A look at the progression of other infrastructural technologies is useful. Consider the history of electricity. Paul David, an economic historian at Stanford, noted that it took many decades for business and society to reap tangible benefits from electricity. While important technologies were introduced throughout the 1800s (e.g., electric motors, light bulbs, generation stations), David suggests that an observer in 1900 would have found scant evidence that electricity was having an impact on business efficiency. To take advantage of electricity required not only the introduction of new technologies, but also a deepening of our understanding and in turn a transformation of business and social processes. For instance, manufacturing facilities, which were originally designed for steam power, needed to be significantly reconfigured.
Although David’s discussion was focused on the lag in productivity improvements resulting from electricity, it provides some useful insights about the state of the Internet and its commercialization. While the first computers emerged in the 1940s, and the Internet was born in the 1960s, it wasn’t until much later that computing and the Internet were widely adopted by business and consumers. For instance, it wasn’t until the early 1990s that the Internet transitioned from a government/ academic project to a commercially available system, and the Internet wasn’t broadly available to consumers until the mid-1990s.
In a mere five years from the commercial emergence of the Internet, we faced the first Internet bubble and bust in 2000. Looking back at history, it’s no surprise that the first wave of applications generally performed disappointingly, both technically and commercially. Broadband connectivity, the Internet backbone, and critical software and hardware standards were still in the early stages of development. Along with an emerging infrastructure, there was a limited understanding of the potential of the Internet among entrepreneurs, established companies, and broader society.
Now that we’ve had 10 more years to develop core infrastructure and to deepen our understanding of the Internet (and computing) from a technical and commercial standpoint, we are witnessing the emergence of a new crop of high-growth companies. Distinct from many of the Internet companies that arose in the late 1990s, a greater percentage of today’s companies receiving venture funding are both technically and commercially viable. Many deliver real customer value and have a tenable revenue model. In addition, to companies such as Facebook, Groupon, and Zynga, there are a myriad of smaller successful ventures, such as Pandora, Dropbox, and Airbnb.
To conclude, the 2000 bubble arose just a few years after the commercialization of the Internet. There was excitement about the potential of the Internet, but the supporting infrastructure and our knowledge was in its relative infancy. A decade later, we have made significant progress on both fronts. The latest new ventures incorporate technologies and business models that reflect significant infrastructure improvements and our maturing knowledge-base. Are select companies overvalued? It’s possible. Does this overvaluation reflect an industry-wide bubble? I don’t think so. In fact, I think we are at the early stages of a multi-decade transformation, catalyzed by computing and the Internet, and we will continue to see significant opportunity and new venture growth in this space. We are moving toward ubiquitous computing and connectivity, where technology pervades our business and personal lives. Personally, I look forward to participating in this exciting and dynamic future!
There is definitely a bubble right now, I've seen average 8-15mil rounds for companies that offer something tangental to a popular service (it's LIKE FourSquare, or it's LIKE Pandora) despite the fact that original services themselves are not necessarily making huge exits. Perhaps it's just that the horizons on the dotcom VC funds are expiring and there are lots of new funds?
Industrials correlate to GDP, and GDP is projected to be flat. Same goes with consumer products and volatility is too high in media. If you have capital to put to work, Tech appears to have the highest risk/return profile.
Phrased differently: if you had $10mil, where would you put it?
25% stocks, 25% bonds, 25% gold, 25% cash?
(That's literally what the "Fail-Safe Investing" book boils down to. http://en.wikipedia.org/wiki/Fail-Safe_Investing)
" It might seem that a Permanent Portfolio
containing these four contradictory investments would
be neutralized: As one element rose, another would fall
and nothing would be gained.
On a day-to-day basis, that can be true.
But over broad periods of time, the winning investments
add more value to the portfolio than the losing
investments take away."
This is utterly absurd and shows a complete misunderstanding of economic growth.
If you're pitching your business as X for Y and X is still a massively unproven startup - you've missed the train.
Work on creating your own X - you want to be the market leader - its the only way to truly win in the consumer web.
Take Facebook as an example. Is Facebook worth $50b, per the recent Goldman Sachs investment? It's possibly worth much more, if we assume that Facebook is the winner-take-all in a network market (social networking). Are there significant uncertainties related to Facebook's revenue model and the company's ability to fend off substitution threats? Yes. But this is consistent with the risk/reward profile that comes with an equity investment in a privately held, high-growth tech company.
It's not surprising that so many successes should shake out the other end of the sieve when it's so easy for someone to launch a successful site from their bedroom or dorm.
This isn't meant to be offensive, it's just one of those things that until someone tells you about it you'll continue to go on unknowingly making the same mistake. I had someone do this with me recently in regards to my presentation 'skills', or lack thereof, and it was very helpful.