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VC's and Web 2.0 - Ideas vs. Technology

Read an article in Knowledge@Wharton about how VC firms approach their investments in today's start-ups that are primarily differentiated by their ideas as opposed to their technology. Because of Web 2.0, many new media companies can focus their efforts on developing a good idea that is going to gain critical mass rather than a new technology as there are many technologies that can be leveraged.
An interesting exerpt about the current investment environment:
For now, the VC funding keeps rolling in. PricewaterhouseCoopers' Money Tree survey revealed that first-quarter venture funding was $7.1 billion, the highest level since the fourth quarter of 2001. Of that sum, Internet-specific companies garnered $1.3 billion, the highest level in five years. While the initial public offering market has been difficult in recent years, buyouts are prevalent. In 2005, News Corp. bought social networking site MySpace for $580 million. Yahoo purchased del.icio.us and Flickr. Google acquired YouTube for $1.65 billion in 2006. In May, CBS acquired Internet radio and social music platform Last.fm for $280 million. On August 2, Disney bought Club Penguin, a virtual world for children, for $350 million. Those deals are just a few among a bevy of recent acquisitions. Meanwhile, Facebook could be worth anywhere from $4 billion to $10 billion depending on the Wall Street analyst crunching the numbers.

There's certain a ton of liquidity and money out there ready to be invested. Here are some highlights about what these VC's are looking for in a company:
  • Track record of founders and management team

  • 1) Cash burn, 2) Addressable market, 3) Competition, and 4) Profit potential

  • For Web 2.0 media companies - 1) Viral growth, 2) Potential to sell advertising, and 3) Transaction revenue

Here was an interesting excerpt regarding business models:

Roger McNamee, managing director and co-founder of venture capital firm Elevation Partners, characterized the second view. "We are beginning the third wave of the web -- the first [was] aggregation; the second, indexed search; and the third is finding things based on references. I haven't any idea what business models will emerge, but I'm confident it will be big," said McNamee.

Third wave of the web is "finding things based on references"? That wasn't in the first wave? I wonder what the fourth wave is.

There was also a crazy discussion around whether a company needs a business model (i.e. revenue model) right away or if they should do so after they achieve critical mass. The fact that they bring up such a discussion just points to the fact that there's too much money available right now.
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