The would appear to have a coherent story as to why they need $40m, and they found some VCs who agree with them and think they'll make some money (normally 10x, right?) at the end of it all.
But what's the answer? Regulate the size of investments in early stage companies? Point and laugh at seemingly crazy valuations? Ignore the market and concentrate on building our own things?
I'm trying to ignore the market as it really has little significant impact on what I'm doing. The effects it has on me are:
- It is creating a scarcity in developer resources. This just forces me to relearn how to write good software, definitely not a bad thing.
- It is generating a lot of interest and investment in various tools that I can build, saving me effort and producing a better product.
Those are the good impacts.
It does create a sour grapes type of emotion that I try to put aside. $41M would go a long way towards funding a lot of small startups, or supporting animal shelters that are swamped due to people no longer being able to afford their pets, or building companies that would employ people that lack high tech skills or the opportunity to employ those skills if they could acquire them.
(And if you think "Oh, anyone can refocus themselves and get in the game, come live in the rural midwest for awhile and then tell me that.)
No, people can invest what they like and I'm sure that some of the investments that look stupid work out at least OK.
My point was more that you can't just assume that because smart people think X, X is true. I think this is especially true in the world on VC investment where the investors don't believe that every bet they make will come off - what they're looking for is enough of them to work out that they make a profit overall rather than that every single one nets them a return.
For the rest of us we can point and laugh for the most part because, hey, that's fun, and by coming on here and running our mouths we, in our own small way, bet in the investors do (though we gain or lose tiny bits of our reputation rather than cash). But we might also want it to inform our decisions when it comes to investments and choosing our next job.
There's absolutely nothing in the Techcrunch article that would suggest this company is doing anything so technologically complex that it can't be easily duplicated. They even admitted they have no concrete plan (or proof) they can monetize.
The one thing in their favour (potentially) is network effects.
If they can get everyone using their software before someone else comes along then the collaborative nature of it gives them a significant advantage in that there are more people you can collaborate with.
But even that isn't a particularly strong lock in when the apps are free or cheap and available near instantly anywhere you have a data signal. Someone using a different app? Just go grab it - it's not like convincing all your friends to leave Facebook to go somewhere else.
Fair point, just $40m is a lot of money for a start up software business.
If they're looking at something with a bricks and mortar component that would be different but I'm generally with DHH on this one - businesses of this sort can grow quickly without the need for this sort of capital.
