Continuing my ad-hoc series on avoiding the entrepreneurial lottery, another way of avoiding lottery odds is to require real capital for your project (and to get it funded).

When we started Open Market in 1994, a basic Unix server and SQL database cost $100-200k.  It took real money to build Internet companies, and that meant competition was limited by available capital.

Now, anyone with a $500 laptop can start an Internet company (or copy your idea).  Tools are free, and hosting starts out free.  As a result, there seem to be as many would-be Internet entrepreneurs as there are aspiring novelists.

If your idea needs real capital (beyond salaries), you’ll have a much narrower competitive field.  Sure, there’s a lot of venture and angel funding available, but getting funding is a filtering function and barrier to entry.

VistaPrint is a great example:  though they initially outsourced their printing, they ended up spending millions on their own print operation (fed with custom software).  They weren’t going to find any serious direct competition from a Y Combinator project team.

(Note:  raising capital for customer acquisition is not enough of a differentiator.   You’ll still compete with companies finding customers in capital-efficient ways.  See my article on customer acquisition.)

I don’t know any entrepreneurs that love raising money.

It’s usually a necessary part of startups, but most entrepreneurs I know have their passion directed at their product, market, and customers, NOT at investment deal minutia.  Also, for funding rounds, entrepreneurs have to deal with a skill and experience imbalance.  A startup entrepreneur may raise funding every other year or so, while her venture investors are doing many investment deals a year. It’s no wonder that many entrepreneurs rate the funding process like a dental visit.

But, there’s some good news for entrepreneurs:  I just got Venture Deals by Brad Feld and Jason Mendelson.  I will be handing this book out like candy — I can’t recommend it enough.  It’s an excellent overview of how venture deals work, combining a perfect blend of investment mechanics with practical advice.  We’ve needed a book like this for a long time.

Even if you’ve been through the funding process a few times, it’s worth reading.  If you don’t agree, I’ll buy your copy.

With Google+, we’re now reading the comparisons with Facebook, and the inevitable commentary on the commentary.

I think Google+ is very interesting (and doesn’t suck), but it’s too early to tell how it will play out.  Google’s biggest hurdle is not Facebook’s current feature set, but Facebook’s ability to iterate product functionality.

Facebook isn’t perfect (the design of Messages pretty broken right now, IMHO), but they’re very good at trying features out and continually improving and deepening the Facebook experience.  Small things matter:  the way you just hit <Enter> to submit status comments makes commenting much more lightweight and chat-line.  (Contrast Facebook to Twitter, who’s user experience has been at a virtual stand-still for years).

Google’s in the race, now let’s see if they can run it.

On Yuri Milner making a blanket investment (loan) offer to every Y Combinator startup:  very interesting and good headline fodder, but in many ways, not surprising.

The return distributions for Internet-flavored technology startups have gotten very, very skewed.  For example, instead of a bunch of big exits ($500m or more) per year, we’re going to have one gigantic $50b Facebook exit.  The expected value for investors and entrepreneurs may not have changed much, but the chances of any single project generating a return is much lower.  It’s becoming more like a lottery.

If you wanted to play in this market, what would you do?  Buying a little bit of a lot of lottery tickets is not a bad idea, especially if:

• You have a huge fund.
• You believe that Y Combinator is a reasonable filtering function for startup quality.
• You get visibility and an option (explicit or implicit) to invest more later in the winners.

Most blog posts are way too long.

A quick protocol note for entrepreneurs raising money from angel investors:   asking for referrals from one angel to another can be tricky.

If you ask angel investor A for a referral to investor B, the first question B is going to ask of A is:  “are you investing?”

If A’s answer is “no”, it is unlikely the referral is going to go anywhere.

Is it me, or does it feel like many entrepreneurial discussions today aren’t about new ideas, but are about the “meta” stuff (processes, methods, groups, etc.) around entrepreneurship?   Everyone seems to be talking about seed stage funds, how to get funding, how to start companies, the latest Y-combinator clone, organizing meetups, incubators/hatcheries, etc.

To use an analogy I saw fly by somewhere (and can’t fully credit, sorry):  it seems like the action has moved from making money on foreclosures, to infomercials and books about making money on foreclosures.

Are ideas so plentiful they’re not the focus anymore?

Am I hanging out with the wrong crowd?

With products, it’s always interesting to compare initial impressions with longer-term impressions.  Sometimes they match, sometimes not.  The story about New Coke and sip testing is a good reminder that initial and long-term impressions can diverge.

After a week of living with the iPad, here’s my usage:

• Book reading (using Amazon’s Kindle app)
• Videos (The Blind Side via iTunes, kids videos from Netflix)
• Light email (reading only, or one sentence replies)
• Reference lookup (general Web surfing, Wikipanion)
• Games (Flight Control HD)

So far, it’s pretty consistent with my initial impressions.

I seem to have two types of friends:  those that like Facebook and those that hate it.  The haters have a range of explanations, but the common theme seems to be:  “I don’t need a tool to manage my friendships!”

I like Facebook quite a bit, and I think I’ve finally figured out the core of why it works so well.  (Maybe I’m just slow).

It’s about “soft sharing”:   I can share things about myself, my life, my work, and my family without being intrusive to my friends.  For example, I’ve recently been hacking around on a small CNC machine in my shop.  I’d never email out project updates and pictures to ~300 friends, but I did post things about it on Facebook.   Facebook provides tools for my friends to sort through what they do and don’t want to see.

The result has been really interesting:  I’ve met a few new people (friends of friends), and ended up with some meetings that never would have happened otherwise.

So, to my Facebook hater friends:  relax, and sign up.

I just posted a long note/essay on how to run a startup board meeting.