Web 2.0 is sexy. Making money on the Internet isn’t. The majority of web 2.0 initiatives fail to turn a profit. Their existence is dependent upon funding or passion. The true money-makers of the Internet are businesses that people don’t talk about.
Archive for the ‘financing’ Category
The blogosphere is once again abuzz with “bubble” speculation. This recurring theme tends to pop its head into the blog world every few months. This time though, many are anxious. Some are convinced that the inevitable US recession will stifle innovation and steer the web into some sort of temporary holding cell. This is definitely not the case. In fact, the Internet is headed to more prosperous times in an era where innovation and development will only accelerate.
My first question to those who think we are in a bubble is this: why do you think we’re in a bubble? To be honest, I haven’t seen many ridiculous fundings (Facebook aside), nor a rash of Internet IPOs. A frenzy of unsubstantiated capital infusions forms the basis for any bubble. The subsequent lack of liquidity ignites a sell-off, depreciating valuations. This was the case in the first and only Internet bubble. Greedy VCs, armed with the belief that advertising would pave the road to riches, invested in any and every company with an enticing .com name. We all know the outcome of this story.
The current Internet landscape looks much different. Information is prevalent and infrastructure developments have changed the game. The capital markets have also changed. You no longer need a million dollars to start a company. In order words, the key contributing factor to any bubble has been negated to a large degree.
An Internet start-up can be launched at no cost, assuming human labour is discounted and a computer and Internet connection are readily available. Any given Internet user can leverage open source software and/or free tools. Furthermore, widespread documentation and education are available at no cost. This equates to minimal barriers to entry.
The significance is that anyone can launch a start-up at any time, on any budget, and iterate quickly. The information and tools are available and the cost is negligible. Time is the only real variable. All of these factors lead to a significant decrease in the probability of a bubble as raising capital no longer becomes an issue in many cases.
Note: I am speaking in general terms. Every start-up situation will be different. Having said that, the underlying factors remain the same.
Yesterday’s post brought up an interesting topic. What is the definition of a “startup”? In other words, when does a startup progress to a “company”?
Is it defined by:
- Time? i.e. Less than a year old?
- Revenues? i.e. Under $10 million in revenues?
- Profitability? (Self explanatory)
- Traffic? i.e.Â Less than 20 million page views per month?
- Staff size? i.e. Staff size smaller than 50?
This topic is particularly interesting because many believe Flickr, Facebook, MySpace, YouTube, etc… are still startups. I don’t believe so. Facebook, for example, has:
- Been around for 4 years
- Revenues in the hundreds of millions
- Billions of page views per month
- A staff of a couple hundred
Can you still consider it a startup? I’m not convinced…
On an ambiguous note, Wikipedia defines a startup as “a business with a limited operating history”.Â So basically, I’m no further ahead than when I first visited Wikipedia.
I’ve been thinking about a term to use to describe the aforementionedÂ boundary or limit. I’m not certain whether a given term exists or not,Â so I’m going to coin one anyways. The startup threshold will now be known as the point when a business transitions fromÂ the startup phaseÂ to a full-blown company. The exact metric or number has yet to be established, but I’d like to get feedback from readers.
How do you think a startup should be defined? What number(s) do you think are most important? What would you consider the startup threshold?
Social news site Digg is up for sale. VentureBeat first reported the story, claiming a reliable source confirmed the company’s plans. The source goes on to say that Digg has hired Allen & Company, a private investment firm, to help broker a potential deal. The asking price is said to be in the range of $300 million.
The story really comes as no surprise to the blogosphere. Speculation about an acquisition has been swirling for months. The difference this time is that Digg is actively seeking an acquisitor, rather than fielding potential offers. This new tactic seems a bit desperate to me.
What is the company’s motivation to sell? Is traffic slowing down? Is Digg worried about the threat ofÂ new entrants and/or current competitors? Are revenues bleak at best? My guess is that Adelson and Rose figure the company is at its peak, both in terms of popularity and dominance. If that is the case, then Digg, in theory,Â should be able toÂ negotiate the highest possible valuation. Having said that though, shopping around seems to put the acquisitor in a position of bargaining power.
I love Digg and I hope it sticks around for a long time. I also think it’s a great consumer-oriented, media play for any large company looking to make a mark in the space. What is currently happening behind the scenes is beyond me. But as I say, I think Adelson and Rose may be looking for a change. The world of venture capital may be awaiting. What about new start-ups? Oh yeah… then there’s Pownce…
That IS the question…
When ‘exposing’ your business plan to colleagues or known business acquaintances, is it always necessary to get them to sign an NDA? The fickle readers will tell me yes. The less cautious readers will say no. Here’s the dilemma:
We all know what an NDA is and what it is supposed to accomplish. But can trusted business contacts actually be trusted? Paperwork aside, the biggest downfall of an NDA may be the loss of respect and trust. Let me explain…
If I get a colleague to sign an NDA, I’m basically alluding to the fact that I don’t trust them. I either think they are going to talk to someone about the idea, or they might steal it for themselves. Bear with me here… I know it’s a long shot, but that might be the thought process of your colleague. In other words, they believe that you don’t trust them. Consequently, they begin to question your business (and perhaps, personal) relationship.
Don’t get me wrong, any understanding party should have no problem signing an NDA. However,Â some may question your intentions and self-assess your judgment whether you like it or not.
One key argumentÂ for NOT signing an NDAÂ falls around execution. Sure, someone may know your business plan top to bottom, but the execution is where 99% of challenge lies. Most people don’t have the time, patience, expertise, or determination to take it to the next level.
Obviously, when exposing such a document to lesser known business contacts orÂ potential investors, an NDA is essential.Â A certain level of trust has not yet been established. Therefore, such a request should go without saying. But when dealing with known individuals, the rules change. A level of trust has already been established to some extent. The question now becomes… does that level exceed your willingness for them to sign an NDA?
So basically, I keep jumping back and forth over the fence on this one (although I am leaning toward “don’t be a fickle bum”)…
What is your take on the situation? Do you think that everyone should sign an NDA before viewing a business plan? Do you think it may ruin or put strain on a relationship?