A New VC Model?
Web 2.0 may not be a bubble yet but there are intriguing, if not troubling, signs that the inmates want to take over the prison. Dave Winer's call to remove VCs from the formula has some merit but it assumes investors in a publicly-traded venture company will have faith …
Context & Ripple Effects
Dave Winer's call to strip venture capitalists out of the Web 2.0 funding formula landed on ground already softened by his own camp: weeks earlier, in December 2005, Web 2.0's biggest champions — Russell Shaw, Winer and Richard MacManus — had each declared the label dead or never real. Mark Evans' piece frames the proposal less as a manifesto than as an open question, noting it assumes public-market investors would trust a traded venture vehicle.
What makes the story notable is how far and how fast it travelled through the very community it targeted: same-day responses appeared on CrunchNotes, Fred Wilson's A VC ('Don't Be An ATM'), Paul Kedrosky's Infectious Greed (which tagged the idea 'CMGI 2.0' and 'wonderfully loony'), BuzzMachine, Ensight, mathewingram.com and The Post Money Value's 'VC 2.0 part 2'. A proposal about disintermediating VCs was, in effect, adjudicated by VCs within hours.
First-order effects
- Venture bloggers who are also practicing investors — Fred Wilson among them — are forced into a same-cycle public rebuttal of the argument that they are removable from the funding stack.
- Founders reading the exchange get a ready-made framing for bootstrapping or seeking non-VC capital, with Winer supplying the argument that ideas 'are not the hard part'.
Second-order effects
- The rebuttals shift the debate from whether VCs add value to what model replaces them — Kedrosky's 'CMGI 2.0' jab reframes publicly-traded venture vehicles through the dot-com era's most cautionary roll-up, pressuring anyone attempting such a structure to differentiate it.
- VCs respond rhetorically rather than structurally — the 'Don't Be An ATM' line signals the defensive posture: prove operational value beyond the check or accept commoditization.
Third-order effects
- If cheap-to-run web startups keep lowering the capital threshold, the industry's central intermediation role comes into question — a tension between founder leverage and investor relevance that recurs whenever entry costs fall.
- A sustained critique loop between blogging investors and blogging founders begins collapsing the distance between deal participants and their public critics, changing how venture economics get argued in the open.
The trend: As Web 2.0 startups need less capital to launch, founders and commentators begin openly testing whether the traditional VC funding formula is still load-bearing — with the investors themselves writing the counterarguments in public.