Article by David Aronoff at Jul 02, 08 01:32 PM
The premise is pretty simple:
1. Identify an unmet need in some identifiable consumer segment
2. Create a compelling web application that is simple and straightforward
3. Utilize a viral go-to-market strategy possessing low cost of customer acquisition
4. Build a big consumer base
5. And monetize them
The best examples are the stuff of legends: MySpace, Facebook, Google, Bebo.
What do they all have in common? (Other than being tremendous successes?)
I’d argue that they really built their appeal without (much) help from venture capitalists. Sure Google, Facebook and MySpace all raised VC money, but it was after steps 1-4 were well underway.
If you look at the VC-lemming effect, these three companies have led to hundreds of millions of dollars chasing scores of web-mobile-social-networking-video-location based-mashup startups.
Of these phalanx of companies, there are several potential candidates in the on-deck-winners-circle like Digg, Linked-In, Twitter - that all followed similar patterns to the aforementioned.
And in the anti-winners’ circle, companies like Akimbo, and a host of others I’d rather not name for fear of VC reprisal, but look at these TechCrunch links (2007 Deadpool, 2008 Deadpool) for a long list. While not all these companies received VC funding as their first capital or any VC funding at all, many did. I struggle to find (m)any examples of companies that have used initial VC funding to create successfully viral models.
Why is this the case?
Obviously I don’t know for sure, but I think it has something to do with the type of discipline and inertia that comes with venture financing. I am not at all suggesting that VC funding is antithetical to exploration and entrepreneurship, but I am suggesting that in the case of consumer focused offerings, maybe startups need more “unsupervised” or “less-supervised” time to bake and test their value, without the implied or actual pressure that a formal financing by venture capitalists bring. Or maybe the model of a true seed by VCs that permits the same type of exploration would foot the bill.
I doubt my pondering will stop any VCs from continuing the blistering pace of investment in consumer Internet projects, but if I am right, the results of those investments will!
Tags : vc & money, diary of a geek vc Current Rating : (2 votes)Rate This : Loading ratings . . .
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