Wednesday, January 23, 2008

Seed what exactly?

There is much talk about a new generation of Tech companies with a totally different business model. The claim is that with Facebook, Google widgets, Salesforce AppExchange and other platforms, you can start a company for just a few thousand dollars.

Reputable funds are jumping in the fray. Like Accel with it’s Facebook fund. And Bay Partners with its AppFactory. These guys are smart enough to do their homework. I assume they see enough of a play in quick exits and early positions to make it worth their opportunity cost.

These platforms are a quick way to deliver relatively narrow functionality to an identifiable target market; at best a cheap way to validate a value proposition. But this does not a company make. And, with over 1600 Facebook apps, it is already a questionable way to get distribution.

Names have changed and the delivery dynamics are different, but this is hardly new. Seeding engineering projects that have low cost distribution dates back to the Homebrew Computer Club. CNet’s is still riddled with the stuff.

VCs who caught religion around Web 2.0 and SaaS models early, like Niel Sadarangany at Bay, and Byron Deeter at Bessemer are quick to point out that the real capital requirements don't come from development or even operations, but rather marketing and customer acquisition. And they are larger than ever. Worse the recurring revenue model builds slower than a traditional enterprise sales model and leads to a longer burn.

Acquisitions of cool technology is all well and good. I just hope that in all the widget and platform hype we don’t delude ourselves into thinking that the fundamentals of building a company have changed.

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