Posted by: hdemott | September 14, 2010

Living In A Dickensian World

It was the best of times

It was the worst of times

That pretty much sums up the venture world these days.

Under the “best of times” category I would include the following:

  1. Costs of start-ups has gone down dramatically
  2. Large Angel / super-angel community has sprung up to finance good ideas
  3. There’s still a ton of traditional VC money sitting on the sidelines
  4. More and more entrepreneurs are springing from the woodwork
  5. Market is very accepting of new concepts
  6. Traditional media business is being taken apart piece by piece
  7. As a result, many old line media companies are more willing to strike deals with start-ups

Now all that said, newtons law of motion (for every action there is an equal and opposite reaction) certainly holds – and I would put the following in the “Worst of Times” category:

  1. Costs of start-ups have gone down dramatically. Which means that when you come up with your killer idea and get it in the marketplace – as soon as it is seen to have any traction – there will be 5 clones of it within 2 weeks – each tasking a slightly different viewpoint on your solution. there is no “moat” around ideas anymore in the lean start-up world – and it is a sprint, which lasts forever.
  2. More and more angels are financing deals. Great, right? Well yes and no. With more and more angels out there all chasing good deals, they tend to make many more investments at a lower $ price than do traditional VC’s. Which means that you get investors – but you don’t necessarily get as much investor time and help. Pretty simple math – if a traditional VC might have 10 investments, you get 1/10 of his or her investment time (outside of doing all the other stuff like fund raising, looking for new investments, breakfast at Bucks etc…) Take Dave McClure who just closed on 50 different investments in the first half of the year. Great that they got funded, but Dave is a pretty busy guy if you need hands on help.
  3. VC money is still on the sidelines. Yeah this is great – but they either have to get a lot pickier (let’s face it there haven’t been a lot of exits in the past 10 years – and fund returns are generally negative) or go the opposite way and become super duper angels – with tons of $500K investments. If they get more picky – then you don’t get the investment. If they throw spaghetti on the wall – they are worse than the angel folks – at least they are generally operating people who have had success.
  4. More people starting companies means more competition. More competition for good people at your company, more competition for investment $’s, more competition for marketing to get your product to the masses. It is harder and harder to break through.
  5. The market may be more and more accepting of new concepts, but it is also far more critical of them – and with more and more iterations coming out daily – it is increasingly hard to get people to pay attention to your concept for any length of time.
  6. While traditional media guys are more willing to deal – they now realize the threat to their business – and so deals are being struck from a far different position than they used to be. For a long time, media companies generally ignored the threat of the new – and now that they have been forced to not only accept the threat but embrace it – they are still using their position as gatekeepers to hamper growth. Everyone has something to defend.
  7. Have I mentioned that there have been few exits. The successes have been well documented, but I would argue that the rate of failure has probably increased.

So in this Dickensian world – what’s going to be the keys to success – probably the same things as always, great product, great team, great execution. What probably will help going forward will be to grab investors who can actually help you – not just generate a headline. That means help with the business – in biz dev, in marketing, in publicity – with key board members. Not only that – but make sure you can get your product heard above the noise of the thousands of other sites or iPhone apps. Ask yourself what is going to make yourself stand out – then it might jsut be the best of times.

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