5 ms·

Real VCs shouldn't invest in Google? VCs should choose their investments by the expected return, not the amount of money they require.

by pg 18y ago

lliiffee 18y ago
Do you seriously mean to suggest that Google got to profitability on 20k?
- pg 18y ago
  They got to profitability on angel money. They were already profitable when they raised money from VCs. I don't know exactly how much angel money it took. Probably a couple hundred thousand. Costs have decreased so much since then that it's reasonable to think one could do the equivalent for $20k today, if one had to. But whether it would take $20k or $100k, the point is that the amount needed would be way below the typical series A deal size of $1-3 million. An order of magnitude less. Which means this is a company where VC-scale investment isn't required to win.
  - jonknee 18y ago
    According to their SEC filings, Google turned a profit for the first time in 2001. Their first funding ($100k) came in 1998. They then secured $25m in 1999. AdWords was not launched until 2000 so it wasn't possible they were turning a profit before then.
    - pg 18y ago
      They were profitable from their deals to supply search technology to Yahoo, etc. If they didn't call themselves profitable in their SEC filings, it was presumably because of some accounting rule about the cost of options or something like that.
      - iseff 18y ago
        Do you have any source for this? First time I've heard of it.
        pg 18y ago
        I heard it from someone directly involved.
      - nostrademons 18y ago
        Yeah, I'd like to see a source for this too. I recall there being a big flap about how much money they were burning back in 2000/2001 with no possibility of revenue (hah). In fact, IIRC it was Google's success at doing the "Get users first and profit will come" that made it fashionable among Web 2.0 startups. The idea was pretty disreputable after hundreds of Web 1.0 startups tried it and flamed out spectacularly.
        pg 18y ago
        I get the impression that Google cares so little about haters that they don't even bother to correct them. If someone claims they're doing something immoral, then they'll respond, because they don't want people to have a bad opinion of their character. But if someone says they're stupid or won't make money, their attitude seems to be that the appropriate punishment is to remain benighted.
    - akkartik 18y ago
      It is possible they were profitable for a time, then stopped being so as they hired more, etc. I've seen it happen at a couple of startups.
danteembermage 18y ago
Maybe there's ground in the middle that looks something like this: VCs have a stronger bargaining position in capital intensive startups than in software. Stronger bargaining leads to more power to direct the returns to their pockets rather than the founders'. So the model is VCs maximize their after-costs (founders and otherwise) rate of return which is likely to be higher in non-software ceteris paribus. However all is not equal, the extraordinary returns in recent memory have come from the web, and so venture capital firms will likely still be putting their thumb in the pie, even if it means cashing out to founders, letting them be CEO, giving them smaller rounds, etc. for software start-ups.
jorgem 18y ago
No, Google is the perfect investment for VC. Most founders (or anyone for that matter) can't afford the huge data centers that Google needs. That server farm costs a lot, and therefore the required investment is a huge barrier to entry. That business model is perfect for VCs, and that is where they should focus.
- pg 18y ago
  The server infrastructure they have now costs a lot, but they've paid for that entirely by themselves. When they became the default search on Netscape, they had 30 computers.
  - nostrademons 18y ago
    I thought that was Excite? I don't recall Google becoming the default search on Netscape until FireFox. I remember that when all my friends first started telling me to use Google (1999/2000, well after they had 30 computers), we still had to type in www.google.com to get there. And I was a die-hard Netscape fan then. Edit: Never mind, they switched over to Google in July 1999 (http://searchenginewatch.com/2167331 http://searchenginewatch.com/2167331), when it was quite possible that they still had 30 computers.
  - deleted 18y ago
    [deleted]

Real VCs shouldn't invest in Google? VCs should choose their investments by the expected return, not the amount of money they require.

by pg 18y ago

Real VCs shouldn't invest in Google? VCs should choose their investments by the expected return, not the amount of money they require.

lliiffee 18y ago

Do you seriously mean to suggest that Google got to profitability on 20k?

pg 18y ago
They got to profitability on angel money. They were already profitable when they raised money from VCs. I don't know exactly how much angel money it took. Probably a couple hundred thousand. Costs have decreased so much since then that it's reasonable to think one could do the equivalent for $20k today, if one had to. But whether it would take $20k or $100k, the point is that the amount needed would be way below the typical series A deal size of $1-3 million. An order of magnitude less. Which means this is a company where VC-scale investment isn't required to win.
- jonknee 18y ago
  According to their SEC filings, Google turned a profit for the first time in 2001. Their first funding ($100k) came in 1998. They then secured $25m in 1999. AdWords was not launched until 2000 so it wasn't possible they were turning a profit before then.
  - pg 18y ago
    They were profitable from their deals to supply search technology to Yahoo, etc. If they didn't call themselves profitable in their SEC filings, it was presumably because of some accounting rule about the cost of options or something like that.
    - iseff 18y ago
      Do you have any source for this? First time I've heard of it.
      - pg 18y ago
        I heard it from someone directly involved.
    - nostrademons 18y ago
      Yeah, I'd like to see a source for this too. I recall there being a big flap about how much money they were burning back in 2000/2001 with no possibility of revenue (hah). In fact, IIRC it was Google's success at doing the "Get users first and profit will come" that made it fashionable among Web 2.0 startups. The idea was pretty disreputable after hundreds of Web 1.0 startups tried it and flamed out spectacularly.
      - pg 18y ago
        I get the impression that Google cares so little about haters that they don't even bother to correct them. If someone claims they're doing something immoral, then they'll respond, because they don't want people to have a bad opinion of their character. But if someone says they're stupid or won't make money, their attitude seems to be that the appropriate punishment is to remain benighted.
  - akkartik 18y ago
    It is possible they were profitable for a time, then stopped being so as they hired more, etc. I've seen it happen at a couple of startups.

danteembermage 18y ago

Maybe there's ground in the middle that looks something like this: VCs have a stronger bargaining position in capital intensive startups than in software. Stronger bargaining leads to more power to direct the returns to their pockets rather than the founders'. So the model is VCs maximize their after-costs (founders and otherwise) rate of return which is likely to be higher in non-software ceteris paribus. However all is not equal, the extraordinary returns in recent memory have come from the web, and so venture capital firms will likely still be putting their thumb in the pie, even if it means cashing out to founders, letting them be CEO, giving them smaller rounds, etc. for software start-ups.

jorgem 18y ago

No, Google is the perfect investment for VC. Most founders (or anyone for that matter) can't afford the huge data centers that Google needs. That server farm costs a lot, and therefore the required investment is a huge barrier to entry. That business model is perfect for VCs, and that is where they should focus.

pg 18y ago
The server infrastructure they have now costs a lot, but they've paid for that entirely by themselves. When they became the default search on Netscape, they had 30 computers.
- nostrademons 18y ago
  I thought that was Excite? I don't recall Google becoming the default search on Netscape until FireFox. I remember that when all my friends first started telling me to use Google (1999/2000, well after they had 30 computers), we still had to type in www.google.com to get there. And I was a die-hard Netscape fan then. Edit: Never mind, they switched over to Google in July 1999 (http://searchenginewatch.com/2167331 http://searchenginewatch.com/2167331), when it was quite possible that they still had 30 computers.
- deleted 18y ago
  [deleted]