There are some signs that bubble 2.0 is here: the huge valuations for social media sites like Facebook, Twitter, LinkedIn, Zynga and Groupon; a wealth of over-funded me-too startups,; and a wave of summer web IPOs. But there are also some strong indicators that it’s a bit different this time around: the frenzy is concentrated on social media rather than Internet companies across the board, and investors aren’t spending the same amount of capital as they did in bubble 1.0, since the costs of building web startups is rock bottom now as compared to the late 90’s.
But some kind of bubble seems to be brewing, and entrepreneurs, investors, and startups need to get ready, tread carefully and, most importantly, learn from the lessons of the previous bubble and bust cycle. To help with that, we sat down with five entrepreneurs and investors who received their fair share of arrows in the back in the first crash. Shutterfly CEO Jeffrey Housenbold, says at one point during the bust he had to lay off 400 people from a previous company, including the best man at his wedding. But all survived, and thrived, and investors like Vivek Mehra, a General Partner with August Capital, managed to usher in one of the most successful IPOs in the history of the Nasdaq via Cobalt Networks and then sold the company to Sun a year later (no wonder that he landed a Partner gig with his lead investor).
Here, we share with you the most important lessons they learned from bubble 1.0 that they think can be applied to a potential bubble 2.0.
- Vivek Mehra, General Partner, August Capital: Venture funding does not equal a good business.
- Doug Leeds, CEO Ask.com: Get ready to adapt — and quickly.
- Nat Goldhaber, General Partner, Claremont Capital: Raise money when you can.
- Jeffrey Housenbold, CEO of Shutterfly: Strong company culture can be a life raft in a bust.
- Robert Ackerman, Founder Allegis Capital: Use secondary markets sparingly.
Images courtesy of tlindembaum, Shutterfly, August Capital, Ask.com, Allegis Capital and Claremont Capital.