 frames and give you a similar output, you can save time. Thats what we did, actually. Instead of 24 frames, we invented a technology that can convert an 8-frame or 16-frame into a 24-frame segment so that the human brain cannot understand that its actually viewing 8 frames instead of 24.

Outsourcing: Arijit Bhattacharyya, CEO of VirtualInfoCom.com (Part 3)

Posted on Friday, Aug 31st 2012 SM: Got it. What software were you using, and how were you able to afford it? AB: We didnt use any kind of software. I had to write software to create animation. We didnt have any kind of software for that. SM: Interesting. Youre quite savvy technically. AB: Yes. I wasnt tech savvy on those areas, actually. I didnt have any kind of computer with me, but I used to go to the cyber cafs nearby and used to code and read from the Internet and follow blogs and forums, the old forums that we had in 1998 and 1999. In 1999, I got my first computer, purchased, thanks to a loan from my father, for the amount of 70,000 rupees (~$1,260). It was, I think, a P3 with 64 bits of RAM. That was the only PC that I had. SM: So, you taught yourself everything that you have learned, essentially. You dont have any formal training in the tech disciplines; youre self-taught? AB: Well, after that I did. After that, I got my masters in computers. Im an MCA. Along with that, I have done Microsoft certifications and a couple of others. SM: When you were doing this animation project for the Delhi company, had you already gone through some type of training? AB: No, never nothing. It was in me, actually. I taught myself. If you give me any kind of concept, I can work with it. SM: Thats amazing. Thats a fantastic story. OK. Lets go back. You had collected these people from small-town Bengal and trained them. They knew how to draw, I suppose, and you trained them on some of the software that you wrote yourself so that they could produce these animation pieces at a very low cost. Thats the beginning of the story, right? AB: That is the beginning of the story. I also used to take people who had a little bit of visualization skills, not for drawing purposes necessarily. Some people are not very good at drawing, but if they can visualize a concept, I can teach them how to draw. Thats how we used to take people. SM: How much were you paying them? AB: In those days, I paid them 4,000 rupees (~$72) per month. Now, its different. Now, I pay them a lot more.

SM: That project from Delhi was in what year? AB: It was in 1999, between 1999 and 2000. We got that project in November 1999 and completed it in February 2000. SM: OK. How much repeat business did it generate from that company for you? AB: To date, we are doing jobs for them. But a lot has changed. SM: What percentage of your revenue does that company generate? AB: Hardly 5% to 7%. SM: OK. Thats good. Youve been able to diversify. So, tell me what happened after that? What happened in 2000? How did the business grow? AB: In 2000, we did the same type of animation jobs. And then we converted the business model into the training institute. Thats how I got revenue because students paid us. We established a very good name offering animation training along with game development and design training. In those days, people didnt teach game development. Probably, we are one of the pioneers in the game development training industry in India. Since 1999, we have used this technology and taught people. There was also some good viral marketing that took place. People used to travel all night on the train to our center, learn the game development process, go back home. That was the kind of response we used to get. We used to train 100 to 120 people in the institute, and it was growing. So, I decided to continue with it. When I could, I would send emails to people and say, look, we have these kinds of people in our institute, would you like to recruit them? Truly, we got a marvelous response, and people recruited from our institute, and we got excellent feedback from them that our people were industry ready. They know the production pipeline. The system is very simple. We know the production pipeline, and we taught them in the exact manner in which you have to do animation or create a game. Thats how we grew the institute segment. Then I decided to create a product so that we could sell it in the market and get paid for it. Our first product was developed in March 2002. We published our first game from Kolkata. We got in touch with a reseller who bought our game for 2.75 lakhs ($6k) plus a royalty of 20% on each sale. That was the first game that we released.

Outsourcing: Arijit Bhattacharyya, CEO of VirtualInfoCom.com (Part 4)

Posted on Saturday, Sep 1st 2012 Sramana Mitra: This was a game that you designed? Arijit Bhattacharyya: Right. SM: And you sold it in the Kolkata market? AB: Kolkata and outside Kolkata. SM: What was the price point of the game? How much did you sell it for? AB: We sold a CD for 99 rupees (~$1.78), and we got 20% of it. The reseller got 80% of each sale. SM: Got it. How much revenue did you make from that 20% royalty you negotiated? AB: I think within two years we earned about three and a half lakhs (~$6,000). SM: Altogether, you made a little more than six lakhs (~$10,000) from that game. AB: Right. Along with that we started mailing different large companies that sell games through telephone operators like Vodaphone, but in those days, there was no Vodaphone. We created games for them, Java-based games, small casual games, and sold them through the operators. Thats how we scaled that segment of the organization. We scaled up from a small animation farm and institute with one game. After that, we started making money from the games. Then we moved into corporate animated video. I did the marketing because I had the money to do it. SM: When you started selling games to mobile providers through the carriers, tell me more about that business model. Were you coming up with the game concepts? AB: Yes. We created the concepts. We created an entire game from zero to 100 and sold it to them. It wasnt selling, actually. We had to give them the games, and they would sell the games through the operators, and we would get part of the payment. SM: How many games did you develop in this mode? AB: More than 150. Some of them are first-person shooter (FPS) games; some of them are casual games; some of them are simple, small strategy games that we used to have in our mobiles, such as Samsung, Nokia, and some Java-based and Chinese mobiles. SM: How much did you get paid for downloads?

AB: It depended on the sharing business. In those days, we got 30%, although we were the developers. The third party got 70%. That was the rule because in those days, there was no app store. We had to accept that. But we had a good name in the market, and with that name, we got a couple of outsourcing projects from abroad. We got a couple of projects from the U.S., in New York City. We got a couple of companies that asked us to develop games and animated videos for them. I thought, if Im getting queries from those areas, and Im doing a good business, why dont I start finding resellers? I put up a small ad that were looking for resellers for this kind of service. Well create mobile apps, mobile games, animated videos, and so on. We got a good response. We got nearly seven resellers within a year, and they took orders for us. To date, we still do things that way. We have resellers in the U.S., the U.K., African countries, and Japan. SM: How many resellers do you have? AB: Today, we have nearly 175 resellers. SM: And what kind of volume of projects do they produce, and what percentage do you pay them? AB: It depends on the reseller and the number of projects he brings. It starts at 10% and goes up to 35%. It varies from project to project. SM: Is that your primary source of revenue today? AB: The resellers provide 60% of my revenue. The remaining 40% is generated through online marketing, app stores, and all. Regarding the training, we have collaborations with these kinds of resellers, and we get probably 25% from the resellers in the training segment altogether. Now, we open a small segment in a country or city outside of India and ask the reseller to get business for us, and well provide full marketing support along with a good portfolio. The reseller just needs to give us the projects. And in the case of students, they just need to send us the student profiles and well take it from there. We currently train people in Japan online. In London, we have this kind of business. In Nigeria, we have a similar kind of business. Thats how were growing. In 2004, we started hiring resellers and continued doing that until 2006. We had about 29 resellers within two years. They gave us orders, and whoever was getting training at the institute, I would recruit into the production pipeline. So, we have a chain of seniors, juniors, and freshers. We have a proper recruiting and training system. We take money to train people and then recruit them to our organization. After that, we give them wages.

Outsourcing: Arijit Bhattacharyya, CEO of VirtualInfoCom.com (Part 5)

Posted on Sunday, Sep 2nd 2012 Sramana Mitra: How many people are you training in this mode per year? Arijit Bhattacharyya: Per year, per institute, it depends. But in Kolkata, we have 160 people; in Jodhpur, we have nearly 210. Pune is a new institute, so it has no more than five people. SM: You dont have that many people in your company, do you? AB: No, we dont recruit all of them. Nowadays, we have a tie-up with about 89 [companies] in the industry. We provide these companies candidates. We started an online portal for games. Now, any person who can develop a game or company that can develop a game can upload the game into our portal, and well sell it. This portal has an option for musicians to submit their music or vocals. Then game development companies, animation companies, and movie-making companies can hire these musicians and vocal artists. It also has a small plug-in segment along with a small object segment. People in the gaming sector are actually looking for small plug-ins. Theyre not easy to find over the Internet, and the cost is high. So, we put up small plug-ins, created by us, as well as a few 3-D objects created by others. These are sold through the portal in a B2B mode. For the training aspect, we started another portal that is directly connected to the companies and has free training materials on smart phone apps, games, animation, and so on. We give online examinations to people who are applying for jobs. If they pass the exam, we send their CVs, along with the results, to the hiring teams. In the training segment, we have a pool of people who are looking for jobs, and we have a pool of companies that are looking for people. Were trying to match these two segments by using this portal. In terms of gaming, we are matching the industry with freelancers and creative people so we can have a virtuous circle. It was not so easy for me to get to this level that Ive gotten to. I dont want people to have to go through the same process that I did. So, if I can make a circle of creative people who can help each other the pie is very big. There is no shortage of jobs in the market. They can easily get good projects, do some good work. Thats what Im trying to do in the gaming segment. SM: So, youve got a training business, and the people you train are getting hired into your company as well as into other companies. There are about 89 companies that are hiring out of your training institute. Thats one part of your business. AB: Right.

SM: The second part of your business is outsourced development work, and you have a variety of resellers in different parts of the world who sell your services and get you projects. Youre also doing online marketing and getting game development and animation projects. Thats a third part of your business. AB: Right. SM: And youre developing games of your own that you sell through carriers or value-added service providers, and thats a fourth part. AB: Nowadays, we dont sell directly through the carriers. We sell through the app stores. We have a deal with Intel India. So, through the Intel app store, we sell things. We have a deal with Android and Apple. We sell things through them now. SM: What is your most successful app in the Apple iPhone store? AB: Well, I could give you the name, but those are outsourcing projects. Theyre not our own projects. SM: OK. What is the most successful app that youve developed, even if its outsourced? AB: There is a game called Tanquiro that was an outsourced project. There are a couple of games, actually. SM: So, youre getting a fair amount of outsourcing projects that are app store projects. AB: Right. SM: What is your revenue at this point? AB: We are close to 24 crores (~$4.8 million).

Outsourcing: Arijit Bhattacharyya, CEO of VirtualInfoCom.com (Part 6)

Posted on Monday, Sep 3rd 2012 Sramana Mitra: In terms of where you want to go from here, what are your thoughts? Arijit Bhattacharyya: I want to grow. I want to go into tier-three [cities] and to other countries that have talent and build institutes there, open offices there and recruit people. I dont have a set goal. SM: Why not grow your presence just in Bengal to 500 or 1,000 people instead of trying to open offices all over the country and in other countries? You can grow much faster if you just scale your basic model. AB: I love my country, especially Bengal. Thats why Im staying here. The point of moving to other countries is to grow the training segment of the business. I dont want to paint a negative picture of Bengal, but for many Bengalis, when you put them in a sector outside of Bengal, their productivity is higher than if you put them in a sector inside of Bengal. When I take people from Bengal, their productivity is really high. Whenever youre shuffling people, your productivity is really high. SM: Interesting. AB: Its true that I can create 5,000 jobs in Bengal. I have that in mind. SM: You have 24 crores (~$4.8M) of revenue. That is validation of a business model. At this point, you can work with more experienced people to grow your business. If you want to grow your business faster, you could bring in a sophisticated management team and scale your own operations. It doesnt have to be franchises. I dont think the franchise idea works very well. AB: Point taken. To date, the franchises I have been working with [are like] a family. I dont give a franchise to sell a franchisee. I first judge whether a person can be a part of the whole team. My Jodhpur franchisee has become like a brother. Its true, I probably have to rethink the scaling-up process. SM: You really have to rethink your scaling-up process. You have something extremely promising here. You could be at 100 crores (~$20 million) if you play your cards right. AB: Yes. SM: Arijit, thank you. I have enjoyed listening to your story. It was delightful and inspiring, and I wish you the very best. AB: Thanks very much.

Seed Capital Using Crowdfunding: Korstiaan Zandvliet, CEO of Symbid, Amsterdam (Part 1)
Posted on Thursday, Nov 15th 2012 Korstiaan Zandvliet holds an MSc in New Business Venturing and Entrepreneurship and has a background in sociology and business administration. He is a frequent writer of blog articles on social media, crowdsourcing and c. After holding a position as marketing manager for a Dutch software company (www.mendix.com), he co-founded a company called Symbid, which aims to help nascent entrepreneurs to overcome financing problems for their start-up or small business. Symbid focuses on entrepreneurial finance needs up to 2.5 million by using the concept of crowd funding in a new way. In contrast to currently available crowd funding sites, Symbid developed a financial and legal framework, which allows crowd funders to actually become a shareholder of the offered crowd funding propositions. For more information, visit www.symbid.com. Sramana Mitra: Korstiaan, welcome to the blog. To start, would you tell us more about your offering is in the domain of crowdfunding to fund startup ventures? Korstiaan Zandvliet: We offer entrepreneurs the chance to get their idea, company or early start-up funded by selling shares of the company from 20 and up. Investors get the opportunity to invest in the next Google and can celebrate an increase of value of their shares as well as receive dividends. Symbid facilitates a platform and infrastructure that allows entrepreneurs and investors to co-develop an idea while attracting money and knowledge that will help grow the start-up. SM: Are you a for-profit or a nonprofit? What is your business model? KZ: Our business model consists of matchmaking between entrepreneurs and investors, a transaction model for the online crowdfunding platform and a subscription model for license of software and legal construction. The related revenue model consists of a transaction fee (2.5% of the total cash inflow), a success fee (5% of any successfully funded proposition), a fee for existing companies (250 per company), interest income (+/- 1% of the total cash inflow) and the sale of white label and standalone versions of the Symbid infrastructure. SM: How do your investors fund businesses? Donation, equity, or debt? KZ: Symbid mainly focuses on equity financing within Europe for entrepreneurs and investors. Recently, reward-based crowdfunding also became an option; for this option we can serve investors and entrepreneurs on a global scale. SM: How would you describe the psychology of your investor community? Why are they participating in this sort of funding exercise? What are they looking for?

KZ: The investor community consists mainly of men aged between 25 and 45, but the entire group consists of 10%-20% women and approximately 30% international (i.e., non-Dutch) members. In general, there are three reasons why people invest. First, theyre somehow connected to the entrepreneur and either have a social obligation (direct friends & family) to invest or a social interest (direct friends & family, acquaintances, colleagues, alumni, etc.) to invest. Second, people find an idea interesting regardless of whether they know the initiator of the idea. Last, people believe investing is somehow profitable to them, either in the long or short term. Short-term profits generally mean perks or extra gifts they might receive in addition to their equity investment. Long-term profits tend to indicate larger investors, too, who understand the development, life cycle, risks, and possible profits of investing larger amounts of money (e.g., 1,000-10,000). This group also tends to ask more in-depth questions about the revenue model, future developments, and partnerships or in-depth questions about the product: they are knowledgeable about some crucial aspect of the entire start-up. SM: And the entrepreneurs what is the typical psychology, and at what stage are the entrepreneurs participating in your community? KZ: From the perspective of experience there are two groups, experienced and inexperienced crowdfunders. Experienced crowdfunders either have crowdfunded before or have been otherwise involved with crowdfunding in the past. They recognize obstacles, added value, key success factors and can estimate time, costs and other required resources quite well. Inexperienced crowdfunders come to Symbid quite unprepared or with only a vague notion of what crowdfunding is. The learning curve is pretty steep and leads to the split in the next group: dedicated and not dedicated entrepreneurs. The latter will quickly find the infrastructure too complex; they dont understand the valuation of their own business idea or the added benefits that it offers to potential customers. This group has an idea and often puts it online immediately. The dedicated group generally has been working on an idea for quite some time and finds it difficult to attract funding from other sources. They turn to crowdfunding as an alternative and are orientation and information focused in the beginning. They ask questions, do some initial online research about crowdfunding, or want to arrange meetings with persons within Symbid and at that time are capable of naming between one and five online crowdfunding platforms that might be an alternative to Symbid. These people are also capable of attracting alternative financing in later stages and acknowledge other benefits of crowdfunding besides the money.

Seed Capital Using Crowdfunding: Korstiaan Zandvliet, CEO of Symbid, Amsterdam (Part 2)
Posted on Friday, Nov 16th 2012 Sramana Mitra: What are the core benefits that your community offers to the investors? Korstiaan Zandvliet: There are several motivations for investors to invest, so the benefits differ accordingly. What the community offers to all investors is engagement and information/updates about the plan. The entrepreneur provides the latter by answering questions, sending out emails, or placing status updates about the progress of the idea. Other than that, part of the community is mainly involved with the idea and doesnt participate much in discussions. Other investors enjoy posing questions or information in relation to the idea they came across or answering questions that are aimed at the entrepreneur in general if they know the answer. Finally, the experience of investing, reaching a target together and experiencing a certain idea are all fueled by participating in the community and are the main reasons why investors check out and participate in community activities. These can also take place offline in the shape of pizza meetings, success parties, and other events that entrepreneurs organize when meeting a successful milestone. SM: What are the core benefits to entrepreneurs? KZ: The community offers funding, marketing and co-development possibilities to entrepreneurs. Although financial support is the main reason most entrepreneurs visit Symbid, we know of entrepreneurs who visit primarily for marketing goals as theyve already acquired their goal capital. As reaching ones goal capital requires quite some marketing effort, crowdfunding is also known for offering market insights and product development advice. This not only happens on the platform but also in offline settings. The largest investors in the idea mostly fuel co-development on the platform. The larger the investment, the more likely the investors are to offer advice, information, and feedback on both the product development and the general business plan and project. SM: What is the typical amount an entrepreneur can expect to raise through your community? KZ: The average campaign in the last year raised 58,800, over twice as much as the average Dutch crowdfunding campaign, which raised 32,000 on average. SM: We see a gap in the traditional angel/VC funding industry: they do not accept the dividend model. The bulk of the early stage equity financing industry is based on exit-based ROI. Do your investors accept dividends as an ROI model? KZ: Yes, they do. Either because the dividends are not the main motivation to invest or because they are convinced they company will perform satisfactorily. For small angels (1,000-10,000),

this method is attractive because they can function as an angel without the obligatory participation in an angel group or investment club. Second, they experience the benefit of being in control of their own investments as they can retract their shares before the target goal has been reached and reinvest in another idea. Symbid is currently preparing an environment that explicitly services this target audience SM: Todays angel investors have a pretty high bar. Entrepreneurs need validated businesses to raise a seed round. As a result, a pre-seed gap has opened up, with angels moving downstream. How much risk are your investors willing to take? KZ: Amongst the smaller investors, risk-taking is less obvious. Whether they actively avoid taking risks, whether they dont have the capital invest, or they simply dont want to invest is hard to determine. The average investment is plus or minus 200, excluding angel investments. Though the risk of start-ups is high, investor have the opportunity to extract their shares from an idea when it seems the idea wont reach its goal capital. In the early stages of creating seed funding, the risk is quite low because if the target is not reached, an investor can get back his or her shares and reinvest or request a refund on the platform. Once the goal capital is reached, the risk of losing money is increased, as it cannot be retracted any more. If a start-up fails after reaching its goal capital, the investor actually loses his or her money permanently. Because the average investment is plus or minus 200 (excluding angel investments), the losses are acceptable. Larger investors (more than 1,000) are often included to participate in in-depth feedback, promotion, support, development, and advice related to the idea. The investment amount determines to a great extent the involvement in the idea. Whether this is a risk-reducing strategy or pure engagement (or both) is unclear.

Seed Capital Using Crowdfunding: Korstiaan Zandvliet, CEO of Symbid, Amsterdam (Part 3)
Posted on Saturday, Nov 17th 2012 Sramana Mitra: For investors with zero or limited experience in pre-seed or seed investment, what do you do to mitigate their risks? Of course, this is a highly risky business. How do you recommend or help your investors evaluate deals? Korstiaan Zandvliet: I think the second part of the interview addresses risk analysis and risk management from an investors side. From the side of Symbid, the reference to risk is mentioned in the How-It-Works-section on the website and in the Terms & Conditions one has to agree with before making an investment. Also, the opportunity to retract shares and reinvest them in another idea is one way to mitigate risk to a certain amount. However, it remains so that with any form of investing, risk is part of the deal. It is up to the investor how much he or she is willing to risk losing. SM: Tell us how to best use your platform. How can entrepreneurs ensure a successful fund-raising round on your platform? What are the best practices? KZ: Our current best practices are [illustrated] by Bergerkaas, cheese factory that makes a wellknown cheese called Bergens Blonde. They looking for funding to expand their current business. This entrepreneur raised 45,000 in three weeks. The main success factors were his continued efforts and contact with the crowd investors, his amiable tone of voice (your dividend in cash or cheese) and the fact that he already had a business up and running and that the reason he wanted to expand was that with the current equipment, he wasnt able to service a large customer that would triple his sales. Another success case was iCarezz that is currently preparing a second and third crowdfunding campaign. In contrary to the previous case, iCarezz did not have a company or product to begin with and it took six months to gather the money though the entrepreneur also temporarily was less active during that period. The active period of that campaign consists of approximately three months. The capital raised, 20.000, was needed to develop a prototype of the product. Again, the dedication of the entrepreneur in this campaign was crucial. In more general terms, the parameters of a successful campaign are dedication of the entrepreneur, a well motivated and researched business (and financial) plan, a clear view of what the money is meant for and a clear view on future developments and scalability of the product/ service offered. Secondary factors are if the entrepreneur knows the field (not the case in iCarezz, very much the case with Bergens Blonde) and whether or not an established company or product already exists (not the case in iCarezz, very much the case with Bergens Blonde). This is secondary because in some cases there is already a company and a product, but the campaign does not continue because the primary parameter (active entrepreneur) is not met.

SM: Tell us about the geographical scope of your business. KZ: Currently, some 500 ideas are registered on Symbid, of which 366 are Dutch propositions. The members including investors that are the main share of the members consist of 70% Dutch visitors and 30% foreign visitors. The remainder of the 500 propositions on Symbid come from the following countries: The U.S. 36; the U.K. 11; Africa 11; Italy 8; the Middle East 7; Germany 6; Spain 6; Belgium 5; Australia 4; Norway 4; South Africa 4, Singapore 3; Portugal 3; Russia 3; Canada 2; Egypt 2; France 2; Brazil, Denmark, India, Romania, Thailand, Vietnam and Finland all 1; and other countries 11. SM: And can you discuss the types of businesses that are getting funded? Our audience is IT/ ITES businesses; what is the intersection? KZ: Our projects are versatile. We currently provide users with thirteen categories but the projects are most often IT service/APPs (platforms, software, smartphone applications), green & clean tech (solar/wind energy, clean fuel and transport, clean water), food and entertainment (books, movies, games). SM: This has been very interesting. Thanks for sharing your story with us, and good luck to you and your investors.

Capitalism 2.0: Tax Policy

Posted on Monday, Oct 3rd 2011 In my formula for creating a thriving small-business system, governments do not need to do a whole lot. But they can do a few things that could add positive momentum to the process. So Im making some tax policy recommendations that could really bring about meaningful change. There are four constituencies we need to take into account in crafting an entrepreneurshipfriendly tax policy: entrepreneurs, angel investors, venture capital firms, and corporations. Lets look at each separately. My capitalism 2.0 vision assumes entrepreneurs need to to learn the tricks of bootstrapped entrepreneurship so that they can keep maximum control over their destiny. This recommendation assumes that entrepreneurs would be putting their own savings into their ventures. Thus, we need a tax policy that makes it as attractive as possible for entrepreneurs to invest in their own ventures, especially at the early stages. For example, an aspiring entrepreneur ought to be allowed to create a tax-free pool of income for use as personal venture capital. Such a pool of capital would go a long way to help kick-start new ventures. It is like the 401(k) program that allows you to save money for retirement without having to pay taxes. To further help entrepreneurs, we also need to get rid of payroll taxes, which are unnecessary burdens imposed on fledgling and fragile companies. A lot of entrepreneurs dont hire full-time staff because of the payroll tax burden, and this inhibits the creation of new jobs. The next constituency is angel investors. These days, traditional venture capitalists hardly participate in early stage investments. The bulk of the responsibility of early stage investment is shouldered by angels, who are usually not the Bill Gates and Warren Buffetts of the world. (See The Real VCs of Silicon Valley.) More often than not, an angel turns out to be the entrepreneurs uncle, who is a doctor making $400,000 a year and can afford to invest in the nephews audacious dream and unproven idea. The misconception that the angels are the very rich people worth hundreds of millions leads people to think that these guys would invest anyway, tax or not. But most entrepreneurs especially first-time entrepreneurs dont have access to such high-net-worth people. Thus, governments should be very careful how these $400,000-a-year uncles are treated from a tax policy point of view. The choice may well be between $250,000 being invested in a start-up or that $250,000 going to the government as income tax. Angels should also be allowed to create pools of tax-free capital for investing in start-ups, especially in unknown, unproven entrepreneurs who often dont have access to venture capital. It is not so different from a tax-free account set aside for a childs education. It is also similar to allocating money to foundations to fund nonprofit causes.

The third constituency is the venture capital firms. The expectation is that venture funds would take risks, fund innovation and essentially keep the entrepreneurship engine moving. In reality, venture funds have become lazy, risk-averse, and interested only in later-stage investments. (See Fund Envy.) Venture funds should have a tiered tax structure, whereby they pay lower capital gains taxes on investments in early stage companies and higher taxes on later stage deals. It is not dissimilar to the concept of long-term capital gains versus short-term capital gains, except those that take the risk of funding ventures with a 7- to 10-year horizon should have incentives to do so. Finally, corporations can play a critical role in this equation. Venture capital funds only fund ideas that have the potential to become very large enterprises. However, the vitally important small business eco-system needs to have investors that fund smaller businesses. So, corporations that have a strategic stake could play the role of investor for this category of entrepreneurs. As an example, let me point you to eBay. Many eBay millionaires came into existence as the ecommerce giant created an online marketplace for buying and selling goods. Even more entrepreneurial families making $100,000, $200,000, or even $300,000 off eBay transactions have created healthy, resilient lifestyles while living the dream of self-employment. Conceivably, eBay, Amazon and their ilk could even fund some of these small retail businesses if they were offered tax incentives to do so. Companies in other sectors could follow suit. SunPower could fund solar farm entrepreneurs. Google could fund online publishing start-ups. Whole Foods Market could fund small fruit-juice makers. Governments are struggling to close tax loopholes to address corporations who are stashing money away in tax heavens, paying minimum taxes in their home countries. Perhaps a way to lure back that investment on a tax-free basis would be to provide incentives to them to invest in small businesses. The policy ideas described above could have a widespread impact on the world economy and reframe capitalism.