Speaking directly to this concern (or phenomenon, depending on your perspective), two students at the New York University Stern School of Business and a former MySpace IT director have started FledgeWing, a new social network that aims to connect aspiring student entrepreneurs with one another as well as with mentors, investors, and industry professionals.

Students present brief descriptions of their projects along with goals and objectives; the UI acts as a light project management, task-tracking app. Others may leave comments or request to join the project.

The case studies are presented as business challenges within the tech/social media world and range from the creation of a retail outlet for Microsoft to the development of a business model for Twitter. Students are encouraged to submit their case studies as comments, attaching any necessary documents to validate or clarify their POV.

The site also has been categorized by areas of interest; and different forums, students, mentors, and companies appear in each category.

Co-founder Lewis Drummond said his team is "bringing together the brightest and most creative minds during a time when then entire structure of business is changing.

"The site has a large database of mentors, companies, and jobs... FledgeWing also regularly hosts all-expenses paid networking events... along with business plan competitions with cash prizes. Entrepreneurial clubs can participate in and host forums, while a feedback-style rating system and comprehensive intellectual property agreement ensure quality control and legal protection for both users and club moderators. Additionally, clubs can create events and have a place for users to collaborate together on specific projects."

In addition to bridging the gap between professional and student entrepreneurialism, the site also intends to encourage more cooperation and collaboration between student entrepreneurs and supporting organizations at different universities.

We find the heavy emphasis on business (as opposed to straight tech) an interesting and valuable approach to the aforementioned structural changes going on in our industries. As we noted in a previous article on IT and journalism student collaboration, bringing different disciplines together with an emphasis on pragmatic creation and measurable action is sure to yield mutually beneficial results for all involved. In this case, from perusing the student projects and comments, we notice a trend toward bootstrappable startups - a welcome mindset in the current economy.

Fledgewing also represents a trend we've noticed toward project-driven social-professional networks that focus on active collaboration and partnership. IBM has recently launched two such sites, one for developers and one for business partners.

What do you think: Is this breed of social-political online groups a valuable networking tool that can lead to successful projects in reality? And is interdisciplinary collaboration the best route to better, more viable startups? Let us know your thoughts in the comments.

"The question is," he continued, "will you have the passion and the tenacity and the interest to really start something that's important?"

He also discussed Microsoft, where it's been and where it's going, the future of technology and why 'now' is important to entrepreneurs. The video, embedded below, is well worth watching, particularly given Ballmer's 29 years of first-hand experience with one of the world's most innovative technology companies.

Steve Ballmer's Tips to Entrepreneurs

Look around you

Look around you at the people you know, find good people, those are the people to trust when you start something.

Be patient and work hard

Some things that wind up being really important take more than ten years to become really popular. Ballmer points to Windows, SQL Databases (Oracle), Google. While he admits there are a "few exceptions," for the most part it's about hard work

Don't let others dissuade you

"My parents thought I'd lost my mind to drop out of Stanford Business School to go to a company that makes software," Ballmer said. "My dad said 'what the heck is software' and my mother said 'why the heck would a person need a computer?'"

We've embedded the video of the lecture below; it runs about 58 minutes, the first 25 consist of his talk, the rest is made up of Q&A and it is well worth your time if you're considering inventing something new.

"Do not go gentle into that good night. Rage, rage against the dying of the light." - Dylan Thomas

Who will turn this crisis around? We will. Who else? And how else but with innovation and entrepreneurship? Entrepreneurs: this is your time to step up to the plate. Hard as the times may be, you must remember, many, many great companies were born during recessions. And many others almost died in the midst of recessions but managed to survive through their founders' tremendous grit and resilience.

I also have a special message to convey to those of our readers who have experienced the misfortune of a layoff: do not give up hope. If you've ever dreamed of becoming an entrepreneur and imagined that you would, after all, like to be self-employed, this is your time. You have nothing more to lose. The job that held you hostage in its golden cage is gone. You are free. Free to try something new and different.

Listen to what Steve Jobs has to say about being laid off from Apple: "I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life." (You can read more from Jobs here.)

And here is how Rafat Ali found a job: he created his own.

Now, the best way to start a company of your own right now is to bootstrap. I have dedicated the first two chapters of my book to bootstrapping. In the recent roundtable here at ReadWriteWeb, I advised all of the entrepreneurs present to structure themselves in ways that permit bootstrapping, which means that capital-intensive ideas are out. You can listen to the roundtable recording here. I may do more of these in the future with ReadWriteWeb.

And I am also working on getting three more volumes of Entrepreneur Journeys out -- on Bootstrapping (Volume Two), Positioning (Volume Three), and Innovation (Volume Four) -- within the next 12 months.

Let's turn this crisis around together through entrepreneurship, through innovation, and through each of our personal, often unexplored capacities for leadership.

Read an excerpt from Mitra' book, Entrepreneur Journeys (PDF).

Seeing the Blogosphere afire with tales of crisis in start-up land, with emails going from the wise investors to their portfolio companies, makes me think: no duh! Driving with your eye only on the rear view mirror is not smart. I hate to say "I told you so" but some times I cannot help myself. We have been banging this drum for a year. Not that it took a genius to see that a downturn was coming, it was bleeding obvious! We followed up with perspective here and here. When the sky started to fall a few weeks ago we started to look on the positive side.

Of course companies should keep their costs as low as possible. That has been the obvious for centuries. So last week the advice was "spend like drunken sailors?". Seriously, this kind of boom one day, gloom the next reminds me of the crazy behavior that got us into this mess and which, if you want a good laugh, you can watch here or embedded below. By the way, that video was from a year ago!

Blurb Is Just An Old Fashioned Story

The key points that came from Eileen Gittins don't sound terribly interesting, except that in today's world they are so unusual:

1. A "seasoned" management team. Like somebody at the helm who has sailed through a storm before.

2. Aligned with their VC. Some VCs push the "shoot for the moon at all costs" approach. Blurb's backer, Canaan Partners, was aligned with the push to profitability before that was fashionable.

3. Willingness to make trade offs. Sure we all want profits asap. But in the real world there are decisions and trade-offs. These may involve deferring features, leaving a market until later, being more niche than generalist. It is almost always a growth vs profit trade-off ("revenues are vanity, profits are sanity"). The Blurb story is full of those. Now Blurb are in a position to do the things they delayed earlier, while their competition is retrenching.

4. Being contrarian to some degree. Blurb got funded in 2005. They had nothing to do with advertising and you would have to be a spinmeister to call Blurb "Web 2.0". Blurb uses Internet technology (er, who doesn't) to deliver a different value proposition to satisfy a demand that has not changed since Gutenberg. Canaan was clearly ready to be Real VC and back an unfashionable concept.

And, What About The Impact Of The Financial Crisis?

We ask that question to everybody. Eileen Gittins said "we watch the economy like a hawk, because that is what we have always done, it is in our DNA". But so far, so good, they grew in September and the last quarter looks very strong. At least they don't need to go to (more) VCs, who are spending all their time with their problem companies, to ask for more capital. With all the talk of revenue vs profits trade-offs, Blurb grew revenues this year around 3x - not shabby.

Nokia Reveals iPhone Competitor And Goes to Battle With iTunes

At an analyst and media event in London this week, Nokia unveiled their company's first touch-screen phone, the Nokia 5800 XpressMusic, otherwise known as the Nokia "Tube," a device designed to compete directly with Apple's iPhone. Along with the phone, Nokia also detailed plans for their new "Comes With Music" service, a 12-month subscription service which offers unlimited downloads. There's no charge to download the individual tracks because the cost for the music is bundled into the cost of the phone.

Netflix API Launches - Here's What it Will and Won't Include

The much-awaited Application Programming Interface (API) for movie site Netflix launched this week. It looks pretty good, but there are some major limitations, too. Millions of people love movies via Netflix, making this API an opportunity for all kinds of developers to add well-known value to any other application.

See also: Evernote Hits a Homerun With API, Data Portability

Google Blogsearch Relaunches as Techmeme Killer, Across 11 Categories

In its first major upgrade ever, Google Blogsearch relaunched and looks radically different. Instead of the blank page look of Google.com, Blogsearch now looks like Google News (but uglier) - with the hottest topics from the blogosphere aggregated on the front page. Readers can drill down in 11 different categories, from technology, business, sports and entertainment. Google says you can use Blogsearch to see what the world is talking about.

RWW Predictions: Will eBay Sell StumbleUpon?

Last week rumors were swirling that eBay was looking to sell StumbleUpon. eBay purchased StumbleUpon in early 2007 for a bargain price of $75 million. We've still yet to have these rumors confirmed, but what if eBay were to actually sell StumbleUpon? We ran a prediction challenge this week asking whether eBay will sell the service by the end of this year and if so, the price tag that it might fetch. Here are the results:

Poll: Adobe Confirms Flash For iPhone - Do You Care?

At the Flash on the Beach 08 conference being held in Brighton, England, Adobe's Senior Director of Engineering, Paul Betlem, confirmed that a Flash Player is in development for the iPhone. The information was provided in answer to a direct question from an audience member during the Town Hall meeting sessions held during the conference. Also check out our poll on the topic:

SEE MORE WEB PRODUCTS COVERAGE IN OUR PRODUCTS CATEGORY

A Word from Our Sponsors

We'd like to thank ReadWriteWeb's sponsors, without whom we couldn't bring you all these stories every week!

• FreshBooks offers professional online invoicing.
• SocialText provides an enterprise wiki platform.
• WildApricot is Membership Management Software.
• E.Factor is an online community for entrepreneurs.
• Strands provides real-time recommendations of products.
• Calais brings semantic functionality into your site.
• The Web 3.0 Conference is on October 16 - 17 in Santa Clara.
• Direct Media Exchange is a solution for managing ad networks.
• Rackspace provides dedicated server hosting.
• The Defrag conference is on November 3-4 in Denver.
• Quintura is a visual-based search engine.
• Eurekster is a custom social search portal.
• MediaTemple provides hosting for RWW.
• SixApart provides our publishing software MT4.

Web Trends

Where Are All The RDF-based Semantic Web Apps?

RDF is the cornerstone of The Semantic Web, yet there still very few commercial RDF apps.

In the latest issue of Nodalities, a magazine about the Semantic Web by UK company Talis, there is an article by Talis CTO Ian Davis about the state of Semantic Web applications. Davis says that we're still in "Generation Zero" of the Semantic Web, because there are relatively few compelling apps. Specifically he notes that "there are still only a handful of applications that incorporate RDF at their heart and none of these are using the full potential of the Semantic Web." RDF is the Semantic Web's equivalent of the Web's HTML - its chief characteristic is the ability to ascribe meaning to data. We investigate...

See also: Swirrl: Newly Launched Semantic Web Wiki

Web 2.0 Gritty Entrepreneurs

When the going gets tough, the tough get going. Times are now tougher. Which makes most people head home. The half-hearted entrepreneurs, the wannabes who thought it was going to be easy, the folks with connections to VCs who could get a $5m Series A for a copycat app. Who will be left? The gritty entrepreneur of the old school who knows that it is really, really tough to build a great company. At ReadWriteWeb we celebrate these gritty entrepreneurs and in a series that kicked off this week we will be writing about them - and for them.

See also: Gritty Entrepreneurs: Jigsaw, a Profitable Web 2.0 Venture

Interview With Last.fm Founder Richard Jones

This week we interviewed one of the founders of online music service last.fm, Richard "Mr Scrobble" Jones. We wanted to find out last.fm's reaction to the launch of MySpace Music and the rise of Imeem, discuss business models in online music, and find out what's new at last.fm. We ran the interview in 3 parts, over 3 days. Part 1 discusses the increasing competition in online music this year. See also Part 2, on business models and Part 3, on design and features.

5 Great Science Books to Expand Your Mind

From the dynamics of social networks to market bubbles, science has a lot to say about the world of technology.

One of the great discoveries of modern science was the realization of how interconnected the world is. The deterministic, Newtonian view of a clockwork Universe was replaced by the much more dynamic, uncertain and entangled world of Quantum Mechanics. The new world is the one where Godel forever cut hopes for completeness in mathematics and Turing showed that computation, like the future, is fundamentally unpredictable. Despite these unexpected setbacks, modern science is wonderful, powerful and thought provoking - and relevant to technologists.

SEE MORE WEB TRENDS COVERAGE IN OUR TRENDS CATEGORY

RWW Enterprise Channel

Mumboe Uses Semantics To Pull Key Data From Contracts

Mumboe isn't just another enterprise collaboration suite. Instead, they focus on doing one thing and doing it well: making business agreements searchable. That's a very unique need they fill, which is why is why they already have 3000 customers using their free Express solution after only having launched earlier this spring.

To compete with the handful of other vendors in this narrow space, Mumboe has now added a new feature called On-Demand Contract Intelligence, which takes advantage of the service's semantic processing engine to deliver something the others don't: automatic extraction of data.

Email us if you're interested in writing for ReadWriteWeb's Enterprise Channel.

SEE MORE ENTERPRISE COVERAGE IN OUR ENTERPRISE CHANNEL

That's a wrap for another week! Enjoy your weekend everyone.

First a bit of scope. This post is NOT about politics or what to do with your investments. Please do not comment on that, go to a site that deals with those subjects. This is about getting enough mental clarity to get back to the real job of building your business.

Second, a personal note. I came out of college in the UK in 1978 and that was a brutal downturn - there was a reason why the Sex Pistols sang "No Future!". I arrived in America bootstrapping a business in 1991, a relatively mild downturn. I helped a Korean software firm navigate the Asian Financial Crisis in 1998. I worked through the Technology Nuclear Winter of 2002 as an entrepreneur. Been there, done that as they say!

10 Point Executive Summary

1. Nobody knows what will happen next. If anybody tells you that they know, ask him if she or he also has a bridge to sell. Look at Paulson and Bernanke. You think they know?

2. None of the historical parallels work. This is not 1929, 1933, 1977, 1987, 1991, 1998 or 2001. This is 2008. You can find some parallels from many earlier crises and downturns, but a simplistic view that it is exactly like one of the earlier periods is usually accompanied by a sales pitch for a bridge.

3. Don't let Mr Market jerk you around. "Mr. Market" is a Warren Buffet term. He uses it to contrast the reality of a company's earning potential with the wild swings of the market. The two are totally unconnected. Don't go crazy trying to connect them. If you want to be a trader, understand the day to day mood swings of the market and bet on them. If you want to build a business, ignore them.

4. Avoid the obvious bomb craters. We don't know what will happen, but we do know that it is not a good time to sell stuff to banks or to consumers in the US. You may have a really good contrarian play to sell to these problem markets, but if your plan has any shred of "business as usual" then forget about it.

5. Focus on today and the big picture, ignore the rest. Today is about the immediate stuff you have to get done to stay in business, to deliver to clients, collect cash and so on. The big picture is looking at how the world might look like 10 years from now and build towards that. We cannot know what will happen next week, month or year. This medium term view is totally unknown. However it is extremely likely that what is happening today will change the world in fundamental ways. We might see the possibility for a very valuable business in that changed world. Most of these will be trends that were visible before the Great Credit Crisis, but which become massively amplified and accelerated by the crisis.

6. The normal startup failure rate will apply again. Yes 80% of start-ups will fail. They always do and always will. This rule is occasionally suspended during highly optimistic times, such as those we have just gone through. But it is only suspended temporarily during those times. Start-up failure is normal. That is the creative destruction that makes for a dynamic economy. If it is your start-up that fails, pick yourself up and try again (or decide that you really don't want to be an entrepreneur). If it is your competitors failing, stick with it and be the "last man standing".

7. This not a good time for new financing or exits. As an entrepreneur, raising money and selling are the two times when Mr. Market matters to you. Valuation does matter at these times and only at these times.The reality today is that nobody will raise money or sell out, who does not need to. So any deals are likely to be fire-sales. That may be your reality, in which case get it done and move on. If you don't have to raise money or sell, don't spend another nanosecond thinking about it.

8. Start your most audacious venture now. This is counter intuitive but real. No VC will back a small plan. They never have in the past and won't now. When the world changes in big and fundamental ways, big and fundamental opportunities arise. Ten years from now it will be obvious what those fundamental changes are. Great entrepreneurs spot one of those trends before it is obvious. The beauty of a big and audacious plan is the next few years won't matter to you. Build in tough times, launch when the worst is over, exit when it is boom time again.

9. There are fewer safe havens. The natural instinct is a flight to safety, but in a severe downturn many previously safe havens may vanish. The old line "this start-up looks too risky, I think I will stick with the safety of a big old bank that's been around for ages" has a hollow ring today. In this environment, betting on something you can actually see and understand - you, your partners and your plan - may be a lot less risky than getting onto that really safe ocean liner just before it hits an iceberg.

10. If you believed the 'fun and easy' myth, get out now. During the last few years, there have been many stories of apparently effortless success, with beaming young just-cashed-in entrepreneurs on the front cover. In some cases people are really lucky and luck may be on your side. But most businesses are a tough struggle followed by that "overnight sensation" period when you are suddenly "hot". Building a business can be fun and rewarding along the way, but they are almost never easy.

One final note of optimism. Tough times create great music. In boom times, music tends towards saccharine and bland blah. Delta Blues, Punk and Motown did not come out of easy times.

Image credit: tantegert

In a word - profit. We are looking for companies that have some Web 2.0 characteristics. But we can be loose in that criteria. We are not looking for a "pure" Web 2.0 characteristics. Whatever works, works. But something that is using online technology to disrupt an existing market, maybe using SaaS, user generated content, social media, whatever works in the Web 2.0 bag of tricks.

But we do want to write about companies that have crossed the most important threshold, the one where cash flows from the business and not from investors. So, as we don't believe in overnight sensations, the company was probably founded before 2004. We want to hear from the CEO, who maybe the original founder or somebody who took over when the original business had failed.

We want to hear about massive skepticism, huge mistakes, changes of tactics and even of strategy, near death experiences, all the usual tales of derring-do.

The company can be bootstrapped, or funded by angels, friends and family or VC. No matter where the financing came from, the entrepreneur can now say to them a) no more dilution, and b) thanks for your help, enjoy the ride.

We are launching this series later today with a profile of Jigsaw and their Founder CEO, Jim Fowler. Our earlier profile of Zoho (Part 1 and Part 2) fits the bill too.

We will also give unsolicited advice to these gritty entrepreneurs about the Great Credit Crisis (we're hoping you help us out in the comments on this).

We Want Names

If you know any gritty entrepreneurs, or you are one yourself, we want to hear from you. Send us an email or leave a comment below.

Obligatory cat pic: pasma

UPDATE: Gritty Entrepreneurs: Jigsaw, a Profitable Web 2.0 Venture; the first post in this series

In this post, we explore the basics behind corporate entities, stock, financing, and the key non-technical infrastructure every company should have.

Business Entities

There are several ways of conducting business in the United States. The most basic is a Sole proprietorship, which is essentially self-employment. A sole proprietor, such as a grocery store or restaurant, assumes full legal liability for the business, but all income is direct personal income and is taxed once.

Another form of business is a Partnership. This is a venture between several individuals who share in the profits. Partnerships, and particularly Limited Liability Partnerships (LLP), are created to address the personal liability issue with proprietorship. With LLP only one or a couple of partners assumes the legal liability.

Corporations are a separate legal entity. When a corporation is sued, in general the individuals behind it (shareholders, directors, management) are not impacted. This legal protection comes at a price - double taxation. Companies have to pay tax and only then can pay salaries and dividends to the shareholders.

In recent years, people have been incorporating in two principal ways - LLC and Inc. LLC is a limited liability corporation, a hybrid between corporation and a partnership.

LLC enjoys the legal status of a corporation, but has partnership-like taxation. It is a great way to incorporate before you know how big your company will become. The caveat with LLC is that you can't have more than a certain number of shareholders (typically around 70). For this reason, Venture Capitalists would normally not fund an LLC because it's impossible to take such a company through an IPO (Initial Public Offering).

Most tech startups end up being C-Corp or a corporation (often, you can start with LLC, then convert to a C-Corp right before raising substantial funding). A corporation is the most sophisticated business entity. It is a powerful but complex vehicle, with flexibility. 

Shareholders, Directors and Management

A company starts with incorporation - a process of forming. These days it's cheap (around $300) and straightforward. You can either incorporate on your own or, better, utilise your accountant or lawyer.

You incorporate in a particular state, usually Delaware with its liberal laws and taxation policies. You don't need to live in Delaware to incorporate there, but you do need to also declare your existence to whatever state(s) you plan to operate in. The corporate laws vary substantially, so ask your lawyer and accountant about regulations in your state.

After incorporation, you issue a stock - a unit of ownership in the company. In startups before funding, there is little reason to spend time on issuing shares, because when financing comes you'll need to reissue. Easiest is to declare that you have 100 shares of common stock and divide it between the founders as agreed prior to starting a company. 

There are three principal types of participants in every company - shareholders, directors and management. Shareholders, or the owners, vote and elect the board of directors, who set long-term strategic direction and appoint executive management. The management (CEO, CTO, etc) is responsible for the day-to-day operation of the company.

While you might find this 3-tier structure initially confusing, it does make sense. In large companies directors are mostly outsiders. Directors represent the interest of shareholders and hold management accountable for the performance of the company. In a large corporation, typically the CEO is also a President or Chairman of the board, but the rest are directors outside the company. For small startups, the situation is simpler. You are a shareholder, a director and a manager of your own company.

Key Documents

In a startup, you need to understand when to wear the hat of a shareholder, director or a manager. Looking at a company from the perspective of key legal documents helps you do that.

The first document is Articles of Incorporation, which declares the kind of entity, state of operation, classes of stock, and number of shares. The next is a Shareholders Agreement, which typically discusses the rights and obligations shareholders have in situations like sale of the company, sale of stock, or death of a shareholder. And Corporate Bylaws is the guide by which the board operates; it specifies who can be a director, how often meetings are held, how voting is done.

The employees of the company - e.g. CEO, VP of Design and Software Engineers - all sign an agreement. These days, employment agreements typically consist of a short offer letter and a lengthy non-competition agreement. The letter outlines the position, salary, vacation, and other benefits. The letter asks the employee to obey standard corporate rules and regulations. In addition, a lot of startups offer employees stock options - a way to earn the right to buy a stock in a company.

Legal and Finance

A first-time entrepreneur will find the legal complexity and accounting for a corporation overwhelming. It is essential to hire lawyers and financial professionals. There is a saying amoung startups and VCs that a good lawyer pays for him or herself, despite the fact that hourly fees are whopping.

There are three kinds of lawyers needed in a tech startup. A corporate lawyer drafts the basic documents and will advise on daily matters. A deal lawyer specializes in financing and sales transactions. And if you have intellectual property to protect, then you'll need an IP lawyer.

Financials of a startup can be split into daily simple things and annual complex matters. For a startup, it is ideal to get a bookkeeper - a person to take care of payroll, monthly profit and loss, and basic financial documents. You need an accounting firm for annual taxes and larger issues.

Accountants are more expensive than bookkeepers, but since you don't need to use them for daily operations, it makes sense to have an accounting firm do your annual finances. In addition to taxes the accountant will product a compilation - a summary of annual activities. After you get funding, the board of directors will ask for an audited financial statement - a full, certified financial review.

Venture Financing

To turn your idea into a big company, you will likely need to raise money. This is essentially a sale of shares to investors. A typical company goes through several financings - angel investment and then a few rounds of venture capital. The angel round is typically small, traditionally less than a million dollars and lately substantially less (thanks to YCombinator and TechStars). In the angel (or seed) round, the founders may offer 10-15% of the company in exchange for a convertible loan. Technically, this is not a direct sale of shares, but instead a right to buy shares in the next round of financing at a discount, while accruing interest.

Traditional angels are wealthy individuals, often former successful enterpreneurs and executives at large companies. Each angel might be willing to put down between 10-100K, with 25-50K being typical. So if looking to raise 500K, you would need to line up 10 or more angel investors. You can simplify it if you find a local group, for example New York Angels.

The next round of funding, called Series A, involves Venture Capitalists (VC). A venture firm is essentially a partnership that manages an investment fund. The fund raises money and invests into startups and later stage companies.

The VC world is complex and it's important to know how to navigate it.

The first rule - know what firms are right for you at what stage. The right firm will be the one that's interested in the sector you're in as well as the size of the investment. VC firms manage anywhere between $150M - $1B, with a typical tech fund being around $300M. Since the time of each partner in the firm is limited, there are only so many investments the fund can make. So, if looking for 500K, it doesn't make sense to approach VCs.

A typical Venture Firm will look to own 20 - 30% of your company over its lifetime. When the investors put money into your company, they will protect themselves in cases when the company might not do well. They will ask to create a class of preferred shares (preferred stock) that will be subject to different rules than the common stock (those you own). Preferred stock is paid first in case of an exit, and it enjoys veto rights such as precluding you to sell the company, or the opposite - forcing a sale.

It is common for a venture firm to elect a director on your board. This is the partner you are essentially working with. In early stage companies, a VC plays an instrumental role in mentoring the CEO and shaping the course of the company. As the company grows and perhaps even goes public, the VC director steps down from the board.

More Funding

Each round of funding expands the number of Venture firms at the table and results in dilution. To understand dilution, one needs to understand the mechanism by which startups raise money. Each round of funding results in additional shares being issued by the company and sold to the investors. Typically, investors are not buying shares that you already have, they are buying newly issued shares.

The money raised is not going into your pocket, it goes to the company. In some cases, when you're doing stellar, investors would be willing to buy your shares - but this is atypical. As a result of each raise, founders and employees own less percentage of the company (their number of shares remains the same, but the total number of shares increases). Prior investors are able to maintain their respective ownership by buying additional shares (this right is given via preferred stock).

Despite the fact that startups are reluctant to give up ownership to VCs, the economics actually make sense. Even though your percentage of ownership goes down, the total value of the stock is higher after the financing, because the value of each share rises. As long as the company is doing well, fund-raising makes sense and is beneficial to its employees.

Conclusion

There is a considerable amount of complexity surrounding building a company. Way more than just a great idea and elegant code is involved. But building a company, learning the intricacies, understanding the law and venture world, is fun.

Instead of being afraid of this complexity, startups need to appreciate it and embrace it. Most lawyers, accountants and investors are smart people whom you will learn from. They will help you make your startup into a real company.

As a start point, you should create an LLC and not worry about much paperwork. Once you get into investment, you'll need to change to an Inc, get a lawyer, bookkeeper and accountant, and start diving into the details discussed in this post.

There are two excellent resources to get additional material: Ask The VC - a blog maintained by Brad Feld and Jason Mendelson; and Ask The Wizard - a blog by former CEO of Feedburner, Dick Costolo.

As always we look forward to your questions and we also ask you to share your tips on the essentials you picked up during your startup life. Join the conversation!

Find Your Passion and Commit to it

Murakami was a late bloomer, writing his first work at age 29. One day while watching baseball he realized his destiny was to be a writer. At the time he owned a jazz bar, yet the experience at the baseball game had a lasting effect. He started to write and over the next few years his life changed.

Whether you're a blogger or software engineer, you've experienced the same feeling: a blog post that has to be written; a piece of code that needs to exist. These moments of clarity are precious and we should follow them whenever possible.

Murakami faced a choice between his business and a career as a writer. Though the future was uncertain, he made a commitment to writing and sold his jazz bar. Soon after focusing on writing full-time, he realized his fiction suffered because he was out of shape. Murakami quit smoking and started running. Today he is a marathon man and runs every day.

Each startup always faces choices. Making a commitment, focusing, and then giving it your all, is the key. There are always obstacles, but if you know what you're after you can overcome them.

Stick With What You Know

I'd read Murakami novels before his autobigraphical piece. Now I realize how much of him is in his novels. His books frequently talk about jazz and one novel, South of the Border, West of the Sun, is about an owner of a jazz bar. Murakami loves cats and uses them to create unique, mesmerizing imagery. Most of all, Murakami writes about love, passion and loneliness.

A few years back, I decided to make a real estate investment in Florida. Excited, I did a lot of research and was talking about it to my father-in-law, an experienced businessman. His advice: stick with what you know. While initially disappointed, I then realized he was right. I am a software engineer and a tech entrepreneur. I should be betting on my startup instead.

Many individuals and companies make the mistake of jumping into areas they know little about. A few succeed, but most never make it. It is better to start a company around the topic you're an expert in or know a lot about. This will give you an edge and ensure you're not wasting your time.

Start Even and Finish First

Murakami's life is a routine. He rises early around 5am and goes to bed by 10pm. He declines late-night dinners and outings. He runs and works on his books daily. He achieves his magic by pushing equally every day.

When Brad Feld, an early stage technology VC and a marathon runner, recently completed his 11th marathon, he re-learnt this lesson during the run. In the recap on his blog he wrote:

I started strong. Too strong. Rule #1 of the marathon is to hold plenty back at the beginning so you have it left at the end. I went through the halfway point (13.1m) at 2:20, on track for a sub 4:45. I tightened up at mile 15 and slowed a notch, thinking I still had a shot at sub 5:00. At mile 19 I went down another notch and was now slogging through 13-minute miles. At this point I knew I wouldn't break 5:00 and my goal shifted from "break 5 hours" to "finish this thing".

The first time I realized this lesson was watching Cathy Freeman win gold in the 2000 Sydney Olympics. She won by running like a robot, with uniform speed through the entire course.

Startups are intense. Run too fast and you'll burn out. Many young entrepreneurs think startups are like sprints, when you just race from the start to the finish line. In fact, startups are more like marathons, so pace yourself.

Never Settle and Always Seek Creativity

Perhaps the most striking thing about Murakami is his creativity. My favorite Murakami book is Wind-up Bird Chronicle, a mesmerising "experiential" piece of fiction. As you read you experience a world of mystical images, ideas and characters.

Each Murakami novel is different. The author never settles, constantly seeking new ways to express himself. Remarkably, he says writing is not easy for him. Such creative work is carefully crafted. It seems like an outcome of pure passion, but it is not. The author seeks to break the methods he created yesterday and move on towards unexplored territory.

Passion and creativity are the two most important factors for a startup. Without these key ingredients, there is no success. But just like the artist needs to reinvent himself, so also do startups. It won't be the original wave of creativity that will carry you through, instead it will be the quest and the will to never settle that will make your dreams come true.

Conclusion

The beads of sweat drip off my face as I run up the hill. It is a mild summer Sunday in New Jersey and I enjoy my regular running route. With each step, the pieces of this post crystallize in my head. I know I have to write it, because Murakami can make a difference in your startup life too. Steadily as I climb I think about this man, his will and his magical fiction.

My iPod starts playing a faster beat, but I do not speed up. I've done this many times on this course to my dismay, so now I know better. I treat this course like a startup. It is a mini marathon where I run evenly and ponder these cool and creative things in my head.

And now please tell us what writer you find inspirational and helpful in your startup life.

1. Bootstrap from revenues. You will exit for an EBITDA multiple. Forget about crazy high multiples unless you have that magic formula that really can create high growth + low costs on almost zero capital -- but if you really have that you won't need/want to exit. Don't worry about what anybody thinks other than users and customers. No, this does not have to mean enterprise products; consumer ad-supported works fine as well -- just ask the founder of Plenty Of Fish.
2. Self-fund on credit cards and a second mortgage. You are brave, maybe brilliant, and maybe stupid. Just don't expect any VC to give you more than words to recognize your courage. And also remember: it will take more capital than you think. Self-funding is not bootstrapping, it is just using your money and not somebody else's money.
3. Do consulting on the side to self-fund. This is less risky than using credit cards. One partner works for a Big Old Dinosaur on contract for $20k per month and splits it 50/50 with the other partner, who builds the company which is shared 50/50 between the two. It gets a little more complex with more than two people.
4. Rase funds from friends and family. This can augment any of the above options. Richard Branson (a man who knows a thing or two about starting companies) can help with formalizing the relationship to avoid emotional damage.
5. Already a successful entrepreneur? Self-fund from cash via your last exit. VCs will be beating down your door to co-invest. Your choice...
6. Go from concept directly to $3m Series A. Wait, you did say your name was Marc Andreessen, right? No? Oh, sorry.
7. Use angels as a bridge to Series A. This is the perceived traditional route. If the angels know the VCs that is fine, but if not, then the VCs may cram down the angels, and that's tough on you and those early investors that you've built a great relationship with. This works best if VCs tell you early, "We like the space/concept/you, develop it a bit and we'll be interested. MyFavoriteAngel can help you get there."
8. Use angels to augment bootstrapping. You have a to show a really clear path to profitability that is not dependent on VC funding.
9. Use angels as a bridge to a flip. Angels who know the target acquirers can make this a sweet deal for all.
10. Spray and pray models. A fund or incubator that puts tiny sums into lots and lots of ventures in hope of finding one star in the bag (see this post). Sounds a tad random to me.
11. Seek out founder-only evergreen seed funds. These are slightly more formalized versions of angel networks that aren't managing other people's money (i.e. LP=GP). Exits get re-invested into the fund, so there is no fixed time horizon for exit. There should be more of these.
12. Get a convertible loan from a VC to develop your concept to a level where Series A is appropriate. Charles River Ventures led the way with their CRV Quick Start program. More of these would be great.
13. Check out one of the paid links when you search for "seed funding" on Google. Not.

The good news: I planned my usual 11-point list and had to go to 13 (well 12, if you leave out that last one -- which you shouldn't). The bad news: none of these options are easy. But then, you already knew that, right?