Friday, April 19, 2024

VC Funding After the Dot-Com Bust

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Getting venture capital for your start-up business these days is as hard

as getting bread with dinner in this carb-crazed world.

It’s rarely happening.

Five or six years ago, venture capitalists were throwing money at any kid

with a high-tech idea. It didn’t matter if he had a business plan or even

if he knew what one was. The Internet was hot. Dot-com start-ups were

even hotter. VCs couldn’t get the money out of their pockets fast enough.

But then the dot-com bubble burst. The kid with the cool idea was sent

back to school or sent home to live in his parents’ basement while he

licked his wounds. Start-up after start-up went bust. Latte machines were

packed up and the Herman Miller chairs were sold on eBay. The boom was

over and the bust was financially devastating — to the high-tech

community and to the country’s overall economy.

Now, it’s a heck of a lot harder for anyone to get VC backing for a new

idea or a fledgling business. And it should be, according to most

analysts. If everyone had been more discriminating about what business

venture got the needed funding, then everything would have been quite

different. Maybe not every kid with a digital dream and a souped up

harddrive should be heading a start-up.

But as we rapidly close in on 2005, what is happening to the people out

there trying to get a start-up off the ground. Many of them are doing it

right this time, says Guy Kawasaki, CEO and a founder of Garage

Technology Ventures, a VC investment bank for emerging technology

companies. Now the author of the new book The Art of the Start,

Kawasaki says financial backing is available if the gal with a dream

moves beyond the dream and into the business world. Have a business plan?

Have a business team already set up? Know who your competitors are and

how you’re going to distribute this product?

Well, now you’re talking.

In this interview with Datamation, Kawasaki, a former Apple Fellow

at Apple Computer, Inc., talks about the critical needs for a start-up,

building a real business, and if we’ll ever see another time like the

dot-com boom.

Q: What part of the industry will generate the ‘next great thing’?

No one really knows. We didn’t know where the next thing was coming from

last time, and we didn’t see the end of the boom — or at least we didn’t

take the appropriate actions. Why should anyone believe us now? The job

of a venture capitalist is not to predict the future but to recognize

when an entrepreneur has, and sink his teeth into that entrepreneur. Most

venture capitalists, frankly, are too old and too rich to create the


Q: After the excitement and over-indulgence of the Internet boom, do

you think there will be another great technology boom, or did the dot-com

bust make us all too cynical for it to happen again?

Memories are short, and greed is ever present. There absolutely will be

another great technology boom. I just hope it’s in my lifetime because

this time, I know what to do when there’s a bubble.

Q: Why did all those dot-com business fail and what can we learn from


The overall answer is that we, the tech sector, is too hard on ourselves.

Sure, lots of dumb companies started and were funded. Mea culpa. I was

part of this. But lots of smart companies started too, and they did

change the world. Can you imagine a world without the Internet and

companies like Amazon, NetFlix, Tivo, eBay and Google? Would you like to

go back to electric typewriters while we’re at it?

Q: Most of the VC money was pulled away when people saw that so much

of the dot-com craze was smoke and mirrors. Is that kind of abundant

money coming back?

We have gone from a period of irrational exuberance to irrational

depression, and now we’re swinging back to the middle. However, we still

have a slight hangover, so we won’t behave like drunken sailors. But all

venture capitalists aren’t requiring ‘proven teams, proven technology and

proven traction’ to fund deals — at least, not the venture capitalists

with courage. If you want to see a venture capitalist with real courage,

look at Sequoia Capital.

Q: When someone gets that great idea for a business or product, what

is critical that they do? What do they generally do wrong?

The list of critical actions feels, at times, endless. However,

entrepreneurship is simple: you create something, you sell it, you

collect the money. Everything you do has to support three functions. If

it doesn’t, don’t do it.

Q: What do these entrepreneurs need to do to make up for that lack of

VC enthusiasm?

Build a real business. — a business that fills existing needs or creates

new needs. But not a business that’s built on wishful thinking or the

assumption that you can keep raising money until you figure something

out. The challenge is that sometimes you only discover you have a real

business after the fact. Who really knew ‘back then’ that millions of

people would want to sell their junk on eBay?

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