Thread: funding for websites

when you hear about websites like facebook receiving huge sums of money invested into it, what does that money go for? Like near the beginning of facebook supposedly they received $500,000 from an angel investor.. I am just wondering when a website is just starting to grow what expenses create the need for that kind of money? MJ said he started his website on a shoestring and still made it into millions of dollars so what is all of this investment money going toward when it comes to a website?? thanks guys

i think there is a few answers to your question

1) The industry he entered was new

2) His business model was new ( i specifically heard he "revolutionized" the lead gen business at that time

3) It was a niche market, not something that needed to blow up overnight to gather critical mass the fastest.

Things today are different. Its more competitive and more people are starting with big money, which means its more difficult without having money.


I believe if you can satisfy a new niche business in today's market you could be able to get it done without a lot of money.

Also, considering MJ's market was niche he treated them right and was fair with them not just trying to maximize profit, he had a lot of value. Supposedly when he sold and had millions in VC money go into the business... the business failed.

That right there goes to show you that in that business it was more than just gaining critical mass, it was about who satisfied the customer more. You can put 100 million into anything, and if there is no value, all that money will go into the street.

I would say think of it logically, something connecting consumers like a groupon the product kind of is what it is and whoever gets out there first it will work. With other businesses especially b2b i don't care if i am their only customer as long as what they give me is good.

Usually advertising - particularly if the website is designed to appeal to "everyone".

To make something go viral it still needs a critical mass - and if it doesn't get there quick enough it will fizzle out, just like an actual virus.

Site like facebook or ebay are particularly vulnerable like this in their early stages.

if you had 5 businesses purchasing leads and they were satisfied... they're not going anywhere. You could retain 5 forever, they do not care about who is buying leads. You can slowly and steadily grow a businesses like this, i do not feel critical mass is super important. Obviously you want to dominate your segment which means you have to be big but its all about the long term and if that means slow steady growth you can still take the slower route.

Yep, Lighthouse is right on. I have first hand experience at this in speaking with VC’s and Angels for funding. Costs that needed consideration, at least when Facebook was started were 1.) Server costs (now server costs are much cheaper by using the cloud), 2.) Intellectual Property & Legal costs (if you are going to patent your idea or method it is not cheap), 3.) Marketing costs can potentially be huge depending on the campaign, 4.) Overhead for everything from office space to salaries (remember human resource is the most expensive of all expenses). So all this can add up pretty quickly. Hope this helps.