Saturday, September 17, 2005

Whither VC?

One of the many lessons learnt in the internet bubble of the late 90s was that VCs were bad. In 99, the conventional wisdom was that if you could get VC money, you would become rich. Two years later, it was pretty clear that VC financing was no path to wealth and if anyone did not rich it would probably not be the VC, it would be you. Anyone who has looked over a VC term sheet or negotiated with them thinks they are a total rip-off. But I think the Internet has made start-up financing much more efficient, and reduced the value (and role) of VCs in startups.

Once upon a time, starting a software company required a big team of engineers and a big salesforce. This required money, hence venture capitalists. Now, A small team of folks can put together a great web application using Ruby-on-rails, or Ajax, or any other low-latency web technology, and a single person can see if anyone might buy it. In all the assumptions that go into a startup, the biggest one is "will anyone actually shell out money for this thing". If your revenue projections are close, everything else will work itself out. And a company with customers is worth a lot more than an idea.

Since there are enough rich entrepreneurs out there now, finding the $100K-$200K to get something off the ground should be pretty easy. If you can't figure out if your idea has legs for that amount of money, it probably doesn't (at least not in your hands).

What triggered this train of thought? I was in a VC office recently and found it very empty.


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