There Are Two VC Industries

http://www.avc.com/a_vc/2010/09/there-are-two-venture-capital-industries.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+AVc+%28A+VC%29&utm_content=Google+Reader

by krschultz • 16 years ago

30 23 16 years ago

avc.com

rubyrescue• 16 years ago

is it possible to get pg to filter out the utm_source= google/feedburner querystring params on submit? it would filter out a lot of dupes...

garret• 16 years ago

http://news.ycombinator.com/item?id=363

krschultz• 16 years ago

There have been a bunch of articles about VCs being replaced by Angels and Bootstrapping, but really those articles should just be saying that software businesses have matured to the point where VC funding might not be necessary at all.

At what point can I walk into a bank and get a normal business loan for my web app company? I think we're approaching that point.

In my mind you can bootstrap the average web app company, and when you actually acquire some revenue and need capital to grow, get a small business loan. Is the risk in these kind of companies any greater than the average restaurent? I don't think it is. Software has lower capital requirements at first, lower operating expenses, lower overhead, but for some reason the norm is still to trade equity for cash. Forget that, just trade debt for cash like a normal business. I'm not sure banks will go for it yet but I think we're approaching that point when it is possible.

david9272• 16 years ago

But if a restaurant goes under, you have all the capital right there (pizza ovens, tables). Software consumes its capital. Banks aren't the answer. If it fails, what are they going to get back? That year of your life?

What we need is crowd-sourced, micro-equity. Anyone who thinks an idea is good to invest small amounts for small stakes of equity. The barriers have been regulatory legal issues, but those will be soon eliminated. OpenStarts is one such initiative working on this.

Swizec3• 16 years ago

But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as, you know, SELL SOMETHING to SOMEONE? No giving up equity and you still get the "funding".

The thing is, that's called bootstrapping and the problem with bootstrapping is that it's just very damn slow. Sure you can do it, but you won't get the anorganic super fast growth you need to compete against the whole world. It works when you're doing stuff locally, now that everybody's shooting for global markets via the internet it can be a dash troublesome no?

T_S_• 16 years ago

If a restaurant goes under, whoever provided funding takes a big hit. Losses = value destroyed. Liquidation values on fixtures and equipment are low.

BTW, here's a good rule of thumb for investing in restaurants as a non-controlling partner: Don't. I never heard of a good ending, even if it was good for a while.

pjhyett• 16 years ago

When we started GitHub, I looked into getting a loan from the SBA because we didn't want to go the VC route, but the requirements were off-putting to say the least.

Stuff like "SBA requires the borrower to have invested between 25 to 50 percent of the amount requested." So, you'd have to toss in 5k just so they'd give you 10k-20k and for that kind of money, it didn't seem worth the hassle at all.

Banks won't ever give out tech company loans unless you have the personal collateral to back it, because they can't repossess your code.

blasdel2• 16 years ago

My parents did this when they started their software company in the early 80s.

It only happened because a group of their friends was starting a bank -- they got a sweetheart deal that included a mortgage for the neighboring apartments in the co-op they lived and worked in (later combined into one 1700 sqft apartment). My mother worked out a sweet tax deal where the business paid them rent on the office portion of the apartment, including the 'executive washroom' (complete with kiddie pool).

At some point in the 90s the bank got merged and acquired a dizzying number of times. I'm pretty sure the business loans got paid off before that, but the sweetheart mortgage remained.

tspare2• 16 years ago

Since the capital requirement is no longer a large barrier to entry for web startups, I am wondering this mean:

- a startup should stay in stealth mode longer in order to give it a bigger legs up on its possible competitors - silicon valley connection to VC money becomes less critical and the team makeup for execution becomes more important. This may mitigate some of the advantages of starting in the valley.

What do you think about the assertion above?

Swizec3• 16 years ago

Working on a web startup in Europe the big majority of advice I get is saying "Go to the Valley".

The thing is, in Europe, nobody takes web startups seriously yet. The web is still seen as something that neighbour kid does perfectly well. Why start a company based on that when some kid can do it for a fraction of the price and just as well?

In the Valley, I hear, the attitude is a lot different and if nothing else that means it's a lot easier to get traction.

tspare2• 16 years ago

Yes I can see the value of an open attitude towards web startup would help you hire or partner. And if you are trying to solve a technology problem, you also have an easier time to reach your target customer (other techies). But if your web startup is not tech focused (i.e e-commerce, b2c), does the valley really help you any more in getting traction by growing your user base?

bcurdy• 16 years ago

I guess the grass is always greener on the other side of the fence... Sure, people in Silicon Valley usually have a great attitude towards the web and entrepreneurs but it's also cut-throat competition out there. Don't believe that being based in the valley alone will make your life much easier. If you already have a complete team, a minimum viable product and some traction, then you'll be able to meet there people who know how to build up your audience and maybe get funding. There's definitely more experienced people there per square meter than anywhere else. But it's also a very expensive place in terms of housing/office space and talents.

Europe might not be as web-friendly but there has never been a better time for startups there. Think Seedcamp in the UK, startup bootcamp in Danemark, Hackfwd in Germany and many, many more.. There are loads of people in Europe taking startups very seriously.

At the end of the day, users don't care if you're based in Singapore, London or San Francisco. Also, you should be able to get an iPad not too long after anybody else in the US :)

jkaljundi• 16 years ago

Still we have great successes like Skype & Playtech, or on earlier stage Spotify in Europe, just to bring a few examples. There are thousands of other exciting startups.

Seedcamp had 10+ events this year with 20 selected startups presenting at each and hundreds applying to some of these. That's up to 1-2 thousand ambitious startups out there. Each of the countries, even the smallest ones like Slovenia and Estonia, have tens or hundreds of exciting teams.

Valley has huge pluses for growth. At the same time, it has cut throat competition for getting noticed or even getting meetings with investors.

Getting traction depends on product. In Valley you understand, how competitive it really is to get traction.

mjfern• 16 years ago

This article raises an interesting point. However, I would argue that the startup costs have fallen across the board, whether you're a software startup or a startup in another field. First, it's much less expensive today for startups to obtain key services due to the prevalence and availability of offshoring. Second, new technology enables many startups to handle some services in-house, whereas before it required hiring an expensive service provider (e.g., Google AdWords). Third, there is a shift in mentality towards a leaner, smarter mode of starting up. Founders no longer feel the need to obtain overhead that (a) requires substantial investment and (b) creates little direct value for customers. If I remember correctly, a story from the dot com bust was when eToys used some of its funding to BUY a high-rise office building in Los Angeles.

eru2• 16 years ago

Your second point: Isn't Google AdWords an example of a good third party service that replaces an expensive in-house specialist (or hired outside specialist)?

asanwal• 16 years ago

Here's data that breaks the "Two Venture Capital Industries" down by dollars of funding, # of deals and median deal size.

http://www.cbinsights.com/blog/venture-capital/there-are-two...

There Are Two VC Industries

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