Indeed, Lindsay comes close to calling the entire Web 2.0 company-creation mechanism something of a Ponzi scheme. (Though he doesn’t actually use the term.) “Typically after a few years of growing users, a social network start-up’s venture funding runs short,” he writes. “Because there are no revenues [there] is no way the owners can persuade the financial markets to fun an IPO. So now there is the problem of how the original venture capitals are to be paid.”
The usual answer, he says, is to start calling around to Valley execs to sell them on “the latest and greatest thing on the Web,” complete with hints that the potential acquirer’s business is “looking a little tired.” And before you know it, he says, you have a deal."