• Business 2.0, Wednesday, February 28, 2007 10:45 AM

Call them the Silicon Valley mob, at least that's what the news mag is calling the area's biggest venture-capital firms. The going wisdom in Silicon Valley dictates that as long as your startup operates with the triple-A business model of "Ajax, AdSense and arrogance" you don't need VC money.

The three As may provide an economic base and a spirit of independence, but they don't offer an insurance policy. As with any business, things could go wrong; you can't get that kind of protection anywhere but from the area's biggest VC firms.

Business 2.0 came to that conclusion after interviewing a young startup founder who gave up 5% to 10% percent of his company's equity for money he seemingly didn't need. He had taken enough cash to keep his company going for four more years, just in case. The decision was all about connections -- VCs make sure you don't fall into the wrong crowd or make stupid decisions. They grant access to their accountants, lawyers and bankers, but perhaps most crucially, the deal virtually guarantees that they won't fund a competitor.

And if your startup hits the big time, VC investment protects your startup from being pushed around by bigger media companies. Just ask YouTube.

Read the whole story at Business 2.0 »