1. The Answers market is in a land grab mode
Unlike eBay, where there’s a general market for goods and you get huge network effects from having a critical mass of buyers and sellers, StackOverflow is all about niches. People who are searching for “how to make sql server not go slow?” aren’t likely to bleed over to “how to make swedish meatballs?”.
This means that you’ll have to fight for every niche. Similar to how general forums would have to fight for every niche. Just because you have a forum site that’s big for gamers, you won’t have much of an edge attracting foodies.
Finally, it’s not like this is a new idea with no other entrants. Look at Yahoo Answers for a site that’s still up with a similar model and look at Google Answers for another that couldn’t be turned into a worthwhile business and closed.
2. Stack Overflow is like Starbucks
It really isn’t. Starbucks can use capital efficiently because they have big capital expenditures securing land, building out stores, and purchasing coffee machines. Where’s the capital intensity part of starting another answers site? Adding another server? Coming up with a new design?
It doesn’t seem like Stack Overflow can efficiently use big money for anything but advertising itself. Which is kinda funny when the whole business is about getting page views to sell for ad crumbs. It also rings very much like dot-com. Remember when all you had to do was get eyeballs? Oh, it’s free? Who cares, let’s make it up on volume!
3. Stack Overflow wants to get on Techcrunch
If you’re listing the publicity of “Stack Overflow raises $10M in Series A by Fancy Schmancy VC” as the 3rd pro for taking money, you’re bound to be in trouble. The Techcrunch post you’re going to get from this is going to scroll off the front page in 4 hours and nobody who’s actually going to use your service is going to care.
Do you think people looking for an answer to “how do I get the three gold rings in zelda?” is going to give a hoot who’s money you’re burning to provide that forum? Or even that the advertisers you’re hoping to attract is going to look at anything else than CPM and demographics for a clue on whether to invest? No.
4. The investor will give you advice, connections, and introductions
They may, but most of the introductions your typical investor is going to give you is how to get you out in 3-5 years. You can find a lot of advice in many places. Rarely is the quality of the advice associated with having money involved of largely superior quality.
And if you end up building something of considerable value, then the connections and introductions will come all by themselves. You usually have to work to fight them off with a stick when things are going great. And getting an intro to Mr. Very Important Person before you have anything of material value is usually not going to give you much anyway.
5. Taking money means big exit or IPO
I’d argue the opposite. When you take money, your exit is bound to be smaller unless you’re playing the Web 2.0 lottery game (where a few lucky contestants gets bought for sums completely uncorrelated to business fundamentals). Taking money means giving up equity, which means there’ll be less left over if you happen to build something that’s valuable enough for others to buy.
And I don’t know if you’ve heard, but the IPO markets aren’t all that interested in eyeball companies without the numbers to back them up any more. Doesn’t matter how many letters of the alphabet you’ve used for series whatever funding before you got there.
If you can build a great, profitable business, you’ll have all the options to sell or go IPO. Taking VC only complicates that.
6. Taking VC will make your company successful
This one is funny. So if you’re not looking to take VC and play the Web 2.0 lottery or aim for an early exit, you’re just in it for “personal aggrandizement”. If you take the money, you just want the best for your business. Spot the disconnect here.
Now even given all this, there’s actually still an argument for why Joel should take the money. It’ll probably lower the chances of Stack Overflow ultimately succeeding as a long-term sustainable business, but if he has eyed that he has a hot property right now, it’ll be a good time to take some money off the table.
A fool and his money will soon be departed applies equally to venture capitalists as it does to everyone else. If Joel and co. can negotiate a deal with Sand Hill road to give them a nice payout as part of the deal, this might well be even better than trying to shop around Stack Overflow for a sale that it’s probably premature for.
Much better to take a small slice of the proceeds from a “if this just get 1% of the billion dollar advertising market” than to take the slice from “how much money did you make for the past 12 months?” of a strictly look-at-the-books sale.
Go cherries, go!