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“Advertising is the lazy entrepreneur’s answer to a poorly, thought-out business plan,” said Tim Chang, Principal at Norwest Venture Partners, in a recent interview with me. Gulp. If you’re an entrepreneur with an ad-supported model, and no traffic, and you’re thinking of getting Tim to be your champion, or much of Silicon Valley for that matter, think again. Advertising-based businesses require significant traffic, as Don Dodge, director of business development at Microsoft, made clear in his recent piece, “Does Web 2.0 = Bubble 2.0?” recently.
Indeed, despite the dominance of both MySpace, with 118 million users worldwide, and Facebook, these two sites are only estimated to generate about $1 billion in sales combined this year, according to eMarketer. In this environment, the best thing a startup can do is to think about non-advertising models. “I’m so relieved when an entrepreneur says, ‘Yeah, there’s some ads to this; but I want to sell stuff,'” said Tim. Such non-ad models include virtual good sales, subscriptions, lead generation and e-commerce.
As for the type of companies Tim is looking for, they include vertical social media sites and vertical ad networks.
Norwest invests anywhere between $500,000 and $15 million to $20 million. What does a team have to look like to get that half a million? I asked. Tim said that he bets a lot on serial entrepreneurs who are tried and true, and more predictable. He’ll bet on new entrepreneurs if their idea is getting “grass-roots” traction.
Hollywood and Silicon Valley
Tim, who’s been spending a lot of time down in LA these days, also talked about how Hollywood talent agencies and Silicon Valley venture capitalists are starting to work with one another to fund celebrities that want to take ownership in their future. Since the writers’ strike, VCs have been receiving inbound calls from Hollywood agents and artists looking to leverage Facebook, YouTube and social media, said Tim. The challenge is that Hollywood and Silicon Valley still speak different languages, he said.
In the Valley, VCs talk about equity and delayed gratification while Hollywood cares only about what’s in it for them today, he added. Which model will prevail? I asked.
Everyone is learning from each other, he said. “Silicon Valley entrepreneurs realize they need high-quality, expert and premium content to inject into the long tail,” Tim said. “Hollywood is learning to build a community around their content."
(Note: There's obviously more to this interview. But you'll have to watch to get all of Tim's insights.)
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