I enjoyed this episode of This Week in Startups with USV's Fred Wilson. It's a fairly candid conversation from this year's Launch Festival, and Fred comes across as having both integrity and a very practical approach to investing in startups.

The story that jumps out at me is that of Tumblr's acquisition by Yahoo!. There are two important details: the first is that Tumblr's initial investment round was less than a million dollars. The second is Fred's disclosure that the acquisition happened at a time when Tumblr had spent a lot of money on growth, and would have to either raise a huge round to make up the shortfall, significantly diluting the existing shareholders in the process, or raise unrealistic amounts of revenue. So selling to Yahoo! for $1.1 billion made sense for them.

There has been a great deal of backlash against venture capital in data ownership circles over the last year. Certainly, VC money gravitates towards a certain kind of company strategy, where designing for extremely rapid growth is a hallmark, and a profitable exit - either to IPO or acquisition - is desired. Rapid, sustainable growth is very difficult to achieve without a budget. It also overwhelmingly leads to strategies like revenue through advertising, where user growth isn't hampered by having to pay to use a service. Advertising is often criticized for requiring people to give up some personal privacy so that advertisements can be more targeted, and therefore more valuable to the service.

I think it's worth considering that services like Tumblr, Twitter and Facebook have also connected us and become a part of the cultural landscape in ways that wouldn't have been possible if people had needed to pay for them. Assuming that everyone should pay for a service is not realistic if you want to build a global community. Again, a resource-strapped startup is also more likely to see slower growth than one with millions of dollars in the bank: their box of tricks is necessarily more limited.

If you're opposed to this kind of financing, it's worth asking: would you pay for Tumblr, or Twitter, or Facebook? If not, why not? How many services do you actually pay for?

Venture capital isn't the only way. Notably, O'Reilly Alpha Tech Ventures created Indie.vc in order to explore a more revenue-centric funding model (and I hope more will follow). But I do think VC is a legitimate funding tactic for a particular kind of highly-available, free-to-use mass-market tool, and it seems to me that whether it has a detrimental effect on a startup's service has more to do with the individuals at the startup, and the personalities of the VC investors they choose, than the model as a whole.