I think the missing #4 "What's Changed" in this article is that the consumer web is NOT monetizing as quickly as expected.
If you look at Fred's UVC portfolio for "Consumer Web" I would hazard that their three largest are Twitter, Tumblr, & FourSquare.
Each of these companies is currently making massive pushes to "monetize" their consumer web bases:
For example: FourSquare is only @ $2m/yr & hires first VP of Revenue (1), Tumblr hires new head of global ad sales & Fred Wilson defends rev model (2), Twitter infuriates developers, pushes new ad units (3)
That story is playing out all over the consumer web right now, including at Facebook.
Pulling from a GigaOM article "Wilson thinks sites should follow Twitter’s lead and ensure ad content is the form of an atomic unit that mimics the native content – a tweet on Twitter, a video on YouTube and so on."
Each of the portfolio companies he's involved in are embracing that model.
But as an observer it seems that while the inclusion of "atomic" ad units is certainly a good solution, they're not going to fetch anywhere close to the price of Google's search inventory - eg the Holy Grail of monetization - so there's got to be less excitement as VCs watch these #s unfold.
Of course not - with search ads the consumers and the advertisers interests are aligned. The ads add value.
With social the ads are always a distraction. At best its serendipitous.
Its the difference between selling vegetables at a farmers market vs a roadside stand. No matter how pretty the stand it will never beat the market full of customers who came there to buy.
Not sure about that. A social network can collect a huge amount of information about a user and in the future with better algorithms offer very valuable ads. Helping the user to keep up with fashion, tech, etc.
To keep your analogy, Facebook to Google may be like TV advertisement to a local market.
CPC on Facebook is fairly strong, the issue is CTR. Facebook is having to show an ad many more times to get a click.
From an ecommerce perspective I the difference in effectiveness is massive. I have found it very hard to really generate a lot of spending intent across the ads, retargeting, sponsored stories and offers. Whereas a good Adwords campaign across a large product inventory pretty much prints money and annoys users a lot less.
read up on the datawarehouse trend 10 yrs ago, you have to remain a viable company in order to take advantage of that stuff. turns out it's expensive and time-consuming to create value from generally-unstructured historical data even if you have an identity (or even just a demographic) attached to it.
You can take any complex web site or app and say it has functions beyond some math theory. But just hacking around is often enough for a good enough solution.
Why do you think FB, Amazon, or whoever don't have better recommendation/targeting algorithms than they have now if the solution was "just hacking around enough?" Not enough "enough?"
Facebook has shown a good way forward as far as getting inventory prices up. They recently opened up their native ad units to outside ad companies (like mine) that have relationships with advertisers to drive demand.
Tumblr, Twitter, Foursquare, they are building in-house sales teams but will eventually follow Facebook's lead and open up some piece of their inventory to outside demand. That's how they get the price of that inventory up.
Maybe sponsored stories could work like spot ec2 instances. Ask what the most is you will pay for story impressions and then balance that against the volume of sponsored stories people are seeing in their feeds.
We are thesis driven to the core. We believe in what we believe in, for good or bad. And that is large networks of engaged users that have the power to disrupt big markets.
This seems like a trivial true-ism, and utterly useless as a strategic guide, yet he cites it as their core thesis.
I read the whole thing, and I'm still not sure he said anything concrete. There were lots of bits that seemed concrete [1], but on pausing and thinking about it for a moment, they all seemed to be of the variety "There's more blue than red, but don't forget there's some green there too."
ETA: I don't intend to crap on the linked article; I'm sincerely struggling with my intuition that there's very little light for all the heat in VC pronouncements. During my startup experience I continually heard sage bon mots like "it's a move-fast environment." Okay, how fast? Are there move-slow environments?
[1] Cletus' post above does a good job singling out statements that appear concrete but are either literally non-sensical, or just trivial a=a observations.
if you think of etsy, twitter, lending club, workmarket, pollenware, and kickstarter, you might struggle to understand why they all fit our investment thesis
it is because they are all networks that are large and growing and disrupt big markets (twitter - news, etsy - sale of artisinal goods, kickstarter - the studio model in entertainment, lending club - consumer lending, pollenware - working capital finance, workmarket - contingent labor)
I see how those examples fit the model of a community of engaged users that disrupts an existing business model built on a larger but much more passive community of users. What I have trouble seeing is the contrasting model where a startup is trying to build a user community that isn't highly engaged, or isn't trying to disrupt a big market. Would you mind giving an example or two of someone you rejected along those lines, or does your strategic guide cut differently than I'm expecting?
the vast majority of the opportunities we pass on are a community that isn't large enough or engaged enough. i don't want to name names because that would be uncool to those entrepreneurs and companies. there are examples of businesses we see that are trying to serve the existing status quo and those are also not that interesting to us
I'm not the author, but asking people to explain actions they did-not-take is kind of bizarre. "why did you not cross the unamed road and the unspecified time...yesterday" has a million infinite answers. The purpose of having a "thesis" is to not waste time over-thinking in exactly this manner. If that makes sense.
"Why didn't you fund that startup" is exactly the sort of question Mr. Wilson should be able to answer--and he did below, generally.
You're right that the thesis is a test. My question was because it wasn't clear that there was actually a way to fail the test, or at least I wasn't clear on what Mr. Wilson viewed as failing the test. I didn't ask why he didn't do something that hadn't occurred to him, I asked why we he didn't do something on which he makes a pretty deliberate decision.
As I mentioned, in my own experience I heard a lot of "it's a move-fast environment", and I realized that I had no idea what that meant. It's like saying "be tall"--meaningless without a baseline or a standard of comparison, and yet everyone kept throwing around the phrase like it was a concrete observation.
Remember that through essays like this VCs are competing with each other as much or more than they are describing a competitive landscape as concerns the companies they pay attention to.
If I were to blndly guess at an underlying phenomenon, it would be what I've come to call "app pollution" for lack of a better term.
More and more money is being thrown at an ever increasing amount of new apps, and many of which operate on huge losses as long as user numbers remain high. From the other side, entrenched players (twitter, facebook, youtube, big media) are scrambling for ever more aggressive ways to jam themselves into people's lives to hopefully extract revenue and meet the growth shareholders demand.
All of this is being pushed onto a market that has a limited attention span for all of this crap being thrown at them (and a lot of it is pure crap). The result is less and less consumer loyalty, dwindling revenues for everyone, increasing disillusionment on the part of investors, and ever more ridiculous expectations on the part of users: "$1.49 for an app I use every day and that cost at least $50K to develop? I dunno, feels like a premium price."
It's different from the first bubble in that there is actually a lot of non-immaginary value flying around this time, and eveyone is readily embracing the internet and related tech. But there's also more and more crap. There's just too much pollution on the web and in every app store, and it's starting to smell.
Strangely enough, I think there might be a startup idea somewhere in there.
There is an entire historical tranche of business oriented toward commodification, which I believe is what we're seeing applied to internet functionality as a whole. All kinds of services with nothing much behind them, to the point that business models are being based upon not much more than a Rails gem and force of personality.
Small comment on cost of developing simultaneously for iOS, Android, and the web: it still seems to me that for the majority content rich sites that HTML5 universal platform web apps are the way to go.
I don't like to install a lot of apps on my Android phone and iPad so I may not accurately reflect the market at large.
I agree - single-purpose applications are only necessary if you want to take advantage of functionality beyond what a typical browser provides... which is a very small fraction of apps on the market. News publications tend to be the worst with this - if all I want to do is read your content, I'd rather just visit your mobile site, especially if you put all your resources into iOS/Android/etc. solely behind designing a good site.
Sometimes, it seems like we're back in the 90s, developing for three different platforms (browsers) simultaneously... except we've regressed even more, because even less code is shared between the platforms (and now the server logic may even need to be tweaked to support all clients).
The more things change, the more things stay the same....
It's a sad sign of overselling in the web-development industry when every podunk newspaper wants me to install some discrete app for their site, usually covering the page with a modal popup, which causes me to hit the back button and not visit their site at all.
I agree with the second point. Who wants to install an app for every bloody site one visits? Techcrunch is almost impossible to browse from an iPad because they blast those overlays in your face.
I'm just a single data point in the opposite direction, but any site that I go to frequently that has an app, I'm almost certain to prefer interacting with it via the app.
If the app is just a crappy webview to their site, then no, but I tend to ignore those sites altogether.
Wish he had touched on the rate at which consumer-oriented startups are failing. My perception is that the success rate is going down, and we only have huge success stories (Pinterest, Kickstarter) and failures. I'm counting acquihires as failures because we just don't know. But my perception might be wrong. We do know that only a tiny minority of apps are making any money in the App Store, and the move from the web to phones must mean there are fewer successful web startups as well.
> I'm counting acquihires as failures because we just don't know.
I'd add: During tech bubble v1, the acquihire deals stopped as the many failures put significant amounts of talent on the market. For example: Salaries for IC designers quickly rationalized.
we haven't seen that yet although i suspect you are right. we tend to stick with our portfolio companies longer than we maybe should so it will take a while before we see what the failure rates are. in our 2004 fund, which is pretty mature now, the failure rate was about 33%, which is what we model it out to be at the start of a fund
For me this post read like it was skirting around the issue. I have an enormous amount of respect for Fred Wilson but you have to remember that when a VC writes something, it's not only what they think; they're doing it for a reason.
Take Chris Dixon's post [1] as an example. He's now a VC. He wants to diminish the stigma around talent acquisitions. Why? Because that's how VCs get paid in the vast majority of cases. Those big wins when a company goes public are pretty rare. Big acquisitions? Also relatively rare. Most are 1x-5x "bailouts" I would guess.
Paul Graham's most recent essay [2] was excellent but remember this site exists as a funnel for YC finding teams and companies to invest in.
So, to address Fred's points:
> 1) the consumer web has matured
This is a strange argument. It wasn't mature 2 years ago? 3? Twitter and Pinterest (which he mentions) did get a "standing start".
> 2) the consumer is moving from desktop/web to mobile/app
The trend in recent years has been for startup costs to be going down. $50,000 can buy you a lot of Web development and hosting these days. Labour costs (engineers) are probably going up. Everything else is much cheaper.
Mobile seems to buck this trend. I imagine the cost of developing a Web site plus apps for Android and iOS is significantly more expensive. Well it must be by definition because you still need the Web site (in most cases). It's partly why people will target one platform first (typically iOS).
> 3) the momentum/late stage investors have moved from consumer to enterprise
This is a symptom and it seems to be the elephant in the room that Fred isn't mentioning: the consumer Web space is crowded.
To draw from PG's essay, enterprise has both the "schlep" and "unsexy" factors going for it and it's an area that, depending your market, can be hard to penetrate but also far easier to get paying customers. It's hard to extract money from consumers except for three things: games, advertising and, to a certain extent, hardware.
I've thought for at least 2-3 years that if I were to start a startup it'd be somewhere in enterprise space. The fact that VC funding is, according to Fred, going there too just confirms that.
> But it is a tougher time for early stage consumer internet companies than I have seen since the 2001-2004 time frame.
This to me was the strangest point of all. 2001-2004 were on the whole terrible. But it's still way cheaper now making bootstrapping just that much more viable than it ever was 10 years ago.
To me this is just more evidence that we're not in a bubble because the VC "market" is acting quite rationally. For every Instagram there are a hundred failures and many more acqui-bailouts. Yet many people--too many people (IMHO)--are working on shit that just doesn't matter ("it's a social network... for cats!" as the cliche goes) in a very crowded space and most are going to be disappointed.
What I believe Fred is doing here is signalling that he (and by extension USV) are interested in non-consumer startups. They don't want to come out and say "we're not interested in consumer startups" as that'll put them at a disadvantage when it comes to funding hot startups/teams.
I agree: enterprise and even infrastructure (particularly cloud-related infrastructure) seem to have stronger opportunities than consumer web (IMHO).
He's now a VC. He wants to diminish the stigma around talent acquisitions. Why? Because that's how VCs get paid in the vast majority of cases.
I am having trouble seeing how this could even mathematically be true. Even given how much easier talent acquisitions are to do, most of the companies in a portfolio won't even get that far. The majority still fail outright. Many talent acquisitions don't even recoup dollars invested; how could they possibly pay for the losers?
I'd be interested to see numbers. But I feel like the numbers used to be roughly 50% of investments were wipe-outs. 40% brought back the 1-2x returns, and 10% delivered a 5x. Ie. 1 in 10 investments was responsible for the profits. Now with talent acquisitions there is a safety margin for the 50% which previously returned nothing.
So if those numbers still hold true then the bulk of a VC's portfolio (by investments, not dollars) is boosted by the availability of talent acquisitions.
Yeah, my impression was that the VC community is actually getting a bit pissed about all the acqui-hires. Sorry to link just to Arrington, but I can't seem to find the other sources I had read on it:
It's not about getting hits out of every investment but recouping something from most. If they can get 1x money or even .5x money back, sometimes that can help keep the portfolio above water.
> He wants to diminish the stigma around talent acquisitions. Why? Because that's how VCs get paid in the vast majority of cases.
This is wrong. Remember the power law! The vast majority of the value of a VCs portfolio will be represented by their 1 or 2 most successful investments.
Paul Graham says he's unaware of many instances where company owners acted to screw small shareholders, and I believe he believes that, but I've seen multiple instances of exactly that†, and because my exposure to startup management is so much smaller than his, and because I don't believe the instances I'm aware of are correlated to each other, I think he's simply wrong about this.
†(most of those incidents started with the company encouraging departing employees to purchase their shares)
Perhaps, but how many of the talent acquisitions are situations where if the team just kept going, it was going to turn the corner? Certainly, we don't know, but I suspect most of these cases are making the most of a bad situation.
If your downside is now 1x rather than losing everything, that's a major win for investors. Eliminating downside does not suck.
That said, I think there may be room in this space for some competition. What if you had groups of friends that wanted to work together, but not necessarily take on the risk of a startup? What if you could have some sort of way to develop side projects together in a blatant attempt to market the team, not the product?
The evidence suggests that a 1x return on an investment is essentially a writeoff. The whole model counts on the fact that most startups fail; the "winners" have to pay for the losers, not just themselves.
The convention wisdom says this is important to understand for at least two reasons:
(i) You aren't going to make a compelling pitch to a VC by focusing on the likelihood of a 1x-2x return, since you'd essentially be pitching a failure to them.
(ii) A 1x-2x return may be lifechanging for you, but since it's essentially a failure for your investors, they will tend to tack your company away from those returns and towards much riskier strategies.
If you think 1x is a major win, you should consider avoiding VCs.
I was thinking the other way around. One 50x and 49 flops is half as much money as one 50x and averaging your money back on the rest of your investments through talent acquisitions. If you have a lost cause that you can get something out of, it is foolhardy not to do so.
It's hard to extract money from consumers except for three things: games, advertising and, to a certain extent, hardware.
This isn't true. Consumers happily pay for a lot of other things that web companies / tech startups offer:
- content & entertainment (hulu, netflix, nytimes)
- personal finance (lending club, esurance)
- dating (match, eharmony)
- ecommerce (bonobos, zappos)
- gifts (FB, redenvelope)
In fact, I'd guess there are probably a lot of offline consumer spend buckets that will come online in the next few years if they haven't already.
Perhaps we're quibbling over semantics on how "hard" it is... but trends seem to indicate it is becoming far easier.
Enterprise are willing to pay but they demand more as well. You can't get away with the simple apps we see in the consumer space. You can't get away with having weak support options. You often have to provide a certain level of customization. And you'll always be seen as the risky option compared to your larger, more entrenched competitors.
This is in my experience the opposite of the truth; enterprises are awesomely forgiving of low quality and minimal polish. What makes enterprise products hard to sell is that they're difficult to sell passively; you need account managers, and with them the 6 month sales cycle and 6 figure price tag that accompany them.
It's amazing how many people put up with terrible software at work, complain about it, are powerless to do anything about it, and simply plod on. Custom tools with very fixable gaps don't get closed; old versions of licensed software don't get upgraded. As long as it continues to work and the problems can be worked around or accepted, they'll keep using it.
I bet that every finance group has a magic Excel spreadsheet that someone built for them years ago. But no one in the office knows how to engineer it anymore, so they keep duct taping little bits here and there to make it adapt to the business years later.
Do you have a write up of your enterprise experience somewhere? That'd be very helpful, and we're all going to be rather forgiving of the form if the content delivers. :)
It depends on what you mean by "low quality." Enterprise products often don't have shiny GUIs, extensive marketing associated with them, cool domain names, etc. But they do have to avoid permanently deleting data or being inaccessible for long periods of time. They usually come with 24/7 support contracts.
A social networking website can be down for a day for a few users and nobody will care. With enterprise software, that could be a deal-breaker. If engineers have to be woken up at night, then they will be.
You're right that enterprise is about sales, whereas consumer is about marketing. It actually affects the company as a whole more than you might think. Heavily marketed consumer-focused companies never seem to stop marketing themselves. Even in the cafeteria, you're bombarded with the marketing about how this is the best company EVAR and all the cool people are here, etc. Sales is more about relationships and building trust. There are some bad aspects to both, but on the whole I think I prefer a sales-focused company.
I fear that I sounded like I was making a value judgement. I wasn't.
Generally speaking, I think enterprise apps are simply easier to deliver than successful consumer apps (most consumer apps aren't successful and nothing is easier to deliver than an app nobody uses). There's a bunch of reasons for this:
(i) famously, the person making the purchasing decision for most enterprise apps isn't the eventual user, so to make sales and achieve usage you need please only during demos;
(ii) the bar is much lower in the enterprise because you are generally solving money problems (increasing revenue or decreasing costs/headcount); most enterprise software is clunky, and the software virtually never delights, but for the most part the line-of-business software deployments I've worked with tend to make lots of money;
(iii) the fit/finish and scale problems that HN people hyperfocus on simply tend not to be problems enterprises pay to solve; also, once a firm verifies for itself that it'll realize a return on a deployment, it'll tend to be happier to simply scale up its Oracle deployment rather than trying to be clever with how it persists data.
(iv) a six figure pilot deployment pays for a whole lots of hardware, and successive purchases, which tend to happen after the firm verifies that the software is worth something to them, are even more expensive.
(iv) relatedly: the financial metric most enterprise software is benchmarked against is "fully loaded headcount cost", which, wow, is a much nicer benchmark to have than "$5/mo" or (worse) $2.99 "premium" app store app.
I think these things tend to add up to enterprise software being much, much easier to build and deploy, even if you want to believe that there's some countervailing cost of additional testing (I actually don't buy that enterprises really demand a higher standard of testing, either).
Things like Yammer and Salesforce are practically the exception that proves the rule; the very rare app that needs to scale multitenant across every company in the world. And a gargantuan swath of the entire Fortune 500 could care less about salesforce management.
Not all is roses in the enterprise software world.
Businesses will often refuse to buy from companies they regard as likely to disappear in a few years-- unfortunately, most startups tend to get lumped into this category by default. The burden of proof is on you to prove otherwise. (This is rational behavior on their part, by the way.) Managers are naturally conservative. They know that signing a slightly too-expensive deal with, say Oracle (to pick a random example), won't get them fired-- but signing a deal with some startup that fails to deliver surely will end their career.
Finally, there's the problem that because sunk costs in existing systems are often high, it can be hard to break into a market. This is what keeps COBOL and even FORTRAN chugging away in corners of the world. Costs might be lower a few years after replacing these systems-- but then again, they might not. It depends on who you get to put in the replacement, and if you have trouble telling the good developers from the bad, maybe you are better off not touching it. Building and deploying is one thing. Selling is quite another, and it's not easy or cheap. Forget about word-of-mouth and friends-of-friends.
Do enterprises demand a higher standard of testing? I think it depends on what your product does. I work in enterprise storage, so for us there absolutely is a higher standard of testing. I can't speak for other applications, though.
Things like Yammer and Salesforce are practically the exception that proves the rule; the very rare app that needs to scale multitenant across every company in the world.
Yeah, but that's where the fun is for engineers. And in time, companies like these will reduce the need for so many companies to build custom solutions.
> can be hard to penetrate but also far easier to get paying customers.
Getting enterprise customers to pay serious money is somewhat of a pain. It's a costly and long sales cycle. Not to mention the margins are increasingly getting worse (both from software vendors, i.e. SaaS, and service vendors, i.e. outsourcing). Then couple that with increasingly changing buying behaviors and pricing models (consumerization of IT) and it's not all roses.
Yup, surprised that he didn't directly mention crowded space. The argument around ossified consumer tastes and large players sucking oxygen out of the room is fair but ignores the multitude of consumer startups working in the exact same problem/solution space - location-based social networking to pick one convenient example, say.
Portfolio returns in the aggregate of 20%+ are fine. A 2x on 1 year investment, for example, is outstanding performance. But overall, HR acquisitions are "operational failures" for the founder and the VC, and nothing to boast about. You're startup has only proved it can out-perform the HR department of a Big-Co. Not hard to do with a pile of cash, really.
I agree with this post to some extent however, I still believe that there is a lot of space on the "web" especially in the likes of ecommerce, education, small/medium enterprises, advertising & of course International which has opportunities in all of those sectors as well as others.
However, looking at USV's latest investments[1], posts as well as Fred's posts especially this one, it is appears they prefer enterprise startups[2] BUT they are still interested in consumer startups as long as they have a transactional or high intent ad business model.
[1] Pollenware, DuoLingo, DuckDuckGo, Dwolla, Funding Circle etc
It all sounds pretty defensible and true, but it mostly just boils down to facebook being underwater. venture partners are herd animals, tried and true.
Yes, but the reasons are somewhat different. If anything, startup costs have gone down with technology costs and as access to technology increases. The problem now is that with the great saturation of these consumer web startups, and the "startup-gold-rush" mentality of everyone trying to start a company, the "bar" has been set much higher for an acceptable product. It's no longer good enough to have an app that works, it must work, and be beautiful, and be cross-platform, and use the cloud, and have social integration, and ...
It's no longer good enough to have an app that works, it must work, and be beautiful, and be cross-platform, and use the cloud, and have social integration, and ...
Or maybe (he writes, donning his HN-proof flamesuit) having genuinely innovative ideas actually does matter.
There are plenty of people around here who keep saying it's the execution that counts, launch with a MVP because you need data so you can pivot, what matters is having a great team, and all that. I'm sure there is some element of truth in all of those things, but most of the "businesses" based on that philosophy seem to build something obvious that a thousand other people thought of and any 15 year old geek could do in a weekend, and then act all surprised when they don't become the next Facebook.
If these are the kinds of people who are approaching VCs with a view to serious funding, it's hardly surprising that most of the ones that don't have literally the best execution in a market with hundreds or thousands of plausible competitors will fail.
To me, it seems crazy today to even try going after mass-market, low-level consumer services. There's far more money in B2B unless you really make it to the top in B2C, which you are extremely unlikely to do even with a fantastic offering. And if you are happy to settle for a business that is merely very lucrative rather than the next Facebook/Google, you can do very well in B2C with a good idea in just about any specialised field, where the market is not every consumer in the world but the people in the market really want what you're offering because it genuinely benefits them in some way that nothing else did before.
[Edit: I see Fred is posting here, so I'll mention that it would be interesting to know how many of the companies VCs take on tend to be in that latter category these days. Is specialist B2C just too small for VC-style deals to make sense most of the time?]
There are plenty of people around here who keep saying it's the execution that counts, launch with a MVP because you need data so you can pivot, what matters is having a great team, and all that.
I've been calling bullshit on the "execution is everything" meme for a while now, but I hadn't thought of it as maybe a cause of increasing difficulty in the startup ecosystem. That is an interesting hypothesis.
The problem is you can stuff any meaning you want into the word "execution" - designers can stuff in beautiful design, programmers can stuff in cross platform deployment, etc. It should probably mean, "relentlessly finding market fit"
[Execution] should probably mean, "relentlessly finding market fit"
The trouble is, that doesn't really say much either. "Finding market fit" essentially means producing something good enough that people will pay for it, so arguing that execution is all that matters for success with that definition is a circular argument.
On the other hand, if we contrast "execution" with "idea", as is often the case in HN discussions where the "ideas have little value" argument is made, we're effectively comparing having a good idea that we can make money from with having an arbitrarily bad idea and assuming that it can be incrementally adapted (<ahem> pivoted) into a good idea that we can make money from. I simply don't accept the premise that you can start from anywhere you like and always wind up making money as effectively as someone who started from any other point.
> I simply don't accept the premise that you can start from anywhere you like
Is anyone saying that? I believe it's a strawman. What people say is "ideas are worthless" which is quotable hyperbole used to club stubborn NDA wielding entrepreneurs over the head. What people mean is: ideas are effectively worthless because until you start executing you don't have a good way to know if the idea is good or not.
So yes, starting point matters. Unfortunately, until you start to execute, you only have the an extremely hazy understanding if your starting point was good. Sure you can weed out absolute loser ideas, and you can get an idea of the risk profile of the venture, but not much more.
Is anyone saying that? I believe it's a strawman. What people say is "ideas are worthless" which is quotable hyperbole used to club stubborn NDA wielding entrepreneurs over the head.
That is surely how it started, but I'm not sure everyone on the start-up scene today got the memo.
Unfortunately, until you start to execute, you only have the an extremely hazy understanding if your starting point was good.
I still respectfully disagree. Some of the most successful small businesses I'm familiar with started out with a disruptive idea in a specialised market that was so far beyond what was available at the time that there was never really any doubt that it would be viable and a successful company would result, the only question was how successful.
The common factors in each case were founders with a shared interest in/understanding of some specific field, often an existing support network in that field, a solid combination of general technical and non-technical skills, and most importantly, going where no other team with those combined strengths had been before. If you stop trying to appeal to the entire planet and start looking into niche areas (which does not necessarily imply tiny markets, just smaller than "everyone"), it's amazing how many opportunities there are to apply modern technology to do things qualitatively or at least order-of-magnitude quantitatively better, and how many real problems you can solve for businesses and private individuals alike.
Many of those businesses are also counterexamples to the popular wisdom that if you have no competitors in a market then that's a bad sign because there isn't really a market there. Sometimes you really are just that much better than everyone else, because if your market isn't full of geeks who build their own hardware or write software just for fun, even applying quite basic (by geek standards) skills can put you far beyond old school, manual ways of doing things.
So I concede your point, but I think those are also smaller and smaller markets. In an efficient world those obvious-at-the-start ideas are only unsolved AND obvious because they perceived value of solving them is low. Not so low they are not worth doing, but low enough they won't support a rapid growth and investment seeking startup.
I think those are also smaller and smaller markets. [...] Not so low they are not worth doing, but low enough they won't support a rapid growth and investment seeking startup.
I think we agree on the basic situation, just perhaps have a different idea of the scale.
To me, having a business that has merely millions of potential paying customers, but where those customers have a particular interest in what you're offering and there is relatively little competition because you really are doing something new, is worth more by any metric I care about than having a business with billions of potential paying customers who have no particular interest in what you're offering and dozens of competitors offering something similar. About the only metric where this doesn't come out on top in B2C world is "probability of hitting it out of the park", which is of interest to VCs and serial entrepreneurs playing the long game, but possibly not so relevant if you're just trying to start a successful business for yourself.
Your comment about "in an efficient world" is interesting, because I think this is where the received wisdom breaks down: the real world is nowhere close to an idealised efficient economy. Many people have the skills to use modern technology effectively, but a lot of them are working for someone else in some large business, and the overheads of that large business make many of these smaller projects commercially unappealing. The "correct" economic response for the people with the skills to take advantage of the market that would pay for them is for those people to break away and set up their own small, efficient businesses that can then make a very tidy profit by genuinely helping a lot of people who are below the radar of big business.
Of course, that requires skills other than technical ones, and an awareness of the possibilities, and a willingness to take a risk with your income when perhaps you have a mortgage to pay and a family to support, and all of those things influence what actually happens. But that is why there really are still a lot of very lucrative (by individual/small business standards) opportunities out there for those who are willing and able to make that jump.
"there is a large pool of money in the venture capital asset class that is opportunistic, momentum driven, and thesis agnostic. this pool is driven largely by the public markets."
Mixed in all of the fluff is the real answer, though worded vaguely. What this means is that Zynga, Facebook and Groupon tanking in the stock market is the reason. That is What Has Changed.
This article could basically be retitled "Clueless VC belatedly realises all these companies without business models will probably not make any money after all".
I mean seriously. This is what's wrong with capitalism, where undeserved windfall gains are the norm. Companies we invest in have to show they are able to make money! Wow, how revolutionary.
If you look at Fred's UVC portfolio for "Consumer Web" I would hazard that their three largest are Twitter, Tumblr, & FourSquare.
Each of these companies is currently making massive pushes to "monetize" their consumer web bases:
For example: FourSquare is only @ $2m/yr & hires first VP of Revenue (1), Tumblr hires new head of global ad sales & Fred Wilson defends rev model (2), Twitter infuriates developers, pushes new ad units (3)
That story is playing out all over the consumer web right now, including at Facebook.
Pulling from a GigaOM article "Wilson thinks sites should follow Twitter’s lead and ensure ad content is the form of an atomic unit that mimics the native content – a tweet on Twitter, a video on YouTube and so on."
Each of the portfolio companies he's involved in are embracing that model.
But as an observer it seems that while the inclusion of "atomic" ad units is certainly a good solution, they're not going to fetch anywhere close to the price of Google's search inventory - eg the Holy Grail of monetization - so there's got to be less excitement as VCs watch these #s unfold.
(1) http://www.businessinsider.com/foursquares-revenues-valuatio...
(2) http://gigaom.com/2012/11/07/is-tumblr-the-new-geocities-vc-...
(3) http://www.telegraph.co.uk/technology/twitter/9481987/Twitte...