Money. Startups need it, investors have it, and venture capital firms can bring them together. Though the prospect of composing a business plan and getting it in front of a VC might seem daunting, it could be well worth the effort.
One of the most notable names in online video, the popular sharing site YouTube, has been heard in conversations throughout the Fall 2006 VON conference halls. From their high traffic volume to even higher bandwidth bills, the site has been a magnet for discussions of the business potential for video on the net.
Video makes greater demands of a business than other forms of digital media. The text in this article occupied a teeny-tiny bit of bandwidth. If you were so unfortunate as to have to see my face in a 60-second video report, my publisher would pay much more for the bandwidth to provide that to you.
(Jason Lee Miller talks costs in his article about another VON session; naturally he didn’t see fit to include my suggestion about micropayments as a digital media revenue option; boo Jake! – David)
Even the coolest startups in the world have to pay something for their Internet connectivity. An investment of capital, if it can be obtained from outside the company, can be the difference between 10 people seeing a great idea take shape, and a million.
That’s where the venture capital community comes in, and where an online video startup may turn for seed funding.
David Weiden, Partner, Khosla Ventures, offered a cautionary warning. While he sees some companies doing well in the short term, “There is a definite bubble with many web video businesses,” he said. “There are some businesses being built that I’m not sure could be stand alone businesses.”
For those who are receiving money, many need further rounds of funding beyond that initial seeding. George Bell, Special Venture Partner, General Catalyst Partners, said, “There is more money chasing deals right now… so B and C deals are getting funded. This is not necessarily a good thing.”
“It is also more difficult to get an IPO done,” he noted, since companies need more of a stable history and track record for one. “This means it is harder for investors to get a good exit,” said Bell.
There’s no reason to despair. Weiden looks at plans he receives by email. “It is not that hard to get in to see us,” he said, to which Bell quipped, “If David looks at it it makes me more interested!”
When it comes to those plans, the VCs want to see something with home run potential. The company has to grow sufficiently so they are large enough to distribute to a variety of investors, according to Bell.
So why so much interest in web video, then, one person at the session asked. Weiden said, “When I think of video on the net more broadly…I think of companies like Spot Runner. It’s not over a 1 or 2 year period but where is that company going to be in 10 years.”
There could even be a time when citizen journalists can get in on the venture capital action. They would need a good business plan, and Weiden said he wouldn’t be surprised if some type of grass roots company came along this way.
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David Utter is a staff writer for Murdok covering technology and business.
