[FoRK] Good-Bye to Venture Capital

Justin Mason jm
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:

http://bnoopy.typepad.com/bnoopy/2005/06/its_a_great_tim.html

  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
  $100,000.

  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
  different suppliers.

  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
  maintenance.

  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).

  So What?
  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 | [9]Permalink

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