Danny Sullivan on the Gigaom Crash

Danny Sullivan makes real sense about the VC-propelled demise of Gigaom:

Folks, someone getting a lot of VC investment isn’t a sign they’re successful at anything other than getting VC funding. I’ve been covering the search and tech space for nearly 20 years now. VCs make bad investments. An investment in a company could be a vote a confidence in it, that a VC has made a careful analysis that success is likely. Or, it could be a crapshoot.

Last year, BuzzFeed’s Jonah Peretti was interviewed about all the growth and change he’s been a part of through The Huffington Post and now BuzzFeed. One section of that interview on VC funding resonated with me about what a freaking genius he is, in terms of insight:

If you want to own 100 percent of a company and build it over twenty years, even if it’s a fairly fast growing company, in a market where revenue is booked quickly and ideally where the revenue comes before you have to sell the product so you have nice cash flow to build a business from, then it’d be great to do it without VCs. If you want to build a business that generates $10 million a year in revenue and $2 million a year that goes to you and your partner, and that’s what you’re interested in, then you should figure out how to bootstrap. A lot of agency businesses are that way. When you look around New York, there’s a lot of really successful fifty-person boutique agencies, where the people who started them are making a lot of money and no VC would ever touch them.

If you read the tech blogs, they converge into this idea that the only way to build a good company is a venture-backed company and it probably should be in Silicon Valley, but maybe it could be in New York or a couple other places, and no other company matters. That is clearly false. If you’re a budding entrepreneur who wants to start a business, depending on the idea and depending on your temperament, it might be great for you to take VC money, or it might be terrible for you to take VC money. It just depends.

Damn straight. Sing it, brother. There are plenty of great verticals doing fine. There are plenty of little tech pubs, doing fine. GigaOm’s collapse, while incredibly sad — especially for so many of those great journalists — isn’t necessarily indicative of the future for media publications.

Instead, it’s perhaps a warning to anyone taking VC. You’d better expect if you’re taking all that money, you have a plan so the VCs get a pay-off. Are you going to generate those millions invested and more so? Or do you really think someone’s going to buy you for absurd multiples based on potential value? If so, maybe the VC money makes sense. But just because some publications go that route, not all need to.

I haven’t written about the Gigaom situation yet. My deal was at a remove: a freelancer working about 80% of my time for the Research side of the business. I had zero involvement with the better known tech pub, and I only spoke to Om two or three times over the four plus years I worked there. He stepped down from a full-time role over a year ago, anyway.

However, it’s clear that the company was spending way more than it was making, burning through $22 million in VC funds over the years, and the company suffered from a lack of the cash-flow intelligence that Peretti and Sullivan embody.

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