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The Red Eye: Can the market get any uglier?
By Tony Perkins
Redherring.com, December 06, 2000
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The Red Eye recently received two illustrations of how ugly the technology market has become. The first, called Internet Wasteland, is a chart listing 215 public Internet holdings that have seen their stock prices dive over an incredible 80 percent in the past 52 weeks. A careful perusal of this list shows how former highflyers like Citrix Systems (Nasdaq: CTXS), Doubleclick (Nasdaq: DCLK), Infospace.com (Nasdaq: INSP), Internet Capital Group (Nasdaq: ICGE), Priceline.com (Nasdaq: PCLN), PSINet (Nasdaq: PSIX), Red Hat (Nasdaq: RHAT), and Verticalnet (Nasdaq: VERT) now threaten to become penny stocks.
The other death list, produced by Parviz Nafissian and Jonathan D. Blattmachr of Morgan Stanley Dean Witter, landed in my hard-copy inbox. This analysis looked at the market capitalization erosion of 261 selected technology stocks over the same 52-week period. Some names were duplicated on this list, but it also included some "Internet brand names" like eBay (Nasdaq: EBAY) (down 72 percent), Amazon.com (Nasdaq: AMZN) (down 77 percent), Yahoo (Nasdaq: YHOO) (down 84 percent), and CNet (Nasdaq: CNET) (down 72 percent). If you're feeling nauseous, read on to see how some top VCs are coping.
WHAT'S A VC TO DO?
MENLO PARK, CALIFORNIA -- "So what do you think is going to happen in the market?" asked Internet VC kingpin Tim Draper over dinner on Friday. Usually, the Red Eye is the one asking the questions, but since Mr. Draper asked, I gave him my gut analysis -- we'll save that for the next Red Eye, though. What I'd been wondering is how Mr. Draper's business has changed. "Well, I like the entrepreneurs that are coming into our office better," he observed. "The suits are gone, and the folks who want to change the world are back," said Mr. Draper (who still wears a tie himself).
Ron Conway, the founder of Silicon Valley Angels, concurs with Mr. Draper. "To want to start a company in this environment, an entrepreneur has to be motivated by pure passion. The get-rich-quick crowd that was knocking on our doors for the past few years are staying in business school or hanging on to their fat salaries in investment banking and management consulting," says Mr. Conway. To adjust, Silicon Valley Angels is having to shop its deals around to a broader financial community. "We are going back east for our follow-on funding, because most of the West Coast VCs have closed up shop," he says.
CASH CONSCIOUS
Speaking of closing up shop, Crosspoint Venture Partners announced in November that it would not close a new $1 billion fund even though investors had already committed the money. "Unless we can look them in the eye and say we believe we have a great model to make all of this money, in good conscience, we can't go forward," said Crosspoint's founding partner John Mumford. The bottom line is that many firms are saving up their cash to fund their existing portfolio companies, which they'd hoped would have been public by now. Stewart Alsop of New Enterprise Associates, a venture fund that closed a record-breaking $2.2 billion fund in September, recently said that in spite of all of their newfound cash, his partners have decided to take it really slow.
Given the downturn in the IPO market, it is not surprising that a study by PricewaterhouseCoopers found that Silicon Valley VC funds, which had set investment records for six straight quarters, saw their total funds raised dip for the first time in the third quarter of 2000.
On a positive note, John Doerr of Kleiner Perkins Caufield & Byers contends enthusiastically that it's still "a great time to be an entrepreneur!" He notes that we have only seen one face of the Web emerge, and that there are aleast five more on the horizon. The ever-optimistic Mr. Draper agrees: "Only 6 percent of the world has Internet access, so the boom is well ahead of us." The Red Eye sides with the optimists, and if you tune in next week you'll find out exactly why. |
