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To: Tony Viola who wrote (128815)	3/2/2001 11:38:03 AM
From: Mary Cluney	Respond to of 186894

Tony, <<<Larry Kudlow for Fed chairman.>>> GV thought you may have been stating some personal opinion that was unsupported by anyone in the economic/academia establishment. That would be a no, no - without merit. Strictly verboten <gggg>. Mary

To: Tony Viola who wrote (128815)	3/2/2001 11:53:59 AM
From: GVTucker	Read Replies (1) \| Respond to of 186894

Tony, RE: What else threw the top high tech country off the track last year if it wasn't the rate hikes. I don't mean the stock market, I mean tech business. All of a sudden, the Internet buildout, business to business "transactioneering", and all the other phenomena driving technology sales became a bad idea? No, not a bad idea. Just a victim of an unsustainable rate of growth, combined with the dangerous belief that this rate was sustainable. If it was an interest rate rise, then industries far more susceptible to interest rates would be declining at a faster rate. An example of such industries would be autos and housing. They aren't.

To: Tony Viola who wrote (128815)	3/2/2001 1:52:08 PM
From: Amy J	Respond to of 186894

Hi Tony, RE: "What else threw the top high tech country off the track last year if it wasn't the rate hikes." I think your question has an obvious answer for folks in the entrepreneurial/VC community where you see the nature of deals and the flow of money. What happened was there was too much liquidity in the venture markets (10 times more than 1995 levels), and instead of spreading the capital over many deals, the VCs shoved a lot of money down a deal. This meant the VC didn't have to track as many deals, it meant they didn't have to hire more VC partners to manage more deals, and it meant more commission per VC - labor was tight and it was hard to hire more VCs. Also, folks felt that this market was an aberration, so they were astutely cautious about adding too many VCs. But they still had all this money to put somewhere, so more of it simply got shoved down a deal. All this money was concentrated in computer high-tech, meanwhile biotech got dried out. So, you had boat loads of capital funding businesses at such an excessive amount and whose growth level did not support it. Off the top of my head, here's how the average deal size increased: 2MM around 95 4MM around 97 8MM around 98 16MM around 99 Here's how much more capital was in the system: 10X's more than 1995. This has recently contracted by 33%, but it's still up. The best thing that any VC firm did, was what CrossPoint did: they returned money to their institutional investors last year and opted not to invest it because the market conditions would not support such excess. Very responsible. You may think, "okay, so the startups were overfunded, but that's not what caused this problem. Overall VC funding was $30B and that's not that much money to cause havoc." It is and here's why: Big companies started to feel threatened by startups (e.g. Amazon, etc.) And the significant levels of funding that startups received enabled them to swiftly compete with the big players. The big companies had to move quicker and they also wanted a piece of this action to profit from, so they increased their funding levels, both at the investment level and on internal projects. Consequently, the big players started funding in a major way, the same areas that the VCs were already funding in a major way, so everyone was involved in this, not just the startups: you had the entire high-tech industry and VC-world throwing huge amounts of capital over on deals. Notice how the average deal size went up almost exponentially. Everyone knew there was too much money chasing deals. In fact, the pace at which folks ran after deals got a bit crazy and speed became more important than analysis of the biz model. So the rush to get there became more important. There was just too much money chasing deals. Overall, we had a situation where too much money was simply plowed into high-tech at unprecedented rates, until finally the April-00 hiccup made folks realize they had to do it the old-fashion way and base the decision on what the market can currently bear. I saw your post to GV where you told him his opinion was grap. I can understand how it may appear to be, if a person doesn't read about the day-to-day money flow. The Red Herring has an article called Money Flow, which is one way to see how money is flowing into the system. I've got to run now...talk to you all later. Regards, Amy J