What Does Less VC Mean?

Not surprisingly, venture capital activity in the fourth-quarter plummeted as uncertain economic conditions forced many investors to step a major step back.

But what does it mean for the start-up ecosystem? Does less money necessarily suggest the start-up landscape is going to be barren with thousands of would-be entrepreneurs scurrying for the safety of corporate cubicles until the economy comes back to life? Does it suggest that Web 2.0 is officially over, and Web 3.0 is now upon us featuring less noise but more business models focused on revenue?

If you want to look at glass as half full, the venture capital pullback is not a bad thing. In fact, you could argue it’s a healthy development for the start-up landscape.

With less money sloshing around, there will, no doubt, be fewer start-ups armed with cash to pursue aggressive growth strategies. But it will also mean less noise and competitive pressure. Some start-ups, for example, may have more time to establish themselves and a revenue-generating business model without having to worry about a VC-backed rival moving into the market with a free product. At the same time, costs could even decline as talent becomes more affordable.

Another angle when it comes to online start-ups is it costs less now to launch a business than it did eight years ago when the dot-com boom went bust. With open-source software, cheaper hardware, bandwidth and distribution costs, getting a product created can be done at a reasonable price. That’s a good thing that could keep the start-up ecosystem alive and well.

Last but not least is that start-ups will now more than ever have to focus on creating products that are compelling, user-friendly and fill a void or disrupt a market. Hopefully, this will force startups to really think through what they want to do and why they want to do it.

If anything, the Web 2.0 landscape encouraged many entrepreneurs to do something simply because it could be done – as opposed to whether it needed to be done. Of they created knock-offs based on the idea that one company managed some success so there had to be room for another start-up.

Hey, there’s nothing wrong with being creative and entrepreneurial but the focus should really be on building a business as opposed to offering a service.

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