TechWag

Image by timparkinson via FlickrFew articles rate a full entire word for word read, but venture beat has out done themselves this time with their article “The VC model is broken” today. The premise is that while VC’s survived the first bust of internet based companies, they might not be so lucky this time. The idea that a VC is a good source of money is somewhat true, but might not be depending on what you are doing, and what the competition looks like. Adeo Ressi, founder of The Funded as a slide presentation that he gave that goes like this:

There are a number of premises that are interesting here; the one big idea is that especially here in Seattle, the VC community is tightly connected to each other. We do not know about other communities, but here, the VC companies not only talk to each other, they also talk to the angel investors. We also have hybrid angel/VC groups that can help a company. Of those premises, it is the intercommunication of the community that also helps drive value for the investment. If the investor is happy, they will talk about it, and generate buzz in the VC community, with everyone wanting their chunk of the value of the company.

What is true is that there are many copycat plain vanilla sites out there, along with many copycat ideas. The problem might not be so much that the model is broken, but that there is a severe lack of creativity on the part of people. It is hard to show or define the creative from the truly banal. Not all ideas are good, and not all ideas are equally good, copycat ideas are simply not wonderful life changing kinds of ideas. Creative ideas, the new carries more risk than something that is incremental in nature. It is hard to fund disruptive technologies, easy to fund the incremental. Many inventors are really adding bigger springs to the mousetrap, not redesigning it, and making the whole thing better.

VC’s have a dearth of things to pick from, and by leveraging a number of copycat ideas, they might be able to get a winner out of the group of companies making yet another zombie super poke Facebook application, but another Google, another Digg, those are tougher. It is harder to explain value, it is harder to get money, you are in untried and untested territory, some VC’s will venture there, many will not. Remember how hard it was for Google to get money in the first place. Hindsight being 20/20, we would bet that all the people who passed on Google are not going to be very happy right now.

The same with JK Rowling, the same with many truly revolutionary ideas, it is hard to see the value, it is hard to back them up, and it is hard to give them money. However, if VC’s are smart, they will be and are looking for exactly that, while leveraging some of the copycat investments to see which one builds out a user base first. Taking the better mousetrap and funding its development while also funding the company making bigger springs is about the only way right now that people are going to get money. VC’s are going to play it safe for a while; some ideas will not be funded.

Of all the ideas I have seen in the Seattle area, (and I have not seen many ideas by the way) only two are what I would call original, Earth Class Mail and XEKO. Most everyone else is working on a different spin to an existing technology, or building on something that has its roots in open source software. Nothing against playing it safe, but right now, even if the model is broken, playing it safe as a VC is about the only game in town that is left.

Tags: VC funding, xeko, earth class mail, funding, vc, angel, seattle, thoughts