April 25, 2011
Internet Bubble, Redux?
The New York Times reports that Founders Now Take the Money and Maintain Control. Hot start-up companies are reaching our to investors, and getting a strong response that allows the companies, and their founders, to raise big dollars, all while maintaining control. The article explains:
For every Facebook, Groupon or Zynga, known for its Farmville game, there are scores of lesser-known start-ups like Mr. Morin’s that are raising millions in financing at steep valuations, turning computer programmers into paper millionaires overnight.
Part of the reason is supply and demand, as a wave of capital chases a limited supply of deals. But a more tectonic shift is at work in Silicon Valley. Investors are putting a significant premium on young, visionary entrepreneurs who grew up with the Internet and now seem best positioned to direct the future of the social and mobile Web. Generally in their mid-20s or early 30s, today’s start-up founders are becoming more assertive in funding rounds, securing better terms and, in many cases, cashing out part of their investments well before an initial public offering.
It makes sense that people with the vision may be the best people to manage the company and take it forward. That said, it also make sense that they may be the wrong people when the job fundamentally changes. Managing a relatively small start-up is very different from running a multi-billion dollar industry leader.
I can't help but think this new round of internet excitement is a lot like that last one. But this time, the founders are keeping control. I'm not sure investors are doing any better at picking winners or losers, but at least this time, a lot of the founders (to some degree, anyway) will go down with their respective ships.