Waking Ideas Publishing - Culture & Critics Corner
Written By Danny Nicolas
Make no mistake. We are in the middle (perhaps nearing the end) of a tech bubble. Facebook's announcement of their purchase of Instagram for $1Billion in cash and stock will end up as one of the significant road markers of the second tech bubble (another will be the Facebook IPO). However, I want to discuss the (perhaps unintended) consequences of significant transfers of wealth.
These newly wealthy individuals will likely buy a mansion, a set of luxurious vehicles, maybe a yacht, and go on a long vacation. When they get back, they'll start to look at the options for what to do with all their money. Sitting in cash or 'safer' government bonds doesn't nearly reach par for trying to beat inflation. Most of these individuals are old enough to remember the tech crash (and some might have even gotten burned by it) and see the stock market as a high risk investment with little control over how it performs. So what do people do? They invest their time and money in what they know. Startups. Some jump right back into the startup world as soon as they can (legally) while others become angel investors and/or join or start venture capital funds.
So when I hear news of "company X buying startup Y for $$$", I see it as a win-win-win situation. Your favorite darling startup might not be around in a few years post-acquisition. If that company was made by people who are still passionate about what they love, they'll be back to make something new - and this time they won't be doing it for the big payday at the end of the rainbow. They already have their pot of gold; they caught the leprechaun and found the magical money tree. This isn't: 'a rising tide lifts all ships', this is: a rising tide makes waves in your niche. While a few surfers might stand up and catch one, we all can enjoy the sound of waves as they crash on the shore.
Ycombinator stands out in my mind (and it's not just because I read HackerNews on a regular basis).
In 2005, Y Combinator developed a new model of startup funding. Twice a year we invest a small amount of money (average $18k) in a large number of startups (most recently 65). The startups move to Silicon Valley for 3 months, during which we work intensively with them to get the company into the best possible shape and refine their pitch to investors. Each cycle culminates in Demo Day, when the startups present to a large audience of investors. But YC doesn't end on Demo Day. We and the YC alumni network continue to help founders for the life of their company, and beyond.
Since 2005 we've funded over 380 startups, including Loopt, Reddit, Clustrix, Wufoo, Scribd, Xobni, Weebly, Songkick, Disqus, Dropbox, ZumoDrive, Justin.tv, Heroku, A Thinking Ape, Posterous, Airbnb, Heyzap, Cloudkick, DailyBooth, WePay, Bump, Stripe, AeroFS, and Hipmunk.
KickingItForward (led by Brian Fargo) is another.
Any developer that puts the "Kicking it Forward" badge on their Kickstarter project page is agreeing that they will put 5% of their finished product profits back into other Kickstarter projects. ...
Once a project in this program has become profitable, the developer is going to spend this 5% profit, which is their own money, on whatever Kickstarter projects they want to support. They can determine unilaterally who they want to give it to and when. Neither myself nor a committee is going to tell successful developers what projects to invest in. Ultimately, this is an honor system at the end of the day. No one is going to audit their books to make sure they complied. In many ways Kickstarter is an honor system too, so this is no different. Of course some unscrupulous developer may not follow through with their promise but I believe the development community sticks together.
Brian Fargo is spot on - no one is forcing the (new or previously) wealthy to reinvest their profits back into the system. They could build a big money pile and swim in it (like Scrooge McDuck) or light it on fire (like Chris & Jonathan Nolan's Joker in The Dark Knight). While these are two extremes, I believe (like Brian Fargo) that these communities, the startup culture, the video game development culture, they invest in what they know and love: people doing their best to make their dream happen by creating awesome things and sharing it with the world.
Published on Tuesday, April 10th, 2012 at 7:05 pm | Both comments and trackbacks are currently closed.