The $37 Investor: When Publicity Is Worth More Than Cash

Maciej Cegłowski didn't know what to expect when he announced the Pinboard Investment Co-Prosperity Cloud, a tech startup fund that emphasizes publicity and mentorship more than cash. In December 2012 more than 300 hopefuls e-mailed Cegłowski their startup ideas--a number the San Francisco web guru says "completely stunned" him.

In January, Cegłowski announced the six winners. Among them: a weather-forecasting system for sailors, a web community for board-game enthusiasts and a site on which people can sell home-baked goods.

The prize? Each received $37--and a nice publicity boost and mentorship from Cegłowski, who has grown Pinboard, the social bookmarking site he launched in 2009, into a one-man, $250,000-per-year operation.

We asked Cegłowski about his contest and his hopes for the six startups.

Why $37? 
People need to recognize that if you have free technical labor available, you don't need additional funding for most ideas. I wanted to [test this theory] by giving a tiny token in funding but also as much publicity as I could and as much help in getting them over the first hurdle of actually having users, whether it was access to people who could help them or introductions to potential customers. I thought the $37 would be a fun gimmick, but I was serious about trying to help people with getting the word out.

How did you choose the six winners?
I had a list of criteria: Was it a viable idea for a small business? Was the person capable of building the thing they described? Did they seem like someone who had the focus to do it? It had to involve the internet so that I could, if necessary, help with introductions. I filtered out anybody who had already gotten funding or had worked on startups before, because I figured they already had a network.

How are you helping these firms? 
If you are trying to make an app and you get stuck and want a collaborator, I can probably help you find someone, because I have an audience that I can yell to for help. Then there's this pure psychology aspect of it: It legitimizes you. And it's not just the customer seeing you as more legitimate because you've won a contest and you're being treated like a real business. Now you start to take it seriously because someone else is taking it seriously.

How long will these startups be under your wing? 
I hope it's an indefinite relationship. In running the contest, the goal was to try to get them their first group of customers. If that turns out to make a difference in their businesses, I'll try doing another round of this.

What is each required to do in return? 
I'm out $37, so I hope to get that back someday. I'm hoping that they'll share with me what worked for them and what didn't, and that I'll hear from them down the line about how it's going. But they're not obligated to do anything. They can just take the money and run if they want.

What do you hope to see happen with these businesses? 
We have this image of startups like Facebook and the Mark Zuckerbergs of the world, where you swing for the fences, and either you get a huge hit and you're growing by hundreds of percent per year, or you fail and you try another startup. But there's so much room for these lifestyle businesses, where you actually do something for years and years and you enjoy it, and it gives you a living and independence.

Anywhere but the tech world that's considered a wonderful victory. I want to try to remove that stigma and encourage people to actually try it. I think there's never been a better time to do it than now because of the combination of these wonderful, free online tools for building and running things and the fact that people are starting to understand that it's OK to pay 99 cents for an app or $6 for a website. It's a golden opportunity.

Students Funding Students: A Look at Campus-Based Investment Funds

Venture-capital firms itching to find the next Matt Mullenweg or Mark Zuckerberg have found a creative way to uncover promising student-run startups: They're enlisting the students' peers to identify and fund them.

Investment funds run by and for student entrepreneurs have recently popped up in several cities. The funds provide not only capital but also access to mentoring from peers and VC veterans.

Here's a look at three student-run venture funds:

Rough Draft Ventures

Peter Boyce, a soon-to-be Harvard University grad, cofounded Rough Draft Ventures after seeing student startups stymied by monetary needs. "Not everyone has access to friends and family, and not everyone can drop out to raise a million dollars," he says. "How do you support students who fall in between that?"

Focusing heavily on software, Rough Draft is funded by VC firm General Catalyst Partners. Boyce sees the fund investing in early-stage student entrepreneurs who aren't ready to raise a seed round.

In March, Rough Draft announced its first investment: $20,000 in Balbus Speech, which was founded by Tufts University junior Jack McDermott to create apps for speech therapy. "[Jack is] the prototypical example of the entrepreneur we're trying to fund," says Zachary Hamed, a Harvard junior who co-founded Rough Draft with Boyce. "He has two apps, and he's trying to roll out more."

Related: For Financing and Mentorship, Would You Forgo Future Income?

Rough Draft invests up to $25,000, Hamed says, and at least one founder must be in college in the greater Boston area.

Dorm Room Fund
VC firm First Round Capital, which has invested in student-driven startups including Birchbox and Warby Parker, launched Dorm Room Fund in Philadelphia last fall and is expanding it to New York City and San Francisco. "We've seen what great things students can build, but raising capital while you're in school is really difficult," says CeCe Cheng, the fund's director. "We want to bring capital and other resources closer to campus and give them that option to test their hypothesis."

Dorm Room Fund's average investment is $20,000. So far, the Philadelphia branch has announced investments in three startups: Firefly, a co-browsing tool founded by three University of Pennsylvania undergrads; Dagne Dover, a handbag and accessories brand led by several soon-to-be alums of Penn's Wharton School and Whamix, an interactive tablet video company co-founded by a Wharton MBA student.

Although the initial investments all have ties to Penn, Derek Kleinow, a founding member of the fund's Philadelphia team and a Wharton MBA student, says the fund is open to student-run startups throughout the greater Philadelphia area as long as at least one company founder is a current student or graduated within the past six months. The investment team itself includes a mix of students from Penn and Drexel University.

Related: Ken and Ben Lerer Share Their Top 5 Secrets to Success for Young Entrepreneurs

In evaluating applications, Kleinow says, the investment team asks such questions as: "How interesting is the market? Is the potential there to build a big enough business? What kind of actionable things have they done to take their company from an idea to an actual business?"

The Experiment Fund
Harvard has spawned hundreds of successful entrepreneurs, and VC firm New Enterprise Associates hopes to spur on more with The Experiment Fund (XFund for short), which it launched January 2012.

"How can you take these brilliant minds and how can you prevent them from thinking the university will not support their activities?" says Patrick Coats, a Harvard junior who sits on the XFund's investment team. "The XFund is a big statement that we don't want to chase these people away."

Hugo Van Vuuren, who graduated from the Harvard Graduate School of Design, and Patrick Chung, who earned a joint degree from Harvard's law and business schools, are partners in the XFund. Chung says they plan to make four to six investments a year, averaging about $250,000 apiece.

Related: Spreading the Love of Silicon Valley (infographic)

According to Chung, about 40 percent of applications so far have come from Harvard, about 40 percent from the Massachusetts Institute of Technology, and 20 percent from other Boston-area colleges. XFund has invested in such startups as Rock Health, an incubator for tech startups in healthcare founded by two Harvard Business School grads, and Tivli, a startup that enables college students to watch live TV on their computers.

While Dorm Room Fund and Rough Draft Ventures fund current students, XFund requires that its startups have a full-time team. That would include founders taking a leave of absence or recent grads or currents students devoting their summer to growing their startup.

XFund's investment team also seeks startups that will contribute to the broader community. "It might be producing student employment, producing a piece of knowledge or technology that's going to be beneficial, but there has to be some kind of broader purpose to the business," Chung says.

This story originally appeared on Young Entrepreneur

5 Startup Naming Rules From SXSW

If SXSW Interactive is any indication, and it usually is, then this is the age of the startup. It also means this is the age of the unfortunately named startup. We've all come across a company's name that's missing all its vowels, has superfluous "Z"s tacked on, or is so many words hacked together that its meaning is completely lost.

Gary Backaus, chief creative officer, and Justin Dobbs, associate creative director at Memphis-based ad agency archer> malmo gave a presentation on Monday at SXSW with five simple rules for naming your startup: 

1. You're not naming a startup, you're naming a brand.
According to Backaus, the biggest mistake you can make naming your new startup happens at the very beginning. If you have a name already in mind, while it may be your first instict to see if the domain name is taken, that's the last thing you should do. More than likely it won't be available, and that's when the arbitrary alternate spellings and additional letters start happening for many entrepreneurs. A much better strategy is to think about your brand name in the context of the real world, not among other startups or as a URL. Come at the name from every possible angle, make lists of adjectives and the human qualities you want to emulate.

2. Make the right first impression. 
Your name should create a first impression that’s positive, intriguing and clear. "Think of your name as your [brick and mortar] sign," Dobbs encourages. It can either drive traffic to you or drive it away. Your list of potential names should fit within your brand positioning, be unique, and be easy to read. This is where intentional misspellings or extra "Z"s could be a significant hindrance.

3. Don't create conceptual or technical hurdles.
Backaus put it simply: "You don’t need a big idea for your name. You need a name for your big idea." If you have to constantly explain the meaning or the pronunciation of your name to people, especially people that you pitch to, that's a major hurdle. In no way should your name be a disconnect from what you want to accomplish with your brand.

4. When necessary, be descriptive.
Descriptive doesn't mean boring, especially if your startup is in a niche or technical field. Another big reason to avoid the early pitfalls of checking domain name registries is because a company name you've invented that's unavailable could be paired with a simple descriptive word to create your final, custom, website name.

5. If it ain't broke, don't fix it.
Let's say you already have a startup name, but a shift in your company's focus arises and you feel the name should change. This is ultimately a judgement call, but if your current company name is not tied to an individual product, and your overall brand identity and values have not changed, your current name may be just fine.

"Naming is hard," Backaus said. It's not an exact science, and there's no perfect how-to guide that will work for every startup. If you spend time at the beginning thinking about the one thing you want your company to do, who your audience will be, and your competitors' names, you're on the right track. When you have your final candidates for a name, just be sure to Google them and check what Google Images comes up with. It's always a possibility someone else came up with your name first and it's tied to vulgar slang or images online.

What have been your experiences with naming your company?

by Bryan Keplesky