Wednesday, May 17, 2006

Venture Capital and Web 2.0

Keynote Conversation: Venture Capital and Web 2.0

Matthew Ingram talks with venture capitalist and blogger Dr. Paul KedroskyTuesday, May 16, 2006

A lot of talk of Web 2.0. There is a lot of money floating around. There is a lot of uncertainty.

Maxthon - overlay over Internet Explorer

Venture capital is concentrated in what is perceived as the best companies. It is, however, a rigged market. The reason why the best funds look successful is because they are fishing in the best pond: they are surrounded by the best projects. The rest of us don’t have such good opportunities for investment.

Alternative assets = Venture capital

MI: If you can finance a Web 2.0 on your credit card, do you need the giant sums of money people are trying to hand out?

If you can avoid venture capital, do so. If you can build a company that doesn’t require capital and you can own 100% stock, you can exit at the full value of the company instead of worry about what the venture capitalists will take.

A lot of the consumer-based Web 2.0 companies can be created very cheaply. The democratization of entrepreneurship – it comes with a corollary: there is no longer a barrier to entry, you will have 30 competitors pop up. “Every monkey with a credit card is in the market.”

MI: Can you build a great big thing and then create a business model later?

Sure. Google is an excellent example. He has seen companies that had no idea what the business model was; some borrow business models from other successful companies. The precedent is well set. You may get a lot of venture capital money and stumble into a business model; however, to do this you better be on a very big scale.

Community building model that is hugely successful – e.g. grassroots dating at - if you keep the cost down and find like-minded community, you can be very successful.

MI: Is there a seed financing gap in Canada?

Everyone in the world thinks they have a seed financing gap, even in Silicon Valley. In Canada in particular, the level of wealth per capita, the level is low enough that you don’t have individuals that go out investing. The economics of see investing doesn’t work. You can’t keep track of your investments, you can’t sleep at night, you better have been invested in Skype.

VC helps companies attract talent.

If you invest too early, you are a seed investor. If you wait too long, you will be competing with big mezzanine investors.

Chicken and egg problem in Canada: we need more successful exits in populated areas to encourage people to create bigger and better companies. In Silicon Valley if you aren’t making 7 figures for your company you have to go out and build one because the guy down the street has.

There are Canadian venture guys. There is an appetite for investing in interesting things. Think creatively in how you approach people and how you structure thing, especially amongst the institutional investment community.

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