Funding a Web 2.0 is very similar to funding a conventional start
up business. Funding can come
from your own money, private funding from family, friends,
other individual investors
(e.g. angel investors), or venture capi
you plan to finance a start
up with your
own funds, these funds can come from a wide
options such as
credit cards, home equity and more. Financing
can also be a combination of these options, also known as “b
ootstrapping.” The benefit from
bootstrapping is that you don’t give up any ownership or control
of your business
The disadvantage is that
you carry all the risk.
personal relationships to raise capital is typically done whe
n the business or business
idea is not
enough to get funding elsewhere.
This option is very common, but carries the
f the business fails and the loans cannot be paid back, it can place your personal
relationships in jeopardy.
To protect b
oth parties, it’s
wise to have legal documents in place that
outline how the loan will be repaid and when it will be repaid.
The legal document
form of a promissory
There are several different options for bank loans depending on you
r situation. They fall within
two categories: secured loans and unsecured loans.
are loans that are secured by
collateral. The lender will take a security interest in your property. If you do not pay the loan back
the lender has the right to
seize your collateral. Short
term and long
term commercial loans fall
into this category. A short
term commercial loan is usually no more than three years and the loan
will require fixed payments of principal and interest. They are excellent for seed mone
y or working
term loans are almost exclusively used for equipment and other asset purchases.
Lenders will not lend your businesses money for longer than three years unless the loan is for a
specific asset purchase or for the refinancing of an
exisitng asset. These loans are secured by
the assets being acquired and will generally have various loan covenants such as interest rate
changes and prepayment penalties associated with them.
, are loans that are
not secured by any collate
ral. These are typically in the form of a line of credit and have a set
amount that can be borrowed.
When it comes to bank loans, you're required to have a good
credit history, submit a personal financial statement, and sometimes make an equity investment
in your business.
Venture capital can be secured if your business has the potential for above average future profits.
Sources of venture capital include angel investors
wealthy individual investors,
managed investment funds
, investment b
venture capital funds. Venture capital is
somewhat more difficult for a small business to obtain than other sources of financing. To obtain
venture capital, you need to have a solid business plan to demonstrate that your business is
viable and pro
fitable. Venture capital organizations will go through a due diligence process where
they evaluate the business to ensure they’ll get their return on investment (ROI).
process, the investor will provide the business with a term sheet, a non
ding agreement that
outlines the size and conditions of the investment.
Typically more phases of financing, or follow
on investments, are involved after the initial investment to see the business through its growth
stages. A mezzanine level round of financ
ing takes place immediately preceding an Initial Public
Offering. In return for taking an investment risk, venture capitalists are usually rewarded with
such as preferred s
, and capital appreciation of
Pointers to the wiki pages detailing legal docs (see The Law)
B) Business Models
There are several different business models for
Web 2.0 companies
and the revenue stream
ideas are expanding each day.
Revenue generators range from advertis
ing and affiliate
selling subscriptions/memberships to enter the site.
coming revenue ideas include selling e
books, eCourses and eSeminars. Many Wiki
sites, such as Wikipedia, earn revenue from donations from users.
Here are several
examples of advertising programs:
one of the most popular
and generate advertising revenue. The free program matches relevant content on
with advertising content. Whenever a visitor clicks on the ad,
a fee based on cost
click (CPC) or
impressions (CPM), and
a portion of that fee.
The source of the ads is from Google’s Adw
program in which
advertisers create ads using keywords
words that people are most likely
to use in a Google search to find a relevant item
or subject to what the advertising is
The ads are relatively unobtrusive
, and mostly in the
, as opposed
to flashing banner ads
found on some sites
The downside to using Google Adsense is that
control the ads that are plac
ed on your
filters that allow you to block c
ompetitive or inappropriate
ads, as well as
reviews and the ability to
select default ads.
In addition, the better the site is optimized for
search, the more relevant the ads will be and the more revenue the site will generate.
zon Affiliates is an affiliate program in which an ‘
” (website owner) receives a
referral fee every time their site visitors click on a qualifying link to
and makes a
There are two compensation models for the program: performa
nce fee structure
and classic fee structure. The performance fee structure provides 4% to 8.5% referral rates
based on the
volume and type of product shipped from Amazon or a third party. The classic
fee structure is a fixed referral fee rate of 4%.
p for the Amazon Affiliate program is
Other affiliate programs
Commission Juncti on
Microsoft adCenter is very similar to Google Adsense in which
website owners receive fees
based on a cost
click rate. The difference is that adCenter allows advertisers to direct
their ads based on the viewers’ demographics.
also allows the advertiser to control
Pheedo is an ad
serving capability via RSS. It is compatible with feed management and
blogging services, including Feedburner, MovableType, Typepad, Wordpress and Expression
Pheedo can help you maximi
ze your earnings by providing ads both for your feeds
and for your site. Advertising campaigns that run both in feed and on
site deliver the best
results to our advertisers and command a premium. Our publishers benefit financially from
running Pheedo ads i
n both places. You control how often ads run in your feed. Set ads to
run as ofen as one ad every post, or up to one ad every 10 items. We've found that running
ads every 2
3 posts is optimal for most feeds. Pheedo is the premier feed advertising
and we simplify the process of creating, producing, distributing and tracking
advertising for RSS feeds. Advertising agencies, global corporations and premium online
publishers of all sizes work with Pheedo to create successful RSS marketing campaigns.
eedo arms publishers with the tools and knowledge required to understand, monetize and
market their RSS content including data and analysis of content feed usage and consumer
Feedburner offers custom RSS feeds and web tools to manage
how a site owner
distributes and tracks its feeds
The tools allows publishers to analyze how many subscribers
they have, where they are subscribing from and what their preferences are.
reason for using Feedburner is
in its abili
ty to attach
serving ad (such as
Google adSense ads)
to the feeds and widely distribute them to increase site owners’ cost
click (CPC) revenue.
program that pays bloggers for mentioning advertisers in their blogs. The ad
products and/or services must be mentioned at 3 least three times in order to receive
ams are LoudLaunch and PayPerPost.
Blog Advertising Network
similar to Adsense and Adw
, there are hundreds of
ng networks and more coming onboard each day. Here a few:
Accounting in a start
business can be done two ways: on your own, or done by a bookkeeper
There is a variety of accounting s
oftware programs on the market
some that are
even geared to online businesses. The benefits to doing your own accounting are cost and that
you have the financial information at your fingertips. A bookkeeper or account can take it a set
further. Both can
help set up an accounting system that best fits your business. They also provide
tax consulting and preparation. Bookkeeping is just part of accounting. Accounting encompasses
tracking assets, both cash and capital equipment, liabilities, and other busines
analyzing the data, and forecasting for future business growth.
Anyone who operates a business, alone or with others, may incorporate.
There are many
advantages to incorporating your business especially when it co
mes to protection.
the corporation cannot hold the owners of the business personally liable for debt. Because stock
or equity can be sold, it is much
for a corporation to raise capital
Ownership of an
incorporated business can also be
transferred when a company is incorporated.
There are a few types of business entities: a General Corporation or C Corporation, an S
Corporation, and an Limited Liability Corporation (LLC). A
C corporation, is the most common
corporate structure. A gener
al corporation may have an unlimited number of stockholders.
Consequently, it is usually chosen by those companies planning to have more than 30
stockholders or large public stock offerings. Since a corporation is a separate legal entity, a
ersonal liability is usually limited to the amount of investment in the corporation
and no more.
An S Corporation is a general corporation that has elected a special tax status with
the IRS after the corporation has been formed. Subchapter S corporations a
re most appropriate
for small business owners and entrepreneurs who prefer to be taxed as if they were still sole
proprietors or partners. The LLC is not a corporation, but it offers many of the same advantages.
Many small business owners and entrepreneurs
prefer LLC because they combine the limited
liability protection of a corporation with the "pass through"" taxation of a sole proprietorship or
The biggest difference between an S Corporation and an LLC is that the S
Corporation must have a b
oard of directors, where as an LLC can be managed by the owner or
A patent is a document issued by the U.S. Patent and Trademark Office (PTO) that grants
for a limited period of time on the manufacture, use,
and sale of an invention. These
exclusive rights last between 14 and 20 years, depending on the type of invention.
A patent gives
you the right to exclude others from making, using, offering for sale, or selling your invention in
the United States or impo
rting your invention into the United States. Once a patent is issued, it
becomes your responsibility to enforce the patent, the USPTO will not enforce your rights for you.
From the USPTO you are only granted rights that are honored within the United States
territories, and U.S. possessions.
The type of patent for a Web 2.0 company would be a utility patent, which covers a process or
method for producing a useful, concrete, and tangible result.
The cost of patenting will vary
depending on the patent c
the parts of a patent which define the boundaries and legal
basis of the patent protection. There is a $150 filling fee, a $650 fee if your patent is approved
and issued, and
$450, $1150, $1900
for maintenance fees paid at 3 1/2, 7 1/2, and 11 1/2
after your patent is granted.
c) Funding documents
We have approximately 15 legal documents in Microsoft Word that will need
to be converted to
a) Board of Directors
A board of directors is the governing body of a corpor
elected by shareholders.
board is typically made up of representatives from inside the company, such as the CXOs,
president and vice presidents, and those from outside the company, someone who is not an
employee or stakeholder. The primar
y role of the board of directors is to
b) Advisory Boards
n advisory board is a group of professionals or consultants who can
direct and advise
Because it is an unofficial group (unlike the board of directors) it
can be str
uctured to best fit the company. Generally, it includes a legal advisor, and accountant,
marketing consultant, human resources expert, financial advisors, or other business advisor or
industry specialist, depending on the strengths and weaknesses of the co
Pointers to the web sites for the following software projects:
Ruby on Rails
to lists/rankings of hosting services
Best Host Ratings
Pointers to Linux admin tips
Pointers to eLance, Rent a Coder
There are many ways to promote a
the first and most important step, which
ve the w
ay for generating ads and revenue on your site
, is to
optimize your site for search.
This means that in the content
you’ll need to have the phrases and
keywords you would expect people would
Once this is done, you’l
l want to have your
URL added to the major search engines so that they’ll include your site when searches are
conducted using words or phrases found in your site.
An additional tactic for getting the search
engines to find the Website is to work with other
webmasters of related sites to link to your site.
This is important because the more clicks you receive on you site, the higher your site is ranked
in the search engine results.
You can also provide RSS
capabilities to your site
so that news
feeds can pic
k up related topics and disseminate them to other sites. To optimize your site for
search is free.
Another way to promote your site that is relatively inexpensive is to issue a press release
announcing your site or something new about your site and distrib
uting it over one of the many
press release distribution services.
The distribution services circulate the press release to a wide
range of media outlets, Websites, and search engines. The price for distribution varies. Some
sites provide free distribution
and other charge fees dependant on where you want your press
If you want to go beyond this step to further promote your site
and have the budget, you may
advertising or “sponsored links
” on search engines or con
through ad programs such as Adwords or adCenter.
There are a few ways this works, but
basically you “pay per click,” meaning you pay a fee anytime someone clicks on your ad, which
jumps to your site.
Search Engine Optimizing blogs/sites
Search Engine Round Table
Search Engine Land
a term used by the SEC to descr
ibe an investor who meets certain
financial standards and can qualify for purchases of certain types of securities exempt from
a term frequently used in defining characteristics of Web 2.0. It is the
collection of information
from multiple web sites based on a keyword or a set of keywords and
then reformatted and redistributed. This is typically done via RSS.
using several programming langu
an individual who invests his or her own money in a start
up or privately held
company. The intent of the investment is to get a higher rate of return.
open source HTTP Web server soft
ware to handle web requests and serve up web
nterface, the source code used by a programmer so
a program can communicate with other programs.
short for Weblog. A Website has content very simil
ar to a journal or newsletter and
based on a specific subject. The entries are in reverse chronological order and are made by
one individual or a group. Typically, viewers are invited to respond to the entries.
a list of and links to related b
logs found in the sidebar of a blog. “Blogrolls” can be
a short term loan that bridges the gap between the termination of one loan and
the beginning of another.
the signing all documents required to transfer o
wnership from seller to buyer.
A convertible note is a loan to
a company with an interest rate. The
(e.g. Angel Investor)
to convert the enti
re principal amount of the note
into equity when an institutional inve
(e.g. Venture Capitalist)
makes an investment.
the act of borrowing money for working capital or to make capital
expenditures. The money is accumulated by selling by selling bonds, bills, or notes to to
investors, who are promised re
payment of the principle and interest on the debt.
a process of inspection that a venture capital or other private equity firm
carries out before closing on a deal. It is typically a review a company’s accounting practices
a way of collaboratively classifying Websites. It is a practice used in social
networking sites where users can tag Website content
pages, images, links, etc.
keywords of their choosing, and the system automatically cat
be subsequent or 'follow
on ' rounds of funding after an initial round
of funding is made by an existing investor.
dilution provision that protects the original investors if the
equity at a lower valuation then in previous financing rounds.
short for "permanent link". It is a specific link that readers can use to bookmark a
a bank that acts as an agent between the issuer of securities
investors by providing advisory services. They also are involved in facilitating mergers and
acquisitions, private equity placements and corporate restructuring
acronym for “Initial Public Offering.” It is the first time a company sells sha
res openly to
the public on the stock market.
the company’s primary investor, such as a venture capital firm, that
organizes the financing with other investors.
when a company is liquidated, any assets will be use
d to pay off
investors in order of priority.
in an Initial Public Offering (IPO), it is the period of time determined by the
underwriters in which an investor must wait before selling or trading company shares
subsequent to an exit.
named after a type of hip
hop music where two or more songs of different styles
are remixed. A Website that collects and reformats unrelated or competing
a final stage of financing prior to a company’s I
nitial Public Offering
simple codes that identify
specific kinds of data on Webpages,
so that the
information can be extracted by software and indexed, searched for, saved, cross
short for “mobil
e blogging.” Using a mobile device
digital camera, PDA, cell
to remotely update a blog with text, images, audio, or video.
proprietary software for creating, publishing and maintaining blogs. It is
written in Perl and backed by M
ySQL, and offers the widely used TrackBack feature.
open source database based on the structure query language (SQL). It is
commonly used with Websites for adding, removing, and modifying information in a
a program allows
you to read messages posted to Internet newsgroups, and to
post your own messages.
an acronym for Outline Processor Markup Language. An XML
based format for
based content and allows exchange of outline
ween applications running on different operating systems and environments.
latin term for “without
It indicates that two series of equity will have
the same rights and privileges.
acronym for “php Bulletin Board.” A fre
e, open source bulletin board package based
on the PHP scripting language and supports MySQL, MS
SQL, PostgreSQL or
Access/ODBC database servers
the name is a combination of “iPOD” and
“broadcast.” It is an audio broadcast that has been converted
to an MP3 file or other audio file
format for playback in a digital music player or computer. Listeners can subscribe to a
podcast through an RSS feed and is updated each time a new podcast has been published.
a free object
a security offering to a limited number of investors.
an acronym for “Rich Site Summary” or “
Really Simple Syndication.” A form of Web
syndication used by Websites and blogs using XML format, it allows the d
istribution of news
headlines and other content on the Web to interested users.
RSS allows a person's computer
to obtain and understand the information, so that all of the lists that person is interested in
can be tracked and personalized for them.
also known as RoR. It is an open
source framework for Web development in
Ruby, an object
oriented programming language.
early stage financing used to develop a business idea or project.
acronym for “Search Engine Optimizati
on.” The process of organizing Website content
so it ranks high
in various search engines
when someone searches for specific phrases
related to the site.
the initial round of stock offering during the seed or pre
IPO stage of a company.
an activity in which people share their Website bookmarks. Instead of
creating a bookmark in a browser, they are made to a publicly accessible Websites. Some
Websites classify the bookmarks with tags or keywords and use Folksonomy to rank
bookmarked site content.
using the Internet to network and communicate with other people who
share a similar interest, purpose, social status or goal. Networking and communication is
typically done via a Website that is dedicated
to bringing people together.
keywords in the form of HTML code that help Internet users to classify, rank, share
and locate specific information.
also called a “weighted list,” it is a way of visually displaying a compilation of
text with the most popular topics in a larger or bolder font. It allows visitors of a site to
quickly determine what topics are represented.
a preliminary document used by a potential investor to initiate and expedite
A term sheet is legally non
summarizes the size and
conditions of the investment that the investor is willing to accept.
After negotiations are
settled, the document is reviewed by legal counsel and a binding, long
form legal agreement
erated and signed by all parties.
used in most blogging tools, it is a signal or ping to a blogger that someone has
written about his or her blog.
a community forum authoring tool
used to run large boards or discussion groups.
uses PHP as the scripting language and MySQL as the back
end data base.
also known as “VC”, it is an equity investment, or “seed money,” that is
typically associated with early
stage or pre
a term coined in 200
4 by O’Reilly Media. The exact definition is still in debate,
However, O’Reilly Media’s definition from the
O’Reilly Radar Web 2.0 Principles and Best
report is: “
Web 2.0 is a set of economic, social, and technology trends that
the basis for the next generation of the Internet
a more mature, distinctive
medium characterized by user participation, openness, and network effects.”
a Website that uses a collaborative editing tool that allows a community of users to
add and ed
it site content from their computer directly to the site. The term “Wiki” is short for
the Hawaiian word “Wikiwiki,” which means fast.
a free open source blog authoring system written in PHP and MySQL, and
installation and ease