JOBS Act - what changes in the VC world - Part I
USA government is currently shutdown, it’s in a standstill, waiting till the parties reach the agreement and continue to non-govern. I say non-govern because this has been one of the most passive Congress ever. It passed only 220 laws about a hundred less than the previous record low. I don’t want to comment on politics, but among those 220 there was one important act that will shake the venture industry and the whole investment ecosystem - JOBS act.
JOBS act - Jumpstart Your Business Startups Act - is an act that will change the venture world and the perspective startup founders have towards the challenge of raising capital. JOBS act was in the cooking for about a year now, but only 2 weeks ago did it get out of the oven when the Title II part went into effect. Let me explain.
Fundraising is hard for anybody and obtaining capital is especially hard for the early stage companies and startups. In the past, startups and early stage companies were not allowed to raise capital by publicly advertising, by general solicitation. It had to take place behind closed doors, in private. General solicitation was allowed for the large companies that could spend huge amounts of money for due diligence and all sorts of insight analysis to be able to get listed on the stock exchanges.
Apart from that, companies have been allowed to raise funds from only accredited investors. Accredited investors are people of a certain net worth or certain income per year. The number of those investors is limited (report by the Government Accountability Office says there’s “only” 8.5 million accredited investors in the States) so the supply is scarce, making the whole fundraising process really competitive among startups.
Even though some questions and details are left open and uncertain, since of 2 weeks ago, the ban of general solicitation went away so startups and other early stage companies are allowed to publicly raise capital using Facebook, Twitter, AngelList or any other platform to inform potential investors. The other ban of accredited investors stays and it’s expected to be lifted next year. Effectively, that means that we’re currently in a transition - a period when startup founders can publicly solicit and therefore reach a broader audience of potential investors but only accept investments from accredited investors in the same time. And that’s a big thing for startups because more deals will be made and the amounts of the deals can potentially be bigger.
In the next couple of blog posts I’ll try to put together a lot of the aspects of the JOBS act, pros and cons and how investors, founders and platform makers will cope with it in the near future.
Summer saturday evening. It’s hot outside, around 35 °C (95 F), my air-conditioning system is literally dying on me. Fortunately, the Internet is working and I had some free time so, as I mostly do at those time, I google about the VC and startup world.
Among the thing I came across was the article from the Wall Street Journal from last week. It was about 500 Startups, the startup accelerator and seed fund, and the milestone they just passed - reaching their 500th investment. Congrats Dave, George, Sheila, Max and the whole crew btw!
But, as it often goes, the article was linked to a blog post Dave wrote about scaling Venture capital. He debated about how VC business is currently not scalable enough, how VCs are very proud of themselves and think they’re doing fine while in fact they ought to be doing much better and invest more. Dave insists on searching for a "Google of VC". Buuuut, and this may well be one of the last “but-s” in this post, even though there’s certainly food for thought there, Dave linked a "Something Ventured" documentary to it. And that’s what my late Saturday evening was spent on.
"Something Ventured" is a documentary made almost two years ago about the sole evolution of a venture capital way of financing business endevours. Even though one might think that VC business started soooooo long ago that most of the initiators must certainly be long gone, one is certainly wrong - there’re mostly all alive! Believe it or not, the beginning of VC was in the late 1950s when the "Traitorous eight" (yeah, the guys that eventually founded Intel and a number of other great companies!) left Shockley Semiconductor Laboratory to start their own business and, in need of financing, they turned to a junior broker called Arthur Rock from Wall Street who solved their problem.
From todays point of view, can you imagine how seeking funding looked like back then? They sent a mail letter by post to the person they’ve never seen before, heard from before, to the other part of the country (West coast - East coast), the letter itself had a number of days to come. Imagine the response, imagine how lucky one had to be in order to find funding when there literally one didn’t exist - you could only get bank loans. Well, not to spoil the documentary, I’ll stop right here with the storytelling - go! Watch the documentary!
The documentary goes through the stories of all the well known founders, from Intel and Atari to Apple and Cisco and through the stories of their investors. In my view, the documentary clearly shows how the VC business works and how it evolved, what events led to the development of both amazing companies and some excellent VCs. It shows how they know a risk when they see it, how they try to put it to a minimum while lowering costs and (micro)managing the companies they invested in, but how they aren’t afraid to tempt the wrath from high atop the thing. Of course, once in a while, luck has its saying in all. But, after the investor has identified the opportunity (acceptable return in a moderate time frame etc etc.), the main question is always - are the founders able to pull off everything they plan to do. And the key to that answer are the relationships, trust and patience that form between the founders and the investors.
Apart from that, the documentary would be somewhat better if it depicted and told the whole truth. Both sides. The failed investments, the opportunities that were missed, the companies that were mislead, the founders that that were given money for products that never launched or didn’t find their customers. It didn’t and, in my point of view, it should’ve. If nothing else, then just for the sake of the argument how there are always two sides and how nothing is ever perfect and beautiful.
Of course, as the VCs from the documentary clearly state - it was all the entrepreneur’s fault. Without the entrepreneurs, there wouldn’t be a need for financing hence there wouldn’t be VCs. Without the entrepreneurs, there wouldn’t be so many great companies, such breakthroughs in all fields and such achievements. And, without the VC financing as a catalyst in the process, we would probably be a couple of years (if not decades) behind.
Anyway, make a pause from your “2.5 men” and go and watch “Something ventured”!
What do you need to do for an International Internship in the United States?
Firstly, let me be absolutely clear - I don’t want to be misunderstood in any way and I surely don’t want to underestimate the *other* parts of the startup world, but the fact of the matter is this - most successful technology companies, startups and other parts of the startup ecosystem (accelerators, VCs etc) come from the United States. And that’s a fact. Yes, there are outliers all over the world (Skype and Spotify for example), but mostly they come from the States.
Consequently, the demand for the (summer) internships is high - every student wants to go there, gain some real experience from the epicenter, they don’t mind getting their hands dirty and sleep in a sleeping bag just to get the opportunity to be involved. Just like I don’t. On the other side, companies update their “jobs” and “careers” sites, spread the word through their employees, social media and other channels and get their application forms filled much faster than they initially thought they would.
Not only do the local wanna-be-interns have a greater chance of getting picked (they can always come to the company for a real-life interview while making a good first impression), the international interns have another obstacle to pass - getting through the process of acquiring the much needed visa. It would be (relatively) ok if the interns went through the process themselves, but the company (employer) has to go through the process as well.
So, since I applied for a number of summer internships, I did my homework - I Googled, Quoraed, talked to a couple of local ex-interns from Google and Facebook and went to my local USA embassy to talk to the officials to find out about the legal requirements and the procedure for the internship regarding the visa eligibility. Here’s what I found out.
Since most of the international interns are students, the “internship” visa they would be applying for is a "J-1 Visa" - that is a nonimmigrant visa and is part of an Exchange visitor program. You can find out more about it here.
In the process, there are three subjects - intern, employer (company, startup you want to do an internship with) and a "dedicated visa sponsor". While the roles of intern and employer are pretty much straightforward, a dedicated visa sponsor is an organization that works in close collaboration with the employer and the international intern while ensuring compliance with visa regulations (in accordance with the U.S. State Department). Basically, it is the middle man in the process, an extension of the U.S. State Department, making sure that the visa application is fully synchronized with the official and legal requirements and regulations. The list of the “dedicated visa sponsors” can be found here.
Even though the process lasts from 4 to 8 weeks, it’s pretty basic and simple and here are a couple of steps that would need to be taken:
1. Intern and/or the employer find a “dedicated visa sponsor” they want to work with.
- As I discussed with the ex-interns, for its international-intern-needs Google uses Cultural Vistas (link), while Facebook uses CDS (link) (that was acquired by Cultural Vistas).
- Obviously, there are a couple of others like International Exchange Center (link), American Immigration Council (link) or Council on International Educational Exchange (link).
- I assume they aren’t that different, but from the talks I had with the ex-interns, I gather the Cultural Vistas are the way to go because they understand the “startup world” and its needs more and could be more efficient in the process.
2. Filling out the forms and issuing a DS-2019 form.
- After getting in touch with the “dedicated visa sponsor”, the sponsor will send both the employer and the intern a set of forms to fill out.
- The employer will go through a screening process (how old is the company, does it have regular funding/revenues, what does it do, etc.) including a site visit from the sponsor, while the intern will have a phone interview with the sponsor organization.
- After all the documents required (like the company details, internship details, beginning and end dates, the intern’s training program - a month-by-month schedule and plan) are submitted to the sponsor, the sponsor will review them (in accordance with the rules and regulations).
- Before the review phase, sponsor will help in filling in the paperwork and guide both employer and intern towards a successful application.
- Once approved, the sponsor will send the J-1 visa eligibility form (DS-2019 form) to the intern.
- In this step, administrative fees have to be paid.
- The intern fills out and presents the form as part of the J-1 visa application at the local USA Embassy.
- That is usually done in a two, three day period but can vary from the Embassy to the Embassy.
- Once the visa is granted by the US Consulate/Embassy, the intern may enter the United States in J-1 status to start the internship with the employer.
Let me just share a couple of more resources I found that could be useful:
- "How to hire an international intern", a blog post from Internmatch (link)
- Official FAQ from the U.S. State Department regarding the J-1 visa (link)
- A very good and useful FAQ site from one German sponsor (link)
As I mentioned above, there’s a sum of administrative fees (visa fee + administrative fee for the sponsor) as well. The sum ranges from $1000 to $2000. Who pays for them? It varies - both Google and Facebook reimburse those expenses to the interns, but I’m sure that some companies (startups for example) don’t and can’t. Personally, compared with the potential experience gained and the benefits of the internship, the sum is surely not a deal breaker. But, it’s there nevertheless.
As I said, the process isn’t that complicated but it’s demanding - many US companies simply don’t have the resources to deal with the procedure. You can imagine what kind of resources an early stage startup has and what’s in its primary focus (product, product, product!) and how can he afford to spend a week (in total) on this procedure to get an international intern to his team when he has an equally (or slightly less) qualified local intern “right next door”. Even “bigger” companies that don’t have a proper HR department cannot cope with the procedure.
Well, I’m not here to judge, I won’t make any conclusions, it is not my place to say whether or not this procedure for a 3-6 month internship is *really* necessary. But, since the startup world is flexible, fast, constantly changing and evolving, meant to bring communities closer together, share and exchange knowledge and experiences over the globe, I will say that I hope the procedure will change for the better. And if it doesn’t, I hope that this tutorial will help other international interns in their visa quest.
DISCLAIMER - I am fully aware that there are quite a number of *other* visa types (link), but the procedure described above covers my situation - a temporary stay by a student that would return to his home country after the internship ends to continue his studies.
Seedcamp Zagreb 2012
As I mentioned from my last post where I welcomed Dave McClure and the whole #GOAP crew to Croatia, startup atmosphere in Croatia is hot.
To prove my point, I’ll point out one event that, in my opinion, has contributed most and has given a biggest push to the startup community. Don’t get me wrong, "Startup Wednesdays", "Mobile Mondays", "CISEx Fridays", the student competitions and all the other ones that were organised are great and have effected and created the community from the scratch, bringing it together, being that creative spark. We had a lot of lectures, met a bunch of important people, had Credo Ventures for a talk and even the guys from the USA Embassy who gave their support.
But, nothing can top Seedcamp. Seedcamp is the biggest european micro Seed Fund for internet technology companies based in London and founded only 5 years ago. It organizes its events around the globe, helping startups in their initial phase with advice, providing network of mentors and, eventually, even with the investment. Seedcamp visited Croatia last week for the second time and have put Zagreb on the startup map of Europe next to London, Berlin, Tel Aviv, Tallinn, Lisbon and Paris. Apart from the direct benefit Seedcamp gives to the teams that get invited (I’ll get to that later), Seedcamp brings along about 40, 50 foreign mentors that mix with about 30, 40 local mentors like Ivan Brezan Brkan from Netokracija, Matija Kopic from Farmeron, Vibor Cipan from UX Passion, Sasa Cvetojevic and Mihovil Barancic from CRANE or Ivo Spigel from Perpetuum Mobile. In that mix, foreign mentors get to know the background of the country, a little about their mentality, the opportunities for the startups and they generally network. That creates contact and opportunities for further visits and even for doing business together. I’ve seen it, it’s not just a cliche.
The process of attending Seedcamp is pretty easy, the team applies and then 20 teams get selected and invited based on a various criteria. During the event, each team has their 3 minute pitch in front of the numerous investors, mentors, sponsors and partners followed by the the 40,50 minute opportunity of talking to some of them individually, sharing their problems and seeking advice and suggestions. Since mentors all have very diversified backgrounds, every team will have all their questions answered regardless of their nature (finance, marketing, technical or other).
Till now, I haven’t had a chance to participate in such an event. I was really impressed with the teams and their ability to pitch. Bum, bum, bum, bum, bum, like on a track, one team pitched after the other, 3 minutes, bum, there comes another one. Disciplined, with no delay, perfect. Of course, there were differences between teams and pitches. Some of them came more than ready, having known what exactly were they going to say in those 3 minutes while others were not that well prepared, stuttering, having their PPT presentations done poorly. I noticed one other thing. I understand that most teams have at least two co-founders and that both of them came to the Seedcamp event to pitch. And that’s ok, but I don’t understand the point of having both co-founders “pitch”, both co-founders on stage when in fact only one of them is pitching. Is it a visual thing, does the other co-founder (the one not pitching) give his support in that way, does he just want to be visible, will the pitcher actually do better if he has his compadre standing next to him. Maybe. I don’t know but that’s one thing I found most interesting to see.
Apart from that, I was fairly surprised about the approach teams had. Common belief about Seedcamp and fund events is that teams come there simply and only to raise money, to get an investment. That’s what I thought. But, and I can’t say for the other events, but on Seedcamp, teams come not just for the sole purpose of raising money. Some teams even state that during their pitch. Since during the Seedcamp event teams can talk to mentors and gather advice, that is what they’ve come to get. Advice, contacts, suggestions, business and payment model help. That fact brings the whole thing to a totally different level.
You can find the teams that came to Zagreb here. I will just highlight some of them I find interesting. 6sync, a team of two who are developing a hosting management platform whose goal is to cut down the hosting costs. Mash.me, a Kinect web application for video recording with real time motion capturing and effects had a nice, structured and down to earth pitch. Table&Friends, a group dinner reservation system. Anctu, a social search engine with detailed analysis. Publification, a cloud-based ebook in browser reader had an awesome, most energetic pitch. Their pitch was different from all others by far and I’m sure it will be remembered. Last but not least, Shoe Addicts, a lovely photo sharing app for the shoe lovers.
Like I said, I haven’t participated in such an event before so I would really like to thank Carlos and Kirsten from Seedcamp on an opportunity they’ve given me to help organize the event. The whole event was absolutely unbelievable with the informal part at the end that rocked! I am sure everyone who was there will agree!
PS - This song brings me a whole other set of associations now. Along with Austin Powers. :)
#GOAP is coming to Croatia!
In my little country of Croatia that is mostly tourism oriented with not that much production and manufacturing companies and a big consumerism attitude, it is safe to say that startup atmosphere is hot. It has been cooking for a while now and it has reached a temperature of no return. The ingredients are ready and its peak, its boiling point, when the meal will be prepared for serving, is expected to happen in the next year, maybe two. At least, that is my prediction and I really hope I won’t be wrong.
I don’t know when it really started, but I think it is fair to say that the startup community got a pretty good push back in 2010 when the first Seedcamp was organized and the and the teams like Giscloud and Salespod won and were selected by a popular vote. Not much things changed from then but the young tech savvy people saw that successful projects can really be done and that a bright perspective exists. Last year, Farmeron came, along with some of the other top startups such Shoutem. That push gave a lot to the community and consequently led to the organisation of the 2012 Zagreb Seedcamp.
Meanwhile on Twitter, the whole startup community was fighting their war against Poland. Dave McClure, one of the most influential venture capitalist and the founding partner at 500 Startups had a dilemma - where to go next, which country is hotter. He decided to let “the market” sort itself out and let the Twitter audience make his mind up.
Of course, in that moment, all bets were on Poland. Poland with about 38.5 million people against small Croatia with about 4.5 million people. In Twitter numbers, I know that (only) about 20 000 Croats are on Twitter. So, I would assume that at least 250 000 Polish people are on Twitter. We Croats have always fought against the odds.
Having our best Twitter troops mobilized and organised through Netokracija, our leading social media and startup site, we did out best. Numerous tweets, wave after wave, going and flying through the tweetersphere like dry leaves in the wing on the automn night. Countless RTs explaining why Croatia is hotter, describing the pros and letting Dave know what would he expect in Croatia. Mentions were high, I assume Dave’s smartphone mention notification must’ve popped.
Eventually, our President and Minister have also come to the rescue having their official invitation given. Apparently, that was a final blow to the Polish candidacy.
The days have gone and the unbelievable startup week has come to a close. And then BAM! The announcement has come from their blog site - Zagreb, Croatia has been chosen! Seriously!
Well, Twitter exploded, Dave, I’m sure Your smartphone is off by now and going crazy out of notifications. :)
All jokes aside, to Dave McClure and the rest of the team, You are most welcome to Croatia, I am pretty safe to say that we will make sure You have the time of Your life here during Your stay - sea, islands, food, wine, women (and men :D ), music and a rocking startup atmosphere capable of reaching the stars! Welcome!
PS - Being a geek that I am, I have to say that I also contributed to the Twitter war, having sent two tweets Dave favorited. #CroatianMafia won! :)