The funding well seems to be draining for consumer web start-ups looking to raise follow-on financing. Of 165 consumer Internet companies that raised venture capital in 2010, just under half have raised an equity round since, according to a recent report by Dow Jones VentureSource.
From Silicon Valley to New York, venture investors in the consumer web space were quick to weigh in on the report.
On Sunday, Fred Wilson blogged that three big changes in the past few years have been responsible for the lack of follow-on investments: consumers favoring large platforms such as Facebook, Google and Amazon, the shift from desktop to mobile, and a move by late stage VCs toward enterprise start-ups. As co-founder of Union Square Ventures, Wilson has backed popular consumer web start-ups including Foursquare, Etsy and Tumblr.
“The combination of these three factors is making it harder for consumer Internet companies to get funding,” wrote Wilson. “But the first two factors are also making it harder for consumer Internet companies to breakout, which is more and more a prerequisite for funding.”
In a detailed response to Wilson’s post, 500 Startups founder Dave McClure wrote that a move away from consumer web start-ups toward enterprise companies would be a “huge error.”
As McClure wrote:
The assertion that consumer is “tougher” is so absolutely incorrect and provably wrong that I’m puzzled why anyone would even say such a thing… Almost every possible Internet distribution channel has more users than ever before – whether it be search, social, mobile, video, local, SMS, email, chat, etc.
But the debate didn’t stop there. VCs in the consumer web space also took to Twitter to voice their opinions.
Charles River Ventures partner George Zachary, who has invested in both consumer and enterprise start-ups, said that “too many narrow commodity ideas are creating noise in gasps to raise money."
Meanwhile, Menlo Ventures partner Shervin Pishevar, whose consumer web investments include Fab, Uber and Warby Parker, tweeted – contrary to the report – that he hasn’t seen “any slowdown in mobile consumer commerce…in the last 12 months.”