Having gone through the first bubble as an entrepreneur, I can tell you the pattern is really close. The difference between the companies that got started in ‘99 and 2000 was that it cost a lot of money to build those businesses. You couldn’t buy servers for $500. Data centers were selling on a per-rack basis. Today you can operate on far less capital. The companies that are fiscally conservative and know how to manage will live. There’s still a potential for a new nuclear winter. [VCs] could say there’s no liquidity in the capital markets, the M&A hasn’t picked up and they’ll zip up their wallets and focus on their portfolios. That possibility is there.
Elevation Partners’ Roger McNamee said social media is “over.” Do you agree?
With buzzword bingo everyone wants to be social or the cloud. Back in the early days, it was being dot com. It’s the same now. I can’t tell you how many companies tell me they’re a cloud provider. It’s the same with social. Everyone is trying to figure out to be a social media company. Once you have guys like Google and Facebook who can throw hundreds of millions of dollars at it, they can create and innovate and iterate very quickly. If you’re a small company, the question is, Do you have something unique enough to get you on this empirical curve? People put the moniker social network to their name because it will help them raise capital. In a lot of cases there’s nothing social about them. Look at these virtual DJ businesses. Is that a business? Is it going to make money? Probably not.
Does the New York startup scene have a prayer up against Silicon Valley?
The fundamentals aren’t there. You don’t have a technololgy center of excellence. The tech center of excellence is Wall Street. Those guys make a ton of money. Trying to get a tech guy from a Wall Street firm is three times what a Silicon Valley company pays. You can’t compete with Wall Street salaries. You wind up with creative types in ad tech who start companies. The problem is you can’t hire. If you do a historical analysis of companies started during the first bubble and found how many became billion-dollar businesses, there weren’t many other than DoubleClick. You have this creative culture in New York City that won’t go away. Will you see an ad technology company come out of there? Maybe. Will you see 50 with billion-dollar exits? Probably not. Groupon started in Chicago, a business center. Where was the first place they relocated? Palo Alto. They wanted engineering talent. They knew they had to move to a center of excellence. It’s all about figuring out a discipline. If you want to build a sports team, you have to find the best athletes.
What’s overheated right now?
The deals space is crazy. You only hear about Groupon. What you don’t hear about is 2,500 competitors of Groupon in China. You don’t hear the New York Times has its own deals platform. That is an overheated business. I’d say the apps business, too. Everything you’re seeing with social gaming, social apps, group chat — how many can you have? When a company like Color raises $41 million in a Series A and less than six months later says they don’t have a company, that’s pretty concerning. We saw the same in the first bubble. We’ve always focused [at North Bridge] on things that are really difficult to do. The world will always need better networking gear. But building stuff like that is really difficult.
What about location services? Bullish on Foursquare?
I can’t be. I wish them the best. I think app is interesting. I don’t think from a differentiated perspective it’s there. It’s not hard to do geo-location services these days. If it’s that easy and can spin that quick, how hard is it for someone else to compete with you? How long did it take Facebook? Six months? It’s tough to look at the business and say it’s an $800 million business. It’s tough for me to look at Twitter and say it’s an $8 billion business. How do you monetize that flow of information and minimize cost of customer acquisition? At what point do you manage the signal-to-noise ratio?
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