Deep VC Thoughts from Paul Graham
TechCrunch has a and wide-ranging Q&A with venture capitalist Paul Graham, whose firm YCombinator invests seed capital in early-stage start-ups such as Reddit, Wufoo and Kiko. Graham contends people worried about a investment bubble are off the mark. “There may be a lot of lame startups being started, but that’s not the definition of a bubble,” he said. “A bubble is when a lot of money is being invested in lame startups, and that’s not happening yet. The reason so many new startups are getting started is that the cost has gone down, not that funding has gone up.” This must be a reassuring statement for many entrepreneurs and investors, particularly VCs scrambling to get some Web 2.0 exposure. One statement made by Graham that I will challenge is his assertion it's more important (at least intially) to build something that people really want than focusing on a business plan. His figures it's difficult to make money if you don't have a compelling service/product. In theory, it sounds like a good thing except far too many Web 2.0 start-ups launch with little or no clue about how to make money - and sadly many of them will never find a way to do it so, at the end of the day, it doesn't matter if start-up costs have dropped. In reality, I think Graham's build-it-and-you-will-find-a-business-model theory only works once in a blue moon. In fact, you could argue Google got lucky because it stumbled upon Overture's paid-search model to capitalize on its popular search technology. Only time will tell if Graham's right about the investment landscape but it would be nice to see a few more Paul Grahams and YCominbators in Canada to offer more support (and money!) to early-stage start-ups.
Update: Dead 2.0 does his regular smart breakdown of the interview - and challenges many of Graham's assertions. Duncan Riley also questions Graham's thinking. “My first thoughts when I read this was that people would be better off playing poker at a casino than handing over monehy to YCombinator for ivnestments. After all, the odds would be better”.
