In a really wonderful op-ed piece for VentureBeat, David Shen addressed the issue of me-too startups.  Specifically, how the current marketplace of ideas seems to be flooded with products that provide similar services and employ similar models.  To read the full article click here.

What I wanted to address was Shen's opening paragraph.  Shen opens with:

"I believe the universe of internet businesses has become extremely crowded in the last few years. In the early days, you could easily come out with something new because there weren’t that many competitors out there. Now, it’s hard to find somebody who isn’t working on something similar to what you’re thinking about. So competition is fierce and many times you’ll find entrenched competitors with a lot of product inertia and a great head start."

There is just something about the idea that, "it's hard to find somebody who isn't working on something similar to what you're thinking about."  And this makes me mad.  Because Shen is right.  How many times do you see multiple products launched in the same week that perform the same tasks.  Twitter is unbelievably notorious for this.  I mean seriously, how many twitter picture apps are there at this point?!? (over 20 apps that service twitter pictures).  And I get it.  Twitter is the new hotness and the API isn't rocket science.  But, what happened to genuine innovation.  Instead of another app that lets you take pictures with your phone and shoots a >140 character URL, why not an app that converts images into characters, and consequently allows a person to post a picture in their tweet stream.  That would "disrupt" current technologies, no?

I apologize for the tone of this post (not really), but it seems to me that businesses--especially online businesses--stem from problems.  It has been like this forever.  Can't light that wet match? Here's a waterproof lighter.  Don't want to physically visit 10 different blogs a day?  Here's an RSS feed.  The point is, truly groundbreaking ideas solve problems. 

Which begs the question, where are all of the problem solvers these days?

Earlier this month Sequoia Capital and Spark Capital -- two notable VCs -- both announced a heavy increase in funding for early-stage startups. In this case, the funding for both VCs is being funneled through incubators (Y-combinator and Start@Spark respectively). This announcement came on the heels of the release of the news that the smallest amount of venture funds raised in a single quarter since Q3 2003 ($4.3billion) was Q1 2009.

But what does this mean?  A few things:

1. The economy is still awful.  No matter what the fed says, nearly all economic indicators point to the fact that we are going to be in this rut until the end of this quarter at a minimum.  Sure, IPOs seem to be opening up but M&A valuations are at deathbed lows and cash is tight everywhere (unless you are Apple).  Point being, VCs not only have less cash on hand, but they are continuing the pattern of avoiding large-scale rampup funding in late-stage ventures.

2. It is good to be in IT.  Unlike lots of other sectors, to start an IT company all you need is a garage (or dorm room, or your room at your parents' house), a computer and an idea (albeit it should be a good idea).  This lack of overhead creates a large door for entry into the sector, which in turn encourages competition.  Not to mention the fact that open API's are the shizznizzle!  If you had asked a startup founder in 1998 if they were going to open up their platform to encourage 3rd parties to make that scrilla, the answer would have been a resounding "whatchu talkin 'bout willis?!?".  Today, developers and entrepreneurs have the luxury of building companies off of the sweat equity of already established brands (facebook, twitter, google), which makes entry quite a bit easier!

3. It is good to be small.  Guy Kawasaki wrote a post a few years back about how it only took him $12,000 to start company.  Now, to be frank he is Guy Kawasaki and we are not (unless you are reading this Guy -- then you are you) but the point of the post was that for a nominal amount of money you can start a company.  Sure, these costs don't include paying yourself at first (a serious barrier for people with responsibilities) but imagine what this means for VCs.  Specifically, if you are DFJ and you are trying to raise $400 million, are you going to invest $100 million of that in 100 companies (taking 30% in each I might add) or $10 million in 10 companies (taking 15%)?  It isn't like the world of startups is zero-sum either.  The fact of the matter is that there are definitely 100 companies out there right now seeking funding that only need a million bucks to become profitable.  There might even be 1000.  This is something that isn't escaping VCs.

Lastly, the most exciting thing for me about the Y-Combinator and Start@Spark funding growth is the fact that both of these combinators focus on media and technology.  This is so exciting because while the social web grows every day information becomes increasingly fragmented and what average people need are ways to deal with this information more efficiently.  This is what these combinators are making happen!

Honestly, if you picture yourself in the year 2020 what do you see?  OSs for homes (straight out of Iron Man)? a wi-fi network that covers... earth?  Singularity?  Cheetos that don't turn your hands orange?  I know that I picture a system of information architecture that allows me to access information in ways that I can't imagine at this point (I know, I know, how can I picture something that I can't imagine?  Because I love freedom that is why).

I just hope i can communicate in more than 140 characters.