The hot topic of the day is how expectations are different now for Internet companies compared to the bubble a few years ago. Anil Dash has a couple of charts that summarize the situation. Previously, an IPO was the entrepreneur’s goal. Venture capitalists would pour in exorbitant amounts of money to the start-ups only if they expected fabulous returns. They only way an entrepreneur could promise such crazy returns would be a nice splashy IPO. So the basic steps for the founders were: have a start-up which would provide some basic functionality, raise ridiculous amounts of money from VCs, create lots of buzz, hire Goldman Sachs, do the IPO. At that point, the VCs cash out and are happy. Of course, if any of the founders or employees held on to the stocks, they were probably very bitter a short time later.
Jeff Clavier says there are a few differences today. First, VCs are not running in to fund the new Web 2.0 companies that are popping up all over the place. Second, any of the big Internet companies, like Google and Yahoo! are encouraging innovations from its employees. Google and Yahoo! expect its employee’s to spend 20% of their time working on personal projects that the companies could bring to market. And once these companies come out with some new functionality, they tend to grab large market shares, which makes it hard on start-ups even if they provide a higher quality product.
How does it relate to flipping? Nowadays, start-ups aren’t getting the crazy funding, so they don’t need a high valuation for the founders to make some money if the companies are sold. And if they are bought out, the founders and employees probably continue to work for the parent company for a short time before moving on to other endeavors. This is called flipping. So here is the plan: come with some nice idea, get to the market as fast as possible, get a strong community going, get bought out by Google, Yahoo!, or Microsoft, have a real job for a while, quit…and repeat.