If you want to find evidence for a start-up valuation bubble, it’s not hard to find examples that support allegations now rampant in the blogosphere. But do examples make a bubble?

The poster child for a valuation bubble is the photo-sharing smart phone app, Color, started by Silicon Valley serial entrepreneur Bill Nguyen. Color pulled down a cool $41M Series A before it had a product in the market, much less any revenue. When it did launch it “landed with a thud,” according to the New York Times. It has garnered few users and lousy reviews. $41M is a high Series A, which normally goes for between $2M and $6M. Such a Series A investment is especially stratospheric for a start-up with no market traction.

Some bloggers point to the whopper $135M and $200M Series A rounds for OSIsoft and Coupon.

Even more whistles are heard about Peter Thiel’s giving every start-up in Y-Combinator $125k, irrespective of team, technology or market, as an example of a valuation bubble.

But now take a closer look. Two start-ups in the same photo-sharing space as Color — Instagram and PicPlz — started with $200k and $350k respectively.  Both companies started small, built products, refined them and can subsequently raise more money. This is the classic method.

There’s more to the story about OSIsoft and Coupons too. Each has more than 100 employees and multiple reference customers. OSI has Agfa, Genentech, Alcan, BASF, Brooklyn Naval Yard, Ciba, Con Ed, Dow Corning, etc. and Coupons has General Mills, J&J, Kimberly Clark, Pfizer, Radio Shack, Walt Disney, etc. OSI was started in 1980 and Coupons in 1998 – they have been bootstrapping up to now. While their initial round of investments may be high, they don’t really seem totally out of reason.

Personally, I think in any market you can find examples of investors who over-bid on dumb start-ups (or dumbly bid on start-ups). Furthermore, very narrow sectors, like Y-Combinator, and a few investors (like ones that invested in Color) don’t define a market, and don’t create a bubble. They simply over-pay for common goods.

To find a more definitive answer to the bubble debate, I looked at all the Silicon Valley start-ups that have received a Series A investment so far this year — a total of 159 when I looked last week. The average of all of them, including the two outliers OSIsoft and Coupons, was $8.1M. Removing those two produced an average Series A of $6.0M, about where it has been for the last few years. And the real killer was that the median value of all the Series A rounds was $3.1M.

I see no evidence for a valuation bubble.

“Qualification” for the Workshop is a two-step process. First you send us your executive summary and we see if it outlines an “investible” idea. “Investible” means a business idea that venture capitalists or professional angels are likely to invest in. If it looks “investible” to us, we will invite you in to give a 30-minute investor pitch, followed by 30 minutes of Q&A. If that further convinces us of your investibility, you will be invited to attend BAE Workshop.

This is a process that we have used in the past in another organization, in which 40% of its clients (141 out of 348) got funding from venture capitalists, raising just over $1B. We think if we do what we did before, we can get what we got before.

You can apply by sending us your executive summary by clicking apply. We will acknowledge receipt of your application and let you know in a few days if we want to hear your investor pitch.

Who Can Apply:
For the time being, this opportunity is only available to start-ups in the San Francisco Bay Area, or those who can travel to the Bay Area once a week for eight weeks. Later this year, probably in the fall, we plan on rolling the workshop out nationally, via web seminars. More information about attending the Workshop via the web will be available as we get closer to launch. You can sign up (Join Our Mailing List in the lower right-hand corner of this page) in order to be kept informed.

For More Information:
See the new Entrepreneur pages on our website for a fuller description of the new investments.

What Else is New?
At the close of each Workshop, we will match our start-ups, as closely as possible, with investors who invest in their space, in start-ups at their stage, and in the amounts of money the start-ups are looking for. We will provide the “warm introductions” that are so important to obtaining funding, and accompany the entrepreneurs to the meetings with the investors, and provide feedback on the experience.

Don’t Delay:
The deadline for submitting your executive summary is April 15 and the Workshop will start on April 29. Space is limited and several applications are already in. Don’t delay. Send your executive summary to apply now!

Treadmill Game Controller

This case  is not the saddest experience of my consulting career. The saddest is recounted in  “13 Mistakes — #1, Piling up a Mountain of Debt,” where friends and family lost $20M through the naiveté of the CEO. But this is a close second.

And it takes the cake for biggest opportunity lost. The technology was a video game controller that was incorporated into a human-powered treadmill. A player moved through any video game by walking, running, or creeping stealthily on the treadmill to move his or her avatar though the virtual world. Handle bars were attached for steering and aiming. A standard set of controller buttons was mounted between the handlebars. Pressing the “fire” button and turning the handle bars would strafe; the rate of fire was determined by how fast the player was running. When pressing the “jump” button, how high or far one jumped was also determined by how fast one was running. It worked with all PC and controller-based games.

Positive media reviews were generated by Spike TV, MTV, G4, SF Chronicle, Atomic Magazine, PC Magazine, the Boston Herald, and many, many blogs. Commercial interest included retailers from Sam’s Club, Target, Best Buy, Toy’s ? Us (Europe), QVC, HSN, HSG, Sky Mall, Sharper Image, Hammaker Schelmmer, Gadget World, all of whom had asked to be notified when the product was available in volume. Interest had also been expressed by several universities, cyber gyms, and the offices of ONR, DARPA and NASA.

Financial analysis showed significant margins and rapid growth of cash flow. Realistic projections of $1B in five years were dialed back to $750M by artificiallydepressing demand that had already been expressed, in order to provide some margin.

The problem, as with most of these posts, was the CEO. She had fired her director of manufacturing twice prior to the period she was a client, and he was her brother. She had a knack of finding charlatans and crooks, and she made a habit of signing contracts that she hadn’t read. She filed a patent without benefit of couns

el, and was fighting the US Patent Office over its rejection. We had an acrimonious parting for reasons that have never been clear to me. The last I heard she was in court because she had unwittingly signed away the IP to someone and was trying to get it back.

I try to end these posts with a take-away that would benefit somebody, but this one is pretty hard. Maybe just don’t try to run a company if you are crazily unstable.

One of the biggest turn-offs for investors is top-down financials. Numbers that have just been made up. How can an investor tell? The numbers all end in three zeros, or four, or more; $100,000 this year, $2,000,000 next year, $5,500,000 year 3, etc. I’ve seen too many entrepreneurs to count try to pass off made-up numbers as something to believe in.

Investors Detest Made-up Numbers

What entrepreneurs who want to be believed should do is build their numbers from the bottom up.  The final numbers are the result of detailed thinking about set-up costs, marketing costs, customers, go-to-market strategies, all the elements of a business. When you’ve figured out your sales strategy, and know the cost of one customer, and how fast you can grow them, and what that will cost, then you can put together your financials. If they don’t add up enough to satisfy you or an investor, go back and figure out what you can do to grow them faster. Generally that means more marketing and sales, but it might mean adding more features to your offering.

Some people try to create numbers by a process that assumes they can sell one cup of tea to every person in China. One cup of tea costs $0.50 and there are 1,3 24,655,000 people in China, so theycan make half a billion dollars in three years.

Financial plans are a key to your overall attractiveness to investors. If yours look like you really thought about them, if you can point to the cost of a single customer, and show where the numbers come from, you go a long way toward establishing your credibility, and it will spill over into other areas.