EarlyStageVC:The Web 2.0 Entrepreneur Bubble

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中国结走过一程人生旅途，写下一段心路历程，留住一份美好记忆. << Bubble 2.0 | 主页 | list of questions that a pitch to a VC should address >> EarlyStageVC:The Web 2.0 Entrepreneur Bubble 2005-12-09 http://earlystagevc.typepad.com/earlystagevc/2005/10/the_web_20_entr.html There has been a lot of conversation of late about how much easier it is to start a Web software companies these days. Open source and Moore’s Law are the principal drivers. Great stuff. It’s springtime in the Internet and there has been a fresh rain. New seedlings are popping up. Great stuff. Lots of disdain for dumb money because it’s “so easy” to start a new Web company these days on a server and a song…. the case for entrepreneurial minimalism. But there’s a bubble that the web community isn’t talking about. Let’s call it the Entrepreneur Bubble. The Web 2.0 Entrepreneur Bubble is the flip side of the Web 2.0 Investment Bubble. We all understand the calculus of the Investment Bubble – Lots of investors looking to fund Internet Companies

cheap access to investable capital
relaxed financial criteria (call it business model) in screening
shared knowledge of the big tech trends (posing as proprietary investor insight)
relative inefficiency in finding potential investments because so many are ‘under the radar’ = many near-identical companies get funded
valuations rise in the beginning because everyone thinks they can get 20% of a big market
the abundance of similar companies raises the capital requirements so that some can break out by outspending = shakeout when it becomes apparent that there are too many companies and investor expectations crash And everyone concludes – Those Dumb VCs – They Should Have Known Better But consider the case for the Entrepreneur Bubble: Lots of talented developers wanting to found Internet companies
cheap sources of computing resources and personal time
relaxed financial criteria (call it business model) in screening
shared knowledge of the big tech trends (posing as technical innovation)
relative inefficiency seeing what other developers are building because so many are ‘under the radar’
the abundance of similar companies raises the need to find a barrier to entry / basis for differentiation = shakeout when it becomes apparent that there are too many companies and entrepreneurs’ expectations crash And everyone concludes – Those Poor Entrepreneurs – Too Bad They Didn’t Know Better But the root causes are the same:

It is very easy to make the initial commitment (founding or funding)
Underestimation of how many had the same conclusion
Underestimation of survival requirements for the ‘too many competitors’ case I think there is a real Entrepreneur Bubble these days in Internet software. Step A is seductively easy – buy some servers, write some code. Just understand that 10-100 other teams around the world are doing the exact same thing. How will you sustainably differentiate yourself? What will you do when 15 other similar sites appear in the next 12 months? A thoughtful consideration of Steps B through Z may lead you to conclude (i) you can’t build a sustainable business, (ii) can, but need to invest far more time/money than you originally imagined, or (iii) building a small business is a lifestyle choice. All conclusions are equally valid, but don’t let the hype of the Entrepreneur Bubble confuse the decision. To me this Entrepreneur Bubble feels like the PC software bubble in the early 80's. As the installed base of personal computers exploded, individual software developers founded companies because it was an order of magnitude cheaper than before. But as the field quickly glutted with dozens of similar companies in each category, the choke point became distribution, leading to the structure of the market we see today. Today's three person startup on LAMP is 1981's Pascal developer. The few that got rich did well. The many that didn't quit their day jobs did OK. And those who quit their day jobs and didn't get rich.... learned something. Reduced barriers to entry always look attractive to the entrants. But once you enter, you are an incumbent. gerald 发表于 2005-12-09 18:37 引用Trackback(0) | 编辑 Comments 发表评论最近更新