Today's Globe column: What Bubble?

Today's Globe column considers the question of whether we're in the midst of another tech bubble, and if so, can it survive the economic downturn some are predicting for 2008. From the piece:

Bubble deniers think continued increases in Internet usage and online ad spending will keep some companies cruising through any recession or economic slowdown. But bubble believers say that's about as likely as the Supreme Court successfully repealing the law of gravity.

Here's the video, shot at this month's TechCrunch party in Boston, followed by some perspectives that got snipped from the column for space reasons. (And a few comments that arrived too late for my deadline.)



New York venture capitalist and blogger Fred Wilson wrote via e-mail that he is “long-term bullish on the Internet, but short-term cautious, and also very aware of the problems in the U.S. economy and the impact they could have on the sector.”

Here's the full text of an e-mail reply I got back from Guy Kawasaki, a bubble believer:

We're in another bubble for sure. What will cause it to burst is anything that causes companies to curtail online advertising. When you read about a company offering Porsches to people who helped it recruit people, it's time to short the market.

And from VC and blogger David Hornik, a bubble denier:

I think there has been talk of a new bubble since the day that VCs began investing in consumer internet technologies again. The bubble of the late 90's felt great on the way up and horrible on the way down. But it was inflated drastically by a public market for highly risky Internet stocks. This time around, although there is a great deal of enthusiasm for consumer Internet startups in the Venture Capital community, there is no public market to further fan the flames. So to the extent that money is lost, it will all be the money of professional investors. And, to my mind, that will never constitute the sort of bubble that causes far reaching pain in the event that it pops.

Alan Philips is the CEO of Frame Media Inc., a Wellesley start-up that plans to deliver images and news for free to a new generation of Net-connected digital picture frames in consumers’ homes (sprinkled with a few ads here and there.) His company raised $2 million earlier this month.

Philips says he isn’t worried about how much consumers will or won’t spend buying gifts this holiday season, the first time that Net-connected picture frames are widely available at electronics stores. The word he has been hearing is that many retailers are selling out of the frames, which start at about $199.

Stephen DiMarco says that “it’s a very bullish time if you’re in Internet ad sales, marketing, or analytics,” the arena where his Boston company, Compete, Inc., plays. “It’s bad times if you’re a mortgage broker.”

“Is anything going to slow down Google’s growth?” DiMarco asks. “It doesn’t look like it, and Google is a pretty good proxy for the rest of the industry.” (Those could prove to be prophetic words from an entrepreneur whose last company, the Web development agency Zefer Corp., was slated to go public in the spring of 2000, but decided to wait for the stock market to improve. That didn’t happen, and Zefer doesn’t exist today.)

Dirty Little Secrets About VCs

After covering venture capitalists for about ten years, I've finally learned two things (I'm a slow learner):

1. They need to hear about companies before their competition. (As a journalist, I can relate.)
2. They compete fervently with other VCs to get their money into the best start-ups at the right valuation

Though they like to portray themselves as omniscient and omnipotent, they're actually quite anxious about missing the next big deal.

Blogging is still a new phenomenon among VCs here in Boston. (Jeff Bussgang at IDG Ventures has been at it the longest, as far as I can tell.)

One major purpose that blogging serves for the less-established VCs who do it is to raise their profile among entrepreneurs, to show entrepreneurs that they understand a particular space, that they are totally in sync. Older, more established VCs have a reputation, and entrepreneurs are magnetically pulled to them because of their track record, or because successful entrepreneurs make an introduction -- go see Mr. Greybeard, who's a partner at Established Venture Partners at the Bay Colony Center. They don't have to blog. (Yet.)

But the less-established VCs blog, and I suspect that is going to make them appealing to a new generation of not-yet-proven entrepreneurs with compelling ideas...and help them hear about these ideas first. On the West Coast, David Hornik of August Capital is the best example of a VC who has built his reputation atop his blog. Entrepreneurs know who he is.

I think the same is beginning to happen out here with the VC-bloggers (there's a list of them at right). The Rolodex and schmoozing and personal connections are still going to be important, but a blog is a great way to broadcast that you understand what's changing in the tech world -- both to entrepreneurs in New England and elsewhere.

What got me thinking about this was David Beisel's great post on "Seven Coming Digital Uber-trends which are Ripe for Startup Opportunities." This kind of stuff is flypaper for entrepreneurs; I know David's going to get e-mails from a bunch of start-ups saying, "Hey, I'm working on trend #2, can we set up a meeting?"