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September 30, 2004

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» Pick Your VC Carefully... If You Can from Software Only
Jeff, from SAP Ventures, has recently written an interesting post: Pick Your VC Carefully. A number of BlogoVCs have made reference and added interesting comments to it (Ed, Brad, Fred, Marc). I would tend to agree with most of Jeff's [Read More]

Comments

Venki Iyer

Marc,

Hate to provide a little dissonance here, but my take is the VC/intermediary market is being (if not has already been) disintermediated. The basis for my dissertation is this: look at your own recent posts (and references) and SOA, WiMAX, etc.

Starting with SOA first: what does it cost to throw up a service like flickr? Between 2 and 4 man months of effort? What does a hardware box or colo in a data center cost these days? Given the costs, what sort of investment did stewart need?

Getting to WiMAX, or fixed wireless in general - what does it cost to be a low-cost isp operating in LE spectrum? Not much. Can you work around interference? Not without some DFS scheme, but that'll get there eventually too. Sure, the big boys will all want gear in licensed spectrum, but then, it is for them that it is a choice between wimax and 3G/4G. For the rest of us, s@#$, we can make pigs fly for a lot less.

I know this comment is rather incomplete, and leaves a lot out, but I gotta run ...

Jeff Clavier

Venki,

I would actually disagree with, or at least nuance, your post. It is true that a number of interesting B2C services (Flickr, Buzznet, SixApart, Oddpost,...) have been started by entrepreneurs on their own dime, and have managed to attract a large user base through "word-of-mouth" marketing.
However, at some point, these services need some capital in order to build up their infrastructure, as well as allow the entrepreneurs to get compensated for their efforts, in order to build a "real" company. At that point in time, they might only take "angel" money (like SixApart, and more recently Flickr) but eventually they will face the issue of funding an accelerated growth, even if they are more or less break even. Because if they don't, unless they generate substantial cash flows, they face the risk of seeing a very well funded company catch up with them. Alternatively, they can be "taken out", like Oddpost by Yahoo!, for a price that makes founders, employees and angel investors quite happy ($29 in that case).
It is however a different story in enterprise software where building enterprise solutions, sold through a direct sales force, is difficult to execute without a a substantial investment.

Jeff Clavier

Just to make the implicit explicit: the acquisition price of Oddpost was $29M. They had only raised a couple of million dollars, in addition to the capital invested by the founders to bootstrap the company.
That story is featured in the last Business 2.0: http://www.business2.com/b2/web/articles/0,17863,696229,00.html.

Koyie

I told my gramdonther how you helped. She said, "bake them a cake!"

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