Is Web 2.0 Another Bubble? The new 'cool' topic to discuss seems to be is if the current excitement and innovation around "Web 2.0" is a bubble or not. In fact, there was a WSJ article interviewing Todd Dagress (Boston VC) and David Hornik (Bay Area VC) My favorite quote from the article... "By the way, the combined cash flow of Spot Runner, LinkedIn and Facebook is less than that of one Costco store. " - Todd Dagres, Spark Capital Yeah but, Todd, isn't is about growth and margins? Would you prefer to buy a Costco store rather than your recent investment in http://www.nextnewnetworks.com/? I don't think so. (BTW, I LOVE Costco. I would buy every product in my house from them if possible. But that does not mean I want to invest or work there.) As someone who lived through the 1999-2000 bubble - and was in San Francisco, aka 'ground zero' for the bubble - I really do not think we are even close to a bubble right now. A lot of the craziness we saw in '99 is NOT happening today, such as:
- There are no huge launch parties spending VC/investor money on booze - I went to a bunch of really expensive "launch parties" for all kinds of dot-com startups in 1999, which were basically booze and appetizer fests paid for with VC money (the VCs went and thought it was a great time)
- No one is spending millions on stupid advertisements - No one is buying SuperBowl ads like Pets.com (let's ignore GoDaddy.com) and no one is spending millions on 'partnerships' with AOL, Excite/@Home, etc. People are paying per click with Google instead, whichi has no long term committment and is infinitely scaleable
- There are no huge Series B VC rounds - One of my old startups (gazoontite.com) raised $26m in a Series B From Hummer Winblad and Oak Investment Partners, with very little revenue and no profit. While there is a lot of angel and serties A activity, the investments seem to max out at $4-6m, which is far less that the frothy investments and crazy valuations of the real bubble in 1999.
What is happening today is a huge amount of innovation using a new generation of development tools and social paradigms around the web. We are seeing a lot of entrepreneurs try new things and create value through building things not possible or not conceived a while ago. But, this is not a bubble. This is actually a good thing. And yes, many of them fail. Startups always do. but some succeed. And that is how the world changes. Sure, maybe valuations are a bit high and maybe a hot sector is attracting more attention than it should, but that is not a bubble. A bubble is pure craziness that will lead to a horrible burst / crash. We're not there. At least not yet.
Mike Volpe is a startup advisor and angel investor based in Boston.
Topics:
business model,
startup
