Because it’s good business.
If I pay $1,000 for a piece of paper, and everyone knows that companies like mine have turned paper into gold before, then I can sell that sheet of paper for $2,000.. maybe more.
That’s what’s happening from Silicon Valley to Silicon Alley. VCs and angels (many backed by large PE firms) are investing in tech startups at absurd valuations (because everyone knows EVERYTHING’s going digital). But there’s a secret: going digital doesn’t mean monetizing… in fact, for publishing it’s meant the exact opposite. And for many other industries it will mean the same.
So, next time an early-stage startup gets bought for more than $10M, remember that Y Combinator probably paid $18,000 for a similar thing… and their company full of young, motivated talent (that’s more in tune to the digital revolution) will probably be more profitable. In tech, the incubation model works… the frothy VC model might get played out soon…. because really everyone’s buying sheets of paper that they think will turn into gold.
If you’re an investor looking to participate in this, and you don’t really know anyone in the biz, then there’s a new startup that can help get you some of this paper-to-gold action: CapLinked (brought to you by the good ol’ boys of the PayPal Mafia).