There's Plenty Of Oxygen In The Air
I've been reading Steven Johnson's Invention Of Air and I've got images of Joseph Priestley's tubes and pumps in my head. Priestley's experiments with mice and plants in the tubes led to the discovery of oxygen and the realization that plants made oxygen and animals consumed it.
If cash is the oxygen of the startup world (and it is for cash burning startups), then it makes sense that with less cash available for investment, money losing startups would be gasping for air.
But there's a couple things wrong with that characterization. First, I've seen a number of indications in recent weeks that there is still a lot of money out there looking to get invested in venture deals. The news that Accel raised a billion dollars in two separate funds is an example of what I am talking about. And I've been fielding calls and emails from late stage VCs looking to meet with some of our portfolio companies in the past couple weeks. Contrary to the popular wisdom, there's plenty of money out there for high quality venture opportunities.
The other issue with suggesting that Tumblr would be gasping for air is that Tumblr has six employees and a very low burn rate. Any company that can figure out how to get over a half a million rabid users/bloggers on it platform and reach 15mm unique visitors a month with just six people, three of which have just joined, isn't going to be suffering from asphyxiation any time soon.
These two truths about web services; that there is still a lot of capital looking to invest in them and that they can be incredibly efficient to operate is what many people are missing.
When the market melted down, the tech blogs started talking about a rash of company failures. And yet we've not seen that many. We'll certainly see a bunch but I bet its a lot less than most people think. And I think it will be mostly limited to services, like pownce, that never managed to get much usage. For those web services with real usage and a manageable burn rate, I think there will be plenty of oxygen in the air.