In the previous post, we looked at how constraints on the GPs’ time and the need to invest large amounts of capital makes it difficult for VC funds to do small funding rounds. This wasn’t a problem for Web 1.0 so what has changed?
During the Dotcom bubble, the Web was new and shiny; new to consumers and investors, but also to developers and engineers. The network guys laid fibre as fast as they could, the IT gals racked ever more servers in data centres that sprouted like mushrooms and the developers cobbled together servers and applications using java, perl, cgi scripts and anything else they could get their hands on. It was all very expensive, but money was seldom a problem. Then the bubble burst.
A few got rich during the bubble, many lost plenty, but the money spent on infrastructure was not lost. The Telecom upstarts may have gone bankrupt building data centres and laying all that dark fibre, but their assets were bought up for pennies on the dollar, and so today, hosting is cheap. Between Moore’s law and the FOSS movement, server hardware and software is inexpensive and powerful. As far as tools go, what can I say; we’ve come a long way since applets! The collective knowledge gained from more than a dozen years of developing for the Web has led to the development of increasingly sophisticated tools and methodologies. Ruby on Rails, Django, TurboGears, AJAX, Agile development, MVC, REST and countless software libraries come to mind.
As a result, it is much, much cheaper to launch a Web service today than it was a decade ago. It has become so cheap in fact, that today’s seed rounds are often below the minimum amounts VC funds are willing to invest.
Next up: the new players on the Web startup funding scene and how the VCs are responding.
by heri
good insight.
just one comment: launching a startup must remain “cheap” as business models are not mature yet. there is the google ads option or the “getting bought by google” but those doesn’t seem to be viable to me. although i believe real business model will come out in the next few years.
by daniel
The Dotcom bubble was all about acquiring “eyeballs” with monetization of that traffic to be figured out latter. Today, Google ads allows many sites to convert users into cash, so there has been some progress. I don’t believe however, that there is a single business model for all Internet based businesses. It’s still early in the game, so like you, I’m keeping an eye out for yet to emerge business models.