A lot of bloggers have claimed in recent days that Google's acquisition of Writely
signals the demise of venture capital. This viewpoint couldn't be further from the truth. Google's acquisition of
Writely, an online
document creation and sharing service created by Upstartle LLC, for a
reported $7 million is as much about recruitment as product expansion.
Upstartle was a four-person project that never raised venture capital. It was launched
by engineers more interested in building a product than a company. That's
fantastic for them and Writely's users, but great venture capitalists back
companies, not products. Writely is a product but Upstartle is not a company
(at least one that an ambitious venture capitalist should back). This
explains why great venture capitalists are not overly concerned about the
slew of Web 2.0 acquisitions announced in the past six months since most of
the acquisition targets are not trying to create companies with sustainable
points of differentiation.
Still, the investors operating at the small and early end of the market are
monitoring the situation. A $100 million fund is much more interested in a
capital efficient startup that could end up being worth $30 million to Yahoo!
or Google in twelve months than a $400 million fund is. Bill Burnham and
Fred Wilson
highlight this dichotomy among venture capital funds in their recent posts.
The phenomenon of small engineering teams (I'm hesitant to even call them
startups or companies) being purchased is not new. And with the costs associated
with launching a project dropping, it won't disappear anytime soon. But,
what it won't ever do is kill venture capital. The best venture capitalists
will continue swinging for the fences. They would be far more likely to
invest in a company founded by an entrepreneur focused on building a $700
million company than consider backing an entrepreneur satisfied with a $7
million business. — Joshua Jaffe
Go to story from Ponderings of Woodrow
Go to story from the Google Blog
Go to story from Jeff Clavier's Software Only
Go to story from Burnham's Beat
Go to story from A VC
Go to "The new dual track" from The Deal
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Exactly. Google's purchase yesterday of SketchUp shows Google will also buy real companies that have VC backing. SketchUp must have more than 10x Writely's employees and HAD raised VC dollar$ (looks like mostly smaller VCs from back east - Village Ventures and Borealis Ventures? - bet it was a good pop for them). The SketchUp deal doesn't seem to have gotten as much bloggage as Writely, but IMO it's a much bigger deal all around - sets Google up to do cool things that Adobe and Autodesk will only wish they could.