There are many obstacles when you start up a business. When you start up an online-business your domain name is crucial. Imagine starting a store in some distant industrial area far away from downtown. Sure, you will probably get a couple of customers, but you’ll have to work hard on promoting yourself. You cannot really expect people to just walk into you store because they see you from the sidewalk.

The same thing goes with a domain name. If you have a really long and hard-to-spell domain name, you cannot expect people to just stumble into your website. Sure, some people might know about it through advertisement, and bookmark it, but your customers will be quite limited. In addition to this, it is not very likely that people will remember you address, and promote it by word of mouth.

So what is the catch? Why is it so hard for an Internet-startup to just get a really short and catchy domain name like google.com, myspace.com or facebook.com? Is it really that hard to come up with a catchy name like that?

The answer is no. Coming up with a name is the easy part. A half year ago when Alex and I were starting to make plans for starting up a company we started to brainstorm for a cool and catchy name. This was when we discovered the real catch – finding an available domain name.

I don’t know how many hours we spent on instantdomainsearch to find a both available and catchy domain name. This is when we realized something: the biggest parasites on the Internet are the domain-traders. Sure, you can probably find an available .org, .us or something like that, but if you’re a company you want both the .com and .net.

Why? It’s simple. What these companies do for a living is just to buy up random domain names that someone or some company will be desperate enough to buy for the insane price they are asking for. Sure, this doesn’t sound like a big problem, but I can assure you that it is. Just go to instantdomainsearch and try to type in any letter combination of less than 5 characters, it doesn’t even need to be a word. Is it taken? Sure. Just try to come up with some catchy name of less than 10 characters, and I can almost guarantee you that it is taken.

Well, you might think, maybe it is just some company that bought this domain, because the were about to launch a product by that name. Not very likely. If you look at most of the results you are likely to find either an empty page, a page full with banners or a redirection to a domain-trader.

This is the reason why I argue the domain-traders as the biggest parasites on the Internet. I would not say that they’re worse than pedophiles and that kind of parasites, but from a business point of view, these are the worst. Imagine how more useful these domains could be used if it wasn’t for the domain-traders. Personally I think that the domain-registration should be more conservative.

I know until a few years ago, you needed to have a company or product connected to the domain you applied for in order to get a .se-domain. I still don’t know why they took this limitation away. I think .com should have been restricted for companies, and nothing else. However, that’s a bit too late to change now.

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I just got off the phone with the Secretary of State to see how our LLC-application is coming along. We filed the application about a month and a half ago, and still not a word, so I was starting to get worried. Sure, it’s a government agency, but still.

When I finally got through after about 15 minutes, it turned out that everything was OK. The guy I talked to said that we probably will receive our paperwork by the end of this week.

Now I’m really relieved.

Before getting down to business I would like to introduce myself. My name is Andreas Lindblom and I’m invited as a guest writer to share with you the interesting world of Hedge Funds and how their presence might be applied to start-ups.

Starting off, defining Hedge Funds might be a good idea as many still don’t really know what constitutes a Hedge Fund.
Hedge Funds “are not regulated by the SEC, meaning that they are not required to disclose all financial statements and are allowed to engage in selling short” (Lindblom, pg. 1). This is, of course, an oversimplified statement that would cause many Hedge Fund experts so shiver, but for this article, Hedge Funds are like Mutual Funds, apart from the mentioned fact that they are not regulated by the SEC and that they can be involved in selling short. These differences are immense as they cause potential gains to sky rocket. With this, the volatility of the investment also rises, thus potential losses could be devastating for a start-up. There are additional criteria related to Hedge Funds, but those will be discussed later on.

When researching risk-adjusted returns, one should use use several models so that all factors are accounted for and also focus on models that use multiple factors to calculate returns. Such factors could be ‘Fama and French’ or Carhart’s four-factor model, compared to CAPM which assumes perfect market efficiency and also restricts you with certain limitations.

Using these models to analyze risk-adjusted return, my research found that Hedge Funds outperform the market almost exclusively (as seen on the efficient frontier below) which implies that the choice of investing in Hedge Funds should be an easy choice? Well, here’s comes the additional criterion to investing in Hedge Funds. “In order to invest in a Hedge Fund [the investor needs] $5 million in capital to invest, and…a sophisticated understanding of the financial markets. [Hedge Funds] also accept funds from institutions such as pension funds that have at least $25 million in capital available” (Lindblom, pg. 5). ‘The cream of the crop’ may claim that this is good because it creates an exclusive investment market or a ‘playground’ rather where they are not restricted by the SEC. Given that Hedge Funds can sell short, many of them are levered, thus potential losses could shake the financial waters of the US significantly and affect other, rather than just those investing in that particular fund. Due to this, many ‘regular’ investors and analysts oppose Hedge Funds because as seen at the end of the 1990’s where the LTCM (Long-term Capital Management) Fund crashed, requiring all major Investment Banks to bail them out.

Well, maybe it’s time to start applying what we know to start-ups. Management of a start-up could have many difference mentalities. Maybe they are risk aversive or risk-takers. The size of capital available to invest may differ, and so on.
Investing in Hedge Funds could provide a company with major returns but, of course, also higher volatility. The size of a start-up is significant due to the $5 mn. investment requirement. For a start-up, where the first year determines the future of the entire business, investing in Hedge Funds provides volatility you’d much rather avoid and investing in Mutual Funds or simple CDs may be a better choice due to its lower volatility (note: investing in CDs requires you to ‘lock’ your funds which decreases the liquidity of your funds significantly).
Personally, I would invest extra capital in R&D for a start-up due to the importance of keeping your customer base after, if surviving, the first year.

For further information, read my research on “Risk-adjusted return of Hedge Funds.”

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If you’ve followed the posts on the blog since we started, you might recall that we filled out our Article of Incorporation for LLC about 3 weeks ago. Well, we still haven’t received any papers back yet. The Secretary of State haven’t even deposited the check yet. This is kind of annoying.

Anyhow, this doesn’t stop us from working on our product, and it’s just that it would feel much better to have the formal paper-works done so I can start moving on with the remaining administrative tasks that requires this paper.

Except for this, we’re moving forward with our development according to our time-line.

Today I found an article that really caught my attention. The article was written by Paul Graham, a startup-guru(?) who has been around for while, and pretty much knows what he’s talking about.
Anyhow, this article was called the 18 mistakes that kills a startup. So, since we’re a startup, I thought that I’d analyze his list a bit, to see how we’re doing.

• Single Founder
• Check. Last time I counted we were two at least.

• Bad Location
• No way. We’re located at the best possible location.

• Marginal Niche
• Not really, our potential is certainly not a ‘Marginal Niche’.

• Derivative Idea
• Our idea is great. It’s simple, and yet powerful. However, most importantly, I want our product. It’s something that I would use on a daily basis.

• Obstinacy
• I don’t think this will be a problem. We’re certainly flexible, but we still know what we want. Also, customer feedback is definitely something that will be used in the future to determine where we’re going with our products.

• Hiring Bad Programmers
• Not gonna happen. Alex is an awesome programmer, and he’ll code just about any language you can imagine, and he’ll do it good. It’s hard for me to imagine that he would hire a bad programmer.

• Choosing the Wrong Platform
• Not at all. No money will be wasted on expensive licenses. All the money will be placed right into the R&D-account.

• Slowness in Launching
• I don’t think this will be a problem either. We’re trying to launch our product as soon as we think it’s ready to be released. Sure, there will be some bugs, but if Microsoft can get away with like a billion bugs, I think our initial launch can get away with a couple as well.

• Launching Too Early
• Yeah. We’ll keep this in mind.

• Having No Specific User in Mind
• We know who our customers will be. And there will be plenty of them.

• Raising Too Little Money
• We just started, this is not really relevant right now. We have enough capital to start up.

• Spending Too Much
• Nope. We’re really conservative about this. No unnecessary expenses. We put all our money into R&D.

• Raising Too Much Money
• Nope.

• Poor Investor Management
• We’re the investors. I hope we can manage ourselves.

• Sacrificing Users to (Supposed) Profit
• No, both Alex and I are really customer-oriented. We’ll try to do our best to cater to our customers.

• Not Wanting to Get Your Hands Dirty
• Yeah, we admit it. Neither of us like to clean the toilet. Except for that, I don’t think there’s anything that we consider dirty. Alex is a programmer, I’m a business-guy with a background within computer-science. I think we have the field covered pretty well.

• Fights Between Founders
• Sure hope that’s not gonna happen. Alex’s been a good friend of mine for years, so I think I know him pretty well by now. We also share a similar vision regarding the future of the company.

• A Half-Hearted Effort
• Not so much.

Read the entire article at Paul Grahams’s homepage.