There's been a lot of discussion recently about Matter and its swift fundraising on Kickstarter, bringing in over $100,000 in just over a week (I've embedded the pitch video above). Felix Salmon thinks Matter has merit. Stephen Morse thinks it doesn't. You can watch them debate their positions here.
During the course of their he-said/he-said, the question of whether it's a good or bad thing for Matter to be avoiding venture capital funding came up. Felix summarizes:
In our debate, Morse snarked that no one down below us, in Times Square, had heard of Jim Giles or Bobbie Johnson, the co-founders of Matter. And in saying that he revealed his broader mindset: that of a would-be internet entrepreneur who raises venture funding by using the words “platform” and “scale” a lot while promising things like “explosive growth”. It’s no great secret that Giles and Johnson have talked to VCs, many of whom have been very supportive. But what they’re building doesn’t lend itself to the VC business model, where you either have monster, multi-million-dollar success, or else you die trying.
Morse uses the fact that Matter doesn’t have VC funding as a count against them, when in fact it’s a great count in their favor. VCs provide two things: money and advice. And Matter’s getting the advice; it’s just doing so without having to sell its soul to people wanting a monster return on their investment. All it needs to do, at least in the first instance, is pay for itself. And at the end of our debate, Morse finally came up with a number: if Matter can get 20,000 paying customers each week, he said, then he sees a sustainable model there.
Two things. First, I don't think Felix is properly characterizing the VC mindset. He's properly characterizing the big-time multi-round funding that we're familiar with from technology startups and Silicon Valley. But beyond crowdfunding operations like Kickstarter, angel investors, and incubators/accelerators, there are early stage VCs that aren't necessarily looking for a monster payout — and certainly not one on what's basically an online media company with a limited (and perhaps sustainable) business model. VCs that write small checks or join other firms for early stage funding might be looking to get a company going and then pass it off to a later-stage VC, tapping out with a earlier, more modest return. For example, my understanding is that this is what Idealab, an incubator in Pasadena, is aiming to do in part with its new Ventures Group.
Second, for Matter — if it's talking to VCs — the Kickstarter raise could really be a kind of advertising that pays you, rather than the other way around. "If these guys can raise $100,000 that easily," a VC might say, "then maybe a check ten times that would be worth my trouble." Morse hints at this in the debate. Felix insists that a startup wants to avoid VC if at all possible — and besides, Matter doesn't need the money. Then again, I can certainly see how the Kickstarter play is a proof-of-concept for Matter precisely because the founders think that not having VC counts against them.
Anyway, Matter has a hundred grand, so it can conceivable demonstrate the Felix is right by refusing any VC that the Kickstarter success invites. But you have to ask yourself, Would you?