11.13.06: The new frugality
By Richard Koman - November 13, 2006
If you're worried about Web 2.0 frothing over into full-scale bubble, here's reason for hope. The Great Bubble was based on huge amounts of venture money, which led to companies being taken public, getting insane valuations, and on to the pop. But today, venture capitalists are scrambling for companies to invest in, because it can be done so cheaply - Meebo was founded on $4,000 of credit cards - that entrepreneurs are loathe to take the big money and the business control.
A Times article profiles a few VCs who are learning to play the new game of small ball.
Just last week, Charles River Ventures announced it would offer loans of $250,000 to entrepreneurs as a way to gain access to promising start-ups. Other firms are also giving out small loans, albeit not as a part of any formal program.For its part, Mohr Davidow Ventures has increased the number of “seed” investments — small sums given to embryonic companies — to about 10 a year from 5. And Union Square Ventures, which was formed in 2003, has made nearly half of its investments at $1 million or less, a departure from its initial plan to make first-round bets of $1 million to $3 million, according to its Web site.
A firm called Y Combinator is comfortable funding very small amounts. Their target investment is $6,000 per employee. For startups that would total up to somewhere between $36,000 and $48,000. Even with today's low startup costs, that's not a hell of a lot of money. The point, cofounder Paul Graham said, is to make it last.
[Y is] not looking for computer science entrepreneurs who want to be pampered: “C.S. grad students at M.I.T. currently get $2,000/month to live on, so this represents three months’ living expenses. Though in fact most groups make it last longer.”
By Richard Koman - November 13, 2006 | Permalink | Comment
| Category: News Watch
| SVW Toolbar | SVW Newsletter | SVW Mobile
- NEW STORIES:
- 2009: The Year Of The Great Repression
- Letter From London . . .
- FutureWatch: The End Of The News Aggregators And The Future Of News
- Saturday Post: Stemming Deflation When Thrift Is The Answer . . .
- The State Of VC Funding In Southern California
- Shrinking Mass Media Masses At Googleplex
- The Black Swans Have Yet To Come Home To Roost . . .
- No Men Allowed: Girls In Tech Expands To New York, LA, And Beyond
- Let's Take A Lesson From The Chip Industry: Turn The Big 3 Auto Makers Into Car Foundries . . .
- Doug Engelbart In 1968 - The Computer Demo That Changed Lives!
Comments (1)
These types of micro VC investments are not good for startups. When the startup gets to needing Series A funding and the original investors do not come in then it will be extremely difficult for them to raise that funding. Also, how much attention can the VCs give companies when they have massive funds to administer yet are increasing the number of small investments they make. The VCs are supposed to help build and nurture the startups not just hand out cash. And that won't happen with these small investments.
Posted: November 14, 2006 7:52 AM