Funding: An Insightful Insight
[aka “Funding != Good Idea” or “Funding Doesn’t Mean They’re Smart”]
I spoke to a recruiter via phone yesterday who was trying to interest me in getting a job with RockYou. When I politely declined, he wanted to know why, and I said something to the effect of “I have no interest in working for companies whose sole existence is, and always will be, dependent on outside funding and other people’s platforms…not to mention those without any real business plans or actual use value”.
His response? A resounding “I don’t think they would have gotten [insert large number here] of funding if they didn’t have value or a business plan.”
Hm. Yes. Quite.
So, out of that lovely event, comes this exciting installment of “Kyle telling you what should already be obvious.”
How VCs Work
Venture Capitalists are well known for investing in things that have either:
Already been funded
Already been proven successful
This isn’t true across the board, but when you look at the subset of VCs that invest in Internet-based “software” companies, the probability of truth gets much closer to 1.
Oh! Lookz! Ah cat copiez itzelfz!
Don’t believe me?
How many fully-funded Twitter clones are there?
Facebook clones?
“Digg killers”?
“Google [search] killers”?
Web 2.0 Is Not Business
Another widely acknowledged nugget of gold is that most “Web 2.0″ properties are not profitable. In fact, most of them have no idea how they could generate a revenue stream even remotely close to their operating costs, other than “oh, well we’ll just put ads on the site!”
Dr. Juice says “tell ‘em, boys”!
Good Idea? Yeah, Right.
One of my biggest pet peeves of the Internet at the moment is the “me too!” atmosphere. If one person does something that becomes popular (note: popular is not the same as successful), or gets a large round of funding, there’s immediately a gaggle of idiots who want to do the same thing, but with some twist.
Alot of good ideas don’t get funded, or even noticed. Why? Because no-one has done it yet, or it’s “too risky”. The big money would rather bet on something other people have bet on before, because it’s “tried and true”. So these groups of people with original ideas trundle on their own for awhile, and sometimes end up with a startup company that took years to put together while they cooked sausages at children’s festivals.
Where the true geniuses work.
Developer’s Platforms
Newsflash: basing your entire “business” (without revenue) around the whims of someone else is stupid, and roughly equivalent to swimming in the ocean while chewing on a giant electrical line that’s dangling from a satellite in orbit.
Facebook, MySpace, Bebo, etc. can change their APIs, data access levels, or platform structures at any time, for any reason. You want to develop a way to throw Zombie feet at your friend’s pig farms? Great. You want to create a company, and get funded, so you can do random “social activities” with other people through another company’s platform? Right.
Not entirely relevant.
One of the cardinal rules in running web software is that you should control as much of the user experience as possible. This is why Facebook has massive data centers instead of cloud-sourcing to someone like, say, Amazon S3… and you don’t see someone like Google betting the virtual farm on MySpace’s clunky architecture.
People Are Idiots
If you follow that motto, you’ll see the world clearly. Ok, maybe have alot less friends, but you’ll thank me for it. Why? Because once you realize that people are lazy and want to do the least work possible to get fame/success/fortune/whatever, you are able to see the giant flaws in their plans without falling into the potholes containing many fellow sheep.
There’s only two reasons why someone would assume that having funding equates to a “good idea”, a “great business”, a “revenue stream”, or “really smart people”:
They have no idea what they’re talking about
They’re an idiot
Game, set, and match.
Conclusion
So why, in all that is mighty, would anyone assume that an extravagantly funded Web 2.0 “software” company is going to exist in 5 years, be profitable, or even be remotely valuable to real people?
I have no idea.
p.s. If you want to cry and complain and argue that I “have no sources”, then use what little of that brain you may have to do some Google research yourself.
—————–
Update (6/26/2008 4:00am PST): How fitting! Mashable just put up a story about a major Facebook Application “magically disappearing”, and not due to something the app developers did… it either got “accidentally removed” or banned. Hmmm… [see more]
Update (6/26/2008 1:15pm PST): Valleywag picked this up. Nice! And it seems that people agree with me…
blog comments powered by Disqus
Ads
Add New Comment
Viewing 10 Comments
Thanks. Your comment is awaiting approval by a moderator.
Do you already have an account? Log in and claim this comment.
Do you already have an account? Log in and claim this comment.
Do you already have an account? Log in and claim this comment.
Did I ever mention that being dependent on funding, if you have a real product, is a bad thing? No. It takes time to get off the ground and running, and anyone who's ever done any programming knows that. It's when you have alot of funding for something that is not very complex, and you're giving it away for free without any idea of "where's the business side?"... that's what I'm arguing against.
And being dependent on "platforms" is not a bad thing either... but it depends on (a) what platforms they are, and (b) what you're defining "platforms" as. Facebook, MySpace, Bebo = not good business platform choices.
As for what makes a startup "successful"... you're partially right. You seemed to have missed the "isn't just a random toy" with a side of "has some way to be potentially self sustaining, if not profitable".
Startups aren't charity, they're businesses, and it's time people realize that.
--Kyle
Do you already have an account? Log in and claim this comment.
I was called (the old fashioned way, by phone) by Jeremy Liew... he apparently didn't write these, and asked that I mark them as such. The weird part? The email address given is the correct one, and he found out about all this when I emailed him directly about some more thoughts...
------------------
Kyle: I think you made a poor decision that you will one day regret deeply.
I have been a venture capitalist for many years (I got my start in the early days of venture capital back in 2006) and in all these years have seen few companies with as much potential as RockYou.
Rockyou has achieved very real adoption from users and we really like the two founders, Lance Tokuda and Jia Shen.
We have been very happy with our investment in RockYou. It has only continued to grow since we invested - it now serves well over 100 million widget views everyday.
We're still not sure what the final business model for turning those widget views into cash will be, but the opportunities are endless. I came up with 3 this morning alone.
Sequoia Capital, which backed Google, invested in RockYou alongside us and if that doesn't convince you that RockYou has a bright future as a legitimate business, I guess you'd have been one of those people who had the opportunity to work at a great startup like Google, Webvan, Amazon or Pets.com before they went public and would be regretting that decision to this day.
You might want to reconsider your decision. RockYou has a very dynamic and fast-paced environment, great salary, superb benefits and the lucrative stock options everyone loves.
I'll be on the West Coast next week and if you're interested, I'd be happy to show you around the RockYou offices in Redwood City. We can lunch with Lance and Jia. They're really pretty cool guys.
Mahalo,
Jeremy Liew
Managing Partner
Lightspeed Venture Partners
"Investing at the Speed of Light"
Do you already have an account? Log in and claim this comment.
Do you already have an account? Log in and claim this comment.
Jeremy: adoption rates and "potential" are great, but how does something like a "widget" translate into "real world value"? Widgets that serve some sort of purpose are fine (like a Google Docs widget that drives traffic to Google's office software), but when you're basing your entire display method and user experience on a small widget on some random social network... that's where I lose faith.
--Kyle
Do you already have an account? Log in and claim this comment.
I was called (the old fashioned way, by phone) by Jeremy Liew... he apparently didn't write these, and asked that I mark them as such. The weird part? The email address given is the correct one, and he found out about all this when I emailed him directly about some more thoughts...
------------------
Kyle: what do you mean by "real world value"? RockYou's widgets are really fun and entertaining. That's why tens of millions of people are using them every day.
Widgets could turn out to be the replacement for network television. We simply don't know yet.
But what I do know is that I'm very pleased with our investment in RockYou and I'm confident that RockYou has a bright future for every RockYou employee who holds pre-IPO stock options.
You're young so I will give you some advice: the sooner you get in on these things, the better. You get more stock options, a beter strike price and you get to be a part of a revolution at the same time.
What's not to like about that?
Sleep on it tonight and tomorrow give that recruiter a call back. Tell him Jeremy Liew referred you.
You'll thank me for it some day soon. I guarantee it.
Mahalo,
Jeremy Liew
Managing Partner
Lightspeed Venture Partners
“Investing at the Speed of Light”
*** Sent from my iPhone 3G ***
Do you already have an account? Log in and claim this comment.
is this a joke?
Do you already have an account? Log in and claim this comment.
On the other side of things, it wouldn't be so bad to work there for a year or two, get the experience and wisdom, and then get out (seeing as how the average lifespan of a job at one company in the tech industry is pretty low, this would be pretty normal).
BUT if you have other offers (which it sounds like you do) with other companies that have their own physical product/actual service and that's what you prefer than go for that.
I would say it's also just a matter of doing something that you will enjoy and that you actually back or beleive in the company that you work for.
also as a side note 2 years in a profession is not that many years if you think about it.
Do you already have an account? Log in and claim this comment.
kris: thanks. I do have other options, but honestly... even if I was starving on a street corner I wouldn't take that job. I just don't agree with everything they do, from the ground up, and there's no way I could work there without being really pissed all the time or fired quickly.
Jeremy: companies/business/products come out of innovation, out of a need to do something or fill a niche. Amazon.com was a good online shopping experience, Google was a search that worked, Facebook was a better centralized way to communicate with friends and family. RockYou fills no public need. Even the video game industry fills a niche, by providing entertainment... but it's an actual product for retail. "But it's dependent on the Operating System!" ... yeah. At least they have something that couldn't be created in a few hours of caffeine fueled programming.
--Kyle
Do you already have an account? Log in and claim this comment.
I've marked them as "not him", but left them here so the context of the conversation remains, as Jeremy requested.
--Kyle
Add New Comment