Marcus Cake

This post is inspired by the following post, which was inspired by another post. Please follow this link and you will see what I mean.

Web 2.0 is a phrase to describe new internet companies that emerged over the last year. These are profiled in the article The Nextnet. I could not understand how many of them were going to make money. Crash 2.0 may become the reference to the failure of these companies over the coming year. Companies will always fail as a result of poor execution. Investors that fund companies with bad ideas, non-existant revenue strategies or in unattractive markets will also fail. It is all part of the capitalist system which ultimately moves capital from those that pick losers, to those that can pick winners. The coming .NET, or Nextnet, boom is likely to based upon greater substance than the .COM boom. Perhaps, Crash 2.0 may be one of the early chapters in the .NET boom, or could it be the final chapter.

I have extracted some of the key paragraphs from the posts above for your convenience.

“I’ve become slightly worried as of late with the amount of venture capital pouring in to some really bad ideas, or decent ideas put into overly crowded market niches. I can’t really see more then 5-10 feed service companies surviving for the long haul- I can think of about 15 off the top of my head.”

“So in the next year, we’re inevitably going to be hearing about dozens of web 2.0 startups that fail for one of the following reasons: 1) Bad execution,2) Bad idea 3) Bad market “

“When the first set of web 2.0 companies start to go sour- will people start to panic? There are some things that lead me to believe that a second crash would be a lot less severe than the last, mostly the lack of IPO’s- Venture Capitalists are a lot less susceptible to panic than Wall Street, and their holdings in private companies are a lot less liquid than some shares of publicly traded stock.”

“But, I don’t think we’re going to see a Crash 2.0. With the lack of a robust IPO market, VCs have little incentive to fund Web 2.0 startups at exceptionally high valuations and with large blocks of money. As a result, the amount of capital being invested in these new Internet startups is nowhere near the levels we saw during the last bubble. Further, the current generation of startups are simply not consuming capital at the rate that we saw last time. Gone are the Super Bowl ads, the fancy offices and startup founders focused more on throwing launch parties than actually launching a product. This time around, it seems that the “geeks are back” and people are working hard and actually creating something. Of course, the question still remains as to whether they’re creating anything of value, but that’s a different problem. In reality, though we’ll probably see a few of the current individual titans “crash”, most of the Web 2.0 startups will simply crumble and fade into oblivion. ”

“I think the Web 2.0 startups most likely to shut-down are the venture-backed ones. The reason is that though it is much cheaper to run a Web startup today than it was in the first bubble, investors still have a limited time horizon within which to achieve liquidity. As a result, though the founders could conceivably run the company “indefinitely” (while sustaining themselves on minimal cash), there’s little reason for VCs to stay involved. They’d rather just “exit” at whatever they can get and move on with their lives. I think we’ll see a fair amount of this in the next few years as the early rounds of capital start to get depleted and revenues don’t catch-up to meet expenses. Some of the better startups will probably get some follow-on capital (assuming there’s some hope for profit or exit someday), but most won’t. I’m not saying anything brilliant here, that’s just the way it is.”