April 28th 2000
ahead, trouble behind
And you know that notion just crossed my mind.”
Dead, Casey Jones
all started when a little-used military cum educational
network became optimized for viewing graphics with a
piece of software called a browser.
In the six years hence, except for a little
crisis in the Asian market, we have all become steadily
and increasingly wealthier.
Some more than others.
I mean really people, did you think you were some
sort of genius for getting great returns in 1999?
A cat could have done a 30% gain.
Hands up if you think the NASDAQ will go up 75%
this year. Except
for the few of you with title “investor relations”,
I suspect most hands remain firmly down.
fundamental problem here is that we all want to be rich
in 3 seconds. We
have been conditioned over the past six years, but
especially the last 18 months, to think that it is our
God given right to make 1000% gains.
Yeah, I know, there have been other “Get Rich
Quick” bubbles in our history.
But this gold rush has been different.
No other GRQ scheme has been more encompassing of
our entire society.
It’s because of and a by-product of the
how silly things were getting leading up to the
correction in the market:
in the Bay Area were refusing to rent a tech company
space without options and only after they (the
commercial realtor!) read your business plan.
common practice in US tech communities over the past two
years has been to “work the cliff” to get a
portfolio of early stage options.
All you needed to do at a company was stick
around until the date that you accumulated your first
options (usually six months to a year) and leave. So what if you didn’t fully vest. Four or five of these guaranteed you a few thousand options
for at least a couple of red-hot IPOs.
half of the potential graduating MBAs for 2000 at
Harvard and Stanford never got past their first year,
having left for Internet start-ups.
stocks were worth more than the companies that still
owned 95% of them.
companies were re-inventing themselves as e-commerce
companies. (Think about that for a second and you’ll
see how dumb that sounds from the point of view of
someone that doesn’t live in Vancouver).
Actually, this is the most ironic data point as
the last GRQ schemes and scams that defined the old
Vancouver Stock Exchange are now re-inventing themselves
in the new GRQ scheme.
Same sheep, different clothes.
in Hong Kong were caught in a mad crush as the line-up
for IPO shares in Tom.com turned into a mosh pit.
the bubble deflated a bit two weeks ago and has lost a
lot of air since the beginning of year, I bullishly
argued last column that fundamentally we still have
plenty of legs left in the technology economy.
That being said, I wanted to go from macro to
micro this week and discuss the impact of new market
conditions, and the loss of the GRQ capability, on the
are some data points from the past weeks:
Solutions has hired dozens of people since January’s
monster IPO, some of whom received options priced while
the stock floated at $210 to $240.
Those recent hires will not be happy with a $70
stock value. So
much for GRQ.
a wedding registry site backed by Kleiner Perkins laid
off half of its staff yesterday.
Then it merged with a competitor,
Many other e-tailers will be out of cash within
12 months and forced into the arms of competitors or be
out of business.
stock is at $9. It’s
IPO price was $21.
Many employees will have little to show for their
hard work over the past year if things don’t improve.
And this is a B2B company!
IPO market is showing signs of hibernation.
Client Logic pulled its IPO altogether Friday and
it is a quality Internet services company with better
numbers than most that are out there today.
360 Networks is right back to its IPO price. OnX (A Yorkton promoted company) has never traded above its
IPO price on the TSE.
overwhelming message that comes from the current unrest
and dissatisfaction from employees of poorly performing
public dotcoms is that the greed monster is starting to
the near term it will not slow down the massive employee
churn that has defined the IPO crazy 1999.
Why not? Because
the employees that have poorly performing options and
still harbour the GRQ mentality will jump to the pre-IPO
companies where their options might have more value.
But long term, the craziness will subside and we
will write books and see movies about 1999 and wonder
how we ever got that lucky.
is a good motivator.
I’m all for greed. I am not arguing that people were dumb not to take advantage
of the market craziness to try and GRQ.
When the ducks are quacking, you feed the ducks.
Venture capitalists went out and did some crazy
things over the past 18 months, investing in businesses
that they had no experience in.
Why were guys with tech backgrounds all of sudden
investing in retail legwear companies just because they
were dotcom? Not
because they were dumb.
Because they could… and for the most part, get
rich doing it. One
more time: I
am not pissing on the dotcom parade of 1999.
I am merely saying that those days are probably
gone, never to return again.
an employee with GRQ attitude in the tech business,
it’s time to think about holding off on that planned
golf-filled retirement at age 32.
We’re already starting to see the early impact
in the hiring processes of tech companies.
The stories coming out are about employees
demanding more stable (and larger) salaries and benefits
packages over more options.
I only have anecdotal evidence, but I would
suspect that the earliest stage companies will find it
harder to attract experienced managers as they move
toward conservatism and prefer companies with market
traction over companies with ideas.
time to start thinking long term again.
Join the company with the biggest and best
opportunity and assume that it will take 3-4 years to
get somewhere big.
What if, egads, you actually have to be a company
with profit in order to go public?
Think about how long you will have to work to
reach that milestone!
flight to quality has already ensconced the venture
VCs are actually talking about 10 year lives on
their funds again.
Building, defending and winning with great
companies takes time.
It’s easy to see why we forgot that Rome
wasn’t built in a day.
All of our energy over the past two years was
aimed at getting a company public.
Public companies with stock prices in the dumper
will struggle to find and keep GRQ people and cash to
support their business if they are not profitable or
near profitable. It
becomes a downward spiral. Private companies will have
pressure on their valuations when raising cash.
But expectations are easier to manage when there
is not a public pressure to perform quarter by quarter.
the end of the day, you have to ask yourself, “Am I in
this to be rich tomorrow, or can I wait for a few years
and build something of value, worthy of a big reward?”
The big house in Whistler is still available. The markets have corrected, but they are still steady.
The future is still very, very bright.
Slow down and enjoy the ride.
The BC ESTI (Early Stage Technology Index) is at
its lowest point since I started 6 months ago: 5 out of
obvious reasons, the last month has been tough on
the down side, options are worth less or worthless.
This hurts the angel investing community, the
lifeblood of our earliest stage companies.
On the up side, our local “anchor” companies
have weathered the public market storm well.
Sierra Wireless, QLT and Pivotal took the hardest
hits, but Creo, PMC-Sierra and Ballard have remained
few new VC financings happened in the past month as
itemus and others cranked up the investment engine.
The Globe and Mail started its Special Report on
the investment banking industry in Canada on Saturday.
It focused on the legal, but not apparently
ethical, promotion style of Scott Paterson and Yorkton
readers here know, I used the Book4Golf story as ammo to
show the over-hyping and disregard for value creation
that the firm showed in that instance.
I received some feedback on my Book4Golf story
that cannot be published.
Nor can I tell you where it was from.
Let me only say that the source and the content
helped confirm my suspicions about the company and its
It’s a sordid story.
Where is the restraint that I thought was being
imposed based on the BreX scam?
Hey angels! Let me remind you again that despite the downturn in the
markets, you still have a new way of delaying paying
capital gains tax on your gains in this calendar year.
Up to $500K of any gain made can be invested in a
Canadian small company (preferably technology!) with
less than $2M in assets (that’s about all of them).
Take your $500K, invest in 5 different start-ups
with unique ideas and good, energetic teams and watch
the value grow over 2 or three years.
Put the money to work, tax-free!
If you need to know a couple of places to put the
money, e-mail me. We
have seen a few that are early for us at Greenstone, but
What Do You Think? Talk
Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
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