The Wrath Of Nasdaq

"Did the bubble burst, and do these market changes signal that the venture capital well is now beginning to run dry for our region?" asks Erik Ayres, Business Development Manager for PwC’s DC Metro TICE Practice.

According to Walker, "Yes, something happened in March and April that brought the market back to earth, but this, in itself, isn't the end of the world. If you have been in this game for any length of time, you know that this happens every so often. There was a reset back in the fall of 1998 that hurt a bunch of folks. There was a reset in July of 1996 that I remember incredibly well because we were preparing to do an IPO in July of 1996."

Before getting into the venture game, Walker founded Trusted Information Systems (TIS), an early success in the Internet security market. He told a tale of personal confrontation with a gyrating stock market. "We had started in May, and we were on a crash program to make this happen. On July 5th, the market went gazunk. We had meetings and everybody said, ‘That's okay, it will be better by Tuesday.’ On Monday it went gazunk. On Tuesday it went gazunk. There were four or five gazunks."

Abramson likens the climate to that of the real estate boom in the 1980s. With 20/20 hindsight, people asked later, "What were the banks doing lending all this money to these companies without any collateral?" She predicts similar effects for VCs today, "One thing that's happening is that this is forcing us to do the job we should have been doing all along, because part of our role, other than making money for our investors, was to get these companies out there, healthy and ready when they went public or merged. In some cases, we were greedily pushing them along, and they weren't really ready to go out."

Perhaps more importantly, the areas in which this region is particularly strong, such as B2B applications and Internet infrastructure, do not require huge sums of investment capital the way the deep technology and hardware companies of Silicon Valley or Boston do. Says Kerins, "You see companies that could create potentially multi-billion dollar companies on $3-$4 million with a dozen people. That’s become a very attractive place for venture capitalists to go." Where DC does have large-investment startups is in telecom services. While VCs may be becoming a bit more conservative when it comes to those companies that need $100-$400 million, they also see a ravenous global market for bandwidth which keeps them interested.

Among US regions, Greater DC saw the highest percentage growth, both for dollars and number of deals over last quarter. Accelerating that growth, according to the panelists, has been the increasing number of local serial netpreneurs, growth in the local angel community, the increasing sophistication of local service companies and the fact that cashed-out technology veterans are staying here in the region. And it’s all happening, according to Walker, at a time when we haven’t even begun to tap some of the region’s greatest strengths. He urged netpreneurs to build bonds with the many local universities, federal laboratories and trade associations.

The panelists also discussed the pros and cons of other resources available to local netpreneurs, including venture fairs, incubators and the heightened activity by corporate venture funds. Use them, but be careful, especially of the corporate funds. They can be good or bad, depending upon your immediate and long-term goals. All money comes at a price, and sometimes that price can be too high.

All in all, it seems Nasdaq’s bark may end up being worse than its bite, at least for startups and at least for right now. The "gazunk" of Spring 2000 may have been bigger than some of those others, but, said Walker, "at the time they happened, it wasn't clear whether the bubble had burst then. The fact is, these things happen in cycles."

And speaking of cycles, on June 1, the day after the event, the Nasdaq was up 181.59 points. On June 2, it was up 230.88 points.

What’s the opposite of gazunk?