July 9, 2009

Startup Funding Back to Basics?

A few weeks ago I blogged about Twitter and its prospects as an up-and-coming player vis-à-vis the media attention it received due to the events in Iran. The point I made was that the company needs to come up with a proper business / revenue model sooner than later.

Yesterday this made headline news as Allen & Co.’s Sun Valley Media and Technology Conference got its kick start. Rupert Murdoch, the News Corporation Chief, warned against investing in Twitter until it figures out a way to make money. IAC chairman, Barry Diller, and Liberty Media chairman, John Malone were downright pessimistic about Twitter’s business, with Diller voicing doubts about Twitter’s prospects of making any money, and Malone mentioning that the advertising model will not work for them.

They all must have read my blog. (hah!)

Twitter’s CEO, Evan Williams, painfully sat through the discussions and left without comments. Ouch.

Twitter has promised its current investors to generate revenues by the end of ‘09 to early ’10, and it’s fair to give them a chance, although the heat is definitely on. Also, that little voice in my head (sometimes annoying, but keeps me on track) tells me… Murdoch… Diller… Malone… old farts? Maybe they just don’t get it?

But let’s get to the big picture. Twitter is ranked as the third most used social networking site, with the number of monthly visits at 55 million and increasing. Assuming these media moguls are not playing the game of downplaying the goods for a bargain (really not that different from shopping for rugs in Moroccan souks), does this mean large investors are serious about getting back to fundamentals of investing in viable businesses, and will no longer throw their money at any pet.com that comes along?

If this is the case, the risks of startups will move back to entrepreneurs and the game of startups and funding will have changed for many years to come. Twitter just might become the poster child of the switch in that mindset.

Note to entrepreneurs: buckle up and get back to basics!

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