How to survive the next bubble

bubble2

Use secondary markets sparingly

Who: Robert Ackerman, Founder, Allegis Capital:

Bubble Cred: Ackerman was the CEO of UniSoft Systems, a UNIX systems house operating, and a founder and Chairman of Internet appliance company InfoGear Technology Corporation, which was acquired by CISCO in 2000. Mr. Ackerman appeared on the 2007 Forbes MIDAS list.

Interviewed by Cortney Fielding

Lessons Learned:

  • Enthusiasm isn’t enough to build a company. As an investor (or a founder), you must avoid getting swept up in it all. Stay focused on startups where an ROI can be measured. It is a much more sober approach to building companies. In the social media sphere, more than 500 startups have been funded, but probably only a dozen are of merit.
  • Where’s the business model? Today, the common refrain is, get the data and the revenue model will follow. This is a mistake and eerily reminiscent of the first dot.com bubble.
  • Don’t get caught believing the laws of gravity don’t apply. We are not in a special or unique age, so don’t use that excuse to justify crazy bets. People tend to underestimate the magnitude of the change and underestimate the time it will take. The whole world doesn’t just flip over night.
  • If it seems to be good to be true, it probably is. This goes for VC’s and founders as well. Truth be told what we do is hard and it should be hard. It’s when things get too easy that all the excesses kick in. It should not be easy to get rich.
  • Valuations don’t mean anything. You feel good in the moment, but until it’s money in your bank account it’s not real. Don’t get sucked in. And even in an IPO situation, if you are a founder or investor you are looking at a couple years to get out. By that time, you could have nothing.
  • Use secondary markets sparingly. As a founder, selling stock on the secondary market signals that all is not well and you don’t have confidence in your company in the long term. And it’s happening a lot lately. That signals the social media sphere is not stable. At the same time, as a founder, it’s not so terrible to sell up to 10 percent of your company on the secondary market in order to float money to yourself, pay a mortgage or pay salaries.
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