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.