The Revolution Won’t Be Funded
- November 1st, 2006 /
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Aaron Swartz checked his bank account balance at an ATM yesterday and found a few extra zeros there. Another day another Web 2.0 acquisition. Things are starting to heat up, but something is different right now. These guys are doing it the Web 2.0 way: agile rapid development, quick ramp up, and early exit through acquisition. Living in the same house, working on the project for less than a year, and being picked up by Conde Nast for what is rumored to be $65 mil.
The interesting thing is that they were only funded for $100,000.
This is what is making the VC’s nervous. $100,000 is angel money, maybe even just friends and family money. From Reddit’s own blog:
As reddit grew, we were never quite sure where it would take us. To keep up with reddit’s growth, we’d need to decide between taking more investment or getting acquired. As much as we enjoyed VCs taking us out to lunch, CondeNet’s pitch was a little more enticing (they had better food).
So, the revolution is now, and the money is getting smaller. It’s going from bootstrapping (like us) to minimal funding. This means that the VC model is going to have to change.
- Sevin Rosen Funds just returned $300 million to investors because of a “terribly weak exit environment.” Tell that to the guys from Reddit. The exit environment is there, its just changing, and for right now, its not the IPO route from Web 1.0.
- Charles River Ventures is giving loans a try. They want to seed companies with 6% interest unsecured loans of up to $250,000 just for the right to invest in the company’s first venture round. The point they are missing here is $250,000 might be (probably is) all that company will need to get to exit.
My instinct is that the best model for this environment is Paul Graham’s Y Combinator. Well, that and something new that I’m working on with a couple of friends in Houston. Stay tuned, because the venture capital game is changing, and small is the new big. We’re going to try to figure it out because the revolution is clearly now.
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Nov 01, 2006 at 4:58 pm
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The Revolution Won’t Be Funded…
Aaron Swartz checked his bank account balance at an ATM yesterday and found a few extra zeros there. Another day another Web 2.0 acquisition. Things are starting to heat up, but something is different right now. These guys are doing it the Web 2.0 way:…
Nov 03, 2006 at 3:43 am
Techwanese » Emerging Business and Technology Developments says:
[...] Next week, in San Francisco, CA, the Web 2.0 Conference will be held from November the 7-9 at the Palace Hotel, just blocks from the Embarcadero, China Town and Union Square. With a main focus on emerging business and technology developments, this conference will be extremely helpful for anyone interested in running (or continuing to run) a business in this highly Web (internet) dependent market. This conference will also discuss financiers (VC’s and such) who fund the startup companies who, apparently, may have to change their funding ways. Everyone who is anyone in the Web world should be there and you should too if you are interested in staying up to date with the current modes of business and development in this day and age. Just like the rest of us, I don’t know exactly what the future of this thing that we call web 2.0 has in store or when this economic high will wear off (or even bust!) but I do know that I am going to stay on the pursuit of “getting while the getting is good” and long as it lasts because the possibilities seem endless and the development appears to be unstoppable. Next session will cover some more terminology and stuff. If you are absent, it will certainly be here when you get back. Techwanese[dot]com, “ride it ’till the wheels fall off”. [...]
Nov 10, 2006 at 10:12 am
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[...] We wrote about our admiration for Y Combinator last week, and discussions on their incubation / seed / micro-vc / business model have been continuing inside our office and out. The New York Times is taking notice too. Y Combinator is aiming at even smaller firms, and its approach is decidedly unorthodox. It chooses companies for financing in two batches of 8 to 12; one batch is selected in the winter from companies based in Silicon Valley, the other in the summer from those in Cambridge, Mass. [...]
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