Tech’s Big Ideas Start Smaller

Tech’s Big Ideas Start Smaller

Startups Are Booming Again in Silcon Valley, but This Time It’s Different

By ERIC NOE
Oct. 10, 2007

Silicon Valley is booming again, reminiscent of a decade ago, when
precocious young minds hatched entrepreneurial ideas (sometimes
admittedly half-baked) that incorporated the Internet in some way, any
way, and turned themselves into paper millionaires.

Ideas are being launched at a pace that rivals the first
Internet tech boom but with a decided difference this time. While the
2001 tech meltdown incinerated much of that paper and decimated the
valley’s one white-hot venture capitalist market, today’s entrepreneurs
are starting out with much less capital and investors are demanding
much more in terms of results.

Signs of good times abound: The tech-heavy NASDAQ is up 15
percent for the year, and the stock price for the industry’s iconic
company, Internet monster Google, just peaked at more than $600, giving
the not yet decade-old company a greater worth than stalwarts like
Coca-Cola and IBM.

"Silicon Valley is alive and well," said Todd Greenwald, a
technology analyst with Nollenberger Capital Partners in San Francisco.
"And Google is by no means standing alone. The online advertising
market is up 30 percent this year, and that’s benefiting a lot of the
players, Google included."

 

The Cheaper Startup

That enthusiasm has trickled down to the industry’s lifeblood: tech
startups. Venture capitalists are entertaining a growing number of
startup ideas to help with next-generation Web applications as well as
last-century tech like e-mail.

But unlike the 1990s, the financial investment needed to start
a tech-based company is significantly lower today. Web startup costs
are not nearly as prohibitive in 2007. They can even be cheap.

"There is a huge increase in the number of incoming company
ideas coming to VCs," Jason Calacanis, a venture capitalist and
self-described "entrepreneur in action," said in an e-mail interview.
"This is due to the fact that it is easy to start companies today. A
company that would need $1 million in capital to get to a beta product
can be done for 10 percent of that price —
maybe 2 percent of that price."

At the recent TechCrunch40 conference in California, created by
Calacanis and tech blogger and entrepreneur Michael Arrington,
investors got a look at some of the newest ideas coming from the
startup world.

The exhibitors, hoping to lure money from the many investors on
hand, presented a variety of plans pegged to the Web 2.0 concept of
social networking and user-generated content, attempting to piggyback
on the massive success of online networking sites like MySpace and
Facebook.

But not everything, such as new ways to balance your checkbook and organize your inbox, was next generation.

Some of the notable submissions:

Mint,
which won the $50,000 prize awarded by the conference panel, is a
personal finance application that lets users track bank, credit union
and credit card transactions, and alerts users to upcoming bills, low
balances or unusual spending, all in one spot.

WooMe is
a networking site that brings the speed dating craze online. It lets
users meet new people live in free five-minute sessions and negates the
reliance on Internet dating profiles.

Xobni ("inbox" spelled backward) helps users organize, search and navigate their e-mail.

BeFunky
is a service designed to a one-stop shop for creating digital online
representations of themselves for use on their blogs, Web sites and
social networks

Wixi
is a new social network that invites users to interact through posting
and sharing photos, audio and video content. The service allows content
sharing through cell phones, blogs and instant messaging.

Even the way that investors discover new companies has changed.

A company called Bang Ventures has created an American
Idol-style competition in which startups submit their business ideas to
an expert panel. The best of those ideas are presented to the public
for voting, and the top three ideas win $15,000 and free office space.
As with the Fox show, there’s no guarantee that public input will
reward the most deserving ideas.

Another Bubble?

An influx of ideas all going after billions of dollars in private equity money adds up to & an odd sense of deja vu.

Is tech headed for another massive wealth-dissipating event?

Not likely, or at least not right away, say most observers.
Investors and entrepreneurs learned from the mistakes of Web 1.0
goldminers who placed a premium on being first and gaining mindshare,
with making money an afterthought.

"If you’re trying to compare today with the late 1990s, venture
capitalists are being more particular, more analytical, and the
business plans are much more mature," Greenwald said. "Nothing is
valued off of page views and eyeballs. The plans today are valued by
profits."

That, and the reduced upfront costs will likely prevent a redux of the 2001 meltdown.

"Some things feel frothy to me — the number of companies, the
expectation that everyone will get rich quick, and the bad ideas being
taken seriously," said Calacanis.

"The thing that is radically different is that the bad ideas
are not getting absurd amounts of funding like they did last time.
Heck, even the big winners are not getting absurd amounts of cash," he
said. "When the market corrects & the tech industry isn’t going to
be hit too hard because there isn’t a ton of excess."

Amid a nationwide housing slump and concern about U.S. credit,
a financial market correction may be looming. But even if an economic
slowdown dries up investment funds, the technology industry should be
prepared to avoid a second bursting bubble, according to long-time
Silicon Valley columnist and ABC News contributor Michael Malone.

"I read a lot about a potential bubble in tech, but I’m not
seeing much evidence of that on the ground here in Silicon Valley," he
said. "What we have now is a handful of companies — Apple and Google
in particular — that are seeing strong stock valuations (though
probably inflated in the case of Google) that are based on pretty good
balance sheets."

"As for the rest of tech, I see a lot of companies that have
had a good last few years, but which are now sliding downward into the
classic four-year boom-bust business cycle that has characterized tech
since the 1960s."

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