Big Money Does Not Build Great Online Products
blog.estately.com
blog.estately.com
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?
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.
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.
I don't think VC is dead (for consumer or otherwise). As recently as 3 years ago, Facebook's prospects of revenue were jokeworthy. Now their targeted ads aren't much cheaper than adwords. Twitter's revenue prospects right now are also in the "laughable" category (yeah yeah, they did make money last year on some bizdev deals).
Without VC money, these services would never reach the scale where these revenue ideas could take form.