A special thanks to Congressman Gerlach, Congressional Candidate Pat Meehan, Commissioner Farrell and State Rep Candidate Ken Buckwalter coming today and showing their support. 

How to Win the Hearts of Investors

To me investing in early stage entrepreneurs is kind of like dating with the hopes of finding the girl you are going to marry.  Like a marriage, there is no turning back once you put money into a deal and while it can be very rewarding, it also requires a long-term commitment of working with the person you invest in.

Like my dating philosophy (when I was younger of course) my goal is to 1) Take a quick look at as many options as manageable 2) Spend time with the options that catch my eye 3) Marry the investment that win my heart.

So how do you win mine and other angel investors’ hearts?  Friday I closed a seed round, alongside Gabriel Weinberg and a handful of other investors, which clearly demonstrates what I and other angel investors are looking to marry.

The company is a modern Indian dating site called myZamana.  It was founded by Ashish Kundra.  I fell in love with myZamana because of the entrepreneur.  What I saw in Ashish was 1) someone who was adaptable, 2) approached entrepreneurship in a very methodical and calculated manner, 3) had a clear understanding of the core assumptions the business model and 4) of the right time to raise money

Adaptability – Too often entrepreneurs fall in love with an idea and due to human nature cannot let go of that idea.  However, rarely is an idea perfect from the start and sometimes it is just a bad idea. Ashish had originally founded a company called Mobibolt, which was funded by Launchbox Digital in 2008.  After leaving Launchbox Digital he raised a small amount of Angel funding. After several launches and multiple iterations on Mobibolt, however, he saw for himself that there was no path to success. Rather than running down a dead end, he chose to change course entirely and, with the support of the original investors, used the remainder of the money to build and test a new concept entirely. This open-mindedness and willingness to change paths is critical for successful entrepreneurs.

Methodology – More and more I am starting to see a difference in first time entrepreneurs that come out of the accelerators versus other first time entrepreneurs.  These accelerators force entrepreneurs to focus and attack entrepreneurship in a very methodical and unemotional way. In addition because they are surrounded by a dozen or so other companies that are doing the same thing, this process becomes human nature.  Over time it becomes like breathing. They do not even know they are doing it, but it is what is keeping them alive. 1) They test their ideas and look for customers and market feedback that is quantifiable. This allows entrepreneurs to remove themselves from their products and look at them objectively.  This is a key ingredient to good decision-making. 2) They tend to better understand the importance of maximizing their limited resources. Simply put, they learn not to waste money because the accelerators do not give them much money.  Ashish clearly was frugal. On top of his very modest personal standard of living, he prioritized his spending to effectively test his idea. To me this also shows commitment and a willingness to sacrifice in order to increase the likelihood of success.

Core Financial Assumptions – Ashish did not present a 20-page business plan.  He had a small pitch deck and more importantly, had a financial model that clearly defined the core assumptions of the financial model.  He had defined and understood each of these variables.  Just as importantly, he understood where he was and where he needed to be regarding these variables. This provided me confidence that he was focused and knew what he needed to do to be successful.  The alternative to this, which I usually get, is a P&L statement and hockey stick revenue forecast based on one or two customers (if any).  More importantly, the key variables are usually buried in the model and I cannot tell what is important and what is not.  Which means I assume the entrepreneur cannot tell what is important and not.  With Ashish, I asked him, what if you only reach a conversion rate of X. With one keystroke he knew the impact.

Timing – Ashish did not go out and raise money as soon as he developed the idea.  He waited.  He validated his core assumptions–not completely–but with enough certainty that he reduced the risk of the business dramatically, which meant less risk for investors.  Less risk for investors leads to high valuation, which leads to more ownership for the founders.  Good entrepreneurs maximize their own returns by raising money at the right time.  I respect this understanding and am more willing to invest when I see this in entrepreneurs. 

Angel and Venture Capitalist often say they invest in entrepreneurs, not ideas.  This is confusing and little misleading to entrepreneurs.  What is really being said is that good entrepreneurs are adaptable, use a methodology and financial modeling to develop and perfect ideas and because of this process, these same entrepreneurs leave the bad ideas behind. Coupling this process with the right time to raise money maximizes the investors and entrepreneur’s returns. 

That is what makes investors fall in love.

Steve Welch

Entrepreneur & Angel Investor

Check on my new book on Entrepreneurship

Angel investors and entrepreneurs are not Wall Street bankers.  This distinction is obvious to you and me, but apparently not to Washington. The new Senate Financial Reform Bill, which is likely to be voted on this week, lumps the two together as one group. If allowed to pass in its current form, this bill will destroy the way in which our society helps entrepreneurs turn their crazy innovative ideas into viable job creating businesses.

Angel investors are individuals that invest in early stage businesses that often consist of not much more than a folding table, a couple of computers and lofty aspirations. However, it is these early stage investors that often invest in companies five years or younger and help get high growth business off the ground.  Apple, Google, Facebook and a thousand other high growth businesses you have never heard of, all got their start because angel investors took a risk along side entrepreneurs.

It is these types of business that lead in both innovation and job creation.  In fact a recent Kauffman foundation study found that between 1980 and 2005 every single net new job created in the United States came from a company 5 years old or less.  It  is clear that one of the keys to job creation in our country is to ensure that early stage entrepreneurs have access to capital.  This is why many of our political leaders and candidates are trying to craft policies that support angel investors.  In fact, gubernatorial candidate Tom Corbett is proposing an angel tax credit for Pennsylvania angel investors.

With such clear understanding that entrepreneurs and angel investing are critical to economic growth and job creation, you would think our leaders in Washington would be doing everything possible to promote this type of bottom up economic development.  Unfortunately, we are seeing another example of top down Washington economic policy.

In its current state, Senator Dodd’s Financial Reform Bill would make two sweeping changes to the way in which angel investors and entrepreneurs can operate.  First, the bill would redefine who would be qualified to be an angel investor.  Currently individuals with either $1 million in investable assets or $250,000 in income qualify as accredited investors.  The new bill would change this to individuals with $2.3 million in assets or $450,000 in income.  According to the Kauffman Foundation, this would eliminate 77% of accredited investors.  This single handedly would reduce the amount of capital available to early stage businesses and stunt our much needed job creation.

In addition, the new bill would require any company attempting to raise angel investment to seek SEC approval, which would take up to 4 months.  As an active angel investor myself, I can say with certain that companies in this stage can rarely wait four months for funding. They will simply be forced to close up shop. Yet again this is another example of government bureaucracies getting in the way of the thriving entrepreneurs that this country needs to unleash, not restrict.

Angel investors and entrepreneurs had absolutely nothing to do with the financial meltdown of 2008, and no one believes they pose a systemic risk, so why are they being lumped together with Wall Street Bankers?  Proponents of the bill say that Washington is trying to protect people from risky investments.

Yes, angel investing is risky, and starting a business from scratch is even more risky.  However, it is this calculated risk taking that has allowed the United States to be the most innovative society in the world and has provided us a standard of living the world has never seen before.  If Washington insists on completely eliminating risk from the marketplace they will also eliminate entrepreneurship and innovation and this, in turn, will eliminate job creation in the process.

As a society we need to be looking for ways to increase capital to early stage businesses.  We need to be trying to find ways to lower the bureaucratic burdens place on our entrepreneurs.  The Financial Reform Bill goes against both of these principals, and punishes us all by restricting our entrepreneurial spirit as a society.

Steve Welch

Entrepreneur & Angel Investor

Author of “We are all Born Entrepreneurs”

This campaign has certainly been a life-changing experience. The more you engage in the debate over the direction of our great nation, the more you appreciate the importance of the fight, and the need to fight even harder. However, it has become clear that fighting in this campaign will do more harm than good, which is why I am announcing the end of my candidacy.

While I am withdrawing from this campaign, I am not withdrawing from the fight. I simply believe I can promote the ideas that I am so passionate about – those of a small, decentralized government and personal responsibility – in a more constructive manner by helping other candidates who agree with this philosophy.

There are difficult and important decisions that are going to be made here today. As someone who has been outside the political process, I wanted to share with you what I have witnessed during my eight months on the campaign trail.

Ordinary Americans want to trust their government again, and are looking for leadership that will ensure our great nation honors the sacrifices of those who have come before us, and leaders who will work tirelessly to provide the same opportunities we had to those who will come after us. It is the party that wins the trust of the American people that will be the majority party for years to come.

For us, the path forward should be very clear – we must send leaders to Harrisburg and Washington that live by the principles that everyone in this room holds so dear. And we must be able to communicate why these values should matter to every American, and why the concept of centralized power in Washington will in the long run fail the very people it claims to help.

We have a unique opportunity in 2010 to bring this party back to its core values. To elect a Senator like Pat Toomey, a business-owner who has been on the side of reason, logic and the American people his entire career. We can elect a Governor like Tom Corbett who has worked in the private sector and run his own business, who has fought corruption and the structural problems that plague Harrisburg.

Here in Chester County we can send Jim Gerlach back to Congress and ask him to champion the ideas of the party and lead the way to restore trust in government.

Let’s make sure we support principled candidates who represent the Republican values and those of the American people; candidates who can bring new people into the fold because of their honesty, integrity and willingness to make the tough choices that lay ahead; candidates who will focus on the problems we face, not the petty politics that drag us down; candidates we can build the party around because they lead with a compass.

I want to thank you for all of the hard work you have done, and all that you will do in the coming elections. I look forward to joining you in restoring the faith and confidence of voters in our principles, and making sure that the American Dream is available for all of our children, just as it was for us.

“It has been an honor and a privilege to run as a Republican candidate for Pennsylvania’s 6th Congressional District. Over the past several months, I have met with countless voters and community leaders who discussed their concerns and shared their ideas about how we can turn this economy around. While I was raised in Chester County, built a thriving business here and now am raising my family here, I have a deeper appreciation and love for our communities today than ever before.

This campaign has certainly been a life-changing experience. The more you engage in the debate over the direction of our great nation, the more you appreciate the importance of the fight, and the need to fight even harder. However, it has become clear that fighting in this campaign will do more harm than good, which is why I am announcing the end of my candidacy.

While I am withdrawing from this campaign, I am not withdrawing from the fight. I simply believe I can do more by helping other candidates who share my vision of a new direction for our country, and who will work tirelessly to bring back responsible results to government.

I cannot thank my family, friends and supporters enough for all of their sacrifices and hard work. I am very proud of the campaign we ran which focused on substance and thoughtful discussions about policy.

I look forward to continuing the fight to ensure that our children have the same opportunities we do to achieve the American Dream, and to make sure that we elect principled leaders in 2010.”

Having spent the last 6 months talking with voters throughout our area, I can tell you that they are equally frustrated with both parties. People want to change the way Washington is working. They detest the backroom deals that have absolutely nothing to do with effective policy making and everything to do with special interests and ensuring that politicians get re-elected at the expense of moving our country forward. Whether it’s the infamous “Bridge to Nowhere” or the sweetheart deals that were cut in the Senate to force passage of healthcare legislation, Americans are sick and tired of earmarks and pork barrel spending.

The result of this process is centralized power where Washington bureaucrats make decisions not based on merit, but based on politics. Sadly, this approach has destroyed the confidence that many Americans had in our system of government.

It is time we take serious measures to restore our confidence in government once again. It is time we put an end to the pieces of Washington that clearly exist for political gain. At the top of this list should be an end to earmarks.

Proponents of earmarks claim that they represent only a small percentage of the federal budget. While this may be true, it ignores the detrimental impact earmarks have as the root of runaway spending. Perhaps Congressman John Kline of Minnesota, who recently swore off earmarks entirely, put it best when he explained, “In order to secure funding for a transportation project in my district . . . I was forced to vote for a bloated $286 billion transportation authorization bill that included the infamous $223 million ‘Bridge to Nowhere.’” While the “Bridge to Nowhere” was never designed to benefit many people, I’m sure it would have earned a lot of goodwill from the few Alaskans that it would have affected.

Let’s be honest about this. Not all earmarks fund “Bridges to Nowhere” or “Mule and Packers Museums.” But even if an earmark is going to a worthy project, good elected officials at some point will have to choose between supporting their local funding or voting against legislation they know to be flawed, at the peril of those very projects. Earmarks are at the root of the problems with big-government, and fuel a process that favors those who believe in using their power for political gain.

Over time, too many elected officials begin to think Washington is the solution to all of our problems, which is the very mentality that has lead to massive intrusions in the free markets and runaway government spending.

The shocking election results over the past several months show that voters are sick and tired of politics as usual in Washington and are looking for real leadership. The individuals who provide this new leadership will find that they not only will earn the trust of voters, they will have handed back power to the American people. After all, isn’t this where it belongs in the first place?

“The candidate forum was a great opportunity to discuss my platform and share my ideas on how we can turn this economy around,” said Welch.  “I am honored that so many activists and attendees agreed with my message of bringing back accountability in Washington, and will continue to work hard to earn the respect and support of 6^th District voters and leaders.”

The Tea Party Coalition Candidate Forum was a chance for Gubernatorial, Senate, Congressional and other Republican candidates throughout the region to share their positions and discuss the important issues facing Pennsylvania voters.  The forum was sponsored by numerous organizations and coalitions, including the Republican Party of Pennsylvania, Let Freedom Ring, the Pennsylvania Conservative Council and the Republican Jewish Coalition.

The straw poll results were Steve Welch – 63%; Pat Sellers – 31%; Congressman Gerlach – 6%.

Steve Welch is the founder & former CEO of the Mitos Group, a leader in biotechnology solutions. Steve is also the co-founder of DreamIt Ventures, a unique venture firm that helps technology start-ups get off the ground. Over the past two years DreamIt has funded over 20 small businesses and helped nearly 100 entrepreneurs. In 2008 Steve was named Philadelphia Business Journal’s “Entrepreneur of the Year” as well as selected to its “40 under 40” list.

Most recently Steve was awarded the prestigious Eisenhower Fellowship to build bridges internationally in small business communities to drive job creation and economic development.

In the movie Shawshank Redemption, the character played by Morgan Freeman cautiously defends his friend, Brooks, after he has acted out irrationally. Realizing that his friend has become institutionalized, Freeman notes “The man has been in here 50 years…this is all he knows.” Freeman goes on to say while most of us hate big institutions at first, “then you get used to them, enough time passes you get so that you depend upon them.”

The institution that has rightfully come under great scrutiny lately is our federal government. Over the last decade, we have all watched the federal government grow dramatically in both size and scope. To put this in prospective, while the federal budget represented 33% of GDP in 2000, it is projected to represent 45% in 2010.

While it is easy to proclaim that the government is too big and as a result needs to be shrunk, these are empty words until we address the root cause of the problem.

Democrats will blame Republicans, and Republicans will blame Democrats. The simple truth is that this explosion of government occurred over a time when both parties were in control, and this cannot be simplified into a partisan issue.

Though the problem is very complex, it also contains a simple truth – the walls of government are being built each day by the very people that depend on them. This is why politicians on both sides of the aisle continue to make decisions not based on ideology, but on what centralizes power within the federal government. These decisions have the unintended consequences of continuing a cycle where political leaders accumulate more power, making it more difficult to replace them. This centralized power in Washington unfortunately also leads to more influence and government spending, further distorting our free market system.

Only in Washington could we see misguided policies such as bailing out the automotive industry, and then turning around and creating a program like “Cash for Clunkers” for people to buy cars from the very companies that are now government-owned. This is only one outrageous example of many where the government has grown in scope and continues to interfere with free markets.

In fact, during 2009 approximately $3.3 billion was spent in Washington lobbying elected officials, $19 million which came from bankrupt GM and Chrysler. I am sure it is no surprise to hear that the average elected official who voted for the automotive bailout received almost twice as much in political contributions than one who voted against it.

While we have quietly been going about our lives, we have a government that has entrenched itself. We must now take the steps to change this. It will not be easy, but the reward is well worth the fight. To do so, I believe it is time we revisit term limits.

We must return to our Founding Fathers’ notion of citizen legislators, not career politicians. Previous attempts to move this agenda forward focused on 6 year term limits enacted immediately. This attempt in the mid 1990s to change the way Washington works did not succeed for two reasons. First, many people did not feel 6 years was enough, noting that it takes time to bring about change and understand the complexities of our government’s problems. Second, the fact that an overwhelming majority of Congress would effectively be voting themselves out of a job was insurmountable.

Due to these shortcomings, I believe we can make 2 straightforward changes to the term limit platform which can help bring them to fruition. We should first double the limit to 12 years, allowing for 2 full Senate terms, or 6 terms in the House of Representatives. In addition, there should be a “grandfather clause” excluding all sitting legislators. While this is not a perfect solution, I believe it provides the best chance of enacting this needed reform. These changes can help ensure that we have elected officials who will focus more on the needs of the nation, rather than the needs of government which is the source of centralized power.

83% of Americans support term limits, because they know it will create a churn of leaders, which will provide a continuing flow of fresh ideas and individuals with outside perspectives, which we need now more than ever.

This will get at the root cause of the problem. It will create a completely different mentality and dynamic within Congress. It will allow us to have political leaders that are looking to tear down the walls of government, as opposed to those who are propping them up in an effort to centralize more power in Washington.

PAOLI, PA – Steve Welch, Republican candidate for Pennsylvania’s 6th Congressional District, made the following statement about President Obama’s State of the Union address:

“I am glad that President Obama is starting to recognize the importance of getting government spending under control, though he has only scratched the surface. In order to truly stimulate job growth and help turn this economy around, the President needs to provide a clear plan that will balance the budget and rein in spending, and not based on increasing the size and scope of government.

“Before small businesses and entrepreneurs can create more quality jobs, they need to know what the rules of the road will be. President Obama should abandon any policies that would destroy jobs, which include ‘cap-and-trade’ and EFCA. He should focus the efforts of health care reform on reigning in costs, which will in turn lead to increased coverage.

“We simply need our government to ensure free markets, not interfere with them.”

Related: Mr. President: 4 Free Steps Towards Job-Creation

America has some of the best doctors, hospitals and pharmaceutical companies in the world. The problem is that health care costs are sky-rocketing.

The plans being debated in Washington will only make matters worse. Much worse.

Despite the claims of an “open and transparent” government, Democrat leaders are meeting behind closed doors to force through their version of health care reform. No matter what your opinion of this complicated issue, we can all agree that such a momentous task as this one should not be rushed.

Perhaps the only thing more troubling than the process by which this landmark legislation is being handled is the substance within it. Almost every economist agrees that any true reform must contain costs and work to reduce spending on what is an unsustainable curve. The real debate is about how this can be done.

I believe that the proposals being debated by Congressional Democrats will do nothing to contain costs, and will only succeed in exploding our deficit further.

There are policies we can enact rather quickly, in a bipartisan way, that would help lower the costs of health care and improve access to quality care.

As is often the case, our elected leaders are ignoring some commonsense, reasonable reforms at the expense of radical and unsustainable policies that will bankrupt our children, and cripple our ability to compete in the marketplace. There are ideas that would not result in a catastrophic increase in deficit spending, and that have a track record of achieving meaningful reforms.

Competition is the keystone to open markets, which leads to increased productivity and quality, and a better standard of living. Why not allow purchasers of health insurance to compare and contrast all available plans? Currently, we are only able to purchase health care plans that are available in our respective states. Pennsylvanians can’t get a plan provided in New Jersey, even if it is more affordable and provides the ideal coverage the customer wants. The creation of state health insurance exchanges would provide consumers with the information and options they deserve to make the best decisions for themselves and their loved ones, and to purchase plans available across state lines.

True health care reform must include tort reform as well. It is clear that many primary care providers practice defensive medicine for no other reason than the fear of litigation. This is an unacceptable waste of resources and care. It is time that we encourage states to provide alternative means to address medical malpractice claims, such as health courts or medical expert panels.

While leaders in Washington are looking at ways to create a new, trillion dollar entitlement program, it would be far wiser to allow Americans more freedom to use their hard-earned money that they have set aside for health care costs. Many individuals and families invest in Health Savings Accounts, which allow for tax-free contributions that can be used for qualified medical expenses. Why not allow these individuals and families to use these successful investment vehicles to pay for health insurance premiums, and without penalties? This would empower individuals to take more responsibility and ownership over their health care, and make all of us customers, not merely policy-holders.

I believe if the Pelosi-Reid health care bill is passed, we are marching down a dangerous path that will be very difficult to turn back from: a growing national bureaucracy that will eat-up billions of dollars, and will still leave countless Americans without access to the best health care in the world. Everyone agrees that we need reforms, but we cannot bankrupt future generations and ignore solutions that work.

We don’t need polls to tell us that Americans are not happy with Congress’ agenda. Scott Brown’s win in Massachusetts was a clear signal that Congressional leaders better change the focus of their policies.

Let’s hope Congressional Democrats can hear this message behind those closed doors.