Everybody who has spent at least an hour in any coffee shop in the south market district of San Francisco, and who is old enough to remember the first dot.com bubble of the end of the 90s will totally feel the eery similarities. Find out what is going on and why it's really not a big deal. -By Philippe Mora (@philippemora)
San Francisco, 04/01/14 - In recent experiences with e-la-carte and Lark by some executive friends of mine, reporting clueless 20-something management with no business model, no idea on how to run a business, no real product and no understanding of basic cash flow management, but with the oh! so cool backing from a few venture capitalist firms and awash with millions of dollars to burn - we (the down-to-earth, get-things-done, been-there-done that experienced startup exec crowd), are left with interesting thoughts that mix disdain with humor, looking at that display of arrogance and incompetence that only failure will tame: what the F is going on here ?In a recent article published in The New Republic, the authors argue that the rampant ageism in Silicon Valley is all due to Venture Capitalists, who are looking for returns in the 100x or 1000x, and are literally betting on a pile of crap to find out the unique black sheep that will give them what they need: lots of dough. To do so, there is no need to utilize seasoned and talented 30- and 40- somethings with proven success track records. It's actually much less trouble to use 20-something, know-nothing, bro-types and throw money at them in order to totally inflate their egos to the max and make them compliant. If they fail, it's really a big whatever, but if something sticks, then, yes, we'll bring the 30- and 40- somethings in to baby sit them and actually turn this into a viable business. Thing is .... we've been there, done that - and the only people making money in 2002 were bankruptcy lawyers and u-haul. Let the good times begin!
[Read More Here > Thank You Harvard Business School 03/05/14]
The recent purchase of WhatsApp by Facebook for a reported price equaling $345 million per employee prompts me to ask the question above. It also brings back vivid memories of the last bubble, seen from the inside.
In the spring of 2000, signs of the end of a dot.com bubble were all around us. As a director of an Internet-based startup, PlanetFeedback.com, I met with our board in the only meeting room for that purpose at Flatiron Partners in New York. Companies in which Flatiron had invested scheduled the room, one after another, for their board meetings.
In our case, we had moved our meeting to New York to discuss growth and the next round of financing for the company. Our leadership, alumni from Procter & Gamble's online operation, carefully laid out plans in which they estimated they would need a next round financing of $30 million. The representative from Flatiron indicated his partners would like to see a proposal. When our CEO replied that he could have something in a couple of weeks, our host shot back, "A couple of weeks! Put something down on a sheet of paper and give to me before you leave today." We received the money in early June, just as the entire high-tech bubble was popping, pulling much of the stock market down with it. In true P&G fashion, our management nursed the money through the worst of the downturn.
The story doesn't end there. On our way out we were introduced to the management and directors of the startup that had the room reserved after us, kozmo.com. Their average age was in the early twenties. Kozmo.com took orders over the Internet and promised one-hour delivery of a wide range of products, including an entire evening's complement of food and videos, with no delivery fee and at a price roughly equal to what one would pay at retail. As it turned out, the business model was really selling $10 bills for $5. But kozmo.com also got its money (including $60 million from Amazon) and managed to run through $250 million of venture capital before shutting its doors just 14 months later. The next time I met the CEO was as a student in my MBA classroom.
During my visits to Silicon Valley before the last high-tech bubble, the yardstick for acquisition price was also price per employee. The use of the measure seemed to subside when investment activity once again focused around startups rather than M&A. But now that the most wildly successful of those startups have accumulated a lot of cash themselves, acquisitions and the price paid per employee are once again fueling headlines. (A better yardstick might be price per user, which in the case of WhatsApp was about $40 for a service with no advertising and a revenue stream of $1 per year from those users not getting it free.)
How will we know when we are near the end of the next high tech bubble? When the Nasdaq finally makes it back to the highs it registered in 2000, perhaps this year? When investors stop cheering acquisitions like that of Facebook's? (They actually bid the price higher the day after the announcement.) When the website kozmo.com announces that it will relaunch soon (which, according to Wikipedia, it did last September)?
When will the next dot.com bubble burst? (Or does even the use of the term, dot.com, date me?) What do you think?