Not so fast
Scoble takes off with Dave Winer's piece on a different sort of VS funding - and I must say, after saying that the idea is to disintermediate, he immediately proposes a new middleman - but that's not what I wanted to comment on. Scoble's take is that venture funding isn't as critical now as it once was:
What are the “ventures” the entrepreneurs actually need?
See, in the 1980s, they needed money. Why? Cause the growth was in computers and other electronics goods. I worked on an assembly line at Hewlett Packard one summer in the early 1980s. Why did these (and smaller startups like Apple or Atari back in the early 80s) need money? Cause building physical machines costs money. Assembly lines. People. Materials. There was a high marginal cost of goods.
But today’s world isn’t money constrained. You don’t need much money to build software or services.
Oh really? I don't need money to pay my mortgage? I don't need money for anyone else who plans to come along and help me? I don't need money for the monthly hosting bills (assuming that I'm building a hosted solution)? If my solution gets big, I don't need more money to pay for all the bandwidth I'm using?
Even if I manage to get hosting paid for somehow, there's the simple matter of paying the day to day bills each month. Most people don't have 1 - 3 years of living money stored up, so they can't just jump off and try to be the next big thing without help. Which means one of two things - venture funding or a bank loan (in the simplest case, maxing out a set of credit cards).
There are different risks attached to each route, obviously, and different levels of control as well. But to state that money doesn't constrain creativity anymore? Lots of luck with that one. Try explaining that to your mortgage company, and the local supermarket.
Comments
But...
[murphee ( http://www.jroller.com/page/murphee )] January 29, 2006 13:32:22.027
The quote doesn't say that you don't need money, it says you don't need *much* money for building software or services. If a person (or a group) *has* saved up money to be able to live for 2-3 years, then they can take the risk of creating a software company, because living costs plus some tools (computers, hosting costs) are all they need. If you build a hardware company, you'll have to pay for your living expenses PLUS a considerable amount of money for production, material, storage, etc. ... with the risk that you'll end up with a large stack of junk that you'll have to pay to get rid of, if the company goes titsup.
However, I'm not sure about the 80s being more hardware oriented. Was the ratio really that different from today? No ones spending much time on inventing new hardware platforms nowadays, but there is still lots of work in the gadget/gizmo area going on.
Money money money
[Robert Scoble] January 29, 2006 14:39:04.435
I didn't say you don't need money. I said you don't need MUCH money for the Silicon Valley business proposal funding. With software there's no marginal cost of production (or very little, even if you're doing something with 200mb downloads like Rocketboom). So you don't need +much+ money. Yes, we still need money for mortgages, and all that. Figure $150,000 per year for decent tech help (remember, most of their payment is in equity). And that's if they live in Silicon Valley. Riya, for instance, has half of its dev team in India where salaries are a lot lower. Wordpress has a dev in Ireland. Skype has devs all over the world. It's not like the 1980s world of production where you needed to build a factory line and pay a high marginal cost of production.