When I was a sophomore in high school, my fundraising activities were limited to buying things at bake sales.  Even my more motivated peers were limited to looking for walkathon sponsors, organizing car washes or selling cookies, wrapping paper or citrus products.  While some of them may have wanted to aim higher, they were limited as to the number of people that the could reach in the time that they had to devote to the cause.  Nowadays, the ambitious kids are not content to raise a hundred dollars from neighbors and co-workers of parents.  Instead, they are leveraging technology and social media to raise millions.

Monica Oxenreiter is a sophomore at her high school near Pittsburgh, and she would certainly be counted among the ambitious crowd.  She was diagnosed with Type 1 diabetes at the age of thirteen months.  Her brother also has diabetes.  As a result she has been active with the Juvenile Diabetes Research Foundation.  When she was in middle school, she had the idea that perhaps she could raise $100 from every zip code in the United States, and her project, Zip The Cure, was born.  ”My brother and I were both JDRF Children’s Congress delegates in 2005, and while we were there we met so many amazing people who were really dedicated to finding a cure that we wanted to find a way to connect everyone,” said Monica when I spoke with her the other day.  ”Zip codes seemed like a logical thing.”  Part of the appeal of the zip code aspect was that it would lend itself to having a national map that could be colored in as each zip code hit its goal.  At the time, Monica didn’t know much about Google Maps or even how many zip codes there were in the United States.  It turns out that there are over 42,000, making the idea potentially worth as much as $4.2 million in donations to the JDRF.

Starting when Monica was in the eighth grade, she and her family began the process of setting up a not-for-profit corporation and gaining approval from the JDRF to act as a fundraiser.  She then had to get the Web site built.  While her father could get it going, they needed someone who could use the Google Maps API to build the map.  When Monica had no luck finding help at university computer science departments, she cold-called a programming consultant and was able to negotiate a substantial discount to his normal rate.  PayPal then provided the mechanism to collect donations, and zipthecure.com was ready to go.

“The most difficult thing so far has been getting the word out,” said Monica. Zip The Cure currently has over 900 members of its group on Facebook. Twitter is lagging behind with only about 80 followers.  ”I am more familiar with Facebook than with Twitter, so that was the natural place to start,” according to Monica.  She also feels that blogs have proven to be a potent source of interest,  ”While we have had attention from the traditional press, getting coverage in diabetes-related blogs has been the most successful in driving traffic to the site.”

Although technology and social media have made projects like this feasible, they haven’t become easy.  Monica estimates that she spends about 35 hours a week working on Zip The Cure, including maintaining the site, generating awareness, soliciting donations and keeping volunteers in the loop.  She has to put this time in after school and on weekends.  Monica has also learned “that she shouldn’t take ‘no’ personally.”  All of the hard work is beginning to bear fruit however.  Currently, over 150 zip codes have been sponsored generating more than $15,000 in donations for the JDRF.

What advice does Monica have for other young people looking to do something meaningful?  ”The most important thing to do is to concentrate on the positive and not get discouraged,” she says. “There are so many really generous and great people out there that are willing to help you, and you can make a difference.”

Every business has to balance things that its customers like with things that its customers don’t like.  Someone might buy my product in spite of its high price because of its superior quality.  Other people might buy something from Wal-Mart in spite of its lack of social prestige because of its low price.  Sometimes, these relationships are counterintuitive.  That $100 designer T-shirt?  People may buy it in spite of the fact that it is just a T-shirt because of its high price.  In these situations, managers can get confused as to which is which.

Last week, I went to Otto Enoteca Pizzeria down in Greenwich Village.  This is a busy place where the menu consists of three pages of wines and one page of food.  While one of my fellow diners consulted with the sommelier on our wine, I perused the food possibilities.  The food selections consisted of a variety of elaborate pizzas and pastas.  Although there were a few things on the menu that caught my eye, what I really had a hankering for was a basic pizza with sweet Italian sausage.  There was no such thing on the menu, so I asked if I could get a pizza margherita with some sausage added on.  Sadly, the answer was no.  The chef did not permit any substitutions.  After we ordered, my three fellow diners commented on how the place had a good vibe.  I allowed as to how that was the case, but then caused a bit of a stir when I added, “but I will probably never come here again because the chef thinks he is more important than the customers.”

The chef probably thinks that people come there because of his ability to mix ingredients into sublime pizzas, so he thinks that it is important that no one else gets to choose how to combine the ingredients.  In reality, his customers come in spite of his unnecessary restrictions because of any number of other things, not the least of which is that they don’t care as much as I do about being able to order exactly what they want.  If the chef were to relax this policy, he wouldn’t lose any of them, and he would gain all of the people like me.

As it turns out, I might go back to Otto in spite of the no substitutions policy because of the outstanding job our sommelier, Krista, did with our wine selection.  The more in spite ofs that you have, the more because ofs you need to have to compensate.  In this case, Otto has just enough because ofs to compensate for its in spite ofs.  Logically, you should eliminate unnecessary in spite ofs whenever possible so no compensation is necessary.  You should also ask yourself whether any of your because ofs might actually be in spite ofs.  The answer might surprise you.

In his recent blog post, Fred Destin said that an entrepreneur should never tell a VC three things when fundraising:

1. How much cash you have and when you are running out of money.
2. Other investors that you are talking to.
3. Your detailed cap table and your last round valuation.

I should note that Fred was not advocating giving false information when confronted with these questions or that you should hope to never have to reveal anything along these lines, just that you should give a “non-answer” answer until a more appropriate point of time in the process.  The comments to his post ran the gamut from well informed to jaw-droppingly naive.  One commenter, Eileen Burbridge, disagreed with Fred on all three counts.  As she was writing her comment, it ran long enough that she decided to put up a post of her own rebutting Fred’s position.  The debate then continued in the comments to her post, including comments from Fred (you have to love the blogoshpere).

In my prior life, I raised a lot of VC money for dozens of clients while at Alex. Brown.  My partners there worked on hundreds of other deals that we talked about constantly.  So, although it has been a while, I know more than a little bit about this stuff, and I thought that I would chime in with my own point of view.

Fred is absolutely right on point 2.  He is also right on point 1, but it may not make a difference.  Eileen is right on point 3.  Let’s take them one by one:

Should you tell a VC how much cash you have and when you will run out of money? Fred’s point is that you should avoid signaling desperation even if you are, well, desperate.  Eileen’s point is that your cash balance and burn rate are not too hard to verify and you risk looking insincere (best case) or dishonest (worst case), when the facts come to light.  My view is that if you come right out and tell a VC you are out of cash in six weeks, he or she will think that you are an idiot.  If you tell a VC that you have enough cash for 12 months when you don’t, he or she will think you are an idiot once they figure it out.  The only way to avoid this situation is to make sure that you do not end up there in the first place.  Make sure that you have at least six, and preferably nine, months of cash before you start fundraising.  If you don’t have that much cash, it is time to hit your existing investors up for a bridge.  If they are not willing to bridge you in this situation, your odds of raising VC money on decent terms are close to nil, so you really need to revisit everything anyway.  Even then, you want to put as brave a face as possible on the situation without actually appearing clueless.  Regardless of how much cash you have, understand that it is generally in the VCs interest to slow the process down.  They get more information about how the business is performing and you get more desperate.  The best way to counter this is to have multiple conversations going at once to foster true competition for your deal.  Which brings us to:

Should you tell a VC about others firms with whom you are talking? Fred says that he always asks this and always gets the answer.  In his case, he says that he only uses the information to make sure that he is not falling behind, but that other less reputable people will collude on terms and drive the valuation down.  Eileen thinks that VCs should compare notes and that it is more efficient when entrepreneurs make this easy.  Let me make this perfectly clear.  You NEVER tell a VC who you are talking to or where you are in the process with specific other potential investors.  As Fred points out, the worst case is that those investors will gang up on you.  Even if they don’t do that, the “comparing of notes” that Eileen alludes to is  bad for the entrepreneur because if one potential investor does not like the deal, it either makes every other investor nervous or informs them that there is little or no competition for the deal.  The only situation where it is to your advantage to have VCs talking to each other early in your fund raising process is if your deal is so hot that they are tripping over each other to get the deal and it turns into a feeding frenzy.  If that is the case, then none of this applies.  Please note that at the end of the process, you can bring two parties together.  Once you have a term sheet from firm A and another from firm B, you can introduce them if you feel so inclined.  You can tell firm B that you are going to go with a firm that offered a better set of terms and offer to see if they can get in if they are prepared to do the deal on those better terms.  Just be aware that you still may end up with both firms signing up to the less attractive set of terms put forth by firm B.

Should you tell a VC about your detailed cap table and your last round valuation? Am I suggesting that you slap down your full cap table including specific option grants to individual employees and related exercise prices at the first meeting?  No, but let’s be realistic.  You probably already have your board members listed on your Web site.  If you have had a prior round of venture funding, it is probably already in Venture Source.  With respect to valuation, there are only three possibilities.  Your last round was either too high, too low or just right.  Although you might not want to get anchored to your last valuation if it was on the low side, the last two really don’t pose much of a problem.  If your last round valuation was too high, you are better off addressing this elephant in the room up front.  Saying that you and your existing investors understand that your current round will be based on current conditions may help convince the VC that he or she won’t be wasting his or her time by digging in on your deal.  In my experience, it would be a real head-scratching moment if you weren’t prepared to talk about these items at a high level even in the first meeting (or phone call).

When raising money, you want to do everything possible to develop alternatives.  Encouraging potential investors to wait until you are on life support or giving them a road map to narrow your  options down to one is suicide.  At the same time, in order to get a deal done, you will have to allow them to perform diligence.  Deal with item three when it comes up or bring it up if it has the potential to derail things later.  Item two will become apparent when you give VCs your financials, but it is fine to put the best face on things until they draw their own conclusions.  Lastly, keep item three close to your vest forever (or until the very last minute if you really want another investor in the deal).

Last week, I was able to attend a session with Seth Godin in New York.  While Seth had some prepared remarks, most of the time was spent reacting to real-life business situations that members of the audience brought up.  The audience consisted of about 50 people from as far away as Australia.  Anyone who reads Seth’s blog (you do read his blog, don’t you?) knows that he has an incredible ability to convey valuable insights in remarkably little prose.  If you think that you get a lot from two paragraphs of his writing, you can imagine what I got out of spending seven hours listening to him talk.  If you ever have the opportunity to see Seth speak, I highly recommend taking advantage of it.

One of my favorite observations that Seth made was that people have specific “worldviews.”  You can either try to change these worldviews or leverage them.  Needless to say, changing them is very difficult.  One example he brought up was advertising.  When he was in the business, he presumed that people wanted to buy advertising in order to create awareness, inspire trial usage, generate revenue, etc.  In other words, he thought people bought advertising because it worked.  What he found out was that people bought advertising for many reasons, many of which had little or nothing to do with whether it “worked.”.  As an example, how many Super Bowl commercials really make sense as an economic proposition?  Still. there are plenty of people making lots of money leveraging the worldviews of advertisers who feel they have to be part of the big game.

It seems to me that one of the challenges about worldviews is that our own so often get in the way.  We fall in love with what we are selling and how we are selling it.  If it doesn’t sell, it is because the customer doesn’t “get it.”  The best mousetrap won’t sell well if using it does not fit in with the worldviews of the customers.  Acknowledge this and don’t let your own worldview cloud your judgment.

Thanks Seth and the members of the audience for a remarkable day.

My friend Tom Corddry recommended Connected: The Surprising Power of Our Social Networks and How They Shape Our Lives.  Since Tom knows more about this stuff than anyone else I know, I expected great things, and I was not disappointed.  Note that this is a book about social networks, not social media.  While much of the information can be applied to on-line communities, the book is not about them in isolation.  If you are looking for something about Facebook, keep going.

This fascinating book provides a lot of insight into phenomena that are otherwise difficult to understand.  For instance, the authors demonstrate that the motivation to vote derives from social networks.  From a purely rational, economic perspective, it does not make any sense to vote.  Let’s say you would pay $1,000 to be the only person who chooses the winner in an election.  An economist would say that by voting you are buying a lottery ticket with a potential payoff to you of $1,000.  You “win” the lottery only if there is a tie between the candidates and your vote becomes the deciding vote.  Guess how often that happens?  Given situations like Florida 2000, you might think it happens from time to time.  Well,  it has never happened even once in any election, Federal, State or local, during the entire history of the United States.  This is a lottery that you have no chance of winning.  Economically, it is literally not worth the gas to drive to the polling place.  So why do people vote?  The authors suggest that citizens know something instinctively that economists do not.  They know that by voting, they will influence others to vote as well.  As a result, there does not have to be a tie in order to win the lottery.  Voting is, to some degree, contagious.  It turns out that this is the case with most things, whether it is the urge to yawn, one’s emotional state, disease, weight gain or loss, attitudes, information or an idea.

The authors call the likelihood that the act of one person will influence others “amplification.”  In the case of voting, a conservative voting might inspire a liberal friend to vote because the liberal friend might want to “balance” his conservative friend.  Not surprisingly though, amplification works best in networks of relatively similar people.  A single liberal voting will influence many more liberals to vote than conservatives.  The distance and rate at which things spread through a network are a function of the network’s structure — how “transitive” the network is.  In networks with high transitivity, most of the members know most of the other members.  In networks with low transitivity, most of the members only know a few of the other members, but all are still connected — just in a more linear way.  You might think that things travel farther and faster through networks with high transitivity, but the authors state that is not the case.  Highly transitive networks can have insular clusters where individual participants can’t influence individuals in other clusters of the network.  People who are more moderately transitive are more likely to act as bridges between clusters in a network.  In other words, transitivity needs to be just right.  When you have the right mix of amplification and transitivity, the results can be dramatic.  The authors talk of voting “cascades” where one voter influences hundreds and ultimately perhaps thousands of others to vote.  This is possible because you can be influenced by people in your network that you don’t even know.  You may have a friend A who in turn has a friend B whom you do not know.  Friend A is apathetic about voting, but friend B votes and, as a result, friend A feels that the act of voting is more important than before.  Friend A communicates this new attitude to you, and you run down to the polling place to vote because of the influence friend B exerted upon you.

The potential applications are many.  Consider this recent Bloomberg story on how the SEC is deploying novel techniques to identify insider trading:

[T]he SEC began using computer software about two years ago to sift hundreds of millions of electronic trading records, known as blue sheets, attached to the stock exchange reports about suspicious incidents, according to people familiar with the project. By looking for patterns in the library of data, they identified groups of traders who repeatedly made similar well-timed bets.

Once investigators find a cluster of correlated trades, they tap other sources of information to unravel how its members obtain and share tips, the people said. For example, if a group profits on trades before a series of corporate takeovers, the SEC may check so-called league tables listing which investment banks or law firms advised the deals. If one firm was involved in all of them, an employee there may be the source of the leak.

Can you find more customers the way the SEC is finding inside traders — using their social networks to detect them?  Even better, can you create a cascade of new customers voting for your product or service by finding more effective ways to influence them by understanding the structure of their social networks?