Web 2.0 very much a VC play
by Aner Ravon

One so-called-common-truth I’ve been hearing often lately claims that “web 2.0 is not a venture play”. A strange notion when it follows such a breakthrough in understanding how to implement technology. As a matter of fact, entrepreneurs often see it now as a blue elephant they must dance around when it comes to presenting significant upside potential. For some reason, web 2.0 is perceived by many as the “5th element” – the one factor that finally tarnished the need to separate the “men from the boys”.  With web 2.0 everybody is a boy and man. Right? Wrong!I see it differently. To me web 2.0 is an exciting opportunity. So many things that can be done. What a great stage for user centric expressionism! That is, if you understand the mix of old and new tools and rules. Web 2.0 (or what we commonly define as web 2.0) has indeed lowered the barrier of entry. It has made it much easier to create and manage sophisticated looking services with much fewer resources and technical expertise then before. So it doesn’t take an army of C++ programmers, a company of DBAs and a platoon of webmasters to launch a photo sharing site. So what? That’s great news! It means individuals and tiny groups can now effectively penetrate the internet scene. It means fresh and creative minds can get center stage and go crazy with their thoughts. It means critical mass can be built gradually by accumulating users and catering to their needs, instead of feeding them with mandated blabber of marketing campaign just to get started. It means good and catchy services can grow profitable at a much earlier stage. It means the internet is getting closer to belonging to everybody – not only as consumers but as proud business owners. These are the so-called new rules and they are great ones.

This does not mean, however, that creating a successful, large scale, product or service has become any bit easier. Web 2.0 has little to do with guaranteeing that the product will be of high quality and that the service will be scalable, reliable. It doesn’t mean that the user interaction model is mature. It doesn’t mean that the value proposition is indeed valuable. It doesn’t mean that the product is safe to use. It doesn’t mean that the marketing strategy and execution will be effective [no, “viral” is not a magic “let’s not do our homework and get away with it” trick…]. It has little to do with proper end user support and it certainly doesn’t mean that the company will get its orchestra together or that profitability will be reached and sustained. These are the “old” rules which first and foremost apply.

Web 2.0 has complicated the picture, no doubt. Companies that wish to play the traditional venture game must adapt. So do the VCs, but they take much longer time. It’s not the VC partners don’t get web 2.0. I met quite a few. Many of them get it in a much better way than most many of the neuvo web 2.0 evangelists. VCs let some excellent web 2.0 initiatives pass them by, but most initiative that pass them by do so because they are simply not good enough, not because they are “too web 2.0 for them to digest”. VCs do, however, have the privilege of self educating more cautiously using dozens of presenting innovators. It makes it easy to learn, but not easier to pick a winner. And yes, it does wear down entrepreneurs who do need to find other sources of funding.

It’s much easier to disguise and confuse little opportunities with bigger ones [as Ofer Adler of Incredimail noted in his interview with Danny Cohen]. One main reason is that web 2.0 makes it much easier to get to a prototype and wrap it with a flashy “Ajax” inspired web wrapper. Another reason is the lack of understanding of the real power of the user aggregative power. A third reason is the confusion regarding sustainable business models in this new environment. But the fourth, and to me the most important reason, is that it has eliminated the traditional “plan B” option. Most user centric services cannot be “packaged and sold” if the viral marketing didn’t work or if the company ran out of money. Think of the web 2.0 services you know – how do you package them exactly? Their whole flavor is based on their unique, “personal” touch. This does not mean the other reasons are not powerful enough – but they are not unique to this specific situation. This one is. 

Web 2.0 reshuffled the cards and made the investment game trickier. What this means is not that the opportunity is not there, but that the food chain will need to adapt and that it’s harder to excel. Less VC in the beginning and more private investors that enjoy a romantic chase. Less large scale marketing woohoos and more bootstrapping. The fundamentals are still the same. Eventually, Iwe will see clear distinctions and guidelines for discovering real opportunities, just like we did with web 1.0 or with any other greenfield turned to oil.

Aner Ravon
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