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May 8, 2007

The Trouble with Fungible Startups

There is a piece in today's WSJ on some of the unintended consequences of startups that can all-too-readily change markets on a dime. The piece uses Peter Rip as an example, but the gist is that active VCs can wake up one morning to find themselves with overlapping portfolio companies, and tricky conflicts of interest.

When venture capitalist Peter Rip put money into two young Internet companies, he thought he was buying into two entirely different businesses. Riya Inc. was a digital-photo-sharing site while Vast.com Inc. was an online classified-ad site that made money by generating leads for online advertisers.

The next year, in 2006, Riya changed course, and now Mr. Rip wonders if he has a conflict of interest on his hands. Late last year, Riya launched a comparison-shopping Web site that makes money by producing sales leads for online retailers.

"I thought I had invested in two totally different start-ups," says Mr. Rip, a general partner at Crosslink Capital in San Francisco. "But all of a sudden, I'm sitting on the boards of two companies that are both doing lead generation."

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