Web 2.0: Who needs VCs?

If Web 2.0 has rendered Biz Dev execs an endangered species, what is the outlook for VCs when, according to Digg's Kevin Rose, all it takes is two weeks and $700 to launch the next cool app?
Written by Donna Bogatin, Contributor
Silicon Alley VC Fred Wilson happily notes the disruptive effect of freely available Web 2.0 services on the Business Development workforce in “Business Development 2.0”:

It used to be that web companies needed to hire one or more smart networkers and set them loose on all the other web companies in search of deals…

But we have witnessed some interesting things happening in and around open apis, rss, search, crawling, embed code, widgets and mashups that suggests there's a new way to do business development.

Wilson posits that not only are Biz Dev execs unnecessary, they may actually be harmful:

We have noticed another thing happening. When you do get a business development deal with a leading web service, the implementation is everything and it often sucks…

The bottom line is that web 2.0 offers a new way to get integration with leading web services and you don't have to waste your time and the time of other busy people trying to craft deals that will probably work out badly anyway.

If Web 2.0 has rendered Biz Dev execs an endangered species, what is the outlook for VCs in a Web 2.0 world where, according to Digg co-founder Kevin Rose, all it takes is two weeks and $700 to launch the next cool app (see “Web 2.0 financial success: Easy as 'two weeks and $700 bucks'?”)

The CEO of market leader Google, Eric Schmidt, does not believe Web 2.0 start-ups need to work with VCs.

In “Google Jobs: How does Google really recruit talent?” I cite Schmidt’s remarks to reporters at the recent Herb Allen Conference in Sun Valley:

The reasons…that they (start-ups) would choose be to be acquired are not what you might think. There is so much capital. And many of these businesses require no capital.

Schmidt was commenting on the steady pace of Google acquisitions of one-three person Web 2.0 start-ups:

The reason to be acquired is that Google gives them (Web entrepreneurs) a platform that they might otherwise not be able to get. As markets consolidate these little companies often cannot get enough ‘mindshare,’ even though their technology is really good.

Google has been steadily acquiring such home-grown Web 2.0 start-ups. The company’s primary motivation appears to be talent acquisition, however, rather than technology asset acquisition.

In response to the question, “How many acquisitions do you do?” Schmidt said:

It’s one or two a week it seems. Most acquisitions: They are very small. 1-2-3 people and you never, never hear about them… Any one of these people are a reasonable (acquisition) candidate.

Google “acquired” the two-person start-up Dodgeball last year. While the two young founders were integrated into the Google engineering team, the “little company” has not flourished with the Google platform Schmidt touted, as I discuss in “Google's Dodgeball, where is it now?”:

Alex Rainert and Dennis Crowley transferred the rights to their start-up service to Google, but it is unlikely the two former grad students are living “like Kings.” As part of Dodgeball’s absorption by Google, the Dodgeball “team” became part of Google’s engineering team…

Today, Google lists Dodgeball as one of its services and describes it as ‘a networking service that helps coordinate location-based social interactions between mobile users.’ In its description, Google links directly to dodgeball.com, rather than to any Google domain service.

A post last month at O’Reilly Radar expressed enthusiasm that ‘Dodgeball Gets a Short Code.' Commenters, however, did not seem to share the enthusiasm and discuss how the service has been seemingly left to languish.

The Google cachet, and its $113 billion market cap, has the allure VC money had in the 1990's.

At the time of its "acqusition" by Google, the Dodgeball founders said:

We talked to a lot of different angel investors and venture capitalists, but no one really "got" what we were doing - that is until we met Google...

The people at Google think like us. They looked at us in a “You’re two guys doing some pretty cool stuff, why not let us help you out and let’s see what you can do with it” type of way. We liked that. Plus, Alex and I are both Google superfans and the people we’ve met so far are smart, cool and excited about what they’re working on.

While Dodgeball, the company, may not be thriving, the Dodgeball team seems to be happy. I heard Dennis Crowley speak on a New York Software Industry Association Web 2.0 panel earlier this year and he continued to express enthusiasm for being part of Google (coincidentally, Fred Wilson was also part of the panel).


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