Benjamin Kuo’s Blog

I’ve heard quite a few people tell me in the last few weeks that “it feels like 1999″ to me — referring to the peak of the Dot Com bubble. Having been around through the last bubble, a few personal opinions on why this is–and what it means for the startup and technology industry in general.

At the peak of the Dot Com bubble, I recall the same kind of frenzy I’ve seen this year, notably:

• Parties, parties, and more parties — During the Dot Com bubble, the center of the party scene was VIC — the Venice Interactive Community. VIC, at its heydey, was holding enormously popular events (VIC @ The Victorian, etc.) where literally thousands of people showed up to just hang out with the “hip and happening” technology/new media crowd. The recent Techcrunch/Popsugar event  in Hollywood (2000 people at the oh-so-fashionable Vanguard) feels exactly like a VIC event. If I get an invite to a company launch at the Playboy mansion (I got a few of those during the bubble) then the feeling will be complete.
• Focus on style and glamor, not business — Again, during the bubble, at some point the attention became on status — how stylish or fashionable were you — “Hey, we just filed for an IPO” “We raised $100M last week!” “Look at our cool new Aeron chairs”. Any question about revenues, profits, or sustainable business were lost in “cool.” The same thing might be said today: “Hey, we’ve got a cool Facebook widget” “We’ve got (insert) Hollywood star producing content for us!” “Look at our video podcast!”
• Traffic, not revenues, rules the valuation discussion — During the dot com boom, companies were benchmarked based on their Internet traffic numbers; instead of talking multiples of revenue, valuation was focused on price based on pageviews. Today, what I am asked all the time is — “how much are my XX million unique users worth”? I’ve been asked that question — seriously — by at least a few investment bankers, for companies which were burning a enormous hole in someone’s pocket. (Credit to the investment bankers: they’ve all acknowledged that they’ve shopped it companies based on uniques, because people have been willing to buy based on uniques and not revenue.)
• Everyone wants a piece of the game. During the Dot Com boom, there was an enormous surge of people — from all walks of life — who wanted to be a piece of the revolution. Instead of the mainstay folks of the technology industry — ie the tech industry executives, marketers, product managers, engineers, software developers, venture capitalists, etc. — you had people from a lot of very non-tech areas getting involved. A huge number of these folks left when the easy money dried up, but again I’m seeing people who aren’t at all “tech” (here’s it’s film and TV producers, actors, and others) starting up “technology” companies.
• Aiming at the quick flip, versus sustainable companies — All too many startups are looking — not to create a useful business, built to eventually be a healthy, standalone company — but instead are looking to create something “cool” for a quick flip. These are often”feature” companies developing some Web 2.0 widget might be helpful to some other site, but not a business in itself.  The problem is, there are a hundred “widget” companies hoping that Yahoo, Google, or Microsoft will buy them and make them fabulously wealthy. But, if they don’t, they’re basically non-viable entities. This is the same symptom that occurred during the Dot Com boom — the major notable exception being that during the Dot Com boom, companies quick flipped through an IPO, rather than trying to get bought. (Or, put in another way–the investors got left holding the bag, instead of some other company).

So, given the disconnect between the overall economy and technology, what can tech companies do to avoid the hangover that the Dot Com boom gave us? My humble personal opinion:

• Focus on substance, not style. Focus your business on stuff that makes business sense, and isn’t just there for the “cool” factor. If a video podcast will drive more business to you, that’s great.  If hosting a party will sign you up more paying customers, that’s great, too. But if the party is just so you can be the next “cool” startup on the block (or, where you are raising venture capital to be able to even AFFORD your party), you might want to rethink it.
• Think revenues, not traffic.  Your number of uniques a month might be great as a status symbol, but if you’re about to go under because you can’t make your monthly payroll, who cares? Revenues are what are important, not pure traffic numbers. If that traffic helps drive revenue, that is great. But if not, I wonder what the point is?
• Make your company sustainable, even without an exit. If everyone was focused on creating a company that was sustainable — ie it grows and pays for itself, without frequent VC injections — instead of focused on getting purchased (which has a very small probability even in the best of times) — then even if the venture funding climate changes, companies will continue to live and prosper. Then, it won’t feel to me like it’s 1999 again.

There’s a great quote (of Drew Lipsher of Greycroft Partners) which Scott Kirschner–a New England blogger and writer–recently posted from AlwaysOn Venture Summit East, about “entrepreneurs moving west to find money”

…if the entrepreneur doesn’t believe in his company enough to believe it can succeed here — they need to move it to Silicon Valley — then we don’t need to invest.

Although Lipsher is clearly referring to deals in New England, it’s worth noting–in my humble opinion–that for any technology startup, if you’ve got a sufficiently large opportunity and truly revolutionary technology or business, you will be successful anywhere. Whether that is Los Angeles, San Diego, Palo Alto, Boston, or Des Moines, if you are plugged into your market, have better technology/people/execution/etc. and the opportunity is right, it shouldn’t matter where you are located, physically.

(btw, It happens that Greycroft has an office in Los Angeles, headed by Dana Settle: the firm has invested in Irvine’s K2 Network, and Santa Monica-based ContextNext).

Omid Rahmat — former publisher of Tom’s Hardware Guide — talks talks about the next Internet wave in our Insights & Opinions section today. Omid has had a long and successful career in the publishing industry, and we’re honored to have his contributions…

If there is another Internet wave coming - a Web 3.0, a Bubble 3.0, or even a recessionary surge – it will surely involve a focus on stronger business models than ones dependent on social networks or pure ad plays. You have to believe that if everyone is chasing advertising technology, ad networks, and ad supported business models then, it is time to go the other way.

Paidcontent is reporting that OpenX, provider of a popular open source advertising serving software product, is moving its headquarters to Los Angeles. OpenX is backed by Index Ventures and Accel. The addition of OpenX bolsters the growing ranks of Internet advertising firms located in the Los Angeles and surrounding areas: among other online advertising related firms in the region are ad networks Yahoo Search Marketing (formerly Overture), Specific Media, ValueClick, AdECN (now owned by Microsoft), not to mention Spot Runner, Gorilla Nation, Rubicon Project, Interpolls, Greenlight Wireless, NextMedium, Panache, ReachLocal, WebVisible, and a slew of other local companies involved in some way with the online advertising industry.

Sid Mohasseb, managing director of Venture Farm and an angel investor who is the incoming President of the Tech Coast Angels Orange County, recently added an article to our Insights & Opinions section – Managing the ripple effect — talking about the importance of watching performance indicators — even as a startup. It’s worth a read. Coincidentally, Venture Farm just made an investment in Vator.tv — an online video podcast with entrepreneur pitches — today.

The Los Angeles times just posted a piece speculating that more Web start-ups are on the rocks as investors are becoming more cautious.

The problem is, it’s very difficult to figure out if a company is having problems raising cash because the economy, or because investors are just not interested in their company. It’s much like the argument on Ivy League college graduates: does going to an Ivy League school make you smarter, or is being smart make it more likely you’ll go to an Ivy League school?

Is your company having funding because investors are pulling back on their investments, or are you having problems with funding because investors aren’t interested in your company to begin with?

Like many publicly traded companies who often use a “bad economy” as a convenient blame for a bad quarter–even though it was due to a management screwup– you’ll hear some venture investors tell you they’re just passing on your company because of the economy — “not your company, it’s nothing personal.” Just like they’ll also use the excuse that you’ve “got a great company, but it just doesn’t fit our profile,” or “this is a great idea, and we’ll get back to you.” It just goes with the territory — more startups fail to find funding than startups who do.

Does that mean there’s no impact of the economy on startups? No. There will be, and there will be harsh impact on some startups. But, unfortunately, so many companies — on a normal, even ultra bubbly day — can’t find funding, you can’t call a technology downturn using how many companies fail to find venture funding.

Off topic, but worth noting: there’s a great article in the New York Times talking about how bloggers are working themselves to death.

As most of you know, we maintain a fairly comprehensive calendar of Southern California technology events on our web site, where we try to list as many of the huge number of events that might be of interest to people in the high tech industry. I’ve recently become aware of a few groups which we haven’t been tracking, so if you run anything of particular interest to anyone in the tech industry (anything from business to technical areas), please put us on your mailing list or submit your events to us. On that same note, anyone hitting the calendar today should see a very significant speedup in loading the page (nothing like a little database magic to make things run faster).

Storm clouds are gathering on the venture industry, as M&A and IPO exits are declining — at least according to the Dow Jones report on VC-backed liquidity released today. Dow Jones reported just $8.2B in exits, and only a handful of IPOs in Q1. It remains to be seen whether slowing liquidity opportunities will scare off venture investors (as it did post dot-com) or whether, this time, the investors in the market are instead set for the long haul and not “quick flips.”

A few people have asked me if I have a twitter account, and I’d thought I’d pass it on to readers here, for anyone who might be interested in following what random thoughts end up there (plus an echo of these blog posts).  http://twitter.com//benkuo

Also, the new home page design is back up.