Angel Investing is expected to pick up in 2011. In the past, tapping a home equity line of credit was a critical way for entrepreneurs to fund their business. But since that avenue for for borrowing has dried up, entrepreneurs have had to look for alternative ways to fund their business. Todd Taskey, writing in Small Businesses Trends takes a “look behind the curtain” to see how one very successful angel investment group tracks and considers its investments.  He looks at 3 factors- 1) Pre Money Valuation, 2) Liquidation Preference and 3) Market Perspective.

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Why do so many startups fail? You may be really smart, execute well and have the funding.  However, the bigger problem may that the problem is too big to handle. The blog Business Insider lists ten startup ideas that never work.  They are:

1. Semantic Search/Any search company that’s not Google. When was the last time that you asked Jeeves anything?
2. Social recommendations as a standalone don’t work.
3. Local News Sites. Perhaps the Patch network of sites may work, but probably not because of lack of advertising dollars.
4. Micropayments don’t work. The site with the best content, The New York Times failed charging by the article.
5. Stop trying to kill email. Look what happened to Google wave.
6. You can’t try to make a better car company. Tesla has sold only 2,000 cars.  How about the DeLorean? I vividly remember John DeLorean busted on tape selling cocaine in a ludicrous attempt to save his company.
7. Music startups can’t get enough paying customers. I am a music geek and have  purchased music online occasionally on iTunes and rarely on Amazon. (I still purchase CD’s at J&R Music, so I may be a bit of a dinosaur).
8. Marrying the web and the TV hasn’t worked out.  Even though all the cool kids in New York love Boxee, do you know of anyone who uses it? It remains to be seen what happens with Apple and Google’s latest offerings, but history is not on  their side.
9. RSS Readers are not a business. Whatever…. Google does the job reasonably well.
10. A startup focused on kids or making life easier for parents. I’m not sure I agree with this overboard generalization. Certainly my hometown of Port Washington,NY needs more daycare centers. However, if you are planning a startup to take on the big boys, ie Target, Wal-Mart et. al, you are looking for trouble.

What do you think? What is on your list for startup ideas that never work?

The Law Office of Frederic R. Abramson represents startups and small businesses in New York. If you have any questions, feel free to call me at 212-233-0666.

President Obama signed into law today the Small Business Jobs Act. If you are an entrepreneur or run a small business, there are a number of key provisions that can help.

1. Successful SBA Recovery Loan Provisions will be extended. The extension of these provisions provides the capacity to support $14 billion in loans to small businesses. That’s a big wade of cash which your business may be able to tap into.
2. Maximum Loan Size for The Largest SBA Programs will be more than doubled.  This could help to provide greater access to working capital loans that small businesses use to purchase new inventory and take on their next order, which could help small business owners  create new jobs.
3. A New $30 Billion Small Business Lending Fund. I am really interested to see how this is going to work. Currently, many small businesses are having difficulty obtaining access to capital because banks have cut off their credit. This provision would provide incentives to small banks to lend to small businesses.
4. An Initiative to Strengthen Innovative State Small Business Programs – Supporting Over $15 Billion in Lending.  I am not sure how this will play out.
5. Eight New Small Business Tax Cuts – Effective Today:

• Zero Taxes on Capital Gains from Key Small Business Investments.
• Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments.
• Extension of 50% Bonus Depreciation.
• A New Deduction of Health Insurance Costs for Self-Employed. This is huge for self-employed individuals.  If you are self-employed, you can get a deduction for the cost of health insurance for yourself and your family members in calculating your self-employment taxes.
• Simply deduction for cellphone bills. You can now deduct the full cost of your cellphone without providing documentation about each and every phone call.
• An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses. Entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000) in expenditures.
• Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business. If your business get audited, this should help.

What do you think of this bill? What more (or less) do you think the government should do to help small businesses.

The Law Office of Frederic R. Abramson represents small businesses in New York State.

Two-thirds of net new jobs are created by small businesses.  However, the National Bureau of Economic Research found that once the age of a business is taken into consideration, there is no systematic relationship between firm size and growth.

According to the New York Times, nearly all job growth occurs when businesses are starting up. When businesses mature,  job expansion essentially stops.

Our unemployment rate is at 9.6%. Any serious solutions for creating new must focus on how to create new start-ups and nurture new firms that are in their infancy.

Some argue that raising long-term capital gains, like the Obama administration is proposing, can hurt the prospects of start-ups.  Since angel investors calculate taxes when deciding how much to invest, they may decide to fund less start-ups.

On the other hand, most new businesses make  little or no income. Entrepreneurs focus on making it big, not on taxes. The  New York Times notes that when Microsoft started up, the top income tax rate was at 70%.

One cheap way of fostering start-ups is by granting more residence visas to skilled immigrants, especially those who attend American universities. On February 24, 2010 Senators Kerry and Luger proposed the Startup Act of 2010, which would permit immigrant entrepreneurs to stay or immigrate into the  United States if they have secured “significant” funds to start a new company. Since immigration is a sensitive issue and the mid-term elections are upon us, this bill seems unlikely to pass soon.

Start-ups are always in need of capital. Unfortunately, banks have tightened their lending to start-ups.  Since the private sector is unwilling to lend, the government may have to step in and start lending to start-ups.

Another possible solution is to provide funding for incubators. Currently, there is an excess capacity of commercial real estate. The government should provide tax breaks to landlords to provide below market leases to incubators. Incubators would be required to house no less than three different businesses and be in business for less than 3 years.

What to you think? Is funding incubators a good idea? What are your solutions for job growth?

Frederic R. Abramson is the principal of the Law Office of Frederic R. Abramson, which represents start-ups.

Simon Sinek has a simple but powerful model for inspirational leadership all starting with a golden circle and the question  People don’t by what you do but why you do it. His examples include Apple, Martin Luther King, and the Wright brothers. Watch his TED talk.

One of the great problems of the information age has been the disruption of  local communities.  During the last generation, people were able to rely on their local community to help them sustain their businesses.   Accountants were able to order a pint of Guinness at their local Irish pub and pick up a new tax client before the time the beer has settled.  The local butcher could rely on his buddy’s from his softball team to pick up osso buco at his store.

Now the local accountant has been replaced by H&R Block and you buy your meat in shrink wrapped plastic on environmentally unfriendly styrofoam at Stop and Shop. Even the local watering hole has been replaced by a TGI Fridays.  In the process, our local communities are being destroyed.

You may be paying a bit less in the short term, but there is a price. Our lives are missing the interaction of oral conversations that last more than a couple of minutes.  These conversations are important not only financially, but socially. If you are a financially planner, the local accountant would naturally refer you business.  The butcher probably knows about the best poker night in town.

Now that our local communities have been upended, many of us are turning to socially networking to re-build our communities. Unfortunately, social networking sites such as Twitter do not allow for many deep meaningful interactions that lead to building communities very quickly.

A community looks to each other to grow the relationship and to interact.  According to Chris Brogan, community happens when you feel that you are among like-minded people and when you feel that your contributions matter.? Communities empower users of products or services, or people with like-minded interests to interact.

You may not realize it, but who you buy from really matters.   Spend a few moments and think about the impact of what you purchase.

Yesterday I bought a gift for a for a two year old girl at the Dolphin Bookshop, in my hometown of Port Washington, New York rather than Barnes and Noble. The purchase supports a local independent bookstore in the community. I love technology, but don’t expect Kindle stores showing up on Main Street anytime soon.

The next time you are wondering why someone from your community hasn’t bought something from you, you should think what have you done lately to build our community.

What do you think? What are you doing to help build your community? Have you been able to use social networking sites to build a community?

I have recently started reading The Magic of Thinking Big, by David J. Schwartz. The book, written in 1959, has been getting a lot of ink lately because his ideas are classic. Business thought leaders such as Seth Godin and Tim Ferriss cite the book as required reading.

Mr. Schwartz suggests that we should practice giving value.

• Practice adding value to things. Look for ideas to make things worth more
• Practice adding value to people. As you move higher and higher in the success world, more and more of your job becomes people development. Look for ways that you can help others. Take a look at your contacts and find ways to connect them.
• Practice giving value to yourself. You need to ask yourself everyday what can you do to make yourself more valuable today. With social media, you can make yourself more valuable by writing a blog.

Let me know of your action steps towards providing more value.

Social Media is an ongoing experiment.  Both people and companies are using this new tool to connect with people that they have never met in person.  The main goal of all of this activity is to generate new business.  The million dollar question is how to convert your Twitter followers and Facebook friends into paying customers.

The answer, according to members of the panel convened on October 23, 2009, at the Trust Summit, is to build trust. In front of a packed room of tweeps at the Harvard Club in NYC, social media rockstars Chris Brogan, Julien Smith, David Maister and Charles H. Green, discussed the issue of trust and how it relates to social networking.

According to Chris Brogan, the relationship economy will move the future. The goal of using social media is to create sustainable relationships over time.

In his book Trust Agents, Chris explains that on the web, groups of highly motivated people within every circle have already joined together, helping each other reach a higher ground. I asked Chris, through Twitter,  how professional service businesses (ie law) can harness this group to become clients. I am skeptical that lawyers and other service businesses can use social media to achieve this goal. Chris responded that you need to be a priest and build a church. What he means is that you should use social media to be part of multiple groups that will help your access each group.  Your goal is to be in the center and be the priest.

The trust paradigm is not new. Charles H. Green lectured that you shouldn’t view business through the lens of competition.  The purpose of companies is to serve society.  He argued that competitors should work together to serve the public.  Cooperation between competitors serves everyone interests.

David Sax, writing in Save the Deli observed this spirit of cooperation in the thriving Los Angeles Jewish Deli scene.  Throughout the country, Jewish Delicatessen is an institution that is in decline.  The pastrami is expensive and people are worried about the impact of schmaltz on their cholesterol.  But in LA, the Jewish Deli is thriving because deli owners cooperate.  If Nate N’ Al’s is out of stuffed derma, they call over to Greenblatt’s  for help.   You should do the same when using social media.

As Julien Smith eloquently put it:  “Social media is still an experiment. Be curious of other people when using social media. Only by risking can we create greater things for everyone.”

Article of the Week:

10% of Twitter users account for 90% of tweets: http://tr.im/n54w

The latest Law Reads:

@Turkewitz Did Sotomayor Violate NY Ethics Rules in Private Solo Practice with “& Associates” Name? http://bit.ly/eF4jU

@VBalasubramani blogged: “Tony La Russa’s Legal Claims Against Twitter Look Tenuous” http://bit.ly/eDcSe

Social networks increasingly leading to questionable firings http://twurl.nl/w1kyhn

Facebook Friend Earns Judge a Reprimand http://bit.ly/3XUE7a

Small Businesses Take Tentative Steps Toward Online Networking http://bit.ly/2KVVF (via NYT)

6 tips for landing big customers http://bit.ly/fvJsr

@jowyang In the age of Twitter, blog posts start to matter more and more, see this wraup of #TWTRCON http://bit.ly/XKLyA

Google giving small businesses local search data http://bit.ly/yF09I

10 Ways Twitter Will Change Business: http://twurl.nl/7310i5

The Twitter Marketing Debate:

Larry Bodine: Twitter Not Effective for Law Firm Marketing

@barrettdavid: Is Twitter “Effective” for Lawyer Marketing? The “Bodine Debate” – http://twurl.nl/zxg53t

@glambert “Legal Marketing, Statistics and Hard Work” – http://is.gd/N9kT

@nikiblack “Legal Tweets: Kevin O’Keefe on social media for lawyers at the “Get a Life” conference” ( http://bit.ly/RYohc )

@lancegodard My take on esq & twitter hasn’t changed http://bit.ly/17cI6s but ways they use it have: http://snurl.com/j1tea via @jdtwitt

Is Facebook Turning Us Into Digital Sharecroppers?”  Good stuff here from Small Business Trends.

Has the Internet made you more productive?  more…>

The NYT reports about tech entrepreneurs trying to be the next Twitter at sxsw. more…>

Brian Tannenbaum provides sage advice for bar applicants with legal issues. more…>

Interesting thoughts of potential problems with Twitter in the future. more…>

The Economist reports on the Secrets of Entrepreneurial Success. more…>

Here’s a story from the NYT about people who are becoming entrepreneurs because they are tired of looking for work. more…>

Risk is overrated for these four iconic NY Businesses. more…>

100 Things More Popular Than Twitter. more…>

Top 10 Social Networks for Entrepreneurs. more…>