Remember that crazy dotcom bubble in the late 1990s and the huge bust that followed? It looks like we’re about to sit through the same movie all over again.
That’s what Fred Wilson, a well-known venture capitalist, has been saying lately. Wilson, who runs Union Square Ventures, a New York–based VC firm, says he sees “storm clouds” on the horizon, and he worries that we might be headed toward another disaster. “When I look at where we are right now, it reminds me so much of 1999 and frankly it scares me,” Wilson wrote recently on his blog. The 49-year-old venture capitalist’s fear is understandable. In 1996 he cofounded a New York venture fund called Flatiron Partners, which did booming business investing in Internet companies—until the bubble collapsed, wiping out a bunch of its portfolio companies. Wilson and his partner pretty much shut down Flatiron in 2001, while still helping to manage some of its portfolio companies that had survived.
Undaunted, Wilson and a different partner launched Union Square Ventures in 2005, and he’s riding high once more, with smart investments in some of the hottest new companies on the Web, including Twitter, Foursquare, and Zynga. Nonetheless, Wilson has grown nervous in recent months. He says too many investors are pouring money into Web-based startups, driving valuations to ridiculous heights. In days gone by, the rule of thumb was that a company with two or three employees would be valuedat $5 million or less. But “today in the early-stage market we’re seeing two- and three-person teams that are getting $30 million, $40 million, $50 million valuations, and I think that’s not right,” Wilson said onstage at a Web 2.0 conference in San Francisco last month…
I beleive that the VCs have gone waaaay off the edge in productivity improvement applications, and in the valuation of the WWW social networking utilities, whose revenue model is at best – tenuous and highly volatile.
Yeah – I tend to agree there will be another meltdown – but we are talking about a really small bubble relative to the dot com meltdown which resulted in 3 million lost jobs, and the fall of dozens of major companies from which we have never recovered.
The only real question is – in an already devastated economy, would this be the straw which broke the camel’s back?
And I am not disagreeing with the Capitalist Maxim the “Greed is good”… It’s just that other old Maxim – “Pigs get fed, hogs get slaughtered” that tends to ring so true at times like this.