Raise money when you can
Who: Nat Goldhaber, General Partner Claremont Creek Ventures
Bubble Cred: In 1994, Goldhaber founded an early web-advertising platform called CyberGold. In 1999, the company filed for an IPO and was valued at several hundred million dollars, or what we now call “ a rounding error,” says Goldhaber.
Interviewed by Cortney Fielding
Lessons Learned:
- Raise money when you can. If there is a bubble, why not take advantage of it before it bursts? While the lean startup movement is gaining momentum and many are touting the virtues of only taking what you need, frugality isn’t always a virtue. Investors in a feeding frenzy are offering up lots of cash right now, and the bubble and high-valuations tilt the power of balance to the side of founders. So why not take it when you can? If the economy goes south, that funding might not be available.
- For eyeballs, it’s about speed. If your company is entirely about getting eyeballs and then figuring out a business model later on, then the previous lesson is even more true. Get as much as you can now, and then rush to success.
- Develop a sound business model as rapidly as possible. Eyeballs don’t equal revenue. During the last go around, companies didn’t have a revenue model and they got funded anyway. Then they ended up crashing and burning. Don’t make that mistake.
- Valuations and IPO’s aren’t the same as money in the bank. When CyberGold had an IPO I thought he’d never have to work again, but when the bubble bursts, that money vanishes, says Goldhaber. “I thought I was exceedingly rich, but I turned out later to just be wealthy.”
- Take advantage of what’s around you. It’s much easier to translate a service into a revenue-producing business today because the technology has evolved so far. Back in the 1990s, if you needed a tool, you had to build it yourself. That sunk a lot of companies. But now there are standardized tools and API’s for everything. So take advantage of what other startups have built, from analytics tools to payment platforms.
- Hiring: A man for all seasons? When you think about hiring, recognize that the team you start with isn’t always the team that you will need in the future. Some people are fantastic in a startup situation, working in a small room all night with beer and pizza, pushing the agenda and husbanding away every single penny in the most dramatic way. And there are some people who are more appropriate at a larger and later stage in a companies history.
A bubble requires a great deal more than excess enthusiasm for a couple of tech stocks. Especially when they’ve demonstrated some ability to turn a profit on their own.
You don’t need buzz concepts in the headline to have an interesting discussion.
The last tech bubble was burst by the Fed by ill-advisedly raising interest rates and causing a recession. The only way interest rates go up soon is if the Fed is crazy. I don’t see a localized bubble as bad. Has a tech bubble ever soft landed on its own without the milieu of rising interest rates or a recession? We’ll soon find out.
As to raising interest rates to ill-advised levels, the entire last decade gave two examples of how not to do it. Interest rates need to be low because of productivity gains. We have entered a new age of innovation, like the industrial age, this time based on electronic technology. I don’t think the Fed has a handle of how much computers and smart devices/networks are changing the productivity equation for both consumers and businesses.
It’s interesting how the interviewees contradict each other on some points. It’s also interesting how some of them made out well by selling during Bubble 1.0.
And, really, the head of Ask.com talking about focusing on building a great product? Ask.com has sucked ever since IAC acquired it and change it from AskJeeves.
I disagree. There are profound differences between DotCom 1.0 (2002) and DotCom 2.0 (2011). Most notably the VCs approach to investing now (execution vs. R&D dollars; and it’s this capital investment which largely drives up valuation pre-IPO) and that these newer dotcoms actually generate significant revenue (i.e., Zynga and Groupon). Their ability to drive high margin and good EBITDA will force correction post IPO. Here’s a post I wrote about these core differences:
http://gigaom.com/2011/07/13/how-to-survive-the-next-bubble/