PlentyOfFish = bootstrapped, market leader in online dating in the US, UK and Canada.

And…well, FunAdvice. 4.69 million visitors last month, bootstrapped, and one of the fastest growing social sites *of any kind* with 300%+ year / year growth.

Sure, you could pull a sodahead (raise 16 million…with 1/2 the uniques that FunAdvice has) or you could pull a Mahalo (raise ~$50 million, with less US market share than FunAdvice, or these others)…

…or, you could step back and ask yourself a very important question as noted above: what value does the investor bring? Is this a category that will only be won through venture investment (be in angel, VC or other).

I'd argue for those businesses where network effects matter…it's the caliber of the idea, the entrepreneurial vision that counts…raising money won't polish your t_rd of an idea if it really is a piece of cr@p.

They are systemically, operationally and attitudinally different. They have different metrics for acceptance and success; funding, oversight, sourcing, profitability and, most importantly, infrastructure.

VCs do not create or innovate – the provide money for growth.

The new wave of Seed Mentoring Programs, Seed Summer Camps and Seed Auditions do not provide long term oversight for the entrepreneur. And the ventures that provide money do so as egregious rates.

What is needed is a Public-Private For Profit dedicated effort to work with, support and compensate the Seed Infrastructure (Incubators, Economic Development Agencies, Tech Transfers). This infrastructure already exists and provides the efficient sourcing, screening and post-investment oversight needed to develop Series A worthy companies. What is needed is a dedicated effort that is not geographically constrained.

What is needed is a thorough Virtual Incubation system that brings both Community and Collaboration to all elements of the total Investing community.

By dedicating a private/public collaboration to increasing the value and viability of early stage companies you are also increasing their valuation for their Series A round; thereby leveling the playing field with what will be a smaller group of Traditional VC funds.

Please review – http://www.slideshare.net/ElliottDahan/start-fund-q2-2009

Elliott Dahan
elliott(a)thegrowthgroup.com

Some VCs are great in this regard but (again) the majority simply are not.

Plus there are numerous ways for an entrepreneur to skin this cat, i.e. to get advice, plug into others' networks — without handing over 20-30% of your company with preferences to an investors whose interests may well not be aligned with yours.

Which brings us to point #3:

VC and entrepreneurs interests are often misaligned in terms of exit. (I.e. what could be a great exit for the entrepreneur might be a less great to poor exit for the VC.)

Saying that VCs are no longer necessary is dramatically overstating the case. Venture finance still makes sense (and will make sense for the foreseeable future) for businesses that require $5M+ to get to scale and profitability. (The $5M number is somewhat variable — maybe it's $2.5M, maybe it's $10M, depending on the nature of the biz, the quality of the entrepreneur, the entrepreneur's personal network, etc.)

HOWEVER

Because of S3, EC2, and everything else the original article mentioned, many businesses that 5-10 yrs ago might have required that level of funding can now get off the ground for an order of magnitude less. And for these businesses I would argue that the venture model (at least in the vast majority of cases) is not a good fit.

I would NEVER take one of those $250k deals from CRV, USV, First Round, Spark or anyone else. Too much hair on that dog. If you need less than $1-2M there are many other sources of funding that you're goiing to be able to get on more favorable terms.

p.s. re. #1, I would argue that the same issues/problems/risks apply to VCs as to angels, strategic individuals, etc. Certainly not an argument for VC vs other sources of funding.