10x 2.0

The traditional venture capital invests disruptive technologies that provide a 10 fold improvement and generate 10x return. However, Web 2.0 consumer internet companies are not based upon disruptive technology, but potentially viral models of participation. The consistent pattern is sharing control to create value. Measuring the disruption in performance terms proves difficult and is an opportunity for research. I have not found a way to measure the lower cost (zero marketing budget) of user acquisition and lower churn through virality and network effects. But you can measure the impact of disruption. $60 million by 2004, when they had $6 million in revenue. This is Socialtext was seeded with only $5k and six months of sweat, as an extreme example). Realizing a 10x return with a developed community and functioning business model should be a layup. But if this model requires 10x less investment, the lingering question is how $1B venture funds invest enough. Or how much time even a small fund can spend with its portfolio. The IPO window remains practically closed and burdened with $2M in new SarBox operating costs making it less attractive. M&A is out of control and potentially furthered by the need for venture firms to exit earlier to make the model work. We are lack of failure in this bubble, or if we just need to is build to flip. The problem is there are too many companies being created that have no aspirations to be companies. Most survey the feature portfolio of tier 1 and tier 2 acquirers and are precision guided towards flipping within 18 months. Many make no attempt at generating revenue and most that do generate revenue from blog bump and chasing the wrong incentives. Add to Del.icio.us | Digg | Yahoo! My Web | Furl Bookmark Murdok: Socialtext, an emerging provider of Enterprise Social Software that dramatically increases group productivity and develops a group memory.