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May 15, 2005

The New Startup Model? (Google & Dodgeball)

While many hypothesized on why Google acquired Dodgeball last week (for example, Gary Price and Russell Glass), I think one of the most interesting posts came from Marc Canter. He wrote a semi-satirical semi-serious post describing the new way for internet entrepreneurs to hit:

"OK - so first you graduate from Clay Shirky's exclusive school of thought, eat the red pill, drink some koolaid and do something Clay thinks is cool. Then you use the blogosphere to launch - but you never really achieve critical mass - but that's OK. As long as Cory Doctorow or Xeni think it's cool - you're set. There's not need to achieve positive cash flow or even have more than 2 employees. Just build up a "little traction" and come up with some cool model like "Stoli Vodka" wants to be your friend. Come here to meet Stoli (or was it Skye?) Then just stand back and wait to get bought out. It worked for ODDpost, Flickr and now Dodgeball - who's next?"

George Bernard Shaw once wrote, "When a thing is funny, search it carefully for a hidden truth." And I think that Marc has hit upon some truth in his parody.

Entrepreneurs are discovering a New Startup Model: bootstrap and build a product, generate buzz on the blogosphere and the early adopter community, skip vc financing, and sell to one of the portals.

Everyone wins in this game. Entrepreneurs innovate and cash out early. Google and Yahoo outsource their innovation to the best and the brightest without paying a hefty price tag.

Well, almost everyone wins. VCs are left out without the ability to invest and make returns for their LPs. What’s a VC to do? It’s up to us to demonstrate to entrepreneurs that with additional investment, their potential quick flip can become a solid and enduring company where genuine and significant value is created.

It will be interesting to watch Yahoo and Google over the next few years – will they increasingly acquire early-stage companies or are these recent examples just symptoms of the fact that we are early in this innovation cycle?

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