Technology Investor 

Harry Newton's In Search of The Perfect Investment Newton's In Search Of The Perfect Investment. Technology Investor.

Previous Columns
8:30 AM EST, Friday, March 16, 2007: About 1 in a 1,000 new startups succeed spectacularly -- meaning they do well enough to reward their initial investors. A bunch more flounder around, needing constant injections of capital. A few provide the owners an income, also called a salary. And the rest fail -- close up shop and fade into history.

The odds against your investment being worth something big are huge. I've pretty well shut down my investing in startups since most I see don't meet my criteria:

1. The management team had better be incredible. That means they should have broad skills, integrity and a serious desire to succeed and make money for themselves and their investors. You can check on the skills and the integrity. But it's hard to measure their desire to make money for their investors. Several companies I invested in had talented, honest managers but completely failed at understanding how to dress the business up for sale. One preferred to keep his son, ex-wife and himself on the payroll and adjust those salaries conveniently each year so they'd match the gross profit -- hence leaving $0 for the outside shareholders.

2. It should be a "hard" technology. That means it should be hard and expensive for someone else to duplicate. Sound patents are key. Cool technology is nice. But, I, in turn, need to be disciplined about not falling in love with the technology's coolness and ignoring its benefits. Is there anyone out there that will buy it?

3. There shouldn't be too many "unknowns." Sometimes I look at a deal and list all the "unknowns" – from the technology (does it work?) to the management (have they ever done a startup?), to the guesstimates of customers (is there anyone else doing something comparable?), the subcontractors (have they done this before? do they do it regularly?). The more "unknowns," the riskier the deal -- the less likely it is to ever succeed. And worse, if there are "unknowns" I don't understand, I get even more queasy.

4. They had better be obsessed with sales and marketing. What the world doesn't need is another technology playpen -- a place angels and venture capitalists can endlessly dump money so the entrepreneurs can invent more "cool" products. I have a rule: Invest ten dollars in engineering; Invest $100 in sales and marketing. If they don't seem to "get" it, I start running.

5. The valuation ought to be reasonable, i.e. to allow for considerable upside. I see startups with $25 million valuations. When I ask why I get extended mumbling. There's no market valuation in a private deal -- especially if there are no sales and no earnings. So whatever they ask they made up, and is often bargainable -- if you want in. Most startups require constant injections of money before they make positive cash flow. Whatever you own in the beginning as a percentage of the company will be whittled down and down. That may be OK if the end result is a WebEx which Cisco just bought for a theoretical $3.2 billion (most of the deal was Cisco stock). But let's face it, the startups you and I see aren't WebEx, YouTube or Google. They're companies the professional venture capitalists have turned down -- or the managers won't visit because they don't like "vulture" capitalists. (They're wrong.)

6. The company ought to believe in regular and open reporting to its shareholders. No one expects instant success. There will be stumbling blocks along the way. If those stumbling blocks are hidden away they become insurmountable. With open reporting, they become surmountable. Personally, I prefer to be involved with the company -- a directorship at minimum. Easier to keep an eye on progress.

7. And finally, do I really want to do the due diligence. It can easily cost me $50,000 in traveling, fees (to lawyers, to consultants) and other expenses to do proper due diligence on a startup I'm interested in -- not to mention the time I could be playing tennis, That commitment is serious. Any time I've not done my due diligence, I've typically lost money.

Personal Video Recorder (PVR) noise is irksome: We rented a Scientific-Atlanta PVR (TiVo-like device) from our cable company, but eventually gave it back. The constant spinning of the hard disk was noisy. The cable technician said he removed many because of the noise. Cisco now owns Scientific-Atlanta.

The Colby DVD player I bought stinks? Reader Matti Jaffe emails me:

I bought the same unit over a yr ago at Fry's for $25 and I got what it is worth... babkes. After few months of great performance the unit started to screw up on the volume level. The result is that after few minutes of use the sound starts to fade in and out - so you increase the volume and all of a sudden it comes back and the wife says "turn off the volume." I threw it out and got a more expensive one ($100) and it is great. My friend bought a similar one and had different problems. Hope you turn lucky...

The Colby DVD-224 compact DVD player I bought from Amazon for $28.99 hasn't arrived yet.

Tennis on ESPN2 is on again.

Pacific Life Open Tennis on ESPN2
played in Indian Wells, California (near Palm Springs)


Start Time (PST)



Friday, March 16

11:00pm - 1:00am


Round of 16 or Quarters

Friday, March 16

11:00am - 3:00pm


Men's Quarterfinal
Women's Semifinal

Friday, March 16

7:00pm - 9:00pm


Men's Quarterfinal

Saturday, March 17

12:00pm - 4:00pm


Men's Semifinal
Women's Final

Sunday, March 18

12:30am - 2:30am


Men's Semifinal

Sunday, March 18

12:00pm - 2:00pm


Men's Final

What happened to the squirrels?
There were Five country churches in a small TEXAS town: The Presbyterian Church, the Baptist Church , the Methodist Church , the Catholic Church and the Jewish Synagogue. Each church was overrun with pesky squirrels.

One day, the Presbyterian Church called a meeting to decide what to do about the squirrels. After much prayer and consideration they determined that the squirrels were predestined to be there and they shouldn't interfere with God's divine will..

In the Baptist Church the squirrels had taken up habitation in the baptistery. The deacons met and decided to put a cover on the baptistery and drown the squirrels in it. The squirrels escaped somehow and there were twice as many there the next week.

The Methodist Church got together and decided that they were not in a position to harm any of God's creations. So, they humanely trapped the Squirrels and set them free a few miles outside of town. Three days later, the squirrels were back.

The Catholic Church came up with the best and most effective solution. They baptized the squirrels and registered them as members of the church. Now they only see them on Christmas and Easter.

Not much was heard about from the Jewish Synagogue,

But they took one squirrel and had a short service with him called circumcision and they haven't seen a squirrel on the property since.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
Go back.