VC Mike on Internet Investing and Startups

As a VC jumping into the blog community, I suppose it only makes sense to start off by sharing some of my thoughts on the sectors I tend to focus on, namely Internet/Digital Media related opportunities (for more on me and my investment areas go here).

First, though, a disclaimer: while I, like all my VC brethren, have thoughts, observations and hypotheses about the markets I invest in, let’s not kid anyone — I for one learn much more from the entrepreneurs I meet and work with than from my own research, analysis and navel gazing. So I guess what I am saying is that you are advised to take my rants and ruminations with the grain (or small boulder) of salt that I do.

Also, I plan to use this blog not just to offer general thoughts and observations, but I am also going to take a crack at spelling out some of the thinking that goes into the particular investments I am making.  We’ll see how it goes — I am hoping the combination of general discussion together with specific investment rationales will be of some interest to those of you good enough to visit my blog.  But I am going into it with an open mind, and would love any suggestions on what works and what is a waste of time. 

Enough of that. Here is what I am thinking these days about the Internet and Digital Media startup world.

First, I fully agree that we are going through a wave of innovation at least as significant and important as Internet 1.0. We may all be polyannas, but I think it is an incredibly exciting time for those of us in Internet/digital businesses.

Second, while most of the attention out there (including my own) tends to focus higher up “the stack,” I do believe that the mass adoption, and mobile-ization, of broadband, will continue to generate infrastructure opportunities.

My partners Bob Metcalfe, who did that ethernet thing, and my other partner George Conrades, who ran and currently is Chairman of our portfolio company Akamai Technologies, both know just a tad bit more than me about moving bytes and bits around, but suffice it to say that our partnership will continue to look for Internet infrastructure opportunities.

Third, there will be new opportunities in the emerging “Web 2.0” software layer.

While my partners and I have enjoyed backing software companies that help folks take advantage of new computing platforms (including the likes of Powersoft for the client-server platform and Allaire for the Web 1.0 platform), I think this is a trickier game with regard to Web 2.0 software companies. 

Whether it be business model, the fact that really robust software can be built relative quickly and inexpensively, or the existence of many more mature, cash laden companies in the industry, it seems to me that most Web 2.0 software startups are best served raising seed capital and then selling fairly quickly to a Yahoo! or Google. This does not bode well for the so-called “venture returns” we look for.

That said, I am confident a couple important new platform companies will emerge from the Web 2.0 entrepreneurial soup, and I have spent much of the last year trying to find real contenders. (Stay tuned, I have some more specific ideas on this…).

Fourth, I love the fact that so many Web 2.0 companies are at once both technology and media companies. While Internet 1.0 companies like Yahoo! and Google clearly have figured out how to make decent money, I think alot is still up in the air regarding how Web 2.0 companies can maximize this dual business model. Those who figure it out early, though, stand to profit greatly, and I hope to be there when they do!

Fifth, and finally, I passionately buy into the belief that all this stuff we are talking about promises to fundamentally change the media world and what it means to be a “media company.” 

Alot of my time these days is spent with companies that are participating in this transormation, either by enabling the new platforms or by developing and delivering content for them. In fact, I just closed an investment with a broadband content company, which will be the subject of my next post. Until then…