New York, NY, United States (AHN) – JPMorgan Chase opened a new fund with the objective of investing in social media companies. Reports said among the key social networking media firms that the fund wants to acquire a minority share is Twitter.

The fund would be the equivalent of rival bank Goldman Sachs, which purchased a $1.5 billion stake in Facebook. However, Goldman’s investors for Facebook were located outside the U.S. to avoid encountering problems with regulators.

The JPMorgan Digital Growth Fund, which could directly invest in Twitter or buy current investors’ shares, is also expected to invest in other social media such as gaming giant Zynga and group coupon providers such as LivingSocial.

Like Goldman’s business model, the JPMorgan fund will invest in social media firms with good business models and steady income before these firms go public.

Twitter, which is second to Facebook in terms of global popularity, was established in 2006. It allows users to broadcast messages of up to 140 characters and is used by celebrities, politicians and ordinary people. U.S. President Barack Obama is a Twitter subscriber.

Like the short messaging service of mobile phone companies which has been credited with ousting a president in the Philippines, the Twitter has help facilitate protest in Egypt and other parts of the Middle East.

Meanwhile, JPMorgan may have to face enforcement actions, fines and other extra costs because of government investigations of its mortgage-servicing procedures. The bank informed the Securities and Exchange Commission of its expected additional costs as JPMorgan corrects and enhances its mortgage foreclosure procedures, the banks said in its annual filing Monday.

Similar fines are anticipated by Bank of America and Well Fargo.

JPMorgan and its subsidiaries are defendants in more than 10,000 legal proceedings. In 2009, the bank allocated $161 million as its litigation reserves and added another $7.4 billion last year. JPMorgan estimates up to $4.5 billion is additional losses would not be covered by its litigation reserves.

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New York, NY, United States (AHN) – Although millions of American children and teens are on the popular social networking site Facebook and use it to communicate across the digital expanse. There are two children with the last name of Obama whose mother won’t allow them on the site.

While speaking on NBC’s “Today” show first lady Michelle Obama said security issues limit some of the things her daughters can’t do.

However, even if they were two normal kids living in Chicago, she wouldn’t allow them on the site.

Michelle, who is “not a big fan of young kids having Facebook,” says Facebook is “not something they need.” She did say that when they get older it may be a something that gets revisited.

While on the morning program Obama also revealed her husband doesn’t dye his hair and attributed images that reveal a darker hair color could just be the lighting the picture was taken in.

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Palo Alto, CA, United States (AHN) – Social networking giant Facebook has announced it raised $1.5 billion at a valuation of approximately $50 billion.

The news confirms rumblings which have been surrounding the site and financial world for weeks.

Financial backers which are largely Goldman Sachs also confirmed that it will start submitting public monetary reviews by April 2012 a move that is likely fuled by and coincides with an IPO.

Regulatory guidelines dictate that when a business has more than 499 shareholders, they are needed to publicly disclose their monetary outcomes and file quarterly reviews towards the U.S. Securities and Exchange Commission. Facebook mentioned it expects to pass the 500 shareholder mark within the coming months.

However its most recent large transaction consisted of two parts.

Goldman Sachs completed an oversubscribed offering to its non-U.S. clients in a fund that invested $1 billion in Facebook Class A common stock.

In December, Digital Sky Technologies (DST), The Goldman Sachs Group, Inc., and funds managed by Goldman Sachs invested $500 million in Facebook Class A common stock at the same valuation.

“Our business continues to perform well, and we are pleased to be able to bolster our cash position with this new financing,” said David Ebersman, Facebook’s chief financial officer. “With this investment completed, we now have greater financial flexibility to explore whatever opportunities lie ahead.”

Earlier in the week Goldman Sachs moved to restrict future investors to non U.S. customers. A stance that caused “intense media attention,” however analysts say that by retaining American traders from the pool limits the scrutiny U.S. regulators can utilize towards the offer.

Facebook has since issued a statement saying, “DST and Goldman Sachs approached Facebook to express their curiosity in producing an investment, and Facebook made the decision it was an appealing chance to bolster its money reserves and improve its monetary versatility with restricted dilution to current shareholder.”

Under the transaction’s terms, Facebook had the option to accept between $375 million and $1.5 billion from the Goldman Sachs overseas offering, at the discretion of Facebook. While the offering was oversubscribed, Facebook made a business decision to limit the offering to $1 billion.

Even before the investment from Goldman Sachs Facebook expected to start filing public financial reports no later than April 30, 2012.

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San Francisco, CA, United States (AHN) – The three former partners of Mark Zuckerberg have asked the court to reopen a 2008 legal settlement made by Facebook in the amount of $65 million in stock and cash.

They claim Facebook did not provide a correct valuation of the company’s shares when they agreed to the payout.

Facebook agreed to a $20 million cash and $45 million stock settlement based on a $35.90 share price.

Because the world’s largest social networking site is valued at more than $50 billion, twins Cameron and Tyler Winklevoss and Divya Narendra claimed they were deceived, and want more money.

The three accused Zuckerberg – their classmate at Harvard University – of stealing the idea of a social networking company from them.

The twins’ lawyer estimated the settlement to be worth now $168.5 million. The settlement, featured in the 2010 movie “The Social Network” was supposed to end a four-year legal battle between the twins and Zuckerberg, who hired the Winklevosses in 2003 to help build a dating website ConnectU.

The twins and Narenda claimed Zuckerberg stole their idea by delaying the ConnectU project and secretly establishing Facebook.

A lower court previously ruled in favor of Facebook, so the three men elevated the matter to the Ninth Circuit Court of Appeals in San Francisco, which heard the case Tuesday.

Facebook, in turn, filed a separate lawsuit against the twin for ConnectU’s alleged hacking into the Facebook website to spam Facebook members into transferring to ConnectU. Facebook sought $900 million in damages.

Senior Judge Clifford Wallace, who heard the arguments of the legal teams of both camps, opined that it was difficult to believe that the three former Zuckerberg partners were taken advantage of because they had several lawyers during the earlier settlement talks. Wallace added the twins’ father is a business expert. >p>Wallace, together with the three-judge panel, is expected to issue a decision in two or three months.

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Independence, AR, United States (AHN) – The Arkansas school official who posted anti-gay comments on Facebook has resigned amid pressure from advocacy groups and uproar nationwide.

Clint McCance stepped down as vice president of the board of the Midland School District only a month after he was re-elected. He announced his decision on CNN.

“I’m sorry I made those ignorant comments and hurt people on a broad spectrum,” he told Anderson Cooper on Thursday, the same day protesters gathered outside Midland High School to call for him to quit.

The nation’s largest LGBT advocacy group, the Human Rights Campaign, called the resignation a “step forward” but made clear, “What remains troubling is that Mr. McCance focused his regret on particular word choices not the animus behind those words.”

The group had announced a full-page ad in the local newspaper featuring McCance’s controversial comments and calling for him to step down.

McCance posted on his personal Facebook page last week, “Seriously they want me to wear purple because five queers committed suicide. The only way I’m wearin it for them is if they all commit suicide.”

He later added, “Being a fag doesn’t give you the right to ruin the rest of our lives. If you get easily offended by being called a fag then don’t tell anyone…. I like that fags can’t procreate. I also enjoy the fact that they often give each other AIDS and die.. I would disown my kids if they were gay.”

McCance was reacting to the “Go Purple” campaign of the Gay and Lesbian Alliance Against Defamation to fight bullying and honor five teens who committed suicide after allegedly being harassed for their sexual orientation. One of the victims was a Rutgers University music student, Tyler Clementi, who jumped off the George Washington Bridge after his roommate and another student secretly videotaped him having sex with a man inside his dorm room and streamed the encounter online.

The Facebook posts by McCance were reported in a letter to school district officials by Anthony Turner, who graduated from Midland High School in 1998.

Midland School District Superintendent Dean Stanley responded to the letter on Thursday, when a Facebook page calling for McCance to quit was supported by more than 60,000 people, and a day after Arkansas education commissioner Tom Kimbrell condemned the anti-gay comments.

“Despite these unfortunate events, it is my utmost hope that the students in the Midland School District and across the state of Arkansas clearly understand that they are all valued and have intellectual and human worth, and they deserve the best education we can offer,” Kimbrell said.

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Washington, D.C., United States (AHN) – Some journalists complained Thursday during a business conference in Washington, D.C., about what they see as the sunset of the traditional news media while others said the Internet was opening new opportunities.

The Online News Association conference in a downtown Washington hotel was intended to introduce journalists to new job opportunities as many of them try to recover from layoffs.

Newspaper subscription rates are plummeting as more news content gets transferred to Internet Web sites or cable television channels.

Reporters and editors are finding they also must change with the technology or leave the news business.

“Those days are gone,” said Amy Mitchell, deputy director of the Project for Excellence in Journalism, which was organized by the Pew Research Center public policy foundation.

She was referring to a time less than 20 years ago when journalists would graduate from college, start as reporters for small newspapers and work their way up through the ranks of management or into jobs at large newspapers.

Now, journalists must combine reporting with other skills as photographers and Internet social media experts, she said. They also must have specialties as journalists, such as business, legal or technology reporters.

Social media refers to Internet sites that allow visitors to interact with one another, such as Facebook and Twitter.

“The idea is how to create your own brand,” Mitchell said.

Other journalists are starting their own blogs, or Web logs, to report on issues important to them.

When the number of visitors to their blogs increases enough to attract advertisers, they sometimes expand the Web sites into Internet news services.

Recent newspaper subscription figures demonstrate that journalists have few other alternatives unless they want to change professions.

The latest U.S. Audit Bureau of Circulations figures show daily newspaper subscriptions fell 5 percent in the six months that ended Sept. 30, compared with one year earlier.

The 5 percent drop was good news compared with the 8.7 percent subscription decline from October to March 2009.

Some newspapers have been trying to recover their losses by raising subscription and newsstand prices, which has made them lose even more readers.

“Overall, there’s still a sense of crisis,” Mitchell said. “There’s still a lot of uncertainty, a lot of hesitation.”

The Audit Bureau of Circulations figures show newspaper subscriptions are not increasing like other consumer markets as the nation recovers from recession.

Instead, readers are getting their news from Web sites, free publications that get their revenue only from ads or from television.

Some Web site operators at the Online News Association conference recommended that journalists develop specialties that appeal to non-traditional media, such as universities or foundations.

Rachel Kaufman, an editor for the journalism career Web site mediabistro.com, said one trade publication, called Amputation Daily, wanted journalists who specialized in writing about surgical amputations.

“They’re very, very specific,” Kaufman said.

Many experienced journalists who spent their careers in the traditional media as reporters or editors are losing their jobs because they lack Internet skills and specialties, said Julie Hartenstein, a Columbia University journalism professor.

“They’re probably not going to get rehired,” she said.

When one middle-aged journalist asked how she could find a job despite a lack of experience with social media, Eric Wee, founder of the career Web site Journalismnext.com, said, “I’d say fake it.”

He suggested that journalists start their own blogs to create the image they are well-versed in Internet journalism.

“Show them you have a blog,” he said.

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New York, NY, United States (AHN) – Three New York City teachers have been fired for improper conduct with students on Facebook.

In addition to “friending” too many students and posting inappropriate comments, one teacher’s Facebook friendship with a former student led to a sexual relationship.

Chadwin Reynolds, Laurie Hirsch and Stephen D’Andrilli apparently “liked” too many students and have now prompted a teachable moment.

Reynolds, 37, wrote “This is sexy,” under some of the girl’s Facebook photos. Reynolds, a former Fordham High School for the Arts teacher, even allegedly tried to get a teen to go on a date with him. He got her phone number and sent her gifts including flowers, candy and a teddy bear.

Hirsch, 30, a former paraprofessional at Bryant High School in Long Island City, Queens, was let go in May when her Facebook dealings with a student became known. She posted a picture of her kissing the male student, which prompted an investigation. The boy told authorities that he and Hirsch had sex in her apartment 10 times. Hirsch said nothing occurred until after the student left the school.

“I was suspended indefinitely” for using a cell phone too frequently during school time, she said in a New York Post report. “And it didn’t seem in any way, shape or form that I was getting my job back” when the relationship with the boy took off.

D’Andrilli’s interactions were a bit more creepy. The former Manhattan substitute teacher “friended” numerous female students at Essex Street Academy. School investigators say he even tried to visit one female student during her Saturday classes and told another girl that her “boyfriend [did not] deserve a beautiful girl like you.”

Currently there is no school board policy that addresses teacher-student communication on Facebook

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photo credit: armandoalves

In our investment banking business we are often contacted by business start-ups asking for our help in raising money. I am sure that we were not the first organization that was contacted and that these hopeful entrepreneurs had been searching for months for funding. I try to be helpful and spend time on the phone with these people asking what I consider to be basic Business 101 questions. What is your product or service? What unmet need is it designed to fill? Who else is in your space? How does their product or service compare to your product or service? What is the size of the potential market? Why would a customer switch to your company? How do you plan on selling your product?

Often I am amazed that the entrepreneur has focused inwardly on his hobby or invention or software and has given very little thought to the potential market. Why build a business to sell to a small market segment? Every once in a while, an entrepreneur contacts me and the product or service really hits me as a winner. That is what happened when I was contacted by Russ Notestine, an inventor with a unique product. He had many of the elements mentioned above going in his favor but was still struggling because he had little experience in actually marketing a product. One of the reasons I got interested was that Russ had created a product designed to help back pain sufferers.

Well, that was me, so I was all ears. I had tweaked my back in an athletic event, still approaching the competition with the zeal of a college athlete but trapped in a 50 year old’s body. I was in significant pain and took the usual over the counter pain killers that only reduced the pain by 10%. The next day I could hardly get out of bed my lower back pain was so intense. I called the local chiropractor and began a treatment routine that involved 3 visits per week, heat, electric stimulation and adjustments. I bought my kneeling chair so I could actually work. I even bought the inversion boots so I could hang upside down in an attempt to provide some kind of relief.

My chiropractor got me to the point where I was at least able to be productive at work, but I continued treatments for almost a year. The medical bills were expensive, totaling about $6,000. The really expensive part was the one and one half hours I took out of my work day 2 and 3 days a week. If any of you run your own company, that expense dwarfed my medical expense. Nothing was working for me and I was ready to eat spiders if I thought it could make this problem go away.

Well, Russ tells me that I am not unusual and that 50 million Americans will suffer from at least one bout of serious back pain in their lives. He had passed test number one. There is a huge market for this product. He is explaining how his Vacupractor works and I am thinking (having seen or heard it all from start up companies), oh come on. He says he has this molded plastic shell that is about the size of your back. He tells me that you spray the device with water and then lay down on it. You then pick up your legs and slowly lower them and this creates a vacuum suction as the air is expelled. The device sticks to your back almost like a hard contact lens sticks to your eye. He explained that the suction stretches your back muscles and gently aligns your spine. Given that I was ready to eat spiders, I asked him to send me the Vacupractor.

My back had been OK for a few months so the thing sat in the box for a couple of weeks with little attention from me. I then strained my back again in my next event and I was feeling the beginning of another bout of back pain. I got home and got out the device and sprayed it with water and followed the instructions to expel the air and create the vacuum. I laid on it for about 15 minutes and could feel my back muscles relax. When I got off it, the pain was not completely gone but was considerably reduced. The next morning I got on it again and as I worked that afternoon I suddenly realized that I was not thinking about my back because the pain was totally gone and the start of a potentially long and painful lower back pain bout had been avoided. I couldn’t believe it. I called Russ to tell him about my experience and he said that is pretty much what he hears from other users.
photo credit: Marco Gomes

I was so grateful that I told Russ that I would try to help him with his marketing and sales. We still do not have that solved, but in terms of the other elements for a start up succeeding our entrepreneur has several things going for him:

Huge potential market

Totally unique solution to a painful problem

Cost competitive – the device costs less than 1 chiropractor visit

The potential for a big word of mouth viral marketing boost

Good product gross margins

I don’t think Russ consciously thought about the Business 101 issues when he started. He was a back pain sufferer and an inventor and he had an unmet need because none of the existing products solved his problem. He set out to create a lower back pain remedy for himself and when he got the solution, he thought, wow, I really have something here and there must be a huge market for it. I think he is right. Now if he can figure out how to generate meaningful sales with a limited marketing budget, he has a chance to turn a great product into a great business.

Here is an examples of a business idea that did not pass the Business 101 start up test. I was contacted by a software company that had built the best system for managing the sourcing of clothing to overseas contract manufacturers. They spent $1.5 million in development before doing any research on the competitive landscape. It turns out that for them to be reasonably profitable, they would have to sell the software license for a minimum of $50,000 per company license. The competitive systems in the industry, although not as robust as this one, had 85% of the functionality. They charged a monthly license fee of $300 per month. Our guys were priced way out of the market and literally shut this division down.

What an expensive lesson that should have been avoided before the start. If you are thinking of creating a company, make sure the economics are in your favor before you start. Are your margins going to be high enough to make the company viable? Another huge oversight by these very optimistic entrepreneurs is they figure like in Field of Dreams, if you build it they will come. Save that one for the field of fiction. In business, if you sell it they will come. Even the best ideas and the best products will die if you are not able to achieve meaningful distribution in a cost effective fashion. Go through this little exercise before you start. Who is in my space? How do they sell their product? Is it through a direct sales channel? What does it cost for a salesman to sell the product? What volume can a salesman reasonably expect to sell in a year? What revenues and profits are generated by a salesman at 100% of quota? What is the company’s cost for a salesman at 100% of quota? Does it make economic sense?

The Internet has been a game changer for start-ups with very few barriers to entry. These companies are very easy to start, but almost impossible to scale without some big funding. The sad truth is that the guys that are starting these businesses and getting the funding are guys that have done it before. A great article was recently published in Fortune Magazine about the original founders of Pay-Pal. Well these folks have made investors a lot of money before and the odds are very good that if they did it once, then they can do it again. That theory has been validated with these wizards founding Digg, LinkedIn, Slide, Mozilla, Technorati, and having a significant investment in Facebook.

The VC’s line up to give these guys money. For others it is a painful process of endless meetings and presentations and no money. As a start up company, you have many things going against you. Make sure you are not blinded by your great idea. Think about the market demand, your competition, your margins, your sales and marketing, and getting your company to break even. Do not get distracted trying to attract VC financing at this point. If you can generate enough sales to fund your operations through bootstrapping, you have passed a big test of market validation. If you now need financing to take the company to the next level, then the professional investors will start to listen.

Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and President of MidMarket Capital, representing owners in the sale of privately held businesses. We provide Wall Street style investment banking services to lower mid market companies at a size appropriate fee structure.