Maciej Ceg?owski's new startup fund was the toast of Silicon Valley on 14 December, lighting up Twitter, winning top billing on the elite Hacker News forum, and drawing dozens of applications from would-be portfolio companies. The fund's draw: extreme stinginess.
The Pinboard Investment Co-Prosperity Cloud, as the fund is called, offers chosen startups all of $37 (?23) in venture capital. Not $37 million, like you might get from the uber-investors on Silicon Valley's Sand Hill Road, or $37,000, like YCombinator and other incubators offer. Just $37.
"The thing that has really changed in the past couple of years that hasn't been internalised by everyone is that startup costs are really very, very low," says Ceg?owski. "Even compared to 2008 it costs very little money to do stuff. You have these technologies that are pretty good at scaling up? but it's still free, open source software. So as long as the labour is free, you're fine."
The Co-Prosperity Cloud is more than a statement on the rapidly falling cost of scaling software. It's also about a crucial shift in the role played by startup investors. The importance of the actual capital distributed by venture capitalists continues to fall along with the costs of deploying, distributing, and scaling up apps, websites, other software, and even hardware. Less tangible aspects of an investment, like the endorsement, expertise, and social graph of the investor have become correspondingly more important.
If Ceg?owski can prove there is an extreme version of this trend -- that there are compelling startups for which investment funds are borderline meaningless, and for which social capital is paramount -- he could help remake the tech investment pipeline from a glorified money hose into a system for primarily distributing social capital like prestige, attention, taste, and advice.
The Co-Prosperity Cloud is an experiment in distributing just that sort of social capital. It offers not just the $37 (?23), but also Ceg?owski's vote of confidence -- he's only picking six winners -- and "as much publicity as I can provide," as the fund webpage says. That publicity will presumably come via the devoted online following Ceg?owski has built over the years for his articles on bootstrapping his bookmark service Pinboard.in, as well as for his wide-ranging personal essays, including an indispensable meat-lover's guide to visiting Argentina.
"I want to see if I can give people the social boost to get a chance to explain their idea and attract that initial group of customers," Ceg?owski says. "Because once you have a handful of people who use your product you can kind of claw your way up from that. It's just that the first part is really tough."
The former Yahoo engineer is hardly the first to capitalise on the changing nature of startup funding. YCombinator pioneered the pairing of tiny, low-five-figure funding rounds with intensive mentoring and an unconventional selection process. Its success stories include Dropbox, SocialCam, and Airbnb. The venture firm Andreessen Horowitz, meanwhile, bolsters its monetary investments with exceptional expertise in areas like human resources and public relations. Its investments have included Facebook, Twitter, and Skype.
Where the Co-Prosperity Cloud is different is in its lower ambitions. It aims to fund what Ceg?owski calls "barely successful? modest" companies like his own Pinboard, a one-man operation that he says couldn't pay a second employee but that covers his costs, salary, plus a contribution to his savings. Where YCombinator encourages two-founder teams and follow-on venture capital rounds that push startups toward a big-money exit, the Co-Prosperity Cloud actively encourages solo founders and slow-building, sustainable companies.
"I'm interested in this world of niche businesses no one will really fund," Ceg?owski says. "[I] want to promote ideas that aren't game changers and aren't going to grow into a giant business but are a perfectly great business."
The fund is off to a promising start. As of 14 December, it was a brand-new idea that had popped into Ceg?owski's head during a morning jog around San Francisco. By the end of the evening, he had upward of 40 applications, as well as offers to supplement each of his investments, to the tune of $50 (?30) apiece, from venture capitalist Marc Andreessen (of the aforementioned Andreessen Horowitz) and tech entrepreneur Thomas Ptacek.
The Co-Prosperity Cloud's application deadline is 1 January, and Ceg?owski anticipates announcing winners shortly thereafter. He jokes about how poorly things could go, but in the end resolved that this would be okay: "I decided I could spend $200 (?123) for this experiment." That small outlay could result in big savings for future entrepreneurs. Or, at the very least, another blockbuster entry on Ceg?owski's blog.
Source: Wired.com
Source: http://www.wired.co.uk/news/archive/2012-12/17/cheapest-venture-capitalist
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