Where’s the 2.0 Money?
by
on March 12, 2008,
I first learned about the problems with the auction rate securities market reading Fred Wilson's blog. I didn't think much of it, since I generally don't have available cash just sitting around for me to play with like that, but I was happy for his primer and the information gleaned from the New York Times article on auction-rate notes when I got to TechCrunch pointing out that up to 20% of VC-funded start-ups can't get to their money due to frozen municipal bonds.
Still, even if it is 20%, the VCs behind these companies seem to be helping them out, so there shouldn't be a need to panic, right? The other 80% who invested their VC in an even safer method than the auction-rate securities were supposed to be should be fine in this case.
Don't be too sure. Venture Beat has even more bad news: word that Comerica has frozen money market accounts. They contacted Comerica, who didn't deny the story, but pointed back to the New York Times article about the auction-rate securities, and said they were working with invidual customers on an as-need basis to liquidate funds.
For those keeping score at home, we have a subprime mortgage mess leading to problems with the auction-rate municipal bonds, which is, in turn, messing with a whole lot of venture-backed start-ups. The idea of a bubble in Web 2.0 has long been denied, but the more dominoes fall like this, the more you really wonder if it isn't time to start worrying.
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Svetlana Gladkova
Vamsi Kishore
Peet McKimmie 
Irel Johnson
Maybe we’ll see VC’s stressing that their portfolio companies should get to cash-flow positive instead of “just get more eyeballs!”
Wouldn’t that be a refreshing change.
Grendel: it’s not a necessary change. I am set to unveil eyeball-backed securities (EBSes). We’re essentially taking pools of investments in Web 2.0 startups and then collateralizing them using the eyeballs they generate. It’s going to change the economics of Web 2.0 forever. We’ll mint 50 new billionaires this year alone.
Eyeballs? There might be a lot of room for a shift in the business model from mostly an ad model with lots of free, cool stuff to one that’s closer to a micro-sub model (with bundling and serious SLA’s) of apps with real value (security, ease of use, efficiency tools, social networks, etc.) balanced with smarter ads, esp. given the recent dismal reports from comScore that say only 6% of Internet users are heavy clickers yet account for 50% of clicks, and are roughly speaking, low income earners.
I guess we’ll see if there’s real value out there.
@Drama: I would like to hear more about your pyramid scheme. Do you have a pamphlet or a newsletter to which I could subscribe?
@Otto: SLAs? If you said that TLA to Web 2.0 companies they’d think you were asking about the model of BMW they’re going to buy with their phat money from the Google buyout. There’s a reason all of their services are called “beta” and it’s because they don’t want to bother figuring out how to write good software and make it reliable.