Are Venture Capitalists Being Bootstrapped into Oblivion?
I would venture to say that many venture capitalists actually enjoy being bootstrapped. But a popular BusinessWeek article discusses the contrary.
Today’s startups can build critical infrastructure with less capital than before with the advent of other startup technologies including Twitter and WordPress. And yes, Facebook.
In my own personal experience of launching Price Capital, I leveraged a multitude of tools from Microsoft’s Live Meeting to WordPress which all enabled me to keep costs low while growing my margins.
It also helped to have a technical background, as well as bulge bracket and previous startup experience, in order to fold disparate technologies into one operating business. Nevertheless, these tools enabled me as well as hundreds of other entrepreneurs to create a cost-effective foundation, and to reach markets without investing in commercials nor large publicity events. We couldn’t do that ten years ago.
Today’s venture capitalists, as a result, have higher expectations. They look for either profitability or viral potential (e.g., huge potential returns in a short period). Nevertheless — and if you watch Shark Tank, you know this — startup owners today are still choosing to bootstrap it instead of lose ownership to an investor.
Twitter, YouTube, WordPress, Kickstarter and other tools are beating venture capitalists at their own game. As a result, venture capitalists are creating their own social media-based funding startups to leverage economies of scale and social media platforms to grow their money instead of depending solely upon the old model of giving large sums of money away for a percentage of ownership in a handful of companies.
The existing VC model will never become obsolete. But it has suffered wounds at the hands of thousands of entrepreneurs wielding slingshots.