I love, Love, LOVE the following story. File this one under "Only in America". If you weren't yet convinced that today's tech and Web 2.0 space is one giant mass of froth, then this will seal the deal for you. I gave Groupon a hard time for it's ridiculous valuation and questionable accounting, but at least they had a business.
Apparently that's not a requirement to pull in venture capital today.
I'm referring to the recent $1.5 million angel raise completed by Vimeo founder Jake Lodwick for his latest venture Elepath. What does Elepath do? That's an excellent question. Not even Jake knows the answer.
“I just don’t think it makes sense to have a product idea, THEN raise money, THEN build a team,” Mr. Lodwick told Betabeat over Gchat last night. “People need to trust each other and build up momentum as a team and once we have that, we can drop everything and focus on a great product idea.”
Umm...yeah.
Boys and girls, I am telling you to drop everything you're doing right now and go build a VC deck. You don't even have to know what your company does anymore. And that's a beautiful thing. Just give it some lofty hipster Web 2.0 name like ForwardHo or TwitDangle and you're in. Investors are horny to throw cash at you.
To his credit, Lodwick did start Vimeo and Busted Tees, and he was a co-founder of CollegeHumor, so there is a track record there. What it's a track record of I have no idea. All I know is that whomever is in charge of the email campaign at Busted Tees is as relentless as a dog with two dicks. If they could cut the emails down to about five a day that would be great.
All joking aside, if you've got an Internet or mobile idea - no matter how harebrained - you should shop it, like, right fucking now. Shit's ridiculous out there.
A fool and his money are soon partying.
I'm a team player and have momentum, can I have $1.5MM?
It sounds like he's putting a band together more than a business: "Dude, come smoke with us and jam, and let's see what happens."
VC =/= Angel
Obviously, but this is essentially an Angel raise from well known VCs.
Potato Po-tah-to.
How much of a stake do you think this VC would take after investing US$1.5m into the company before the company got off the ground? On another note, for those of you who are more familiar with VC, how big of a stake to VCs usually take in early-stage companies?
This can vary a great deal- but the biggest factor is how far along you are, and secondly, if you have a previous track record. I would normally say that if you just have a group of people, and no solid product to show, for $1.5m, the VC's are going to take a huge stake- somewhere around 50%, perhaps more. However, since this guy has a track record, it will be far less. If they had a prototype to show, it would be considerably less, and if they had a live product, now you are generally talking about
Eddie,
Ever since my buddy sold his Groupon clone a few months back I've been racking my brain trying to come up with ideas, and working hard to put together a technical team; I'm just worried that by the time I'm ready to rock the bubble will have burst.
Anyone on WSO interested in making something happen? I've got a couple of talented programmers and a lawyer on standby.
Got any terms, buddy?
PM'd you.
I'm interested in hearing this.
You answered the question yourself.
A good team with a prior track record can be worth more than a good idea and the bet is probably that $1.5mm is a cheap call option on the potential that the team will come up with a good idea again.
Looks like Jake also has his own seed-stage VC company based in Cambridge and NYC. Might have to stop by HQ and ask for a job.
So funny you made this post because honestly, I think the tech-bubble is STUPID and feel the same way. Why does anyone need a business model or make a product that does something, lets just make a site where people sign up and we'll go raise VC/Angel funding!! woot!
95% of these companies don't do ANYTHING or add value and their business model is just ad-clicks it seems with the exception of groupon or whatever. Seriously..
If anyone wants to team up and has an idea or would like to share ideas, don't hesitate to PM me either.
I have no job and i'm not in school at the moment (located in Central NJ)
In 2011, ~$30 BN was spent on online display / search advertising in the US alone.. you might think that business models which incorporate ad-clicks don't do anything to add value or solve a problem, but the reality is that marketers are spending tons of money to reach consumers via the digital medium. As long as this demand is there, these businesses which "don't do ANYTHING or add value and their business model is just ad-clicks" are the "supply" side of the equation and serve a viable and important purpose.
I agree, but many of these won't get the audience these VC's are hoping for..
I can think of two products that i've heard of that were created in the past year
1) a cloud based computing program for schools with old computers 2) a text message based service for restaurants for waiting lines (i thought this one was the coolest)
Agree with watersign. I'm astonished at some of these "companies." I don't even know how you call them "companies" or "businesses" since so many of them don't actually sell a product or service or even have a legitimate path to making money beyond "advertising." What a fucking joke.
Hmm, I get the concept of investing money in a guy with a good track record. I don't understand why that requires a $1.5 million investment. With $60,000 my programmer is about a year away from revolutionizing the mortgage business. Who needs $1.5 million before there is even an idea? Hopefully for the investors the money is just sort of a promise and not actually held in escrow.
Revolutionising the mortgage business... again?
Have you checked out the "The programmers shall inherit the earth" thread? http://www.wallstreetoasis.com/forums/the-programmers-shall-inherit-the…
Once these serial entrepreneurs have had a few successes, they can't simply start another company in a dorm room. They feel a bit more entitled, and want to pay themselves decent salaries, have a dedicated admin do all the crap work and work in an awesome office, etc. Hence the $1.5m investment... Given the VC game, this is a small investment, and if it works out, those guys look like geniuses...
I'll also add that I think it's pretty clear we're in a "tech" bubble when investment banking types are trying to start social media businesses.
Also, does anyone remember Color? Color, the app that was supposed to be "revolutionary." The team that paid $350K for the domain name www.color.com and got like $40 million in VC funding before the product even launched?
Guess what, shit was D.O.A. because it was a stupid concept that didn't solve a problem, offer anything of value, or have a path to making money.
Does anyone here want to start a college??
This seriously...would be such a money maker I know the owner of two private colleges... so rich doing essentially nothing...
We could make money brokering co-ops for all types of business/industries aside from engineering/science.
If I was in charge of making a school and had the connections I would make the bachelors degree a 2.5-3 year program and make half of it a co-op and limit class sizes to about 1000 students a year.
Think vocational school meets Harvard business school.
Yes; been sometime I've been thinking of building an IT college on the Linux platform (it would be the first one of his kind).
A.L.
LMFAO
....speaking of bubbles
http://www.aisos.at
In all seriousness, what if I have a few ideas for websites that sound much more viable than some of this crap?
I have been wondering how far along someone needs to be before they can pitch something seriously to VC... and how they do it.
I think my websites could be rather "disruptive" and offer something real. Think a toned down version of Living Social with different, less strict deal constraints...
Basically all I know about how VC works I learned in this video:
EB because you like experiments here is one for you. Go to Odesk, Guru, Elance etc. and hire a iPhone/Android developer. With $1-4K you will have a solid app.
Edmundo - I think you're missing the point. While it's certainly outlandish to just hand someone 1.5 million without even an idea, this guy has built three companies that currently have a combined market cap close to 300-400 million. I know Collegehumor pulls in $25 million a year in revenues (and growing every year), and I'm just guessing on the other two. 1.5 is a rounding error for some of these funds.
Is it easier to raise money than ever before? Absolutely.
But why? Is it because it's a bubble? No, it's because you can build a 100 million company with 50K worth of investment money. So rather than investing 1 million in one company, you can invest 50K in 20 companies. VCs/Angels expect most of them to fail. The 50K is just a placeholder for the one company that gains significant traction. "Hey, your companies exploding right now, we were here first, remember?"
There's going to be a consolidation in the market, not a collapse. All the 'me too' companies will go under once we experience another economic drop. Very different than a bubble. The VCs angels will be fine, they'll have their one company that hit. The economy will be fine, since it's all private money. No one will be affected except the ones that quit their jobs because they thought they had a cool spin on a coupon deal, or a new photo sharing app (please, no more).
@Minute Man,
I actually couldn't agree more, and I'm really jazzed about the amount of money available to entrepreneurs today and the relative ease of access to it. I just thought this was a really funny example of some of the excess in the start-up space.
There is a far greater societal cost from caution than there is from unrealistic expectations.
Eddie I'm tweeting the last line and not giving you credit for it just thought I'd share..haha
It's a bubble
This really isn't any different than the concept of an EIR that many VC funds have. It's more of an EIR team for a fixed amount of money, as opposed to a fixed time period. Don't really see how this is anything revolutionary or new.
Who wants to get a bunch of software engineers together to start some sort of tech company together as quickly as possible?
What if our product sucks and we lose money every quarter? No problem, just put most of our budget into marketing to get some form of revenue and IPO it as soon as possible, with the expectation that shares will sell at 100 times next year's "estimated" earnings. Groupon anyone?
This might be giving away a little of what I might write about over the next week or so, but this is probably a good thread to post this in. Stanford is offering a number of free online courses over the next 3 months, and one of them is in Tech Entrepreneurship. Here are the details:
http://www.venture-class.org/
This is just part of a pretty exciting trend developing in some of the major schools. MIT is about to start offering free online courses that they'll even offer a certificate in for a nominal fee. Guess those student loans weren't such a great idea after all.
Thanks for the heads up on the Stanford class. That and the MIT free online classes are a great way to keep building your knowledge base. Below is a NYT article on the MIT online classes.
http://www.nytimes.com/2011/12/19/education/mit-expands-free-online-cou…
Thanks for the link; this is really cool. Signed up for several, should help keep my brain sharp while I have a lull at work.
What do you all think of this site?
new start up company, Social Networking for the Music industry called Make Me Famous (essentially, a facebook with profiles, pics, soundboards, non-creepy version of myspace...etc.), and its free to make a profile and use. i have friends that use it a lot, looks like potential here..
within a few months of website launch, over 1,000 members already (click the "Search" tab to see member total), facebook page alone has over 6,500 members following it as well
http://makemefamousent.com/
I had an idea for a site/app that auctioned off last minute restaurant reservations. We would start off by making the reservations months in advance and auctioning them off in the last minute, then once we've built up a bit of a rep, get restaurants on board to contact us when they had last minute cancellations and possibly give them a percentage of the returns in exchange.
Unfortunately where I live we only have 2 or 3 restaurants that don't have last minute spots anyway so nothing has materialized.
Think there might be any potential for something like this in better markets, e.g. NYC/London/Paris?
If that worked I'd lol..but then again someone would buy that shit...
A couple of key questions without getting into the details of the executing the idea: - How is this different from "lets buy it dot com" or other similar sites? - For the very high end restaurants you would have to demonstrate that you can drive the "right" kind of clientele there and will also end up competing with concierge services... something worth thinking about.
That's a really dumb app idea.
Yeah I didn't think there'd be much in it. I guess it's a lot like Letsbuyit.com or even eBay, but just for restaurant tables so very much a niche product.
In terms of the clientele I guess I just figured the commission we gave the restaurants would compensate for any bad customers, again I never really gave the idea much thought.
Certain restaurants don't care about the money they care about the type of people that come into the restaurant....
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