Clark Dong: Software Startups Don’t Need VC’s To Start

Add comment February 20th, 2007

Clark Dong gave an interesting demonstration of a new action item tracking tool for startups called TaskPick at last night’s SDForum Startup SIG. He came on after my show and tell on how and why we use Central Desktop in our practice. He was articulate and energetic and I was very impressed with his approach. I did some Googling and came across a long comment he made on VentureBeat last week that I wanted to highlight (this is an excerpt from a longer comment, text was not bold in original).

Last fall I started a new web 2.0 company in the team collaboration space. And for this new company I have chosen not to go the VC route. Why? They are asking for way too much (50% off the top) and frankly I can get it going without them (i.e. I don’t need to kiss up to them). The VC model was created in the early days of the semiconductor era when an entrepreneur needed millions of dollars of startup capital before they could can make a run at it. That is no longer the case. It is now possible to start a play, tighten the belts a little, and reach revenue. The capital equation of the new startup world has changed.

So what is my current view on VC?s? I think they are a dying breed. It is now easier than ever to start companies in the web space. Open source tools and nearly free on-line services means you can become very productive quickly without needing lots of money to spend on development tools or infrastructure. Hosting services are almost free and will only get more reliable, faster, and have larger storage. For those venture funds that can not adapt quickly and add more value to entrepreneurs, they will find themselves with lots of money but not able to participate in this new round of web innovation (sure, the semiconductors and the networking plays will still need startup capital). VC served a useful function back-in-the-day, but the clock is ticking for them.

I think a lot of folks got into Venture Capital during run up to the last bubble who had fewer skills and less experience than was required for them to be successful in the much less hospitable environment that developed after 9/11. But I look at it more as a correction back to more “normal levels” of active VC’s than their incipient extinction.

I haven’t worked out all of the implications for the dramatically lower cost of starting a new software/SaaS firm, but to a first order it would seem to place a higher premium on strategy and business development: in particular the need for differentiation is now greater because you are likely to be faced with more competitors.