On March 10, 2000, the software company that employed Raj Bala went public, making him a millionaire on paper. That day later became famous as the moment the Nasdaq index hit the ceiling and the beginning of the dot-com recession.
Bala regrets not unloading his stock in the company, OTG Software, the moment he could. As with many others, his paper wealth didn't translate into actual wealth.
Earlier this month, Bala went to a party in Boston, sponsored by the blog TechCrunch, that was "just awfully reminiscent of the parties of the late 1990s," he says. "It certainly feels like there's an air of irrational exuberance again."
The B-word is on the lips of Boston's digerati again: everyone has an opinion about whether or not we're in the midst of another bubble.
Bubble deniers think continued increases in Internet usage and online ad spending will keep some companies cruising through any recession or economic slowdown. But bubble believers say that's about as likely as the Supreme Court successfully repealing the law of gravity.
Deniers first.
"I think people are unduly worried about there being a new bubble," says Paul Graham, a Cambridge investor who also runs a three-month program to cultivate Web-oriented start-ups. "I was there in the original bubble, and this is nowhere near as extreme."
Venture capitalists then, he says, were "cynical that they could push piece-of-garbage companies out the door and into the hands of retail investors before anyone noticed. Venture capitalists now are optimistic about their companies, but they're not cynical."
Venture capitalist Bob Davis, who was chief executive of the portal Lycos during the dot-com days, isn't concerned about another bubble because of the potential growth of online advertising. Davis said he expects money will continue to shift away from traditional print and broadcast media and onto the Web, allowing Internet companies to do well even if the rest of the economy is in the doldrums.
"Internet advertising is a $25 billion business, and it continues to grow each year," said Davis, who's now a partner at Highland Capital Partners in Lexington. "It's just 10 percent of the total ad spend nationwide."
Evan Schumacher, the chief executive of Going.com, notes that there are a lot of companies "chasing too many similar ideas, and that will shake itself out no matter what," but he thinks the current generation of Internet companies is "being run more rationally." Going, which has received $8.5 million in venture capital, helps users find events and activities of interest to them and their friends - something many other social networking sites are attempting.
Bubble believers note that everyone seems to be trying to attract eyeballs to their site and profit from them through advertising. But in a recession, consumers could drastically cut back their spending, online and off, and corporations could put new hardware and software purchases on pause. Big tech companies such as Google, Yahoo, and Microsoft might snap up fewer small companies.
Michael Greeley, a venture capitalist who heads the New England Venture Capital Association, was traveling in Silicon Valley last week, where he noted $4 per gallon gas prices.
"You could argue that from a macro perspective, the dynamics are far worse than they were seven years ago," he says. "I think in a year from now, we'll still be talking about the promise of all these new technologies, but we may be less aggressively investing in them.
Eric Janszen, an entrepreneur and investor who runs the economics investing site iTulip.com, doesn't believe we're seeing another bubble like the dot-com one, but he foresees "a long and relatively deep recession" sparked by the crashing housing market.
"Advertising gets hammered in a recession," he says, as does consumer spending. And acquisitions of small Internet companies, a favored cash-out strategy for entrepreneurs, could be hurt, too.
"Nothing slows down the acquisition pace more than falling stock prices, and the falling perceived valuations of companies that might be acquired," Janszen says. "The acquirers think, 'Why not wait until they get cheaper?' "(Janszen's site, as it happens, is also supported by ads.)
I wondered whether the bubble believers, myself included, are just being crusty Yankees: as soon as the party gets really good, we start to worry about the cops showing up.
But when I got in touch with Guy Kawasaki, one of the most optimistic entrepreneurs and investors in Silicon Valley, he said: "We're in another bubble for sure."
The curse of being an old person means you try to place current events in historical contexts.
I look at the Netscape initial public offering in 1995 as the start of the dot-com era, and March 10, 2000 as its conclusion. I wonder if, in a few years' time, we'll see Google's IPO in 2004 and Microsoft's investment in Facebook this fall (which gave that company a $15 billion valuation) as the bookends of the Web 2.0 phase.
Raj Bala says that in 2000, he "was naïve about everything, especially the stock market." Now, at 32, he's a bit more seasoned, and he's building a start-up company, Cambridge-based BigSwerve, with just three people and less than $1 million in venture capital funding.
The company is a classic Web 2.0: a cool idea (collecting in one place the comments that people leave on blogs, and making them searchable) that will need to identify the right business model, a willing licensor, or an acquirer.
Bala believes there are too many Internet companies being started these days. But there are benefits from working in a bubble: money, attention, and partnerships can be easier to get.
"Building BigSwerve," Bala says, "has been a little like attending Woodstock without taking LSD. You have to resist getting drunk with love, yet manage to benefit at the same time." Bubbles, as we learned the last time, are fun. Not so much fun is living through their aftermath.
Scott Kirsner can be reached at kirsner@pobox.com.
