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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. I‘m 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: We‘re 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 it‘s 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 hasn‘t 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. We‘re 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. That‘s our primary source of income. They‘re 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 don‘t charge for, probably, we‘ve 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. That‘s 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. There‘s 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. We‘re well situated. It‘s a large technology community here.
and we have the expertise to do that. all the entrepreneurs are in the same position.000 square foot building. is below market. We also provide a network. We have space on demand. We offer subsidized rents. and you can‘t discount the effect of community when everybody is commercializing and working together. Everything is right here. That‘s the facility part. We offer reduced risk for the entrepreneurs. There are no personal guarantees. We have three conference rooms that they don‘t pay for. We walk people into their doors with strategic partners. That is the easy part for anybody to understand. . so they don‘t need an operations person. They come in and they take on the space that they need. Need to downsize an office? Thirty days‘ notice. We have high-speed Internet. They pay for what they use. again. the companies that come in earlier need more hand-holding than companies that are in the later stages are getting ready to leave. Our mentors and advisors open up their contact lists and make introductions. A huge community is built. We take care of that. We‘ll absorb that risk. We have been around a long time. they can downsize. Number one. of course. The service part comes in a number of different packets. we hold 10% of our space available for companies to grow. and we are experienced. Two. We have a team of about 40 volunteers mentors. and the price. a telephone system. They don‘t have to think about what they might need a year from now. two years from now. because everybody here is doing technology. There is nothing there. who dedicate their time to mentor the companies. Clearly. Need another office? We supply them with another office.What we offer is we have a 40. and FedEx postage. we do a lot of mentoring. so there is no paying for common space. so rent is much cheaper than going market rates. The entire risk of facility is out of the equation. so it comes from the private community. We have no low charges. But we are willing and able to mentor them at all stages.
We have an executive-in-residence. He is looking to give back to the community. so there is a profit motive. California (Part 3) Posted on Saturday. as well private equity. to help each other and to refer back and forth. he does offer mentoring and advice to the companies that are in the incubator as well … the existing ones. In a sense. it primarily comes down to experience. he has an incubator located within our incubator. We actually started an incubator network in Southern California called BINS – the business incubator network of Southern California. all here in Southern California. . 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. The Pasadena Angels reside in our incubator. He is an investor and is going to take companies under his wing as an incubator within an incubator. and the cost of his time. He is an investor at heart. we both work together to help the companies as well. So. The incubators come together to improve each other. Business Technology Center of Los Angeles County. 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. That‘s over 100 member organization. He‘s willing to fund those companies for the costs of that space. is the largest angel network in the world with close to 300 members. of course. who‘s done incubation. It comes down to support. It comes down to networks and relationships. I think. to work with companies under his name. But. The idea is to make the entrepreneur comfortable here because they are spending so much time. We‘re able to open those doors. That‘s the easy way. to give them the resources they need and take away as many risks as possible. but we work together. someone here who has done start ups. there is some altruism involved as well.Business Incubator Series: Mark Lieberman. Our executive-in-residence has worked out a memorandum of understanding with us so that he can bring in companies into the incubator. And then we have a very vibrant venture capital community. Irina: Could you explain what ‗an incubator within an incubator‘ means? Mark: It‘s a phrase we‘re using and came up with. And The Tech Coast Angels. Even if he doesn‘t fund a company.
actually. We do a lot of educational pieces through hands on workshops where we invite the outside public to come in and through mailing lists. . A startup is resource poor. which are our mentors. introduction to money. with the government of Japan through their JETRO organization. I‘ll go into university classrooms. It‘s a matter of bringing resources to a company. The relationships that our mentors bring in are so key. It‘s one flight over for the Asian community. We work closely with the governments. almost exclusively evangelists. We have 13 years of experience doing this incubation. We‘ll hold larger events as well. of course. and Korea. our advisors.S. They use us as a beachhead and as a launch pad for their technology commercialization plans in the United States. We don‘t go and advertise in the newspaper. It‘s their trade organization as well. although I do go out and provide speeches and talks. Coming into an incubator increases the value that you have. Most are from New Zealand. Irina: How do you find applicants? Mark: Mostly referrals from graduates. Someone who has been doing incubation for nine years and working with technology companies for a longer than that. Japan. for example. may not be a good fit for someone else and vice versa. because you are coming to somebody with the networks and with the resources to help. And. We have international relationships as well. And we work closely here with their offices in Los Angeles. and the states of Victoria and New South Wales. although our agreements with New Zealand is through venture capitalists. We get companies coming in here from outside the U. something we founded 10 years ago. our angels. from existing clients and from I will call them our evangelists. We hold an Technology Week. the Australians are in San Francisco. But. The fact is we bring in networks. Irina: How do you structure those relationships? Mark: Those are mostly structured through the governments. Australia. again. Australia. I would think that probably 80% or more is referrals. The same thing with Korea through KOTRA. Well. which is their export trade organization. a contact list and relationships to the table. who is an expert in commercialization.What may be a good fit for me. You have someone who is a published author – that‘s me – who teaches at university – that is also me.
Want to bounce ideas back and forth? We can do that. is more of a hands-off model than a hands-on one. the entrepreneur is in the driver‘s seat. in incubation. what is the next step? Mark: One of the things that I believe in.Business Incubator Series: Mark Lieberman. they get the mentoring. They have the ability to use the conference rooms. 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. The affiliate program is for clients who aren‘t residing here. so we have an open door policy. So. They want to come to my office and talk for an hour? Come on down. All of them will provide discounted rates for them. Again. They receive mentoring. Business Technology Center of Los Angeles County. and they get to pick from a menu of options. Irina: How many out of those do you usually take in? Mark: We have two programs. We charge nominal fees for each service they choose. It presents a more professional appearance. Jun 5th 2011 By guest authors Irina Patterson and Candice Arnold Mark: We receive about five or six applications a month. is not to run the company for them. so they don‘t have to have meetings at Starbucks. We don‘t want to turn them away [so] we put them in our affiliate program. but everything comes at a small price. One or two will go into the affiliate program. maybe a bit earlier than we would like to see them. They can attend the workshops. Of those five. perhaps one or two are not ready. My job. They can use the conference rooms. but we feel [they] have good potential. All they have to do is ask. One is the resident program where we devote most of our resources. They get a mailbox if they want one so they can have a professional address. as an incubator manager. Want referrals to attorneys? We will refer them to several attorneys. California (Part 4) Posted on Sunday. We are here to provide advice. except they don‘t have an office here. Irina: Once you accept a company for incubation. One or two might come into the incubator. They have to do everything. . They want a referral to a CPA? We will refer them to a couple of CPAs. They have to do the work. we will talk for an hour. It‘s driven by the entrepreneur. We also have an affiliate program.
They‘re presentations. it is really about how we can learn more about your company so we can help you even more. We do annual reviews that are tied to their lease agreements. Those who are interested in that industry.Or. The match is made right then and there. From our point of view. From there. how can we help? Again. Again. they are growing. When we accept them. so our interest is in job creation as the number one metric. they tend to be a little nervous about an annual review. We‘ll do a whole host of things. We want to know that they are making progress. and usually our mentors and advisors attend that presentation. we do an entrance examination – if you want to call it that. 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. The idea is they have the control. they are in the driver‘s seat. When they move in. they are sitting on the coach holding the remote. When they come in. Their annual reviews will be a month or two before their leases are up for renewal. which are semiformal. they go to an entrance committee. We sit and talk and then we have formal – I guess semiformal – quarterly interviews. Then we have semiannual reviews as well. it is the usual paperwork involved. what they need. I guess. when the entrepreneurs come in. we are getting a feel for their milestones. but it is all entrepreneur driven. If they are looking for someone in the aerospace industry. you can say. but not as formal as the annual reviews. Our model is economic development. We talk over what they want. Usually. . we sit down again. During the entrance presentation. We try and make it easy. They have to come and drive it themselves. if they get past me in terms of the application and couple of interviews. of course.
although that is very difficult to track for our alums. Most of our clients. Irina: You said you use a lot of volunteer experts. are not well known throughout the United States. We make arrangements for them to get great advisors. . Irina: What are your metrics of success? Mark: Number one is job creation. We want to see that they are growing. 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. Again. What else do you use to help your clients? Mark: Well. Irina: Can you talk about some of your successful graduates? Mark: Sure. our mentors are an in-house advisory board. As a government-owned institution. They create and manufacture high-definition surveillance cameras. It is really about the entrepreneurs learning to garner resources and make arrangements for themselves. We also look at investment dollars that our graduates receive. We don‘t provide legal assistance.Business Incubator Series: Mark Lieberman. We don‘t provide CPA assistance. We have been tracking the monies received while they are in the incubator. Business Technology Center of Los Angeles County. But ultimately. We have a company. We look at revenues. it‘s about a system of referrals. you are known by your graduates and when our graduates are referring clients. California (Part 5) Posted on Monday. again. our model is economic development. Those are our major ones. We will look at extenuating circumstances and possibly extend that for another year at most. Essentially. because they do business-to-business. we have job creation as the number one metric. It‘s up to the entrepreneurs to pay for the other professional resources that they need. Most of our better clients graduate sooner than that. for example – one of our alums – is a company called Arecont Vision. Some are known in the Los Angeles area. that is a good enough metric for me.
In fact. It‘s a wonderful business model to have multiple revenue streams. It was just through hard work. You sell the training on the machine and [people] have to be retrained every two years. We‘ve had other interesting medical device companies. It is not just about selling the micro photospectrometer. exactly what they were doing and just went out and started selling. it is also about the other revenue streams that you can extract from that. Arecont has not taken outside capital. 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. 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. just really knowing the industry. . They have great traction in selling to the FBI. They are now the largest seller of discounted tickets to live events in the United States. To put it together. Another one of our more retail companies that people in Los Angeles would know. which makes an airplane sensors. the machine needs to be recalibrated. the Secret Service and selling internationally as well. Another one of my favorites is a company called CRAIC Technologies and they make a micro photospectrometer. although they are moving across United States. perseverance and experience in the industry. you don‘t have to destroy a sample in order to test what it is. you could sell the warranty to calibrate the machine. Each one has a slightly different story. And they also grew organically. Arecont Vision was one [where they] just focused on where they were going. squeezed in. you could sell the machine.They started as two gentlemen. something we‘d never heard of.com. and it‘s used in forensic sciences. We have another company called Spectra Sensors. 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. it is a microscope with a computer attached. is a company called Goldstar. They knew exactly what they wanted to do. both had PhDs and started in a very small office. Basically. Some of my favorite companies have not taken any outside capital. Every three years. So. You sell the samples for the machine plus the new samples that come out. some recent companies that are just spinning out as well. [By using it]. CRAIC Technologies had a beautiful business model. Their revenues are probably around $70 million.
Then. California (Part 6) Posted on Tuesday. So. Our main revenues come from the rents that we charge to our clients. it was done through federal grants and some local matching money. if there is a liquidity event.Business Incubator Series: Mark Lieberman. It is based on the number of shares rather than the valuation. our model is economic development. So. We do get donations and we do raise some money. in a sense. Irina: Does anything else support you financially? Mark: We are always looking for grants. and opened up to the public and that just took off. Gold Star started by thinking that [they were] going to be an employee benefits company. We own the building. to sell discounted tickets to live events. Business Technology Center of Los Angeles County. We don‘t have a mortgage to cover. The concept was the same. but that‘s the easy way to say it. particularly around our technology week program. Jun 7th 2011 By guest authors Irina Patterson and Candice Arnold Mark: Actually. so we don‘t have to get into a valuation issue. [They were planning to sell] through the HR departments. We do look for sponsorships. but they rapidly realized that they can only grow so far in doing that. That‘s as a give back to the incubator for supporting them in the early years. And that is 1% of their shares. Irina: What is the businesses model of your incubator? Mark: I mentioned before. It‘s very . We ask for 1% warrant for each year they are in the incubator. as a government institution. so everything we provide for them is at a subsidized rate. so when the building was done 13 years ago. All we have is overhead on our large building. and it was off to the races. they did. it is an added benefit for employees. but their target market was [at first] as a benefit to large companies. 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. The clients receive discounts because of the purchasing power of Los Angeles County. It is discounted. they just opened up to the public. the incubator will benefit and be able to carry out its mission. We do take warrants on the companies coming in. an industry pivot. But that is not a larger part of our business. I‘m sure it wasn‘t that easy.
If they are going to be a high-growth company. I think. There were years when we needed to raise over $100.difficult. but I don‘t know what a good batting average for that is. they have to know that CEO is not a title that they are most likely going to be retaining. But again. we just have one that did. It hasn‘t cost them much. which is not a full-service incubator. Irina: You talked about your affiliate program. but not as much as I would like. After one round of funding or perhaps two rounds of funding. is since we‘re dealing primarily with scientists and researchers. You can‘t just read that from a book. Irina: What are your challenges? Mark: Our issues. It is the same crossing the chasm issue that we hear over and over again. of course. relate to the same problems that the entrepreneurs have. and some years it is much less than that. our risk was nominal in doing that. . I haven‘t compared that against other affiliate programs. they are going to be replaced. and we haven‘t spent money. We haven‘t spent a whole lot of time. I guess. You have to experience it. They have to make that switch. They paid a little bit. It‘s about going from a technology company to a marketing company. It‘s probably one out of every five affiliates will come in to be incubated. It turns out that a lot people who join the affiliate program just either launch or go back to work. they have to learn the business aspects.000. Do you have some entrepreneurs who participated in your affiliate program come join your incubator full time? Mark: Actually. The other challenge. and they need to choose a role that they want to play in the company … even before then. that‘s one of my biggest disappointments is that I thought that that would be a very neat program that would work.
This has been very interesting. Look at it as a three-legged stool. You need the cash flow. We are currently lending at 6% fixed. of course. It is not a grant. A lender is looking at cash flow. 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. Irina: Thank you. But we need to know that we are going to be repaid. We also have a special loan program geared for our clients. They do their screenings here. The process is very similar to an SBA loan. California (Part 7) Posted on Wednesday. If they‘re in the incubator. And of course we are looking at collateral and personal guarantees on those loans. and you need the collateral. He is looking at the ability to repay and. home equity is the collateral. They do the prescreening sessions here. just like any lender. Mark. where they are eligible – again. They do their due diligence sessions here. They can apply any time. Business Technology Center of Los Angeles County. the key word is eligible – to receive up to $200. Usually.000 in loan money. very inexpensive.Business Incubator Series: Mark Lieberman. and for a startup company that‘s very. Get the character. . you assume the character. security for the loan.
CEO of VirtualInfoCom. and then I decided to start my own company. economics. Aug 29th 2012 Virtual Information and Communications (VirtualInfoCom). But when I took the position that I would be an entrepreneur. ad commercials and short films. mobile gaming and ad promotion. statistics and subjects like that. Now. based in Kolkata. that was when I thought I‘d like to do something with animation and comics. SM: What school were you in? AB: I was in Shodepur High School. Arijit Bhattacharyya: When I started. Android games. In short. 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. My father is a company secretary. iPhone applications. SM: So. everything around its core competency of animation and graphics. simulation. Windows Phone applications. SM: When was this? AB: It was in 1998. animated movies. India. visual and special effects. and I don‘t know anything about commerce. I went for my B Tech entrance examination. my mother wanted me to either become a doctor or a lawyer. I decided to open an animation house so that I could recruit a couple of people and start my company. it was a tough time trying to get my mother to understand what I was trying to do. I‘m a hard-core science student. That dream stayed with me for the next couple of years. provides its customers with services like game development. I started my single shop with 50 rupees ($0. So. and management solution tools. music videos.com (Part 1) Posted on Wednesday. mobile applications. you stayed in Kolkata? . and my mother is a public prosecutor. Web page designing. Usually my teachers would throw me out of class because I was drawing and writing stories during my history classes. It was a tough time.90) in my pocket and no computer support. and I started dreaming of comics.Outsourcing: Arijit Bhattacharyya. SM: Where did you go for your B Tech? AB: Well. I was in school and I used to draw comics. I shifted into machine assembling and software development. So. With that. Sramana Mitra: Hi. I‘ll give you my family background. That was my sole dream when I started back in 1998. software development. Naturally. Let‘s start with your background. Arijit. corporate films.
I found my first employee. I started taking people from rural areas in remote Bengal. It was extremely hot.. SM: Did you pay these people? AB: Yes. After a year. . During those days. SM: How did you find these people who could sell software? AB: I used to roam through buses and trains and talk to people. He was a day laborer on an agricultural field and used to get paid daily. Whenever I developed software. something like that. So. AB: Exactly.m. I would go once a week to these areas and try to find talent there. I would give them a 20% cut of each sale. in one of those areas. Then I would find a couple of customers. I used to pay them a percentage. So. he wouldn‘t have allowed me to bunk my classes.m. If I found that a person was acquainted with retailing or selling or he‘s doing an office job. You can imagine what that was like. That‘s how I paid them and how I created a circle of people. That‘s how they lived. I thought things weren‘t happening. I used to do my software development from 8 a. and I needed to try something else. find a couple of marketing people so they can market my company. It was kind of hectic because selling software was not easy. I used to carry that shirt because I needed to showcase myself in front of the clients so that I could sell myself. They would sell every day. I would carry an extra shirt and shoes in a bag because I had to travel through trains.AB: Yes. to 9:30 a. That‘s how I used to take orders. I would ask whether he needed a backup solution or a software solution. and you were drenched in sweat. I told my principal that I had a job because if I told him that I had my own business. you could say. I chose a college near my home so I could do my business as well as my studies. SM: Yes. and I used to go to college at 10 am and would leave at 3:30 pm.
The model was pretty simple. I moved around a lot. We had to do a 30-minute animation for this company within four months. instead of taking people in for free. movements. The second thing he asked was what is the benefit of it. From another person. Whoever was learning in the institution would get 100% job guarantee. 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 converted a team of four people into a different segment. With those four people. I started recruiting people from the same areas I went to before. I could draw parallel things. I asked him if he would like to learn drawing and animation. light box setups. I started an animation training institute and started taking money by charging tuition. The client was really. I took him with me. which I will not name. First. I told him that I was not a big business person. After that. she used to take care of the new technology innovations and that kind of stuff. Aug 30th 2012 SM: They were farm workers? AB: Yes. 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. a lady. I could teach him and guide him and possibly improve his living conditions. but I had a dream that one day I would be and if he came with me. I went there and stayed in a waiting room because I didn‘t have enough money to pay for a hotel room. why don‘t I convert the whole thing into a business model. CEO of VirtualInfoCom. Ayan used to look after the technical segments. Another guy looked after the HR division. With that technology. Within three days. Apart from money. really happy because it was a challenging job for them also. the challenge was to get a couple of jobs so that the pipeline would move along. My parents gave me a lot of support. we got a repeat order. If I‘m recruiting people and training them. I just recruited people and trained them. I got a job from one of the companies I pitched. But it was a 2D animation. Animation in India in 2001 was pretty new. we grew and converted that animation institute with a combination of a production unit along with a full training unit. So. Then I got an idea. Now. But I didn‘t have any kind of high-end machines to do animation. so I came back to Kolkata and invented a technology using my software development skills and creative art skills. I and the fellow I hired – his name is Ayan — did the animation and created a 30-minute animated series within four months. . they gave me a lot of moral support.com (Part 2) Posted on Thursday. I took the opportunity because it was the first animation project for us. Thereafter. he asked what was animation. I used one of my study rooms for business purposes. So.Outsourcing: Arijit Bhattacharyya. and he stayed with me at my residence in Kolkata. But that boy has talent. He is an extremely good painter. Now. So. I look after the marketing and business development section.
So. 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 it‘s actually viewing 8 frames instead of 24. The voiceover portion was not done by us. it was not much … about 75. We have two offices in Shodepur. SM: What did you have to do? AB: We had to do the storyboarding. actually. Because I am a software developer. I have my own office in my house also. and I have a third office. a one-second output request is 24 frames. It was small for an animation project. a pretty new office. We have three offices in Kolkata. Instead of 24 frames. I invented a plugin that can take normal drawings and convert to frames. and that was kind of the breakthrough for your business. you can save time. That‘s what we did. the character designing. Now. We did it in a classical way. .000 rupees (~$1. It was done by the client. near the Shodepur area. we have a team of 91 people working directly under us. what we did is we use a vehicle that can combine classical and digital. How much did you get paid for that project? AB: Well. the drawings. the coloring and the animation through the computer graphics. Animation can be defined in two ways. our product was marvelous.Right now. Let me give you the technical terms … if you see an animated movie. You said you got one project from Delhi. if we can invent a technology that can give you 8 frames and give you a similar output. One is digital and the other one is classical. I have another office in Salt Lake City. it was a huge amount.348). That‘s how the human brain understands animation. but that‘s OK because for us. SM: OK. Because we combined the classical with digital.
I had to write software to create animation. Along with that. That was the only PC that I had.Outsourcing: Arijit Bhattacharyya. I wasn‘t tech savvy on those areas. I got my master‘s in computers. but I used to go to the cyber cafés nearby and used to code and read from the Internet and follow blogs and forums. Now. you‘re self-taught? AB: Well. the old forums that we had in 1998 and 1999. actually. SM: That‘s amazing.000 rupees (~$1. You don‘t have any formal training in the tech disciplines. Now. If you give me any kind of concept. CEO of VirtualInfoCom. What software were you using. I suppose. and how were you able to afford it? AB: We didn‘t use any kind of software. not for drawing purposes necessarily. right? AB: That is the beginning of the story. I‘m an MCA. That‘s how we used to take people. you taught yourself everything that you have learned.000 rupees (~$72) per month. We didn‘t have any kind of software for that. In 1999. Aug 31st 2012 SM: Got it. Some people are not very good at drawing. essentially. I got my first computer. It was in me. You‘re quite savvy technically. I think. They knew how to draw. AB: Yes. SM: So. I didn‘t have any kind of computer with me. thanks to a loan from my father. but if they can visualize a concept. You had collected these people from small-town Bengal and trained them. a P3 with 64 bits of RAM. That‘s the beginning of the story. for the amount of 70. I can work with it. purchased. I pay them a lot more. That‘s a fantastic story. it‘s different. after that I did. It was. I taught myself. SM: Interesting. After that. actually. 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. I paid them 4. . I have done Microsoft certifications and a couple of others.260). I can teach them how to draw. had you already gone through some type of training? AB: No.com (Part 3) Posted on Friday. I also used to take people who had a little bit of visualization skills. never … nothing. SM: How much were you paying them? AB: In those days. OK. SM: When you were doing this animation project for the Delhi company. Let‘s go back.
How much repeat business did it generate from that company for you? AB: To date. we got a marvelous response. Then I decided to create a product so that we could sell it in the market and get paid for it. So. The system is very simple.75 lakhs ($6k) plus a royalty of 20% on each sale. That‘s good. we are one of the pioneers in the game development training industry in India. we have these kinds of people in our institute. We established a very good name offering animation training along with game development and design training. They know the production pipeline. people didn‘t teach game development. That‘s how I got revenue because students paid us. learn the game development process. People used to travel all night on the train to our center.SM: That project from Delhi was in what year? AB: It was in 1999. between 1999 and 2000. SM: OK. That was the first game that we released. would you like to recruit them? Truly. There was also some good viral marketing that took place. We published our first game from Kolkata. Since 1999. go back home. Our first product was developed in March 2002. In those days. and people recruited from our institute. When I could. . We used to train 100 to 120 people in the institute. That was the kind of response we used to get. and we taught them in the exact manner in which you have to do animation or create a game. You‘ve been able to diversify. SM: OK. tell me what happened after that? What happened in 2000? How did the business grow? AB: In 2000. We got in touch with a reseller who bought our game for 2. So. That‘s how we grew the institute segment. and we got excellent feedback from them that our people were industry ready. And then we converted the business model into the training institute. we are doing jobs for them. I decided to continue with it. we have used this technology and taught people. But a lot has changed. SM: What percentage of your revenue does that company generate? AB: Hardly 5% to 7%. We got that project in November 1999 and completed it in February 2000. we did the same type of animation jobs. Probably. look. and it was growing. We know the production pipeline. I would send emails to people and say.
SM: How much did you get paid for downloads? . you made a little more than six lakhs (~$10. We created games for them. Along with that we started mailing different large companies that sell games through telephone operators like Vodaphone. SM: And you sold it in the Kolkata market? AB: Kolkata and outside Kolkata. we started making money from the games. We scaled up from a small animation farm and institute with one game.com (Part 4) Posted on Saturday. small strategy games that we used to have in our mobiles. some of them are simple. Java-based games.78). After that. Sep 1st 2012 Sramana Mitra: This was a game that you designed? Arijit Bhattacharyya: Right. We had to give them the games. there was no Vodaphone. actually. 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. CEO of VirtualInfoCom. and sold them through the operators. and we got 20% of it. Nokia. and they would sell the games through the operators. small casual games. and some Java-based and Chinese mobiles.000) from that game. The reseller got 80% of each sale. tell me more about that business model. 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. SM: Altogether. SM: Got it.000). AB: Right. It wasn‘t selling. I did the marketing because I had the money to do it. Some of them are first-person shooter (FPS) games. some of them are casual games. That‘s how we scaled that segment of the organization. such as Samsung. SM: When you started selling games to mobile providers through the carriers. We created an entire game from zero to 100 and sold it to them. SM: How many games did you develop in this mode? AB: More than 150. Were you coming up with the game concepts? AB: Yes. Then we moved into corporate animated video. and we would get part of the payment. but in those days. We created the concepts.Outsourcing: Arijit Bhattacharyya.
the U. app stores. we open a small segment in a country or city outside of India and ask the reseller to get business for us.S. if I‘m getting queries from those areas. I would recruit into the production pipeline. We have resellers in the U. In 2004. We got a couple of companies that asked us to develop games and animated videos for them.. they just need to send us the student profiles and we‘ll take it from there. But we had a good name in the market. mobile games... there was no app store. Now. To date. The third party got 70%. and with that name. why don‘t I start finding resellers? I put up a small ad that we‘re looking for resellers for this kind of service. We got nearly seven resellers within a year. we started hiring resellers and continued doing that until 2006. we give them wages. We currently train people in Japan online. we still do things that way. and all. we have this kind of business. juniors. We‘ll create mobile apps.AB: It depended on the sharing business. in New York City. although we were the developers. we have a chain of seniors. It starts at 10% and goes up to 35%. African countries. we got 30%. Regarding the training. We got a good response. And in the case of students. animated videos. and I‘m doing a good business. . I thought. They gave us orders. we got a couple of outsourcing projects from abroad. and whoever was getting training at the institute. and we get probably 25% from the resellers in the training segment altogether. In those days. we have a similar kind of business. SM: And what kind of volume of projects do they produce. SM: Is that your primary source of revenue today? AB: The resellers provide 60% of my revenue. we have collaborations with these kinds of resellers. That was the rule because in those days. We had about 29 resellers within two years. and they took orders for us. We take money to train people and then recruit them to our organization. we have nearly 175 resellers. In Nigeria. That‘s how we‘re growing. After that. and we‘ll provide full marketing support along with a good portfolio. and so on. It varies from project to project.K.S. SM: How many resellers do you have? AB: Today. and what percentage do you pay them? AB: It depends on the reseller and the number of projects he brings. We had to accept that. We have a proper recruiting and training system. and Japan. So. The reseller just needs to give us the projects. and freshers. The remaining 40% is generated through online marketing. In London. We got a couple of projects from the U.
and we‘ll sell it. We‘re trying to match these two segments by using this portal. We started an online portal for games. That‘s what I‘m trying to do in the gaming segment.com (Part 5) Posted on Sunday. animation companies. and we have a pool of companies that are looking for people. It was not so easy for me to get to this level that I‘ve gotten to. They can easily get good projects. as well as a few 3-D objects created by others. In terms of gaming. if I can make a circle of creative people who can help each other … the pie is very big. and the people you train are getting hired into your company as well as into other companies. any person who can develop a game or company that can develop a game can upload the game into our portal. There are about 89 companies that are hiring out of your training institute. we don‘t recruit all of them. SM: So. Then game development companies. For the training aspect. AB: Right. If they pass the exam. I don‘t want people to have to go through the same process that I did. along with the results. There is no shortage of jobs in the market. Now. CEO of VirtualInfoCom. This portal has an option for musicians to submit their music or vocals. . SM: You don‘t have that many people in your company. so it has no more than five people. In the training segment. and so on. We provide these companies candidates. do you? AB: No. we put up small plug-ins. These are sold through the portal in a B2B mode. it depends. we have a pool of people who are looking for jobs. in Jodhpur. They‘re not easy to find over the Internet. created by us.Outsourcing: Arijit Bhattacharyya. you‘ve got a training business. and movie-making companies can hire these musicians and vocal artists. per institute. We give online examinations to people who are applying for jobs. we have nearly 210. do some good work. to the hiring teams. It also has a small plug-in segment along with a small object segment. So. So. Pune is a new institute. games. we started another portal that is directly connected to the companies and has free training materials on smart phone apps. and the cost is high. Nowadays. animation. People in the gaming sector are actually looking for small plug-ins. we are matching the industry with freelancers and creative people so we can have a virtuous circle. we have 160 people. But in Kolkata. That‘s one part of your business. Sep 2nd 2012 Sramana Mitra: How many people are you training in this mode per year? Arijit Bhattacharyya: Per year. we have a tie-up with about 89 [companies] in the industry. we send their CVs.
you‘re getting a fair amount of outsourcing projects that are app store projects. AB: Nowadays. We have a deal with Android and Apple. SM: And you‘re developing games of your own that you sell through carriers or value-added service providers. SM: What is your revenue at this point? AB: We are close to 24 crores (~$4. What is the most successful app that you‘ve developed. They‘re not our own projects. and you have a variety of resellers in different parts of the world who sell your services and get you projects. SM: So. we don‘t sell directly through the carriers. through the Intel app store. SM: What is your most successful app in the Apple iPhone store? AB: Well. but those are outsourcing projects. actually.SM: The second part of your business is outsourced development work. even if it‘s outsourced? AB: There is a game called Tanquiro that was an outsourced project. and that‘s a fourth part. We sell things through them now. We sell through the app stores. So. SM: OK. That‘s a third part of your business. We have a deal with Intel India.8 million). There are a couple of games. You‘re also doing online marketing and getting game development and animation projects. . AB: Right. we sell things. AB: Right. I could give you the name.
SM: Arijit. That‘s why I‘m staying here. I want to go into tier-three [cities] and to other countries that have talent and build institutes there. AB: I love my country. AB: Yes. I don‘t want to paint a negative picture of Bengal. When I take people from Bengal. At this point. the franchises I have been working with [are like] a family. but for many Bengalis.com (Part 6) Posted on Monday. You could be at 100 crores (~$20 million) if you play your cards right. CEO of VirtualInfoCom. especially Bengal. what are your thoughts? Arijit Bhattacharyya: I want to grow. I don‘t think the franchise idea works very well. I don‘t have a set goal. SM: Interesting. . when you put them in a sector outside of Bengal.000 jobs in Bengal. It doesn‘t have to be franchises. AB: Point taken. I don‘t give a franchise to sell a franchisee. SM: You have 24 crores (~$4. My Jodhpur franchisee has become like a brother. It‘s true. SM: Why not grow your presence just in Bengal to 500 or 1. I probably have to rethink the scaling-up process. their productivity is really high. The point of moving to other countries is to grow the training segment of the business. you could bring in a sophisticated management team and scale your own operations. SM: You really have to rethink your scaling-up process. If you want to grow your business faster.8M) of revenue. I first judge whether a person can be a part of the whole team. I have enjoyed listening to your story. That is validation of a business model. I have that in mind. thank you. your productivity is really high. Sep 3rd 2012 Sramana Mitra: In terms of where you want to go from here. AB: Thanks very much. It was delightful and inspiring.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. You have something extremely promising here. you can work with more experienced people to grow your business. their productivity is higher than if you put them in a sector inside of Bengal. and I wish you the very best. AB: It‘s true that I can create 5. To date.Outsourcing: Arijit Bhattacharyya. open offices there and recruit people. Whenever you‘re shuffling people.
To start. 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? . crowdsourcing and c.com. 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.1% of the total cash inflow) and the sale of white label and standalone versions of the Symbid infrastructure.Seed Capital Using Crowdfunding: Korstiaan Zandvliet.com). visit www. 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.5 million by using the concept of crowd funding in a new way. 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. In contrast to currently available crowd funding sites. he co-founded a company called Symbid. a fee for existing companies (€250 per company).mendix. 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. a success fee (5% of any successfully funded proposition). welcome to the blog. 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. He is a frequent writer of blog articles on social media. equity. CEO of Symbid. SM: How do your investors fund businesses? Donation.5% of the total cash inflow). For more information. Recently. company or early start-up funded by selling shares of the company from €20 and up. The related revenue model consists of a transaction fee (2. Symbid developed a financial and legal framework. for this option we can serve investors and entrepreneurs on a global scale. reward-based crowdfunding also became an option. After holding a position as marketing manager for a Dutch software company (www. interest income (+/. a transaction model for the online crowdfunding platform and a subscription model for license of software and legal construction. or debt? KZ: Symbid mainly focuses on equity financing within Europe for entrepreneurs and investors. Symbid focuses on entrepreneurial finance needs up to €2. which aims to help nascent entrepreneurs to overcome financing problems for their start-up or small business. Sramana Mitra: Korstiaan. which allows crowd funders to actually become a shareholder of the offered crowd funding propositions.
. Long-term profits tend to indicate larger investors. experienced and inexperienced crowdfunders. Inexperienced crowdfunders come to Symbid quite unprepared or with only a vague notion of what crowdfunding is. too. SM: And the entrepreneurs – what is the typical psychology. First. The learning curve is pretty steep and leads to the split in the next group: dedicated and not dedicated entrepreneurs. They ask questions. This group has an idea and often puts it online immediately. Second. non-Dutch) members. The dedicated group generally has been working on an idea for quite some time and finds it difficult to attract funding from other sources. This group also tends to ask more in-depth questions about the revenue model.g. and possible profits of investing larger amounts of money (e. do some initial online research about crowdfunding. key success factors and can estimate time.KZ: The investor community consists mainly of men aged between 25 and 45. life cycle. and partnerships or in-depth questions about the product: they are knowledgeable about some crucial aspect of the entire start-up. people believe investing is somehow profitable to them. In general. there are three reasons why people invest. future developments. they‘re somehow connected to the entrepreneur and either have a social obligation (direct friends & family) to invest or a social interest (direct friends & family. people find an idea interesting regardless of whether they know the initiator of the idea. These people are also capable of attracting alternative financing in later stages and acknowledge other benefits of crowdfunding besides the money. they don‘t understand the valuation of their own business idea or the added benefits that it offers to potential customers. Last. They turn to crowdfunding as an alternative and are orientation and information focused in the beginning.e. The latter will quickly find the infrastructure too complex. They recognize obstacles.. €1. but the entire group consists of 10%-20% women and approximately 30% international (i. etc. either in the long or short term. costs and other required resources quite well. and at what stage are the entrepreneurs participating in your community? KZ: From the perspective of experience there are two groups. 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. Short-term profits generally mean perks or extra gifts they might receive in addition to their equity investment. . acquaintances. colleagues. added value. risks. Experienced crowdfunders either have crowdfunded before or have been otherwise involved with crowdfunding in the past.000-€10.) to invest. alumni. who understand the development.000).
SM: We see a gap in the traditional angel/VC funding industry: they do not accept the dividend model. The entrepreneur provides the latter by answering questions. The largest investors in the idea mostly fuel co-development on the platform. Do your investors accept dividends as an ROI model? KZ: Yes. so the benefits differ accordingly. we know of entrepreneurs who visit primarily for marketing goals as they‘ve already acquired their goal capital.Seed Capital Using Crowdfunding: Korstiaan Zandvliet. This not only happens on the platform but also in offline settings. and feedback on both the product development and the general business plan and project. marketing and co-development possibilities to entrepreneurs. the experience of investing. sending out emails. What the community offers to all investors is engagement and information/updates about the plan. 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. Although financial support is the main reason most entrepreneurs visit Symbid. The larger the investment.000 on average. SM: What are the core benefits to entrepreneurs? KZ: The community offers funding. crowdfunding is also known for offering market insights and product development advice.000-€10.‖ ―success parties. they do. Either because the dividends are not the main motivation to invest or because they are convinced they company will perform satisfactorily. Other than that. the more likely the investors are to offer advice. information. or placing status updates about the progress of the idea. These can also take place offline in the shape of ―pizza meetings.‖ and other events that entrepreneurs organize when meeting a successful milestone. For small angels (€1. The bulk of the early stage equity financing industry is based on exit-based ROI. which raised €32. Finally. CEO of Symbid. 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. As reaching one‘s goal capital requires quite some marketing effort. . 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. part of the community is mainly involved with the idea and doesn‘t participate much in discussions. 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. Amsterdam (Part 2) Posted on Friday.000).800. over twice as much as the average Dutch crowdfunding campaign.
an investor can get back his or her shares and reinvest or request a refund on the platform. whether they don‘t have the capital invest. development. How much risk are your investors willing to take? KZ: Amongst the smaller investors. If a start-up fails after reaching its goal capital. a pre-seed gap has opened up. 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. Once the goal capital is reached. and advice related to the idea. risk-taking is less obvious. promotion. Second. the losses are acceptable. Symbid is currently preparing an environment that explicitly services this target audience SM: Today’s angel investors have a pretty high bar. Whether they actively avoid taking risks. Larger investors (more than €1. . the risk is quite low because if the target is not reached. The average investment is plus or minus €200. In the early stages of creating seed funding. Though the risk of start-ups is high. or they simply don‘t want to invest is hard to determine. excluding angel investments. The investment amount determines to a great extent the involvement in the idea. As a result. Whether this is a risk-reducing strategy or pure engagement (or both) is unclear. with angels moving downstream. Entrepreneurs need validated businesses to raise a seed round.this method is attractive because they can function as an angel without the obligatory participation in an angel group or investment club. the investor actually loses his or her money permanently. investor have the opportunity to extract their shares from an idea when it seems the idea won‘t reach its goal capital. as it cannot be retracted any more. the risk of losing money is increased. Because the average investment is plus or minus €200 (excluding angel investments). support.000) are often included to participate in in-depth feedback.
From the side of Symbid. Another success case was iCarezz that is currently preparing a second and third crowdfunding campaign.000. it remains so that with any form of investing. SM: Tell us how to best use your platform. The capital raised. he wasn‘t able to service a large customer that would triple his sales. Again.Seed Capital Using Crowdfunding: Korstiaan Zandvliet. Amsterdam (Part 3) Posted on Saturday. 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. but the campaign does not continue because the primary parameter (active entrepreneur) is not met. this is a highly risky business. . risk is part of the deal. This entrepreneur raised €45. The main success factors were his continued efforts and contact with the crowd investors. the parameters of a successful campaign are dedication of the entrepreneur. In more general terms. the dedication of the entrepreneur in this campaign was crucial. very much the case with Bergens Blonde). the opportunity to retract shares and reinvest them in another idea is one way to mitigate risk to a certain amount. a well motivated and researched business (and financial) plan.000 in three weeks. It is up to the investor how much he or she is willing to risk losing. Nov 17th 2012 Sramana Mitra: For investors with zero or limited experience in pre-seed or seed investment. In contrary to the previous case. €20. 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. cheese factory that makes a wellknown cheese called Bergens Blonde. was needed to develop a prototype of the product. However. a clear view of what the money is meant for and a clear view on future developments and scalability of the product/ service offered. Also. This is secondary because in some cases there is already a company and a product. They looking for funding to expand their current 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. The active period of that campaign consists of approximately three months. very much the case with Bergens Blonde) and whether or not an established company or product already exists (not the case in iCarezz. Secondary factors are if the entrepreneur knows the field (not the case in iCarezz. CEO of Symbid. what do you do to mitigate their risks? Of course. 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. 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.
Australia 4. The members including investors that are the main share of the members consist of 70% Dutch visitors and 30% foreign visitors. Brazil. Portugal 3. Romania. food and entertainment (books. Italy 8. software. the U. The remainder of the 500 propositions on Symbid come from the following countries: The U. Russia 3. India. We currently provide users with thirteen categories but the projects are most often IT service/APPs (platforms. smartphone applications).K. France 2. . Norway 4. Singapore 3. Africa 11. the Middle East 7.SM: Tell us about the geographical scope of your business. clean fuel and transport. Spain 6. SM: This has been very interesting. South Africa 4. of which 366 are Dutch propositions. and good luck to you and your investors. green & clean tech (solar/wind energy. Vietnam and Finland all 1. 11. SM: And can you discuss the types of businesses that are getting funded? Our audience is IT/ ITES businesses. Denmark. and other countries 11. Belgium 5. what is the intersection? KZ: Our projects are versatile. movies. KZ: Currently. games). Thanks for sharing your story with us. Germany 6. 36. clean water). Thailand.S. Canada 2. some 500 ideas are registered on Symbid. Egypt 2.
But they can do a few things that could add positive momentum to the process. The next constituency is angel investors. It is not so different from a tax-free account set aside for a child‘s education. These days.‖ There are four constituencies we need to take into account in crafting an entrepreneurshipfriendly tax policy: entrepreneurs. It is like the 401(k) program that allows you to save money for retirement without having to pay taxes. Oct 3rd 2011 In my formula for creating a thriving small-business system. Such a pool of capital would go a long way to help kick-start new ventures. especially at the early stages. Thus. we need a tax policy that makes it as attractive as possible for entrepreneurs to ―invest‖ in their own ventures. My capitalism 2. To further help entrepreneurs. Let‘s look at each separately.‖) More often than not. venture capital firms.000 going to the government as income tax.‖ . governments do not need to do a whole lot. tax or not.000 being invested in a start-up or that $250.000 a year and can afford to invest in the nephew‘s audacious dream and unproven idea. traditional venture capitalists hardly participate in early stage investments. an aspiring entrepreneur ought to be allowed to create a tax-free pool of income for use as personal venture capital. an angel turns out to be the entrepreneur‘s uncle. This recommendation assumes that entrepreneurs would be putting their own savings into their ventures. (See ―The Real VCs of Silicon Valley. which are unnecessary burdens imposed on fledgling and fragile companies. angel investors. Thus. So I‘m making some tax policy recommendations that could really bring about meaningful ―change.000-a-year uncles are treated from a tax policy point of view. governments should be very careful how these $400. The bulk of the responsibility of early stage investment is shouldered by angels. and this inhibits the creation of new jobs.0: Tax Policy Posted on Monday. But most entrepreneurs – especially first-time entrepreneurs – don‘t have access to such high-net-worth people. The choice may well be between $250. A lot of entrepreneurs don‘t hire full-time staff because of the payroll tax burden.0 vision assumes entrepreneurs need to to learn the tricks of bootstrapped entrepreneurship so that they can keep maximum control over their destiny. It is also similar to allocating money to ―foundations‖ to fund nonprofit ―causes. we also need to get rid of payroll taxes. who is a doctor making $400. Angels should also be allowed to create pools of tax-free capital for investing in start-ups. The misconception that the angels are the very rich people worth hundreds of millions leads people to think that these guys would invest anyway.Capitalism 2. For example. especially in unknown. unproven entrepreneurs who often don‘t have access to venture capital. and corporations. who are usually not the Bill Gates and Warren Buffetts of the world.
Conceivably.to 10-year horizon should have incentives to do so.000. 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. venture funds have become lazy. $200. 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. In reality. corporations that have a strategic stake could play the role of investor for this category of entrepreneurs. However. Amazon and their ilk could even fund some of these small retail businesses if they were offered tax incentives to do so. Many eBay millionaires came into existence as the ecommerce giant created an online marketplace for buying and selling goods.000 off eBay transactions have created healthy. eBay. Even more entrepreneurial families making $100. Venture capital funds only fund ideas that have the potential to become very large enterprises.‖) Venture funds should have a tiered tax structure. Governments are struggling to close tax loopholes to address corporations who are stashing money away in tax heavens. So. resilient lifestyles while living the dream of self-employment. The expectation is that venture funds would take risks. whereby they pay lower capital gains taxes on investments in early stage companies and higher taxes on later stage deals. risk-averse. Companies in other sectors could follow suit. and interested only in later-stage investments. or even $300. The policy ideas described above could have a widespread impact on the world economy and reframe capitalism. . fund innovation and essentially keep the entrepreneurship engine moving. corporations can play a critical role in this equation. Finally. (See ―Fund Envy. paying minimum taxes in their home countries.The third constituency is the venture capital firms.000. As an example. Whole Foods Market could fund small fruit-juice makers. let me point you to eBay. SunPower could fund solar farm entrepreneurs. the vitally important small business eco-system needs to have investors that fund smaller businesses. Google could fund online publishing start-ups.
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