Back in 2003, I had long discussions with David P. Best, a board member on There.com about their startup and business model. He was one of those venture capitalists (VCs) that believed in throwing money at something and then watching for the business model to "emerge." But David learned the hard way as There.com got sold off at a loss. Now he's thrown himself into the old brick-and-mortar of tangible goods: woodworking and craftsmanship.
Didn't these VCs learn anything from the dotcom bubble bursting? Apparently not. Startups are getting money thrown at them and they have no business model, no plan. I talked about this last year when Badazz was asking how Gloto.com was going to make money. They won't. These little startups are all hitting second and third stage funding at this point. Some of them sell off to other companies & that makes a tidy little profit, but most of them will eventually go under. But its OK because the CEO of the company had a nice severance package built in- of course he or she doesn't care if the business actually makes money. No one cares about the wage slaves whose jobs suddenly evaporate. This system has been working the past few years because there was a high demand of tech jobs. What is going to happen now as the US economy is tanking?
For the VCs investing in Tech it is all about the culture of cool. They could be putting their $40 million into a new yacht, but you can't write off your racing yacht when you crash & burn with it. A tech company running at a loss is great for a VC. They can write it off and get that lovely feeling of power from having people fawn for their money. Have you watched the Dragon Den? They think they are being all charitable "giving a hand to lift up the little guy." They love to tear people to shreds- it makes for great TV, high ratings, and good advertising revenues. And they have great pleasure in wielding the power of their money. They don't really care if they lose half their money- this was disposable cash they would have just spent on toys anyway.
And now, what has happened as a result of all this VC money? Free content on the net. There are a few tech hobbyists out there who make free websites, but for the most part, no one charges for their service because they have big VC bucks to carry them through. There is a lot of debate about the impact of this on the internet economy. And I think they are right. I think its made a superficially strange bubble again. Just like the dotcom.
Here are some articles on the debate about the Free internet economy & VCs:
Free is killing us- Blame the VCs
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