Stimulus Plan: My Two Cents on the Need for Bottom-Up Government VC

I have to admit that when thinking about writing this post, I am highly idealistic, naive, and biased. Also, my undergradate degree in Economics makes me far from an expert in discussing macroeconomic issues, but it’s fun to give my two cents on what I think can stimulate growth with the current dollars that have been allocated. And yes, I am playing Monday morning quarterback. I am in support of the current stimulus plan, I just thought that some additional measures should be layered in to ensure innovation from the people who may not be the most connected.

Two of the critical areas that the Obama stimulus package aims to improve is Education and Health Care, some of the slowest moving industries out there. Traditionally, these industries are all about red tape, bureaucracy, and being resistant to the use of technology. Billions and billions are going out to these spaces, yet it appears that the funds are going out to the major players out there, who have in many ways, have been the reason that we’re in this problem right now. What do you expect a capital inefficient Citibank to do when they become flush with new funds? They attempt to buy a new jet!

If President Obama was listening to me right now, I’d tell him to earmark, even at the lowest levels, a billion dollars to funding companies that address the key inefficiencies in the state of Health Care and Education. I’d tell him to set up a website, that mimics Dell’s Ideastorm, or Digg, where start-ups in these spaces submit their start-up, explain how it helps with health care/education, the management bios, funding needed, and how it improves the current state of things. The people of the United States vote up the best ideas, the best companies, the best management, the best business models, and the government takes an equity stake, while funding a percentage of the companies with equity capital. This is a crowdsourced, government-sponsored venture capital program that empowers and rewards the best of the best, which is a bottom-up approach to funding change, in my opinion. I imagine that a bulk of the stimulus dollars are going to the big companies, but why not give the start-ups a crack at these problems?

If you think this is crazy, look at the UK, which has established a $1.5 billion start-up fund to stabilize the start-ups that are struggling right now to stay afloat in this turbulent global economy. As Paidcontent states, the UK is trying to innovate out of the recession. What I have not read about what they’re doing is providing a transparent way in which start-ups are evaluated on who gets the money, and why. That is why the Ideastorm-like crowdsourced concept can be an interesting way, if protected from gaming the system.

Here’s how the back of the envelope math works:

$1 billion in funding for both health care and education= $2 billion total

Average funding needed per start-up  = $25 million

Total number of companies funded = 80

Average salary per employee = $100,000/year

Number of employees needed= 50 employees

(assuming 2 year runway of funds, and 40% allocation to salaries)

Money spent per year by the start-up on other businesses= $7.5 million resulting in 30 new jobs/company

Which gives us a total of new 6,400 employees (number of employees for newly funded company and the company that it buys from)

And if you continue to do the math where you calculate what the new number of employees that need to be calculated to cater to the companies buying from them, you get close to 20,000 new, highly paying jobs. Therefore you are spending $100,000 per year in tax dollars per new employee for $100,000 in average salary for each new employee. But on the flip side, think about the negative externalities: Increased debt, decreased tax dollars received, reduced spending, increased need for government benefits (like unemployment), but I think the biggest negative externality, is that even if a handful of companies solve a portion of the major inefficiencies in these troubled spaces, the social benefit and transformation will result in several orders of magnitude more than the $2 billion invested. Imagine the impact if you add in substantially more than $2 billion or reduce the average salary per employee 15% or even reduced the average funding need per start-up. A little sensitivity analysis could be interesting. If you look at the current stimulus bill, the government is spending $300,000 per new job created.

What do you think? Is this feasible?

3-4-09 Update: Reid Hoffman, CEO of LinkedIN has a complementary post here on Techcrunch

Byproduct of bad economy: Buying internships

Today in the Wall Street Journal, I was shocked to see that parents are starting to purchase internships for their children whether it’s through a middleman or through an auction. I guess this practice has been around for a while, but I assumed that if you had the means to pay for an unpaid internship for your child, you could just as easily flip through your rolodex to call a family friend to make it happen. The WSJ cites the example of a 1-week internship in a music production company going for $12,000.  Simply amazing.

The one interesting thing about these times of economic crisis, is that none of the large companies are going to be hiring interns this summer. The staff of these large firms have enough to worry about, let alone trying to train a college student and have them leave six weeks later. What are all the college students going to be doing for the summer? Retail is down big time, big companies aren’t hiring, and many people being hired at this point seem overqualified for their position (and taking a nice pay cut as well).  In the city of Chicago, there are tons of colleges and universities within an hour of downtown. There are tremendous opportunities for start-ups to give valuable opportunities to these students, and if planned properly, this can be a very productive experience for everyone involved. One thing that I’ve been doing lately is trying to determine what makes a valuable internship experience and with a couple new announcements taking place for me in the upcoming weeks, I’m going to need some more help.

Surprise! Internet companies start turning off the free, all you can eat buffet

In a post today on Techcrunch, Jott, a voicemail to text service announced that they are no longer providing a free service, much to the disdain of the Techcrunch comment stream. I hope this is the beginning of a new trend, not getting something for nothing. Previously, Jott was an ad-supported business but with the implosion of the ad markets, it isn’t a feasible business model. I must say that I’m estatic, and I hope this continues.

Speaking with friends and family that have nothing to do with the Internet space, saying that you’re offering your application for free seems insane. Although the marginal cost per additional user is very low, there are still high fixed and variable costs of operation. Yes it didn’t cost a million dollars to build it, but marketing it, whether through paid or non-paid channels is extremely expensive.  The problem was, 8-9 months ago, it seemed like there were 10 companies launching in your space a week. Basic economics will tell you that the price would have to drop to zero, thus hoping that you’re users clicked more ads than my users. It was insance and unsustainable. Now, there are very few new guys launching on your favorite tech blog and more guys dropping out of the race or slashing their teams.

To me, this is simply a market correction that needed to take place. If I were Jott, I wouldn’t charge previous users of the service, because they are probably early adopter techies or loyal users of the service. I’d grandfather them in, and let them continue to evangelize the platform. But I’d definitiely charge every single user from here on out. Over the next couple of months, I anticipate more and more of these “time to pay” strategic moves. Hopefully it will enable us to all aim to create value, and not focus on how to flood the market to get as many eyeballs as possible, which in the end, is better for the end user.

Update 3-19-09 The Economist has a good article saying many of the same points that I have illustrated. Click here

My 2009 Products I Couldn’t Live Without

Inspired by Mike Arrington’s post about products he couldn’t live without, I’ll give my own version.  One of the interesting things about reading Mike’s must-have products is that they don’t change so much from year to year, despite all the new shiny objects that pop up almost every day on our favorite tech blogs. For all the would-be killers that exist, most of these products have been in development for quite some time. As the co-founder of Friendfeed stated in his recent post, it takes a while for an overnight success. In Mike’s list, only a couple of these products have launched in the past 18 months, and even then, most of them were from already established entities, such as Geni’s product, Yammer.

Here’s my list of what I use darn near every day, which helps me traverse the web. Of course, my own start-ups would be included, but taking those away, here’s what I have (in no particular order):

WordPress: Whether I am blogging, checking my blogging stats, or writing drafts of blog posts that never get published, it’s one of the simplest platforms that I know of to write a blog post. WordPress’s parent company is also an inspiration on how to make easy to use, customizable platform, to enable others to create their own use cases. I recommend it to any and all people looking to start a blog, and although simpler platforms have emerged, I still feel like WordPress has much more horsepower. Few people know that WordPress has been out there for a while.

Pageflakes: I have a feeling that these guys won’t be on the list next year. For one, they have not evolved, nor iterated with what it could have been. Everyone loves social, and Pageflakes and Netvibes from how it’s marketed, screams anything but social. I argued before that Pageflakes and Netvibes should have been Friendfeed, before Friendfeed, and I still believe it. I import all of my favorite feeds from across the web and every day, I use it as my personal dashboard to check out all the news in my space that I need to be aware of. It’s been great up until now, but I have a feeling that Friendfeed will be my new Pageflakes next year, for significantly more information discovery.

iPhone 3G: This is one of my favorite devices I’ve ever owned. The ability to have unlimited software for unlimited use cases is the ultimate distribution platform. My favorite apps are Shazam, Yelp, Facebook, Pandora, and several of the SGN games.

Facebook: Facebook in my mind is the ultimate address book that connects me with anyone and everyone that I’d like to keep in touch with. It was interesting going to the high school reunion this year, because as opposed to the 5-year high school reunion, I knew what everyone was up to, before I got there. Facebook has mapped the perfect social graph, and their evolution has been remarkable. They started off doing one thing better than anyone else, and has inspired the now “it” companies such as Friendfeed and Twitter.

Gmail: I check my email hundreds of times a day, and nobody does it faster or better than Gmail. ‘Nuff said.

Firefox: This is my favorite browser of choice. While some are jumping on the Google Chrome bandwagon, I just feel so much more secure with Firefox, even if it seems a tad bit slower in some ways. Internet Explorer is a pain to use, and some features and functionality that you’d expect to be standard, just aren’t there.

YouTube: I check out my brother’s YouTube channel on a regular basis, and I use it frequently to hear and see just about everything, whether it is a new song, or a funny clip. YouTube is the ultimate vertical video search, as we all know. I think 2010 will be a huge revenue year for them.

Techmeme: This is where I go when I need a quick glance at the major stories of the day, and to hear different perspectives on similar technology stories. It’s a great way for me to make sure that my Pageflakes has covered just about anything and everything going on in tech for the day. With the addition of the human editors, I feel like they do a good job of maintaining some objectivity in the stories that are covered.

Hacker News: Another news source, but what I love is that entreprenurially minded folks find great stories of interest and after going through my Pageflakes and Techmeme, I come here to make sure I haven’t missed anything, but every time I go back, I find a great story, mostly from people that aren’t big blog publishers.

Delicious: When I find a great story, or something I need to check out, I use this bookmarking tool to house all my important links. The great thing about it, is that I’m building a personal search engine, and whenever I need to reference something, I go right back to delicious, and it finds awesome links that I may have forgotten about several months ago. When going through hundreds of articles a day, it’s hard to remember the exact name of a company that’s doing something interesting, or a perspective that’s worth perusing again. Delicious is awesome, and I’d be willing to pay for it now, if they had charged for it.

Twitter: I’ve been hard on Twitter in the past, but it’s the best information discovery engine that I have. Most people use it to be social, but based on the people that I follow, I’ve found awesome information, links, and referalls that I wouldn’t have found anywhere else. Please get groups. I know there are a ton of Twitter apps where you can enable grouping, but man, I’m too lazy to find out what’s best.

In the end, like Mike’s list, these companies have all been around for a while. Everyone thinks of YouTube’s ascent, but it’s emergence was far from the norm.

My 2009 New Years Resolutions

Every year comes the inevitable New Years Resolution. It’s the time where everyone is amped up for the new year, and adamantly believes that the next year will be better than the last. I am no different, and really encouraged by what 2009 has to offer.  The great thing about resolutions and starting fresh, is the positive outlook you have to have to start over with a clean slate, and focus on what you need to make you a better you. The challenge is that all too often, I end up fading from my goals, and come April or May, I forget altogether what I had in store for the year. This is my first year having a personal blog, and 2008 was a great year to build. I believe 2009 will be a great year to execute on everything that was built.

In 2008, I:

• Launched several start-ups

• Was featured in several publications

• Left corporate America for the insanity of entrepreneurship

• Received my MBA from Northwestern University’s Kellogg School of Management

• Was accepted into a technology incubator

• Was nominated for the Chicago Innovation Awards

• Returned to health and fitness

• Finally proved to myself that entrepreneurship and the entrepreneurial experience was something that I loved

• Adopted a positive mental attitude, and transformed my understanding of the world works, and the power of the brain

Looking back, I’m really proud of what I have done in just one year. What I’m the most proud of is the last bullet point, adopting a positive mental attitude, understanding the power of the  brain and how the universe works.  I’ve read so many articles on the brain this past year. I’ve seen countless programs on the universe on the History Channel, and I’ve really been inspired by quantum mechanics brought about by The Secret, What The Bleep, and the book, Evolve Your Brain. It’s really transformed my personal universe, and given me the clarity to go after my goals.

With that being said, I still have quite a bit in store for 2009. I still have many things to incorporate into my daily lifestyle, hence, my 2009 resolutions:

• Set up mechanisms to execute each and every day. All too often, I have extreme days where I do so much on some days, and nothing on other days. I have recently set up a basecamp and Soceeo account to manage my daily activities to hold me accountable.
• Learn to be more transparent with my aspirations and goals with friends and family, and yes, even strangers. I have a tendency to hold all my cards to my chest, until the “ideal” time to inform the ones that care about me.  I have received great feedback by bouncing ideas off of people, especially family, and the more I discuss, the better I shall be. As an entrepreneur, you are often surrounded by other entrepreneurs or people in your industry. Having to explain what you are thinking to someone who has no idea about your space, can result in the most fascinating conversations. Most of my friends and family are not in the industries that I am the most passionate about, so discussing with them, can be a good litmus test, and help flush out the true value that I aim to create.
• Blog more. I won’t say that blogging every day will be the norm, but I will work harder to ensure that I try and create conversations around content that I consume, and my two cents on what I think it means.
• Conserve and eliminate waste. In all facets of life, I need to do a better job of being cognizant of the effects of my every day activities on others. Environmentally, fiscally, and emotionally.

If I can execute, be more transparent, and blog more, I think 2009 will be substantially better than 2008. I’m encouraged, especially because of the opportunities that exist in a turbulent economy. Let’s see how it goes.