Another Sign Bubble 2.0: VCs Begging To Invest In Startups That Don't Need It

from the take-the-money-and-run...-or-just-run? dept

After the bubble burst, there were some who complained that VCs were no longer investing in early stage startups. In fact, (since governments are always a bit late on these things), even now some politicians are worried that VCs won't invest in enough early stage deals. However, smart entrepreneurs just realized that this shifted things around. Capital was suddenly expensive... but thanks to massive layoffs, labor was cheap. Thanks to open source technology, software was cheap. Thanks to high speed, always on internet connections and good communications tools, workers could work from home efficiently, and so office space was cheap. It's all about focusing on what's cheap at the moment. So, some good startups thrived, despite the lack of venture capital money. However, during the last bubble many VC firms raised an awful lot of money that they've been sitting on. While they returned some of it, many of the remaining funds are reaching deadlines by which they need to be invested. That's causing a huge new glut of easily available cash from VCs to startups that probably don't need the money at all, since they were built for conditions when investment capital is expensive. Many in the internet world are trying to convince people that there's something fundamentally different this time around and that it's "Web 2.0." It's nothing different -- it's just a progression. The difference is that venture capitalists have a lot of money that needs to get invested, fast. Some startups are taking the money, believing that if money is available (especially cheap money), you take it. Others are taking money and just socking it away in order to use the connections the VCs add. Either way, it will be interesting to see how some of these firms move forward. In the first internet bubble, a big problem was that many entrepreneurs started viewing venture capital money as revenue -- and therefore, it was all about raising more, rather than building a real business. The money was distracting and often took good ideas off course. If today's entrepreneurs can resist that temptation, put the money in the bank and stay focused on building good businesses, then perhaps that's a good thing. However, having lots of money around can often do funny things to startups.


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  1.  
    identicon
    The Stalwart, Oct 14th, 2005 @ 8:16am

    Cheap Money

    This is another symptom of Alan Greenspan's cheap money policy and the excess of cash that that's created. It's not just venture capitalists. Banks are still dieing to make risky loans, people are buying second houses that they don't need, and parents are buying their daughters Gucci bags.

    You say having lots of money around can do funny things to startups...the scary thing is that it can do funny things to everyone.

     

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  2.  
    identicon
    Fredo, Oct 14th, 2005 @ 8:42am

    Re: Cheap Money

    "the scary thing is that it can do funny things to everyone."

    You mean like create prosperity and wealth?

    Sadly, we live in a country where poor means having analog cable,
    rear-projection big screen, non-progressive scan DVD,
    a 2 yr. old Altima/Civic/Scion, PS2, dial-up internet, iPod shuffle, and fake Gucci glasses.

    Arrgghhh...the humanity!

     

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  3.  
    identicon
    Anonymous Coward, Oct 14th, 2005 @ 8:56am

    No Subject Given

    if any VCs want to invest in an awesome startup check out http://www.virtualprivacymachine.com

     

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  4.  
    identicon
    The Stalwart, Oct 14th, 2005 @ 9:10am

    Re: Cheap Money

    Excess cash doesn't "create prosperity and wealth", that only comes about from savings and productivity gains. Lots of excess cash, on the other hand takes away spending discipline, and encourages people and businesses to make bad decisions.

    I agree with you that the poor in this country have it pretty well off compared to most in the world, or in history, though I don't know how that relates to my point.

     

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  5.  
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    Hugh, Oct 14th, 2005 @ 9:21am

    Re: Cheap Money

    First, I agree with buying Gucci bags and other brand name items that is unneccessary. Second, I disagree that people buying second homes that they don't need. People buy seconds homes want financial growth and stability. It is a necessity because to survive in this world, you need money. Having more money just simply means that you will "survive" longer than "others". Survive is the game and everyone is playing it.

     

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  6.  
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    Jose, Oct 14th, 2005 @ 9:42am

    Re: Cheap Money

    I agree on some elements of capitalist thinking, but not to the extent that our survival depends on it. That's just plain stupid. Everyone ought to be well off and they can be, considering that most of the worlds wealth is held by a single digit percentage, with only a very few of those who actually use their money to help those in poverty. The one's who don't are the ones who buy gucci bags and second homes, mumbling "Survive is the game and everyone is playing it"

    Isn't it funny that the people who often talk about 'survival of the fittest' are the kind of people who have never had to "survive" anything?

     

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  7.  
    identicon
    Sarah, Oct 14th, 2005 @ 10:58am

    Re: Cheap Money

    Addressing to the point of "lots of cash" needs to be spent spent spent. It comes back to goals and desire of individuals and companies goals.

    Vague statement with many layers of interpretation on "the game".

    Seriously--life of a start-up is not glamorous it's a lot of hard work but an upgrade from corded phone>cell phone> blackberry and social network is vital for growth. Perhaps its the sense of self-value and the desire to fill the appetite of human being social creatures.

    Although I'm a female in IT I am forgiving of you alpha males who do not understand the whole unnecessary need of Gucci bags. It's like why would you want a Rio 500 when you can upgrade to a "Apple will fuck me over with another toy launch Nano". In conclusion, you'll probably never will understand the Gucci bag deal... so don't sweat it.

    However if I have 1 Billion dollars I would be empowered in helping society rather than spend it on Gucci bags.

    In the US we have blinders on the make us desire for commodities within our reach. I work for a start-up and don't make jack but the compensation is the hope and desire of being valued from my contribution and the association of a potential greatness!! Anywhoo... speaking from a young bushy tail RCG that's my 2cents to spare.


    p.s.
    logo whores are very tacky I personally prefer Bottega Veneta. Qualify leather and craftsmanship is key.

     

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  8.  
    identicon
    Jose, Oct 14th, 2005 @ 12:23pm

    Re: Cheap Money

    > Although I'm a female in IT I am forgiving of you
    > alpha males who do not understand the whole
    > unnecessary need of Gucci bags. It's like why
    > would you want a Rio 500 when you can upgrade to
    > a "Apple will fuck me over with another toy
    > launch Nano". In conclusion, you'll probably
    > never will understand the Gucci bag deal...
    > so don't sweat it.

    According to the stereotype:
    - Men usually want things that they can play with and makes their life easier. It's about fulfilling the go of our inner child. It's about tools that do cool things.
    - Women usually want things as a personal reinforcement of their social rank and a way to show off to others. It doesn't have to be something of utility either (ie jewelery) as long as the basic meaning is conveyed. If women couldn't show off their Gucci bags and jewelery, then there would be no point to having them. But with a guy, he doesn't care about that; even better, because he gets more alone time with that toy/iPod/PSP/car/etc.

    But this is a stereotype. Nowadays a lot of men are starting to become more trend/seasonal consumers like women. The marketing folks just needed time to figure out just how to pitch it to create a demand.

    Quality is hard to assess, because its an abstract concept. Quality usually means that it will last longer, meaning that the only way for you to really say something is good quality is if you've had it for that long. Otherwise, quality is something that brands try to give impressions of through marketting and design. Take Apple iBooks, for example: terrible quality, they break often, have malfunctions and the casing/keyboard wears out within half a year, yet the perception of quality exists. But, in any case, to say something is better quality can be used as snobbery: "I buy X, because I only like quality"... subtly meaning that anyone who doesn't, can't appreciate your sense of quality and is less refined. I see that happen a lot. It's pretty stupid, but then most things in the socialite world are.

     

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  9.  
    identicon
    Rigger, Oct 14th, 2005 @ 1:45pm

    Re: Cheap Money

    This comment displays an unfortunate ignorance of the true face of poverty in our country. It's sad to see that this kind of missinformation still exists after the lid was ripped off of the American Class System in New Orleans. I sounds to me like your refering to the lower middle class, which is a heck of a long way from being poor.

     

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  10.  
    identicon
    Sarah, Oct 14th, 2005 @ 2:40pm

    Re: Cheap Money

    Jose-- I completely agree with you and find your reasons to be amusing. Quality is not "degree of excellence or fitness of use" it only statisfy the state of "need".

    Stereotypes exist and there are exceptions about the Men vs. Women drivers of what they find pleasing and meets their needs. Majority of men and women alike are all marketing victims.












     

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  11.  
    identicon
    Anonymous Coward, Oct 16th, 2005 @ 2:10pm

    Re: Cheap Money

    You should actually try and meet some poor people at some point.

     

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  12.  
    identicon
    Ken, Oct 18th, 2005 @ 6:26am

    Re: Cheap Money

    and yet i'm willing to bet that the true "poor" will never have a voice in this debate.

    however if by the aforementioned standards the use of analog cable, the lack of a big screen (even projection), no PSP, PS2 or Xbox to mention a few, my newest car is 4 years old (the wife's) and mine is 8 years old... sign me up for welfare so i can live like the poor.

     

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  13.  
    identicon
    H, Sep 28th, 2006 @ 12:57am

    busty teens sleeping

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