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We will be in Seattle for almost a week in August for the Gnomedex conference. This will be a great event in the Emerald City to bring together tech/new-media companies. If you are attending and are interested in discussing funding/strategic partnerships/M&A please let us know! We are currently filling up our calendar in Seattle for that week. See you in Seattle!

I’ve been following startup/VC news for a while now and I’m beginning to wonder about the viability of these business plans. Market verticals need better solutions. Every day it seems like a new RSS feed alerts me to a social networking/new media site devoted to the _______ vertical. Ironically, TechCrunch talks about Cut/Paste innovation as if it isn’t happening in many places.

My theory is that cut/paste innovation is crowding the social media; but being “guised” as different verticals

Examples include Fishing Doctors and Sailors

Your user community will no longer come to you

MySpace and Facebook were early market concepts that have broad appeal. Looking at increasingly smaller fragments of markets is not sustainable from a business perspective; your market is just too small. You also need a substantial product that has advertising value. You need critical mass.

The Technology Expertise is a Commodity

If you don’t take my word for it, read this. Janko explains:

We’ve seen tons of startups lately that essentially aren’t anything but glorified mashups. Social network aggregators, video and web annotation tools, media conversion platforms: They’re all based on remixing data feeds. Some of these might actually be quite useful – but are they really worth business plans, VC money and acquisition talks? Or are they just tools that someone in some remote place of the world could develop in a day out of boredom?

I totally agree with this. If newspaper companies are still having trouble figuring out “how to get to the next level” they should call me. I’ll tell you about everything.

Social media platforms are free and ready for the taking

The opportunity for a startup using these various platforms are not so much in the target vertical, but rather in being the expert for a larger media company with existing resources (and the hunger) to make investments into new, properly aligned spaces.

VCs are so 90s

I admire VCs immensely, but as Business Week points out, they are facing increasing competition from Angels. It’s that cheap to start a New Media company. But, Angels really aren’t that interesting either. Maybe they give startups more favorable terms, but when the technology is so cheap to create and terms are more favorable to the founders, success will increasingly be determined by the “value” of the money.

What the hell is the “value of the money?”

$100 is not worth just $100 dollars to a startup. Take a look at the “selected partners” of Joost. Think about money above and beyond the number of Benjamin’s. Partnerships and networks are more valuable. Maybe there are different return requirements for different VC arrangements, but let’s just say in a competitive market, the return requirements are substantial because of the losses. Everyone is promising you capital and each one saying they have a better network. But times are changing…

Traditional media companies (TMCs) are the New VCs

Well, maybe they aren’t raising capital from institutional investors, but they do make much better investment partners. Here is why:

• Established content businesses with an existing sales force, customer relations, supplier contacts, etc.
• Much lower return requirements
• Shareholder-driven need to aggressively pursue “new media” type strategies
• Opportunity Cost of not having the next YouTube, MySpace, Facebook, etc
• Access to high quality content

Still Don’t Believe Me? List of “Established” Funds by Parent:

NBC, Disney, Bertlesman, Die Zelt, Holtzbrink, and Time Warner all have investment arms for startups.

This list doesn’t even include the non-formally established VC arms. CBS, Fox and many others are all looking to deploy capital into new media investments. I suggest you consider them as valuable partners and investors for taking your startup into the next level.

Where to go from here?

First you should be very picky about whom you go to bed with. Look at their current strategy/property portfolio, and see if you fit in. How will company A deliver your product to market quicker than company B? Not all TMCs are made the same. Some, like TMCs in print media (newspapers, magazines, journals, etc…) have great relationships with their individual communities/towns/cities. Does that kind of TMC make sense for a YouTube type site? Probably not. TMCs in the broadcast space “get” the power of video and have the established video-ad networks to deploy pre/mid/end rolls on the videos. Should a social networking site focused on user generated recipes/cooking videos approach Viacom? I would suggest approaching Scripps Networks, which has the Food Network in its expansive portfolio.

In the context of this post, these suggestions seem logical, but how many of you have done this? How much VC money have you swallowed and how much more would you have benefited from the platform TMCs could have given you?

As much as you think TMCs don’t get it, they really do. They have weathered and survived storms from “category killers” such as radio, TV, and now the internet, but they are here to stay and grow. Pick your mates wisely and grow with them. Salmon fight the current to live, but it doesn’t mean you do too.