Re: Oh, this is making *me* sneezy and teary...

Adam Rifkin -4K (
Fri, 17 Dec 1999 20:29:36 -0800 (PST)

Rohit wrote:
> Among the new Web sites catering to nasal drip is Gazoontite. The
> six-month-old startup announced this week it raised $26.5 million
> from Hummer Winblad Venture Partners...

So Gazoontite got a Hummer? Hmmm... I'm feeling nostalgic for the time
when $26.5 million was a lot of money to plunk down on a startup. And
now it's the kind of money people will chuck at "breathing market"
upstarts (here's the 13th-floor pitch: "Our research shows that 97% of
Internet users are currently breathing..." :)

Back in the early days (say 1993-1994 when Yahoo was rising out of the
primordial ooze), I never thought I would see the day when $6 million
was "nothing money" that people like Jim Barksdale and Brad Silverberg
would throw at companies like TellMe:

> Mr. McCue says over half of the company's employees come from either
> Microsoft or Netscape. "At first, we were thinking about using Opera as
> our company browser," he jokes. "But both teams have respect for each
> other."

Hey, what's with the slam on Opera???

But back to the lament that $6 million just ain't what it used to be (a
mere three 30-second Superbowl ads!). Now you have fourth tier and
fifth tier Internut startups lamenting about the fact that they burn
through that much seed money oh-too-quickly:

> Mr. MacKay admits its $7 million in a first round of funding is a
> short stack of cash these days, when it takes many millions of dollars
> in advertising to ramp up. The financing should carry Younology through
> its February 7 launch date, when the company hopes to raise at least $20
> million in a second round of VC funding.

"Waiter, I'll have the short stack..."

One weird thing about late 1999 is that the employees of such companies
no longer take risks. Program managers and developers can make cash
salaries in the $50-100k range, maybe even more, working at a startup,
plus a small equity stake in the form of options. Where is the risk
when all they're doing is burning other peoples' money on a cool idea
and getting an actual salary while doing it? Where's the incentive NOT
to make fishy claims like the one in the paragraph below:

> Younology will cast a wide net to jumpstart its business. It's sending
> out a sales force to persuade what it considers to be the top 100
> e-commerce Web sites to adopt the technology. Among potential customers
> are (Nasdaq: AMZN), EToys (Nasdaq: ETYS),
> (Nasdaq: BNBN), CDNow (Nasdaq: CDNW), and So far the
> company has persuaded just five Web sites to use its software, who
> constitute a mix of up-and-comers and well-known online outfits, Mr.
> MacKay says. He wants to sign up hundreds of Web sites by the end of
> next year.

They mention five companies, and then they say they have five companies
signed up (but won't say which ones), and leave it to the reader to
figure out that they aren't the same five companies. And then the
vulture capitalists throw them another fricking bone in the form of $20
million in second round funding???

Do companies ever fail anymore, or do they just get bought out by other
companies for the purpose of press releases, code snarfing, and employee
raids? Does any company ever come up with more than one good idea, or
are startups just outsourced R&D labs waiting to be snatched up by
bigger corporations because it's cheaper than developing inhouse?
Bernie Ebbers and John Chambers perfected the model of growing a tech
company by M&A, the former by swallowing bigger fish with each
successive M, and the latter by A'ing any small-to-midcap with
promising R&D. In the other direction, David Wetherell has mastered the
art of producing a whirlwind of investments, spinoffs, acquisitions,
IPOs, debt floating, and venture funds so that we're always wondering if
CMGi has any "there" there at all. [CMGi bought AltaVista from Compaq
for $2 billion in June, and today filed its S-1 to IPO AltaVista to
raise $300 million in cash and $6 billion in paper equity in February or
March. This is business as usual in the Internet economy: from buyout
to spinoff in just 9 months, raising $300 million in cash and tripling
the paper "value" of the company in the process. In what might be the
ultimate indicator of this era, CMGi is now thinking about spinning off
its venture arm. Let me get this straight: a venture capital company
having an Initial Public Offering for its venture capital arm???
Where's the "there" there?]

It's December 17, 1999. Y2K is a mere two weeks away. And there is no
longer any risk at all in joining a startup: you get cash, and the
company in all likelihood will either get bought, or merge with someone
else, or split up so all the employees can go do it again, or if they're
lucky maybe even go public. The people who make money from
participating then go back and do it again -- meaning some, if not most,
of this money earned in tech finds its way back in the system, either by
supporting someone while s/he works on a new idea, or funding a new
idea, or at the very least working its way into the stock market.
Whatever happened to the "dangerous" startup environment where people
were assuming actual risks for a chance to strike it big?

Will we see this business cycle -- the longest peacetime expansion in
history -- peak in a few months, or can it go on for a few more years?
We just watched the Nasdaq Composite march up 1000 straight points to
almost 3800 in a matter of two months (that's like what, 3000-4000 Dow
points?). If we had a time machine and went back to 1993 and told them
1999 was going to be like this for the tech world, would they have
believed us? Rohit has postulated things that might make it end -- for
the record, Bill Gates' net worth exceeding $110 billion didn't stop it,
nor did Microsoft being worth more than Spain's gross domestic product.

Just another day in the making of history.


In a move to capitalize on the burgeoning open source movement and the
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