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Hong Kong has been as busy as usually. It has been a pleasure to meet a lot of entrepreneurs and people who are helping startups. Our main bank HSBC also has now their head office functions, including CEO’s office, here in Hong Kong. So, these days have been full of meetings with existing and potential users and partners of Grow VC. I was also able to visit in a famous Scandinavian-Finnish restaurant, FINDS, and get some Finnish food in HK, and meet some good friends, like Thibaud, Eric and Tomi, who also help me here.

I especially like to thank Michael, Daniel, and Jonathan, who were interested to organize meetings on Saturday and also invite other entrepreneurs. Michael is actually working in Shenzhen and can help to create entrepreneur communities there too. It was also an honor to meet Charles Mok, who is very well known and respected character in HK’s Internet business community. In all these meetings we also talked about Grow VC’s concept to enable people to create their own funding network on Grow VC’s platform. We are looking partners to do it locally around the world.

Another important target for us is to develop cooperation with local organizations that help startups. I was able to meet Allen and Frederick from Hong Kong Science and Technology Parks. They are doing excellent work to turn science and competence to successful business and they offer excellent facilities and laboratories for startup companies. I also met David and Albert from Cyberport that is very strong incubator especially for Internet and media companies. I believe we can publish more about cooperation with them in the near future. It looks like that these people can help to make HK an attractive location for foreign entrepreneurs too.

Once again these meetings got me to feel that we are doing right things at Grow VC. New funding solutions are needed, and more global funding models offer a lot of value for startups. It is nice to see that people around the world share our vision to build a new virtual Silicon Valley in the Internet: a virtual community where all startup ecosystem people and companies can work together to make it easier to create successful startups and offer good ROI to investors.

We have earlier written, how to collect your team for a startup. When you have the team, and of course the idea, you must start to think the next steps. Normally you need money in this point. Basically you have the following options:

1) you and your team can work for free and have some money to pay mandatory things,

2) you have money and you are ready to use it,

3) you get money from people you know,

4) you get loans from banks,

5) you start to look for investors (persons, venture capital firms, or other investment companies).

There are other options too, but I think these are the main options.

Sometimes it makes sense to start with your own money, and try to keep salaries as low as possible. This is especially true for many web and mobile companies, because it is not easy to get money for an idea. First you must prove that you really can execute and get also some users for it. But sooner or later you need money. Normally it is not possible to get a bank loan for a software or web company, when your assets are only the idea and competence.

It is often the easiest option to try to find friends and family members to invest in your company. But you must really consider before you do it. Can they help your business otherwise, do they give credibility to your business, and what happens if you lose the money? I would recommend to find investors that really like your business idea, are ready to support it, and gives credibility to your company. But it doesn’t mean that they must be venture capitalist. They can be business angels, experts of your business area, connected persons in your key markets, or ordinary people who see an opportunity or something important in your venture. You can also think strategic investors, i.e. companies that operate in the same business area and could be also your partners or an exit route in the future.

There is no right or wrong investors. But what I really want to emphasize, you must consider, what kind of investors you want, and what does it mean to your company and for yourself too.

Too many entrepreneurs just take money if they get something from someone. It is an easy and nice way to start a company and pay salaries. But seriously, if you get wrong investors, it can also kill your company, or one day you notice that you are outside the company, or your idea actually was never implemented. Of course, companies must change a strategy, if the old one doesn’t work, so you as entrepreneur must be flexible with your ideas. At the same time you must remember, when you select investors, it can be the most important decision you make in your company. That’s why you should really try to find investors you want to get and with whom you can make a success story!

Next time I write more about investment instruments.

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If you have some good “war stories” about this topic, you can share those with other readers in the comments below. I would love to hear about your experiences.

Go4Venture published their monthly report in this week. They report: “October 2009 showed a healthy amount of activity on the funding front, suggesting that the market is still alive and kicking, albeit from a lower level. One cannot deny that the environment is different than in

previous years: more international, more selective and of course more capital efficient. According to our index, overall investment levels continue to be approximately -30% lower than last year, pretty much what we’ve been reporting for the past six months.”

But they continue: “The continued activity of the venture market is unfortunately in sharp contrast with Limited Partners’ interest in European venture capital as an asset class. The only closing announced in October was for Vendis Capital, a retail and consumer specialist fund seeded by the family office of the Colryut family. Belgium-based Capricorn announced the launch of its “human health technology” fund (including medtech), although it will be some time before its first closing. Otherwise, it was pretty much doom and gloom in the news with both the US and Europe reporting the worst funding environment for VC funds since 2003 and 2000 respectively (and since 1994 in the US if one just looks at the third quarter).”

We can assume that a part of this dip is temporary and Limited Partners will return to make VC fund investments in the next year. But we have reasons to believe that Limited Partners are decreasing traditional VC fund investments also in long-run. Many LP’s have not been happy for VC funds’ ROI. They also criticized high management fees and especially tier #2 VC’s competence to find and manage future growth companies. This is one of reasons, why we at Grow VC, see the need of new funding models for startups. We must get the market more transparent and effective, and more global. Our new model (launch in January) is especially to fulfil these needs.

Adam Kleinberg has listed interesting 5 megatrends in this article. His main focus is on marketing. But when I read this, I think this list is very valid for funding and startup business too. The megatrends are:

1. Mass collaboration is powering the new economy

2. Constant connectivity in an on-demand world

3. Globalization: Making the world a smaller place

4. Pervasive distrust in big corporations

5. A global sense of urgency to fix the problems of a modern world

I would say #1, #3 and #4 are exactly things we thought when we founded Grow VC. 1. Collaboration is needed for funding. 3. New funding models must be global. 4. Startups are important for growth and entrepreneurs don’t feel that large VC’s and banks are always the best source to get funding. I think #2 and #5 are also linked to the funding world.

We can always be sceptical with trends and especially with megatrends. But together with very practical experiences from the startup world, I see these trends are definitely shaping the funding models of the future.

The New York Times had an article The New Rules of Angel Investing. The article highlights that the valuations of angel investments have gone down. I had a lunch with a serial entrepreneur yesterday. He told they look for 1.1 Million USD valuation for a company that has a ready product for global sales, first pilot customers, and used their own money $400k. I asked if they feel it is quite low valuation and he answered “maybe but it is good to be realistic in this situation”.

The latest report from European VC market tells that VC’s have done almost none investments in early phase companies. Actually if we think VC investments in Europe in September, almost all companies have been founded 2002 or earlier; only a couple of exceptions. It means in early phase you cannot get VC money. You need private investors. The only way to get a reasonable valuation (for both parties) is a real open market and competition.

What are your experiences from seed and early phase valuations?

Social Media Worldforum was organized in Singapore in this week. Traditional media companies (Sony Pictures, ESPN, MTV) had strong presence there, also some telco operators came to learn more. But it was very clear that social media is still driven by smaller and startup companies. They develop, for example, new platforms, apps on existing social media platforms, tools to help users, measurement and monitoring tools, and offer also consulting services to larger companies to survive in social media.

e27 is an interesting community of Singaporean web and mobile companies. This kind of communities are important, because many companies develop very specific applications and business, but they also need some other components to work with. We are still in the early phase to build social media ecosystem. Twitter has one billion valuation, but only 60 employees and no revenue. This business is not ready yet. And that’s one reason it opens many opportunities for startups.

I heard several interesting comments in the conference, for example: “this is not a time to expect significant revenue from social media, but this is the time to enter that business if you want to be there in the future”, “there is a shift from content to experience that means content, context and conversations”, and “the time of traditional PR is over, the future is a combination of PR, marketing, and social media activities”.

Social media helps startups to make its own marketing in a cost effective way, when startups are normally more creative in social media than corporations’ marketing and PR departments. You must get the first beta up and running by spending less than half million dollar in social media. If you need more for the first step, it is time to think your go-to-market plan. As a guy from Google said “you cannot just plan with white board, now you must do it, launch it and improve it”.