No Web 2.0 Bubble? Hmmm....

Posted by: Rob Hof on October 25, 2005

A new survey of venture capital investment seems to show no incipient bubble in funding new consumer Internet companies, according to Reuters’ take. Well, let’s hope so. But it’s still early, and even the backers of the recent Web 2.0 conference warned that things were getting frothy. So do some VCs, such as Fred Wilson and Peter Rip.

Here’s why I’d still be worried: It costs a whole lot less to fund companies to revenue these days, as Jotspot’s Joe Kraus and others have pointed out. So even if the amount of money going into early ventures is steady, that means a whole lot more companies may be getting funded—and that doesn’t include the many these days that are bootstrapped by repeat entrepreneurs without traditional VC money.

Even more worrisome, a lot of these companies’ products look suspiciously like something Google or Yahoo are likely to have tomorrow. Are these sustainable companies or, as one wag put it at Web 2.0, merely tabs on Yahoo? I don’t know yet. And I don’t want to come down too hard on enthusiastic entrepreneurs who are coming up with great stuff that makes my online experience better every day. But their best scenario, barring a most unlikely Google-style IPO, is to get bought by the companies their creators fled. What about the hundreds of others who don’t?

Reader Comments

Chris Yeh

October 25, 2005 6:37 PM

As long as entrepreneurs focus on building companies that generate cash, rather than consuming it, we'll be fine. Whether these new companies get bought by Yahoo! or simply chug along, supporting their creators' lifestyle, is irrelevant to anyone except for the founder (and his or her spouse).

If 100 people concentrate on building a specific feature to flip to Yahoo!, they're going to come to grief. If 100 people concentrate on building 100 different products and businesses, things will tend to work themselves out.

The reduction in the amount of capital needed to start a company should, in the long run, lead to a nation of entrepreneurs. Most of them won't get rich, but they will enjoy better lives, doing the things that they love.

Joshua DeLong Thomas

October 25, 2005 10:31 PM

You might want to take a look at this blog.

http://flocksucks.wordpress.com/

They seem to 'get it,' so to speak.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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