A little over a month ago VC firm Greylock Partners led a funding round raising $15 million for Constant Contact, an email marketing vendor that targets small businesses and nonprofit organizations. Huh? Why would Greylock invest a sizable chunk of change in a space that is becoming increasingly commoditized and has low switching costs and barriers to entry? Greylock is an extremely smart VC, right? I mean they successfully invested in Doubleclick, Epsilon, and Red Hat among others.
My theory is this - Greylock invested in Constant Contact because - • Small business is a hugely underserved market and small businesses are traditionally technology adoption laggards. • Sinking disproportionate amounts of money in a market that traditionally grows organically allows them to “buy” accounts and build “value” rapidly. • Email is just the first in a whole slew of services that the $15 million can build, package and provide small businesses. • Once Constant Contact gains sufficient momentum it becomes a great merger or acquisition target yielding a nice return on investment for the VCs (Greylock!) who backed it.