Net startups slow their metabolism

$8 million? And all they can get is 20,000 registered users??? You've got to be kidding me.

"The company raised $35 million three years ago and, thanks to financial prudence, has $20 million in the bank."

$5 million burn rate a year for failed company is prudence?

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All reading this sort of coverage does is make me feel that anyone wanting part of our company will have to pay through the nose for it.

For many Web 2.0 companies, taking outside money is not something that is good for business. Outside money brings in problems and gives you too much space to fail, since there is this money cushion underneath you. It makes the companies get used to spending money at the stage when most other companies learned about financial prudence.

Investors don't care about this, however. They care about getting a return on their investment. So if they feel the hype will be enough to get someone to buy it out, or for the stock price to shoot up on an IPO, they will invest in companies that should not be invested in. They gamble there.

But right now, those gamblers see something different - the gambles are not going to pay off because the hype is dying down.

If your company does not offer true value, then you should not take money. You should fight in the market till you have a product that offers real value, and only when external money is needed should you take on capital.

Is outsourcing really a significant factor here? I can't imagine any YC-style startups using it.