Not a "one trick pony"
Note, these are just thoughts, not a reflection on “whatever the hell it is I’m up to…”
There’s been a lot of talk online recently about VC 2.0 and I think I need to chime in with a few thought. These thoughts are based around the whole premise of current VC funding strategies (or rather as I see them, what do I know - I’m a noob).
Pretty much every startup these days seems to be a one trick pony - we’ve got a cool idea; name it; oh, and that’s the name of our company also. Funding. Build. Sell.
What happened to actually building a company? You know, one that had a plan past product one. Or the flip.
Almost daily I see new buzz around startup X with product X, obviously hoping a business model and funding will come along.
Rarely do I see a “here’s a cool product and a team with a plan for world domination”. Well, excluding Bungie, obviously. Oh, but Microsoft bought them.
And that’s kinda where I’m going. Bungie had products. Plural.
In the game development space, things work differently. It’s more like an author/publisher model. The developer (maybe a startup) forms with some very creative and technically competent people, and they come up with an idea.
At this point I need to apologise to everyone in the gamedev space for over-simplifying everything.
Now where was I?
So they pitch their idea to a publisher and they get funding to build to product. They ship, everyone takes their cut and the developer gets royalties (the funding was the “advance” bit).
Assuming the developer was successful, everyone makes out like bandits and the developer in question grows their company, gets to not layoff all the people they hired to build the first product and moves on to the next one. Actually, they’re crossing the arcs and starting up the new product as the old one is winding down - they’re out looking for funding (a publisher agreement) for the next product concurrently with the first. Maybe they get to self-fund after the success of the first product.
My point? Where is this model in the non-game space?
Where is the funding for the product, as opposed to the company?
What the publisher in the non-game space brings to the table in testing resources, end-user tech support, distribution, etc… Very similar to the web 2.0 space and it alludes a lot to what Scoble is saying.
Key competencies of a new startup are probably technical. Amortize the other costs (tech support, marketing, server space, etc…) across them by being the “publisher”. Make gobs of cash from the product.
Of course, this isn’t the “3/5/10 million or nothing” investment that VC 1.0 is looking for, but it does portend to another untapped opportunity.
Just my 2c. Oh, and if anyone wants to cut me a nice large check for my product-as-company, feel free.
Small denominations preferred ;-)
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A clearing house for random bits of outsourcing a new company might need. It seems that most of the pointers to the services Scoble mentions would be part of the rolodex that partially drives the why/which VC you partner with. Maybe there are some things that currently aren't being leveraged (user communities) - but it seems like most should be.
But then again, I'm a n0ob as well.
One thing I can almost certainly bet on - these VC's likely don't want teams of their own employees doing most of this stuff.
I can certainly agree, though, that it seems the nature of the game has shifted from providing capital for atoms to providing contacts and relationships.
Steve,
You might swing by BFI and drop a sticky note on Paul's plane, if it's not in DTW right now. LOL
As both an angel investor (see my blog entry "On Being an Angel" http://www.lifewithalacrity.com/2006/01/on_being_an_ang.html ) and a game developer (founder of Skotos http://www.skotos.net ) I have some perspectives the differences between a developer/publisher model and how ventures are funded.
The key to the developer/publisher model was that the developers at some point could walk away. Not dissimilar to a movie production, once the project was complete minimal support was required, and most of the team members to move on to another game (or movie).
However, in recent years most people believe that the developer/publisher model is breaking down. Some of this has to do with the cost of development rising, but a lot has to do with the ongoing support costs of things like online gaming, co-branded products, add-ons, sequels, cross-platform releases, etc.
Where the developer/publisher model has probably failed the most in the game industry is in the MMPORPG area, where the ongoing support team costs almost as much on a monthly basis as it did while the game was being developed.
To compare this to Web 2.0, when the technology does require a lot of support, a developer/publisher model might work. However, Web 2.0 is evolving every day. New releases of IE, Mozilla, new techniques, new systems to integrate with, etc. This means that the team really can't walk away and do another project, they have to stay around and keep the project rolling.
Hi Christopher - thanks for commenting - I actually subscribe to your rss feed so have already read your post :-)
Anyhow, yes, the MMO space is comparable to Web 2.0, although MMOs are comparably few and far between and are normally generated by the publishers in the first place with the IP owned and generated by them. The development, if not developed internally, is generally work for hire and appears to follow the traditional game publisher/developer model.
As far as tech startups that are not exclusively in the Web-only space - i.e. they are developing client-based software, the potential for non "own a large piece of the company" funding seems very lacking. Admittedly, this sounds a bit like wanting your cake and eating it too, but it seems like there is an opening here for a similar publisher/developer model.
Also, assuming even the Web 2.0 product is successfull, could it not move into a grow/revise/update/support phase whilst (assuming intellectual bandwidth and fiscal resources are available) the company grows and invests in more opportunities? I.e. team becomes teams.
It seems like acquisition/ipo is expected as soon as success with product one occurs.
I'm not saying this is bad and is indeed the desirable outcome from an investor's and most founder's standpoint. I'm just wondering if there is another path well trodden that I'm missing.
Of course, there's always self-funding :-)
Cheers!
A long time ago (1988?), when I was briefly an executive producer at Broderbund, I tried to get them to take a more venture development oriented approach. At the time they either had internally developed products (PrintShop, Carmen Sandiego), or developer submitted products (Prince of Persia). They were just starting to experimenting with more hands off distribution where they didn't do marketing but did do distribution (Sim City, Myst).
I tried to persuade them that they should take an equity interest in the later, as otherwise the successes would go independent. And that is exactly what happened -- who today thinks of Broderbund when you think of Myst or Sim City?
(a side note: I was actually at the meeting where they decided not to pick up Sim City as it "wasn't a game". I was totally hooked on the beta, but wasn't able to persuade them otherwise.)
Interesting. Almost no publishers take an equity interest these days AFAIK. The key issue is control of IP, whether it's via the deal struck or outright acquisition.
Sim City is a case in point, with EA owning Maxis. Mind you, a case could be made that the actual IP involved is Will Wright's creative mind...