Thanks to all who sent in their stories of gritty entrepreneurs. To those who just copied the standard PR spiel with an opening line about "gritty entrepreneurs", please stop! We will be doing some interviews. Right now we are parsing through the incoming stories to classify and spot some trends.
The first big question that jumps out is: where are the profitable VC funded web ventures?
We heard from lots of gritty entrepreneurs building business the old fashioned way, keeping costs low and funding from revenue. I have done that and know how hard it is to do, so here is a big cheer of recognition for all who are going that route. I hope we can profile some in the future.
When you make it to profitability via bootstrapping, you have a wonderful independence and freedom. You have to keep clients happy every day, but you really do get to call the shots. You don't have a money guy in the boardroom. This is why many people become entrepreneurs.
But what we want to focus on here are VC funded web 2.0 ventures that got to profitability as standalone ventures.
We chose Jigsaw to kick off this series because they were VC funded and profitable. (Many people don't like Jigsaw, it seems like a tool for spammers, but that is another story and a bit out of date from what we can see). The point here is, what other Web 2.0 companies have been funded by VC and have reached profitability? Surely there must be some more? Did all the 2003/2004 era Series A funded ventures either exit or fail? Or are some on the cusp of profitability, with enough investor cash to get them there? Even with revenue forecasts that may need to be to brought down as a result of a slowing economy?
Please tell us about any VC funded web 2.0 ventures that are profitable today standalone. Here are the hurdles:
EBITDA (Earnings Before Interest Taxation Depreciation and Amortization) is an accounting convention that is used a lot in the private equity business. "Private Equity" used to be known as "Leveraged Buyout". The L word is not in vogue today (Ed, using understatement as humor seldom works). Seriously, Private Equity deals have been based on their ability to raise debt at low cost. That game is over for a while.
Comments
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Bernard,
Great post. This is a great analysis of the current Web 2.0 business.
About your discussion about big business vs. small business and profitable vs. nonprofitable, I have a feeling that there is an essential piece of picture that is losing in the current infrastructure. In normal sense, when a company is growing, its capability of making profit should increase with its growing. However, it is not the case in Web 2.0 industry. It means that there must be a way to help reduce some redundant cost in many Web 2.0 companies that make many of them turning around from nonprofitable to profitable simultaneously. I have some thoughts in my mind though it is not well organized at this moment. Maybe I would share with you later.
cheers, and thank you for the great post.
Yihong
Posted by: Yihong Ding
|
October 4, 2008 8:44 AM
Is Amazon AWS a serious option?
Of course it is- why wouldn't it be?
I think $200mm for servers is extremely strange(and yeah...1,000 employees?!!).
Especially in a world where: "...given the failure of Beacon and declining CPM rates on social networks, my guess (it is only a guess) is that Facebook revenues will be at the lower end of their forecast or even below.".
Now I like Facebook. It's a terrific service and my only concern with it is the same one you're voicing: even for a service as awesome as FB, what will it take to achieve profitability? Or are the backers going to continue backing it in the -hope- that sometime in the not-so-near future, it'll all have been worth it?
I keep going back to the most popular service on the Internet today: YouTube. If YouTube's having a tough time turning profitable, even with Google backing 'em up, then that's something worth taking a good hard look at.
Maybe you're right....maybe it does take a while for web 2.0 services to show profitability. But is our landscape built to forgive for that long?
Or are the "gritty entrepreneurs" better off, short-term and long-term, whether it's a credit crunch or milk 'n honey? ;)
Either way- super post. It makes for excellent thought-fuel. Thank you!
Posted by: preetam mukherjee | October 4, 2008 10:30 AM
PresenterNet has been boot-strapped since 2005. Only founder case (around $600K) was used and it continues to be profitable. The time has come though for serious investment if growth is to be obtained.
Posted by: Doug | October 4, 2008 10:31 AM
Is Amazon AWS a serious option?
Of course it is- why wouldn't it be?
I think $200mm for servers is extremely strange(and yeah...1,000 employees?!!).
Especially in a world where: "...given the failure of Beacon and declining CPM rates on social networks, my guess (it is only a guess) is that Facebook revenues will be at the lower end of their forecast or even below.".
Now I like Facebook. It's a terrific service and my only concern with it is the same one you're voicing: even for a service as awesome as FB, what will it take to achieve profitability? Or are the backers going to continue backing it in the -hope- that sometime in the not-so-near future, it'll all have been worth it?
I keep going back to the most popular service on the Internet today: YouTube. If YouTube's having a tough time turning profitable, even with Google backing 'em up, then that's something worth taking a good hard look at.
Maybe you're right....maybe it does take a while for web 2.0 services to show profitability. But is our landscape built to forgive for that long?
Or are the "gritty entrepreneurs" better off, short-term and long-term, whether it's a credit crunch or milk 'n honey? ;)
Either way- super post. It makes for excellent thought-fuel. Thank you!
Posted by: preetam mukherjee | October 4, 2008 10:56 AM
Bernard,
Excellent post. I've also enjoyed your recent Enterprise 2.0 posts. These subjects are related. I think that a lot of consumer Web 2.0 startups were funded in a mini-bubble created by Myspace's game-changing sale to News Corporation. VCs were excited by the allure of replicating that success and funded some good ideas and many not-so-good ones.
Although less sexy, I think Enterprise 2.0 startups have a better chance to turn a profit. As enterprise plays, VCs will judge them with a higher standard and demand actual customer traction and accelerating revenues. Startups with demonstrable market acceptance will actually get funded and have a clear road to profitability. At that point, it's more about ramping sales with an aggressive sales team than having to guess about viability.
Economic downturns are difficult environments for entrepreneurs. But they are also the times when the truly outstanding entrepreneurs, ideas, and businesses shine. Talent becomes more widely available as other less viable startups lay off staff. For VCs, some of the best returns have come from investments during economic downturns. Terms are more favorable for VCs during "buyers' markets."
I think this is an exciting time! Carpe Diem!
Posted by: Allan | October 4, 2008 11:07 AM
As someone who recruits for these start-ups on site, they get dumber and dumber every year
Posted by: ispy | October 4, 2008 3:52 PM