

Big Money Does Not Build Great Online Products - webtickle
http://blog.estately.com/2010/08/02/big-money-does-not-build-great-online-products/

======
scottporad
Nice post, Galen.

It seems like everyday I read another post talking about how VCs are
dead...VCs are evil...don't take VC money. This brings to mind two thoughts:

1\. Does anybody have anything good to say about VCs?

2\. Is it possible that consumer-facing web-based businesses just aren't
suited for VC money? I mean, a hair salon or pizza joint isn't suited for VC
money, but nobody is complaining about that.

If my second point is true, what businesses are suited for VC money? Green
technology, for sure...what else?

~~~
cal5k
I think it's crazy to assert that VCs are dead because companies like
UrbanSpoon and Xobni, both of which required little more than time and some
basic infrastructure to start, are not good candidates for VCs.

Companies once backed by VCs - Google, Intel, Cisco, etc. - make up a
significant chunk of the American GDP. In all of those cases, it is obvious
that they required significant up-front investments in infrastructure to break
even. For example, Google required a vast server farm to index the web. Cisco
and Intel required resources to manufacture and sell complex physical
products.

Consumer-facing products that do trivial things that spread mostly by word-of-
mouth - like recommend a restaurant in your area or search your email - are
not good candidates for multi-million dollar, early-stage VC funding. They are
too easy to bootstrap, and I think the impression many would-be entrepreneurs
have that they need to raise oodles in venture cap is a holdover from the
dotcom era they missed out on.

In these cases, Y Combinator and the rest are much better options if you do
need enough cash in the meantime to, for example, provide enough Ramen to feed
your team of 3 college students.

~~~
galenward
I tried to be really clear on this that I am talking about online startups.

But I think you missed the point: It takes a lot of money (VC or otherwise) to
create companies that go public, but it doesn't take much to create a great
product.

Google is a perfect example: they didn't need significant up-front investments
to create their first search engine - they ran it out of Stanford on borrowed
computers. They built a product and had users way before they raised a ton of
money.

~~~
cal5k
That's a point I absolutely agree with. However, your hyperbolic introduction
(which admittedly isn't coming from your fingertips, but nonetheless one you
say you agree with) seems to be arguing that VCs are dead PERIOD, which I
don't buy at all. :-)

------
aarong
Good post.. But I do think this general line of argument is a bit one sided.
IMO there's just no one size that fits all. Some things have more R&D up front
and that costs cash, others less so. Each business needs to try to figure out
a reasonable tradeoff of how much needs to be done before entering the market.

