Michael Arrington’s Tech Crunch started off as a blog that “obsessively covered startups” but has now turned into F*ckedCompany2.0, argues Dare Obasanjo. While Tech Crunch itself is a great success story, it’s not surprising to see Arrington today defending venture capitalists for their decision to play it safe in this latest downturn. After all, VCs are some of his major sponsors, particular at his Tech Crunch events.
Two questions come to mind:
- is Dare Obasanjo’s criticism/observation fair?
- are VCs - and Tech Crunch - to blame?
Looking at these questions, we realize just how similar VCs and mortgage lenders became in this mess, and how it’s easy to blame the “system” until you realize that each party plays a big role in creating said system.
Why Tech Crunch is Absolutely Becoming F*cked Company 2.0
If you write about startups in boom times, then you need to write about startups in bad times. Moreover, since there are only so many crappy Web 2.0 companies you can write about (yes, even for Tech Crunch), then you start covering bigger companies and let’s face it: the news ain’t too grand there, either.
Unlike the Nasdaq crash of 2000 and the ensuing dot com meltdown of 2001-02, people probably recognize that secular new media trends remain as strong as ever. In other words: online will continue to outperform offline media, and very much like 2003-05, those who invest wisely now will be rewarded in 2009 and thereafter.
And Some of the Blame Goes To:
The major problem - and why VCs absolutely need to be blamed, and a site like Tech Crunch deserves some blame - are the sectors and kinds of “companies” that both investors and media coverage focused on. The fact that a Twitter-clone won Tech Crunch’s latest award ceremony speaks for itself. In fact, Tech Crunch is littered with examples of projects that will end up in the junk pile while actual companies with revenues and profits never got any mention of coverage. Analogously, many companies with prospects to become businesses never got real VC consideration, let alone funding.
These two parties were accessories to the crime, in my eyes, and collaborators to this mess.
- TC pumped it up,
- VCs inflated the bubble by investing,
- TC takes over the pump and continues growing the hype,
- VCs pour money into TC’s events
- The cycle continues… and when the bubble pops, they can both say “it’s the system”.
Two things:
- I actually respect Arrington’s accomplishments as an entrepreneur, and when everything is said and done, TC is a great site and many VCs are respectful characters.
- I never got funding, and maybe now I am gloating a bit, because there are no VCs to pull the rug from underneath us. Mind you, I never agreed to do a VC deal because I had a fundamental problem with the draconian terms, but even if I would have agreed to those, I honestly doubt a VC would have written a check because WatchMojo.com is ultimately a video content company.
But - media or technology, software or content - VCs and their cheerleaders at Tech Crunch absolutely need to be taken a bit less seriously.
Last year at TC’s Crunchies, Arrington said in essence, “the fundamentals of our economy were strong”. Some people in the room laughed, many did not. It was as ridiculous as when Presidential candidate John McCain echoed those words. I don’t expect an economic Luddite like McCain to have a finger on the pulse of the economy (even though he was saying in the eye of the storm and should have known better) but I did expect Arrington to have a sense of where things were going.
All to say, the only reason people do not actually blame VCs is because they don’t want to offend those who hold the purse strings and cast the spotlight - even in tough times.
For Seesmic, for example, to have raised $12M (from Arrington no less) was shocking to anyone outside the close-minded and chummy Silicon Valley world. Yet not a day went by where Arrington et al. didn’t cover the Seesmic story. I certainly do not mean to pick on just one company, since VCs have proven once again that they are as stable Britney Spears post partum.
How Mortgage Lenders and VCs are Identical
We know how they’re different (debt vs. equity), but finally, what is most eerie about the financial maelstrom and this Web 2.0 meltdown is the similarity between these two:
- mortage providers gave loans to consumers who lacked the credit record and income to buy homes;
- venture capitalists gave money to entrepreneurs who were building faddish products or applications.
- lenders would then repackage these loans as mortgage-backed securities, and would try to pass these off as secure investments, even though they were becoming toxic;
- venture capitalists would try to brag about how many of their portfolio companies were low-cost ventures that yet could return extremely high returns by pointing to Facebook’s paper $15B valuation.
- mortgage providers would then pile on more debt onto a household by leveraging the rising paper value of the asset in question;
- venture capitalists would follow up absurd Series A rounds with ridiculous Series B rounds, only exasperating the subsequent fall.
- mortgage providers now have assets on their books that are underwater;
- venture capitalists are looking at down-rounds, if they choose to fund any more at all.
- mortgage providers face the specter of home owners walking away from their homes;
- venture capitalists could technically be faced with entrepreneurs simply ditching these “projects to nowhere”.
I am sure there are other similarities, too… but you get the idea. A few more:
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