Dobbs: “If you’re the police, where are your badges?”
Gold Hat: “Badges!? We ain’t got no badges. We don’t need no badges! I don’t have to show you any stinking badges!!”–Alfonso Bedoya in Treasure of the Sierra Madre (1948)
The ardor continues for the idea that newfangled Web 2.0 startups don’t need venture capital, with a piece implying as much appearing in today’s WSJ. While some of this is just wishful “God is dead” thinking on the part of some VC-loathing enrepreneurs, there is an element of truth to the idea, as I outlined in my VEF presentation slides.
But that said, it’s worth pointing out that most of the companies mentioned in the WSJ piece today obtained professional capital, albeit angel money, not traditional venture dollars. That was true for Flickr, JotSpot, Weblogs, et al., which all received money from profilic investors. While those folks may not have been managing Yale’s or CalPERS’ money, that doesn’t mean they are unprofessional investors either.
Related posts:
I think a more pertinent issue is this:
As so well illustrated in your VEF presentation, the cost of putting together a bare-bones Web 2.0 business is now in the low six figures, whereas the minimum investment that a high-profile VC will feel worthy of consideration remains in the low seven figures.
There’s now an order-of-magnitude mismatch between the minimum unit of supply and the minimum unit of demand. Venture capital grew up in an era where a couple hundred grand, idea to launch, was unimaginable, and is now ill-equipped and poorly structured to service the new market realities.
On the other side, the bar for becoming an “angel” is likewise lowered. Just about any successful dot-com cashout can now write checks for a small stable of startups.
Thus, it is almost inevitable that you will see, in “Web 2.0″ anyway, an increased prominence of enterpreneurs directly funding other enterpreneurs.
Angels have a real opportunity here to meet this funding gap.
Alas, for all the talk in the angel community, these investors are completely invisible and difficult to deal with for the lack of due diligence standardization, amongst other things.
The whole aura of the mysterious angel investor must really start getting on a lot of people’s nerves. I see it as, either you’re doing private equity deals, or you’re not – and if so, let’s do the paperwork or drop the ceaseless schmoozing, chit chat and move on.
It does seem like a dilemma; VCs have no economic incentive to lower fund size and angels might either not have enough money to support later rounds or their money severely lacks value add. I’d imagine that nothing but conflict is going to come out of this.
Big time! With their chatter/deal quotient ever-increasing, entrepreneurs get turned off and resort to traditional financing which doesn’t really go anywhere unless you have personal assets to collateralize.
Can somebody please whip the angels into shape so they fall in line?
Toni Schneider (formerly of Oddpost) has an interesting post on this:
http://toni.schneidersf.com/?p=46
“This means that even with free software, servers and bandwidth, you will need people to work for free for 2+ years if you want to start a company without VC money. Those people will need to be very smart and at the top of their field in order to succeed in the competitive internet software field, and most of them can’t go without a salary for 2 years.”
I think that as the so-called “Web 2.0″ matures the “who” you get to back your company will be more and more important. Generally, money is not very important for the Web 2.0 – but I think that as time goes on ‘who’ you get your money from is going to be very important.
VCs get a bad rap sometimes, and that is due to the fact that most of them are not that great. Isn’t it interesting that the same ones seem to back winners over and over? Getting the right ‘partner’ can help you take your idea to the next level – getting the wrong ‘partner’ can spell doom for the founders who will soon flounder…
LOOKING FOR CAPITAL. MY INVENTION IS DESCRIBED ON MY WEB PAGE http://WWW.PHISSERTECHNOLOGIES.COM