Ram Shriram actually came in about a month after we closed our round. At the time we only had about $200k open in the round. Unlike most investors (who wait a week, talk to their friends, bring you back for multiple meetings), Ram said "Okay, I'm in" before I was done with the presentation. He then explained that he had no upper limit on what he could invest (good problem to have!), but that his accountants lose track if he doesn't invest at least $500k. So needless to say, we opened the round up a bit.

Here's the pitch:

Recently, you guys ran a piece comparing Google versus Yelp, and while Yelp gets a lot of 'cool' buzz, they only reach a few big cities and have not captured the practical, business side of the puzzle. MerchantCircle (one word) is about to announce tomorrow that we've passed 200,000 local small business owners signed-up. That number makes us the leader in a space that everyone is trying to get a piece of right now.

We have more merchants than Google, Yahoo Local, CitySearch, Insider Pages and any other local directory site you can think of.

Well, that's nice. Suspect, but nice. But then we started digging.

• MerchantCircle might have businesses listed, but it has practically no users. Site traffic, according to Compete.com, is a fraction of the nearest competitor's.
• No wonder: It's theoretically possible to browse the directory of listings, but the MerchantCircle site itself is designed as a roach motel for merchants.
• The boasted merchant listings are questionable. Many appear to be prepopulated from databases, or possibly "scraped" — copied wholesale — from other sites. Take this listing of San Francisco restaurants, for example: Most have little more than addresses.
• MerchantCircle appears to be using automated systems to cold-call local merchants. Like Yelp, MerchantCircle touts user ratings as a reason for businesses to sign up for the site. But unlike Yelp, MerchantCircle isn't waiting for there to be any actual user reviews. For some time, MerchantCircle has been autodialing businesses in an effort to convince them that users may have left bad ratings about them on the site. Never mind that the reviews — and the users — may not exist in every case. For local businesses, which rely on the phone to attract customers and make sales, autodialing is a thousand times worse than email spam; wasting time with an automated system is the same, in their minds, as taking money from their pockets. Lying is just the icing on the cake.
• MerchantCircle CEO Ben Smith promised to stop the autodialing — but it's continued. John Battelle, founder of the Federated Media online-ad network, contacted Smith about the practice in September 2006. Smith claimed "that he's on it." According to the comments businesses are still leaving on blog posts about MerchantCircle, the practice continues to this day.
• The company is counting on search-engine optimization, or SEO — the art of tweaking websites to make them rank highly in search results — for traffic. So far, it's failed. But even if MerchantCircle's attempts at SEO worked, Google and the other search engines would rapidly catch on and banish MerchantCircle's pages from their indexes.

MerchantCircle's business model has evolved into a circle jerk: Rather than persuading actual users to visit its listings, MerchantCircle is styling itself as a social network for local businesses which link to each other's profiles on the site. But if you ran a local shop, would you rather raise your profile with the Chamber of Commerce, or get actual customers in the door? As with any such arrangement, this circle is likely to leave local businesses exhausted and unsatisfied.

Which raises the question, why are Valley notables giving this company a hand? Among the company's investors and advisors are Scale Venture Partners, Disney's Steamboat Ventures, Ron Conway of Angel Investors, Auren Hoffman of Rapleaf, and — ironically enough — Chas Edwards, a vice president at Federated Media. His boss, Battelle, must be so proud.

Startups raise money in rounds, often taking on multiple investors per round. Here's how the major types of funding work:

Venture capitalists

• A VC firm raises funds from investors, then invests it in startups, usually at upwards of $1 million per company (and sometimes as high as $12 million or more).
• A VC firm is buying a share of the company — anywhere from a tenth to a third, depending on how much the firm decides the company is worth before the investment.
• If the company needs more money a few months later, the firm may invest again, or a different firm might invest. Companies often raise funds from multiple firms in one round.
• VCs want at least three times their money back, though they expect most deals to fall through
• Many companies only take VC funding after they've used up the funding from their...

Angel investors

• These are often the first investors in a company, most always used before venture capitalists.
• Angels invest a few thousand dollars. As with VCs, several angels may invest in a startup at once, for a total round of anywhere up to about $1 million.
• They have less of a business interest but more emotional involvement.
• Angels can be friends and family of the investee, but some startups raise a preliminary friends-and-family round.
• Or they may go even smaller and rely on...

Personal credit

• When is it healthy to run up a 20%-interest-rate debt on plastic? When it's cheaper than running up a 200%-interest-rate debt on VCs.
• Of course, you could also rely on your own cash reserves, as many startuppers do with their second companies — Evan Williams, for example, who used his windfall from selling Blogger to Google to buy out the investors in his new company, Odeo.
• Ironically, credit card funding is a far cry from other way to borrow from banks...

Hedge funds

• The 90s bubble was partly blown up by VCs, but the big money came from hedge funds — an adventurous form of private investment fund.
• They're not as involved this time — the money's too small, at least for now — but they powered many a startup in the 90s, when more tech-savvy VC firms hadn't dominated the Silicon Valley funding industry.

So why are startups avoiding VCs? Because they're finding that angels, friends and family, and personal credit are less demanding funding sources, with lower expected returns, giving founders the freedom to take it slow and stay in control. Of course, VC money is hard to resist after a year of bootstrapping and dining at McDonald's.

For Start-Ups, Web Success on the Cheap [NY Times]

I am the co-founder of Kevo. We are launching in a few days. [Here they are.] Do you have a list of angel investors?

The search for an angel investor is a healthy part of every startup's growth. Angels are usually private individuals looking to invest thousands to hundreds of thousands in small companies in return for a share of ownership. They can be the only funding a company takes, or a step between bootstrapping and venture capital. Below, Sean Ness, the ringmaster at the monthly Stirr startup mixer, lists a host of angels for us (which we peppered with snark).

Individuals

• Ron Conway was the big daddy of them all, loved by some, hated by others for his role in the first boom. Here's some dirt on him. (Photo above by Dan Farber)
• Ram Shriram has taken his place.
• Josh Kopelman runs First Round Capital from Philadelphia.
• Aydin Senkut made his money from Google and word on the street is he just invests in lots of things, but doesn't know much. The Wall Street Journal's Pui-Wing Tam names him as one of a new generation of angels.
• Jeff Clavier is everywhere and pretty much meets with anyone interesting.
• Sun co-founder Andy Bechtolsheim wrote Google their first check (for a hundred grand).

Groups

• Band of Angels
• Sand Hill Angels
• The Angels' Forum

Got a question for Valleywag? E-mail tips@valleywag.com.

This round was put together by Caterina Fake and Stewart Butterfield, founders of Flickr, and includes Joshua Schachter, the founder of Delicious, and Albert Wenger, the former President of Delicious. These four people have been advising Rob and his colleagues for the past year...

Caterina and Stewart sold Flickr to Yahoo for a rumored $15 to $35 million, and Joshua sold Del.icio.us for somewhere in that range. So what are these mini-millionaires thinking? All but Albert are still in charge of their companies, so it's doubtful they want seats on Etsy's board — too messy, they'd rather just "advise." Maybe these Yahoos hope to adopt another dot-com into the Yahoo Web 2.0 family.

Etsy [Union Square Ventures]

• Are you going to eat all that? No? GoDaddy will take it, thanks. [Monkey Bites]
• Bridge-selling for dummies, round one— [Newswire Today]
• And round two. [Inc.]
• Yahoo to go: Soon you can use Yahoo Instant Messenger anywhere — and message your three buddies who refuse to use AIM. [TechCrunch]
• The Onion on iTunes: How is this even fiction? [Onion]
• The Onion on MySpace: Too. Fucking. Funny. [Onion]
• Local event lister Laughing Squid is giving away tickets to this weekend's DYI tech event, the Maker Faire. [Laughing Squid]

And from the "DNA" page of leading VC firm Sequoia Capital:

Judging by that (and more cloned bits like this from this), there are two possibilities:

1. Boom Ventures sucks.
2. Sequoia Capital has the best-disguised stealth division ever.

The Entrepreneur [Boom Ventures]
DNA [Sequoia Capital]
Earlier: Build an angel investor spam list in two minutes [Valleywag]

1. Go to Stanford's CS department alumni list.
2. Copy e-mail addresses.
3. Paste into "To:" form.
4. Profit!

A reader snitched on this guilty e-mailer:

From: BV [e-mail redacted]
Date: Apr 13, 2006 10:03 PM
Subject: Angel Investor
To: [e-mail redacted]

Hello. I am an Angel Investor based in Silicon Valley. I get involved with and fund start-ups at the earliest stage - as early as the idea stage. I focus on idea stage start-ups in the Consumer Internet space (Social Networking, Search, Web 2.0 concepts, etc).

A few years ago when I was an entrepreneur getting my start-up off the ground, I found it really difficult to connect with investors. Interestingly, now that I am an investor, I am finding it difficult to connect with high quality entrepreneurs that are looking for funding. I am sending you this email, not because I think you may be doing a start-up yourself, but rather since you went through Stanford's engineering program, you might have friends that are doing start-ups. If so, and if they are at the very early stage, if you could direct them to my web site to determine if there might be a fit, I would appreciate it. (By the way, I got your contact email from Stanford Computer Science Department's web site).

Cheers,
BV [e-mail redacted]
www.boomventures.com

It's not a bubble until investors are spamming you to throw money at your friends.

According to some of his colleagues, Ron's a great guy — just jumping the gun a bit. So it's with wicked glee heavy heart that I ask: If you have Ron Conway's not-so-secret list, send it to tips@valleywag.com. (And no, this isn't it.)