As I wrote early last year, my perspective is that one must go early, go late, or go home to make money in the venture market. Given that we at Dawntreader have always been early, that is where we will continue to focus. What is interesting is that on the heels of the new seed funding plan that Charles River Ventures recently announced, CBS just brought in an Allen & Co deal maker to head up its Interactive division with an eye on going early as well. As Quincy Smith, new CBS head, said in a Reuters interview, "I’m looking for the next YouTube, only a year earlier, when they were 1/32nd of their size, without building out stuff that we would find duplicative like sales force. The core engineering team is always important." Of course, what he is also saying is that he also does not want to pay exorbitant prices for companies that he could have found earlier.
While CBS has certainly put some dollars and focus behind this "going early" effort, it is not lost on a number of media companies that I have met with in New York recently. All of them are looking to invest and buy startups before they get too big. As you all know, commoditization means it is extremely cheap to get a web business started and build an audience. Since the inflection points for startups occur much sooner and on much less capital, missing that first round means you have to pay up to get involved. Paying up means it significantly increases the bar for success and the risk of your investment or acquisition failing. According to the PaidContent post today, "On the making deals side, it sounds like he’s in sync with Moonves, who has said the company won’t be making major digital acquisitions." All of this is to say that Rupert Murdoch made a ballsy bet when he bought MySpace and paid the price that he did – no one else moved as quickly or as emphatically.
In theory it sounds great – spread around a number of smaller bets instead of making a bet-the-farm acquisition like a Facebook. And I am sure that CBS will see a ton of great entrepreneurs, but the question is whether or not CBS, a traditional media company, can identify the right companies and add significant value to drive them to success. Early stage investing is not easy and neither is acquiring a couple of entrepreneurs working out of someone’s apartment. Success for CBS will come down to execution as it will really be competing with technology companies like Google and Yahoo (take a look at a discussion we had at Kinnernet in April about this topic) who have a better pedigree and track record of buying pre-venture-backed companies and making them successful. If you throw in the inevitable friction that will be created between the new and old media side of CBS, it will be interesting to see how this strategy evolves. Regardless, more capital and more exit opportunities is great for entrepreneurs.