Friday, February 25, 2011

"Launching a web startup became 10x cheaper..."

The conventional wisdom is that starting a web business is (at least) 10x less expensive today than it was 10-15 years ago. It’s said that a decade ago, you needed millions of venture capital in order to launch an Internet startup whereas today, thanks to open-source software, cheap hardware and new ways to acquire users for free (in particular virally via Facebook/Twitter and with SEO via Google), you can do the same with a small fraction of that. And that, while great for entrepreneurs, makes it difficult for large VC funds with many hundred million dollars under management, to deploy their capital because startups ask for less money.

I’ve heard it dozens of times, from VCs, founders, bloggers and others. It’s almost like a mantra, part of the Web 2.0 creation myth, which everyone believes without challenging it. I always wondered if that theory is true, because it didn’t cost Christopher Muenchhoff and me more than about $100 to build and launch in 1997. That, approximately, was the cost of one month of shared hosting, and in the second month, revenues paid for the hosting costs already. The first “big” investment was our own server, around $3000 as far as I remember. We did raise some money to expand the business later, but that was much later – around nine months after launching the service. So it clearly was possible to launch a state-of-the-art web service back then with little to no investment. wasn't the only one, of course, I'm just using it as an example.

When I say “state-of-the-art”, I mean state-of-the-art based on 1997/1998 standards, of course. That's what was needed to be competitive. We of course wouldn’t have been able to build a video streaming site à la YouTube for $100 (hardware and bandwidth was too expensive), and launching an online shop would have been more expensive too (Magento didn’t exist yet). That’s logical, but trivial, and not what the theory wants to say, right?

In other words, I think the theory surely is that “starting a web startup in 2011 that is competitive in 2011 costs 10x less than it cost to build a web startup in 1998 that was competitive by 1998 standards”, right? (If the theory was “starting a web startup in 2011 that is competitive in 2011 costs 10x less than it cost to build a web startup in 1998 that was competitive by 2011 standards” that would of course be true, but I think it wouldn’t mean anything. Being competitive by 2011 standards (often) means that you need an iPhone app. In 1998 there was no iPhone. Get the point?)

And that is what I’m questioning.

Now, if the theory is wrong and it wasn’t that much more expensive to build a web business back then, why did startups raise so much VC at the end of the 1990s? One possible answer is simply “because they could” (and because everyone else did, and you didn’t want to be overtaken by better-funded, faster-growing competitors). Fuelled by a crazy IPO market, there simply was an incredible amount of venture capital available. Maybe that’s the real reason, or at least part of it, why it now appears that launching a web startup was so expensive in the 90s. What do you think?

Friday, February 04, 2011

Geckoboard – Your Business in Real-Time

I’m thrilled to announce that together with Robin Klein at Index Ventures, Dave McClure’s 500 Startups fund and my friend and former Atlas Venture partner Alexander Bruehl I’ve made an investment in Geckoboard. Geckoboard is a beautiful real-time status board that lets businesses keep an eye on all the indicators that matter to them.

It’s a bit like “Pageflakes for businesses” (although “Chartbeat for everything else” is probably a better analogy), which is one of the reasons why investing in Geckoboard was a pretty easy decision for me. Another reason is that Geckoboard will be provided as a web-based service, with a free trial and a pay-as-you-go subscription model. Exactly the kind of SaaS business that I’ve developed a focus on in the last two and a half years. Another reason was the huge demand for the product's beta invitations (one of my favorite requests for a beta invite is this tweet, but there are many more). And of course the fact that the company was founded by an extremely sharp guy, Paul Joyce. Yes, a lot of reasons.

I also have a strong bias for startups with websites and applications that look beautiful because I think that's crucial in a world of consumerized enterprise applications. The talent and the experiences to create software that looks and feels great is rare and probably under-rated, but Paul and his team have it. Check out how awesome Geckoboard looks, no matter if you view your dashboard on a large wall-mounted screen, a computer monitor, an iPad or an iPhone.