John Cook has wondered aloud on TechFlash why Seattle VCs don't blog. But John's blog, at least, appears to be an effective forum for VCs to address members of the local tech community.In a well written and telling post on TechFlash this past week, Rick LeFaivre of OVP drew some distinctions between the kinds of companies that will need professional venture capital investments, and those that might do better by bootstrapping.
"One of the most attractive aspects of the Web services revolution is that a small team can create a cool company with very little capital investment, and if they hit it big with an interesting concept and keep their costs low, can start generating advertising revenue.
"The question is whether they can scale such a business to a substantial size (which, admittedly, need not always be the goal -- not every startup needs venture funding, especially in this space, and can have more modest exit goals than the typical venture-backed company)."
LeFaivre's article, together with the comment stream that has followed it, is whether the Seattle Startup Index is aptly named or shows the local tech scene to outsiders in the right light. But I am more interested in the background reasoning LeFaivre seemed to need to go through, in order to address what I take to be his understanding of the audience interested in the Seattle Startup Index. (There are companies on that list that are backed by venture firms, to be sure, but many others, including some of my clients, are not.)
So back to my train of thought: what I find telling about the way LeFaivre frames the distinction - between startups that will need VC funding and those that will not - is that he postulates that the difference necessarily turns on the ambition and scale of the venture. Now, in many (most?) cases, this assumption may be fair. I'm considering in particular three companies I work with that have angel-financed themselves to profitability, but are considering taking on more capital simply to accelerate growth and opportunistically seize market share as competitors stand pat or scale back in the down economy. But I also find myself revisiting again the founding theme of this blog, the question of whether an exit strategy should be at core of the post-Ponzi economy investment model. What of ventures that scale, slowly or quickly, but surely, into high profit margin businesses that do not need to be flipped, ventures that generate cash and return investors' capital over the life cycle of the business?
One more "close read" of LeFaivre's quote above (I can't help it; I was a grad student in English and dabbled in post-structuralism before veering back to creative writing): notice the association made linking Web services ventures with an advertising revenue model. Is that really the model of most Web 2.0 companies here locally, or is advertising a means of bootstrapping along the way? Even well-branded, oft-visited, content-rich publishers can't survive on advertising, but a renegade crew of less than a score might well mitigate their early burn by generating five- or six-figure ad revenue while they build their traffic.
Footnote: TechFlash notes that LeFaivre's article is re-printed with permission of the OVP blog, which I did not previously know about. I'm checking it out now, and will add it to the list of links in the right hand side column.