Internet Bubble Rant

by Steven J. Owens (unless otherwise attributed)

A friend recently left an ideal job for a dotcom, and in the aftermath of the Internet Bubble bursting is left without a job. She was left somewhat bewildered by the bursting [update: this was written early in the bust], since none of the dotcom warning signs were there.

The most likely thing is that the company plans they made were predicated on a sequence of funding rounds which were likely (at the time) but which have become a lot trickier since the market tanked. The internet isn't dead by a long shot, what we're seeing here is just the VCs waffling. The success hype was fed by VCs who switched from $5 million investments to $50 million, and the gloom & doom hype is now being fed by the same VCs crying over their mistakes. The result is that the VCs who would, even in the current market, normally be willing to invest, are now skittish as hell (and/or maybe afraid of looking stupid).

While I'm sure a lot of the dotcoms being shaken out were a bit, ahem, shall we say "optimistic", I'm also sure that a lot more were proceeding on a plan that the VCs dictated. It was usually along the lines of:

"Okay, you need to take this first round of funding and build a development organization, put together the first version of the product."

"Then what?"

"Then you come back to us for the second round of funding and that'll pay for the stage of selling the product and starting to generate some revenue."

"So we'll need to be making a profit at that point?"

"Not a profit, just some cash flowing in to show you have something concrete, that you're real and you're not selling vapor. Then we do a third round of funding that pays for scaling up the company, hiring more sales and marketing folks, building a professional services division to sell after-market consulting services, etc."

Etc, etc, ad nauseam.

None of this is necessarily a bad thing, if done in a sane and sober fashion. The problem comes from all the hype the VCs themselves generated (both to sell the stocks and because of all the money they generated for themselves). Remember, to a VC an individual tech company is just a pawn in game. They'll sacrifice a dozen pawns to get one pawn across the board to make it a queen. Great for them, but it sucks if you're one of the sacrificed pawns.

When I was a kid, I used to think that the stock market was an inane thing that just served to let people make obscene profits off the sweat others by pushing paper around. Then I met an old guy who used to be a stock trader. He set me straight on this; the stock market is a way for people who are trying to produce something by the sweat of their brow to get the financial flexibility they need to do their job. The stock investor's contribution is to take on some of the financial risk, but in doing so he enables the success of the job.

The point is that risk is not just part of the picture, it's the investor's fundamental job in this situation. All of the hype in this situation is annoying as hell to those of us trying to just do our jobs. This doesn't excuse the people doing the actual work at the dotcoms, although once again the responsibility has to lie a bit more on management's shoulders (but hey, that's why they get paid the big bucks) than on the development staff.

Then again, while you hear plenty of gee-whiz stories about how some programmer made a million in stock options, nobody bothers to write about the VC firm that made hundreds of millions (or billions), not to mention the investment bankers who were supposedly keeping this whole picture on an even keel, because after all, that's not really much fun to write about, is it? It's much more fun to write about janitors who now make a hobby of collecting ferarris (the janitor at netscape :-) and to make smug, setentious "I told you so" pronouncements of doom.

Personally, I'm glad the bubble has burst, now I'm just wishing the bursting would be over so we can get on with actually building something.

See original (unformatted) article


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