Next 'Facebook' will be flown in by angels

Although sites like Facebook and YouTube have been a raging success, many bomb. This means that venture capital (VC) firms will not back a new Internet idea until it has proven its potential -- often with the funding of "angel" investors.

The perfect opportunity for VC companies is "a product or a solution where there is very, very strong customer demand", according to Bill Bartee, managing director of Southern Cross Venture Partners, speaking at VC Connect yesterday -- an event where VC firms meet entrepreneurs and give them tips.

Normally the perfect opportunity takes the form of an entrepreneur "identifying something really painful that the customers have" and identifying a solution, Bartee said.

However in the case of ideas like YouTube, no one knows the market need is there before it starts, Bartee told the event. He jokingly said that if anyone had come to him and said that they were going to operate a Web site where people could stream videos over the Internet, and planned to make money, he would have told them they were an idiot.

"It's almost binary -- either the [business ideas] are really successful or they're a dog," Bartee said. "It's kind of hard to judge," he added.

The panel of VC experts agreed that such ventures needed to prove their worth before coming to VC firms to find money. This means accessing the FFF factor -- friends, family and fools -- or finding industry expert investors, often called angels, to back the fledgling company.

According to the panel, Facebook did just that. It got some angel investors, showed an uptake pattern of around 10,000 new users a week and was able to bring a concept that worked to venture capital firms.