I recently finished The Big Rich, a history of Texas oil-men by the author of Barbarians at the Gate. It was striking how similar the early days of Texas oil felt to the current web startup world, full of skeptical old companies, a few new-born giants and a crowd of wild-catters convinced they were just one lucky strike away from riches.
One detail that really struck me was an innovation in financing that enabled the independent operators to build their businesses. Bankers in Houston began giving out loans with the collateral based on the estimated reserves underneath a wildcatter's oil wells. This was unheard of, but it made perfect commercial sense. As long as the banks could rely on a trustworthy geological report, the reserves represented a steady stream of cash to guarantee any loan. In return, the independents were able to re-invest in the gear and labor needed to sink new wells and expand.
This got me wondering if this is a better model than the current angel/VC equity standard for web financing? If you have a pretty reliable income stream from advertising on a site, are there banks comfortable enough scrutinizing audited visitor reports to lend you money against that? Nothing I'm working on fits that description, but I'm genuinely curious if we're at a stage of maturity in the industry where this sort of thing makes sense.
I see a lot of businesses out there that are never going to be the next Google but could be decent money spinners with some reasonable financing. The VC model relies on hitting for the fences, so most of the solid prospects I see end up either boot-strapping painfully slowly, getting angels and disappointing them with comparatively unexciting growth, or just hitting the end of the runway.
Pete Warden's blog 