By David Capece, Managing Partner

Innovation is a process that involves creating, advancing, refining, and executing (see full Entrepreneur.com article).  Most innovation projects have an unprofitable startup period.  To sustain innovation projects, you’ll need a combination of investment and sweat equity with the promise of reward over time.  Large-scale innovation projects can take significant money and many years before they start paying off.  Imagine the case of GM and Ford, who are challenged to green innovations that could take 5 years before coming to market.  In contrast, small-scale innovation projects are typically more incremental and can have quicker payback periods.  Innovation is critical to the lifeblood of an organization, so take the time to develop your plan and line-up funding.  Below we share our tips.

Self-Funding.  If you are fortunate to have a successful, profitable business, take some of your profits and re-invest in new projects.  While you might make a few less dollars today, you’ll be setting yourself up for sustained profitability as you stay a step ahead of the market and your competitors.  Make money quickly by securing existing customers as your first embassadors to your new product innovation.

Sweat Equity.  There is a segment of the American workforce that wants to play a role in major breakthroughs.  Does your team thrive on working on the “sexy” project that could transform the industry?  Is your team excited about the upside of breakthrough success?  If so, the opportunity to work nights and weekends as you get the project off the ground might be more attractive than you’d think.  The promise of reaping rewards on the upside of success (often in the form of stock or options) is extremely alluring.  You can also create similar arrangements with service providers in which you offer them equity compensation in liu of cash payments.

Partners.  If you are developing new products and technologies, you may generate interest from peers in your market.  Perhaps they would like to jump on the innovation train so that they leap forward in the market.  It’s much easier to divide costs among 3 players than to shoulder the burden alone.  Beyond that, you can leverage the combined talent of your organizations to make progress more quickly.

Investors.  If you’re like me, you know entrepreneurs who started a business, and along the way discovered an adjacent opportunity even larger and more promising than their initial offering.  It’s hard enough to build one business, especially for resource constrained entrepreneurs.  Access the funding you need through current or new investors.  While venture funding seems sexy, there are some contrarians on the topic.  FastCompany contributor James Todhunter says, “The goals of the venture firm are not aligned with innovation.  VC funded startups are often encouraged to run at a pace that destabilizes the company and undermines their ability to become a sustainable enterprise.  With a strong value proposition, it is possible to get future customers to provide funding with prepaid commitments of future purchases of the new product.”

Grants.  Local, State and Federal governments often have programs to fund innovation in science and technology.  Beyond this, there are organizations and universities that have set up funds to support new development.  One example in Pennsylvania is Ben Franklin Technology Partners.  Check locally or in specific industry groups to find examples that are relevant to your venture.  Ultimately, applying for grants can be very time consuming and comes with restrictions.  Do some quick research to see if your innovation qualifies for grants, and use this as a secondary means to acquire innovation funding.

Image by ivan petrov from Stock.Xchng

Social Mission Basics

What does it mean to be green, eco or sustainable? How can you get started with your social mission? What are the key concepts that will help you push your social mission further? We have outlined the essentials you will need to develop your social mission. Social Cause Trends Crowdsourcing Social Entrepreneur Tips Value Proposition

How To Guide

Incorporating a social mission is a “must-have” for tomorrow’s business leaders. We will explore how a social mission can grow your customer base, rally your team and increase brand awareness. Why Start a Social Mission Getting Behind your Social Mission Key Elements of Social Mission Incorporating a Social Mission

Best Practices

Sparxoo brings you real experiences through our interviews with social entrepreneurs who have built strategies to overcome challenges and forge their own paths. We talked sustainable food with Jared Koch, founder of Clean Plates N.Y.C. and discussed crowdfunding with Kiva’s market director. We share learnings from TOMS Shoes and The Larry Paul Foundation, offering tips to help you build a more sustainable venture. Clean Plates Kiva TOMS Shoes The Larry Paul Foundation Emerging Social Leaders Best Practices Online

Selling Your Social Mission

Some social entrepreneurs, such as TOMS Shoes, have a long list of celebrities and influential figures to help support the mission. In fact, TOMS Shoes spends little to no capital on marketing — relying instead on enthusiastic industry supporters. For those who lack access to capital, you’ll need to be creative in using some of the tools listed below to sell your entrepreneurial vision and maximize your impact. Networking Tips Marketing a Social Cause Selling Tips Networking Online Bootstrapping

Must Read: Social Venture Resources

Socially responsible investing is a growing sector. The pool of socially responsible investment dollars in the United States has now grown to $2.34 trillion and the second quarter of this year has seen a 12% increase in clean tech investment, a $1.2 billion upswing. To capture a small slice, we have provided rich resources and directories to help you find an investor right for you. Top Social Cause Blogs (Sparxoo) Rise in Social Venture Capital (Sparxoo) Funding Your Social Venture(WSJ) Non-Profit Finance Fund(NPFF)

Photo by Iain Gordon, from Magdalen Green

By Ethan Lyon, Senior Writer

In recent years, a new breed of venture capital firms has emerged to make an impact beyond just profitability. Social venture capital funds are adding a new mission in combination with positive financial returns: social and environmental impact. Highlighting social venture funds across the world, this week’s top five will focus on VC portfolios that range from organic beverages to water purification systems in Rajasthan to fiber optic enterprises making energy companies more efficient.

1. The Acumen Fund

With the mission of reducing world poverty, the New York City-based venture capital fund invests in enterprises that improve the lives of those in developing nations. With branches in India, Kenya and Pakistan, the Acumen Fund has global reach and supports entrepreneurs through its vast network. The unique characteristic of the Acumen Fund is they are non-profit. They take an entrepreneurial approach to solving poverty by way of support programs that focus on health, water, housing and energy. Through their innovative, entrepreneurial approach, they can build a solid business framework to combat widespread poverty in developing nations. Aqua-Aero Water System is an Acumen Fund-sponsored company that recently provided drinking water for remote, arid regions of Rajasthan.

2. Good Capital

This San Francisco-based VC firm invests in social enterprises that create social equity. In essence, they are the bridge between philanthropy and traditional investing. Highlights of their portfolio include Adina’s World Beat Beverages, a fair trade and organic beverage provider that gathers flavors from around the world to create “drink no evil” beverages. In addition to their social entrepreneurs, Good Capital has numerous projects to support education, financial support and engagement, such as their involvement in SoCap—a conference for social enterprises to share and build relationships with like-minded entrepreneurs and VC firms.

3. Underdog Ventures

Bridging philanthropy and profitable enterprise, this Vermont-based venture capital firm is heavily invested and wildly passionate about socially responsible investing. The key element that differentiates Underdog Ventures from other social venture funds is investors can choose where to allocated their investment based on Underdogs core passions: natural and organic food, environment and conservation, socially responsible consumer products, and socially responsible investment companies.

4. Clean Technology Venture Capital

This eco-focused VC firm, with offices in New York and San Francisco, invests in mid-sized alternative energy companies with promising exits. The eco-VC firm investment matches the current revenue of prospective companies, which is approximately between $2-7 million. With over 100 years in clean technology, private equity and entrepreneurial experience, Clean Technology Venture Capital aims for a $30-100 million exit in 3-5 years. Their portfolio has an array of companies that contribute to a sustainable future in a unique way. SensorTran improves efficiency of energy providers across traditional and alternative energy companies through enhanced fiber optic cables.

5. Community Development Venture Capital Alliance (CDVCA)

This network of like-minded social ventures aims to educate, support and promote investing in businesses focused on social development. This New York City-based alliance manages its own investment vehicle, called the Central Fund. Through conferences and workshops, the CDVCA seeks to gather social investors and share industry insights. Unlike a typical venture capital firm, the alliance brings together many prospective and established venture capital firms with a focus on long-term sustainability to create impact from the top down.

By Ethan Lyon, Senior Writer

As entrepreneurs and industry leaders adapt to the digital world, innovation is central to success. To illustrate innovation and entrepreneurship in the tech sector, we’ve selected ten companies across five categories that have secured venture capital (VC) investment. These companies are pioneering innovation and leading the next evolution in e-commerce, marketing, online video, social media and mobile technology:

1. e-Commerce

Twitter mashups are everywhere. Social media juggernaut, Facebook hosts forums that combine online video streams and real-time discussion. Established and emerging entrepreneurs are constantly creating mashup platforms in an effort to engage new audiences. Integration and convergence are re-shaping the way we interact and engage in online shopping and social activities.

oneTXT, which received $2 million in series A venture capital investment from KPG Ventures, is integrating e-commerce with social networks, participation TV shows and online games. With social shopping sites like Snipi, entrepreneurs are trying to incorporate e-commerce in new ways–that go beyond traditional e-commerce sites like Amazon. Bridgevine, a shopping engine, just received $3.5 million in series C round of venture capital investment from Constellation Ventures and Safeguard Scientifics. Mashups are key as entrepreneurs pioneer the next era in e-commerce.

2. Marketing

Mobile and in-house marketing are two—of the many—strategies leading the next frontier of digital advertising. ClickFuel, which landed $2.5 million in its first round of institutional VC funding, provides business owners tools to run their own search marketing campaigns. Search optimization tools such as those provided by ClickFuel will help business owners seeking to boost their online presence and leverage in-house employees.

AdWhirl has capitalized on the popularity of smart phones to offer advertisers a high-impact delivery system for iPhone apps and other 2G and 3G mobile devices. AdWhirl has secured $1 million in early VC funding, led by Foundation Capital.

3. Video

Online video is growing by leaps and bounds. Video consumption is expected to account for more than half of all internet traffic by 2012. Expect online video to increase in quality (e.g. YouTube now offers HD video) and delivery and management systems to add some organization to users video libraries. Nokeena, which secured $6.5 million in its second round of institutional VC investment from the Mayfield Fund, offers providers storage for high-quality video and video monetization opportunities. To manage video libraries, Grab Networks has developed an “end-to-end, automated platform” for users. Grab Networks has secured $12 million in venture equity and debt financing—led by Horizon Technology Finance.

4. Social Media

Bebo, DeviantArt, Friendster, Gather, MySpace, LinkedIn, etc, and the list goes on. Seemingly endless social networks have sprung up to gather and engage niche online communities. Often times, internet users have two, three or ten or more profiles on various social sites. To find connectedness amongst various social networks, Collecta, securing $1.85 million in VC funding, is a search engine that monitors streams of popular sites, blogs and social media. In essence it’s a digital manager—important in a world with endless RSS feeds and millions of community members.

Google Wave has garnered much attention not only because it is a Google product, but because it revolutionizes the way we view our inbox. Cc:Betty, securing $1.5 million in VC financing by Venrock, follows similar thinking in that they provide users an e-mail assistant to facilitate collaboration and aggregate like-minded users into communities.

5. Mobile

We are spending more and more time with our phones. As smart phones increase in popularity, a mobile phone is not just a phone. It’s a GPS, gateway to all social networks, internet connection and BOKU envisions it to be payment tool. BOKU, which has secured $13 million in institutional VC funding from Benchmark Capital, seeks to make online payments easier from a mobile device.

By Ethan Lyon, Senior Writer

You may think of venture capitalists as just a source of funds.  And, yes, they do hold the keys to millions of dollars that can help you achieve your business goals.  But they are more than a source of funds.  They are a partner that is going to be with you in good times and bad times.  Sometimes a great partner, and sometimes a partner that you’d rather not have.  So you must find a venture firm  that is aligned with you and your company’s goals.

If you knock on every VC door, you are going to be wasting your time as well as theirs. Look at the list of companies the VC firm has invested in and see if you could be on that list. It’s important to know what to expect before going to a VC firm. Here are some points of review before you knock on that door:

Six Points to Finding the Right VC Firm

1. Start-up or Established
All VC firms want to see that you have successfully taken on risk.  Some will prefer that you have made significant progress and just need a small financial boost to take your company to the next level. Others will be more willing to invest in the initial stages of your business.

2. Internet or Manufacturing
It is important to keep in mind that VC firms can specialize in a certain sector. Before you even make that call or send that e-mail, make sure that they have a history of investing in your sector. If you are an Internet start-up it doesn’t make sense to go to a manufacturing VC firm.

3. $1 million or $10 million
Before you seek out an investor, do your homework and figure out approximately how much you need to raise.  You need to be prepared when you are asked “How much?” Once you answered this question, it will help you focus on VC firms that concentrate in the range you seek.

4. Southwest or Northeast
While some VC firms have global operations, many VC firms have a regional focus.  If you have the next big idea, you can open global or local doors.  For most entrepreneurs it makes more sense to start in your region.  Get connected locally and then branch out.

5. 10% or 100%
The return on investment varies within the investor community. Investors have differing expectations on the return of their investment. Some seek safer investments and are willing to accept lower returns.  Others are looking for homeruns and grandslams.  Find the firm with the risk / reward philosophy that matches to your business.

6. Hands on or Laissez Faire
The nature of equity necessitates the involvement of another party. However, some investors want more or less control for the same capital. It is important to understand the role the VC firm plays in the decision-making process of each investment. It might be difficult for you, the creator and father of your idea, to have an investor heavily influence your business decisions.

Looking Forward

“We expect to see further declines in the short term performance numbers into 2009 until the exit markets improve,” said Mark Heesen, president of the NVCA.  “Longer term performance will hold steady for the time being, but a prolonged capital markets crisis will begin to impact these numbers ultimately as well.”As Heesen noted, VC firms are drawing back–absorbing the shockwave of the recession. That means the investments have receded and it is more difficult to get funding. However, there are companies seeing VC dollars confidence.

As we noted in our Top 5: February Funding post, entrepreneurs are challenged to create innovative businesses that will shape tomorrow. If your company can create meaningful impact for customers, you still have a chance at being that small fraction of entrepreneurs to gain VC confidence.

By Ethan Lyon, Senior Writer

In a world where the Dow has fallen into a pit of quicksand, what business could be getting funding? A dog-lovers virtual village and a photo shopping application aren’t the first picks that come to mind. We’ve selected some of the most interesting out-of-the-box startups receiving VC funding in the month of February. [singlepic id=79 w=320 h=240 float=right]

Here is list of companies getting the greenlight for take-off:

1. Pixazza–Shopping through photos–that’s what Pixazza is all about. Fashion mavens find the clothing worn in your site’s photos and link it to online shopping websites like Amazon, Bluefly and Zappos, where consumers can then buy the item. Providers and Pixazza then gleam a commission if the customer chooses to buy the item. Click here to see a demo. Pixazza received $3.1 million in first venture capital funding from undisclosed investors

2. FetchDog–There are social networks for nearly everything–speakers, virtual eco-worlds, golfers, Twittering moms and nearly everything else under the sun. FetchDog begs the obvious: think dog-lovers social networking. This is a thoughtful, user-friendly community and marketplace where dog aficionados can meet, shop and pour over everything canine. FetchDog received a whopping $4 million in venture capital funding from Borealis Venture and others.

3. Cake Financial–Wrapping all of your investments into a neat software package is nothing new. Cake Financial is doing just that but adding impact and value through a highly visual analysis and comprehensive projections. Consider it the Apple of portfolio management software. Users can also chat with others in a community of experts. Cake Financial received $1.26 million in its first round of venture capital funding from Alsop Louie Partners and KPG Ventures.

4. Mochila–This is an online marketplace for content providers, creators, editors and advertisers to find one another and build relationships. Mochila has an extensive library of syndicated web content that partners with advertisers to reach a targeted demographic. Mochila received an undisclosed amount of venture capital funding from Charles River Ventures, Mission Ventures and others for their first round of investing.

5. Outright–For startups and small businesses, bootstrapping is the current credo. That’s why Outright is offering their bookkeeping software for free. Formerly GoBootStrap, Outright is still in beta, but will soon charge users for an advanced version that will include features like additional tax forms, multi-user access as well as add-on services for filing, payroll, and the likes. Outright received $2 million in venture capital funding from First Round Capital and Shasta Ventures, with additional investments from Jeff Clavier’s SoftTech VC and a number of undisclosed angel investors.

What are the common threads of these startups that successfully garnered VC confidence?  A focus on money and passion points.  Mochila and Pixazza help you make money.  Outright and Cake Financial help you manage your money.  And Fetchdog plays on our love for pets.  The current financial free-fall has changed the market and made it more difficult for businesses to raide money.  We are challenged to be both more creative and more practical in developing businesses that will be profitable today and tomorrow.

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