Is the VC Funding Model for Internet Companies Changing?
Recently, there has been a movement to question the VC funding model for Internet/Software companies. The primary argument (there are others) being that technological advances (costs going down, more standardization) have reduced the need for the large amount of financing traditionally provided by VCs.
The main problem is that if we use the traditional method and a company takes the normally large amount of VC funding, it suddenly becomes pressured to deliver the 10x+ returns or nothing within 2-5 yrs depending on the deal structure. In reality companies really only need a fraction of the initial investment to discover if there is traction for their technology and a small fraction more to see if there is a working business model. Hopefully by then, it can self finance or decide it needs a traditional large VC investment because if it moves quickly the 10x+ return is probable.
I agree with this thinking and I love new organizations like Y Combinator and Tech Stars who are rethinking how we launch companies in this space. For a good overview of the arguments I encourage you to read this post by Paul Graham.
