Posts Tagged ‘fellow entrepreneurs’

of widgets, bubbles, and wildebeest

Friday, November 7th, 2008





  I was asked eariler this week by a friend – a seasoned veteran of internet investing – what my opinion was on widget world aka web2.0 and if it was indeed time to stick a fork in it, then what was next? It’s a funny topic.

Web2.0 is bursting for the same reasons that Web1.0 met its filmy end. Lack of business model. Lack of management talent. Irrational exhuberance. Herd-like behavior of institutional investors.

I distinctly remember in 1997 how entrepreneurs with absolutely no business model (…oh hell, not even a revenue model…) could get financing from angels and soon thereafter VCs because they were going to “disintermediate” something using the “new power” of the internet. I now sheepishly admit to succesfully raising money for a bplan that called for a website in which all consumer product was free. Why were we fixated on free? Because Nicholas Negroponte and other pundits often quoted by WIred Magazine were saying “Information wants to be Free!” on the internet and that was one of the drivers for disintermediating shopping malls, newspapers, book publishers, catalog merchants, etc.

As I came to know my fellow entrepreneurs, I discovered that most had no prior management experience and almost none had professional management training. They were techies with hubris posing as business acumen or else they were inspirational salesmen and women with a brilliant command of jargon. And most were pretty darn young. My peers claimed I was a gray-beard at the ripe age of 35.

All was well for a while.  All boats rose with the tide of consumer enthusiasm and the massive infusion of loose capital. Many of us crazy entrepreneurs were able to raise capital on a napkin plan, stake out solid growth in consumer visits and page views on rude software in a semi functional browser (t was 1999 after all) We had convinced ourselves that eventually we were all gonna make a lot of money from a business model TBD in the future. My MBA counted for nothing. My 10 years of operating experience in F100 companies counted for nothing. Well, for a few years anyway.  Then it all came home to roost. Most of those “businesses” proved fatally flawed. Web 1.0 popped. No bailout from congress for us.

Then along comes Web2.0  a few years ago, and those of us with an ounce of short term memory still functioning, said “huh?” We wondered what happened to all the people who just learned their lesson from Web 1.0  Here we were once again with engineers filled with school boy test taking skills thinking that was the same as brilliant business skills.  Once again we had bplan devoid of P&L linkage to product plan. And once again we had a heard of Wildebeest investing in these ventures because they didn’t want to miss out on the next Google or Facebook or Youtube.




And now the Wildebeest are running in the opposite direction. Web2.0 companies aren’t making any money. In fact, Facebook, on the backs of which many Web2.0 companies were formed, isnt making money yet. Then the credit crunch hit and the DOW lost over 40% in market value in about 12 months. Panic ensued and for a few weeks there was no investment by any of the VCs. It’s already thawing now as VCs start quietly entering the dealflow again, but it’s a whimper compared to 2 years ago.

What’s next after all this?

I am an optimist. Web 3.0 will start with more seasonsed veterans of the first two Web phases. VCs are asking for bootstrap business plans and business models that have inherent cashflow from (gasp!) paying customers. There will be fewer investments made, the tech VC industry will consolidate to a much smaller number of players. But they will be better investments in fewer plans. And where? I believe the iPhone is the watershed moment for the mobile device as the next place. It’s been hyped for over 10 years but I think the time has come. Facebook will finally make money when a viable consumer application that has inherent value runs on it. In the same way that Microsoft was a silly company until Word, Excel, Outlook, and Powerpoint became mainstays of business operations, somebody is going to find the killer app on Fbook. At which point Fbook will face the same choice MSFT did when Lotus succeedded with 123.  Build? Buy? Kill? Tax?

Is tech investing in the internet dead with Web2.0? No. No way Jose. It’s just finally growing up. And although i’d like to believe it’s mature, there is probably room for another bubble or two to burst in the next 5 years or so.