Tech trends and business ideas

All things that motivate entrepreneurs

Saturday, November 11, 2006

Web 2.0 entrepreneurs - doing more with less…

1k = 1mm…?

In the recast VC dispensation of boom 2.0, it seems it is….!

Several venture firms are seeking to adapt. Just last week, Charles River Ventures announced it would offer loans of $250,000 to entrepreneurs as a way to gain access to promising start-ups.
Other firms are also giving out small loans, albeit not as a part of any formal program. CRV has also put up a calculator in their site to decide the convertible ratio ( at a 25% discount, of course ) by the borrower.
For its part, Mohr Davidow Ventures has increased the number of “seed” investments — small sums given to embryonic companies — to about 10 a year from 5. And Union Square Ventures, which was formed in 2003, has made nearly half of its investments at $1 million or less, a departure from its initial plan to make first-round bets of $1 million to $3 million, according to its Web site.

Then there is Paul Graham’s Y Combinator, whose rule of thumb for investing in start-ups is $6,000 per employee. One of its investments, Reddit, was acquired last week by Wired Digital, which is owned by Condé Nast Publications, for an undisclosed sum.

In the last couple of years, hundreds of other Internet start-up companies in Silicon Valley and elsewhere have followed a similar trajectory. Unlike most companies formed during the boom 1.0, which were built on costly technology and marketing budgets, many of the current crop of Internet start-ups have gone from zero to 60 on a shoestring.

Some have gone without VC $$ altogether or have raised far smaller sums than venture investors would have liked. Many were sold for millions before VCs could even get in. That has been a challenge for VCs, who have raised record amounts in recent years and need places to put that money to work.

I think there is in the V.C. community a sense that the rules have changed or are changing. How does the V.C. who is set up for a model that requires millions, if not tens of millions, revamp for a different scale…? How do they cope….?

For smaller funds, the economics are far different.

For starters, those who manage them do not earn huge management fees. Instead, they are almost always among the largest investors in the fund, so they will earn a return if the investments pay off.

In the boom 2.0, several forces are allowing companies to operate cheaply compared with the boom 1.0. They include the declining costs of hardware and bandwidth, the wide availability of open-source software, and the ability to generate revenue through online ads.

As large firms try to go small, they are encountering a new crop of competitors who are happy to bankroll start-ups on the cheap and are fueling the current Internet boom. They include a large pool of angel investors and a number of small venture funds whose specialty is to invest tens of thousands of dollars, or hundreds of thousands at most - only.

I am beginning to like it….! Know why...? Indian VCs have a habit of following valley trends...
Ah, you get it now…!


Post a Comment

Subscribe to Post Comments [Atom]

<< Home