where do we go from here?

ImagesIn the mid-90's the age of the Internet was just beginning to rear its head in NYC.  It had been percolating but it was really the mid-90's when we started to see an onslaught of businesses that were going to supposedly change the way we lived on the Internet.  Changed the way we live from where we shopped, the ads that we watched, the way we consumed information, etc.  The amount of money that needed to be invested in order to actually ramp these new businesses was big and it could take up to $50M to even get them humming. Yet there were not that many so money was out there in force. Most of us knew there was something of value on this thing we all called the world wide web but very few really understood what this supposed Internet would become or how mobile would become the real killer app.

Then the bubble burst.  It burst big.  Many of those next big thing businesses went belly up or their valuations went plummeting down to the ground as everything began to dry up.  People left the industry and never returned, others moved cities and on to new opportunities, some went on idle trying to figure out what came next because they were the believers. 

A few years later a breed of new people started to create different business models.  With those models came the next generation of engineers and techies who developed ways for companies to grow their models on open source products.  The products gave a whole new meaning to the cost of growing a business.  It wasn't that much anymore.  You didn't need millions upon millions to start a business.  It took a few years but eventually it became so easy to take an idea and start a business with not a lot of cash that you could actually get family and friends to put in enough cash to launch your new idea.

Then came the onslaught of incubators.  The economy needed a shot of new blood.  If we can mentor as many ideas that people want to build on the Internet then we can truly change the way we live our lives.  We will be the Internet revolution and hundreds of years from now people will look back and say it was that time in early 2000's when everything changed.  Let's incubate as many ideas as possible, give them a little money because we can and let's see what sticks.

The first concept of how to choose a successful idea was to see what gets traction.  If you can build a company that gains traction and tons of eyeballs then you can certainly figure out how to get more money to turn the company into a real revenue driving model.  Makes sense.  But the concept of throwing as many darts into the wind as possible took a turn.  What happened is because of the small amount of cash it takes to start-up a business lots of people jumped into the game.  Those people, like myself, are called angel investors. 

Here is the tricky part.  Once companies begin to scale and there are tons of them, who is going to fund them all on their next round?  There might be tons of angels but there are a limited amount of VC's.  VC's might only do ten deals a year others do 20 but none do 300. 

So, where do we go from here?  Maybe this is the turning point, the fork in the road where the start-ups that are being created, the apps that are being built really need to have proof of their revenue model.  That means that eyeballs have to really show that they can create money.  Does that mean that more companies will become business to business models because there is more cash there, does it mean that more companies will figure out quickly with friends, family and angel money that they can scale with that alone although slower but enough to create a solid $20/50 million a year or does it mean that most of these businesses will just fall off the side of the map.  We shall see.

I don't know the answer but seeing hundreds and hundreds of investors put money into start-up businesses each year with the hope that they will succeed.  Just because they are succeeding doesn't necessarily mean they will get funded which is not a good thing.  That is not a good economic model.  Too much supply with not enough demand.  Many won't get the next level of funding because they shouldn't or they are not part of the "club" or whatever the supposed reason are.  This will push the tech industry to look at new models.  What they are, not sure but I believe we are at that point of thinking….where do we go from here.