[FoRK] Good-Bye to Venture Capital
Thu Aug 4 15:27:11 PDT 2005
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Dave Long writes:
> > Here's why: it takes about $30 million to get a startup software
> > company to
> > break even ...
> After accepting that, one ought to be able
> to prove just about anything. (but it may
> be true that it takes about $30M to have a
> startup that will feed the VCs in addition
> to the founders?)
OTOH, we have:
There's never been a better time to be an entrepreneur because it's
never been cheaper to be one. Here's one example.
Excite.com took $3,000,000 to get from idea to launch. JotSpot took
Why on earth is there a 30X difference? There's probably a lot of
reasons, but here are my top four. I'm interested in hearing about
what other people think are factors as well.
Hardware is 100X cheaper
In the 10 years between Excite and JotSpot, hardware has literally
become 100X cheaper. It's two factors - Moore's law and the rise of
Linux as an operating system designed to run on generic hardware. Back
in the Excite days, we had to buy proprietary Sun hardware and Sun
hard drive arrays. Believe me, none of it was cheap.
Today, we buy generic Intel boxes provided by one of a million
Infrastructure software is free
Back in 1993 we had to buy and continue to pay for maintenance on
everything we needed just to build our service -- operating systems,
compilers, web servers, application servers, databases. You name it.
If it was infrastructure, we paid for it. And, not only was it costly,
the need to negotiate licenses took time and energy. I remember having
a deadline at Excite that required me to buy a Sun compiler through
their Japanese office because it was the only office open at the time
(probably midnight) and we needed that compiler NOW.
Compare that to today. Free, open source infrastructure is the norm.
Get it anytime and anywhere. At JotSpot, and startups everywhere you
see Linux, Tomcat, Apache, MySQL, etc. No license cost, no
Access to Global Labor Markets
Startups today have unprecedented access to global labor markets. Back
in 1993, IBM had access to technical people in India, but little
Excite.com did not. Today, with rent-a-coder, elance.com and just
plain email, we have access to a world-wide talent pool of experts on
a temporary or permanent basis.
SEM changes everything
Ten years ago to reach the market, we had to do expensive distribution
deals. We advertised on television and radio and print. We spent a
crap-load of money. There's an old adage in television advertising "I
know half my money is wasted. Trouble is, I don't know what half".
That was us.
It's an obvious statement to say that search engine marketing changes
everything. But the real revolution is the ability to affordably reach
small markets. You can know what works and what doesn't. And, search
not only allows niche marketing, it's global popularity allows mass
marketing as well (if you can buy enough keywords).
It's nice that it's cheaper, but what does it mean to entrepreneuring?
More people can and will be entrepreneurs than ever before
A lot more people can raise $100,000 than raise $3,000,000.
Funding sources explode which enables more entrepreneurs
The sources of funding capable of writing $100,000 checks are a lot
more plentiful than those capable of writing $3,000,000 checks. It's a
great time to be an angel investor because there are real
possibilities of substantial company progress on so little money.
More bootstrapping to profitability
With costs so low, I think you'll see many more companies raise angel
money and take it all the way to profitability.
Higher valuations for VCs.
And, for those that do raise venture capital, I think it means better
valuations because you can get far more mature on your $100,000 before
you go for the bigger round.
All in all, it's a great time to be an entrepreneur.
June 29, 2005 | Permalink
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