Sunday, June 19, 2005

The Crazy '99

The Crazy '99
Originally uploaded by renaissancechambara.
Picture courtesy of Jener Miranda from the 2005 class year book of Paul Revere Charter Middle School in Los Angeles.

I got an email from an old colleague of mine Jener Miranda. Jener and I used to work together at a then very successful PR agency called The Weber Group Europe on 'traditional' enterprise software type technology clients and newer 'boom' clients in what where then bubble areas like mobile software, e-commerce, web services and alternative telcos. Jener moved back to the US and eventually left the public relations agency game for a more fulfilling career inspiring and educating kids. As you can see from this years class year book photo, he's a firm disciplinarian. Jener's email and recent articles that I have been reading threw me back to those times in 1999 when we worked together.

There are a number of factors that are piling on the pressure to repeat the past. VC firms are being more adventurous with their funding, mainly because if they don't spend the money soon they will have to give it all back and won't be able to charge management fees. Hundreds of millions of dollars are at stake. This means that they are incentivised to invest it in something.... if they are desperate enough anything.

The VCs bargaining position is not helped by the fact that many of the most promising investment opportunities do not need them, having been bootstrapped together rather like Jim Clark's Netscape. VCs that previously specialised in traditional areas such as enterprise software tools, photonics, wireless technologies and telecoms are looking to get into consumer web ideas.

There is too much money chasing too little investment opportunities (for example the hype surrounding the Party Poker floatation and the amount of wannabes launching in its wake. (I know of two at least that friends of mine have been approached to work on that are Party Pokeresque vehicles funded by investment bankers and hedge funds who smell blood in the water.)

Social networking has already seen a boom and the first casualties occurred last year like Buddy Network and Pollen in the UK alone.

Much of the technological areas that were hot when I cut my PR teeth are hot again: PC-to-PC and PC-to-phone communications, shopping comparison sites and online calendars to name but a few.

- When the company becomes the product. During the last boom many of the start-ups goals were to have a swift exit strategy and the business may have been set up with an investor in mind (usually Cisco or Microsoft). With this mindset the management move from building a viable business with real sales revenue, to being focused on one sale: being bought by someone else
- The use of accounting measures with key numbers missing becomes de riguer: repeat after me EBITDA positive is not necessarily a profitable business
- Common sense and the laws of economics no longer matter (allegedly). I still have Wired magazine's encyclopedia of new economy reprint with the Rockwell painting cover somewhere. My defining story was when I met one of the management team of an incubator fund. We had so much work on at the time we used to vet new clients. At the end of the meeting I asked him what made his differentiated his outfit from competitors to which he replied that he was really surprised I had asked the question. They were too busy to think about and were focused instead on moving at internet speed
- Ideas that focus on the technology, not on people. Online banking works because people can easily see the numbers of their statement in front of them rather than having a boring litany read them from a call centre in Bangalore. Ordering a pizza by WAP doesn't, you already have a phone in your hand, just call up Dominoes instead

The first signs are that this is already happening.

I met a merchant banker who said that the collective memory of institutional investors and experts went back about eight years. We are over the eight-year threshold since the madness of the Netscape IPO first took hold.

Are we due another net bubble? Let me know your thoughts.......