Today marks the end of a Venture Capital Funded company that I was asked to evaluate nearly 2 years ago to determine if it was salavagable or terminal.

So today I am handing back to the investors about 15% of their capital which we managed to preserve and feel happy that we prevented them investing in another round which would have been completely burnt.

I wont mention the company or the fund, however it was a software start up that had a skeleton staff after all others had been laid off and software that didn’t perform to claims.

It had a few months cash. I don’t want to chronicle the issues with it, suffice to say there was a reasonable amount of money invested (small by US VC standards, large by Australian startup standards) and the company experienced both market and technical failures.

However the interesting lesson from this is how long these things take to unwind and the wasted effort along the way.

For the entrepreneurs out there who are not familiar, most VCs run a 10 year fund in which they need to invest in businesses and then sell all their investments before the end of the 10 years and return the original funds to the investors with a hurdle rate of return then share the upside between the VC partners and the investors.

Given all of these investments need to be exited by year 10, what do you do about the failures and mediocore businesses?

If you have built a stable of profitable businesses or have strategic value to an acquirer, trade sales should be pretty easy but we all know these can take 3-18 months to execute and in this market possibly longer if you wish to avoid a discounted sale.

Invariably most VC will have a number of underperforming and terminal businesses that need to be dealt with. In most cases you as the Investor you will know in your heart that the venture is doomed, either the management execution failure has exhausted the investors, the technology was not as described, momentum has been lost, original market conditions or assumptions are no longer valid (or never were), in a weakening funding market there isn’t sufficient cash to execute on the plan, there are a million reasons why this will die and you as the Investor representative know that its highly likely.

What now? The entrepreneurs out there will hate me for this one but here is my opinion based on these experiences.

• Dying companies take up valuable investor and entrepreneur talent that could be used elsewhere
• Dying companies slowly but inevitably waste any remaining cash
• Its tempting to keep investing in the hope that this will be solved by more time, better staff, the sales that never come. Dont be tempted.
• Liquidation will take 6 months if its simple, much longer if you need to sell the IP/assets and then liquidate, start looking at these issues with 2 years to go, longer if its a medicore business but not terminal.
• Check your shareholder agreements closely to make sure that your preference shares will absolutely get preference (in particular look at liquidity, insolvency events, sale of IP etc and their affect on pref shares)
• If you have convertible notes, redeem them without delay.
• Kill the company quickly, get a “cleaner” to close it up asap, sell any assets and manage a part time clean up
• Offer to sell the IP back to the founders with a clause for some small upside for the investors, if the founders really believe in the idea then you may get a return, but its also a great litumus test as to if you should be spending any more time on it, if they don’t want it at any cost, then its time to get out.
• Move on, part of the equation to VC investing is getting the right companies to start with, but the hidden side is minimising your losses on the dogs.

Put them down, you know you want to.

One of the things I enjoy about being less employed than normal is I get a bit of time to experiment with Social Media and in particular new forms of online Advertising.

Todays experiment is Be-a-Magpie which is a new Twitter based advertising system. It basically inserts contextual ads into your twitter feed and allows tweeps to monetize their followers and their popularity.

Techcrunch has a negative opinion about it, Mashable is reasonably positive about it.

On the front screen it gives you the ability to type your twitter name and get an estimate of what you would earn per month from inserting 1 ad to each 5 tweets.

So I put one of my business magazine sites feeds in and got very promising eur4000 so I then put my own twitter name in was embarrassed but not surprised.

So I started putting in friends names and local popular Web 2.0/Social Media types and then had some fun with popular big names.

I am a big fan of Guy Kawasaki but I am extremely surprised by the results.

If you are super Sys Admin with lots of experience on EC2 then a lot of this might sound like motherhood. However you would be surprised how many people I have interviewed that claim to have extensive EC2 experience that do not understand some of these concepts.

1. If you are upgrading or releasing new versions of code regularly consider some form of deployment management software such as Puppet that will allow a basic EC2 Image to be launched and then the full configuration sucked down from your deployment server, this allows you to launch new instances with minimal configuration, it also stops you from having to update your images every time you put out a new deployment, it also increases the speed at which you can recover from a crash and the speed at which you can react to traffic peaks
2. Make sure from the start all your Application configurations allow for application components that could be separated out from each other to be easily separated onto different EC2 instances, its easier to do this up front than when you are in a hurry later
3. Backup to S3 costs nothing in data transfer (just storage costs and the processing overhead on your instance) therefore backup as often as is practical based on your dataset
4. Make sure you have 3 DNS with at least one geographically and provider independent of the other
5. Consider how you can create shared nothing architecture ie each instance once launched and populated is not dependent on any other to keep operating, each new instance can launch, get data as required from Master and the operate independently updating master as required and could continue to do so if master died, updating new master when it is replaced.
6. Dont waste time on small instances just start with large or extra large, they dont perform very well and cpu per $ pro-rate have limited CPU and bandwidth and IO compared to large and extra large
7. Its worth spending a few days on this site http://highscalability.com/ the case studies on major sites are very informative
8. You still need external management servers to monitor and give you a heads up if you have failures on your instances, unlike a Dedicated/Management Server in a good hosting company Amazon is not going to have one of their engineers go an reboot your instance if it dies, I open to correction but I am not sure they would even notice or ping you if there was a problem with one of your instances. You need to track and monitor this yourself and make sure your system can SMS or email you and that you have the ability to easily recover quickly. (another example of the same EC2 genius, suggested we put management alert system on the EC2 instance we were monitoring, after asking him to explain the process by which we might get an alert in case of instance failure we both agreed to part ways)
9. Load balancing is not as easy as you might imagine, especially if you are starting and stopping Instances regularly, the IPs for each new instance have to be inserted and removed from the load balancer dynamically, you cant rely on hardware style devices, you need to implement other linux software based systems.
10. Use Elastic IPs, this  is a new feature, previously you were given an IP for an instance from a pool, you didnt necessarily know what it was until it was assigned. This plays havoc with your uptime if you have a failure or if you want to move from one instance to one or more instances. (ie you need to put new IPs into DNS and wait for propagation) Elastic IPs basically allows you to assign an IP to your instance or move the IP from one instance to another as required and it only takes a few minutes ie no waiting 4-12 hours for DNS updates (as am example of Engineers not understanding this platform as much as they claim, I had one EC2 engineer guy go to shut down a production Instance on me without even thinking about DNS changes and the outage he was about to create)
11. ElasticFox and S3fox are great plugins that allow a marginally skilled guy like me to easily operate EC2 and S3 but be warned they allow you to do just about whatever you want ie delete, or reboot an instance reassign an IP to a different instance and launch all different instance types. Be careful or you will learn that EC2 storage is not persistant (yet)
12. Persistent Storage. Its important to note that although you get 1.7tb of disk space with an extra large instance, you cant rely on this for keeping your data. Think of it as a temporary work space that will be deleted if you close the instance or it dies. You must implement a means by which you either transfer all data, files etc to S3 or some other form of non Amazon storage as part of your regular daily operation or architecture so this could be writing to S3 directly (needs coding change),  or some way of syncing your data to an external server. EC2 is introducing persistent storage and it is in private beta, but its not generally available yet and from a backup perspective you still need to do work out how to get it away from Amazons infrastructure anyway as a backup.

Its been a crazy few months, I have been running Enikos.com for about 6 months now and we have managed to build a system that allows video owners and publishers to monetise and syndicate their content and earn revenue for it.

Very proud that we have been awarded 12th position in Australia’s top 100 Web 2.0 applications by Business Review Weekly last week.  http://enikos.com/enikos-voted-12-brw-top-100-australian-web-20-applications/

Hi

OK December is much better than November which I am happy about, given December in business to business land is a difficult month.

I managed to score a great consulting gig with a hot new online video company which I will blog more about shortly.

So the results for Dec are in

Consulting $15500

Google sales = $0

Website Advertising $2400

Online Advertising for others $500

CPA $60 (this was an experiment)

$18400

Again not bad, but not moving fast enough to the $85000 per month required to keep me in the EONetwork.

I would like some of my readers to get in on the act, set yourselves a challenge and join the Million $ challenge

Hi

November was a pretty lean month all round.

October we did very well in the Google Mini business, not so for November, lots of enquiries including for the New Google Maps and Google Search Appliance, not much action.

These offer a lot of potential given the entry level is $16k for Maps and $55k for Google Search Appliance, dont need many of these a month to break the $1 Mill PA barrier.

So the results for November are as follows

Business Consulting $2,500

Website Advertising $2250

SEO/Web Consulting $2300

Google Mini $0

Total $ 7050

So monthly totals are as follows

October $18750

November $7050

Not a good month, but we did make some progress towards getting next year off to a good start.

I have been swanning around for a year or so now after selling my old business. I did ok out of the sale but between my Ex wife and the Lawyers I am not yet a wealthy man.

I am still a member of Entrepreneurs Organization (EO) which requires that you have a business turning more than $1m USD pa and are majority shareholder and founder. (when I joined you used to have to be under 40 as well but luckily they changed the rules just as I was about to age out).

After a business sale you have 3 years in which to create a new EO business ie $1m USD turnover.

The old business used to turn over a few million a year ($4 mill at its peak)

So the last year I spent sailing, travelling, consulting for a Venture Capitalist and building a Online Business Magazine for Start-ups as well as about 7-8 other experiments including www.feedmehomes.com/mashup and www.searchcorp.com.au which is going very well on selling Google Entreprise Search Appliances, Maps Licenses and coming soon Google Apps for Australia.

In order to keep my membership (and buy myself a Porsche) I have set myself the challenge of creating another EO business within the next 12 months.

This means growing my business to $85000 per month.

So the report for October is as follows

Business Consulting $2000

Website Advertising & promotion $2250

Searchcorp Google sales $14500

Total $18750

Still a long way to go but not bad for just mucking about.

Here is the plan, I will be taking on more consulting work over the next year as well as an equity position in another startup.

My old business was an un-scalable services business highly dependent on highly skilled and expensive staff and very hard to grow to a decent size.

I am determined to create a number of highly scalable online businesses with a low requirement for skilled staff.

I have launched just www.networkstore.com.au which is focusing on Niche high value high margin networking products. I love these style of sites, they dont take much update and they provide extremely high return on time invested once you have them running.

For example the Searchcorp.com.au site takes an hour or so of work a month and returns between $1-4k profit per month and this is with the current product range valued between $4-20k.

We have just added the Google Search appliance to this site which must be the most expensive piece of equipment available to purchase online (aside from Cars, Boats and houses) these are valued at up to $1.7 Million for the really big one and the Google Maps Licenses which are valued between $16-400k pa.

Both these sites will grow our revenue, but they are very inconsistent ie some months we will sell 3-4 devices and then next month nothing.

So my guess is that while both of these sites may take me to $50k per month, I think I will need something else to get the next step. So I am still on the lookout.

Anyone else want to join me for the $1 Million New Business Challenge?

OK, I have had a great time with www.activeinsulation.com.au. In two weeks we have set up a new site for them Sydney Roof Insulation and we are already seeing niche dominating organic search results for his chosen terms, we add a few more pages, 5-6 days later we are ranking for those terms. Its been one of the fastest sites I have ever seen rank.

This is owned by my brother in law Eddie so its a mates rates job (ie basically free) but it has been immensely satisfying.

Now I do a pretty good job of on page SEO optimisation, but I think its an unprotected niche so it was made easier. Also the domain name has been around for 3 years which also makes it easier. However it was clear to me with about 4 hours of work (ie created the site and started him in the right direction with his content), we have already made an enormous difference to Eddies business.

He is getting calls already from organic search results, in the suburbs he wants to work in and each deal he closes is worth $1k in margin, only takes a few calls to completely replace the $2k per month he spends on other advertising and double the amount of cash he has to look after my sister and the kids.

It made me start to wonder how many other small niches are unprotected especially in trades or services (except for SEO of course).

So in the spirit of Christmas giving I will do a free SEO critique of 10 Small Business sites (preference given to Australian Sites) and give recommendations for increasing traffic and blog my recommendations about each of them and just for fun if any of the comment spammers actually bother to put a customised Comment spam in I will give recommendations for one spam site as well.

Nominate your site in the comments, I will pick the 10 at the end of the week and start them next week.

 Nice day in Sydney (except for the roadcrew with Jackhammers outside my house this morning at 7 :{ ).

You may have read my post last week about Stumbleupon and cheap traffic.

Having spent some time analysing the traffic my opinion is changing.

The traffic is targeted and it is cheap however it is also not on your page for very long and almost all of it bounces.

Given that I am stumbling regularly I find myself flicking through the channels and not staying long and my analytics confirm this is what our stumbleupon referrers are doing as well.

On one of the sites we normally have a 4 minute average visit and about 4 page views.

It drops a bit if you look at the Google organic traffic to just over 2 pages and 2 minutes on site.

Stumbleupon shows 10 seconds on site and 1.12 pages per visit.

So it seems to me that people dont stay long and whilst we did get a bunch of thumbs up I am not sure that this is resulting in further traffic.

At this point I will experiment more with Australian traffic only but it would seem that although there is stacks of nice cheap targeted traffic from Stumbleupon they dont hang around and my other site we tested confirms this as well.

Comments anyone?

CareerOne has relaunched their Jobs site and its gorgeous. You may have read the review I did on the Australian job sites a month or so ago here

‘I gave CareerOne a bit of a flogging as it just looked so unloved and plain ugly and didnt work so well, well I should have taken a screenshot because no one would be believe me if you looked at the site now.

The development team must have been fuming if they read my review because they obviously have been working on this for some time.

They also introduced RSS feeds which I love, it saves so much time to have all of the jobs sitting in your Google Reader and to be able to search them easily and see any updated in your Reader.

I would like to see all of the Cars, Property, Boats etc sites introduce RSS. I dont want to search on your site (and all your competitors) I just want it aall in one place.

The site has superb colors and fonts, is very readable and looks Web 2.0 enough without looking like a startup, and seems to operate well and the search function is very good (not quite as good as jobsjobsjobs.com.au but still pretty good)

My only feedback. The fonts in the body and headings are a little small (I know they look better that way but they affect readability and accessibility).

Also from an SEO perspective, they missed a few opportunities. Their H1 and H2 tags have been wasted on generic headings when they could have enclosed the jobs heading/description with H1 H2 Tags. They have managed to improve the page titles (ie they have inserted job heading in the page titles) however I would be tempted to push the careerone name to the end of the page title to improve the page relevance. Also they missed intersite linking opportunities by not including some form of breadcrumb and cross linking to other similar roles.

Overall well done guys