The paragraph I want Rohit to read:
> What has prevented that second group of companies from deflating so far
> is the unending supply of cheap capital. It's easy to get a company
> funded here by venture capitalists, and then easy to take it public and
> raise more money. But since it's so easy, everyone's doing it -- which
> means it's just as hard as ever to build something lasting....
> The most successful tech companies have traditionally had core
> businesses that were hard for rivals to replicate...
> "Management 101 involves erecting barriers to entry by a competitor. But
> if you can go from an idea to a public offering in 12 months at a
> multibillion-dollar valuation, the barriers to entry can't be very
> high," noted Deninger.
Dueling fools:
> "When the Spanish came to the New World, they found the gold that
> enabled them to build an empire," said Buck's proprietor, MacNiven.
> "Perhaps the Internet is like that. Perhaps it's like stumbling on
> free fuel."
>
> It could be true, said Baker of Sutter Hill. This time could be
> different. "But history will tell you, it's never different in the
> fundamentals. It's different in the details. If I were going to bet, I
> would bet on history."
The "sucker's game" -- sell as much stock to the public as possible:
> If the bubble does explode in some unseemly fashion, weep not for
> Silicon Valley. Not only do the folks here know exactly how fragile all
> this is, as "The Internet Bubble" makes clear, but many long ago made
> their bundle.
>
> "Their profits are locked in, which may be one reason they were so
> brazen in their admissions to us," said Michael Perkins. "Arguably it is
> a minority who show any conscience about this. . . . It's the public
> investor who has to worry about the daily movement of stock prices and
> whether they can get out in time. It's a sucker's game for them."
I like this sentence -- climbing the wall of worry:
> "In such good times, never has there been such anxiety about the
> impending crash," said Bill Reichert, president of Garage.com
Sample bias -- there's only a handful of stocks up this much this year:
> Some Internet stocks, such as CMGI and DoubleClick, are up about
> 900 percent this year.
Talk about Catch-22's -- afraid to be in, afraid to be out:
> "People are desperately afraid of all the speculation. On the other
> hand, they're desperately afraid to be out of the game."
> For eight years, Buck's has displayed and sold a book next to the cash
> register. The current selection, [Red Herring's] "The Internet
> Bubble," has been its all-time bestseller. "Their magazine is all
> about the glories of the Internet, but they did this book about the
> overvalued world of high-tech stocks and the coming shakeout,"
> observed Buck's proprietor Jamis MacNiven. "It's a real head-scratcher."
Sour grapes?
> Adds Andy Bechtolsheim, co-founder of Sun Microsystems and an
> early-stage investor in Internet companies: "There is no economic basis
> for these Internet stock valuations."
> The Perkinses estimate that the 133 Internet companies that have gone
> public since 1995 are overvalued by as much as $230 billion. Since the
> most recent figures in the book are from July, that number is
> undoubtedly much higher now.
www.gazoontite.com !
> Listen to one critic, lamenting that "companies received unprecedented
> valuations for businesses that were at best unproved and in some cases
> ill-conceived. . . . Every [public offering] was a concept deal, in
> which stock was desirable not by virtue of current revenues but because
> of its dizzying future."
The vicious cycle:
> Others aren't so sanguine. "Everywhere you look there's signs of lunacy.
> Everywhere you look there's signs of speculation," said McNamee, a
> partner at Integral Capital Partners. "But what makes this so difficult
> is you could have been saying that six months ago, and six months before
> that. And you could be saying it six months from now."
People EXPECT the first-day double now -- this entitlement is baaaaad:
> That debut was extraordinary, the best on record, but the new-issues
> market has generally been torrid. From 1984 through 1998, according to
> one estimate, 7,000 companies went public. Only 33 of them doubled on
> the first day. Last year, more than 500 companies went public, the
> majority of them high-tech firms. More than 100 doubled.
How the heck could 10% of Internut stocks be undervalued?
> The consensus view of the publicly traded Internet stocks, held by such
> experts as Tom Gardner of the popular Motley Fool online financial
> advice site and superstar analyst Mary Meeker, is that 90 percent are
> overvalued but 10 percent are undervalued.
Here's the full article...
> Anxiety Hits Silicon Valley
> By David Streitfeld
> 12/25/99
>
> WOODSIDE, Calif. -- In most of the world, Santa Claus shows up only
> once a year. In Silicon Valley, however, he seems to have taken up
> permanent residence. Every day is Christmas here.
>
> Technology stocks keep zooming upward. New issues routinely double or
> triple in value on their first day of trading. Entrepreneurs have
> an easy time finding backers. High-tech companies that barely exist are
> bought out for hundreds of millions. Best of all, everyone else now
> acknowledges what the people here have been saying for some time: The
> Internet will indeed reshape everything about our lives.
>
> To the extent anyone is in control of that process, most live and work
> in this 70-mile-long, 10-mile-wide strip of land just south of San
> Francisco. But if the present is glorious and the long-term horizon
> truly wondrous for the inhabitants of Silicon Valley, the immediate
> future is causing some unease.
>
> They're waiting for the bubble to burst and doom to arrive, at least
> temporarily. Some have been waiting a long time. "In such good times,
> never has there been such anxiety about the impending crash," said Bill
> Reichert, president of Garage.com, which funds start-up companies.
>
> Reichert made that remark to a group of entrepreneurs at the Churchill
> Club, which hosts regular panel discussions on Internet issues, four
> months ago. Since then, the Nasdaq index, fueled almost entirely by tech
> stocks, has risen more than 40 percent. It rose briefly above 4000 for
> the first time on Thursday, a mere seven weeks after it first scaled
> 3000. Some Internet stocks, such as CMGI and DoubleClick, are up about
> 900 percent this year.
>
> "People are desperately afraid of all the speculation. On the other
> hand, they're desperately afraid to be out of the game," said Len Baker,
> managing director of Sutter Hill Ventures. As a result, "the smarter
> ones are nervous and confused."
>
> "Do I sleep well at night" asked Roger McNamee, another top venture
> capitalist. "Not as well as I'd like to."
>
> Tech stocks have been so outstanding for so long that investors
> everywhere are constantly wondering whether to pull out -- or plunge
> in further. But the discussions here, where tech is created, have a
> special resonance.
>
> Many Internet deals are born at Buck's restaurant, where the venture
> capitalists meet with would-be entrepreneurs and decide whether to
> invest in fledging firms. For eight years, Buck's has displayed and sold
> a book next to the cash register. The current selection, "The Internet
> Bubble," has been its all-time bestseller.
>
> It's a curious book, an attack on the system that was written by two
> brothers who have profited from it: Authors Tony and Michael Perkins are
> the publishers of Red Herring, one of the many Internet financial
> magazines that have grown fat with dot-com ads.
>
> "Their magazine is all about the glories of the Internet, but they did
> this book about the overvalued world of high-tech stocks and the coming
> shakeout," observed Buck's proprietor Jamis MacNiven. "It's a real
> head-scratcher."
>
> But the Perkinses, who have talked about taking Red Herring and its
> accompanying Web site public next year, exhibit only the most obvious
> contradiction. In their book, they quote some of the leading venture
> capitalists and investment bankers, many of whom readily admit that the
> entire world of Internet valuations is out of whack.
>
> "It's emotion, it's frenzy, it's the fad, and 90 percent of the
> companies should never have gone public and will go out of business or
> hit very hard times," venture capitalist Jim Breyer tells the authors.
>
> Adds Andy Bechtolsheim, co-founder of Sun Microsystems and an
> early-stage investor in Internet companies: "There is no economic basis
> for these Internet stock valuations."
>
> As for all those attempts to use newfangled means to evaluate a
> company's growth potential, such as measuring traffic to a site: "It's
> all [expletive]," confides Bruce Lupatkin, former head of research at
> the investment firm of Hambrecht & Quist.
>
> The Perkinses estimate that the 133 Internet companies that have gone
> public since 1995 are overvalued by as much as $230 billion. Since the
> most recent figures in the book are from July, that number is
> undoubtedly much higher now.
>
> Next to the stack of "Bubble" books in Buck's is a hand-lettered
> imperative: "Buy this book or go broke." The trouble is, so far it has
> been easier to go broke by staying away from the Net stocks than staying
> in.
>
> Listen to one critic, lamenting that "companies received unprecedented
> valuations for businesses that were at best unproved and in some cases
> ill-conceived. . . . Every [public offering] was a concept deal, in
> which stock was desirable not by virtue of current revenues but because
> of its dizzying future."
>
> That was Tony Perkins, writing in Red Herring in September 1996. Anyone
> acting on his advice then would subsequently have forgone a lot of
> money.
>
> "We've been talking about this bubble for three years," said Jim
> Barksdale, the former chief executive of the browser company Netscape,
> whose debut in 1995 -- its stock price doubled on its first day --
> is considered to have been the true beginning of Internet stock mania.
> "All markets climb a wall of worry. That's the nature of a bull market.
> No worry, no market."
>
> But isn't this market too good to be true?
>
> "Perhaps," said Barksdale, "but that doesn't mean it still isn't true."
>
> Others aren't so sanguine. "Everywhere you look there's signs of lunacy.
> Everywhere you look there's signs of speculation," said McNamee, a
> partner at Integral Capital Partners. "But what makes this so difficult
> is you could have been saying that six months ago, and six months before
> that. And you could be saying it six months from now."
>
> A fresh example of the sort of madness that worries some people happened
> this week with Juno Online, an Internet service provider with 500,000
> customers. On Monday, Juno announced it will offer a basic access
> service for free. The theory is, Juno will hold on to its half-million
> paying customers, while drawing to the new service some of the 2.9
> million people who already use its free e-mail. The profit will come
> from the advertising these millions of customers will be exposed to.
> It's all quite hypothetical, but Juno's stock shot up from $17 to as
> high as $87 in two days before settling down around $46.
>
> Other examples abound. In the past six weeks, the stock of Be Inc., the
> maker of an operating system that competes with Microsoft's Windows, has
> gone from $5 to as high as $40. Makers of Linux software, such as Red
> Hat, have been soaring as well ause they, like Be, compete with
> Microsoft, and the software giant is struggling in its antitrust fight
> with the government. On its first day of trading earlier this month, the
> stock of VA Linux, another maker of the software, went up 700 percent.
>
> That debut was extraordinary, the best on record, but the new-issues
> market has generally been torrid. From 1984 through 1998, according to
> one estimate, 7,000 companies went public. Only 33 of them doubled on
> the first day. Last year, more than 500 companies went public, the
> majority of them high-tech firms. More than 100 doubled.
>
> "In early 1990s, a stock was hot if it went up two points its first day.
> If it went up six points, it was on fire. Now it goes up 100 points,"
> said Dan Burke, an analyst with Gomez Advisors, a consulting firm. "This
> is incomprehensible for people with a deep history of the market. It
> defies anything they've ever seen. Younger people say, 'Let's ride.'
> What they don't know hasn't hurt them yet."
>
> Older venture capitalists, who know there are such things as bear
> markets, admit they're bewildered.
>
> "This is the most confusing time in the 26 years I've been doing this,"
> said Baker of Sutter Hill. "There's this fundamental contradiction --
> there is the biggest financial speculation going on in many decades,
> many centuries, maybe ever. But the Internet is real -- it's the
> biggest economic discontinuity since the invention of the printing
> press."
>
> The consensus view of the publicly traded Internet stocks, held by such
> experts as Tom Gardner of the popular Motley Fool online financial
> advice site and superstar analyst Mary Meeker, is that 90 percent are
> overvalued but 10 percent are undervalued.
>
> The trouble, of course, is that no one is sure which is in which group.
> America Online was left for dead a few years ago. Since then, it has
> doubled in value many times. Amazon.com is undervalued if it can make
> its dream of e-commerce domination work, but a turkey if it can't figure
> out a way to make a profit.
>
> "There are companies that look overvalued or fairly valued that will win
> so huge that we will look back at these values and say, 'Those were the
> good old days," said Paul Deninger, chairman of the technology
> investment bank Broadview International. "But the vast majority of these
> companies are grossly overvalued."
>
> What has prevented that second group of companies from deflating so far
> is the unending supply of cheap capital. It's easy to get a company
> funded here by venture capitalists, and then easy to take it public and
> raise more money. But since it's so easy, everyone's doing it -- which
> means it's just as hard as ever to build something lasting.
>
> The most successful tech companies have traditionally had core
> businesses that were hard for rivals to replicate. One reason Microsoft
> has always been highly valued is that it would be difficult to start an
> operating system company in your garage to compete with Windows.
> Microsoft had the market to itself.
>
> "Management 101 involves erecting barriers to entry by a competitor. But
> if you can go from an idea to a public offering in 12 months at a
> multibillion-dollar valuation, the barriers to entry can't be very
> high," noted Deninger.
>
> So the e-commerce companies want to erect non-technological barriers.
> They try to capture "eyeballs," to build a brand, to make a site no one
> will want to leave. But it requires lots of money to do this. The bubble
> bursts when these companies run out and can't get any more.
>
> "When these companies have negative cash flow business models, where are
> they going to go for the next $150 million" asked Deninger. "A day
> trader? No. We're already seeing a lot of debt, effectively junk bonds.
> Why? The companies can't raise equity."
>
> He sees the money supply running dry at the end of next year, when the
> market starts saying, "We're not going to fund eight pet stores, we're
> going to fund the two best ones." At that point, there will be
> bankruptcies, something that no e-commerce company has actually
> experienced yet. Long before that, starting almost immediately, weaker
> companies will be forced to merge.
>
> This is the conventional view -- that sooner or later, for all the
> promise of the Internet, the bills will have to be paid. But there's a
> counter-current here that says this time, things are truly different.
> Sure, some companies will falter, but there will be no bubble-bursting
> worthy of the name.
>
> "When the Spanish came to the New World, they found the gold that
> enabled them to build an empire," said Buck's proprietor, MacNiven.
> "Perhaps the Internet is like that. Perhaps it's like stumbling on free
> fuel."
>
> It could be true, said Baker of Sutter Hill. This time could be
> different. "But history will tell you, it's never different in the
> fundamentals. It's different in the details. If I were going to bet, I
> would bet on history."
>
> If the bubble does explode in some unseemly fashion, weep not for
> Silicon Valley. Not only do the folks here know exactly how fragile all
> this is, as "The Internet Bubble" makes clear, but many long ago made
> their bundle.
>
> "Their profits are locked in, which may be one reason they were so
> brazen in their admissions to us," said Michael Perkins. "Arguably it is
> a minority who show any conscience about this. . . . It's the public
> investor who has to worry about the daily movement of stock prices and
> whether they can get out in time. It's a sucker's game for them."
>
> McNamee of Integral Capital argues that the real issue in Silicon Valley
> isn't so much the bubble as a loss of perspective about these soaring
> stocks.
>
> "There's an increasing sense of entitlement," he said. "This is as weird
> as it gets, but a fair number of people here believe this is normal."
>
> That, of course, is one of the traditional signs of a bubble about to
> burst. Meanwhile, the market continues, as always, to go up.
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