There is a bit of a debate going on about the importance of Venture Capitalists in today's economy versus bootstrapping a company yourself over at Venture Voice. I strongly feel that it totally depends on the expectations and market of the company. More on that in a bit.
Yesterday's interview was with Bo Peabody, founder of tripod which was purchased by Lycos for $58M back in '96. Going to high school in Western Massachusetts, and college at Rensselaer just 30 minutes from Williams, Tripod and Bo Peabody is probably the most amazing local success story in the area. Bo was challenged by the host of Venture Voice, Greg Galant, of the need for Venture Capitalists as declared by Joel Spolsky (founder of Fog Creek Software) in his interview on Venture Voice a few weeks earlier. Joel stated that venture capital was broken, and there is no longer a need for it. I disagree.
Bo brought up some interesting points, namely that now VC's are looking for companies that have already established themselves with a working product or service, and that funding is required for marketing the product. What he is really saying is that companies still need to bootstrap themselves enough to develop a working product. That's the easy (and cheap) part. Hell, if you're young enough you can do it for next to nothing. If you're a little older with a family, then it's a lot more difficult, but still very possible. I'd say I'm a testament to that. The next step, marketing the product, is what gets tricky. Lets now ask a simple question:
"Does my product idea have an established market?"
or to put it another way
"Does my product idea have a viable competitor?"
If your answer to either of those questions is "yes", then most likely, you're not going to find an interested VC. But... the good news is since your product is certainly better than the competition, you still have a fighting chance. In fact, a much better chance than if your answer was "no". It's time to open your pocketbook, max out your credit cards, and talk to your rich family and friends (if you are so lucky). My company, Atalasoft, was based on this principle, and so was FogCreek, SourceGear, and many other companies yet to be referenced in my blog.
If your answer to the above questions is "no", then that is when you must look at VC for the next step. A product with no market means that millions will have to be spent in marketing for potential customers to realize the benefits of your product. Otherwise, there almost certainly already is a competitor in the space in which case please see the "yes" paragraph above. Before listening to Bo Peabody's interview, I would have guessed that the market should be greater than $250M or so for a VC to be interested. However Bo's VC company, Village Ventures seems to be funding companies with expectations much less than this. That's good news for us entrepreneurs. Now I can come up with a truly unique vertical product, for an emerging technology with a market today that might be non-existent, set my sight on a company revenue of say, $100M in 5 years, then make that 45 minute drive to Williamstown, MA and propose my business plan. All hypothetical of course!