The problem with you two, is that you are both right and neither of you wants to admit it. Partisanship is killing this country. Face the facts, in some cases the government must pick the winners, in other cases it has no business doing so. We have to have it both ways. To take the "right" path is to cut infrastructure, quality of life for the majority, and long range investment, to take the "left" path is to cut economic vitality. Like so many things, the right balance is the answer, not the extremes.
Please remember what the VCs are doing. They are after the big payoff. They are placing a bet that the company they invest in will be wildly successful, IPO with an enormous valuation, and they can turn around and sell their holdings at a very substantial profit. It's a bit like the movie business, where studios green light a production because visions of $100 million grosses dance in their heads.
Of course, like the movies, not all VC investments are wildly successful. Movie studios rely on the films to _do_ gross $100 million to cover the losses on the bombs that die on the market. VCs rely on the highly successful IPOs to cover the investments thay made that didn't pan out.
An old friend of mine years back was grumbling because he was looking for VC investment. He had an actual product and was profitable, but could not get interest. I told him his problem was that he was thinking too small. All he wanted was $500,000. If he'd asked for $5 million, he might have gotten attention. The VCs wanted big investments with potential huge payoffs and he simply wasn't big enough to be of interest.
What determines a successful IPO? Interest in the market, which may have nothing to do with fundamentals. Look at the Facebook IPO as a classic example. Facebook is a going concern, with actual revenues and profits, but there was no way I could see it supporting a valuation of $100 billion. People see what they want to see, believe what they want to believe, and lots of people bought Facebook stock because they were caught up in hype and hysteria.
Tech companies that aren't in the Inetrnet like Pinterest aren't likely to generate that sort of hype or gain that sort of attention by the market. No surprise they will find it harder to get VC investment, because the VCs just won't see the desired payoff if they *do* IPO.
You rant makes no sense whatsoever. Plus, if you can not do better than parrot partisan talking points ("government picking favorites") do not bother to post. The right wing having succeeded to demonize government and prevent government spending on our infrastructure made us pretty much a third world country, with one of the slowest internet access in the developed world, with unfilled potholes on every freeway and with no decent railway network. I assume this is what you want.
As long as it's private money, I couldn't care less how much they get. When it's my tax dollars being used as VC, I suddenly take a keen interest because the government has no business picking favorites. (Besides, their track record is abysmally low. And these are the same folks that will lambaste financial firms for losses. Bloody hypocrites.) End of rant.
VC funding isn't provided on a need basis. It's provided on an interest basis and the willingness of the company to give up equity. VCs seem to think a lot of these software companies will end up worth a lot, thanks to some past successes. The money they get? I assume it just funds the six figure salaries, EC2 server space on Amazon and schmancy SF offices. I assume anything past that in VC money just sits in the bank.
I think you have the question backwards. It's not about how much it costs to build the product/website. It's about how much the company is potentially worth. And this calculation is based on the number of users it has (which is 10M+ for Pinterest, 80% women). After Instagram, Pinterest is the second most visible private web asset. Instagram had something like 30M users when they were bought for $1B. I guess someone thinks Pinterest can get there soon. The problem is that FB is now a public company and Zuckerberg will probably face more scrutiny before singing a billion dollar check again... Not to mention that his company had lost 50% of its market cap since its IPO. Irrational exuberance all over again?
Customer acquisition and backend server scale up costs (or something like Amazon's EC2) and the associated headcount probably account for the bulk of that money. First you build it, then they come, then they come in droves, then you need to pay for the rapidly expanding cloud, then to keep them coming in droves you need to go out and find them, and then finally your revenue model kicks in and you're off to the IPO races.
As we unveil EE Times’ 2015 Silicon 60 list, journalist & Silicon 60 researcher Peter Clarke hosts a conversation on startups in the electronics industry. Panelists Dan Armbrust (investment firm Silicon Catalyst), Andrew Kau (venture capital firm Walden International), and Stan Boland (successful serial entrepreneur, former CEO of Neul, Icera) join in the live debate.