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It may be a tough time to raise money if you're a young startup but that doesn't mean that funding isn't out there.

Bit.ly, the rockstar URL shortening service that we've profiled on the Econsultancy blog before, proves that; it just managed to raise $2mn from private investors.

Bit.ly is extremely popular on Twitter, even though competitor TinyURL still has far more marketshare. Unlike TinyURL, Bit.ly tracks clicks and provides a variety of analytics data about them. Neither service has a robust revenue model.

Bit.ly's new investors include the O’Reilly AlphaTech Ventures fund and angel investors Howard Lindzon, Jeff Clavier and Ron Conway.

The question many folks are asking about their new investment: huh?

At a time when other startup investors are emphasizing revenues, it's natural to question why anyone would invest in such a simple service with no obvious revenue model. These criticisms do seem fair. The market for URL shortening services has almost no barrier to entry and is rife with competition. It's hard to see Bit.ly as the type of business that is worth millions of dollars, let alone believe that it needs millions of dollars to operate.

But I think some of the criticism should be tempered. We all know that far too much money was invested in revenue-less internet startups over the past several years and that this was a mistake. It's good that more and more investors and entrepreneurs are getting back to basics and focusing on revenue.

At the same time, while it would be counterproductive to swing back to the days of 'revenue doesn't matter', we do need a few investors willing to put money into young companies that don't really know how they're going to make money. Many of these companies will fail but a few of them could blossom in unexpected ways.

Just take the service that is responsible for a lot of Bit.ly's growth: Twitter. If investors had only been funding revenue-oriented startups when Twitter was launched, Twitter might not be here today. Whether Twitter eventually finds a way to make enough money to survive on its own or not remains to be seen but there can be no denying that without investors willing to suspend judgment, all of the great things that Twitter has brought to the internet might still be unknown today.

So let's take it easy on Bit.ly's funding. It's nice to see that there are still investors willing to take a little bit of risk on unproven startups and given how much money has been lost in the financial markets since 2008, what's another $2mn anyway?

Photo credit: tj scenes via Flickr.

Patricio Robles

Published 31 March, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2378 more posts from this author

Comments (2)

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Rory

Well done to Bit.ly. I think this is perfect time to be starting a business - you'll be challenged at every turn and if your business really is good then you'll come out the other side flying and get some very good value add. It will probably be a vintage year for VC's as well with good valuations achievable and you can pick and choose where to put your money.

over 7 years ago

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Clarkson

How will http://bit.ly will compete with others? It is too easy to create an URL shortening service. There are already plenty. Some even with much shorter domain than bit.ly like http://z.pe

about 7 years ago

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