GenuineVC David Beisel's Perspective on Digital Change

May 15, 2005

While many hypothesized on why Google acquired Dodgeball last week (for example, Gary Price and Russell Glass), I think one of the most interesting posts came from Marc Canter. He wrote a semi-satirical semi-serious post describing the new way for internet entrepreneurs to hit:

“OK – so first you graduate from Clay Shirky’s exclusive school of thought, eat the red pill, drink some koolaid and do something Clay thinks is cool. Then you use the blogosphere to launch – but you never really achieve critical mass – but that’s OK. As long as Cory Doctorow or Xeni think it’s cool – you’re set. There’s not need to achieve positive cash flow or even have more than 2 employees. Just build up a “little traction” and come up with some cool model like “Stoli Vodka” wants to be your friend. Come here to meet Stoli (or was it Skye?) Then just stand back and wait to get bought out. It worked for ODDpost, Flickr and now Dodgeball – who’s next?”

George Bernard Shaw once wrote, “When a thing is funny, search it carefully for a hidden truth.” And I think that Marc has hit upon some truth in his parody.

Entrepreneurs are discovering a New Startup Model: bootstrap and build a product, generate buzz on the blogosphere and the early adopter community, skip vc financing, and sell to one of the portals.

Everyone wins in this game. Entrepreneurs innovate and cash out early. Google and Yahoo outsource their innovation to the best and the brightest without paying a hefty price tag.

Well, almost everyone wins. VCs are left out without the ability to invest and make returns for their LPs. What’s a VC to do? It’s up to us to demonstrate to entrepreneurs that with additional investment, their potential quick flip can become a solid and enduring company where genuine and significant value is created.

It will be interesting to watch Yahoo and Google over the next few years – will they increasingly acquire early-stage companies or are these recent examples just symptoms of the fact that we are early in this innovation cycle?

  • Russell Glass

    David, great thoughts — on same topic, great essay by Paul Graham…

  • Nivi

    VCs are going to have to start demonstrating true value-add in sectors that are getting less capital intense. Many already do. Entrepreneurs will ask: what do you bring other than money and hassle?

    I also expect movement of capital into more capital-intense areas like biotech and the emerging nanotech space which is going to require bucketloads of money.

  • dwlt

    This is pretty much what Om Malik wrote about here:

    The New Road to Riches.

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