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Silicon Valley Firms Having Cash Showers

Posted by Zonk on Mon Mar 20, 2006 04:32 AM
from the i'm-open-i'm-open dept.
Businesses The Almighty Buck Technology
Carl Bialik from WSJ writes "'The market for high-technology start-up businesses is so intense in Silicon Valley that some companies are being showered with millions of dollars from investors -- without even asking for it,' the Wall Street Journal reports. The home-improvement website Done Right received an email from a well-known investment firm inquiring about putting cash into the company. 'Paul Ryan, Done Right's chief executive officer, says the missive wasn't sent to him or to his executives -- it landed in a general corporate email inbox,' the WSJ reports. 'Mr. Ryan wasn't put off by the impersonal plea: "We're having very good discussions with [the firm] right now," he says, declining to name the potential investor.' The Journal notes that 'pre-emptive' funding is, of course, risky, and harkens back to bubble-year investment trends."
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  • Better to be showered in green than in gold.
    • Oscar Wilde's Party

      Cast:
      TJ: Prince of Wales
      GC: Oscar Wilde
      MP: George Bernard Shaw
      JC: James McNeill Whistler

      JC: Right, Your Majesty is like stream of bats' piss!
      All: Whuh!?
      TJ: What!?
      JC: It was one of Wilde's.
      GC: It certainly was not! It was Shaw's!
      TJ: Well,
    • Remember dot.bomb a few years back? Stupid people hosing money around. AT the end everyone got burnt. That green shower could turn into a shit shower very quickly.

      • Re:Changes color with age though (Score:4, Informative)

        by Omaze (952134) on Monday March 20 2006, @05:28AM (#14955721) Journal
        > AT the end everyone got burnt

        Not everyone. Many people knew the game ahead of time and had their exit strategy planned. The CxOs had their business insurance. The investment brokers knew how to sell the funds that would ultimately fail to the less priveleged brokers. In the end the money was raked in by the folks at the top while the losses were lumped onto the insurance companies--who then distributed the losses by raising rates on health, auto, and home insurance.
        [ Parent ]
        • Not everyone. ... who then distributed the losses by raising rates on health, auto, and home insurance.

          And since everyone, as in everybody (or at least almost everybody), pays health, auto and home insurance, everyone got burnt.

  • The great thing about reason.... (Score:4, Interesting)

    by svunt (916464) on Monday March 20 2006, @04:47AM (#14955630) Homepage Journal
    Using pure economic reasoning to guide your decisions does of course leave history, or memory, out of the equation. Something that looked like a good idea and failed can still be a good idea five, ten or twenty years down the track, when you're armed only with analysis and a set of rules. Perhaps one history elective during that MBA would've helped cut down of this sort of tomfoolery.

    • Re:The great thing about reason.... (Score:2, Insightful)

      by Anonymous Coward
      You can make money investing in a company that is going to tank. You just have to know when to buy and sell. For many investors it doesn't really matter whether a company that they are investing in actually makes money. Their goal is just to outsmart ot

  • Great. (Score:3, Funny)

    by NoMoreNicksLeft (516230) <`ten.tsacmoc' `ta' `relyo.nhoj'> on Monday March 20 2006, @04:52AM (#14955641) Journal
    Where do I sign up?

  • Why not... (Score:3, Interesting)

    by William Robinson (875390) on Monday March 20 2006, @04:54AM (#14955650)
    The question is whether venture capitalists are moving too quickly, funding risky, untested start-up businesses

    Depends upon VC's vision about technology whether it is in phase A or phase C of the famous Hype Cycle [gartner.com]

  • Why don't I get that kind of spam? (Score:5, Funny)

    by Opportunist (166417) on Monday March 20 2006, @04:59AM (#14955658)
    All I get is suggestions how to increase my malehood.

    The only ones that deal with money come from widows of late Nigerian presidents. Must be tough to live there when every few days a prez is killed. Kinda makes me want to send our government there, for development aid.

    Whether I'm concerned with their or our well being in doing so, is up to the reader.

  • 419 scam? (Score:5, Interesting)

    by ItsIllak (95786) on Monday March 20 2006, @05:02AM (#14955673) Homepage
    Sounds to me like the CEO is being taken by a 419 variant scam -

    "Hi, we am interesting in investing to your company, the money will arrive from my dead uncles account of [insert country here]. We will just be needing $10k to release those funds please thank you. Did I mention that I am a civil servant..?"
    • That's what crossed my mind. Unsolicited mail offering cash lands in your inbox? Anyone sane would tell you to ignore, it cannot be anything other than a scam. Why should offers to businesses be any different - no more "legitimate" than the ones I get. And
      • Dude, it's not very difficult to tell whether such email is genuine or not. A real VC company is well-known and has a physical location, a website, and people you can talk to and negotiate with. Did you even read the damn article?

  • About time too.. (Score:5, Interesting)

    by onion2k (203094) on Monday March 20 2006, @05:08AM (#14955686) Homepage
    I reckon we're at about the right time for internet investments to start up again. Technology has caught up with the ideas. If Google's payment gateway plans live up to the rumours then the possibility of micropayment subscriptions for premium content is very real. Add to that the fact internet users are a much more clued up and savvy bunch with good, fast access and, critically, a willingness to spend money online there's a real opportunity here. The problem however is that investors are buying into (IMHO) the wrong thing. The biggest chunks of capital are going on things like social networking sites .. basically people are buying premium ad space. Online advertising is the old model .. the one that didn't work. It works for Google because they're not in the business of displaying adverts. They sell the distribution. Actually displaying the adverts doesn't yield much profit (a million here or there maybe, but not the hundreds of millions the venture capitalists want). I believe the future is in charging lots of users small sums for things the want .. like iTunes.
    • I thought I ws riding the train, until you stopped at iTunes and small user-transaction fee models. As the dust settles, the internet will work like radio, the big money will be behind the popular sites, who will use their control over advertising space to
    • Technology catching up with ideas? Oh please. There's no revolutionary technology out there. You think Google is somehow enabling a micropayment system and calling that a technological breakthrough? First of all, there have been micropayment systems going

  • With "Web 2.0"... (Score:5, Funny)

    by Bostik (92589) on Monday March 20 2006, @05:17AM (#14955700)

    ...we're getting Bubble 2.0 as well.

    It is said that economy works in 7-year cycles. Let me be the first to publicly call this "Hype 2.0"

  • Great (Score:2, Interesting)

    by bm_luethke (253362)
    We are starting to recover in the smallest markets. We are finally getting rid of the final vestiges of people who were in it totally for the money and salaries are starting to stablise. It takes several years for it to trickle down to us.

    Even then it's to

  • Constrains eventually allow the company to prosper (Score:3, Interesting)

    by RunFatBoy.net (960072) on Monday March 20 2006, @05:38AM (#14955734)
    Being showered with money isn't much of a blessing. Before you know the investors are knocking on your door wanting to know where their ROI is, and why you haven't spent the X millions given (apparently spending the money is a sign of progress).

    The money is a burden; a HUGE burden.

    When in this situation, be honest with yourself. What will you spend the money on. If you cite PR, furniture, company stationary, etc, run the other way. If you cite "more employees", triple-check your logic to see if they are really needed before taking the money.

    "Pigs get fatter, hogs get slaughtered."

    -- Jim http://www.runfatboy.net/ [runfatboy.net]
  • Dear Mr Nice VC Person,
      Please send all your money to the email address on this post and we will give you lots of love

    Thanks

    Bob

  • Cingely calls it? (Score:5, Interesting)

    by _Sprocket_ (42527) on Monday March 20 2006, @05:55AM (#14955755)
    Was Cringely [pbs.org] right on this one?

    Right now, there is in the U.S. venture capital community about $25 billion that remains uninvested from funds that will end their lifespans in the next 12-18 months. If the VCs return those funds to investors they'll also have to return $3 billion in already-spent management fees. Alternately, they can invest the money -- even if they invest it in bad deals -- and NOT have to cough-up that $3 billion. So the VCs have to find in the next few months places to throw that $25 billion. They waited this long in hopes that the economy would improve and that technical trends would become clear so they could do their typical lemming-like jump off the same investment cliff as all the other VCs. Well, we're at the edge of the cliff, so get ready for the most furious venture investing cycle in history.

    • Re:Cingely calls it? (Score:2, Interesting)

      by mgabrys_sf (951552)
      Bingo - wired was really wrong with their last 2.0 column. They posted the results before the last 2.05 billion figure came out in the Merc's coverage of the fund leaders. The spigots started pouring after google's insane ROI, but given the volume of posts

  • old news (Score:2, Interesting)

    by mgabrys_sf (951552)
    The NYT and The Merc both already had coverage last fall of some of the investor fallout from pent-up money combined with low-overhead startups. 2.05 billion was thrown around the Bay Area in quarter of 2005 (representing 40% of nationwide VC spending - NY

  • Kent Brockman Says: (Score:4, Funny)

    by dcollins (135727) on Monday March 20 2006, @06:18AM (#14955789)
    "Thanks, Mr. Simpson. Because of you, we're all taking golden showers! [offstage laughter] What?"

  • 1999 just sued 2006 (Score:2, Funny)

    by Shohat (959481)
    It wants it's hype back
  • It looks like investors have come up with a new gambling strategy - bubble or quits.
  • I'm no economist, but I'd guess that firms/investors are pulling their money out of the shaky real estate market [thehousingbubbleblog.com], and back into stocks and tech.

  • *sigh* I love all these stories about money being thrown around to everyone who isn't me. Dammit. ;)

    Hey investor-type people with burning hot cash, I've got a few complete games [eveparadox.com] right here [eveparadox.com] that could use a nice cash injection to get me back on it fulltime,
  • NOTICE: I am immediately moving to San Jose, California to start my own IT firm. I have no idea what I will do, but I expect the money to come pouring in. Stay tuned...
  • Receiving funding is pretty wonderful. Especially when you really want to expand what you're doing, or to hire more really smart people.

    But bear something in mind: Investors want something back (profitability, future value, etc. - as well they should), a
  • ...companies in Silicon Valley interpret SPAM as valid investor interest.

    But then again Mr. Ryan.... my father, the Kinf of Nigeria was improsined. I need to transfer $40,000,000 US out of nation. After examine your credit I have exclusively selected you
  • After all this time, why in the hell does the press still insist in pretending that any prat with a web site is a "high-tech" business? We're not talking about technology here at all, we're talking about advertising.

    If VC's were really investing in techno

  • From an investor's point of view... (Score:3, Interesting)

    by The-Perl-CD-Bookshel (631252) on Monday March 20 2006, @01:22PM (#14958427) Homepage Journal
    I am a technology analyist for a hedge fund and I must say that there is a buzz around the "new dot com" companies. However, for the sophisticated/value investor, it is never good enough to simply have a good idea - the company must be ready to capitalize on it. I see at least one company per week that has a brilliant idea but no strategy to make it profitable. The difference between the way I look at a business and the way VC firms look at a company is that they will initially accept poor mangement because they will require oversight and the ability to put some of their own people in place. Some hedge funds do this but they are often not the high-risk/high return types. VC firms (and to a more important degree these days "angel investors") will get into a company for a good idea, a recognizable brand, a value-chain opportunity with other investments or for some more highly speculative reason. VC don't initially chase profits or earnings, they operate mainly outside of the realm of "fundamentals" by looking to capture as much of a company's ideas and future updise while accepting many (oft. deplorable) downside risks. A quick note about hedge funds for people that are quick to label them as horrible groups that short stocks and cause companies to go down in flames: there are firms, like the one I work for, that do not short their investments (we invest with a company for the long-term and often help them with their second and third rounds of fundraising) and many don't get into death spiral warrents that cause companies to dilute their stock over and over (and lose current investors tons of money). Hedge fund is just a generic term for a private investment company - the ones that give "hedge fund" a bad name are a very small minority.

    • Re:It's actually a pretty good deal (Score:4, Interesting)

      by CountBrass (590228) on Monday March 20 2006, @04:50AM (#14955637)
      Since when has having remedial level math skills considered "insightful"?

      5% (or 1 in 20) make it giving a 10 fold return = bankruptcy for the venture capitalist.

      Perhaps you should spend more time in your math class and less time karma-whoring here?

      [ Parent ]
      • Actually the maths are weak but not "really false".
        Typically a VC does not win all or nothing.
        It is more like in 20 deals:
        1 is a big success: *10 and most real (effectivelly freed money) was

        • Like most things (Score:3, Informative)

          by Aceticon (140883)
          Brought to you by the "i've been thinking about it and it really seems logic" department:


          Return on investment for a VC company is dependant on a probability curve.

          The cumulative profits of the companies in any given sector follow a probability distribution

      • Since when has having remedial level math skills considered "insightful"?

        You were so quick to insult him that you didn't consider the possibility that not all investments are equal. Why must everybody around here be so quick with the insults? Do they m

        • Re:It's actually a pretty good deal (Score:2, Funny)

          by Anonymous Coward
          Why must everybody around here be so quick with the insults? Do they make you feel superior or what?
          Yes, you piece of shit.
      • Since when has having remedial level math skills considered "insightful"?

        Hehe, since when has having mediocre reading skills been considered "interesting"?

        The OP said "If even 5% succeed in making an IPO worth 10 fold the investor's buy-in price".

        He doesn'

    • Fear (Score:2, Interesting)

      by PinkyDead (862370)
      If you haven't read it - the 80/20 principal is a fascinating book. And one of the conclusions that Koch came to was that capital investors are every day living in great fear that tech innovators, especially in the software development industry will all c
    • Wow! You so smart. I say you go found a company. I hear the name "CMGI" is available.
    • Stupid people throw their money around. This destabilises the industry. A lot of people get hurt.

      About the only people that didn't get hurt were those that were able to get big wads of cash out of the system and into other havens. Don't settle for stock op

      • What does Tolkien and Lord of the Rings have to do with all that?

        If you had bothered to read the book you would know that the 802.11s specification stipulates petabyte data rates for ring members, but at the cost of a gradual, but inevitable, packet loss a
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