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Silicon Valley Firms Having Cash Showers 123

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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Silicon Valley Firms Having Cash Showers

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  • Better to be showered in green than in gold.
  • by svunt ( 916464 ) on Monday March 20, 2006 @05:47AM (#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.
    • 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 other investors. Most of the time when someone sells stock, they think they are smarter that you and are going to make money off of you. To be a good investor, you have to prove them wrong. I'm sure every investor hears a voice in the back of their heads
    • On the other hand, the years since the dot-com bubble burst have seen a lot of technological and infrastructural advances. There's a lot of e-commerce ideas that were good back then, but lacked some combination of technology, infrastructure, and public awareness to succeed. Many of these ideas are coming to fruition now that the missing pieces--better technology, more bandwidth, larger customer base--have had a chance to get into the puzzle.

      Maybe these MBAs are making these new "money shower" investments b
  • Great. (Score:3, Funny)

    by NoMoreNicksLeft ( 516230 ) <(ten.tsacmoc) (ta) (relyo.nhoj)> on Monday March 20, 2006 @05:52AM (#14955641) Journal
    Where do I sign up?
  • Investors sit in on a meeting at CompuHyperGlobalMeganet.... Client: "I need to upgrade my 28.8 kb connection to a 1.5 MB Fiber-optic T1 LAN. Will you be able to provide an IP router capable of supporting my existing Tolken-Ring Ethernet network?" Me: "Nope. Can I have my money now?" Investor: "Is this bucket big enough for all the cash?" Me: "Can I have a free wheelbarrow? Investor: "OK." Client: "But what about my pictures of Captain Janeway?"
    • "...capable of supporting my existing Tolken-Ring Ethernet network?"

      What does Tolkien and Lord of the Rings have to do with all that?
      • 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 as all requests are slowly redirected to the master or "One" ring, which then acts as a sort of lower layer domain controller or DNS.

        Eventually, any and all dns lookups and ip connections, including localhost, are redirected to baraddur.arpa. Or, if Sauron
  • Why not... (Score:3, Interesting)

    by William Robinson ( 875390 ) on Monday March 20, 2006 @05:54AM (#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]

    • The question is whether venture capitalists are moving too quickly, funding risky, untested start-up businesses

      Well ... no shit. Why would any firm with the word "venture" in the name fund a risky untested startup ... insanity, I tell you.

  • by Opportunist ( 166417 ) on Monday March 20, 2006 @05:59AM (#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.
  • i offically name this

    "dot com 2.0.... beta..."

    yeah baby! we havent learned anything from previous dot com's
    • 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 options that are years out. Even if the company is based on a solid business model, dot.bomb collateral damage can still wipe you out. Instead, turn your equity into tangible assets ASAP. Don't piss your money against the wall and sign up for huge expenses.

  • 419 scam? (Score:5, Interesting)

    by ItsIllak ( 95786 ) on Monday March 20, 2006 @06:02AM (#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 since the authorities are starting to make headway in the fight against 419, it wouldn't be impossible that the fraudsters move onto a new target.

      I'd say that if the CEO gets asked to meet his supposed benefactors at Amsterdam Schiphol Airport, he should
      • 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?
        • Of course not, what do you take me for?

          Remember that 419 dupees often meet "real" people when they get scammed. One guy in a suit looks much like another.
  • About time too.. (Score:5, Interesting)

    by onion2k ( 203094 ) on Monday March 20, 2006 @06:08AM (#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 lease to other companies, and to promote their own products. The thing is, internet is not 'fixed' like radio. You turn on the radio, and expect music or talk.. what kind of music or talk is at the discretion of the programming director, and fresh content
    • 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 on for years, just look at iTunes (which makes very little profit, but helps the sale of iPods) or any of its many clones. Even if that wasn't the case, this would hardly be a technological breakthrough. The barriers for this have always been around transa
    • I agree with you. I believe that the internet will be many things, and this micro-service/micro-payment will be a significant slice of the internet pie. Whether or not this model will come to represent the majority of internet services remains to be seen. I believe there's room enough in the internet for many different transactional/business models, though. ;^)
    • After the last crash everybody jumped into real estate investment, that boomed as a result and has pretty much hit a flat spot some time back (pretty much around the world), those that have cashed up are now going for a business investment (they are expecting a real estate melt down), get it early, before even more money floods in.

      Winners and losers, the game continues ,losers as always are the ones that comes in late, believing the hype generated by the ones who got in early, even for what are in reality

    • "I believe the future is in charging lots of users small sums for things the want .. like iTunes."

      I believe this is the future too, whether or not that is a good thing is another question entirely. For example, EA is selling smaller and smaller expansions for the BF2 series, which I think will ultimately culimate in them selling a weapon pack. Want upgraded weapons? Pay $5.

      Unfortunately, what happens when you can suddenly charge a very small amount for things is that everybody wants to charge for everyt

  • by Bostik ( 92589 ) on Monday March 20, 2006 @06:17AM (#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 tough to get a job if you graduated in the height of the dot com boom and lost your job in the worst of it (especially in small markets like where I live and are in the position I am in - though my personal timing has nothing to do with the .com stuff). Havi
    • Somehow your message would not be well-received in the Midwest - as recovery hasnt even happened. What you call recovery is all but economic disaster - end a perfectly fine industry or three, keep education costs out of reach, and otherwise turn the area into territory even Boss Tweed couldnt picture having more perfectly.

      Something this deep will unfortunately require the Midwest to benefit in a similar fashion to what the US did for the Dubai ports deal. Except this time, the Midwest is the benefactor, and
      • Gotta go to where the money is.

        My father was in aerospace and we moved all over the place as jobs migrated from private, miliarty, govt, space, etc. Silicon Valley has one massive caveat that all other startup zones would kill for and that's the VC concentration. For VCs to invest a member of the group generally sits on the board of directors. That means if you're not nearby - you're SOL.

        That's also why "Silicon Alley" only comes in as a distant second in any quarters worth of investment (12% vs 40% in the
  • by RunFatBoy.net ( 960072 ) on Monday March 20, 2006 @06:38AM (#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 @06:55AM (#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.
    • 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 on C-List alone it's just getting started. I'm fielding 2-3 callbacks a week, and I don't even have space for more than one more part-time client.

      I'm hoping that a bubble is somewhat diffused by sane growth that I've seen inside start-ups to date, but if
    • $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.

      Couldn't they just invest the money - in another venture capital fund - and wait till the market picks up? A venture venture capital or a venture capital capital fund (b

      • Just so that searches pick up on this, that's "Cringely" not "Cingely". And yes, I think he totally called it on this one. The companies are getting money out of the blue because they have to spend it or return it.
  • It's the bubble all over again. It's just that now it's "Bubble 2.0 beta" and it uses AJAX.
  • 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 was 2nd at 12%) but it wasn't easy. Firms in Palo Alto were turning down money offers from longer than lunch hour away commutes - and I've seen VC cold-calls come in at 2 off my contracting clients (seriously).

    But when companies can make do with 250,000 i
  • by dcollins ( 135727 ) on Monday March 20, 2006 @07:18AM (#14955789) Homepage
    "Thanks, Mr. Simpson. Because of you, we're all taking golden showers! [offstage laughter] What?"
  • Usually from the desk of some African bank manager or lawyer.

    I also get offers to help me ejaculate like a pron star, and drown my girlfriend in .,.&$%*
    NO CARRIER
  • 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.

    • Agreed.
      I am not an economist either, but I am a small investor. My current strategy is to lock in my the equity from my rental house at a fixed rate and move that money to stocks. Risky? yes. Will Work. Hell Yes. Money has to go somewhere. Invest it in a variety of mutual funds some in the states and some over seas. Most of the money in the world is made by significant sums of leverage. The really risky strategy is to fund your online broker with the funds from your house and then trade on full mar
  • *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, employ a 3D model and texture artist with talent (ie. not me) and drop a few crinkleys into advertising. Just waiting to make you some nice easy money...

    But I suspect I may have to stick to the tried and true, just gradually build my baby up off of part-t
  • 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...
  • Yaaay, the good times are back and they will never end, Aeron chairs for all!!!!!! /what tech bubble?
  • 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), and that something also includes the investor's desire to control the path their investment takes.

    In a similar analogy: I'm independent (read: not able to sell any of my music in amounts larger than one or two) and can make any music I want, on any schedu
  • ...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 your bank account as trustworthy to move fund.s Please send routing number and account number. For this service you recieve 10 percent bonus....
  • 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 technology in a big way, that would be a good thing, but they're not.

    -jcr
  • The VC guys acutally believe the Vista Hype.


  •     I was in San Jose for the VON show last week. I met a VC shopping for used network equipment vendors. Having worked in the aftermarket for a while I'm flat amazed that someone wants to consolidate aftermarket companies.

  • Were they from Nigeria? Yeah, I got one of those too. =P
  • by The-Perl-CD-Bookshel ( 631252 ) on Monday March 20, 2006 @02:22PM (#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.
  • I guess those come next year.
  • There is certainly a lot of hype. Eight weeks ago I and a friend launched our service ( http://billmonk.com/ [billmonk.com]), and on the first day were contacted by a prominent VC. Since then, we've spoken to seven more.

    Don't get me wrong. Our product is great, and our users love it - but the attention given to a two-man startup around for such a short period of time was disproportionate to what we had proved to the market at the time.

    We decided to hold off on trading a large amount of equity for a relatively small amo

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