The startup I work for just hit profitability and we're basically giving up on funding. The offers that we were getting weren't good enough. We'll grow slower, but we won't get dilution unless it's really worth it.
What I'm curious about is that I thought the purpose of VC was not just to stay in business, but to grow fast. I'm pretty sure PG said in a previous essay or comment that if you skip out on VC and someone else takes it you can get overtaken or not be able to catch up to the market leader.
That's an excellent question. Begs these questions:
How much speed does the investment buy you? How much is speed really necessary?
Take the viaweb example: Supposedly, their advantage was in being first. A 6 month head start was a great thing to have when the concept of an online shop was 3 yrs old, the concept of an online shop builder 2 years old & the concept of an online online shop builder 1 year old.
But was it such an advantage? Sure it was from viaweb's perspective. That may have been what allowed them to sell. But what did Yahoo (the buyer) gain from this extra 6 months?
There are still companies making & selling online shop builders of various sorts. They are still largely built by startups. A 6 month head start is virtually meaningless in that market. Yahoo stores is older then any of the players, & it doesn't stand out really. It's a player with a piece of the pie in a pie industry.
Yahoo search on the other hand could have used a 6 month head start. If Google had left them a couple of years to realise they were losing search share, realise how important that was & do something about it, they mightn't have to sit in fear of a hostile takeover.
What am I saying? I think I'm saying that from the early perspective, it's difficult to know if moving first is important. Since when it is important, it is very important, acquires will buy early leaders so the problem is theirs not founders'.
On the other hand, I think it seems likely that the winner take most market is not going to remain the default target. That changes the game. If it's 1997 & you are building an online shop builder to be a serious player with a serious slither of the market in 2017, you can afford a six month break. If you expect a winner to be declared in 18 months, you need any speed available.
The catch 22 is: If speed isn't that critical, you need a different advantage against big companies. But then I think there is one somewhere. Most online shops are not made by huge companies.
It's true that it can be dangerous not to take VC if your competition takes it. But it's not so dangerous if the reason you don't take it is that VCs are saying no to everyone, because that implies your competitors are also less likely to get it.
"we got a record number, up 40% from the same cycle a year before."
I agreed with much of this article, but not that line. A lot more people have heard of YCombinator since a year ago, so all else equal, you'd expect applications to rise over that period. So comparing the number of apps with the corresponding value from a year ago isn't a fair comparison.
Indeed, looking at http://siteanalytics.compete.com/ycombinator.com/?metric=uv we see that the number of unique visitors to ycombinator.com is up 3x from a year ago. But applications are only up 40%. To be fair, we probably can't expect applications to grow 3x since many of those visitors are international, or otherwise unlikely to apply to YC. But to make the statement pg wants to make, I think we need a better metric than raw growth in applications.
Perhaps I should have added that 40% was more than applications usually go up year to year.
I'm pretty sure, based on conversations with founders, that this spike in applications wasn't due to people learning of our existence for the first time. Most people we interviewed seemed to have known about us for a while.
I don't think application numbers are much correlated with News.YC traffic either. I think most people who come here are just looking for what people found at Reddit 3 years ago.
I would like to believe Paul's thesis, but in the back of my mind, why do I get the feeling "He is trying to scare investors into putting money"?!
Seriously, I think over-supply of start-ups will crash prices. Yes, there is no limit to wealth creation, but even so, it is easy to upper-bound wealth creation over, say, the next 5 years. We can say with confidence there won't be more than, say, $10 billion worth of web start-up acquisitions over the next 5 years (in total, not per year) - that was about the total in the last 5 I would estimate and I think I am being fairly optimistic here. Even that $10 billion would be parceled out in the 80-20 rule - a couple of YouTube home runs, a few singles and doubles, and the remaining mass of start-ups have to fight over a fairly small pot of gold.
My objection is consistent with economic theory: over-supply leads to serious price crashes, even when you make the favorable assumption (which is not exactly true in the start-up case) that in the long run, the over-supply can be absorbed.
Why are you focusing on acquisitions? There are profitable companies that remain private, like 37signals (plus ones you never hear about because there's no point in talking about how much money you make) and also IPO, which is rare but potentially huge. Google alone is worth $86B, at that IPO was only 4 years ago, so your "$10B in the past 5 years" number is clearly incomplete.
If I were motivated only by self-interest, I should want later stage investors to drop out. That would leave seed stage investors like YC as the only game in town.
And incidentally, I don't see why it's easy to upper bound wealth creation over any time period. If everyone woke up tomorrow and started working twice as hard, what would limit their output?
If there's any truth to pg's claim that the paradigm is shifting and that talented people are increasingly likely to start their own thing than go work for a boss (and personally, I believe there is), then one would expect just the opposite of what you assume: more wealth should be created this way in the next 5 years than in the previous 5, because more value will be. And the productivity delta between startups and large companies will grow even faster, since the latter will be increasingly starved for new talent.
Edit: one might also expect current economic conditions to accelerate this process, since downturns are harder on inefficient players than efficient ones. It occurred to me the other day that for this reason, downturns are a healthy part of the economic system, kind of like forest fires in ecosystems.
There might be a limit, but it's much bigger than $10B in 5 years. Just in 2007, I counted up $29B of publicly announced web startup acquisitions. That easily justifies thousands of startups trying for a piece of that pie.
This is an interesting perspective, but it seems to be (potentially) true of one class of startup, but there are many others, requiring much large amounts of money to start, that will still rely on VC funding.
Software startups, specifically web startups, have been a favorite of VCs (for good reasons). If those startups no longer seek VC funding, will it trigger a renaissance in funding for other startup classes (e.g. semiconductors or hardware)?
Biotech, greentech and embedded systems are a few areas that look poised to keep growing and need a more significant amount of capitalization to get off of the ground.
I agree with Paul's point, but it seems like the flip side of the equation is that most startups these days don't have the kind of big exits that internet giants like Amazon, Ebay, Yahoo and Google had (or even the mass market penetration that MySpace and Facebook have gotten for that matter). If a these new startups truly had the potential to capture huge markets, they would need the funding, because 3 guys in an apartment simply can't go after a $5bil opportunity. I think the phenomenon Paul describes is the result of 2 trends, not just one: 1) it's cheaper to start companies and 2) most startups are going after small markets (or whatever is left from big markets that bigger companies have already captured).
Wealth is created when people take existing resources and transform them into something of higher value. Money is simply one very liquid type of input that a creative entrepreneur can use to create wealth.
If the marginal value of more investor capital to web entrepreneurs falls below the cost of acquiring and managing investors, then predictably web entrepreneurs will stop seeking capital. A more interesting insight, though, is that long before things get to that point, smart investors should be seeking to deploy their capital to ventures that can actually use the money to produce a better return. If capital is no longer the limiting reagent in web startups, then the money should go to places where money is the limiting reagent, and consequently has a higher value.
It's worth noting that Kleiner Perkins, as one data point, got out of the web startup business some time ago and has been investing in energy and biotech.
Completely, totally agree. I was just discussing this today with my business partner; I think that many people won't even know what to do with extra money if it is given to them. That's never happened before - there's always been the "well, we could use more servers" or "well, we could always hire more engineers" argument. Today, I think a lot of people are beginning to realize that 1) if you engineer your applications properly, and on the right platforms, you can scale your server demands along with your userbase/revenues; 2) more engineering/other assorted human capital won't necessary translate into better, more usable product.
I personally believe this is the beginning of a massive shift, and one that isn't even tied to the economy - but, of course, will be dramatically accelerated as a result of it. On the point of what happens to the startup community, however - I think it will be a lot harder to start a me-too company and get any traction; as a result, even with the lower cost of business, there will be fewer people able to enjoy the benefits. It's sort of like the rest of the economy - if you are the absolute best at what you do, it's a great time to be in business; for everyone else, the situation is precarious. Running on $3000 a month is great, but not if that means you're losing $3000 a month with no foreseeable way of recouping your investment.
Perhaps that's where the VCs will step in - sweep those flailing enterprises under their wings, pump greater capital/human resources into them, and try to brute-force them into successful enterprises. In effect, they would become the startup version of their private-equity peers; not a bad place to be, but again - the best will survive, the rest will die.
No. First of all, SV doesn't depend only on investors. All the support for startups is here, from lawyers to graphic design to (probably most important) other founders.
Second, not taking VC doesn't mean not taking investment. If startups downshift, the next lower gear is angels.
"The reason startups no longer depend so much on VCs is one that everyone in the startup business knows by now: it has gotten much cheaper to start a startup. "
Maybe I'm biased because I was in YC and it was mostly first-timers, but most of us don't even remember a time when it was a lot pricier.
The current generation of founders want to raise money from VCs, and Sequoia specifically, because Larry and Sergey took money from VCs, and Sequoia specifically.
Excluding YC and the likes, I would have thought, by now, a lot of startups would want to raise money from angels that have formerly started startups -- there are tons of them around. That would be the #1 choice.
#2 choice would be the Founders Fund, Union Square Ventures, First Round Capital, Atomico, Ambient Sound Investments and the like.
Failing these, the #3 would be the Sequoia's, KPCB, Khosla Ventures, Benchmark, Accel's, Menlo's of the world.
Agree 100%. Although we were talking to some of the VCs in your 2nd bucket, we ended up going with #1. Our seed round is entirely angel funded, with one institutional player (#3 type) making an exceptional angel investment.
I think pg's right in regards to web startups. The only role I see for VC is in scaling sales and marketing. If you get your business to a point where you can spend $10 million on sales and marketing and turn it into $30 million, then taking VC makes a lot of sense. It gives you a lot of extra leverage.
I do hope VC thrives in other sectors - clean energy, hardware, automobiles, biotech - etc. If Kleiners-Perkins can make money off its CleanTech investments, the world will be a vastly better place.
This post reminds me of a post I made a while ago called Don't Raise Venture Capital.
http://www.startable.com/2008/09/26/dont-raise-venture-capit...
This may seem a bit odd, as I am a VC. My point was not 100% aligned with Paul's, as he's suggesting something a bit more extreme, but there is a similar point - these days you can build a good business without significant funding. And you are potentially better off not raising any venture capital. Although I hope the venture business hasn’t become totally obsolete, as I really enjoy spending time with entrepreneurs!!
Very interesting ... I think this is true for a class of startups, but not all. The question for this approach will be how to achieve scale (of if they even want/need to) to achieve their goals.
While profitability can be achieved on $15k, is it sustainable and can it achieve scale on that money? Cloud computing may help, but may not solve it all. Facebook, Google, etc. all needed VC $ to fuel scale.
Implications exist for founders and early investors if future capital is needed for scale or an exit. If the goal is to either sustain the profitable model and owner control at lower revenue, then this model works. Also, if the goal is to sell to a larger company to achieve an exit and return, then it also works. All depends on the market opportunity and founder goals, but don't think it kills the need/importance of VC.
If the goal is to capture a significant market and be the leader, and software markets tend to be winner take most markets, then achieving scale fast is necessary and VC$ necessary even in a cloud model. Under the new landscape articulated by PG here, the underlying platform could be built & proven with angel money or no money, and thus preserve more upside and better terms for the founders that choose to seek scale in large markets.
There is a big difference in capital required for an online internet, service or software company and most other types of start-up businesses. VC will absolutely play a major role because money is needed for equipment, teams of people and global operations. The effort required to raise $1M is way more than 1/10 of raising $10M - so raising small amounts of capital is probably very inefficient in general.
Great post Paul. One thing to highlight is that traditional VCs, historically, don't make "venture level" returns in efficient markets.
Your examples highlight the cash efficiencies of early stage software/web based businesses from which VCs have been making a fairly vocal move away from for years. Similarly scaled efficiencies aren't yet being recognized in clean tech, new materials, networking hardware, semiconductors, pharmaceuticals and many many categories.
As for web and software, I think the lesson many firms are beginning to apply from this last wave is that there's an inflection point a company hits where its been sufficiently derisked and is poised to scale at which time the VC is more than happy to dip into their large funds and "pay up" in terms of valuations. Its what they did with Google and Facebook (among others). I think it will create a more bifurcated web/software venture environment than we have today but I don't see that as the death knell for the broader venture industry. Certainly a great opportunity for seed funds like yours and ours...bryce@oatv
I think that VC in its current form will be a casualty of the recession. In its current form, the VC grabs a chunk of cash as a management fee, and another chunk of cash to put "adult supervision" of seasoned executives on the management team. Also, VCs are not able to manage the kinds of small investments that startups need because VC partners have limited time. Because their of their high overheads in the form of management fees, "adult supervision" the small investments simply will no longer pay them what they need to profit. Therefore, from that perspective, I think that VCs are going to be forced out of the web startup sector.
In addition, they will also get booted out of sectors that use successful web startups to bootstrap other kinds of businesses. Let's face it...just as you can use a consulting business to bootstrap a company, you can also use a successful web startup to do the same.
I think that a new trend that will emerge is that large enterprises will start buying up web startups to take over the product for use in their internal operations. Think of it...suppose you are a large enterprise who wants to build some fancy web based software to improve some business process. You have a choice between funding an internal group that may take 12 months using "Cadillac" components and cost $600k , or you could just troll the 'net and look for a startup that does something similar and buy them up for $300k, which gives them rights to working software and the talents of the developers (using appropriate golden handcuffs). It also gives YC a the proverbial 10x return on its proverbial $15k investment and each of the proverbial 3 founders a $50k equity bonus. This will diminish the influence of VCs because web startups that have taken in even a million in VC funding will not be able to sell out for less than $10 million...a price too high for enterprises to spend on business process improvement.
What wizard is going to run your cheap adword campaign (or maybe adword is dead too?) How are people going to find your site? What’s your sale process and have you understood your audience? How are you going to answer those service calls and emails? Are you going to run the next Google on the cloud? There are costs associated with all of that, and, even if they are compressed by technology too, the investments required to keep differentiating yourself are increasing.
What’s worse perhaps is that, with all its focus on IT, Paul seems to forget that not all start-ups are web start-ups. How about biotech, cleantech, robotics? Is marketing and distribution free for those ones as well?
There is, as always, some truth in what Paul is writing - the man is smart - but in my view, VCs are certainly here to stay and scale those start-ups that can make it into serious money machines. What do you think?
[+] [-] JeffJenkins|17 years ago|reply
What I'm curious about is that I thought the purpose of VC was not just to stay in business, but to grow fast. I'm pretty sure PG said in a previous essay or comment that if you skip out on VC and someone else takes it you can get overtaken or not be able to catch up to the market leader.
[+] [-] netcan|17 years ago|reply
How much speed does the investment buy you? How much is speed really necessary?
Take the viaweb example: Supposedly, their advantage was in being first. A 6 month head start was a great thing to have when the concept of an online shop was 3 yrs old, the concept of an online shop builder 2 years old & the concept of an online online shop builder 1 year old.
But was it such an advantage? Sure it was from viaweb's perspective. That may have been what allowed them to sell. But what did Yahoo (the buyer) gain from this extra 6 months?
There are still companies making & selling online shop builders of various sorts. They are still largely built by startups. A 6 month head start is virtually meaningless in that market. Yahoo stores is older then any of the players, & it doesn't stand out really. It's a player with a piece of the pie in a pie industry.
Yahoo search on the other hand could have used a 6 month head start. If Google had left them a couple of years to realise they were losing search share, realise how important that was & do something about it, they mightn't have to sit in fear of a hostile takeover.
What am I saying? I think I'm saying that from the early perspective, it's difficult to know if moving first is important. Since when it is important, it is very important, acquires will buy early leaders so the problem is theirs not founders'.
On the other hand, I think it seems likely that the winner take most market is not going to remain the default target. That changes the game. If it's 1997 & you are building an online shop builder to be a serious player with a serious slither of the market in 2017, you can afford a six month break. If you expect a winner to be declared in 18 months, you need any speed available.
The catch 22 is: If speed isn't that critical, you need a different advantage against big companies. But then I think there is one somewhere. Most online shops are not made by huge companies.
[+] [-] fallentimes|17 years ago|reply
http://www.crunchbase.com/company/fansnap
http://www.crunchbase.com/company/tickex
[+] [-] pg|17 years ago|reply
[+] [-] aneesh|17 years ago|reply
I agreed with much of this article, but not that line. A lot more people have heard of YCombinator since a year ago, so all else equal, you'd expect applications to rise over that period. So comparing the number of apps with the corresponding value from a year ago isn't a fair comparison.
Indeed, looking at http://siteanalytics.compete.com/ycombinator.com/?metric=uv we see that the number of unique visitors to ycombinator.com is up 3x from a year ago. But applications are only up 40%. To be fair, we probably can't expect applications to grow 3x since many of those visitors are international, or otherwise unlikely to apply to YC. But to make the statement pg wants to make, I think we need a better metric than raw growth in applications.
[+] [-] pg|17 years ago|reply
I'm pretty sure, based on conversations with founders, that this spike in applications wasn't due to people learning of our existence for the first time. Most people we interviewed seemed to have known about us for a while.
I don't think application numbers are much correlated with News.YC traffic either. I think most people who come here are just looking for what people found at Reddit 3 years ago.
[+] [-] startingup|17 years ago|reply
Seriously, I think over-supply of start-ups will crash prices. Yes, there is no limit to wealth creation, but even so, it is easy to upper-bound wealth creation over, say, the next 5 years. We can say with confidence there won't be more than, say, $10 billion worth of web start-up acquisitions over the next 5 years (in total, not per year) - that was about the total in the last 5 I would estimate and I think I am being fairly optimistic here. Even that $10 billion would be parceled out in the 80-20 rule - a couple of YouTube home runs, a few singles and doubles, and the remaining mass of start-ups have to fight over a fairly small pot of gold.
My objection is consistent with economic theory: over-supply leads to serious price crashes, even when you make the favorable assumption (which is not exactly true in the start-up case) that in the long run, the over-supply can be absorbed.
[+] [-] paul|17 years ago|reply
[+] [-] pg|17 years ago|reply
And incidentally, I don't see why it's easy to upper bound wealth creation over any time period. If everyone woke up tomorrow and started working twice as hard, what would limit their output?
[+] [-] gruseom|17 years ago|reply
Edit: one might also expect current economic conditions to accelerate this process, since downturns are harder on inefficient players than efficient ones. It occurred to me the other day that for this reason, downturns are a healthy part of the economic system, kind of like forest fires in ecosystems.
[+] [-] tlb|17 years ago|reply
A good list (including more than web) is at http://startup.partnerup.com/2008/01/02/2007-acquisitions-we...
[+] [-] preview|17 years ago|reply
Software startups, specifically web startups, have been a favorite of VCs (for good reasons). If those startups no longer seek VC funding, will it trigger a renaissance in funding for other startup classes (e.g. semiconductors or hardware)?
[+] [-] wheels|17 years ago|reply
[+] [-] davidw|17 years ago|reply
It all comes down to capital requirements. If you require a lot of money to get going, you need VC.
[+] [-] rgr|17 years ago|reply
[+] [-] tc|17 years ago|reply
If the marginal value of more investor capital to web entrepreneurs falls below the cost of acquiring and managing investors, then predictably web entrepreneurs will stop seeking capital. A more interesting insight, though, is that long before things get to that point, smart investors should be seeking to deploy their capital to ventures that can actually use the money to produce a better return. If capital is no longer the limiting reagent in web startups, then the money should go to places where money is the limiting reagent, and consequently has a higher value.
It's worth noting that Kleiner Perkins, as one data point, got out of the web startup business some time ago and has been investing in energy and biotech.
[+] [-] brianr|17 years ago|reply
That may be their PR, but they're very much still investing in web startups. Here's a list of their investments: http://www.crunchbase.com/financial-organization/kleiner-per...
[+] [-] numair|17 years ago|reply
I personally believe this is the beginning of a massive shift, and one that isn't even tied to the economy - but, of course, will be dramatically accelerated as a result of it. On the point of what happens to the startup community, however - I think it will be a lot harder to start a me-too company and get any traction; as a result, even with the lower cost of business, there will be fewer people able to enjoy the benefits. It's sort of like the rest of the economy - if you are the absolute best at what you do, it's a great time to be in business; for everyone else, the situation is precarious. Running on $3000 a month is great, but not if that means you're losing $3000 a month with no foreseeable way of recouping your investment.
Perhaps that's where the VCs will step in - sweep those flailing enterprises under their wings, pump greater capital/human resources into them, and try to brute-force them into successful enterprises. In effect, they would become the startup version of their private-equity peers; not a bad place to be, but again - the best will survive, the rest will die.
[+] [-] Dilpil|17 years ago|reply
[+] [-] comatose_kid|17 years ago|reply
1) your thesis is correct, and,
2) that a good startup hub is created primarily though the availability of investors (as observed in the essay "The Hacker's Guide to Investors"),
Don't these two things imply that Silicon Valley's prominence as a startup hub will wane?
[+] [-] pg|17 years ago|reply
Second, not taking VC doesn't mean not taking investment. If startups downshift, the next lower gear is angels.
[+] [-] mattmaroon|17 years ago|reply
Maybe I'm biased because I was in YC and it was mostly first-timers, but most of us don't even remember a time when it was a lot pricier.
[+] [-] unknown|17 years ago|reply
[deleted]
[+] [-] mattmaroon|17 years ago|reply
[+] [-] jgrahamc|17 years ago|reply
[+] [-] kirubakaran|17 years ago|reply
[+] [-] prakash|17 years ago|reply
Excluding YC and the likes, I would have thought, by now, a lot of startups would want to raise money from angels that have formerly started startups -- there are tons of them around. That would be the #1 choice.
#2 choice would be the Founders Fund, Union Square Ventures, First Round Capital, Atomico, Ambient Sound Investments and the like.
Failing these, the #3 would be the Sequoia's, KPCB, Khosla Ventures, Benchmark, Accel's, Menlo's of the world.
What do folks on HN think?
[+] [-] shafqat|17 years ago|reply
[+] [-] bokonist|17 years ago|reply
I do hope VC thrives in other sectors - clean energy, hardware, automobiles, biotech - etc. If Kleiners-Perkins can make money off its CleanTech investments, the world will be a vastly better place.
[+] [-] netcan|17 years ago|reply
[+] [-] HealyJones|17 years ago|reply
[+] [-] rokhayakebe|17 years ago|reply
[+] [-] jimbokun|17 years ago|reply
[+] [-] Ambix|17 years ago|reply
http://www.web30.ru/2008/12/07/mogut-li-venchurnye-kapitalis...
[+] [-] bmagierski|17 years ago|reply
While profitability can be achieved on $15k, is it sustainable and can it achieve scale on that money? Cloud computing may help, but may not solve it all. Facebook, Google, etc. all needed VC $ to fuel scale.
Implications exist for founders and early investors if future capital is needed for scale or an exit. If the goal is to either sustain the profitable model and owner control at lower revenue, then this model works. Also, if the goal is to sell to a larger company to achieve an exit and return, then it also works. All depends on the market opportunity and founder goals, but don't think it kills the need/importance of VC.
If the goal is to capture a significant market and be the leader, and software markets tend to be winner take most markets, then achieving scale fast is necessary and VC$ necessary even in a cloud model. Under the new landscape articulated by PG here, the underlying platform could be built & proven with angel money or no money, and thus preserve more upside and better terms for the founders that choose to seek scale in large markets.
[+] [-] heuristocrat|17 years ago|reply
[+] [-] bryc3|17 years ago|reply
Your examples highlight the cash efficiencies of early stage software/web based businesses from which VCs have been making a fairly vocal move away from for years. Similarly scaled efficiencies aren't yet being recognized in clean tech, new materials, networking hardware, semiconductors, pharmaceuticals and many many categories.
As for web and software, I think the lesson many firms are beginning to apply from this last wave is that there's an inflection point a company hits where its been sufficiently derisked and is poised to scale at which time the VC is more than happy to dip into their large funds and "pay up" in terms of valuations. Its what they did with Google and Facebook (among others). I think it will create a more bifurcated web/software venture environment than we have today but I don't see that as the death knell for the broader venture industry. Certainly a great opportunity for seed funds like yours and ours...bryce@oatv
[+] [-] JayGodse21|17 years ago|reply
I think that VC in its current form will be a casualty of the recession. In its current form, the VC grabs a chunk of cash as a management fee, and another chunk of cash to put "adult supervision" of seasoned executives on the management team. Also, VCs are not able to manage the kinds of small investments that startups need because VC partners have limited time. Because their of their high overheads in the form of management fees, "adult supervision" the small investments simply will no longer pay them what they need to profit. Therefore, from that perspective, I think that VCs are going to be forced out of the web startup sector.
In addition, they will also get booted out of sectors that use successful web startups to bootstrap other kinds of businesses. Let's face it...just as you can use a consulting business to bootstrap a company, you can also use a successful web startup to do the same.
I think that a new trend that will emerge is that large enterprises will start buying up web startups to take over the product for use in their internal operations. Think of it...suppose you are a large enterprise who wants to build some fancy web based software to improve some business process. You have a choice between funding an internal group that may take 12 months using "Cadillac" components and cost $600k , or you could just troll the 'net and look for a startup that does something similar and buy them up for $300k, which gives them rights to working software and the talents of the developers (using appropriate golden handcuffs). It also gives YC a the proverbial 10x return on its proverbial $15k investment and each of the proverbial 3 founders a $50k equity bonus. This will diminish the influence of VCs because web startups that have taken in even a million in VC funding will not be able to sell out for less than $10 million...a price too high for enterprises to spend on business process improvement.
[+] [-] gregboutin|17 years ago|reply
What’s worse perhaps is that, with all its focus on IT, Paul seems to forget that not all start-ups are web start-ups. How about biotech, cleantech, robotics? Is marketing and distribution free for those ones as well?
There is, as always, some truth in what Paul is writing - the man is smart - but in my view, VCs are certainly here to stay and scale those start-ups that can make it into serious money machines. What do you think?
Full comment at http://www.torevenue.com/?p=3