Paul Graham wrote a good post initially commenting on Umair Haque's question on why there aren't more Googles and then examining the today's VC climate, which generated some buzz. First, as Paul stated, Umair's premise was incorrect. Google almost sold to Excite for what I read was $1.3 million versus their offer about $900,000 back in 1999. John Battelle's book stated $1.6 million was the asking price versus $750,000. Either way, imagine if Excite.com actually bought Google back then? My wife's employer and a major innovation engine in Silicon Valley wouldn't exist at all today.
I agree with Paul's assessment of venture capitalists:
Whoever the next Google is, they're probably being told right now by VCs to come back when they have more "traction."
Why are VCs so conservative? It's probably a combination of factors. The large size of their investments makes them conservative. Plus they're investing other people's money, which makes them worry they'll get in trouble if they do something risky and it fails. Plus most of them are money guys rather than technical guys, so they don't understand what the startups they're investing in do.
Many of them that state they are seed-stage VCs really aren't. How many times have entrepreneurs heard, "Well, come back to us when you have 500,000 or 1 million users... come back when you are profitable..."?
I do understand on the flip-side that it is cheaper to build a company today versus the boom times, so it could be easier to wait for tangible evidence of an entrepreneur's vision but where is the "risk" in risk capital?
I agree with Paul that there is this gap in the current landscape of startups that need $300,000 to under $2 million, and that VCs should play in this market. Not all but the ones that position themselves as seed or early-stage firms should evolve to support this place in the market because it is needed. I run into so many entrepreneurs that are in this limbo stage which needs to be addressed, so it will be interesting to see how this gap is filled.