VCs sitting on giant piles of money that Internet startups don't need
Internet startups are so cheap to do these days that venture capitalists can't find enough companies to take their money -- it's easier just to self-finance or raise the dough from friends and family (boingboing.net startup costs: $0.00).
"Right now, honestly? This time sucks for us," says Paul Kedrosky, a partner with Ventures West. "It's a bad time."LinkSavvy VCs are finding ways to compete. One gambit: doling out perks to entrepreneurs. San Francisco-based Founders Fund, started by ex-PayPal CEO Peter Thiel, lets entrepreneurs trade some of their equity for cash, something they usually can't do until their companies are purchased or go public. Other VCs are competing with angels by investing like them — with small amounts and at early stages. In 2007, the average VC-led seed round was less than $1 million. "Half of the deals we do are either seed or A round," says Roger Lee, a general partner at Battery Ventures. "The companies VCs are putting $500,000 into this year we might have been putting $20 million into in 2000."
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$0? Surely you've got to factor the cost of the boingboing.net domain name. web and email hosting and other resources in that?
Yeah, it always irks me a bit when people say their online business "didn't cost ANYTHING!" Even if it only cost you $20, it's still not nothing.
I'm more than shocked to hear this - perhaps it may be the case over in Silicon Valley, but here in London VCs are running scared, and not considering investing at all. All boils down to the recession - as usual, the UK is feeling it possibly more so than the US!
Hey VCs - send all the money you want my way.
Came in here to say what #4 said.
I'm out.
It's VENTURE Capital, not INTERNET or TECH Venture Capital. They can invest it in anything they want!
The writer is either misinformed or these VC people are way, way too narrowly focused.
Hey, VC people, invest in water desalination! Or electric car batteries research! Or SOLAR! How about a string of charging stations for electric cars. Hydroponic food!
Come on, this article is just nuts. VC people aren't that stupid. There's plenty of good money to be made. Just not on the Interwebs.
If this is true, why can't I get any VC?
I think the problem is that tech businesses are run by tech people, like myself, who know nothing about business. If I could get some VC, I could start a company and do awesome stuff. The problem is we have no business knowledge, so we don't know how to get VC.
If VC people want more businesses to invest in, they need to send business people to go find tech people. I know many tech people like myself who would love to pursue our personal projects as new businesses, but we don't even know the first thing about incorporating, or anything. We end up just getting full time jobs working for someone else, and doing our personal stuff as a hobby in our spare time.
Bullshit. I worked (in a very grunt position) in State Government where the Venture Capital Authority was located. The people looking fr VC funds weren't even supposed to apply for them where I worked (they were supposed to actually talk to the actual fund managers) and we still would get thousands of calls.
But, VC/angel people are weird. Maybe they're mad that there's not enough bootlicking going on to satisfy them.
#7: Call your State or City Economic Development office. Starting a business is actually very easy. Even a corporation. Don't go into it thinking they'll do the work for you, but it's a very good start to getting the steps and information on finding funding. You're almost better off finding your own funding, the VC people are looking for a sure thing, and want the documentation to prove it. Unless it's a fairly complicated field (Nanotech, Biotech, energy) with huge startup costs.
I guess that kind of proves the article's point, but still, there's too many people that seem to think that sharing their profits for less startup costs is a better way to go. So they beg for for VC money until they're blue in the face. They don't factor in the sheer amount of paperwork involved as work, even though you could hire a part time person that would have their hands full dealing with it.
Also, don't get me started on grants for starting a business. You'll never get one. They don't exist (unless it's non-profit or a rural/farming business), no matter what some idiot in a question mark suit tells you.
Unfortunately, VCs are frequently that stupid.
Having worked for a number of failed venture funded start-ups, five years ago I decided to start my own company. The initial capital cost was by some measures zero, although six months of living on debt and nerves were required to get things off the ground properly, so in real terms it was by no means cost free.
But I've never pursued VC and have no intention of doing so. I am a mercenary scientist, doing work mostly for clients who have VC, or are pursing VC, trying to take new technologies out of the lab and into the market. "Mercenary" in this context means "for money", not "military"--much of my work is health-care related, and I have a policy against working on things that kill people. I'm currently trying to find clients in alternative energy and green tech, as infrastructure has a much bigger positive impact on the world than the kind of retail health tech we spend so much money on. In this environment I see every day how hard it is for people with good technology and strong management teams to attract funding.
On this basis I tend toward the view that most VCs are ultra-conservative suits whose stupidity is the only antidote for their timidity. The only reason most of them ever get it right is that sometimes they let themselves get conned by someone who gets lucky.
They are incredibly narrowly focussed and very unwilling to invest in anything outside of their tiny comfort zone. They also like to be physically close to their money, which means when they do invest it is often in locations where start-up costs are much higher than they need to be.
They are also unwilling to do deals less than about $5 million, which is at least a factor of two more than the average Web startup will ever need. But because they are so conservative they aren't capable of innovating and creating the VC equivalent of a micro-capital model.
Finally, they have a deservedly poisonous reputation, and relations between investors and entrepreneurs are generally terrible. At a conference I recently attended this was identified by one prominent speaker as the number one problem facing the investment industry today. This drives entrepreneurs to build businesses, like mine, that do not need butt-loads of cash to thrive.
I do know some angel investors who are excellent people, who are genuinely willing to take risks and have a reflective, innovative business-style. Some VCs are trying to re-invent themselves into the angel's space. But a VC isn't just an angel in an expensive suit: it takes a major upgrade in attitude, expectations and outlook to make the transition, and so far I'm not seeing a lot of that happening.
Hm, there's a few enterprises I've been sitting on for a number of years that I'm champing at the bit to get off the ground. I wonder how one goes about attracting the eye of a wealthy patron and what the terms and conditions thereof are. And I'm used to living in poverty for far less personally-rewarding employment. The wheels, they are turning.
What Moon (#6) said. Invest in alternative energy.
Where did the Viet Cong get all this extra money, anyway?
@ #12 Antinous
It was in the tunnels - some of them were criss-crossed with the tubes of teh interwebs.
It does say something about age, how you interpret VC. To the tune of 'Come Together':
We love the VC and
the Cuban people and
the Pathet Lao and
the Tupamaros!
Huey P. Newton!
Ho Chi Minh!
We're going to build a revolution
and you know we can win!
Come together, right now!
Off the pig!
To paraphrase Virginia Woolf, "The middle age of revolutionaries is not to be contemplated without horror."
Read Paul Graham's site for much more on this area of investment.
There's a lot of essays about this topic as he is the founder of Y-combinator.