Tech Confidential recently chatted with Trinity Ventures general partner
Gus Tai about emerging issue for venture investors focused on Web 2.0 companies: Many startups don't need them, or at least not as much as they used to.
"For many Internet-based services, increased capital-efficiency means entrepreneurs have other alternatives to get access to capital and try out their ideas," he said. That "allows entrepreneurs to do more trialing and testing, either failing quickly or succeeding very quickly, on a pilot basis, before raising more money. Overall what it means is that entrepreneurs are doing more experimenting on their own than they would if it were more capital-intensive."
Tai has had a several exit hits, both of the Web 1.0 and Web 2.0 variety. His previous investments at Trinity include publicly traded online jeweler Blue Nile Inc. [
NILE] and Photobucket, which was
acquired by Fox Interactive Media Inc. last year for roughly $300 million. His current portfolio includes wiki social networking startup Wetpaint.com Inc., casual game developer PlayFirst Inc. and cell phone chip maker Amalfi Semiconductor Inc.
But as Web 2.0 services permeate the Internet and startups in the sector grow up, Tai predicts fewer huge payoffs for investors:
The whole class of consumer Internet services that take advantage of Web 2.0 is more deeply thought out as it matures, but they also tend to be nichier since the larger horizontal propositions like MySpace and Facebook, and the ancillary services like Photobucket and Slide, were launched years ago and have become quite large. In order for [newer companies] to be competitive they have to define a tighter customer proposition, which usually a deeper, more intensive proposition, but still a narrower proposition. These businesses can get up and going and can do quite well, they aren't as likely to have as big an outcome because they're nichier relative to these bigger opportunities, but they can be logical acquisition candidates for a large number of large companies.
Of course, Tai feels there will continue to be niche startups that break out and become something far bigger. "The best example of is Facebook," he said. "It's fundamentally a social graph, a destination site that helps to map out human connections. It's a very valuable service that fills a horizontal need for the Internet of who's connected to whom and what their presence on the Web is."
- George WhiteSee Dec. 2007 VC Rating post Gus Tai on Tech IPOsSee May 2007 story from TheDeal.com
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