Mathew Ingram is puzzled by Gather.com's ability to raise $6-million in venture equity from a group of investors that includes Lotus founder ex-Lotus CEO Jim Manzi. Mathew points out there is little to distinguish Gather.com from the growing number of Web start-ups attempting to create sites where contributors provide the content. Gather.com epitomizes what I increasingly see as a troubling Web 2.0 trend in which VCs jump on start-ups amid the fear of missing out on the action. There are simply too many multi-million financing deals being done these days involving start-ups with no competitive edge and/or viable business models. It's almost as if the irrational days of the dot-com era have come back. You tell me how VCs can justify investing in calendar start-ups or RSS readers, for example, where there appears to be no way to actually generate revenue. Let's be perfectly clear here about how the VC process works. It's not rocket science and there are no formulas for success. Investing in start-ups often hinges on a gut feel or a personal relationship or backing an entrepreneur who has done it once before (which is no guarantee of hitting it big again). If a VC makes 10 investments, and one is a huge success and two or three others do okay, the VC can sleep well at night. This means seven other investments completely blow up but that's okay if you can find a gem or two. That said, some of the deals being announced these days do not appear to have any gem-potential. It appears more like bandwagon jumping by VCs afraid of looking bad, which is not a reason to invest in high-risk start-ups.
Update: Newsome.org has some disparaging things to say about Gather.com as does Steve Rubel, who believes a Web 2.0 crash is coming.