VC firms chase Web's next sensations

The race is on

With social media companies like Facebook, Twitter and Zynga all having accrued hundreds of millions of users in just a few years, and with entrepreneurs now able to easily mix and match disparate technologies to dream up innovative online services, venture investors say the field of opportunity is wide open.

“Whether it is a Google Inc or a YouTube or potentially a Facebook-like deal, they can deliver incredible amount of returns for the entire industry for in some cases a five-year or a decade period of time,” Accel Partners analyst Richard Wong said at the Reuters Global Technology Summit. “So rightly or wrongly, we always feel like when you pick up the scent of one of those things...we all chase and compete against each other to try and get in those deals,” Wong said.

David Weiden, a partner at Khosla Ventures, said the competition among VCs to fund certain start-ups marks a return to the norm, following a slowdown during the peak of the recession.

“There was less hyper competition to get into companies and people were more on their heels. But that was unusual,” he said.

Cost of dreaming
The proliferation of Web-connected smartphones, packing powerful graphics processors and location-tracking GPS chips has laid the foundation for new types of online services which have the potential to become mass-market sensations — and start-up firms are eagerly racing to create the new products, said the investors.
“Mobile compute is going to produce a whole new sea of applications that we haven’t envisioned and I think we are scratching the surface with the Foursquares of the world,” said Redpoint’s Moore, whose past investments have included online ad exchange Right Media, which was acquired by Yahoo in 2007.

What’s more, Web start-ups need significantly less capital to build a rough version of their product than they did not long ago, thanks to services like Amazon.com Inc’s S3, which allows companies to rent the computing and storage capabilities needed to build a Web service. “The cost of dreaming these days is pretty low,” said Moore.
For VCs, getting a piece of the next Internet smash-hit means making a move earlier than usual, and spreading out various smaller-sized bets.