DISQUS

UltimateFootballNetwork · 10 months ago

Great stuff, as always.

The round peg-square hole analogy is great. Most existing VC funds were raised before the new economics were clearly understood and are still targeting exit opportunities that are unlikely to work out given the move from product->service businesses. The new economics can support plenty of exits at good multiples as long as the economics/expectations are well understood and that will happen when we start hearing about Dogster as the Web2.0 posterchild rather than DIgg.

Chris Yeh · 10 months ago

Everything ultimately depends on the outputs. The old model worked because the ultimate outcomes (widely adopted products, big-money IPOs and M&A) were large enough to pay for the front end of the process.

Right now, no one knows whether the ultimate outcomes for web services and SaaS will be large enough to pay for the front end investment.

Yet at the same time, the old model no longer works either; consumers and businesses are no longer willing to fork over the dough for an upgrade cycle or for perpetual licenses.

My guess is that the front end will have to be reengineered, with bootstrapping having to suffice until the entrepreneur has built a scalable business with a clear path to profitability (which, by the way, Digg and Twitter have not).

chudson · 10 months ago

Chris,

I couldn't agree with you more. Even so, I still worry about what happens on the back end if the bootstrapped businesses end up being reasonably unattractive (albeit profitable) businesses for public market investors or potential M&A suitors.

Chris Yeh · 10 months ago

It may very well be that startups stratify into two layers--those which have a shot at outsized returns, and those that don't. Entrepreneurship doesn't always have to follow the traditional Silicon Valley model...think of "The Millionaire Next Door." Most millionaires are owner/proprietors of low-tech businesses like dry cleaners and car washes.

It may be that we'll see a split between "car wash" startups and "change the world" startups. Which would reflect a natural maturation, though I must admit, I too prefer the "change the world"-style returns!

chudson · 10 months ago

Chris,

Yeah, I think we're starting to see just the stratification you mention. I
just hope that the car wash crew doesn't try to finance themselves for the
home run shot.

elita · 10 months ago

The models that have worked in the past two decades were during times when money was flowing and growing in the financial system. But will they post-credit-crunch? Even if you look beyond a few years, I do wonder if the capital market is changed forever...

Maybe there will be more car wash businesses where you do need the cash flow and you're focused on rev - cost = profit

UltimateFootballNetwork · 10 months ago

Alan Patricof had a relevant take in the NYT Dealbook today http://dealbook.blogs.nytimes.com/2009/02/09/an...

chudson · 10 months ago

That was a good find - I read it and was thinking the same thing.

Q dub · 10 months ago

There's also been a change in the central asset that silicon valley startups generate. Intel's asset is its technology, but Facebook's central asset is its social graph. These assets are harder to measure and value. Whether or not you've made a faster chip or a smarter router is a matter of science, but whether a social graph or real-time chatter can be a monetizable asset is a far more difficult thing to asses.

DealTattle · 15 hours ago

I am really very glad to have started http://www.dealtattle.com . It is a coupon code and discount start up. The economic model seems to support this effort. But, time will tell.