Paul Graham has a great article on the future of web startups that is relevant to Salesforce.com's recent partnership with Bay Partners to help fund startups on the AppExchange.
The article asks the fundamental question "Is venture capital needed to start a web company?" and Paul (A VC himself) provides an honest answer that if history is any indication, then increasingly the answer will be "no".
I've struggled with this question for several years. During the peak of the dot-com bubble I pitched ideas and working prototypes to several investors, which was really a drain of time and resources. I knew the cost of entry was low enough that qualified companies should be demonstrating real customers.... not just technology.
The beauty of today's environment is that 1-2 people can quickly implement an idea on a platform like Salesforce.com (ahem... I mean force.com), engage with real customers, deliver immediate value, and grow with little upfront capital expense (meanwhile passing this efficiency of scale onto customers at the same time).
Fortunately, our advisors and management team do not believe VC is necessary at this point. We're growing at 100%+ annually with a backlog of work and opportunities that traditional financial institutions would eagerly support via debt, but still I wonder.... why would a web startup need $5M or even $500,000 to get started today?
Of course any entrepreneur could find a use for any amount of capital, but would it be the most appropriate use and provide the greatest return to investors?
A notable point from Paul's article:
"When starting a startup was expensive, you had to get the permission of investors to do it. Now the only threshold is courage."