Old Content:

Funding: An Insightful Insight

June 25, 2008 by Kyle Brady
Tags: Funding, Idiot, Stupid, The Internet, Web 2.0
As required by the FTC, a Full Disclosure is available - this piece adheres to the Code of Ethics

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[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."

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.

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!"

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.

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.

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

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.

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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...

Old Content posts are leftovers from a less structured, less civilzed era that are kept for posterity.
Kyle can be found on Twitter and MySpace, or reached via email.