Barb Ardell, of Paladin Associates, sent me a very interesting essay about the future of VC, by Paul Graham. For any one who has read this blog over the last 4 years, you would know that one of my hobbies is to pick on people that cannot succeed in business, despite millions in capital to help ensure that it does succeed.
This particular essay was intriguing as it blueprints the path we took at Iasta, way before it was a trend. We cobbled together our capabilities, one chapter at a time, until the critical mass was formed which allowed for grander opportunities. Mistakes have been made along the way, but none that could not be overcome with some common sense and effort.
I continue to eagerly listen to stories of companies that squandered $25mm, $50mm and more on poorly executed strategies. Usually, a huge bulk of the wasted money comes from massive expenditures on SAP, Oracle, or other e-commerce platforms that were customized for that marketplace. We were able to build our “infinite runway money” in the 2nd year of operations. We must have been told 100 times in the first five years, that we were too risky and would not be around as long as Freemarkets, PurchasePro, CommerceOne, etc. None of those people ever realized that we actually cared about our business and we would protect our assets like they were our children.
In short, I agree with this story in concept and practice. We never saw where the VC money would positively impact our efforts, but to the contrary, would actually serve to destabilize our plans. There are places for large capital investment, of course I believe in that, where it is critical to move into a market quickly for complete mindshare domination. When the idea is truly innovative, you will win big when the brand = action (eg, eBay). In fact, it’s was probably the right thing to do for FreeMarkets, as the established the early dominant position.
The chatter in eSourcing is literally non-stop, regarding the financial viability of each vendor. Further consolidation coming, most likely in the form that it has mostly been – opportunistic bone picking of a software company carcass. Do you want to do the due diligence the right way? Look for the right ratios of R&D vs Sales & Marketing, executive leadership tenure and stability, a history of releases and a legit roadmap, YOY revenue growth with associated net margins, and finally, reputation.
