Is The Bubble Back?


TORONTO — If Paul Kedrosky’s inbox is an accurate barometer, then the
Internet bubble is back.

The venture capitalist blogger told a capacity
crowd at the Mesh conference in Toronto this week that all the signs show a bubble is back.


Kedrosky is with Ventures West, Canada’s largest
institutional venture capital firm, and is the executive director of the William J.
von Liebig Center in San Diego, Calif., as well as the author of the blog
Infectious Greed.


One of the portents of the bubble according to Kedrosky is the fact that
Internet browsers are once again receiving venture funding.


“We’ve returned full circle to 1996,” he said.


By that he is referring to the fact that the Mozilla Firefox-based Flock browser, and the Maxthon browser, which is an Internet Explorer overlay, have received VC funding.


Superficially it feels like an Internet bubble, but that’s not necessarily a
bad thing, he said.


“It takes a lot of dead bodies to fill a swamp; you gotta do this stuff,”
Kedrosky said as the audience gasped.


“We gotta screw it up and waste money,” he continued.

In his view it
is only after efforts fail that others can rise to the occasion to actually
succeed.


The VC did say that he’s seeing “way too much enthusiasm”
and typically sees the same business plan at least two or three times a day from
different money-seeking Internet entrepreneurs.


“I use my inbox as a temperature indicator of what’s going on out there,”
Kedrosky said.

His inbox is currently showing a 60/40 split for consumer-centric versus business-to-business focused solicitations for money.


Money in turn is flowing in into the VCs to help fund the new bubble due to
the prevailing current market conditions.


“Pension fund performance is dreadful so it’s all flooding into alternative
investments like private equity which includes venture capital,” Kedrosky
said. “A lot of people with a lot of capital are trying to find homes for it
and Web 2.0 ends up being the happy beneficiary.”


Consumer-centric Web 2.0 companies can be done very cheaply in comparison to
their Web 1.0 bubble cousins, Kedrosky noted. The “cheapness” of Web 2.0 is
leading to something that he called, “the democratization of
entrepreneurship” where it’s not just those who can raise a lot of cash who can
become entrepreneurs.


The democratization of entrepreneurship does have its drawbacks, though.


“The corollary is that as soon as there is an interesting opportunity, there are 30 of you; there are no barriers to entry. Everyone with
a credit card is in your market.”


With the current Web 2.0-fueled bubble, the problem of people pitching
features as products has hit “epidemic proportions,” according to Kedrosky.
It’s not just the small entrepreneurs that are guilty, either.


Kedrosky argued that Google’s recent slew of new product releases are really only features.


“People now have plausible deniability,” he said. “Nonsense like that is
getting covered and the biggest companies are passing off features as products. The boundary is getting blurred so people are showing up asking for money.”


Google could also be the poster child for a VC-funded company that started off
without a real plan to make money in the beginning, according to Kedrosky.


He recounted that Google’s VC backers, Kleiner Perkins and Sequoia Capital, at
one point were in panic mode when they realized that they had funded Google
to the tune of $30 million and they no idea how to actually make money.

Google of course did ‘find’ a model and has proven it can make a lot of
money.


“The precedent is well set,” Kedrosky said. “Maybe you’ll stumble your way
into a business model. But you better have scale and business that runs
economically.”

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