VC, startups survey terrain after bubble bursts

"There is, as everybody knows, a huge volume of venture capital sitting there," said Ian Stewart, one of the founding investors in Wired magazine and currently managing director at N. M. Rothschild & Sons in London. Stewart addressed a crowd largely composed of entrepreneurs seeking advice on getting start-up capital.

"In the early days, 1992 or 93, I used to be excited by things that were cool," said Stewart. "Now I'm looking for real business models that can show me how they'll make money."

Much of the recent IT investment was made on the "greater fool" theory, he said: investors hoped to boost share values and get out quickly, on the theory that there was always someone else willing to pay more for a given stock. The craze led to a pattern of start-up enterprises tailoring their business plans to enticing investors, not to profitability.

After this spring's shakeout in the stock market, investors will be skeptical of electronic commerce ventures that a few months ago might have attracted large sums of capital, said Stewart. He pointed to such recent failures as online clothing retailer Boo.com, Mango Planet's health-and-beauty site Clickmango.com, and ill-fated home furnishings seller Living.com. "Creativity is not enough," he said, "You've got to know who will buy what you do."

The future belongs to those who understand the specific business they're in, not just Internet technology, said Stewart. He drew an analogy to the first five years of the motion picture industry, when cameramen controlled the trade, since they were the only ones who understood the mechanics of movie-making. But over time, he said, successful film entrepreneurs were those who knew what audiences wanted and how to market to them.

A panel of Internet entrepreneurs spoke of their own experiences seeking start-up capital. "Back when it was easy to get money in the States, it was too simple," said Jeffrey Frank, chief executive officer of ISP Microportal.com. His company raised about $US5 million from venture capitalists, he said. "As soon as the market tightened in April or May, so did the VC group. Even though we already had 500,000 active subscribers, this VC team pulled the plug." He urged would-be entrepreneurs to choose their investment partners wisely. "After the honeymoon is over, they want more than ever to know where the returns are," he said.

Getting a business plan scrutinised is good for entrepreneurs, said Olaf Hopp, marketing director of online radio broadcaster Webcast Media Group AG. "The new economy is becoming much more selective, in a positive sense," he said, as "old economy" managers are evaluating the usefulness of the Internet for their businesses. Today's investors are asking tough questions, he said. "Will [a business model] really stand up with customers, or is it just euphoria?"

The bursting bubble is having a cleansing effect not only among start-up ventures, but among venture capitalists themselves, said Stewart, forcing out those who don't know enough about the businesses they invest in. "You may find mergers happening, with fund managers with better expertise taking over other funds."

Investors were temporarily scared off after the April plunge in stock prices, but they will be back, he said. "In September or October, this money is going to come flooding back into the market. Hopefully with a better investment strategy, but I have my doubts."

Join the PC World newsletter!

Error: Please check your email address.

Our Back to Business guide highlights the best products for you to boost your productivity at home, on the road, at the office, or in the classroom.

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Rick Perera

PC World
Show Comments

Essentials

Lexar® JumpDrive® S57 USB 3.0 flash drive

Learn more >

Microsoft L5V-00027 Sculpt Ergonomic Keyboard Desktop

Learn more >

Mobile

Lexar® JumpDrive® S45 USB 3.0 flash drive 

Learn more >

Exec

HD Pan/Tilt Wi-Fi Camera with Night Vision NC450

Learn more >

Lexar® Professional 1800x microSDHC™/microSDXC™ UHS-II cards 

Learn more >

Audio-Technica ATH-ANC70 Noise Cancelling Headphones

Learn more >

Lexar® JumpDrive® C20c USB Type-C flash drive 

Learn more >

Budget

Back To Business Guide

Click for more ›

Most Popular Reviews

Latest News Articles

Resources

PCW Evaluation Team

Michael Hargreaves

Windows 10 for Business / Dell XPS 13

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Aysha Strobbe

Windows 10 / HP Spectre x360

Ultimately, I think the Windows 10 environment is excellent for me as it caters for so many different uses. The inclusion of the Xbox app is also great for when you need some downtime too!

Mark Escubio

Windows 10 / Lenovo Yoga 910

For me, the Xbox Play Anywhere is a great new feature as it allows you to play your current Xbox games with higher resolutions and better graphics without forking out extra cash for another copy. Although available titles are still scarce, but I’m sure it will grow in time.

Kathy Cassidy

STYLISTIC Q702

First impression on unpacking the Q702 test unit was the solid feel and clean, minimalist styling.

Anthony Grifoni

STYLISTIC Q572

For work use, Microsoft Word and Excel programs pre-installed on the device are adequate for preparing short documents.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?