Web 2.0 VC to start-ups: Your income is "noise"

Jeff Clavier at ETech: I can make mountains from your molehills.

(Credit: Rafe Needleman / CNET)

Maybe two years ago, I hosted a panel discussion on the emerging Web 2.0 economy, and I asked my panelists if we were in a bubble. Because it's clear to me that we are. Not that it's a bad thing, mind you. This is how technology evolves: like life itself, in blooms and crashes. And I think we should all acknowledge where we are in the cycle. Anyway, one of my panelists, SoftTech venture capitalist Jeff Clavier, was adamant that this was no bubble.

Now Mr. Not-a-bubble is trying to convince start-up companies that their income, if it's in the $300,000 a month range--a range that most companies made up of three guys and a credit-card funded Amazon S3 account would kill for--is "noise" that distracts them from their potential.

Clavier, and other Web VCs, have a problem: start-ups are getting off the ground with minimal funding, and some are achieving moderate financial success very early on. That makes them think they don't need funding. Clavier claims that attitude limits them. So when Clavier is trying to sell a company his money, he first has to convince them that their cash flow is irrelevant and distracting.

For entrepreneurs who have dreams of building a real company--one that "scales," as they say--Clavier's position makes sense. But I argue that Clavier is looking for big wins in the wrong places. It's quite a trick to take a small (by VC standards) idea and make it big. Personally, I'd rather see the venture money funnel into truly big ideas, where there is only limited likelihood that profits will plateau, or even arrive at all, before the company is well established. As I've said previously, to win big, bet big.

[arterberry]

Dear Mr. Needleman,
This article ties in neatly to your rant that you reference at the very end. I disagreed with the rant, but I agree with parts of this article. Personally, I think that 300K is a nice noise to listen to - especially if it's generated monthly, and there are only two or three people humming along to make that tune happen. In a way, Jeff Clavier may be right - maybe the money is rather small - compared to what he and his associates can provide. But - I also think that other headaches come into play (like giving away a percentage of the company, etc.) when accepting larges sums of cash from investors; it almost "kills" the motivation behind the dream. As to your ?bet big? rant, I think that these small ideas evolve into larger ideas. Facebook wasn?t so much to look at in the beginning. It was a small idea. As soon as the API came out - it became the poster child for everything Web 2.0. That?s how I see these small, near molecular, almost atomic ideas at the very start. Something small - that can become something very big, over time (you have to crawl before you can walk, run, drive, fly?etc.). In my opinion, Jeff and company are putting their money in the right places, albeit small places.